<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 14, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ASCENT PEDIATRICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 2834 04-3047405
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
187 BALLARDVALE STREET, WILMINGTON, MASSACHUSETTS 01887 (508) 658-2500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ALAN R. FOX
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ASCENT PEDIATRICS, INC.
187 BALLARDVALE STREET
WILMINGTON, MASSACHUSETTS 01887
(508) 658-2500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
DAVID E. REDLICK, ESQ. DOUGLAS A. ZINGALE, ESQ.
HALE AND DORR LLP MINTZ, LEVIN, COHN, FERRIS,
60 STATE STREET GLOVSKY & POPEO, P.C.
BOSTON, MASSACHUSETTS 02109 ONE FINANCIAL CENTER
(617) 526-6000 BOSTON, MASSACHUSETTS 02111-2657
(617) 542-6000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date hereof.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
==========================================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------
Common Stock, $.00004 par
value per share......... 2,300,000 shares $13.00 $29,900,000 $9,060.61
==========================================================================================================
</TABLE>
(1) Includes 300,000 shares which the Underwriters have the option to purchase
from the Company to cover over-allotments, if any. See "Underwriting."
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933,
as amended.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Dated March 14, 1997
2,000,000 SHARES
LOGO
COMMON STOCK
------------------------
All of the shares of Common Stock, par value $.00004 per share (the "Common
Stock"), offered hereby are being sold by Ascent Pediatrics, Inc. ("Ascent" or
the "Company").
Prior to this offering there has been no public market for the Common Stock
of the Company. It is estimated that the initial public offering price of the
Common Stock will be between $11.00 and $13.00 per share. See "Underwriting" for
a discussion of the factors to be considered in determining the initial public
offering price. Application has been made to have the Common Stock approved for
quotation on the Nasdaq National Market under the symbol "ASCT."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==================================================================================================
Price to Proceeds to
Public Underwriting Company(2)
Discounts and
Commissions(1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.............. $ $ $
Total(3)............... $ $ $
==================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated to be $800,000.
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase an aggregate of up to 300,000
additional shares of Common Stock at the Price to Public, less Underwriting
Discounts and Commissions to cover over-allotments, if any. If all such
additional shares are purchased, the total Price to Public, Underwriting
Discounts and Commissions, and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The Common Stock is offered by the several Underwriters named herein when,
as and if received and accepted by them, and subject to their right to reject
orders in whole or in part and subject to certain other conditions. It is
expected that delivery of certificates for the shares will be made at the
offices of Cowen & Company, New York, New York, on or about , 1997.
------------------------
COWEN & COMPANY
VOLPE, WELTY & COMPANY LLC
ADAMS, HARKNESS & HILL, INC.
, 1997
<PAGE> 3
Finally, a pharmaceutical company dedicated to satisfying the "toughest
customers" in the world.
[Picture of a boy in overalls holding a baseball sitting on stairs next to
bulldog]
[LOGO]
ASCENT
PEDIATRICS, INC.
Developing Medicines Just For
Kids
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING,
MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET AND MAY
IMPOSE PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 4
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus, including "Risk Factors" herein. Except as otherwise
indicated, all information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option and reflects (i) the conversion of all
outstanding shares of the Company's Convertible Preferred Stock into an
aggregate of 4,440,564 shares of Common Stock upon the consummation of this
offering (the "Preferred Stock Conversion") and (ii) a 0.85-for-one reverse
stock split of the Common Stock of the Company to be effected immediately prior
to the effective date of the registration statement of which this Prospectus is
a part.
THE COMPANY
Ascent Pediatrics, Inc. ("Ascent" or the "Company"), is a drug development
and marketing company focused exclusively on the pediatric market. The Company's
strategy is to address unmet medical needs of children through the development
of differentiated, proprietary products based on approved compounds with well
known clinical profiles. Ascent is developing a range of pharmaceuticals
products, primarily for sale on a prescription basis, which are designed to
improve upon currently available products for the most common pediatric
illnesses through the application of its drug delivery and reformulation
technologies. By developing products based on currently approved drugs, rather
than new chemical entities, Ascent believes that it can reduce regulatory and
development risks and shorten the product development cycle. In addition, Ascent
believes that market acceptance of its products will be enhanced by the
familiarity of pediatricians with the compounds that serve as the basis of these
products. The Company plans to introduce its first three products to the market
in the second half of 1997 and has seven other principal products in
development. The Company intends to market its products in the United States
through a direct sales force focused exclusively on the pediatric market.
The United States market for prescription pharmaceutical products for
children age 16 years and younger was estimated by Scott-Levin, a healthcare
consulting firm ("Scott-Levin"), to be approximately $3.5 billion in 1996,
representing a compound annual growth rate of approximately 9% over the 1992
level. Despite the size of the pediatric pharmaceutical market, the Company
believes that this market has been underserved by the large pharmaceutical
companies and will be receptive to a company whose sole mission is developing
and marketing drugs for children. Pharmaceutical companies historically have
concentrated their drug development efforts on the adult market or have pursued
pediatric presentations only as product line extensions. In addition, there are
a number of drug administration and patient compliance issues particular to the
pediatric market which result from the unpleasant taste and texture, frequent
dosing regimens, complex or difficult delivery methods or unfavorable side
effect profiles of certain drugs. The Company believes that the special needs of
this market and the relatively low number of drugs developed specifically for
pediatric use have resulted in an opportunity to address unmet medical needs of
children.
In January 1997, the Division of Anti-Infective Drugs of the United States
Food and Drug Administration (the "FDA") notified Ascent that it recommended
approval of the Company's New Drug Application ("NDA") for Primsol trimethoprim
solution, a prescription antibiotic for the treatment of ear infections in
patients age six months to twelve years, with a label reflecting that Primsol
solution would not be a product for first line therapy for this indication.
Trimethoprim for the treatment of ear infections in children is currently
available only in combination with a sulfa compound that is associated with
allergic reactions. Primsol solution contains trimethoprim only and in clinical
trials demonstrated a more favorable side effect profile than the combination
therapy. Because of this improved side effect profile, the Company believes that
pediatricians will be more likely to prescribe an antibiotic comprised only of
trimethoprim for the treatment of ear infections in children than they
historically have been to prescribe the combination therapy. In November 1996,
the Company entered into a non-binding letter of intent with Upsher-Smith
Laboratories, Inc. ("Upsher-Smith"), to acquire the currently marketed Feverall
line of acetaminophen rectal suppository products. The Company expects to enter
into a definitive acquisition agreement related to the Feverall product line in
March 1997 and to close this acquisition in July 1997. The Company plans to
introduce Primsol solution and Feverall
3
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<PAGE> 5
- -------------------------------------------------------------------------------
suppositories to the market in the second half of 1997, along with Pediamist, an
over-the-counter nasal saline spray developed by Ascent that uses a metering
device to facilitate pediatric use.
In addition to these three products, the Company has seven other products
in various stages of development. Prednisolone sodium phosphate syrup is a
steroid for the treatment of inflammation, including inflammation resulting from
respiratory conditions, for which the Company expects to file Abbreviated New
Drug Applications ("ANDAs") with the FDA in the second half of 1997. Pediatemp
acetaminophen controlled-release beads is an analgesic and antipyretic for the
treatment of pain and fever for which the Company recently completed Phase III
clinical trials and, subject to the results of these trials being satisfactory,
plans to file an NDA in the second half of 1997. Pediavent albuterol
controlled-release suspension is a bronchodilator for the treatment of asthma
that currently is in Phase I clinical trials. Cromolyn sodium cream is a topical
cream for the treatment of moderate to severe contact dermatitis, which is the
subject of an effective Investigational New Drug ("IND") application and for
which the Company plans to initiate Phase I clinical trials in the first half of
1997. Cromolyn sodium controlled-release nasal spray is a drug for the treatment
of nasal allergies that is undergoing preclinical testing. The Company also is
developing a line of over-the-counter cough/cold products and an
over-the-counter acetaminophen controlled-release solution.
Ascent believes that an important part of fulfilling its mission of
becoming a leader in the development and marketing of pediatric pharmaceuticals
is the establishment of a corporate identity. Accordingly, even before the
launch of its first products, Ascent has initiated a program to familiarize
pediatricians with the Ascent name. Ascent is establishing a domestic sales
organization to promote the Company's products to high prescribing
pediatricians, influential pediatricians and pediatric nurses. Ascent plans to
supplement these activities with telemarketing, direct mail and advertisements
in speciality pediatric journals. Ascent also intends to promote its products
directly to managed care providers in order to obtain inclusion on these
providers' formularies and has retained a consulting firm to assist it in this
process.
Ascent seeks competitive protection for its products in a variety of ways,
including the creation of proprietary formulations using technologies, such as
taste masking and controlled-release systems, that are covered by patents or
patent applications owned by or licensed to the Company or its suppliers.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered hereby................................. 2,000,000 shares
Common Stock to be outstanding after the offering........... 6,638,719 shares(1)
Use of proceeds............................................. To fund a portion of the
purchase price of the Feverall
product line and for product
development and sales and
marketing costs and general
corporate purposes.
Proposed Nasdaq National Market symbol...................... ASCT
</TABLE>
- ---------------
(1) Reflects the Preferred Stock Conversion. Excludes (i) 1,675,248 shares
reserved for issuance upon the exercise of options and warrants outstanding
as of February 28, 1997 at a weighted average exercise price of $6.28 per
share, (ii) up to an aggregate of 583,332 shares of Common Stock (assuming
an initial public offering price of $12.00 per share) issuable upon the
conversion of the Company's Convertible Subordinated Secured Notes (the
"Triumph Notes") in the aggregate original principal amount of $7,000,000
issued or issuable no later than the closing of this offering and (iii)
561,073 shares of Common Stock at an exercise price of $0.01 per share and
218,195 shares of Common Stock at an exercise price of $5.29 per share
reserved for issuance upon the exercise of warrants issued or issuable in
connection with the Triumph Notes (the "Triumph Warrants"). See "Dilution,"
"Capitalization," "Certain Transactions" and "Description of Capital Stock."
4
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<PAGE> 6
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SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMBINED PRO FORMA
YEAR ENDED DECEMBER 31, YEAR ENDED
----------------------------------------------- DECEMBER 31,
1992 1993 1994 1995 1996 1996(1)
------- ------- ------- ------- ------- ------------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................... $ -- $ -- $ -- $ 304 $ -- $ 3,877
Costs and expenses:
Cost of sales................... -- -- -- -- -- 1,434
Research and development........ 558 1,221 2,551 2,986 3,761 3,761
Selling, general and
administrative............... 706 723 1,141 1,532 2,805 5,110
-------- -------- ------- ------- ------- --------
Loss from operations.............. (1,264) (1,944) (3,692) (4,214) (6,566) (6,428)
Interest income................... 47 123 147 113 79 79
-------- -------- -------- ------- ------- --------
Net loss.......................... $(1,217) $(1,821) $(3,545) $(4,101) $(6,487) $ (6,349)
======= ======= ======= ======= ======= ========
Pro forma and combined pro forma
net loss per share(2)........... $ (1.48) $ (1.45)
======= ========
Pro forma weighted average common
and common equivalent
shares(2)....................... 4,384,208 4,384,208
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------------
COMBINED PRO FORMA
ACTUAL COMBINED PRO FORMA(1) AS ADJUSTED(1)(3)
-------- --------------------- ------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities.................................. $ 2,086 $ 4,941 $ 31,301
Working capital............................... 525 1,989 28,349
Total assets.................................. 2,628 16,976 43,496
Long-term debt, net of current portion........ -- 1,163 4,742
Redeemable preferred stock.................... 17,832 -- --
Deficit accumulated during the development
stage....................................... (19,633) (19,633) (19,633)
Total stockholders' equity (deficit).......... (16,778) 8,739 31,680
</TABLE>
- ---------------
(1) Presented on a combined pro forma basis to give effect to (i) the probable
acquisition of the Feverall product line from Upsher-Smith for $11,500,000
plus the cost of certain related inventory (assumed for this purpose to be
$122,235) as if such acquisition had occurred on January 1, 1996 with
respect to Statement of Operations Data and on December 31, 1996 with
respect to Balance Sheet Data, (ii) the issuance of 1,104,229 shares of
Series F Convertible Preferred Stock in February 1997 and the receipt of
$6,847,988 in net proceeds therefrom, (iii) the issuance of $2,000,000 of
Triumph Notes in January 1997 recorded as a liability (after allocating
value to associated warrants) of $1,163,006 with $836,994 to be accreted as
interest expense over the term of the Triumph Notes and (iv) the Preferred
Stock Conversion. See "Capitalization," "Certain Transactions" and
"Unaudited Combined Pro Forma Financial Statements."
(2) See Note B to Notes to Financial Statements for information concerning the
computation of pro forma net loss per share and shares used in computing pro
forma net loss per share.
(3) Reflects (i) the sale of the 2,000,000 shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of $12.00 per
share and the application of net proceeds therefrom, after deducting the
underwriting discounts and commissions and estimated offering expenses
payable by the Company, and (ii) the issuance of $5,000,000 of Triumph Notes
no later than the closing of this offering recorded as a liability (after
allocating value to associated warrants) of $3,579,357 with $1,420,643 to be
accreted as interest expense over the term of the Triumph Notes. See
"Capitalization," "Use of Proceeds" and "Certain Transactions."
5
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<PAGE> 7
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. The following factors, in addition to the other information
contained in this Prospectus, should be carefully considered in evaluating the
Company and its business before purchasing the shares of Common Stock offered
hereby. This Prospectus contains forward-looking statements. For this purpose,
any statements contained herein that are not statements of historical fact may
be deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes," "anticipates," "plans," "expects," "intends" and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the Company's actual results to
differ materially from those indicated by such forward-looking statements. These
factors include, without limitation, those set forth below and elsewhere in this
Prospectus.
EARLY STAGE OF DEVELOPMENT; HISTORY OF OPERATING LOSSES AND CUMULATIVE DEFICIT
Ascent is a development stage company. The Company has incurred net
operating losses since its inception. At December 31, 1996, the Company's
cumulative deficit was approximately $19,600,000. Such losses have resulted
primarily from costs incurred in the Company's product development programs and
from general and administrative costs associated with the Company's product
development. No revenues have been generated by the Company from product sales.
The Company expects to incur additional operating losses over at least the next
two years, as it continues its product development programs and establishes a
sales and marketing organization, and expects cumulative losses to increase. The
Company expects that losses will fluctuate from quarter to quarter and that such
fluctuations may be substantial. The Company's ability to achieve profitability
is dependent in part upon obtaining regulatory approval for new products,
commercial acceptance of products that are introduced to the market after
required approvals have been obtained and the successful development and
commercialization of its products. There can be no assurance that the Company
will obtain required regulatory approvals, successfully develop, commercialize,
manufacture and market its products or ever achieve sales or profitability. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
UNCERTAINTY RELATED TO APPROVAL OF PRIMSOL TRIMETHOPRIM SOLUTION
In January 1997, the Division of Anti-Infective Drugs of the FDA notified
Ascent that it recommended approval of the Company's NDA for Primsol
trimethoprim solution for the treatment of acute otitis media ("AOM"), or middle
ear infection, for children age six months to twelve years, with a label
reflecting that Primsol solution would not be a product for first line therapy
for this indication. However, the FDA has not yet granted such marketing
approval, and there can be no assurance that such approval in fact will be
granted or as to the timing thereof. In October 1996, Ascent filed a second NDA
with the FDA covering a more concentrated formulation of Primsol solution.
Ascent plans to introduce this improved formulation as the Primsol solution
product that it brings to market. If the Company does not receive approval of
its NDA for this more concentrated formulation on a timely basis, the Company
would introduce the first formulation as the Primsol solution product that it
brings to market (provided it receives marketing approval for such formulation).
If the FDA were not to grant marketing approval of either formulation of Primsol
solution for this indication, or if there were significant delays in such
approval, the business, financial condition and operating results of the Company
would be adversely affected, possibly materially. In addition, in the event that
Primsol solution does not receive marketing approval for this indication prior
to the cold and flu season in the second half of 1997, the Company's
establishment of a dedicated marketing staff and sales force and the
introduction of any other products by the Company would be delayed, possibly
materially, which could have a material adverse effect on the Company's
business, financial condition and operating results. Ascent currently does not
plan to introduce any products to the market until it receives Primsol solution
marketing approval for this indication. See "Business -- Products and Products
Under Development -- Primsol Trimethoprim Solution."
PRODUCTS IN DEVELOPMENT; TECHNOLOGICAL UNCERTAINTY
Ascent has not yet introduced any product into the market. Although the
Company has completed development of certain of its products, many of the
Company's product candidates are in development and
6
<PAGE> 8
require additional formulation, preclinical studies, clinical trials and
regulatory approval prior to any commercial sales. With respect to certain
product candidates, the Company must successfully address a number of
technological challenges to complete its development efforts. In addition, there
can be no assurance that the Company will be permitted to undertake and complete
human clinical trials of certain of the Company's potential products, either in
the United States or elsewhere, or, if permitted, that such products will be
demonstrated to be safe and efficacious. The administration of any product the
Company develops may produce undesirable side effects that could result in the
interruption, delay or suspension of clinical trials. In addition, there can be
no assurance that any of the Company's product candidates will obtain the
approval of the FDA or other regulatory approvals or that any approved product
will be capable of being produced in commercial quantities at reasonable cost
and successfully marketed.
LIMITED SALES AND MARKETING EXPERIENCE
The Company expects to market and sell its products in the United States
through its own dedicated marketing staff and sales force. The Company has
limited experience in marketing and sales and has only recently begun to recruit
a marketing staff and sales force. The Company believes that its success will
depend in significant part upon its ability to recruit, train and retain a
dedicated marketing staff and sales force capable of promoting its products.
Significant additional expenditures, management resources and time will be
required for the Company to assemble a marketing staff and sales force. There
can be no assurance that the Company will be able to attract and build a
satisfactory marketing staff and sales force, that the Company will be able to
assemble a marketing staff and sales force on a timely basis, that the cost of
establishing a marketing staff and sales force will be justifiable in light of
product revenues or that the Company's direct marketing and sales efforts will
be successful. Should the Company fail to recruit and train a marketing staff
and sales force on a timely basis, or otherwise fail in its marketing and sales
efforts, its business, financial condition and operating results would be
materially adversely affected. See "Business -- Sales and Marketing."
UNCERTAINTY OF MARKET ACCEPTANCE OF PRODUCTS
Although many of the Company's product candidates are reformulations of
compounds marketed by other manufacturers, there can be no assurance that these
products or other current or future products of the Company will achieve market
acceptance. The commercial success of the Company's products and products under
development, when and if any required approval for marketing by the FDA or any
other regulatory agency is obtained, will depend, in significant part, on such
products' efficacy, side effect profile, taste, dosing frequency, method of
administration, patent and other proprietary position, brand name recognition
and price. Another important factor will be the timing of market introduction of
the Company's or competitive products. Earlier entrants in the market often
obtain and maintain significant market share relative to later entrants.
The commercial success of the Company's products also will depend in
significant part upon their acceptance by pediatricians, pediatric nurses and
third party payors (particularly managed care providers). Acceptance of the
Company's products by pediatricians, pediatric nurses and third party payors
will in turn be dependent upon the success of the Company's marketing and sales
activities. There can be no assurance that pediatricians, pediatric nurses and
third party payors will accept the Company's products on a timely basis or at
all. In addition, in order to stimulate demand for its products, the Company may
be required to, among other things, offer substantial price discounts. Failure
to achieve market acceptance would have a material adverse effect on the
Company's business, financial condition and operating results.
COMPETITION
Competition in the pediatric pharmaceutical market is intense. Several
large pharmaceutical companies with significant research, development, marketing
and manufacturing operations market pediatric products in addition to products
for the adult market. These competitors include Glaxo Wellcome Inc., Eli Lilly
and Company, the Mead Johnson Division of Bristol-Myers Squibb, Inc., the
Ortho-McNeil Pharmaceutical Division of Johnson & Johnson Inc., Pfizer Inc., the
Ross Products Division of Abbott Laboratories Inc., Schering-Plough Corporation
and the Wyeth-Lederle Vaccines and Pediatrics Division of American Home
Products, Inc.
7
<PAGE> 9
Many of the companies against which Ascent will compete have substantially
greater name recognition and greater financial, technical and human resources
than Ascent. In addition, many of these competitors have significantly greater
experience than the Company in undertaking preclinical testing and human
clinical trials of pharmaceutical products and obtaining FDA and other
regulatory approvals of products for use in health care. Accordingly, the
Company's competitors may succeed in obtaining FDA or other regulatory approvals
for products more rapidly than the Company. Furthermore, subject to obtaining
required regulatory clearances, Ascent will compete against these larger
companies with respect to manufacturing efficiency and marketing capabilities,
areas in which Ascent has limited or no experience. These competitors may
introduce competitive pricing pressures that may adversely affect Ascent's sales
levels and margins. Moreover, many of these competitors offer well established,
broad product lines and services not offered by the Company. Many of the
products and services offered by these competitors have well known brand names
that have been promoted over many years.
The Company expects to market many of its product candidates as alternative
treatments for pediatric indications for which products with the same active
ingredient are well entrenched in the market. For example, the Company intends
to market Primsol, a trimethoprim antibiotic, for the treatment of AOM, an
indication for which pediatricians often prescribe the well-known combination
therapies Bactrim and Septra, which also contain trimethoprim. Similarly,
Pediatemp acetaminophen controlled-release beads will compete against Tylenol
liquid for children. The Company's product candidates also will face competition
from other products that do not contain the same active ingredient but are used
for the same indication and are well entrenched within the pediatric market. For
example, Primsol solution will compete against other antibiotics, including
amoxicillin. Moreover, many of the Company's potential products that are
reformulations of existing drugs of other manufacturers may have limited patent
or other competitive protection. There can be no assurance that pediatricians,
pediatric nurses and third party payors will prefer the Company's products to
existing products. See "Business -- Competition."
The Company plans to apply for three year protection for certain products
under the Waxman-Hatch Act from the approval of a potential competitor's ANDA
which is based on the Company's clinical trial results. There can be no
assurance that any of the Company's products will qualify for protection under
the Waxman-Hatch Act or, if any product does so qualify, that the statutory
protection will enhance the competitive position of such product. See
"Business -- Government Regulation."
UNCERTAINTY OF IDENTIFICATION OR ACQUISITION OF NEW PRODUCT CANDIDATES AND NEW
TECHNOLOGIES
The success of the Company depends in part upon its ability to identify and
develop or obtain rights to pharmaceuticals suitable for pediatric use. There
can be no assurance that the Company will be successful in identifying and
developing pharmaceuticals suitable for pediatric use or in acquiring such
rights. The Company's success also depends upon its ability to apply its drug
delivery and reformulation technologies to produce proprietary products. There
can be no assurance that the Company will be able to develop additional
technologies or obtain rights from third parties to additional technologies on
reasonable terms, or at all.
UNPROVEN SAFETY AND EFFICACY OF PRODUCTS; UNCERTAINTIES RELATED TO CLINICAL
TRIALS
In order to obtain regulatory approval for the commercial sale of many of
its products, the Company is conducting or plans to conduct clinical trials to
demonstrate that such products are safe and effective. There can be no assurance
that any of these clinical trials will be successfully completed within any
specified time period, if at all. The results from early clinical trials may not
be predictive of results that will be obtained in large-scale clinical trials,
and there can be no assurance that the Company's clinical trials will
demonstrate the safety and effectiveness of any products or will result in
marketable products.
The rate of completion of the Company's clinical trials is dependent upon,
among other things, the rate of patient enrollment. Patient enrollment is a
function of many factors, including the size of the patient population, the
nature of the protocol, the proximity of patients to clinical sites and the
eligibility criteria for the study. Historically, recruiting children to
participate in clinical trials has been difficult, as parents are reluctant to
permit their children to take experimental medications. Delays in planned
patient enrollment may result in increased costs, program delays, or both, which
could have a material adverse effect on the Company.
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The Company has contracted with clinical research organizations for the
conduct of all of its clinical trials and expects to continue to do so for the
foreseeable future. There can be no assurance that such entities will conduct
the clinical trials successfully. The Company relies on scientific, technical
and clinical data supplied by its academic and industry collaborators and
licensors in the design, development and evaluation of product candidates. There
can be no assurance that there are no errors or omissions in such data that
would materially adversely affect the development of these products.
NO ASSURANCE OF REGULATORY APPROVAL; EXTENSIVE GOVERNMENT REGULATION
The production and the marketing of the Company's products and the
Company's ongoing product development activities are and will be subject to
extensive regulation by numerous federal, state and local governmental
authorities in the United States and abroad. The Company has had only limited
experience in filing or pursuing applications necessary to gain regulatory
approvals. Preclinical testing of the Company's product candidates is subject to
Good Laboratory Practice ("GLP") requirements and the manufacture of products is
subject to Good Manufacturing Practice ("GMP") requirements prescribed by the
FDA.
Many of the products that the Company is developing will be subject to the
NDA regulatory process. This process generally includes preclinical studies,
clinical trials and ongoing post-approval testing of each compound to establish
or monitor its safety and effectiveness for the intended indications, typically
takes many years and requires the expenditure of substantial resources. The
Company has limited experience in filing or pursuing applications necessary to
gain regulatory approval. There can be no assurance that, even after the
performance of clinical studies and the expenditure of resources, regulatory
approval will be obtained for any products developed by the Company on a timely
basis, if at all. The Company's analysis of data obtained from preclinical and
clinical activities is subject to confirmation and interpretation by regulatory
authorities which could delay, limit or prevent FDA regulatory approval. The
Company or the FDA may suspend clinical trials at any time if the participants
in such trials are being exposed to unanticipated or unacceptable health risks.
Moreover, if regulatory approval to market a product is granted, such approval
may entail limitations on the indicated uses for which it may be marketed. See
"Business -- Government Regulation."
Failure to comply with applicable regulatory requirements can, among other
things, result in fines, suspension or withdrawal of regulatory approvals,
product recalls, seizure of products, operating restrictions and criminal
prosecutions. FDA policy may change and additional government regulations may be
established that could prevent or delay regulatory approval of the Company's
product candidates. In addition, a marketed product, its manufacturer and its
manufacturing facilities are subject to continual review and periodic
inspections, and subsequent discovery of previously unknown problems with a
product, manufacturer or facility may result in restrictions on such product or
manufacturer, including withdrawal of the product from the market. There can be
no assurance that additional statutes or regulations applicable to the Company's
business will not be adopted, impose substantial additional costs upon or
otherwise adversely affect the Company's operations.
The Company is also subject to numerous and varying foreign regulatory
requirements governing the design and conduct of clinical trials and the
manufacturing and marketing of its products. The approval procedure varies among
countries and can involve additional testing, and the time required to obtain
approval may differ from that required to obtain FDA approval. The foreign
regulatory approval process may include all of the risks associated with
obtaining FDA approval set forth above. There can be no assurance that foreign
regulatory approvals will be obtained on a timely basis, if at all.
DEPENDENCE ON THIRD PARTY MANUFACTURING; RISKS RELATED TO SOLE SOURCE OF SUPPLY
The Company has no manufacturing facilities and has to date relied, and
plans in the future to rely, upon third parties to manufacture the Company's
products in accordance with GMP for preclinical testing, clinical trial and
commercial purposes. In addition, the Company has not arranged for the
production of certain of its product candidates in commercial quantities, and it
is possible that the Company will encounter difficulties in scaling up the
production of these product candidates. Although there are a number of
manufacturers that operate under GMP regulations capable of manufacturing
certain of the Company's products, in the event that
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the Company is unable to obtain contract manufacturing, or obtain such
manufacturing on commercially reasonable terms, it may not be able to develop
and commercialize its products as planned. Where third-party arrangements are
established, the Company will depend upon such third parties to perform their
obligations in a timely manner. There can be no assurance that third parties
depended upon by the Company will perform and any failures by third parties may
delay clinical trial development or the submission of products for regulatory
approval, impair the Company's ability to commercialize its products as planned
and deliver products on a timely basis, or otherwise impair the Company's
competitive position, which could have a material adverse effect on the
Company's business, financial condition and operating results.
Certain of the Company's supply arrangements require that Ascent buy all of
the Company's requirements of a particular product exclusively from the other
party to the contract. Moreover, for many of its products, Ascent has qualified
only one supplier, even though the contractual arrangement with the supplier may
permit Ascent to qualify an alternative manufacturer. Any interruption in supply
from any of the Company's manufacturers or the inability of these manufacturers
to manufacture the Company's products in accordance with GMP could have a
material adverse effect on the Company's business, financial condition and
operating results. See "Business -- Manufacturing and Distribution."
In the future, the Company may establish its own manufacturing facilities
if it becomes economically attractive to do so. In order for the Company to
establish a manufacturing facility, the Company would require substantial
additional funds and be required to hire and retain significant additional
personnel and comply with the extensive GMP regulations of the FDA.
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
The Company's success depends in part on its ability to develop patentable
products and obtain patent or other proprietary rights protection for its
products, both in the United States and in other countries. The Company intends
to file applications as appropriate for patents and other protection covering
both its products and processes. However, the patent positions of pharmaceutical
firms, including Ascent, are generally uncertain and involve complex legal and
factual questions. Moreover, because the Company's product candidates are
reformulations of existing off-patent drugs, any patent protection afforded will
be significantly narrower than a patent on the active ingredient itself. In
particular, the Company does not expect that composition-of-matter patent
protection will be available for the active ingredients in its products. No
assurance can be given that patents will issue from any patent applications
owned by or licensed to the Company or that, if patents do issue, the claims
allowed will be sufficiently broad to protect the Company's products or
technology. In addition, no assurance can be given that any issued patents owned
by or licensed to the Company will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide competitive
advantages to the Company.
The commercial success of the Company will also depend in part on its
neither infringing patents or other proprietary rights granted to competitors or
others nor breaching the technology licenses upon which the Company's products
are based. The Company's licenses of third party patents and patent applications
impose various commercialization, sublicensing, royalty and other payment,
insurance and other obligations on the Company. Failure of the Company to comply
with these requirements could result in termination of the licenses. Competitors
of the Company and other third parties hold issued patents and pending patent
applications which may result in claims of infringement against the Company or
other patent-related litigation. There can be no assurance that the Company will
be able to successfully obtain a license to any technology that it may require
or that, if obtainable, such technology can be licensed at a reasonable cost or
on an exclusive basis. Failure by the Company to obtain a license to any
technology that it may require to commercialize its products could have a
material adverse effect on the Company. See "Business -- Patents, Trade Secrets
and Licenses."
The pharmaceutical industry has been characterized by extensive litigation
regarding patents and other intellectual property rights. Litigation, which
could result in substantial cost to the Company, may be necessary to enforce any
patents issued or licensed to the Company and/or to determine the scope and
validity of others' proprietary rights. The Company also may have to participate
in interference proceedings declared
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by the United States Patent and Trademark Office to determine the priority of
inventions, which could result in substantial cost to the Company. Furthermore,
the Company may have to participate at substantial cost in International Trade
Commission proceedings to abate importation of products which would compete
unfairly with products of the Company.
The Company relies on trade secret and proprietary know-how which it seeks
to protect, in part, by confidentiality agreements with its collaborators,
employees, advisors and consultants. There can be no assurance that these
agreements will not be breached, that the Company would have adequate remedies
for any breach or that the Company's trade secrets will not otherwise become
known or be independently developed by competitors. Failure to obtain or
maintain patent and trade secret protection, for any reason, could have a
material adverse effect on the Company's business, financial condition and
operating results.
UNCERTAINTY OF PHARMACEUTICAL PRICING AND ADEQUATE REIMBURSEMENT; NEED FOR
INCLUSION ON FORMULARIES
The Company's ability to commercialize its products successfully will
depend in part on the extent to which appropriate reimbursement levels for the
cost of such products are obtained from government authorities, private health
insurers and other organizations, such as health maintenance organizations
("HMOs"). Third-party payors are increasingly challenging the prices charged for
medical products and services. Also, the trend towards managed health care in
the United States and the concurrent growth of organizations such as HMOs, which
control or significantly influence the purchase of health care services and
products, as well as legislative proposals to reduce government insurance
programs, may all result in lower prices for the Company's products. The cost
containment measures that health care providers are instituting could affect the
Company's ability to sell its products and may have a material adverse effect on
the Company.
Thus, there can be no assurance that reimbursement in the United States or
foreign countries will be available for any of the Company's products, or if
available, will not be decreased in the future, or that reimbursement amounts
will not reduce the demand for, or the price of, the Company's products. The
unavailability or inadequacy of third-party reimbursement for the Company's
products would have a material adverse effect on the Company's business,
financial condition and operating results.
Managed care providers generally maintain formularies, or lists of
products, that such providers have approved for use and reimbursement. The
Company plans to seek to have its products included on such formularies. There
can be no assurance that the Company's products will be included on the
formularies of managed care providers on a timely basis, or at all. The
Company's success in obtaining inclusion of its products on managed care
formularies will materially affect the Company's business, financial condition
and operating results.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company's future capital requirements will depend on many factors,
including continued progress in its product development programs, the magnitude
of these programs, the results of preclinical studies and clinical trials, the
time and costs involved in obtaining regulatory approvals, the costs involved in
filing, prosecuting, enforcing and defending patent claims, competing
technological and market developments, the ability of the Company to establish
and maintain a sales and marketing capability and product development,
manufacturing and marketing relationships, and the costs and success of
commercialization activities and arrangements. The Company's business strategy
requires a significant commitment of funds to conduct clinical testing of
potential products, to pursue regulatory approval of such products and to
establish sales and marketing capabilities and manufacturing relationships
necessary to bring such products to market.
Based on its current operating plan, the Company anticipates that its
existing capital resources, together with the proceeds of this offering and
interest earned thereon, the net proceeds from the issuance of an additional
$5,000,000 of Triumph Notes and internally generated funds, will be adequate to
satisfy its capital requirements for at least the next 24 months. The Company
anticipates that it may be required to raise substantial additional funds from a
number of potential sources, including through collaborative relationships and
public or private financings. No assurance can be given that additional
financing will be available, or, if available, that it will be available on
acceptable terms. If additional funds are raised by issuing equity
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securities, further dilution to then existing stockholders will result.
Additionally, the terms of the financing may adversely affect the holdings or
the rights of the then existing stockholders. If adequate funds are not
available, the Company may be required to significantly curtail one or more of
its product development programs or product commercialization efforts, or obtain
funds through arrangements with collaborative partners or others that may
require the Company to relinquish rights to certain of its technologies, product
candidates or products which the Company would otherwise pursue on its own. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
POTENTIAL PRODUCT LIABILITY EXPOSURE AND INSURANCE
The use of the Company's products in human clinical trials and the
commercial sale of such products may expose the Company to potential product
liability risks which are inherent in the testing, manufacturing, marketing and
sale of human therapeutic pharmaceuticals. Product liability claims might be
made directly by consumers, health care providers or by licensees, distributors
or others selling such products. There can be no assurance that product
liability claims, if made, would not result in a recall of the Company's
products or a change in the indications for which they may be used. Ascent has
limited product liability insurance coverage, and such coverage is subject to
various deductibles. Such coverage is expensive, and no assurance can be given
that the Company will be able to maintain or obtain such insurance at reasonable
cost or in sufficient amounts to protect the Company against losses due to
liability claims that could have a material adverse effect on the Company.
ATTRACTION AND RETENTION OF KEY EMPLOYEES
The Company is highly dependent on the principal members of its management
and scientific staff, particularly Dr. Clemente, the Company's Chairman, the
loss of whose services could have a material adverse effect on the Company.
Also, recruiting and retaining qualified scientific personnel to perform product
development work in the future will be critical to the Company's success. There
can be no assurance that the Company will be able to attract and retain such
highly skilled personnel on acceptable terms given the competition among
numerous pharmaceutical and health care companies, universities and non-profit
research institutions for experienced scientists. The Company does not carry
key-man insurance with respect to any of its executive officers other than Dr.
Clemente.
The Company's anticipated growth and expansion into areas and activities
requiring additional expertise, such as marketing and sales, are expected to
require the addition of new management personnel and the development of
additional expertise by existing management personnel. The failure to acquire
such services or to develop such expertise could have a material adverse effect
on the Company's business, financial condition and operating results.
RISKS RELATED TO POSSIBLE ACQUISITIONS
The Company may expand its operations or product offerings through the
acquisition of businesses, products or technologies. There can be no assurance
that the Company will be able to identify, acquire or profitably manage
additional businesses or successfully integrate any acquired businesses,
products or technologies into the Company without substantial expense, delays or
other operational or financial problems. Further, acquisitions may involve a
number of special risks, including diversion of management's attention, failure
to retain key acquired personnel, unanticipated events or circumstances and
legal liabilities, some or all of which could have a material adverse effect on
the Company's business, financial condition and operating results. In addition,
there can be no assurance that acquired businesses, products or technologies, if
any, will achieve anticipated revenues and earnings.
The Company is a party to a non-binding letter of intent with Upsher-Smith
relating to the purchase of Upsher-Smith's Feverall line of acetaminophen rectal
suppositories. There can be no assurance that the Company and Upsher-Smith will
reach agreement on a definitive acquisition contract and related arrangements.
Moreover, any definitive contract will contain a number of conditions to
closing. There can be no
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assurance that these conditions will be satisfied and that Ascent will acquire
this product line or will do so on the terms specified in the existing
contracts. In the event that this acquisition does not close, management will
have broad discretion as to the use of the proceeds of this offering that
currently are expected to be used to finance a portion of the purchase price of
this acquisition. As of the date of this Prospectus, the Company has no other
agreements, understandings or commitments to effect any acquisition.
DEPENDENCE ON COLLABORATORS
In addition to the manufacturing of product candidates and products, the
Company is dependent upon third parties with respect to significant other
aspects of its operations, including product design and formulation work,
conduct of clinical trials, marketing to managed care organizations and product
distribution. There can be no assurance that the Company will be able to enter
into future collaborative arrangements with respect to these matters or as to
whether any of the Company's existing or future relationships will be
successful. The success of any such arrangement is dependent on, among other
things, the skills, experience and efforts of the third party, the third party's
commitment to the arrangement and the financial condition of the third party,
all of which are beyond the control of the Company.
RELIANCE ON THIRD PARTIES FOR CERTAIN SALES AND MARKETING AND DISTRIBUTION
ACTIVITIES
The Company plans to sell its pediatric products in international markets
through distribution, licensing and similar arrangements and to sell its
products for adult indications in the United States and in international markets
through similar arrangements. To date, the Company has not entered into any
material arrangements of this nature. To the extent the Company enters into such
arrangements with third parties, any revenues the Company receives will depend
upon the efforts of such parties. There can be no assurance that any third party
will market the Company's products successfully or that any arrangements with
third parties will be on terms favorable to the Company. If a third party does
not market the Company's products successfully, the Company's business,
financial condition and operating results would be adversely affected, possibly
materially. If Ascent's plan to rely on third parties for certain aspects of
marketing and selling the Company's products is unsuccessful for any reason,
Ascent may need to forgo international and adult market opportunities or recruit
and train a larger marketing staff and sales force and establish a larger
distribution capability than it currently anticipates doing, which would entail
the incurrence of significant additional costs.
Ascent initially plans to distribute its products through a third party
distribution warehouse. The Company has no experience with the distribution of
products and will rely on the third party distributor to perform various
functions on behalf of the Company, including order entry, customer service and
collection of accounts receivable. The success of this arrangement will be
dependent on, among other things, the skills, experience and efforts of the
third party distributor, all of which are beyond the control of the Company.
UNCERTAINTY OF HEALTH CARE REFORM MEASURES
Federal, state and local officials and legislators (and certain foreign
government officials and legislators) periodically propose or consider proposing
a variety of reforms to the health care systems in the United States and abroad.
The Company cannot predict what health care reform legislation, if any, will be
enacted in the United States or elsewhere or when such legislation will be
enacted. Significant changes in the health care system in the United States or
elsewhere are likely to have a substantial impact over time on the manner in
which the Company conducts its business and could have a material adverse effect
on the Company. The existence of pending health care reform proposals could have
a material adverse effect on the Company's ability to raise capital. Further, to
the extent that proposals have a material adverse effect on other pharmaceutical
companies that are prospective collaborators with the Company, the Company's
ability to establish collaborative commercial relationships may be adversely
affected.
NO PUBLIC MARKET; POSSIBLE VOLATILITY OF SHARE PRICE; DILUTION
Prior to this offering, there has been no public market for the Common
Stock of the Company, and there can be no assurance that an active trading
market will develop or be sustained after this offering. The initial
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public offering price will be determined by negotiations among the Company and
the representatives of the Underwriters based upon several factors and may not
be indicative of future market prices. See "Underwriting" for a discussion of
the factors to be considered in determining the initial public offering price.
The market price of the Company's Common Stock could be subject to wide
fluctuations in response to quarterly variations in the Company's operating
results, announcements of technological innovations, progress in the development
of the Company's product candidates or new products by the Company, its
collaborative partners or its competitors, governmental regulation, developments
in patent or other proprietary rights and public concern regarding the safety,
effectiveness or other implications of the products being developed by the
Company. In addition, the stock market has experienced extreme price and volume
fluctuations. This volatility has significantly affected the market prices of
securities of many pharmaceutical companies for reasons frequently unrelated to
or disproportionate to the operating performance of the specific companies.
These broad market fluctuations may adversely affect the market price of the
Company's Common Stock.
Purchasers of shares of Common Stock in this offering will experience an
immediate and substantial dilution of $8.98 per share in the net tangible book
value of the Common Stock from the initial public offering price (based on an
assumed initial public offering price of $12.00 per share). Additional dilution
is likely to occur upon exercise of outstanding warrants and stock options. See
"Dilution."
CONTROL BY DIRECTORS AND OFFICERS
Upon completion of this offering, the Company's directors and executive
officers and their affiliates will beneficially own approximately 55.1% of the
Company's outstanding Common Stock (approximately 53.0% if the Underwriters
exercise their over-allotment option in full). See "Principal Stockholders." As
a result, these stockholders, if acting together, will have the ability to
control the outcome of most corporate actions requiring stockholder approval,
including actions concerning the election of directors and the approval of
certain mergers and other significant corporate transactions, including a sale
of substantially all of the Company's assets, irrespective of how other
stockholders of the Company may vote. This concentration of ownership may have
the effect of delaying or preventing a change in control of the Company.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
A substantial number of outstanding shares of Common Stock and shares of
Common Stock issuable upon exercise of outstanding options, warrants and
convertible debt will become eligible for future sale in the public market at
prescribed times. Sales of substantial numbers of shares of Common Stock in the
public market following this offering could adversely affect prevailing market
prices. The Securities and Exchange Commission (the "SEC") has adopted an
amendment to Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"), that, effective April 29, 1997, will reduce by one year the
holding periods required for shares subject to Rule 144 to become eligible for
resale in the public market. Holders of 6,843,676 shares of Common Stock
(including 1,819,780 shares of Common Stock that may be acquired upon the
exercise of warrants and 583,332 shares of Common Stock that may be acquired
upon conversion of the Triumph Notes (assuming an initial public offering price
of $12.00 per share)), are entitled to certain rights with respect to
registration of such shares of Common Stock for offer or sale to the public. The
Company plans to file a Form S-8 registration statement registering shares
issuable pursuant to the Company's employee stock plans. Any sales by existing
stockholders or holders of options, warrants or Triumph Notes may have an
adverse effect on the Company's ability to raise needed capital and may
adversely affect the market price of the Common Stock. See "Shares Eligible for
Future Sale," "Description of Capital Stock" and "Underwriting."
ANTI-TAKEOVER PROVISIONS
The Company's Second Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation"), as in effect upon the closing of this offering,
will require that any action required or permitted to be taken by stockholders
of the Company must be effected at a duly called annual or special meeting of
stockholders and may not be effected by any consent in writing, and will require
reasonable advance notice by a stockholder of a proposal or director nomination
which such stockholder desires to present at any annual or
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special meeting of stockholders. Special meetings of stockholders may be called
only by the President of the Company or by the Board of Directors. The
Certificate of Incorporation provides for a classified Board of Directors, and
members of the Board of Directors may be removed only for cause upon the
affirmative vote of holders of at least two-thirds of the shares of capital
stock of the Company entitled to vote. In addition, the Board of Directors will
have the authority, without further action by the stockholders, to fix the
rights and preferences of, and issue shares of, Preferred Stock. These
provisions, other provisions of the Certificate of Incorporation and the
beneficial ownership of a significant portion of the Company's outstanding
Common Stock by the Company's directors and executive officers and their
affiliates, may have the effect of deterring hostile takeovers or delaying or
preventing changes in control or management of the Company, including
transactions in which stockholders might otherwise receive a premium for their
shares over then current market prices. In addition, these provisions may limit
the ability of stockholders to approve transactions that they may deem to be in
their best interests.
NO DIVIDENDS ANTICIPATED IN FUTURE
The Company has not paid any dividends on the Common Stock since its
inception and does not anticipate paying any dividends in the future.
Declaration of dividends on the Common Stock will depend upon, among other
things, future earnings, if any, the operating and financial condition of the
Company, its capital requirements and general business conditions. The Company
is currently prohibited from paying dividends under an agreement relating to the
issuance of the Triumph Notes and the Triumph Warrants (the "Triumph
Agreement"). See "Dividend Policy."
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THE COMPANY
The Company was organized as a Delaware corporation in March 1989. On June
28, 1996, the Company changed its name to Ascent Pediatrics, Inc. from Ascent
Pharmaceuticals, Inc. The Company's principal office is located at 187
Ballardvale Street, Wilmington, Massachusetts 01887, and its telephone number is
(508) 658-2500.
The Company holds United States trademark registrations for "ASCENT,"
"PEDIAMIST" and "PRIMSOL" and has received notices of allowance from the United
States Patent and Trademark Office with respect to trademark registrations for
"PEDIATEMP" and "PEDIAVENT." All other brand names or trademarks appearing in
this Prospectus are the property of their respective owners.
All market data expressed in dollar amounts in this Prospectus reflect
estimates of pharmacy acquisition costs.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered hereby are estimated to be $21,520,000 ($24,868,000 if the
Underwriters' exercise their over-allotment option in full), at an assumed
initial public offering price of $12.00 per share and after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company.
The Company currently intends to use approximately $6,050,000 of the net
proceeds of this offering to fund the portion of the purchase price of
Upsher-Smith's Feverall line of acetaminophen rectal suppositories (including
estimated inventory cost of $300,000) due at the closing of the acquisition. The
Company has entered into a non-binding letter of intent to acquire this product
line. See "Business -- Products and Products Under Development -- Feverall
Acetaminophen Suppositories." The Company currently intends to use the balance
of the net proceeds of this offering for product development activities,
including costs of preclinical tests, clinical trials and regulatory
submissions, sales and marketing expenses, including costs of assembling its
marketing staff and sales force and introducing the Company's initial three
products to the market, and general corporate purposes, which may include the
$5,500,000 second installment of the Feverall product line purchase price that,
based on the letter of intent, would be due within 225 days of the closing of
this acquisition. The Company may also use a portion of the net proceeds to
acquire businesses, technologies or products complementary to the Company's
business, although the Company does not currently have any commitment or
agreement for any such acquisitions other than the Feverall acquisition. In the
event that the Feverall acquisition does not close, management will have broad
discretion as to the use of the portion of the proceeds of this offering that
currently is expected to be used to finance such acquisition.
The amount and timing of actual expenditures by the Company will depend on
many factors, including the progress of its product development programs, the
magnitude of these programs, the results of preclinical studies and clinical
trials, the time and costs involved in obtaining regulatory approvals, the costs
involved in filing, prosecuting, enforcing and defending patent claims,
competing technological and market developments, the ability of the Company to
establish and maintain a sales and marketing capability and product development,
manufacturing and marketing relationships, and the costs and success of
commercialization activities and arrangements.
Based on its current operating plan, the Company anticipates that its
existing capital resources, together with the net proceeds of this offering and
interest earned thereon, the net proceeds from the issuance of an additional
$5,000,000 of Triumph Notes and internally generated funds, will be adequate to
satisfy its capital requirements for at least the next 24 months.
Pending application of the net proceeds of this offering as described
above, the Company intends to invest the net proceeds of this offering in
short-term, investment-grade, interest-bearing instruments. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain earnings, if any, for use in its
business and therefore does not anticipate paying any cash dividends in the
foreseeable future. Payment of future dividends, if any, will be at the
discretion of the Company's Board of Directors after taking into account various
factors, including the Company's financial condition, operating results, capital
requirements, current and anticipated cash needs as well as other factors that
the Board of Directors may deem to be relevant. The Company is currently
prohibited from paying dividends under the Triumph Agreement. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
17
<PAGE> 19
CAPITALIZATION
The following table sets forth as of December 31, 1996: (i) the actual
capitalization of the Company; (ii) the combined pro forma capitalization of the
Company as described in Note (1) below; and (iii) the combined pro forma
capitalization of the Company as adjusted as described in Note (2) below. This
table should be read in conjunction with the Company's Financial Statements and
related Notes and Unaudited Combined Pro Forma Financial Statements included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------
COMBINED
COMBINED PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(1)(2)
-------- ------------ -----------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Long-term debt, net of current portion............ $ -- $ 1,163 $ 4,742
Redeemable Convertible Preferred Stock, $.00004
par value; 4,458,564 shares authorized;
2,904,429 shares issued and outstanding; no
shares authorized or outstanding, combined pro
forma and combined pro forma as adjusted........ 17,832 -- --
Stockholders' equity:
Convertible Preferred Stock, $.00004 par value;
1,199,999 shares authorized, issued and
outstanding; no shares issued and
outstanding, combined pro forma and combined
pro forma as adjusted........................ 2,855 -- --
Preferred Stock $.01 par value; 5,000,000
authorized and unissued combined pro forma as
adjusted..................................... -- -- --
Common Stock, $.00004 par value; 11,000,000
shares authorized and 198,155 shares issued
and outstanding; 20,000,000 shares authorized
and 4,638,719 shares issued and outstanding,
combined pro forma; 60,000,000 shares
authorized and 6,638,719 shares issued and
outstanding, combined pro forma as
adjusted(3).................................. -- -- --
Additional paid-in capital........................ -- 28,372 51,313
Deficit accumulated during the development
stage........................................... (19,633) (19,633) (19,633)
-------- -------- ---------
Total stockholders' equity (deficit).............. (16,778) 8,739 31,680
-------- -------- ---------
Total capitalization.............................. $ 1,054 $ 9,902 $ 36,422
======== ======== =========
</TABLE>
- ---------------
(1) Presented on a combined pro forma combined basis to give effect to (i) the
probable acquisition of the Feverall product line from Upsher-Smith for
$11,500,000 plus the cost of certain related inventory (assumed for this
purpose to be $122,235) as if such acquisition had occurred on December 31,
1996, (ii) the issuance of 1,104,229 shares of Series F Convertible
Preferred Stock in February 1997 and the receipt of $6,847,988 in net
proceeds therefrom, (iii) the issuance of $2,000,000 of Triumph Notes in
January 1997 recorded as a liability (after allocating value to associated
warrants) of $1,163,006 with $836,994 to be accreted as interest expense
over the term of the Triumph Notes and (iv) the Preferred Stock Conversion.
See "Certain Transactions" and "Combined Pro Forma Financial Statements."
(2) Reflects (i) the sale of the 2,000,000 shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of $12.00 per
share and the application of net proceeds therefrom, after deducting the
underwriting discounts and commissions and estimated offering expenses
payable by the Company and (ii) the issuance of $5,000,000 of Triumph Notes
no later than the closing of this offering recorded as a liability (after
allocating value to associated warrants) of $3,579,357 with $1,420,643 to be
accreted as interest expense over the term of the Triumph Notes. See "Use of
Proceeds" and "Certain Transactions."
18
<PAGE> 20
(3) Does not include 1,263,584 shares of Common Stock reserved for issuance upon
exercise of outstanding options and warrants as of December 31, 1996 at a
weighted average exercise price of $5.96 per share. See Note H of Notes to
Financial Statements. Also excludes (i) 362,152 shares of Common Stock
reserved for issuance upon the exercise of warrants issued to purchasers of
shares of Series F Convertible Preferred Stock in February 1997 at an
exercise price of $7.65 per share, (ii) an aggregate of 583,332 shares of
Common Stock (assuming an initial public offering price of $12.00 per share)
issuable upon the conversion of the Triumph Notes, (iii) 561,073 shares of
Common Stock at an exercise price of $0.01 per share and 218,195 shares of
Common Stock at an exercise price of $5.29 per share reserved for issuance
upon the exercise of the Triumph Warrants and (iv) an aggregate of 49,512
shares of Common Stock reserved for issuance upon the exercise of options
and warrants issued in February 1997 at a weighted average exercise price of
$4.56 per share. See "Certain Transactions."
19
<PAGE> 21
DILUTION
Purchasers of the Common Stock offered hereby will experience an immediate
dilution in the net tangible book value of their Common Stock from the assumed
initial public offering price. The Company's net tangible book value at December
31, 1996, on a combined pro forma basis to give effect to (i) the probable
acquisition of the Feverall product line from Upsher-Smith for $11,500,000 plus
the cost of certain related inventory (assumed for this purpose to be $122,235)
as if such acquisition had occurred on December 31, 1996, (ii) the issuance of
1,104,229 shares of Series F Convertible Preferred Stock in February 1997 and
the receipt of $6,847,988 in net proceeds therefrom, (iii) the issuance of
$2,000,000 of Triumph Notes in January 1997 (reflected net of issuance costs and
after allocating value to associated warrants) and (iv) the Preferred Stock
Conversion, was $(2,884,714) or approximately $(0.62) per share of Common Stock.
Combined pro forma net tangible book value per share represents the amount of
the Company's combined pro forma total tangible assets, reduced by the amount of
the Company's combined pro forma total liabilities, divided by the combined pro
forma number of shares of Common Stock outstanding. "Dilution per share"
represents the difference between the assumed initial public offering price per
share of the Common Stock and the combined pro forma net tangible book value per
share of the Company after giving effect to (i) the Company's receipt of the net
proceeds from the sale of shares of Common Stock in this offering at an assumed
initial public offering price of $12.00 per share (after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by the Company) and the initial application of the estimated net proceeds
therefrom and (ii) the issuance of $5,000,000 of Triumph Notes no later than the
closing of this offering (reflected net of issuance costs and after allocating
value to associated warrants). On such basis, the combined pro forma net
tangible book value of the Company as of December 31, 1996 would have been
$20,056,286 or $3.02 per share. This represents an immediate increase in the
combined net tangible book value of $3.64 per share to the existing stockholders
and an immediate dilution in the combined pro forma net tangible book value of
$8.98 per share to new investors purchasing Common Stock in this offering. The
following table illustrates such dilution per share to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share......... $12.00
Combined pro forma net tangible book value per share
as of December 31, 1996............................ $(0.62)
Combined pro forma increase per share attributable to
new investors...................................... $ 3.64
------
Combined pro forma net tangible book value per share
after this offering................................... $ 3.02
------
Dilution per share to new investors..................... $ 8.98
======
</TABLE>
The following table summarizes, on the combined pro forma basis described
above, as of December 31, 1996, the number of shares of Common Stock purchased
from the Company, the total consideration paid to the Company, and the average
price paid per share by the existing stockholders and by investors purchasing
shares of Common Stock offered hereby (at an assumed initial public offering
price of $12.00 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................... 4,638,719 69.9% $27,764,166 53.6% $ 5.99
New investors........................... 2,000,000 30.1 24,000,000 46.4 12.00
--------- ----- ----------- -----
Total......................... 6,638,719 100.0% $51,764,166 100.0%
========= ===== =========== =====
</TABLE>
The above computations assume no exercise of options and warrants since
December 31, 1996. As of December 31, 1996, there were options and warrants
outstanding to purchase 1,263,584 shares of Common Stock at a weighted average
exercise price of $5.96 per share. In addition, since December 31, 1996, the
Company has (i) issued warrants exercisable for 362,152 shares of Common Stock
at an exercise price of $7.65 per share to purchasers of shares of Series F
Convertible Preferred Stock, (ii) issued or agreed to issue no later than the
closing of this offering an aggregate of $7,000,000 in Triumph Notes which are
convertible
20
<PAGE> 22
into up to an aggregate of 583,332 shares of Common Stock (assuming an initial
public offering price of $12.00 per share), (iii) issued or agreed to issue
Triumph Warrants exercisable for 561,073 shares of Common Stock at an exercise
price of $0.01 per share and 218,195 shares of Common Stock at an exercise price
of $5.29 per share and (iv) issued warrants and granted options exercisable for
an aggregate of 49,512 shares of Common Stock at a weighted average exercise
price of $4.56 per share. See "Certain Transactions." The exercise of such
options and warrants would result in further dilution to new investors. In
addition, effective upon the closing of this offering, there will be 714,734,
300,000 and 500,000 shares of Common Stock reserved for future issuance under
the Company's Amended and Restated 1992 Equity Incentive Plan, 1997 Director
Stock Option Plan and 1997 Employee Stock Purchase Plan, respectively. See
"Capitalization," "Management -- Employee Benefit Plans" and "Description of
Capital Stock."
21
<PAGE> 23
SELECTED FINANCIAL DATA
The selected financial data presented below as of December 31, 1995 and
1996, and for each of the three years in the period ended December 31, 1996, are
derived from the Company's Financial Statements, included elsewhere in this
Prospectus, which have been audited by Coopers & Lybrand L.L.P., independent
accountants. The selected financial data presented below as of December 31,
1992, 1993 and 1994 and for each of the two years in the period ended December
31, 1993 are derived from the Company's Financial Statements, not included in
this Prospectus, which have been audited by Coopers & Lybrand L.L.P.,
independent accountants. The Combined Pro Forma selected financial data as of
and for the year ended December 31, 1996 are derived from the Unaudited Combined
Pro Forma Financial Statements contained elsewhere in this Prospectus. This data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Financial Statements and the
Notes and the Unaudited Combined Pro Forma Financial Statements and Notes
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, COMBINED PRO FORMA
------------------------------------------------- YEAR ENDED
1992 1993 1994 1995 1996 DECEMBER 31, 1996(1)
------- ------- ------- -------- -------- --------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................... $ -- $ -- $ -- $ 304 $ -- $ 3,877
Costs and expenses:
Cost of sales............... -- -- -- -- -- 1,434
Research and development.... 558 1,221 2,551 2,986 3,761 3,761
Selling, general and
administrative........... 706 723 1,141 1,532 2,805 5,110
------- ------- ------- -------- -------- --------
Loss from operations.......... (1,264) (1,944) (3,692) (4,214) (6,566) (6,428)
Interest income............... 47 123 147 113 79 79
------- ------- ------- -------- -------- --------
Net loss...................... $(1,217) $(1,821) $(3,545) $ (4,101) $ (6,487) $ (6,349)
======= ======= ======= ======== ======== ========
Pro forma and combined pro
forma net loss per
share(2).................... $(1.48) $(1.45)
====== ======
Pro forma weighted average
common and common equivalent
shares(2)................... 4,384,208 4,384,208
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------- COMBINED PRO FORMA
1992 1993 1994 1995 1996 DECEMBER 31, 1996(1)
------- ------- ------- -------- -------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
marketable securities....... $ 1,838 $ 5,691 $ 2,171 $ 2,538 $ 2,086 $ 4,941
Working capital............... 1,842 5,717 2,270 2,582 525 (1,989)
Total assets.................. 1,902 5,866 2,466 2,750 2,628 16,976
Long-term debt, net of current
portion..................... -- -- -- -- -- 1,163
Redeemable preferred stock.... -- 8,157 8,157 12,557 17,832 --
Deficit accumulated during the
development stage........... (3,202) (5,306) (8,851) (13,014) (19,633) (19,633)
Total stockholders' equity
(deficit) (3)............... 1,773 (2,451) (5,995) (10,158) (16,778) 8,739
</TABLE>
- ---------------
(1) Presented on a combined pro forma basis to give effect to (i) the probable
acquisition of the Feverall product line from Upsher-Smith for $11,500,000
plus the cost of certain related inventory (assumed for this purpose to be
$122,235) as if such acquisition had occurred on January 1, 1996 with
respect to Statement of Operations Data and on December 31, 1996 with
respect to Balance Sheet Data, (ii) the issuance of 1,104,229 shares of
Series F Convertible Preferred Stock in February 1997 and the receipt of
$6,847,988 in net proceeds therefrom, (iii) the issuance of $2,000,000 of
Triumph Notes in January 1997 recorded as a liability (after allocating
value to associated warrants) of $1,163,006 with $836,994 to be accreted as
interest expense over the term of the Triumph Notes and (iv) the Preferred
Stock Conversion. See "Capitalization," "Certain Transactions" and
"Unaudited Combined Pro Forma Financial Statements."
(2) See Note B to Notes to Financial Statements for information concerning the
computation of pro forma net loss per share and shares used in computing pro
forma net loss per share.
(3) The Company has never declared or paid cash dividends on its capital stock.
22
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a drug development and marketing company focused exclusively
on the pediatric market. The Company commenced operations in March 1989 and
since that time has been engaged primarily in developing its products and
product candidates and in organizational efforts, including recruiting
scientific and management personnel and raising capital. To date, the Company
has not received any revenue from the sale of products. The Company expects to
introduce its first three products to the market in the second half of 1997. All
revenues received by the Company to date have consisted of payments in
connection with a licensing arrangement and interest on invested funds.
The Company has incurred net losses since its inception and expects to
incur additional operating losses over at least the next two years as it
continues its product development programs, establishes a sales and marketing
organization and introduces products to the market. The Company expects
cumulative losses to increase over this period. The Company has incurred a
deficit accumulated since inception through December 31, 1996 of $19,633,000.
The Company is a party to a non-binding letter of intent with Upsher-Smith
to acquire the Feverall acetaminophen rectal suppository product line. The
Company believes that this acquisition is probable and expects to enter into a
definitive acquisition agreement in March 1997 and to close this acquisition in
July 1997.
RESULTS OF OPERATIONS
Combined Pro Forma Year Ended December 31, 1996 Compared with Year Ended
December 31, 1996
Revenues and Cost of Sales. The combined pro forma 1996 statement reflects
product sales of the Feverall product line that the Company expects to acquire
and the related cost of sales.
Selling, General and Administrative Expenses. The increase in selling,
general and administrative expenses in the combined pro forma 1996 statement
reflects $2,306,000 of expenses associated with the Feverall product line,
consisting of $669,000 for advertising and promotion, $572,000 for allocated
selling costs and $490,000 of incremental expenses that Ascent estimates will be
incurred relating to this product line as well as $575,000 of goodwill
amortization related to this acquisition.
Years Ended December 31, 1994, 1995 and 1996
Revenues. The Company had licensing revenues of $304,000 in 1995, which
were comprised of a $202,000 one-time technology transfer fee and $102,000 for
non-recurring product development activities pursuant to a license agreement.
Research and Development. The Company expended $2,551,000, $2,986,000 and
$3,761,000, for research and development in 1994, 1995 and 1996, respectively.
The increase in 1995 over 1994 reflected increased costs in connection with the
Phase I clinical trials of Pediatemp acetaminophen controlled-release beads and
Pediavent albuterol controlled-release suspension and costs in connection with
the commencement of preclinical tests of the Company's cromolyn sodium cream
product candidate. The increase in 1996 over 1995 reflected increased costs
associated with the Company's clinical trials of Pediatemp acetaminophen
controlled-release beads, costs of producing prednisolone sodium phosphate syrup
for stability testing and payments to the Company's supplier in connection with
the development of Pediavent albuterol controlled-release suspension.
Selling, General and Administrative Expenses. The Company incurred
selling, general and administrative expenses of $1,141,000, $1,532,000 and
$2,805,000 in 1994, 1995 and 1996, respectively. The increase in 1995 over 1994
was primarily attributable to increased expenditures to recruit and hire
personnel. The increase in 1996 over 1995 was primarily due to the initiation by
the Company of a program to familiarize pediatricians
23
<PAGE> 25
with the Ascent name, development of a marketing program and increased
expenditures to recruit and hire personnel.
Interest. The Company had interest income of $147,000, $113,000 and
$79,000 in 1994, 1995 and 1996, respectively. The changes in these years were
primarily attributable to changes in the funds available for investment by the
Company.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations primarily from
private sales of preferred stock. As of December 31, 1996, the Company had
raised approximately $20,201,000 (net of stock issuance costs) from the sale of
preferred stock, with net proceeds of $4,338,000 received in 1995 and net
proceeds of $5,137,000 received in 1996.
Through December 31, 1996, the Company applied the proceeds from the sale
of preferred stock and its revenues to fund losses of $19,156,000 and the
investment of $328,000 in property and equipment. As of December 31, 1996, the
Company had cash and cash equivalents of $2,086,000.
In January 1997, the Company issued $2,000,000 of Triumph Notes, resulting
in net proceeds to the Company of $1,880,000, which was recorded as a liability
of $1,163,000 with $837,000 to be accreted as interest expense over the term of
the Triumph Notes. The Company will issue an additional $5,000,000 of Triumph
Notes, which will result in net proceeds to the Company of approximately
$4,840,000, no later than the closing of this offering, which will be recorded
as a liability of $3,579,000 with $1,420,000 to be accreted as interest expense
over the term of the Triumph Notes. Effective as of the closing of this
offering, the Triumph Notes amortize in eight equal quarterly principal
installments and require quarterly interest payments on the unpaid principal
balance, with the first quarterly payment of principal and interest due six
months after the closing of this offering. The Triumph Notes are collateralized
by a lien on all of the Company's assets, prohibit the payment of dividends by
the Company and, subject to certain exceptions (including for up to $6,000,000
of senior secured bank financing and $5,500,000 of secured purchase money
financing in connection with the planned acquisition of the Feverall product
line), prohibit the incurrence of additional indebtedness. In February 1997, the
Company sold additional shares of preferred stock which resulted in
approximately $6,848,000 of proceeds (net of issuance costs) to the Company.
The Company currently expects to use approximately $6,050,000 of the net
proceeds of this offering to fund the portion of the purchase price of
Upsher-Smith's Feverall product line (including estimated inventory cost of
$300,000) due at the closing of the acquisition. The Company expects that this
acquisition will close in July 1997. The Company previously paid Upsher-Smith
$250,000 as a non-refundable deposit in connection with this proposed
acquisition, which will be retained by Upsher-Smith as part of the purchase
price. The Company currently intends to pay Upsher-Smith an additional
$5,500,000 as the second installment of the purchase price that, based on the
letter of intent, will be due no later than 225 days following the closing of
this acquisition. This deferred payment will be evidenced by a note and secured
by a lien on the acquired assets.
The Company expended $94,000, $18,000 and $60,000 to purchase fixed assets,
primarily equipment and furniture, in 1994, 1995 and 1996, respectively. The
Company expects that its capital expenditures for the year ending December 31,
1997 will be approximately $225,000, primarily for computer equipment and
leasehold improvements. In addition, the Company has entered into several
agreements with unaffiliated entities for the performance of research and
clinical trial studies. These commitments are ongoing, and the Company expects
to spend approximately $460,000 toward these commitments in 1997.
The Company's future capital requirements will depend on many factors,
including continued progress in its product development programs, the magnitude
of these programs, the results of preclinical studies and clinical trials, the
time and costs involved in obtaining regulatory approvals, the costs involved in
filing, prosecuting, enforcing and defending patent claims, competing
technological and market developments, the ability of the Company to establish
and maintain a sales and marketing capability and product development,
manufacturing and marketing relationships, and the costs and success of
commercialization activities and arrangements. The Company's business strategy
requires a significant commitment of funds to conduct clinical testing of
potential products, to pursue regulatory approval of such products and to
establish sales and marketing capabilities and manufacturing relationships
necessary to bring such products to market.
24
<PAGE> 26
The Company has no committed external sources of capital. Based on its
current operating plan, the Company anticipates that its existing capital
resources, together with the proceeds of this offering and interest earned
thereon, the net proceeds from the issuance of an additional $5,000,000 of
Triumph Notes and internally generated funds, will be adequate to satisfy its
capital requirements for at least the next 24 months. However, there may be
circumstances, particularly a delay in the introduction of products or lower
than anticipated product sales, that might accelerate the Company's use of the
net proceeds of this offering and its other capital resources. The Company may
be required to raise substantial additional funds in the future, including
through collaborative relationships and public or private financings. No
assurance can be given that additional financing will be available, or, if
available, that it will be available on acceptable terms. See "Risk Factors --
Future Capital Needs; Uncertainty of Additional Funding."
RECENT PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share ("FAS 128"). FAS
128 specifies the computation, presentation and disclosure requirements for
earnings per share. FAS 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods, and earlier
application is not permitted. FAS 128 requires restatement of all prior-period
earnings-per-share data presented after the effective date. The Company has not
yet determined FAS 128's effect on its financial statements.
25
<PAGE> 27
BUSINESS
Ascent Pediatrics, Inc. ("Ascent" or the "Company"), is a drug development
and marketing company focused exclusively on the pediatric market. The Company's
strategy is to address unmet medical needs of children through the development
of differentiated, proprietary products based on approved compounds with well
known clinical profiles. Ascent is developing a range of pharmaceuticals
products, primarily for sale on a prescription basis, which are designed to
improve upon currently available products for the most common pediatric
illnesses through the application of the Company's drug delivery and
reformulation technologies. By developing products based on currently approved
drugs, rather than new chemical entities, Ascent believes that it can reduce
regulatory and development risks and shorten the product development cycle. In
addition, Ascent believes that market acceptance of its products will be
enhanced by the familiarity of pediatricians with the compounds that serve as
the basis of these products. The Company plans to introduce its first three
products to the market in the second half of 1997 and has seven other principal
products in development. The Company intends to market its products in the
United States through a direct sales force focused exclusively on the pediatric
market.
In January 1997, the Division of Anti-Infective Drugs of the United States
Food and Drug Administration (the "FDA") notified Ascent that it recommended
approval of the Company's New Drug Application ("NDA") for Primsol trimethoprim
solution, a prescription antibiotic for the treatment of ear infections in
patients age six months to twelve years, with a label reflecting that Primsol
solution would not be a product for first line therapy for this indication.
Trimethoprim for the treatment of ear infections in children is currently
available only in combination with a sulfa compound that is associated with
allergic reactions. Primsol solution contains trimethoprim only and in clinical
trials demonstrated a more favorable side effect profile than the combination
therapy. Because of this improved side effect profile, the Company believes that
pediatricians will be more likely to prescribe an antibiotic comprised only of
trimethoprim for the treatment of ear infections in children than they
historically have been to prescribe the combination therapy. In November 1996,
the Company entered into a non-binding letter of intent with Upsher-Smith
Laboratories, Inc. ("Upsher-Smith") to acquire the currently marketed Feverall
line of acetaminophen rectal suppository products. The Company expects to enter
into a definitive acquisition agreement related to the Feverall product line in
March 1997 and to close this acquisition in July 1997. The Company plans to
introduce Primsol solution and Feverall suppositories to the market in the
second half of 1997, along with Pediamist, an over-the-counter nasal saline
spray developed by Ascent that uses a metering device to facilitate pediatric
use.
In addition to these three products, the Company has seven other products
in various stages of development. Prednisolone sodium phosphate syrup is a
steroid for the treatment of inflammation, including inflammation resulting from
respiratory conditions, for which the Company expects to file Abbreviated New
Drug Applications ("ANDAs") with the FDA in the second half of 1997. Pediatemp
acetaminophen controlled-release beads are an analgesic and antipyretic for the
treatment of pain and fever for which the Company recently completed Phase III
clinical trials and, subject to the results of these trials being satisfactory,
plans to file an NDA in the second half of 1997. Pediavent albuterol
controlled-release suspension is a bronchodilator for the treatment of asthma
that currently is in Phase I clinical trials. Cromolyn sodium cream is a topical
cream for the treatment of moderate to severe contact dermatitis, which is the
subject of an effective Investigational New Drug ("IND") application and for
which the Company plans to initiate Phase I clinical trials in the first half of
1997. Cromolyn sodium controlled-release nasal spray is a drug for the treatment
of nasal allergies that is undergoing preclinical testing. The Company also is
developing a line of over-the-counter cough/cold products and an
over-the-counter acetaminophen controlled-release solution.
Ascent believes that an important part of fulfilling its mission of
becoming a leader in the development and marketing of pediatric pharmaceuticals
is the establishment of a corporate identity. Accordingly, even before the
launch of its first products, Ascent has initiated a program to familiarize
pediatricians with the Ascent name. Ascent is establishing a domestic sales
organization to promote the Company's products to high prescribing
pediatricians, influential pediatricians and pediatric nurses. Ascent plans to
supplement these activities with telemarketing, direct mail and advertisements
in speciality pediatric journals. Ascent also intends to promote its products
directly to managed care providers in order to obtain inclusion on these
providers' formularies and has retained a consulting firm to assist it in this
process.
26
<PAGE> 28
Ascent seeks competitive protection for its products in a variety of ways,
including the creation of proprietary formulations using technologies, such as
taste masking and controlled-release systems, that are covered by patents or
patent applications owned by or licensed to the Company or its suppliers.
PEDIATRIC PHARMACEUTICAL INDUSTRY
The United States market for prescription pharmaceutical products for
children age 16 years and younger was estimated by Scott-Levin, a healthcare
consulting firm ("Scott-Levin"), to be approximately $3.5 billion in 1996. This
represents approximately a 9% compound annual growth rate over estimated 1992
sales of approximately $2.5 billion. According to Scott-Levin, in 1996,
prescriptions written by pediatricians accounted for approximately 60% of total
sales of pediatric prescription pharmaceuticals in the United States. The drugs
most frequently prescribed by pediatricians were antibiotics, which accounted
for approximately 35% of total 1996 United States prescription drug sales
attributable to pediatricians, and beta agonist bronchodilators, which accounted
for approximately 7% of such sales. Pediatricians also play a central role in
recommending over-the-counter medications for children. Pain/fever medications
are among the over-the-counter drugs most frequently recommended by
pediatricians for children. FIND/SVP, a market research and consulting firm,
estimates that sales of pediatric forms of pain/fever medications in the United
States approximate $300,000,000 per annum.
Despite the size and recent growth in the pediatric pharmaceutical market,
pharmaceutical companies historically have concentrated their drug development
efforts on the adult market or have pursued pediatric applications only as
product line extensions. The Company believes that this lack of emphasis on the
pediatric market has occurred for several reasons. First, because the pediatric
pharmaceutical market historically has comprised only a small percentage of the
total pharmaceutical market (approximately 5% of the total United States market
in 1996), pharmaceutical companies have been reluctant to expend the time and
resources required to develop products specifically targeted for children.
Moreover, as the pharmaceutical industry has consolidated, many pharmaceutical
companies have increasingly focused on the larger adult market. Secondly,
pharmaceutical companies have been concerned that, if clinical trial results for
a drug tested in children were to differ in an adverse manner from results in
adults, the usage of the drug by adults could be adversely affected and the
marketing approval of the drug might be jeopardized. Finally, without access to
specialized trial sites and a network of pediatricians, it is difficult to
recruit children to participate in clinical trials, as parents are reluctant to
permit their children to take experimental medications.
The Company believes that the relatively low number of drugs developed
specifically for pediatric use has resulted in an opportunity for a drug
development company dedicated exclusively to the pediatric market. Drug
administration and patient compliance with dosage regimens are greater issues in
treating pediatric patients than adult patients, particularly with respect to
medications that have not been formulated for children. Specifically, children
frequently dislike the taste and texture of liquids and chewable tablets, have
difficulty swallowing oral tablets and often do not use inhalers correctly. In
addition, children and their caregivers often find it difficult to comply with
dosing regimens that are complex or require frequent administration, which can
interrupt sleep, or special handling of the drug, such as refrigeration. All of
these problems can cause either missed doses or incorrectly administered doses,
which may decrease the therapeutic success of the treatment. The Company
believes that it can address many of these compliance and drug administration
problems through the application of its taste masking, controlled-release and
other drug delivery and formulation technologies to approved compounds in order
to design products specifically for children.
The limited number of pharmaceuticals approved for pediatric use has also
resulted in physicians prescribing certain drugs for children on an off label
basis, with the dosages for children extrapolated from clinical studies
performed in adults. Undesirable side effects and variations in therapeutic
efficacy may result when a drug formulated for an adult is administered to a
child. The Company believes that pediatricians will be more willing to prescribe
products that have been the subject of pediatric clinical trials because of the
availability of specific efficacy and safety information with respect to the
effect of the drug on pediatric patients.
The Company believes that the federal government, and in particular the
FDA, is increasingly focused on encouraging pharmaceutical companies to develop
drugs for the pediatric market and to conduct clinical trials in children. The
federal government enacted the Orphan Drug Act in 1983 to provide incentives to
27
<PAGE> 29
pharmaceutical manufacturers to develop products to treat diseases which affect
limited patient populations, including certain pediatric diseases. Moreover, in
1994, the FDA finalized the pediatric labeling rule, which mandates that, if an
approved drug is used on an off label basis in pediatric populations, then the
company marketing such drug must either apply to the FDA for proper labeling for
the pediatric indication (which could require clinical trials) or advise the FDA
as to why it would not seek such labeling. In 1994, the FDA also modified its
policy on new drug applications to require a company to indicate in its NDA
submission whether the drug has potential application to pediatric populations
and, if the company is not conducting clinical trials on children, its reasons
for not conducting such trials.
Pediatricians are the primary physician specialty treating children.
According to a survey of members of the American Academy of Pediatrics, in 1996
there were approximately 28,000 pediatricians in the United States with direct
patient care as their primary professional activity. The survey indicated that
most of these pediatricians practiced in or near urban or suburban centers and
that more than 80% of respondents were in group practices. The Company believes
that nurses in pediatricians' offices also play an important role in
recommending pharmaceuticals for children. The Company believes that
pediatricians and pediatric nurses are not targeted as frequently for
pharmaceutical detailing as specialists in other areas because the pediatric
pharmaceutical market has not been a primary focus for most major pharmaceutical
companies.
More than 60% of patients in the United States are covered by a managed
care program, such as a health maintenance organization, preferred provider
organization or state Medicaid program. However, the Company believes that
managed care has not played as great a role to date in pediatrics as it has in
other areas of medicine because pediatric medical problems generally do not
entail chronic or expensive treatments. The pharmaceuticals prescribed for
childhood diseases, such as antibiotics, generally are relatively inexpensive
and typically are used for only a short period of time. For manufacturers of
pediatric pharmaceuticals, the key concern with respect to managed care is
obtaining inclusion of their products on formularies, the lists of
pharmaceuticals that managed care providers maintain for products that have been
approved for use and reimbursement. In determining whether to include a product
on their formularies, managed care providers consider such factors as the
therapeutic characteristics, economic benefits and level of usage of the
product. Because Ascent is designing its products to improve patient compliance
or to substitute for products with less favorable side effect profiles, the
Company believes that its products will appeal to managed care providers by
producing fewer treatment failures than competitive products, thereby lowering
healthcare costs.
ASCENT'S STRATEGY
Ascent's objective is to be a leader in the development and marketing of
improved and differentiated pediatric pharmaceuticals. The Company is developing
a broad product line of proprietary products that are based on approved
compounds with well known clinical profiles. Ascent seeks to improve these
compounds by reducing their dosing frequency, increasing their palatability,
improving the method of administration or developing them as substitutes for
products with less favorable side effect profiles, all with the goal of
increasing patient compliance, improving therapeutic results or reducing side
effects. Key elements of Ascent's strategy include:
Focus Exclusively on Pediatric Market. Ascent's business is focused
exclusively on developing pharmaceuticals for children and marketing these
products to pediatricians, pediatric nurses and other pediatric caregivers. The
United States market for prescription pharmaceutical products for children age
16 years and under was estimated to be approximately $3.5 billion in 1996. The
Company believes that this market has been underserved in comparison with the
adult pharmaceutical market in terms of both development of specially designed
products and targeted promotion and represents an attractive market opportunity.
Select Products Based on Market Needs. Ascent actively evaluates the
pediatric pharmaceutical industry on an ongoing basis to assess product usage
and to identify unmet medical needs of children, particularly for prescription
drugs for the most common pediatric illnesses. Ascent's program to identify
pediatric product opportunities includes conducting focus groups with
pediatricians, pediatric nurses and parents, consulting with the Company's
scientific and medical advisors and evaluating drug delivery and other technical
developments for their applicability to the field of pediatric pharmaceuticals.
Ascent uses this
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<PAGE> 30
information to select compounds as product development candidates that it
believes may be improved through the application of its technologies and
reformulation expertise and then successfully commercialized.
Develop Proprietary Formulations of Approved Compounds. Ascent selects as
product candidates approved compounds that have well known clinical profiles and
are not covered by third party patents. By developing products based on approved
compounds rather than new chemical entities, the Company believes that it can
reduce regulatory and development risks and shorten the product development
cycle. In addition, Ascent believes that market acceptance of its products will
be enhanced by the familiarity of pediatricians with the drugs that serve as the
basis of these products.
Establish a Corporate Identity for Ascent in the Pediatric Market. Ascent
believes that an important part of fulfilling its mission of becoming a leader
in the development and marketing of pediatric pharmaceuticals is the
establishment of a corporate identity. Accordingly, even before the launch of
its first products, Ascent has initiated a program to familiarize pediatricians
with the Ascent name. This program began at the fall 1996 annual meeting of the
American Academy of Pediatrics and includes a direct mail campaign and journal
advertising directed at private pediatricians. The Company believes that
establishing a corporate identity will distinguish it from its competitors and
accelerate market awareness and penetration of its products.
Create a Specialty Pediatric Sales Force. Ascent intends to market its
products in the United States through a direct sales force focused exclusively
on the pediatric pharmaceutical market. Ascent is establishing its domestic
sales organization in anticipation of the scheduled introduction in the second
half of 1997 of the Company's initial three products. Because pediatricians and
pediatric nurses are concentrated in group practices in urban and suburban
centers and advertising may be disseminated through a limited number of
specialty pediatric publications, Ascent believes that it can reach much of the
domestic pediatric market with a moderately sized sales force and carefully
controlled marketing expenditures.
Acquire or In-License Additional Pediatric Products. Ascent intends to
acquire or in-license from third parties pediatric pharmaceuticals that permit
it to extend its product lines and leverage its marketing and sales
capabilities. Ascent is particularly seeking prescription pharmaceuticals that
either already have features that increase patient compliance, improve
therapeutic efficacy or reduce side effects or that can be further developed by
Ascent to incorporate such features through the application of the Company's
technologies. Ascent believes that its exclusive focus on the pediatric market
may facilitate its efforts to acquire product rights from third parties. As an
example of this strategy, in November 1996, the Company entered into a non-
binding letter of intent to purchase the Feverall line of acetaminophen rectal
suppository products from Upsher-Smith.
Establish Collaborations for International and Adult Markets. Ascent plans
to enter into licensing and distribution arrangements for the marketing and sale
of its products in international markets to leverage the established
international marketing, sales and distribution capabilities of third party
collaborators. Ascent plans to enter into similar arrangements with respect to
any adult applications of its products.
Obtain Competitive Protections. Ascent seeks to protect many of its
products by applying for use or formulation patents or employing technologies
that are covered by patents or patent applications owned by or licensed to the
Company or its suppliers. In addition, some of Ascent's products will require
NDA approval. Competition for such products may be limited by clinical and
formulation development challenges and, in certain cases, three-year protection
against approval of a potential competitor's ANDA under the Drug Price
Competition and Patent Term Restoration Act of 1984 (the "Waxman-Hatch Act").
Ascent also seeks to keep confidential as a trade secret important know-how
involved in the formulation and production of certain of its products. Finally,
Ascent applies for trademark registrations to protect the brand recognition of
its products and, to date, has been issued six registered United States
trademarks.
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<PAGE> 31
ASCENT TECHNOLOGIES
Ascent is developing therapeutic pharmaceutical products that are designed
to be more appropriate for pediatric patients. Ascent has developed internally
or acquired rights through in-licensing or supply arrangements to a range of
technologies that it applies in its product development efforts. These
technologies include:
Taste masking. Ascent has developed technology to mask the objectionable
or unpleasant taste of various common ingredients used in pediatric
pharmaceuticals. The Company believes that a drug's taste is a critical factor
in pediatric patient compliance, particularly when frequent dosing is required.
The Company is applying its taste masking technology to liquid dosage forms of
product candidates because of the widespread use of liquids in the pediatric
pharmaceutical market. The Company believes that this technology also may be
applicable to solid dosage forms. Ascent's taste masking technology is based on
a complex three-tiered system that entails dissolving the drug through the
addition of a polymer, adding carefully selected debittering agents to
neutralize the taste and then adding pleasant flavors which are compatible with
the physical characteristics of the formulation.
Controlled-release. Ascent has developed its own controlled-release
technology and has in-licensed controlled-release technology from a third party.
In general, these technologies involve coating the active drug with certain
approved substances in a manner that allows the substance to be released in the
patient at specific rates over time. The controlled-release manufacturing
procedures also provide certain taste masking characteristics to the product.
Ascent is applying these technologies to reduce the dosing frequency and, in
some cases, improve the taste of its products, in order to increase patient
compliance.
Transdermal delivery. Ascent has licensed rights to a transdermal enhancer
for certain topically applied drugs. The enhancer is designed to increase the
efficacy and onset of activity of these drugs, which are limited because of
their inability to be absorbed through the skin. The Company believes the active
compound in this enhancer will facilitate the transport of these drugs into the
skin by changing the structure of the lipid layer in the skin to permit
absorption.
Bioadhesion. Ascent is using commercially available bioadhesives to
deliver topical drugs in a manner that is designed to enhance the efficacy of
the active ingredient. Bioadhesives are substances, such as polymers, which are
mixed with drugs in order to anchor the drug to the mucous layer of tissue. When
a drug is so anchored, the body's normal clearance mechanism is slowed, thereby
permitting the drug to have a more rapid and prolonged effect, which may reduce
dosing frequency.
Intranasal delivery device. Ascent has developed a product using a
metering device supplied by a third party that facilitates intranasal use in
pediatric patients by delivering a small volume of fluid under low pressure.
Because the metering device delivers 20% of the amount of solution delivered by
most high volume metered systems, there is less drainage of excess solution from
the nose. The Company believes that this device will increase product acceptance
among children and assure delivery of a consistent volume of spray.
The following table lists the technologies described above, the principal
benefit being sought and the products or product candidates to which Ascent is
applying these technologies.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
TECHNOLOGY ANTICIPATED BENEFIT PRODUCT
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Taste masking Improved taste Primsol trimethoprim solution
Prednisolone sodium phosphate syrup
Cough/cold products
Controlled-release Reduced dosing frequency Pediatemp acetaminophen beads
Pediatemp acetaminophen liquid
Pediavent albuterol suspension
Transdermal delivery Improved efficacy Cromolyn sodium cream
Bioadhesion Improved efficacy Cromolyn sodium nasal spray
Intranasal delivery device Ease of administration Pediamist nasal saline spray
- --------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 32
PRODUCTS AND PRODUCTS UNDER DEVELOPMENT
The following table lists the principal products developed or currently
under development by the Company or that the Company has agreed to acquire. This
table is qualified in its entirety by reference to the more detailed
descriptions of these products elsewhere in this Prospectus.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
PRODUCT INDICATION DEVELOPMENT STATUS(1) KEY FEATURES
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Primsol Acute middle ear NDA recommended for Reduced toxicity
trimethoprim infections approval in January profile; pleasant
solution 1997(2) tasting liquid
- -----------------------------------------------------------------------------------------------
Feverall Pain and fever Currently marketed Alternate form of
acetaminophen administration
rectal
suppositories(3)
- -----------------------------------------------------------------------------------------------
Pediamist nasal Nasal dryness Developed; no FDA Low pressure and
saline spray approval required volume spray; reduced
stinging
- -----------------------------------------------------------------------------------------------
Prednisolone sodium Inflammation, ANDA filings expected Significant taste
phosphate syrup including respiratory in second half of improvement
problems 1997
- -----------------------------------------------------------------------------------------------
Pediatemp Pain and fever Phase III clinical Reduced dosing
acetaminophen trials completed; NDA frequency; improved
controlled-release filing expected in taste
beads second half of 1997
- -----------------------------------------------------------------------------------------------
Pediavent albuterol Asthma Phase I clinical Reduced dosing
controlled-release trials frequency; improved
suspension taste
- -----------------------------------------------------------------------------------------------
Cromolyn sodium Moderate to severe Phase I clinical Alternative to
cream contact dermatitis trials expected in steroids
first half of 1997
- -----------------------------------------------------------------------------------------------
Cromolyn sodium Nasal allergies Preclinical Alternative to
controlled-release steroids; reduced
nasal spray dosing frequency
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Preclinical. A compound is undergoing testing and being evaluated in
relevant assays and/or animal models to assess potential product
characteristics, safety and utility.
Phase I clinical trials. The product is administered to a limited number of
healthy human subjects or patients and tested for pharmacokinetics
(absorption, metabolism, distribution and excretion), pharmacologic action,
dose response, safety and, if possible, early evidence of effectiveness.
Phase II clinical trials. The product is administered to a limited patient
population to (i) evaluate the effectiveness for specific indications and
(ii) identify possible short-term adverse effects and safety risks.
Phase III clinical trials. The product is administered to an expanded
patient population to (i) further test the product for safety, (ii) further
evaluate clinical effectiveness and (iii) provide an adequate basis for
labeling.
ANDA. Abbreviated New Drug Application to the FDA for marketing approval
relating to a new drug that is the same as a drug for which the FDA has
already approved an NDA and whose patent and marketing exclusivity periods
have expired.
NDA. New Drug Application to the FDA for marketing approval for a new drug
for which an ANDA is not permitted.
(2) Ascent has filed a second NDA covering a more concentrated formulation of
Primsol solution. Ascent plans to introduce this more concentrated
formulation as the Primsol solution product that it brings to market. If
approval of the NDA for this more concentrated formulation is significantly
delayed, the Company intends to introduce the original formulation.
(3) This product line is the subject of a non-binding letter of intent. The
Company expects to enter into a definitive acquisition agreement in March
1997 and to close this acquisition in July 1997.
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<PAGE> 33
The Company has conducted a number of clinical trials of its product
candidates in children. The Company plans to continue to conduct such trials,
both in situations in which the trials are required by the FDA and in which the
Company believes that the clinical trial data will be of assistance in marketing
the product to pediatricians. The need to conduct clinical trials in children
under applicable FDA rules is determined on a product-by-product basis. In some
circumstances, the FDA may accept safety and efficacy data that are extrapolated
from adults in support of regulatory approval applications in children.
Because the Company's products are not based on new chemical entities,
Ascent believes that it can reduce regulatory and development risks and shorten
the product development cycle. As to certain product candidates, the Company
expects to be permitted to file an ANDA instead of an NDA. An ANDA is less
complex than an NDA, and, in some circumstances, only limited clinical trial
data or no clinical trial data are required for the application. For products
that contain active ingredients that have received FDA approval, after
expiration of any applicable patents and period of statutory protection under
the Waxman-Hatch Act, Ascent may use data from the NDA of the "pioneer" drug
concerning the safety and efficacy of the drug substance in support of its NDA
or ANDA. Finally, many nonprescription products do not require FDA pre-marketing
approval if the product is within an applicable FDA Over-the-Counter Drug
Monograph ("OTC Monograph"). See "Government Regulation."
Primsol Trimethoprim Solution
Ascent has developed Primsol trimethoprim solution, containing the
antibiotic trimethoprim, as a prescription drug for the treatment of acute
otitis media ("AOM"), or middle ear infection, in children age six months to
twelve years. Trimethoprim for the treatment of AOM in children is currently
only available in combination with the sulfa compound sulfamethoxazole. The
sulfa component of this combination therapy is associated with allergic
reactions that may be severe, or even fatal. In clinical trials conducted by the
Company, Primsol solution, which does not contain this sulfa component, was
shown to be as effective as the combination therapy for the treatment of AOM in
children, but with a more favorable side effect profile. Because of this
improved side effect profile, the Company believes that pediatricians will be
more likely to prescribe an antibiotic comprised only of trimethoprim for the
treatment of AOM in children than they historically have been to prescribe the
combination therapy. In January 1997, the Division of Anti-Infective Drugs of
the FDA notified Ascent that it recommended approval of the Company's NDA for
Primsol solution for the treatment of AOM in children age six months to twelve
years, with a label reflecting that Primsol solution would not be a product for
first line therapy for this indication. Ascent plans to introduce Primsol
solution in the second half of 1997, along with Feverall acetaminophen rectal
suppositories and Pediamist saline nasal spray.
Acute infections are the most frequent illness treated by pediatricians.
AOM is the most common of these infections. By three years of age, approximately
80% of children in the United States have developed at least one ear infection.
In 1996, there were approximately 26,000,000 pediatric patient visits to doctors
in the United States for the treatment of AOM.
There are a number of currently available antibiotics for the treatment of
AOM in children. Most pediatricians initially prescribe amoxicillin, a form of
penicillin, unless the patient is allergic to the drug or the drug has
previously failed to provide a therapeutic effect in the patient. In such cases,
the pediatrician selects a second line antibiotic from a series of alternative
choices, including the trimethoprim/sulfa compound combination therapy (sold
under brand names such as Bactrim and Septra), cephalosporins (such as Ceclor),
a combination of amoxicillin and clavulanic acid (such as Augmentin) or newer
macrolides (such as Zithromax or Biaxin).
Scott-Levin estimates that the United States market for liquid antibiotics
for the treatment of AOM was approximately $371,000,000 in 1996. Of such amount,
approximately $54,500,000 was from the sale of amoxicillin (reflecting
approximately 11,200,000 prescriptions), approximately $11,900,000 was from the
sale of trimethoprim/sulfa compound combination products (reflecting
approximately 3,100,000 prescriptions) and approximately $304,600,000 was from
the sale of other liquid antibiotics (reflecting approximately 8,900,000
prescriptions), including cephalosporins and macrolides. The Company believes
that almost all liquid antibiotics are taken by children.
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<PAGE> 34
Ascent has developed Primsol solution as an antibiotic containing
trimethoprim only, thereby eliminating the potential for an allergic response to
the sulfa component of the combination product. Ascent has sought to facilitate
administration of this product by formulating it as an oral solution. Because
Primsol solution does not need to be shaken prior to administration, it does not
suffer from problems associated with suspensions, such as dose inconsistency.
The Company plans to market Primsol solution as a second line of therapy to
amoxicillin and as an alternative to trimethoprim combination products such as
Bactrim and Septra. Ascent believes that Primsol solution also may be an
attractive alternative to other antibiotics, such as cephalosporins and newer
macrolides, for pediatricians and managed care providers because the Company
plans to offer Primsol solution at a price that is significantly lower than the
current market prices of these other antibiotics.
In December 1995, Ascent completed multicenter Phase III clinical trials of
Primsol solution for the treatment of AOM and uncomplicated urinary tract
infection ("UTI") in children age six months to twelve years. These clinical
trials, which included over 500 children, compared Primsol solution with a
commercially available trimethoprim/sulfamethoxazole combination therapy.
Primsol solution proved to be as clinically effective as the combination therapy
in alleviating the signs and symptoms commonly associated with AOM or
uncomplicated UTI. No statistically significant differences were noted in
response rates of evaluable pediatric patients receiving either Primsol solution
or the combination therapy, and the bacteriologic cure rates were similar for
both types of therapies. However, there were statistically significantly fewer
treatment related side effects reported with Primsol solution than with the
combination therapy, particularly a lower incidence of skin rash.
Based on the January 1997 notice of recommended approval from the FDA and
subsequent discussions with the FDA, Ascent expects to receive marketing
approval from the FDA for Primsol solution for the treatment of AOM in children
age six months to twelve years in the first half of 1997. The Company is
currently in discussions with the FDA with respect to the appropriate labeling
for Primsol solution for this indication. However, the FDA has not yet granted
such marketing approval, and there can be no assurance that such approval in
fact will be granted or as to the timing thereof.
In October 1996, Ascent filed a second NDA with the FDA covering a more
concentrated formulation of Primsol solution. Ascent expects that the NDA with
respect to this second formulation will receive substantially the same approval
for the treatment of AOM in children age six months to twelve years as the first
formulation and that the FDA will grant such approval at approximately the same
time as it approves the first NDA. Accordingly, Ascent plans to introduce this
more concentrated formulation as the Primsol solution product that it brings to
market. If the Company does not receive approval of its NDA for this more
concentrated formulation on a timely basis, the Company would introduce the
first formulation as the Primsol solution product that it brings to market.
The FDA granted Ascent marketing approval for Primsol solution for the
treatment of uncomplicated UTI in patients twelve years and older in June 1995.
While AOM is the Company's primary target market for Primsol solution due to its
size, Ascent filed a supplemental NDA for the use of Primsol solution to treat
uncomplicated UTI in children age six months to twelve years. The FDA did not
approve Ascent's supplemental NDA for the treatment of this indication in this
pediatric patient population because it believed that the Company's clinical
trials did not involve a sufficient number of uncomplicated UTI subjects. The
Company is engaged in discussions with the FDA as to the approvability of its
Primsol solution supplemental NDA for the treatment of uncomplicated UTI in this
pediatric population.
Ascent has submitted a request to the FDA for three years of protection
under the Waxman-Hatch Act against the approval of a competitor's ANDA for the
treatment of AOM and uncomplicated UTI in children age six months to twelve
years which is based on the Company's clinical trial results.
Feverall Acetaminophen Suppositories
Ascent has entered into a non-binding letter of intent with Upsher-Smith to
purchase Upsher-Smith's Feverall line of over-the-counter acetaminophen rectal
suppositories for the treatment of pain and fever. The Company expects to enter
into a definitive acquisition agreement in March 1997 and to close this
acquisition in July 1997. There can be no assurance that the Company will enter
into such a definitive agreement or that
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<PAGE> 35
all of the conditions to closing will be satisfied. Moreover, the final terms of
any acquisition may be different than the anticipated terms set forth in the
letter of intent.
The Company plans to begin marketing the Feverall suppositories product
line in the second half of 1997, along with Primsol trimethoprim solution and
Pediamist nasal saline spray. Acetaminophen rectal suppositories are used in
patients, primarily children or adolescents, who cannot take acetaminophen
orally as a result of regurgitation caused by influenza or an inability to
tolerate the taste of currently available liquid forms of acetaminophen. The
Feverall suppositories product line is covered by an effective NDA and currently
is being marketed by Upsher-Smith. Ascent will not require any additional
approval from the FDA in order to continue marketing the Feverall suppositories
product line.
IMS America, Ltd., a marketing research firm ("IMS"), estimates that the
1995 United States pediatric market for acetaminophen rectal suppositories was
approximately $5,800,000. Upsher-Smith introduced Feverall suppositories to the
market in 1989 and offers a product line of four strengths, 80 mg, 160 mg, 325
mg and 650 mg. Upsher-Smith's 1996 net sales of this product line were
$3,877,000. See "Financial Statements -- A Product Line of Upsher-Smith
Laboratories, Inc. -- Statement of Net Sales and Identified Costs and Expenses
of the Product Line to be Acquired by Ascent Pediatrics, Inc." Other
acetaminophen rectal suppositories currently on the market in the United States
include "Acephen," which is marketed by G&W Laboratories, and "Neopap," which is
marketed by PolyMedica Industries, Inc., as well as certain generic brands.
Ascent is seeking to acquire this product line because this dosage form of
acetaminophen permits administration to children who would otherwise be unable
to take the drug. In recent years, Upsher-Smith has promoted this product line
primarily through the use of advertising and two-month telemarketing programs
during the fall of each year. Ascent believes that it is possible to increase
market penetration for this product line through personal sales calls to
pediatricians and pediatric nurses, although there can be no assurance that
Ascent will be successful in doing so. In addition, the letter of intent
provides that Ascent would be permitted to use the Feverall trademark in
connection with the other acetaminophen products that it is currently
developing. Ascent believes that the name recognition of this trademark would be
useful in marketing these other acetaminophen products and in enhancing the
Company's profile in the pediatric market generally.
Under the letter of intent, the purchase price for this product line and
certain related assets, including the Feverall trademark, would be $11,500,000
plus the cost of certain related inventory (estimated to be approximately
$300,000). The Company would be required to pay $6,000,000 plus the inventory
cost at the closing of the acquisition (of which $250,000 previously was paid as
a nonrefundable deposit) and to pay the balance no later than 225 days from the
date of closing of the acquisition. Upsher-Smith would agree to supply the
Company with its requirements of Feverall acetaminophen rectal suppositories,
and the Company would agree to purchase from Upsher-Smith all amounts of such
product as it may require, for a period of five years.
Pediamist Nasal Saline Spray
Ascent has completed development of Pediamist nasal saline spray, an
over-the-counter product to relieve nasal dryness associated with low humidity.
This product is administered by a metering device that the Company believes is
particularly appropriate for use by children. The Company plans to introduce
Pediamist to the market in the second half of 1997, along with Primsol
trimethoprim solution and Feverall acetaminophen rectal suppositories. No FDA
pre-marketing approval is required for Ascent to market this product in the
United States.
Pediatricians frequently recommend nasal saline sprays instead of
decongestant sprays because decongestant sprays contain vasoconstrictors that
can cause "rebound," a phenomenon in which nasal congestion resulting from the
use of the drug is more intense than the original symptoms. Nasal saline sprays
are often an effective alternative therapy for this indication and are widely
recognized as safe. IMS estimates that the 1993 United States market for nasal
saline sprays (both adult and pediatric) was approximately $11,500,000.
There are a number of nasal saline spray products that are currently
available for nasal dryness associated with low humidity. All of these products
are designed primarily for use by adults and deliver a high volume of
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<PAGE> 36
spray at high pressure through a device sized for adult nasal openings.
Moreover, certain of these products are formulated with materials that are known
to cause local stinging.
Pediamist nasal spray is administered by a metering device specifically
designed to deliver saline solution in a low volume fine mist under low
pressure. This device includes a special actuator that determines the volume and
pressure of the saline to be delivered. Because the Pediamist nasal spray device
delivers approximately 20% of the amount of saline solution delivered by most
high volume metered systems, there is less drainage of excess saline from the
nose. The Company believes that this device will increase product acceptability
among children and assure delivery of a consistent volume of spray. Ascent has
formulated Pediamist nasal spray with glycerine to reduce stinging.
Prednisolone Sodium Phosphate Syrup
Ascent is developing a prednisolone sodium phosphate syrup as a
prescription steroid for the treatment of inflammation associated with a variety
of diseases, principally those of the respiratory system, such as asthma and
bronchitis. Currently available liquid steroid products for the treatment of
inflammation have a very unpleasant taste. As a result, compliance problems
frequently result, even though these products are used for the treatment of
serious and, in some cases, life threatening diseases. Ascent has applied its
taste masking technology to develop a prednisolone syrup product with a pleasant
taste. Ascent plans to file ANDAs with the FDA in the second half of 1997 for
two strengths of this product.
Scott-Levin estimates that in 1996 approximately 3,000,000 prescriptions
for liquid steroids were written in the United States, of which approximately
56% were written by pediatricians, and that the 1996 United States pediatric
market for liquid steroids was approximately $20,700,000. The Company believes
that almost all liquid steroids are taken by children.
A number of currently available steroids are widely used in pediatrics
because of the anti-inflammatory properties of these drugs. Physicians generally
prefer prednisolone and prednisone to other products due to the greater margin
of safety of these two drugs and generally prefer prednisolone to prednisone
because prednisolone is more reliable, particularly if the patient suffers from
certain liver disorders.
Certain currently available liquid steroid brands are available only in a
5mg/5ml strength, which Ascent believes limits their application. Ascent is
developing prednisolone syrup in both 5mg/5ml and 15mg/5ml strengths. Ascent has
conducted two pediatric studies for marketing purposes to compare the taste of
its product with that of a currently-marketed prednisolone liquid product. In
the study testing the 15mg/5ml strength against an existing product with the
same strength, 23 of the 24 participating children preferred the taste of the
Ascent product; in the study testing the 5mg/5ml strength against an existing
product with the same strength, 16 of the 24 children participating preferred
the taste of the Ascent product, although the results of this second study were
not considered to be statistically significant due to the number of
participants. Ascent is not required to perform any clinical trials of this
product prior to filing an ANDA.
Pediatemp Acetaminophen Controlled-Release Beads
Ascent is developing Pediatemp acetaminophen controlled-release beads as an
over-the-counter product for the treatment of pain and fever in children. The
Company has designed this product to permit dosing every eight hours, rather
than the four hours required by currently available products. Ascent recently
completed Phase III clinical trials of this product and, subject to the results
of these clinical trials being satisfactory, plans to file an NDA in the second
half of 1997.
FIND/SVP estimates that sales of pediatric forms of pain/fever medications
in the United States approximate $300,000,000 per annum. There are a number of
currently available acetaminophen products for the treatment of pain and fever
in children. Most of these products are in the form of a liquid or chewable
tablet. The product with the largest market share in the United States is
Tylenol liquid for children. None of the pediatric products currently on the
market is available in a controlled-release formulation. Accordingly, these
products are absorbed quickly from the gastrointestinal tract into the blood and
quickly cleared from the body, necessitating dosing every four hours. As a
result, if administered at bedtime, the patient needs an additional dose before
morning. If administered during the day, parents often must rely on school
nurses or
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day care providers to administer the medication. In addition, under the
applicable FDA OTC Monograph, only five doses of acetaminophen may be given in
each 24-hour period. Therefore, if the medication requires four hour dosing,
treatment may only be given for 20 hours in each 24-hour period.
Ascent is developing Pediatemp beads with a proprietary controlled-release
technology that releases the acetaminophen at specific rates over time in order
to provide a therapeutic effect (reduction in fever and pain) for eight hours.
Ascent believes that dosing every eight hours may significantly increase
compliance and permit therapeutic coverage for the full 24-hours of each day. To
facilitate administration, Ascent has formulated this product in the form of
small beads that either can be sprinkled on a food that is appealing to the
child, such as applesauce, or delivered in a liquid, such as water.
Ascent has completed three Phase I definitive pharmacokinetic trials
comparing Pediatemp beads to Tylenol extended relief caplets and immediate
release Tylenol tablets. These trials involved 63 healthy adults. In these
trials, Pediatemp beads exhibited equivalent bioavailability to the Tylenol
product to which they were compared.
In December 1996, Ascent completed a Phase III clinical trial that
evaluated Pediatemp beads for the reduction of dental pain. This study was
conducted in 125 adults and was double blinded, with the control group receiving
an equivalent amount of Tylenol extended relief caplets. A single dose was
administered to each patient over an eight-hour period. The data from this study
are currently being analyzed. A second Phase III clinical trial of this product
for the treatment of fever in children commenced in June 1996 and was completed
in February 1997. This study involved 100 febrile children between the ages of
two and eleven years old. In this second Phase III clinical trial, Pediatemp
beads were compared on a double blinded basis with an immediate release
presentation of acetaminophen for efficacy (reduction in fever) and safety. The
data from this study also are currently being analyzed.
An NDA will need to be approved by the FDA for Ascent to market this
product in the United States. Ascent expects to submit a request to the FDA for
three years of protection under the Waxman-Hatch Act against the approval of a
competitor's ANDA for the treatment of pain and fever in children under 12 years
of age which is based on the Company's clinical trial results.
Pediavent Albuterol Controlled-Release Suspension
Ascent is developing Pediavent albuterol controlled-release suspension as a
prescription product for the treatment of asthma. Ascent is formulating the
product in a controlled-release suspension to permit twice-a-day administration
and to mask the normal bitterness of albuterol. Ascent is conducting Phase I
clinical trials of this product.
Asthma is the leading cause of pediatric hospital admissions. It is a
debilitating disease that causes swollen and inflamed airways that are prone to
constrict suddenly and violently. Asthmatic attacks can be life-threatening and,
in some cases, fatal.
A common treatment for asthma is the administration of a beta agonist
bronchodilator, of which albuterol is the most widely prescribed. Scott-Levin
estimates that the 1996 United States pediatric market for all forms of beta
agonists was approximately $178,800,000, with liquid forms comprising
approximately 15% of this market ($26,500,000). Albuterol is available in
various dosage forms, including tablets and liquids, which are generally used
for chronic administration, and inhalers, which are generally used for acute
incidents. Tablet formulations are typically not used by young children, as they
are difficult to swallow and must be administered every four or eight hours. The
only currently available controlled-release tablet (Volmax) is not approved for
use in patients under 12 years of age. Liquid albuterol formulations have an
unpleasant taste and must be dosed three to four times per day.
Ascent is developing its albuterol product as a suspension in the form of
granules which contain the drug in a coating. The coating allows the albuterol
to be released at a specific controlled rate and masks the normal bitterness of
the drug. To enhance patient compliance, the Company is designing this product
for twice-a-day administration.
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In 1995, Ascent conducted Phase I open-label, single dose pharmacokinetic
studies of this product in Europe comparing this product's bioavailability
profile with that of Volmax. These studies involved 12 healthy adult subjects at
one site. The results of this study indicated that the pharmacokinetics of two
of the formulations being developed by Ascent were indistinguishable from Volmax
in terms of bioavailability. Ascent initiated a Phase I clinical trial in the
United States involving 12 healthy adults in February 1997 to seek to confirm
the results of the European bioavailability study. If the results of the Phase I
clinical trial are satisfactory, the Company plans in the second half of 1997 to
initiate pivotal pharmacokinetic Phase I clinical trials involving 65 adults and
children as well as a pivotal Phase III clinical trial involving 50 children.
An NDA will need to be approved by the FDA for Ascent to market this
product in the United States. Ascent plans to submit a request to the FDA for
three years of protection under the Waxman-Hatch Act against the approval of a
competitor's ANDA for the treatment of asthma in children under 12 years of age
which is based on the Company's clinical trial results.
Cromolyn Sodium Cream
Ascent is developing cromolyn sodium cream as a prescription drug for
symptoms associated with moderate to severe contact dermatitis caused by
exposure to poison ivy or oak, insect bites and bee stings and other allergic
and non-allergic reactions. Ascent is designing this product as an alternative
to prescription topical steroids. Ascent's IND for this product became effective
in January 1997. The Company expects to commence Phase I clinical trials in the
first half of 1997.
Scott-Levin estimates that the 1996 United States market for pediatric
prescription topical steroids was approximately $42,000,000. Steroids are the
primary medication prescribed by physicians for the treatment of contact
dermatitis. Even when applied topically, steroids may be absorbed systemically
and have unfavorable side effects. Ascent believes that pediatricians prescribe
steroids for topical use by children because these drugs are effective and no
viable alternative exists. Such pediatric use is off label, because the
labelling of all of these drugs specifies that they are not for use in children.
Cromolyn sodium has wide use and acceptance for both children and adults in
other dosage forms for the treatment of conditions that have an allergic element
(e.g., asthma, allergic rhinitis, allergic conjunctivitis and intestinal
mastocytosis). Ascent is developing cromolyn sodium as a topical cream because
contact dermatitis has a similar allergic element as these other conditions. To
date, cromolyn sodium has not been used topically because it is not readily
absorbed through the skin. Ascent has formulated this product with a transdermal
enhancer to facilitate the transport of the cromolyn sodium into the skin.
Ascent believes that a medication for moderate to severe contact dermatitis that
does not use a steroid would be attractive to pediatricians.
Ascent is scheduled to conduct two Phase I clinical trials of this product
beginning in the first half of 1997. Each of these trials will involve 12
healthy adult volunteers and compare Ascent's topical cromolyn sodium cream with
a placebo. These trials will be conducted at a single site and be double
blinded. One study will involve the effect of cromolyn sodium cream as a
prophylactic, and the second will evaluate this product as a treatment in a
chemically-induced contact dermatitis.
An NDA will need to be approved by the FDA for Ascent to market this
product in the United States. Ascent plans to submit a request to the FDA for
three years of protection under the Waxman-Hatch Act against the approval of a
competitor's ANDA for the treatment of moderate to severe contact dermatitis in
children under 12 years of age which is based on the Company's clinical trial
results.
Cromolyn Sodium Controlled-Release Nasal Spray
Ascent is developing a cromolyn sodium controlled-release nasal spray as a
prescription product for the prevention of allergic rhinitis associated with
conditions such as hay fever. Ascent's goal is to develop a product that will
require administration only once or twice per day and achieve a therapeutic
effect in a significantly shorter time than existing cromolyn sodium nasal
sprays. Ascent is conducting preclinical tests of this product.
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There are a number of currently available therapies for the treatment of
allergic rhinitis in children, including topical steroids, which can be absorbed
systemically, leading to potentially serious side effects, and oral
antihistamines, which require systemic administration. Scott-Levin estimates
that the 1996 United States pediatric market for nasal steroids was
approximately $54,000,000. In addition, a cromolyn sodium nasal spray is
marketed for this indication under the name Nasalcrom. Nasalcrom requires a
frequent dosing regimen (four to six times per day) along with an extended time
(up to three weeks) to obtain a beneficial effect, which often leads patients to
become non-compliant or prematurely terminate their therapy. Scott-Levin
estimates that the 1996 United States pediatric market for Nasalcrom was
approximately $6,500,000.
Ascent is seeking to develop a cromolyn sodium nasal spray for this
indication because of the safe side effect profile of cromolyn sodium and to
avoid systemic administration. Ascent is formulating its product candidate with
a bioadhesive polymer which it believes will provide a longer nasal residence
time for the cromolyn sodium, thereby optimizing the drug action. An NDA will
need to be approved by the FDA for Ascent to market this product in the Untied
States.
Other Programs
In addition to the products and product development programs described
above, the Company also is engaged in the development of a number of other
pediatric pharmaceutical products. These programs include the following:
Cough/Cold and Other OTC Products. Ascent is developing a line of improved
flavor over-the-counter cough/cold products. Many of the over-the-counter
products for the treatment of coughs and congestion due to colds and influenza
contain the active ingredients guaifenisen, dextromethorphan or the decongestant
pseudoephedrine, which have a bitter taste.
Ascent is applying its taste masking technology to the development of a
line of cough/cold products containing guaifenisen, dextromethorphan and
pseudoephedrine. Ascent already has completed the development of a guaifenisen
cough syrup. In a taste study involving 81 children age three to six years
comparing Ascent's cough syrup containing guaifenisen to Robitussin, a leading
liquid guaifenisen product, the participants showed a statistically significant
preference for Ascent's product.
The Company believes that it is preferable to introduce its cough/cold
products to the market as an integrated product line. Accordingly, Ascent does
not plan to introduce its guaifenisen cough syrup until it has completed
development of additional products, which the Company estimates will occur no
sooner than late 1999. Because these products are being formulated within the
applicable FDA over-the-counter monographs, Ascent expects that they will not
require FDA approval prior to marketing.
In addition to these cough/cold products, Ascent also is developing other
products for the over-the-counter market using the Company's taste masking
technology. The Company does not believe that any of these products will require
FDA approval prior to marketing.
Pediatemp Acetaminophen Controlled-Release Liquid. Ascent is developing a
controlled-release liquid acetaminophen over-the-counter product for the
pediatric market. As with Pediatemp controlled-release beads, this product would
be used for the treatment of pain and fever. Ascent is developing a liquid
product because such a dosage form is preferable for young children. There
currently are no controlled-release acetaminophen liquid products on the market
for use by either children or adults. Ascent is currently undertaking stability
studies of this product candidate to optimize its formulation and taste
characteristics. Ascent is applying its taste masking technology in developing
this product. An NDA will need to be approved by the FDA for Ascent to market
this product in the United States.
PRODUCT DEVELOPMENT
Ascent actively evaluates the pediatric pharmaceutical industry on an
ongoing basis to assess product usage and to identify unmet medical needs of
children, particularly for prescription drugs for the most common pediatric
illnesses. Ascent's program to identify pediatric product opportunities includes
conducting focus groups with pediatricians, pediatric nurses and parents,
consulting with the Company's scientific and
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medical advisors and evaluating drug delivery and other technical developments
for their applicability to the field of pediatric pharmaceuticals. Ascent uses
this information to select compounds as product development candidates that it
believes may be improved through the application of its technologies and
reformulation expertise and then successfully commercialized. Ascent reviews the
anticipated development difficulty, time frame and cost, required technologies,
applicable regulatory requirements, competitive environment and anticipated
marketing and sales approach in evaluating each development candidate.
Ascent selects as product candidates approved compounds that have well
known clinical profiles and are not covered by third party patents and that it
believes may be improved through the application of the Company's drug delivery
and reformulation technologies. Ascent then seeks to improve these products
through optimized formulations or new delivery technologies with the goal of
differentiating them from competitive products on the market. By developing
products based on approved compounds rather than new chemical entities, the
Company believes that it can reduce regulatory and development risks and shorten
the product development cycle.
Ascent identifies third party manufacturers or academic institutions that
have the required analytical expertise, technology, manufacturing capabilities
and personnel to perform much of the design and formulation work for the
Company's products. To expedite the regulatory process, Ascent seeks to enter
into arrangements with product manufacturers that extend from pilot production
for product stability testing through clinical trials and ultimately to
commercial production. Ascent works closely with these third parties in
connection with product design and formulation and monitors manufacturing
activities, including compliance with Good Manufacturing Practice ("GMP") and
Good Laboratory Practice ("GLP") rules of the FDA.
Ascent contracts with clinical research organizations for the conduct of
the Company's clinical trials. Ascent conducts clinical trials of many of its
products in children not only to comply with FDA requirements but also because
the Company believes that pediatricians will be more willing to prescribe
products for which specific efficacy and safety information is available with
respect to the effect of the drug on pediatric patients. To facilitate enrolling
children in the Company's clinical trials, Ascent has established a network of
relationships with influential pediatricians, industry associations and
pediatric research organizations specializing in conducting clinical trials in
children.
SALES AND MARKETING
Ascent believes that its exclusive focus on the development and marketing
of pediatric pharmaceutical products will meaningfully differentiate the Company
from other pharmaceutical companies in the pediatric medical community.
Accordingly, even before the launch of its first products, Ascent has initiated
a program to familiarize pediatricians with Ascent's corporate identity. This
program began at the fall 1996 annual meeting of the American Academy of
Pediatrics and includes a direct mail campaign and journal advertising directed
at private pediatricians. The Company expects that pediatricians and pediatric
nurses, who are responsible for most prescriptions written for children in the
United States and play a central role in recommending over-the-counter
medications for children will be the primary focus of the Company's marketing
and sales efforts.
Ascent hired a Vice President of Marketing in 1996 and is recruiting a Vice
President of Sales to lead the Company's marketing and sales efforts. Ascent is
establishing its domestic sales organization in anticipation of the introduction
of its initial three products, Primsol trimethoprim solution, Feverall
acetaminophen rectal suppositories and Pediamist nasal saline spray, to the
market during the second half of 1997. Ascent is in the process of preparing
marketing literature and other marketing materials for the introduction of these
initial three products. Ascent's ability to achieve its product introduction
schedule will depend on the timing of final approval of the Primsol solution NDA
and of entering into a definitive acquisition for and closing the Feverall
product line acquisition. Ascent plans to introduce other products as their
development is completed and subject to obtaining requisite regulatory
approvals.
Ascent has chosen to establish its own domestic sales force instead of
using third party sales organizations. The Company believes that marketing and
sales initiatives can be more efficiently and
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effectively implemented through a direct sales force that promotes only Ascent
products. Because pediatricians and pediatric nurses are concentrated in group
practices in urban and suburban centers and advertising may be disseminated
through a limited number of specialty pediatric publications, Ascent believes
that it can reach much of the domestic pediatric market with a moderately sized
sales force and carefully controlled marketing expenditures. Ascent expects to
employ six regional sales managers, six full-time sales representatives and
approximately 30 flex-time (or part-time) sales representatives by the end of
1997. Ascent plans to expand this sales force in the future as it introduces
additional products.
The Company plans to use its sales force to promote the Company's products
to high prescribing pediatricians, influential pediatricians and nurses in
pediatricians' offices. Ascent expects to accomplish this goal through personal
sales calls by its sales representatives and attendance by its sales
representatives at industry conferences, seminars and other meetings.
Particularly while building its sales force, Ascent plans to supplement these
activities with a telemarketing program designed to reach pediatricians and
nurses in geographic areas beyond the coverage of the Company's sales force and
pediatricians and pediatric nurses who are not targeted for one-on-one visits.
Ascent expects to advertise its products through direct mail and advertisements
in speciality pediatric journals.
Because more than 60% of patients are covered by a managed care program,
such as a health maintenance organization, preferred provider organization or
state Medicaid program, Ascent also plans to promote its products directly to
managed care providers with the goal of obtaining inclusion of these products on
the providers' formularies. The Company has retained a consulting firm to assist
it in gaining managed care formulary acceptance, but may perform this function
with its own personnel in the future.
Ascent plans to enter into licensing and distribution arrangements for the
marketing and sale of its products in international markets to leverage the
established international marketing, sales and distribution capabilities of
third party collaborators. Ascent plans to enter into similar arrangements with
respect to any adult applications of its products.
MANUFACTURING AND DISTRIBUTION
The Company plans to rely upon third parties to manufacture the Company's
products for preclinical tests, clinical trials and commercial purposes.
Accordingly, the Company does not have any manufacturing facilities and has not
sought to employ direct manufacturing personnel. The components of the Company's
products generally are available from a variety of commercial suppliers and are
inexpensive. The production of most of these products involves known
manufacturing techniques, although the Company has developed certain proprietary
manufacturing technologies that it seeks to protect as trade secrets.
Ascent believes that there are a number of third party manufacturers, both
in the United States and abroad, with the capability of manufacturing products
for the Company. The Company intends to establish supply agreements with
manufacturers that comply with the FDA's GMP requirements and other regulatory
standards. Certain of the Company's supply arrangements require that Ascent buy
all of the Company's requirements of a particular product exclusively from the
other party to the contract. Moreover, for many of its products, Ascent has
qualified only one supplier, even though the contractual arrangement with the
supplier may permit Ascent to qualify an alternative manufacturer. Any
interruption in supply from any of its manufacturers or the inability of these
manufacturers to manufacture the Company's products in accordance with GMP could
have a material adverse effect on the Company's business, financial condition
and operating results.
To date, the Company has entered into several agreements with third parties
for the manufacture of the Company's products. In particular, the Company is a
party to a supply agreement with Lyne Laboratories, Inc. ("Lyne"), under which
Lyne has agreed to manufacture Primsol trimethoprim solution for the Company,
and the Company has agreed to purchase all amounts of such product as it may
require for sale in the United States from Lyne in accordance with an agreed
upon price schedule. The agreement may be terminated by either party on three
months' notice any time after October 17, 2004. See "Business -- License
Agreements" for a description of the Company's agreement with a third party
relating to the manufacture of Pediavent albuterol controlled-release granules
for suspension and "Business -- Products and Products under Develop-
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ment -- Feverall Acetaminophen Suppositories" for a description of the Company's
anticipated arrangements with Upsher-Smith for the manufacture of Feverall
acetaminophen rectal suppositories.
In the future, the Company may, if it becomes economically attractive to do
so, establish its own manufacturing facilities. In order for the Company to
establish a manufacturing facility, the Company would require substantial
additional funds and be required to hire and retain significant additional
personnel and comply with the extensive GMP regulations of the FDA.
Ascent initially plans to distribute its products through a third party
distribution warehouse. Under this arrangement, the manufacturers of the
Company's products will ship the products to the distributor. The distributor
will perform various functions on behalf of the Company, including order entry,
customer service and collection of accounts receivable. The Company may seek to
develop the capability to perform some or all of these functions through its own
personnel in the future.
COMPETITION
Competition in the pediatric pharmaceutical market is intense. Although the
Company believes that no competitor focuses its commercial activities and
research and development efforts exclusively on the pediatric pharmaceutical
market, several large pharmaceutical companies with significant research,
development, marketing and manufacturing operations market pediatric products.
These competitors include Glaxo Wellcome Inc., Eli Lilly and Company, the Mead
Johnson Division of Bristol-Myers Squibb, Inc., the Ortho-McNeil Pharmaceutical
Division of Johnson & Johnson Inc., Pfizer Inc., the Ross Laboratories Division
of Abbott Laboratories Inc., Schering-Plough Corporation and the Wyeth-Lederle
Vaccines and Pediatrics Division of American Home Products, Inc.
Key competitive factors affecting the success of the Company include the
efficacy, side effect profile, taste, dosing frequency, method of
administration, patent or other proprietary protection, brand name recognition
and price of its products. The timing of market introduction of the Company's or
competitive products is another important competitive factor. Earlier entrants
in the market often obtain and maintain significant market share relative to
later entrants. Accordingly, the relative speed with which Ascent can develop
products, complete the clinical trials and approval processes and supply
commercial quantities of the products to the market is expected to be an
important competitive factor. The Company's competitive position will also
depend on its ability to attract and retain qualified personnel, to obtain
patent protection or otherwise protect the competitive positions of its products
and to secure sufficient capital resources for its operations.
Many of Ascent's potential competitors have substantially greater name
recognition and greater financial, technical and human resources than Ascent. In
addition, many of these competitors have significantly greater experience than
the Company in undertaking preclinical testing and human clinical trials of
pharmaceutical products and obtaining FDA and other regulatory approvals of
products for use in health care. Accordingly, the Company's competitors may
succeed in obtaining FDA or other regulatory approvals for products more rapidly
than the Company. Furthermore, subject to obtaining required regulatory
clearances, Ascent will compete against these larger companies with respect to
manufacturing efficiency and marketing capabilities, areas in which Ascent has
limited or no experience. Ascent's competitors may introduce competitive pricing
pressures that may adversely affect Ascent's sales levels and margins. Moreover,
many of these competitors offer well established, broad product lines and
services not offered by the Company. Many of the products offered by these
competitors have well known brand names that have been promoted over many years.
The Company expects to market many of its product candidates as alternative
treatments for pediatric indications for which products with the same active
ingredient are well-entrenched in the market. For example, the Company intends
to market Primsol trimethoprim solution, a trimethoprim antibiotic, for the
treatment of AOM, for which pediatricians often prescribe the well-known
combination therapies Bactrim and Septra, which also contain trimethoprim.
Similarly, Pediatemp acetaminophen controlled-release beads would compete
against Tylenol liquid for children. The Company's product candidates also will
face competition from other products that do not contain the same active
ingredient but are used for the same indication and are well entrenched within
the pediatric market. For example, Primsol solution will compete against other
antibiotics, including amoxicillin. Moreover, many of the Company's potential
products that are reformula-
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tions of existing drugs of other manufacturers may have significantly narrower
patent or other competitive protection. There can be no assurance that
pediatricians, pediatric nurses and third party payors will prefer the Company's
products to existing products.
LICENSE AGREEMENTS
The Company is a party to certain license and other arrangements under
which it has obtained rights to manufacture and market certain of its products
or product candidates. Set forth below is a summary of those arrangements that
the Company believes are material to its business.
The Company is a party to a development and license agreement with
Recordati S.A. Chemical and Pharmaceutical Company ("Recordati") pursuant to
which the Company holds a license under certain Recordati patents and patent
applications to clinically test, register, market, distribute and sell a
controlled-release suspension system formulation of albuterol in the form of
coated granules. The license is exclusive in all countries other than Italy and
Spain. The Company may sublicense its license rights under this agreement,
subject to certain restrictions in certain countries. Ascent and Recordati have
agreed to collaborate on the development, clinical testing and regulatory
approval of this albuterol product in the United States and in any other country
in which the Company elects to pursue the commercial development of such product
by providing Recordati notice of such intent within 24 months of filing for
regulatory approval in the United States. All license rights with respect to (i)
countries in which the Company does not so notify Recordati of its intention to
commercially develop such product and (ii) countries in which a joint
development committee comprised of two members from each of the Company and
Recordati determine that commercial development of the product is not
technically feasible, revert to Recordati. Recordati will own any intellectual
property resulting from the collaboration other than clinical research data,
product applications and regulatory approvals obtained by Ascent, which the
Company will own. This agreement has an initial term expiring 15 years from the
date of FDA approval of the product and may be extended at the Company's
election for an additional five year term. During the term of this agreement,
Recordati has agreed to supply such quantities of the product as the Company may
require. The Company is required to pay Recordati certain up-front license fees
and to purchase the product from Recordati at unit prices based upon net sales
in a given country. During the term of this agreement, the Company has agreed
not to develop, manufacture or sell other oral liquid controlled-release
suspension system formulations of a beta agonist.
The Company is a party to a license agreement with MacroChem Corporation
("MacroChem"), under which the Company holds the exclusive, worldwide license,
with the right to sublicense, in technology described in a certain MacroChem
patent to manufacture, use and sell products utilizing transdermal enhancers in
combination with catecholamine bronchodilators for the treatment of respiratory
disorders and products utilizing certain transdermal enhancers in combination
with cromolyn sodium for the treatment of allergic disorders. The license is
co-extensive with the duration of the licensed patent, which expires in 2006.
Pursuant to this agreement, the Company paid MacroChem certain up-front license
payments and is required to pay royalties based on net sales and sublicense fees
for the duration of the patent.
The licenses and other third party product arrangements to which the
Company is a party impose various commercialization, sublicensing, royalty and
other payment, insurance and other obligations on the Company. Failure of the
Company to comply with these requirements could result in termination of the
applicable agreement, which could have a material adverse effect on the Company.
PATENTS, TRADE SECRETS, LICENSES AND TRADEMARKS
The Company's success will depend in part on its ability to develop
patentable products and obtain patent or other proprietary rights protection for
its products, both in the United States and in other countries. The Company's
policy is to file patent applications to protect technology, inventions and
improvements that are considered novel and important to the development of its
business. The Company also relies upon trade secrets, know-how, continuing
technological innovation and licensing opportunities to develop and maintain its
competitive position. Ascent also plans to seek three year protection for
certain products under the Waxman-Hatch Act from the approval of a possible
competitor's ANDA which is based on the Company's clinical trial
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results as well as trademark protection for its brand names. There can be no
assurance, however, that any steps taken by the Company to protect its
proprietary position will be effective.
The Company holds four issued United States patents, has filed ten
additional patent applications and has received notices of allowance of claims
in three such patent applications. Three of the issued patents relate to the
Company's cromolyn sodium cream product candidate. The claims in one of the
patent applications as to which the Company has receive a notice of allowance
relate to certain controlled-release technology of the Company. Three of the
other seven patent applications relate to the Company's cromolyn sodium cream
product candidate, three relate to taste-masking technologies and one relates to
the Company's formulation of Primsol trimethoprim solution. One of the issued
patents and two of the patent applications as to which the Company has received
notices of allowance of claims relate to product development candidates which
the Company currently is not planning to pursue. The Company has sought foreign
patent protection in other major industrial countries in respect of its most
commercially important technologies. All of the Company's issued United States
and foreign patents expire from 2012 to 2016, although certain United States
patents may be extended for specified periods, and the Company's United States
and foreign patents could lapse if certain applicable fees are not paid.
The patent positions of pharmaceutical firms, including Ascent, are
generally uncertain and involve complex legal and factual questions.
Consequently, even though Ascent currently is prosecuting its patent
applications with the United States Patent and Trademark Office and certain
foreign patent authorities, the Company does not know whether any of its
remaining applications will result in the issuance of any patents or, if any
patents are issued, whether they will provide significant proprietary protection
or will be circumvented or invalidated. Since the Company's products and product
candidates represent reformulations of off-patent drugs, any patents which cover
such products would be use or formulation patents, and the Company's products
would therefore be afforded a significantly narrower level of protection than a
patent on the active ingredient itself. Since patent applications in the United
States are maintained in secrecy until patents issue, and since publication of
discoveries in the scientific or patent literature tend to lag behind actual
discoveries by several months or years, Ascent cannot be certain that it was the
first creator of inventions claimed by pending patent applications or that it
was the first to file patent applications for such inventions. Generally, in the
United States, the first to invent is entitled to the patent, whereas in the
European Economic Community, the first to file is entitled to the patent.
Competitors of the Company and other third parties hold issued patents and may
have pending patent applications in the fields in which the Company is
developing and plans to market products, and it is possible that these patents
and patent applications will require the Company to alter its products or
processes, pay licensing fees or cease certain activities.
Ascent's practice is to require its employees, consultants, members of its
Scientific Advisory Board, Medical Advisory Board, outside scientific
collaborators and sponsored researchers and other advisors to execute
confidentiality and invention assignment agreements upon the commencement of
employment or consulting relationships with the Company. These agreements
provide that all confidential information developed pursuant to such
relationships or made known to the individual by Ascent during the course of the
individual's relationship with Ascent is to be kept confidential and not
disclosed to third parties, subject to a right to publish certain information in
the scientific literature in certain circumstances and subject to other specific
exceptions. In the case of employees, the agreements provide that all inventions
conceived by the individual relating to the business of the Company shall be the
exclusive property of the Company. There can be no assurance, however, that
these agreements will provide meaningful protection for the Company's trade
secrets or adequate remedies in the event of unauthorized use or disclosure of
such information.
Ascent engages in collaborations and sponsored research agreements and
enters into preclinical and clinical testing agreements with academic and
research institutions to take advantage of their technical expertise and staff
and to gain access to clinical evaluation models, patients, and related
technology. Ascent may be required to negotiate a license to any developments or
results arising out of such collaborations or agreements in order to
commercialize products incorporating them. There can be no assurance that the
Company will be able successfully to obtain any such license at a reasonable
cost or that such developments and results will not be made available to
competitors of the Company on an exclusive or nonexclusive basis. See "Risk
Factors -- Uncertainty Regarding Patents and Proprietary Rights."
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Because it believes that promotion of pediatric pharmaceutical products
under a brand name can be an important competitive factor, Ascent plans to seek
trademark protection, both in the United States and in major foreign countries,
for its products. To date, Ascent has obtained six trademark registrations from
the United States Patent and Trademark Office, including for the marks "ASCENT,"
"PEDIAMIST" and "PRIMSOL," and has received notices of allowance from the United
States Patent and Trademark Office with respect to trademark registrations for
the marks "PEDIAVENT" and "PEDIATEMP." The "FEVERALL" trademark of Upsher-Smith
would be included in the assets that Upsher-Smith would sell to the Company as
part of the Company's anticipated acquisition of Upsher-Smith's Feverall line of
acetaminophen rectal suppositories.
GOVERNMENT REGULATION
The testing, manufacture, labeling, distribution, sale, marketing,
promotion and advertising of the Company's products and its ongoing product
development activities are subject to extensive and rigorous regulation by
governmental authorities in the United States and other countries.
FDA Approval
In the United States, pharmaceutical products intended for therapeutic use
in humans are subject to rigorous and extensive FDA regulation before and after
approval. The process of completing preclinical studies and clinical trials and
obtaining FDA approvals for a new drug can take several years and requires the
expenditure of substantial resources. There can be no assurance that any product
will receive such approval on a timely basis, if at all. See "Risk Factors -- No
Assurance of Regulatory Approval; Extensive Government Regulation."
The steps required before a new drug for human use may be marketed in the
United States include (i) preclinical tests, (ii) submission to the FDA of an
IND, which must become effective before human clinical trials may commence,
(iii) adequate and well-controlled human clinical trials to establish the safety
and effectiveness of the product, (iv) submission of an NDA to the FDA, which
application is not automatically accepted for consideration by the FDA, and (v)
FDA approval of the NDA prior to any commercial sale or shipment of the product.
A new drug in generic form for use in humans may be marketed in the United
States following FDA approval of an ANDA if (i) such drug has the same active
ingredient, dosage form, route of administration, strength and conditions of use
as a "pioneer" drug that was previously approved by the FDA as safe and
effective, and (ii) any applicable patents and statutory period of protection
under the Waxman-Hatch Act have expired. Through a petition process, the FDA may
permit the filing of an ANDA for a generic version of an approved "pioneer" drug
with variations in active ingredient, dosage form, route of administration and
strength (but not conditions of use), unless (i) clinical investigations must be
conducted to demonstrate the safety and effectiveness of the drug or (ii) an
ANDA would provide inadequate information to permit the approval of the
variation.
Preclinical tests include laboratory evaluation of product chemistry and
animal studies to gain preliminary information of a product's pharmacology and
toxicology and to identify any safety problems that would preclude testing in
humans. Preclinical safety tests must be conducted by laboratories that comply
with FDA regulations regarding GLP. The results of the preclinical tests are
submitted to the FDA as part of an IND application and are reviewed by the FDA
prior to the commencement of human clinical trials. Unless the FDA objects to,
or makes comments or raises questions concerning, an IND and places it on
clinical hold, the IND will become effective 30 days following its receipt by
the FDA and initial clinical studies may begin, although companies often receive
FDA comments before beginning such studies. There can be no assurance that
submission of an IND will result in FDA authorization to commence clinical
trials. See "Risk Factors -- Early State of Development; Technological
Uncertainty."
Clinical trials involve the administration of the investigational new drug
to healthy volunteers and to patients under the supervision of a qualified
principal investigator. Clinical trials must be conducted in accordance with the
FDA's Good Clinical Practice requirements under protocols that detail, among
other things, the objectives of the study, the parameters to be used to monitor
safety, and the effectiveness criteria to be evaluated. Each protocol must be
submitted to the FDA as part of the IND. Further, each clinical study must be
conducted under the auspices of an Institutional Review Board ("IRB"). The IRB
will consider,
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among other things, ethical factors, the safety of human subjects, the possible
liability of the institution and the informed consent disclosure which must be
made to participants in the clinical trial.
Clinical trials are typically conducted in sequential phases, although the
phases may overlap. In Phase I, the investigational new drug usually is
administered to healthy human subjects (10 to 50 persons) and is tested for
safety (adverse effects), dosimetry, tolerance, metabolism, distribution,
excretion and pharmacokinetics (clinical pharmacology). Phase II involves
studies in a limited patient population (approximately 10 to 70 persons) to (i)
evaluate the effectiveness of the investigational new drug for specific
indications, (ii) determine dose response and optimal dosage and (iii) identify
possible adverse effects and safety risks. When an investigational new drug is
found to have an effect at an optimal dose and to have an acceptable safety
profile in Phase II evaluation, Phase III trials are undertaken to further test
for safety, further evaluate clinical effectiveness and to obtain additional
information for labeling within an expanded patient population at geographically
dispersed clinical study sites. There can be no assurance that Phase I, Phase II
or Phase III testing will be completed successfully within any specified time
period, if at all, with respect to any of the Company's products subject to such
testing. Furthermore, the FDA may at any time impose a clinical hold on ongoing
clinical trials, or the IRB or the Company may suspend clinical trials at any
time if it is felt that the participants are being exposed to an unanticipated
or unacceptable health risk. If the FDA imposes a clinical hold, clinical trials
may not recommence without prior FDA authorization and then only under the terms
authorized by the FDA.
The results of the pharmaceutical development, preclinical studies and
clinical studies, the chemistry and manufacturing data, and the proposed
labeling, among other things, are submitted to the FDA in the form of an NDA for
approval of the marketing and commercial shipment of the product. The FDA may
refuse to accept the NDA for filing if administrative and NDA content criteria
are not satisfied, and even after accepting the NDA for review, the FDA may
require additional testing or information before approving the NDA. The FDA must
deny an NDA if applicable regulatory requirements are not ultimately satisfied.
Moreover, if regulatory approval of a product is granted, such approval may
require post-marketing testing and surveillance to monitor the safety of the
product or may entail limitations on the indicated uses for which it may be
marketed. Finally, product approvals may be withdrawn if compliance with
regulatory standards is not maintained, new information raises safety or
effectiveness questions or if problems occur following initial marketing.
The Waxman-Hatch Act permits the use of an abbreviated FDA approval
procedure by authorizing the filing of an ANDA for any drug product that has the
same active ingredient as a drug that was approved by the FDA as safe and
effective, subject to certain exclusions (such as drugs that are still protected
by patent or market exclusivity). Approval of a pharmaceutical product through
an ANDA does not require the conduct of preclinical tests on pharmacology or
toxicology or Phase I, II or III clinical trials to prove the safety and
effectiveness of such product, but instead is based upon a showing of
bioequivalence with the pioneer drug and adequate manufacturing. Therefore,
compared to an NDA, the filing of an ANDA may result in reduced research and
development costs associated with bringing a product to market.
The Waxman-Hatch Act also provides for a period of statutory protection for
new drugs which receive NDA (but not ANDA) approval from the FDA. If a new drug
receives NDA approval, and the FDA has not previously approved any other new
drug containing the same active ingredient, then the Waxman-Hatch Act does not
permit an ANDA to be submitted by another company for a generic version of such
drug generally for a period of five years from the date of approval of the NDA.
Similarly, if NDA approval is received for a new drug containing an active
ingredient that was previously approved by the FDA, and if such NDA approval was
dependent upon the submission to the FDA of new clinical investigations (other
than bioavailability studies) by the applicant, then the Waxman-Hatch Act
prohibits the FDA from making effective the approval of an ANDA for a generic
version of such drug by another company for a period of three years from the
date of such NDA approval. The statutory protection provided pursuant to the
Waxman-Hatch Act will not prevent the filing or approval of an NDA (as opposed
to an ANDA) for any drug, including, for example, a drug with the same active
ingredient, dosage form, route of administration, strength and conditions of use
as a drug protected under the act. In order to obtain an NDA, a competitor would
be required to conduct its own clinical trials. As the Company's products and
product candidates are based upon approved compounds for which the FDA has
previously granted NDA approval, the Company expects that any of its products
which
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qualify for statutory protection under the Waxman-Hatch Act will be afforded
only a three year period of protection.
The Company has completed clinical trials and submitted an NDA with respect
to only one of its product candidates. No assurance can be given that the
Company's clinical trials with respect to any of its product candidates will be
completed on a timely basis, if at all, that the clinical trials will
demonstrate safety or effectiveness, that the clinical results will be accepted
for consideration by the FDA, that the FDA will find the data submitted adequate
or that an NDA or ANDA will be ultimately approved. See "Risk Factors --
Unproven Safety and Effectiveness of Potential Products; Uncertainties Related
to Clinical Trials."
As part of the drug approval process, the FDA must inspect and find that
the Company's or its supplier's drug manufacturing facilities comply with GMP
before an NDA or an ANDA can be approved by the FDA for marketing in the United
States. The FDA will review the manufacturing procedures and inspect the
manufacturer's facilities and equipment for compliance with GMP and other
requirements. After an NDA is approved, any material change in the manufacturing
process, equipment or location would necessitate additional data, then FDA
review and approval before marketing.
Certain of the Company's products, such as guaifenisen cough syrup, fall
within the FDA's OTC Monograph system, rather than the IND/NDA system, and may
be marketed without the Company first obtaining FDA approval of an NDA or ANDA,
provided such product complies with the specifications set forth in the OTC
Monograph for the applicable product category. OTC drugs must also be
manufactured in compliance with GMP, but premarket approval is not required.
Foreign Regulatory Approval
Whether or not FDA approval has been obtained, approval of a pharmaceutical
product by comparable governmental regulatory authorities in foreign countries
must be obtained prior to the commencement of clinical trials and subsequent
marketing of such product in such countries. The approval procedure varies from
country to country, and the time required may be longer or shorter than that
required for FDA approval. Although there are some procedures for unified filing
for certain European countries, in general, each country has its own procedures
and requirements.
Under the recently-enacted FDA Export Reform and Enhancement Act of 1996,
pharmaceutical products generally may be freely exported from the United States
before the FDA has approved the product for marketing in the United States for
investigation in 24 listed countries and for marketing in any country after at
least one of the 24 listed countries has approved the product for marketing.
EMPLOYEES
As of February 28, 1997, Ascent had 24 full-time employees. Twelve of these
employees are engaged in product development and quality control, including
medical and regulatory affairs, three are employed in sales and marketing and
nine are employed in finance, business development and general and
administrative activities. Many of the Company's management and professional
employees have had prior experience with pharmaceutical, biotechnology or
medical products companies. None of the Company's employees is covered by a
collective bargaining agreement, and management considers relations with its
employees to be good.
FACILITIES
Ascent leases approximately 14,300 square feet of office space in
Wilmington, Massachusetts. The lease has an initial term expiring January 31,
2002. The Company has an option to renew the lease for an additional five-year
period.
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MANAGEMENT
EXECUTIVE OFFICERS, SIGNIFICANT EMPLOYEES AND DIRECTORS
The following table provides information concerning the executive officers,
significant employees and directors of the Company as of February 28, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- --------------------------------------------
<S> <C> <C>
Executive Officers
Emmett Clemente, Ph.D..................... 58 Chairman of the Board
Alan R. Fox............................... 52 President, Chief Executive Officer and
Director
John G. Bernardi.......................... 41 Vice President, Finance and Treasurer
Gregory A. Vannatter...................... 44 Vice President, Marketing
Significant Employees
Mumtaz Ahmed, M.D., Ph.D.................. 60 Vice President, Medical Affairs
Aloysius O. Anaebonam, Ph.D............... 41 Vice President, Product Development and
Quality Control
Albert R. Collinson, Ph.D................. 38 Vice President, Business Development
Robert W. Mendes, Ph.D.................... 58 Vice President, Regulatory Affairs
Ronald M. Scroggins....................... 54 Vice President, Sales and Marketing Planning
Diane Worrick............................. 44 Director of Human Resources
Other Members of the Board of Directors
Robert E. Baldini(1)...................... 66 Vice Chairman
Raymond F. Baddour, Ph.D.(1).............. 72 Director
Michael J.F. Du Cros(1)................... 59 Director
Thomas W. Janes(2)........................ 41 Director
Andre L. Lamotte, Sc.D.(2)................ 48 Director
Terrance McGuire(2)....................... 40 Director
Lee J. Schroeder(2)....................... 68 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Each officer serves at the discretion of the Board of Directors. There are
no family relationships among any executive officers, significant employees or
directors of the Company. A brief biography of each executive officer,
significant employee and director follows:
Emmett Clemente, Ph.D., founded the Company in 1989 and has served as a
director since 1989 and as Chairman of the Board since May 1996. From 1989 to
May 1996, Dr. Clemente also served as the Company's Chief Executive Officer. Dr.
Clemente served as the Director of Pharmaceutical Research for Fisons
Corporation, U.S., a pharmaceutical company ("Fisons"), from 1980 to 1989, and
as the Director of New Product Development and Acquisitions of Fisons from 1972
to 1980. From 1970 to 1972, Dr. Clemente served as Chief Scientist in the
Consumer Products Division of Warner-Lambert Company, a pharmaceutical company.
From 1967 to 1970, Dr. Clemente served as Senior Scientist of Richardson-Merrell
Company, a pharmaceutical company. Dr. Clemente received a B.S. in biology, an
M.S. in physiology and a Ph.D. in pharmacology from St. John's University.
Alan R. Fox, joined the Company as President, Chief Executive Officer and a
director in May 1996. Mr. Fox served as President of Mead Johnson Europe, an
infant formula and nutritional company, from 1991 to May 1996. From 1981 to
1991, Mr. Fox was President and General Manager of Mead Johnson Canada, an
infant formula and nutritional company. From 1968 to 1981, Mr. Fox served in
various positions, including as
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a Manager of Marketing and Sales for the Bristol Laboratories Division ("Bristol
Laboratories") of Bristol-Myers Squibb, Inc., ("Bristol-Myers Squibb") a
pharmaceutical company. Mr. Fox received a B.S. in economics and an M.B.A. from
the Wharton School, University of Pennsylvania.
John G. Bernardi, Vice President, Finance, joined the Company in June 1996.
Mr. Bernardi acted as an independent financial consultant from 1995 to June
1996. From 1990 to 1995, Mr. Bernardi served as the Vice President of
Administration and Finance for Vision-Science, Inc., a medical device company.
Mr. Bernardi received a B.S. in accounting from Bentley College and an M.B.A.
from New Hampshire College.
Gregory A. Vannatter, Vice President, Marketing, joined the Company in
October 1996. Mr. Vannatter served in various positions with Mead Johnson
Nutritionals Division of Bristol-Myers Squibb from 1988 to October 1996,
including most recently Director of Pediatric Global Marketing from 1995 to
September 1996 and Director of Infant Formula Marketing from 1991 to 1995. From
1986 to 1988, Mr. Vannatter served as Product Manager for Bristol Laboratories.
From 1975 to 1986, Mr. Vannatter served in various sales and marketing positions
with Pfizer Pharmaceuticals, a pharmaceutical company. Mr. Vannatter received a
B.S. in marketing from Ball State University and an M.B.A. from Indiana
University.
Mumtaz Ahmed, M.D., Ph.D., Vice President, Medical Affairs, joined the
Company in 1993. Dr. Ahmed served as Executive Director/Distinguished Research
and Development Physician at Ciba-Geigy Corporation, a pharmaceutical company
("Ciba-Geigy"), from 1982 to 1993. From 1979 to 1982, Dr. Ahmed served as a
Senior Investigator at Pfizer Inc., a pharmaceutical company. Dr. Ahmed received
a B.S. in biology and chemistry and an M.S. in Microbiology from University of
Karachi, Pakistan, an M.D. from UACJ School of Medicine, Juarez, Mexico, and a
Ph.D. in microbiology from Indiana University School of Medicine.
Aloysius O. Anaebonam, Ph.D., Vice President, Product Development and
Quality Control, joined the Company in 1991. Dr. Anaebonam served as a Section
Head in the Analytical/Stability Group for Fisons from 1986 to 1991. From 1981
to 1986, Dr. Anaebonam served as a Pharmaceutical Development Scientist for
Pfeiffer Pharmaceutical Sciences Laboratories at the Massachusetts College of
Pharmacy, which is engaged in pharmaceutical industry consulting. Dr. Anaebonam
received a B.Pharm. from the University of Nigeria and an M.S. and a Ph.D. in
industrial pharmacy from the Massachusetts College of Pharmacy.
Albert R. Collinson, Ph.D., Vice President, Business Development, joined
the Company in November 1996. Dr. Collinson served as Head of Scientific
Development, Office of Technology, of Berlex Laboratories, a pharmaceutical
company, from 1995 to November 1996. From 1993 to 1995, Dr. Collinson served as
Director of Business Development of Apoptosis Technology, Inc., biotechnology
company. From 1992 to 1995, Dr. Collinson served as Director, Business
Development and from 1988 to 1992 as Group Leader, Biochemistry, at ImmunoGen,
Inc., a biotechnology company. Dr. Collinson received a B.S. in biology and
chemistry from the University of Rhode Island and a Ph.D. in biochemistry from
Brandeis University.
Robert W. Mendes, Ph.D., Vice President, Regulatory Affairs, joined the
Company in 1992. Dr. Mendes served as a Professor of Industrial Pharmacy of the
Massachusetts College of Pharmacy from 1965 to 1992. From 1979 to 1992, Dr.
Mendes also served as Director of the Pfeiffer Pharmaceutical Sciences
Laboratories at the Massachusetts College of Pharmacy, an organization engaged
in pharmaceutical industry consulting. Dr. Mendes received a B.S. in pharmacy
from Northeastern University and an M.S. and a Ph.D. in pharmaceutics and
microbiology from the University of North Carolina.
Ronald M. Scroggins, Vice President, Sales and Marketing Planning, joined
the Company in 1990. Mr. Scroggins served as the Regional Sales Director of
Gynopharma, Inc., a gynecological and obstetrics company, from 1989 to 1990.
From 1986 to 1989, Mr. Scroggins served as Director, Product Management, at
Connaught Laboratories, Inc., a pediatric vaccine company. From 1984 to 1986,
Mr. Scroggins served as Group Product Manager for Key Pharmaceuticals, Inc., a
pharmaceutical company ("Key Pharmaceuticals"). From 1977 to 1984 and from 1965
to 1973, Mr. Scroggins held various sales and marketing positions at Sandoz,
Inc., a pharmaceutical company, and in the interim period from 1973 to 1977, he
served as Product Manager of Dorsey Laboratories, a pharmaceutical company. Mr.
Scroggins received a B.S. in biology from the University of Texas at El Paso.
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Diane Worrick, Director of Human Resources, joined the Company in 1990. Ms.
Worrick served in various human resources positions at Fisons from 1976 to 1989,
last serving as Personnel Manager. Ms. Worrick received a B.B.A. from
Northeastern University.
Robert E. Baldini, Vice Chairman of the Board of Directors of the Company
since April 1996 and a director of the Company since 1993, has served as a
consultant to, and a director of, several private pharmaceutical and medical
device companies. Mr. Baldini served as Senior Vice President of Sales and
Marketing for Key Pharmaceuticals from 1982 to 1986. Following the acquisition
of Key Pharmaceuticals by Schering-Plough Corporation ("Schering-Plough") in
1986, he continued with Key Pharmaceuticals Division of Schering-Plough until
1995, last serving as its President. Mr. Baldini served as Executive Director of
Sales and Promotion of Ciba-Geigy from 1977 to 1982. Mr. Baldini also serves as
Vice Chairman of the Board of Directors of KOS Pharmaceuticals, Inc. Mr. Baldini
received a B.S. in marketing from Seton Hall University and an M.B.A. from New
York University.
Raymond F. Baddour, Ph.D., a director of the Company since 1989, has served
as the Lammot DuPont Professor of Chemical Engineering at the Massachusetts
Institute of Technology since 1973. Dr. Baddour is a co-founder and director of
Amgen Inc., a biotechnology company, Tekmat Corp., a specialty materials
company, Abcor, Inc., an ultra-filtration equipment company, and Amicon, Inc., a
specialty chemicals company. Dr. Baddour received a B.S. in chemical engineering
from the University of Notre Dame and an M.S. in chemical engineering practice
and an Sc.D. in chemical engineering from the Massachusetts Institute of
Technology.
Michael J.F. Du Cros, a director of the Company since 1993, has served as a
Partner of Atlas Venture, a venture capital firm, since 1993. Mr. Du Cros also
serves as a General Partner of Aspen Venture Partners, L.P., a limited
partnership formed to carry on the venture capital activities of 3i Ventures in
the United States, since 1991. From 1984 to 1988, Mr. Du Cros served as the
Chief Executive Officer of Protein Databases, Inc., a life science
instrumentation company. Mr. Du Cros received a B.Sc. in industrial chemistry
from the City University of London.
Thomas W. Janes, a director of the Company since January 1997, has served
as a Managing Director of Triumph Capital Group, Inc., a private equity money
management firm, since 1990 and as a General Partner of the Triumph-Connecticut
Limited Partnership, a private equity money management firm ("Triumph"), since
1993. Mr. Janes also serves as a director of Dairy Mart Convenience Stores, Inc.
Mr. Janes received a B.A. in history and government from Harvard College and an
M.B.A. from Harvard Business School.
Andre L. Lamotte, Sc.D., a director of the Company since 1989, has served
since 1989 as the Managing General Partner of Medical Science Ventures, L.P.,
the general partner of Medical Science Partners, L.P., the venture capital firm
founded by Harvard University. He served as General Manager of the Merieux
Institute, Inc., the U.S. affiliate of Institute Merieux and Pasteur Vaccines,
from 1983 to 1988. Dr. Lamotte has served as a director of OraVax, Inc., a
biotechnology company, since 1990. Dr. Lamotte received an M.S. in chemical
engineering and an Sc.D. in chemical engineering/chemistry from the
Massachusetts Institute of Technology and an M.B.A. from Harvard Business
School.
Terrance McGuire, a director of the Company since 1993, has served as a
founding General Partner of Polaris Venture Partners since 1996 and, as a
General Partner of Beta Partners Limited Partnership since 1989, both venture
capital firms. Since 1992, Mr. McGuire has also served as a General Partner of
Alta V Management Partners, L.P., which is the General Partner of Alta V Limited
Partnership ("Alta"), a venture capital fund associated with Burr, Egan, Deleage
& Co. He is a director of Integ, Incorporated, a diagnostic company, Cubist
Pharmaceuticals, Inc., a pharmaceutical company, and several private health care
companies. Mr. McGuire received a B.S. in physics and economics from Hobart
College, an M.S. in engineering from Dartmouth College and an M.B.A. from
Harvard Business School.
Lee J. Schroeder, a director of the Company since 1990, has served as the
President of Lee Schroeder and Associates, Inc., a company engaged in
pharmaceutical consulting, since 1985. From 1983 to 1985, Mr. Schroeder served
as the President of the Lincoln Wholesale Drug Company, a wholesale drug
company. From 1981 to 1983 Mr. Schroeder was the Executive Vice President of
Sandoz, Inc., U.S., a pharmaceutical
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<PAGE> 51
company. From 1974 to 1981, Mr. Schroeder served as Vice President and General
Manager of Dorsey Laboratories, a pharmaceutical company. Mr. Schroeder serves
as a director of Interneuron Pharmaceuticals, Inc., a pharmaceutical company,
MGI Pharmaceuticals, Inc., a pharmaceutical company, and Celgene Corporation, a
pharmaceutical company.
Following this offering, the Board of Directors will be divided into three
classes, each of whose members will serve for a staggered three-year term. The
Board will consist of three Class I Directors (Messrs. Baddour, Du Cros and
Schroeder), three Class II Directors (Messrs. Fox, Baldini and Janes) and three
Class III Directors (Messrs. Clemente, Lamotte and McGuire). At each annual
meeting of stockholders, a class of directors will be elected for a three-year
term to succeed the directors of the same class whose terms are then expiring.
The terms of the Class I Directors, Class II Directors and Class III Directors
will expire upon the election and qualification of successor directors at the
annual meeting of stockholders held during the calendar years 1998, 1999 and
2000, respectively.
Each director other than Thomas W. Janes has been nominated and elected to
the Board of Directors pursuant to a voting agreement among certain of the
Company's stockholders. This agreement will terminate upon the consummation of
this offering.
Thomas W. Janes has been nominated and elected to the Board of Directors
pursuant to the terms of a Securities Purchase Agreement dated January 31, 1997
(the "Triumph Agreement") between the Company, Triumph and certain of the
Company's warrantholders. This agreement will continue until the later of (i)
the payment of the convertible subordinated secured notes issued to Triumph and
certain other parties on January 31, 1997 and (ii) two and one-half years
following the date of the closing of this offering. See "Certain Transactions."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has a Compensation Committee, which makes
recommendations concerning salaries and incentive compensation for employees of
and consultants to the Company, establishes and approves salaries and incentive
compensation for executive officers and administers the Company's stock option
and other equity incentive plans (including granting stock options and awards to
executive officers and directors pursuant to such plans and making
recommendations to the full Board of Directors as to such grants and awards to
other employees of the Company), and an Audit Committee, which reviews the
results and scope of the audit and other services provided by the Company's
independent public accountants.
COMPENSATION OF DIRECTORS
Messrs. Baldini and Schroeder are paid $6,000 per annum as compensation for
serving on the Board of Directors. No other directors currently are compensated
for serving on the Board of Directors. All of the directors are reimbursed for
their expenses incurred in connection with their attendance at Board and
committee meetings.
In March 1997, the Company adopted the 1997 Director Stock Option Plan (the
"Director Plan"). Under the terms of the Director Plan, options to purchase
15,000 shares of Common Stock will be granted to non-employee directors upon the
date on which the initial public offering price is determined (the "Pricing
Date") at the initial public offering price. Thereafter, options to purchase
15,000 shares of Common Stock will be granted to each new director upon his or
her initial election to the Board of Directors. Annual options to purchase 5,000
shares of Common Stock will be granted to each non-employee director on May 1 of
each year commencing in 1998. All options will vest on the first anniversary of
the date of grant. However, the exercisability of these options will be
accelerated upon the occurrence of a change in control of the Company (as
defined in the Director Plan). A total of 300,000 shares of Common Stock may be
issued upon the exercise of stock options granted under the Director Plan. With
the exception of the options granted on the Pricing Date, the exercise price of
all options granted under the Director Plan will equal the closing price of the
Common Stock on the date of grant.
The Company is a party to a consulting agreement with Mr. Robert E.
Baldini, the Company's Vice Chairman, dated April 1, 1996. Pursuant to this
agreement, Mr. Baldini provides certain consulting services as
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<PAGE> 52
requested by the Company in return for compensation of $1,500 per day. Upon
execution of this agreement,
the Company granted Mr. Baldini an option under the Company's 1992 Equity
Incentive Plan exercisable for 85,000 shares of Common Stock vesting in four
equal annual installments. Mr. Baldini was paid $7,500 in consulting fees in
1996 pursuant to this agreement. This consulting agreement expires on April 1,
2000 unless extended by the parties.
SCIENTIFIC ADVISORS
The Company has a number of scientific advisors with recognized expertise
in medical areas relevant to pediatric patients and drug delivery technologies
who advise the Company on an as-needed basis. These scientific advisors are
employed by employers other than the Company, primarily academic institutions,
and may have commitments to or consulting or advisory agreements with other
entities that may limit their availability to the Company. These entities may
also be competitors of Ascent. The Company's scientific advisors are compensated
for their services pursuant to consulting agreements between the individuals and
the Company. A brief biography of each of the Company's scientific advisors, as
of February 28, 1997, follows:
Elazer Edelman, M.D., has served as a Visiting Scientist with the
Massachusetts Institute of Technology since 1985. In addition, since 1989, Dr.
Edelman has served as Instructor in the Department of Medicine at Brigham and
Women's Hospital, Boston, Massachusetts, and Harvard Medical School. Dr.
Edelman, whose specialty is transdermal delivery, received an M.D. from Harvard
Medical School.
Ho-Leung Fung, Ph.D., has served as Professor of Pharmaceutics with the
State University of New York, Buffalo, New York, since 1970. Dr. Fung, whose
specialty is controlled-release technologies, received a Ph.D. in Analytical
Pharmaceutical Chemistry from the University of Kansas.
Donald Goldmann, M.D., has served as Chief of Janeway Medical Service since
1995 and Medical Director, Quality Improvement since 1989 at the Children's
Hospital, Boston, Massachusetts. Dr. Goldmann, whose specialty is pediatrics,
has served as Professor in Pediatrics at Harvard Medical School since 1978. Dr.
Goldmann received an M.D. from Harvard Medical School.
David Grinder, R.Ph., M.S., has served as the Director of Pharmacy with All
Children's Hospital, St. Petersburg, Florida, since 1985. Mr. Grinder, whose
specialty is hospital pharmacy, received a B.S. in pharmacy from the University
of Montana and an M.S. in Management from the University of South Florida.
Amal Kurban, M.D., has served as Professor of Dermatology with the
Department of Dermatology of the Boston University School of Medicine since
1985. Dr. Kurban, whose specialty is pediatrics, received an M.D. from the
American University in Beirut.
Edward O'Rourke, M.D., has served as Associate in Medicine, Infectious
Disease, with the Children's Hospital, Boston, Massachusetts, since 1984. Dr.
O'Rourke, whose specialty is pediatrics, received an M.D. from Boston University
School of Medicine.
Ricky Richardson, M.D., has served as Executive Vice President with WCH
International, Inc. of the WellCare Group, a telemedicine company, since 1992.
Dr. Richardson, whose specialty is pediatrics, received an M.D. from London
University (Middlesex Hospital Medical School).
MEDICAL ADVISORY BOARD
The Company has a number of medical advisors with recognized expertise in
relevant medical specialities of importance to the Company who advise the
Company on an as-needed basis by suggesting and evaluating clinical study
protocols, marketing plans and sales force training programs. These medical
advisors are employed by employers other than the Company, primarily academic
institutions, and may have commitments to or consulting or advisory agreements
with other entities that may limit their availability to the Company. These
entities may also be competitors of Ascent. A brief biography of each of the
Company's medical advisors, as of February 28, 1997, follows:
Charles J. Cote, M.D., has served as Vice Chairman, Director of Research,
department of Pediatric Anesthesia at the Children's Memorial Hospital, Chicago,
Illinois, since 1993. Dr. Cote has served as
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<PAGE> 53
Professor of Clinical Anesthesia at Northwestern University Medical School since
1993. Dr. Cote, whose specialty is pediatric anesthesiology, received an M.D.
from Albany Medical College.
Heinz F. Eichenwald, M.D., has served as the William Buchanon Professor of
Pediatrics with the University of Texas Southwestern Medical Center at Dallas
since 1982. Dr. Eichenwald, whose specialty is pediatric infectious disease,
received an M.D. from Cornell University Medical Center.
Richard J. Grand, M.D., has served as Professor of Pediatrics with the
Tufts University School of Medicine, Boston, Massachusetts, since 1983. Dr.
Grand, whose specialty is pediatric gastroenterology, received an M.D. from New
York University School of Medicine.
Ronald C. Hansen, M.D., has served as Professor of Internal Medicine and
Pediatrics with the University of Arizona, Tucson, Arizona, since 1991. Dr.
Hansen, whose specialty is pediatric dermatology, received an M.D. from
University of Iowa, Iowa College of Medicine.
Sheldon L. Kaplan, M.D., has served as Attending Pediatrician with the
Texas Children's Hospital, Houston, Texas, since 1987. Dr. Kaplan, whose
specialty is pediatric infectious disease, received an M.D. from the University
of Missouri.
Alan Nauss, M.D., has served as Pediatrician with the Lahey Clinic Medical
Center, Burlington, Massachusetts, since 1983. Dr. Nauss, whose specialty is
pediatrics, received an M.D. from the University of Pennsylvania.
David G. Tinkelman, M.D., has served as Vice President of Healthcare
Initiatives with the National Jewish Center for Immunology and Respiratory
Medicine, Denver, Colorado, since 1995. Dr. Tinkelman, whose specialty is
pediatric allergy, received an M.D. from Hahnemann Medical School.
Lonnie K. Zeltzer, M.D., has served as Professor of Pediatrics with the
UCLA School of Medicine, Los Angeles, CA, since 1988. Dr. Zeltzer, whose
specialty is pediatric pain, received an M.D. from the University of Cincinnati
College of Medicine.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to or earned by the
following individuals for services rendered to the Company in all capacities
during the year ended December 31, 1996: (i) the Chief Executive Officer (the
"CEO") of the Company as of December 31, 1996 and (ii) the former CEO (the CEO
and the former CEO are hereinafter referred to as the "Named Executive
Officers"). No other executive officer of the Company received salary and bonus
in fiscal 1996 in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------
---------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION(1) SALARY BONUS COMPENSATION(2) OPTIONS
- --------------------------------------- -------- ------- --------------- ---------------
<S> <C> <C> <C> <C>
Emmett Clemente, Ph.D. ................ $190,500 $41,600 $13,400 --
Chairman of the Board(3)
Alan R. Fox............................ 135,000 -- -- 153,000
President and Chief Executive
Officer(4)
</TABLE>
- ---------------
(1) In accordance with the rules of the SEC, this table, the stock option grant
table and the stock option exercise table which follow present information
concerning the Company's former CEO and its current CEO for the year ended
December 31, 1996. John G. Bernardi, who joined the Company as Vice
President, Finance in June 1996, currently receives an annual salary of
$125,000. On August 28, 1996, pursuant to the Company's 1992 Equity
Incentive Plan (the "1992 Plan"), Mr. Bernardi was granted incentive stock
options exercisable for 29,750 shares of Common Stock at an exercise price
of $2.35 per share. Gregory A. Vannatter, who joined the Company as Vice
President, Marketing in October 1996, currently receives an annual salary of
$150,000. On October 15, 1996, pursuant to the 1992 Plan, Mr. Vannatter was
granted incentive stock options exercisable for 29,750 shares of Common
Stock at an exercise price of $2.35 per share. The stock options granted to
Messrs. Bernardi and Vannatter become exercisable in four
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<PAGE> 54
equal annual installments commencing on the first anniversary of the date of
commencement of such officer's employment with the Company.
(2) Reflects the dollar value of insurance premiums paid by the Company with
respect to life insurance for the benefit of the Named Executive Officers.
(3) Dr. Clemente served as the Chief Executive Officer of the Company from its
incorporation until May 1996, when he was succeeded by Mr. Fox.
(4) Mr. Fox joined the Company as Chief Executive Officer in May 1996, and the
amounts indicated in this table reflect his actual compensation for the year
ended December 31, 1996. Mr. Fox currently receives an annual salary of
$200,000.
The following table sets forth certain information concerning grants of
stock options made during fiscal 1996 to each of the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
------------------------------------------------ REALIZABLE
PERCENT VALUE AT
OF TOTAL ASSUMED ANNUAL
OPTIONS RATES OF STOCK
NUMBER OF GRANTED TO PRICE APPRECIATION
SECURITIES EMPLOYEES EXERCISE FOR OPTION TERM(2)
UNDERLYING IN FISCAL PRICE PER EXPIRATION -------------------
NAME OPTIONS YEAR SHARE DATE(1) 5% 10%
- ------------------------------------- ---------- ---------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Emmett Clemente, Ph.D................ -- -- -- -- -- --
Alan R. Fox.......................... 153,000(3) 40.1% $2.35 6/26/06 $226,440 $573,748
</TABLE>
- ---------------
(1) These options were granted to Mr. Fox on June 26, 1996. The expiration date
of an option is the tenth anniversary of the date on which the option was
originally granted.
(2) The amounts shown on this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5% and
10%, compounded annually from the date the respective options were granted
to their expiration date. The gains shown are net of the option exercise
price, but do not include deductions for taxes or other expenses associated
with the exercise. Actual gains, if any, on stock option exercises will
depend on the future performance of the Common Stock, the option holder's
continued employment through the option period, and the date on which the
options are exercised.
(3) These options become exercisable in four equal annual installments
commencing on the first anniversary of the date of commencement of his
employment with the Company and are intended to qualify as incentive stock
options.
The following table sets forth certain information concerning the number
and value of unexercised options held by each of the Named Executive Officers on
December 31, 1996. No options were exercised by these individuals during fiscal
1996.
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR-END FISCAL YEAR-END(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Emmett Clemente, Ph.D...................... 141,100 3,400 $10,000 --
Alan R. Fox................................ -- 153,000 -- --
</TABLE>
- ---------------
(1) The value of the unexercised, in-the-money options on December 31, 1996 is
based on the difference between the fair market value of the shares as of
such date ($2.35), and the per share option exercise price, multiplied by
the number of shares of Common Stock underlying the options.
Employment Agreement
The Company is a party to an employment agreement with Dr. Emmett Clemente
for the period commencing March 16, 1994 and ending March 15, 1999, unless
extended by mutual agreement of the Company and Dr. Clemente. Under this
agreement, Dr. Clemente is entitled to receive an annual base salary of
$170,000, as it may be adjusted, and an annual bonus of up to 30% of his annual
base salary based upon the
53
<PAGE> 55
attainment of certain performance criteria set by the Board of Directors
annually (with the potential to exceed 30% of his annual base salary, at the
Board's discretion, in the event that the Company achieves break-even cash
flow). In addition, as part of Dr. Clemente's annual compensation review, the
Board of Directors is required to consider granting Dr. Clemente a stock option
to acquire additional shares of Common Stock. In the event Dr. Clemente's
employment is terminated by the Company without cause, Dr. Clemente will
continue to receive his annual base salary for the one-year period commencing on
the effective date of termination. In addition, if the Company terminates the
employment of Dr. Clemente without cause, the Company is required to continue to
provide Dr. Clemente with benefits for the 18 month period following the
effective date of termination. Any payments or benefits to be provided by the
Company in the event of its termination of Dr. Clemente's employment without
cause will be reduced dollar for dollar by any payments or benefits received by
Dr. Clemente from any other employer during the period in which the Company is
required to provide such payments or benefits. Following the cessation or
termination of his employment by the Company, Dr. Clemente has agreed that, for
a period of two years, he will not compete with the Company with respect to any
products developed, produced, marketed or sold by the Company during his tenure
with the Company.
EMPLOYEE BENEFIT PLANS
1992 Equity Incentive Plan
The Company's 1992 Plan, as amended, was adopted by the Company in
September 1992. The 1992 Plan provides for the grant of stock options and awards
to purchase shares of restricted stock to employees, officers and directors of,
and consultants and advisors to, the Company. Under the 1992 Plan, the Company
may grant incentive stock options and non-statutory stock options. Incentive
stock options may only be granted to employees of the Company. Effective upon
the closing of this offering, a total of 1,350,000 shares of Common Stock may be
issued upon the exercise of options or upon the grant of awards to purchase
restricted stock under the 1992 Plan. As of February 28, 1997, options to
purchase a total of 634,736 shares of Common Stock were outstanding under the
1992 Plan, and options to purchase a total of 530 shares of Common Stock had
been exercised. As of February 28, 1997, no awards to purchase shares of
restricted stock had been granted under the 1992 Option Plan. In addition, the
maximum number of shares with respect to which options or awards may be granted
to any employee under the plan shall not exceed 500,000 shares of Common Stock
in any year.
The 1992 Plan is administered by the Compensation Committee of the Board of
Directors. Subject to the provisions of the 1992 Plan, the Compensation
Committee has the authority to select the participants to whom options or awards
to purchase shares of restricted stock are granted and determine the terms of
each option or award, including (i) the number of shares of Common Stock subject
to such option or award, (ii) when an option becomes exercisable, (iii) the
option exercise price or award purchase price, which, in the case of incentive
stock options, must be at least 100% (110% in the case of incentive stock
options granted to a stockholder owning in excess of 10% of the Company's Common
Stock) of the fair market value of the Common Stock as of the date of grant,
(iv) the duration of the option (which, in the case of incentive stock options,
may not exceed ten years), and (v) in the case of awards to purchase restricted
stock, the duration of certain restrictions on the transfer of such stock.
Payment of the option exercise price may be made in cash, shares of Common
Stock, a combination of cash or stock or by any other method (including the
delivery of a promissory note payable on terms specified by the Compensation
Committee) approved by the Compensation Committee. Except as may be approved by
the Board of Directors, stock options and awards to purchase shares of
restricted stock are not assignable or transferrable except by will and the laws
of descent and distribution and, in the case of non-statutory options, pursuant
to a qualified domestic relations order.
As of February 28, 1997, the Company had 24 full-time employees, all of
whom were eligible to participate in the 1992 Plan. The number of individuals
receiving stock options or awards to purchase shares of restricted stock varies
from year to year depending on various factors, such as the number of promotions
and
54
<PAGE> 56
the Company's hiring needs during the year, and thus the Company cannot now
determine option or award recipients.
The Compensation Committee may, in its sole discretion, include additional
provisions in any option or award granted or made under the 1992 Plan, including
without limitation restrictions on transfer, repurchase rights, commitments to
pay cash bonuses, to make, arrange for or guaranty loans or to transfer other
property to optionees upon exercise of options, or such other provisions as
shall be determined by the Compensation Committee, so long as not inconsistent
with the 1992 Plan or with applicable law. The Compensation Committee may also,
in its sole discretion, accelerate or extend the date or dates on which all or
any particular option or options granted under the 1992 Plan may be exercised.
1997 Employee Stock Purchase Plan
The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Company in March 1997 and becomes effective upon the closing of
this offering. The Purchase Plan authorizes the issuance of up to a total of
500,000 shares of Common Stock to participating employees.
All employees of the Company, including directors of the Company who are
employees and all employees of any participating subsidiaries, whose customary
employment is more than 20 hours per week and for more than five months in any
calendar year are eligible to participate in the Purchase Plan. Employees who
would immediately after the grant own 5% or more of the total combined voting
power or value of the stock of the Company or any subsidiary are not eligible to
participate. Following this offering, all of the Company's full-time employees
as of February 28, 1997 would have been eligible to participate in the Purchase
Plan.
On the first day of a designated payroll deduction period (the "Offering
Period"), the Company will grant to each eligible employee who has elected to
participate in the Purchase Plan an option to purchase shares of Common Stock as
follows: the employee may authorize an amount (a whole percentage from 1% to 10%
of such employee's regular pay) to be deducted by the Company from such pay
during the Offering Period. On the last day of the Offering Period, the employee
is deemed to have exercised the option, at the option exercise price, to the
extent of accumulated payroll deductions. Under the terms of the Purchase Plan,
the option price is an amount equal to 85% (or such higher percentage as is
determined by the Board of Directors) of the fair market value per share of the
Common Stock on either the first day or the last day of the Offering Period,
whichever is lower. In no event may an employee purchase in any one Offering
Period a number of shares which is more than 15% of the employee's annualized
base pay divided by 85% (or such higher percentage as is determined by the Board
of Directors) of the market value of a share of Common Stock on the commencement
date of the Offering Period. The Compensation Committee may, at its discretion,
choose an Offering Period of 12 months or less for each of the Offerings and
choose a different Offering Period for each Offering.
If an employee is not a participant on the last day of the Offering Period,
such employee is not entitled to exercise any option, and the amount of such
employee's accumulated payroll deductions will be refunded. An employee's rights
under the Purchase Plan terminate upon voluntary withdrawal from the Purchase
Plan at any time, or when such employee ceases employment for any reason, except
that upon termination of employment because of death, the employee's beneficiary
has certain rights to elect to exercise the option to purchase the shares which
the accumulated payroll deductions in the participant's account would purchase
at the date of death.
401(k) Savings and Retirement Plan
On August 28, 1996 the Company adopted a 401(k) Savings and Retirement Plan
(the "401(k) Plan"), a tax-qualified plan covering all of its employees who are
at least 20.5 years of age and who have completed at least three months of
service to the Company. Each employee may elect to reduce his or her current
compensation by up to 15%, subject to the statutory limit (a maximum of $9,500
in 1997) and have the amount of the reduction contributed to the 401(k) Plan.
The 401(k) Plan provides that the Company may, as determined from time to time
by the Board of Directors, provide a matching cash contribution. In addition,
the Company may contribute an additional amount to the 401(k) Plan, as
determined by the Board of
55
<PAGE> 57
Directors, which will be allocated based on the proportion of the employee's
compensation for the plan year to the aggregate compensation for the plan year
for all eligible employees. Upon termination of employment, a participant may
elect a lump sum distribution or, if his or her total amount in the 401(k) Plan
is greater than $3,500, may elect to receive benefits as retirement income.
Executive Bonus Plan
Effective January 1, 1997, the Company adopted an Executive Bonus Plan,
which provides for the payment of bonuses to those officers and key employees
reporting directly to the Chief Executive Officer or Chairman of the Company.
Pursuant to the Executive Bonus Plan, each eligible participant is entitled to a
bonus of between 1.5% and 18% of his or her annual salary based upon the
Company's achievement of 95% or greater of its financial target for the year. In
addition, upon achievement of 95% or greater of the financial target for the
year, each eligible participant may receive an additional discretionary
performance bonus of up to 5% of salary.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Company's Compensation Committee are Thomas W.
Janes, Andre L. Lamotte, Sc.D., Terrance McGuire and Lee J. Schroeder. Messrs.
Janes (through a profit-sharing plan) and Lamotte and entities affiliated with
Messrs. Janes, Lamotte and McGuire have made various equity and convertible debt
investments in the Company since January 1, 1994. See "Certain Transactions."
56
<PAGE> 58
CERTAIN TRANSACTIONS
Since January 1, 1994, the Company has engaged in the following
transactions with the following directors, officers and stockholders who
beneficially own more than 5% of the outstanding Common Stock of the Company
("5% Stockholders"), and affiliates of such directors, officers and 5%
Stockholders (collectively, the "Affiliates").
On June 18, 1995, the Company issued warrants exercisable for an aggregate
of 21,647 shares of Series D Convertible Preferred Stock in replacement of
warrants exercisable for the same number of shares of Series D Convertible
Preferred Stock which expired on such date. These warrants have an exercise
price of $9.00 per share and expire on June 18, 1997. Medical Science Partners,
L.P., was issued warrants exercisable for 9,804 of such shares. Upon the closing
of this offering, these warrants will be exercisable for 8,333 shares of Common
Stock at an exercise price of $10.59 per share.
On July 13, 1995 and August 16, 1995, the Company issued and sold an
aggregate of 733,371 shares of its Series E Convertible Preferred Stock at a
purchase price of $6.00 per share and issued warrants exercisable for an
aggregate of 103,891 shares of Common Stock at an exercise price of $10.59 per
share (the "Series E Common Warrants"). On June 28, 1996, December 18, 1996,
February 3, 1997, February 19, 1997 and February 28, 1997, the Company issued
and sold an aggregate of 1,892,765 shares of its Series F Convertible Preferred
Stock at a purchase price of $6.50 per share and issued warrants exercisable for
an aggregate of 651,334 shares of Common Stock at a purchase price of $7.65 per
share (the "Series F Common Warrants"). In addition, on February 28, 1997, the
Company issued a warrant exercisable for 10,200 shares of Common Stock at an
exercise price of $7.65 per share to Banque Paribas as consideration for
placement agent services in connection with the sale of shares of Series F
Convertible Preferred Stock. The purchasers of the shares of Series E
Convertible Preferred Stock, the Series E Common Warrants, the Series F
Convertible Preferred Stock and the Series F Common Warrants included, among
others, the following directors, officers and Affiliates of the Company:
<TABLE>
<CAPTION>
SERIES E SERIES F
SHARES OF COMMON SHARES OF COMMON TOTAL
NAME SERIES E WARRANTS SERIES F WARRANTS CONSIDERATION
- -------------------------------------- --------- -------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Alta V Limited Partnership............ 164,935 23,365 190,308 64,702 $ 2,226,612
Atlas Venture Fund II, L.P............ 125,000 17,708 76,923 26,153 1,250,000
Customs House Partners................ 1,733 245 2,000 680 23,398
Alan R. Fox........................... -- -- 11,538 3,921 74,997
Bonnie S. Fox......................... -- -- 1,538 522 9,997
Andre L. Lamotte, Sc.D. .............. -- -- 7,692 2,614 49,998
Medical Science Partners, L.P. ....... -- -- 76,923 26,153 500,000
Medical Science Partners II, L.P. .... 83,334 11,805 -- -- 500,004
MSP Heathcare Opportunities Investment
Pool................................ -- -- 153,847 52,305 1,000,006
New York Life Insurance Company....... 125,000 17,708 346,153 117,691 2,999,995
Paribas Principal, Inc................ -- -- 461,538 156,922 2,999,997
Gregory A. Vannatter.................. -- -- 7,692 2,614 49,998
</TABLE>
Upon the closing of this offering, each share of Series E and Series F
Convertible Preferred Stock will automatically convert into 0.85 shares of
Common Stock.
On January 31, 1997, the Company entered into the Triumph Agreement with
Triumph and certain other purchasers identified therein (the "Triumph
Purchasers"), pursuant to which the Company agreed to issue convertible
subordinated secured notes (the "Triumph Notes") in an aggregate amount of
$7,000,000 and warrants exercisable for an aggregate of 561,073 and 218,195
shares of Common Stock at per share exercise prices of $0.01 and $5.29,
respectively, (the "Triumph Warrants"). Upon execution of the Triumph Agreement,
the Company issued Triumph Notes in aggregate principal amount of $2,000,000 and
warrants exercisable for an aggregate of 224,429 shares of Common Stock at a per
share exercise price of $0.01. The Triumph Agreement, as amended, provides that,
upon the earlier of (i) the Company's receipt of final FDA NDA approval for
Primsol trimethoprim solution and (ii) the closing of this offering, the Company
shall issue
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<PAGE> 59
additional convertible subordinated secured notes to the Triumph Purchasers in
an aggregate amount of $5,000,000 and warrants exercisable for an aggregate of
336,644 shares of Common Stock at a per share exercise price of $0.01 and
warrants exercisable for an aggregate of 218,195 shares of Common Stock at a per
share exercise price of $5.29.
Through a profit-sharing plan, Thomas W. Janes purchased $21,148 of the
Triumph Notes currently outstanding and Triumph Warrants exercisable for 2,404
shares of Common Stock at an exercise price of $0.01 per share (for total
consideration of $21,148) and will be required to purchase $53,571 of the
additional $5,000,000 of Triumph Notes, and additional Triumph Warrants
exercisable for 3,606 shares of Common Stock at an exercise price of $0.01 per
share and 2,337 shares of Common Stock at an exercise price of $5.29 per share
to be issued by the Company (for total consideration of $53,571).
Except as described below, the Triumph Notes mature on January 31, 2002.
Except as described below the Triumph Notes bear no interest through January 31,
1999 and bear interest at a rate of 7%, 8% and 9% interest for each of the three
years thereafter, respectively. Ascent may redeem the Triumph Notes by paying
100% of the outstanding principal and accrued interest at any time. Upon a
change in control of the Company, as defined in the Triumph Agreement, the
holders of the Triumph Notes may elect to have the Triumph Notes purchased by
the Company at 100% of the outstanding principal plus accrued interest. The
Triumph Notes are secured by a lien on all of the Company's assets, prohibit the
payment of dividends by the Company and, subject to certain exceptions,
(including for up to $6,000,000 of senior secured bank financing and $5,500,000
of secured purchase money financing in connection with the planned acquisition
of the Feverall product line) prohibit the incurrence of additional
indebtedness. Upon completion of this offering, the Company may either redeem
all of the outstanding Triumph Notes for their stated principal amount or all of
such Triumph Notes will amortize in eight equal quarterly principal payments and
require quarterly interest payments on the unpaid principal balance, at a rate
equal to the lesser of ten percent or 3.5% over the prime rate, with the first
quarterly payment of principal and interest due six months after the closing of
this offering. In addition, for a period of two years following the closing of
this offering, the holders of the Triumph Notes will have the right to convert
the Triumph Notes into such number of shares of Common Stock as is equal to the
outstanding principal of such Triumph Notes divided by the per share Price to
Public in this offering (subject to certain requirements as to the minimum
amount to be so converted as provided in the Triumph Agreement). Assuming an
initial public offering price of $12.00 per share, the full $7,000,000 principal
amount of the Triumph Notes would be convertible into an aggregate of 583,332
shares of Common Stock.
The Triumph Agreement also provides that, until the later of (i) the
payment of all amounts outstanding on the Triumph Notes and (ii) two and
one-half years after the date of this offering, the Company shall use its best
efforts to cause the number of members of the Board of Directors to be fixed at
nine and to cause the nominee of the holders of a majority of the shares
issuable upon exercise of the Triumph Warrants to be nominated, elected and
maintained as a director of the Company.
Certain persons and entities, including the purchasers of the Company's
Series E and Series F Convertible Preferred Stock and related warrants and the
holders of the Triumph Warrants and Triumph Notes listed above are entitled to
certain rights with respect to the registration under the Securities Act of
certain shares of the Company's Common Stock, including shares of Common Stock
that may be acquired pursuant to the conversion of the Convertible Preferred
Stock or the Triumph Notes or the exercise of certain options or warrants under
the terms of agreements among the Company and such persons and entities. For a
description of such rights, see "Shares Eligible for Future Sale."
For a description of the employment agreement between the Company and its
Chairman, see "Management -- Executive Compensation." For a description of stock
options granted to certain directors of the Company, see
"Management -- Compensation of Directors." For a description of the relationship
between certain directors of the Company and certain of the Affiliates, see
"Management -- Executive Officers, Significant Employees and Directors," and for
a description of the consulting arrangement between the Company and its Vice
Chairman, see "Management -- Compensation of Directors."
The Company believes that the securities issued in the transactions
described above were sold at their then fair market value and that the terms of
the transactions described above were no less favorable than the Company could
have obtained from unaffiliated third parties.
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<PAGE> 60
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of February 28, 1997 (assuming
the Preferred Stock Conversion), and as adjusted to reflect the sale of the
shares of Common Stock offered hereby and the issuance of an additional
$5,000,000 of Triumph Notes no later than the closing of this offering, by (i)
each person or entity known to the Company to own beneficially more than 5% of
the Company's Common Stock, (ii) each of the Company's directors, (iii) each of
the Named Executive Officers and (iv) all directors and executive officers as a
group.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
NUMBER OF SHARES -------------------------------
BENEFICIALLY BEFORE THE
OWNED(1) OFFERING AFTER THE OFFERING
---------------- ---------- ------------------
<S> <C> <C> <C>
5% STOCKHOLDERS
Medical Science Partners Group...................... 1,110,024(2) 23.4% 16.4%
20 William Street, Suite 250
Wellesley, MA 02181
Funds affiliated with Burr, Egan, Deleage & Co. .... 724,674(3) 15.2 10.7
One Post Office Square
Boston, MA 02109
New York Life Insurance Company..................... 701,156(4) 14.6 10.3
51 Madison Avenue
New York, NY 10010
Paribas Group....................................... 559,429(5) 11.6 8.2
c/o White & Case
1155 Avenue of the Americas
New York, NY 10036
Atlas Venture Fund II, L.P. ........................ 463,411(6) 9.8 6.9
222 Berkeley Street
Boston, MA 02116
Triumph-Connecticut Limited Partnership............. 329,639(7) 6.6 14.7(8)
60 State Street
Boston, MA 02109
EXECUTIVE OFFICERS AND DIRECTORS(9)
Raymond F. Baddour, Ph.D. .......................... 261,537(10) 5.6 3.9
Robert E. Baldini................................... 37,895(11) * *
Emmett Clemente, Ph.D............................... 312,800(12) 6.5 4.6
Michael J.F. Du Cros................................ 463,411(13) 9.8 6.9
Alan R. Fox......................................... 15,557(14) * *
Thomas W. Janes..................................... 332,829(15) 6.7 14.9(16)
Andre L. Lamotte, Sc.D. ............................ 1,119,176(17) 23.5 16.6
Terrance McGuire.................................... 724,674(18) 15.2 10.7
Lee J. Schroeder.................................... 8,500 * *
All directors and executive officers as a group (11
persons).......................................... 3,285,431(19) 59.5 55.1(20)
</TABLE>
- ---------------
* Represents less than 1% of the outstanding Common Stock.
(1) Each stockholder has sole voting and investment power with respect to the
shares listed, except as otherwise noted. Shares of Common Stock which an
individual or group has a right to acquire within the 60-day period
following February 28, 1997 pursuant to the exercise of options or warrants
are deemed to be outstanding for the purposes of computing the percentage
ownership of such individual or group, but are not deemed to be outstanding
for the purpose of computing the percentage ownership of any other person
shown in the table.
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<PAGE> 61
(2) Consists of 844,312 shares held by Medical Science Partners, L.P. ("MSP")
(including 48,652 shares issuable upon the exercise of warrants within 60
days of February 28, 1997), 82,638 shares held by Medical Science Partners
II, L.P. ("MSP II") (including 11,805 shares issuable upon the exercise of
warrants within 60 days of February 28, 1997) and 183,074 shares held by
MSP Healthcare Opportunities Investment Pool ("MSP HOIP") (including 52,305
shares issuable upon the exercise of warrants within 60 days of February
28, 1997). MSP, MSP II and MSP HOIP are affiliates.
(3) Includes 582,341 shares and 134,798 shares issuable upon the exercise of
warrants within 60 days of February 28, 1997, beneficially owned by Alta V
Limited Partnership. Also includes 6,119 shares and 1,416 shares issuable
upon the exercise of warrants within 60 days of February, 28, 1997,
beneficially owned by Customs House Partners. The respective general
partners of each of these funds exercise sole voting and investment power
with respect to the shares held by the funds.
(4) Includes 159,010 shares issuable upon the exercise of warrants within 60
days of February 28, 1997.
(5) Consists of 549,229 shares held by Paribas Principal, Inc. (including
156,922 shares issuable upon the exercise of warrants within 60 days of
February 28, 1997) and 10,200 shares issuable upon the exercise of warrants
held by Banque Paribas within 60 days of February 28, 1997. Banque Paribas
and Paribas Principal, Inc. are affiliates.
(6) Includes 79,277 shares issuable upon the exercise of warrants within 60
days of February 28, 1997.
(7) Includes 140,476 shares of Common Stock issuable upon conversion of the
Triumph Notes outstanding at February 28, 1997 (assuming an initial public
offering price of $12.00 per share) held by Triumph and 189,163 shares of
Common Stock issuable upon the exercise of the Triumph Warrants held by
Triumph which are exercisable within 60 days of February 28, 1997.
(8) Includes the shares described in note (7). Also includes an additional
351,190 shares of Common Stock issuable upon conversion of additional
Triumph Notes (assuming an initial public offering price of $12.00 per
share) and an additional 467,653 shares of Common Stock issuable upon the
exercise of additional Triumph Warrants within 60 days of February 28, 1997
to be held by Triumph upon the Company's issuance of an additional
$5,000,000 of Triumph Notes no later than the closing of this offering.
(9) The address for each director and officer of the Company is c/o Ascent
Pediatrics, Inc., 187 Ballardvale Street, Suite B125, Wilmington, MA 01887.
(10) Includes 26,153 shares issuable upon the exercise of warrants within 60
days of February 28, 1997.
(11) Consists of 37,895 shares issuable upon the exercise of options within 60
days of February 28, 1997.
(12) Includes 142,800 shares issuable upon the exercise of options within 60
days of February 28, 1997.
(13) All of such shares are held by Atlas Ventures Fund II, L.P. ("Atlas
Ventures") (including 79,277 shares issuable upon the exercise of
warrants). Mr. Du Cros is a Partner of Atlas Ventures and may be considered
the beneficial owner of the shares owned by Atlas Ventures, although Mr. Du
Cros disclaims beneficial ownership, except as to his pecuniary interest
therein.
(14) Includes 3,921 shares issuable upon the exercise of warrants within 60 days
of February 28, 1997. Also includes 1,829 shares held by Mr. Fox's wife
(including 522 shares issuable upon the exercise of warrants within 60 days
of February 28, 1997).
(15) Includes the shares described in note (7). Also includes 1,786 shares of
Common Stock issuable upon conversion of the Triumph Notes outstanding at
February 28, 1997 (assuming an initial public offering price of $12.00 per
share) held by a profit sharing plan for the benefit of Mr. Janes (the
"Janes Plan") and 2,404 shares of Common Stock issuable upon the exercise
of Triumph Warrants held by the Janes Plan which are exercisable within 60
days of February 28, 1997. Mr. Janes is a General Partner of Triumph and
may be considered the beneficial owners of shares held by Triumph. Mr.
Janes disclaims such beneficial ownership, except as to his pecuniary
interest therein.
(16) Includes the shares described in notes (7), (8) and (15). Also includes
4,464 shares of Common Stock issuable upon conversion of additional Triumph
Notes (assuming an initial public offering price of $12.00 per share) and
an additional 5,943 shares of Common Stock issuable upon the exercise of
additional Triumph Warrants within 60 days of February 28, 1997 to be held
by the Janes Plan upon the Company's issuance of an additional $5,000,000
of Triumph Notes no later than the closing of this offering. Mr Janes is a
General Partner of Triumph and may be considered the beneficial owner of
shares held by Triumph. Mr. Janes disclaims such beneficial ownership,
except as to his pecuniary interest therein.
(17) Includes 2,614 shares issuable upon the exercise of warrants within 60 days
of February 28, 1997. Also includes the shares described in note (2). Dr.
Lamotte is the Managing General Partner of the general partners of MSP, MSP
II and MSP HOIP and may be considered the beneficial owner of the shares
owned by such entities, although Dr. Lamotte disclaims beneficial
ownership, except as to his pecuniary interest therein.
(18) Includes 717,139 shares held by Alta V Limited Partnership (including the
134,798 warrant shares) and 6,119 shares held by Customs House Partners
(including the 1,416 warrant shares). Mr. McGuire is a general partner of
Alta V Management Partners, L.P. (which is the general partner of Alta V
Limited Partnership). Mr. McGuire disclaims beneficial ownership of the
shares held by Alta V Limited Partnership except to the extent of his
proportionate pecuniary interests therein. Mr. McGuire disclaims all
beneficial ownership to the shares held by Customs House Partners.
(19) See notes (10) through (15) and notes (17) through (18). Includes an
additional 9,152 shares of Common Stock (including 2,614 shares issuable
upon the exercise of options and warrants within 60 days of February 28,
1997).
(20) Consists of the shares referenced in note (19) plus additional shares
related to the issuance of $5,000,000 in Triumph Notes described in notes
(8) and (16).
60
<PAGE> 62
DESCRIPTION OF CAPITAL STOCK
Assuming conversion of all of the Company's Convertible Preferred Stock, as
of February 28, 1997, there were 4,638,719 shares of Common Stock outstanding,
held of record by 60 stockholders.
COMMON STOCK
Prior to the closing of this offering, the Company's Second Amended and
Restated Certificate of Incorporation (the "Certificate of Incorporation") will
authorize the issuance of up to 60,000,000 shares of Common Stock, $.00004 par
value per share. Holders of Common Stock are entitled to one vote for each share
held on all matters submitted to a vote of stockholders and do not have
cumulative voting rights. Accordingly, holders of a majority of the shares of
Common Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared by the Board of Directors out
of funds legally available therefor, subject to any preferential dividend rights
of outstanding Preferred Stock. Upon the liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to receive ratably the
net assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in this offering will be, when issued and paid for, fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future.
CONVERTIBLE PREFERRED STOCK AND WARRANTS
As of February 28, 1997, 800,000 shares of Series A Convertible Preferred
Stock, 399,999 shares of Series B Convertible Preferred Stock, 1,359,522 shares
of Series D Convertible Preferred Stock, 733,371 shares of Series E Convertible
Preferred Stock and 1,915,765 shares of Series F Convertible Preferred Stock of
the Company were outstanding. Upon the closing of this offering, all of the
outstanding shares of Convertible Preferred Stock will be converted into
4,440,564 shares of Common Stock.
As of February 28, 1997, a total of 1,264,941 shares of Common Stock (after
giving effect to the conversion of all shares of Convertible Preferred Stock
into Common Stock prior to or upon the closing of this offering) were issuable
upon exercise of outstanding warrants at a weighted average exercise price of
$4.93 per share. Such warrants will remain outstanding after the closing of this
offering.
As of February 28, 1997, a total of 634,736 shares of Common Stock were
issuable upon the exercise of outstanding options at a weighted average exercise
price of $2.40 per share, of which options with respect to 244,978 shares were
exercisable.
TRIUMPH NOTES
As of February 28, 1997, the Company had issued Triumph Notes in an
aggregate principal amount of $2,000,000. Upon the earlier of (i) the Company's
receipt of final NDA approval for Primsol trimethoprim solution and (ii) the
closing of this offering, the Company will issue additional Triumph Notes in an
aggregate principal amount of $5,000,000. For a period of two years following
the closing of this offering the holders of the Triumph Notes will have the
right to convert the Triumph Notes into such number of shares of Common Stock as
is equal to the outstanding principal of such Triumph Notes divided by the per
share Price to Public in this offering (subject to certain requirements as to
the minimum amount to be so converted as provided in the Triumph Agreement).
Assuming an initial public offering price of $12.00 per share, the full
$7,000,000 principal amount of the Triumph Notes would be convertible into an
aggregate of 583,332 shares of Common Stock). See "Certain Transactions."
61
<PAGE> 63
PREFERRED STOCK
Upon the closing of this offering and following the filing of a Certificate
of Retirement, the Company's Certificate of Incorporation will authorize the
issuance of up to 5,000,000 shares of Preferred Stock, $0.01 par value per
share. Under the terms of the Certificate of Incorporation, the Board of
Directors is authorized, subject to any limitations prescribed by law, without
stockholder approval, to issue such shares of Preferred Stock in one or more
series. Each such series of Preferred Stock shall have such rights, preferences,
privileges and restrictions, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be determined by the Board of Directors.
The purpose of authorizing the Board of Directors to issue Preferred Stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any shares of Preferred Stock.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
The Certificate of Incorporation provides for the division of the Board of
Directors into three classes as nearly equal in size as possible with staggered
three-year terms. See "Management." In addition, the Certificate of
Incorporation provides that directors may be removed only for cause by the
affirmative vote of the holders of two-thirds of the shares of capital stock of
the corporation entitled to vote. Under the Certificate of Incorporation, any
vacancy on the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board, may only be filled by vote of a
majority of the directors then in office. The classification of the Board of
Directors and the limitations on the removal of directors and filling of
vacancies could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring, control of the
Company.
The Certificate of Incorporation also provides that after the closing of
this offering, any action required or permitted to be taken by the stockholders
of the Company at an annual meeting or special meeting of stockholders may only
be taken if it is properly brought before such meeting and may not be taken by
written action in lieu of a meeting. The Certificate of Incorporation further
provides that special meetings of the stockholders may only be called by the
President of the Company or by the Board of Directors. Under the Company's
Amended and Restated By-Laws (the "By-Laws"), in order for any matter to be
considered "properly brought" before a meeting, a stockholder must comply with
certain requirements regarding advance notice to the Company. The foregoing
provisions could have the effect of delaying until the next stockholders meeting
stockholder actions which are favored by the holders of a majority of the
outstanding voting securities of the Company. These provisions may also
discourage another person or entity from making a tender offer for the Company's
Common Stock, because such person or entity, even if it acquired a majority of
the outstanding voting securities of the Company, would be able to take action
as a stockholder (such as electing new directors or approving a merger) only at
a duly called stockholders meeting, and not by written consent.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's Certificate of Incorporation or By-Laws,
unless a corporation's Certificate of Incorporation or By-Laws, as the case may
be, requires a greater percentage. The Certificate of Incorporation and the
By-Laws require the affirmative vote of the holders of at
62
<PAGE> 64
least 75% of the shares of capital stock of the Company issued and outstanding
and entitled to vote to amend or repeal any of the provisions described in the
prior two paragraphs.
The Certificate of Incorporation contains certain provisions permitted
under the General Corporation Law of Delaware relating to the liability of
directors. The provisions eliminate a director's liability for monetary damages
for a breach of fiduciary duty, except in certain circumstances involving
wrongful acts, such as the breach of a director's duty of loyalty or acts or
omissions which involve intentional misconduct or a knowing violation of law.
Further, the Certificate of Incorporation contains provisions to indemnify the
Company's directors and officers to the fullest extent permitted by the General
Corporation Law of Delaware. The Company believes that these provisions will
assist the Company in attracting and retaining qualified individuals to serve as
directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Boston Equiserve
Limited Partnership.
63
<PAGE> 65
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, based upon the number of shares
outstanding at February 28, 1997, there will be 6,638,719 shares of Common Stock
of the Company outstanding (including the 4,440,564 shares of Common Stock to be
issued upon the Preferred Stock Conversion, but exclusive of 1,285,490 shares
covered by vested options and warrants outstanding at February 28, 1997, 583,332
shares of Common Stock issuable upon conversion of the Triumph Notes (assuming
an initial public offering price of $12.00 per share) and 779,268 shares
issuable upon the exercise of Triumph Warrants issued or issuable no later than
the closing of this offering). Of these outstanding shares (and without taking
into account the lock-up agreements described below), the 2,000,000 shares of
Common Stock sold in this offering, will be immediately eligible for resale in
the public market without restriction under the Securities Act, except that any
shares purchased in this offering by "affiliates" of the Company, as that term
is defined in Rule 144 under the Securities Act ("Rule 144 Affiliates"), may
generally only be resold in compliance with applicable provisions of Rule 144.
Beginning approximately 90 days after the date of this Prospectus (and without
taking into account the lock-up agreements described below), approximately
3,757,594 additional shares of Common Stock (including approximately (i) 320,681
shares covered by options and 73,509 shares covered by warrants (assuming a
cashless exercise of such warrants at a fair market value of $12.00 per share),
in each case exercisable within the 90-day period following the date of this
Prospectus) will become eligible for immediate resale in the public market
(assuming effectiveness of the amendment to Rule 144 described below), subject
to compliance as to certain of such shares with applicable provisions of Rules
144 and 701.
The Company, and its directors, officers and certain of its security
holders, holding in the aggregate approximately shares of Common Stock
outstanding prior to this offering, approximately shares of Common Stock
subject to options and warrants exercisable within 180 days of the effective
date of the registration statement to which this Prospectus forms a part and
shares of Common Stock issuable upon conversion of the Triumph Notes,
have entered into agreements providing that, for a period of 180 days after the
effective date of the registration statement to which this Prospectus forms a
part, they will not, without the prior written consent of Cowen & Company,
offer, sell, contract to sell or otherwise dispose of or reduce beneficial
ownership in or risk relating to any shares of Common Stock or any rights to
acquire shares of Common Stock (other than, in the case of the Company, in
certain limited circumstances), or grant any option to purchase or right to
acquire or acquire any option to dispose of any shares of Common Stock. The
shares subject to the lock-up agreements include of the shares of
Common Stock that would otherwise have become immediately eligible for resale in
the public market upon completion of this offering and approximately
of the shares of Common Stock (including approximately
shares of Common Stock covered by options exercisable within the
90-day period following the date of this Prospectus) that would otherwise have
become eligible for resale in the public market beginning approximately 90 days
after the date of this Prospectus, subject to compliance as to certain of such
shares with the applicable provisions of Rules 144 and 701.
In general, under Rule 144 as currently in effect, beginning approximately
90 days after the effective date of the Registration Statement of which this
Prospectus is a part, a stockholder, including a Rule 144 Affiliate, who has
beneficially owned his or her restricted securities (as that term is defined in
Rule 144) for at least two years from the later of the date such securities were
acquired from the Company or (if applicable) the date they were acquired from a
Rule 144 Affiliate is entitled to sell, within any three-month period, a number
of such shares that does not exceed the greater of 1% of the then outstanding
shares of Common Stock (approximately 66,387 shares immediately after this
offering) or the average weekly trading volume in the Common Stock during the
four calendar weeks preceding the date on which notice of such sale was filed
under Rule 144, provided certain requirements concerning availability of public
information, manner of sale and notice of sale are satisfied. In addition, under
Rule 144(k), if a period of at least three years has elapsed between the later
of the date restricted securities were acquired from the Company or (if
applicable) the date they were acquired from a Rule 144 Affiliate of the
Company, a stockholder who is not a Rule 144 Affiliate of the Company at the
time of sale and has not been a Rule 144 Affiliate of the Company for at least
three months prior to the sale is entitled to sell the shares immediately
without compliance with the foregoing requirements under Rule 144. The
Securities and Exchange Commission has adopted an amendment to Rule
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<PAGE> 66
144 which reduces the holding period required for shares subject to Rule 144 to
become eligible for sale in the public market from two years to one year, and
from three years to two years in the case of Rule 144(k). This amendment will be
effective on April 29, 1997.
Securities issued in reliance on Rule 701 (such as shares of Common Stock
that may be acquired pursuant to the exercise of certain options granted under
the 1992 Option Plan) are also restricted securities and, beginning 90 days
after the effective date of the Registration Statement of which this Prospectus
is a part, may be sold by stockholders other than a Rule 144 Affiliate of the
Company subject only to the manner of sale provisions of Rule 144 and by a Rule
144 Affiliate under Rule 144 without compliance with its two-year holding period
requirement.
At the completion of this offering, certain persons and entities (the
"Rightholders"), will be entitled to certain rights with respect to the
registration under the Securities Act of a total of approximately 6,843,676
shares of Common Stock (the "Registrable Shares"), including 1,819,780 shares of
Common Stock that may be acquired pursuant to the exercise of outstanding
warrants (including Triumph Warrants to be outstanding upon the closing of this
offering) and 583,332 shares of Common Stock that may be issued upon conversion
of the Triumph Notes (assuming an initial public offering price of $12.00 per
share), under the terms of agreements among the Company and the Rightholders
(the "Registration Agreements"). The Registration Agreements generally provide
that in the event the Company proposes to register any of its securities under
the Securities Act at any time, with certain exceptions, the Rightholders shall
be entitled to include Registrable Shares in such registration, subject to the
right of the managing underwriter of any underwritten offering to exclude from
such registration for marketing reasons some or all of such Registrable Shares.
The Rightholders have the additional right under certain Registration Agreements
to require the Company to prepare and file registration statements under the
Securities Act with respect to all of the Registrable Shares, including shares
of Common Stock that may be acquired upon the exercise of outstanding warrants,
if such Rightholders holding specified percentages of such Registrable Shares so
request, and the Company is required to use its best efforts to effect such
registration, subject to certain conditions and limitations. Under the
Registration Agreements, the Company is not required to file a registration
statement within six months of the effective date of the Registration Statement
of which this Prospectus is a part. In addition to the registration rights
described above, with respect to the shares of Common Stock issuable upon
conversion of the Triumph Notes, the Company is required to file a "shelf"
registration statement covering all of the Registrable Shares once the Company
has become eligible to file a registration statement on Form S-3, which the
Company expects to occur twelve months following the closing of this offering.
The Company is generally required to bear the expense of all such registrations.
Prior to this offering, there has been no public market for the Common
Stock. No precise prediction can be made as to the effect, if any, that market
sales of shares or the availability of shares for sale will have on the market
price of the Common Stock prevailing from time to time. The Company is unable to
estimate the number of shares that may be sold in the public market pursuant to
Rule 144, since this will depend on the market price of the Common Stock, the
personal circumstances of the sellers and other factors. Nevertheless, sales of
significant amounts of the Common Stock of the Company in the public market
could adversely affect the market price of the Company's Common Stock and could
impair the Company's ability to raise capital through an offering of its equity
securities.
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<PAGE> 67
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Cowen & Company, Volpe, Welty & Company L.L.C. and Adams, Harkness & Hill, Inc.,
have severally agreed to purchase from the Company the following respective
numbers of shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
- ----------------------------------------------------------------------------- ----------------
<S> <C>
Cowen & Company..............................................................
Volpe, Welty & Company L.L.C. ...............................................
Adams, Harkness & Hill, Inc. ................................................
---------
Total.............................................................. 2,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
of such shares are purchased.
The Company has been advised by the Representatives of the Underwriters
that the Underwriters initially propose to offer the shares of Common Stock to
the public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. After the initial public offering, the offering price and other selling
terms may be changed by the Representatives of the underwriters.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 300,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the table above bears to 2,000,000, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 2,000,000 shares are being offered.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
The Company, and its directors, officers and certain of its security
holders, holding in the aggregate approximately shares of Common Stock
outstanding prior to this offering, approximately shares of Common Stock
subject to options and warrants exercisable within 180 days of the effective
date of the registration statement to which this Prospectus forms a part and
shares of Common Stock issuable upon conversion of the Triumph Notes,
have entered into agreements providing that, for a period of 180 days after the
effective date of the registration statement to which this Prospectus forms a
part, they will not, without the prior written consent of Cowen & Company,
offer, sell, contract to sell or otherwise dispose of or reduce beneficial
ownership in or risk relating to any shares of Common Stock or any rights to
acquire shares of Common Stock (other than, in the case of the Company, in
certain limited circumstances), or grant any
66
<PAGE> 68
option to purchase or right to acquire or acquire any option to dispose of any
shares of Common Stock. See "Shares Eligible for Future Sale."
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock will be determined by negotiations between the Company and the
Representatives of the Underwriters. Among the factors to be considered in such
negotiations will be prevailing market conditions, the results of operations of
the Company in recent periods, the market capitalizations and stages of
development of other companies which the Company and the Representatives of the
Underwriters believe to be comparable to the Company, estimates of the business
potential of the Company, the present state of the Company's development and
other factors deemed relevant.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may overallot in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
the Common Stock in the open market. The Underwriters may also reclaim selling
concessions allowed to an underwriter or a dealer for distributing the Common
Stock in the offering, if the Underwriters repurchase previously distributed
Common Stock in transactions to cover their short positions, in stabilization
transactions or otherwise. Finally, the Underwriters may bid for, and purchase,
shares of the Common Stock in market making transactions and impose penalty
bids. These activities may stabilize or maintain the market price of the Common
Stock above market levels that may otherwise prevail. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
Certain Representatives have acquired shares of capital stock in the
Company in private placements on the same terms as other investors who
participated in such private placements. On December 18, 1996, certain
affiliates of Volpe, Welty & Company L.L.C. acquired an aggregate of 26,922
shares of Series F Convertible Preferred Stock from the Company for an aggregate
of $174,993 and acquired related warrants exercisable for 9,148 shares of Common
Stock at an exercise price of $7.65 per share. On June 28, 1996, Adams, Harkness
& Hill, Inc., purchased 153,846 related shares of Series F Convertible Preferred
Stock from the Company for an aggregate of $1,000,000 and acquired warrants
exercisable for 52,307 shares of Common Stock at an exercise price of $7.65 per
share.
67
<PAGE> 69
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Hale and Dorr LLP, Boston, Massachusetts. Certain legal
matters in connection with this offering will be passed upon for the
Underwriters by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston,
Massachusetts.
EXPERTS
The balance sheets of Ascent Pediatrics, Inc., as of December 31, 1995 and
1996, and the statements of operations, changes in stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1996, and the cumulative period from inception (March 16, 1989) to
December 31, 1996, included in this Prospectus have been included herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The Statement of Assets related to the Product Line to be Acquired by
Ascent Pediatrics, Inc. as of December 29, 1996 and the Statements of Net Sales
and Identified Costs and Expenses of the Product Line to by Acquired by Ascent
Pediatrics, Inc. for the years ended December 31, 1995 and December 29, 1996 of
the Feverall Product Line of Upsher-Smith Laboratories, Inc. (the "Product
Line") included in this Prospectus have been included herein in reliance upon
the report, which includes an explanatory paragraph, of KPMG Peat Marwick LLP,
independent certified public accountants, given upon the authority of said firm
as experts in auditing and accounting. The explanatory paragraph states that the
financial statements were prepared to present the assets to be sold to Ascent
and the net sales and the identified costs and expenses of the Product Line and
are not intended to be a complete presentation of the Product Line's financial
position, results of operations or cash flows. Accordingly, identified costs and
expenses include only those costs and expenses directly attributable to the
Product Line to be sold. They do not contain any other costs which are not
directly attributable to the Product Line to be sold. As a result, the
statements presented may not be indicative of the results of operations that
would have been achieved had the Product Line operated as a nonaffiliated
entity.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement (which term
shall include all amendments, exhibits and schedules thereto) on Form S-1 under
the Securities Act with respect to the shares of Common Stock offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission, to which Registration Statement reference is hereby made.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. The Registration Statement and the
exhibits thereto may be inspected and copied at prescribed rates at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of
the Commission located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The
Commission maintains a World Wide Web site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
68
<PAGE> 70
ASCENT PEDIATRICS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ASCENT PEDIATRICS, INC.:
Report of Independent Accountants..................................................... F-2
Balance Sheets as of December 31, 1995 and 1996 and unaudited 1996 Pro Forma.......... F-3
Statements of Operations for the years ended December 31, 1994, 1995 and 1996, and
cumulative from inception (March 16, 1989) to December 31, 1996..................... F-4
Statements of Changes in Stockholders' Equity (Deficit) from inception (March 16,
1989) to December 31, 1996.......................................................... F-5
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996, and
cumulative from inception (March 16, 1989) to December 31, 1996..................... F-6
Notes to the Financial Statements..................................................... F-7
A PRODUCT LINE OF UPSHER-SMITH LABORATORIES, INC.:
Independent Auditors' Report.......................................................... F-18
Statement of Assets Related to the Product Line to be Acquired by Ascent Pediatrics,
Inc. as of December 29, 1996........................................................ F-19
Statements of Net Sales and Identified Costs and Expenses of the Product Line to be
Acquired by Ascent Pediatrics, Inc. Years ended December 31, 1995 and December 29,
1996................................................................................ F-20
Notes to the Financial Statements of the Product Line to be Acquired by Ascent
Pediatrics, Inc. December 31, 1995 and December 29, 1996............................ F-21
UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS:
Introduction to Unaudited Combined Pro Forma Financial Statements As of and for the
Year Ended December 31, 1996........................................................ F-23
Unaudited Combined Pro Forma Balance Sheet as of December 31, 1996.................... F-24
Unaudited Combined Pro Forma Statement of Operations for the Year Ended December 31,
1996................................................................................ F-25
Notes to Unaudited Combined Pro Forma Financial Statements As of and for the Year
Ended December 31, 1996............................................................. F-26
</TABLE>
F-1
<PAGE> 71
This is the form of the report that we expect to issue upon the
effectiveness of the reverse common stock split discussed in Note B of Notes to
Financial Statements:
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 14, 1997
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Ascent Pediatrics, Inc.:
We have audited the accompanying balance sheets of Ascent Pediatrics, Inc.,
formerly Ascent Pharmaceuticals, Inc. (a Development Stage Enterprise), as of
December 31, 1995 and 1996 and the related statements of operations, changes in
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1996 and cumulative from inception (March 16, 1989) to
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly
in all material respects, the financial position of Ascent Pediatrics, Inc. (a
Development Stage Enterprise), as of December 31, 1995 and 1996 and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996 and cumulative from inception (March 16, 1989) to
December 31, 1996, in conformity with generally accepted accounting principles.
Boston, Massachusetts
March , 1997
F-2
<PAGE> 72
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1996
PRO FORMA
(NOTES K AND L)
1995 1996 (UNAUDITED)
------------ ------------ ---------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 2,538,047 $ 2,085,743 $ 10,813,731
Other current assets.................................................. 43,672 12,312 12,312
------------ ------------ -------------
Total current assets............................................ 2,581,719 2,098,055 10,826,043
------------ ------------ -------------
Fixed assets, net (Note C).............................................. 155,030 163,142 163,142
Deposits related to acquisition (Note F)................................ -- 250,000 250,000
Deferred charges and other deposits (Notes F and K)..................... -- 104,553 104,553
Debt issue costs........................................................ -- -- 120,000
Other assets, net (Note D).............................................. 13,125 11,874 11,874
------------ ------------ -------------
Total assets.................................................... $ 2,749,874 $ 2,627,624 $ 11,475,612
============ ============ =============
LIABILITIES
Accounts payable........................................................ $ 112,343 $ 496,655 $ 496,655
Accrued expenses (Note G)............................................... 238,653 1,076,556 1,076,556
------------ ------------ -------------
Total current liabilities....................................... 350,996 1,573,211 1,573,211
Subordinated secured notes (Note K)..................................... -- -- 1,163,006
------------ ------------ -------------
Total liabilities............................................... 350,996 1,573,211 2,736,217
Series D redeemable convertible preferred stock, $.00004 par value;
1,399,589 shares authorized; 1,359,522 shares issued and outstanding
at December 31, 1995 and 1996 and none outstanding on a pro forma
basis, respectively (liquidation preference of $6.00 per share)....... 8,157,132 8,157,132 --
Series E redeemable convertible preferred stock, $.00004 par value;
1,166,667 shares authorized; 733,371 shares issued and outstanding at
December 31, 1995 and 1996 and none outstanding on a pro forma basis,
respectively (liquidation preference of $6.00 per share).............. 4,400,226 4,400,226 --
Series F redeemable convertible preferred stock, $.00004 par value;
1,892,308 shares authorized; 811,536 shares issued and outstanding at
December 31, 1996 and none outstanding on a pro forma basis,
respectively (liquidation preference $6.50 per share)................. -- 5,274,984 --
Commitments (Notes D and F)
STOCKHOLDERS' EQUITY (DEFICIT)
Stockholders' equity (deficit)(Notes H, I and J):
Series A convertible preferred stock, $.00004 par value; 800,000
shares authorized, 800,000 issued and outstanding at December 31,
1995 and 1996 and none outstanding on a pro forma basis,
respectively (liquidation preference of $0.38 per share)............ 280,110 280,110 --
Series B convertible preferred stock, $.00004 par value; 399,999
shares authorized, 399,999 issued and outstanding at December 31,
1995 and 1996 and none outstanding on a pro forma basis,
respectively (liquidation preference of $6.50 per share)............ 2,574,993 2,574,993 --
Common stock, $.00004 par value; 11,000,000 shares authorized; 197,837
and 198,155 shares issued and outstanding at December 31, 1995 and
1996 and 4,638,719 shares outstanding on a pro forma basis,
respectively........................................................ 8 8 185
Additional paid-in capital............................................ -- -- 28,372,250
Deficit accumulated during the development stage...................... (13,013,591) (19,633,040) (19,633,040)
------------ ------------ -------------
Total stockholders' equity (deficit).............................. (10,158,480) (16,777,929) 8,739,395
------------ ------------ -------------
Total liabilities and stockholders' equity (deficit)............ $ 2,749,874 $ 2,627,624 $ 11,475,612
============ ============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 73
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND CUMULATIVE FROM INCEPTION (MARCH 16, 1989)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
CUMULATIVE FROM
INCEPTION (MARCH
16, 1989) TO
DECEMBER 31,
1994 1995 1996 1996
----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
Licensing revenue (Note D)......... $ -- $ 303,949 $ -- $ 303,949
----------- ----------- ----------- ------------
Costs and expenses:
Research and development......... 2,550,931 2,986,044 3,760,948 12,009,821
Selling, general and
administrative................ 1,140,667 1,531,924 2,805,352 8,203,559
----------- ----------- ----------- ------------
Total expenses........... 3,691,598 4,517,968 6,566,300 20,213,380
----------- ----------- ----------- ------------
Loss from operations............... (3,691,598) (4,214,019) (6,566,300) (19,909,431)
Interest income.................... 147,498 113,124 79,084 753,543
----------- ----------- ----------- ------------
Net loss........................... $(3,544,100) $(4,100,895) $(6,487,216) $(19,155,888)
Accretion to redemption value of
preferred stock.................. -- 62,604 137,783 486,002
----------- ----------- ----------- ------------
Net loss to common stockholders.... $(3,544,100) $(4,163,499) $(6,624,999) $(19,641,890)
=========== =========== =========== ============
Net loss per common and common
equivalent share, historical
(Note B)
Pro forma (unaudited):
Net loss per common and common
equivalent share.............. $ (1.48)
Weighted average number of common
and common equivalent shares
outstanding................... 4,384,208
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 74
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FROM INCEPTION (MARCH 16, 1989)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF SHARES
------------------- PAR ADDITIONAL
PREFERRED COMMON PREFERRED PREFERRED PREFERRED VALUE PAID-IN
STOCK STOCK SERIES A SERIES B SERIES C COMMON CAPITAL
--------- ------- --------- ---------- ----------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock issued to officers $.000047 per
share........................................... 170,000 $ $ $ $7 $ 1
Series A convertible preferred stock, net of
issuance costs of approximately $20,000, issued
at $0.38 per share.............................. 800,000 280,110
Loss for the period from inception (March 16,
1989) to December 31, 1989......................
--------- ------- -------- -- -------
Balance, December 31, 1989....................... 800,000 170,000 280,110 7 1
Series B convertible preferred stock, net of
issuance costs of approximately $25,000, issued
at $6.50 per share.............................. 399,999 2,574,993
Common stock issued to consultants and employees
at $0.01 per share.............................. 19,125 1 224
Net loss.........................................
--------- ------- -------- ---------- -- -------
Balance, December 31, 1990....................... 1,199,999 189,125 280,110 2,574,993 8 225
Common stock issued to consultants and employees
at $0.01 per share.............................. 6,375 75
Net loss.........................................
-
--------- ------- -------- ---------- -- -------
Balance, December 31, 1991....................... 1,199,999 195,500 280,110 2,574,993 8 300
Series C convertible preferred stock, net of
issuance costs of approximately $40,000, issued
at $12.75 per share............................. 169,188 2,117,147
Common stock issued to consultants and employees,
issued at $1.18 per share....................... 2,125 2,500
Net loss.........................................
--------- ------- -------- ---------- ----------- -- -------
Balance, December 31, 1992....................... 1,369,187 197,625 280,110 2,574,993 2,117,147 8 2,800
Series C convertible preferred stock converted to
Series D redeemable convertible preferred
stock........................................... (169,188) (2,117,147)
Issuance costs of Series D redeemable convertible
preferred stock................................. (2,800)
Net loss.........................................
-
--------- ------- -------- ---------- ----------- -- -------
Balance, December 31, 1993....................... 1,199,999 197,625 280,110 2,574,993 8 --
Common stock issued upon option exercise at $2.35
per share....................................... 212 500
Net loss.........................................
-
--------- ------- -------- ---------- ----------- -- -------
Balance, December 31, 1994....................... 1,199,999.. 197,837 280,110 2,574,993 -- 8 500
Issuance costs of Series E redeemable convertible
preferred stock................................. (500)
Net loss......................................... --
-
--------- ------- -------- ---------- ----------- -- -------
Balance, December 31, 1995....................... 1,199,999.. 197,837 280,110 2,574,993 -- 8 --
Common stock issued upon option exercise at $2.35
per share....................................... 318 750
Warrant proceeds................................. 4,800
Issuance costs of Series F redeemable convertible
preferred stock................................. (5,550)
Net loss.........................................
-
--------- ------- -------- ---------- ----------- -------
Balance, December 31, 1996....................... 1,199,999 198,155 $280,110 $2,574,993 -- $8 --
========= ======= ======== ========== =========== == =======
<CAPTION>
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY (DEFICIT)
------------ ----------------
<S> <C> <C>
Common stock issued to officers $.000047 per
share........................................... $ $ 8
Series A convertible preferred stock, net of
issuance costs of approximately $20,000, issued
at $0.38 per share.............................. 280,110
Loss for the period from inception (March 16,
1989) to December 31, 1989...................... (293,846) (293,846)
------------ ------------
Balance, December 31, 1989....................... (293,846) (13,728)
Series B convertible preferred stock, net of
issuance costs of approximately $25,000, issued
at $6.50 per share.............................. 2,574,993
Common stock issued to consultants and employees
at $0.01 per share.............................. 225
Net loss......................................... (479,182) (479,182)
------------ ------------
Balance, December 31, 1990....................... (773,028) 2,082,308
Common stock issued to consultants and employees
at $0.01 per share.............................. 75
Net loss......................................... (1,211,956) (1,211,956)
------------ ------------
Balance, December 31, 1991....................... (1,984,984) 870,427
Series C convertible preferred stock, net of
issuance costs of approximately $40,000, issued
at $12.75 per share............................. 2,117,147
Common stock issued to consultants and employees,
issued at $1.18 per share....................... 2,500
Net loss......................................... (1,216,723) (1,216,723)
------------ ------------
Balance, December 31, 1992....................... (3,201,707) 1,773,351
Series C convertible preferred stock converted to
Series D redeemable convertible preferred
stock........................................... (2,117,147)
Issuance costs of Series D redeemable convertible
preferred stock................................. (282,815) (285,615)
Net loss......................................... (1,821,970) (1,821,970)
------------ ------------
Balance, December 31, 1993....................... (5,306,492) (2,451,381)
Common stock issued upon option exercise at $2.35
per share....................................... 500
Net loss......................................... (3,544,100) (3,544,100)
------------ ------------
Balance, December 31, 1994....................... (8,850,592) (5,994,981)
Issuance costs of Series E redeemable convertible
preferred stock................................. (62,104) (62,604)
Net loss......................................... (4,100,895) (4,100,895)
------------ ------------
Balance, December 31, 1995....................... (13,013,591) (10,158,480)
Common stock issued upon option exercise at $2.35
per share....................................... 750
Warrant proceeds................................. 4,800
Issuance costs of Series F redeemable convertible
preferred stock................................. (132,233) (137,783)
Net loss......................................... (6,487,216) (6,487,216)
------------ ------------
Balance, December 31, 1996....................... $(19,633,040) $(16,777,929)
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 75
ASCENT PEDIATRICS, INC
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996,
AND CUMULATIVE FROM INCEPTION (MARCH 16, 1989)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
CUMULATIVE FROM
INCEPTION (MARCH
16, 1989) TO
DECEMBER 31,
1994 1995 1996 1996
----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
Cash flows for operating activities:
Net loss........................................... $(3,544,100) $(4,100,895) $(6,487,216) $(19,155,888)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization................... 41,031 45,349 52,833 206,625
Changes in operating assets and liabilities:
Other assets.................................. (67,464) 55,943 31,360 (12,312)
Deferred charges and deposits................. -- -- (104,553) (104,553)
Accounts payable and accrued expenses......... 143,590 47,038 1,222,215 1,573,213
----------- ----------- ----------- ------------
Total adjustments.......................... 117,157 148,330 1,201,855 1,662,973
----------- ----------- ----------- ------------
Net cash used by operating activities................ (3,426,943) (3,952,565) (5,285,361) (17,492,915)
----------- ----------- ----------- ------------
Cash flows for investing activities:
Purchase of fixed assets........................... (94,179) (17,774) (59,694) (381,642)
Payments related to acquisition.................... -- -- (250,000) (250,000)
----------- ----------- ----------- ------------
Net cash used in investing activities................ (94,179) (17,774) (309,694) (631,642)
----------- ----------- ----------- ------------
Cash flows from financing activities:
Proceeds from sale of common stock................. 500 -- 750 4,058
Proceeds from sale of preferred stock, net of
issuance costs.................................. -- 4,337,622 5,137,201 20,201,442
Proceeds from issuance of debt..................... -- -- -- 150,000
Proceeds from warrant.............................. -- -- 4,800 4,800
Repayment of debt.................................. -- -- -- (150,000)
----------- ----------- ----------- ------------
Net cash provided by financing activities............ 500 4,337,622 5,142,751 20,210,300
----------- ----------- ----------- ------------
Net (decrease) increase in cash...................... (3,520,622) 367,283 (452,304) 2,085,743
Cash and cash equivalents at the beginning of the
period............................................. 5,691,386 2,170,764 2,538,047 --
----------- ----------- ----------- ------------
Cash and cash equivalents at the end of the period... $ 2,170,764 $ 2,538,047 $ 2,085,743 $ 2,085,743
=========== =========== =========== ============
Non-cash activity:
Series C preferred stock converted to Series D
preferred stock................................. -- -- -- $ 2,117,147
----------- ----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 76
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
A. NATURE OF BUSINESS
Ascent Pediatrics, Inc. (the "Company"), formerly Ascent Pharmaceuticals,
Inc., incorporated in Delaware on March 16, 1989, is a drug development and
marketing Company focused exclusively on the pediatric market. Since its
formation, the Company has operated as a development stage enterprise, devoting
substantially all of its efforts to establishing a new business and to carrying
on development activities.
The Company has incurred net losses since its inception and expects to
incur additional operating losses in the future as the Company continues its
product development programs, expansion of sales and marketing organization and
introduces its products to the market. The Company is subject to a number of
risks similar to other companies in the industry, including rapid technological
change, uncertainty of market acceptance of products, uncertainty of regulatory
approval, competition from substitute products and larger companies, customers'
reliance on third-party reimbursement, the need to obtain additional financing,
compliance with government regulations, protection of proprietary technology,
dependence on third-party manufacturers, distributors and key suppliers, product
liability, and dependence on key individuals.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financial Statement Presentation
On or prior to the effectiveness of a registration statement relating to
the initial public offering of the Common Stock of the Company, such as the one
contemplated in the Registration Statement in which the accompanying financial
statements have been included (the "Offering"), the Company will effect a
0.85-for-one reverse stock split of its common stock and increase the number of
authorized shares of common stock to 60,000,000. Accordingly, all share and per
share amounts have been adjusted to reflect the reverse stock split as though it
had occurred at the beginning of the initial period presented.
Cash and Cash Equivalents
The Company considers all short-term investments purchased with an original
maturity of three months or less at the date of acquisition to be cash
equivalents.
Concentration of Credit Risk
Cash and cash equivalents are financial instruments which potentially
subject the Company to concentrations of credit risk. At December 31, 1996,
substantially all of the Company's cash was invested in two money market mutual
funds through two different high quality financial institutions.
Fixed Assets
Fixed assets are recorded at cost and depreciated on a straight-line basis
over the useful life of the asset, typically five or seven years.
Revenue Recognition
Revenue is recognized under a collaborative license agreement as earned
based upon the performance requirements of such agreement (Note D).
Research and Development Expenses
Research and development costs are expensed as incurred.
F-7
<PAGE> 77
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Advertising Expenses
Costs for catalogs and other media are expensed as incurred. For the years
ended December 31, 1994, 1995 and 1996, costs were $0, $21,090 and $423,656,
respectively.
Income Taxes
The Company accounts for income taxes under Financial Accounting Standards
No. 109, "Accounting for Income Taxes," which requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from the estimates and assumptions used by
management.
Pro Forma Net Loss Per Share (Unaudited)
The pro forma net loss per common share is computed based upon the weighted
average number of common shares and common equivalent shares (using the treasury
stock method) outstanding after certain adjustments described below. Common
equivalent shares consist of common stock options and warrants where the effect
of their inclusion would be dilutive. In accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 83, all common and common equivalent
shares issued during the 12 month period prior to the initial filing date of the
initial public offering have been included in the calculation as if they were
outstanding for all periods, using the treasury stock method and the assumed
initial public offering price of $12.00 per share. In addition, all outstanding
shares of convertible preferred stock and redeemable convertible preferred
stock, which mandatorily convert to common stock upon the closing of an initial
public offering, are treated as if converted to common stock for all periods.
Accordingly, in the computation of net loss per common share, accretion of the
redeemable preferred stock to the mandatory redemption amount is not included as
an increase to net loss to common stockholders.
Historical Net Loss Per Common Share
Net loss per common share on a historical basis is computed in the same
manner as pro forma net loss per common share, except that preferred stock is
not assumed to be converted. Accretion of redeemable preferred stock is included
as an increase to net loss attributable to common stockholders. Net loss per
common share on a historical basis is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Net loss per common share..................................... $(2.24) $(2.63) $(4.18)
Weighted average number of common and common equivalent shares
outstanding................................................. 1,585,048 1,585,251 1,585,251
</TABLE>
Fully diluted net loss per common share is the same as primary net loss per
common share.
F-8
<PAGE> 78
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Recent Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share ("FAS 128"). FAS
128 specifies the computation, presentation and disclosure requirements for
earnings per share. FAS 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods, and earlier
application is not permitted. FAS 128 requires restatement of all prior-period
earnings per share data presented after the effective date. The Company has not
yet determined FAS 128's effect on its financial statements.
C. FIXED ASSETS
Fixed assets consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Equipment.............................................. $ 178,430 $ 220,983
Furniture and fixtures................................. 89,730 106,871
--------- ---------
Total equipment........................................ 268,160 327,854
Less:
Accumulated depreciation............................. (113,130) (164,712)
--------- ---------
Total.................................................. $ 155,030 $ 163,142
========= =========
</TABLE>
Depreciation expense amounted to $36,402, $44,101, and $51,582 for the
years ended December 31, 1994, 1995 and 1996, respectively.
D. LICENSE AGREEMENTS
During the year ended December 31, 1990, the Company entered into an
agreement with an unaffiliated entity, pursuant to which the Company was granted
a worldwide, exclusive license pursuant to certain patent applications. The
license agreement calls for royalties to be paid based on a percentage of net
sales of licensed product using the technology covered by the patent, and
additional royalties to be paid upon any sublicensing income earned.
During 1995, the Company entered into a licensing agreement with an
unaffiliated entity, pursuant to which the Company granted such party an
exclusive license to make, use and sell the licensed product in Japan. The
Company received approximately $202,000 as a technology transfer fee under the
license agreement and recognized it as revenue in 1995. In the event the
licensee commercializes a product utilizing the licensed technology, the
licensee will pay a royalty based on a percentage of net sales as described in
the agreement. For the year ended December 31, 1995, the Company recorded
revenue of approximately $102,000 related to research and development activities
performed on behalf of the licensee. The Company did not record any revenue for
1996 in connection with this license.
E. INCOME TAXES
No income tax provision has been recorded from inception through the year
ended December 31, 1996. As of December 31, 1996, the Company had approximately
$4,800,000 of federal net operating loss carryforwards available to offset
future taxable income, which begin to expire in 2004.
As required by Financial Accounting Statement No. 109, management of the
Company has evaluated the positive and negative evidence bearing upon the
realizability of its deferred tax assets, which are comprised principally of net
operating loss and tax credit carryforwards. Under these accounting standards,
because of the
F-9
<PAGE> 79
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company's history of losses, management believes that it is more likely than not
that the Company will not generate future taxable income prior to the expiration
of these net operating losses. Accordingly, the deferred tax assets have been
fully reserved. Management re-evaluates the positive and negative evidence on a
quarterly basis.
The components of deferred tax assets are as follows:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Net operating loss carryforwards.................... $ 1,732,000 $ 1,954,000
Research and development credits.................... 159,000 200,000
Capitalized expenses:
Research and development.......................... 1,147,000 1,936,000
Start-up.......................................... 615,000 2,127,000
----------- -----------
Total deferred tax assets........................... 3,653,000 6,217,000
Valuation allowance................................. (3,653,000) (6,217,000)
----------- -----------
Net deferred tax asset.............................. $ -- $ --
=========== ===========
</TABLE>
The Tax Reform Act of 1986 contains provisions which may limit the
utilization of net operating losses and research and development credit
carryforwards in any given year upon the occurrence of certain events, including
a significant change in ownership interests. The difference between the federal
net operating loss carryforwards and the amount of the accumulated deficit
results primarily from certain pre-operating costs and research and development
expenses, which have been capitalized for tax purposes.
F. COMMITMENTS
In June 1991, the Company entered into a lease for laboratory and office
space and equipment, which expired on March 31, 1996. In May 1994, the Company
leased additional space in the same building on a month-to-month basis. This
lease required monthly rental payments of $4,258 and monthly payments of certain
operating expenses and real estate taxes. Rent expense included in the Statement
of Operations was approximately $50,000, $52,000, and $55,878 for the years
ended December 31, 1994, 1995 and 1996, respectively, and $308,878 for the
period from inception (March 16, 1989) to December 31, 1996. In 1996, the
Company amended this lease to a tenant-at-will lease.
In November 1996, the Company entered into a lease for new office space
commencing from February 1997 for a term of five years. This lease requires
monthly payments of $19,093. During 1996, the Company paid the landlord a
deposit of $57,280 related to the lease, which is reflected in the balance sheet
under Deferred Charges and Other Deposits.
On November 13, 1996, the Company signed a non-binding letter of intent
with Upsher-Smith Laboratories, Inc. ("Upsher-Smith") to purchase the Feverall
acetaminophen suppository product line ("Product Line") for a purchase price
equal to $11,500,000 plus the cost of inventories and paid Upsher-Smith a
$250,000 non-refundable deposit. The letter of intent provides for the purchase
of the Product Line, including certain intellectual property, technical
information, product formulations and regulatory approvals and registrations, by
the Company. The Company would not purchase any accounts receivable and would
not assume any liabilities of Upsher-Smith. Approximately $5,750,000 plus the
cost of inventories would be paid in cash at the closing of the acquisition
together with a promissory note in the principal amount of $5,500,000. This note
would be payable 225 days following the closing of the acquisition. In addition,
the Company would agree to purchase its requirements for products in the Product
Line from Upsher-Smith for a period of five years.
F-10
<PAGE> 80
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In addition, the Company has entered into several agreements with
unaffiliated entities for the performance of research and clinical trial
studies. These commitments are ongoing, and the Company expects to spend
approximately $460,000 toward these commitments in 1997. The Company has also
entered into a 36-month lease for office equipment. Total payments under this
lease will be $11,935 through July 1997. Deposits related to office equipment
lease is $7,033 and is reflected in the balance sheet under Deferred Charges and
Other Deposits.
G. ACCRUED EXPENSES
Accrued expenses consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
-------- ----------
<S> <C> <C>
Compensation expenses........................................ $ 52,756 $ 109,268
Clinical study expenses...................................... 87,815 156,134
Advertising costs............................................ -- 364,692
Other........................................................ 98,082 446,462
-------- ----------
$238,653 $1,076,556
======== ==========
</TABLE>
H. STOCKHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK
On or prior to the time the Registration Statement (see Note L) is declared
effective, the Company will effect an 0.85-for-one reverse stock split of its
outstanding common stock. The authorized number of shares of common stock will
be increased to 60,000,000. Accordingly, all shares and per share data have been
restated to reflect the reverse stock split as though it had occurred at the
beginning of the initial period presented.
The Company has two classes of capital stock: common and preferred. The
preferred stock has 5,658,563 shares authorized: 800,000 are designated Series A
convertible preferred stock, 399,999 are designated Series B convertible
preferred stock, 1,399,589 are designated Series D redeemable convertible
preferred stock, 1,166,667 are designated Series E redeemable convertible
preferred stock and 1,915,765 are designated Series F redeemable convertible
preferred stock (collectively, the "Preferred Stock").
In July 1990, the Company authorized 170,000 shares of common stock to be
used as incentives for employees and consultants. As of December 31, 1993, a
total of 25,500 shares had been issued under this authorization at $0.01 per
share and 2,125 shares, at $1.18 per share, both determined to be the fair value
at the date of issuance by the Company's Board of Directors.
In 1989, 800,000 shares of Series A convertible preferred stock were issued
at $0.38 per share. In 1990, 399,999 shares of Series B convertible preferred
stock were issued at $6.50 per share. In 1992, 169,188 shares of Series C
convertible preferred stock were issued at $12.75 per share. In 1993, the
169,188 shares of Series C convertible preferred stock were canceled and all
outstanding shares were converted to 359,523 shares of Series D redeemable
convertible preferred stock at $6.00 per share. In 1993, 999,999 shares of
Series D redeemable convertible preferred stock were sold for $6.00 per share.
In 1995, 733,371 shares of Series E redeemable convertible preferred stock were
sold for $6.00 per share. In 1996, 811,536 shares of Series F redeemable
convertible preferred stock were sold for $6.50 per share (see Note K).
Shares of each of the series of Preferred Stock are convertible into common
stock at the option of the holder under a conversion formula which, except with
respect to the Series B convertible preferred stock which would convert to an
aggregate 353,230 common shares, would currently result in an 0.85-for-one
exchange, subject to antidilution provisions. Mandatory conversion is required
under certain circumstances, such as an initial public offering in which the
gross proceeds are not less than $10,000,000 and the price per share to the
public is greater than or equal to Series E conversion price.
F-11
<PAGE> 81
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Except with respect to certain actions enumerated in the Company's
Certificate of Incorporation which require separate class votes, stockholders of
each series of Preferred Stock are entitled to one vote for each share of common
stock into which their shares can be converted and vote together with the common
stockholders.
In the event of a liquidation, dissolution, or winding up of the Company,
the stockholders of each of the Preferred Stock series are entitled to receive a
liquidation preference. The per share liquidation preference equals: $0.38 for
Series A, $6.50 for Series B, $6.00 for Series D, $6.00 for Series E and $6.50
for Series F, with the Series D shares senior to the Series A and B shares,
Series E shares senior to the Series A, B and D shares and Series F shares
senior to the Series A, B, D and E shares.
The holders of the Series D shares, at the option of the holders (if
exercised by holders of an aggregate of 75% or more of Series D shares), have
the right to require the Company to repurchase all of the Series D shares at
$6.00 per share beginning on June 30, 1998 and for a period of one year
thereafter. The Company shall pay for the shares in three equal annual
installments, commencing one year from the date of the closing of such
repurchase by the Company. Any such repurchase shall only be paid out of funds
legally available therefor. The repurchase option shall automatically terminate
upon the consummation of an underwritten public offering in which gross proceeds
to the Company are at least $10,000,000 and the per share price to the public is
at least $7.06.
The holders of the Series E redeemable convertible preferred stock, at the
option of the holders (if exercised by holders of an aggregate of 75% or more of
Series E shares), have the right to require the Company to repurchase all of the
Series E redeemable convertible preferred stock at $6.00 per share beginning on
June 30, 1998 and for a period of one year thereafter. The Company shall pay for
such shares in three equal annual installments, commencing one year from the
date of the first closing of such repurchase by the Company, and such repurchase
shall only be paid out of funds legally available therefor. The repurchase
option shall automatically terminate upon the consummation of an underwritten
public offering in which gross proceeds to the Company are at least $10,000,000
and the per share price to the public is at least $7.06.
The holders of the Series F redeemable convertible preferred stock, at the
option of the holders (if exercised by holders of an aggregate of 75% or more of
Series F shares), have the right to require the Company to repurchase all of the
Series F redeemable convertible preferred stock at $6.50 per share beginning on
June 30, 1998 and for a period of one year thereafter. The Company shall pay for
such shares in three equal annual installments, commencing one year from the
date of the first closing of such repurchase by the Company, and such repurchase
shall only be paid out of funds legally available therefore. The repurchase
option shall automatically terminate upon the consummation of an underwritten
public offering in which gross proceeds to the Company are at least $10,000,000
and the per share price to the public is at least $7.06.
In the event any Series holders exercise the repurchase option, the Company
shall provide notice of such event to all Series repurchase option holders. The
rights of the Series D holders to receive repurchase option payments are
subordinated to such rights of Series E holders and Series F holders, and the
rights of Series E holders are subordinated to that of Series F holders. The
Company may assign its obligations to effect any such repurchase to an assignee
designated by the Company, which assignment shall be subject to the approval of
holders of at least 50% in interest of the affected Series of Preferred
Stockholders.
The Company has reserved 3,488,764 shares of its common stock for issuance
upon conversion of the preferred stock and 722,500 shares for the issuance
pursuant to the incentive plan (see Note J). The Company has reserved 202,781
shares, 103,891 shares and 289,182 shares of common stock for issuance pursuant
to warrants held by Series D, E and F convertible preferred stockholders,
respectively (see Note I).
F-12
<PAGE> 82
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
I. STOCK PURCHASE WARRANTS
Pursuant to a Stock Purchase Agreement dated June 18, 1992 and amended
March 4, 1993, the Company granted an unaffiliated entity and an individual
stockholder warrants to purchase 17,420 and 1,000 shares, respectively, of
Series D preferred stock in exchange for services. The warrants were exercisable
at $15.44 per share on or before June 18, 1996 and are exercisable at $19.30 per
share on or before June 18, 1997.
On June 18, 1995, the Company issued warrants exercisable for an aggregate
of 21,647 shares of Series D Convertible Preferred Stock in replacement of
warrants exercisable for the same number of shares of Series D Convertible
Preferred Stock which expired on such date. These warrants have an exercise
price of $9.00 per share and expire on June 18, 1997. In June 1996, the Company
received $4,800 in connection with the issuance of 4,000 of these warrants.
Pursuant to a Stock Purchase Agreement dated March 4, 1993, as amended
September 9, 1993, the Company granted to several holders of Series D redeemable
convertible preferred stock, warrants to purchase an aggregate of 202,781 shares
of common stock. The warrants are exercisable at $10.59 per share for a period
of five years from the date of grant.
Pursuant to the Stock Purchase Agreement dated July 12, 1995, as amended on
August 16, 1995, the Company granted the purchasers of Series E redeemable
convertible preferred stock, warrants to purchase an aggregate of 103,891 shares
of common stock. These warrants are exercisable at $10.59 per share for a period
of five years from the date of the grant.
Pursuant to the Stock Purchase Agreement dated June 28, 1996, as amended on
December 18, 1996, the Company granted the purchasers of Series F redeemable
convertible preferred stock, warrants to purchase an aggregate of 289,182 shares
of common stock. These warrants are exercisable at $7.65 per share for a period
of five years from the date of the grant.
J. INCENTIVE PLANS
1992 Equity Incentive Plan
On September 15, 1992, the Board of Directors adopted the 1992 Equity
Incentive Plan (the "1992 Plan"). On March 4, 1993, the shareholders approved
the 1992 Plan (see Note K). Under the 1992 Plan, a Committee appointed by the
Board of Directors is permitted to award shares of restricted common stock or to
grant stock options for the purchase of common stock to employees, consultants,
advisors and members of the Board of Directors, up to a maximum of 722,500
shares as amended. The 1992 Plan is terminated on the earlier of (i) the day
after the 10th anniversary of its adoption, or (ii) upon issuance of all
available shares.
The 1992 Plan provides for the granting of incentive stock options (ISOs),
nonqualified stock options (NSOs) and awards. In the case of ISOs and NSOs, the
exercise price shall not be less than 100% (110% in certain cases for ISOs) of
the fair market value per share of the common stock, as determined by the Board
of Directors, on the date of grant. In the case of awards, the purchase price
will be determined by the Board of Directors.
Each option granted under the 1992 Plan shall be exercisable either in full
or in installments as set forth in the option agreement. Each option and all
rights shall expire on the date specified by the Committee, but not more than
ten years after the date on which the option is granted in the case of ISOs
(five years in certain cases). Options vest between zero and five years.
In the case of awards of restricted common stock, the committee determines
the duration of certain restrictions on transfer of such stock.
F-13
<PAGE> 83
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Supplemental Disclosures for Stock-Based Compensation
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for the 1992 Plan. Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"), issued in 1995,
defined a fair value method of accounting for stock options and other equity
instruments. Under the fair value method, compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
service period, which is usually the vesting period. The Company elected to
continue to apply the accounting provisions of APB Opinion No. 25 for stock
options. The required disclosures under SFAS 123 as if the Company had applied
the new method of accounting are made below.
A summary of the Company's stock option activity for the three years ended
December 31, 1996 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding at December 31, 1993.................... 103,275 $4.47
Granted, 1994..................................... 184,875 2.79
Exercised, 1994................................... (212) 2.35
------- -----
Outstanding at December 31, 1994.................... 287,938 $3.39
Terminated, 1995.................................. (17,000) 7.06
------- -----
Outstanding at December 31, 1995.................... 270,938 $3.16
Granted, 1996..................................... 381,648 2.35
Exercised, 1996................................... (318) 2.35
Terminated, 1996.................................. (18,594) 2.35
------- -----
Outstanding at December 31, 1996.................... 633,674 $2.40
======= =====
</TABLE>
Summarized information about stock options outstanding at December 31, 1996
is as follows:
<TABLE>
<CAPTION>
EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
NUMBER OF REMAINING AVERAGE AVERAGE
RANGE OF OPTIONS CONTRACTUAL EXERCISE NUMBER OF EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE OPTIONS PRICE
- --------------- ----------- ------------ -------- --------- --------
<S> <C> <C> <C> <C> <C>
$1.18 - 1.76 46,750 6.2 $ 1.14 40,163 $ 1.12
2.35 569,924 9.0 2.35 187,180 2.35
7.05 17,000 7.3 7.05 17,000 7.05
</TABLE>
Options exercisable in 1994 and 1995 were 129,800 and 200,791,
respectively.
The weighted average fair value at date of grant for options granted during
1996 was $2.35 per option. No options were granted in 1995. The fair value of
these options at date of grant was estimated using the Black-Scholes model with
the following weighted average assumptions for 1995 and 1996, respectively:
risk-free interest rates of 6.0% and 6.5%; dividend yields of 0% and 0%;
volatility factors of the expected market price of the Company's common stock of
zero for both years and a weighted average expected life of the options of five
years.
F-14
<PAGE> 84
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Had compensation cost for the Company's stock option plans been determined
based on the fair value at the grant date for awards in 1995 and 1996 consistent
with the provisions of SFAS No. 123, the Company's net loss to common
stockholders and net loss per share to common stockholders would have been
reduced to the SFAS No. 123 pro forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Net loss to common stockholders -- as reported.... $(4,163,499) $(6,624,999)
Net loss to common stockholders -- SFAS No. 123
pro forma....................................... (4,163,499) (6,654,204)
Net loss per share to common stockholders -- as
reported........................................ $ (2.63) $ (4.18)
Net loss per share to common stockholders -- SFAS
No. 123 pro forma............................... (2.63) (4.20)
</TABLE>
The SFAS No. 123 pro forma effect on net loss to common stockholders for
1995 and 1996 is not representative of the SFAS No. 123 pro forma effect on net
income or loss to common stockholders in future years because it does not take
into consideration SFAS No. 123 pro forma compensation expense related to grants
made prior to 1995.
K. SUBSEQUENT EVENTS:
Preferred Stock
On February 3, 1997, February 19, 1997 and February 28, 1997, the Company
completed a third, fourth and fifth closing of its Series F redeemable
convertible preferred stock financing, respectively, resulting in the issuance
of 1,104,229 shares at $6.50 per share and net proceeds of $6,847,988.
Pursuant to the Series F Stock financing, the Company granted the
purchasers of the third, fourth and fifth closing of Series F redeemable
convertible preferred stock financing, warrants to purchase an aggregate of
362,152 shares of common stock. The warrants are exercisable at $7.65 per share
for a period of five years from the date of the grant.
Upon the closing of the initial public offering (see Note L) and following
the filing of a Certificate of Retirement, the Company will be authorized to
issue up to 5,000,000 shares of Preferred Stock, $0.01 par value per share, in
one or more series. Each such series of Preferred Stock shall have such rights,
preferences, privileges and restrictions, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences, as
shall be determined by the Board of Directors. The Company has no present plans
to issue any shares of such Preferred Stock.
Subordinated Notes
On January 31, 1997, the Company executed a securities purchase agreement
that provided for the issuance of Subordinated Secured Notes (the "Notes") in
the aggregate amount of $2,000,000 ("First Closing") maturing on January 31,
2002. Upon the earlier of (i) the Company's receipt of final FDA approval for
Primsol and (ii) the closing of this offering, the Company will issue additional
Triumph Notes in the aggregate principal amount of $5 million ("Second
Closing"). The Notes bear no interest through January 31, 1999 after which the
interest rates are 7% through January 31, 2000, 8% through January 31, 2001 and
9% through January 31, 2002, payable every quarter commencing on March 31 1999.
The Company has received net proceeds of $1,880,000 pursuant to the first
closing. At December 31, 1996, $34,865 of expenses had been incurred and have
been included in deferred charges and other deposits in the balance sheet. The
Company may redeem the Notes by paying 100% of the outstanding principal and
accrued interest at any time. Upon a change in control of the Company, as
defined in the Agreement, the holders of the Notes may elect to have the Notes
purchased by the Company at 100% of the outstanding principal plus accrued
interest. The Notes
F-15
<PAGE> 85
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
are secured by a lien on all of the Company's assets, prohibit the payment of
dividends by the Company and, subject to certain exceptions, (including for up
to $6,000,000 of senior secured bank financing and $5,500,000 of secured
purchase money financing in connection with the planned acquisition of the
Product Line) prohibit the incurrence of additional indebtedness. Upon
completion of this offering, the Company may either redeem all of the
outstanding Notes for their stated principal amount or all of such Notes will
amortize in eight equal quarterly principal payments and require quarterly
interest payments on the unpaid principal balance, at a rate equal to the lesser
of 10% or 3.5% over the prime rate, with the first quarterly payment of
principal and interest due six months after the closing of this offering. In
addition, for a period of two years following the closing of this offering, the
holders of the Notes will have the right to convert the Notes into such number
of shares of Common Stock as is equal to the outstanding principal of such Notes
divided by the per share Price to Public in this offering (subject to certain
requirements as to the minimum amount to be so converted as provided in the
Agreement).
Under the terms of the securities purchase agreement for the Notes, based
on a certain formula outlined therein, at the First Closing, the Company has
issued Series A warrants, to purchase an aggregate of 224,429 shares of common
stock and at the Second Closing, will issue Series A warrants to purchase an
aggregate of 336,644 shares of common stock and Series B warrants to purchase an
aggregate of 218,195 shares of common stock, to the Note investors. The Series A
warrants are exercisable at $0.01 per share for a period of seven years from the
grant date and the Series B warrants are exercisable at $5.29 per share over the
same period. In the event the Company shall not have consummated a Qualified
Public Offering or a Qualified Merger (each as defined in the securities
purchase agreement) into a public company within five years of the closing of
this financing, the holders will thereafter have the right, prior to the
expiration date, to put the warrants to the Company and require the Company to
purchase such warrants at an amount equal to the fair market value of the
underlying Common Stock, net of the exercise price. The fair market value of the
warrants issued at the First Closing will be recorded as a discount of $836,994
to the Notes issued at such closing. Consequently, such Notes will be recorded
at $1,163,006. Similarly, the fair market value of the warrants issued at the
Second Closing will be recorded as a discount of $1,420,643 to the Notes issued
at such closing and such Notes will be recorded at $3,579,357. Accordingly,
approximately 2,258,000 of accretion will be charged to interest expense, in
addition to the stated interest rates, over the term of the Notes.
Amendment of 1992 Equity Incentive Plan
The Board of Directors voted to amend the 1992 Plan, effective upon the
closing of the offering, to increase the number of shares of Common Stock
issuable upon exercise of stock options granted to 1,350,000 and to provide that
the maximum number of shares with respect to which options may be granted to any
employee during any calendar year be 500,000 shares.
1997 Employee Stock Purchase Plan
In March 1997, the Board of Directors adopted the 1997 Employee Stock
Purchase Plan (the "Purchase Plan"), effective upon the closing of the offering,
pursuant to which employees of the Company, including directors of the Company
who are employees, may purchase shares of Common Stock in regularly designated
offerings pursuant to payroll deductions at a price equal to the lower of 85%
(or such other higher percentage as the Board of Directors determine to be
appropriate) of the fair market value per share of the Common Stock on either
the first day or the last day of the designated payroll deduction period,
whichever is lower.
1997 Director Stock Option Plan
In March 1997, the Board of Directors adopted the 1997 Director Stock
Option Plan (the "Director Plan"), effective upon the pricing date of the
offering. Under the Director Plan, non-employee directors would
F-16
<PAGE> 86
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
be entitled to receive options to purchase shares of Common Stock upon the
pricing date of the Offering and on May 1 of each year commencing in 1998. In
addition, each eligible non-employee director would receive an option to
purchase a specified number of shares of Common Stock upon the initial election
to the Board of Directors. The exercise price of the options, which vest on the
first anniversary of the date of grant, will equal the fair market value on the
date of grant.
Executive Bonus Plan
Effective January 1, 1997, the Company adopted an Executive Bonus Plan,
which provides for the payment of bonuses to those officers and key employees
reporting directly to the Chief Executive Officer or Chairman of the Company.
Pursuant to the Executive Bonus Plan, each eligible participant is entitled to a
bonus of between 1.5% and 18% of the annual salary based upon the Company's
achievement of 95% or greater of its financial target for the year. In addition,
upon achievement of 95% or greater of the financial target for the year, each
eligible participant may receive an additional discretionary performance bonus
of up to 5% of salary.
L. PRO FORMA BALANCE SHEET (UNAUDITED)
As a result of financing activities (see Note K) subsequent to year end, an
unaudited pro forma balance sheet is included as part of the accompanying
balance sheet. This presentation discloses the pro forma effects of this
financing as if it had occurred on December 31, 1996. The following pro forma
adjustments to reflect these financings were incorporated in the unaudited pro
forma balance sheet: the issuance of 1,104,229 shares of Series F Redeemable
Convertible Preferred stock at $6.50 per share for net proceeds of $6,847,988;
the issuance of the Notes in the amount of $2,000,000 for net proceeds of
$1,880,000. Additionally, a pro forma adjustment has been made to reflect
conversion of Preferred Stock to common on an 0.85-for-one basis, except Series
B Preferred which convert to an aggregate of 353,227 shares of common stock,
upon consummation of an initial public offering such as the one for which these
financial statements have been prepared.
F-17
<PAGE> 87
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
UPSHER-SMITH LABORATORIES, INC.:
We have audited the accompanying statement of assets related to the product
line to be acquired by Ascent Pediatrics, Inc. as of December 29, 1996 and the
related statements of net sales and identified costs and expenses for each of
the years in the two-year period then ended. These financial statements are the
responsibility of Upsher-Smith Laboratories, Inc.'s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The product line to be acquired by Ascent Pediatrics, Inc. has been
operated as an integral part of Upsher-Smith Laboratories, Inc. and has no
separate legal existence. The basis of preparation of these financial statements
is described in note 1 to the financial statements.
In our opinion, the aforementioned financial statements present fairly the
assets related to the product line of Upsher-Smith Laboratories, Inc. at
December 29, 1996 to be acquired by Ascent Pediatrics, Inc. and the net sales in
excess of identified costs and expenses for each of the years in the two-year
period then ended on the basis of accounting described in the preceding
paragraph and in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 21, 1997
F-18
<PAGE> 88
A PRODUCT LINE OF UPSHER-SMITH LABORATORIES, INC.
STATEMENT OF ASSETS RELATED TO THE PRODUCT LINE TO BE ACQUIRED BY
ASCENT PEDIATRICS, INC.
DECEMBER 29, 1996
<TABLE>
<S> <C>
Inventories, net.................................................................. $122,235
--------
Assets of the product line to be acquired......................................... $122,235
========
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE> 89
A PRODUCT LINE OF UPSHER-SMITH LABORATORIES, INC.
STATEMENTS OF NET SALES AND IDENTIFIED COSTS AND EXPENSES OF
THE PRODUCT LINE TO BE ACQUIRED BY ASCENT PEDIATRICS, INC.
YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 29, 1996
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Net sales......................................................... $3,563,761 $3,877,199
Identified costs and expenses:
Cost of sales................................................... 1,229,848 1,303,336
Advertising and promotion expense............................... 657,655 669,456
Allocated selling expense....................................... 480,700 571,167
---------- ----------
Total identified costs and expenses..................... 2,368,203 2,543,959
---------- ----------
Net sales in excess of identified costs and expenses.... $1,195,558 $1,333,240
---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE> 90
A PRODUCT LINE OF UPSHER-SMITH LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS OF THE PRODUCT LINE TO BE ACQUIRED BY
ASCENT PEDIATRICS, INC.
DECEMBER 31, 1995 AND
DECEMBER 29, 1996
(1) BASIS OF PRESENTATION
The accompanying financial statements present the assets related to the
Feverall product line of Upsher Smith Laboratories, Inc. (Upsher-Smith), and the
net sales and the identified costs and expenses of the Feverall product line to
be acquired by Ascent Pediatrics, Inc. (Ascent), as provided in a non-binding
letter of intent dated November 13, 1996. The Feverall product line to be
acquired by Ascent has been operated as an integral part of Upsher-Smith and has
no separate legal existence.
The assets related to the Feverall product line as presented in the
accompanying statement of assets to be acquired include the historical balances
at December 29, 1996, of work-in-process and finished goods inventory together
with related samples of the Feverall product line. This product line has never
been operated as a separate business entity but rather has been an integral part
of the drug manufacturing and distribution business of Upsher-Smith.
The statements of net sales and identified costs and expenses of the
Feverall product line includes the net sales, cost of sales, and advertising and
promotion expense, that substantially relate directly to the product line to be
acquired by Ascent. Selling expense items are allocated based on estimates and
assumptions as if the Feverall product line had been operated on a stand-alone
basis during the periods presented and primarily reflect an estimate of activity
attributable to selling the Feverall product line relative to the total selling
activity of Upsher-Smith.
The above allocations are believed by management to be reasonable
allocations under the circumstances. However, there can be no assurance that
such allocations will be indicative of future results of operations. In
addition, the carrying value of inventories, as reflected in the accompanying
statement of assets to be acquired, does not include any adjustments which may
result at the date of acquisition.
General and administrative expenses of Upsher-Smith were not dedicated
specifically to the product line to be acquired for the periods presented and
because Ascent is not acquiring any of the general and administrative cost
structure of Upsher-Smith, general and administrative expenses were excluded
from the accompanying financial statements. Research and development expenses of
Upsher-Smith did not specifically relate to the product line to be acquired for
the periods presented and as a result were excluded from the accompanying
financial statements.
Upsher-Smith is a pharmaceutical manufacturer and distributor that
concentrates on developing cardiovascular products. The company markets its
products to retail, chain, and hospital pharmacies primarily by means of
wholesale and drug chain distribution channels throughout the United States. The
accompanying financial statements are not intended to present all the assets or
operations of Upsher-Smith.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out method. Samples and display inventory are charged to
advertising and promotion expense when used.
Revenue Recognition
Revenue is recognized upon shipment of the product. Allowances for sales
returns, discounts and rebates are provided for based on the volume of sales and
actual experience.
F-21
<PAGE> 91
A PRODUCT LINE OF UPSHER-SMITH LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS OF THE PRODUCT LINE TO BE ACQUIRED BY
ASCENT PEDIATRICS, INC. -- (CONTINUED)
(3) INVENTORIES
At December 29, 1996, the components of inventories were as follows:
<TABLE>
<S> <C> <C>
Work in process.................................................... $ 10,864
Samples and displays............................................... 42,486
Finished goods..................................................... 68,885
--------
$122,235
========
</TABLE>
(4) NET SALES
Net sales for the years ended December 31, 1995 and December 29, 1996
consisted of the following:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Gross sales......................................... $4,677,134 $5,281,399
Less sales returns, discounts and rebates........... 1,113,373 1,404,200
---------- ----------
Net sales...................................... $3,563,761 $3,877,199
========== ==========
</TABLE>
For the year ended December 31, 1995, two customers accounted for 22% of
sales of the Feverall product line. For the year ended December 29, 1996 three
customers accounted for 33% of sales of the Feverall product line.
(5) INCOME TAXES
Upsher-Smith has elected to be treated as a small business corporation (S
corporation) under provisions of the Internal Revenue Code of 1986, whereby
profits and losses are passed directly to the stockholders for inclusion in
their personal tax returns. Accordingly, no liability or provision for federal
and state income taxes is included in the accompanying financial statements.
F-22
<PAGE> 92
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
INTRODUCTION TO UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
Subsequent to Ascent Pediatrics, Inc.'s ("Ascent" or the "Company") year
end, two financings have closed. In addition, the Company has signed a
non-binding letter of intent to acquire a product line of Upsher-Smith.
Accordingly, these accompanying unaudited combined pro forma financial
statements reflect the following:
- The issuance of 918,460 shares of Series F redeemable convertible
preferred stock, ("Series F") on February 3, 1997 80,000 shares of Series
F, on February 19, 1997, and 105,769 shares of Series F on February 28,
1997 at a price of $6.50 per share, with gross proceeds of $7,027,989 and
cash issuance costs of $180,000.
- The issuance of Convertible Subordinated Secured Notes ("the Notes") on
January 31, 1997 in the amount of $2,000,000 maturing on January 31, 2002
with issuance costs of $120,000.
- The conversion of Series A and B convertible preferred stock, and Series
D, E and F redeemable convertible preferred stock, as if the conversion
took place at December 31, 1996, which mandatorily convert upon closing
of an initial public offering.
The Ascent Pro Forma Subtotal December 31, 1996 column represents Ascent's
December 31, 1996 historical financial statements adjusted for the subsequent
events described above and prior to adjustments related to the probable
acquisition described below.
In addition, the accompanying unaudited combined pro forma financial
statements reflect the probable acquisition of the Feverall acetaminophen
suppository line ("Product Line") from Upsher-Smith for a purchase price equal
to $11.5 million plus the cost of inventories. Under the terms of a letter of
intent, Ascent would purchase the Product Line, including certain intellectual
property, technical information, product formulations and regulatory approvals
and registrations. Ascent would not purchase any accounts receivable and would
not assume any liabilities of Upsher-Smith. For purposes of the combined pro
forma financial statements, this probable acquisition has been accounted for
using the purchase method of accounting.
Pursuant to the letter of intent, the Company paid a non-refundable deposit
of $250,000 in 1996. Upon the closing, the Company would make a cash payment to
Upsher-Smith of approximately $5.75 million plus the cost of the inventory
($122,235 at December 31, 1996) and sign a promissory note in the amount of
approximately $5.5 million. This note would be payable 225 days following the
closing. Ascent would also agree to purchase from Upsher-Smith, Ascent's
requirements for products in the Product Line for a period of five years.
The Unaudited Combined Pro Forma Financial Statements combine Ascent's Pro
forma Balance Sheet with the Statement of Assets Related to the Product Line to
be Acquired as if the transaction occurred on December 31, 1996 and Ascent's
Statement of Operations with the Statement of Net Sales and Identified Costs and
Expenses of the Product Line to be Acquired as if the transaction had occurred
on January 1, 1996. The Statement of Net Sales and Identified Costs and Expenses
includes advertising and promotion expense that substantially relate directly to
the product line to be acquired by Ascent. Selling expense items are allocated
based on estimates and assumptions as if the Feverall product line had been
operated on a stand-alone basis and primarily reflect an estimate of activity
attributable to the Feverall product line relative to the total selling activity
of Upsher-Smith. General and administrative and research and development
expenses of Upsher-Smith were not dedicated specifically to the product line to
be acquired and, because Ascent would not acquire any of such cost structure of
Upsher-Smith, these costs were excluded from the Statement of Net Sales and
Identified Costs and Expenses. Pro forma adjustments have been made to reflect
Ascent's estimate of the incremental expense that would have been incurred if
the acquisition had occurred on January 1, 1996. The unaudited combined pro
forma statements do not purport to be indicative of the financial position or
the results of operations had the probable acquisition actually occurred at this
time or what results in the future may be.
The Statement of Assets Related to the Product Lines to be Acquired and the
Statement of Net Sales and Identified Costs and Expenses of the Product Lines to
be Acquired have been derived from their respective historical financial
statements. The Unaudited Combined Pro Forma Financial Statements should be read
in conjunction with the accompanying notes thereto and with the historical
financial statements and related notes thereto of Ascent and the historical
financial statements and related notes thereto of the Upsher-Smith Product Line
to be Acquired.
F-23
<PAGE> 93
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED COMBINED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
ISSUANCE
OF SERIES F ISSUANCE OF ASSUMED
REDEEMABLE CONVERTIBLE CONVERSION
ASCENT CONVERTIBLE SUBORDINATED OF PREFERRED
HISTORICAL PREFERRED NOTE SECURED NOTE STOCK INTO NOTE
DECEMBER 31, 1996 STOCK REF. NOTES REF. COMMON STOCK REF.
----------------- ----------- ---- ------------ ---- ------------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............. $ 2,085,743 $6,847,988 A $1,880,000 C $
Other current assets.................. 12,312
Inventories, net...................... --
-------------
Total current assets............ 2,098,055
Fixed assets, net..................... 163,142
Deposits related to acquisition....... 250,000
Deferred charges and other deposits... 104,553
Other assets, net..................... 11,874 120,000 D
-------------
Total assets.................... $ 2,627,624
=============
Liabilities and stockholders' equity:
Accounts payable...................... $ 496,655
Accrued expenses...................... 1,076,556
Note payable -- Feverall
Acquisition......................... --
-------------
Total current liabilities....... 1,573,211
Convertible subordinated secured
notes................................. 1,163,006 C
-------------
Total liabilities............... 1,573,211
Series D redeemable convertible
preferred stock....................... 8,157,132 (8,157,132) F
Series E redeemable convertible
preferred stock....................... 4,400,226 (4,400,226) F
Series F redeemable convertible
preferred stock....................... 5,274,984 7,027,988 A (12,302,972) F
Stockholders' equity (deficit):
Series A convertible preferred........ 280,110 (280,110) F
Series B convertible preferred........ 2,574,993 (2,574,993) F
Common stock.......................... 8 177 F
Additional paid-in capital............ -- (180,000) B 836,994 E 27,715,256 F
Deficit accumulated during the
development stage................... (19,633,040)
-------------
Total stockholders' equity
(deficit)..................... (16,777,929)
-------------
Total liabilities and
stockholders' equity
(deficit)..................... $ 2,627,624
=============
<CAPTION>
A PRODUCT LINE
ASCENT OF UPSHER-SMITH PURCHASE
PRO FORMA HISTORICAL NOTE PRICE NOTE OTHER NOTE
DECEMBER 29, 1996 DECEMBER 29, 1996 REF ADJUSTMENTS REF. ADJUSTMENTS REF.
----------------- ----------------- ---- ----------- ---- ----------- ----
<S> <C>
Current assets:
Cash and cash equivalents............. $ 10,813,731 $ $(5,872,235) H
Other current assets.................. 12,312
Inventories, net...................... -- 122,235 G 7,765 N
-------------
Total current assets............ 10,826,043
Fixed assets, net..................... 163,142
Deposits related to acquisition....... 250,000 (250,000) I
Deferred charges and other deposits... 104,553
Other assets, net..................... 131,874 11,492,235 J
-------------
Total assets.................... $ 11,475,612 122,235 G
=============
Liabilities and stockholders' equity:
Accounts payable...................... $ 496,655
Accrued expenses...................... 1,076,556
Note payable -- Feverall
Acquisition......................... -- 5,500,000 K
-------------
Total current liabilities....... 1,573,211
Convertible subordinated secured
notes................................. 1,163,006
-------------
Total liabilities............... 2,736,217
Series D redeemable convertible
preferred stock....................... --
Series E redeemable convertible
preferred stock....................... --
Series F redeemable convertible
preferred stock....................... --
Stockholders' equity (deficit):
Series A convertible preferred........ --
Series B convertible preferred........ --
Common stock.......................... 185
Additional paid-in capital............ 28,372,250
Deficit accumulated during the
development stage................... (19,633,040)
-------------
Total stockholders' equity
(deficit)..................... 8,739,395
-------------
Total liabilities and
stockholders' equity
(deficit)..................... $ 11,475,612
=============
<CAPTION>
COMBINED PRO FORMA
DECEMBER 31, 1996
------------------
Current assets:
Cash and cash equivalents............. $ 4,941,496
Other current assets.................. 12,312
Inventories, net...................... 130,000
------------
Total current assets............ 5,083,808
Fixed assets, net..................... 163,142
Deposits related to acquisition....... --
Deferred charges and other deposits... 104,553
Other assets, net..................... 11,624,109
------------
Total assets.................... $ 16,975,612
============
Liabilities and stockholders' equity:
Accounts payable...................... $ 496,655
Accrued expenses...................... 1,076,556
Note payable -- Feverall
Acquisition......................... 5,500,000
------------
Total current liabilities....... 7,073,211
Convertible subordinated secured
notes................................. 1,163,006
------------
Total liabilities............... 8,236,217
Series D redeemable convertible
preferred stock....................... --
Series E redeemable convertible
preferred stock....................... --
Series F redeemable convertible
preferred stock....................... --
Stockholders' equity (deficit):
Series A convertible preferred........ --
Series B convertible preferred........ --
Common stock.......................... 185
Additional paid-in capital............ 28,372,250
Deficit accumulated during the
development stage................... (19,633,040)
------------
Total stockholders' equity
(deficit)..................... 8,739,395
------------
Total liabilities and
stockholders' equity
(deficit)..................... $ 16,975,612
============
</TABLE>
F-24
<PAGE> 94
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED COMBINED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ISSUANCE
OF SERIES F ISSUANCE OF ASSUMED
REDEEMABLE CONVERTIBLE CONVERSION ASCENT
ASCENT CONVERTIBLE SUBORDINATED OF PREFERRED PRO FORMA
HISTORICAL PREFERRED NOTE SECURED NOTE STOCK INTO NOTE SUBTOTAL
DECEMBER 31, 1996 STOCK REF. NOTES REF. COMMON STOCK REF. DECEMBER 31, 1996
----------------- ----------- ---- ------------ ---- ------------- ---- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $ -- $ --
----------- -----------
Costs and expenses:
Cost of sales............... -- --
Research and development.... 3,760,948 3,760,948
Selling, general and
administrative............ 2,805,352 2,805,352
Advertising and promotion... -- --
Allocated selling........... -- --
----------- -----------
Total expenses:......... 6,566,300 6,566,300
Income (loss) from
operations.................. (6,566,300) (6,566,300)
Interest income............... 79,084 79,084
----------- -----------
Net income (loss)............. $(6,487,216) $(6,487,216)
=========== ===========
Net income (loss) per share... $ (1.48) $ (1.48)
=========== ===========
Weighted average number of
common and common stock
equivalent shares
outstanding................. 4,384,208 4,384,208
<CAPTION>
A PRODUCT
LINE OF
UPSHER-SMITH PURCHASE
HISTORICAL NOTE PRICE NOTE OTHER NOTE COMBINED PRO FORMA
DECEMBER 29, 1996 REF ADJUSTMENTS REF. ADJUSTMENTS REF. DECEMBER 31, 1996
----------------- ---- ----------- ---- ----------- ---- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $ 3,877,199 G $ $ $ 3,877,199
----------- -----------
Costs and expenses:
Cost of sales............... 1,303,336 G 130,333 M 1,433,669
Research and development.... -- 3,760,948
Selling, general and
administrative............ -- 574,612 L 490,000 P 5,110,587
1,240,623 O
Advertising and promotion... 669,456 G (669,456) O --
Allocated selling........... 571,167 G (571,167) O --
----------- -----------
Total expenses:......... 2,543,959 G 10,305,204
Income (loss) from
operations.................. (6,428,005)
Interest income............... -- 79,084
----------- -----------
Net income (loss)............. $ 1,333,240 G $(6,348,921)
=========== ===========
Net income (loss) per share... $ (1.45)
===========
Weighted average number of
common and common stock
equivalent shares
outstanding................. 4,384,208
</TABLE>
F-25
<PAGE> 95
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
The accompanying unaudited combined pro forma financial statements reflect
the impact of the following adjustments:
A. PREFERRED STOCK
Records the issuance on February 3, 1997, February 19, 1997 and February
28, 1997 of 918,460, 80,000 and 105,769 shares, respectively, of Series F
redeemable convertible preferred stock, at a price of $6.50 per share as if the
issuance occurred on December 31, 1996, with proceeds of $6,847,988 net of cash
issuance costs of $180,000.
B. PREFERRED STOCK ISSUANCE COSTS
Records issuance costs of $180,000 related to the Series F redeemable
convertible preferred stock.
C. CONVERTIBLE SUBORDINATED SECURED NOTES (THE "NOTES")
Records the issuance of $2,000,000 of the Notes net of issuance costs of
$120,000 with proceeds of $1,880,000 on January 31, 1997 as if the issuance
occurred on December 31, 1996. The Notes have been recorded at $1,163,006 net of
$836,994, the fair market value of Series A warrants to purchase 224,430 shares
of Common Stock issued in connection with the Notes. Accordingly the $1,163,006
will be accreted as additional interest expense in addition to the stated
interest rate up to $2,000,000 over the term of the Notes. The Notes bear no
interest through January 31, 1999 after which the interest rates are 7% through
January 31, 2000, 8% through January 31, 2001 and 9% through January 31, 2002,
payable every quarter commencing on March 31, 1999. Upon completion of an
initial public offering of shares of its Common Stock, the Company may either
redeem all of the outstanding Notes for their stated principal amount or all of
such Notes will amortize in eight equal quarterly principal payments and require
quarterly interest payments on the unpaid principal balance, at a rate equal to
the lesser of 10% or 3.5% over the prime rate, with the first quarterly payment
of principal and interest due six months after the closing of such an offering.
In addition, for a period of two years following the closing of any such
offering, the holders of the Notes will have the right to convert the Notes into
such number of shares of Common Stock as is equal to the outstanding principal
of such Notes divided by the per share Price to Public in the offering (subject
to certain requirements as to the minimum amount to be so converted as provided
in the Agreement).
D. NOTE ISSUANCE COSTS
Records issuance costs of $120,000 related to the Notes.
E. SERIES A WARRANTS
Records the fair market value of Series A warrants to purchase an aggregate
of 224,430 shares of common stock issued in connection with the Notes of
$836,994.
F. CONVERSION OF PREFERRED STOCK
Records the following:
- The conversion of 800,000 shares of Series A convertible preferred stock,
$.00004 par value, into 680,000 shares of Common stock, $.00004 par
value.
- The conversion of 399,999 shares of Series B convertible preferred stock,
$.00004 par value, into 353,227 shares of Common stock, $.00004 par
value.
- The conversion of 1,359,522 shares of Series D redeemable convertible
preferred stock, $.00004 par value, into 1,155,589 shares of Common
stock, $.00004 par value.
F-26
<PAGE> 96
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
- The conversion of 733,371 shares of Series F redeemable convertible
preferred stock, $.00004 par value, into 623,358 shares of Common stock,
$.00004 par value.
- The conversion of 1,915,765 shares of Series F redeemable convertible
preferred stock, $.00004 par value, into 1,628,390 shares of Common
stock, $.00004 par value.
<TABLE>
<CAPTION>
SERIES D SERIES E SERIES F
SERIES A SERIES B REDEEMABLE REDEEMABLE REDEEMABLE
CONVERTIBLE CONVERTIBLE CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED
STOCK STOCK STOCK STOCK STOCK TOTALS
----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Series A convertible preferred stock..... $(280,110) $ $ $ $ $ (280,110)
Series B convertible preferred stock..... (2,574,993) (2,574,993)
Series D redeemable convertible preferred
stock.................................. (8,157,132) (8,157,132)
Series E redeemable convertible preferred
stock.................................. (4,400,226) (4,400,226)
Series F redeemable convertible preferred
stock.................................. (12,302,972) (12,302,972)
Common stock............................. 27 14 46 24 66 177
Additional paid-in capital............... 280,083 2,574,979 8,157,086 4,400,202 12,302,906 27,715,256
--------- ----------- ---------- ---------- ------------ ------------
Totals........................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
========= =========== ========== ========== ============ ============
</TABLE>
G. A PRODUCT LINE OF UPSHER-SMITH
The historical results of A Product Line of Upsher-Smith exclude allocated
general and administrative and research and development expenses which are not
directly attributable to the product lines to be sold.
H. CASH PAYMENT
Records the cash payment of $5,872,235 for the probable acquisition of the
Feverall product line which includes a $5,650,000 million required payment at
closing and $122,235 of inventory costs.
I. DEPOSIT
Records the application of the deposit of $250,000 related to the probable
acquisition of the Feverall product line to the purchase price.
J. INTANGIBLE ASSETS
Records intangible assets, net of amortization and deposits, resulting from
the probable acquisition of the Feverall product line as if the probable
acquisition had occurred on December 31, 1996:
<TABLE>
<S> <C>
Purchase price.................................. $11,622,235
Less inventory acquired at fair value........... 130,000
-----------
Intangible assets............................... $11,492,235
===========
</TABLE>
F-27
<PAGE> 97
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
K. NOTE PAYABLE
Records note payable to Upsher-Smith related to the probable acquisition of
the Feverall product line. The note is payable 225 days from closing and does
not bear interest.
<TABLE>
<S> <C>
Purchase price.................................. $11,622,235
Less deposit.................................... 250,000
-----------
Subtotal........................................ 11,372,235
Less cash payment............................... 5,872,235
-----------
Note payable.................................... $ 5,500,000
===========
</TABLE>
L. AMORTIZATION EXPENSE
Records amortization expense of $574,612 related to the goodwill of
$11,492,235 over the estimated life of 20 years.
M. COST OF GOOD SOLD
Adjusts cost of goods sold for the manufacture of the products to be
acquired in excess of Upsher-Smith's fully allocated costs of manufacturing such
products as per the manufacturing agreement.
N. INVENTORY
Records adjustment to increase inventory to be purchased to fair market
value.
O. RECLASSIFICATION
Records reclassification of Upsher-Smith expenses to conform with Ascent's
financial statement presentation.
P. INCREMENTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Records an estimate of the incremental selling, general and administrative
expenses, in addition to the Upsher-Smith product line's identified costs and
expenses, expected to be incurred by Ascent primarily for distribution costs
(including billing and collection efforts), advertising, promotion and sales
force of $490,000. Selling, general and administrative expenses are expected to
increase as the product line revenue increases.
F-28
<PAGE> 98
Exclusive Focus on
Pediatric Market
Identify [Background art Drug Delivery and
Products Based depicting children] Reformulation
on Market Needs Technologies
[ASCENT LOGO]
Establish Dedicated Experienced
U.S. Sales Force Management Team
[ARROW]
7 Products in Development
[ARROW]
Objective: Improved Compliance
and Therapeutic Outcomes
<PAGE> 99
======================================================
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 6
The Company............................ 16
Use of Proceeds........................ 16
Dividend Policy........................ 17
Capitalization......................... 18
Dilution............................... 20
Selected Financial Data................ 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 23
Business............................... 26
Management............................. 47
Certain Transactions................... 57
Principal Stockholders................. 59
Description of Capital Stock........... 61
Shares Eligible for Future Sale........ 64
Underwriting........................... 66
Legal Matters.......................... 68
Experts................................ 68
Additional Information................. 68
Index to Financial Statements.......... F-1
</TABLE>
------------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
2,000,000 SHARES
LOGO
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
COWEN & COMPANY
VOLPE, WELTY & COMPANY LLC
ADAMS, HARKNESS & HILL, INC.
, 1997
======================================================
<PAGE> 100
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates except
for the Securities and Exchange Commission ("SEC") registration fee and the
National Association of Securities Dealers, Inc. ("NASD") filing fee. All these
expenses will be payable by the Registrant.
<TABLE>
<CAPTION>
AMOUNT
---------
<S> <C>
SEC Registration Fee.............................................. $9,060.61
NASD Filing Fee................................................... 3,490.00
Nasdaq National Market Listing Fee................................ *
Blue Sky Fees and Expenses (including legal fees)................. *
Transfer Agent and Registrar Fees and Expenses.................... *
Accounting Fees and Expenses...................................... *
Legal Fees and Expenses........................................... *
Printing, Engraving and Mailing Expenses.......................... *
Miscellaneous..................................................... *
---------
Total........................................................... $ *
=========
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article EIGHTH of the Registrant's Second Amended and Restated Certificate
of Incorporation (the "Certificate of Incorporation") provides that no director
of the Registrant shall be personally liable for any monetary damages for any
breach of fiduciary duty as a director, except to the extent that the Delaware
General Corporation law prohibits the elimination or limitation of liability of
directors for breach of fiduciary duty.
Article NINTH of the Registrant's Certificate of Incorporation provides
that a director or officer of the Registrant (a) shall be indemnified by the
Registrant against all expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement incurred in connection with any litigation or
other legal proceeding (other than an action by or in the right of the
Registrant) brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Registrant, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Registrant, unless a court determines that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a Director or
officer at his request, provided that he undertakes to repay the amount advanced
if it is ultimately determined that he is not entitled to indemnification for
such expenses.
II-1
<PAGE> 101
Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether such person is entitled to indemnification. As a condition precedent to
the right of indemnification, the director or officer must give the Registrant
notice of the action for which indemnity is sought and the Registrant has the
right to participate in such action or assume the defense thereof.
Article NINTH of the Registrant's Certificate of Incorporation further
provides that the indemnification provided therein is not exclusive, and
provides that in the event that the Delaware General Corporation Law is amended
to expand the indemnification permitted to directors or officers the Registrant
must indemnify those persons to the full extent permitted by such law as so
amended.
Article NINTH also permits the Company to purchase and maintain insurance,
at the Company's expense, to protect any director against any expense, liability
or loss incurred by such director in such capacity or arising out of his status
as such.
Section 145 of the Delaware General Corporation Law, as amended, provides
that a corporation has the power to indemnify a director, officer, employee or
agent of the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
Under Section 6 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed as
Exhibit 1.1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(A) ISSUANCES OF CAPITAL STOCK, NOTES AND WARRANTS
Since January 1, 1994, the Registrant has sold the following securities
that were not registered under the Securities Act:
1. On June 18, 1995, the Registrant issued warrants exercisable for
21,647 shares of Series D Convertible Preferred Stock to three financial
investors in exchange for the cancellation of warrants exercisable for an
equal number of shares of Series D Convertible Preferred Stock held by such
entities. These issuances were conducted pursuant to Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act").
2. On July 13, 1995 and August 16, 1995, the Registrant issued and
sold a total of 733,371 shares of Series E Convertible Preferred Stock to
three individuals and ten entities for an aggregate purchase price of
$4,400,000. In connection with the sale of such shares of Series E
Convertible Preferred Stock, the Registrant issued warrants to the
purchasers of such shares exercisable for an aggregate of 103,891 shares of
Common Stock. These issuances were conducted pursuant to Registration D
promulgated under the Securities Act ("Regulation D") and Section 4(2). The
Company paid $25,000 in commissions to a placement agent in connection with
the sale of shares of Series E Convertible Preferred Stock.
3. On June 28, 1996, December 18, 1996, February 3, 1997, February 19,
1997 and February 28, 1997, the Registrant issued and sold a total of
1,892,765 shares of Series F Convertible Preferred Stock to
II-2
<PAGE> 102
15 individuals and 14 entities for an aggregate purchase price of $12.3
million. In connection with the sale of such shares of Series F Convertible
Preferred Stock, the Registrant issued warrants to the purchasers of such
shares exercisable for an aggregate of 651,334 shares of Common Stock. On
February 28, 1997, the Company also issued warrants exercisable for 27,200
shares of Common Stock to two placement agents and paid two placement
agents commissions in the aggregate amount of $201,000 in connection with
the sale of shares of Series F Convertible Preferred Stock. These issuances
were conducted pursuant to Regulation D and Section 4(2).
4. On January 31, 1997, the Registrant issued convertible subordinated
secured notes to two entities and two persons for an aggregate of
$2,000,000 and issued warrants exercisable for an aggregate of 224,429
shares of Common Stock to such persons and entities. On February 28, 1997,
the Company also issued a warrant exercisable for 21,250 shares of Common
Stock and paid a commission of $120,000 to a placement agent in connection
with the issuance of the convertible subordinated secured notes. These
issuances were conducted pursuant to Section 4(2) of the Securities Act.
5. On February 12, 1997, the Registrant issued 19,550 shares of Series
F Convertible Preferred Stock and warrants exercisable for an aggregate of
7,820 shares of Common Stock to one entity in connection with the provision
of certain consulting services to the Registrant. This issuance was
conducted pursuant to Section 4(2) of the Act.
(B) GRANTS AND EXERCISES OF STOCK OPTIONS
The Registrant's 1992 Equity Incentive Plan, as amended (the "1992 Plan"),
was adopted by the stockholders of the Registrant in September 1992. As of
February 28, 1997, options to purchase 530 shares of Common Stock had been
exercised by an aggregate of two persons for an aggregate consideration of
$1,250 and options to purchase 634,736 shares of Common Stock were outstanding
under such plan.
The Registrant's 1997 Director Option Plan and 1997 Employee Stock Purchase
Plan were adopted by the Company in March 1997. These plans will become
effective upon the closing of this offering, and, as of February 28, 1997, no
shares have been issued under these plans.
As described above, the options and shares of capital stock issued pursuant
to the 1992 Plan in the above transactions were offered and sold in reliance
upon the exemption from registration under Rule 701 promulgated under the
Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of the Registrant.
3.2 Certificate of Correction of Certificate of Amendment of the Registrant.
3.3 Certificate of Amendment of Amended and Restated Certificate of Incorporation of
the Registrant.
3.4 Form of Certificate of Amendment to be filed prior to consummation of the public
offering.
3.5 Form of Second Amended and Restated Certificate of Incorporation of the Registrant
to be filed upon the closing of the public offering
3.6 Amended and Restated By-Laws of the Registrant
4.1* Specimen Certificate for shares of Common Stock, $.00004 par value, of the
Registrant
4.2 Form of Subordinated Secured Note (included in Exhibit 10.11)
5.1* Opinion of Hale and Dorr LLP with respect to the validity of the securities being
offered
10.1 Amended and Restated 1992 Equity Incentive Plan
10.2 1997 Director Stock Option Plan
10.3 1997 Employee Stock Purchase Plan
</TABLE>
II-3
<PAGE> 103
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
10.4 Lease dated November 21, 1996 between the Registrant and New Boston Wilmar Limited
Partnership
10.5 Employment Agreement dated as of March 15, 1994 between the Registrant and Emmett
Clemente
10.6 Consulting Agreement dated as of April 1, 1996 between the Registrant and Robert
E. Baldini
10.7* Development and License Agreement dated as of October 8, 1996 by and between the
Registrant and Recordati S.A. Chemical and Pharmaceutical Company ("Recordati")
10.8* Manufacturing and Supply Agreement dated as of October 8, 1996 by and between the
Registrant and Recordati
10.9* License Agreement dated September 28, 1990 between MacroChem Corp. and the
Registrant
10.10* Supply Agreement dated as of October 12, 1994 by and between the Registrant and
Lyne Laboratories, Inc.
10.11 Securities Purchase Agreement dated as of January 31, 1997 among the Registrant,
Triumph-Connecticut Limited Partnership and the other purchasers identified
therein (the "Triumph Agreement")
10.12 Waiver and Amendment to the Triumph Agreement dated as of March 13, 1997
10.13* Series F Convertible Preferred Stock and Warrant Purchase Agreement dated as of
June 28, 1996 between the Registrant and certain purchasers identified therein
(the "Series F Purchase Agreement")
10.14* Amendment No. 1 to the Series F Purchase Agreement dated as of June 28, 1996
10.15* Amendment No. 2 to the Series F Purchase Agreement dated February 3, 1997
11.1 Computation of historical and pro forma net loss per common share.
23.1* Consent of Hale and Dorr LLP (included in Exhibit 5.1)
23.2 Consent of Coopers & Lybrand L.L.P., independent accountants
23.3 Consent of KPMG Peat Marwick LLP, independent auditors
24.1 Powers of Attorney (see page II-6)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
All other schedules have been omitted because they are not required or
because the required information is given in the Financial Statements or Notes
thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Certificate of
Incorporation and Amended and Restated By-Laws of the Registrant and the laws of
the State of Delaware, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-4
<PAGE> 104
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and this offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 105
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Wilmington, Commonwealth
of Massachusetts, on this 14th day of March, 1997.
ASCENT PEDIATRICS, INC.
By: /s/ ALAN R. FOX
------------------------------------
Alan R. Fox
President and Chief Executive
Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Ascent Pediatrics, Inc.
hereby severally constitute and appoint Alan R. Fox and John G. Bernardi and
each of them singly, our true and lawful attorneys, with full power to them and
each of them singly, to sign for us in our names in the capacities indicated
below, all pre-effective and post-effective amendments to this Registration
Statement and any related subsequent registration statement pursuant to Rule
462(b) of the Securities Act of 1933, as amended, and generally to do all things
in our names and on our behalf in such capacities to enable Ascent Pediatrics,
Inc. to comply with the provisions of the Securities Act of 1933, as amended,
and all requirements of the Securities and Exchange Commission.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------- ---------------
<C> <S> <C>
/s/ ALAN R. FOX President, Chief Executive March 14, 1997
- ------------------------------------------ Officer and Director
Alan R. Fox (Principal Executive Officer)
/s/ JOHN G. BERNARDI Vice President, Finance March 14, 1997
- ------------------------------------------ and Treasurer (Principal
John G. Bernardi Financial and
Accounting Officer)
/s/ EMMETT CLEMENTE, PH.D. Chairman March 14, 1997
- ------------------------------------------
Emmett Clemente, Ph.D.
/s/ ROBERT E. BALDINI Vice Chairman March 14, 1997
- ------------------------------------------
Robert E. Baldini
/s/ RAYMOND F. BADDOUR, PH.D. Director March 14, 1997
- ------------------------------------------
Raymond F. Baddour, Ph.D.
/s/ MICHAEL J.F. DU CROS Director March 14, 1997
- ------------------------------------------
Michael J.F. Du Cros
/s/ THOMAS W. JANES Director March 14, 1997
- ------------------------------------------
Thomas W. Janes
/s/ ANDRE LAMOTTE, SC.D. Director March 14, 1997
- ------------------------------------------
Andre Lamotte, Sc.D.
/s/ TERRANCE MCGUIRE Director March 14, 1997
- ------------------------------------------
Terrance McGuire
/s/ LEE J. SCHROEDER Director March 14, 1997
- ------------------------------------------
Lee J. Schroeder
</TABLE>
II-6
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ASCENT PHARMACEUTICALS, INC.
ASCENT PHARMACEUTICALS, INC. (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of
the State of Delaware (the "DGCL"), does hereby certify as follows:
By resolution of the Board of Directors of the Corporation duly adopted at
a meeting of the Board of Directors of the Corporation, a resolution was duly
adopted, pursuant to Section 245 of the DGCL, setting forth an Amended and
Restated Certificate of Incorporation of the Corporation and declaring said
Amended and Restated Certificate of Incorporation advisable. The stockholders of
the Corporation duly approved said proposed Amended and Restated Certificate of
Incorporation by written consent in accordance with Sections 228 and 245 of the
General Corporation Law of the State of Delaware. The resolution setting forth
the Amended and Restated Certificate of Incorporation is as follows:
RESOLVED: That the Certificate of Incorporation of the Corporation, which
was originally filed with the Secretary of State of Delaware on March
16, 1989, as supplemented by the Certificate of Designations filed on
August 23, 1989, and as restated by an Amended and Restated
Certificate of Incorporation filed on January 31, 1990, as amended by
Certificates of Amendment filed on: June 11, 1992, March 4, 1993,
September 9, 1993, April 20, 1994, and July 12, 1995, be and hereby is
amended and restated in its entirety so that the same shall read as
follows:
FIRST. The name of the Corporation is:
Ascent Pediatrics, Inc.
SECOND. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
<PAGE> 2
THIRD. The nature of the business or purposes to be conducted or promoted
by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is Sixteen Million Six Hundred
Fifty-Eight Thousand Five Hundred Sixty-Three (16,658,563) shares, consisting
of:
(i) Eleven Million (11,000,000) shares of Common Stock, $.00004 par value
per share ("Common Stock"); and
(ii) Five Million Six Hundred Fifty-Eight Thousand Five Hundred Sixty-
Three (5,658,563) shares of Preferred Stock, $.00004 par value per share
("Preferred Stock"), of which
(A) Eight Hundred Thousand (800,000) shares shall be designated
"Series A Convertible Preferred Stock" (the "Series A Preferred Stock"),
(B) Three Hundred Ninety-Nine Thousand Nine Hundred Ninety-Nine
(399,999) shares shall be designated "Series B Convertible Preferred Stock"
(the "Series B Preferred Stock"),
(C) One Million Three Hundred Ninety-Nine Thousand Five Hundred
Eighty-Nine (1,399,589) shares shall be designated "Series D Convertible
Preferred Stock" (the "Series D Preferred Stock"),
(D) One Million One Hundred Sixty-Six Thousand Six Hundred Sixty-
Seven (1,166,667) shares shall be designated Series E Convertible Preferred
Stock (the "Series E Preferred Stock"), and
(E) One Million Eight Hundred Ninety-Two Thousand Three Hundred Eight
(1,892,308) shares shall be designated "Series F Convertible Preferred
Stock" (the "Series F Preferred Stock"),
and the balance of which may be issued from time to time in one or more series
as set forth in Part B of this Article FOURTH.
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Corporation.
-2-
<PAGE> 3
A. COMMON STOCK.
------------
1. GENERAL. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock from
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
---------------
Preferred Stock may be issued from time to time in one or more series, each
of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issue of the shares thereof, to determine and fix such voting powers, full
-3-
<PAGE> 4
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including, without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of Delaware and the terms of
this Certificate of Incorporation. Without limiting the generality of the
foregoing, the resolutions providing for issuance of any series of Preferred
Stock may provide that such series shall be superior or rank equally or be
junior to the Preferred Stock of any other series to the extent permitted by law
and the terms of this Certificate of Incorporation. Except as otherwise
specifically provided in this Certificate of Incorporation, no vote of the
holders of the Preferred Stock or Common Stock shall be a prerequisite to the
issuance of any shares of any series of the Preferred Stock authorized by and
complying with the conditions of the Certificate of Incorporation, the right to
have such vote being expressly waived by all present and future holders of the
capital stock of the Corporation.
C. SERIES A, B, D, E AND F CONVERTIBLE PREFERRED STOCK
---------------------------------------------------
The Series A Preferred Stock and the Series B Preferred Stock are sometimes
referred to collectively herein as the "Series A and B Preferred Stock." The
Series A Preferred Stock, the Series B Preferred Stock, the Series D Preferred
Stock, the Series E Preferred Stock and the Series F Preferred Stock are
sometimes referred to collectively herein as the "Series Preferred Stock." There
is no Series C Preferred Stock designated as of the effective date of this
Certificate of Incorporation. The rights, preferences, powers, privileges and
restrictions, qualifications and limitations granted to or imposed upon the
shares of Series Preferred Stock shall be as set forth in this Part C of this
Article FOURTH.
1. Dividends.
---------
(a) SERIES A, B, D, E AND F PREFERRED STOCK. In each fiscal year of
the Corporation, the holders of shares of Series Preferred Stock shall be
entitled to receive, before any cash dividends shall be declared and paid upon
or set aside for the Common Stock in such fiscal year, when and as declared by
the Board of Directors of the Corporation out of the funds legally available for
that purpose, dividends payable in cash in an amount per share for such fiscal
year at least equal to the product of (i) the per share amount, if any, of the
cash dividend declared, paid or set aside for the Common Stock during such
fiscal year, multiplied by (ii) the number of whole shares of Common Stock into
-4-
<PAGE> 5
which each such share of Series Preferred Stock is then convertible. Any cash
dividends payable to holders of shares of Series A Preferred Stock, Series B
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock shall be payable on a parity with each other (and no such
dividends shall be paid unless paid on all series of Series Preferred Stock) and
in preference and priority to any payment of any cash dividend on the Common
Stock. In the event any such Series Preferred Stock shall not receive the full
amount of any such dividends to which they would otherwise be entitled, the
holders of shares of Series A Preferred Stock, Series B Preferred Stock, Series
D Preferred Stock, Series E Preferred Stock and Series F Preferred shall receive
such dividends in proportion to the respective amounts which would otherwise be
payable in respect of the shares held by them upon payment of such dividends if
all amounts payable on or with respect to such shares were paid in full.
2. Liquidation, Dissolution or Winding Up.
--------------------------------------
(a) Series A and B Preferred Stock.
------------------------------
(i) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
and B Preferred Stock then outstanding shall be entitled to be paid out of the
assets of the Corporation available for distribution to its stockholders, after
and subject to the payment in full of all amounts required to be distributed to
the holders of Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock and any other class or series of stock of the Corporation
ranking on liquidation prior and in preference to the Series A and B Preferred
Stock (such Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock and other stock being collectively referred to as "Senior to A
and B Preferred Stock"), but before any payment shall be made to the holders of
Common Stock or any other class or series of stock ranking on liquidation junior
to the Series A and B Preferred Stock (such Common Stock and other stock being
collectively referred to as "Junior to A and B Stock") by reason of their
ownership thereof, an amount equal to $.375 for each share of Series A Preferred
Stock then held by them and an amount equal to $6.50 for each share of Series B
Preferred Stock then held by them (in each case subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares). If upon any such liquidation,
dissolution or winding up of the Corporation the remaining assets of the
Corporation available for distribution to its stockholders shall be insufficient
to pay the holders of shares of Series A and B Preferred Stock the full amount
to which they shall be entitled, the holders of shares of Series A and
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<PAGE> 6
Series B Preferred Stock and any class or series of stock ranking on liquidation
on a parity with the Series A Preferred Stock and Series B Preferred Stock shall
share ratably in any distribution of the remaining assets and funds of the
Corporation in proportion to the respective amounts which would otherwise be
payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in full; and,
subject to any preference or priority of Senior to A and B Preferred Stock, no
amounts shall be paid or set apart for payment on the Series A and B Preferred
Stock of any series unless at the same time amounts in like proportion to the
respective preferential amounts to which the Series A and B Preferred Stock of
the other series are entitled shall be paid or set apart for the payment of the
other series.
(ii) After the payment of all preferential amounts required to be
paid to the holders of Senior to A and B Preferred Stock, Series A and B
Preferred Stock and any other class or series of stock of the Corporation
ranking on liquidation on a parity with the Series A and B Preferred Stock, upon
the dissolution, liquidation or winding up of the Corporation, the holders of
shares of Junior to A and B Stock then outstanding shall be entitled to receive
the remaining assets and funds of the Corporation available for distribution to
its stockholders.
(iii) The merger or consolidation of the Corporation into or with
another corporation (except for (A) a merger or consolidation of any subsidiary
of the Corporation with or into the Corporation so long as the Corporation shall
be the surviving or continuing corporation and (B) a merger or consolidation to
effect a reincorporation of the Corporation in a different jurisdiction), or the
sale of all or substantially all the assets of the Corporation, shall be deemed
to be a liquidation, dissolution or winding up of the Corporation for purposes
of this Subsection 2(a) unless the holders of at least a majority of the then
outstanding shares of Series A and B Preferred Stock and of any class or series
of stock ranking on liquidation on a parity with the Series A and B Preferred
Stock, acting together as a single class, elect not to have such merger,
consolidation or sale be deemed such a liquidation, dissolution or winding up
and give written notice to such effect to the Corporation at least three days
before the effective date of such event. If such notice is given, the provisions
of Subsection 4(i) below shall apply. The amount deemed distributed to the
holders of Series A and B Preferred Stock upon any such merger or consolidation
shall be the cash or the value of the property, rights or securities distributed
to such holders by the acquiring person, firm or other entity. The value of such
property, rights or other securities shall be determined in good faith by the
Board of Directors of the Corporation.
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<PAGE> 7
(b) Series D Preferred Stock.
------------------------
(i) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of 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, after and
subject to payment in full of all amounts required to be distributed to the
holders of Series E Preferred Stock, Series F Preferred Stock and any other
class or series of stock of the Corporation ranking on liquidation prior and in
preference to the Series A, B and D Preferred Stock (such Series E Preferred
Stock, Series F Preferred and other stock being collectively referred to as
"Senior to D Preferred Stock") but before any payment shall be made to the
holders of Series A and B Preferred Stock, Common Stock or any other class or
series of stock ranking on liquidation junior to the Series D Preferred Stock
(such Series A and Series B Preferred Stock, Common Stock and other stock being
collectively referred to as "Junior to D Stock") by reason of their ownership
thereof, an amount equal to the greater of (A) $6.00 for each share of Series D
Preferred Stock then held by them (subject to appropriate adjustment in the
event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares) or (B) that amount which they would have
received had they converted each share of Series D Preferred Stock held by them
on the date of such liquidation, dissolution, or winding up into Common Stock on
such date. If upon any such liquidation, dissolution or winding up of the
Corporation the remaining assets of the Corporation available for distribution
to its stockholders shall be insufficient to pay the holders of shares of Series
D Preferred Stock the full amount to which they shall be entitled, the holders
of shares of Series D Preferred Stock and any class or series of stock ranking
on liquidation on a parity with the Series D Preferred Stock shall share ratably
in any distribution of the remaining assets and funds of the Corporation in
proportion to the respective amounts which would otherwise be payable in respect
of the shares held by them upon such distribution if all amounts payable on or
with respect to such shares were paid in full.
(ii) After the payment of all preferential amounts required to be
paid to the holders of Senior to D Preferred Stock, Series D Preferred Stock and
any other class or series of stock of the Corporation ranking on liquidation on
a parity with the Series D Preferred Stock, upon the dissolution, liquidation or
winding up of the Corporation, the holders of shares of Junior to D Stock then
outstanding shall be entitled to receive the remaining assets and funds of the
Corporation available for distribution to its stockholders.
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<PAGE> 8
(iii) The merger or consolidation of the Corporation into or with
another corporation (except for (A) a merger or consolidation of any subsidiary
of the Corporation with or into the Corporation so long as the Corporation shall
be the surviving or continuing corporation and (B) a merger or consolidation to
effect a reincorporation of the Corporation in a different jurisdiction), or the
sale of all or substantially all the assets of the Corporation, shall be deemed
to be a liquidation, dissolution or winding up of the Corporation for purposes
of this Subsection 2(b) unless the holders of at least a majority of the then
outstanding shares of Series D Preferred Stock and of any class or series of
stock ranking on liquidation on a parity with the Series D Preferred Stock,
acting together as a single class, elect not to have such merger, consolidation
or sale to be deemed such a liquidation, dissolution or winding up and give
written notice to such effect to the Corporation at least three days before the
effective date of such event. If such notice is given, the provisions of
Subsection 4(i) below shall apply. The amount deemed distributed to the holders
of Series D Preferred Stock upon any such merger or consolidation shall be the
cash or the value of the property, rights or securities distributed to such
holders by the acquiring person, firm or other entity. The value of such
property, rights or other securities shall be determining good faith by the
Board of Directors of the Corporation.
(c) Series E Preferred Stock.
------------------------
(i) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series E
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, after and
subject to the payment in full of all amounts required to be distributed to the
holders of Series F Preferred Stock and any other class or series of stock of
the Corporation ranking on liquidation prior and in preference to the Series E
Preferred Stock (collectively referred to as "Senior to E Preferred Stock"), but
before any payment shall be made to the holders of Series D Preferred Stock,
Series A and B Preferred Stock, Common Stock or any other class or series of
stock ranking on liquidation junior to the Series E Preferred Stock (such Series
D Preferred Stock, Series A and B Preferred Stock, Common Stock and other stock
being collectively referred to as "Junior to E Stock") by reason of their
ownership thereof, an amount equal to the greater of (A) $6.00 for each share of
Series E Preferred Stock then held by them (subject to appropriate adjustment in
the event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares) or (B) that amount which they would have
received if they had converted each share of Series E Preferred Stock held by
them on the date of such liquidation, dissolution, or winding up
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<PAGE> 9
into Common Stock on such date. If upon any such liquidation, dissolution or
winding up of the Corporation the remaining assets of the Corporation available
for distribution to its stockholders shall be insufficient to pay the holders of
shares of Series E Preferred Stock the full amount to which they shall be
entitled, the holders of shares of Series E Preferred Stock and any class or
series of stock ranking on liquidation on a parity with the Series E Preferred
Stock shall share ratably in any distribution of the remaining assets and funds
of the Corporation in proportion to the respective amounts which would otherwise
be payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in full.
(ii) After the payment of all preferential amounts required to be
paid to the holders of Senior to E Preferred Stock, Series E Preferred Stock and
any other class or series of stock of the Corporation ranking on liquidation on
a parity with the Series E Preferred Stock upon the dissolution, liquidation or
winding up of the Corporation, the holders of shares of Junior to E Stock then
outstanding shall be entitled to receive the remaining assets and funds of the
Corporation available for distribution to its stockholders.
(iii) The merger or consolidation of the Corporation into or with
another corporation (except for (A) a merger or consolidation of any subsidiary
of the Corporation with or into the Corporation so long as the Corporation shall
be the surviving or continuing corporation and (B) a merger or consolidation to
effect a reincorporation of the Corporation in a different jurisdiction), or the
sale of all or substantially all the assets of the Corporation, shall be deemed
to be a liquidation, dissolution or winding up of the Corporation for purposes
of this Subsection 2(c) unless the holders of at least a majority of the then
outstanding shares of Series E Preferred Stock and any class or series of stock
ranking on liquidation on a parity with the Series E Preferred Stock, acting
together as a single class, elect not to have such merger, consolidation or sale
be deemed such a liquidation, dissolution or winding up and give written notice
thereof to the Corporation at least three days before the effective date of such
event. If such notice is given, the provisions of Subsection 4(i) below shall
apply. The amount deemed distributed to the holders of Series E Preferred Stock
upon any such merger or consolidation shall be the cash or the value of the
property, rights or securities distributed to such holders by the acquiring
person, firm or other entity. The value of such property, rights or other
securities shall be determined in good faith by the Board of Directors of the
Corporation.
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<PAGE> 10
(d) Series F Preferred Stock.
------------------------
(i) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series F
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, after and
subject to the payment in full of all amounts required to be distributed to the
holders of any other class or series of stock of the Corporation ranking on
liquidation prior and in preference to the Series F Preferred Stock
(collectively referred to as "Senior to F Preferred Stock"), but before any
payment shall be made to the holders of Series E Preferred Stock, Series D
Preferred Stock, Series A and B Preferred Stock, Common Stock or any other class
or series of stock ranking on liquidation junior to the Series F Preferred Stock
(such Series E Preferred Stock, Series D Preferred Stock, Series A and B
Preferred Stock, Common Stock and any other stock being collectively referred to
as "Junior to F Stock") by reason of their ownership thereof, an amount equal to
the greater of (A) $6.50 for each share of Series F Preferred Stock then held by
them (subject to appropriate adjustment in the event of any stock dividend,
stock split, combination or other similar recapitalization affecting such
shares) or (B) that amount which they would have received if they had converted
each share of Series F Preferred Stock held by them on the date of such
liquidation, dissolution or winding up into Common Stock on such date. If upon
any such liquidation, dissolution or winding up of the Corporation the remaining
assets of the Corporation available for distribution to its stockholders shall
be insufficient to pay the holders of shares of Series F Preferred Stock, the
full amount to which they shall be entitled, the holders of shares of Series F
Preferred Stock and any class or series of stock ranking on liquidation on a
parity with the Series F Preferred Stock shall share ratably in any distribution
of the remaining assets and funds of the Corporation in proportion to the
respective amounts which would otherwise be payable in respect of the shares
held by them upon such distribution if all amounts payable on or with respect to
such shares were paid in full.
(ii) After the payment of all preferential amounts required to be
paid to the holders of Senior to F Preferred Stock, Series F Preferred Stock and
any other class or series of stock of the Corporation ranking on liquidation on
a parity with the Series F Preferred Stock upon the dissolution, liquidation or
winding up of the Corporation, the holders of shares of Junior to F Stock then
outstanding shall be entitled to receive the remaining assets and funds of the
Corporation available for distribution to its stockholders.
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<PAGE> 11
(iii) The merger or consolidation of the Corporation into or with
another corporation (except for (A) a merger or consolidation of any subsidiary
of the Corporation with or into the Corporation so long as the Corporation shall
be the surviving or continuing corporation and (B) a merger or consolidation to
effect a reincorporation of the Corporation in a different jurisdiction, or the
sale of all or substantially all the assets of the Corporation shall be deemed
to be a liquidation, dissolution or winding up of the Corporation for purposes
of this Subsection 2(d) unless the holders of at least a majority of the then
outstanding shares of Series F Preferred Stock and any class or series of stock
ranking on liquidation on a parity with the Series F Preferred Stock, acting
together as a single class, elect not to have such merger, consolidation or sale
be deemed such a liquidation, dissolution or winding up and give written notice
thereof to the Corporation at least three days before the effective date of such
event. If such notice is given, the provisions of Subsection 4(i) below shall
apply. The amount deemed distributed to the holders of Series F Preferred Stock
upon any such merger or consolidation shall be the cash or the value of the
property, rights or securities distributed to such holders by the acquiring
person, firm or other entity. The value of such property, rights or other
securities shall be determined in good faith by the Board of Directors of the
Corporation.
3. Voting.
------
(a) Each holder of outstanding shares of Series Preferred Stock shall
be entitled to the number of votes equal to the number of whole shares of Common
Stock into which the shares of Series Preferred Stock held by such holder are
convertible (as adjusted from time to time pursuant to Section 4 hereof), at
each meeting of stockholders of the Corporation (and written actions of
stockholders in lieu of meetings) with respect to any and all matters presented
to the stockholders of the Corporation for their action or consideration. Except
as provided by law, by the provisions of Subsection 2(a)(iii), 2(b)(iii),
2(c)(iii), 2(d)(iii), 3(b), 3(c), 3(d), 3(e) or 3(f) below or by the provisions
establishing any other series of Preferred Stock, holders of Series Preferred
Stock and of any other outstanding series of Preferred Stock shall vote together
with the holders of Common Stock as a single class.
(b) In addition to any other rights provided by law or by this Section
3, so long as there shall be issued and outstanding a number of shares of Series
Preferred Stock equal to at least 50% of the total number of shares of Series
Preferred Stock ever issued (excluding shares of Series C Preferred Stock) by
the Corporation (subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar
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<PAGE> 12
recapitalization affecting such shares), the Corporation shall not, without
first obtaining the affirmative vote or written consent of the holders of not
less than a majority of the then outstanding shares of Series Preferred Stock
consenting or voting (as the case may be) together as a single class:
(i) Merge or consolidate into or with any other corporation or
sell all or substantially all of the Corporation's assets; or
(ii) Voluntarily or involuntarily liquidate, dissolve or wind up
the Corporation or its business.
(c) In addition to any other rights provided by law or by this Section
3, so long as there shall be issued and outstanding a number of shares of Series
A and B Preferred Stock equal to at least 50% of the total number of shares of
Series A and B Preferred Stock ever issued by the Corporation (subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares), the
Corporation shall not without first obtaining the affirmative vote or written
consent of the holders of not less than a majority of the then outstanding
shares of Series A and B Preferred Stock consenting or voting (as the case may
be) separately as a single class:
(i) Amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-laws, if such action would
alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series A Preferred Stock or Series
B Preferred Stock or increase or decrease the number of authorized shares of the
Series A Preferred Stock or Series B Preferred Stock;
(ii) Authorize or issue any new or existing class or classes or
series of capital stock having any preference or priority as to amounts
distributable upon dissolution, liquidation or winding up of the Corporation
superior to or on a parity with any such preference or priority of the Series A
Preferred Stock or Series B Preferred Stock, or authorize or issue shares of
stock of any class or any bonds, debentures, notes or other obligations
convertible into or exchangeable for, or having option rights to purchase, any
shares of stock of the Corporation having any preference or priority as to
amounts distributable upon dissolution, liquidation or winding up of the
Corporation superior to or on a parity with any such preference or priority of
the Series A Preferred Stock or Series B Preferred Stock;
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<PAGE> 13
(iii) Reclassify any Common Stock into shares having any
preference or priority as to amounts distributable upon dissolution, liquidation
or winding up of the Corporation superior to or on a parity with any such
preference or priority of the Series A Preferred Stock or Series B Preferred
Stock; or
(iv) Pay or declare any dividend or distribution on any shares of
its capital stock, or apply any of its assets to the redemption, retirement,
purchase or acquisition, directly or indirectly, through subsidiaries or
otherwise, of any shares of its capital stock (other than (A) pursuant to the
repurchase rights of certain holders of Series D Preferred Stock, Series E
Preferred Stock and Series F Preferred Stock set forth in the Series F
Convertible Preferred Stock and Warrant Purchase Agreement, dated as of June
___, 1996 (the "Series F Purchase Agreement"), by and between the Corporation,
the purchasers listed on EXHIBIT A thereto (the "Purchasers") and certain other
parties named therein (the "Series F Purchase Agreement Repurchase Rights"), (B)
shares of Common Stock purchased pursuant to restricted stock agreements entered
into prior to the date of this Certificate of Incorporation or purchased from
persons who are, or were, employees of, or consultants or advisors to, the
Corporation under employee plans, restricted stock awards or agreements approved
by a majority of the Board of Directors who are not employees of the
Corporation, (C) pursuant to the terms of the warrants to purchase up to an
aggregate of 278,639 shares of Common Stock issued to the purchasers of Series D
Preferred Stock and to former holders of shares of Series C Preferred Stock who
converted their shares for shares of Series D Preferred Stock (the "Series D
Common Warrants"), (D) pursuant to the terms of the warrants to purchase up to
an aggregate of 194,445 shares of Common Stock issued to the purchasers of
Series E Preferred Stock (the "Series E Common Warrants"), and (E) pursuant to
the terms of the Warrants to purchase up to an aggregate of 738,462 shares of
Common Stock issued to the Purchasers (the "Series F Common Warrants").
(d) In addition to any other rights provided by law or by this Section
3, so long as there shall be issued and outstanding a number of shares of Series
D Preferred Stock equal to at least 50% of the total number of shares of Series
D Preferred Stock ever issued by the Corporation (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares), the Corporation shall not,
without first obtaining the affirmative vote or written consent of the holders
of not less than a majority of the then outstanding shares of Series D Preferred
Stock consenting or voting (as the case may be) separately as a class:
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<PAGE> 14
(i) Amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-laws, if such action would
alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series D Preferred Stock or
increase or decrease the number of authorized shares of the Series D Preferred
Stock;
(ii) Authorize or issue any new or existing class or classes or
series of capital stock having any preference or priority as to amounts
distributable upon dissolution, liquidation or winding up of the Corporation
superior to or on a parity with any such preference or priority of the Series D
Preferred Stock, or authorize or issue shares of stock of any class or any
bonds, debentures, notes or other obligations convertible into or exchangeable
for, or having option rights to purchase, any shares of stock of the Corporation
having any preference or priority as to amounts distributable upon dissolution,
liquidation or winding up of the Corporation superior to or on a parity with any
such preference or priority of the Series D Preferred Stock;
(iii) Reclassify any Common Stock into shares having any
preference or priority as to amounts distributable upon dissolution, liquidation
or winding up of the Corporation superior to or on a parity with any such
preference or priority of the Series D Preferred Stock;
(iv) Merge or consolidate into or with any other corporation, or
sell all or substantially all of the Corporation's assets, if such merger,
consolidation or sale will result in gross proceeds to be received for each
share of Series D Preferred Stock equal to less than twice the original purchase
price (which shall be deemed to be $6.00) for each share of Series D Preferred
Stock (subject to appropriate adjustment for any stock dividend, stock split,
combination or other similar recapitalization affecting such shares of Series D
Preferred Stock); or
(v) Pay or declare any dividend or distribution on any shares of
its capital stock, or apply any of its assets to the redemption, retirement,
purchase or acquisition, directly or indirectly, through subsidiaries or
otherwise, of any shares of its capital stock (other than (A) pursuant to the
Series F Purchase Agreement Repurchase Rights, (B) shares of Common Stock
purchased pursuant to restricted stock agreements entered into prior to the date
of this Certificate of Incorporation or purchased from persons who are, or were,
employees of, or consultants or advisors to, the Corporation under employee
plans, restricted stock awards or agreements approved by a majority of
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<PAGE> 15
the Board of Directors who are not employees of the Corporation, and (C)
pursuant to the terms of the Series D Common Warrants, the Series E Common
Warrants and the Series F Common Warrants).
(e) In addition to any other rights provided by law or by this Section
3, so long as there shall be issued and outstanding a number of shares of Series
E Preferred Stock equal to at least 50% of the total number of shares of Series
E Preferred Stock ever issued by the Corporation (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares), the Corporation shall not,
without first obtaining the affirmative vote or written consent of the holders
of not less than a majority of the then outstanding shares of Series E Preferred
Stock consenting or voting (as the case may be) separately as a class:
(i) Amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-laws, if such action would
alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series E Preferred Stock or
increase or decrease the number of authorized shares of the Series E Preferred
Stock;
(ii) Authorize or issue any new or existing class or classes or
series of capital stock having any preference or priority as to amounts
distributable upon dissolution, liquidation or winding up of the Corporation
superior to or on a parity with any such preference or priority of the Series E
Preferred Stock, or authorize or issue shares of stock of any class or any
bonds, debentures, notes or other obligations convertible into or exchangeable
for, or having option rights to purchase, any shares of stock of the Corporation
having any preference or priority as to amounts distributable upon dissolution,
liquidation or winding up of the Corporation superior to or on a parity with any
such preference or priority of the Series E Preferred Stock;
(iii) Reclassify any Common Stock into shares having any
preference or priority as to amounts distributable upon dissolution, liquidation
or winding up of the Corporation superior to or on a parity with any such
preference or priority of the Series E Preferred Stock;
(iv) Merge or consolidate into or with any other corporation, or
sell all or substantially all of the Corporation's assets, if such merger,
consolidation or sale will result in gross proceeds to be received for each
share of Series E Preferred Stock equal to less than twice the original purchase
price (which shall be deemed to be $6.00) for each share of Series E Preferred
Stock
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<PAGE> 16
(subject to appropriate adjustment for any stock dividend, stock split,
combination or other similar recapitalization affecting such shares of Series E
Preferred Stock); or
(v) Pay or declare any dividend or distribution on any shares of
its capital stock, or apply any of its assets to the redemption, retirement,
purchase or acquisition, directly or indirectly, through subsidiaries or
otherwise, of any shares of its capital stock (other than (A) pursuant to the
Series F Purchase Agreement Repurchase Rights, (B) shares of Common Stock
purchased pursuant to restricted stock agreements entered into prior to the date
of this Certificate of Incorporation or purchased from persons who are, or were,
employees of, or consultants or advisors to, the Corporation under employee
plans, restricted stock awards or agreements approved by a majority of the Board
of Directors who are not employees of the Corporation and (C) pursuant to the
terms of the Series D Common Warrants, the Series E Common Warrants and the
Series F Common Warrants).
(f) In addition to any other rights provided by law or by this Section
3, so long as there shall be issued and outstanding a number of shares of the
Series F Preferred Stock equal to at least 50% of the total number of shares of
Series F Preferred Stock ever issued by the Corporation (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares), the Corporation shall not,
without first obtaining the affirmative vote or written consent of the holders
of not less than a majority of the then outstanding shares of Series F Preferred
Stock, consenting or voting (as the case may be), separately as a class:
(i) Amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-laws, if such action would
alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series F Preferred Stock or
increase or decrease the number of authorized shares of the Series F Preferred
Stock;
(ii) Authorize or issue any new or existing class or classes or
series of capital stock having any preference or priority as to amounts
distributable upon dissolution, liquidation or winding up of the Corporation
superior to or on a parity with any such preference or priority of the Series F
Preferred Stock or authorize or issue shares of stock of any class or any bonds,
debentures, notes or other obligations convertible into or exchangeable for, or
having option rights to purchase, any shares of stock of the Corporation having
any preference or priority as to amounts distributable upon dissolution,
liquidation or winding
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<PAGE> 17
up of the Corporation superior to or on a parity with any such preference or
priority of the Series F Preferred Stock;
(iii) Reclassify any Common Stock into shares having any
preference or priority as to amounts distributable upon dissolution, liquidation
or winding up of the Corporation superior to or on a parity with any such
preference or priority of the Series F Preferred Stock;
(iv) Merge or consolidate into or with any other corporation, or
sell all or substantially all of the Corporation's assets, if such merger,
consolidation or sale will result in gross proceeds to be received for each
share of Series F Preferred Stock equal to less than twice the original purchase
price (which shall be deemed to be $6.50) for each share of Series F Preferred
Stock (subject to appropriate adjustment for any stock dividend, stock split,
combination or other similar recapitalization affecting such shares of Series F
Preferred Stock); or
(v) Pay or declare any dividend or distribution on any shares of
its capital stock, or apply any of its assets to the redemption, retirement,
purchase or acquisition, directly or indirectly, through subsidiaries or
otherwise, of any shares of its capital stock (other than (A) pursuant to the
Series F Purchase Agreement Repurchase Rights, (B) shares of Common Stock
purchased pursuant to restricted stock agreements entered into prior to the date
of this Certificate of Incorporation or purchased from persons who are, or were
employees of, or consultants or advisors to, the Corporation under employee
plans, restricted stock awards or agreements approved by a majority of the Board
of Directors who are not employees of the Corporation and (C) pursuant to the
terms of the Series D Common Warrants, the Series E Common Warrants and the
Series F Common Warrants).
4. OPTIONAL CONVERSION. The holders of the Series Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time to
time, into such number of fully paid and nonassessable shares of Common Stock as
is determined (A) in the case of the Series A Preferred Stock, by dividing $.375
by the Series A Conversion Price (as defined below) in effect at the time of
conversion, (B) in the case of the Series B Preferred Stock, by dividing $6.50
by the Series B Conversion Price (as defined below) in effect at the time of
conversion, (C) in the case of the Series D Preferred Stock, by dividing $6.00
by the Series D Conversion Price (as defined below) in effect at the time of
conversion, (D) in the case of the Series E Preferred Stock, by
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<PAGE> 18
dividing $6.00 by the Series E Conversion Price (as defined below) in effect at
the time of conversion, and (E) in the case of Series F Preferred Stock, by
dividing $6.50 by the Series F Conversion Price (as defined below) in effect at
the time of conversion. The conversion price at which shares of Common Stock
shall be deliverable upon conversion of Series A Preferred Stock without the
payment of additional consideration by the holder thereof (the "Series A
Conversion Price") shall initially be $.375 per share. The conversion price at
which shares of Common Stock shall be deliverable upon conversion of Series B
Preferred Stock without the payment of additional consideration by the holder
thereof (the "Series B Conversion Price") shall initially be $6.50 per share.
The conversion price at which shares of Common Stock shall be deliverable upon
conversion of Series D Preferred Stock without the payment of additional
consideration by the holder thereof (the "Series D Conversion Price") shall
initially be $6.00. The Conversion Price at which shares of Common Stock shall
be deliverable upon conversion of Series E Preferred Stock without payment of
additional consideration by the holder thereof (the "Series E Conversion Price")
shall initially be $6.00. The Conversion Price at which shares of Series F
Preferred Stock shall be deliverable upon conversion of Series F Preferred Stock
without payment of additional consideration by the holder thereof (the "Series F
Conversion Price") shall initially be $6.50. The Series A Conversion Price, the
Series B Conversion Price, the Series D Conversion Price, the Series E
Conversion Price and the Series F Conversion Price are sometimes referred to
collectively hereinafter as the "Conversion Prices" and individually as a
"Conversion Price." Such initial Conversion Prices, and the respective rates at
which shares of Series Preferred Stock may be converted into shares of Common
Stock, shall be subject to adjustment as provided below. In the event of a
liquidation of the Corporation, the Conversion Rights shall terminate at the
close of business on the first full day preceding the date fixed for the payment
of any amounts distributable on liquidation to the holders of Series Preferred
Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued upon conversion of the Series Preferred Stock. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by the then effective applicable
Conversion Price.
(c) Mechanics of Conversion.
------------------------
(i) In order for a holder of Series Preferred Stock to convert
shares of Series Preferred Stock into shares of Common Stock, such holder shall
surrender the certificate or certificates for such shares of Series Preferred
Stock, at the
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office of the transfer agent for the Series Preferred Stock (or at the principal
office of the Corporation if the Corporation serves as its own transfer agent),
together with written notice that such holder elects to convert all or any
number of the shares of the Series Preferred Stock represented by such
certificate or certificates. Such notice shall state such holder's name or the
names of the nominees in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. If required by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or his
or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
("Conversion Date"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such holder of Series
Preferred Stock, or to his or its nominees, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the Series Preferred
Stock shall be outstanding, reserve and keep available out of its authorized but
unissued stock, for the purpose of effecting the conversion of the Series
Preferred Stock, such number of its duly authorized shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding Series Preferred Stock. Before taking any action which would cause
an adjustment reducing the Conversion Price below the then par value of the
shares of Common Stock issuable upon conversion of such series, the Corporation
will take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Corporation may validly and legally issue fully paid
and nonassessable shares of Common Stock at such adjusted Conversion Price.
(iii) Upon any such conversion, no adjustment to the Conversion
Price shall be made for any accrued and unpaid dividends on the Series Preferred
Stock surrendered for conversion or on the Common Stock delivered upon
conversion.
(iv) All shares of Series Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights, if
any, to receive notices and to vote, shall immediately cease and terminate on
the Conversion Date, except only the right of the holders thereof to receive
shares of Common Stock in exchange therefor and payment of any declared and
unpaid dividends thereon. Any shares of Series
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<PAGE> 20
Preferred Stock so converted shall be retired and cancelled and shall not be
reissued, and the Corporation may from time to time take such appropriate action
as may be necessary to reduce the authorized Series Preferred Stock accordingly.
(d) Adjustments to Conversion Price for Diluting Issues:
---------------------------------------------------
(i) SPECIAL DEFINITIONS. For purposes of this Subsection 4(d),
the following definitions shall apply:
(A) "OPTION" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities, excluding, with respect to any series of Series Preferred Stock,
options granted to directors, employees or consultants of the Corporation on or
after February 24, 1993 pursuant to an option plan adopted by the Board of
Directors, to acquire up to a number of shares of Common Stock which, when
combined with the number of shares of Common Stock issued pursuant to clause
(VI) of Subsection 4(d)(i)(D), does not exceed 850,000 (subject to appropriate
adjustment for any stock dividend, stock split, combination or other similar
recapitalization affecting such shares).
(B) "ORIGINAL ISSUE DATE" with respect to a series of Series
Preferred Stock shall mean the date on which a share of such series of Series
Preferred Stock was first issued.
(C) "CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock.
(D) "ADDITIONAL SHARES OF COMMON STOCK" with respect to a
series of Series Preferred Stock shall mean all shares of Common Stock issued
(or, pursuant to Subsection 4(d)(iii) below, deemed to be issued) by the
Corporation after the Original Issue Date with respect to such series of Series
Preferred Stock, other than shares of Common Stock issued or issuable:
(I) upon conversion of shares of Series Preferred
Stock;
(II) as a dividend or distribution pro rata
(calculated on an as-converted basis) on all
shares of Series Preferred Stock;
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<PAGE> 21
(III) with respect to a series of Series
Preferred Stock, as a dividend or distribution on
such series of Series Preferred Stock;
(IV) as a result of any stock split, combination,
dividend, distribution, reclassification,
exchange, or substitution for which an adjustment
is provided in Subsections (e), (f), (g) or (h)
below;
(V) upon the exercise of options excluded from the
definition of "Option" in Subsection 4(d)(i)(A);
(VI) in other issuances on or after February 24, 1993
to directors, employees or consultants, with the
approval of the Board of Directors, up to a
number of shares which, when combined with the
number of shares of Common Stock issued or
issuable upon the exercise of options excluded
from the definition of "Option" pursuant to
Subsection 4(d)(i)(A), does not exceed 850,000
shares (subject to appropriate adjustment for any
stock dividend, stock split, combination or
recapitalization affecting such shares);
(VII) upon exercise of warrants to purchase up
to 40,067 shares (subject to appropriate
adjustment for any stock dividend, stock
split, combination or other similar
recapitalization affecting such shares)
of Series D Preferred Stock granted by
the corporation to Ash Properties Limited
or its affiliates, Medical Science
Partners, L.P., Mhd. Nabil Al-Midani and
SEIF Foundation-Liechtenstein
(collectively, the "Series D Preferred
Warrants") in exchange for certain
outstanding warrants to purchase shares
of Series C Preferred Stock; or
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<PAGE> 22
(VIII) upon grant or exercise of the Series D
Common Warrants, Series E Common Warrants
and/or Series F Common Warrants (subject
in each case to appropriate adjustment
for any stock dividend, stock split,
combination or other similar
recapitalization affecting such shares).
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in the
number of shares of Common Stock into which a series of the Series Preferred
Stock is convertible shall be made pursuant to this Subsection 4(d), by
adjustment in the applicable Conversion Price thereof: (a) unless the
consideration per share (determined pursuant to Subsection 4(d)(v)) for an
Additional Share of Common Stock with respect to such series issued or deemed to
be issued by the Corporation is less than the applicable Conversion Price for
such series in effect on the date of, and immediately prior to, the issue of
such Additional Share of Common Stock, or (b) if prior to such issuance, the
Corporation receives written notice from the holders of at least a majority of
the then outstanding shares of such series agreeing that no such adjustment
shall be made as the result of the issuance of Additional Shares of Common Stock
with respect to such series.
(iii) ISSUE OF SECURITIES DEEMED ISSUE OF ADDITIONAL SHARES
OF COMMON STOCK. If the Corporation, at any time or from time to time after the
Original Issue Date with respect to a series of Series Preferred Stock, shall
issue any Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
Options or Convertible Securities, then the maximum number of shares of Common
Stock (as set forth in the instrument relating thereto without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible Securities,
shall be deemed to be Additional Shares of Common Stock issued as of the time of
such issue or, in case such a record date shall have been fixed, as of the close
of business on such record date, provided that Additional Shares of Common Stock
shall not be deemed to have been issued as to a series of Series Preferred Stock
unless the consideration per share (determined pursuant to Subsection 4(d)(v)
hereof) of such Additional Shares of Common Stock would be less than the
applicable Conversion Price for such series in effect on the date of and
immediately prior to such issuance, or such record date, as the case may be, and
provided further that in any such
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<PAGE> 23
case in which such Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the Conversion Price for
such series of Series Preferred Stock shall be made upon the subsequent issue of
Convertible Securities or shares of Common Stock upon the exercise of such
Options or conversion or exchange of such Convertible Securities;
(B) If such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, or decrease in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof, the
Conversion Price for such series of Series Preferred Stock computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities;
(C) No readjustment pursuant to clause (B) above shall
have the effect of increasing the Conversion Price for such series of Series
Preferred Stock to an amount which exceeds the lower of (i) the Conversion Price
for such series of Series Preferred Stock on the original adjustment date, or
(ii) the Conversion Price for such series of Series Preferred Stock that would
have resulted from any issuance of Additional Shares of Common Stock with
respect to such series between the original adjustment date and such
readjustment date;
(D) Upon the expiration or termination of any
unexercised Option, the Conversion Price for such series of Series Preferred
Stock shall not be readjusted, but the Additional Shares of Common Stock deemed
issued as the result of the original issue of such Option shall not be deemed
issued for the purposes of any subsequent adjustment of such Conversion Price;
and
(E) In the event of any change in the number of shares
of Common Stock issuable upon the exercise, conversion or exchange of any Option
or Convertible Security, including, but not limited to, a change resulting from
the antidilution provisions thereof, the Conversion Price then in effect with
respect to such series of Series Preferred Stock shall forthwith be readjusted
to such Conversion Price as would have obtained had the adjustment which was
made upon the issuance of such option or Convertible Security not exercised or
converted prior to such change been made upon the basis of such change, but no
further adjustment shall be made for the actual issuance of Common Stock
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<PAGE> 24
upon the exercise or conversion of any such Option or Convertible Security.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL
----------------------------------------------------------
SHARES OF COMMON STOCK.
- ----------------------
(A) Except as to an issuance of Additional Shares of
Common Stock that is subject to the provisions of Subsection 4(d)(iv)(B) below,
in the event the Corporation shall, at any time after the Original Issue Date
with respect to a series of Series Preferred Stock, issue Additional Shares of
Common Stock (including Additional Shares of Common Stock deemed to be issued
pursuant to Subsection 4(d)(iii), but excluding shares issued as a dividend or
distribution as provided in Subsection 4(f) or upon a stock split or combination
as provided in Subsection 4(e)), without consideration or for a consideration
per share less than the applicable Conversion Price for such series of Series
Preferred Stock in effect on the date of and immediately prior to such issue,
then and in such event, such Conversion Price shall be reduced, concurrently
with such issue, to a price (calculated to the nearest cent) determined by
multiplying such Conversion Price by a fraction, (X) the numerator of which
shall be (1) the number of shares of Common Stock outstanding immediately prior
to such issue plus (2) the number of shares of Common Stock which the aggregate
consideration received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Conversion Price; and
(Y) the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of such Additional
Shares of Common Stock so issued; PROVIDED THAT, for the purpose of this
Subsection 4(d)(iv)(A), (i) all shares of Common Stock issuable upon exercise or
conversion of Options or Convertible Securities outstanding immediately prior to
such issue shall be deemed to be outstanding, and (ii) the number of shares of
Common Stock deemed issuable upon exercise or conversion of such outstanding
Options and Convertible Securities shall not give effect to any adjustments to
the conversion price or conversion rate of such Options or Convertible
Securities resulting from the issuance of Additional Shares of Common Stock that
is the subject of this calculation.
(B) In the event the Corporation shall, at any time
within 12 months following the Original Issue Date with respect to the Series E
Preferred Stock, issue Additional Shares of Common Stock (including Additional
Shares of Common Stock deemed to be issued pursuant to Subsection 4(d)(iii), but
excluding shares issued as a dividend or distribution as provided in Subsection
4(f) or as a stock split or combination as provided in Subsection 4(e)), without
consideration or for a consideration per share less than the Series E Conversion
Price in effect on the
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<PAGE> 25
date of and immediately prior to such issue, then and in such event, the Series
E Conversion Price shall be reduced, concurrently with such issuance, to the
consideration per share received by the Corporation for the issuance of the
Additional Shares of Common Stock (determined pursuant to Section 4(d)(v)).
(C) Notwithstanding the foregoing, the applicable
Conversion Price shall not be so reduced at such time if the amount of such
reduction would be an amount less than $.01, but any such amount shall be
carried forward and reduction with respect thereto made at the time of and
together with any subsequent reduction which, together with such amount and any
other amount or amounts so carried forward, shall aggregate $.01 or more.
(D) Notwithstanding the other provisions of this
Subsection 4(d)(iv), in the event the Corporation makes a Series D Dilutive
Issuance (as defined below), the adjustment to the Conversion Price of shares of
Series D Preferred Stock provided for in this Subsection 4(d)(iv) as a result of
such Series D Dilutive Issuance shall not be made with respect to shares of
Series D Preferred Stock held by a person or entity who was given the
opportunity to purchase its Pro Rata Portion (as defined below) of such Series D
Dilutive Issuance (whether pursuant to a right of first refusal or otherwise),
and who failed to purchase its Pro Rata Portion of such Series D Dilutive
Issuance. Each such holder shall be deemed to have waived (i) the reduction in
the Conversion Price of such holder's shares of Series D Preferred Stock that
would have otherwise resulted pursuant to Subsection 4(d)(iv)(A) from such
Series D Dilutive Issuance, (ii) any reduction in the Conversion Price of such
holder's shares of Series D Preferred Stock that would have otherwise resulted
pursuant to Subsection 4(d)(iv)(A) from any future Series D Dilutive Issuances,
and (iii) the right to receive, upon conversion of its Series D Preferred Stock
pursuant to this Section 4, any additional shares of Common Stock that would
have been issuable as a result of such reductions in the applicable Conversion
Price; and such waiver shall be binding upon any transferee of the shares of
Series D Preferred Stock held by such holder.
(E) A "Series D Dilutive Issuance" shall mean any
issuance of Additional Shares of Common Stock that results (or would result,
except for this Subsection 4(d)(iv)(E) in a reduction in the Conversion Price of
the Series D Preferred Stock pursuant to Subsection 4(d)(iv)(A), but shall not
include any purchases by "Subsequent Purchasers" (as defined in the Series D
Convertible Preferred Stock and Warrant Purchase Agreement and Plan of
Recapitalization, dated March 4, 1993, as amended September 9, 1993 (the "Series
D Purchase Agreement"), pursuant to
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<PAGE> 26
the terms of the Series D Purchase Agreement. A holder's "Pro Rata Portion" of a
Series D Dilutive Issuance shall mean the number of Additional Shares of Common
Stock issued in such Series D Dilutive Issuance, multiplied by a fraction, the
numerator of which is the number of shares of Common Stock then held by such
holder as a result of the conversion of shares of Series D Preferred Stock or
issuable upon conversion of shares of Series D Preferred Stock then held by such
holder, and the denominator of which is the aggregate number of shares of Common
Stock then outstanding plus the number of shares of Common Stock issuable upon
conversion or exercise of then outstanding shares of Series Preferred Stock or
other convertible securities, options, rights or warrants. For purposes of this
paragraph, the portion of a Series D Dilutive Issuance purchased by a holder of
Series D Preferred Stock shall be deemed to include any portion of such Series D
Dilutive Issuance purchased by an "affiliate" (as defined in Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act")) of such holder.
(F) All certificates representing shares of Series D
Preferred Stock shall have affixed thereto a legend substantially in the
following form:
The shares represented by this certificate are convertible into shares of
common stock at a rate which may vary among different stockholders of the
Corporation. Information concerning the conversion rate applicable to the
shares represented by this certificate may be obtained from the Secretary
of the Corporation.
(v) DETERMINATION OF CONSIDERATION. For purposes of this
Subsection 4(d), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock with respect to a series of Series
Preferred Stock shall be computed as follows:
(A) CASH AND PROPERTY: Such consideration shall:
(I) insofar as it consists of cash, be computed
at the aggregate of cash received by the Corporation, excluding amounts paid or
payable for accrued interest or accrued dividends;
(II) insofar as it consists of property other
than cash, be computed at the fair market value thereof at the time of such
issue, as determined in good faith by the Board of Directors; and
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<PAGE> 27
(III) in the event Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (I) and (II) above,
as determined in good faith by the Board of Directors.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued with respect to a series of Series
Preferred Stock pursuant to Subsection 4(d)(iii), relating to Options and
Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(e) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Corporation shall at any time or from time to time after the Original Issue Date
for a series of the Series Preferred Stock effect a subdivision of the
outstanding Common Stock, the Conversion Price for such series then in effect
immediately before that subdivision shall be proportionately decreased. If the
Corporation shall at any time or from time to time after the Original Issue Date
for a series of the Series Preferred Stock combine the outstanding shares of
Common Stock, the Conversion Price for such series then in effect immediately
before the combination shall be proportionately increased. Any adjustment under
this paragraph shall become effective at the close of business on the date the
subdivision or combination becomes effective.
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(f) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In
the event the Corporation at any time, or from time to time after the Original
Issue Date for a series of Series Preferred Stock, shall make or issue, or fix a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, then and in each such event the Conversion Price for such series of
Series Preferred Stock then in effect shall be decreased as of the time of such
issuance or, in the event such a record date shall have been fixed, as of the
close of business on such record date, by multiplying the Conversion Price for
such series of Series Preferred Stock then in effect by a fraction:
(A) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such
record date, and
(B) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such
record date plus the number of shares of Common Stock issuable
in payment of such dividend or distribution:
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully paid on the date fixed
therefor, the Conversion Price for such series of Series Preferred Stock shall
be recomputed accordingly as of the close of business on such record date and
thereafter the Conversion Price for such series of Series Preferred Stock shall
be adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions.
(g) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time or from time to time after the Original Issue Date
for a series of Series Preferred Stock shall make or issue, or fix a record date
for the determination of holders of Common Stock entitled to receive, a dividend
or other distribution payable in securities of the Corporation other than shares
of Common Stock, then and in each such event provision shall be made so that the
holders of such series of Series Preferred Stock shall receive upon conversion
thereof in addition to the number of shares of Common Stock receivable
thereupon, the amount of securities of the Corporation that they would have
received had their Series Preferred Stock been converted into Common Stock on
the date of such event and had thereafter, during the period from the date of
such event to and including the conversion date, retained such securities
receivable by them as aforesaid during such period giving application to all
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<PAGE> 29
adjustments called for during such period, under this paragraph with respect to
the rights of the holders of the Series Preferred Stock.
(h) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION. If the
Common Stock issuable upon the conversion of the Series Preferred Stock shall be
changed into the same or a different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification, or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
above, or a reorganization, merger, consolidation, or sale of assets provided
for below), then and in each such event the holder of each such share of Series
Preferred Stock shall have the right thereafter to convert such share into the
kind and amount of shares of stock and other securities and property receivable
upon such reorganization, reclassification, or other change, by holders of the
number of shares of Common Stock into which such shares of Series Preferred
Stock might have been converted immediately prior to such reorganization,
reclassification, or change, all subject to further adjustment as provided
herein.
(i) Adjustment for Merger or Reorganization, etc.
--------------------------------------------
(i) In case of any consolidation or merger of the Corporation
with or into another corporation or the sale of all or substantially all of the
assets of the Corporation to another corporation (other than a consolidation,
merger or sale which is treated as a liquidation pursuant to Subsection
2(a)(iii)), each share of Series A and B Preferred Stock shall thereafter be
convertible into the kind and amount of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock of the
Corporation deliverable upon conversion of such Series A and B Preferred Stock
would have been entitled upon such consolidation, merger or sale; and, in such
case, appropriate adjustment (as determined in good faith by the Board of
Directors) shall be made in the application of the provisions in this Section 4
set forth with respect to the rights and interest thereafter of the holders of
the Series A and B Preferred Stock, to the end that the provisions set forth in
this Section 4 (including provisions with respect to changes in and other
adjustments of the Conversion Prices) shall thereafter be applicable, as nearly
as reasonably may be, in relation to any shares of stock or other property
thereafter deliverable upon the conversion of the Series A and B Preferred
Stock.
(ii) In case of any consolidation or merger of the Corporation
with or into another corporation or the sale of all or substantially all of the
assets of the Corporation to another corporation (other than a consolidation,
merger or sale which is
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treated as a liquidation pursuant to Subsection 2(b)(iii)), each share of Series
D Preferred Stock shall thereafter be convertible into the kind and amount of
shares of stock or other securities or property to which a holder of the number
of shares of Common Stock of the Corporation deliverable upon conversion of such
Series D Preferred Stock would have been entitled upon such consolidation,
merger or sale; and, in such case, appropriate adjustment (as determined in good
faith by the Board of Directors) shall be made in the application of the
provisions in this Section 4 set forth with respect to the rights and interest
thereafter of the holders of the Series D Preferred Stock, to the end that the
provisions set forth in this Section 4 (including provisions with respect to
changes in and other adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other property thereafter deliverable upon the conversion of the Series D
Preferred Stock.
(iii) In case of any consolidation or merger of the Corporation
with or into another corporation or the sale of all or substantially all of the
assets of the Corporation to another corporation (other than a consolidation,
merger or sale which is treated as a liquidation pursuant to Subsection
2(c)(iii)), each share of Series E Preferred Stock shall thereafter be
convertible into the kind and amount of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock of the
Corporation deliverable upon conversion of such Series E Preferred Stock would
have been entitled upon such consolidation, merger or sale; and, in such case,
appropriate adjustment (as determined in good faith by the Board of Directors)
shall be made in the application of the provisions in this Section 4 set forth
with respect to the rights and interest thereafter of the holders of the Series
E Preferred Stock, to the end that the provisions set forth in this Section 4
(including provisions with respect to changes in and other adjustments of the
Conversion Price) shall thereafter be applicable, as nearly as reasonably may
be, in relation to any shares of stock or other property thereafter deliverable
upon the conversion of the Series E Preferred Stock.
(iv) In case of any consolidation or merger of the Corporation
with or into another corporation or the sale of all or substantially all of the
assets of the Corporation to another corporation (other than a consolidation,
merger or sale which is treated as a liquidation pursuant to Subsection
2(d)(iii)), each share of Series F Preferred Stock shall thereafter be
convertible into the kind and amount or shares of stock or other securities or
property to which a holder of the number of shares of Common Stock of the
Corporation deliverable upon conversion of such Series F Preferred Stock would
have been entitled upon such consolidation, merger or sale; and in such case,
appropriate adjustment (as determined in good faith by the Board of Directors)
shall be made
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<PAGE> 31
in the application of the provisions in this Section 4 set forth with respect to
the rights and interest thereafter of the holders of the Series F Preferred
Stock, to the end that the provisions set forth in this Section 4 (including
provisions with respect to changes in and other adjustments of the Conversion
Price) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the conversion of the Series F Preferred Stock.
(j) NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities 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
Section 4 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 the
Series Preferred Stock against impairment.
(k) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price for a series of Series
Preferred Stock pursuant to this Section 4, the Corporation at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and furnish to each holder of Series Preferred Stock of such series a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of any holder of Series Preferred
Stock, furnish or cause to be furnished to such holder a similar certificate
setting forth (i) such adjustments and readjustments, (ii) the Conversion Price
for the series of Series Preferred Stock held by such holder then in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which then would be received upon the conversion of such Series
Preferred Stock.
(l) Notice of Record Date. In the event:
---------------------
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or
other securities of the Corporation;
(ii) that the Corporation subdivides or combines its outstanding
shares of Common Stock;
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<PAGE> 32
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its
outstanding shares of Common Stock or a stock dividend or
stock distribution thereon), or of any consolidation or
merger of the Corporation into or with another corporation,
or of the sale of all or substantially all of the assets of
the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation or
winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series Preferred Stock, and shall cause to
be mailed to the holders of the Series Preferred Stock at their last addresses
as shown on the records of the Corporation or such transfer agent, at least ten
days prior to the record date specified in (A) below or twenty days before the
date specified in (B) below, a notice stating
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to
be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be
determined, or
(B) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is
expected to become effective, and the date as of which
it is expected that holders of Common Stock of record
shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon
such reclassification, consolidation, merger, sale,
dissolution or winding up.
5. Conversion Upon Certain Events.
------------------------------
(a) The Corporation may, at its option, require all (but not less than
all) the shares of Series A Preferred Stock then outstanding to be converted
automatically into shares of Common Stock, at the then current conversion rate,
if there shall be outstanding a number of shares of Series A Preferred Stock
equal to less than 50% of the total number of shares of Series A Preferred Stock
ever issued by the Corporation (subject to
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<PAGE> 33
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares).
(b) The Corporation may, at its option, require all (but not less than
all) the shares of Series B Preferred Stock then outstanding to be converted
automatically into shares of Common Stock, at the then current conversion rate,
if there shall be outstanding a number of shares of Series B Preferred Stock
equal to less than 50% of the total number of shares of Series B Preferred Stock
ever issued by the Corporation (subject to appropriate adjustment in the event
of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares).
(c) The Corporation may, at its option, require all (but not less than
all) the shares of Series D Preferred Stock then outstanding to be converted
automatically into shares of Common Stock, at the then current conversion rate,
if there shall be outstanding a number of shares of Series D Preferred Stock
equal to less than 50% of the total number of shares of Series D Preferred Stock
ever issued by the Corporation (subject to appropriate adjustment in the event
of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares).
(d) The Corporation may, at its option, require all (but not less than
all) the shares of Series E Preferred Stock then outstanding to be converted
automatically into shares of Common Stock, at the then current conversion rate,
if there shall be outstanding a number of shares of Series E Preferred Stock
equal to less than 50% of the total number of shares of Series E Preferred Stock
ever issued by the Corporation (subject to appropriate adjustment in the event
of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares).
(e) The Corporation may, at its option, require all (but not less than
all) the shares of Series F Preferred Stock then outstanding to be converted
automatically into shares of Common Stock, at the then current conversion rate,
if there shall be outstanding a number of shares of Series F Preferred Stock
equal to less than 50 percent of the total number of shares of Series F
Preferred Stock ever issued by the Corporation (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares).
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<PAGE> 34
(f) All outstanding shares of each series of Series Preferred Stock
shall automatically be converted into shares of Common Stock at the then
applicable Conversion Price for such series simultaneously with the consummation
(the "Mandatory Conversion Date") of an underwritten public offering of Common
Stock of the Corporation pursuant to a registration statement filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
covering the offer and sale of Common Stock to the public in which (A) gross
proceeds to the Corporation from such sale (before deduction of underwriting
discounts and expenses of sale) are not less than $10,000,000 and (B) the per
share sale price to the public is at least equal to 100% the Series E Conversion
Price.
(g) All holders of record of shares of such series of Series Preferred
Stock will be given written notice of the date fixed and the place designated
for mandatory conversion of all of such shares of Series A Preferred Stock,
Series B Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or
Series F Preferred Stock, as the case may be, pursuant to this Section 5. Such
notice need not be given in advance of any date fixed for automatic conversion
pursuant to Subsections (a), (b), (c), (d) or (e) above or of any Mandatory
Conversion Date (collectively, a "Conversion Date"). Such notice will be sent by
first class or registered mail, postage prepaid, to each record holder of Series
Preferred Stock at such holder's address last shown on the records of the
transfer agent for the Series Preferred Stock (or the records of the Corporation
if it serves as its own transfer agent). Upon receipt of such notice, each
holder of shares of the Series Preferred Stock to be converted shall surrender
his or its certificate or certificates for all such shares to the Corporation at
the place designated in such notice, and shall thereafter receive certificates
for the number of shares of Common Stock to which such holder is entitled
pursuant to this Section 5. On the Conversion Date, all rights with respect to
the Series Preferred Stock so converted, including the rights, if any, to
receive notices and vote, will terminate, except only the rights of the holders
thereof, upon surrender of their certificate or certificates therefor, to
receive certificates for the number of shares of Common Stock into which such
Series Preferred Stock has been converted and payment of any declared but unpaid
dividends thereon. Certificates surrendered for conversion shall be endorsed or
accompanied by written instrument or instruments of transfer, in a form
satisfactory to the Corporation, duly executed by the registered holder or by
his or its attorney duly authorized in writing. As soon as practicable after any
Conversion Date, and the surrender of the certificate or certificates for Series
Preferred Stock to be converted, the Corporation shall cause to be issued and
delivered to such holder, or on his or its written order, a certificate or
certificates for the number of full shares
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<PAGE> 35
of Common Stock issuable on such conversion in accordance with the provisions
hereof and cash as provided in Subsection 4(b) in respect of any fraction of a
share of Common Stock otherwise issuable upon such conversion.
(h) All certificates evidencing shares of Series Preferred Stock which
are required to be surrendered for conversion in accordance with the provisions
hereof shall, from and after a Conversion Date with respect to such shares, be
deemed to have been retired and cancelled and the shares of Series Preferred
Stock represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. The Corporation may thereafter take such
appropriate action (without the need for stockholder action) as may be necessary
to reduce the authorized Series Preferred Stock accordingly.
FIFTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of the Corporation.
SIXTH. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the Sate of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of section 279 of Title 8 of the
Delaware Code or on the application of trustees in dissolution or of any
receiver or receivers appointed for this corporation under the provisions of
section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said
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<PAGE> 36
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders, of this
corporation, as the case may be, and also on this corporation.
SEVENTH. Except to the extent that the General Corporation Law of the State
of Delaware prohibits the elimination or limitation of liability of directors
for breaches of fiduciary duty, no director of the Corporation shall be
personally liable to the Corporation or its stockholders for monetary damages
for any breach of fiduciary duty as a director, notwithstanding any provision of
law imposing such liability. No amendment to or repeal of this provision shall
apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
EIGHTH. The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of Delaware, as amended from time to time,
indemnify each person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was, or has agreed to become, a director or officer of the Corporation, or
is or was serving, or has agreed to serve, at the request of the Corporation, as
a director, officer or trustee of, or in a similar capacity with, another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action alleged to have been taken or omitted in such capacity, against
all expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or on his behalf in
connection with such action, suit or proceeding and any appeal therefrom.
Indemnification may include payment by the Corporation of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by the person indemnified to
repay such payment if it is ultimately determined that such person is not
entitled to indemnification under this Article.
The Corporation shall not indemnify any such person seeking indemnification
in connection with a proceeding (or part thereof) initiated by such person
unless the initiation thereof was approved by the Board of Directors of the
Corporation.
The indemnification rights provided in this Article (i) shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any law, agreement or vote of
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<PAGE> 37
stockholders or disinterested directors or otherwise, and (ii) shall inure to
the benefit of the heirs, executors and administrators of such persons. The
Corporation may, to the extent authorized from time to time by its Board of
Directors, grant indemnification rights to other employees or agents of the
Corporation or other persons serving the Corporation and such rights may be
equivalent to, or greater or less than, those set forth in this Article.
NINTH. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute and the Certificate of Incorporation, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
This Amended and Restated Certificate of Incorporation has been duly
adopted by the stockholders in compliance with the provisions of Section 228 and
245 of the General Corporation Law of Delaware.
IN WITNESS WHEREOF, Ascent Pharmaceuticals, Inc. has caused the certificate
to be signed, under penalties of perjury, by Emmett Clemente, its President, and
attested by David E. Redlick, its Secretary, this 28th day of June, 1996.
ASCENT PHARMACEUTICALS, INC.
By: /s/ Emmett Clemente
--------------------------
President
Attest:
/s/ David E. Redlick, Esq.
- --------------------------
Secretary
[Seal]
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<PAGE> 1
Exhibit 3.2
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF AMENDMENT
OF
ASCENT PEDIATRICS, INC.
Ascent Pediatrics, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY THAT:
1. The name of the Corporation is Ascent Pediatrics, Inc. (the
"Corporation");
2. An Amended and Restated Certificate of Incorporation (the "Certificate")
was filed by the Secretary of State of the State of Delaware on June 28, 1996
and that the Certificate requires correction as permitted by Section 103 of the
General Corporation Law of the State of Delaware.
3. The inaccuracy in said Certificate is as follows:
That as a result a clerical error, the date of execution of the Series F
Convertible Preferred Stock and Warrant Purchase Agreement, as set forth in
Article Fourth, Section C(3)(c)(iv), was incorrectly left blank; the date which
should have been set forth is June 28, 1996.
4. The corrected version of the Article Fourth, Section C(3)(c)(iv) is as
follows:
(iv) Pay or declare any dividend or distribution on any shares of its
capital stock, or apply any of its assets to the redemption, retirement,
purchase or acquisition, directly or indirectly, through subsidiaries or
otherwise, of any shares of its capital stock (other than (A) pursuant to
the repurchase rights of certain holders of Series D Preferred Stock,
Series E Preferred Stock and Series F Preferred Stock set forth in the
Series F Convertible Preferred Stock and Warrant Purchase Agreement, dated
as of June 28, 1996 (the "Series F Purchase Agreement"), by and between the
Corporation, the purchasers listed on EXHIBIT A thereto (the "Purchasers")
and certain other parties named therein (the
<PAGE> 2
"Series F Purchase Agreement Repurchase Rights"), (B) shares of Common
Stock purchased pursuant to restricted stock agreements entered into prior
to the date of this Certificate of Incorporation or purchased from persons
who are, or were, employees of, or consultants or advisors to, the
Corporation under employee plans, restricted stock awards or agreements
approved by a majority of the Board of Directors who are not employees of
the Corporation, (C) pursuant to the terms of the warrants to purchase up
to an aggregate of 278,639 shares of Common Stock issued to the purchasers
of Series D Preferred Stock and to former holders of shares of Series C
Preferred Stock who converted their shares for shares of Series D Preferred
Stock (the "Series D Common Warrants"), (D) pursuant to the terms of the
warrants to purchase up to an aggregate of 194,445 shares of Common Stock
issued to the purchasers of Series E Preferred Stock (the "Series E Common
Warrants"), and (E) pursuant to the terms of the Warrants to purchase up to
an aggregate of 738,462 shares of Common Stock issued to the Purchasers
(the "Series F Common Warrants").
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Correction to be signed by John G. Bernardi, its Vice President of Finance and
Assistant Secretary, this 11th day of December, 1996.
ASCENT PEDIATRICS, INC.
By: /s/ John G. Bernardi
---------------------
John G. Bernardi
Vice President of
Finance and Assistant
Secretary
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<PAGE> 1
Exhibit 3.3
CERTIFICATE OF AMENDMENT OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
ASCENT PEDIATRICS, INC.
Pursuant to Section 242 of
the General Corporation Law of
the State of Delaware
ASCENT PEDIATRICS, INC. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "DGCL"), does hereby certify as follows:
That a resolution of the Board of Directors of the Corporation was duly
adopted by written consent pursuant to Sections 141(f) and 242 of the DGCL,
setting forth a Certificate of Amendment of the Amended and Restated Certificate
of Incorporation of the Corporation and declaring said amendment to be
advisable. The stockholders of the Corporation duly approved said proposed
amendment by written consent pursuant to Sections 228 and 242 of the DGCL, and
written notice has been given to all stockholders who have not consented in
writing to said amendment. The resolution setting forth the amendment is as
follows:
RESOLVED: That Article FOURTH of the Amended and Restated Certificate of
Incorporation of the Corporation be and hereby is deleted in its entirety and
the following Article FOURTH is inserted in lieu thereof:
FOURTH. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is Twenty-Six Million One Hundred
Twenty Thousand One Hundred Three (26,120,103) shares, consisting of:
(i) Twenty Million (20,000,000) shares of Common Stock, $.00004 par value
per share ("Common Stock"); and
(ii) Six Million One Hundred Twenty Thousand One Hundred Three (6,120,103)
shares of Preferred Stock, $.00004 par value per share ("Preferred Stock"), of
which
<PAGE> 2
(A) Eight Hundred Thousand (800,000) shares shall be designated
"Series A Convertible Preferred Stock" (the "Series A Preferred Stock"),
(B) Three Hundred Ninety-Nine Thousand Nine Hundred Ninety-Nine
(399,999) shares shall be designated "Series B Convertible Preferred Stock" (the
"Series B Preferred Stock"),
(C) One Million Three Hundred Ninety-Nine Thousand Five Hundred
Eighty-Nine (1,399,589) shares shall be designated "Series D Convertible
Preferred Stock" (the "Series D Preferred Stock"),
(D) One Million One Hundred Sixty-Six Thousand Six Hundred Sixty-
Seven (1,166,667) shares shall be designated Series E Convertible Preferred
Stock (the "Series E Preferred Stock"), and
(E) Two Million Three Hundred Fifty-Three Thousand Eight Hundred
Forty-Eight (2,353,848) shares shall be designated "Series F Convertible
Preferred Stock" (the "Series F Preferred Stock"),
and the balance of which may be issued from time to time in one or more series
as set forth in Part B of this Article FOURTH.
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
------------
1. GENERAL. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
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<PAGE> 3
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock from
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
---------------
Preferred Stock may be issued from time to time in one or more series, each
of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issue of the shares thereof, to determine and fix such voting powers, full
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including, without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of Delaware and the terms of
this Certificate of Incorporation. Without limiting the generality of the
foregoing, the resolutions providing for issuance of any series of Preferred
Stock may provide that such series shall be superior or rank equally or be
junior to the Preferred Stock of any other series to the extent permitted by law
and the terms of this Certificate of Incorporation. Except as otherwise
specifically provided in this Certificate of Incorporation, no vote of the
holders of the Preferred Stock or Common Stock shall be a prerequisite to the
issuance of any shares of any series of the Preferred Stock authorized by and
complying with the conditions of the Certificate of Incorporation, the right to
have such vote being expressly
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<PAGE> 4
waived by all present and future holders of the capital stock of the
Corporation.
C. SERIES A, B, D, E AND F CONVERTIBLE PREFERRED STOCK
---------------------------------------------------
The Series A Preferred Stock and the Series B Preferred Stock are sometimes
referred to collectively herein as the "Series A and B Preferred Stock." The
Series A Preferred Stock, the Series B Preferred Stock, the Series D Preferred
Stock, the Series E Preferred Stock and the Series F Preferred Stock are
sometimes referred to collectively herein as the "Series Preferred Stock." There
is no Series C Preferred Stock designated as of the effective date of this
Certificate of Incorporation. The rights, preferences, powers, privileges and
restrictions, qualifications and limitations granted to or imposed upon the
shares of Series Preferred Stock shall be as set forth in this Part C of this
Article FOURTH.
1. Dividends.
---------
(a) SERIES A, B, D, E AND F PREFERRED STOCK. In each fiscal year of
the Corporation, the holders of shares of Series Preferred Stock shall be
entitled to receive, before any cash dividends shall be declared and paid upon
or set aside for the Common Stock in such fiscal year, when and as declared by
the Board of Directors of the Corporation out of the funds legally available for
that purpose, dividends payable in cash in an amount per share for such fiscal
year at least equal to the product of (i) the per share amount, if any, of the
cash dividend declared, paid or set aside for the Common Stock during such
fiscal year, multiplied by (ii) the number of whole shares of Common Stock into
which each such share of Series Preferred Stock is then convertible. Any cash
dividends payable to holders of shares of Series A Preferred Stock, Series B
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock shall be payable on a parity with each other (and no such
dividends shall be paid unless paid on all series of Series Preferred Stock) and
in preference and priority to any payment of any cash dividend on the Common
Stock. In the event any such Series Preferred Stock shall not receive the full
amount of any such dividends to which they would otherwise be entitled, the
holders of shares of Series A Preferred Stock, Series B Preferred Stock, Series
D Preferred Stock, Series E Preferred Stock and Series F Preferred shall receive
such dividends in proportion to the respective amounts which would otherwise be
payable in respect of the shares held by them upon payment of such dividends if
all amounts payable on or with respect to such shares were paid in full.
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<PAGE> 5
2. Liquidation, Dissolution or Winding Up.
---------------------------------------
(a) Series A and B Preferred Stock.
-------------------------------
(i) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
and B Preferred Stock then outstanding shall be entitled to be paid out of the
assets of the Corporation available for distribution to its stockholders, after
and subject to the payment in full of all amounts required to be distributed to
the holders of Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock and any other class or series of stock of the Corporation
ranking on liquidation prior and in preference to the Series A and B Preferred
Stock (such Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock and other stock being collectively referred to as "Senior to A
and B Preferred Stock"), but before any payment shall be made to the holders of
Common Stock or any other class or series of stock ranking on liquidation junior
to the Series A and B Preferred Stock (such Common Stock and other stock being
collectively referred to as "Junior to A and B Stock") by reason of their
ownership thereof, an amount equal to $.375 for each share of Series A Preferred
Stock then held by them and an amount equal to $6.50 for each share of Series B
Preferred Stock then held by them (in each case subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares). If upon any such liquidation,
dissolution or winding up of the Corporation the remaining assets of the
Corporation available for distribution to its stockholders shall be insufficient
to pay the holders of shares of Series A and B Preferred Stock the full amount
to which they shall be entitled, the holders of shares of Series A and Series B
Preferred Stock and any class or series of stock ranking on liquidation on a
parity with the Series A Preferred Stock and Series B Preferred Stock shall
share ratably in any distribution of the remaining assets and funds of the
Corporation in proportion to the respective amounts which would otherwise be
payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in full; and,
subject to any preference or priority of Senior to A and B Preferred Stock, no
amounts shall be paid or set apart for payment on the Series A and B Preferred
Stock of any series unless at the same time amounts in like proportion to the
respective preferential amounts to which the Series A and B Preferred Stock of
the other series are entitled shall be paid or set apart for the payment of the
other series.
(ii) After the payment of all preferential amounts required to be
paid to the holders of Senior to A and B Preferred Stock, Series A and B
Preferred Stock and any other class or
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<PAGE> 6
series of stock of the Corporation ranking on liquidation on a parity with the
Series A and B Preferred Stock, upon the dissolution, liquidation or winding up
of the Corporation, the holders of shares of Junior to A and B Stock then
outstanding shall be entitled to receive the remaining assets and funds of the
Corporation available for distribution to its stockholders.
(iii) The merger or consolidation of the Corporation into or with
another corporation (except for (A) a merger or consolidation of any subsidiary
of the Corporation with or into the Corporation so long as the Corporation shall
be the surviving or continuing corporation and (B) a merger or consolidation to
effect a reincorporation of the Corporation in a different jurisdiction), or the
sale of all or substantially all the assets of the Corporation, shall be deemed
to be a liquidation, dissolution or winding up of the Corporation for purposes
of this Subsection 2(a) unless the holders of at least a majority of the then
outstanding shares of Series A and B Preferred Stock and of any class or series
of stock ranking on liquidation on a parity with the Series A and B Preferred
Stock, acting together as a single class, elect not to have such merger,
consolidation or sale be deemed such a liquidation, dissolution or winding up
and give written notice to such effect to the Corporation at least three days
before the effective date of such event. If such notice is given, the provisions
of Subsection 4(i) below shall apply. The amount deemed distributed to the
holders of Series A and B Preferred Stock upon any such merger or consolidation
shall be the cash or the value of the property, rights or securities distributed
to such holders by the acquiring person, firm or other entity. The value of such
property, rights or other securities shall be determined in good faith by the
Board of Directors of the Corporation.
(b) Series D Preferred Stock.
------------------------
(i) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of 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, after and
subject to payment in full of all amounts required to be distributed to the
holders of Series E Preferred Stock, Series F Preferred Stock and any other
class or series of stock of the Corporation ranking on liquidation prior and in
preference to the Series A, B and D Preferred Stock (such Series E Preferred
Stock, Series F Preferred and other stock being collectively referred to as
"Senior to D Preferred Stock") but before any payment shall be made to the
holders of Series A and B Preferred Stock, Common Stock or any other class or
series of stock ranking on liquidation junior to the Series D Preferred Stock
(such Series A and Series B Preferred
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<PAGE> 7
Stock, Common Stock and other stock being collectively referred to as "Junior to
D Stock") by reason of their ownership thereof, an amount equal to the greater
of (A) $6.00 for each share of Series D Preferred Stock then held by them
(subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares) or
(B) that amount which they would have received had they converted each share of
Series D Preferred Stock held by them on the date of such liquidation,
dissolution, or winding up into Common Stock on such date. If upon any such
liquidation, dissolution or winding up of the Corporation the remaining assets
of the Corporation available for distribution to its stockholders shall be
insufficient to pay the holders of shares of Series D Preferred Stock the full
amount to which they shall be entitled, the holders of shares of Series D
Preferred Stock and any class or series of stock ranking on liquidation on a
parity with the Series D Preferred Stock shall share ratably in any distribution
of the remaining assets and funds of the Corporation in proportion to the
respective amounts which would otherwise be payable in respect of the shares
held by them upon such distribution if all amounts payable on or with respect to
such shares were paid in full.
(ii) After the payment of all preferential amounts required to be
paid to the holders of Senior to D Preferred Stock, Series D Preferred Stock and
any other class or series of stock of the Corporation ranking on liquidation on
a parity with the Series D Preferred Stock, upon the dissolution, liquidation or
winding up of the Corporation, the holders of shares of Junior to D Stock then
outstanding shall be entitled to receive the remaining assets and funds of the
Corporation available for distribution to its stockholders.
(iii) The merger or consolidation of the Corporation into or with
another corporation (except for (A) a merger or consolidation of any subsidiary
of the Corporation with or into the Corporation so long as the Corporation shall
be the surviving or continuing corporation and (B) a merger or consolidation to
effect a reincorporation of the Corporation in a different jurisdiction), or the
sale of all or substantially all the assets of the Corporation, shall be deemed
to be a liquidation, dissolution or winding up of the Corporation for purposes
of this Subsection 2(b) unless the holders of at least a majority of the then
outstanding shares of Series D Preferred Stock and of any class or series of
stock ranking on liquidation on a parity with the Series D Preferred Stock,
acting together as a single class, elect not to have such merger, consolidation
or sale to be deemed such a liquidation, dissolution or winding up and give
written notice to such effect to the Corporation at least three days before the
effective date of such event. If such notice is given, the provisions of
Subsection 4(i) below shall apply. The amount
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<PAGE> 8
deemed distributed to the holders of Series D Preferred Stock upon any such
merger or consolidation shall be the cash or the value of the property, rights
or securities distributed to such holders by the acquiring person, firm or other
entity. The value of such property, rights or other securities shall be
determining good faith by the Board of Directors of the Corporation.
(c) Series E Preferred Stock.
------------------------
(i) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series E
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, after and
subject to the payment in full of all amounts required to be distributed to the
holders of Series F Preferred Stock and any other class or series of stock of
the Corporation ranking on liquidation prior and in preference to the Series E
Preferred Stock (collectively referred to as "Senior to E Preferred Stock"), but
before any payment shall be made to the holders of Series D Preferred Stock,
Series A and B Preferred Stock, Common Stock or any other class or series of
stock ranking on liquidation junior to the Series E Preferred Stock (such Series
D Preferred Stock, Series A and B Preferred Stock, Common Stock and other stock
being collectively referred to as "Junior to E Stock") by reason of their
ownership thereof, an amount equal to the greater of (A) $6.00 for each share of
Series E Preferred Stock then held by them (subject to appropriate adjustment in
the event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares) or (B) that amount which they would have
received if they had converted each share of Series E Preferred Stock held by
them on the date of such liquidation, dissolution, or winding up into Common
Stock on such date. If upon any such liquidation, dissolution or winding up of
the Corporation the remaining assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the holders of
shares of Series E Preferred Stock the full amount to which they shall be
entitled, the holders of shares of Series E Preferred Stock and any class or
series of stock ranking on liquidation on a parity with the Series E Preferred
Stock shall share ratably in any distribution of the remaining assets and funds
of the Corporation in proportion to the respective amounts which would otherwise
be payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in full.
(ii) After the payment of all preferential amounts required to be
paid to the holders of Senior to E Preferred Stock, Series E Preferred Stock and
any other class or series of stock of the Corporation ranking on liquidation on
a parity with the
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<PAGE> 9
Series E Preferred Stock upon the dissolution, liquidation or winding up of the
Corporation, the holders of shares of Junior to E Stock then outstanding shall
be entitled to receive the remaining assets and funds of the Corporation
available for distribution to its stockholders.
(iii) The merger or consolidation of the Corporation into or with
another corporation (except for (A) a merger or consolidation of any subsidiary
of the Corporation with or into the Corporation so long as the Corporation shall
be the surviving or continuing corporation and (B) a merger or consolidation to
effect a reincorporation of the Corporation in a different jurisdiction), or the
sale of all or substantially all the assets of the Corporation, shall be deemed
to be a liquidation, dissolution or winding up of the Corporation for purposes
of this Subsection 2(c) unless the holders of at least a majority of the then
outstanding shares of Series E Preferred Stock and any class or series of stock
ranking on liquidation on a parity with the Series E Preferred Stock, acting
together as a single class, elect not to have such merger, consolidation or sale
be deemed such a liquidation, dissolution or winding up and give written notice
thereof to the Corporation at least three days before the effective date of such
event. If such notice is given, the provisions of Subsection 4(i) below shall
apply. The amount deemed distributed to the holders of Series E Preferred Stock
upon any such merger or consolidation shall be the cash or the value of the
property, rights or securities distributed to such holders by the acquiring
person, firm or other entity. The value of such property, rights or other
securities shall be determined in good faith by the Board of Directors of the
Corporation.
(d) Series F Preferred Stock.
------------------------
(i) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series F
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, after and
subject to the payment in full of all amounts required to be distributed to the
holders of any other class or series of stock of the Corporation ranking on
liquidation prior and in preference to the Series F Preferred Stock
(collectively referred to as "Senior to F Preferred Stock"), but before any
payment shall be made to the holders of Series E Preferred Stock, Series D
Preferred Stock, Series A and B Preferred Stock, Common Stock or any other class
or series of stock ranking on liquidation junior to the Series F Preferred Stock
(such Series E Preferred Stock, Series D Preferred Stock, Series A and B
Preferred Stock, Common Stock and any other stock being collectively referred to
as "Junior to F Stock") by reason of their ownership thereof, an amount equal to
the greater
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<PAGE> 10
of (A) $6.50 for each share of Series F Preferred Stock then held by them
(subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares) or
(B) that amount which they would have received if they had converted each share
of Series F Preferred Stock held by them on the date of such liquidation,
dissolution or winding up into Common Stock on such date. If upon any such
liquidation, dissolution or winding up of the Corporation the remaining assets
of the Corporation available for distribution to its stockholders shall be
insufficient to pay the holders of shares of Series F Preferred Stock, the full
amount to which they shall be entitled, the holders of shares of Series F
Preferred Stock and any class or series of stock ranking on liquidation on a
parity with the Series F Preferred Stock shall share ratably in any distribution
of the remaining assets and funds of the Corporation in proportion to the
respective amounts which would otherwise be payable in respect of the shares
held by them upon such distribution if all amounts payable on or with respect to
such shares were paid in full.
(ii) After the payment of all preferential amounts required to be
paid to the holders of Senior to F Preferred Stock, Series F Preferred Stock and
any other class or series of stock of the Corporation ranking on liquidation on
a parity with the Series F Preferred Stock upon the dissolution, liquidation or
winding up of the Corporation, the holders of shares of Junior to F Stock then
outstanding shall be entitled to receive the remaining assets and funds of the
Corporation available for distribution to its stockholders.
(iii) The merger or consolidation of the Corporation into or with
another corporation (except for (A) a merger or consolidation of any subsidiary
of the Corporation with or into the Corporation so long as the Corporation shall
be the surviving or continuing corporation and (B) a merger or consolidation to
effect a reincorporation of the Corporation in a different jurisdiction, or the
sale of all or substantially all the assets of the Corporation shall be deemed
to be a liquidation, dissolution or winding up of the Corporation for purposes
of this Subsection 2(d) unless the holders of at least a majority of the then
outstanding shares of Series F Preferred Stock and any class or series of stock
ranking on liquidation on a parity with the Series F Preferred Stock, acting
together as a single class, elect not to have such merger, consolidation or sale
be deemed such a liquidation, dissolution or winding up and give written notice
thereof to the Corporation at least three days before the effective date of such
event. If such notice is given, the provisions of Subsection 4(i) below shall
apply. The amount deemed distributed to the holders of Series F Preferred Stock
upon any such merger or consolidation shall be the cash or the value of
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<PAGE> 11
the property, rights or securities distributed to such holders by the acquiring
person, firm or other entity. The value of such property, rights or other
securities shall be determined in good faith by the Board of Directors of the
Corporation.
3. Voting.
------
(a) Each holder of outstanding shares of Series Preferred Stock shall
be entitled to the number of votes equal to the number of whole shares of Common
Stock into which the shares of Series Preferred Stock held by such holder are
convertible (as adjusted from time to time pursuant to Section 4 hereof), at
each meeting of stockholders of the Corporation (and written actions of
stockholders in lieu of meetings) with respect to any and all matters presented
to the stockholders of the Corporation for their action or consideration. Except
as provided by law, by the provisions of Subsection 2(a)(iii), 2(b)(iii),
2(c)(iii), 2(d)(iii), 3(b), 3(c), 3(d), 3(e) or 3(f) below or by the provisions
establishing any other series of Preferred Stock, holders of Series Preferred
Stock and of any other outstanding series of Preferred Stock shall vote together
with the holders of Common Stock as a single class.
(b) In addition to any other rights provided by law or by this Section
3, so long as there shall be issued and outstanding a number of shares of Series
Preferred Stock equal to at least 50% of the total number of shares of Series
Preferred Stock ever issued (excluding shares of Series C Preferred Stock) by
the Corporation (subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization affecting
such shares), the Corporation shall not, without first obtaining the affirmative
vote or written consent of the holders of not less than a majority of the then
outstanding shares of Series Preferred Stock consenting or voting (as the case
may be) together as a single class:
(i) Merge or consolidate into or with any other corporation or
sell all or substantially all of the Corporation's assets; or
(ii) Voluntarily or involuntarily liquidate, dissolve or wind up
the Corporation or its business.
(c) In addition to any other rights provided by law or by this
Section 3, so long as there shall be issued and outstanding a number of shares
of Series A and B Preferred Stock equal to at least 50% of the total number of
shares of Series A and B Preferred Stock ever issued by the Corporation (subject
to appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting
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<PAGE> 12
such shares), the Corporation shall not without first obtaining the affirmative
vote or written consent of the holders of not less than a majority of the then
outstanding shares of Series A and B Preferred Stock consenting or voting (as
the case may be) separately as a single class:
(i) Amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-laws, if such action would
alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series A Preferred Stock or Series
B Preferred Stock or increase or decrease the number of authorized shares of the
Series A Preferred Stock or Series B Preferred Stock;
(ii) Authorize or issue any new or existing class or classes or
series of capital stock having any preference or priority as to amounts
distributable upon dissolution, liquidation or winding up of the Corporation
superior to or on a parity with any such preference or priority of the Series A
Preferred Stock or Series B Preferred Stock, or authorize or issue shares of
stock of any class or any bonds, debentures, notes or other obligations
convertible into or exchangeable for, or having option rights to purchase, any
shares of stock of the Corporation having any preference or priority as to
amounts distributable upon dissolution, liquidation or winding up of the
Corporation superior to or on a parity with any such preference or priority of
the Series A Preferred Stock or Series B Preferred Stock;
(iii) Reclassify any Common Stock into shares having any
preference or priority as to amounts distributable upon dissolution, liquidation
or winding up of the Corporation superior to or on a parity with any such
preference or priority of the Series A Preferred Stock or Series B Preferred
Stock; or
(iv) Pay or declare any dividend or distribution on any shares of
its capital stock, or apply any of its assets to the redemption, retirement,
purchase or acquisition, directly or indirectly, through subsidiaries or
otherwise, of any shares of its capital stock (other than (A) pursuant to the
repurchase rights of certain holders of Series D Preferred Stock, Series E
Preferred Stock and Series F Preferred Stock set forth in the Series F
Convertible Preferred Stock and Warrant Purchase Agreement, dated as of June 28,
1996 (the "Series F Purchase Agreement"), by and between the Corporation, the
purchasers listed on EXHIBIT A thereto (the "Purchasers") and certain other
parties named therein (the "Series F Purchase Agreement Repurchase Rights"), (B)
shares of Common Stock purchased pursuant to restricted stock agreements entered
into prior to the date of this Certificate of Incorporation or purchased from
persons who are, or were, employees of, or consultants or advisors to, the
Corporation
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<PAGE> 13
under employee plans, restricted stock awards or agreements approved by a
majority of the Board of Directors who are not employees of the Corporation, (C)
pursuant to the terms of the warrants to purchase up to an aggregate of 278,639
shares of Common Stock issued to the purchasers of Series D Preferred Stock and
to former holders of shares of Series C Preferred Stock who converted their
shares for shares of Series D Preferred Stock (the "Series D Common Warrants"),
(D) pursuant to the terms of the warrants to purchase up to an aggregate of
194,445 shares of Common Stock issued to the purchasers of Series E Preferred
Stock (the "Series E Common Warrants"), and (E) pursuant to the terms of the
Warrants to purchase up to an aggregate of 738,462 shares of Common Stock issued
to the Purchasers (the "Series F Common Warrants").
(d) In addition to any other rights provided by law or by this Section
3, so long as there shall be issued and outstanding a number of shares of Series
D Preferred Stock equal to at least 50% of the total number of shares of Series
D Preferred Stock ever issued by the Corporation (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares), the Corporation shall not,
without first obtaining the affirmative vote or written consent of the holders
of not less than a majority of the then outstanding shares of Series D Preferred
Stock consenting or voting (as the case may be) separately as a class:
(i) Amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-laws, if such action would
alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series D Preferred Stock or
increase or decrease the number of authorized shares of the Series D Preferred
Stock;
(ii) Authorize or issue any new or existing class or classes or
series of capital stock having any preference or priority as to amounts
distributable upon dissolution, liquidation or winding up of the Corporation
superior to or on a parity with any such preference or priority of the Series D
Preferred Stock, or authorize or issue shares of stock of any class or any
bonds, debentures, notes or other obligations convertible into or exchangeable
for, or having option rights to purchase, any shares of stock of the Corporation
having any preference or priority as to amounts distributable upon dissolution,
liquidation or winding up of the Corporation superior to or on a parity with any
such preference or priority of the Series D Preferred Stock;
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<PAGE> 14
(iii) Reclassify any Common Stock into shares having any
preference or priority as to amounts distributable upon dissolution, liquidation
or winding up of the Corporation superior to or on a parity with any such
preference or priority of the Series D Preferred Stock;
(iv) Merge or consolidate into or with any other corporation, or
sell all or substantially all of the Corporation's assets, if such merger,
consolidation or sale will result in gross proceeds to be received for each
share of Series D Preferred Stock equal to less than twice the original purchase
price (which shall be deemed to be $6.00) for each share of Series D Preferred
Stock (subject to appropriate adjustment for any stock dividend, stock split,
combination or other similar recapitalization affecting such shares of Series D
Preferred Stock); or
(v) Pay or declare any dividend or distribution on any shares of
its capital stock, or apply any of its assets to the redemption, retirement,
purchase or acquisition, directly or indirectly, through subsidiaries or
otherwise, of any shares of its capital stock (other than (A) pursuant to the
Series F Purchase Agreement Repurchase Rights, (B) shares of Common Stock
purchased pursuant to restricted stock agreements entered into prior to the date
of this Certificate of Incorporation or purchased from persons who are, or were,
employees of, or consultants or advisors to, the Corporation under employee
plans, restricted stock awards or agreements approved by a majority of the Board
of Directors who are not employees of the Corporation, and (C) pursuant to the
terms of the Series D Common Warrants, the Series E Common Warrants and the
Series F Common Warrants).
(e) In addition to any other rights provided by law or by this Section
3, so long as there shall be issued and outstanding a number of shares of Series
E Preferred Stock equal to at least 50% of the total number of shares of Series
E Preferred Stock ever issued by the Corporation (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares), the Corporation shall not,
without first obtaining the affirmative vote or written consent of the holders
of not less than a majority of the then outstanding shares of Series E Preferred
Stock consenting or voting (as the case may be) separately as a class:
(i) Amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-laws, if such action would
alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series E Preferred Stock or
increase or
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<PAGE> 15
decrease the number of authorized shares of the Series E Preferred Stock;
(ii) Authorize or issue any new or existing class or classes or
series of capital stock having any preference or priority as to amounts
distributable upon dissolution, liquidation or winding up of the Corporation
superior to or on a parity with any such preference or priority of the Series E
Preferred Stock, or authorize or issue shares of stock of any class or any
bonds, debentures, notes or other obligations convertible into or exchangeable
for, or having option rights to purchase, any shares of stock of the Corporation
having any preference or priority as to amounts distributable upon dissolution,
liquidation or winding up of the Corporation superior to or on a parity with any
such preference or priority of the Series E Preferred Stock;
(iii) Reclassify any Common Stock into shares having any
preference or priority as to amounts distributable upon dissolution, liquidation
or winding up of the Corporation superior to or on a parity with any such
preference or priority of the Series E Preferred Stock;
(iv) Merge or consolidate into or with any other corporation, or
sell all or substantially all of the Corporation's assets, if such merger,
consolidation or sale will result in gross proceeds to be received for each
share of Series E Preferred Stock equal to less than twice the original purchase
price (which shall be deemed to be $6.00) for each share of Series E Preferred
Stock (subject to appropriate adjustment for any stock dividend, stock split,
combination or other similar recapitalization affecting such shares of Series E
Preferred Stock); or
(v) Pay or declare any dividend or distribution on any shares of
its capital stock, or apply any of its assets to the redemption, retirement,
purchase or acquisition, directly or indirectly, through subsidiaries or
otherwise, of any shares of its capital stock (other than (A) pursuant to the
Series F Purchase Agreement Repurchase Rights, (B) shares of Common Stock
purchased pursuant to restricted stock agreements entered into prior to the date
of this Certificate of Incorporation or purchased from persons who are, or were,
employees of, or consultants or advisors to, the Corporation under employee
plans, restricted stock awards or agreements approved by a majority of the Board
of Directors who are not employees of the Corporation and (C) pursuant to the
terms of the Series D Common Warrants, the Series E Common Warrants and the
Series F Common Warrants).
(f) In addition to any other rights provided by law or by this Section
3, so long as there shall be issued and outstanding a number of shares of the
Series F Preferred Stock
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<PAGE> 16
equal to at least 50% of the total number of shares of Series F Preferred Stock
ever issued by the Corporation (subject to appropriate adjustment in the event
of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares), the Corporation shall not, without
first obtaining the affirmative vote or written consent of the holders of not
less than a majority of the then outstanding shares of Series F Preferred Stock,
consenting or voting (as the case may be), separately as a class:
(i) Amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-laws, if such action would
alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series F Preferred Stock or
increase or decrease the number of authorized shares of the Series F Preferred
Stock;
(ii) Authorize or issue any new or existing class or classes or
series of capital stock having any preference or priority as to amounts
distributable upon dissolution, liquidation or winding up of the Corporation
superior to or on a parity with any such preference or priority of the Series F
Preferred Stock or authorize or issue shares of stock of any class or any bonds,
debentures, notes or other obligations convertible into or exchangeable for, or
having option rights to purchase, any shares of stock of the Corporation having
any preference or priority as to amounts distributable upon dissolution,
liquidation or winding up of the Corporation superior to or on a parity with any
such preference or priority of the Series F Preferred Stock;
(iii) Reclassify any Common Stock into shares having any
preference or priority as to amounts distributable upon dissolution, liquidation
or winding up of the Corporation superior to or on a parity with any such
preference or priority of the Series F Preferred Stock;
(iv) Merge or consolidate into or with any other corporation, or
sell all or substantially all of the Corporation's assets, if such merger,
consolidation or sale will result in gross proceeds to be received for each
share of Series F Preferred Stock equal to less than twice the original purchase
price (which shall be deemed to be $6.50) for each share of Series F Preferred
Stock (subject to appropriate adjustment for any stock dividend, stock split,
combination or other similar recapitalization affecting such shares of Series F
Preferred Stock); or
(v) Pay or declare any dividend or distribution on any shares of
its capital stock, or apply any of its assets to the redemption, retirement,
purchase or acquisition, directly or
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<PAGE> 17
indirectly, through subsidiaries or otherwise, of any shares of its capital
stock (other than (A) pursuant to the Series F Purchase Agreement Repurchase
Rights, (B) shares of Common Stock purchased pursuant to restricted stock
agreements entered into prior to the date of this Certificate of Incorporation
or purchased from persons who are, or were employees of, or consultants or
advisors to, the Corporation under employee plans, restricted stock awards or
agreements approved by a majority of the Board of Directors who are not
employees of the Corporation and (C) pursuant to the terms of the Series D
Common Warrants, the Series E Common Warrants and the Series F Common Warrants).
4. OPTIONAL CONVERSION. The holders of the Series Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time to
time, into such number of fully paid and nonassessable shares of Common Stock as
is determined (A) in the case of the Series A Preferred Stock, by dividing $.375
by the Series A Conversion Price (as defined below) in effect at the time of
conversion, (B) in the case of the Series B Preferred Stock, by dividing $6.50
by the Series B Conversion Price (as defined below) in effect at the time of
conversion, (C) in the case of the Series D Preferred Stock, by dividing $6.00
by the Series D Conversion Price (as defined below) in effect at the time of
conversion, (D) in the case of the Series E Preferred Stock, by dividing $6.00
by the Series E Conversion Price (as defined below) in effect at the time of
conversion, and (E) in the case of Series F Preferred Stock, by dividing $6.50
by the Series F Conversion Price (as defined below) in effect at the time of
conversion. The conversion price at which shares of Common Stock shall be
deliverable upon conversion of Series A Preferred Stock without the payment of
additional consideration by the holder thereof (the "Series A Conversion Price")
shall initially be $.375 per share. The conversion price at which shares of
Common Stock shall be deliverable upon conversion of Series B Preferred Stock
without the payment of additional consideration by the holder thereof (the
"Series B Conversion Price") shall initially be $6.50 per share. The conversion
price at which shares of Common Stock shall be deliverable upon conversion of
Series D Preferred Stock without the payment of additional consideration by the
holder thereof (the "Series D Conversion Price") shall initially be $6.00. The
Conversion Price at which shares of Common Stock shall be deliverable upon
conversion of Series E Preferred Stock without payment of additional
consideration by the holder thereof (the "Series E Conversion Price") shall
initially be $6.00. The Conversion Price at which shares of Series F Preferred
Stock shall be deliverable upon conversion of Series F Preferred Stock without
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<PAGE> 18
payment of additional consideration by the holder thereof (the "Series F
Conversion Price") shall initially be $6.50. The Series A Conversion Price, the
Series B Conversion Price, the Series D Conversion Price, the Series E
Conversion Price and the Series F Conversion Price are sometimes referred to
collectively hereinafter as the "Conversion Prices" and individually as a
"Conversion Price." Such initial Conversion Prices, and the respective rates at
which shares of Series Preferred Stock may be converted into shares of Common
Stock, shall be subject to adjustment as provided below. In the event of a
liquidation of the Corporation, the Conversion Rights shall terminate at the
close of business on the first full day preceding the date fixed for the payment
of any amounts distributable on liquidation to the holders of Series Preferred
Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued upon conversion of the Series Preferred Stock. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by the then effective applicable
Conversion Price.
(c) Mechanics of Conversion.
-----------------------
(i) In order for a holder of Series Preferred Stock to convert
shares of Series Preferred Stock into shares of Common Stock, such holder shall
surrender the certificate or certificates for such shares of Series Preferred
Stock, at the office of the transfer agent for the Series Preferred Stock (or at
the principal office of the Corporation if the Corporation serves as its own
transfer agent), together with written notice that such holder elects to convert
all or any number of the shares of the Series Preferred Stock represented by
such certificate or certificates. Such notice shall state such holder's name or
the names of the nominees in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. If required by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or his
or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
("Conversion Date"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such holder of Series
Preferred Stock, or to his or its nominees, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share.
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(ii) The Corporation shall at all times when the Series Preferred
Stock shall be outstanding, reserve and keep available out of its authorized but
unissued stock, for the purpose of effecting the conversion of the Series
Preferred Stock, such number of its duly authorized shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding Series Preferred Stock. Before taking any action which would cause
an adjustment reducing the Conversion Price below the then par value of the
shares of Common Stock issuable upon conversion of such series, the Corporation
will take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Corporation may validly and legally issue fully paid
and nonassessable shares of Common Stock at such adjusted Conversion Price.
(iii) Upon any such conversion, no adjustment to the Conversion
Price shall be made for any accrued and unpaid dividends on the Series Preferred
Stock surrendered for conversion or on the Common Stock delivered upon
conversion.
(iv) All shares of Series Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights, if
any, to receive notices and to vote, shall immediately cease and terminate on
the Conversion Date, except only the right of the holders thereof to receive
shares of Common Stock in exchange therefor and payment of any declared and
unpaid dividends thereon. Any shares of Series Preferred Stock so converted
shall be retired and cancelled and shall not be reissued, and the Corporation
may from time to time take such appropriate action as may be necessary to reduce
the authorized Series Preferred Stock accordingly.
(d) Adjustments to Conversion Price for Diluting Issues:
---------------------------------------------------
(i) SPECIAL DEFINITIONS. For purposes of this Subsection 4(d),
the following definitions shall apply:
(A) "OPTION" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities, excluding, with respect to any series of Series Preferred Stock,
options granted to directors, employees or consultants of the Corporation on or
after February 24, 1993 pursuant to an option plan adopted by the Board of
Directors, to acquire up to a number of shares of Common Stock which, when
combined with the number of shares of Common Stock issued pursuant to clause
(VI) of Subsection 4(d)(i)(D), does not exceed 850,000 (subject to appropriate
adjustment for any stock
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<PAGE> 20
dividend, stock split, combination or other similar recapitalization affecting
such shares).
(B) "ORIGINAL ISSUE DATE" with respect to a series of Series
Preferred Stock shall mean the date on which a share of such series of Series
Preferred Stock was first issued.
(C) "CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock.
(D) "ADDITIONAL SHARES OF COMMON STOCK" with respect to a
series of Series Preferred Stock shall mean all shares of Common Stock issued
(or, pursuant to Subsection 4(d)(iii) below, deemed to be issued) by the
Corporation after the Original Issue Date with respect to such series of Series
Preferred Stock, other than shares of Common Stock issued or issuable:
(I) upon conversion of shares of Series Preferred
Stock;
(II) as a dividend or distribution pro rata
(calculated on an as-converted basis) on all
shares of Series Preferred Stock;
(III) with respect to a series of Series
Preferred Stock, as a dividend or
distribution on such series of Series
Preferred Stock;
(IV) as a result of any stock split,
combination, dividend, distribution,
reclassification, exchange, or
substitution for which an adjustment is
provided in Subsections (e), (f), (g) or
(h) below;
(V) upon the exercise of options excluded from the
definition of "Option" in Subsection 4(d)(i)(A);
(VI) in other issuances on or after February
24, 1993 to directors, employees or
consultants, with the approval of the
Board of Directors, up to a number of
shares which, when combined with the
number of shares of Common Stock issued
or issuable
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<PAGE> 21
upon the exercise of options excluded
from the definition of "Option" pursuant
to Subsection 4(d)(i)(A), does not exceed
850,000 shares (subject to appropriate
adjustment for any stock dividend, stock
split, combination or recapitalization
affecting such shares);
(VII) upon exercise of warrants to purchase up
to 40,067 shares (subject to appropriate
adjustment for any stock dividend, stock
split, combination or other similar
recapitalization affecting such shares)
of Series D Preferred Stock granted by
the corporation to Ash Properties Limited
or its affiliates, Medical Science
Partners, L.P., Mhd. Nabil Al-Midani and
SEIF Foundation-Liechtenstein
(collectively, the "Series D Preferred
Warrants") in exchange for certain
outstanding warrants to purchase shares
of Series C Preferred Stock; or
(VIII) upon grant or exercise of the Series D
Common Warrants, Series E Common Warrants
and/or Series F Common Warrants (subject
in each case to appropriate adjustment
for any stock dividend, stock split,
combination or other similar
recapitalization affecting such shares).
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in the
number of shares of Common Stock into which a series of the Series Preferred
Stock is convertible shall be made pursuant to this Subsection 4(d), by
adjustment in the applicable Conversion Price thereof: (a) unless the
consideration per share (determined pursuant to Subsection 4(d)(v)) for an
Additional Share of Common Stock with respect to such series issued or deemed to
be issued by the Corporation is less than the applicable Conversion Price for
such series in effect on the date of, and immediately prior to, the issue of
such Additional Share of Common Stock, or (b) if prior to such issuance, the
Corporation receives written notice from the holders of at least a majority of
the then
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<PAGE> 22
outstanding shares of such series agreeing that no such adjustment shall be made
as the result of the issuance of Additional Shares of Common Stock with respect
to such series.
(iii) ISSUE OF SECURITIES DEEMED ISSUE OF ADDITIONAL SHARES OF
COMMON STOCK. If the Corporation, at any time or from time to time after the
Original Issue Date with respect to a series of Series Preferred Stock, shall
issue any Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
Options or Convertible Securities, then the maximum number of shares of Common
Stock (as set forth in the instrument relating thereto without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible Securities,
shall be deemed to be Additional Shares of Common Stock issued as of the time of
such issue or, in case such a record date shall have been fixed, as of the close
of business on such record date, provided that Additional Shares of Common Stock
shall not be deemed to have been issued as to a series of Series Preferred Stock
unless the consideration per share (determined pursuant to Subsection 4(d)(v)
hereof) of such Additional Shares of Common Stock would be less than the
applicable Conversion Price for such series in effect on the date of and
immediately prior to such issuance, or such record date, as the case may be, and
provided further that in any such case in which such Additional Shares of Common
Stock are deemed to be issued:
(A) No further adjustment in the Conversion Price for such
series of Series Preferred Stock shall be made upon the subsequent issue of
Convertible Securities or shares of Common Stock upon the exercise of such
Options or conversion or exchange of such Convertible Securities;
(B) If such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, or decrease in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof, the
Conversion Price for such series of Series Preferred Stock computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities;
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<PAGE> 23
(C) No readjustment pursuant to clause (B) above shall have
the effect of increasing the Conversion Price for such series of Series
Preferred Stock to an amount which exceeds the lower of (i) the Conversion Price
for such series of Series Preferred Stock on the original adjustment date, or
(ii) the Conversion Price for such series of Series Preferred Stock that would
have resulted from any issuance of Additional Shares of Common Stock with
respect to such series between the original adjustment date and such
readjustment date;
(D) Upon the expiration or termination of any unexercised
Option, the Conversion Price for such series of Series Preferred Stock shall not
be readjusted, but the Additional Shares of Common Stock deemed issued as the
result of the original issue of such Option shall not be deemed issued for the
purposes of any subsequent adjustment of such Conversion Price; and
(E) In the event of any change in the number of shares of
Common Stock issuable upon the exercise, conversion or exchange of any Option or
Convertible Security, including, but not limited to, a change resulting from the
antidilution provisions thereof, the Conversion Price then in effect with
respect to such series of Series Preferred Stock shall forthwith be readjusted
to such Conversion Price as would have obtained had the adjustment which was
made upon the issuance of such option or Convertible Security not exercised or
converted prior to such change been made upon the basis of such change, but no
further adjustment shall be made for the actual issuance of Common Stock upon
the exercise or conversion of any such Option or Convertible Security.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL
SHARES OF COMMON STOCK.
(A) Except as to an issuance of Additional Shares of Common
Stock that is subject to the provisions of Subsection 4(d)(iv)(B) below, in the
event the Corporation shall, at any time after the Original Issue Date with
respect to a series of Series Preferred Stock, issue Additional Shares of Common
Stock (including Additional Shares of Common Stock deemed to be issued pursuant
to Subsection 4(d)(iii), but excluding shares issued as a dividend or
distribution as provided in Subsection 4(f) or upon a stock split or combination
as provided in Subsection 4(e)), without consideration or for a consideration
per share less than the applicable Conversion Price for such series of Series
Preferred Stock in effect on the date of and immediately prior to such issue,
then and in such event, such Conversion Price shall be reduced, concurrently
with such issue, to a price (calculated to the nearest cent) determined by
multiplying such Conversion Price by a fraction, (X) the numerator of which
shall be (1) the number
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<PAGE> 24
of shares of Common Stock outstanding immediately prior to such issue plus (2)
the number of shares of Common Stock which the aggregate consideration received
by the Corporation for the total number of Additional Shares of Common Stock so
issued would purchase at such Conversion Price; and (Y) the denominator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such issue plus the number of such Additional Shares of Common Stock so issued;
PROVIDED THAT, for the purpose of this Subsection 4(d)(iv)(A), (i) all shares of
Common Stock issuable upon exercise or conversion of Options or Convertible
Securities outstanding immediately prior to such issue shall be deemed to be
outstanding, and (ii) the number of shares of Common Stock deemed issuable upon
exercise or conversion of such outstanding Options and Convertible Securities
shall not give effect to any adjustments to the conversion price or conversion
rate of such Options or Convertible Securities resulting from the issuance of
Additional Shares of Common Stock that is the subject of this calculation.
(B) In the event the Corporation shall, at any time within
12 months following the Original Issue Date with respect to the Series E
Preferred Stock, issue Additional Shares of Common Stock (including Additional
Shares of Common Stock deemed to be issued pursuant to Subsection 4(d)(iii), but
excluding shares issued as a dividend or distribution as provided in Subsection
4(f) or as a stock split or combination as provided in Subsection 4(e)), without
consideration or for a consideration per share less than the Series E Conversion
Price in effect on the date of and immediately prior to such issue, then and in
such event, the Series E Conversion Price shall be reduced, concurrently with
such issuance, to the consideration per share received by the Corporation for
the issuance of the Additional Shares of Common Stock (determined pursuant to
Section 4(d)(v)).
(C) Notwithstanding the foregoing, the applicable Conversion
Price shall not be so reduced at such time if the amount of such reduction would
be an amount less than $.01, but any such amount shall be carried forward and
reduction with respect thereto made at the time of and together with any
subsequent reduction which, together with such amount and any other amount or
amounts so carried forward, shall aggregate $.01 or more.
(D) Notwithstanding the other provisions of this Subsection
4(d)(iv), in the event the Corporation makes a Series D Dilutive Issuance (as
defined below), the adjustment to the Conversion Price of shares of Series D
Preferred Stock provided for in this Subsection 4(d)(iv) as a result of such
Series D Dilutive Issuance shall not be made with respect to shares of Series D
Preferred Stock held by a person or entity who was given
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<PAGE> 25
the opportunity to purchase its Pro Rata Portion (as defined below) of such
Series D Dilutive Issuance (whether pursuant to a right of first refusal or
otherwise), and who failed to purchase its Pro Rata Portion of such Series D
Dilutive Issuance. Each such holder shall be deemed to have waived (i) the
reduction in the Conversion Price of such holder's shares of Series D Preferred
Stock that would have otherwise resulted pursuant to Subsection 4(d)(iv)(A) from
such Series D Dilutive Issuance, (ii) any reduction in the Conversion Price of
such holder's shares of Series D Preferred Stock that would have otherwise
resulted pursuant to Subsection 4(d)(iv)(A) from any future Series D Dilutive
Issuances, and (iii) the right to receive, upon conversion of its Series D
Preferred Stock pursuant to this Section 4, any additional shares of Common
Stock that would have been issuable as a result of such reductions in the
applicable Conversion Price; and such waiver shall be binding upon any
transferee of the shares of Series D Preferred Stock held by such holder.
(E) A "Series D Dilutive Issuance" shall mean any issuance
of Additional Shares of Common Stock that results (or would result, except for
this Subsection 4(d)(iv)(E) in a reduction in the Conversion Price of the Series
D Preferred Stock pursuant to Subsection 4(d)(iv)(A), but shall not include any
purchases by "Subsequent Purchasers" (as defined in the Series D Convertible
Preferred Stock and Warrant Purchase Agreement and Plan of Recapitalization,
dated March 4, 1993, as amended September 9, 1993 (the "Series D Purchase
Agreement"), pursuant to the terms of the Series D Purchase Agreement. A
holder's "Pro Rata Portion" of a Series D Dilutive Issuance shall mean the
number of Additional Shares of Common Stock issued in such Series D Dilutive
Issuance, multiplied by a fraction, the numerator of which is the number of
shares of Common Stock then held by such holder as a result of the conversion of
shares of Series D Preferred Stock or issuable upon conversion of shares of
Series D Preferred Stock then held by such holder, and the denominator of which
is the aggregate number of shares of Common Stock then outstanding plus the
number of shares of Common Stock issuable upon conversion or exercise of then
outstanding shares of Series Preferred Stock or other convertible securities,
options, rights or warrants. For purposes of this paragraph, the portion of a
Series D Dilutive Issuance purchased by a holder of Series D Preferred Stock
shall be deemed to include any portion of such Series D Dilutive Issuance
purchased by an "affiliate" (as defined in Rule 144 under the Securities Act of
1933, as amended (the "Securities Act")) of such holder.
(F) All certificates representing shares of Series D
Preferred Stock shall have affixed thereto a legend substantially in the
following form:
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<PAGE> 26
The shares represented by this certificate are convertible into shares of
common stock at a rate which may vary among different stockholders of the
Corporation. Information concerning the conversion rate applicable to the
shares represented by this certificate may be obtained from the Secretary
of the Corporation.
(v) DETERMINATION OF CONSIDERATION. For purposes of this
Subsection 4(d), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock with respect to a series of Series
Preferred Stock shall be computed as follows:
(A) CASH AND PROPERTY: Such consideration shall:
(I) insofar as it consists of cash, be computed at the
aggregate of cash received by the Corporation, excluding amounts paid or payable
for accrued interest or accrued dividends;
(II) insofar as it consists of property other than
cash, be computed at the fair market value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(III) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (I) and (II) above,
as determined in good faith by the Board of Directors.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The consideration
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued with respect to a series of Series Preferred Stock
pursuant to Subsection 4(d)(iii), relating to Options and Convertible
Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable by
the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities,
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<PAGE> 27
the exercise of such Options for Convertible Securities and the conversion or
exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(e) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Corporation shall at any time or from time to time after the Original Issue Date
for a series of the Series Preferred Stock effect a subdivision of the
outstanding Common Stock, the Conversion Price for such series then in effect
immediately before that subdivision shall be proportionately decreased. If the
Corporation shall at any time or from time to time after the Original Issue Date
for a series of the Series Preferred Stock combine the outstanding shares of
Common Stock, the Conversion Price for such series then in effect immediately
before the combination shall be proportionately increased. Any adjustment under
this paragraph shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(f) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the
event the Corporation at any time, or from time to time after the Original Issue
Date for a series of Series Preferred Stock, shall make or issue, or fix a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, then and in each such event the Conversion Price for such series of
Series Preferred Stock then in effect shall be decreased as of the time of such
issuance or, in the event such a record date shall have been fixed, as of the
close of business on such record date, by multiplying the Conversion Price for
such series of Series Preferred Stock then in effect by a fraction:
(A) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business
on such record date, and
(B) the denominator of which shall be the total number
of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business
on such record date plus the number of shares of Common Stock
issuable in payment of such dividend or distribution:
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provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully paid on the date fixed
therefor, the Conversion Price for such series of Series Preferred Stock shall
be recomputed accordingly as of the close of business on such record date and
thereafter the Conversion Price for such series of Series Preferred Stock shall
be adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions.
(g) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time or from time to time after the Original Issue Date
for a series of Series Preferred Stock shall make or issue, or fix a record date
for the determination of holders of Common Stock entitled to receive, a dividend
or other distribution payable in securities of the Corporation other than shares
of Common Stock, then and in each such event provision shall be made so that the
holders of such series of Series Preferred Stock shall receive upon conversion
thereof in addition to the number of shares of Common Stock receivable
thereupon, the amount of securities of the Corporation that they would have
received had their Series Preferred Stock been converted into Common Stock on
the date of such event and had thereafter, during the period from the date of
such event to and including the conversion date, retained such securities
receivable by them as aforesaid during such period giving application to all
adjustments called for during such period, under this paragraph with respect to
the rights of the holders of the Series Preferred Stock.
(h) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION. If the
Common Stock issuable upon the conversion of the Series Preferred Stock shall be
changed into the same or a different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification, or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
above, or a reorganization, merger, consolidation, or sale of assets provided
for below), then and in each such event the holder of each such share of Series
Preferred Stock shall have the right thereafter to convert such share into the
kind and amount of shares of stock and other securities and property receivable
upon such reorganization, reclassification, or other change, by holders of the
number of shares of Common Stock into which such shares of Series Preferred
Stock might have been converted immediately prior to such reorganization,
reclassification, or change, all subject to further adjustment as provided
herein.
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(i) Adjustment for Merger or Reorganization, etc.
--------------------------------------------
(i) In case of any consolidation or merger of the Corporation
with or into another corporation or the sale of all or substantially all of the
assets of the Corporation to another corporation (other than a consolidation,
merger or sale which is treated as a liquidation pursuant to Subsection
2(a)(iii)), each share of Series A and B Preferred Stock shall thereafter be
convertible into the kind and amount of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock of the
Corporation deliverable upon conversion of such Series A and B Preferred Stock
would have been entitled upon such consolidation, merger or sale; and, in such
case, appropriate adjustment (as determined in good faith by the Board of
Directors) shall be made in the application of the provisions in this Section 4
set forth with respect to the rights and interest thereafter of the holders of
the Series A and B Preferred Stock, to the end that the provisions set forth in
this Section 4 (including provisions with respect to changes in and other
adjustments of the Conversion Prices) shall thereafter be applicable, as nearly
as reasonably may be, in relation to any shares of stock or other property
thereafter deliverable upon the conversion of the Series A and B Preferred
Stock.
(ii) In case of any consolidation or merger of the Corporation
with or into another corporation or the sale of all or substantially all of the
assets of the Corporation to another corporation (other than a consolidation,
merger or sale which is treated as a liquidation pursuant to Subsection
2(b)(iii)), each share of Series D Preferred Stock shall thereafter be
convertible into the kind and amount of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock of the
Corporation deliverable upon conversion of such Series D Preferred Stock would
have been entitled upon such consolidation, merger or sale; and, in such case,
appropriate adjustment (as determined in good faith by the Board of Directors)
shall be made in the application of the provisions in this Section 4 set forth
with respect to the rights and interest thereafter of the holders of the Series
D Preferred Stock, to the end that the provisions set forth in this Section 4
(including provisions with respect to changes in and other adjustments of the
Conversion Price) shall thereafter be applicable, as nearly as reasonably may
be, in relation to any shares of stock or other property thereafter deliverable
upon the conversion of the Series D Preferred Stock.
(iii) In case of any consolidation or merger of the Corporation
with or into another corporation or the sale of all or substantially all of the
assets of the Corporation to another corporation (other than a consolidation,
merger or sale which is treated as a liquidation pursuant to Subsection
2(c)(iii)), each
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<PAGE> 30
share of Series E Preferred Stock shall thereafter be convertible into the kind
and amount of shares of stock or other securities or property to which a holder
of the number of shares of Common Stock of the Corporation deliverable upon
conversion of such Series E Preferred Stock would have been entitled upon such
consolidation, merger or sale; and, in such case, appropriate adjustment (as
determined in good faith by the Board of Directors) shall be made in the
application of the provisions in this Section 4 set forth with respect to the
rights and interest thereafter of the holders of the Series E Preferred Stock,
to the end that the provisions set forth in this Section 4 (including provisions
with respect to changes in and other adjustments of the Conversion Price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the conversion of
the Series E Preferred Stock.
(iv) In case of any consolidation or merger of the Corporation
with or into another corporation or the sale of all or substantially all of the
assets of the Corporation to another corporation (other than a consolidation,
merger or sale which is treated as a liquidation pursuant to Subsection
2(d)(iii)), each share of Series F Preferred Stock shall thereafter be
convertible into the kind and amount or shares of stock or other securities or
property to which a holder of the number of shares of Common Stock of the
Corporation deliverable upon conversion of such Series F Preferred Stock would
have been entitled upon such consolidation, merger or sale; and in such case,
appropriate adjustment (as determined in good faith by the Board of Directors)
shall be made in the application of the provisions in this Section 4 set forth
with respect to the rights and interest thereafter of the holders of the Series
F Preferred Stock, to the end that the provisions set forth in this Section 4
(including provisions with respect to changes in and other adjustments of the
Conversion Price) shall thereafter be applicable, as nearly as reasonably may
be, in relation to any shares of stock or other property thereafter deliverable
upon the conversion of the Series F Preferred Stock.
(j) NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities 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
Section 4 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 the
Series Preferred Stock against impairment.
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(k) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price for a series of Series
Preferred Stock pursuant to this Section 4, the Corporation at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and furnish to each holder of Series Preferred Stock of such series a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of any holder of Series Preferred
Stock, furnish or cause to be furnished to such holder a similar certificate
setting forth (i) such adjustments and readjustments, (ii) the Conversion Price
for the series of Series Preferred Stock held by such holder then in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which then would be received upon the conversion of such Series
Preferred Stock.
(l) Notice of Record Date. In the event:
---------------------
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or
other securities of the Corporation;
(ii) that the Corporation subdivides or combines its outstanding
shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its
outstanding shares of Common Stock or a stock dividend or
stock distribution thereon), or of any consolidation or
merger of the Corporation into or with another corporation,
or of the sale of all or substantially all of the assets of
the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation or
winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series Preferred Stock, and shall cause to
be mailed to the holders of the Series Preferred Stock at their last addresses
as shown on the records of the Corporation or such transfer agent, at least ten
days prior to the record date specified in (A) below or twenty days before the
date specified in (B) below, a notice stating
(A) the record date of such dividend, distribution,
subdivision or combination,
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or, if a record is not to be taken, the date as of
which the holders of Common Stock of record to be
entitled to such dividend, distribution, subdivision
or combination are to be determined, or
(B) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is
expected to become effective, and the date as of which
it is expected that holders of Common Stock of record
shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon
such reclassification, consolidation, merger, sale,
dissolution or winding up.
5. Conversion Upon Certain Events.
------------------------------
(a) The Corporation may, at its option, require all (but not less than
all) the shares of Series A Preferred Stock then outstanding to be converted
automatically into shares of Common Stock, at the then current conversion rate,
if there shall be outstanding a number of shares of Series A Preferred Stock
equal to less than 50% of the total number of shares of Series A Preferred Stock
ever issued by the Corporation (subject to appropriate adjustment in the event
of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares).
(b) The Corporation may, at its option, require all (but not less than
all) the shares of Series B Preferred Stock then outstanding to be converted
automatically into shares of Common Stock, at the then current conversion rate,
if there shall be outstanding a number of shares of Series B Preferred Stock
equal to less than 50% of the total number of shares of Series B Preferred Stock
ever issued by the Corporation (subject to appropriate adjustment in the event
of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares).
(c) The Corporation may, at its option, require all (but not less than
all) the shares of Series D Preferred Stock then outstanding to be converted
automatically into shares of Common Stock, at the then current conversion rate,
if there shall be outstanding a number of shares of Series D Preferred Stock
equal to less than 50% of the total number of shares of Series D Preferred Stock
ever issued by the Corporation (subject to appropriate adjustment in the event
of any stock dividend, stock
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<PAGE> 33
split, combination or other similar recapitalization affecting such shares).
(d) The Corporation may, at its option, require all (but not less than
all) the shares of Series E Preferred Stock then outstanding to be converted
automatically into shares of Common Stock, at the then current conversion rate,
if there shall be outstanding a number of shares of Series E Preferred Stock
equal to less than 50% of the total number of shares of Series E Preferred Stock
ever issued by the Corporation (subject to appropriate adjustment in the event
of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares).
(e) The Corporation may, at its option, require all (but not less than
all) the shares of Series F Preferred Stock then outstanding to be converted
automatically into shares of Common Stock, at the then current conversion rate,
if there shall be outstanding a number of shares of Series F Preferred Stock
equal to less than 50 percent of the total number of shares of Series F
Preferred Stock ever issued by the Corporation (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares).
(f) All outstanding shares of each series of Series Preferred Stock
shall automatically be converted into shares of Common Stock at the then
applicable Conversion Price for such series simultaneously with the consummation
(the "Mandatory Conversion Date") of an underwritten public offering of Common
Stock of the Corporation pursuant to a registration statement filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
covering the offer and sale of Common Stock to the public in which (A) gross
proceeds to the Corporation from such sale (before deduction of underwriting
discounts and expenses of sale) are not less than $10,000,000 and (B) the per
share sale price to the public is at least equal to 100% the Series E Conversion
Price.
(g) All holders of record of shares of such series of Series Preferred
Stock will be given written notice of the date fixed and the place designated
for mandatory conversion of all of such shares of Series A Preferred Stock,
Series B Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or
Series F Preferred Stock, as the case may be, pursuant to this Section 5. Such
notice need not be given in advance of any date fixed for automatic conversion
pursuant to Subsections (a), (b), (c), (d) or (e) above or of any Mandatory
Conversion Date (collectively, a "Conversion Date"). Such notice will be sent by
first class or registered mail, postage prepaid, to each record holder of Series
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<PAGE> 34
Preferred Stock at such holder's address last shown on the records of the
transfer agent for the Series Preferred Stock (or the records of the Corporation
if it serves as its own transfer agent). Upon receipt of such notice, each
holder of shares of the Series Preferred Stock to be converted shall surrender
his or its certificate or certificates for all such shares to the Corporation at
the place designated in such notice, and shall thereafter receive certificates
for the number of shares of Common Stock to which such holder is entitled
pursuant to this Section 5. On the Conversion Date, all rights with respect to
the Series Preferred Stock so converted, including the rights, if any, to
receive notices and vote, will terminate, except only the rights of the holders
thereof, upon surrender of their certificate or certificates therefor, to
receive certificates for the number of shares of Common Stock into which such
Series Preferred Stock has been converted and payment of any declared but unpaid
dividends thereon. Certificates surrendered for conversion shall be endorsed or
accompanied by written instrument or instruments of transfer, in a form
satisfactory to the Corporation, duly executed by the registered holder or by
his or its attorney duly authorized in writing. As soon as practicable after any
Conversion Date, and the surrender of the certificate or certificates for Series
Preferred Stock to be converted, the Corporation shall cause to be issued and
delivered to such holder, or on his or its written order, a certificate or
certificates for the number of full shares of Common Stock issuable on such
conversion in accordance with the provisions hereof and cash as provided in
Subsection 4(b) in respect of any fraction of a share of Common Stock otherwise
issuable upon such conversion.
(h) All certificates evidencing shares of Series Preferred Stock which
are required to be surrendered for conversion in accordance with the provisions
hereof shall, from and after a Conversion Date with respect to such shares, be
deemed to have been retired and cancelled and the shares of Series Preferred
Stock represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. The Corporation may thereafter take such
appropriate action (without the need for stockholder action) as may be necessary
to reduce the authorized Series Preferred Stock accordingly.
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<PAGE> 35
IN WITNESS WHEREOF, Ascent Pediatrics, Inc. has caused the certificate to
be signed, under penalties of perjury, by Alan Fox, its President, and attested
to by John G. Bernardi, its Vice President of Finance and Assistant Secretary,
this 3rd day of February 1997.
ASCENT PEDIATRICS, INC.
By: /s/ Alan R. Fox
-------------------------
Alan R. Fox
President
Attest:
/s/ John G. Bernardi
- --------------------
John G. Bernardi
Vice President of Finance and
Assistant Secretary
[Seal]
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<PAGE> 1
Exhibit 3.4
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ASCENT PEDIATRICS, INC.
Pursuant to Section 242 of the
General Corporation Law of the State of Delaware
------------------------------------------------
ASCENT PEDIATRICS, INC. (hereinafter called the "Corporation"), a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, does hereby certify as follows:
At a meeting of the Board of Directors of the Corporation, a resolution was
duly adopted, pursuant to Section 242 of the General Corporation Law of the
State of Delaware, setting forth amendments to the Amended and Restated
Certificate of Incorporation of the Corporation and declaring said amendments to
be advisable. The stockholders of the Corporation duly approved said proposed
amendments by written consent in accordance with Sections 228 and 242 of the
General Corporation Law of the State of Delaware, and written notice of such
consent has been given to all stockholders who have not consented in writing to
said amendments. The resolution setting forth the amendments is as follows:
RESOLVED: That the first paragraph of Article FOURTH of the Amended and
- -------- Restated Certificate of Incorporation of the Corporation, as
amended, be and hereby is deleted in its entirety and the
following paragraphs are inserted in lieu thereof:
<PAGE> 2
"FOURTH. That upon the filing date of this Certificate of
Amendment of this Restated Certificate of Incorporation, filed
with the Secretary of State of Delaware on ______, 1997 (the
"Effective Date"), a 0.85-for-1 reverse stock split of the
Corporation's Common Stock shall become effective, pursuant to
which each share of Common Stock outstanding and held of record
by each stockholder of the Corporation (including treasury
shares) immediately prior to the Effective Date shall represent
0.85 shares of Common Stock from and after the Effective Date.
The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is (i) Sixty
Million (60,000,000) shares of Common Stock, $.00004 par value
per share ("Common Stock"), and (ii) Six Million One Hundred
Twenty Thousand One Hundred Three (6,120,103) shares of Preferred
Stock, $.00004 par value per share ("Preferred Stock"), of which
Eight Hundred Thousand (800,000) shares shall be designated the
"Series A Convertible Preferred Stock" (the "Series A Senior
Preferred Stock"), Three Hundred Ninety-Nine Thousand Nine
Hundred Ninety Nine (399,999) shares shall be designated "Series
B Convertible Preferred Stock" (the "Series B Preferred Stock"),
One Million Three Hundred Ninety-Nine Thousand Five Hundred
Eighty-Nine (1,399,589) shares shall be designated "Series D
Convertible Preferred Stock" (the "Series D Preferred Stock"),
One Million One Hundred Sixty-Six Thousand Six Hundred
Sixty-Seven (1,166,667) shares shall be designated "Series E
Convertible Preferred Stock" (the "Series E Preferred Stock"),
Two Million Three Hundred Fifty-Three Thousand Eight Hundred
Forty-Eight (2,353,848) shares shall be designated "Series F
Convertible Preferred Stock" (the "Series F Preferred Stock") and
the balance of which may be issued from time to time in one or
more series as set forth in Part B of this Article FOURTH."
<PAGE> 3
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its President
this _____ day of __________, 1997.
ASCENT PEDIATRICS, INC.
By:
---------------------------------
President
<PAGE> 1
Exhibit 3.5
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ASCENT PEDIATRICS, INC.
Ascent Pediatrics, Inc., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, does hereby
certify as follows:
1. The name of the corporation is Ascent Pediatrics, Inc. The
corporation was originally incorporated on March 16, 1989.
2. This Amended and Restated Certificate of Incorporation restates and
integrates and further amends the Restated Certificate of Incorporation of the
Corporation, was duly adopted in accordance with the provisions of Section 242
and 245 of the General Corporation Law, and was approved by written consent of
the stockholders of the Corporation given in accordance with the provisions of
Section 228 of the General Corporation Law (prompt notice of such action having
been given to those stockholders who did not consent in writing). The resolution
setting forth the Amended and Restated Certificate of Incorporation is as
follows:
RESOLVED: That the Restated Certificate of Incorporation of the Corporation, as
amended, be and hereby is amended and restated in its entirety so that the same
shall read as follows:
FIRST. The name of the Corporation is:
Ascent Pediatrics, Inc.
SECOND. The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or
promoted by the Corporation is as follows:
<PAGE> 2
To engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is Sixty Million (60,000,000) shares
of Common Stock, $.00004 par value per share ("Common Stock"), and (ii) Five
Million (5,000,000) shares of Preferred Stock, $.01 par value per share
("Preferred Stock"), which may be issued from time to time in one or more series
as set forth in Part B of this Articles FOURTH.
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
1. General. The voting, dividend and liquidation rights of the holders
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. Dividends. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or
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<PAGE> 3
acquired by the Corporation may be reissued except as otherwise provided by law.
Different series of Preferred Stock shall not be construed to constitute
different classes of shares for the purposes of voting by classes unless
expressly provided.
Authority is hereby expressly granted to the Board of Directors from
time to time to issue the Preferred Stock in one or more series, and in
connection with the creation of any such series, by resolution or resolutions
providing for the issue of the shares thereof, to determine and fix such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including without
limitation thereof, dividend rights, conversion rights, redemption privileges
and liquidation preferences, as shall be stated and expressed in such
resolutions, all to the full extent now or hereafter permitted by the General
Corporation Law of Delaware. Without limiting the generality of the foregoing,
the resolutions providing for issuance of any series of Preferred Stock may
provide that such series shall be superior or rank equally or be junior to the
Preferred Stock of any other series to the extent permitted by law. Except as
otherwise specifically provided in this Certificate of Incorporation, no vote of
the holders of the Preferred Stock or Common Stock shall be a prerequisite to
the issuance of any shares of any series of the Preferred Stock authorized by
and complying with the conditions of the Certificate of Incorporation, the right
to have such vote being expressly waived by all present and future holders of
the capital stock of the Corporation.
FIFTH. The name and mailing address of the sole incorporator are as
follows:
NAME MAILING ADDRESS
---- ---------------
David A. Westenburg c/o Hale and Dorr
60 State Street
Boston, MA 02109
SIXTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt,
amend or repeal the By-Laws of the Corporation.
SEVENTH. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
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<PAGE> 4
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any promise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
EIGHTH. Except to the extent that the General Corporation Law of the
State of Delaware prohibits the elimination or limitation of liability of
directors for breaches of fiduciary duty, no director of the Corporation shall
be personally liable to the Corporation or its stockholders for monetary damages
for any breach of fiduciary duty as a director, notwithstanding any provision of
law imposing such liability. No amendment to or repeal of this provision shall
apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
NINTH. 1. Action, Suits and Proceedings Other than by or in the Right
of the Corporation. The Corporation shall indemnify each person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees) judgment, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. Notwithstanding
anything to the contrary in this Article, except as set forth in Section 6
below, the Corporation shall not indemnify an Indemnitee seeking indemnification
in connection with a proceeding (or part thereof) initiated by the Indemnitee
unless the initiation thereof was approved by the Board of Directors of the
Corporation.
-4-
<PAGE> 5
2. Actions or Suits by or in the Right of the Corporation. The
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses (including attorneys' fees)
which the Court of Chancery of Delaware or such other court shall deem proper.
3. Indemnification for Expenses of Successful Party. Notwithstanding
the other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an
adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of
guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the
Indemnitee did not act in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.
4. Notification and Defense of Claim. As a condition precedent to his
right to be indemnified, the Indemnitee must notify the Corporation in writing
as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 4. The Indemnitee shall have the
right to employ his own counsel
-5-
<PAGE> 6
in connection with such claim, but the fees and expenses of such counsel
incurred after notice from the Corporation of its assumption of the defense
thereof shall be at the expense of the Indemnitee unless (i) the employment of
counsel by the Indemnitee has been authorized by the Corporation, (ii) counsel
to the Indemnitee shall have reasonably concluded that there may be a conflict
of interest or position on any significant issue between the Corporation and the
Indemnitee in the conduct of the defense of such action or (iii) the Corporation
shall not in fact have employed counsel to assume the defense of such action, in
each of which cases the fees and expenses of counsel for the Indemnitee shall be
at the expense of the Corporation, except as otherwise expressly provided by
this Article. The Corporation shall not be entitled, without the consent of the
Indemnitee, to assume the defense of any claim brought by or in the right of the
Corporation or as to which counsel for the Indemnitee shall have reasonably made
the conclusion provided for in clause (ii) above.
5. Advance of Expenses. Subject to the provisions of Section 6 below,
in the event that the Corporation does not assume the defense pursuant to
Section 4 of this Article of any action, suit, proceeding or investigation of
which the Corporation receives notice under this Article, any expenses
(including attorneys' fees) incurred by an Indemnitee in defending a civil or
criminal action, suit, proceeding or investigation or any appeal therefrom shall
be paid by the Corporation in advance of the final disposition of such matter,
provided, however, that the payment of such expense incurred by an Indemnitee in
advance of the final disposition of such matter shall be made only upon receipt
of an undertaking by or on behalf of the Indemnitee to repay all amounts so
advanced in the event that it shall ultimately be determined that the Indemnitee
is not entitled to be indemnified by the Corporation as authorized in this
Article. Such undertaking may be accepted without reference to the financial
ability of such person to make such repayment.
6. Procedure for Indemnification. In order to obtain indemnification or
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines, by clear and convincing evidence, within such 60-day
period that the Indemnitee did not meet the applicable standard of conduct set
forth in Section 1 or 2, as the case may be. Such determination shall be made in
each instance by (a) a majority vote of a quorum of the directors of the
Corporation consisting of persons who are not at that time parties to the
action, suit or proceeding in question ("disinterested directors'), (b) if no
such quorum is obtainable, a majority vote of a committee of two or more
disinterested directors, (c) a majority vote of a quorum of the outstanding
shares of stock of all classes entitled to vote for directors, voting as a
single class, which quorum shall consist of stockholders who are not at that
time parties to the action, suit or proceeding in question, (d) independent
legal counsel (who may be regular legal counsel to the Corporation), or (e) a
court of competent jurisdiction.
-6-
<PAGE> 7
7. Remedies. The right to indemnification or advances as granted by
this Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise provided by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advanced of expenses under this
Article shall be on the Corporation. Neither the failure of the Corporation to
have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct, nor an actual determination by the
Corporation pursuant to Section 6 that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the Indemnitee has not met the applicable standard of conduct.
The Indemnitee's expenses (including attorneys' fees) incurred in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such proceeding shall also be indemnified by the Corporation.
8. Subsequent Amendment. No amendment, termination or repeal of this
Article or of the relevant provisions of the General Corporation Law of Delaware
or any other applicable laws shall affect or diminish in any way the rights of
any Indemnitee to indemnification under the provisions hereof with respect to
any action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
9. Other Rights. The indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in any other capacity while holding office for the
Corporation, and shall continue as to an Indemnitee who has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of the Indemnitee. Nothing contained in this
Article shall be deemed to prohibit, and the Corporation is specifically
authorized to enter into, agreements with officers and directors providing
indemnification rights and procedures different from those set forth in this
Article. In addition, the Corporation may, to the extent authorized from time to
time by its Board of Directors, grant indemnification rights to other employees
or agents of the Corporation or other persons serving the Corporation and such
rights may be equivalent to, or greater or less than, those set forth in this
Article.
10. Partial Indemnification. If an Indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal,
therefrom but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
-7-
<PAGE> 8
11. Insurance. The Corporation may purchase and maintain insurance, at
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) against any expense,
liability or loss incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
such person against such expense, liability or loss under the General
Corporation law of Delaware.
12. Merger or Consolidation. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
13. Savings Clause. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees) judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
14. Definitions. Terms used herein and defined in Section 145(h) and
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
15. Subsequent Legislation. If the General Corporation Law of Delaware
is amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the Corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
TENTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate of Incorporation, in
the manner now or hereafter prescribed by statute and this Restated Certificate
of Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
ELEVENTH. This Article is inserted for the management of the business
and for the conduct of the affairs of the Corporation.
1. Number of Directors. The number of directors of the Corporation
shall not be less than three. The exact number of directors within the
limitations specified in the preceding sentence shall be fixed from time to time
by, or in the manner provided in, the Corporation's By-Laws.
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2. Classes of Directors. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class II, and if such fraction is two-thirds, one of the extra directors shall
be a member of Class I and one of the extra directors shall be a member of Class
II, unless otherwise provided from time to time by resolution adopted by the
Board of Directors.
3. Election of Directors. Elections of directors need not be by written
ballot except as and to the extent provided in the By-Laws of the Corporation.
4. Terms of Office. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; provided, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting in 1998; each initial
director in Class II shall serve for a term ending on the date of the annual
meeting in 1999; and each initial director in Class III shall serve for a term
ending on the date of the annual meeting in 2000; and provided further, that the
term of each director shall be subject to the election and qualification of his
successor and to his earlier death, resignation or removal.
5. Allocation of Directors Among Classes in the Event of Increases or
Decreases in the Number of Directors. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
and (ii) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
6. Quorum; Action at Meeting. A majority of the directors at any time
in office shall constitute a quorum for the transaction of business. In the
event one or more of the directors shall be disqualified to vote at any meeting,
then the required quorum shall be reduced by one for each director so
disqualified, provided that in no case shall less than one-third of the number
of directors fixed pursuant to Section 1 above constitute a quorum. If at any
meeting of the Board of Directors there shall be less than such a quorum, a
majority of those present may adjourn the meeting from time to time. Every act
or decision done or made by a majority of the directors present at a meeting
duly held at which a quorum is present shall be regarded as the act of the Board
of Directors unless a greater number is required by law, by the By-Laws of the
Corporation or by this Restated Certificate of Incorporation.
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7. Removal. Directors of the Corporation may be removed only for cause
by the affirmative vote of the holders of at least two-thirds of the shares of
the capital stock of the Corporation issued and outstanding and entitled to
vote.
8. Vacancies. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the board, shall be filled
only by a vote of a majority of the directors then in office, although less than
a quorum, or by a sole remaining director. A director elected to fill a vacancy
shall be elected to hold office until the next election of the class for which
such director shall have been chosen, subject to the election and qualification
of his successor and to his earlier death, resignation or removal.
9. Stockholder Nominations and Introduction of Business, Etc. Advance
notice of stockholder nominations for election of directors and other business
to be brought by stockholders before a meeting of stockholders shall be given in
the manner provided by the By-Laws of the Corporation.
10. Amendments to Article. Notwithstanding any other provisions of law,
this Amended and Restated Certificate of Incorporation or the By-Laws of the
Corporation, each as amended, and notwithstanding the fact that a lesser
percentage may be specified by law, the affirmative vote of the holders of at
least seventy-five percent (75%) of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Article
ELEVENTH.
TWELFTH. Stockholders of the Corporation may not take any action by
written consent in lieu of a meeting. Notwithstanding any other provisions of
law, the Amended and Restated Certificate of Incorporation or the By-Laws of the
Corporation, each as amended, and notwithstanding the fact that a lesser
percentage may be specified by law, the affirmative vote of the holders of at
least seventy-five percent (75%) of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Article
TWELFTH.
THIRTEENTH. Special meetings of stockholders may be called at any time
by only the President or the Board of Directors. Business transacted at any
special meeting of stockholders shall be limited to matters relating to the
purpose or purposes stated in the notice of meeting. Notwithstanding any other
provision of law, this Amended and Restated Certificate of Incorporation or the
By-Laws of the Corporation, each as amended, and notwithstanding the fact that a
lesser percentage may be specified by law, the affirmative vote of the holders
of at least seventy-five percent (75%) of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote shall be required to
amend or repeal, or to adopt any provision inconsistent with this Article
THIRTEENTH.
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IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Amended and Restated Certificate of Incorporation to be
signed by its President this _____ day of __________, 1997.
ASCENT PEDIATRICS, INC.
By:______________________________
President
[Corporate Seal]
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Exhibit 3.6
AMENDED AND RESTATED BY-LAWS
OF
ASCENT PEDIATRICS, INC.
ARTICLE I. - Stockholders
1. Place of Meetings. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of directors or the President or, if not so
designated, at the registered office of the corporation.
2. Annual Meeting. The annual meeting of stockholders for the election
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held within six months after the end of each
fiscal year of the corporation on a date to be fixed by the Board of Directors
or the President (which sate shall not be a legal holiday in the place where the
meeting is to be held) at the time and place to be fixed by the Board of
Directors or the President and stated in the notice of the meeting. If no annual
meeting is held in accordance with the foregoing provisions, the Board of
Directors shall cause the meeting to be held as soon thereafter as convenient.
If no annual meeting is held in accordance with the foregoing provisions, a
special meeting may be held in lieu of the annual meeting, and any action taken
at that special meeting shall have the same effect as if it had been taken at
the annual meeting, and in such case all references in these By-Laws to the
annual meeting of the stockholders shall be deemed to refer to such special
meeting.
3. Special Meetings. Special meetings of stockholders may be called at
any time by the President or by the Board of Directors. Business transacted at
any special meeting of stockholders shall be limited to matters relating to the
purpose or purposes stated in the notice of meeting.
4. Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 no more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his or her address as it appears
on the records of the corporation.
5. Voting List. The Officer who has charge of the stock ledger of the
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
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Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the city where the meeting is to
be held. The list shall also be produced and kept at the time and place of the
meeting during the hole time of the meeting, and may be inspected by any
stockholder who is present.
6. Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
7. Adjournments. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
8. Voting and Proxies. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to vote
at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may vote or express such consent or dissent
in person or may authorize another person or persons to vote or act for him or
her by written proxy executed by the stockholder or his or her authorized agent
and delivered to the Secretary of the corporation. No such proxy shall be voted
or acted upon after three years from the date of its execution, unless the proxy
expressly provides for a longer period.
9. Action at Meeting. When a quorum is present at any meeting, the
holders of a majority of the stock present or represented and voting on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of a majority of the
stock of that class present or represented and voting on a matter) shall decide
any matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express provision of law, the Certificate of
Incorporation or these By-Laws. Any election by stockholders shall be determined
by a plurality of the votes cast by the stockholders entitled to vote at the
election.
10. Nomination of Directors. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors. Nomination for election to the Board of Directors of the corporation
at a meeting of stockholders may be made by the Board of Directors or by any
stockholder of the corporation entitled to vote for the election of directors
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at such meeting who complies with the notice procedures set forth in this
Section 10. Such nominations, other than those made by or on behalf of the Board
of Directors, shall be made by notice in writing delivered or mailed by first
class United States mail, postage prepaid, to the Secretary, and received not
less than 60 days nor more than 90 days prior to such meeting; provided,
however, that if less than 70 days' notice or prior public disclosure of the
date of the meeting is given to stockholders, such nomination shall have been
mailed or delivered to the Secretary not later than the close of business on the
10th day following the date on which the notice of the meeting was mailed or
such public disclosure was made, whichever occurs first. Such notice shall set
forth (a) as to each proposed nominee (i) the name, age, business address and,
if known, residence address of each such nominee, (ii) the principal occupation
or employment of each such nominee, (iii) the number of shares of stock of the
corporation which are beneficially owned by each such nominee, and (iv) any
other information concerning the nominee that must be disclosed as to nominees
in proxy solicitations pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including such person's written consent to be named as
a nominee and to serve as a director if elected); and (b) as to the stockholder
giving the notice (i) the name and address, as they appear on the corporation's
books, of such stockholder and (ii) the class and number of shares of the
corporation which are beneficially owned by such stockholder. The corporation
may require any proposed nominee to furnish such other information as may
reasonably be required by the corporation to determine the eligibility of such
proposed nominee to serve as a director of the corporation.
The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
11. Notice of Business at Annual Meetings. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or (c) otherwise properly brought before an annual meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, if such business relates to the election of directors of the
corporation, the procedures in Section 10 of Article I must be complied with. If
such business relates to any other matter, the stockholder must have given
timely notice thereof in writing to the Secretary. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the corporation not less than 60 days nor more than 90 days prior to
the meeting; provided, however, that in the event that less than 70 days' notice
or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the date on which
such notice of the date of the meeting was mailed or such public disclosure was
made, whichever occurs first. A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting (a) a brief description of the business desired to be brought before the
annual
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meeting and the reasons for conducting such business at the annual meeting, (b)
the name and address, as they appear on the corporation's books, of the
stockholder proposing such business, (c) the class and number of shares of the
corporation which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business. Notwithstanding anything
in these By-Laws to the contrary, no business shall be conducted at any annual
meeting except in accordance with the procedures set forth in this Section 11
and except that any stockholder proposal which complies with Rule 14a-8 of the
proxy rules (or any successor provision) promulgated under the Securities
Exchange Act of 1934, as amended, and is to be included in the corporation's
proxy statement for an annual meeting of stockholders shall be deemed to comply
with the requirements of this Section 11.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 11, and if he should so
determine, the chairman shall so declare to the meeting that any such business
not properly brought before the meeting shall not be transacted.
12. Action without Meeting. Stockholders may not take any action by
written consent in lieu of a meeting.
13. Organization. President shall call meetings of the stockholders to
order, and shall act as chairman of such meeting, provided, however, that the
Board of Directors may appoint any stockholder to act as chairman of any meeting
in the absence of the President. The Secretary of the corporation shall act as
secretary at all meetings of the stockholders; but in the absence of the
Secretary at any meeting of the stockholders, the presiding officer may appoint
any person to act as secretary of the meeting.
ARTICLE II. - Directors
1. General Powers. The business and affairs of the corporation shall be
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
2. Number; Election and Qualification. The number of directors which
shall constitute the whole Board of Directors shall be determined by resolution
of the stockholders or the Board of Directors, but in no event shall be less
than one. The number of directors may be decreased at any time and from time to
time either by the stockholders or by a majority of the directors then in
office, but only to eliminate vacancies existing by reason of the death,
resignation, removal or expiration of the term of one or more directors. The
directors shall be elected at the annual meeting of stockholders by such
stockholders as have the right to vote on such election. Directors need not be
stockholders of the corporation.
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3. Classes of Directors. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class I, and if such fraction is two-thirds, one of the extra directors shall be
a member of Class II, unless otherwise provided from time to time by resolution
adopted by the Board of Directors.
4. Terms of Office. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected: provided, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting of stockholders in
1998; and each initial director in Class II shall serve for a term ending on the
date of the annual meeting of stockholders in 1999 and that each initial
director in Class III shall serve for a term ending on the date of the annual
meeting of stockholders in 2000; and provided further, that the term of each
director shall be subject to the election and qualification of his or her
successor and to his or her earlier death, resignation or removal.
5. Allocation of Directors Among Classes in the Event of Increases or
Decreases in the Number of Directors. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
and (ii) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
6. Vacancies. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the Board, shall be filled
only by vote of a majority of the directors then in office, although less than a
quorum, or by a sole remaining director. A director elected to fill a vacancy
shall be elected for the unexpired term of his or her predecessor in office, and
a director chosen to fill a position resulting from an increase in the number of
directors shall hold office until the next election of the class for which such
director shall have been chosen, subject to the election and qualification of
his or her successor and to his or her earlier death, resignation or removal.
7. Resignation. Any director may resign by delivering his or her
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
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8. Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
9. Special Meetings. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
10. Notice of Special Meetings. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 48 hours in advance of the meeting, (ii) by sending a telegram or telex,
or delivering written notice by hand, to his last known business or home address
at least 48 hours in advance of the meeting, or (iii) by mailing written notice
to his or her last known business or home address at least 72 hours in advance
of the meeting. A notice or waiver of notice of a meeting of the Board of
Directors need not specify the purposes of the meeting.
11. Meetings by Telephone Conference Calls. Directors or any members of
any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
12. Quorum. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
13. Action at Meeting. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these By-Laws.
14. Action by Consent. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
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15. Removal. Directors of the corporation may be removed only for cause
by the affirmative vote of the holders of two-thirds of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote.
16. Committees. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the corporation
and may authorize the seal of the corporation to be affixed to all papers which
may require it. Each such committee shall keep minutes and make such reports as
the Board of Directors may from time to time request. Except as the Board of
Directors may otherwise determine, any committee may make rules for the conduct
of its business, but unless otherwise provided by he directors or in such rules,
its business shall be conducted as nearly as possible in the same manner as is
provided in these By-Laws for the Board of Directors.
17. Compensation of Directors. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE III. - Officers
1. Enumeration. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice-Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
2. Election. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3. Qualification. No officer need be a stockholder. Any two or more
offices may be held by the same person.
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4. Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, each officer shall hold office until his or
her successor is elected and qualified, unless a different term is specified in
the vote choosing or appointing him or her, or until his or her earlier death,
resignation or removal.
5. Resignation and Removal. Any officer may resign by delivering his or
her written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any officer may be removed at any time, with or without cause, by vote
of a majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer
who resigns or is removed shall have any right to any compensation as an officer
for any period following his or her resignation or removal, or any right to
damages on account of such removal, whether his or her compensation be by the
month or by the year or otherwise, unless such compensation is expressly
provided in a duly authorized written agreement with the corporation.
6. Vacancies. The Board of Directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his or her predecessor and until his or her successor is elected and qualified,
or until his or her earlier death, resignation or removal.
7. Chairman of the Board and Vice-Chairman of the Board. The Board of
Directors may appoint a Chairman of the Board and may designate the Chairman of
the Board as Chief Executive Officer. If the Board of Directors appoints a
Chairman of the Board, he shall perform such duties and possess such powers as
are assigned to him by the Board of Directors. If the Board of Directors
appoints a Vice-Chairman of the Board, he shall, in the absence or disability of
the Chairman of the Board, perform the duties and exercise the powers of the
Chairman of the Board and shall perform such other duties and possess such other
powers as may from time to time be vested in him by the Board of Directors.
8. President. The President shall, subject to the direction of the
Board of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders, if he is a director, at all
meetings of the Board of Directors. Unless the Board of Directors has designated
the Chairman of the Board or another officer as Chief Executive Officer, the
President shall be the Chief Executive Officer of the corporation. The President
shall perform such other duties and shall have such other powers as the Board of
Directors may form time to time prescribe.
9. Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event
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of the absence, inability or refusal to act of the President, the Vice President
(or if there shall be more than one, the Vice Presidents in the order determined
by the Board of Directors) shall perform the duties of the President and when so
performing shall have all the powers of and be subject to all the restrictions
upon the President. The Board of Directors may assign to any Vice President the
title of Executive Vice President, Senior Vice President or any other title
selected by the Board of Directors.
10. Secretary and Assistant Secretaries. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of the
secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors, to
attend all meetings of stockholders and the Board of Directors and keep a record
of the proceedings, to maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Secretary, the Assistant Secretary, (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
11. Treasurer and Assistant Treasurers. The Treasurer shall perform
such duties and shall have such powers as may from time to time be assigned to
him by the Board of Directors or the President. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories selected in accordance with these By-Laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the President or the Treasurer may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Treasurer, the Assistant Treasurer, (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
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12. Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
Article IV. - Capital Stock
1. Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
2. Certificates of Stock. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him in the corporation. Each such certificate shall be signed by, or in
the name of the corporation by, the Chairman or Vice-Chairman, if any, of the
Board of Directors, of the President or a Vice President, and the Treasurer or
any Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction or transfer pursuant to the Certificate of Incorporation, the
By-Laws, applicable securities laws or any agreement among any number of
shareholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
3. Transfers. Except as otherwise established by rules and regulation
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender of the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-Laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the corporation in
accordance with the requirement of these By-Laws.
4. Lost, Stolen or Destroyed Certificates. The corporation may issue a
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such
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indemnity as the Board of Directors may require for the protection of the
corporation or any transfer agent or registrar.
5. Record Date. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day before the day on which notice is given,
or, if notice is waived, at the close of business on the day before the day on
which the meeting is held. The record date for determining stockholders entitled
to express consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is necessary, shall be the day on which
the first written consent is expressed. The record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution to such purpose.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE V. - General Provisions
1. Fiscal Year. Except as from time to time otherwise designated by the
Board of Directors, the fiscal year of the corporation shall begin on the first
day of January of each year and end on the last day of December in each year.
2. Corporate Seal. The corporate seal shall be in such form as shall be
approved by the Board of Directors.
3. Waiver of Notice. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
4. Voting of Securities. Except as the directors may otherwise
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at, any
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<PAGE> 12
meeting of stockholders or shareholders of any other corporation or
organization, the securities of which may be held by this corporation.
5. Evidence of Authority. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
6. Certificate of Incorporation. All references in these By-Laws to the
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
7. Transactions with Interested Parties. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, associations, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his, her or their votes are counted for such purpose, if:
a. The material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed or are
known to the Board of Directors or the committee, and the Board or
committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum;
b. The material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed or are
known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the
stockholders; or
c. The contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
8. Severability. Any determination that any provision of these By-Laws
is for any reason inapplicable, illegal or insufficient shall not affect or
invalidate any other provision of these By-Laws.
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9. Pronouns. All pronouns used in these By-Laws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
ARTICLE VI. - Amendments
1. By the Board of Directors. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
2. By the Stockholder. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of the holders of
a majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
3. Certain Provisions. Notwithstanding any other provision of law, the
Certificate of Incorporation or these By-Laws, and notwithstanding the fact that
a lesser percentage may be specified by law, the affirmative vote of the holders
of at least seventy-five percent (75%) of the shares of the capital stock of the
corporation issued and outstanding and entitled to vote shall be required to
amend or repeal, or to adopt any provisions inconsistent with Sections 3, 10,
11, 12 or 13 of Article I, Article II or Article VI of these By-Laws.
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Exhibit 10.1
ASCENT PEDIATRICS, INC.
1992 EQUITY INCENTIVE PLAN
Amended and Restated as of March 7, 1997
1. Purpose.
The purpose of this plan (the "Plan") is to secure for Ascent Pediatrics,
Inc. (the "Company") and its shareholders the benefits arising from capital
stock ownership by employees, officers and employee directors of, and
consultants or advisors to, the Company who are expected to contribute to the
Company's future growth and success. Except where the context otherwise
requires, the term "Company" shall include all present and future subsidiaries
of the Company as defined in Sections 424(e) and 424(f) of the Internal Revenue
Code of 1986, as amended or replaced from time to time (the "Code"). Those
provisions of the Plan which make express reference to Section 422 shall apply
only to the Incentive Stock Options (as that term is defined in the Plan).
2. Type of Options and Awards; Administration.
(a) Types of Options and Awards. Options granted pursuant to the Plan may be
either incentive stock options ("Incentive Stock Options") meeting the
requirements of Section 422 of the Code or non-statutory options which are not
intended to meet the requirements of Section 422 of the Code. Awards granted
pursuant to the Plan shall meet the requirements of Section 13 of the Plan.
(b) Administration. The Plan will be administered by the Board of Directors
of the Company, whose construction and interpretation of the terms and
provisions of the Plan shall be final and conclusive. The Board of Directors may
in its sole discretion (i) grant options to purchase shares of the Company's
Common Stock, $.00004 par value ("Common Stock"), and issue shares upon exercise
of such options as provided in the Plan and (ii) make awards for the purchase of
shares of Common Stock pursuant to Section 13 of the Plan. The Board shall have
authority, subject to the express provisions of the Plan, to construe the
respective option agreements, awards and the Plan, to prescribe, amend and
rescind rules and regulations relating to the Plan, to determine the terms and
provisions of the respective option agreements and awards, which need not be
identical, and to make all other determinations in the judgment of the Board of
Directors necessary or desirable for the administration of the Plan. The Board
of Directors may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any option agreement or award in the manner and
to the extent it shall deem expedient to carry the Plan into effect and it shall
be the sole and final judge of such expediency. No director or person acting
pursuant to authority delegated by the Board of Directors shall be liable for
any action or determination made in good faith. The Board of Directors may, to
the full extent permitted by or consistent with applicable laws or regulations,
(i) delegate any or all of its powers under the Plan to a committee or
subcommittee (the "Committee") appointed by the
<PAGE> 2
Board of Directors, and (ii) delegate to one or more executive officers of the
Company the power to grant options and made awards and exercise such other
powers under the Plan as the Board may determine, provided that the Board shall
fix the maximum number of shares subject to options and awards and the maximum
number of shares for any one Participant to be made by such executive officers.
All references in the Plan to the "Board" shall mean a Committee or the Board or
an executive officer to the extent that the Board's powers or authority under
the Plan have been delegated to such Committee or executive officer.
(c) Applicability of Rule 16b-3. Those provisions of the Plan which may
express reference to Rule 16b-3 promulgated under the Securities Exchange Act of
1934 (the "Exchange Act") or any successor rule ("Rule 16b-3") shall apply only
to such persons as are required to file reports under Section 16(a) of the
Exchange Act (a "Reporting Person").
3. Eligibility. Options and awards may be granted or made to persons who are, at
the time of grant, employees, officers or directors (so long as such key
directors are also employees) of, or consultants or advisors to, the Company;
provided, that the class of persons to whom Incentive Stock Options may be
granted shall be limited to all employees of the Company. A person who has
been granted an option or award may, if he or she is otherwise eligible, be
granted additional options or awards if the Board of Directors shall so
determine.
4. Stock Subject to Plan.
(a) Subject to adjustment as provided in Section 16 below, the maximum number
of shares of Common Stock of the Company which may be issued and sold under the
Plan is 1,350,000 shares. If an option or award granted under the Plan shall
expire or terminate for any reason without having been exercised in full, the
unpurchased shares subject to such option or award shall again be available for
subsequent option grants or awards under the Plan. If shares issued upon
exercise of an option or award under the Plan are tendered to the Company in
payment of the exercise price of an option or award granted under the Plan, such
tendered shares shall again be available for subsequent option grants or awards
under the Plan; provided, that in no event shall the total number of shares
issued pursuant to the exercise of Incentive Stock Options under the Plan, on a
cumulative basis, exceed the maximum number of shares authorized for issuance
under the Plan exclusive of shares made available for issuance pursuant to this
sentence.
(b) Per-Participant Limit. Subject to adjustment under Section 16, for
options or awards granted after the Common Stock is registered under the
Exchange Act, the maximum number of shares with respect to which options or
awards may be granted to any Participant under the Plan shall be 500,000 per
calendar year. The Per-Participant limit described in this Section 4(b) shall be
construed and applied consistently with Section 162(m) of the Code.
5. Forms of Option Agreements.
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As a condition to the grant of an option under the Plan, each recipient of an
option shall execute an option agreement in such form not inconsistent with the
Plan as may be approved by the Board of Directors. Such option agreements may
differ among recipients.
6. Purchase Price Upon Exercise of Options.
(a) General. The purchase price per share of stock deliverable upon the
exercise of an option shall be determined by the Board of Directors (but in no
event shall be less than the par value thereof), provided, however, that in the
case of an Incentive Stock Option, the exercise price shall not be less than
100% of the fair market value of such stock, as determined by the Board of
Directors, at the time of grant of such option, or less than 110% of such fair
market value in the case of options described in Section 11(b).
(b) Payment of Purchase Price. Options granted under the Plan may provide for
the payment of the exercise price by delivery of cash or a check to the order of
the Company in an amount equal to the exercise price of such options, or, to the
extent provided in the applicable option agreements, (i) by delivery to the
Company of shares of Common Stock of the Company already owned by the optionee
having a fair market value equal in amount to the exercise price of the options
being exercised, (ii) by any other means (including, without limitation, by
delivery of a promissory note of the optionee payable on such terms as are
specified by the Board of Directors) which the Board of Directors determines are
consistent with the purpose of the Plan and with applicable laws and regulations
(including, without limitation, the provisions of Rule 16b-3 and Regulation T
promulgated by the Federal Reserve Board) or (iii) by any combination of such
methods of payment. The fair market value of any shares of the Company's Common
Stock or other non-cash consideration which may be delivered upon exercise of an
option shall be determined in such manner as may be prescribed by the Board of
Directors.
7. Option Period.
Each option and all rights thereunder shall expire on such date as shall be
set forth in the applicable option agreement, except that such date, in the case
of an Incentive Stock Option, shall in no case be later than ten years after the
date on which the option is granted and, in all cases, options shall be subject
to earlier termination as provided in the Plan.
8. Exercise of Options.
Each option granted under the Plan shall be exercisable either in full or in
installments at such time or times and during such period as shall be set forth
in the agreement evidencing such option, subject to the provisions of the Plan.
9. Nontransferability of Options.
Except as the Board of Directors may otherwise determine or provide in an
option, options shall not be assignable or transferable by the person to whom it
is granted, either
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voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the life of the optionee, shall be exercisable only by
the optionee; provided, however, that non-statutory options may be transferred
pursuant to the qualified domestic relations order (as defined in Rule 16b-3).
10. Effect of Termination of Employment or Other Relationship.
Except as provided in Section 11(d) with respect to Incentive Stock Options,
and subject to the provisions of the Plan, the Board of Directors shall
determine the period of time during which an optionee may exercise an option
following (i) the termination of the optionee's employment or other relationship
with the Company or (ii) the death or disability of the optionee. Such periods
shall be set forth in the agreement evidencing such option.
11. Incentive Stock Options.
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(a) Express Designation. All Incentive Stock Options granted under the Plan
shall, at the time of grant, be specifically designated as such in the option
agreement covering such Incentive Stock Options.
(b) 10% Shareholder. If any employee to whom an Incentive Stock Option is to
be granted under the Plan is, at the time of the grant of such option, the owner
of stock possessing more that 10% of the total combined voting power of all
classes of stock of the Company (after taking into account the attribution of
stock ownership rules of Section 424(d) of the Code), then the following special
provisions shall be applicable to the Incentive Stock Option granted to such
individual:
(i) The purchase price per share of the Common Stock subject to such
Incentive Stock Option shall not be less than 110% of the fair market value
of one share of Common Stock at the time of grant; and
(ii) The option exercise period shall not exceed five years from the date
of grant.
(c) Dollar Limitation. For so long as the Code shall so provide, options
granted to any employee under the Plan (and any other incentive stock option
plans of the Company) which are intended to constitute Incentive Stock Options
shall not constitute Incentive Stock Options to the extent that such options, in
the aggregate, become exercisable for the first time in any one calendar year
for shares of Common Stock with an aggregate fair market value (determined as of
the respective date or dates of grant) of more than $100,000.
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(d) Termination of Employment, Death or Disability. No Incentive Stock Option
may be exercised unless, at the time of such exercise, the optionee is, and has
been continuously since the date of grant of his or her option, employed by the
Company, except that:
(i) an Incentive Stock Option may be exercised within the period of three
months after the date the optionee ceases to be an employee of the Company
(or within such lesser period as may be specified in the applicable option
agreement), provided, that the agreement with respect to such option may
designate a longer exercise period and that the exercise after such
three-month period shall be treated as the exercise of a non-statutory option
under the Plan;
(ii) if the optionee dies while in the employ of the Company, or within
three months after the optionee ceases to be such an employee, the Incentive
Stock Option may be exercised by the person to whom it is transferred by will
or the laws of descent and distribution within the period of one year after
the date of death (or within such lesser period as may be specified in the
applicable option agreement); and
(iii) if the optionee becomes disabled (within the meaning of Section
22(e)(3) of the Code or any successor provision thereto) while in the employ
of the Company, the Incentive Stock Option may be exercised within the period
of one year after the date the optionee ceases to be such an employee because
of such disability (or within such lesser period as may be specified in the
applicable option agreement).
For all purposes of the Plan and any option or award granted hereunder,
"employment" shall be defined in accordance with the provisions of Section
1.421-7(h) of the Income Tax Regulations (or any successor regulations).
Notwithstanding the foregoing provisions, no Incentive Stock Option may be
exercised after its expiration date.
12. Additional Provisions.
(a) Additional Option Provisions. The Board of Directors may, in its sole
discretion, include additional provisions in any option granted under the Plan,
including without limitation restrictions on transfer (including rights of first
refusal in favor of the Company), repurchase rights, commitments to pay cash
bonuses, to make, arrange for or guaranty loans or to transfer other property to
optionees upon exercise of options, or such other provisions as shall be
determined by the Board of Directors; provided that such additional provisions
shall not be inconsistent with any other term or condition of the Plan and such
additional provisions shall not cause any Incentive Stock Option granted under
the Plan to fail to qualify as an Incentive Stock Option within the meaning of
Section 422 of the Code.
(b) Acceleration, Extension, etc. The Board of Directors may, in its sole
discretion, (i) accelerate the date or dates on which all or any particular
option or options granted under the Plan may be exercised or (ii) extend the
dates during which all, or any particular option or options granted under the
Plan may be exercised; provided, however, that no such extension shall
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<PAGE> 6
be permitted if it would cause the Plan to fail to comply with Section 422 of
the Code or with Rule 16b-3.
13. Awards.
A restricted stock award ("award") shall consist of the sale and issuance by
the Company of shares of Common Stock, and the purchase by the recipient of such
shares, subject to the terms, conditions and restrictions described in the
document evidencing the award and in this Section 13 and elsewhere in the Plan.
(a) Execution of Restricted Stock Award Agreement. As a condition to an award
under the Plan, each recipient of an award shall execute an agreement in such
form, which may differ among recipients, as shall be specified by the Board of
Directors at the time of such award.
(b) Price. The Board of Directors shall determine the price at which shares
of Common Stock shall be sold to recipients of awards under the Plan (which
shall not be less than the par value thereof). The Board of Directors may, in
its discretion, issue shares pursuant to awards without the payment of any cash
purchase price by the recipients or issue shares pursuant to awards at a
purchase price below the then fair market value of the Common Stock. If a
purchase price is required to be paid, it shall be paid in cash or by check
payable to the order of the Company at the time that the award is accepted by
the recipient.
(c) Number of Shares. The award shall specify the number of shares of Common
Stock granted thereunder.
(d) Restrictions on Transfer. In addition to such other terms, conditions and
restrictions upon awards as shall be imposed by the Board of Directors, all
shares issued pursuant to an award shall be subject to the following
restrictions:
(1) All shares of Common Stock subject to an award (including any shares
issued pursuant to paragraph (e) of this Section) shall be subject to certain
restrictions on disposition and obligations of resale to the Company as
provided in subparagraph (2) below for the period specified in the document
evidencing the award, and shall not be sold, assigned, transferred, pledged,
hypothecated or otherwise disposed of until such restrictions lapse. The
period during which such restrictions are applicable is referred to as the
"Restricted Period".
(2) In the event that a recipient's employment with the Company (or
consultancy or advisory relationship, as the case may be) is terminated
within the Restricted Period, whether such termination is voluntary or
involuntary, with or without cause, or because of the death or disability of
the recipient, the Company shall have the rights and option for a period of
sixty days following such termination to buy for cash that number of the
shares of Common Stock purchased under the award as to which the restrictions
on transfer and forfeiture provisions contained in the award have not then
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<PAGE> 7
lapsed, at a price equal to the price per share originally paid by the
recipient. If such termination occurs within the last sixty days of the
applicable restrictions, the restrictions and repurchase rights of the
Company shall continue to apply until the expiration of the Company's
sixty-day option period.
(3) Notwithstanding subparagraphs (1) and (2) above, the Board of
Directors may, in its discretion, either at the time that an award is made or
at any time thereafter, waive its right to repurchase shares of Common Stock
upon the occurrence of any of the events described in this paragraph (d) or
remove or modify any part or all of the restrictions. In addition, the Board
of Directors may, in its discretion, impose upon the recipient of an award at
the time of such award such other restrictions (including rights of first
refusal in favor of the Company) on any shares of Common Stock issued
pursuant to such award as the Board of Directors may deem advisable.
(e) Additional Shares. Any Shares received by a recipient of an award as a
stock dividend on, or as a result of stock splits, combinations, exchanges of
shares, reorganizations, mergers, consolidations or otherwise with respect to,
shares of Common Stock received pursuant to such award shall have the same
status and shall bear the same restrictions, all on a proportionate basis, as
the shares initially purchased pursuant to such award.
(f) Transfers in Breach of Award. If any transfer of shares purchased
pursuant to an award is made or attempted contrary to the terms of the Plan and
of such award, the Board of Directors shall have the right to purchase for the
account of the Company, from the owner thereof or his or her transferee at any
time before or after the transfer, that number of shares of Common Stock as to
which the restrictions on transfer and forfeiture provisions have not then
lapsed at the price paid for such shares by the person to whom they were awarded
under the Plan. In addition to any other legal or equitable remedies which it
may have, the Company may enforce its rights by specific performance to the
extent permitted by law. The Company may refuse for any purpose to recognize as
a shareholder of the Company any transferee who receives any shares contrary to
the provisions of the Plan and the applicable award, and the Company may retain
and/or recover all dividends on such shares which were paid or payable
subsequent to the date on which the prohibited transfer was made or attempted.
(g) Additional Award Provisions. The Board of Directors may, in its sole
discretion, include additional provisions in any award granted under the Plan,
including without limitation commitments to pay cash bonuses, make, arrange for
or guarantee loans or transfer other property to recipients upon the grant of
awards, or such other provisions as shall be determined by the Board of
Directors.
14. General Restrictions.
(a) Investment Representations. The Company may require any person to whom an
option or award is granted, as a condition of exercising such option or
purchasing the shares subject to the award, to give written assurances in
substance and form satisfactory to the
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Company to the effect that such person is acquiring the Common Stock subject to
the option or award for his or her own account for investment and not with any
present intention of selling or otherwise distributing the same, and to such
other effects as the Company deems necessary or appropriate in order to comply
with federal and applicable state securities laws.
(b) Compliance With Securities Laws. Each option and award shall be subject
to the requirement that if, at any time, counsel to the Company shall determine
that the listing, registration or qualification of the shares subject to such
option or award upon any securities exchange or under any state or federal law,
or the consent or approval of any governmental or regulatory body, or that the
disclosure of non-public information or the satisfaction of any other condition
is necessary as a condition of, or in connection with, the issuance or purchase
of shares thereunder, such option or award may not be exercised, in whole or in
part, unless such listing, registration, qualification, consent or approval, or
satisfaction of such condition, shall have been effected or obtained on
conditions acceptable to the Board of Directors. Nothing herein shall be deemed
to require the Company to apply for or to obtain such listing, registration or
qualification, or to satisfy such condition.
15. Rights as a Shareholder.
The holder of an option or recipient of an award shall have no rights as a
shareholder with respect to any shares covered by the option or award
(including, without limitation, any rights to receive dividends or non-cash
distributions with respect to such shares) until the date of issue of a stock
certificate to him or her for such shares. No adjustment shall be made for
dividends or other rights for which the record date is prior to the date such
stock certificate is issued.
16. Adjustment Provisions for Recapitalizations and Related Transactions.
(a) General. If, through or as a result of any merger, consolidation, sale of
all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, (i) the outstanding shares of Common Stock
are increased or decreased or are exchanged for a different number or kind of
shares or other securities of the Company, or (ii) additional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Common Stock or other securities, an
appropriate and proportionate adjustment may be made in (x) the maximum number
and kind of shares reserved for issuance under the Plan, (y) the number and kind
of shares or other securities subject to then outstanding options under the
Plan, and (z) the price for each share subject to any then outstanding options
under the Plan, without changing the aggregate purchase price as to which such
options remain exercisable, provided that no adjustment shall be made pursuant
to this Section 16 if such adjustment would cause the Plan to fail to comply
with Section 422 of the Code.
(b) Board Authority to Make Adjustments. Any adjustments under this Section
16 will be made by the Board of Directors, whose determination as to what
adjustments, if any, will
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<PAGE> 9
be made and the extent thereof will be final, binding and conclusive. No
fractional shares will be issued under the Plan on account of any such
adjustments.
17. Merger, Consolidation, Asset Sale, Liquidation, etc.
(a) General. In the event of a consolidation or merger or sale of all or
substantially all of the assets of the Company in which outstanding shares of
Common Stock are exchanged for securities, cash or other property of any other
corporation or business entity or in the event of a liquidation of the Company,
the Board of Directors of the Company, or the board of directors of any
corporation assuming the obligations of the Company, may, in its discretion,
take any one or more of the following actions, as to outstanding options and
awards: (i) provide that such options shall be assumed, or equivalent options
shall be substituted, by the acquiring or succeeding corporation (or an
affiliate thereof), provided that any such options substituted for Incentive
Stock Options shall meet the requirements of Section 424(a) of the Code, (ii)
upon written notice to the optionees, provided that all unexercised options will
terminate immediately prior to the consummation of such transaction unless
exercised by the optionee within a specified period following the date of such
notice, (iii) in the event of a merger under the terms of which holders of the
Common Stock of the Company will receive upon consummation thereof a cash
payment for each share surrendered in the merger (the "Merger Price"), make or
provide for a cash payment to the optionees equal to the difference between (A)
the Merger Price times the number of shares of Common Stock subject to such
outstanding options (to the extent then exercisable at prices not in excess of
the Merger Price) and (B) the aggregate exercise price of all such outstanding
options in exchange for the termination of such options, and (iv) provided that
all or any outstanding options shall become exercisable in full and all
restrictions on outstanding awards shall terminate immediately prior to such
event.
(b) Substitute Options. The Company may grant options under the Plan in
substitution for options held by employees of another corporation who become
employees of the Company, or a subsidiary of the Company, as the result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one of its subsidiaries, of property or stock of the employing corporation. The
Company may direct that substitute options be granted on such terms and
conditions as the Board of Directors considers appropriate in the circumstances.
18. No Special Employment Rights.
Nothing contained in the Plan or in any option or award shall confer upon any
recipient of an award or optionee any right with respect to the continuation of
his or her employment by the Company or interfere in any way with the right of
the Company at any time to terminate such employment or to increase or decrease
the compensation of the recipient or optionee.
19. Other Employee Benefits.
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<PAGE> 10
Except as to plans which by their terms include such amounts as compensation,
neither the amount of any compensation deemed to be received by an employee as a
result of the exercise of an option or the sale of shares received upon such
exercise nor the value of an award granted to an employee will constitute
compensation with respect to which any other employee benefits of such employee
are determined, including, without limitation, benefits under any bonus,
pension, profit-sharing, life insurance or salary continuation plan, except as
otherwise specifically determined by the Board of Directors.
20. Amendment of the Plan.
(a) The Board of Directors may at any time, and from time to time, modify or
amend the Plan in any respect, except that if at any time the approval of the
shareholders of the Company is required as to such modification or amendment
under Section 422 of the Code or any successor provision with respect to
Incentive Stock Options, the Board of Directors may not effect such modification
or amendment without such approval.
(b) The termination or any modification or amendment of the Plan shall not,
without the consent of an optionee or recipient of an award, affect his or her
rights under an option or award previously granted to him or her. Subject to the
consent of the optionee or recipient of the award affected, the Board of
Directors may amend outstanding option agreements or restricted stock award
agreements in a manner not inconsistent with the Plan. The Board of Directors
shall have the right to amend or modify the terms and provisions of the Plan and
of any outstanding Incentive Stock Options granted under the Plan to the extent
necessary to qualify any or all such options for such favorable federal income
tax treatment (including deferral of taxation upon exercise) as may be afforded
incentive stock options under section 422 of the Code.
21. Withholding.
(a) The Company shall have the right to deduct from payments of any kind
otherwise due to the optionee or recipient of an award any federal, state or
local taxes of any kind required by law to be withheld with respect to any
shares issued upon exercise of options under the Plan or the purchase of shares
subject to the award. Subject to the prior approval of the Company, which may be
withheld by the Company in its sole discretion, the optionee or recipient of an
award may elect to satisfy such obligations, in whole or in part, (i) by causing
the Company to withhold shares of Common Stock otherwise issuable pursuant to
the exercise of an option or the purchase of shares subject to an award or (ii)
by delivering to the Company shares of Common Stock already owned by the
optionee or award recipient. The shares so delivered or withheld shall have a
fair market value equal to such withholding obligation. The fair market value of
the shares used to satisfy such withholding obligation shall be determined by
the Company as of the date that the amount of tax to be withheld is to be
determined. An optionee or award recipient who has made an election pursuant to
this Section 21(a) may only satisfy his or her withholding obligation with
shares of Common Stock which are not subject to any repurchase, forfeiture,
unfulfilled vesting or other similar requirements.
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<PAGE> 11
(b) If the recipient of an award under the Plan elects, in accordance with
Section 83(b) of the Code, to recognize ordinary income in the year of
acquisition of any shares awarded under the Plan, the Company will require at
the time of such election an additional payment for withholding tax purposes
based on the difference, if any, between the purchase price of such shares and
the fair market value of such shares as of the date immediately preceding the
date of the award.
22. Cancellation and New Grant of Options, etc.
The Board of Directors shall have the authority to effect, at any time and
from time to time, with the consent of the affected optionees, (i) the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or
different numbers of shares of Common Stock and having an option to exercise the
price per share which may be lower or higher than the exercise price per share
of the canceled options or (ii) the amendment of the terms of any and all
outstanding options under the Plan to provide an option exercise price per share
which is higher or lower than the then current exercise price per share of such
outstanding options.
23. Effective Date and Duration of the Plan.
(a) Effective Date. The Plan shall become effective when adopted by the Board
of Directors, but no Incentive Stock Option granted under the Plan shall become
exercisable unless and until the Plan shall have been approved by the Company's
shareholders. If such shareholder approval is not obtained within twelve months
after the date of the Board's adoption of the Plan, no options previously
granted under the Plan shall be deemed to be Incentive Stock Options and no
Incentive Stock Options shall be granted thereafter. Amendments to the Plan not
requiring shareholder approval shall become effective when adopted by the Board
of Directors; amendments requiring shareholder approval (as provided in Section
20) shall become effective when adopted by the Board of Directors, but no
Incentive Stock Option issued after the date of such amendment shall become
exercisable (to the extent that such amendment to the Plan was required to
enable the Company to grant such Incentive Stock Option to a particular
optionee) unless and until such amendment shall have been approved by the
Company's shareholders. If such shareholder approval is not obtained within
twelve months of the Board's adoption of such amendment, any Incentive Stock
Options granted on or after the date of such amendment shall terminate to the
extent that such amendment to the Plan was required to enable the Company to
grant such option to a particular optionee. Subject to this limitation, options
and awards may be granted under the Plan at any time after the effective date
and before the date fixed for termination of the Plan.
(b) Termination. Unless sooner terminated in accordance with Section 17, the
Plan shall terminate, with respect to Incentive Stock Options, upon the earlier
of (i) the close of business on the day next preceding the tenth anniversary of
the date of its adoption by the Board of Directors, or (ii) the date on which
all shares available for issuance under the Plan shall have
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<PAGE> 12
been issued pursuant to the exercise of cancellation of options or the final
vesting of awards granted under the Plan. Unless sooner terminated in accordance
with Section 17, the Plan shall terminate with respect to options which are not
Incentive Stock Options and awards on the date specified in (ii) above. If the
date of termination is determined under (i) above, then options outstanding on
such date shall continue to have force and effect in accordance with the
provisions of the instruments evidencing such options.
24. Provision for Foreign Participants.
The Board of Directors may, without amending the Plan, modify awards or
options granted to participants who are foreign nationals or employed outside
the United States to recognize differences in laws, rules, regulations or
customs of such foreign jurisdictions with respect to tax, securities, currency,
employee benefit or other matters.
Adopted by the Board of Directors on
March 7, 1997
Approved by the Stockholders
on , 1997
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<PAGE> 1
Exhibit 10.2
ASCENT PEDIATRICS, INC.
1997 DIRECTOR STOCK OPTION PLAN
1. Purpose.
The purpose of this 1997 Director Stock Option Plan (the "Plan") of Ascent
Pediatrics, Inc. (the "Company") is to encourage ownership in the Company by
outside directors of the Company whose continued services are considered
essential to the Company's future progress and to provide them with a further
incentive to remain as directors of the Company.
2. Administration.
The Board of Directors shall supervise and administer the Plan. Grants of
stock options under the Plan and the amount and nature of the awards to be
granted shall be automatic in accordance with Section 5. However, all questions
concerning interpretation of the Plan or any options granted under it shall be
resolved by the Board of Directors and such resolution shall be final and
binding upon all persons having an interest in the Plan.
3. Participation in the Plan.
Directors of the Company who are not full-time employees of the Company or
any subsidiary of the Company ("outside directors") shall be eligible to receive
options under the Plan.
4. Stock Subject to the Plan.
(a) The maximum number of shares of the Company's Common Stock ("Common
Stock"), which may be issued under the Plan shall be 300,000 shares, subject to
adjustment as provided in Section 7.
(b) If any outstanding option under the Plan for any reason expires or is
terminated without having been exercised in full, the shares covered by the
unexercised portion of such option shall again become available for issuance
pursuant to the Plan.
(c) All options granted under the Plan shall be non-statutory options not
entitled to special tax treatment under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code").
<PAGE> 2
5. Terms, Conditions and Form of Options.
Each option granted under the Plan shall be evidenced by a written agreement
in such form as the Board of Directors shall from time to time approve, which
agreements shall comply with and be subject to the following terms and
conditions:
(a) Option Grant Dates. Options shall automatically be granted to all
eligible outside directors as follows:
(i) each person who is an eligible outside director on the date (the
"Pricing Date") on which the Company prices its initial public offering of
Common Stock pursuant to an effective registration statement under the
Securities Act of 1933, as amended, shall be granted an option to purchase
15,000 shares of Common Stock on the Pricing Date;
(ii) each person who first becomes an eligible outside director after the
Pricing Date shall be granted an option to 15,000 shares of Common Stock on the
date of his or her initial election to the Board of Directors; and
(iii) each eligible outside director shall be granted an additional option
to purchase 5,000 shares of Common Stock on May 1 of each year commencing in
1998.
(b) Option Exercise Price. The option exercise price per share for each
option described in clause (i) of Section 5(a) shall be equal to the price to
the public of one share of Common Stock in the Company's initial public
offering. The option exercise price per share for each option described in
clauses (ii) and (iii) of Section 5(a) shall be determined as follows: (i) if
the Common Stock is listed on the Nasdaq National Market or another nationally
recognized exchange or trading system as of the Option Grant Date, the option
exercise price shall be deemed to be the last reported sale price per share of
Common Stock thereon on such date (or if no such price is reported on such date,
such price on the nearest preceding date on which such a price is reported); and
(ii) if the Common Stock is not listed on the Nasdaq National Market or another
nationally recognized exchange or trading system as of the Option Grant Date,
the exercise price per share shall be deemed to be the fair market value of the
Common Stock as of the Option Grant Date as determined in good faith by the
Board of Directors.
(c) Options Non-Transferable. Except as the Board of Directors may otherwise
determine or provide in an option, any option granted under the Plan to an
optionee shall not be transferable by the optionee other than by will or the
laws of descent and distribution or pursuant to a qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement Income
Security Act, or the rules thereunder, and shall be exercisable during the
optionee's lifetime only by the optionee or the optionee's guardian or legal
representative.
(d) Vesting Period.
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<PAGE> 3
(i) General. Each option described in clauses (i) and (ii) of Section 5(a)
shall become exercisable on the first anniversary of the Option Grant Date, and
each option described in clause (iii) of Section 5(a) shall become exercisable
on the day prior to the first anniversary of the Option Grant Date; provided,
however, that in each instance described herein the optionee continues to serve
as a director on such dates.
(ii) Acceleration Upon Change in Control. Notwithstanding the foregoing,
each outstanding option granted under the Plan shall immediately become
exercisable in full in the event a Change in Control (as defined in Section 8)
of the Company occurs.
(e) Termination. Each option shall terminate, and may no longer be exercised,
on the earlier of the (i) the date 10 years after the Option Grant Date or (ii)
the date 60 days after the optionee ceases to serve as a director of the
Company; provided that, in the event an optionee ceases to serve as a director
due to his or her death or disability (within the meaning of Section 22(e)(3) of
the Code or any successor provision), then the exercisable portion of the option
may be exercised, within the period of 180 days following the date the optionee
ceases to serve as a director (but in no event later than 10 years after the
Option Grant Date), by the optionee or by the person to whom the option is
transferred by will, by the laws of descent and distribution, or by written
notice pursuant to Section 5(g).
(f) Exercise Procedure. An option may be exercised only by written notice to
the Company at its principal office accompanied by payment in cash of the full
consideration for the shares as to which the option is exercised.
(g) Exercise by Representative Following Death of Director. An optionee, by
written notice to the Company, may designate one or more persons (and from time
to time change such designation), including his or her legal representative,
who, by reason of the optionee's death, shall acquire the right to exercise all
or a portion of the option. If the person or persons so designated wish to
exercise any portion of the option, they must do so within the term of the
option as provided herein. Any exercise by a representative shall be subject to
the provisions of the Plan.
6. Limitation of Rights.
(a) No Right to Continue as a Director. Neither the Plan, nor the granting of
an option nor any other action taken pursuant to the Plan, shall constitute or
be evidence of any agreement or understanding, express or implied, that the
Company will retain the optionee as a director for any period of time.
(b) No Stockholders' Rights for Options. An optionee shall have no rights as
a stockholder with respect to the shares covered by his or her option until the
date of the issuance to him or her of a stock certificate therefor, and no
adjustment will be made for dividends or
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<PAGE> 4
other rights (except as provided in Section 7) for which the record date is
prior to the date such certificate is issued.
7. Adjustment Provisions for Mergers, Recapitalizations and Related
Transactions.
If, through or as a result of any merger, consolidation, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split, or other similar transaction, (i) the outstanding shares of Common Stock
are exchanged for a different number or kind of securities of the Company or of
another entity, or (ii) additional shares or new or different shares or other
securities of the Company or of another entity are distributed with respect to
such shares of Common Stock, the Board of Directors shall make an appropriate
and proportionate adjustment in (x) the maximum number and kind of shares
reserved for issuance under the Plan, (y) the number and kind of shares or other
securities subject to then outstanding options under the Plan, and/or (z) the
price for each share subject to any then outstanding options under the Plan
(without changing the aggregate purchase price for such options), to the end
that each option shall be exercisable, for the same aggregate exercise price,
for such securities as such optionholder would have held immediately following
such event if he had exercised such option immediately prior to such event. No
fractional shares will be issued under the Plan on account of any such
adjustments.
8. Change in Control. For purposes of the Plan, a "Change in Control" shall be
deemed to have occurred only if any of the following events occurs: (i) any
"person", as such term is used in Sections 13(d) and 14(d) of the Exchange Act
(other than the Company, any trustee or other fiduciary holding securities under
an employee benefit plan of the Company, or any corporation owned directly or
indirectly by the stockholders of the Company in substantially the same
proportion as their ownership of stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d- 3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding securities; (ii) the
stockholders of the Company approve a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than 50% of the
combined voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation; (iii) the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets; or (iv) individuals who, on the date
on which the Plan was adopted by the Board of Directors, constituted the Board
of Directors of the Company, together with any new director whose election by
the Board of Directors or nomination for election by the Company's stockholders
was approved by a vote of at least a majority of the directors then still in
office who were directors on the date on which the Plan was adopted by the Board
of Directors or whose election or nomination was previously so approved, cease
for any reason to constitute at least a majority of the Board of Directors.
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<PAGE> 5
9. Modification, Extension and Renewal of Options.
The Board of Directors shall have the power to modify or amend outstanding
options; provided, however, that no modification or amendment may (i) have the
effect of altering or impairing any rights or obligations of any option
previously granted without the consent of the optionee, or (ii) modify the
number of shares of Common Stock subject to the option (except as provided in
Section 7).
10. Termination and Amendment of the Plan.
The Board of Directors may suspend, terminate or discontinue the Plan or
amend it in any respect whatsoever.
11. Notice.
Any written notice to the Company required by any of the provisions of the
Plan shall be addressed to the Chief Financial Officer of the Company and shall
become effective when it is received.
12. Governing Law.
The Plan and all determinations made and actions taken pursuant hereto shall
be governed by the laws of the State of Delaware.
Adopted by the Board of Directors on
March 7, 1997.
Approved by the Stockholders on
_____________ __, 1997
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<PAGE> 1
Exhibit 10.3
ASCENT PEDIATRICS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
The purpose of this Plan is to provide eligible employees of Ascent
Pediatrics, Inc. (the "Company") and certain of its subsidiaries with
opportunities to purchase shares of the Company's Common Stock (the "Common
Stock"). Five Hundred Thousand (500,000) shares of Common Stock in the aggregate
have been approved for this purpose.
1. Administration. The Plan will be administered by the Company's Board of
Directors (the "Board") or by a Committee appointed by the Board (the
"Committee"). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and
decisions with regard thereto shall be final and conclusive.
2. Eligibility. Participation in the Plan will neither be permitted nor
denied contrary to the requirements of Section 423 of the Internal Revenue Code
of 1986, as amended (the "Code"), and the regulations promulgated thereunder.
All employees of the Company, including directors who are employees, and all
employees of any subsidiary of the Company (as defined in Section 424(f) of the
Code) designated by the Board or the Committee from time to time (a "Designated
Subsidiary"), are eligible to participate in any one or more of the offerings of
Options (as defined below) to purchase Common Stock under the Plan, provided
that:
(a) they are regularly employed by the Company or a Designated Subsidiary
for more than 20 hours a week and for more than five months in a calendar
year; and
(b) they have been employed by the Company or a Designated Subsidiary for
at least three months prior to enrolling in the Plan; and
(c) they are employees of the Company or a Designated Subsidiary on the
first day of the applicable Plan Period (as defined below).
No employee may be granted an option hereunder if such employee, immediately
after the option is granted, owns 5% or more of the total combined voting power
or value of the stock of the Company or any subsidiary. For purposes of the
preceding sentence, the attribution rules of Section 424(d) of the Code shall
apply in determining the stock ownership of an employee, and all stock which the
employee has a contractual right to purchase shall be treated as stock owned by
the employee.
3. Offerings. The Company will make one or more offerings ("Offerings") to
employees to purchase Common Stock under this Plan. The Board or the Committee
shall determine the commencement dates of each of the Offerings (the "Offering
Commencement Dates"). Each Offering Commencement Date will begin a period (a
"Plan Period") during which
<PAGE> 2
payroll deductions will be made and held for the purchase of Common Stock at the
end of the Plan Period. The Board or the Committee shall choose a Plan Period of
twelve (12) months or less for each of the Offerings and may, at its discretion,
choose a different Plan Period for each Offering.
4. Participation. An employee eligible on the Offering Commencement Date of
any Offering may participate in such Offering by completing and forwarding a
payroll deduction authorization form to the Chief Financial Officer of the
Company at least 14 days prior to the applicable Offering Commencement Date. The
form will authorize a regular payroll deduction from the Compensation received
by the employee during the Plan Period. Unless an employee files a new form or
withdraws from the Plan, his or her deductions and purchases will continue at
the same rate for future Offerings under the Plan as long as the Plan remains in
effect. The term "Compensation" means the amount of money reportable on the
employee's Federal Income Tax Withholding Statement, excluding overtime, shift
premium, incentive or bonus awards, allowances and reimbursements for expenses
such as relocation allowances for travel expenses, income or gains on the
exercise of Company stock options or stock appreciation rights, and similar
items, whether or not shown on the employee's Federal Income Tax Withholding
Statement, but including, in the case of salespersons, sales commissions to the
extent determined by the Board or the Committee.
5. Deductions.
(a) The Company will maintain payroll deduction accounts for all
participating employees. With respect to any Offering made under this Plan,
an employee may authorize a payroll deduction in any dollar amount up to a
maximum of 10% of the Compensation he or she receives during the Plan Period
or such shorter period during which deductions from payroll are made. Payroll
deductions may be at the rate of 1%, 2%, 3%, 4%, 5%, 6%, 7%, 8%, 9% or 10% of
Compensation.
(b) No employee may be granted an Option which permits his or her rights
to purchase Common Stock under this Plan and any other stock purchase plan of
the Company and its subsidiaries, to accrue at a rate which exceeds $25,000
of the fair market value of such Common Stock (determined at the Offering
Commencement Date of the Plan Period) for each calendar year in which the
Option is outstanding at any time.
6. Deduction Changes. An employee may decrease or discontinue his or her
payroll deduction once during any Plan Period by filing a new payroll deduction
authorization form. However, an employee may not increase his or her payroll
deduction during a Plan Period. If an employee elects to discontinue his or her
payroll deductions during a Plan Period, but does not elect to withdraw his or
her funds pursuant to Section 8 hereof, funds deducted prior to his or her
election to discontinue will be applied to the purchase of Common Stock on the
Exercise Date (as defined below).
7. Interest. Interest will not be paid on any employee payroll deduction
accounts, except to the extent that the Board or its Committee, in its sole
discretion, elects to credit such accounts with interest at such per annum rate
as it may from time to time determine.
<PAGE> 3
8. Withdrawal of Funds. An employee may on any one occasion during a Plan
Period and for any reason withdraw all or part of the balance accumulated in the
employee's payroll deduction account. Any such withdrawal must be effected prior
to the close of business on the last day of the Plan Period. If the employee
withdraws all of such balance, the employee shall thereby withdraw from
participation in the Offering and may not begin participation again during the
remainder of the Plan Period.
9. Purchase of Shares.
(a) On the Offering Commencement Date of each Plan Period, the Company
will grant to each eligible employee who is then a participant in the Plan an
option (an "Option") to purchase on the last business day of such Plan Period
(the "Exercise Date"), at the Option Price hereinafter provided for, such
number of whole shares of Common Stock of the Company reserved for the
purposes of the Plan as does not exceed the number of shares determined by
dividing 15% of such employee's annualized Compensation for the immediately
prior six-month period by the price determined in accordance with the formula
set forth in the following paragraph but using the closing price on the
Offering Commencement Date of such Plan Period.
(b) The Option Price for each share purchased will be 85% (or such higher
percentage as the Board or the Committee shall determine to be appropriate)
of the closing price of the Common Stock on (i) the first business day of
such Plan Period or (ii) the Exercise Date, whichever closing price shall be
less. Such closing price shall be (A) the closing price of the Common Stock
on any national securities exchange on which the Common Stock is listed, or
(B) the closing price of the Common Stock on the Nasdaq National Market
("Nasdaq") or (C) the average of the closing bid and asked prices in the
over-the-counter market, whichever is applicable, as published in The Wall
Street Journal. If no sales of Common Stock were made on such a day, the
price of the Common Stock for purposes of clauses (A) and (B) above shall be
the reported price for the next preceding day on which sales were made.
(c) Each employee who continues to be a participant in the Plan on the
Exercise Date shall be deemed to have exercised his or her Option at the
Option Price on such date and shall be deemed to have purchased from the
Company the number of full shares of Common Stock reserved for the purpose of
the Plan that his or her accumulated payroll deductions on such date will pay
for pursuant to the formula set forth above (but not in excess of the maximum
number determined in the manner set forth above).
(d) Any balance remaining in an employee's payroll deduction account at
the end of a Plan Period will be automatically refunded to the employee,
except that any balance which is less than the purchase price of one share of
Common Stock will be carried forward into the employee's payroll deduction
account for the following Offering, unless the employee elects not to
participate in the following Offering under the Plan, in which case the
balance in the employee's account shall be refunded.
10. Issuance of Certificates. Certificates representing shares of Common
Stock purchased under the Plan may be issued only in the name of the employee,
in the name of the employee and another person of legal age as joint tenants
with rights of survivorship, or (in the
<PAGE> 4
Company's sole discretion) in the street name of a brokerage firm, bank or other
nominee holder designated by the employee.
11. Rights on Retirement, Death or Termination of Employment. In the event of
a participating employee's termination of employment prior to the last business
day of a Plan Period (whether as a result of the employee's voluntary or
involuntary termination, retirement, death or otherwise), no payroll deduction
shall be taken from any pay due and owing to the employee and the balance in the
employee's payroll deduction account shall be paid to the employee or, in the
event of the employee's death, (a) to a beneficiary previously designated in a
revocable notice signed by the employee (with any spousal consent required under
state law) or (b) in the absence of such a designated beneficiary, to the
executor or administrator of the employee's estate or (c) if no such executor or
administrator has been appointed to the knowledge of the Company, to such other
person(s) as the Company may, in its discretion, designate. If, prior to the
last business day of the Plan Period, the Designated Subsidiary by which an
employee is employed shall cease to be a subsidiary of the Company, or if the
employee is transferred to a subsidiary of the Company that is not a Designated
Subsidiary, the employee shall be deemed to have terminated employment for the
purposes of this Plan.
12. Optionees Not Stockholders. Neither the granting of an Option to an
employee nor the deductions from his or her pay shall constitute such employee a
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to him or her.
13. Rights Not Transferable. Rights under this Plan are not transferable by a
participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
14. Application of Funds. All funds received or held by the Company under
this Plan may be combined with other corporate funds and may be used for any
corporate purpose.
15. Adjustment in Case of Changes Affecting Common Stock. In the event of a
subdivision of outstanding shares of Common Stock, or the payment of a dividend
in Common Stock, the number of shares approved for this Plan, and the share
limitation set forth in Section 9, shall be increased proportionately, and such
other adjustment shall be made as may be deemed equitable by the Board or the
Committee. In the event of any other change affecting the Common Stock, such
adjustment shall be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.
16. Merger.
(a) If the Company shall at any time merge or consolidate with another
corporation and the holders of the capital stock of the Company immediately
prior to such merger or consolidation continue to hold at least 80% by voting
power of the capital stock of the surviving corporation ("Continuity of
Control"), the holder of each Option then outstanding will thereafter be
entitled to receive at the next Exercise Date upon the exercise of such
Option for each share as to which such Option shall be exercised the
securities or property which a holder of
<PAGE> 5
one share of the Common Stock was entitled to upon and at the time of such
merger, and the Board or the Committee shall take such steps in connection
with such merger as the Board or the Committee shall deem necessary to assure
that the provisions of Section 15 shall thereafter be applicable, as nearly
as reasonably may be, in relation to the said securities or property as to
which such holder of such Option might thereafter be entitled to receive
thereunder.
(b) In the event of a merger or consolidation of the Company with or into
another corporation which does not involve Continuity of Control, or of a
sale of all or substantially all of the assets of the Company while
unexercised Options remain outstanding under the Plan, (i) subject to the
provisions of clauses (ii) and (iii), after the effective date of such
transaction, each holder of an outstanding Option shall be entitled, upon
exercise of such Option, to receive in lieu of shares of Common Stock, shares
of such stock or other securities as the holders of shares of Common Stock
received pursuant to the terms of such transaction; or (ii) all outstanding
Options may be cancelled by the Board or the Committee as of a date prior to
the effective date of any such transaction and all payroll deductions shall
be paid out to the participating employees; or (iii) all outstanding Options
may be cancelled by the Board or the Committee as of the effective date of
any such transaction, provided that notice of such cancellation shall be
given to each holder of an Option, and each holder of an Option shall have
the right to exercise such Option in full based on payroll deductions then
credited to his account as of a date determined by the Board or the
Committee, which date shall not be less than ten (10) days preceding the
effective date of such transaction.
17. Amendment of the Plan. The Board may at any time, and from time to time,
amend this Plan in any respect, except that (a) if the approval of any such
amendment by the stockholders of the Company is required by Section 423 of the
Code, such amendment shall not be effected without such approval, and (b) in no
event may any amendment be made which would cause the Plan to fail to comply
with Section 423 of the Code.
18. Insufficient Shares. In the event that the total number of shares of
Common Stock specified in elections to be purchased under any Offering plus the
number of shares purchased under previous Offerings under this Plan exceeds the
maximum number of shares issuable under this Plan, the Board or the Committee
will allot the shares then available on a pro rata basis.
19. Termination of the Plan. This Plan may be terminated at any time by the
Board. Upon termination of this Plan all amounts in the payroll deduction
accounts of participating employees shall be promptly refunded.
20. Governmental Regulations.
(a) The Company's obligation to sell and deliver Common Stock under this
Plan is subject to listing on a national stock exchange or quotation on
Nasdaq and the approval of all governmental authorities required in
connection with the authorization, issuance or sale of such stock.
(b) The Plan shall be governed by the laws of the State of Delaware except
to the extent that such law is preempted by federal law.
<PAGE> 6
21. Issuance of Shares. Shares may be issued upon exercise of an Option from
authorized but unissued Common Stock, from shares held in the treasury of the
Company, or from any other proper source.
22. Notification upon Sale of Shares. Each employee agrees, by entering the
Plan, to promptly give the Company notice of any disposition of shares purchased
under the Plan where such disposition occurs within two years after the date of
grant of the Option pursuant to which such shares were purchased.
23. Effective Date and Approval of Stockholders. The Plan shall take effect
upon the closing of the Company's initial public offering of Common Stock
pursuant to an effective registration statement under the Securities Act of
1933, as amended, subject to approval by the stockholders of the Company as
required by Section 423 of the Code, which approval must occur within twelve
months of the adoption of the Plan by the Board.
<PAGE> 7
Adopted by the Board of Directors on March 7, 1997.
Approved by the Stockholders on ____________, 1997.
<PAGE> 1
Exhibit 10.4
This lease made and entered into this 21 day of November 1996 by and
between NEW BOSTON WILMAR LIMITED PARTNERSHIP, a Delaware Limited Partnership,
having a business address at One Longfellow Place, Suite 3612, Boston,
Massachusetts 02114 (hereinafter called "Landlord") and ASCENT PEDIATRICS, INC.
(hereinafter called "Tenant").
SECTION I. PREMISES. Landlord leases to Tenant, and Tenant hereby hires and
takes from Landlord the following described premises subject to the mortgages as
hereinafter provided.
The "premises" are that portion of a building in the Town of Wilmington,
Commonwealth of Massachusetts, having a mailing address of 187 Ballardvale
Street, Wilmington, Massachusetts 01887 (hereinafter called the "Building")
substantially as shown cross-hatched or outlined on the Lease Plan, Exhibit A,
hereto attached and made a part hereof, consisting of approximately 14,320
square feet of net rentable area on the First Floor of the Building as shown on
Exhibit A. The Building and the parcel of land on which it is located are
hereinafter referred to as the "Property".
Landlord reserves and excepts all rights of ownership and use in all
respects outside the premises, including, without limitation, the Building and
all other structures and improvements and plazas, parking areas, and common
areas on the Property, except as set forth in Section II below and that at all
times during the term of this Lease, Tenant shall have a reasonable means of
access from the street to the premises. Without limitation of the foregoing
reservation of rights by Landlord, it is understood that with regard to the
Building, Landlord in its sole discretion shall have
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<PAGE> 2
the right to change, relocate and eliminate facilities therein that are not
within the premises, to permit the use of or lease all or part thereof or
exhibition and displays to sell, lease or dedicate all or part thereof to public
use; and further that Landlord shall have the right to make changes in,
additions to and eliminations from the Building, and other structures and
improvements on the Property, the premises excepted, provided that the cost of
any such changes, additions and eliminations shall be at Landlord's expense
subject to the provisions of Section XI of this Lease.
SECTION II. USE. Tenant shall have the right to use, in common with others
so entitled, all Common Areas associated with the Building and located in the
Building or on the Property including all hallways, common lavatories,
elevators, loading dock, freight elevator, access ways, walkways, courtyards and
landscaped areas. Tenant shall have the right in common with others so entitled
to use a proportionate share of the Building parking facilities for the parking
of automobiles, it being understood and agreed by Tenant however that such
parking is on an unreserved and unassigned basis and Landlord does not monitor
or supervise use of said parking facilities. Tenant shall use the premises for
general offices and other reasonable uses incidental and related thereto,
provided that Tenant shall not use, permit nor suffer anything to be done or
anything to be brought into or kept in the premises or on the Property which in
Landlord's sole judgment occasions discomfort or annoyance to any other tenants
or occupants of the Building and parking area or which may tend to impair the
reputation or appearance of the Building or the Property or tend to interfere
with the proper and economic operation of the Building,
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<PAGE> 3
parking area or the Property by Landlord, or which shall violate the Certificate
of Occupancy for the Building or any law or regulation of any governmental body.
Tenant covenants that it will move into the premises promptly at the
commencement of the term hereof and, will continuously use and occupy the entire
premises, throughout the term hereof, and further covenants and agrees that,
except temporarily by reason of casualty, taking or loss of access, if it
vacates the premises or fails for a period in excess of thirty (30) consecutive
days to conduct its business therein at any time during the term hereof, without
the prior written consent of the Landlord, then all rent and escalation payments
reserved in this Lease from the date of such breach to the expiration date of
this lease shall immediately become due and payable by Tenant.
SECTION III. TERM. The term of this lease shall be five (5) years,
commencing upon the later to occur of (i) January 15, 1997, or (ii) ten (10)
days after Landlord's Work is "Substantially Completed", as hereinafter defined
(hereinafter referred to as the "Commencement Date"), and terminating sixty (60)
months thereafter, plus the remaining portion of any unexpired month at the end
of the term (hereinafter referred to as the "Termination Date"). Landlord
anticipates the Commencement Date to occur between January 15, 1997 and February
1, 1997. If the Substantial Completion of Landlord's Work has not occurred by
March 15, 1997, Tenant shall have the right to terminate this Lease by notice
given on or before March 25, 1997. Tenant shall have a right of access to the
premises during the ten (10) day period subsequent to said Substantial
Completion date for the purpose of
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<PAGE> 4
installing its cabling, furniture, fixtures and equipment, such access being
subject to all of the terms and conditions of this Lease except the obligation
to pay rent.
SECTION IV. RENT. Tenant shall pay rent at the annual rate of Sixteen
Dollars ($16.00) per square foot for the net rentable space of the demised
premises, as set forth in Section I of this Lease.
The rent shall be paid in equal installments of one-twelfth (1/12) of the
annual rent each in advance of the first day of each calendar month.
Tenant shall pay a proportionate part of such monthly installment for any
fraction of a calendar month at the beginning or end of the lease term.
In the event that the rent is not paid within five (5) days of the date
when due, Landlord shall assess and Tenant shall pay a late charge in an amount
equal to interest at the rate of one and one-half (1 1/2%) percent per month on
the unpaid balance from the date said rent became due.
Tenant shall pay the rent without demand or notice and without deduction,
abatement, counterclaim, or set-off, to the Landlord in care of New Boston
Management Services, Inc., Agent for New Boston Wilmar Limited Partnership, One
Longfellow Place, Suite 3612, Boston, Massachusetts 02114-2434, or at such other
place as designated from time to time by Landlord.
SECTION V. CONSTRUCTION AND PREPARATION OF THE PREMISES.
(a) LANDLORD'S WORK. Landlord shall do the work shown on Exhibit B
attached hereto and made a part hereof as the work on the part of Landlord in a
good and workmanlike manner in accordance with all laws, rules, regulations and
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<PAGE> 5
ordinances applicable thereto, the completion of which shall be considered
"Substantial Completion". Landlord's Work shall be done at Landlord's expense
except as otherwise provided on Exhibit B. To the extent practical, Landlord
shall give advance notice to the Tenant of the approximate date upon which
Landlord's Work shall be Substantially Completed. The taking of possession of
the demised premises by Tenant shall be conclusive evidence of the acceptance of
the demised premises by Tenant and that the demised premises are in good and
satisfactory condition, in accordance with Landlord's obligations hereunder.
(b) TENANT'S WORK. Tenant shall do no work in or to the premises in
preparation for initial occupancy hereunder. Any work done by the Tenant shall
be done in a good and workmanlike manner in accordance with "plans and
specifications" (as hereinafter defined) which have Landlord's written approval
prior to the commencement of Tenant's work. Tenant shall furnish and install any
and all necessary trade fixtures, equipment and other items necessary for the
proper conduct of Tenant's business. "Plans and Specifications", as used in this
Section V(b) and in Section XIV shall mean documents and drawings sufficient for
contract bidding and work completion. All of the foregoing work and all work
Tenant may undertake pursuant to Section XIV of this lease shall be done in
accordance with all laws, rules, regulations and ordinances applicable thereto,
including, if necessary, compliance with the Americans With Disabilities Act,
and the acquisition by Tenant of a Town of Wilmington Building Permit. In no
event shall Landlord be required to provide or install any trade fixtures or
equipment.
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<PAGE> 6
Tenant agrees to employ for any work it may do pursuant to Sections V(b)
and XIV of this lease one or more responsible contractors whose labor will work
in harmony with other labor working in and on the Building and Property and with
suppliers of materials for use in construction in and on the Building and
Property, and especially Tenant agrees that he will not do or permit to be done
anything which would cause any labor difficulty in connection with any
construction in and the Building and Property.
Tenant shall require all such contractors employed by Tenant to carry
Workmen's Compensation Insurance in accordance with statutory requirements and
to carry Comprehensive Public Liability Insurance and Automobile Liability
Insurance covering such contractors in or about the premises in amounts not less
that Five Hundred Thousand ($500,000) Dollars combined single limits for
property damage, for injury or death of more than one person in a single
accident and to submit certificates of insurance evidencing such coverage to
Landlord prior to commencement of such work. Tenant agrees to indemnify and hold
harmless Landlord from all claims, actions, demands and causes of actions
occasioned by Tenant's contractors being on or about the premises or the
Building or the Property of which the same form a part and from Tenant's
contractors performing work in the premises.
All contractors, subcontractors, mechanics, laborers, materialmen, and
others who perform any work, labor or services, or furnish any materials, or
otherwise participate in the labor or services, or furnish any materials, or
otherwise participate
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<PAGE> 7
in the improvement of the premises shall be and are hereby given notice that
Tenant is not authorized to subject Landlord's interest in the premises to any
claim for mechanics', laborers' and materialmen's liens, and all persons dealing
directly or indirectly with Tenant may not look to the premises as security for
payment. Tenant shall save Landlord harmless from and against all expenses,
liens, claims or damages to either property or person which may or might arise
by reason of the making of any such additions, improvements, alterations and/or
installations.
SECTION VI. BUILDING AND EQUIPMENT. Landlord shall keep in serviceable
condition and repair the structure and exterior of the Building and the Common
Areas thereof, the plumbing and electrical systems, the heating, ventilating and
air conditioning systems, and elevators servicing the Building (except for such
equipment and serviceable lines installed by Tenant and except otherwise
provided in Section VIII), and the exterior parking area serving the Building.
The Landlord shall comply with applicable governmental rules, regulations, laws
and ordinances affecting the Building, unless the violation is caused by Tenant
or Tenant's use of the premises. The Landlord shall keep the sidewalks, common
corridors, stairway, elevators, and all other means of ingress and egress for
the premises and all public portions of the Building in serviceable repair and
in a reasonably clean and safe condition. Landlord reserves the right to
interrupt, curtail, stop and suspend the furnishing of any services and
operation of the plumbing and electrical, heating and air conditioning systems
when necessary by reason of accident or emergency or for repairs, alterations,
replacements or improvements, which may become necessary or
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<PAGE> 8
when it cannot secure supplies or labor or by reason of any other cause beyond
its control, without liability or any abatement of rent being due thereby.
Landlord shall contract for removal of snow and ice from all parking areas,
sidewalks and access ways on the Property, and shall maintain in good order and
repair the lighting servicing such parking areas.
SECTION VII. FLOOR LOAD, HEAVY MACHINERY. Tenant shall not place a load
upon any floor of the premises exceeding the floor load per square foot area
which floor was designed to carry and which is allowed by law. Landlord reserves
the right to prescribe the position of all file cabinets, business machinery,
and mechanical equipment (including safes) which Tenant may place in the
premises. Business machines and mechanical equipment shall be placed and
maintained by Tenant at Tenant's expense in settings sufficient to prevent
transmission of noise and vibration to any other part of the Building in which
the premises are located. Any moving of any machinery and/or equipment into, out
of, or within the premises shall be done only with the prior written consent of
Landlord in each instance, which consent shall not be unreasonably withheld, and
shall be at the sole risk and hazard of Tenant and Tenant will indemnify and
save Landlord harmless against and from any liability, loss, injury, claim or
suit resulting directly or indirectly from such moving. In the event riggers
shall be required to accomplish such moving, only persons holding a Master
Rigger's License shall perform the work. Tenant shall not in any way break, cut
into, or damage the exterior perimeter walls or insulating
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<PAGE> 9
panels of the Building in installing, ventilating or exhausting its equipment or
in any other manner.
SECTION VIII. SERVICES. Landlord shall provide at its own expense:
(a) Access to the Building from the lobby Monday through Friday excepting
legal holidays in Massachusetts, hereinafter referred to as "business days",
during regular business hours. Legal holidays in Massachusetts are shown on
Exhibit C attached hereto. At all other times Landlord shall provide limited
access to the Building in accordance with such Building Standard entry system as
shall from time to time be in effect. At the commencement of the term of this
Lease, the Building standard entry system is a "key" system, so-called.
(b) Use, in common with others, of all elevator facilities at all times.
(c) Building Standard heat and air conditioning during normal business
hours which is reasonably required for reasonably comfortable occupation of the
premises, under normal business operation at an occupancy of not more than one
person per 125 square feet of Net Rentable Area and an electrical load not
exceeding 2.5 watts per square foot of Net Rentable Area, subject to all
governmental laws, regulations or restrictions now or hereafter in force
pertaining to the furnishing or use of such heat and air conditioning. Normal
business hours shall mean Monday through Friday, 8:00 AM to 6:00 PM and 8:00 AM
to 1:00 PM on Saturdays, holidays excepted. Landlord shall provide heat and air
conditioning to Tenant at other than normal business hours, provided that Tenant
pays Landlord its charges for supplying the same. At the commencement of the
term of this Lease, Landlord's charge for
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<PAGE> 10
supplying heat and air conditioning to Tenant at other than normal business
hours is $30 per hour. Landlord reserves the right to increase this charge from
time to time throughout the term of this Lease upon prior written notice to
Tenant. Tenant shall not introduce into the premises personnel or equipment
which overloads the capacity of the Building systems or in any other way
interferes with any system's ability to perform adequately its proper functions;
provided, however, if Tenant violates the foregoing, landlord may, at its
option, elect to provide supplementary systems or otherwise take steps to cure
such violation, at Tenant's sole cost and expense in all respects including,
without limitation, system installation (and removal) and continuing costs of
operation.
(d) Cause the premises to be kept reasonably clean, provided the premises
are kept in order by Tenant. The cleaning services provided hereunder are set
forth on Exhibit D attached hereto and made a part hereof which represents the
scope of the cleaning services. The cleaning services shall be provided only
Monday through Friday, holidays excepted. Notwithstanding the foregoing, at no
time and under no circumstances shall Landlord have any responsibility for the
storage or removal of any "medical waste", "infectious waste", "hazardous
medical waste", "hazardous waste", as such terms may from time to time be
defined in such municipal, state and federal statutes, laws, ordinances, rules
and regulations as may apply to Tenant or to the premises demised to Tenant
because of the business, profession or activity carried on in the demised
premises by Tenant, Tenant's servants, agents, employees, invitees or anyone
claiming by, through or under Tenant.
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<PAGE> 11
(e) Hot and cold running water, toilet paper, paper towels and hand soap
for common area wash rooms and lavatories.
(f) Electricity for normal lighting of main lobby, elevators and stairs.
SECTION VIII-A. LANDLORD FAILURE TO PROVIDE SERVICES. If all or a material
portion of the premises is rendered untenantable as a proximate result of
Landlord's negligence or misconduct, or as a proximate result of Landlord's
failure to fulfill any covenant or provision of this Lease on its part to be
performed (unless such failure is caused in whole or in part by the action or
inaction of Tenant or another Building tenant), and such negligence, misconduct
or failure to perform affects the life safety, mechanical, electrical and/or
plumbing systems of the Building ("Essential Services"), or solely as a result
of the United States Environmental Protection Agency, or its successor federal
agency, officially declaring the Building or the premises untenantable (unless
such condition is caused in whole or in part by the action or inaction of Tenant
or another Building tenant), and the foregoing conditions materially and
adversely interfere with the conduct of Tenant's business ("Material Failure to
Provide Services"), then Tenant shall have the right hereinafter set forth.
During such period of Material Failure to Provide Services, Landlord will, if
reasonably practical, arrange for the provision of Essential Services on an
interim basis via temporary measures until final corrective measures can be
accomplished. In the event a Material Failure to Provide Services is not
remedied by Landlord within seven (7) consecutive business days after receiving
written notice therefor from a corporate officer of Tenant, then Tenant shall
have the right to abate the rent due or
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<PAGE> 12
becoming due under this Lease until said Material Failure to Provide Services is
remedied by Landlord, but only to the extent that the premises have been
rendered untenantable. Such rent abatement shall be applied as a credit against
Tenant's rental obligations during the next four (4) months in four (4) equal
installments. This Section VIII-A shall be Tenant's sole and exclusive remedy on
account of Landlord's failure to provide services.
SECTION IX. UTILITIES. Tenant shall pay for all utilities furnished to the
demised premises by Landlord or any other supplier. The listing of any utility
service in the previous sentence shall not constitute a representation that such
utility service is available to the premises.
(a) DEMAND AND USAGE. Landlord shall supply electricity, as supplied to
Landlord by the electric utility, to the premises to meet a demand requirement
(utilizing the demand measurement standards established by the supplying utility
under the rate applicable to Landlord) not to exceed 3.0 watts per square foot
of Net Rentable Area for premises lighting and convenience outlets. Tenant
agrees Tenant's use of the premises shall not exceed such requirements or any
limits from time to time established under applicable laws or regulations, or
regulations of the utility providers. In addition to the rent set forth in
Section IV of this Lease and as part of the rent due under this lease Tenant
shall pay Landlord the sum of Eighty-Five Cents ($.85) per square foot of Net
Rentable Area per annum as an "Electricity Charge". The Electricity Charge shall
be paid in equal installments of one-twelfth of the Electricity Charge each in
advance on the first day of each calendar month without
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<PAGE> 13
deduction or demand together with the rent described in Section IV of this
Lease. If Tenant's electricity demand exceeds the foregoing, Tenant shall pay
the cost of such excess electricity demand.
(b) CONSUMPTION. Landlord's supply of electricity shall allow for a rate of
consumption by Tenant of 3.0 watts per square foot of Net Rentable Area,
multiplied by sixty (60) hours of consumption per week. If Tenant's consumption
exceeds such allowance, Tenant shall pay the excess costs.
(c) SURVEY. From time to time during the Term, Landlord shall have the
right to have an electrical consultant selected by Landlord make a survey of
Tenant's electrical usage, the result of which survey shall in the absence of
manifest error be conclusive and binding upon Landlord and Tenant. If such
survey shows that Tenant has exceeded the aforesaid requirements or standards
set forth in the Lease, then, upon demand and in addition to any other rights
Landlord may have hereunder, Tenant shall reimburse Landlord, as Additional
Rent, for the cost of such survey and the cost, as determined by such
consultant, of electricity usage or demand in excess of such requirements or
standards.
(d) ESCALATION. Furthermore, it being the intention of the parties that the
Rent set forth in Section IV of this Lease be net of any cost to Landlord of
providing electric current to the premises, if Landlord is furnishing electric
current to the premises (i.e. Tenant's premises is not separately metered by the
supplying utility company), Tenant shall pay, as Additional Rent, an Escalation
Charge calculated and payable as follows:
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1. If Landlord's cost in supplying electricity to the premises for any
Operating Year exceeds the Electricity Charge (such excess being called "Tenant
Excess Electricity Expenses"), Tenant shall pay to Landlord, as Additional Rent,
an amount equal to the Tenant Excess Electricity Expenses for such year (and at
that rate for a partial year and extrapolated to full occupancy if total
Building electric current figures are used to calculate Tenant Excess
Electricity Expenses). In determining and calculating the amount of the Tenant
Excess Electricity Expenses for and in respect of any Operating Year, Landlord
may utilize electric meters, equipment surveys, engineering estimates, electric
consumption data for the entire Building (in which event Landlord shall
appropriately apply the Escalation Factor) or any other reasonable measurement,
calculation and allocation devices and formulas.
2. Tenant shall make reasonably estimated escalation payments on
account of the Tenant Excess Electricity Expenses either in monthly installments
or in year-end lump sum, as Landlord shall elect. After the end of each
Operating Year, Landlord shall submit to Tenant an accounting of the Tenant
Excess Electricity Expenses for such Operating Year. If the estimated payments
by Tenant for such Year exceed Tenant's required payment on account of the
Tenant Excess Electricity Expenses for that Operating Year, according to such
statement, Landlord shall credit the amount of overpayment against subsequent
obligations of Tenant (or refund the overpayment if the Term has ended and
Tenant has no further obligations to Landlord). If, however, the required
payments are greater than the estimated
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<PAGE> 15
payments made by Tenant, Tenant shall pay to Landlord the difference within
thirty (30) days after being billed therefor by Landlord.
(e) SERVICE AND METERING. Landlord shall have the right at any time and
from time to time to: (i) discontinue furnishing electricity to the premises
upon at least thirty (30) days' notice to Tenant provided Landlord shall, at
Tenant's expense, separately meter the premises; or (ii) continue or recommence
to furnish electricity to the premises, and install at Tenant's expense a
so-called check meter which shall measure the amount of electricity actually
used in the premises. If Landlord exercises the right described in clause (i),
then from and after the effective date of such discontinuance, Landlord shall
not be obligated to furnish electricity to the premises. In either case, from
and after the effective date of such new metering:
1. The Electricity Charge shall no longer be due from Tenant to
Landlord and Tenant shall cease making payments pursuant to subsection (e)
above;
2. In the case described in clause (e)(i) above, Landlord shall permit
Landlord's existing wires, risers, conduits and other electrical equipment to be
used to supply electricity to Tenant provided that the limits set forth in
subsection (a) shall not be exceeded; and
3. In the case described in clause (e)(i) above, Tenant shall arrange
for electrical service from, and make payments directly to, the appropriate
utility company; and in the case described in clause (ii) above, Landlord may
bill Tenant periodically for electricity usage as shown by such meter.
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SECTION X. RENTABLE AREA. The "Net Rentable Area" shall be the area stated
in Exhibit A and Section I of this Lease. The net rentable is determined in
accordance with measurement standards set forth in this Section X. If the
premises occupies less than a full floor, the net rentable area is determined by
measuring the usable space from the glass line of the Building to the middle of
walls demising the premises from another premises and to the outside of corridor
walls; then adding an attributable factor of eighteen percent (18%).
SECTION XI. ESCALATION. In addition to the rent set forth in Section IV of
this lease and as part of the rent due pursuant to the terms of this lease,
Tenant shall pay Landlord the Tax Excess and the Operating Cost Excess as set
forth in this Section XI. As used in this Section XI the following words and
terms shall have the following meaning:
(a) "Taxes" shall mean the real estate taxes and assessments imposed upon
Landlord with respect to Parcel 20G commonly known as 187 Ballardvale Street,
Wilmington, Massachusetts, as such parcel is defined in the records of the
Assessor's Office of Wilmington on January 1, 1995 including all structures
located thereon, and any and all other taxes, levies, betterments, assessments
and charges arising from the ownership and/or operation of said Parcel 20G and
all the structures located thereon which are or shall be imposed by a National,
State or Municipal or other authorities which are or may become a lien upon
Landlord and/or said Parcel 20G, but excluding any fee or penalty levied on
Landlord for late payment thereof. If, or to the extent that, due to a future
change in the method of taxation any franchise,
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income, profit or other tax shall be levied against Landlord in substitution or
in lieu of any tax which would otherwise constitute a real estate tax, such
franchise, income, profit or other tax shall be deemed to constitute "Taxes" for
the purposes hereof. It is recognized and agreed by Landlord and Tenant that it
is their intention by this paragraph to include in "Taxes" that which in tax
year 1996 was commonly known in Wilmington as "real estate taxes", including
that portion covered by the school tax rate, and any type of tax or assessment
which may, throughout the term hereof be substituted, in whole or in part
therefore. If, in any tax year after the tax year 1996, the Town of Wilmington
or any of its departments, shall require Landlord to pay for any service which
during the fiscal tax year 1996 was provided by said Town of Wilmington or any
of its departments without requiring payment by Landlord, then all such payments
due on account of services rendered during any tax year after the tax year 1996
shall, for purposes of this Section XI(a) be considered and treated as real
estate taxes for the tax year for which such payments are due. Without in any
way limiting the generality of the preceding sentence some of the services for
which the Town of Wilmington or any of its departments might require payment
are: police protection, fire protection, public schools, library services, park
services, building inspections. Water and sewer use charges are covered
elsewhere in this lease and the same shall not enter into the calculations made
under this Section XI(a).
(b) "Tax Base" shall mean the taxes for the fiscal tax year commencing July
1, 1995 and terminating June 30, 1996, as abated, if abated.
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(c) "Tenant's Proportionate Share" for taxes shall be thirteen and 80/100
percent (13.8%).
(d) "Tax Year" shall mean the twelve month period commencing July 1, 1995,
and each twelve (12) month period commencing on an anniversary of said date
during the term of the lease.
(e) "Operating Costs" shall mean all costs incurred and expenditures of
whatever nature made by the Landlord, whether directly or by allocation, in the
operation, management, repair, cleaning and maintenance of the Building,
Premises, Property, related equipment and facilities and appurtenant parking and
landscaped areas, heating and cooling equipment, including but not limited to
the following:
1. All costs for fire, extended coverage, casualty, liability,
workmen's compensation, rental interruption insurance, and all other bonds and
insurance as may be required by the holder or guarantor of the mortgage upon the
Building in which the demised premises are located, or otherwise reasonably
required.
2. Water and sewer charges.
3. Heating, ventilating and air conditioning service equipment
contracts.
4. Rubbish removal.
5. Electricity and gas charges except to the extent that the same are
separately metered or apportioned to tenants, including without limitation, the
cost of electric current for the operation of elevators, and public lights
inside and outside the Building, and the parking area.
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6. Common area air conditioning filter service contract.
7. Security service equipment contracts, if any.
8. Exterminating services and contracts.
9. Wages including all fringe benefits, federal and state payroll,
unemployment and old age taxes paid by Landlord on account of all employees who
are employed 100% (or proportionally based upon a reasonable allocation if less
than 100%) in, about or on account of the land, Building or other improvements
of which the premises are a part. Employees shall include administrative and
overhead personnel.
10. The cost of labor and materials used in cleaning the Building,
surrounding areaways and windows in the Building, the Property, and the parking
area.
11. Supplies.
12. Elevator service contracts.
13. All costs for permits and fees, except those associated with work
undertaken solely for an individual tenant.
14. The cost of any capital improvements or additions made to the
Building that (a) are not solely for any other tenant and (b) are necessary to
comply with laws not in effect when the Building was constructed or are intended
to result in savings in Operating Costs after the commencement of the term of
this lease, such cost thereof to be amortized over such improvement's or
addition's useful life together with interest on the unamortized balance at the
rate which is 2% above the
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prime rate from time to time charged by The First National Bank of Boston or
such higher rate as may be paid by Landlord for funds borrowed to construct such
said capital improvements or additions, it being agreed that in each lease year
there shall be included in Operating Costs only such years allocable share of
the amortization and interest described in this Section XI(e)14.
15. All management fees paid for the Manager of the Building, and all
asset management fees. As of the execution of this Lease, said management fees
are 3 1/2% of gross revenues of the Building and said asset management fees are
1 1/2% of gross revenues of the Building. In the event said fees are paid to an
affiliate of Landlord, Operating Costs shall not include any portion of said
fees which are objected to by Landlord's mortgagee.
(f) "Operating Cost Base" shall mean the amount arrived at by computing the
actual costs of operation, management, repair, cleaning and maintenance of the
Property, Building, related equipment and facilities, heating and cooling
equipment, including, without limitation, those items described in clauses (1)
through (15) inclusive of Section (e) of this Section XI shown above, for the
calendar year 1996.
(g) "Computation Year" shall mean each calendar year of a portion thereof
beginning with the calendar year 1997.
(h) "Tax Escalation Statement" and "Operating Cost Escalation Statement"
shall mean a statement setting forth in reasonable detail the amount payable by
Tenant as Tax Excess and Operating Cost Excess for tax year and computation
years
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respectively. Such statement shall show the Tax Base or the Operating Cost Base
as the case may be.
(i) "Tenant's Proportionate Share for Operating Cost Escalation" shall be
thirteen and 80/100 (13.8%) percent. In the event that the Building is enlarged
or diminished so as to increase or decrease the net rentable area of the
Building, Tenant's Proportionate Share for Operating Cost Escalation shall be
adjusted to reflect accurately the portion of the net rentable area leased by
Tenant.
(j) "Tax Excess" shall mean the amount, in any Tax Year by which the Taxes
for said year exceed the Tax Base, multiplied by Tenant's Proportionate Share
for Taxes. Landlord may bill Tenant annually, semi-annually, quarterly, or
monthly for such Tax Excess as may be due, and Tenant shall pay such bills
within ten (10) days after receipt of the same.
Appropriate credit against Tax Excess shall be given for any refund
obtained by reason of a reduction in any Taxes by the Courts or other
governmental agency responsible therefor. The original computation as well as
reimbursement or payments of additional charges, if any, or allowances, if any
under the provisions of this Section XI shall be based on the original assessed
valuations with adjustments to be made at a later date when the tax refund, if
any, shall be paid to Landlord by the taxing authority. Expenditures for legal
fees and for other similar or dissimilar expenses incurred in obtaining the tax
refund shall be charged against the tax refund before the adjustments are made
for the Tax Year. In no event shall Tenant be
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entitled to receive a credit against Tax Excess for any tax year in an amount
greater than Tenant's share of the Tax Excess for such fiscal tax year.
(k) Operating Cost Excess: If the total of Operating Costs in any
Computation Year exceeds the Operating Cost Base, Tenant shall pay to Landlord,
Tenant's Proportionate Share of such excess and such amount being hereinafter
referred to as "Operating Cost Excess". Any new or residual classification or
item of expenditure made by Landlord that are within the definition of Operating
Costs shall be included within the Operating Cost Excess.
Landlord may, at its sole discretion, bill Tenant monthly, quarterly,
semi-annually or annually for such Operating Cost Excess. The billing shall
always be in arrears. Each bill shall set forth on an item by item basis the
increase over the base year of the cost of each item for the month, quarter,
half-year or year for which the bill is rendered. Any bill for a month, quarter
or half-year may be rendered on an estimated basis, in which event the estimate
shall be the actual cost of the item for the next year preceding increased by
Landlord's estimate of what the increase for the current year shall be. Any
estimated bill need not include all of the items mentioned in Section XI(e). Any
annual bill shall be rendered on the basis of actual costs only. If Landlord
shall render a monthly, quarterly or semi-annual bill on account of any calendar
year, then within one hundred eighty (180) days after the close of such calendar
year (but within ninety (90) days of the expiration of the term of this Lease),
Landlord shall render an annual bill for such year which annual bill shall make
all adjustments as may be necessary to reflect actual changes during that year
including,
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without limitation, any refund as may be due to Tenant. All bills for the cost
escalation portion of the rent shall be due immediately upon receipt.
PART YEARS: CHANGE OF TAX YEAR: If the Term Commencement Date or the
Termination Date occurs in the middle of a Computation Year or Tax Year, Tenant
shall be liable for only that portion of the Operating Cost Excess or Tax Excess
as the case may be, in respect of such Computation Year or Tax Year represented
by a fraction, the numerator of which is the number of days of the herein term
which falls within the Computation Year or Tax Year, and the denominator of
which is three hundred sixty-five (365).
In the event the first day of the Tax Year in the Town of Wilmington should
be changed after the Term Commencement Date to a day other than July 1 so as to
change the twelve-month period comprising the Tax Year, in determining the Tax
Excess with respect to Taxes payable for the period between July 1 and such
changed first day of the Tax Year, the Tax Excess shall be multiplied by a
fraction, the numerator of which shall be the number of days elapsing during
such period, and the denominator of which shall be three hundred sixty-five
(365).
EFFECT OF TAKING: In the event of any taking of the Building or the land
upon which it stands under circumstances whereby this lease shall not terminate
under the provisions of Section XVII, then for the purposes of determining Tax
Excess, in the event the valuation of Parcel 20G is lowered to reflect the
taking, the Tax Base shall be lowered proportionately in relation to the reduced
valuation. In the event the taking includes a portion of the demised premises or
the building which it
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is a part, Tenant's Proportionate Share shall be adjusted pro-rata to reflect
the proportion of the premises and/or Property remaining after such taking.
SURVIVAL OF OBLIGATIONS: Any obligation under this Section XI of Tenant
which shall not have been paid at the expiration of the term of this lease shall
survive such obligation and shall be paid when and as the amount of same shall
be determined to be due.
SECTION XII. REMOVAL OF GOODS AND TENANT'S REPAIRS. At the expiration of
the term, Tenant will remove its goods and effects (except as elsewhere provided
herein) and will peaceably yield up to the Landlord the premises in as good
order and condition as when delivered to it, excepting ordinary wear and tear
(which shall not be deemed to include holes in walls or floors or special wiring
caused by installation of Tenant's fixtures or equipment), repairs required to
be made by Landlord and damage by fire or unavoidable casualty.
The Tenant shall be responsible for all damages or injury to the premises,
fixtures, appurtenances and equipment of Landlord, and to the Building and the
Property, caused by Tenant's installation or removal of furniture, fixtures or
equipment.
SECTION XIII. SALES TAX. In the event that any sales tax shall be levied by
the Commonwealth of Massachusetts, or the Town of Wilmington, or any other
authority having jurisdiction, upon the rent received by Landlord from Tenant,
the exact amount of such tax shall be paid by Tenant to Landlord at the same
time each installment of rent is paid to the Landlord.
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SECTION XIV. IMPROVEMENTS AND ALTERATIONS. The Tenant may place such
partitions, fixtures, (including light fixtures), personal property, machinery,
motors and the like (subject to Section VII) in the premises and may make, at
its own expense, such improvements and alterations as have the prior written
approval of Landlord in each instance provided that all work done by Tenant in
the demised premises shall be done in accordance with all zoning, building, fire
and other codes applicable thereto. All fixtures, equipment, improvements and
appurtenances attached to or built into the premises prior to or during the term
shall be and remain part of the premises as of the end of the term unless
specifically excluded elsewhere in this lease. In the case of damage or
destruction of such items during the term, Tenant shall have the right to
recover its loss from any insurance company with which it has insured the same
notwithstanding that any of such things might be considered part of the premises
at the end of the term. At the option of Landlord, Tenant shall remove any or
all of such fixtures, equipment, improvements and alterations at the end of the
term. Landlord may not require removal of pipes, wires and the like from the
walls, ceilings or floors, provided that the Tenant properly cuts, caps and
disconnects such pipes and wires and seals them off in a safe and lawful manner
flush with the applicable wall, floor or ceiling and redecorates the area
consistent with the remainder of the premises. Tenant shall be responsible for
any damage to the Building caused by malfunction of equipment or the removal of
its property as aforesaid.
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SECTION XV. INSPECTION. The Landlord and any mortgagee of the Building or
of the Building and land, or of Landlord's interest therein, and their
representatives shall have the right at all times to enter the premises to
inspect the same and to make repairs or replacements therein as required by this
lease and to introduce conduits and pipes or ducts; provided, however, that the
Landlord (a) shall use reasonable efforts not to unduly disturb the Tenant's use
and occupancy and (b) absent Tenant's prior consent shall not include as
visitors any trade competitors of Tenant.
SECTION XVI. CASUALTY. If the premises or any part thereof shall be damaged
by fire or other casualty, Landlord shall proceed with reasonable diligence, and
at the expense of Landlord, to repair or cause to be repaired such damage.
Landlord's responsibility to restore the demised premises shall be limited to
Landlord's obligations as set forth in Exhibit B and shall be subject to all
zoning and building codes then applicable; Tenant shall at Tenant's expense
restore and repair the demised premises to the extent of Tenant's obligations as
set forth in Exhibit B and shall be subject to all zoning and building codes
then applicable. All repairs to and replacement of Tenant's property and
property which Tenant may be required to remove as provided in Sections XII and
XIV shall be made by and at the expense of Tenant. If the premises or any part
thereof shall have been rendered unfit for use and occupation hereunder by
reason of such damage, the yearly rent or a just and proportionate part thereof,
according to the nature and extent to which the premises shall have been so
rendered unfit, shall be suspended or abated until the premises
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(except as to the property which is to be repaired by or at the expense of
Tenant) shall have been restored as nearly as practicably may be to the
condition in which they are immediately prior to such fire or other casualty.
Landlord shall not be liable for delays in the making of any such repairs which
are due to government regulations, casualties, and strikes, unavailability of
labor and materials, and other causes beyond the control of Landlord, nor shall
Landlord be liable for any inconvenience or annoyance to Tenant or injury to the
business of Tenant resulting from reasonable delays in repairing such damage. In
case the Building is so damaged by such fire or other casualty that substantial
alteration or substantial reconstruction of the Building shall be required,
Landlord shall provide to Tenant within forty-five (45) days of such damage a
written professional opinion from Landlord's architect or engineer as to the
amount of time which will reasonably be necessary to complete the repairs or
restoration that Landlord is required to make hereunder should it elect not to
terminate this lease. If such opinion states that the repairs or restoration
will not be completed within twelve (12) months from the date of such damage,
then Landlord and Tenant shall each have the right to terminate this lease by
giving written notice to the other therefor within thirty (30) days of the
rendering of such written opinion, said termination to be effective not less
than thirty (30) nor more than sixty (60) days thereafter; provided, however, if
such fire or other casualty occurs during the last eighteen (18) months of the
term of this lease, and such opinion states that the repairs or restoration will
not be completed within four (4) months from the date of such damage, then both
Landlord and Tenant shall have
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the right to terminate this lease by giving written notice therefor to the other
within thirty (30) days of receipt of such written opinion, said termination to
be effective not less than thirty (30) nor more than sixty (60) days thereafter.
If said written opinion of Landlord's architect or engineer contains a
recitation that it is rendered in good faith, both Landlord and Tenant agree
that it shall be conclusive and binding on both parties, and both parties hereby
waive their right to contest or challenge the opinions, conclusions or
determinations of said letter. In the event the lease is not so terminated,
Landlord shall proceed with reasonable diligence, and at the expense of
Landlord, to repair or cause to be repaired such damage. In the event of any
such termination, this lease and the term hereof shall expire as of such
effective termination date and the yearly rent including the Electricity Charge,
the Tax Excess and the Operating Cost Excess portions thereof shall be
apportioned as of such date; and if the premises or any part thereof shall have
been rendered unfit for use and occupation by reason of such damage, the yearly
rent including the Electricity Charge, the Tax Excess and Operating Cost Excess
portions thereof for the period from the date of the fire or other casualty to
the effective termination date, or a just and proportionate part thereof,
according to the nature and extent to which the premises shall have been
rendered unfit, shall be abated.
SECTION XVII. EMINENT DOMAIN CONDEMNATION. In the event that the premises
or any part thereof, or the whole or any part of the Building shall be taken or
appropriated by eminent domain or shall be condemned for any public or
quasi-public use, or (by virtue of any such taking, appropriation or
condemnation)
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shall suffer any damage (direct or indirect or consequential) for which Landlord
or Tenant shall be entitled to compensation, then (and in any such event) this
lease and the term hereof may be terminated at the election of Landlord by a
notice in writing of its election so to terminate which shall be given by
Landlord to Tenant within sixty (60) days following the date on which Landlord
shall have received official notice of such taking, appropriation or
condemnation. In the event that a substantial part of the premises or of the
means of access thereto shall be so taken, appropriated or condemned, then (and
in any such event) this lease and the term hereof may be terminated at the
election of Tenant by a notice in writing of its election so to terminate which
shall be given by Tenant to Landlord within sixty (60) days following the date
on which Tenant shall have received official notice of such taking,
appropriation or condemnation.
Upon the giving of any such notice of termination (either by Landlord or
Tenant) this lease and the term hereof shall terminate on or retroactively as of
the date on which Tenant shall be required to vacate any part of the premises or
shall be deprived of a substantial part of the means of access thereto,
provided, however, that Landlord may in Landlord's notice elect to terminate
this lease and the term hereof retroactively as of the date on which such
taking, appropriation or condemnation become legally effective. In the event of
any such termination, this lease and the term hereof shall expire as of such
effective termination date and the yearly rent shall be apportioned of such
date. If neither party (having the right to do so) elects to terminate, Landlord
will, with reasonable diligence and at Landlord's expense, restore
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the remainder of the premises, or the remainder of the means of access, as
nearly as practicably may be to the same condition as obtained prior to such
taking, appropriation or condemnation, in which event the yearly rent shall be
adjusted, (i) a just proportion of the yearly rent, according to the nature and
extent of the taking, appropriation or condemnation and the resulting permanent
injury to the premises and the means of access thereto, shall be permanently
abated, (including in such abatement the adjustments in the Tax Base and
Tenant's Proportionate Share for Taxes as provided in Section XI, and a just
adjustment in Tenant's Proportionate Share for Operating Costs and in the
Operating Cost Base) and (ii) a just proportion of the remainder of the yearly
rent, according to the nature and extent of the taking, appropriation or
condemnation and resultant injury sustained by the premises and the means of
access thereto shall be abated until the premises and the means of access
thereto shall have been restored as fully as may be for permanent use and
occupation by Tenant hereunder. Subject to the last sentence of this Section
XVII, there is expressly reserved to Landlord all rights to compensation and
damages created, accrued or accruing by reason of any such taking, appropriation
or condemnation. It is expressly understood and agreed that the provisions of
this Section XVII shall not apply to any taking, appropriation or condemnation
for governmental occupancy for a period reasonably estimated to be less than one
(1) year in duration. During such period, the rent hereunder shall be abated
proportionately. If the period of governmental occupancy is reasonably estimated
at more than one year, Tenant may elect to terminate this lease by notice to
Landlord, in
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the manner aforesaid. It is agreed that Tenant reserves all rights to moving and
relocation expense claims as may be available to it from the condemning
authority in accordance with statutes or regulations.
SECTION XVIII. INDEMNIFICATION. Tenant shall save Landlord harmless, and
will exonerate and indemnify Landlord from and against any and all claims,
liabilities or penalties asserted by or on behalf of any person, firm or public
authority:
(a) On account of or based upon any injury to person, or loss of or damage
to tangible property, sustained or occurring on the premises on account of or
based upon the act, omission, fault, or neglect of Tenant, its servants, agents,
employees, licensees, invitees and guests.
(b) On account of or based upon any injury to person or loss of or damage
to tangible property, sustained or occurring elsewhere (other than on the
premises) in or about the Building and Property (and, in particular, without
limiting the generality of the foregoing on or about the elevators, stairways,
public corridors, sidewalks, concourses, arcades, approaches, areaways, roof,
outside parking areas, or other appurtenances and facilities used in connection
with the Building or premises) arising out of the use or occupancy of the
Property, Building or premises by the Tenant or by any person claiming by,
through or under Tenant, unless caused by or resulting from Landlord's
negligence, and in addition to and not in limitation of either of the foregoing
subdivisions (a) or (b).
(c) On account of or based upon (including monies due on account of) any
work or things whatsoever done (other than by Landlord or its contractors, or
agents
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or employees of either) on the premises during the term of this lease and during
the period of time, if any, prior to the Term Commencement Date that Tenant may
have been given access to the premises; and, in respect of any of the foregoing,
from and against all costs, expenses (including reasonable attorney's fees), and
liabilities incurred in or in connection with any such claim, or any action or
proceeding brought thereon; and in case any action or proceeding be brought
against Landlord by reason of any such claim, Tenant, upon notice from Landlord,
shall, at Tenant's expense, resist or defend such action or proceeding and
employ counsel therefor reasonably satisfactory to Landlord, it being agreed
that such counsel as may act for insurance underwriters of Tenant engaged in
such defense shall be deemed satisfactory.
SECTION XIX. PROPERTY OF TENANT. In addition to and not in limitation of
the foregoing, Tenant covenants and agrees that all of its merchandise,
furniture and property of every kind, nature and description which may be in or
upon the premises or Building, the Property, in the public corridors, or on the
sidewalks, areaways, and approaches thereto, or outside parking areas during the
term hereof, shall be at the sole risk and hazard of Tenant, and that if the
whole or any part thereof shall be damaged, destroyed, stolen or removed by any
cause whatsoever, no part of said damage or loss shall be charged to or borne by
Landlord. Tenant agrees to carry adequate insurance to protect itself against
said loss or damage.
SECTION XX. INJURY AND DAMAGE. Landlord shall not be liable for any injury
or damage to persons or property resulting from fire, explosion, falling
plaster,
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steam, gas, electricity, electrical disturbance, water, rain or snow, or leaks
from any part of the Building, the Property, or parking area, or from the pipes,
appliances, or plumbing works or from the roof, street or subsurface or from any
other place or from dampness or by any other cause of whatever nature, whether
caused by other tenants or persons in the Building, or on the Property, or in
any parking area or caused by operations in construction of any private, public
or quasi-public work; nor shall Landlord be liable for any latent defect in the
demised premises or in the Building. Notwithstanding anything contained herein
to the contrary, Landlord shall not be relieved of its obligation to contract
for the removal of snow and ice from the parking areas, sidewalks and access
ways on the Property.
SECTION XXI. ASSIGNMENT, MORTGAGING, AND SUBLETTING. Tenant covenants and
agrees that neither this lease nor the term and estate hereby granted, nor any
interest herein or therein, will be assigned, mortgaged, pledged, encumbered or
otherwise transferred, and that neither the premises, nor any part thereof will
be encumbered in any manner by reason of any act or omission on the part of
Tenant, or used or occupied, or utilized for desk space or for mailing
privileges, by anyone other than Tenant, or for any use or purpose other than as
stated herein, or be sublet or offered or advertised for subletting, without the
prior written consent of Landlord in every case. Not in limitation of the
foregoing, Tenant's request for Landlord's consent to subletting or assignment
shall be submitted in writing and Landlord's consent shall be granted only if
the assignee, subtenant or sublessee shall agree to pay Landlord rent, including
Tax Excess, Operating Cost Excess, Electricity Charge
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and Tenant Excess Electricity Expense at the higher of that reserved in this
lease or that then current rate in the Building for new tenants. Further, it is
agreed that in lieu of withholding or granting its consent Landlord may, within
thirty (30) days of receipt of a request for consent from Tenant, cancel this
lease as to so much of the demised premises as Tenant has proposed for
assignment or subletting. If Landlord shall elect to cancel this lease as to all
or a portion of the demised premises, it shall give Tenant written notice of its
election, which notice shall set forth a "termination date" which shall be not
less than thirty (30) or more than sixty (60) days from the receipt by Landlord
of Tenant's request to assign or sublet, and on that "termination date" Tenant
shall surrender the premises for which this lease has been canceled in
accordance with the provisions of this lease relating to the surrender of the
demised premises as the expiration of the term of this lease. If the
cancellation shall be as to a portion of the demised premises only, then the
Tenant's Proportionate Share for Taxes, Tenant's Proportionate Share for
Operating Cost Escalation and the rent shall be adjusted proportionately to
reflect said cancellation. It is hereby expressly understood and agreed,
however, if Tenant is a corporation, that the assignment, or transfer of this
lease, and the term and estate granted, to any corporation into which Tenant is
merged or with which Tenant is consolidated or which is an affiliate of Tenant
(i.e. controlling, controlled by or under common control with Tenant), which
corporation shall have a net worth at least equal to that of Tenant immediately
prior to such merger or consolidation (such corporation being hereinafter called
"Assignee"), without the prior written consent of Landlord shall not be deemed
to be
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prohibited hereby, if, and upon the express condition that, Assignee and Tenant
shall promptly execute, acknowledge, and deliver to Landlord an agreement in
form and substance satisfactory to Landlord whereby Assignee shall agree to be
personally bound by and upon the covenants, agreements, terms, provisions and
conditions set forth in this lease on the part of Tenant to be performed and
whereby Assignee shall expressly agree that the provisions of this Section XXI
shall, notwithstanding such assignment transfer, continue to be binding upon it
with respect to all future assignments and transfers.
The listing of any name other than that of Tenant, whether on the doors of
the premises or on the Building directory, or otherwise, shall not operate to
vest any right or interest in this lease or in the premises or be deemed to be
the written consent of Landlord mentioned in this Section XXI, it being
expressly understood that such listing is a privilege extended by Landlord
revocable at will by written notice to Tenant; Landlord agrees not to revoke
such privilege for Tenant during the term hereof.
If this lease be assigned, or if the premises or any part thereof be sublet
or occupied by anybody other than Tenant, Landlord may, after default by Tenant,
collect rent from the Assignee, subtenant or occupant, and apply the net amount
collected to the rent herein reserved, but no such assignment, subletting,
occupancy or collection shall be deemed a waiver of this covenant, or the
acceptance of the Assignee, subtenant or occupant as a tenant, or a release of
Tenant from the further performance by Tenant of covenants on the part of Tenant
herein contained. The
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consent by Landlord to an assignment or subletting shall not in any way be
construed to relieve Tenant from obtaining the express consent in writing of
Landlord to any further assignment or subletting. No assignment, subletting or
use of the demised premises by an affiliate of Tenant shall affect the purpose
for which the demised premises may be used stated in Section II.
SECTION XXII. SIGNS, BLINDS AND DRAPERIES. No signs or blinds may be put on
or in any window by Tenant. Tenant may hang its own draperies, provided that
they shall not in any way interfere with the Building standard blinds or be
visible from the exterior of the Building and that such draperies are so hung
and installed that when drawn, the Building standard blinds are automatically
also drawn. Any signs or letters in the public corridors or on the doors must be
submitted to Landlord for written approval before installation, which
installation shall be at the sole expense of Tenant.
SECTION XXIII. INSURANCE. Tenant will not do or omit to do to keep anything
in, upon or about the demised premises which may prevent the obtaining of any
fire, liability or other insurance upon or written in connection with the
premises or the Building, the Property or any parking area or which may make any
such insurance void or voidable, or which may create any extra premiums or
increase the rate of any such insurance over that normally applicable to the
office buildings unless the Tenant pays such extra or increased premiums.
SECTION XXIV. INFLAMMABLES, ODORS. Tenant shall not bring or permit to be
brought of keep in or on the premises or elsewhere in the Building or Property,
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any inflammable, combustible or explosive fluids, material, chemical or
substance, or cause or permit any odors of cooking or other processes, or any
unusual or other objectionable odors to emanate from or permeate the premises.
SECTION XXV. DEFAULT. If the Tenant shall default in the performance of any
of its obligations and if such default shall continue for ten (10) days after
written notice thereof by the Landlord to the Tenant, hereinafter referred to as
grace period, except that if the Tenant cannot reasonably cure any such default
within said ten (10) day period, this period may be extended for a reasonable
time, provided that the Tenant commences to cure such default within ten (10)
day period and proceeds diligently thereafter to effect such cure, and further
provided that Tenant shall be entitled to only one ten (10) day grace period in
any twelve month period, or if the Tenant shall be adjudicated bankrupt or
insolvent according to law, or shall make an assignment for the benefit of
creditors, then Landlord may lawfully enter the premises or any part thereof in
the name of the whole or mail a notice of termination addressed to Tenant at the
demised premises and repossess the same as of the former estate of the Landlord
and expel the Tenant and those claiming under the Tenant without being deemed
guilty of any manner of trespass and without prejudice to any other remedies
which the Landlord may have for arrears of rent or preceding breach of covenant,
and upon entry or mailing as aforesaid, this lease shall terminate and the
Tenant covenants that in case of such termination, it will indemnify the
Landlord against all loss of rent, reletting expenses, and brokerage, which the
Landlord may incur by reason of such termination during the residue of the term.
The Landlord
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may elect to receive as damages upon termination under this Section XXV either
the amount by which, at the termination of this lease, the aggregate of the rent
and other charges (including escalations projected on the basis of experience
under the lease) projected over the period from such termination until the
normal expiration date of the term exceeds the aggregate projected rental value
of the premises for such period or amounts equal to the rent and other charges
which would have been payable had the lease not so terminated, payable upon the
due dates as specified herein (subject to offset for net events actually
received from reletting after subtraction of the expenses or reletting
proportionally allocated to the term of the reletting).
Suit or suits for the recovery of such damages, or any installments
thereof, may be brought by Landlord from time to time at its election, and
nothing contained herein shall be deemed to require Landlord to postpone suit
until the date when the term of this lease would have expired if it had not been
terminated hereunder.
Nothing herein contained shall be construed as limiting or precluding the
recovery by Landlord against Tenant of any sums or damages to which, in addition
to the damages particularly provided above, Landlord may lawfully be entitled by
reason of any default hereunder on the part of Tenant.
In the event of any termination of this lease or re-entry by Landlord under
the provisions of this Section XXV, or in the event of the termination of this
lease or of re-entry by or under any summary process or other proceeding or
action or any provision of law by reason of default under this lease on the part
of Tenant, then for
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the purposes of computing damages as shall be payable pursuant to this Section
XXV, it is agreed that:
In calculating the damages under the first textual paragraph under this
Section XXV, there shall be payable to Landlord as part of such damages the
product of the Electricity Charge, the Escalation Excesses (Tax Excess and
Operating Cost Excess) for the immediately preceding Lease Year, times the
number of years then remaining unexpired of the term hereof, on the agreement
the Electricity Charge and the Escalation Excess would have remained constant
for each subsequent Lease Year of the full term hereby granted.
SECTION XXVI. SUBORDINATION. This lease is subject and subordinate in all
respects to all mortgages which may now or hereafter be placed on or affect the
real property of which the premises are a part, or Landlord's interest or estate
therein, and to each advance made and/or hereafter to be made under any such
mortgages, and to all renewals, modifications, consolidations, replacements and
extensions thereof and all substitutions therefor. This Section XXVI shall be
self-operative and no further instrument of subordination shall be required. In
confirmation of such subordination, Tenant shall execute and deliver promptly
any certificate that Landlord and/or any mortgagee and their respective
successors in interest may request. Notwithstanding the generality of the
foregoing provisions of this Section XXVI, Tenant agrees that any such mortgagee
shall have the right at any time to subordinate any such mortgages or other
instruments of security to this Lease on such terms and subject to such
conditions as such mortgagee may deem
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appropriate in its discretion. Tenant further covenants and agrees upon demand
by Landlord's mortgagee at any time, before or after the institution of any
proceedings for the foreclosure of any such mortgages or other instruments of
security, or sale of the Building pursuant to any such mortgages or other
instruments of security (which agreement shall survive any such foreclosure
sale), to attorn to such mortgagee or such purchaser upon any such sale and to
recognize such purchaser as Landlord under this Lease, provided that Tenant's
possession shall not be disturbed except under the terms of this Lease, and
further agrees to execute any and all documents as such mortgagee may require to
confirm such attornment. Notwithstanding anything contained herein to the
contrary, Landlord shall obtain and provide to Tenant a Subordination,
Non-Disturbance and Attornment Agreement in commercially reasonable form from
its first mortgagee.
SECTION XXVII. NOTICES. From time to time, Tenant and Landlord on at least
fifteen (15) days prior written request by the other, will deliver a statement
in writing certifying that this lease is unmodified and in full force and effect
(or if there shall have been modifications, that the same is in full force and
effect as modified and stating the modifications) and the dates to which the
rent and other charges have been paid and stating whether or not the Landlord or
Tenant, as the case may be, is in default in performance of any covenant,
agreement or condition contained in this lease and, if so, specifying each such
default of which it may have knowledge.
Any notice or demand by Tenant to Landlord shall be served by Sheriff,
Constable or certified mail, postage prepaid, or recognized overnight courier,
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addressed to Landlord as set forth below, until otherwise directed in writing by
the Landlord, and any notice or demand by Landlord to Tenant shall be served by
Sheriff, Constable or certified mail, postage prepaid, or recognized overnight
courier, to the Tenant as set forth below, except that notice of termination
pursuant to Section XXV may be sent by regular mail postage prepaid to Tenant at
the leased premises.
To Landlord: New Boston Wilmar Limited Partnership
One Longfellow Place, Suite 3612
Boston, Massachusetts 02114
with a copy to: Rappaport, Aserkoff & Rappaport
One Longfellow Place, Suite 3611
Boston, Massachusetts 02114
To Tenant: Ascent Pediatrics, Inc.
187 Ballardvale Street
Wilmington, Massachusetts 01887
It is agreed that certified mail shall be conclusively deemed received one
day after it is mailed, postage prepaid, and that an item sent by recognized
overnight courier shall be conclusively deemed received the day it is scheduled
to be delivered.
SECTION XXVIII. RULES AND REGULATIONS. Tenant will faithfully observe and
comply with the Rules and Regulations annexed hereto and such other further
Rules and Regulations as Landlord hereafter at any time or from time to time may
make for the Building as a whole and may communicate in writing to Tenant, which
in the judgment of Landlord shall be necessary for the reputation, operation,
safety, care or appearance of the Building, the Property, any parking garage,
the outside parking areas, or the preservation of good order in the said
Building, the Property, underground garage or parking area, or the operation of
maintenance of
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the Building, or the equipment thereof, or the Property, or the comfort of
tenants or others in the Building; provided, however, that in the case of any
conflict between the provisions of this Lease and any such Rules and
Regulations, the provisions of this lease shall control, and provided further,
that nothing contained in this lease shall be construed to impose upon Landlord
any duty of obligation to enforce the Rules and Regulations or the terms,
covenants or conditions in any other lease as against any other tenant and
Landlord shall not be liable to Tenant for violation of the same by any other
tenant, or any other tenant's servants, employees, agents, visitors, invitees or
licensees.
SECTION XXIX. QUIET ENJOYMENT. The Tenant, on paying the said rent and
performing the covenants of this lease on its part to be performed shall and may
peaceably and quietly have, hold and enjoy the demised premises for the term
aforesaid and any extension thereof.
SECTION XXX. BINDING AGREEMENT. This lease shall bind and enure to the
benefit of the parties hereto and their respective heirs, representatives,
successors and assigns. This lease contains the entire agreement of the parties
and may not be modified except by instrument in writing signed by the parties
hereto.
SECTION XXXI. PARTNERSHIP. During such time as the Landlord shall be a
limited partnership, Tenant agrees that it shall not hold any partner of
Landlord personally responsible for any of the covenants of Landlord under this
lease, and in the event it has a claim against Landlord, Tenant shall look only
to the assets of the partnership for satisfaction thereof. Tenant specifically
agrees to look solely to
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Landlord's interest in the Building for recovery of any judgment from Landlord;
it being specifically agreed that neither the Landlord nor anyone claiming by,
through or under Landlord shall ever be personally liable for any such judgment,
or for the payment of any monetary obligation to Tenant.
SECTION XXXII. SEISIN. In the event of a sale or other disposition of the
Building and/or land underlying it by Landlord, Landlord shall be entirely free
and relieved from the performance and observance thereafter of all covenants and
obligations of Landlord hereunder, it being understood and agreed in that the
successor to Landlord's ownership shall thereupon and thereafter assume and
perform and observe, any and all of such covenants and obligations of Landlord.
Landlord shall transfer said security deposit to any purchaser of the Building.
SECTION XXXIII. INSURANCE. Tenant shall maintain in full force and effect
the following insurance written by one or more responsible companies licensed to
do business in Massachusetts in form and content reasonably satisfactory to
Landlord, including, except as to (2) of this Section XXXIII at the request of
Landlord, Landlord as a named insured as interest may appear under the lease,
and Tenant shall keep deposited with the Landlord copies of all policies of
insurance, or certificates thereof, with endorsements on such policies or
certificates to the effect that such insurance shall not be canceled by the
insurer without at least fifteen (15) days prior notice to Landlord.
(1) Comprehensive general liability insurance on an occurrence basis in an
amount not less than One Million Dollars ($1,000,000) combined single limit for
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property damage and for any personal injury, including death, to one or more
than one person arising out of any one incident.
(2) Worker's compensation insurance covering all employees, and, if Tenant
shall contract with any independent contractor for the furnishing of labor,
materials or services to Tenant, Tenant shall require such independent
contractor to maintain workmen's compensation insurance covering all its
employees and all the employees of any subcontractor.
(3) Personal Property - Landlord shall not be liable to Tenant for and
Tenant shall carry his own insurance to protect against:
(i) Damage to or loss of property entrusted to employees of the
Landlord.
(ii) Loss of property through thefts regardless of where the theft
takes place.
(iii) Damage to property regardless of where the damage takes place.
(iv) Damage to or loss of property caused by other tenants or
occupants of the Building or caused by visitors to or in the Building.
It is specifically understood that Landlord's insurance does not cover any
personal property of Tenant and Tenant shall not make any claim for loss of or
damage to such property against Landlord or Landlord's insurance carrier and
shall not permit its insurance carrier to make any claim for loss or damage to
such property against Landlord or Landlord's insurance carrier.
SECTION XXXIV. SUBROGATION, INSURANCE PREMIUMS.
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(a) The Landlord discharges and releases the Tenant to the extent of the
Landlord's fire or casualty insurance coverage, but only with respect to loss
and damage occurring during such times as the Landlord's policies of fire and
casualty insurance shall contain an operative clause or endorsement providing
that such discharge or release shall not affect the policy or the right of the
Landlord to recover thereunder, even if such fire or other casualty may have
been brought about by the fault or neglect of Tenant, its agents or employees,
for or on account of any and all claims and liabilities arising out of any loss
or damage during the term hereof, or any extension or renewal thereof, to any
property of the Landlord caused by (1) fire and such risks as are customarily
comprehended by the term "extended coverage" in endorsements to fire insurance
policies, and (2) such other risks as are covered by insurance which the
Landlord may desire to procure.
(b) Tenant discharges and releases the Landlord, to the extent of Tenant's
fire and casualty insurance coverage, but only with respect to loss and damage
occurring during such times as Tenant's policies of fire and casualty insurance
shall contain an operative clause or endorsements providing that such discharge
or release shall not affect the policy or the right of the Tenant to recover
thereunder, even if such fire or other casualty may have been brought out by the
fault or neglect of the Landlord, its agents or employees, for or on account of
any and all claims and liabilities arising out of any loss or damage during the
term hereof, and any extension or renewal thereof, to any property of Tenant
caused by (1) fire or such other risks as are customarily comprehended by the
term "extended coverage" in
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endorsements to fire insurance policies, and (2) such other risks as are covered
by insurance which Tenant may desire or be obligated to procure.
(c) In consideration of the foregoing, each of the parties hereto agrees
with the other party that (1) such insurance policies or any extension or
renewal thereof shall, if the insurance carrier permits, include a clause or
endorsement which provides in substance that the insurance company waives any
right of subrogation which it might otherwise have against the Landlord or
Tenant, as the case may be, and (2) upon demand of the other party hereto, will
reimburse the other party for any extra premium costs, if any, incurred by the
latter in obtaining such clause or endorsement, or at its option, in lieu
thereof, shall relieve such other party of the discharge or release described
above.
Upon demand, in writing, by either party hereto, the other party agrees to
furnish to it a statement of the amount and type of insurance coverage and the
names of the insurance companies and to request its insurance companies to give
notice to such other party of any cancellation or discontinuance of any part of
such coverage.
SECTION XXXV. SHORING. If an excavation shall be made upon land adjacent to
the demised premises, or shall be authorized to be made, Tenant shall afford to
the person causing or authorized to cause such excavation, license to enter upon
the demised premises for the purpose of doing such work as said person shall
deem necessary to preserve the Building from injury or damage and to support the
same by proper foundations without any claims for damages or indemnity against
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Landlord, or diminution or abatement of rent, provided Landlord will use
reasonable efforts not to unduly disturb Tenant's business operations.
SECTION XXXVI. REZONING. Tenant agrees that he will not oppose any
application for rezoning or variance instituted by Landlord, his successors or
assigns.
SECTION XXXVII. SEPARABILITY. If any provisions or any part of any
provision of this lease or if the application of any provisions of any part of
this lease to any person, entity, or circumstance shall be held invalid by a
court of competent jurisdiction, such invalidity shall have no effect on any
other provision or any part of any provision of this lease or its application to
any other person, entity, or circumstance.
SECTION XXXVIII. WAIVER OF TRIAL BY JURY. Landlord and Tenant agree that
they shall, and hereby do, waiver trial by jury in any action arising out of
Tenant's use and occupancy of the demised premises.
SECTION XXXIX. NO WAIVER. No act or thing done by Landlord or Landlord's
agents during the term of this lease shall constitute an eviction by Landlord,
nor shall be deemed an acceptance of a surrender of said premises, and no
agreement to accept such surrender shall be valid unless in writing signed by
Landlord. The failure of Landlord to seek redress for violation of, or to insist
upon the strict performance of this lease, or any of the rules and regulations
set forth in this lease or hereafter adopted by Landlord, shall not constitute a
waiver in any respect nor prevent a subsequent act, which originally constituted
a violation from having all force and effect of an original violation. The
receipt by Landlord of rent
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with knowledge of the breach of any covenant of this lease shall not be deemed a
waiver of such breach. No payment by Tenant or receipt by Landlord of a lesser
amount than the monthly rent herein stipulated shall be deemed to be other than
on account, nor shall any endorsement or statement on any check, nor any letter
accompanying any check or payment as rent be deemed an accord and satisfaction,
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance or such rent or pursue any other remedy in this
lease provided.
SECTION XL. HOLDING OVER. In the event Tenant or any party claiming by,
through or under Tenant shall hold over the premises or any part thereof after
the termination of this Lease, such holding over shall constitute and be
construed as a tenancy at sufferance only, provided that all the terms of this
Lease shall apply except that the rent set forth in Section IV shall be
calculated at a daily rate equal to one hundred fifty percent (150%) of the rent
reserved in said Section IV. Nothing contained in this Section XL shall be
construed as Landlord's consent to Tenant holding over.
SECTION XLI. ADDITIONAL AIR CONDITIONING. In the event that Tenant shall
install any equipment (including computers, but not limited thereto) that
produce heat necessitating the use of air conditioning in addition to the
Building standard space air conditioning system provided by Landlord, Landlord
shall install such additional air conditioning at Tenant's expense, such expense
to include all costs for the installation, operation, maintenance and repair of
such air conditioning
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equipment. Tenant's obligation to pay for additional air conditioning as above
described shall be adjusted proportionately to reflect any portion of such
installation, operation, maintenance and repair costs as may be properly
apportioned with other tenants on account of their utilization of said
additional air conditioning in the Building of which the demised premises are a
part. It is further agreed that to the extent it is necessary for Landlord to
use its cooling tower and pumps to provide such additional air conditioning, the
cost of operating, maintaining and repairing such cooling tower and pumps shall
be part of the cost of the additional air conditioning described in this
paragraph and shall be borne by Tenant in the manner described in this
paragraph.
SECTION XLII. CAPTIONS, PLURAL, GENDER. The captions are inserted only as a
matter of convenience and for reference and in no way define, limit or describe
the scope of this lease nor the intent of any provisions hereof. Whenever a
masculine or singular pronoun is used in this Lease, it shall include the
feminine and plural thereof whenever the context so permits or requires.
SECTION XLIII. BROKERAGE. Tenant covenants that it has dealt with no broker
other than the broker specified at the end of this Section XLIII, as Tenant's
Broker and as Landlord's Broker, in locating the premises demised by this lease
and in negotiating this lease and Tenant further covenants and agrees that it
shall hold Landlord harmless from any and all claims which may be asserted by
any real estate broker other than the broker specified at the end of this
Section XLIII, as Tenant's Broker and as Landlord's Broker, who claims that he
showed or referred the Tenant
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to the Landlord or to the demised premises for any transaction involving or
resulting in this lease or premises demised hereby.
Tenant's Broker: Roy Hirschland
Spaulding & Slye
125 High Street
Boston, Massachusetts
Landlord covenants that it has dealt with no broker other than the broker
specified at the end of this Section XLIII, as Tenant's Broker and as Landlord's
Broker, in locating the premises demised by this lease and in negotiating this
lease and Landlord further covenants and agrees that it shall hold Tenant
harmless from any and all claims which may be asserted by any real estate broker
other than the brokers in this Section XLIII, as Tenant's Broker and as
Landlord's Broker, who claims that he showed or referred the Landlord to the
Tenant or to the demised premises for any transaction involving or resulting in
this lease or premises demised hereby.
Landlord's Broker: Curt Oberg
Spaulding & Slye
125 High Street
Boston, Massachusetts
Landlord agrees that Tenant shall have no liability for payment of the brokerage
commissions of either Landlord's Broker or Tenant's Broker named herein, and
Landlord shall indemnify Tenant on account thereof.
SECTION XLIV. HAZARDOUS WASTE.
(a) For the purpose of this Section XLIV - "Hazardous Substance" shall mean
any waste, substance or other material which may be dangerous to health or
environment, including, without limitation, all "hazardous wastes", Hazardous
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materials"; Hazardous substance", "toxic substance," "oil"; "infectious medical
waste" and "hazardous medical waste" as defined in any federal, state, or local
law, regulation or ordinance, or otherwise.
(b) Tenant shall not dump, flush or in any way introduce any Hazardous
Substances, which are regulated under the Resource Conservation and Recovery Act
of 1976, as amended, (42 U.S.C. Section 6901, et. seq. "RCRA") the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 as amended (42
U.S.C. 9601 et. seq. "CERCLA"), the Superfund Amendments and Reauthorization Act
of 1986 ("SARA"), Public Law 99-499, 100 Stat 1613, ET SEQ., and/or any other
applicable Municipal, federal, state law, into the sewerage, drainage or other
waste disposal system serving the demised premises, the building of which the
same form a part or the land on which it stands (the "Property").
(c) Tenant shall not generate, use, store or dispose of Hazardous
Substances regulated under RCRA, CERCLA, SARA and/or any other applicable
Municipal, federal or state environmental law, in or on the demised premises,
the building of which the same form a part or the Property, nor transport
Hazardous Substances from the demised premises, the Building of which the same
form a part or the Property except in compliance with RCRA, CERCLA, SARA, and
any other applicable Municipal, federal or state environmental law.
(d) Tenant shall promptly notify Landlord in writing of any incident in the
demised premises or the building of which the same form a part or the Property
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which might require the filing of a notice under any statute described in
Section XLIV(b) of this Lease.
(e) Tenant shall indemnify and hold Landlord harmless from any and all
costs, liabilities, demands, claims, civil or criminal actions, or causes of
action, civil or criminal penalties, fines, losses, liens, assessments, damages,
liabilities, costs, disbursements, expenses or fees of any kind or any nature
(including without limitation all clean-up costs and attorney's fees) which may
at any time be imposed upon, incurred by or asserted or awarded against Landlord
arising out of or on account of Tenant's failure to comply with the provisions
of Section XLIV of this Lease, where due to any action or non-action of Tenant.
SECTION XLV. SECURITY DEPOSIT. Landlord shall hold and retain a security
deposit in a separate interest-bearing account at a recognized financial
institution in the amount set forth at the end of this Section XLV throughout
the term hereof as security for the faithful performance by Tenant of each and
every term, condition, covenant and provision of this lease. Landlord may apply
all or any damage to the leased premises or to the restoration thereof or to any
rent, including tax excess which may be due from Tenant to Landlord. In the
event that Landlord shall so apply all or any portion of the said security
deposit, Tenant shall immediately upon ten (10) days' notice, restore the same
to its full amount. All or any portion of the security deposit remaining at the
expiration or other termination of this lease which has not been so applied
shall be returned to Tenant.
Amount of Security Deposit: $57,280.00
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Notwithstanding anything to the contrary herein contained, if but only if Tenant
shall not have been in default beyond applicable grace periods of any of the
terms, conditions, covenants and obligations to be observed by Tenant hereunder
during the first twenty-three (23) months of the lease term, then Nineteen
Thousand Ninety-Three Dollars ($19,093.00) of said security deposit shall be
applied to Tenant's rental obligation hereunder for the twenty-fourth (24th)
month of the lease term. Otherwise, the full security deposit shall be held by
Landlord for the full term of this lease as provided herein.
SECTION XLVI. LEASE CONTINGENCY. Reference is hereby made to a certain
lease between Mutual Benefit Life Insurance Company in Rehabilitation ("MBL"),
as landlord and Roy F. Weston, Inc., as tenant, dated January 7, 1993
(hereinafter referred to as "Prior Lease") for the same 14,320 square feet
demised to Tenant hereunder. Landlord is the successor in interest to MBL. This
lease is expressly contingent upon the termination of the Prior Lease, it being
understood and agreed by Landlord and Tenant that in the event a Lease
Termination Agreement with respect to the Prior Lease is not fully executed and
delivered on or before November 25, 1996, and in the event Roy F. Weston does
not vacate the premises on or before January 22, 1997, this Lease shall be void
and of no force and effect, Landlord and Tenant thereafter having no further
obligations one to the other.
SECTION XLVII. MULTIPLE COUNTERPARTS. This lease may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original but all of which shall constitute one and the same instrument.
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SECTION XLVIII. OPTION TO EXTEND. Tenant shall have an option to extend the
term of this Lease for one additional term of five (5) years, commencing upon
the expiration of the initial term of this lease and terminating sixty (60)
months thereafter (the "Option Term"), provided that Tenant proceeds strictly in
accordance with the provisions of this Section XLVIII.
Not less than twelve (12) months prior to the expiration of the initial
term of this Lease, Tenant shall advise Landlord in writing that Tenant wishes
to extend the term of this Lease for the Option Term. If at the time Landlord
receives Tenant's extension notice this lease is in full force and effect
without default on the part of the Tenant, then, during the next thirty (30) day
period, Landlord shall notify Tenant in writing of the rent which shall be due
for the Option Term. The rent specified by Landlord shall be that which the
Landlord reasonably projects will be the fair market rent as of the commencement
of the Option Term, but in no event less than the rent for the last year during
the initial term of this Lease. Within three (3) weeks after Landlord has given
Tenant notice of the rent which shall be due during the Option Term, Tenant
shall notify Landlord whether or not it agrees to pay such rent. If Tenant shall
agree in writing to pay such rent, and if upon the commencement date of the
Option Term, the lease is in full force and effect without default on the part
of the Tenant, then this Lease shall be extended for the Option Term without the
execution of any additional documents, and each and every term and condition of
this Lease shall apply during the Option Term except only that the rent which
shall be due during the Option Term shall be that agreed upon by Landlord and
Tenant,
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and the phrase "term of this Lease" shall be construed to mean the Option Term
of this Lease. If Tenant shall not agree in writing to pay such rent, this Lease
shall terminate as provided in Section III, and Tenant shall vacate the demised
premises on or before such date in accordance with the provisions of this Lease.
If Tenant shall fail to give Landlord written notice of its desire to extend the
term of this Lease as hereinbefore specified, Tenant shall have no right to
extend this Lease for the Option Term, and this Lease shall terminate as
provided in Section III, and Tenant shall vacate the demised premises on or
before such date in accordance with the provisions of this Lease.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals this
21st day of November, 1996.
Landlord:
NEW BOSTON WILMAR
LIMITED PARTNERSHIP
By: New Boston Fund, Inc.,
Its General Partner
By:
---------------------------------
Its
Tenant:
ASCENT PEDIATRICS, INC.
By: /s/ Alan R. Fox
---------------------------------
Its President/CEO
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EXHIBIT "B"
LANDLORD'S WORK
Landlord shall patch as needed all interior walls in the premises, and shall
repaint all interior walls. Landlord shall professionally clean all existing
carpeting throughout the premises, and the same shall be dry as of the date
Tenant moves into the premises.
TENANT'S WORK
None.
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EXHIBIT "C"
MASSACHUSETTS LEGAL HOLIDAYS
*January 1 - New Year's Day
Third Monday in January - Martin Luther King, Jr. Day
Third Monday in February - Washington's Birthday
Third Monday in April - Patriot's Day
Last Monday in May - Memorial Day
*July 4 - Independence Day
First Monday in September - Labor Day
Second Monday in October - Columbus Day
*November 11 - Veteran's Day
Fourth Thursday in November - Thanksgiving Day
*December 25 - Christmas Day
*Should any of these dates fall on a Sunday, the Holiday is observed on the
following Monday.
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EXHIBIT "D"
SCOPE OF SERVICES
I. CLEANING
A. OFFICE AREA
Daily: (Monday through Friday 6:00-10:00 pm; holidays excepted)
-----
1. Empty and clean all waste receptacles and ash trays and remove
waste materials from the premises; wash receptacles as necessary.
2. Sweep and dust mop all uncarpeted areas using a dust-treated mop.
3. Vacuum all rugs and carpeted areas.
4. Hand dust and wipe clean with treated cloths all horizontal
surfaces including furniture, office equipment, window sills,
door ledges, chair rails, and convector tops, within normal
reach.
5. Wash clean all water fountains.
6. Remove and dust under all desk equipment and telephone and
replace same.
7. Wipe clean all brass and other bright work.
8. Hand dust all grill work within normal reach.
9. Upon completion of cleaning, all lights will be turned off and
doors locked, leaving the premises in an orderly condition.
Weekly:
------
1. Dust coat racks, and the like.
2. Remove all finger marks from private entrance, doors, light
switches, and doorways.
Quarterly:
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Render high dusting not reached in daily cleaning to include:
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a. Dusting all pictures, frames, charts, graphs, and similar wall
hangings.
b. Dusting all vertical surfaces, such as walls, partitions, doors,
and ducts.
c. Dusting all pipes, ducts, and high moldings.
d. Dusting all venetian blinds.
B. LAVATORIES
Daily: (Monday through Friday, inclusive; holidays excepted)
-----
1. Sweep and damp mop floors.
2. Clean all mirrors, powder shelves, dispensers and receptacles,
bright work, flushometers, piping, and toilet seat hinges.
3. Wash both sides of all toilet seats.
4. Wash all basins, bowls, and urinals.
5. Dust and clean all powder room fixtures.
6. Empty and clean paper towel and sanitary disposal receptacles.
7. Remove waste paper and refuse.
8. Refill tissue holders, soap dispensers, towel dispensers, vending
sanitary dispensers; materials to be furnished to Landlord.
9. A sanitizing solution will be used in all lavatory cleaning.
Monthly:
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1. Machine scrub lavatory floors.
2. Wash all partitions and tile walls in lavatories.
C. MAIN LOBBY, ELEVATORS, BUILDING EXTERIOR, AND CORRIDORS.
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Daily: (Monday through Friday, inclusive; holidays excepted)
-----
1. Sweep and wash all floors
2. Wash all rubber mats.
3. Clean elevators, wash or vacuum floors, wipe down walls and
doors.
4. Spot clean any metal work inside lobby.
5. Spot clean any metal work surrounding building entrance doors.
Monthly:
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All resilient tile floors in public areas to be treated equivalent to
spray buffing.
D WINDOW CLEANING
Windows of exterior walls will be washed semi-annually.
E. Tenant requiring services in excess of those described above shall
request same through Landlord, at Tenant's expense.
F. SNOW REMOVAL
Clearing, sanding and salting of all snow and ice surrounding the
building walkways, as accumulated during storms, with special emphasis
on the building opening at 7:00 am Monday - Friday and by 8:00 am on
Saturday.
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RULES AND REGULATIONS
The following Rules and Regulations constitute a part of the Lease and of
Tenant's obligations thereunder in respect of Tenant's use and occupancy of the
Premises in the Building.
I. BUILDING HOURS
1.1. The Building is open from 8:00 a.m. to 6:00 p.m. on Monday through
Friday, and Saturdays from 8:00 am to 1:00 pm except for Massachusetts Holidays.
The Building is closed on Sundays.
1.2. If you wish to use the Building during other times, please obtain
pass-cards for authorized members of your staff from the Building Management
Office. As additional security, all persons entering the Building after hours
are required to sign in and out in a logbook provided for that purpose.
1.3. If you will need after-hours heating or air-conditioning services,
please notify the Building Management Office by 3:00 p.m. on the previous
working day. (These Building services are either reduced, or shut off completely
when the Building is closed.) You will be charged overtime use of the Building
services.
1.4. You are advised, for the protection and safety of your personnel, to
lock front doors at the end of each working day. Front doors also should be
locked whenever your receptionist leaves the area.
1.5. If you have night-line telephone service, please submit a list of
numbers and personnel to the Building Management Office. This will enable the
Landlord to contact your office after 6:00 p.m. on the occasions when visitors
call after normal working hours.
1.6. If you wish to remove fixtures or materials from your premises after
6:00 p.m. or to have work performed after 6:00 p.m., by someone who does not
have a Building pass, the Building Management Office must be notified in advance
in writing.
II. ELEVATORS, DELIVERIES AND PARKING
2.1. If you expect delivery of any bulky material, notify the Building
Management Office reasonably in advance so that freight elevators may be
scheduled and elevator pads may be installed if necessary. This protects both
your shipment and the elevators. For the convenience of all, passenger elevators
may not be used for deliveries of any bulky goods.
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2.2. All larger deliveries must be made from the designated Building
loading dock area. Large deliveries can be expedited by notifying the Building
Management Office 24 hours in advance. The receiving area can accommodate
certain types and sizes of vehicles. All hand trucks used for deliveries must be
equipped with rubber bumpers and tires.
2.3. The loading dock may be used only for deliveries. No vehicles are
allowed to stand or park in this area after unloading nor are vehicles allowed
to park at the loading dock for service calls. You should advise your vendors
and suppliers of this rule. Any vehicles abusing the truck dock privileges are
subject to being towed at the owner's expense.
III. GENERAL USE OF BUILDING AND PREMISES
3.1. Tenants are not permitted to place or store property on the sidewalks,
passageways, parking areas or courtyards adjacent to the Building or in the
elevators, vestibules, stairways, or corridors (except as may be necessary for
brief periods during deliveries).
3.2. No bicycles or animals may be brought into or kept in or about the
Building or premises.
3.3. Rubbish, rags, sweepings, acid and any and all harmful or damaging
substances may not be deposited in the lavatories or in the janitor closets.
Please make arrangements with the Building Management Office for disposal of any
unusual trash.
IV. REPAIRS AND SERVICES
4.1. You are responsible for all general repairs and maintenance of your
Premises including, but not limited to, Tenant supplied supplementary air
conditioning, exterior doors, and exterior signs. All repairs, installations, or
alterations to the Building or its fixtures must first be approved and scheduled
by the Building Manager.
4.2. All requests for work to be done in your Premises by any of the
Building Management Staff should be directed to the Building Manager. Building
employees are not permitted to perform any work outside their regular duties
except upon special instructions from the Building Manager.
4.3. All schedules for the performance of your construction and repair work
must be coordinated by the Building Manager to avoid conflicts with various
building construction and maintenance schedules. Tenants must inform the
Building Manager, at least 72 hours before any work is to begin, of the nature
of the work,
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where and when it is to be performed, the name of the contractor or concern
doing the work, and the name of the individual who will supervise the
performance of the work. You will be required to obtain from the persons doing
work certificates of insurance coverage, signed lien waivers, and payment and
performance bond in form and substance satisfactory to the Landlord. Work may
not begin until such requirements have been satisfied.
4.4. Landlord shall purchase and install, at your expense, all lamps,
tubes, bulbs, starters and ballasts.
V. FLOOR LOAD - HEAVY MACHINERY
5.1 You may not place a load upon any floor in the Premises or Building
exceeding the floor load which such floor was designed to carry and which is
allowed by law. Landlord reserves the right to prescribe the weight and
positions of all business machines and mechanical equipment, including safes,
all of which shall be so placed as to distribute the weight. You shall place and
maintain your business machines and mechanical equipment in settings sufficient,
in Landlord's judgment, to absorb and prevent vibration, noise and annoyance.
You may not move any safe, heavy machinery, heavy equipment, freight, bulky
matter or fixtures into or out of the Building without Landlord's prior consent,
which consent may include a requirement to provide insurance, naming Landlord as
an insured, in such amounts as Landlord may deem reasonable. Notwithstanding the
foregoing, proper placement of all such business machines, etc. in the Premises
shall be your responsibility as Tenant.
5.2. If any such safe, machinery, equipment, freight, bulky matter or
fixtures requires special handling, you must employ only persons holding a
Master Riggers's License to do such work; and all work in connection therewith
must comply with applicable laws and regulations. Any such moving shall be at
your own sole risk and hazard and you, as Tenant, will defend, exonerate,
indemnify and save Landlord harmless against and from any liability, loss,
injury, claim or suit resulting directly or indirectly from such moving.
VI. ELECTRICAL SYSTEM: ENERGY CONSERVATION: WATER
6.1. In order to assure that the Building's electrical standards are not
exceeded and to avert possible adverse effect on the Building's electric system,
you may not, without Landlord's prior consent, connect any fixtures, appliances
or equipment to the Building's electric distribution system other than standard
office equipment, such as typewriters, pencil sharpeners, adding machines,
hand-held or desk top calculators, dictaphones, office computers and copies.
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6.2. Notwithstanding anything to the contrary contained in the Lease,
Landlord reserves the right to implement policies and procedures it deems, in
its reasonable judgment, to be necessary or expedient in order to conserve
and/or preserve energy and related services, or to be necessary or required in
order to comply with applicable government laws, rules, regulations, codes,
orders and standards.
6.3. If you shall use water for any purpose other than for ordinary
lavatory and drinking purposes, Landlord may assess a reasonable charge for the
additional water so used, or install a water meter and thereby measure your
water consumption for all water purposes. In the latter event, you shall pay the
cost of the meter and the cost of installation thereof and shall keep such meter
and installation equipment in good working order and repair. You agree to pay
for water consumed, as shown on such meter, together with the sewer charge based
on such meter charges, as and when bills are rendered, and in default in making
such payment Landlord may pay such charges and collect the same from you as an
additional charge.
6.4. The windows of the Building are designed for superior insulation and
to reduce glare. Building standard blinds or drapes present and elegant
appearance and contribute to the effectiveness of the Building's heating and
cooling systems. You should keep the blinds or drapes closed when windows are
exposed to the sun's rays in summer and keep them open when the sun is bright
enough to provide warmth during the winter months.
VII. SIGNS AND ADVERTISING
Except as hereinafter provided, you may not place on the exterior of the
Premises (including both interior and exterior surfaces or doors and interior
surfaces of windows) or on any part of the Building outside the Premises, any
signs, symbol, advertisement or the like visible to the public view outside of
the Premises. Landlord shall withhold consent for signs or lettering on the
entry doors to the Premises, unless such signs conform to Building standards
adopted by Landlord. All signage must be in accordance with a plan or sketch of
the sign to be placed on such entry doors submitted to and approved by Landlord
in advance. Landlord agrees, however, to maintain a tenant directory in the
lobby of the Building in which will be placed your name and the location of the
Premises in the Building. Neither Landlord's name, nor the name of the Building
or any Center, Office Park or other complex of which the Building is a part, or
the name of any other structure erected therein shall be used without Landlord's
consent in any advertising material (except on business stationery or as an
address in advertising matter), nor shall any such name, as aforesaid, be used
in any undignified, confusing, detrimental or misleading manner.
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VIII. LIFE SAFETY AND EMERGENCY PROCEDURES
In case of emergency situations such as power failure, water leaks or
serious injury, call the Building Management Office immediately. In case of fire
or smoke, pull the nearest alarm (located on your floor) and then call the
Building Management Office
IX. SMOKE FREE ENVIRONMENT
Smoking is not permitted in the lobby, hallways, corridors or stairs.
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Exhibit 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 15th day
of March, 1994, by Ascent Pharmaceuticals, Inc., a Delaware corporation with its
principal place of business at 9 Linnell Circle, Billerica, MA 01821 (the
"Company"), and Emmett Clemente, residing at 23 Loading Place Road, Manchester,
MA 01944 (the "Executive").
The Company desires to employ the Executive, and the Executive desires
to be employed by the Company. In consideration of the mutual covenants and
promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
the parties agree as follows:
1. Term of Employment. The Company hereby agrees to employ the
Executive, and the Executive hereby accepts employment with the Company, upon
the terms set forth in this Agreement, for the period commencing as of March 16,
1994 (the "Commencement Date") and ending on March 15, 1999, unless sooner
terminated in accordance with the provisions of Section 4 (such period, as it
may be extended, the "Employment Period").
2. Title; Capacity. The Executive shall serve as President and Chief
Executive Officer of the Company. The Executive shall be based at the Company's
headquarters in Billerica, Massachusetts, or such place or places within 50
miles of Billerica, Massachusetts, as the Board of Directors of the Company (the
"Board") shall determine. The Executive shall be subject to the direction of,
and shall have such authority as is delegated to him by, the Board.
The Executive hereby accepts such employment and agrees to undertake
the duties and responsibilities inherent in such position and such other duties
and responsibilities as the Board
<PAGE> 2
shall from time to time reasonably assign to him. The Executive agrees to devote
his entire business time, attention and energies to the business and interests
of the Company during the Employment Period. The Executive agrees to abide by
the rules, regulations, instructions, personnel practices and policies of the
Company and any changes therein which may be adopted from time to time by the
Company.
3. Compensation and Benefits.
3.1. Salary and Bonus. The Company shall pay the Executive, in
equal monthly installments on the last day of each month (prorated in the case
of any partial months), an annual base salary of $170,000. The Board will
reevaluate such base salary on an annual basis and may increase (but not
decrease) such base salary as and to the extent it deems appropriate. The
Executive also shall be entitled to an annual bonus of up to 30% of base salary
if certain performance criteria established by the Board as to each year (within
120 days after the beginning of such year) are satisfied; provided, however,
that the Board shall consider annual bonus payments to the Executive in an
amount greater than 30% of base salary for such years, if any, in which the
Company achieves break-even cash flow.
3.2 Fringe Benefits. The Executive shall be entitled to
participate in all benefit programs that the Company establishes and makes
available to its employees to the extent that the Executive's position, tenure,
salary, age, health and other qualifications make him eligible to participate.
The Executive shall be entitled to four weeks' paid vacation per year.
3.3 Reimbursement of Expenses. The Company shall reimburse the
Executive for all reasonable travel, entertainment and other expenses incurred
or paid by the Executive in connection with, or related to, the performance of
his duties, responsibilities or services under
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this Agreement, upon presentation by the Executive of documentation, expense
statements, vouchers and/or such other supporting information as the Company may
reasonably request, provided, however, that the amount available for such
travel, entertainment and other expenses may be fixed in advance by the Board.
3.4 Life Insurance. The Company shall maintain a term life
insurance policy insuring the life of the Executive in an amount equal to three
times the then applicable base salary of the Executive, naming the Executive's
wife or such other individual as the Executive may identify as the beneficiary
of such policy.
3.5 Stock Options. The Board shall consider, as part of the
Executive's annual compensation review, the grant of additional stock options to
the Executive (each an "Additional Grant") covering such number of shares of the
Company's common stock, if any, as the Board determines to be appropriate in its
sole discretion (but acknowledging that a target number for consideration shall
be at least 10,000 shares per annum, subject to appropriate adjustment in the
event of any reorganization, recapitalization, reclassification, stock dividend,
stock split, reverse stock split or other similar event). Any such Additional
Grant shall be made on the same terms, except for exercise price and number of
shares, as the terms of the option grant made pursuant to the Incentive Stock
Option Agreement, dated February 25, 1993, between the Company and the
Executive, as amended, and shall be made subject to the terms of the Company's
1992 Equity Incentive Plan, as amended, and pursuant to a duly executed option
agreement; provided, however, that an Additional Grant shall only qualify as an
incentive stock option to the extent permissible under the Internal Revenue Code
and the regulations promulgated thereunder.
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4. Employment Termination. The employment of the Executive by the
Company pursuant to this Agreement shall terminate upon the occurrence of any of
the following:
4.1 Expiration of the Employment Period in accordance with
Section 1;
4.2 At the election of the Company, for cause, immediately
upon written notice by the Company to the Executive. For the purposes of this
Section 4.2, cause for termination shall be deemed to exist upon (a) a good
faith finding by the Board of failure of the Executive to perform his assigned
duties for the Company after written notice from the Company and a 30-day
opportunity to cure such failure, dishonesty, gross negligence or misconduct, or
(b) the conviction of the Executive (which is not subject to further appeal) of,
or the entry of a pleading of guilty or nolo contendere by the Executive to, any
crime involving moral turpitude or any felony;
4.3 Thirty days after the death or disability of the
Executive. As used in this Agreement, the term "disability" shall mean the
inability of the Executive, due to a physical or mental disability, for a period
of 90 consecutive days during any 360-day period to perform the services
contemplated under this Agreement. A determination of disability shall be made
by a physician satisfactory to both the Executive and the Company, provided that
if the Executive and the Company do not agree on a physician, the Executive and
the Company shall each select a physician and these two together shall select a
third physician, whose determination as to disability shall be binding on all
parties;
4.4 At the election of the Company, upon not less than 180
days' prior written notice of termination to the Executive; or
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4.5 At the election of the Executive, upon not less than 180
days' prior written notice to the Company.
5. Effect of Termination.
5.1 Termination for Cause or by the Executive Without Cause.
In the event the Executive's employment is terminated by the Company for cause
pursuant to Section 4.2 or by the Executive pursuant to Section 4.5, the Company
shall pay to the Executive the compensation and benefits otherwise payable to
him under Sections 3.1 (other than any bonus in respect of the year in which
such termination takes place), 3.2, and 3.3 through the last day of his actual
employment by the Company.
5.2 Termination Without Cause by the Company.
(a) Subject to the limitations contained in Section
5.2(c):
(i) In the event that the Executive's
employment is terminated by the Company pursuant to Section 4.4, and the
effective date of such termination (the "Effective Termination Date") is prior
to March 16, 1997, for the 18 months following the Effective Termination Date,
on the last day of each month, the Company shall pay to the Executive, as
severance, an amount equal to one-twelfth (1/12) of the Executive's base salary
in effect immediately prior to the Effective Termination Date.
(ii) In the event that the Executive's
employment is terminated by the Company pursuant to Section 4.4, and the
Effective Termination Date is on or after March 16, 1997, for the 12 months
following the Effective Termination Date, on the last day of each month, the
Company shall pay to the Executive, as severance, an amount equal to one twelfth
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(1/12) of the Executive's base salary in effect immediately prior to the
Effective Termination Date.
(b) In the event that the Executive's employment is
terminated by the Company pursuant to Section 4.4, in addition to any severance
payment due under Subparagraphs (a) (i) or (a) (ii) of this Section 5.2, the
Company shall (x) pay to the Executive the compensation and other benefits
otherwise payable to him under Section 3 through the last day of his actual
employment by the Company and (y) maintain in effect for the benefit of the
Executive or his designated beneficiaries, as the case may be, and pay for all
health, life, disability and other types of insurance which the Executive had
the benefit of as of the Effective Termination Date (the "Benefit Coverages"),
for a period of 18 months following the Effective Termination Date.
(c) In the event that the Executive, following the
termination of his employment pursuant to Section 4.4, becomes employed by a new
employer during the period when he is entitled to receive severance payments
under Section 5.2(a) and/or Benefit Coverages from the Company, (i) the
severance payments provided by Section 5.2(a) above shall be reduced
dollar-for-dollar by the amount of compensation earned by the Executive in
connection with such new employment during the period in which severance
payments under Section 5.2(a) are due and payable to the Executive; and (ii) the
Company shall be entitled to terminate the provision of the Benefit Coverages to
the extent that substantially comparable benefit coverages are provided by such
new employer. For the purposes of this Section 5.2, employment with another
employer shall be deemed to include self-employment, provided, however, that the
performance of consulting services for less than 20 hours per week shall not
constitute self-employment.
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5.3 Termination for Death or Disability. If the Executive's
employment is terminated by death or because of disability pursuant to Section
4.3, the Company shall pay to the estate of the Executive or to the Executive,
as the case may be, the compensation and benefits otherwise payable pursuant to
Sections 3.1, 3.2, 3.3 and 3.4 which would otherwise be payable to the Executive
up to the end of the month in which the termination of his employment because of
death or disability occurs.
5.4 Survival. The provisions of Sections 6 and 7 shall survive
the termination of this Agreement.
6. Non-Compete.
(a) During the Employment Period and for a period of
(i) one year after the termination or expiration
of the Employment Period if the Employment Period has a duration of less than
one year and (ii) two years in all other cases, the Executive will not:
(i) as an individual proprietor, partner,
stockholder, officer, employee, director, joint venturer, investor, lender, or
in any other capacity whatsoever (other than as the holder of not more than one
percent (1%) of the total outstanding stock of a publicly held company), engage
in the business of developing, producing, marketing or selling products of the
kind or type developed or being developed, produced, marketed or sold by the
Company while the Executive was employed by the Company; or
(ii) recruit, solicit or induce, or attempt
to induce, any employee or employees of the Company to terminate their
employment with, or otherwise cease their relationship with, the Company; or
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(iii) solicit, divert or take away, or
attempt to divert or to take away, the business or patronage of any of the
clients, customers or accounts, or prospective clients, customers or accounts,
of the Company which were contacted, solicited or served by the Executive while
employed by the Company.
(b) If any restriction set forth in this Section 6 is
found by any court of competent jurisdiction to be unenforceable because it
extends for too long a period of time or over too great a range of activities or
in too broad a geographic area, it shall be interpreted to extend only over the
maximum period of time, range of activities or geographic areas as to which it
may be enforceable.
(c) The restrictions contained in this Section 6 are
necessary for the protection of the business and goodwill of the Company and are
considered by the Executive to be reasonable for such purpose. The Executive
agrees that any breach of this Section 6 will cause the Company substantial and
irrevocable damage and therefore, in the event of any such breach, in addition
to such other remedies which may be available, the Company shall have the right
to seek specific performance and injunctive relief.
7. Proprietary Information and Developments.
7.1 Proprietary Information.
(a) Executive agrees that all information and
know-how, whether or not in writing, of a private, secret or confidential nature
concerning the Company's business or financial affairs (collectively,
"Proprietary Information") is and shall be the exclusive property of the
Company. By way of illustration, but not limitation, Proprietary Information may
include inventions, products, processes, methods, techniques, formulas,
compositions, compounds,
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projects, developments, plans, research data, clinical data, financial data,
personnel data, computer programs, and customer and supplier lists. Executive
will not disclose any Proprietary Information to others outside the Company or
use the same for any unauthorized purposes without written approval by an
officer of the Company, either during or after his employment, unless and until
such Proprietary Information has become public knowledge without fault by the
Executive.
(b) Executive agrees that all files, letters,
memoranda, reports, records, data, sketches, drawings, laboratory notebooks,
program listings, or other written, photographic, or other tangible material
containing Proprietary Information, whether created by the Executive or others,
which shall come into his custody or possession, shall be and are the exclusive
property of the Company to be used by the Executive only in the performance of
his duties for the Company.
(c) Executive agrees that his obligation not to
disclose or use information, know-how and records of the types set forth in
paragraphs (a) and (b) above, also extends to such types of information,
know-how, records and tangible property of customers of the Company or suppliers
to the Company or other third parties who may have disclosed or entrusted the
same to the Company or to the Executive in the course of the Company's business.
7.2 Developments.
(a) Executive will make full and prompt disclosure to
the Company of all inventions, improvements, discoveries, methods, developments,
software, and works of authorship, whether patentable or not, which are created,
made, conceived or reduced to practice by the Executive or under his direction
or jointly with others during his employment by the
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Company, whether or not during normal working hours or on the premises of the
Company (all of which are collectively referred to in this Agreement as
"Developments").
(b) Executive agrees to assign and does hereby assign
to the Company (or any person or entity designated by the Company) all his
right, title and interest in and to all Developments and all related patents,
patent applications, copyrights and copyright applications. However, this
Section 7(b) shall not apply to Developments which do not relate to the present
or planned business or research and development of the Company and which are
made and conceived by the Executive not during normal working hours, not on the
Company's premises and not using the Company's tools, devices, equipment or
Proprietary Information.
(c) Executive agrees to cooperate fully with the
Company, both during and after his employment with the Company, with respect to
the procurement, maintenance and enforcement of copyrights and patents (both in
the United States and foreign countries) relating to Developments. Executive
shall sign all papers, including, without limitation, copyright applications,
patent applications, declarations, oaths, formal assignments, assignment of
priority rights, and powers of attorney, which the Company may deem necessary or
desirable in order to protect its rights and interests in any Development.
Nothing in this Section 7.2(c) shall be construed as requiring the Executive to
make any out-of-pocket expenditure without reimbursement from the Company.
7.3 Other Agreements. Executive hereby represents that he is
not bound by the terms of any agreement with any previous employer or other
party to refrain from using or disclosing any trade secret or confidential or
proprietary information in the course of his employment with the Company or to
refrain from competing, directly or indirectly, with the
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business of such previous employer or any other party. Executive further
represents that his performance of all the terms of this Agreement and as an
employee of the Company does not and will not breach any agreement to keep in
confidence proprietary information, knowledge or data acquired by him in
confidence or in trust prior to his employment with the Company.
8. Notices. All notices required or permitted under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail,
postage prepaid, addressed to the other party at the address shown above, or at
such other address or addresses as either party shall designate to the other in
accordance with this Section 8.
9. Pronouns. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and vice versa.
10. Entire Agreement. This Agreement constitutes the entire agreement
between the parties and superseded all prior agreements and understandings,
whether written or oral, relating to the subject matter of this Agreement.
11. Amendment. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Executive.
12. Governing Law. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the Commonwealth of Massachusetts
without regard to its conflict of laws principles.
13. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of both parties and their respective successors and
assigns, including any corporation with
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<PAGE> 12
which or into which the Company may be merged or which may succeed to its assets
or business, provided, however, that the obligations of the Executive are
personal and shall not be assigned by him.
14. Miscellaneous.
14.1 No delay or omission by the Company or by the Executive
in exercising any right under this Agreement shall operate as a waiver of that
or any other right. A waiver or consent given by the Company or by the Executive
on any one occasion shall be effective only in that instance and shall not be
construed as a bar or waiver of any right on any other occasion.
14.2 The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
14.3 In case any provision of this Agreement shall be invalid,
illegal or otherwise unenforceable, the validity, legality and enforceability of
the remaining provisions shall in no way be affected or impaired thereby.
14.4 The Company shall pay the reasonable fees and
disbursements of counsel to the Executive in connection with this Agreement, up
to a maximum of $5,000.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first set forth above.
ASCENT PHARMACEUTICALS, INC.
By:/s/ Henry Barber
-----------------------------
Title: Henry Barber, Treasurer
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<PAGE> 13
EXECUTIVE
/s/ Emmett Clemente
-------------------
Emmett Clemente
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<PAGE> 1
EXHIBIT 10.6
CONSULTING AGREEMENT
--------------------
THIS CONSULTING AGREEMENT (the "Agreement"), made as of this 1st day of
April, 1996 is entered into by Ascent Pharmaceuticals, Inc., a Delaware
corporation with its principal place of business at 9 Linnell Circle,
Billerica, Massachusetts 01821 (the "Company"), and Robert E. Baldini,
residing at 5 Olde Greenhouse Lane, Madison, New Jersey 07940 (the
"Consultant").
INTRODUCTION
------------
The Company desires to retain the services of the Consultant and the
Consultant desires to perform certain services for the Company. In consideration
of the mutual covenants and promises contained herein and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties hereto, the parties agree as follows:
1. SERVICES. The Consultant agrees to perform such consulting, advisory and
related services to and for the Company, at the offices of the Company or such
other location as the Company may reasonably request, as may be requested from
time to time by the Company, including, but not limited to, the services
specified on SCHEDULE A to this Agreement and that time is of the essence with
respect to such performance. During the Consultation Period (as defined below),
the Consultant shall not engage in any activity that has a conflict of interest
with the Company.
<PAGE> 2
2. TERM. This Agreement shall commence effective as of April 1, 1996 and
shall continue until April 1, 2000 (such period, as it may be extended, being
referred to as the "Consultation Period"), unless sooner terminated in
accordance with the provisions of Section 4.
3. Compensation.
------------
3.1 CONSULTING FEES. The Company shall pay to the Consultant
consulting fees of $1,500 per day, payable in arrears on the last day of each
month.
3.2 REIMBURSEMENT OF EXPENSES. The Company shall reimburse the
Consultant for all reasonable and necessary expenses incurred or paid by the
Consultant in connection with, or related to, the performance of his services
under this Agreement. The Consultant shall submit to the Company itemized
monthly statements, in a form satisfactory to the Company, of such expenses
incurred in the previous month. The Company shall pay to the Consultant amounts
shown on each such statement within 30 days after receipt thereof.
3.3. STOCK OPTION. The Company shall grant to the Consultant an option
to acquire an aggregate of 100,000 shares of the common stock of the Company,
$.00004 par value per share, pursuant to the Company's 1992 Equity Incentive
Plan, as amended (the "Plan") such option grant shall be made subject to the
terms of the Plan and pursuant to a duly executed option agreement a definitive
option agreement.
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<PAGE> 3
3.4 BENEFITS. The Consultant shall not be entitled to any benefits,
coverages or privileges, including, without limitation, social security,
unemployment, medical or pension payments, made available to employees of the
Company.
4. TERMINATION. The Company may, without prejudice to any right or remedy
it may have due to any failure of the Consultant to perform his obligations
under this Agreement, terminate the Consultation Period upon 30 days' prior
written notice to the Consultant. In the event of such termination, the
Consultant shall be entitled to payment for services performed and expenses paid
or incurred prior to the effective date of termination, subject to the
limitation on reimbursement of expenses set forth in Section 3.2. Such payments
shall constitute full settlement of any and all claims of the Consultant of
every description against the Company. Notwithstanding the foregoing, the
Company may terminate the Consultation Period, effective immediately upon
receipt of written notice, if the Consultant breaches or threatens to breach any
provision of Section 6.
5. COOPERATION. The Consultant shall use his best efforts in the
performance of his obligations under this Agreement. The Company shall provide
such access to its information and property as may be reasonably required in
order to permit the Consultant to perform his obligations hereunder. The
Consultant shall cooperate with the Company's personnel, shall not interfere
with the conduct
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<PAGE> 4
of the Company's business and shall observe all rules, regulations and security
requirements of the Company concerning the safety of persons and property.
6. Inventions and Proprietary Information.
--------------------------------------
6.1 Inventions.
----------
(a) All inventions, discoveries, data, technology, designs,
innovations and improvements (whether or not patentable and whether or not
copyrightable) ("Inventions") related to the business of the Company which are
made, conceived, reduced to practice, created, written, designed or developed by
the Consultant, solely or jointly with others and whether during normal business
hours or otherwise, during (i) the Consultation Period or (ii) thereafter, if
resulting or directly derived from Proprietary Information (as defined below),
shall be the sole property of the Company. The Consultant hereby assigns to the
Company all Inventions and any and all related patents, copyrights, trademarks,
trade names, and other industrial and intellectual property rights and
applications therefor, in the United States and elsewhere and appoints any
officer of the Company as his duly authorized attorney to execute, file,
prosecute and protect the same before any government agency, court or authority.
Upon the request of the Company and at the Company's expense, the Consultant
shall execute such further assignments, documents and other instruments as may
be necessary or desirable
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<PAGE> 5
to fully and completely assign all Inventions to the Company and to assist the
Company in applying for, obtaining and enforcing patents or copyrights or other
rights in the United States and in any foreign country with respect to any
Invention.
(b) The Consultant shall promptly disclose to the Company all
Inventions and will maintain adequate and current written records (in the form
of notes, sketches, drawings and as may be specified by the Company) to document
the conception and/or first actual reduction to practice of any Invention. Such
written records shall be available to and remain the sole property of the
Company at all times.
6.2 Proprietary Information.
-----------------------
(a) The Consultant acknowledges that his relationship with the
Company is one of high trust and confidence and that in the course of his
service to the Company he will have access to and contact with Proprietary
Information. The Consultant agrees that he will not, during the Consultation
Period or at any time thereafter, disclose to others, or use for his benefit or
the benefit of others, any Proprietary Information or Invention.
(b) For purposes of this Agreement, Proprietary Information shall
mean, by way of illustration and not limitation, all information (whether or not
patentable and whether or not copyrightable) owned, possessed or used by the
Company, including, without limitation, any Invention, formula, vendor
information,
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<PAGE> 6
customer information, materials, developments, apparatus, equipment, trade
secret, process, research, report, technical data, know-how, computer program,
software, software documentation, hardware design, technology, marketing or
business plan, forecast, unpublished financial statement, budget, license,
price, cost and employee list that is communicated to, learned of, developed,
planned or otherwise acquired by the Consultant in the course of his service as
a consultant to the Company.
(c) The Consultant's obligations under this Section 6.2 shall not
apply to any information that (i) is or becomes known to the general public
under circumstances involving no breach by the Consultant or others of the terms
of this Section 6.2, (ii) is generally disclosed to third parties by the Company
without restriction on such third parties, or (iii) is approved for release by
written authorization of the Board of Directors of the Company.
(d) Consultant agrees that (i) all Proprietary Information
generated by, furnished to or obtained by Consultant in the performance of its
obligations hereunder shall remain the sole and exclusive property of the
Company, and (ii) upon termination of this Agreement or at any other time upon
request by the Company, the Consultant shall promptly deliver to the Company all
records, files, memoranda, notes, designs, data, reports, price lists, customer
lists, drawings, plans, computer programs,
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<PAGE> 7
software, software documentation, sketches, laboratory and research notebooks
and other documents (and all copies or reproductions of such materials) relating
to the business of the Company.
(e) The Consultant represents that (i) his retention as a
consultant with the Company and his performance under this Agreement does not,
and shall not, breach any agreement that obligates him to keep in confidence any
trade secrets or confidential or proprietary information of his or of any other
party or to refrain from competing, directly or indirectly, with the business of
any other party and (ii) the Consultant has all requisite power and authority to
execute this Agreement and any other ancillary documents or instruments
contemplated hereby. The Consultant shall not disclose to the Com- pany any
trade secrets or confidential or proprietary information of any other party.
(f) The Consultant acknowledges that the Company from time to
time may have agreements with other persons or with the United States
Government, or agencies thereof, that impose obligations or restrictions on the
Company regarding inventions made during the course of work under such
agreements or regarding the confidential nature of such work. The Consultant
agrees to be bound by all such obligations and restrictions that are known to
him and to take all action necessary to discharge the obligations of the Company
under such agreements.
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<PAGE> 8
6.3 REMEDIES. The Consultant acknowledges that any breach of the
provisions of this Section 6 shall result in serious and irreparable injury to
the Company for which the Company cannot be adequately compensated by monetary
damages alone. The Consultant agrees, therefore, that, in addition to any other
remedy it may have, the Company shall be entitled to enforce the specific
performance of this Agreement by the Consultant and to seek both temporary and
permanent injunctive relief (to the extent permitted by law) without the
necessity of proving actual damages.
7. INDEPENDENT CONTRACTOR STATUS. The Consultant shall perform all services
under this Agreement as an "independent contractor" and not as an employee or
agent of the Company. The Consultant is not authorized to assume or create any
obligation or responsibility, express or implied, on behalf of, or in the name
of, the Company or to bind the Company in any manner. The parties agree that it
is the obligation of Consultant to report as income all compensation received by
Consultant pursuant to this Agreement. Consultant shall indemnify the Company
and hold it harmless from any obligation imposed by law on the Company to pay
any federal, state or local withholding taxes, social security, medical, dental,
workers compensation or other similar items.
8. NOTICES. All notices required or permitted under this Agreement shall be
in writing and shall be deemed effective upon personal delivery or upon deposit
in the United States Post
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<PAGE> 9
Office, by registered or certified mail, postage prepaid, addressed to the other
party at the address shown above, or at such other address or addresses as
either party shall designate to the other in accordance with this Section 8.
9. PRONOUNS. Whenever the context may require, any pronouns used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular forms of nouns and pronouns shall include the plural, and vice
versa.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes all prior agreements and understandings,
whether written or oral, relating to the subject matter of this Agreement.
11. AMENDMENT. This Agreement may be amended or modified only by a written
instrument executed by both the Company and the Consultant.
12. GOVERNING LAW. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the Commonwealth of Massachusetts.
13. SUCCESSORS AND ASSIGNS. The obligations imposed by this Agreement shall
be binding upon, and inure to the benefit of, both parties and their respective
successors and assigns, including any corporation with which, or into which, the
Company may be merged or which may succeed to its assets or business, provided,
however,
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<PAGE> 10
that the obligations of the Consultant are personal and shall not be assigned by
him.
14. EFFECT OF TERMINATION. The following sections of this Agreement shall
survive the termination of this Agreement: Section 6 (Inventions and Proprietary
Information), Section 7 (Independent Contractor Status), Section 8 (Notices),
Section 12 (Governing Law), Section 13 (Successors and Assigns), and Section 14
(Effect of Termination).
15. Miscellaneous.
-------------
15.1 No delay or omission by the Company in exercising any right under
this Agreement shall operate as a waiver of that or any other right. A waiver or
consent given by the Company on any one occasion shall be effective only in that
instance and shall not be construed as a bar or waiver of any right on any other
occasion.
15.2 The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
15.3 In the event that any provision of this Agreement shall be
invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
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<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year set forth above.
ASCENT PHARMACEUTICALS, INC.
By: /s/ Emmett Clemente
-------------------------------
Emmett Clemente
Title: President
CONSULTANT
/s/ Robert E. Baldini
-------------------------------
Robert E. Baldini
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<PAGE> 12
Schedule A - Services
---------------------
Evaluate and negotiate licensing proposals.
Participate in creating and directing a marketing and sales
organization.
Assist in the formulation of product strategies.
Assess the quality and progress of the product development
efforts of the Company.
Engage in general corporate matters such as
investor-related activities and senior management
recruitment.
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<PAGE> 1
Exhibit 10.11
ASCENT PEDIATRICS, INC.
9 Linnell Circle
Billerica, Massachusetts 01821
SECURITIES PURCHASE AGREEMENT (the "Agreement") dated as of January 31,
1997 among Ascent Pediatrics, Inc. (formerly known as Ascent Pharmaceuticals,
Inc.), a Delaware corporation (the "Company"), Triumph-Connecticut Limited
Partnership, a Connecticut limited partnership (the "Principal Purchaser"), and
the other purchasers listed on the signature pages hereto (together with the
Principal Purchaser, the "Purchasers"). Unless otherwise defined, capitalized
terms used in this Agreement are defined in Section 13; references to a
"Schedule" or an "Exhibit" are, unless otherwise specified, to a Schedule or an
Exhibit attached to this Agreement; references to a "section", a "subsection", a
"paragraph" or a "clause" are, unless otherwise specified, to a section, a
subsection, a paragraph or a clause of this Agreement.
The Company in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, agrees with the Purchasers as
follows:
1. PURCHASE AND SALE OF NOTES AND WARRANTS.
1.1. Authorization of Issuance of Notes. The Company has duly
authorized the issuance and sale of its Subordinated Secured Notes due January
31, 2002 (the "Notes", such term to include any such notes issued in
substitution therefor pursuant to the terms of this Agreement) in the aggregate
principal amount of $7,000,000, to be acquired by the Purchasers in accordance
with the terms of this Agreement. The Notes shall be substantially in the form
set out in Exhibit A hereto, with such changes thereto, if any, as may be
approved by the Principal Purchaser and the Company.
1.2. Authorization of Issuance of Warrants. The Company has
duly authorized the issuance and sale of warrants (the "Warrants") to purchase
Common Stock of the Company to be acquired by the Purchasers in accordance with
the terms of this Agreement. The Warrants shall be comprised of two series:
Series A Warrants (the "Series A Warrants") to purchase in the aggregate 660,090
shares of Common Stock of the Company, subject to adjustment as provided in the
Warrants; and Series B Warrants (the "Series B Warrants") to purchase in the
aggregate 256,702 shares of Common Stock of the Company, subject to adjustment
as provided in the Warrants. The Series A Warrants shall be substantially in the
form set out in Exhibit B-1 hereto, with such changes thereto, if any, as may be
approved by the Principal Purchaser and the Company, and the Series B Warrants
shall be substantially in the form set out in Exhibit B-2 hereto, with such
changes thereto, if any, as may be approved by the Principal Purchaser and the
Company. The Series A Warrants and the Series B Warrants will be substantially
identical,
<PAGE> 2
except with respect to the dates of issuance thereof and the exercise price
therefor, as provided in this Agreement and the Warrants.
1.3. Issuance and Sale of Notes and Warrants at the First
Closing. At the First Closing, the Company shall issue and sell to the
Purchasers, and the Purchasers shall purchase from the Company, Notes in the
aggregate principal amount of $2,000,000 and Series A Warrants to purchase in
the aggregate 264,036 shares of Common Stock of the Company, subject to
adjustment as provided in the Warrants, at an aggregate purchase price (the
"Aggregate First Closing Purchase Price") of $2,000,000 payable in cash by wire
transfer of immediately available funds.
1.4. Issuance and Sale of Notes and Warrants at the Second
Closing. At the Second Closing, the Company shall issue and sell to the
Purchasers, and the Purchasers shall purchase from the Company, Notes in the
aggregate principal amount of $5,000,000, Series A Warrants to purchase in the
aggregate 396,054 shares of Common Stock of the Company, subject to adjustment
as provided in the Warrants, and Series B Warrants to purchase in the aggregate
256,072 shares of Common Stock of the Company, subject to adjustment as provided
in the Warrants, at an aggregate purchase price (the "Aggregate Second Closing
Purchase Price") of $5,000,000 payable in cash by wire transfer of immediately
available funds.
1.5. Allocation of Issue Price of Notes and Warrants. The
Company and the Purchasers agree that for federal income tax purposes, including
for purposes of determining original issue discount and the issue price of the
Notes under sections 1271-1275 of the Code, as amended, and the Regulations
issued thereunder (including Treasury Regulations section 1.1273-2(g)(2)(i)),
the Closing Fee referenced in Subsection 3.1(q) shall be treated as a reduction
of the issue price of the Notes and Warrants, and the remainder of the Aggregate
First Closing Purchase Price, after giving effect to such reduction, shall be
allocated among the Notes and Warrants to be issued and sold at the First
Closing as follows: $561.50 shall be allocated to each $1,000 principal amount
of Notes; and $3.17 shall be allocated to each share of the Common Stock of the
Company issuable upon the exercise of the Series A Warrants. The Company and the
Purchasers agree that such allocation of the issue price shall be binding on the
Company for purposes of any determination by the Company of the issue price of
the Notes and the Warrants. The Company and the Purchasers further agree to use
their best efforts to reach agreements with respect to the allocation of the
Aggregate Second Closing Purchase Price among the Closing Fees (as defined
below) to be paid by the Company, and the Notes and Warrants to be issued and
sold by the Company, at the Second Closing at or prior to the Second Closing
Date.
1.6. Use of Proceeds. The proceeds of the Notes and Warrants
shall be used by the Company for working capital purposes and potential
acquisitions consistent with Section 8.2(e) hereof. No part of such proceeds
will be used to purchase or carry any margin stock or to extend credit to others
for the purpose of purchasing or carrying any margin stock. Neither the issuance
of the Notes or the Warrants nor the use of the proceeds thereof will violate or
be inconsistent with the provisions of Regulations G, T, U or X of the Board of
Governors of the Federal Reserve System.
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<PAGE> 3
2. CLOSINGS OF THE SALES OF NOTES AND WARRANTS.
2.1. First Closing. The closing of the initial issuance and
sale of Notes and Series A Warrants pursuant to Subsection 1.3 hereof and
certain of the other transactions contemplated hereby (the "First Closing")
shall take place at the offices of Goodwin, Procter & Hoar LLP, Exchange Place,
Boston, Massachusetts, on January 31, 1997 or at such other place or on such
other date as the Principal Purchaser and the Company may agree upon (such date
on which the First Closing shall have actually occurred, the "First Closing
Date"). At the First Closing, the Company will deliver or cause to be delivered
to each Purchaser, a single Note in the principal amount specified opposite such
Purchaser's name on the signature page hereto, and a single Series A Warrant
certificate to purchase the number of shares of Common Stock specified opposite
such Purchaser's name on the signature page hereto (or such greater number of
Notes or Warrant certificates as such Purchaser may request upon four (4) days
prior notification), in each case dated the date of the First Closing and
registered in such Purchaser's name or (upon four (4) days prior notification)
that of its nominee, against payment of the purchase price therefor in the
amount specified opposite such Purchaser's name on the signature page hereto. If
at the First Closing the Company shall fail to tender to the Purchasers any of
the Notes or Series A Warrants to be purchased by the Purchasers as provided in
this Subsection 2.1, or if any of the conditions specified in Subsection 3.1
required to be satisfied at or prior to the First Closing shall not have been
satisfied or waived by the Principal Purchaser, the Purchasers shall, at their
election, be relieved of all further obligations under this Agreement, without
thereby waiving any other respective rights they may have by reason of such
failure or such non-fulfillment.
2.2. Second Closing. The second closing of the issuance and
sale of Notes, Series A Warrants and Series B Warrants pursuant to Subsection
1.4 hereof and certain of the other transactions contemplated hereby (the
"Second Closing") shall take place at the offices of Goodwin, Procter & Hoar
LLP, Exchange Place, Boston, Massachusetts, on such date as all of the
conditions specified in Subsection 3.1 required to be satisfied at or prior to
the Second Closing shall have been satisfied or waived by the Principal
Purchaser (such date on which the Second Closing shall have actually occurred,
the "Second Closing Date"). The Company shall provide the Purchasers with thirty
days prior written notice of the proposed Second Closing Date. At the Second
Closing, the Company will deliver or cause to be delivered to each Purchaser, a
single Note in the principal amount specified opposite such Purchaser's name on
the signature page hereto, a single Series A Warrant certificate to purchase the
number of shares of Common Stock specified opposite such Purchaser's name on the
signature page hereto, and a single Series B Warrant certificate to purchase the
number of shares of Common Stock specified opposite such Purchaser's name on the
signature page hereto (or such greater number of Notes or Warrant certificates
as such Purchaser may request upon four (4) days prior notification), in each
case dated the date of the Second Closing and registered in such Purchaser's
name or (upon four (4) days prior notification) that of its nominee, against
payment of the purchase price therefor in the amount specified opposite such
Purchaser's name on the signature pages hereto. If at the Second Closing the
Company shall fail to tender to the Purchasers any of the Notes, Series A
Warrants or
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<PAGE> 4
Series B Warrants to be purchased by the Purchasers as provided in this
Subsection 2.2, or if any of the conditions specified in Subsection 3.1 required
to be satisfied at or prior to the Second Closing shall not have been satisfied
or waived by the Principal Purchaser at or prior to June 30, 1997 (or such later
date as the Principal Purchaser, in its sole discretion, shall consent to in
writing), the Purchasers shall, at their election, be relieved of all further
obligations under this Agreement, without thereby waiving any other respective
rights they may have by reason of such failure or such non-fulfillment. The
Company acknowledges and agrees that the Principal Purchaser shall have the
absolute right, in its sole discretion, to waive any or all of the conditions
specified in Section 3.1 required to be satisfied at or prior to the Second
Closing, and, notwithstanding anything to the contrary set forth herein or in
any of the other Transaction Documents, the Company hereby irrevocably agrees
with the Purchasers, that upon the written request of the Principal Purchaser,
the Company shall issue and sell to the Purchasers the Notes and Warrants to be
issued and sold to the Purchasers pursuant to this Section 2.2 on such proposed
Second Closing Date as the Principal Purchaser shall specify in such request
(which proposed Second Closing Date shall be not less than seven (7) Business
Days prior to nor more than thirty (30) Business Days after such request is
delivered to the Company by the Principal Purchaser). In the event any Purchaser
(other than the Principal Purchaser) shall decline (such Purchaser being
hereinafter referred to as a "Declining Purchaser") to purchase any of the Notes
or Warrants to be issued and sold to such Declining Purchaser at the Second
Closing pursuant to the terms of this Agreement, the Principal Purchaser shall
purchase all of the Notes and Warrants that were to have been issued and sold to
such Declining Purchaser.
3. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES.
3.1 Conditions Precedent to Purchasers' Obligations at Each
Closing. The Purchasers' obligations to purchase and pay for the Notes and
Warrants to be sold to the Purchasers at each Closing is subject to the
fulfillment to its satisfaction, prior to or at each Closing, of the following
conditions; provided that any or all of the following conditions may be waived,
in whole or in part, by the Principal Purchaser with respect to this Agreement
in its sole and absolute discretion:
(a) Representations and Warranties. The representations and
warranties of the Company contained in this Agreement and in the other
Transaction Documents shall be correct in all respects when made and at the time
of such Closing, after giving effect to the sale of the Notes and Warrants and
the other transactions contemplated to be consummated at or prior to such
Closing by this Agreement and the other Transaction Documents, except that any
representations and warranties that relate to a particular date or period shall
be true in all respects as of such date or period.
(b) Performance; No Default. The Company shall have performed
and complied in all respects with all agreements and conditions contained in
this Agreement and the other Transaction Documents required to be performed or
complied with at or prior to such Closing, and at the time of such Closing,
after giving effect to the sale of the Notes and Warrants
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<PAGE> 5
and the other transactions contemplated to be consummated at such Closing by
this Agreement and the other Transaction Documents, no Default or Event of
Default shall have occurred and be continuing.
(c) Compliance Certificate. The Company shall have delivered
to the Purchaser an Officer's Certificate, dated as of such Closing Date,
certifying that the conditions specified in paragraphs 3.1(a) and 3.1(b) have
been fulfilled.
(d) Good Standing Certificate. The Company shall have
delivered to the Purchaser good standing certificates from the Secretary of
State of Delaware and from the Secretary of State of The Commonwealth of
Massachusetts, evidencing the legal existence and corporate good standing of the
Company in the State of Delaware and the qualification and good standing of the
Company in The Commonwealth of Massachusetts.
(e) Secretary's Certificate. The Company shall have delivered
to the Purchasers a Certificate of the Secretary or Assistant Secretary of the
Company, in form and substance satisfactory to the Principal Purchaser and the
Principal Purchaser's Special Counsel, dated as of such Closing Date, (i)
certifying as true, complete and correct the Company's Certificate of
Incorporation and By-laws, each as amended through such Closing Date (the
"Charter Documents"), and resolutions relating to the transactions contemplated
hereby attached thereto, (ii) certifying as to the incumbency and specimen
signatures of officers who shall have executed instruments, agreements and other
documents in connection with the transactions contemplated hereby, (iii)
certifying as to the effect that certain agreements, instruments and other
documents are in the form approved in the resolutions referred to in clause (i)
above, and (iv) covering such other matters, and with such other attachments
thereto, as the Principal Purchaser and the Principal Purchaser's Special
Counsel may reasonably request.
(f) Opinion of Counsel. The Principal Purchaser shall have
received a favorable legal opinion from Hale and Dorr LLP, counsel to the
Company, addressed to all of the Purchasers and dated as of such Closing Date,
in the form set out in Exhibit C hereto.
(g) Third Amended and Restated Voting Rights Agreement. The
Company and certain of its stockholders shall have entered into a Third Amended
and Restated Voting Rights Agreement, in form and substance satisfactory to the
Principal Purchaser, providing for (i) the total number of members of the Board
of Directors of the Company to be fixed at nine (9) and (ii) at least one (1) of
the members of the Board of Directors of the Company to be selected by the
holders of a majority of the outstanding Warrants, and such Third Amended and
Restated Voting Rights Agreement shall remain in full force and effect as of
each Closing Date;
(h) Other Documents. As of each Closing Date:
(i) the Security Documents shall have been executed and
delivered by the Company and the Collateral Agent, shall be in full force and
effect and the Collateral Agent shall
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<PAGE> 6
hold valid and enforceable perfected Liens on substantially all of the
properties and assets of the Company as security for the ratable benefit of the
holders of the Note Indebtedness; and
(ii) each of the other Transaction Documents and any
other instruments, certificates, agreements and other documents contemplated
thereby and in connection therewith shall have been executed and delivered by
all respective parties thereto and shall be in full force and effect.
(i) Legal Investment; Compliance with Securities Laws. At the
time of such Closing, the Purchasers' purchase of the Notes and Warrants shall
be permitted by the laws and regulations of the jurisdiction to which each
Purchaser is subject (including, without limitation, Section 5 of the Securities
Act or Regulation G, T, U, or X of the Board of Governors of the Federal Reserve
System), and credit controls (whether voluntary or mandatory) or similar
restraints applicable to the Purchasers, and shall not subject the Purchasers to
any tax, penalty, liability or other onerous condition under or pursuant to any
applicable law or governmental regulation, and shall not be enjoined
(temporarily or permanently) under, prohibited by or contrary to any injunction,
order or decree applicable to the Purchasers. The offering, issuance and sale of
the Notes and Warrants under this Agreement shall have complied with all
applicable requirements of federal and state securities laws and the Principal
Purchaser shall have received evidence, if any, of such compliance in form and
substance reasonably satisfactory to the Principal Purchaser.
(j) Waiver of Stockholder Rights. The holders of the Preferred
Stock, the Series D Common Warrants, the Series D Preferred Warrants, the Series
E Common Warrants, the Series F Common Warrants and, to the extent applicable,
any other Capital Stock of the Company, shall have irrevocably waived in writing
any rights (including, without limitation, rights of first refusal) which they
may have under the Company's Charter Documents or under any purchase agreements
or other instruments, agreements or documents with respect to the offer and
issuance of the Notes and Warrants hereunder.
(k) Proceedings and Documents. All corporate and other
proceedings contemplated by this Agreement, including, without limitation, the
authorization of the issuance of the Notes and the Warrants, and all other
matters set forth in the Transaction Documents and all of the other documents
and instruments incident thereto, shall be reasonably satisfactory to the
Principal Purchaser and the Principal Purchaser's Special Counsel.
(l) Series F Financing. The Company shall have received (i)
cash proceeds (including proceeds received contemporaneously with the purchase
of the Notes and Warrants at the First Closing) from the Series F Financing of
not less than $10,000,000 as of the First Closing Date, and (ii) cash proceeds
from the Series F Financing of not less than $12,000,000 as of the Second
Closing Date.
(m) No Adverse U.S. Legislation, Action or Decision. No
legislation, order, rule, ruling or regulation shall have been enacted or made
by or on behalf of any governmental
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<PAGE> 7
body, department or agency of the United States, nor shall any decision of any
court of competent jurisdiction within the United States have been rendered
which, in the Principal Purchaser's reasonable judgment, could materially and
adversely affect any of the Notes or the Warrants or any part thereof as an
investment. There shall be no action, suit, investigation or proceeding pending
or threatened, against or affecting the Purchasers, any of their properties or
rights, or any of their Affiliates, associates, officers or directors, before
any court, arbitrator or administrative or governmental body which (i) seeks to
restrain, enjoin, prevent the consummation of or otherwise affect the
transactions contemplated by this Agreement and the other Transaction Documents,
or (ii) questions the validity or legality of any such transactions or seeks to
recover damages or to obtain other relief in connection with any such
transactions, and there shall be no valid basis for any such action, proceeding
or investigation.
(n) Governmental and Third Party Permits, Consents, Etc.
Except as set forth on Schedule 4.4, the Company shall have duly applied for and
obtained all approvals, orders, licenses, consents and other authorizations
(collectively, the "Approvals") from each federal, state and local government
and governmental agency, department or body, or pursuant to any agreement to
which the Company is a party or to which any of them or any of their assets is
subject, which may be required in connection with this Agreement, the other
Transaction Documents or any other agreements and documents contemplated thereby
and in connection therewith.
(o) Related Matters. The Company's Charter Documents shall not
have been modified or amended since the date of this Agreement.
(p) Payment of Closing Fees and Expenses. The Company shall
have paid prior to or on the date of such Closing a closing fee (the "Closing
Fee") to each Purchaser in an amount equal to two percent (2.0%) of the
aggregate purchase price required to be paid by such Purchaser for the Notes and
Warrants being purchased by such Purchaser at such Closing (which Closing Fee,
at the option of each Purchaser, may be applied against the purchase price for
the Notes and Warrants being purchased by such Purchaser at such Closing), all
reasonable fees, expenses and disbursements of the Purchasers and the Principal
Purchaser's Special Counsel, reflected in statements of the Purchasers and such
counsel rendered prior to or on the date of such Closing; provided, however, the
aggregate amount of such fees and expenses (other than the Closing Fee) shall
not exceed $90,000.
(q) Additional Conditions to Second Closing. Prior to the
Second Closing the Company shall have received the Primsol Solution Final FDA
Approval.
3.2. Conditions Precedent to Company's Obligations at Each
Closing. The Company's obligation to issue and sell the Notes and Warrants to be
sold by it to the Purchasers at each Closing is subject to the fulfillment to
its satisfaction, prior to or at each Closing, of the following conditions;
provided that any or all of the following conditions may be waived, in whole or
in part, by the Company with respect to this Agreement in its sole and absolute
discretion:
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<PAGE> 8
(a) Representations and Warranties. The representations and
warranties of the Purchasers contained in this Agreement and in the other
Transaction Documents shall be correct in all material respects when made and at
the time of such Closing, after giving effect to the sale of the Notes and
Warrants and the other transactions contemplated to be consummated at or prior
to such Closing by this Agreement and the other Transaction Documents, except
that any representations and warranties that relate to a particular date or
period shall be true in all respects as of such date or period.
(b) Compliance With Securities Laws. The offering, issuance
and sale of the Notes and Warrants under this Agreement shall have complied with
all applicable requirements of federal securities laws and the Company shall
have received evidence, if any, of such compliance in form and substance
satisfactory to the Company.
4. REPRESENTATIONS AND WARRANTIES, ETC. In order to induce the
Purchasers to purchase the Notes and Warrants, the Company represents and
warrants that:
4.1. Organization and Qualification; Authority. The Company is
a corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, has full corporate power and authority to own and
lease its properties and carry on its business as presently conducted, is duly
qualified, registered or licensed as a foreign corporation to do business and is
in good standing in The Commonwealth of Massachusetts and in each other
jurisdiction in which the ownership or leasing of its properties or the
character of its present operations makes such qualification, registration or
licensing necessary, except where the failure so to qualify or be in good
standing would not have a Material Adverse Effect.
4.2. Capitalization. The authorized, issued and outstanding
Capital Stock of the Company, immediately prior to the First Closing Date, will
be as set forth on Schedule 4.2 hereto. Except as set forth on Schedule 4.2,
immediately prior to the First Closing Date there will not be any outstanding
subscriptions, options, warrants, rights, convertible or exchangeable securities
or other agreements or commitments of any character obligating the Company to
issue any securities.
4.3. Subsidiaries. The Company has no Subsidiaries and does
not (a) own of record or beneficially, directly or indirectly, any shares of
Capital Stock of any other corporation which is controlled by the Company or any
interest in any partnership, joint venture or other association or business
entity which is controlled by the Company or (b) otherwise control, directly or
indirectly, any other business entity.
4.4. Stockholder List and Agreements. Set forth on Schedule
4.4 hereto is a true and complete list of the holders of Capital Stock of the
Company, the Capital Stock owned by each such holder and the consideration paid
to the Company for such Capital Stock by each such holder as of the First
Closing Date. Except as set forth on Schedule 4.4, there are no
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<PAGE> 9
agreements or understandings, written or oral, to which the Company is a party
with respect to the acquisition, disposition or voting of the Capital Stock of
the Company.
4.5. Licenses. The Company holds all material licenses,
franchises, permits, consents, registrations, certificates and other approvals
(including, without limitation, those relating to environmental matters, public
and worker health and safety, buildings, highways or zoning) (individually, a
"License" and collectively, "Licenses") required for the conduct of its business
as now being conducted, and is operating in substantial compliance therewith,
except where the failure to hold any such License or to operate in compliance
therewith would not have a Material Adverse Effect. Except as set forth on
Schedule 4.19, the Company is in substantial compliance with all laws,
regulations, orders and decrees applicable to it, except in each case where the
failure so to comply would not have a Material Adverse Effect, or a material
adverse effect on the ability of the Company to perform on a timely basis any
obligation that it has or will have under any Transaction Document to which it
is a party.
4.6. Corporate and Governmental Authorization;
Non-Contravention. Except as set forth on Schedule 4.6, the execution, delivery
and performance by the Company of the Transaction Documents to which the Company
is a party and all other instruments or agreements to be executed in connection
herewith or therewith, and the issuance and sale to the Purchasers of the Notes
and Warrants pursuant to this Agreement, are within the Company's corporate
powers, having been duly authorized by all necessary corporate action on the
part of the Company; do not require any License, authorization, approval,
qualification or formal exemption from, or other action by or in respect of, or
filing of a declaration or registration with, any court, Governmental Authority,
agency or official or other Person (except such as have been obtained or as may
be required under the Securities Act or state securities or Blue Sky laws); do
not contravene or constitute a default under or violation of (i) any provision
of applicable law or regulation of any Governmental Authority, (ii) the Charter
Documents of the Company, (iii) any agreement (or require the consent of any
Person under any agreement that has not been obtained) to which the Company is a
party, or (iv) any judgment, injunction, order, decree or other instrument
binding upon the Company or any of its properties, except where such
contravention, default or violation would not have a Material Adverse Effect;
and do not and will not result in the creation or imposition of any Lien on any
asset of the Company except as contemplated hereby.
4.7. Validity and Binding Effect. Each of the Transaction
Documents to which the Company is a party has been duly executed and delivered
by the Company and is a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except for (a) the effect upon
the Transaction Documents of bankruptcy, insolvency, reorganization, moratorium
and other similar laws relating to or affecting the rights of creditors
generally and (b) limitations imposed by a court of competent jurisdiction under
general equitable principles upon the specific enforceability of any of the
remedies, covenants or other provisions of the Transaction Documents and upon
the availability of injunctive relief or other equitable remedies.
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<PAGE> 10
4.8. Litigation; Defaults. There is no action, suit,
proceeding or investigation pending or, to the best of the Company's knowledge,
threatened against or affecting the Company or any of its properties before or
by any court or arbitrator or any governmental body, agency or official, which
questions the validity of the Agreement, or which might impair the ability of
the Company to perform fully on a timely basis any obligation which the Company
has or will have under this Agreement or any other Transaction Document to which
the Company is a party, or which (individually or in the aggregate) could
reasonably be expected to have a Material Adverse Effect. The Company is not in
violation of, or in default under (and there does not exist any event or
condition which, after notice or lapse of time or both, would constitute such a
default under), any term of its Charter Documents, or of any term of any
agreement, instrument, judgment, decree, order, statute, injunction,
governmental regulation, rule or ordinance (including without limitation, those
relating to zoning, city planning or similar matters) applicable to the Company
or to which the Company is bound, or to any properties of the Company, except in
each case to the extent that such violations or defaults, individually or in the
aggregate, could not reasonably affect the validity of any Transaction Document,
have a Material Adverse Effect, or impair the ability of the Company to perform
fully on a timely basis any material obligation which the Company has or will
have under this Agreement or any other Transaction Document to which the Company
is a party.
4.9. Outstanding Debt. Except as set forth on Schedule 4.9
hereto, at and as of each Closing, neither the Company nor any of its
Subsidiaries will have outstanding any debt for borrowed money, or obligations
or liabilities evidenced by bonds, debentures, notes or other similar
instruments or under capital leases other than short-term debt and trade
payables incurred in the ordinary course of business; provided that after the
First Closing, the Company may incur Indebtedness to the extent permitted under
Section 8.2(b). Schedule 4.9 contains a complete and accurate list of all
material guarantees, assumptions, purchase agreements and similar agreements and
arrangements whereby the Company is or may become directly or indirectly liable
or responsible for the indebtedness or other obligations of another Person,
except for negotiable instruments endorsed for collection or deposit in the
ordinary course of its business, identifying, with respect to each of the
respective parties, amounts and maturities.
4.10. No Material Adverse Change. Except as set forth on
Schedule 4.10, since December 31, 1995, there has been (i) no material adverse
change in the financial condition, assets, business or results of operations of
the Company, (ii) no material obligation or liability (contingent or other)
incurred by the Company, other than obligations and liabilities incurred in the
ordinary course of business, and no mortgage, encumbrance or Lien placed on any
of the properties of the Company which remains in existence on the date hereof,
other than Permitted Liens and Liens described on Schedule 4.20 hereto, and
(iii) no acquisition or disposition of any material assets by the Company (or
any contract or arrangement therefor) otherwise than for fair value in the
ordinary course of business.
4.11. Events Subsequent to September 30, 1996 Balance Sheet.
Except as set forth on Schedule 4.11 hereto, since September 30, 1996, the
Company has not (i) issued any stock, bond or other corporate security, (ii)
borrowed any amount or incurred or become subject
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<PAGE> 11
to, or paid any obligation or liability (absolute, accrued or contingent) other
than current liabilities shown on the Financial Statements and current
liabilities incurred since the date of the Financial Statements in the ordinary
course of business, (iii) declared or made any payment or distribution to
stockholders or purchased or redeemed any share of its capital stock or other
security, (iv) sold, assigned, transferred or granted any exclusive license with
respect to any patent, trademark, trade name, service mark, copyright, trade
secret or other intangible asset, (v) suffered any loss of property or waived
any right of substantial value other than in the ordinary course of business,
(vi) made any material change in the manner of business or operations of the
Company, or (vii) entered into any commitment (contingent or otherwise) to do
any of the foregoing, if any of the foregoing would have a Material Adverse
Effect.
4.12. Employee Programs. Schedule 4.12 sets forth a list of
every Employee Program maintained by the Company or any Current Affiliate at any
time during the six-year period ending on the First Closing Date or with respect
to which a liability of the Company or an ERISA Affiliate exists. Each Employee
Program (other than a Multiemployer Plan) which has been maintained by the
Company during the six-year period ending on the First Closing Date and which
has been intended to qualify under Section 401(a) or Section 501(c)(9) of the
Code has received a favorable determination or approval letter from the IRS
regarding its qualification under such section or the remedial amendment period
under Section 401(b) of the Code has not yet expired with respect to such
Employee Program and, to the knowledge of the Company, nothing has occurred that
would adversely affect such qualification since the date of such letter or
application for a determination or approval letter has been timely made and to
the knowledge of the Company, no reason exists why a favorable determination or
approval shall not be granted. Except as set forth on Schedule 4.12, the Company
does not know of any failure of any party to comply with any laws applicable
with respect to the Employee Programs that have been maintained by the Company
or any Current Affiliate, except for failures which would not subject the
Company to any material liability, and no such failure will result from
completion of the transactions contemplated hereby. With respect to any Employee
Program ever maintained by the Company or an ERISA Affiliate, there has been no
"prohibited transaction," as defined in Section 406 of ERISA or Code Section
4975, or breach of any duty under ERISA or other applicable law or any agreement
which in any such case could subject the Company to material liability either
directly or indirectly (including, without limitation, through any obligation of
indemnification or contribution) for any damages, penalties, or taxes, or any
other loss or expense. No litigation or governmental administrative proceeding
(or investigation) or other proceeding (other than those relating to routine
claims for benefits) is pending or threatened with respect to any such Employee
Program (other than a Multiemployer Plan).
The Company and its Current Affiliates have not incurred any liability
under Title IV of ERISA which has not been paid in full prior to the Closing.
Neither the Company nor any of its Current Affiliates is liable for any material
"accumulated funding deficiency" (whether or not waived) with respect to any
Employee Program ever maintained by the Company or any ERISA Affiliate and
subject to Code Section 412 or ERISA Section 302. With respect to any Employee
Program subject to Title IV of ERISA, there has been no (and the transactions
contemplated by this Agreement will not result in any) (i) "reportable event,"
within the meaning of ERISA
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<PAGE> 12
Section 4043 or the regulations thereunder (for which the notice requirement is
not waived under 29 C.F.R. Part 2615) or (ii) other event or condition which
presents a material risk of plan termination or any other event that may cause
the Company or any Current Affiliate to incur material liability or have a
material Lien imposed on its assets under Title IV of ERISA. All payments and/or
contributions required to have been made by the Company and its Current
Affiliates (under the provisions of any agreements or other governing documents
or applicable law) with respect to all Employee Programs subject to Title IV of
ERISA ever maintained by the Company or any ERISA Affiliate, for all periods
prior to the Closing, have been timely made. Except as described on Schedule
4.12, no Employee Program maintained by the Company or an ERISA Affiliate and
subject to Title IV of ERISA (other than a Multiemployer Plan) has any "unfunded
benefit liabilities" within the meaning of ERISA Section 4001(a)(18), as of each
Closing Date. With respect to Multiemployer Plans maintained by the Company or
any ERISA Affiliate, Schedule 4.12 states the aggregate amount of withdrawal
liability or other termination liability that would be incurred by the Company
or any ERISA Affiliate if there were a withdrawal from any such plan as
determined by the most recent withdrawal liability calculation prepared by such
plan. Except as disclosed on Schedule 4.12, none of the Employee Programs which
is a welfare plan maintained by the Company or any ERISA Affiliate provides
health care or any other non-pension benefits to any employees after their
employment is terminated (other than as required by Part 6 of Subtitle B of
Title I of ERISA or comparable statutes or regulations) or has ever promised to
provide such post-termination benefits.
For purposes of this subsection:
(a) "Employee Program" means (A) any employee benefit plan
within the meaning of Section 3(3) of ERISA and employee benefit plans (such as
foreign or excess benefit plans) which are not subject to ERISA, and (B) any
stock option plans, bonus or incentive award plans, severance pay policies or
agreements, deferred compensation arrangements, supplemental income
arrangements, vacation plans, and all other employee benefit plans, agreements,
and arrangements not described in (A) above, and (C) any trust used to fund
benefits under the foregoing maintained by the Company or any ERISA Affiliate.
(b) An entity is an "ERISA Affiliate" of the Company if it
would have ever been considered a single employer with the Company under ERISA
Section 4001(b) or part of the same "controlled group" as the Company for
purposes of ERISA Section 302(d)(8)(C); and an entity is a "Current Affiliate"
if it currently would be considered a single employer with the Company under
ERISA Section 4001(b) or part of the same "controlled group" as the Company for
purposes of ERISA Section 302(d)(8)(C).
(c) An entity "maintains" an Employee Program if such entity
sponsors, contributes to, or provides benefits under such Employee Program, or
has any obligation (by agreement or under applicable law) to contribute to or
provide benefits under such Employee Program, or if such Employee Program
provides benefits to or otherwise covers employees of such entity (or, in
respect of such employees, their spouses, dependents, or beneficiaries).
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<PAGE> 13
(d) "Multiemployer Plan" means a (pension or non-pension)
employee benefit plan to which more than one employer contributes and which is
maintained pursuant to one or more collective bargaining agreements.
4.13. Private Offerings. No form of general solicitation or
general advertising was used by the Company or any of its representatives, or,
to the knowledge of the Company, any other Person acting on behalf of the
Company, in connection with the offering of the Notes and Warrants being
purchased under this Agreement or under any other Transaction Document. Neither
the Company nor any Person acting on the Company's behalf has directly or
indirectly offered the Notes or the Warrants, or any part thereof or any other
similar securities or the securities being purchased under any other Transaction
Document, for sale to, or sold or solicited any offer to buy any of the same
from, or otherwise approached or negotiated in respect thereof with any Person
or Persons other than the Purchasers and other investors who the Company
reasonably believed had such knowledge and experience in financial and business
matters that they were capable of evaluating the merits and risks of purchasing
the Notes and the Warrants. The Company further represents to the Purchasers
that, assuming the accuracy of the representations of the Purchasers as set
forth in Section 5 hereof, neither the Company nor any Person acting on the
Company's behalf has taken or will take any action which would subject the issue
and sale of the Notes and the Warrants or the securities being purchased under
any other Transaction Document to the provisions of Section 5 of the Securities
Act, except as contemplated by the Registration Rights Agreement. The Company
has not sold the Notes or the Warrants to anyone other than the Purchasers
designated in this Agreement.
4.14. Broker's or Finder's Commissions. In addition to and not
in limitation of any other rights hereunder, the Company agrees that it will
indemnify and hold harmless the Purchaser from and against any and all claims,
demands or liabilities for broker's, finder's, placement agent's or other
similar fees or commissions and any and all liabilities with respect to any
taxes (including interest and penalties) payable or incurred or alleged to have
been incurred by the Company or any Person acting or alleged to have been acting
on the Company's behalf, in connection with this Agreement, the issuance or sale
of the Notes or the Warrants, or any other transaction contemplated by any of
the Transaction Documents.
4.15. Disclosure.
(a) There is no untrue statement of material fact in this
Agreement or in any of the other Transaction Documents, and no omission of a
material fact necessary in order to make the statements contained herein and
therein not materially misleading in light of the circumstances in which such
statements were made.
(b) The historical financial and operating information
provided to the Purchasers by the Company has been derived from the consolidated
books and records of the Company based upon reasonable methods as to allocations
and calculations of such financial information.
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<PAGE> 14
4.16. Intentionally Deleted.
4.17. Federal Reserve Regulations and Other Matters. The
Company will not, directly or indirectly, use any of the proceeds from the sale
of the Notes and Warrants for the purpose, whether immediate, incidental or
ultimate, of buying any "margin stock," or of maintaining, reducing or retiring
any indebtedness originally incurred to purchase any stock that is currently a
"margin stock," or for any other purpose which might constitute the transactions
contemplated hereby a "purpose credit," in each case within the meaning of
Regulation G or U of the Board of Governors of the Federal Reserve System (12
C.F.R. 207 and 221, as amended, respectively), or otherwise take or permit to be
taken any action which would involve a violation of such Regulation G or
Regulation U or of Regulations T or X of the Board of Governors of the Federal
Reserve System (12 C.F.R. 220 and 224, as amended, respectively) or any other
regulation of such Board. No indebtedness that may be maintained, reduced or
retired with the proceeds from the sale of the Notes or Warrants was incurred
for the purpose of purchasing or carrying any "margin stock" and the Company
does not own any such "margin stock" or have any present intention of acquiring,
directly or indirectly any such "margin stock."
4.18. Books and Records. The minute books of the Company
contain complete and accurate records of all meetings and other corporate
actions of the Company's stockholders and the Company's Board of Directors and
committees thereof and accurately reflect all transactions referred to therein.
The stock ledger of the Company is complete and reflects all issuances,
transfers, repurchases and cancellations of shares of Capital Stock of the
Company.
4.19. Environmental Regulation, Etc.
(a) Except as set forth on Schedule 4.19, to the knowledge of
the Company, the Company (i) has no liability under any Environmental Law or
common law cause of action relating to or arising from environmental conditions
which could have a Material Adverse Effect, and any Property owned, operated,
leased, or used by the Company and any facilities and operations thereon comply
with and will continue to comply with all applicable Environmental Laws to the
extent that failure to comply could have a Material Adverse Effect; (ii) has
never entered into or been subject to any judgment, consent decree, compliance
order, or administrative order with respect to any environmental or health and
safety matter or received any request for information, notice, demand letter,
administrative inquiry, or formal or informal complaint or claim with respect to
any environmental or health and safety matter or the enforcement of any
Environmental Law which could, individually or in the aggregate, have a Material
Adverse Effect; and (iii) has no reason to believe that any of the items
enumerated in the foregoing clause (ii) will be forthcoming.
(b) Except as set forth on Schedule 4.19, to the knowledge of
the Company: (i) the Company has never generated, transported, used, stored,
treated, disposed of, or managed and will never generate, transport, use, store,
treat, dispose of, or manage any Hazardous Waste, except in substantial
compliance with applicable Environmental Laws; (ii) the Company is not aware of
and has not caused any Release of a Hazardous Material at any site presently or
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<PAGE> 15
formerly owned, operated, leased, or used by the Company; (iii) the Company has
never had Hazardous Material transported from any site presently or formerly
owned, operated, leased, or used by the Company for treatment, storage, or
disposal at any other place, except in substantial compliance with applicable
Environmental Laws; (iv) the Company does not presently own, operate, lease, or
use any site on which underground storage tanks are or were located; (v) the
Company has never placed underground tanks on any site owned, operated, leased
or used by the Company; (vi) the Company has never removed underground tanks
from any site presently or formerly owned, operated, leased or used by the
Company; (vii) the Company has never had a Lien imposed by any Governmental
Authority on any property, facility, machinery, or equipment owned, operated,
leased, or used by the Company in connection with the presence of any Hazardous
Material.
4.20. Properties and Assets. The Company has good record and
marketable fee title to all real Property, has good and marketable title to, or
valid leasehold interests in, or licenses to use, all other Property and assets,
whether tangible or intangible, owned by them and reasonably necessary in the
conduct of business of the Company, except defects in title which do not and
will not have a Material Adverse Effect. All of the leases necessary in any
material respect for the operation of their respective properties and assets,
under which the Company holds any Property or assets, real or personal, are
valid, subsisting and enforceable and afford peaceful and undisturbed possession
of the subject matter of the lease, and no material default by the Company
exists under any of the provisions thereof. All buildings, machinery and
equipment of the Company are in good repair and working order, except for
ordinary wear and tear, and except as would not have a Material Adverse Effect.
All material current uses of such Property or assets of the Company are
permitted as of right and no such regulation or ordinance interferes with such
current uses. To the actual knowledge of the Company, there is no pending change
in any such laws, regulations and ordinances which would have a Material Adverse
Effect. Except as set forth on Schedule 4.20, no condemnation proceeding is
pending or, to the knowledge of the Company, threatened against the Company. All
Property and assets of any kind (real or personal, tangible or intangible) of
the Company are free from all Liens except for (i) Liens disclosed on Schedule
4.20 hereto and (ii) Permitted Liens.
4.21. Insurance. A list of all insurance policies and fidelity
bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors under which the Company may derive any
material benefit is set forth on Schedule 4.21 hereof. There is no claim by the
Company pending under any of such policies or bonds as to which coverage has
been questioned, reserved, denied or disputed by the underwriters of such
policies or bonds or their agents where such question, reservation, denial or
dispute would have a Material Adverse Effect. All premiums due and payable under
all such policies and bonds have been paid, and the Company is otherwise in full
compliance with the terms and conditions of all such policies and bonds. Except
as set forth on Schedule 4.21, such policies of insurance and bonds (or other
policies and bonds providing substantially similar insurance coverage) are and
have been in full force and effect for at least the last year and remain in full
force and effect. The Company knows of no threatened termination of any such
policies or bonds.
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4.22. Employment Practices. Except as set forth on Schedule
4.22 hereto, the Company is not a party to or in the process of negotiating any
collective bargaining or labor agreement or union contract. Except as set forth
on Schedule 4.22, there is no (i) charge, complaint or suit pending or, to the
knowledge of the Company, threatened against the Company respecting employment,
hiring for employment, terminating from employment, employment practices,
employment discrimination, terms and conditions of employment, safety, wrongful
termination, or wages and hours, involving more than $25,000 in any single
instance, (ii) unfair labor practice charge or complaint pending or, to the
knowledge of the Company, threatened against, or decision or order in effect and
binding on, the Company before or of the National Labor Relations Board, (iii)
grievance or arbitration proceeding arising out of or under collective
bargaining agreements pending or, to the knowledge of the Company, threatened
against the Company, (iv) strike, labor dispute, slow-down, work stoppage or
other interference with work pending or, to the knowledge of the Company,
threatened against the Company, or (v) to the knowledge of the Company, union
organizing activities or union representation question threatened or existing
with respect to any groups of employees of the Company.
4.23. Financial Statements.
(a) The Company has delivered to the Purchasers complete and
correct copies of its audited financial statements for the fiscal years ended
December 31, 1994 and 1995 and its unaudited financial statements for the fiscal
quarters ended March 31, 1996, June 30, 1996 and September 30, 1996, together
with the notes thereto (the "Financial Statements"). The Financial Statements
fairly present in all material respects the financial position of the Company on
the dates of such statements and the results of its operations for the periods
covered thereby; and have been prepared in accordance with GAAP consistently
applied, except, with respect to unaudited financial statements, the absence of
notes thereto and statements of cash flows and subject to customary year-end
adjustments.
(b) As of December 31, 1995 and as of each Closing Date, and
except as set forth in the Schedules hereto, there are no material liabilities
of the Company of any nature, whether accrued, absolute, contingent or
otherwise, asserted or, to the Company's knowledge, unasserted, except
liabilities stated or adequately reserved against in the Financial Statements or
liabilities or claims which are not required to be reflected in the Financial
Statements or in the notes thereto under GAAP.
4.24. Intellectual Property.
(a) Except as described in Schedule 4.24 hereto, the Company
has exclusive ownership of, or a license to use, all patent, copyright, trade
secret, trademark, or other proprietary rights (collectively, "Intellectual
Property") used or to be used in the business of the Company as presently
conducted. There are no claims or demands of any person pertaining to any of
such Intellectual Property and no proceedings have been instituted, or are
pending or, to the Company's knowledge, threatened, which challenge the rights
of the Company in respect thereof. No claim is known by the Company to be
pending or threatened to the effect that any
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<PAGE> 17
Intellectual Property owned or licensed by the Company, or which the Company
otherwise has the right to use, is invalid or unenforceable by the Company. The
Company has the right to use, free and clear of claims of other Persons, all
customer lists, designs, manufacturing or other processes, computer software,
systems, data compilations, research results, formulae and other information
required for or incident to its products or its business as presently conducted.
(b) All patents, patent applications, trademarks, trademark
applications and registrations and registered copyrights which are owned or by
or licensed to the Company or used or to be used by the Company in its business
as presently conducted, and all other items of Intellectual Property which are
material to the business or operations of the Company, are listed on Schedule
4.24. All of such patents, patent applications, trademark registrations,
trademark applications and registered copyrights have been duly registered in,
filed in or issued by the United States Patent and Trademark Office, the United
States Register of Copyrights, or the corresponding offices of other
jurisdictions as identified on said Schedule 4.24, and have been properly
maintained and renewed in accordance with all applicable provisions of law and
administrative regulations of the United States and each such jurisdiction.
(c) All licenses or other agreements under which the Company
is granted rights in Intellectual Property are listed on Schedule 4.24. All said
licenses or other agreements are in full force and effect and there is no
material default by any party thereto. To the Company's knowledge, the licensors
under said licenses and other agreements have and had all requisite power and
authority to grant the rights purported to be conferred thereby. True and
complete copies of all such licenses or other agreements, and all amendments
thereto, have been provided to the Purchasers.
(d) All licenses or other agreements under which the Company
has granted rights to others in Intellectual Property owned or licensed by the
Company are listed on Schedule 4.24. All said licenses or other agreements are
in full force and effect and there is no material default by the Company, or to
the Company's knowledge, any other party thereto. True and complete copies of
all such licenses or other agreements, and all amendments thereto, have been
provided to the Purchasers.
(e) The Company has taken all steps required in accordance
with sound business practice to establish and preserve its ownership of all
Intellectual Property rights with respect to its products, services and
technology. All proprietary trade secrets developed by or belonging to the
Company which have not been patented have been kept confidential and each
current and prior employee (other than clerical staff and other employees
without access to proprietary trade secrets), consultant and Scientist (as
defined below), except as disclosed on Schedule 4.24 hereto, has executed an
agreement regarding confidentiality, proprietary information and assignment of
inventions to the Company and to the best of the Company's knowledge, no such
Person is in breach of any agreements or arrangements with employers or others
relating to proprietary information or assignments of inventions. The Company
has not made any information regarding the Company's proprietary trade secrets
available to any Person other than those employees, consultants and Scientists
who have executed such agreements
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<PAGE> 18
regarding confidentiality, proprietary information and assignment of inventions.
Except as set forth on Schedule 4.24, to the best of the Company's knowledge, no
other Person, including any prior or current employer of any of the Company's
employees, consultants or Scientists, has any right to or interest in any
inventions, improvements, discoveries or other information assigned to the
Company by any of the Company's employees, consultants or Scientists. Except as
set forth on Schedule 4.24, the Company has no actual knowledge of any
infringement by others of any of the Company's Intellectual Property rights.
(f) To the Company's knowledge, the Company's products and the
business and activities presently conducted or proposed to be conducted by the
Company do not infringe or violate any Intellectual Property owned by any other
Person. No proceeding charging the Company with infringement of any adversely
held Intellectual Property has been filed or is threatened to be filed. To the
Company's knowledge, there exists no unexpired patent or patent application
which includes claims that would be infringed by the products, activities or
business of the Company. The Company is not making unauthorized use of any
confidential information or trade secrets of any Person, including without
limitation any prior or current employer of any of the Company's employees,
consultants or Scientists. Except as set forth on Schedule 4.24, neither the
Company, nor, to the Company's knowledge any employee of the Company or any of
the scientists who are performing consulting services for the Company (such
scientists being the individuals designated as "Scientists" on Schedule 4.24,
are hereinafter referred to herein as the "Scientists"), has any agreements or
arrangements with any Person other than the Company, or is obligated under any
contract (including any license, covenant or commitment of any nature) with any
Person other than the Company, or is subject to any judgment, decree or order of
any court or administrative agency, that restricts, interferes or conflicts with
the Company's business or the performance of such employee's or Scientist's
duties as an officer, employee, consultant or director of the Company.
4.25. Taxes. Except as otherwise set forth in Schedule 4.25,
the Company has filed or obtained extensions of all federal, state, local and
foreign income, excise, franchise, real estate, sales and use and other tax
returns heretofore required by law to be filed by it. Except as otherwise set
forth in Schedule 4.25, all material taxes, including, without limitation, all
federal, state, county, local, foreign or other income, Property, sales, use,
franchise, value added, employees' income withholding, social security,
unemployment and other taxes, of any nature whatsoever which have become due or
payable by the Company, including any fines or penalties with respect thereto or
interest thereon, whether disputed or not (collectively, "Taxes"), have been
paid in full or are adequately provided for in accordance with GAAP on the
financial statements of the applicable Person. Except as otherwise set forth in
Schedule 4.25, all material deposits, Taxes and other assessments and levies
required by law to be made, withheld, collected or provided for by the Company,
including deposits with respect to Taxes constituting employees' income
withholding taxes, have been duly made, withheld, collected or provided for and
have been paid over to the proper federal, state or local authority, or are held
by the Company for such payment. No Liens arising from or in connection with
Taxes have been filed and are currently in effect against the Company, except
for Liens for Taxes which are not yet due.
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<PAGE> 19
4.26. Transactions with Affiliates. Except as otherwise set
forth on Schedule 4.26, there are no material transactions, agreements or
understandings between or among the Company and any of its officers or directors
or stockholders or any of their Affiliates or associates.
4.27. No Other Business. The Company has not and is not
engaged in any material respect in any business other than the development,
manufacturing, marketing and sale of pharmaceutical products.
4.28. Compliance with Laws. The Company is in substantial
compliance with the requirements of all applicable laws, rules, regulations and
orders of any Governmental Authority, except those the non-compliance with which
would not, singly or in the aggregate, have a Material Adverse Effect, or impair
the ability of the Company to perform fully on a timely basis any material
obligation which the Company has or will have under any Transaction Document to
which the Company is a party.
4.29. Investment Company Act. The Company is not an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
4.30. Public Utility Holding Company Act. The Company is not a
"holding company," or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company," as such terms are defined in the Public Utility Holding Company Act of
1935, as amended.
4.31. Material Contracts and Obligations. Set out on Schedule
4.31 hereto is a list of: (a) each agreement to which the Company is a party or
by which it is bound which requires future expenditures by the Company in excess
of $50,000, (b) all employment and consulting agreements, employee benefit,
bonus, pension, profit-sharing, stock option, stock purchase and similar plans
and arrangements, and distributor and sales representative agreements to which
the Company is a party or by which it is bound, and (c) any agreement to which
any stockholder, officer or director of the Company, or any "affiliate" or
"associate" of such persons (as under the Securities Act of 1933, as amended),
is presently a party, including without limitation any agreement or other
arrangement providing for the furnishing of services by, rental of real or
personal property from, or otherwise requiring payments to, any such person or
entity. The Company has delivered to the Purchasers copies of such of the
foregoing as requested. The Company and, to the best of the Company's knowledge,
each other party thereto have in all material respects performed all the
obligations required to be performed by them to date, have received no notice of
default and are not in default (with due notice or lapse of time or both) under
any lease, agreement or contract described in subsections (a), (b) or (c) above
or that might result in payments by the Company in excess of $50,000, now in
effect to which the Company or any subsidiary is a party or by which it or its
property may be bound. All of such agreements and contracts are valid, binding
and in full force and effect with respect to the Company.
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<PAGE> 20
4.32. FDA Approvals. Set out on Schedule 4.32 hereto is a
detailed description of the United States Food and Drug Administration ("FDA")
approvals that the Company is required to obtain for each of the Company's
pharmaceutical products, the dates on which "Investigational New Drug
Applications" and "New Drug Applications" were (or are expected to be) filed by
the Company with the FDA for each such product, the dates on which clinical
tests and trials were (or are expected to be) completed by the Company for each
such product, and the dates on which FDA approvals were (or are expected to be)
obtained by the Company for each such product.
5. REPRESENTATIONS OF THE PURCHASERS.
5.1. Purchase for Investment. Each Purchaser individually and
not jointly represents that (a) it is an accredited investor as defined in
Regulation D under the Securities Act, or (b) by reason of its business and
financial experience, and the business and financial experience of those
persons, if any, retained by it to advise it with respect to its investment in
the Notes and the Warrants, such Purchaser together with such advisers have such
knowledge, sophistication and experience in business and financial matters as to
be capable of evaluating the merits and risk of the prospective investment, and
that it is purchasing the Notes and the Warrants for its own account or for one
or more separate accounts maintained by it or for the account of one or more
institutional investors on whose behalf such Purchaser has authority to make
this representation for investment and not with a view to the distribution
thereof or with any present intention of distributing or selling any of the
Notes and the Warrants except in compliance with the Securities Act and except
to one or more such institutional investors, provided that the disposition of
such Purchaser's or such investor's property shall at all times be within its
control. Each Purchaser understands and agrees that the Notes and the Warrants
have not been registered under the Securities Act and may be resold (which
resale is not now contemplated) only if registered pursuant to the provisions
thereunder or if an exemption from registration is available.
5.2. Authorization; Non-Contravention; Validity and Binding
Effect. Each Purchaser individually and not jointly represents that the
execution, delivery and performance by such Purchaser of the Transaction
Documents to which such Purchaser is a party and all other instruments or
agreements to be executed in connection herewith or therewith, and the purchase
by such Purchaser of the Notes and Warrants pursuant to this Agreement, are
within such Purchaser's powers, having been duly authorized by all necessary
action on the part of such Purchaser; do not require any License, authorization,
approval, qualification or formal exemption from, or other action by or in
respect of, or filing of a declaration or registration with, any court,
Governmental Authority, agency or official or other Person (except such as have
been obtained or as may be required under the Securities Act or state securities
or Blue Sky laws); do not contravene or constitute a default under or violation
of (i) any provision of applicable law or regulation of any Governmental
Authority, (ii) the organizational documents, if any, of such Purchaser, (iii)
any agreement (or require the consent of any Person under any agreement that has
not been obtained) to which such Purchaser is a party, or (iv) any judgment,
injunction, order,
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<PAGE> 21
decree or other instrument binding upon such Purchaser or any of its properties;
and do not and will not result in the creation or imposition of any Lien on any
asset of such Purchaser. This Agreement is the legal, valid and binding
obligation of such Purchaser, and is enforceable in accordance with its terms,
except for (a) the effect upon this Agreement of bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting the
rights of creditors generally and (b) limitations imposed by a court of
competent jurisdiction under general equitable principles upon the specific
enforceability of any of the remedies, covenants or other provisions of this
Agreement and upon the availability of injunctive relief or other equitable
remedies.
5.3. Broker's or Finder's Commissions. In addition to and not
in limitation of any other rights hereunder, each Purchaser individually and not
jointly agrees that it will indemnify and hold harmless the Company from and
against any and all claims, demands or liabilities for broker's, finder's,
placement agent's or other similar fees or commissions and any and all
liabilities with respect to any taxes (including interest and penalties) payable
or incurred or alleged to have been incurred by such Purchaser or any Person
acting or alleged to have been acting on such Purchaser's behalf, in connection
with this Agreement, the issuance or sale of the Notes or the Warrants, or any
other transaction contemplated by any of the Transaction Documents.
5.4 Source of Funds. Each Purchaser individually and not
jointly represents that the funds used by such Purchaser to purchase the Notes
and Warrants to be purchased by such Purchaser either (a) consist of funds which
do not constitute assets of any employee benefit plan (other than a governmental
plan exempt from the coverage of ERISA), or (b) consist of funds which may be
deemed to constitute assets of one or more specific employee benefit plans,
complete and accurate information as to the identity of each of which employee
benefit plans has been delivered to the Company by such Purchaser. As used in
this Section 5.4, the terms "employee benefit plan" and "governmental plan"
shall have the respective meanings assigned to such terms in section 3 of ERISA.
6. TERMS OF THE NOTES; PAYMENTS AND REDEMPTION; REGISTRATION
6.1. Maturity; Principal Amount. The maximum aggregate
principal amount of the Notes to be issued to the Purchasers shall be SEVEN
MILLION DOLLARS AND NO CENTS ($7,000,000). The Notes shall mature and all
principal payments and all accrued and unpaid interest thereon and any other
payments due thereunder shall be due and payable in full, without set-off,
deduction or counterclaim, on January 31, 2002 (the "Stated Maturity Date of the
Notes").
6.2. Interest. The Notes shall not bear interest for the
period from the dates of issuance thereof through January 31, 1999. The Notes
shall bear interest on the unpaid principal amount thereof from February 1, 1999
until the Stated Maturity Date of the Notes, at the following rates: (a) from
February 1, 1999 through January 31, 2000, at a rate of seven percent
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<PAGE> 22
per annum; (b) from February 1, 2000 through January 31, 2001, at a rate of
eight percent per annum; and (c) from February 1, 2001 through the Stated
Maturity Date of the Notes, at a rate of nine percent per annum. Interest on the
unpaid principal amount of the Notes shall be computed on the basis of a 360 day
year and the actual days elapsed, and shall be payable quarterly in arrears on
the last day of March, June, September and December of each year, commencing on
March 31, 1999, and upon any other payment of any principal amount of the Notes.
6.3. Default Interest and Late Charges. In the event that any
principal amount of the Notes is not paid within five (5) Business Days of when
due and payable (whether at stated maturity, by acceleration or otherwise), the
interest rate on such principal amount shall, notwithstanding anything herein to
the contrary and until all principal payments on the Notes have been brought
current, thereafter be increased by two percent (2%) per annum. Any interest on
any principal amount of the Notes that is not paid when due and payable shall
thereafter be paid, on demand by the holder of such Notes for which such
interest is owed, together with interest thereon at a rate of two percent (2%)
per annum in excess of the rate set forth in Subsection 6.2.
6.4. Payments on the Notes. All payments of principal and
interest on the Notes and any other payments due thereunder shall be made by the
Company, without set-off, deduction or counterclaim, to each Purchaser (or its
nominee) at such Purchaser's address and in accordance with the instructions set
forth on such Purchaser's signature page attached hereto, or at such other
address or by such other method as such Purchaser (or its nominee) or any
transferee or successor holder of the Notes shall have designated to the Company
in writing. All such payments shall be made in dollars and in immediately
available funds not later than 3:00 p.m. Boston time, on the date such payment
shall become due. Any payment received after such time on any Business Day shall
be deemed to have been received on the next Business Day. If any payment
hereunder becomes due and payable on a day other than a Business Day, such
payment shall be extended to the next succeeding Business Day, and, with respect
to payments of principal, interest thereon shall be payable at the then
applicable rate during such extension.
6.5. Optional Redemption. The Company may at any time and from
time to time redeem the then outstanding principal amount of the Notes, in whole
or in part, at a redemption price equal to 100% of the principal amount of Notes
to be redeemed, by giving written notice of redemption to all holders of the
Notes not less than 30 days and not more than 60 days prior to the Redemption
Date, specifying (i) the principal amount of the Notes to be redeemed, (ii) the
Redemption Date, and (iii) the accrued and unpaid interest (as of the Redemption
Date) applicable to the Notes to be redeemed. Notice of redemption having been
so given, the aggregate principal amount of Notes so specified in such notice
and all accrued and unpaid interest to the Redemption Date applicable to the
Notes to be redeemed, shall become due and payable on the Redemption Date. Any
partial redemption shall be in an aggregate principal amount of at least
$500,000 or integral multiples of $500,000 in excess thereof, and shall be
allocated among all of the Notes outstanding, pro rata, in the same proportion
as the outstanding principal amount of each Note bears to the aggregate
outstanding amount of all Notes. No redemption of the Notes pursuant to this
Subsection 6.5 shall relieve the Company from its
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<PAGE> 23
obligation under Subsection 2.2 of this Agreement to issue and sell to the
Purchasers the Notes and Warrants to be issued and sold to the Purchasers at the
Second Closing. In connection with any such redemption, the holders of Notes
shall deliver the Notes to the Company, and, in connection with holders whose
Notes are redeemed only in part, the Company (at the Company's expense) shall
execute, authenticate and deliver to such holders new Notes equal in principal
amount to the unredeemed portion of the Notes surrendered.
6.6. Change of Control.
(a) If there occurs a Change of Control (the date on which a
Change of Control first occurs being referred to herein as the "Change Date"),
then the Company shall notify all holders of the Notes in writing, as provided
in subparagraph (b) below, and the Company shall promptly make an offer to
redeem the Notes (a "Change of Control Offer") at a purchase price in cash equal
to 100% of the principal amount thereof plus accrued interest, if any, to the
Change of Control Purchase Date (as defined below), in accordance with the
procedures set forth in this Subsection 6.6.
(b) Promptly, and in any event within 30 days, after the
Change Date, the Company shall send by first-class mail to each holder of Notes,
a written notice stating that, pursuant to this Subsection 6.6:
(i) a Change of Control has occurred and the holders of the
Notes may elect to have their Notes purchased by the Company either in whole or
in part, at a purchase price in cash equal to 100% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of repurchase;
(ii) the repurchase date (which shall be no less than 30 days
nor more than 60 days after the date such notice is mailed) (the "Change of
Control Purchase Date");
(iii) the circumstances and relevant facts known to the
Company regarding such Change of Control (including, to the extent applicable,
information with respect to pro forma historical income, cash flow and
capitalization after giving effect to such Change of Control) which the Company
in good faith believes will enable such holder of Notes to make an informed
decision; and
(iv) all instructions and materials necessary to tender the
Notes pursuant to the Change of Control Offer, together with the information
contained in paragraph (c) below.
(c) Each holder of Notes electing to have its Notes purchased
will be required to deliver to the Company, at the address specified in the
notice received by such holder from the Company, at least three Business Days
prior to the Change of Control Purchase Date, an election form specifying the
principal amount of Notes such holder elects to have purchased.
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(d) On the Change of Control Purchase Date, the Company shall
pay the purchase price plus accrued interest to the holders of Notes who have
elected to have their Notes purchased by the Company under this Subsection 6.6,
and upon the payment of such purchase price and accrued interest, the holders of
such purchased Notes shall deliver such purchased Notes to the Company for
cancellation. In connection with holders whose Notes are purchased only in part,
the Company (at the Company's expense) shall execute, authenticate and deliver
to such holders new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered.
6.7. Redemption Following a Qualified Public Offering.
(a) If there occurs a Qualified Public Offering (the date of
closing of such event being a "Qualified Public Offering Date"), then the
Company shall notify all holders of the Notes in writing, and the Company,
within thirty days after the Qualified Public Offering Date, shall either (i)
redeem (a "Qualified Public Offering Redemption") all of the Notes at a purchase
price in cash equal to 100% of the principal amount of the Notes plus accrued
interest, if any, to the Redemption Date (which Redemption Date shall be no
earlier than 30 days nor later than 60 days after the Qualified Public Offering
Date), or (ii) convert (a "Qualified Public Offering Conversion") all of the
Notes into new converted notes (the "Converted Notes") in a principal amount
equal to 100% of the outstanding principal amount of the Notes having the terms
described in clause (d) below. The determination of whether to redeem the Notes
for cash or convert the Notes into Converted Notes shall be made by the Company
in its sole discretion.
(b) If, following a Qualified Public Offering, the Company
elects to make a Qualified Public Offering Redemption, the Company shall deliver
written notice to the holders of the Notes in accordance with, and shall follow
the procedures set forth in, Subsection 6.5 of this Agreement. Upon receipt of
written notice of a Qualified Public Offering Redemption, each holder of Notes
shall have 20 days to elect to exercise its rights under Section 6.8 of this
Agreement, and to the extent any holder of Notes shall not elect to exercise its
rights under Section 6.8 within such 20 day period, the rights of such holder
under Section 6.8 shall terminate.
(c) If, following a Qualified Public Offering, the Company
elects to make a Qualified Public Offering Conversion, promptly, and in any
event within 30 days, after the Qualified Public Offering Date, the Company
shall send by first-class mail to each holder of Notes, a written notice stating
that, pursuant to this Subsection 6.7:
(i) a Qualified Public Offering has occurred and the Company
has elected to convert all of the Notes into Converted Notes having a stated
principal amount equal to 100% of the principal amount thereof;
(ii) the conversion date (which shall be the 90th day after
the Qualified Public Offering Date) (the "Conversion Date") and the Stated
Maturity of the Converted Notes;
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<PAGE> 25
(iii) the Applicable Converted Note Rate as of the date of
such notice; and
(iv) all instructions and materials necessary to tender the
Notes pursuant to the Qualified Public Offering Conversion, together with the
information contained in paragraph (d) below.
(d) Converted Notes issued pursuant to a Qualified Public
Offering Conversion shall have the following terms: (i) the Converted Notes
shall have a Stated Maturity (the "Stated Maturity Date of the Converted Notes")
of not later than the earlier of (A) two years from the Conversion Date or (B)
the Stated Maturity Date of the Notes; (ii) the principal of the Converted Notes
shall be payable in not more than eight equal quarterly principal installments
commencing on the 90th day after the Conversion Date and continuing every 90th
day thereafter with a final installment due and payable on the Stated Maturity
Date of the Converted Notes; (iii) the Converted Notes shall bear interest on
the unpaid principal balance thereof at a rate per annum equal to the Applicable
Converted Note Rate; and (iv) interest on the unpaid principal amount of the
Converted Notes shall be computed on the basis of a 360 day year and the actual
days elapsed, and shall be payable quarterly in arrears commencing on the 90th
day after the Conversion Date and continuing every 90th day thereafter, and upon
any other payment of any principal amount of the Converted Notes.
(e) On the Conversion Date, the Company shall pay to all
holders of Notes all accrued and unpaid interest, if any, on the Notes through
the Conversion Date and the Company (at the Company's expense) shall execute,
authenticate and deliver to such holders Converted Notes in principal amount
equal to the principal amounts of the Notes, and upon payment of such purchase
price and accrued interest, shall deliver the Notes to the Company for
cancellation.
(f) Except as otherwise set forth in this Subsection or in the
Converted Notes, all Converted Notes issued pursuant to this Subsection shall be
deemed to be "Notes" for all purposes of this Agreement and the other
Transaction Documents and the holders of Converted Notes shall be entitled to
all rights and remedies available to the holders of Notes hereunder and under
the Security Documents and the other Transaction Documents.
6.8. Right of Holders to Convert Notes into Common Stock.
(a) Subject to Section 6.7(b) of this Agreement, if there
occurs a Qualified Public Offering, each holder of Notes shall have the right,
at any time and from time to time until the date which is two years after the
Qualified Public Offering Date, to cause the Company to convert the Notes held
by such holder, in whole or in part, into such number of shares of Common Stock
as shall equal the quotient of (i) the aggregate principal amount of the Notes
tendered for conversion divided by (ii) the Initial Qualified Public Offering
Price. Any partial conversion of any holder's Notes shall be in a principal
amount of not less than the lesser of 25% of the principal amount of each such
holder's Notes or $250,000.
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(b) Each holder of Notes electing to have all or any portion
of its Notes converted into Common Stock pursuant to this Subsection 6.8 will be
required to deliver to the Company, at its principal office, at least thirty
(30) days prior to the date of conversion, a written notice of conversion
specifying (i) the principal amount of Notes such holder elects to have
converted, (ii) the name or names in which such holder desires the certificate
or certificates for Common Stock to be issued, and (iii) the address to which
such holder desires delivery to be made of such new certificates for Common
Stock to be issued upon such conversion. On the date of conversion, the Company
shall issue and deliver to such holder or its designee, by hand delivery, by
courier or by first class mail (postage prepaid), at the address designated by
such holder, certificates for the number of shares of Common Stock to which such
holder shall be entitled as a result of the conversion of its Notes, and upon
receipt by the such holder of such certificates for shares of Common Stock, such
holder shall deliver such Notes to the Company for cancellation. In connection
with any holder whose Notes are converted into Common Stock only in part, the
Company shall execute, authenticate and deliver to such holder new Notes equal
in principal amount to the unconverted portion of the Notes surrendered. The
issuance of certificates for Common Stock upon conversion of Notes shall be made
without charge to the holders of the Notes for any issuance tax in respect
thereof or other costs incurred by the Company in connection with such
conversion and the related issuance of such Common Stock.
(c) The Company shall at all times reserve and keep available
out of its authorized and unissued Common Stock, solely for issuance upon the
conversion of Notes as herein provided, free from any preemptive rights or other
obligations, such number of shares of Common Stock, as shall from time to time
be issuable upon the conversion of all outstanding Notes. The Company shall
prepare and shall in good faith use all reasonable efforts to obtain and keep in
force such governmental or regulatory permits or other authorizations as may be
required by law, and shall comply with all requirements as to registration,
qualification or listing of the Common Stock, if applicable, in order to enable
the Company lawfully to issue and deliver to each holder of Notes such number of
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all Notes then outstanding and convertible into shares of Common
Stock. The Company shall not close its books against the transfer of Common
Stock in any manner that would interfere with the timely conversion of any of
the Notes.
6.9. Security for and Priority of Notes. The Notes shall at
all times be secured by substantially all of the property and assets of the
Company pursuant to the terms of the Security Documents. The rights and remedies
of the holders of the Notes under this Agreement and the other Transaction
Documents shall be senior in priority to any and all rights and remedies of the
holders of the Capital Stock of the Company, including, without limitation, any
right of the holders of Preferred Stock or other Capital Stock of the Company to
cause the Company to redeem, repurchase, convert into Indebtedness, or make or
pay any dividend, liquidation preference or other distribution in respect of, or
issue any Capital Stock or securities for or in respect of, any such Preferred
Stock or other Capital Stock of the Company.
6.10. Registration and Exchange of Notes.
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(a) The Company shall maintain, at its principal office, a
register for the Notes, in which the Company shall record the name and address
of each Person in whose name each Note has been issued and the name and address
of each transferee and prior owner of each Note. The Company may deem and treat
the Person in whose name a Note is so registered as the holder and owner thereof
for all purposes until due presentment of such Note for registration of transfer
as provided in this Subsection 6.10.
(b) Upon surrender for exchange or registration of transfer
any Note at the principal office of the Company, the Company shall execute and
deliver, at its expense, one or more new Notes of any denominations (of at least
$100,000 or such lesser amount as shall equal the aggregate principal amount of
all Notes held by any holder) requested by the holder of the surrendered Note,
each dated the date to which interest has been paid on the Note so surrendered
(or, if no interest has been paid, the date of such surrendered Note), but in
the same aggregate unpaid principal amount as such surrendered Note, and
registered in the name or such Person or Persons as shall be designated in
writing by such holder. Every Note surrendered for registration of transfer
shall be duly endorsed, or be accompanied by a written instrument of transfer
duly executed by the holder of such Note or by his attorney duly authorized in
writing.
(c) At the request of any holder of any Note, the Company will
issue, at its expense, in replacement of any Note or Notes lost, stolen, damaged
or destroyed, upon surrender of the mutilated portions thereof, if any, a new
Note or Notes of the same denominations, of the same unpaid principal amounts
and otherwise of the same tenor as, the Note or Notes so lost, stolen, damaged
or destroyed. The Company may condition the replacement of a Note reported by a
holder as lost, stolen, damaged or destroyed, upon the receipt from such holder
of an indemnity, security or surety bond (at the holder's expense) reasonably
satisfactory to the Company.
7. CERTAIN PROVISIONS WITH RESPECT TO THE WARRANTS.
7.1. Special Repurchase Right of the Company. If, at any time
after the Second Closing Date but prior to the first anniversary of the First
Closing Date, the Company shall have redeemed all of the Notes, the Company
shall have the right to repurchase (the "Special Repurchase Right") from each
holder of Warrants a maximum of five percent (5%) of the aggregate amount of
Warrants held by such holder, at a repurchase price (the "Repurchase Price") in
cash equal to $.01 per share of Common Stock purchasable upon exercise the
Warrants. In the event that any holder of Warrants shall hold both Series A
Warrants and Series B Warrants, the Company's Special Repurchase Right shall be
applied first against all Series B Warrants held by such holder and then, if but
only to the extent necessary, to the Series A Warrants held by such holder. If
the Company elects to exercise its Special Repurchase Right, the Company shall
give written notice of the repurchase to all holders of Warrants not less than
10 days prior to the proposed repurchase date (the "Repurchase Date"). Upon the
provision of notice of the Company's exercise of its Special Repurchase Right,
all Warrants covered by such notice shall no longer be exercisable. On the
Repurchase Date, the Company shall deliver to
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each holder of Warrants the Repurchase Price for the Warrants being repurchased
from such holder, and each holder of Warrants shall deliver to the Company the
Warrant certificate(s) evidencing such holder's Series B Warrants (and/or, if
necessary, the certificate(s) evidencing such holder's Series A Warrants), duly
endorsed for transfer to the Company. On the Repurchase Date, the Company (at
the Company's expense) shall execute, authenticate and deliver to each holder of
Warrants, a new Warrant certificate (or certificates) evidencing the
non-repurchased Warrants surrendered by such holder.
7.2. Pre-emptive Rights of Holders of Warrants.
(a) The Company hereby grants to each holder of Warrants a
right (the "Pre-emptive Right") to purchase all or any part of such holder's Pro
Rata Portion (as hereinafter defined) of any New Securities (as defined in
Subsection 7.2(b)) which the Company may, from time to time, at any time on or
after the date hereof, propose to issue and sell, subject to the terms and
conditions set forth below. A holder of Warrants' Pro Rata Portion shall mean a
fraction, the numerator of which is the number of shares of Common Stock then
held by such holder plus the number of shares of Common Stock issuable upon
exercise of any Warrants and other convertible securities, options, rights or
warrants then held by such holder, and the denominator of which is the total
number of shares of Common Stock then outstanding plus the total number of
shares of Common Stock issuable upon conversion or exercise of then outstanding
Preferred Stock, Series D Common Warrants, Series D Preferred Warrants, Series E
Common Warrants, Series F Common Warrants and other convertible securities,
options, rights or warrants; provided, however, for purposes of calculating the
Pro Rata Portion of any holder of Warrants hereunder, the number of shares of
Common Stock issued or issuable upon conversion of the Notes shall be excluded.
(b) "New Securities" shall mean any Capital Stock of the
Company whether now authorized or not, and all rights, options and warrants to
purchase capital stock, and securities of any type whatsoever which are, or may
become, convertible into Capital Stock; provided however, that the term "New
Securities" does not include (i) shares of Series F Preferred or Series F Common
Warrants issued or issuable in connection with the Series F Financing; (ii) the
Notes and Warrants issued or issuable pursuant to the terms of this Agreement,
the shares of Common Stock issued or issuable upon the conversion or exercise of
the Series A Preferred, Series B Preferred, Series D Preferred, Series E
Preferred, Series F Preferred, Series D Common Warrants, Series D Preferred
Warrants, Series E Common Warrants or the Series F Common Warrants; (iii) Common
Stock offered to the public pursuant to a Qualified Public Offering; (iv)
securities issued for the acquisition of another corporation by the Company by
merger, purchase of substantially all the assets of such corporation or other
reorganization resulting in the ownership by the Company of not less than a
majority of the voting power of such corporation; (v) not more than 850,000
shares of Common Stock or rights, options or warrants to acquire Common Stock
(such number being subject to adjustment for any stock dividend, stock split,
subdivision, combination or other recapitalization of the Common Stock of the
Company) issued to directors, employees or consultants of the Company pursuant
to a stock option plan or other similar stock plan or agreement or otherwise
and, in the case of
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rights, options or warrants, the shares of Common Stock issuable upon exercise
thereof; or (vi) securities issued as a result of any stock split, stock
dividend or reclassification of Common Stock, distributable on a pro rata basis
to all holders of Common Stock.
(c) In the event the Company intends to issue New Securities,
the Company shall give each holder of Warrants written notice of such intention,
describing the type of New Securities to be issued, the price thereof and the
general terms upon which the Company proposes to effect such issuance. Each
holder of New Warrants shall have 20 days from the date of any such notice to
agree to purchase (i) all or any part of such holder's Pro Rata Portion of such
new Securities and (ii) all or part of any other holder of Warrants' Pro Rata
Portion of such New Securities to the extent that such other holder of Warrants
does not elect to purchase its full Pro Rata Portion of such New Securities, for
the price and upon the general terms and conditions specified in the Company's
notice by giving written notice to the Company stating the quantity of New
Securities to be so purchased.
(d) In the event any holder or holders of Warrants fails to
exercise any Pre-emptive Right with respect to any New Securities within such
20-day period, the Company may within 120 days thereafter sell any or all of
such New Securities not agreed to be purchased by such holder or holders of
Warrants, at a price and upon general terms no more favorable to the purchasers
thereof than specified in the notice given to each holder of Warrants pursuant
to paragraph (c) above. In the event the Company has not sold such New
Securities within such 120-day period, the Company shall not thereafter issue or
sell any New Securities without first offering such New Securities to the
holders of Warrants in the manner provided above.
(e) For purposes of this Subsection 7.3, a "holder of
Warrants" shall include the general partners, officers or other affiliates of a
holder of Warrants, and a holder of Warrants may apportion its Pro Rata Portion
among, itself and such general partners, officers and other affiliates in such
proportions as it deems appropriate.
(f) The Pre-emptive Rights granted to the holders of the
Warrants pursuant to this Subsection 7.3 shall expire on the date of closing of
the Company's first Qualified Public Offering.
8. COVENANTS OF THE COMPANY.
8.1. General Covenants of the Company. The Company covenants
and agrees that so long as any Notes or Warrants to purchase at least 75,000
shares of Common Stock (subject to appropriate adjustment in the event of any
stock split, stock dividend, recapitalization, reclassification or other capital
reorganization) shall remain outstanding:
(a) Financial Statements and Other Information. The Company
shall furnish to each holder of Notes or Warrants:
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(i) Annual Financial Statements - as soon as available, but in
any event within 120 days after the end of each fiscal year of the Company, an
audited consolidated balance sheet of the Company and its Subsidiaries, if any,
as at the end of such year and the related audited statements of income, changes
in shareholders' equity and cash flows of the Company and its Subsidiaries, if
any, for such year, setting forth in each case in comparative form the figures
for the previous year, by independent certified public accountants of nationally
recognized standing;
(ii) Quarterly Statements - as soon as available, but in any
event not later than 60 days after the end of each of the first three fiscal
quarters of each fiscal year of the Company, an unaudited consolidated balance
sheet of the Company and its Subsidiaries as at the end of each such fiscal
quarter and the related unaudited consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its Subsidiaries for such
quarter and the portion of the fiscal year through such date, all in reasonable
detail and setting forth in comparative form the figures for the corresponding
period of the previous year, certified by the chief financial officer, treasurer
or controller of the Company;
(iii) Business Plan - as soon as available, but in any event
not later than 30 days after the commencement of each fiscal year, a business
plan and projected financial statements for such fiscal year;
(iv) Regulatory Filings - promptly after they become
available, copies of any regular and periodic financial information, and any
other information and reports, which the Company shall file with the Securities
and Exchange Commission, any state securities regulatory authority, or any other
regulatory agency;
(v) Shareholder Communications - promptly upon the mailing
thereof to the shareholders of the Company generally, copies of all financial
statements, reports and proxy statements so mailed;
(vi) Press Releases - promptly following the release by the
Company to the press of any material statement or other written communication, a
copy thereof;
(vii) Litigation - promptly, and in any event within three
Business Days after obtaining knowledge thereof, notice of any (i) litigation,
investigation or proceeding which has been commenced by or against the Company
or any of its Subsidiaries, which could have a Material Adverse Effect, or (ii)
any judgment or decree entered against the Company or any of its Subsidiaries
involving a liability of $100,000 or more (singly or in the aggregate) or in
which injunctive or similar relief is granted; and
(viii) Other Information - promptly any other information
reasonably requested by any holder of Notes or Warrants.
All financial statements required to be delivered pursuant to clause (i) and
(ii) of this Subsection 8.1(a) shall be complete and correct in all material
respects (subject, in the case of interim
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statements, to normal year-end audit adjustments) and to be prepared in
reasonable detail and in accordance with GAAP.
(b) Inspection. The Company shall permit each holder of Notes
or Warrants, or any authorized representative thereof, to visit and inspect the
properties of the Company and its Subsidiaries, including their corporate and
financial records, and to discuss their businesses and finances with executive
officers of the Company and its Subsidiaries, during normal business hours
following reasonable advance notice and as often as may be reasonably requested.
(c) Payment of Taxes and Other Claims. The Company shall pay
or discharge or cause to be paid or discharged, before any penalty accrues
thereon, (i) all material taxes, assessments and governmental charges levied or
imposed upon the Company or any of its Subsidiaries upon the income, profits or
Property of the Company or any of its Subsidiaries and (ii) all material lawful
claims for labor, materials and supplies which, if unpaid, would by law become a
Lien upon the property of the Company or any of its Subsidiaries; provided that
neither the Company nor any of its Subsidiaries shall be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claims the amount, applicability or validity of which is being contested in good
faith by appropriate proceedings and for which adequate provision has been made
or where the failure to effect such payment or discharge is not adverse in any
material respect to the interests of the holders of the Notes.
(d) Corporate Existence. The Company shall do or cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence and the corporate, partnership or other existence of each of
its Subsidiaries in accordance with the respective Charter Documents of such
Subsidiary and the rights (charter and statutory), licenses and franchises of
the Company and each of its Subsidiaries, provided, however, that the Company
shall not be required to preserve any such right, license or franchise, or the
corporate, partnership or other existence of any Subsidiary, if the Board of
Directors of the Company shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and its
Subsidiaries taken as a whole, and that the loss thereof will not have a
Material Adverse Effect.
(e) Indemnification of Directors; Payment of Directors'
Expenses. The Company shall (i) at all times maintain provisions in its Charter
Documents indemnifying all members of the Board of Directors of the Company
against liability to the maximum extent permitted under the laws of the State of
Delaware, and (ii) promptly reimburse any member of the Board of Directors of
the Company for his reasonable documented out-of-pocket expenses incurred in
attending each meeting of the Board of Directors of the Company.
(f) Key Man Insurance. The Company shall (i) use its best
efforts to obtain and maintain a life insurance policy with a financially sound
and reputable insurance company on the life of Emmett Clemente in the face value
of $1,000,000, naming the Company as owner and beneficiary thereof, (ii) not
cause or permit any assignment of the proceeds of such policy, and (iii) not
borrow against such policy.
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(g) Conflicting Agreements. The Company shall not, and shall
not permit any of its Subsidiaries to, enter into any agreement or instrument
(other than agreements or instruments between the Company and the holders of
Senior Indebtedness) that by its terms expressly prohibits the Company from
repurchasing the Notes or the Warrants in accordance with the terms of this
Agreement or the other Transaction Documents.
(h) Books and Records. The Company shall, and shall cause each
of its Subsidiaries to, (i) keep true books of records and accounts in which
full and correct entries shall be made of all dealings or transactions in
relation to their businesses and affairs, in accordance with sound business
practices, and (ii) reflect in their financial statements adequate accruals and
appropriations to reserves in accordance with GAAP.
(i) Compliance with Laws. The Company shall, and shall cause
each of its Subsidiaries to, remain in substantial compliance with all statutes,
laws, ordinances, or government rules and regulations to which the Company and
its Subsidiaries are subject.
(j) Investment Company Act. The Company shall not become an
investment company subject to registration under the Investment Company Act of
1940, as amended.
(k) Payments for Consents. The Company shall not, and shall
not permit any of its Subsidiaries to, directly or indirectly, pay or cause to
be paid any consideration, whether by way of interest, fee or otherwise, to any
holder of Notes or Warrants for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of this Agreement or the other
Transaction Documents unless such consideration is offered to be paid or agreed
to be paid to all holders of the Notes or Warrants which so consent, waive or
agree to amend in the time frame set forth in solicitation documents relating to
such consent, waiver or agreement.
(l) Further Instruments and Acts. The Company shall, and shall
cause each of its Subsidiaries to, execute and deliver such further instruments
and do such further acts any holder of Notes or Warrants may deem reasonably
necessary or proper to carry out more effectively the purposes of this Agreement
and the other Transaction Documents.
8.2. Covenants of the Company Applicable to the Notes. The
Company covenants and agrees that so long as any Notes shall remain outstanding:
(a) Certificates; Notices of Default and Other Information.
The Company shall furnish to each holder of the Notes:
(i) Officer's Certificate - together with the delivery of the
financial statements referenced in clause (i) of Subsection 8.1(a), an Officer's
Certificate executed by the chief executive officer, the Vice President-Finance
or principal accounting officer of the Company, stating whether or not such
Officer knows of any Default or Event of Default, containing a certification
from the chief executive officer, the Vice President-Finance or principal
accounting officer of the Company as to his or her knowledge of the Company's
compliance with all
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conditions and covenants under this Agreement and the other Transaction
Documents (for purposes of this clause (i) such compliance shall be determined
without regard to any period of grace or requirement of notice provided under
this Agreement, and, if such Officer knows of such a Default or Event of
Default, the certificate shall describe any such Default or Event of Default,
and its status; and
(ii) Notice of Default - within five Business Days of any
Officer becoming aware of (i) any Default, Event of Default or default in the
performance of any covenant, agreement or condition contained in this Agreement
or the other Transaction Documents or (ii) any event of default under any other
mortgage, indenture or instrument, an Officers' Certificate specifying such
Default, Event of Default, default or event of default and what action the
Company is taking or proposes to take with respect thereto.
(b) Limitation on Additional Indebtedness. The Company shall
not, and shall not permit any of its Subsidiaries to, Incur, directly or
indirectly, any Indebtedness (including Acquired Indebtedness), other than (a)
the Indebtedness evidenced by the Notes, (b) Senior Indebtedness, and (c) the
Series A Preferred, the Series B Preferred, the Series D Preferred, the Series E
Preferred and the Series F Preferred, and (d) Indebtedness in an aggregate
amount not in excess of $500,000 secured by Capitalized Leases or Purchase Money
Liens.
(c) Limitation on Restricted Payments. The Company shall not,
and shall not permit any of its Subsidiaries to, directly or indirectly,
approve, declare, authorize, issue, make, agree to make, or set aside any funds
for the payment of any Restricted Payment, except (a) dividends, payments or
other distributions with respect to any Capital Stock by any Subsidiary to the
Company or to any Wholly-Owned Subsidiary of the Company, and (b) the
redemption, repurchase, retirement or conversion by the Company of the Notes and
the Warrants in accordance with the terms of this Agreement and the Warrants.
(d) Transactions with Affiliates. The Company shall not, and
shall not permit any of its Subsidiaries to, enter into any transaction or
series of transactions to sell, lease, transfer, exchange or otherwise dispose
of any of its properties or assets to or to purchase any property or assets
from, or for the direct or indirect benefit of, an Affiliate of the Company or
of any Subsidiary of the Company, make any Investment in or enter into any
contract, agreement, understanding, loan, advance or Guarantee with, or for the
direct or indirect benefit of, an Affiliate of the Company or of any Subsidiary
of the Company (each, including any series of transactions with one or more
Affiliates, an "Affiliate Transaction"), (i) unless such Affiliate Transaction
is on terms that are no less favorable to the Company or the relevant Subsidiary
than those that could have been obtained at that time in a comparable
transaction by the Company or such Subsidiary with an unrelated Person, and (ii)
if such Affiliate Transaction involves or has a potential aggregate value of
more than $100,000, unless such Affiliate Transaction has been approved by a
majority of the Board of Directors who have no direct or indirect interest in
the Affiliate Transaction or in the Affiliate that is a party to the Affiliate
Transaction, or in any other party that is an Affiliate of any such Affiliate.
The provisions of this Subsection 8.2(d) shall not apply to any Restricted
Payment that is made in compliance with the provisions of this
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Agreement, to the reasonable and customary fees and compensation paid or
indemnity provided on behalf of, officers, directors, employees or consultants
of the Company or any Subsidiary, as determined by the Board of Directors of the
Company or such Subsidiary or the senior management thereof in good faith, and
to transactions exclusively between or among the Company and any Wholly-Owned
Subsidiary or exclusively between or among Wholly-Owned Subsidiaries provided
such transactions are not otherwise prohibited by this Agreement.
(e) Restrictions on Certain Mergers and Acquisitions. The
Company shall not, and shall not permit any of its Subsidiaries to, become a
party to any merger or consolidation with any Person, or purchase or enter into
any definitive agreement to purchase, in one or more related transactions, any
property or assets of, or any Capital Stock of or other interests in, any Person
(or any affiliated group of Persons), without the prior written consent of the
holders of a majority of the outstanding principal amount of the Notes, except
that (i) any Person may merge or consolidate with the Company so long as the
Company is the surviving corporation, such transaction does not adversely affect
the consolidated financial condition of the Company and its Subsidiaries, and
the fair market value of the aggregate consideration paid (including all
Indebtedness assumed) by the Company and its Subsidiaries in connection with
such transaction and all other transactions permitted under clauses (i), (ii)
and (iii) of this Subsection 8.2(e) does not exceed (A) $6,000,000 prior to the
closing of a Qualified Public Offering and (B) $12,000,000 after the closing of
a Qualified Public Offering, (ii) any Person (other than the Company) may merge
or consolidate with any Wholly-Owned Subsidiary of the Company so long as such
Wholly-Owned Subsidiary of the Company is the surviving corporation, such
transaction does not adversely affect the consolidated financial condition of
the Company and its Subsidiaries, and the fair market value of the aggregate
consideration paid (including all Indebtedness assumed) by the Company and its
Subsidiaries in connection with such transaction and all other transactions
permitted under clauses (i), (ii) and (iii) of this Subsection 8.2(e) does not
exceed (A) $6,000,000 prior to the closing of a Qualified Public Offering and
(B) $12,000,000 after the closing of a Qualified Public Offering, (iii) the
Company may purchase property or assets of, or Capital Stock of, another Person
(other than the assets proposed to be acquired by the Company in connection with
the Feverall Acquisition) so long as the fair market value of the aggregate
consideration paid (including all Indebtedness assumed) by the Company and its
Subsidiaries in connection with such transaction and all other transactions
permitted under clauses (i), (ii) and (iii) of this Subsection 8.2(e) does not
exceed (A) $6,000,000 prior to the closing of a Qualified Public Offering and
(B) $12,000,000 after the closing of a Qualified Public Offering, and (iv) after
the closing of a Qualified Public Offering the Company may consummate the
Feverall Acquisition for aggregate consideration (including all Indebtedness
assumed) of not more than $12,000,000 (plus the fair market value of inventory).
(f) Maintenance of Properties and Insurance. The Company shall
(i) cause all material properties owned by or leased to it or any of its
Subsidiaries and used or useful in the conduct of its business or the business
of such Subsidiary to be maintained and kept in normal condition, repair and
working order and supplied with all necessary equipment and shall cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in
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connection therewith may be properly and advantageously conducted at all times;
provided, however, that nothing in this Subsection 8.2(f) shall prevent the
Company or any of its Subsidiaries from discontinuing the maintenance of any
such properties, if such discontinuance is desirable in the conduct of its
business or the business of such Subsidiary, and (ii) provide or cause to be
provided, for itself and its Subsidiaries, insurance (including appropriate
self-insurance) against loss or damage of the kinds customarily insured against
by corporations similarly situated and owning like properties, including, but
not limited to, public liability insurance, with reputable insurers in such
amounts with such deductibles and by such methods as shall be customary for
corporations similarly situated in the industry.
8.3 Covenants of the Company Applicable to the Warrants. The
Company covenants and agrees that so long as Warrants to purchase at least
75,000 shares of Common Stock (subject to appropriate adjustment in the event of
any stock split, stock dividend, recapitalization, reclassification or other
capital reorganization) shall remain outstanding:
(a) Board of Directors. The Company shall at all times from
the date of this Agreement until the later of (i) the date on which all of the
Note Indebtedness shall have been paid in full, and (ii) two and one-half years
after the Qualified Public Offering Date, use its best efforts to cause (A) the
total number of members of the Board of Directors of the Company to be fixed at
nine (9); and (B) such person as shall be designated from time to time by the
holders of a majority of the outstanding Warrants to be nominated, elected and
maintained as one (1) of the members of the Board of Directors of the Company.
(b) Restrictions on Certain Sales and Mergers. The Company
shall not, and shall not permit any of its shareholders or Subsidiaries to,
become a party to any merger or consolidation of the Company or any of its
Subsidiaries with or into any Person (or any affiliated group of Persons), or
sell or enter into any definitive agreement to sell, in one or more related
transactions, all or substantially all of the property, assets or Capital Stock
of the Company or any of its Subsidiaries, without the prior written consent of
the holders of a majority of the outstanding Warrants, except that (i) any
Person may merge or consolidate with the Company so long as the Company is the
surviving corporation and such merger is not otherwise prohibited by this
Agreement and (ii) the Company or the shareholders may sell all or substantially
all of the property, assets or Capital Stock of the Company so long as each
holder of Warrants receives cash in exchange for each Warrant Share (as defined
in the Warrants) that would be issuable to such holder upon the exercise by such
holder of the Warrants held by such holder, in an amount equal to $10.00
(subject to appropriate adjustment in the event of any stock split, stock
dividend, recapitalization or other capital reorganization) less the applicable
Purchase Price (as defined in the Warrants) required to be paid by such holder
for the issuance of such Warrant Share upon exercise of such Warrant.
9. DEFAULTS AND REMEDIES
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9.1. Events of Default. The occurrence of any one of the
following shall constitute an "Event of Default" hereunder:
(a) The Company shall fail to pay any interest on any Note or
any Put Note when the same becomes due and payable and the continuance of such
failure for a period of five (5) Business Days;
(b) The Company shall fail (i) to pay any principal of, or
premium, if any, on any Note when and as the same becomes due and payable at
maturity, acceleration, on any Redemption Date, on any Change in Control
Purchase Date, or otherwise, (ii) to repurchase any Warrants on any Put Purchase
Date, or (iii) to pay any principal of, or premium, if any on any Put Note when
and as the same becomes due and payable;
(c) The Company shall fail to perform or comply with any
covenant or agreement contained in this Agreement, the Warrant, the Security
Documents or any of the other Transaction Documents (other than the covenants
referred to in paragraphs (a) or (b) above), and such failure shall not have
been cured or waived within a period of thirty (30) days;
(d) The Company defaults with respect to any Indebtedness with
a principal amount then outstanding in excess of $500,000, individually or in
the aggregate, and such default results in such Indebtedness becoming due and
payable prior to its Stated Maturity;
(e) Any representation or warranty made by the Company in
connection with this Agreement or any of the other Transaction Documents or any
certificate or financial information delivered pursuant to this Agreement or any
of the other Transaction Documents shall prove to have been incorrect in any
material respect when made;
(f) The Company shall, pursuant to or within the meaning of
any Bankruptcy Law, (i) commence a voluntary case or proceeding; (ii) consent to
the entry of an order for relief against it in an involuntary case or
proceeding; (iii) consent to the appointment of a Custodian of it or for all or
substantially all of its property; (iv) make a general assignment for the
benefit of its creditors; or (v) admit in writing its inability to pay its debts
generally as they become due;
(g) A court of competent jurisdiction shall enter an order or
decree under any Bankruptcy Law that remains unstayed and in effect for a period
of 60 days and (i) is for relief against the Company in an involuntary case or
proceeding; (ii) appoints a Custodian of the Company for all or substantially
all of its Property; or (iii) orders the liquidation of the Company; or
(h) Any judgment or decree for the payment of money in excess
of $250,000 (to the extent not covered by insurance) shall be rendered against
the Company and shall not be discharged and either (A) an enforcement proceeding
shall have been commenced by a creditor upon such judgment or decree or (B)
there shall have occurred a period of 45 days following
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such judgment or decree during which such judgment or decree is not discharged,
waived or the execution thereof stayed.
The foregoing shall constitute Events of Default whatever the reason
for any such Event of Default and whether such Event of Default is voluntary or
involuntary or is effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body.
The term "Bankruptcy Law" means Title 11, United States Code, or any
similar federal or state law for the relief of debtors. "Custodian" means any
receiver, trustee, assignee, liquidator, sequestrator, custodian or similar
official under any Bankruptcy Law.
9.2. Remedies on Default, Etc. After an Event of Default has
occurred, the Company shall promptly notify all of the holders of the Notes in
writing of such occurrence. Upon the occurrence of an Event of Default, and at
any time thereafter while such Event of Default is continuing, the holders of a
majority in aggregate principal amount of the Notes at the time outstanding, by
written notice to the Company, may declare (a "Declaration") due and payable an
amount equal to all unpaid principal of, premium, if any, and accrued interest
on, all Notes issued and outstanding (the "Default Amount"). If an Event of
Default specified in clause (f) or (g) of Subsection 9.1 occurs, the Default
Amount shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of any of the holders of the Notes. The
holders of a majority in aggregate principal amount of the Notes, by written
notice to the Company, may rescind any Declaration if all Events of Default then
continuing (other than any Events of Default with respect to the nonpayment of
principal of or interest on any Note which has become due solely as a result of
such Declaration) have been cured.
In addition, if holders of a majority in aggregate principal amount of
Notes make a Declaration which is not rescinded, any holder of any of the Notes
may proceed to enforce its rights by suit in equity, action at law and/or other
appropriate means to collect the payment of principal or interest on the Notes
or to enforce the performance of any provision hereunder or under the Notes or
the other Transaction Documents.
The Company hereby agrees to pay on demand reasonable costs and
expenses, including without limitation reasonable attorneys' fees, Incurred or
paid by any holder of the Notes in enforcing such holders rights upon the
occurrence of an Event of Default.
No provision of this Agreement, the other Transaction Documents or the
Notes shall alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal and interest on the Notes at the times,
places and rates, and in the currency provided.
9.3. Waiver of Past Defaults. The holders of a majority in
aggregate principal amount of the Notes at the time outstanding, by notice to
the Company (and without notice to any other holders of the Notes), may waive
any existing Default or Event of Default and its
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consequences. When a Default is waived, it is deemed cured and shall cease to
exist, but no such waiver shall extend to any subsequent or other Default or
impair any consequent right.
10. RESTRICTIONS ON TRANSFER.
10.1. Restrictive Legends. Except as otherwise permitted by
this Section 10, each Note and Warrant certificate (or Common Stock certificate
issued on exercise thereof or in exchange therefor) issued pursuant to this
Agreement shall be stamped or otherwise imprinted with a legend in substantially
the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, NOR PURSUANT TO THE SECURITIES OR "BLUE
SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT IN ACCORDANCE WITH
APPLICABLE "BLUE SKY" LAWS AND PURSUANT TO (i) A REGISTRATION STATEMENT WITH
RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER SUCH ACT, (ii) RULE 144 OR
RULE 144A UNDER SUCH ACT, OR (iii) ANY OTHER EXEMPTION FROM REGISTRATION UNDER
SUCH ACT RELATING TO SUCH ACT, PROVIDED THAT, IF REQUESTED BY THE COMPANY, AN
OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM AND SUBSTANCE IS FURNISHED TO
THE COMPANY THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT IS
AVAILABLE.
The Company shall maintain a copy of this Agreement and any amendments
thereto on file in its principal office, and will make such copy available
during normal business hours for inspection to any party thereto or will provide
such copy to any holder of Notes or Warrants upon such holder's request.
Whenever the legend requirement imposed by this Subsection 10.1 shall
terminate, as provided in Subsection 10.2 hereof, the respective holders of
Notes and Warrants for which such legend requirements have terminated shall be
entitled to receive from the Company, at the Company's expense, new Notes or
Warrant certificates, as applicable, without such legend.
10.2. Notice of Transfer; Opinions of Counsel. The holder of
each Note or Warrant certificate bearing the restrictive legend set forth in
Subsection 10.1 above (a "Restricted Security") agrees with respect to any
transfer of such Restricted Security, upon reasonable request from the Company
to such holder, to give to the Company (a) written information describing the
transferee and the circumstances of such transfer necessary to establish the
availability of an exemption from the registration requirements of the
Securities Act and/or (b) an opinion of counsel (at the expense of such holder),
which is knowledgeable in securities law
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matters, in form and substance reasonably satisfactory to the Company, to the
effect that the transfer of such Restricted Security may be effected without
registration of such Restricted Security under the Securities Act. If the
Company fails to request any such information or opinion, or if for any reason
the Company (after having been furnished with the information and/or opinion
requested by the Company pursuant to this Subsection 10.2) shall fail to provide
such holder within 5 days with written notice that, in the opinion of the
Company or its counsel, the transfer may not be legally effected (the "Illegal
Transfer Notice"), such holder shall thereupon be entitled to have the transfer
of the Restricted Security registered on the books of the Company, or its
transfer agent, as the case may be. If the holder of the Restricted Security
delivers to the Company an opinion of counsel (including regular counsel to such
holder or its investment adviser) in form and substance reasonably satisfactory
to the Company that subsequent transfers of such Restricted Security will not
require registration under the Securities Act, or if the Company does not
provide the holders with an Illegal Transfer Notice as set forth above, the
Company will promptly after such contemplated transfer deliver new certificates
for such Restricted Security which do not bear the Securities Act legend set
forth in Subsection 10.1 above. The restrictions imposed by this Section 10 upon
the transferability of any particular Restricted Security shall cease and
terminate when such Restricted Security has been sold pursuant to an effective
registration statement under the Securities Act or transferred pursuant to Rule
144 promulgated under the Securities Act. The holder of any Restricted Security
as to which such restrictions shall have terminated shall be entitled to receive
from the Company a new security of the same type but not bearing the restrictive
Securities Act legend set forth in Subsection 10.1 and not containing any other
reference to the restrictions imposed by this Subsection 10.2. Notwithstanding
any of the foregoing, no opinion of counsel will be required to be rendered
pursuant to this Subsection 10.2 with respect to the transfer of any securities
on which the restrictive legend has been removed in accordance with this
Subsection 10.2. As used in this Subsection 10.2, the term "transfer"
encompasses any sale, transfer or other disposition of any of the Notes or
Warrants referred to herein. Notwithstanding any provisions contained herein to
the contrary, no transfer of the Notes shall be permitted if such transfer would
be deemed to be a violation of any applicable law, including, without
limitation, a "prohibited transaction" as defined in Section 406 of ERISA or
Section 4975 of the Code.
11. SUBORDINATION.
11.1 Agreement to Subordinate. The Company agrees, and each
holder of Notes by accepting a Note agrees, any provision of this Agreement, the
Notes or the Warrants to the contrary notwithstanding, that all Indebtedness of
the Company under and in respect of the Notes, the Put Notes (as defined in the
Warrants) or this Agreement (collectively, the "Note Indebtedness") is
subordinated in right of payment, to the extent and in the manner provided in
this Article 11, to the prior payment in full of all Senior Indebtedness of the
Company, and that the subordination of all Note Indebtedness pursuant to this
Article 11 is for the benefit of all holders of all Senior Indebtedness of the
Company, whether outstanding on the date of this Agreement or Incurred
thereafter.
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11.2 Liquidation; Dissolution; Bankruptcy. Upon any
distribution of cash, securities or other property of the Company to creditors
upon any Insolvency or Liquidation Proceeding with respect to the Company, the
holders of any Senior Indebtedness will be entitled to receive payment in full
in cash or Cash Equivalents of all Senior Indebtedness (including Post-Petition
Interest) before the holders of the Note Indebtedness will be entitled to
receive any payment or distribution (other than in Reorganization Securities) on
account of the Note Indebtedness and until all Senior Indebtedness is paid in
full in cash or Cash Equivalents, any payment or distribution (other than in
Reorganization Securities) on account of the Note Indebtedness to which the
holders of the Note Indebtedness would be entitled shall be made to the holders
of the Senior Indebtedness on a pro rata basis. Upon any Insolvency or
Liquidation Proceeding with respect to the Company, any payment or distribution
(other than in Reorganization Securities), to which the holders of the Note
Indebtedness would be entitled on account of the Note Indebtedness but for the
provisions of this Article 11 shall be paid by the Company, any other Person
making such payment or distribution, or by the holders of the Note Indebtedness
if received by them, directly to the holders of the Senior Indebtedness (pro
rata to such holders on the basis of the amounts of Senior Indebtedness held by
them) or their Representative, as their interests may appear, for application to
the payment of all outstanding Senior Indebtedness until all such Senior
Indebtedness has been paid in full in cash, after giving effect to all other
payments or distributions to, or provisions made for, holders of Senior
Indebtedness.
11.3. Default on Senior Indebted. The Company shall not make
any payment or distribution (other than in Reorganization Securities) on account
of any of the Note Indebtedness if (a) a default in the payment of the principal
of, or premium, if any, or interest on, or any other amount owing with respect
to any Senior Indebtedness (a "Payment Default") occurs and is continuing,
whether at maturity or at a date fixed for prepayment or by declaration of
acceleration or otherwise, or (b) the Company has received written notice (a
"Payment Blockage Notice") from any holder of Senior Indebtedness that a
Nonpayment Default (as defined below) has occurred and is continuing; provided,
however, that payments and distributions on account of the Note Indebtedness
shall resume, and all past due amounts in respect of the Note Indebtedness shall
be paid (i) in the case of a Payment Default, on the date on which such default
is cured or waived or shall have ceased to exist and all Senior Indebtedness
shall have been paid in full in cash or Cash Equivalents and (ii) in the case of
a Nonpayment Default, on the earliest of (A) the date on which such Nonpayment
Default is cured or waived or shall have ceased to exist, (B) 179 days after the
date on which the Payment Blockage Notice with respect to such Nonpayment
Default was received by the Company, or (C) the date on which such blockage
period shall have been terminated by written notice to the Company from the
holder of the Senior Indebtedness which issued the Payment Blockage Notice
unless the maturity of any Senior Indebtedness has been accelerated and the
Company has defaulted with respect to the payment of such Senior Indebtedness.
No more than one Payment Blockage Notice may be given during any consecutive
365-day period and during any consecutive 365-day period, the aggregate number
of days in which payments due in respect of the Note Indebtedness may not be
made as a result of Nonpayment Defaults on Senior Indebtedness shall not exceed
179 days and there shall be a period of at least 186 consecutive days in each
consecutive 365-day
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period when such payments are not prohibited. If any holder of Senior
Indebtedness delivers a Payment Blockage Notice to the holders of the Note
Indebtedness in respect of any Nonpayment Default, no Nonpayment Default that
existed or was continuing on the date of delivery of such notice shall be, or be
made, the basis for a subsequent Payment Blockage Notice unless such default
shall have been waived or cured for a period of not less than 90 days.
"Nonpayment Default" means any event of default under the terms of any
instrument governing any Senior Indebtedness permitting one or more holders of
such Senior Indebtedness (or a Representative on behalf of the holders thereof)
to declare all or part of such Senior Indebtedness due and payable prior to the
date on which it would otherwise become due and payable.
11.4. Acceleration of Note Indebtedness. If payment of the
Note Indebtedness is accelerated because of an Event of Default, the Company
shall promptly notify the holders of the Senior Indebtedness of the
acceleration.
11.5. When Distributions Must be Paid Over.
(a) If the Company shall make any payment or distribution on
account of the Note Indebtedness at a time when such payment is prohibited by
this Section 11, then and in such event the holders of the Note Indebtedness
shall hold such payment or distribution in trust for the benefit of, and shall
pay over and deliver to, the holders of the Senior Indebtedness (pro rata as to
each of such holders on the basis of the respective amounts of such Senior
Indebtedness held by them) or their Representative, as their respective
interests may appear, for application to the payment of all outstanding Senior
Indebtedness until all such Senior Indebtedness has been paid in full in cash or
Cash Equivalents, after giving effect to all other payments or distributions to,
or provisions made for, the holders of Senior Indebtedness.
(b) Nothing contained in this Section 11 or elsewhere in this
Agreement or in the Notes or the Warrants shall prevent the Company, at any time
except during the pendency of any Insolvency or Liquidation Proceeding or under
the conditions described in Subsection 11.3, from making payments or
distributions on account of the Note Indebtedness.
(c) With respect to the holders of Senior Indebtedness, the
holders of the Note Indebtedness undertake to perform only such obligations on
their part as are specifically set forth in this Section 11, and no implied
covenants or obligations with respect to any holders of Senior Indebtedness
shall be read into this Agreement against the holders of the Note Indebtedness.
The holders of the Note Indebtedness shall not be deemed to owe any fiduciary
duty to the holders of Senior Indebtedness.
11.6. Notice.
(a) The holders of the Note Indebtedness shall not at any time
be charged with the knowledge of the existence of any facts that would prohibit
the making of any payment to the holders of the Note Indebtedness under this
Section 11, unless and until the holders of the Note Indebtedness shall have
received written notice thereof from the Company,
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one or more holders of Senior Indebtedness or a Representative of any holders of
Senior Indebtedness; and, prior to the receipt of any such written notice, the
holders of the Note Indebtedness shall be entitled to assume conclusively that
no such facts exist. The holders of the Note Indebtedness shall be entitled to
rely on the delivery to the holders of the Note Indebtedness of written notice
by a Person representing itself as a holder of Senior Indebtedness (or a
Representative thereof) to establish that such notice has been given.
(b) The Company shall promptly notify the holders of the Note
Indebtedness in writing of any facts it knows that would cause a payment of
principal of, or premium, if any, or interest on, the Note Indebtedness to
violate this Section 11, but failure to give such notice shall not affect the
subordination of the Note Indebtedness to the Senior Indebtedness provided in
this Section 11 or the rights of holders of such Senior Indebtedness under this
Section 11.
11.7. Subrogation. After all Senior Indebtedness has been paid
in full in cash or Cash Equivalents and until the Note Indebtedness is paid in
full, the holders of the Note Indebtedness shall be subrogated to the rights of
holders of such Senior Indebtedness to receive distributions applicable to such
Senior Indebtedness to the extent that distributions otherwise payable to the
holders of the Note Indebtedness have been applied to the payment of such Senior
Indebtedness. A distribution made under this Section 11 to holders of Senior
Indebtedness that otherwise would have been made to the holders of the Note
Indebtedness is not, as among the Company, its creditors other than holders of
Senior Indebtedness and the holders of the Note Indebtedness, a payment or
distribution by the Company to or on account of its Senior Indebtedness.
11.8 Relative Rights.
(a) The provisions of this Article 11 are and are intended
solely for the purpose of defining the relative rights of the holders of the
Note Indebtedness on the one hand and the holders of Senior Indebtedness on the
other hand. Nothing contained in this Article 11 or elsewhere in this Agreement
or in the Notes is intended to or shall (i) impair, as among the Company, its
creditors other then holders of Senior Indebtedness and the holders of the Note
Indebtedness, the obligation of the Company, which is absolute and
unconditional, to pay principal of, and premium, if any, and interest in respect
of, the Note Indebtedness in accordance with its terms; (ii) affect the relative
rights of the holders of the Note Indebtedness and the Company's creditors other
than their rights in relation to holders of Senior Indebtedness; or (iii)
prevent any holder of Note Indebtedness from exercising its available remedies
upon a Default or Event of Default, subject to the rights of holders of Senior
Indebtedness to receive payment and distributions otherwise payable or
distributable to the holders of Note Indebtedness.
(b) The failure to make a payment on account of principal of,
or premium, if any, or interest in respect of the Note Indebtedness by reason of
any provision of this Section 11 shall not be construed as preventing the
occurrence of an Event of Default under Subsection 9.1.
11.9. No Impairment of Subordination.
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(a) No right of any holder of Senior Indebtedness to enforce
the subordination as provided in this Article 11 shall at any time or in any way
be prejudiced or impaired by any act or failure to act by the Company or by any
noncompliance by the Company with the terms, provisions and covenants of this
Agreement, the Notes, the Warrants or any other Transaction Document or any
other agreement regardless of any knowledge thereof which any such holder may
have or be otherwise charged with.
(b) Without in any way limiting Subsection 11.9(a), the
holders of any Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to any holders of Note Indebtedness, without
incurring any liabilities to any holder of Note Indebtedness and without
impairing or releasing the subordination and other benefits provided in this
Agreement or the obligations of the holders of Note Indebtedness to the holders
of such Senior Indebtedness, even if the right of reimbursement or subrogation
or other right or remedy of any holder of Note Indebtedness is affected,
impaired or extinguished thereby, do any one or more of the following: (i)
amend, renew, exchange, extend, modify, increase or supplement in any manner
such Senior Indebtedness or any instrument evidencing or guaranteeing or
securing such Senior Indebtedness or any agreement under which such Senior
Indebtedness is outstanding (including, but not limited to, changing the manner,
place or terms of payment or changing or extending the time of payment of, or
renewing, exchanging, amending, increasing, releasing, terminating or altering,
(1) the terms of such Senior Indebtedness, (2) any security for, or any
guarantee of, such Senior Indebtedness, (3) any liability of any obligor on such
Senior Indebtedness (including any guarantor) or any liability Incurred in
respect of such Senior Indebtedness); (ii) sell, exchange, release, surrender,
realize upon, enforce or otherwise deal with in any manner and in any order any
property pledged, mortgaged or otherwise securing such Senior Indebtedness or
any liability of any obligor thereon, to such holder, or any liability incurred
in respect thereof; (iii) settle or compromise any such Senior Indebtedness or
any other liability of any obligor of such Senior Indebtedness to such holder or
any security therefor or any liability incurred in respect thereof and apply any
sums by whomsoever paid and however realized to any liability (including,
without limitation, payment of any of Senior Indebtedness) in any manner or
order; and (iv) release, terminate or otherwise cancel, or fail to take or to
record or otherwise perfect, for any reason or for no reason, any Lien or
security interest securing such Senior Indebtedness by whomsoever granted,
exercise or delay in or refrain from exercising any right or remedy against any
obligor or any guarantor or any other Person, elect any remedy and otherwise
deal freely with any obligor and any security for such Senior Indebtedness or
any liability of any obligor to the holders of such Senior Indebtedness or any
liability incurred in respect of such Senior Indebtedness.
(c) No amendment or modification of the terms or provisions of
the Note Indebtedness shall be made without the consent of the holders of the
Senior Indebtedness if such amendment or modification would have a material
adverse effect on the rights or remedies of the holders of Senior Indebtedness.
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11.10 Representatives of Holders of Senior Indebtedness.
Whenever a distribution is to be made, or a notice given, to holders of Senior
Indebtedness, the distribution may be made and the notice given to their
Representative, if any. If any payment or distribution of the Company's assets
is required to be made to holders of any Senior Indebtedness pursuant to this
Article 11, the holders of Note Indebtedness shall be entitled to rely upon any
order or decree of any court of competent jurisdiction, or upon any certificate
of a Representative of such Senior Indebtedness, in ascertaining the holders of
such Senior Indebtedness entitled to participate in any such payment or
distribution, the amount to be paid or distributed to holders of such Senior
Indebtedness and all other facts pertinent to such payment or distribution or to
this Article 11.
11.11 Payment. For all purposes of this Article 11, a "payment
or distribution on account of Note Indebtedness" shall include, without
limitation, any direct or indirect payment or distribution on account of the
purchase, prepayment, redemption, retirement, defeasance or acquisition of any
Note or Put Note, any recovery by the exercise of any right of set-off or
redemption on collateral, any direct or indirect payment of principal, premium
or interest with respect to or in connection with any mandatory or optional
redemption or purchase provisions, any direct or indirect payment or
distribution payable or distributable by reason of any other Indebtedness being
subordinated to any Note Indebtedness, and any direct or indirect payment or
recovery on any claim (including claims for indemnification or liquidated
damages) relating to or arising out of this Agreement, any Note or Put Note, or
any other Transaction Document or any of the transactions contemplated by or
referred to therein.
11.12. Lien Subordination. The Company agrees, and each holder
of Notes by accepting a Note agrees, any provision of this Agreement, the Notes
or the Warrants to the contrary notwithstanding, that upon the request of the
holders of Senior Indebtedness or their Representative, the holders of Note
Indebtedness and the Collateral Agent shall enter into an appropriate
intercreditor agreement or similar document with the holders of Senior
Indebtedness or their Representative containing customary terms and conditions
providing for, among other things, the Liens on the assets of the Company
securing the Senior Indebtedness to be senior in priority to the Liens on the
assets of the Company securing the Note Indebtedness, and restrictions on the
exercise of remedies by the holders of Note Indebtedness; and shall amend the
Security Agreement to conform with the terms of such intercreditor agreement.
12. REGISTRATION RIGHTS.
12.1. Required Registrations.
(a) At any time after the earlier of December 31, 1998 or the
closing of the Company's first Qualified Public Offering, holders of in the
aggregate at least 35% of the Registrable Shares may request, in writing, that
the Company effect the registration on Form S-1 or Form S-2 (or any successor
form) of Registrable Shares owned by such holders having an aggregate offering
price of at least $2,000,000 (based on the then current market price or fair
value), provided that, to the extent the Company is eligible to effect a
registration or qualification on Form S-3 (or any successor Form), the Company
shall be entitled to use such Form S-3 in lieu
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of Form S-1 or S-2. If the holders initiating the registration intend to
distribute the Registrable Shares by means of an underwriting, they shall so
advise the Company in their request. In the event such registration is
underwritten, the holders of a majority of the Registrable Shares to be sold in
such offering may designate the managing underwriter of such offering, such
managing underwriter to be reasonably acceptable to the Company. In the event
such registration is underwritten, the right of other holders of Registrable
Shares to participate shall be conditioned on such other holders' participation
in such underwriting. Upon receipt of any such request, the Company shall
promptly give written notice of such proposed registration to all holders of
Registrable Shares and all such holders shall have the right, by giving written
notice to the Company within 30 days after the Company provides its notice, to
elect to have included in such registration such of their Registrable Shares as
such holders may request in such notice of election, subject to the approval of
the underwriter managing the offering as provided below. Thereupon, the Company
shall, as expeditiously as possible, use its best efforts to effect the
registration on Form S-1 or Form S-2 (or any successor form), or Form S-3 (or
any successor form) to the extent the Company is eligible to effect a
registration or qualification on such Form S-3 and so elects, of all Registrable
Shares which the Company has been requested to so register.
(b) At any time after the Company becomes eligible to file a
Registration Statement on Form S-3 (or any successor form relating to secondary
offerings), holders of in the aggregate at least 35% of the Registrable Shares
may request the Company, in writing, to effect the registration on Form S-3 (or
such successor form), of Registrable Shares having an aggregate offering price
of at least $500,000 (based on the current public market price). Upon receipt of
any such request, the Company shall promptly give written notice of such
proposed registration to all holders of Registrable Shares and all such holders
shall have the right, by giving written notice to the Company within 30 days
after the Company provides its notice, to elect to have included in such
registration such of their Registrable Shares as such holders may request in
such notice of election. Thereupon, the Company shall, as expeditiously as
possible, use its best efforts to effect the registration on Form S-3, or such
successor form, of all Registrable Shares which the Company has been requested
to register.
(c) The Company shall not be required to effect more than two
registrations pursuant to paragraph (a) above or more than four registrations
pursuant to paragraph (b) above, provided, however, that the Company's
obligations shall be deemed satisfied only when a Registration Statement
covering all shares of Registrable Shares specified in notices received as
aforesaid (or such lower number of shares as the managing underwriter shall
require under paragraph (e)), for sale in accordance with the method of
disposition specified by the requesting holders, shall have become effective
and, if such method of disposition is a firm commitment underwritten public
offering, all such shares shall have been sold pursuant thereto (other than
shares provided for in over-allotment option(s)). In addition, the Company shall
not be required to effect any registration (other than as to a public offering
that is not underwritten on Form S-3 or any successor Form) within six months
after the effective date of any other Registration Statement of the Company.
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(d) Notwithstanding any other provision of this Agreement, the
Company agrees that as soon as practicable after the Company becomes eligible to
file a Registration Statement on Form S-3 (or any successor form relating to
secondary offerings), the Company shall prepare and file with the Commission a
"shelf" registration statement (the "Shelf Registration Statement") on the
appropriate form for an offering to be made on a continuous basis pursuant to
Rule 415 under the Securities Act (or such successor rule or similar provision
then in effect) covering all of the Registrable Securities. The Company shall
use its best efforts to have the Shelf Registration Statement declared effective
as soon as practicable after filing with the Commission and to keep the Shelf
Registration Statement continuously effective through the third anniversary of
the date on which the Shelf Registration Statement is declared effective. The
Company agrees, if necessary, to supplement or amend the Shelf Registration
Statement, as required by the rules, regulations or instructions applicable to
the registration forms used by the Company for the Shelf Registration Statement
or by the Securities Act, and the Company agrees to furnish to all holders of
Registrable Securities copies of any such supplement or amendment prior to its
being used and/or filed with the Commission. Each holder of Registrable
Securities shall be permitted to withdraw all or any part of the Registrable
Securities held by such holder from the Shelf Registration Statement at any time
prior to the effective date of the Shell Registration Statement. If any holder
of Registrable Securities so elects, the offering of Registrable Securities
pursuant to the Shelf Registration Statement shall be in the form of an
underwritten offering. If they so elect, the holders of Registrable Securities
participating in such Shelf Registration Statement shall select one or more
nationally recognized firms of investment bankers to act as the book-running
managing underwriter or underwriters in connection with such offering and shall
select any additional investment bankers and mangers to be used in connection
with the offering.
(e) If at the time of any request to register Registrable
Shares pursuant to this Section 12.1, the Company is engaged or has fixed plans
to engage within 30 days of the time of the request in a registered public
offering as to which the Stockholders may include Registrable Shares pursuant to
Section 12.2, subject to the limitations set forth therein, or is engaged in any
other activity which, in the good faith determination of the Company's Board of
Directors, would be adversely affected by the requested registration to the
material detriment of the Company, then the Company may at its option direct
that such request be delayed for a period not in excess of six months from the
effective date of such offering or the date of commencement of such other
material activity, as the case may be, such right to delay a request to be
exercised by the Company not more than once in any two-year period.
(f) Notwithstanding any other provision of this Section 12.1,
if the managing underwriter advises the holders of Registrable Shares initiating
the registration in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the holders of Registrable Shares
initiating the registration shall so advise all holders of Registrable Shares
which would otherwise be included in the underwriting and the number of
Registrable Shares that may be included in the underwriting shall be allocated
among all such holders of Registrable Shares, including the holders of
Registrable Shares initiating the registration, in proportion (as nearly as
practicable) to the amount of Registrable Shares of the Company owned
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by each such holder. If the managing underwriter does not limit the number of
Registrable Shares to be underwritten, the Company or other holders of
securities of the company who have registration rights similar to those set
forth in this Section 12.1 may include Common Stock for their respective
accounts in such registration if the managing underwriter states that such
inclusion would not adversely affect the offering of Registrable Shares and if
the number of Registrable Shares which would otherwise have been included in
such registration and underwriting will not thereby be limited or reduced.
(g) Except as set forth in paragraph (d) above and except for
Registration Statements on Form S-4 or Form S-8 or any successor thereto, the
Company will not file with the Commission any other Registration Statement with
respect to its Common Stock, whether for its own account or that of other
stockholders, from the date of receipt of a notice from requesting holders
pursuant to this Subsection 12.1 until the completion of the period of
distribution of the registration contemplated thereby; provided, however, that
this limitation shall apply only to the two registrations pursuant to paragraph
(a) above.
12.2 Incidental Registration.
(a) Whenever the Company proposes to file a Registration
Statement (other than pursuant to Subsection 12.1) at any time and from time to
time, the Company will, prior to such filing, give written notice to all holders
of Registrable Shares of its intention to do so and, upon the written request of
any holder or holders of Registrable Shares given within 20 days after the
Company provides such notice (which request shall state the intended method of
disposition of such Registrable Shares), the Company shall use its best efforts
to cause all Registrable Shares which the Company has been requested by such
holder or holders to register to be registered under the Securities Act to the
extent necessary to permit their sale or other disposition in accordance with
the intended methods of distribution specified in the request of such holder or
holders; provided that the Company shall have the right to postpone or withdraw
any registration effected pursuant to this Subsection 12.2 without obligation to
any holder of Registrable Shares.
(b) In connection with any offering under this Subsection 12.2
involving an underwriting, the Company shall not be required to include any
Registrable Shares in such underwriting unless the holders thereof accept the
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it, and then only in such quantity as will not, in the
opinion of the underwriters, jeopardize the success of the offering by the
Company. If in the opinion of the managing underwriter the registration of all,
or part of, the Registrable Shares which the holders have requested to be
included would materially and adversely affect such public offering, then the
Company shall be required to include in the underwriting only that number of
Registrable Shares, if any, which the managing underwriter believes may be sold
without causing such adverse effect. If the number of Registrable Shares to be
included in the underwriting in accordance with the foregoing is less than the
total number of shares which the holders of Registrable Shares have requested to
be included, then the holders of Registrable Shares who have requested
registration and other holders of shares of Common Stock entitled to include
shares of Common Stock in such registration shall participate in the
underwriting pro
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rata based upon their total ownership of shares of Common Stock of the Company
on an as if-converted basis. If any holder would thus be entitled to include
more shares than such holder requested to be registered, the excess shall be
allocated among other requesting holders pro rata based upon their total
ownership of Registrable Shares.
12.3 Registration Procedures.
(a) If and whenever the Company is required by the provisions
of this Agreement to use its best efforts to effect the registration of any of
the Registrable Shares under the Securities Act, the Company shall:
(i) file with the Commission a Registration Statement with
respect to such Registrable Shares and use its best efforts to cause that
Registration Statement to become and remain effective for 120 days;
(ii) as expeditiously as possible prepare and file with the
Commission any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective for a period of not less than 120 days from
the effective date and comply with the provisions of the Securities Act
applicable to the Company with respect to the disposition of all Registrable
Shares covered by such Registration Statement in accordance with the sellers'
intended method of disposition set forth in such Registration Statement for such
period;
(iii) as expeditiously as possible furnish to each selling
holder of Registrable Shares such reasonable numbers of copies of the
Registration Statement and the prospectus, including a preliminary prospectus,
in conformity with the requirements of the Securities Act, and such other
documents as the selling holder may reasonably request in order to facilitate
the public sale or other disposition of the Registrable Shares owned by such
selling holder; and
(iv) as expeditiously as possible use its best efforts to
register or qualify the Registrable Shares covered by the Registration Statement
under the securities or "Blue Sky" laws of such states as each selling holder of
Registrable Shares shall reasonably request, and do any and all other acts and
things that may be necessary or desirable to enable each such selling holder of
Registrable Shares to consummate the public sale or other disposition in such
states of the Registrable Shares owned by such selling holder; provided,
however, that the Company shall not be required to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction.
(v) immediately notify each seller of Registrable Shares and
each underwriter under such Registration Statement, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event of which the Company has knowledge as a
result of which the prospectus contained in such Registration Statement as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required
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to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances then existing;
(vi) if the offering is underwritten and at the request of any
seller of Registrable Shares, use its best efforts to furnish on the date that
Registrable Shares are delivered to the underwriters for sale pursuant to such
registration: (A) an opinion dated such date of counsel representing the Company
for the purposes of such registration, addressed to the underwriters and to such
seller, stating that such Registration Statement has become effective under the
Securities Act and that (1) to the best knowledge of such counsel, no stop order
suspending the effectiveness thereof has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated under the Securities
Act, (2) the Registration Statement' the related prospectus and each amendment
or supplement thereof comply as to form in all material respects with the
requirements of the Securities Act (except that such counsel need not express
any opinion as to financial statements or schedules or other financial or
statistical data contained therein) and (3) to such other effects as reasonably
may be requested by counsel for the underwriters or by such seller or its
counsel and (B) a letter dated such date from the independent public accountants
retained by the Company, addressed to the underwriters and to such seller,
stating that they are independent public accountants within the meaning of the
Securities Act and that, in the opinion of such accountants, the financial
statements of the Company included in the Registration Statement or the
prospectus, or any amendment or supplement thereof, comply as to form in all
material respects with the applicable accounting requirements of the Securities
Act, and such letter shall additionally cover such other financial matters
(including information as to the period ending no more than five business days
prior to the date of such letter) with respect to such registration as such
underwriters reasonably may request; and
(vii) make available for inspection by each seller of
Registrable Shares, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably requested by any
such seller, in connection with such Registration Statement.
(b) If the Company has delivered preliminary or final
prospectuses to the selling holders of Registrable Shares and after having done
so the prospectus is amended to comply with the requirements of the Securities
Act, the Company shall immediately notify such selling holders and, if
requested, such selling holders shall immediately cease making offers of
Registrable Shares and return all prospectuses to the Company. The Company shall
promptly provide all selling holders of Registrable Shares with revised
prospectuses and, following receipt of the revised prospectuses, the selling
holders shall be free to resume making offers of the Registrable Shares. The
Company shall be obligated to keep the Registration Statement effective for a
period of additional days equal to the number of days during which the holders
were required to cease making offers pursuant to this paragraph.
12.4 Allocation of Expenses. The Company will pay all
Registration Expenses of all registrations under this Agreement; provided,
however, that if a registration is withdrawn at
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the request of the holders of Registrable Shares who requested such registration
(other than as a result of information concerning the business or financial
condition of the Company which is made known to such holders after the date on
which such registration was requested) and if such requesting holders elect not
to have such registration counted as a registration requested under Subsection
12.1, the requesting holders shall pay the Registration Expenses of such
registration pro rata in accordance with the number of their Registrable Shares
included in such registration. For purposes of this Section, the term
"Registration Expenses" shall mean all expenses incurred by the Company in
complying with this Section 12 including, without limitation, all registration
and filing fees, exchange listing fees, printing expenses, fees and
disbursements of counsel for the Company and the fees and expenses of one
counsel selected by the selling holders of Registrable Shares to represent such
selling holders, state "Blue Sky" fees and expenses, and the expense of any
special audits incident to or required by any such registration, but excluding
underwriting discounts, selling commissions and the fees and expenses of any
selling holder's own counsel (other than the counsel selected to represent all
selling holders of Registrable Shares).
12.5. Indemnification.
(a) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, the Company will
indemnify and hold harmless the seller of such Registrable Shares, each
underwriter of such Registrable Shares, each officer and director of such seller
and underwriter, and each other person, if any, who controls such seller 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 such
seller, underwriter; officer or director or controlling person may become
subject under the Securities Act, the Exchange Act, state securities or "Blue
Sky" laws or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
Registration Statement under which such Registrable Shares were registered under
the Securities Act, any preliminary prospectus or final prospectus contained in
the Registration Statement, or any amendment or supplement to such Registration
Statement, or arise out of or are based upon the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or arise out of or are based upon any
violation or alleged violation by the Company of the Securities Act or Exchange
Act or any state securities laws or any regulation promulgated under any of
them; and the Company will reimburse such seller, underwriter, each officer and
director and each such controlling person for any legal or any other expenses
reasonably incurred by such seller, underwriter, officer, director or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any untrue statement or omission made
in such Registration Statement, preliminary prospectus or prospectus, or any
such amendment or supplement, in reliance upon and in conformity with
information furnished to the Company, in writing, by or on behalf of such
seller, underwriter or controlling person specifically for use in the
preparation thereof.
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(b) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, each seller of
Registrable Shares, severally and not jointly, will indemnify and hold harmless
the Company, each of its directors and officers and each underwriter (if any),
each other seller of Registrable Shares and each person, if any, who controls
the Company or any such underwriter within the meaning of the Securities Act or
the Exchange Act, against any losses, claims, damages or liabilities, joint or
several, to which the Company, such directors and officers, underwriter, other
seller of Registrable Shares or controlling person may become subject under the
Securities Act, Exchange Act, state securities or "Blue Sky" laws or otherwise,
to the extent that such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Securities Act,
any preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if the statement or omission was made in reliance upon
and in conformity with information furnished in writing to the Company by or on
behalf of such seller, specifically for use in connection with the preparation
of such Registration Statement, prospectus, amendment or supplement; provided,
however, that the obligations of such Stockholder hereunder shall be limited to
an amount equal to the proceeds received by such seller from the sale of
Registrable Shares covered by such Registration Statement and sold as
contemplated therein; and further provided, however, that in the event of an
underwritten offering of capital stock of the Company initiated by the Company
in which any holders sell Registrable Shares pursuant to Subsection 12.2, the
foregoing indemnity agreement is subject to the condition that, insofar that it
relates to any such untrue statement (or alleged untrue statement) or omission
(or alleged omission) made in the preliminary prospectus but remedied in the
amended prospectus on file with the Commission at the time the Registration
Statement becomes effective or in the final prospectus, such indemnity agreement
shall not inure to the benefit of (i) the Company and (ii) any seller of
Registrable Shares, if there is no underwriter, if copy of the final prospectus
was not furnished to the person or entity asserting the loss, claim, damage or
liability at or prior to the time such furnishing is required by the Securities
Act.
(c) Each party entitled to indemnification under this
Subsection 12.5 shall give notice to the party required to provide
indemnification promptly after such indemnified party has actual knowledge of
any claim as to which indemnity may be sought, and shall permit the indemnifying
party to assume the defense of any such claim or any litigation resulting
therefrom; provided, that counsel for the indemnifying party, who shall conduct
the defense of such claim or litigation, shall be approved by the indemnified
party (whose approval shall not be unreasonably withheld) and provided, further
that an omission so to notify the indemnifying party shall not relieve it from
any liability which it may have to such indemnified party other than under this
Subsection 12.5 and shall only relieve it from any liability which it may have
to such indemnified party under this Subsection 12.5 if and to the extent the
indemnifying party is prejudiced by such omission. The indemnified party may
participate in such defense at such party's expense; provided, however, that the
indemnifying party shall pay such expense if
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<PAGE> 52
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between the indemnified party and any other party represented by such
counsel in such proceeding. No indemnifying party, in the defense of any such
claim or litigation shall, except with the consent of each indemnified party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect of such
claim or litigation, and no indemnified party shall consent to entry of any
judgment or settle such claim or litigation without the prior written consent of
the indemnifying party.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i) any
holder of Registrable Shares exercising rights under this Agreement, or any
officer or director of any holder or any controlling person of any such holder,
makes a claim for indemnification pursuant to this Subsection 12.5 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 Subsection 12.5 provides for indemnification
in such case, or (ii) 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 Subsection 12.5;
then, and in each such case, the Company and such holder will contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that such holder is
responsible for the portion represented by the percentage that the public
offering price of its Registrable Shares offered by the Registration Statement
bears to the public offering price of all securities offered by such
Registration Statement, and the Company is responsible for the remaining
portion; provided, however, that, in any such case, (A) no such holder will be
required to contribute any amount in excess of the proceeds to it of all
Registrable Shares sold by it pursuant to such Registration Statement; and (B)
no person or entity guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) will be entitled to contribution from
any person or entity who was not guilty of such fraudulent misrepresentation.
12.6 Special Indemnification with Respect to Underwritten
Offering. In the event that Registrable Shares are sold pursuant to a
Registration Statement in an underwritten offering pursuant to Subsection
12.1(a), the Company agrees to enter into an underwriting agreement containing
customary representations and warranties with respect to the business and
operations of an issuer of the securities being registered and customary
covenants and agreements to be performed by such issuer, including without
limitation customary provisions with respect to indemnification by the Company
of the underwriters of such offering.
12.7 Information by Holder. Each holder of Registrable Shares
included in any registration shall furnish to the Company such information
regarding such holder and the distribution proposed by such holder as the
Company may reasonably request in writing and as shall be required in connection
with any registration, qualification or compliance referred to in this Section
12.
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12.8 "Stand-Off" Agreement. Each holder of Registrable
Securities, if requested by the Company and an underwriter of Common Stock or
other securities of the Company, shall agree not to sell or otherwise transfer
or dispose of any Registrable Shares or other securities of the Company held by
such holder for a specified period of time (not to exceed 90 days) following the
effective date of a Registration Statement; provided, that such agreement shall
only apply to the first such Registration Statement covering Common Stock of the
Company to be sold on its behalf to the public in an underwritten offering. Such
agreement shall be in writing in a form satisfactory to the Company and such
underwriter. The Company may impose stop-transfer instructions with respect to
the Registrable Shares or other securities subject to the foregoing' restriction
until the end of the stand-off period.
12.9. Limitations on Subsequent Registration Rights. The
Company shall not, without the prior written consent of holders holding at least
a majority of the Registrable Shares, enter into any agreement (other than this
Agreement) with any holder or prospective holder of any securities of the
Company which would allow such holder or prospective holder (a) to include
securities of the Company in any registration filed under Subsections 12.1 or
12.2, unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only on terms no
more favorable than the terms on which holders of Registrable Shares may include
shares in such registration, or (b) to make a demand registration which could
result in such registration statement being declared effective prior to December
31, 1998; provided, however, that the Company shall not enter into any agreement
with such holder or prospective holder that would give such holder or
prospective holder registration rights with respect to securities of the Company
other than shares of Common Stock issued by the Company or issued or issuable
upon conversion of convertible securities or exercise of warrants to purchase
capital stock of the Company.
12.10. Rule 144 Requirements. After the earliest of (i) the
closing of the sale of securities of the Company pursuant to a Registration
Statement, (ii) the registration by the Company of a class of securities under
Section 12 of the Exchange Act, or (iii) the issuance by the Company of an
offering circular pursuant to Regulation A under the Securities Act, the Company
agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;
(b) Use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements); and
(c) furnish to any holder of Registrable Shares upon request a
written statement by the Company as to its compliance with the reporting
requirements of said Rule 144 (at any time after 90 days following the closing
of the first sale of securities by the Company pursuant to a Registration
Statement), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual
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or quarterly report of the Company, and such other reports and documents of the
Company as such holder may reasonably request to avail itself of any similar
rule or regulation of the Commission allowing it to sell any such securities
without registration.
13. DEFINITIONS.
As used herein the following terms have the following respective
meanings:
"Acquired Indebtedness" means Indebtedness of a Person
existing at the time such Person becomes a Subsidiary (or such Person is merged
into the Company or a Subsidiary) or assumed in connection with the acquisition
of properties or assets from any such Person and not incurred in connection
with, or in contemplation of, such Person becoming a Subsidiary or such
acquisition.
"Affiliate" except as otherwise defined in this Agreement,
means with respect to any Person, any Person directly or indirectly controlling
or controlled by or under common control with such Person, provided that, for
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlled by" and "under common control with"), as used with respect
to any Person, shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
"Agreement" means this Agreement, as amended, modified or
supplemented from time to time, together with any exhibits, schedules or other
attachments thereto.
"Applicable Converted Note Rate" means a rate of interest per
annum equal to the lesser of (i) ten percent (10%) and (ii) the Base Rate plus
three and one-half percent (3 1/2%). The term "Base Rate" as used herein shall
mean the rate of interest announced from time to time by The First National Bank
of Boston at its main office in Boston, Massachusetts as its Base Rate.
"Average Life" means, as of the date of determination, with
respect to any Indebtedness, the quotient obtained by dividing (i) the sum of
the products of the numbers of years from the date of determination to the dates
of each successive Scheduled principal payment of such Indebtedness multiplied
by the amount of such principal payment by (ii) the sum of all such principal
payments.
"beneficial owner" has the meaning ascribed thereto in Rules
13d-3 and 13d-5 promulgated by the Commission under the Exchange Act, except
that a person shall be deemed to be the beneficial owner of all shares that such
person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time; and the terms "beneficial ownership" and
"beneficially owns" have meanings correlative to the foregoing.
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"Board of Directors" means the Board of Directors of the
Company or any committee thereof duly authorized to act on behalf of such Board.
"Business Day" means any day that is not a Saturday, a Sunday
or a day on which commercial banking institutions in Boston, Massachusetts are
authorized or required to be closed.
"Capital Lease Obligations" of a Person means any obligation
which is required to be classified and accounted for as a capital lease on the
face of a balance sheet of such Person prepared in accordance with GAAP; the
amount of such obligation shall be the capitalized amount thereof, determined in
accordance with GAAP; and the stated maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations, rights in or other equivalents (however
designated) of such Person's capital stock, and any rights (other than debt
securities convertible into capital stock), warrants or options exchangeable for
or convertible into such capital stock.
"Capitalized Leases" means leases which are required to be
capitalized on the balance sheet of the Company in accordance with GAAP.
"Cash Equivalents" means: (i) marketable obligations issued or
unconditionally guaranteed by the United States government, in each case
maturing within 360 days after the date of acquisition thereof; (ii) marketable
direct obligations issued by any state of the United States or any political
subdivision of any such state or any public instrumentality thereof maturing
within 360 days after the date of acquisition thereof and, at the time of
acquisition, having the highest rating obtainable from either Standard & Poor's
Corporation or Moody's Investors Service, Inc.; (iii) commercial paper maturing
no more than 360 days after the date of acquisition thereof, issued by a
corporation organized under the laws of any state of the United States or of the
District of Columbia and, at the time of acquisition, having a rating in one of
the two highest rating categories obtainable from either Standard & Poor's
Corporation or Moody's Investors Service, Inc.; (iv) money market funds whose
investments are made solely in securities described in clause (i) maturing
within one (1) year after the date of acquisition thereof; (v) certificates of
deposit maturing within 360 days after the date of acquisition thereof, issued
by any commercial bank that is a member of the Federal Reserve System that has
capital, surplus and undivided profits (as shown on its most recent statement of
condition) aggregating not less than $100,000,000 and is rated A or better by
Moody's Investors Service, Inc. or Standard & Poor's Corporation; and (vi)
repurchase agreements entered into with any commercial bank of the nature
referred to in clause (i), secured by a fully perfected Lien in any obligation
of the type described in any of clauses (i) through (v), having a fair market
value at the time such repurchase agreement is entered into of not less than
100% of the repurchase obligation thereunder of such commercial bank.
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"Change of Control" means the occurrence of any of the
following events: (i) any "person" or "group" (as such terms are used in Section
13(d) and 14(d) of the Exchange Act), is or becomes the "beneficial owner",
directly or indirectly, of more than 50% of the total voting power of the Voting
Stock of the Company; (ii) the direct or indirect sale, lease, exchange or other
transfer of all or substantially all of the assets of the Company to any
"person" (as such term is used in Section 13(d) or 14(d) of the Exchange Act),
provided that the foregoing shall not apply to the granting of Liens on such
assets to the extent permitted by this Agreement; or (iii) the Company
consolidates with or merges into another corporation or any Person consolidates
with or merges into the Company, in either event pursuant to a transaction in
which either (A) the outstanding Voting Stock of the Company is changed into or
exchanged for cash, securities or other property (other than any such
transaction where the outstanding Voting Stock of the Company is changed into or
exchanged for Voting Stock of the surviving corporation which is neither
Redeemable Stock nor Exchangeable Stock) or (B) the holders of a majority of the
voting power of the Voting Stock of the Company immediately prior to such
transaction own, directly or indirectly, less than a majority of the voting
power of the Voting Stock of the surviving corporation immediately after such
transaction.
"Closings" shall mean the First Closing and the Second
Closing; and "Closing" shall mean either of the Closings.
"Closing Dates" shall mean the First Closing Date and the
Second Closing Date; and "Closing Date" shall mean either of the Closing Dates.
"Code" means the Internal Revenue Code of 1986, and the rules
and regulations thereunder, as amended from time to time.
"Collateral Agent" means Triumph-Connecticut Limited
Partnership, in its capacity as collateral agent for the holders from time to
time of the Note Indebtedness.
"Commission" means the United States Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
"Common Stock" means the common stock, $0.00004 par value per
share, of the Company and any shares of Capital Stock of the Company into which
such shares may be exchanged or converted pursuant to any recapitalization, or
reclassification of the Company's Capital Stock.
"Company" has the meaning ascribed thereto in the introduction
hereof.
"Default" means any event which is, or after notice or passage
of time, or both, would be, an Event of Default.
"Environment" means soil, surface waters, groundwaters, land,
stream sediments, surface or subsurface strata and ambient air.
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"Environmental Law(s)" means and includes any environmental or
health and safety-related law, regulation, rule, ordinance, or legally
enforceable requirement at the foreign, federal, state, or local level.
"ERISA" means the Employee Retirement Income Security Act of
1974, and the rules and regulations thereunder, as amended from time to time.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchangeable Stock" means any Capital Stock which is
exchangeable or convertible into another security (other than Capital Stock of
the Company which is neither Exchangeable Stock nor Redeemable Stock).
"Feverall Acquisition" means the acquisition by the Company
from Upsher-Smith Laboratories, Inc. of its Feverall and Acetaminophen Uniserts
Suppository product lines and Acetaminophen Sprinkle Caps product lines pursuant
to terms and conditions approved by the Board of Directors of the Company.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, which are applicable as of the
date of determination; provided, however, that these definitions and all ratios
and calculations contained in any covenants set forth in this Agreement shall be
determined in accordance with GAAP as in effect and applied by the Company on
the Issue Date, consistently applied.
"Governmental Authority" means any governmental or
quasi-governmental authority including, without limitation, any federal, state,
territorial, county, municipal or other governmental or quasi-governmental
agency, board, branch, bureau, commission, court, department or other
instrumentality or political unit or subdivision, whether domestic or foreign.
"Guarantee" means the guarantee by a Guarantor of the
Company's obligations under the Notes.
"Guarantor" means any Person who becomes a Guarantor by
execution of a supplement to this Agreement pursuant to Subsection 8.9 hereof,
and any of their respective successors or assigns.
"Hazardous Materials" means and includes any hazardous waste,
hazardous material, hazardous substance, petroleum product, oil, toxic
substance, pollutant, contaminant, or other human health or safety, as defined
or regulated under any Environmental Law.
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"Hazardous Waste" means and includes any hazardous waste as
defined or regulated under any Environmental Law.
"Incurrence" means the incurrence, creation, assumption,
issuance, guarantee of the payment of, or in any other manner becoming liable
with respect to, the payment of, any Indebtedness. "Incur" and "Incurred" shall
have a comparable meaning.
"Indebtedness" means, with respect to any Person, without
duplication, (i) the principal of and premium (if any) in respect of (A)
indebtedness of such Person for money borrowed and (B) indebtedness evidenced by
securities, debentures, bonds or other similar instruments (including purchase
money obligations) for payment of which such Person is responsible or liable;
(ii) all Capital Lease Obligations of such Person; (iii) all obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations of such Person and all obligations of such Person
under any title retention agreement (but excluding trade accounts payable
arising in the ordinary course of business); (iv) all obligations of such Person
for the reimbursement of any obligor on any letter of credit, banker's
acceptance, securities purchase facility or similar credit transaction (other
than obligations with respect to letters of credit securing obligations (other
than obligations described in (i) through (iii) above) entered into in the
ordinary course of business of such Person to the extent such letters of credit
are not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the third business day following receipt by such Person
of a demand for reimbursement following payment on the letter of credit; (v) all
obligations of the type referred to in clauses (i) through (iv) of other Persons
and all dividends of other Persons for the payment of which, in either case,
such Person is responsible or liable as obligor, guarantor or otherwise; (vi)
all obligations of the type referred to in clauses (i) through (v) of other
Persons secured by any Lien on any property or asset of such Person whether or
not such obligation is assumed by such Person), the amount of such obligation
being deemed to be the lesser of the value of such property or assets or the
amount of the obligation so secured; and (vii) Redeemable Stock of such Person;
provided, however, that Indebtedness will not include endorsements of negotiable
instruments for collection in the ordinary course of business.
"Initial Qualified Public Offering Price" means the per share
price of Common Stock at the time it is first sold by the Company pursuant to a
Qualified Public Offering.
"Insolvency or Liquidation Proceeding" means, with respect to
any Person, (i) any insolvency or bankruptcy or similar case or proceeding, or
any reorganization, receivership, liquidation, dissolution or winding up of such
Person, whether voluntary or involuntary, or (ii) any assignment for the benefit
of creditors or any other marshaling of assets and liabilities of such Person.
"Interest Differential" means, with respect to any Insolvency
or Liquidation Proceeding involving the Company, the difference between the rate
of interest on the Notes and the rate of interest on the Senior Indebtedness
immediately prior to the commencement of such
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Insolvency or Liquidation Proceeding, excluding in each case any increase in the
rate of interest resulting from any default or event of default.
"Investment" in any Person means any loan or advance to, any
acquisition of Capital Stock of, equity interest in, obligation or other
security of, or capital contribution to or other investment in, such Person.
"IRS" means the Internal Revenue Service or any successor
agency.
"Lien" means any mortgage, lien (statutory or otherwise),
charge, pledge, hypothecation, conditional sales agreement, adverse claim, title
retention agreement or other security interest, encumbrance or other title
defect in or on any interest or title of any vendor, lessor, lender or other
secured party to or of such Person under any conditional sale, trust receipt or
other title retention agreement with respect to any Property or asset of such
Person.
"Material Adverse Effect" means, any material adverse effect
on the financial condition, assets, business or results of operations of the
Company and its Subsidiaries, if any, taken as a whole.
"Net Proceeds" means, with respect to a specified transaction,
total cash proceeds net of all customary legal expenses, commissions and other
fees and expenses incurred and all federal, state, provincial, foreign and local
taxes required to be accrued as a liability under GAAP as a consequence of, and
in connection with, such transaction.
"Non-Convertible Capital Stock" means, with respect to any
corporation, any nonconvertible Capital Stock of such corporation and any
Capital Stock of such corporation convertible solely into nonconvertible common
stock of such corporation which is not Redeemable Stock or Exchangeable Stock;
provided, however, that Non-Convertible Capital Stock does not include any
Redeemable Stock or Exchangeable Stock.
"Officer" means, with respect to any corporation, the Chairman
of the Board, the Chief Executive Officer, the President, any Vice President,
the Treasurer or the Secretary of such corporation.
"Officers' Certificate" means a certificate executed on behalf
of the Company by (a) the Chairman of the Board of Directors (if an officer) or
the President or one of the Vice Presidents of the Company and (b) the Treasurer
or one of the Assistant Treasurers or the Secretary or one of the Assistant
Secretaries of the Company.
"Operating Lease" shall mean, as applied to any Person, any
lease with respect to which such Person is the lessee (including, without
limitation, leases which may be terminated by the lessee at any time) of any
property (whether real, personal or mixed) which is not a lease which is
required to be classified and accounted for as a capital lease on the face of
the balance sheet of such Person prepared in accordance with GAAP.
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"Permitted Investments" means: (i) certificates of deposit
with a maturity of one year or less issued by U.S. commercial banks having
capital and surplus in exams of $100.0 million; (ii) commercial paper with a
minimum rating of Al and/or Pl by Standard & Poor's Corporation and/or Moodys
Investors Service, Inc., respectively; (iii) direct obligations of the United
States or of a United States agency with a maturity of one year or less; (iv)
shares of money market mutual or similar funds having assets in excess of $100.0
million; and (v) Investments by the Company in Wholly-Owned Subsidiaries.
"Permitted Liens" means, with respect to any Person, (i)
pledges or deposits by such Person under workmen's compensation laws,
unemployment insurance laws or similar legislation, or good faith deposits in
connection with bids, tenders, contracts (other than for the payment of
Indebtedness), utility services or leases to which such Person is a party, or
deposits to secure public or statutory obligations of such Person or deposits of
cash or U.S. Government bonds to secure surety or appeal bonds to which such
Person is a party, or deposits as security for contested taxes or import duties
or for the payment of rent and incurred in the ordinary course of such Person's
business; (ii) Liens determined by law, such as carriers' warehousemen's,
mechanics' and bankers' Liens and incurred in the ordinary course of such
Person's business; (iii) Liens for taxes not yet subject to penalties for
non-payment or which are being contested in good faith and by appropriate
proceedings, if adequate reserve, as may be required by GAAP, shall have been
made therefor; (iv) Liens in favor of issuers of surety bonds (other than to
satisfy any judgment or judgments) issued pursuant to the request of and for the
account of such Person in the ordinary course of its business; (v) survey
exceptions, encumbrances, easements or reservations of, or rights of others for,
rights-of-way, sewers, electric lines, telegraph and telephone lines and other
similar purposes, or zoning or other restrictions as to the use of real
properties or Liens incidental to the conduct of the business of such Person or
to the ownership of its properties and incurred in the ordinary course of such
Person's business; (vi) Liens securing the Senior Indebtedness; (vii) Purchase
Money Liens and Capitalized Leases securing Indebtedness permitted under Section
8.2(b) of this Agreement; and (viii) Liens granted in favor of Upsher-Smith
Laboratories, Inc. or its affiliates on those assets acquired by the Company
pursuant to the Feverall Acquisition.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Post-Petition Interest" means, with respect to any
Indebtedness of any Person, all interest which would accrue on such Indebtedness
after the commencement of any Insolvency or Liquidation Proceeding against such
Person in accordance with and at the contract rate (including, without
limitation, any rate applicable upon default) specified in the agreement or
instrument creating, evidencing or governing such Indebtedness, whether or not,
pursuant to applicable law or otherwise, the claim for such interest is
allowable as a claim in such Insolvency or Liquidation Proceeding.
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"Preferred Stock" means, with respect to the Borrower, the
Series A Preferred, the Series B Preferred, the Series D Preferred, the Series E
Preferred, the Series F Preferred, and any other Capital Stock of any class or
classes (however designated) of the Corporation which is preferred, as to the
payment of dividends or as to the dissolution of assets upon any voluntary or
involuntary liquidation or dissolution of such corporation, over shares of
Capital Stock of any other class of such corporation.
"Primsol Solution Final FDA Approval" means the final approval
of the FDA for the manufacturing, labeling, marketing, sale and distribution of
the Company's Primsol Solution product for the clinical indications of both (i)
otitis media and (ii) urinary tract infection in patients over 12 years of age.
"Principal Purchaser" has the meaning ascribed thereto in the
introduction hereof.
"Principal Purchaser's Special Counsel" means Goodwin, Procter
& Hoar LLP, a limited liability partnership including professional corporations,
acting as special counsel to the Principal Purchaser in connection with the
transactions contemplated hereunder.
"Property" means any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"Purchase Money Liens" means Liens to secure the payment of
all or any part of the purchase price of assets or property acquired by the
Company in the ordinary course, provided that each such Lien shall at all times
be confined to the property or assets so acquired.
"Purchaser" except as defined elsewhere in this Agreement,
means any purchaser listed on the signature pages hereto.
"Purchasers" except as defined elsewhere in this Agreement,
has the meaning ascribed thereto in the introduction hereof.
"Put Note" means any promissory note issued by the Company in
connection with the exercise by any holder of Warrants of a Put Right (as
defined in the Warrants).
"Put Purchase Date" means each date on which the Company shall
be obligated under the terms of the Warrants to repurchase any of the Warrants
pursuant to an exercise by any holder of Warrants of a Put Right (as defined in
the Warrants).
"Qualified Public Offering" means an underwritten public
offering of the Common Stock of the Company, for the account of the Company,
pursuant to an effective registration statement filed pursuant to the Securities
Act, in which the gross proceeds to the Company are not less than $15,000,000.
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"Redeemable Stock" means any Capital Stock that by its terms
or otherwise is required to be redeemed prior to the first anniversary of the
Stated Maturity of the Notes or is redeemable at the option of the holder
thereof any time prior to the first anniversary of the Stated Maturity of the
Notes.
"Redemption Date" or "redemption date" means the Stated
Maturity Date of the Notes and such earlier date or dates as may be specified in
any notice of optional redemption of the Company delivered in accordance with
Subsection 6.5 hereof.
"Refinancing Indebtedness" shall have the meaning assigned to
it in the definition of Permitted Indebtedness.
"Registrable Shares" means (i) the shares of Common Stock
issued or issuable upon exercise or conversion of any share of the Preferred
Stock, any of the Series D Common Warrants, the Series E Common Warrants, the
Series F Common Warrants or the Warrants, (ii) the shares of Common Stock issued
or issuable upon the purchase by any holder of Preferred Stock, Series D Common
Warrants, Series D Preferred Warrants, Series E Common Warrants or Series F
Common Warrants pursuant to the conversion or exercise of any such holder's
"first refusal right" under Section 7.3 of the Series F Financing Agreement,
(iii) the shares of Common Stock issued or issuable upon the purchase by any
holder of Warrants pursuant to the conversion or exercise of any such holder's
Pre-emptive Right, and (iv) any other shares of Common Stock of the Company
issued in respect of such shares (because of stock splits, stock dividends,
reclassifications, recapitalizations, or similar events); provided, however,
that shares of Common Stock which are Registrable Shares shall cease to be
Registrable Shares upon any sale pursuant to a Registration Statement, Section
4(1) of the Securities Act or Rule 144 under the Securities Act, or any sale in
any manner to a person or entity which, by virtue of Section 9 of the Series F
Financing Agreement is not entitled to the registration rights provided by
Section 8 of the Series F Financing Agreement. Wherever reference is made in
this Agreement to a request or consent of holders of a certain percentage of
Registrable Shares or certain Registrable Shares, or a certain number of
Registrable Shares or certain Registrable Shares, the determination of such
percentage or number shall include shares of Common Stock issuable upon
conversion of the Preferred Stock.
"Registration Statement" means a registration statement filed
by the Company with the Commission for a public offering and sale of securities
of the Company (other than a registration statement on Form S-8 or Form S-4, or
their successors, or any other form for a limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
"Release" means any releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
disposing, or dumping into the Environment.
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"Reorganization Securities" means, with respect to any
Insolvency or Liquidation Proceeding involving the Company, Capital Stock or
other securities of the Company as reorganized or readjusted (or Capital Stock
or any other securities of any other Person (other than a Subsidiary of the
Company, unless the Company is no longer in existence and such Subsidiary is the
successor to the Company)), provided for by a plan of reorganization or
readjustment and the payment of all of which Capital Stock or other securities
is subordinated, at least to the same extent as the Notes, to the payment of all
outstanding Senior Indebtedness after giving effect to such plan of
reorganization or readjustment; provided, however, that (i) if Capital Stock,
such securities shall have no mandatory repurchase, redemption, prepayment,
sinking fund, or dividend obligations prior to six months following the final
scheduled maturity date of all Senior Indebtedness (as modified by such plan of
reorganization or readjustment) and (ii) if debt securities: (A) such securities
shall not provide for amortization (including sinking fund and mandatory
redemption, repurchase, retirement, defeasance or prepayment provisions)
commencing prior to six months following the final scheduled maturity of all
Senior Indebtedness of the Company (as modified by such plan of reorganization
or readjustment); (B) if the rate of interest on such securities is fixed, such
rate of interest shall not exceed the greater of (1) the rate of interest on the
Notes and (2) the sum of the rate of interest on the Senior Indebtedness on the
effective date of such plan of reorganization or readjustment and the Interest
Differential; (C) if the rate of interest on such securities floats, such rate
of interest shall not exceed at any time the sum of the interest rate on the
Senior Indebtedness at such time and the Interest Differential; (D) such
securities shall not have covenants or default provisions materially more
burdensome to the Company than those in effect with respect to the Notes as of
the date of issuance of such securities; and (E) no Subsidiary of the Company
(or any successor to the Company) has any obligation, direct or indirect, to
make, grant or Incur any Lien securing any payment or distribution of any kind
in respect of any Reorganization Securities.
"Representative" means, with respect to the Senior
Indebtedness, the agent or other representative(s), if any, of holders of such
Senior Indebtedness.
"Restricted Payment" means, with respect to any Person,
without duplication: (i) any dividend or other distribution, whether in cash or
in Property or securities, declared or paid on any shares of such Person's
Capital Stock, or the making by such Person or any of its subsidiaries of any
other distribution in respect of, such Person's Capital Stock or any warrants,
rights or options to purchase or acquire shares of any class of such Capital
Stock; (ii) the redemption, repurchase, retirement or other acquisition for
value by such Person or any of its subsidiaries, directly or indirectly, of such
person's Capital Stock; (iii) any payment to purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness (other than Senior
Indebtedness); and (iv) any Investment other than Permitted Investments.
"Rule 144" means Rule 144 as promulgated by the Commission
under the Securities Act, and any successor rule or regulation thereto.
"Rule 144A" means Rule 144A as promulgated by the Commission
under the Securities Act, and any successor rule or regulation thereto.
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"Securities Act" means the Securities Act of 1933, and the
rules and regulations of the Commission promulgated thereunder, as amended.
"Security Documents" means the Security Agreement and such
other agreements, instruments, financing statements and documents in form and
substance satisfactory to the Principal Purchaser as the Principal Purchaser may
reasonably request that the Company execute and deliver, to provide for the
Collateral Agent to obtain, for the ratable benefit of the holders of the Note
Indebtedness, valid and enforceable perfected Liens on substantially all of the
Company's properties and assets as security for the Note Indebtedness, and all
amendments, waivers, modifications and refinancings thereof.
"Senior Indebtedness" shall mean Indebtedness of the Company
to one or more banks or other financial institutions in an aggregate principal
amount not in excess of $6,000,000 at any time outstanding, plus interest and
fees with respect thereto, which Indebtedness by its terms is senior to the
Indebtedness of the Company under and in respect of the Notes and this
Agreement.
"Series A Preferred" means the 800,000 shares of Series A
Convertible Preferred Stock, $.00004 par value per share, of the Company
outstanding on the First Closing Date, each of which shares is convertible into
one (1) share of Common Stock.
"Series B Preferred" means the 399,999 shares of Series B
Convertible Preferred Stock, $.00004 par value per share, of the Company
outstanding on the First Closing Date, all of which shares are convertible on an
aggregate basis into 415,565 shares of Common Stock.
"Series D Common Warrants" means warrants outstanding on the
First Closing Date to purchase 238,572 shares of Common Stock.
"Series D Preferred" means (i) the 1,359,522 shares of Series
D Convertible Preferred Stock, $.00004 par value per share, of the Company
outstanding on the First Closing Date, and (ii) the 40,067 shares of Series D
Convertible Preferred Stock, $.00004 par value per share, of the Company
issuable upon exercise of the Series D Preferred Warrants, each of which shares
is convertible into one (1) share of Common Stock.
"Series D Preferred Warrants" means warrants outstanding on
the First Closing Date to purchase 40,067 shares of Series D Preferred.
"Series E Common Warrants" means warrants outstanding on the
First Closing Date to purchase 122,228 shares of Common Stock.
"Series E Preferred" means the 733,371 shares of Series E
Convertible Preferred Stock, $.00004 par value per share, of the Company
outstanding on the First Closing Date, each of which shares is convertible into
one (1) share of Common Stock.
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"Series F Common Warrants" means warrants to purchase up to an
aggregate of 923,077 shares of Common Stock issued or issuable by the Company as
part of the Series F Financing.
"Series F Financing" means the issuance and sale by the
Company of up to an aggregate of 2,353,848 shares of Series F Preferred and
Series F Common Warrants to purchase up to an aggregate of 923,077 shares of
Common Stock, pursuant to the Series F Financing Agreement.
"Series F Financing Agreement" means the Series F Convertible
Preferred Stock and Warrant Purchase Agreement by and among the Company and the
purchasers parties thereto, dated as of June 28, 1996, as the same may be
amended or supplemented from time to time.
"Series F Preferred" means up to an aggregate of 2,353,848
shares of Series F Convertible Preferred Stock, $.00004 par value per share, of
the Company issued or issuable by the Company as part of the Series F Financing.
"Stated Maturity" means, with respect to any security, the
date specified in such security as the fixed date on which the principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
"Subsidiary" means with respect to any Person, any
corporation, association or other business entity of which securities
representing more than 50% of the combined voting power of the total Voting
Stock (or in the case of an association or other business entity which is not a
corporation, more than 50% of the equity interest) is at the time owned or
controlled, directly or indirectly, by that Person or one or more Subsidiaries
of that Person or a combination thereof. When used herein without reference to
any Person, Subsidiary means a Subsidiary of the Company.
"Threat of Release" means a substantial likelihood of a
Release which requires action to prevent or mitigate damage to the Environment
which may result from such Release.
"Transaction Documents" means, collectively, this Agreement,
the Notes, the Warrants, the Security Documents and the Third Amended and
Restated Voting Rights Agreement.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable at the issuer's option.
"Voting Stock" means any class or classes of Capital Stock
pursuant to which the holders thereof have the general voting power under
ordinary circumstances to vote for the
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election of directors, managers or trustees of any Persons (irrespective of
whether or not at the time, stock of any class or classes will have, or might
have, voting power by the reason of the happening of any contingency).
"Wholly Owned Subsidiary" means a Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Company
or another Wholly Owned Subsidiary.
In addition to the foregoing, the following terms are defined in the
following Subsections of this Agreement:
Term Defined in Subsection
"Affiliate Transaction" 8.2(d)
"Approvals" 3.1(n)
"Bankruptcy Law" 9.1
"Change of Control Offer" 6.6(a)
"Change of Control Purchase Date" 6.6(b)(ii)
"Charter Documents" 3.1(e)
"Change Date" 6.6
"Closing Fee" 3.1(q)
"Converted Notes" 6.7(a)
"Current Affiliate" 4.12(b)
"Custodian" 9.1
"Declaration" 9.2
"Default Amount" 9.2
"Employee Program" 4.12(a)
"ERISA Affiliate" 4.112(b)
"Event of Default" 9.1
"FDA" 4.33
"Financial Statements" 4.23
"First Closing" 2.1
"First Closing Date" 2.1
"Illegal Transfer Notice" 10.2
"Indemnified Party" and
"Indemnified Parties" 14.1
"Intellectual Property" 4.24
"License(s)" 4.5
"Losses" 14.1
"Multiemployer Plan" 4.12(d)
"New Securities" 7.2(b)
"Nonpayment Default" 11.3
"Note Indebtedness" 11.1
"Notes" 1.1
"Payment Blockage Notice" 11.3
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"Payment Default" 11.3
"Pre-emptive Right" 7.2
"Qualified Public Offering
Conversion" 6.7(a)
"Qualified Public Offering
Date" 6.7(a)
"Qualified Public Offering
Redemption" 6.7(a)
"Repurchase Date" 7.1
"Restricted Security" 10.2
"Scientists" 4.24
"Second Closing" 2.2
"Second Closing Date" 2.2
"Series A Warrants" 1.2
"Series B Warrants 1.2
"Special Repurchase Right" 7.1
"Stated Maturity Date of the
Converted Notes" 6.7(d)
"Stated Maturity Date of the
Notes" 6.1
"Taxes" 4.25
"Warrants" 1.2
14. MISCELLANEOUS.
14.1. Indemnification; Expenses, Etc.
(a) In addition to any and all obligations of the Company to
indemnify the Purchasers hereunder or under the other Transaction Documents, the
Company agrees, without limitation as to time, to indemnify and hold harmless
each Purchaser and its Affiliates, and the employees, officers, directors, and
agents of each Purchaser and its Affiliates (individually, an "Indemnified
Party" and, collectively the "Indemnified Parties") from and against any and all
losses, claims, damages, liabilities, costs (including the costs of preparation
and attorneys' fees) and expenses (including expenses of investigation)
(collectively, "Losses") incurred or suffered by an Indemnified Party in
connection with any proceeding against the Company or any Indemnified Party
brought by any third party arising out of or in connection with this Agreement
or the other Transaction Documents or the transactions contemplated hereby or
thereby or any action taken in connection herewith or therewith (or any other
document or instrument executed herewith or pursuant hereto or thereto), whether
or not the transactions contemplated by this Agreement are consummated and
whether or not any Indemnified Party is a formal party to any Proceeding;
provided, however, that the Company shall not be liable for any losses resulting
from action on the part of any Indemnified Party which is finally determined in
such proceeding to be wrongful or which is an act of gross negligence,
recklessness, or willful misconduct by such Indemnified Party. The Company
agrees promptly to reimburse any Indemnified Party for all such Losses as they
are incurred or suffered by such Indemnified Party. Except as otherwise provided
herein, the Company agrees (for the benefit of each Purchaser) to pay, and to
hold each Purchaser harmless from and against, all costs and expenses
(including, without limitation, attorneys' fees, expenses and disbursements), if
any, in connection with the enforcement against
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the Company, as the case may be, of this Agreement or any other Transaction
Document or any other agreement or instrument furnished pursuant hereto or
thereto or in connection herewith or therewith in any action in which the
Purchaser attempting to enforce any of the foregoing shall prevail.
(b) If any Indemnified Party is entitled to indemnification
hereunder, such Indemnified Party shall give prompt notice to the Company of any
claim or of the commencement of any proceeding against the Company or any
Indemnified Party brought by any third party with respect to which such
Indemnified Party seeks indemnification pursuant hereto; provided, however, that
the failure so to notify the Company shall not relieve the Company from any
obligation or liability except to the extent the Company is prejudiced by such
failure. The Company shall have the right, exercisable by giving written notice
to an Indemnified Party promptly after the receipt of written notice from such
Indemnified Party of such claim or proceeding, to assume, at the expense of the
Company, the defense of any such claim or proceeding with counsel reasonably
satisfactory to such Indemnified Party. The Indemnified Party or Parties will
not be subject to any liability for any settlement made without its or their
consent (but such consent will not be unreasonably withheld). The Company shall
not consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by claimant or plaintiff to
such Indemnified Party or Parties of a release, in form and substance
satisfactory to the Indemnified Party or Parties, from all liability in respect
of such claim, litigation or proceeding.
(c) In addition to any other obligations of the Company to
indemnify the Purchasers herein or pursuant to any of the Transaction Documents
or any other agreements or documents executed and delivered in connection
therewith, the Company will pay, and will save each Purchaser and each other
holder of any of the Notes or Warrants harmless from liability for the payment
of all expenses arising in connection with such transactions, including, without
limitation: (a) all document production and duplication charges and the
reasonable fees, charges and expenses of the Principal Purchaser's Special
Counsel (whether arising before or after any Closing Date), the transactions
contemplated hereby and any subsequent proposed modification of, or proposed
consent under, this Agreement, whether or not such proposed modification shall
be effected or proposed consent granted; (b) the costs of obtaining a private
placement number from Standard & Poor's Corporation for the Notes; (c) the costs
and expenses, including attorneys' fees, incurred by any Purchaser in enforcing
any rights under this Agreement or in responding to any subpoena or other legal
process issued in connection with this Agreement or the transactions
contemplated hereby or thereby or by reason of such Purchaser's having acquired
the Notes or Warrants, including without limitation costs and expenses incurred
by such Purchaser in any bankruptcy case; (d) the cost of delivering to such
Purchaser's principal office, insured to its satisfaction, the Notes and
Warrants delivered to such Purchaser hereunder and any Notes Warrants or Common
Stock delivered to such Purchaser upon any substitution of any of the Notes or
Warrants pursuant to the terms of this Agreement or the Transaction Documents
and of such Purchaser's delivering any Notes, Warrant certificates or Common
Stock certificates, insured to its satisfaction, upon any such substitution; and
(e) the reasonable documented out-of-
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<PAGE> 69
pocket expenses incurred by such Purchaser in connection with such transactions
and any such amendments or waivers.
14.2. Survival of Representations and Warranties;
Severability. All representations and warranties contained in this Agreement or
the Transaction Documents or made in writing by or on behalf of the Company in
connection with the transactions contemplated by this Agreement or the
Transaction Documents shall survive, for the duration of any statutes of
limitation applicable thereto, the execution and delivery of this Agreement, any
investigation at any time made by any Purchaser or on such Purchaser's behalf,
the purchase of the Notes and Warrants by the Purchasers under this Agreement
and any disposition of or payment on the Notes or Warrants. Any provision of
this Agreement that is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provisions in any other
jurisdiction.
14.3. Amendment and Waiver. This Agreement may be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may be given, provided that the same are in writing and signed
by the Company, the holders of a majority of the principal amount of the Notes
and the holders of a majority of the Warrants.
14.4. Notices, Etc. Except as otherwise provided in this
Agreement, notices and other communications under this Agreement shall be in
writing and shall be delivered, or mailed by registered or certified mail,
return receipt requested, or by a nationally recognized overnight courier,
postage prepaid, addressed, (a) if to a Purchaser, at the address specified on
such Purchaser's signature page attached hereto or such other address as such
Purchaser shall have furnished to the Company in writing, or (b) if to any other
holder of any Note or Warrant or any part thereof, at such address as such other
holder shall have furnished to the Company in writing, or, until any such other
holder so furnishes to the Company an address, then to and at the address of the
last holder of such Note or Warrant or part thereof who has furnished an address
to the Company, or (c) if to the Company, at its address set forth at the
beginning of this Agreement, to the attention of the Chief Executive Officer, or
at such other address, or to the attention of such other Officer, as the Company
shall have furnished to the Purchasers and each such other holder in writing.
This Agreement and the other Transaction Documents and all documents delivered
in connection herewith or therewith embody the entire agreement and
understanding between the Purchasers and the Company and supersede all prior
agreements and understandings relating to the subject matter hereof. Any notice
hereunder shall be deemed effective three (3) Business Days following deposit
with the U.S. Mail and one (1) Business Day following deposit with a nationally
recognized overnight courier, each as provided above.
14.5. Successors and Assigns. Whenever in this Agreement any
of the parties hereto are referred to, such reference shall be deemed to include
the successors and assigns of such party; and all covenants, promises and
agreements by or on behalf of the respective parties which are contained in this
Agreement shall bind and inure to the benefit of the successors and assigns of
all other parties. The terms and provisions of this Agreement, and the other
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<PAGE> 70
Transaction Documents shall inure to the benefit of and shall be binding upon
any assignee or transferee of the Purchasers, and in the event of such transfer
or assignment, the rights and privileges herein conferred upon the Purchasers
shall automatically extend to and be vested in, and become an obligation of,
such transferee or assignee, all subject to the terms and conditions hereof. In
connection therewith, such transferee or assignee may disclose all documents and
information which such transferee or assignee now or hereafter may have relating
to any of the Notes or Warrants or any part thereof, this Agreement, the other
Transaction Documents, the Company, any other Persons referred to herein or any
of the business of any of the foregoing entities.
14.6. Descriptive Headings. The headings in this Agreement are
for purposes of reference only and shall not limit or otherwise affect the
meaning hereof.
14.7. Satisfaction Requirement. If any agreement, certificate
or other writing, or any action taken or to be taken, is by the terms of this
Agreement or the other Transactions Documents required to be satisfactory to the
Purchasers or to the holders the Notes or the Warrants, the determination of
such satisfaction shall be made by the Principal Purchaser or such other Persons
holding a majority in aggregate principal amount of the Notes or a majority of
the Warrants, as the case may be, outstanding at such time; provided, that
nothing contained in this Section 14.7, shall be deemed to modify or limit (i)
the right of each holder of Notes and Warrants to require that the Company
repurchase, redeem or convert any of the Notes and Warrants held by such holder
upon the occurrence of certain events as provided in this Agreement and the
other Transaction Documents, or (ii) any other right or remedy which is, by the
terms of this Agreement or the other Transaction Documents, exercisable
independently by each holder of Notes or Warrants.
14.8. GOVERNING LAW. THIS AGREEMENT AND THE NOTES AND WARRANTS
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE
PARTIES SHALL BE GOVERNED BY, THE LAW OF THE COMMONWEALTH OF MASSACHUSETTS,
WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAW.
14.9. Service of Process. The Company (a) hereby irrevocably
submits itself to the jurisdiction of the state courts of The Commonwealth of
Massachusetts and to the jurisdiction of the United States District Courts for
the District of Massachusetts, for the purpose of any suit, action or other
proceeding arising out of or based upon this Agreement, the Notes, the Warrants
or any part or parts thereof, the other Transaction Documents or the subject
matter hereof or thereof brought by any Purchaser or its successors or assigns
and (b) hereby waives, and agrees not to assert, by way of motion, as a defense,
or otherwise, in any such suit, action or proceeding, any claim that it is not
subject personally to the jurisdiction of the above-named courts, that its
property is exempt or immune from attachment or execution, that the suit, action
or proceeding is brought in an inconvenient forum, that the venue of the suit,
action or proceeding is improper or that this Agreement or the subject matter
hereof may not be enforced in or by such court. The Company hereby consents to
service of process by registered mail at the address to which notices
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<PAGE> 71
are to be given. The Company agrees that its submission to jurisdiction and its
consent to service of process by mail is made for the express benefit of the
Purchasers. Final judgment against the Company in any such action, suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit, action or proceeding on the judgment, a certified or true copy of which
shall be conclusive evidence of the fact and of the amount of any indebtedness
or liability of the Company therein described or in any other manner provided by
or pursuant to the laws of such other jurisdiction; provided, however, that a
Purchaser may at its option bring suit or institute other judicial proceedings
against the Company or any of the Company's or its assets in any state or
federal court of the United States or in any country or place where the Company
or such assets may be found.
14.10. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.
14.11. No Adverse Interpretation of Other Agreements. This
Agreement may not be used to interpret another agreement, indenture, loan or
debt agreement of the Company or any of its Subsidiaries. Any such agreement,
indenture, loan or debt agreement may not be used to interpret this Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 72
SECURITIES PURCHASE AGREEMENT
SUBORDINATED NOTES AND
WARRANTS TO PURCHASE COMMON STOCK
COMPANY SIGNATURE PAGE
IN WITNESS WHEREOF, the undersigned, being duly authorized, has
executed this Agreement on behalf of the Company as of the date first above
written.
ASCENT PEDIATRICS, INC.
By: /s/ Alan R. Fox
-------------------
Name: Alan R. Fox
Title: President and Chief Executive Officer
<PAGE> 73
Exhibit 10.11
SUBORDINATED NOTES AND
WARRANTS TO PURCHASE COMMON STOCK
PURCHASER SIGNATURE PAGE
<TABLE>
<S> <C> <C>
Accepted and agreed as of the
date first written above: Aggregate Purchase Price to be
paid by Purchaser at First Closing: $1,685,714.29
TRIUMPH-CONNECTICUT LIMITED Credit for Closing Fee owed to
PARTNERSHIP Purchaser at First Closing: $ (33,714.29)
By: /s/ Thomas W. Janes Net Purchase Price to be paid
----------------------- by Purchaser at First Closing: $1,652,000.00
Name: Thomas W. Janes
Title: Managing Director
Principal amount of Notes to
be purchased by Purchaser at
Address: c/o Triumph Capital First Closing: $1,685,714.29
Group, Inc.
60 State Street, 21st Floor Shares of Common Stock
Boston, MA 02109 issuable upon exercise of
Series A Warrants to be issued
Telephone: (617) 557-6000 to Purchaser at First Closing: 222,545
Telecopy: (617) 557-6020 --------------
Aggregate Purchase Price to be paid
by Purchaser at Second Closing: $4,214,285.71
Tax ID No.: 04-3183699
Credit for Closing Fee owed to
Purchaser at Second Closing: $ (84,285.71)
Net Purchase Price to be paid
by Purchaser at Second Closing: $4,130,000.00
Principal amount of Notes to
be purchased by Purchaser at
Second Closing: $4,214,285.71
Wire Transfer Instructions:
Shares of Common Stock
Bank Name: Bank of Boston - Connecticut issuable upon exercise of
ABA No.: 011-100805 Series A Warrants to be issued
Acct Name: Triumph-Connecticut to Purchaser at Second Closing: 333,818
Limited Partnership --------------
Acct No.: 502-431-63 Shares of Common Stock
Contact: Nancy Labbe, Inst. Banking issuable upon exercise of
Reference: Ascent Notes Series B Warrants to be issued
to Purchaser at Second Closing: 216,363
--------------
</TABLE>
<PAGE> 74
SECURITIES PURCHASE AGREEMENT
SUBORDINATED NOTES AND
WARRANTS TO PURCHASE COMMON STOCK
PURCHASER SIGNATURE PAGE
<TABLE>
<S> <C> <C>
Accepted and agreed as of the
date first written above: Aggregate Purchase Price to be
paid by Purchaser at First Closing: $285,714.29
/s/ John D. Howard
- ------------------ Credit for Closing Fee owed to
John D. Howard Purchaser at First Closing: $ (5,714.29)
--and-- Net Purchase Price to be paid
by Purchaser at First Closing: $280,000.00
/s/ Lauren R. Howard
- -------------------- Principal amount of Notes to
Lauren R. Howard be purchased by Purchaser at
First Closing: $285,714.29
Address:
80 Irving Place
New York, NY 10003 Shares of Common Stock
issuable upon exercise of
Series A Warrants to be issued
Telephone: (212) 475-4786 to Purchaser at First Closing: 37,719
Telecopy: (212) 358-0970 -----------
Aggregate Purchase Price to be paid
by Purchaser at Second Closing: $714,285.71
John D. Howard's Tax ID No.:
###-##-#### Credit for Closing Fee owed to
Purchaser at Second Closing: $(14,285.71)
Lauren R. Howard's Tax ID No.:
###-##-#### Net Purchase Price to be paid
by Purchaser at Second Closing: $700,000.00
Principal amount of Notes to
Wire Transfer Instructions: be purchased by Purchaser at
Second Closing: $714,285.71
Bank Name: Chase Manhattan Bank
ABA No.: 021-000021 Shares of Common Stock
For Credit to: Goldman Sachs & Co. issuable upon exercise of
Acct No.: 930-1-011-483 Series A Warrants to be issued
F/F/C: John D. Howard and to Purchaser at Second Closing: 56,579
Lauren R. Howard -----------
Acct No: 001-35498-4 Shares of Common Stock
Contact: Gerald C. McNamara issuable upon exercise of
Telephone: (212) 902-8904 Series B Warrants to be issued
Reference: Ascent Notes to Purchaser at Second Closing: 36,672
----------
-
</TABLE>
<PAGE> 75
SUBORDINATED NOTES AND
WARRANTS TO PURCHASE COMMON STOCK
PURCHASER SIGNATURE PAGE
<TABLE>
<S> <C> <C>
Accepted and agreed as of the
date first written above: Aggregate Purchase Price to be
paid by Purchaser at First Closing: $21,428.57
Frederick S. Moseley IV and E. Mark Credit for Closing Fee owed to
Noonan, as Trustees of the Triumph Capital Purchaser at First Closing: $ (428.57)
Group, Inc. 401(k) Plan and Trust for the
account of Thomas W. Janes
By: /s/ Frederick S. Moseley IV Net Purchase Price to be paid
--------------------------------------- by Purchaser at First Closing: $21,000.00
Frederick S. Moseley IV, as Trustee
By: /s/ E. Mark Noonan
--------------------------------------- Principal amount of Notes to
E. Mark Noonan, as Trustee be purchased by Purchaser at
First Closing: $21,428.57
Shares of Common Stock
issuable upon exercise of
Series A Warrants to be issued
Address: c/o Triumph Capital to Purchaser at First Closing: 2,829
Group, Inc. -----------
60 State Street, 21st Floor
Boston, MA 02109 Aggregate Purchase Price to be paid
by Purchaser at Second Closing: $53,571.43
Telephone: (617) 557-6000
Telecopy: (617) 557-6020 Credit for Closing Fee owed to
Purchaser at Second Closing: $ (1071.43)
Tax ID No.: 04-3081875 Net Purchase Price to be paid
by Purchaser at Second Closing: $52,500.00
Principal amount of Notes to
Wire Transfer Instructions: be purchased by Purchaser at
Second Closing: $53,571.43
Bank Name: Chase Manhattan Bank
ABA No.: 021-000021 Shares of Common Stock
For Credit to: Donaldson, Lufkin & Jenrette issuable upon exercise of
Acct No.: 930-1-032992 Series A Warrants to be issued
F/F/C: DLJ a/c #212-233266 to Purchaser at Second Closing: 4,243
n/o Thomas W. Janes ----------
Reference: Ascent Notes Shares of Common Stock
issuable upon exercise of
Series B Warrants to be issued
to Purchaser at Second Closing: 2,750
----------
</TABLE>
<PAGE> 76
SECURITIES PURCHASE AGREEMENT
SUBORDINATED NOTES AND
WARRANTS TO PURCHASE COMMON STOCK
PURCHASER SIGNATURE PAGE
<TABLE>
<S> <C> <C>
Accepted and agreed as of the
date first written above: Aggregate Purchase Price to be
paid by Purchaser at First Closing: $ 7,142.85
Credit for Closing Fee owed to
Purchaser at First Closing: $ (142.85)
/s/ Duane E. Thurman Net Purchase Price to be paid
- ----------------------------------- by Purchaser at First Closing: $ 7,000.00
Duane E. Thurman
Principal amount of Notes to
be purchased by Purchaser at
Address: First Closing: $ 7,142.85
705 Newtown Road Shares of Common Stock
Berwyn, PA 19312-2020 issuable upon exercise of
Series A Warrants to be issued
Telephone: (610) 293-1265 to Purchaser at First Closing: 943
Telecopy: (610) 902-0577 -----------
Aggregate Purchase Price to be paid
by Purchaser at Second Closing: $17,857.15
Tax ID No.: ###-##-####
Credit for Closing Fee owed to
Purchaser at Second Closing: $ (357.15)
Net Purchase Price to be paid
by Purchaser at Second Closing: $17,500.00
Principal amount of Notes to
be purchased by Purchaser at
Second Closing: $17,857.15
Wire Transfer Instructions:
Shares of Common Stock
Bank Name: CoreStates Bank, N.A. issuable upon exercise of
Series A Warrants to be issued
ABA No.: 031-000011 to Purchaser at Second Closing: 1,414
Acct Name: Duane E. Thurman ----------
Acct No.: 0045066053
Telephone: (610) 687-9328 Shares of Common Stock
Reference: Accent Notes issuable upon exercise of
Series B Warrants to be issued
to Purchaser at Second Closing: 917
----------
</TABLE>
<PAGE> 77
EXHIBIT A -- FORM OF SUBORDINATED SECURED NOTE
THIS NOTE WAS ISSUED WITH "ORIGINAL ISSUE DISCOUNT." THE TOTAL AMOUNT OF THE
ORIGINAL ISSUE DISCOUNT IS ___% OF ITS PRINCIPAL AMOUNT, THE ISSUE DATE IS
_______________, 199_ AND THE YIELD TO MATURITY ON THE ISSUE DATE IS ___%,
COMPOUNDED QUARTERLY.
THIS NOTE AND THE INDEBTEDNESS REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR PURSUANT TO THE SECURITIES OR
"BLUE SKY" LAWS OF ANY STATE. SUCH NOTE AND INDEBTEDNESS MAY NOT BE OFFERED,
SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT IN
ACCORDANCE WITH APPLICABLE "BLUE SKY" LAWS AND PURSUANT TO (I) A REGISTRATION
STATEMENT WITH RESPECT TO SUCH NOTE AND INDEBTEDNESS WHICH IS EFFECTIVE UNDER
SUCH ACT, (II) RULE 144 OR RULE 144A UNDER SUCH ACT, OR (III) ANY OTHER
EXEMPTION FROM REGISTRATION UNDER SUCH ACT RELATING TO SUCH ACT, PROVIDED THAT,
IF REQUESTED BY THE COMPANY, AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN
FORM AND SUBSTANCE IS FURNISHED TO THE COMPANY THAT AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE.
SUBORDINATED SECURED NOTE DUE JANUARY 31, 2002
[$_________] _____________, 199_
Boston,
Massachusetts
FOR VALUE RECEIVED, the undersigned, ASCENT PEDIATRICS, INC., a
Delaware corporation (the "Company"), hereby promises to pay to ______________
or to its order or to such persons as it may designate from time to time
(hereinafter referred to as the "Payee") the principal sum of ________________
DOLLARS ($_________).
This Note is issued pursuant to and is entitled to the benefits of a
Securities Purchase Agreement (the "Agreement"), dated as of the date hereof,
between the Company and the Payee. Terms used herein and not otherwise defined
shall have the meanings set forth in the Agreement.
1. Maturity. This Note shall mature and the aggregate
principal amount of this Note and all accrued interest shall be due and payable
in full (without set-off, deduction or counterclaim) on January 31, 2002 (the
"Stated Maturity Date") unless sooner prepaid or accelerated in accordance with
the Agreement.
2. Interest. This Note shall not bear interest for the period
from the date of issuance through January 31, 1999. This Note shall bear
interest on the unpaid principal amount thereof from February 1, 1999 until the
Stated Maturity Date, at the following rates:
<PAGE> 78
(a) from February 1, 1999 through January 31, 2000, at a rate of seven percent
per annum; (b) from February 1, 2000 through January 31, 2001, at a rate of
eight percent per annum; and (c) from February 1, 2001 through the Stated
Maturity Date, at a rate of nine percent per annum. Interest on the unpaid
principal amount of this Note shall be computed on the basis of a 360-day year
and the actual days elapsed, and shall be payable quarterly in arrears on the
last day of March, June, September and December of each year, commencing on
March 31, 1999, and upon any other payment of any principal amount of this Note.
3. Default Interest and Late Charges. In the event that any
principal amount of this Note is not paid within five (5) days of when due and
payable (whether at stated maturity, by acceleration or otherwise), the interest
rate on such principal amount shall, notwithstanding anything herein or in the
Agreement to the contrary and until all principal payments on this Note have
been brought current, thereafter be increased by two percent (2%) per annum. Any
interest not paid when due and payable shall thereafter be paid, on demand by
the Payee, together with interest thereon at a rate of two percent (2%) per
annum in excess of the rate set forth in Section 2 of this Note.
4. Payments. All payments of principal and interest on this
Note and any other payment due hereunder or under the Agreement shall be made by
the Company in accordance with the terms of the Agreement.
5. Optional Redemption. This Note may be redeemed at the
option of the Company, in whole or from time to time in part, at any time and
from time to time, without premium or penalty, in accordance with the terms of
the Agreement.
6. Requirement that the Company Offer to Redeem the Note
Following a Change of Control. Subject to the terms and conditions of the
Agreement, the Company shall become obligated to offer to redeem this Note after
the occurrence of a Change of Control of the Company, in accordance with and to
the extent provided in the Agreement.
7. Requirement that the Company Redeem the Note Following a
Qualified Public Offering. Subject to the terms and conditions of the Agreement,
the Company shall become obligated to redeem this Note after the occurrence of a
Qualified Public Offering, in accordance with and to the extent provided in the
Agreement.
8. Requirement that the Company Convert the Notes Into Common
Stock Following a Qualified Public Offering. Subject to the terms and conditions
of the Agreement, the Company shall become obligated to convert this Note into
shares of Common Stock, determined in accordance with the Agreement, at the
election of the Payee after the occurrence of a Qualified Public Offering, in
accordance with and to the extent provided in the Agreement.
9. Security for Note. This Note and the Indebtedness
represented by this Note are secured by and entitled to the benefits of Liens
granted to the Collateral Agent for the ratable benefit of the holders of the
Note Indebtedness.
-2-
<PAGE> 79
10. Subordination. This Note and the Indebtedness represented
by this Note are subordinated to the Senior Indebtedness (as defined in the
Agreement). To the extent provided in the Agreement, the Senior Indebtedness
must be paid before this Note may be paid. The Company agrees and the Payee and
each holder of this Note by accepting this Note agrees, to such subordination.
No provision of the Agreement or this Note shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay the principal and
interest on this Note at the times, places and rates, and in the currency
provided.
11. Events of Default; Acceleration. Upon the occurrence of an
Event of Default (as defined in the Agreement), the principal amount of this
Note together with all accrued interest and all other payments due hereunder or
under this Agreement may be declared to be immediately due and payable in the
manner and with the effect provided in the Agreement. Certain events of
bankruptcy or insolvency are Events of Default which will result in this Note
becoming due and payable immediately upon the occurrence of such Events of
Default. Subject to the terms of the Agreement, following the occurrence of an
Event of Default, the Payee may proceed to enforce and exercise its rights by
suit in equity, action at law and/or other appropriate means. The Company agrees
to pay on demand all reasonable costs of collection and all other reasonable
costs and expenses, including without limitation reasonable attorneys' fees,
incurred or paid by the Payee in enforcing or collecting this Note upon the
occurrence of an Event of Default.
12. No Waivers; Amendments. No failure or delay on the part of
the Company or the Payee in exercising any right, power or remedy hereunder or
under the Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
The remedies provided for herein and in the Agreement are cumulative and are not
exclusive of any remedies that may be available to the Maker or the Payee at law
or in equity or otherwise. This Note may not be amended and the provisions
hereof may not be waived without the prior written consent of the holders of a
majority of the Notes outstanding at the time such action is taken by the
Company.
13. Governing Law. This Note shall be deemed to be a contract
made under the laws of The Commonwealth of Massachusetts, and for all purposes
shall be governed by and construed in accordance with the laws of The
Commonwealth of Massachusetts without regard to principles of conflicts of laws
thereof.
[Remainder of Page Left Intentionally Blank]
-3-
<PAGE> 80
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed and delivered as a sealed instrument at the place and on the date set
forth above by the duly authorized representative of the Company.
ATTEST: ASCENT PEDIATRICS, INC.
____________________________ By:____________________________________
Name:
Title:
-4-
<PAGE> 81
Exhibit B-1
FORM OF SERIES A WARRANT
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR PURSUANT TO THE SECURITIES OR
"BLUE SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT IN ACCORDANCE
WITH APPLICABLE "BLUE SKY" LAWS AND PURSUANT TO (I) A REGISTRATION STATEMENT
WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER SUCH ACT, (II) RULE 144
OR RULE 144A UNDER SUCH ACT, OR (III) ANY OTHER EXEMPTION FROM REGISTRATION
UNDER SUCH ACT RELATING TO SUCH ACT, PROVIDED THAT, IF REQUESTED BY THE COMPANY,
AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM AND SUBSTANCE IS FURNISHED
TO THE COMPANY THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT
IS AVAILABLE.
Warrant No. A-__ Number of Shares: ______
(subject to adjustment)
Date of Issuance: __________, 199_
ASCENT PEDIATRICS, INC.
Series A Warrant to Purchase Common Stock
(Void after January 31, 2004)
Ascent Pediatrics, Inc. (formerly known as Ascent Pharmaceuticals,
Inc.), a Delaware corporation (the "Company"), for value received, hereby
certifies that _____________, or its registered assigns (the "Registered
Holder"), is entitled, subject to the terms set forth below, upon exercise of
this Warrant to purchase from the Company, at any time or from time to time on
or before January 31, 2004 (the "Expiration Date"), __________________ (______)
shares of the Company's common stock, $.00004 par value per share (the "Common
Stock"), at a purchase price of $.01 per share. The shares purchasable upon
exercise of this Warrant, and the purchase price per share, each as adjusted
from time to time pursuant to the provisions of this Warrant, are hereinafter
referred to as the "Warrant Shares" and the "Purchase Price," respectively.
-1-
<PAGE> 82
This Warrant is one of a series of warrants comprising the Company's
Series A Warrants (as defined in that certain Securities Purchase Agreement
dated as of January 31, 1997, among the Company and the purchasers named therein
(the "Purchase Agreement")).
1. Purchase.
(a) This Warrant may be exercised by the Registered Holder, in
whole or in part, at any time and from time to time after the Date of Issuance
hereof until 5:00 p.m. (Boston, Massachusetts time) on the Expiration Date, by
surrendering this Warrant, with the purchase form appended hereto as Exhibit I
duly executed by such Registered Holder or by such Registered Holder's duly
authorized attorney, at the principal office of the Company, or at such other
office or agency as the Company may designate, accompanied by payment in full,
in lawful currency of the United States, of the Purchase Price payable in
respect of the number of shares of Warrant Shares purchased upon such exercise.
(b) The Registered Holder may, at its option, elect to pay
some or all of the Purchase Price payable upon an exercise of this Warrant by
canceling a portion of this Warrant exercisable for such number of Warrant
Shares as is determined by dividing (i) the total Purchase Price payable in
respect of the number of Warrant Shares being purchased upon such exercise by
(ii) the excess of the Fair Market Value per share of Common Stock as of the
effective date of exercise, as determined pursuant to Subsection l(c) below (the
"Exercise Date"), over the Purchase Price per share.
(c) The Fair Market Value per share of Common Stock shall be
determined as follows:
(i) if the Common Stock is listed on a national securities
exchange, the NASDAQ National Market, the NASDAQ system, or another nationally
recognized exchange or trading system as of the Exercise Date, the Fair Market
Value per share of Common Stock shall be deemed to be the last reported sale
price per share of Common Stock thereon on the Exercise Date; or, if no such
price is reported on such date, such price on the next preceding business day
(provided that if no such price is reported on the next preceding business day,
the Fair Market Value per share of Common Stock shall be determined pursuant to
clause (ii)).
(ii) If the Common Stock is not listed on a national securities
exchange, the NASDAQ National Market, the NASDAQ system or another nationally
recognized exchange or trading system as of the Exercise Date, (A) the Board of
Directors of the Company and the Registered Holder shall independently determine
the Fair Market Value per share of Common Stock on the basis of an assumed sale
of the Company as a whole and no effect shall be given to any discount for lack
of liquidity or to the fact that the Company has no class of equity securities
registered under the Exchange Act, if such is the case, (B) each of the Board of
Directors of the Company and the Registered Holder shall deliver to the other a
report stating the Fair Market Value of Common Stock as of a specified date and
setting forth a brief statement as to the nature
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and scope of the examination or investigation upon which the determination of
such Fair Market Value was made, (C) in the event that such reports disagree as
to such Fair Market Value, the Company and the Registered Holder shall promptly
consult with each other to resolve such disagreement, and (D) in the event the
Company and the Registered Holder cannot resolve such disagreement, the Company
and the Registered Holder shall choose a nationally-recognized, independent
investment bank mutually acceptable to such parties which shall determine the
Fair Market Value per share of Common Stock and shall deliver to each party a
fairness opinion with respect to such determination. All costs and expenses of
such investment bank shall be borne by the Company.
(d) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in Subsection
1(a) above. At such time, the person or persons in whose name or names any
certificates for Warrant Shares shall be issuable upon such exercise as provided
in Subsection 1(e) below shall be deemed to have become the holder or holders of
record of the Warrant Shares represented by such certificates.
(e) As soon as practicable after the exercise of this Warrant
in full or in part, and in any event within 10 days thereafter, the Company, at
its expense, will cause to be issued in the name of, and delivered to, the
Registered Holder, or as such Registered Holder (upon payment by such Registered
Holder of any applicable transfer taxes) may direct:
(i) certificate or certificates for the number of full Warrant
Shares to which such Registered Holder shall be entitled upon such exercise
plus, in lieu of any fractional share to which such Registered Holder would
otherwise be entitled, cash in an amount determined pursuant to Subsection 1(g)
below; and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the aggregate on the
face or faces thereof for the number of Warrant Shares equal (without giving
effect to any adjustment therein) to the number of such shares called for on the
face of this Warrant minus the number of such shares purchased by the Registered
Holder upon such exercise as provided in Subsection l(a) above.
(f) All shares of Common Stock issuable upon the exercise of
this Warrant pursuant to the terms hereof shall be validly issued, fully paid
and non-assessable and free from all liens and charges with respect to the
issuance thereof. The Company shall pay all expenses in connection with, and all
taxes and other governmental charges that may be imposed with respect to, the
issue or delivery thereof; provided, however, that the Company shall not be
required to pay any federal, state or local income taxes incurred by the
Registered Holder in connection with the issuance or delivery of such shares. In
addition, the Company shall not be required to pay any tax or other charge
imposed in connection with any transfer involved in the issue of any Warrant
Shares issuable upon exercise of this Warrant in any name other than that of the
Registered Holder, and in such case the Company shall not be required to issue
or deliver any
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certificate representing Warrant Shares until such tax or other charge has been
paid or it has been established to the satisfaction of Company that no such tax
or other charge is due.
(g) The Company shall not be required upon the exercise of
this Warrant to issue any fractional shares (as determined on an aggregate basis
for each exercise pursuant to this Warrant), but shall make an adjustment
therefor in cash on the basis of the Fair Market Value per share of Common
Stock, as determined pursuant to Subsection 1(c) above.
(h) Reference is made to the Purchase Agreement with respect
to the right of the Company to repurchase a portion of the Warrants under the
circumstances more fully described therein.
(i) The Registered Holder shall have such rights with respect
to the registration of this Warrant and the Warrant Shares under the Securities
Act of 1933, as amended (the "Securities Act") as are set forth in the Purchase
Agreement.
2. Adjustments.
A. If the outstanding shares of Common Stock shall be
subdivided into a greater number of shares or a dividend in Common Stock shall
be declared or distributed in respect of the Common Stock or the outstanding
shares of Common Stock shall be combined or reclassified into a smaller number
of shares, the Purchase Price in effect immediately after the record date for
such dividend or distribution or the effective date of such subdivision,
combination or reclassification shall be adjusted so that it shall equal the
price determined by multiplying the Purchase Price in effect immediately prior
thereto by a fraction, of which the numerator shall be the number of shares of
Common Stock outstanding immediately before such dividend, distribution,
subdivision, combination or reclassification, and of which the denominator shall
be the number of shares of Common Stock outstanding immediately after such
dividend, distribution, subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any event specified above shall
occur.
B. If the Company shall fix a record date for the issuance of
rights, options, warrants or convertible or exchangeable securities to all
holders of Common Stock entitling them to subscribe for or purchase shares of
Common Stock at a price per share of Common Stock less than the Fair Market
Value per share of Common Stock (as determined in accordance with Subsection
1(c) hereof) on such record date, the Purchase Price shall be adjusted
immediately thereafter so that it shall equal the price determined by
multiplying the Purchase Price in effect immediately prior thereto by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding on such record date plus the number of shares of Common Stock which
the aggregate offering price of the total number of shares of Common Stock so
offered would purchase at the Fair Market Value per share of Common Stock on
such record date, and of which the denominator shall be the number of shares of
Common Stock outstanding on such record date plus the number of additional
shares of Common Stock offered for subscription or purchase. Such adjustment
shall be made successively whenever such a record date is fixed. To
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the extent that any such rights, options, warrants or convertible or
exchangeable securities are not so issued or expire unexercised, the Purchase
Price then in effect shall be readjusted to the Purchase Price which would then
be in effect if such unissued or unexercised rights, options, warrants or
convertible or exchangeable securities had not been issuable.
(c) In case the Company shall fix a record date for the making
of a distribution to all holders of shares of Common Stock (i) of shares of any
class other than Common Stock or (ii) of evidences of its indebtedness or (iii)
of assets (excluding cash dividends or distributions (other than extraordinary
cash dividends or distributions), and dividends or distributions referred to in
Subsection 2(a) hereof) or (iv) of rights, options, warrants or convertible or
exchangeable securities (excluding those rights, options, warrants or
convertible or exchangeable securities referred to in Subsection 2(b) hereof),
then in each such case the Purchase Price in effect immediately thereafter shall
be determined by multiplying the Purchase Price in effect immediately prior
thereto by a fraction, of which the numerator shall be the total number of
shares of Common Stock outstanding on such record date multiplied by the Fair
Market Value per share of Common Stock (as determined in accordance with
Subsection 1(c) hereof) on such record date, less the aggregate fair market
value as determined in good faith by the Board of Directors of the Company of
said shares or evidences of indebtedness or assets or rights, options, warrants
or convertible or exchangeable securities so distributed, and of which the
denominator shall be the total number of shares of Common Stock outstanding on
such record date multiplied by the Fair Market Value per share of Common Stock
on such record date. Such adjustment shall be made successively whenever such a
record date is fixed. In the event that such distribution is not so made, the
Purchase Price then in effect shall be readjusted to the Purchase Price which
would then be in effect if such record date had not been fixed.
(d) In case the Company shall on or after the date hereof
issue any Common Stock or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Common Stock (excluding Excluded Securities, as defined in Subsection 2(e)
below) at a price per share of Common Stock (determined by dividing (i) the
aggregate amount paid to the Company for such Common Stock, rights, options,
warrants or convertible or exchangeable securities, plus the aggregate
consideration or premiums stated in such rights, options, warrants or
convertible or exchangeable securities to be payable for the shares of Common
Stock covered thereby (the "Aggregate Consideration Receivable"), by (ii) the
total number of shares of Common Stock issued or covered by such rights,
options, warrants or convertible or exchangeable securities) less than the Fair
Market Value per share of Common Stock (as determined in accordance with
Subsection 1(c) hereof) on the date of such issuance, then the Purchase Price
shall be adjusted immediately thereafter so that it shall equal the price
determined by multiplying the Purchase Price in effect immediately prior thereto
by a fraction, of which the numerator shall be the number of shares of Common
Stock outstanding immediately prior to such issuance plus the number of
additional shares of Common Stock the Aggregate Consideration Receivable would
purchase at the Fair Market Value per share of Common Stock on such date, and of
which the denominator shall be the number of shares of Common Stock outstanding
immediately prior to such issuance plus the number of additional shares of
Common Stock sold or offered for subscription or purchase. Such adjustment shall
be
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made successively whenever such issuance shall occur. To the extent that any
such shares, rights, options, warrants or convertible or exchangeable securities
are not so issued or expire unexercised, the Purchase Price then in effect shall
be readjusted to the Purchase Price which would then be in effect if such
unissued or unexercised rights, options, warrants or convertible or exchangeable
securities had not been issuable.
(e) "Excluded Securities" means (i) rights, options, warrants,
or convertible or exchangeable securities issued in any of the transactions
described in Subsections 2(b), 2(c) and 2(h) hereof, (ii) shares of Common Stock
issuable upon exercise of the Warrants, (iii) shares of Common Stock issuable
upon exercise of rights, options or warrants or conversion or exchange of
convertible or exchangeable securities issued or sold under circumstances
causing an adjustment pursuant to Subsection 2(d), (iv) the 40,067 shares of
Series D Convertible Preferred Stock, $.00004 par value per share, of the
Company (the "Series D Preferred Stock") issuable upon the exercise of certain
warrants to purchase shares of such Series D Preferred Stock outstanding as of
the Date of Issuance of this Warrant, (v) shares of Common Stock issuable upon
the exercise or conversion of any of (A) the 800,000 shares of Series A
Convertible Preferred Stock, $.00004 par value per share, of the Company
outstanding as of the Date of Issuance of this Warrant, (B) the 399,999 shares
of Series B Convertible Preferred Stock, $.00004 par value per share, of the
Company outstanding as of the Date of Issuance of this Warrant, (C) the
1,359,522 shares of Series D Preferred Stock outstanding and the 40,067 shares
of Series D Preferred Stock issuable as of the Date of this Warrant, (D) the
733,371 shares of Series E Convertible Preferred Stock, $.00004 par value per
share, of the Company (the "Series E Preferred Stock") outstanding as of the
Date of Issuance of this Warrant, (E) shares of Series F Convertible Preferred
Stock, $.00004 par value per share, of the Company (the "Series F Preferred
Stock") issued or issuable pursuant to the Series F Convertible Preferred Stock
and Warrant Purchase Agreement by and among the Company and the purchasers
parties thereto, dated as of June 28, 1996, as the same may be amended or
supplemented from time to time (the "Series F Financing Agreement"), (F) the
warrants to purchase up to 238,572 shares of Common Stock held by certain
holders of Series D Preferred Stock as of the date of this Warrant, (G) the
warrants to purchase up to 122,228 shares of Common Stock held by certain
holders of Series E Preferred Stock as of the date of this Warrant, and (H)
warrants to purchase shares of Common Stock issued or issuable to holders of
Series F Preferred Stock pursuant to the Series F Financing Agreement (such
warrants being hereinafter referred to as the "Series F Common Warrants"), and
(vi) up to 850,000 shares of Common Stock or rights, options or warrants to
acquire Common Stock issued or issuable to directors, employees or consultants
of the Company pursuant to a stock option plan, employee stock purchase plan,
restricted stock plan or other similar stock plan or agreement approved by the
Board of Directors of the Company, and, in the case of rights, options or
warrants, the shares of Common Stock issuable upon exercise thereof (the shares
of Common Stock issued or issuable as described in this clause (vi) are
hereinafter referred to as the "Employee Shares").
(f) In case the Company shall sell and issue Common Stock or
rights, options, warrants or convertible or exchangeable securities containing
the right to subscribe for or purchase shares of Common Stock, for a
consideration consisting, in whole or in part, of property
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(other than cash) or services or its equivalent, then in determining the "price
per share of Common Stock" referred to in Sections 2(b) and 2(d) above and the
"Aggregate Consideration Receivable" referred to in Sections 2(d) above, the
Board of Directors of the Company shall determine, in good faith and on a
reasonable basis, the fair value of said property.
(g) When any adjustment is required to be made in the Purchase
Price as a result of the operation of Subsections 2(a), 2(b), 2(c) or 2(d)
hereof, the number of Warrant Shares purchasable upon the exercise of this
Warrant shall be changed to the number determined by dividing (i) an amount
equal to the number of shares issuable upon the exercise of this Warrant
immediately prior to such adjustment, multiplied by the Purchase Price in effect
immediately prior to such adjustment, by (ii) the Purchase Price in effect
immediately after such adjustment.
(h) If there shall occur any capital reorganization or
reclassification of or other change in the Common Stock (other than a change in
par value or a subdivision or combination as provided for in Subsection 2(a)
above), or any consolidation or merger of the Company with or into another
entity (other than a merger or consolidation in which the Company is the
surviving corporation and which does not result in any reclassification of the
outstanding shares of Common Stock or the conversion of such outstanding shares
of Common Stock into shares of other stock or other securities or property), or
a transfer of all or substantially all of the assets of the Company then, as
part of any such reorganization, reclassification, consolidation, merger or
transfer, as the case may be, lawful provision shall be made so that the
Registered Holder of this Warrant shall receive upon the exercise hereof the
kind and amount of shares of stock or other securities or property which such
Registered Holder would have been entitled to receive if, immediately prior to
any such reorganization, reclassification, consolidation, merger or transfer as
the case may be, such Registered Holder had held the number of shares of Common
Stock which were then purchasable upon the exercise of this Warrant, provided
that, in all cases, appropriate adjustment (as reasonably determined in good
faith by the Board of Directors of the Company) shall be made in the application
of the provisions set forth herein with respect to the rights and interests
thereafter of the Registered Holder of this Warrant, such that the provisions
set forth in this Section 2 (including provisions with respect to adjustment of
the Purchase Price) shall thereafter be applicable, as nearly as is reasonably
practicable, in relation to any shares of stock or other securities or property
thereafter deliverable upon the exercise of this Warrant, and in the case of any
consolidation or merger, the successor or acquiring entity (if other than the
Company) shall expressly assume the due and punctual observance and performance
of each and every provision of this Warrant.
3. Registered Holder's Put Right.
(a) In the event that the Company shall not have consummated a
Qualified Public Offering (as hereinafter defined) or a Qualified Merger (as
hereinafter defined) on or before January 31, 2002, the Registered Holder shall
have the right (a "Put Right") at any time and from time to time prior to the
Expiration Date to require the Company to purchase, and the Company shall be
obligated to purchase the Warrants, in whole or in part, with any such
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purchase (the "Put Purchase") to be made as provided in this Section 3. Upon
exercise by the Registered Holder of any Put Right, the purchase price to be
paid by the Company (the "Put Purchase Price") shall be in an amount equal to
the product of (i) the aggregate number of Warrant Shares that would be issuable
upon the exercise of this Warrant and that the Registered Holder elects to sell
to the Company pursuant to this Section 3, multiplied by (ii) the Fair Market
Value per share of Common Stock less the Purchase Price. At the option of the
Company, the Company may pay all of the Put Purchase Price in cash, or,
alternatively, may issue Put Notes (as hereinafter defined) in a principal
amount equal to not more than two-thirds of the Put Purchase Price, with the
remaining balance of the Put Purchase Price to be paid in cash as set forth
below.
(b) The Registered Holder may exercise any Put Right by
providing written notice (the "Put Notice") to the Company at least thirty (30)
days prior to the requested date of the Put Purchase (the "Put Purchase Date").
The Put Notice shall set forth the Put Purchase Date and the aggregate number of
Warrants which the Registered Holder elects to sell to the Company pursuant to
this Section 3. Any Put Notice given by the Registered Holder shall constitute a
binding agreement of the Registered Holder to sell the Warrants set forth in
such Put Notice pursuant to the terms and conditions of this Section 3.
(c) The closing of any Put Purchase (the "Put Closing")
pursuant to a duly given Put Notice shall take place on the Put Purchase Date.
On the Put Purchase Date, the Registered Holder shall deliver to the Company the
Warrants to be sold at such Put Closing, duly endorsed for transfer to the
Company, and the Company shall (i) pay, by wire transfer of immediately
available funds, to the Registered Holder, the portion of the Put Purchase Price
to be paid by the Company in cash, and (ii) issue to the Registered Holder (or
its designee), one or more Put Notes (in such denominations as the Registered
Holder shall designate) in an aggregate principal amount equal to the remaining
balance, if any, of the Put Purchase Price.
(d) As used in this Section 3, the terms: "Qualified Public
Offering" shall mean an underwritten public offering of the Common Stock of the
Company, for the account of the Company, pursuant to an effective registration
statement filed pursuant to the Securities Act, in which the gross proceeds to
the Company are not less than $15,000,000; and "Qualified Merger" shall mean a
merger of the Company with and into a corporation whose common stock is publicly
traded on a national securities exchange on terms and conditions which shall
have been approved by the holders of a majority of the outstanding Warrants.
(e) As used in this Section 3, the term "Put Notes" shall
mean, notes of the Company with a maturity date of not more than two years from
the date of the Put Closing, payable in equal quarterly installments commencing
not later than 90 days after the Put Closing and bearing interest at the
Applicable Put Note Rate (as hereinafter defined) payable quarterly in arrears
commencing not later than 90 days after the Put Closing. The Put Notes shall be
subordinated to Senior Indebtedness (as defined in the Purchase Agreement) on
substantially the same subordination terms as set forth in the Purchase
Agreement, but shall rank pari passu with all other Indebtedness (as defined in
the Purchase Agreement) of the Company. The "Applicable
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Put Note Rate" means a rate of interest per annum equal to the lesser of (i) ten
percent (10%) and (ii) the Base Rate (as hereinafter defined) plus three and
one-half percent (3 1/2%). The "Base Rate" means the rate of interest announced
from time to time by The First National Bank of Boston at its main office in
Boston, Massachusetts as its Base Rate.
4. Restrictions on Transfer.
(a) Except as otherwise permitted by this Section 4, each
certificate representing shares of Common Stock initially issued upon the
exercise of this Warrant, and each certificate representing shares of Common
Stock issued to any subsequent transferee of any such certificate, shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, NOR PURSUANT TO THE SECURITIES OR "BLUE
SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT IN ACCORDANCE WITH
APPLICABLE "BLUE SKY" LAWS AND PURSUANT TO (i) A REGISTRATION STATEMENT WITH
RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER SUCH ACT, (ii) RULE 144 OR
RULE 144A UNDER SUCH ACT, OR (iii) ANY OTHER EXEMPTION FROM REGISTRATION UNDER
SUCH ACT RELATING TO SUCH ACT, PROVIDED THAT, IF REQUESTED BY THE COMPANY, AN
OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM AND SUBSTANCE IS FURNISHED TO
THE COMPANY THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT IS
AVAILABLE.
If at any time any securities other than shares of Common Stock shall be
issuable upon the exercise of this Warrant, such securities shall bear a legend
similar to the one set forth above. Whenever the legend requirement imposed by
this Subsection 4(a) shall terminate, as provided in Subsection 4(b) hereof, the
Registered Holder of this Warrant shall be entitled to receive from the Company,
at the Company's expense, a new Warrant certificate or certificates without such
legend.
(b) The legend requirements of this Section 4 shall terminate
as to any particular shares of Common Stock issuable upon the exercise of this
Warrant (a) when and so long as such security shall have been effectively
registered under the Securities Act and disposed of pursuant thereto or (b) when
the Company shall have received an opinion of counsel to the Registered Holder
reasonably satisfactory to the Company pursuant to the requirements of Section
10.2 of the Purchase Agreement.
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5. No Impairment. The Company will not, by amendment of its Amended and
Restated Certificate of Incorporation or through reorganization, consolidation,
merger, dissolution, sale of assets or any other voluntary action, avoid or seek
to avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Registered Holder of this Warrant against impairment.
6. Liquidating Dividends. If the Company pays a dividend or makes a
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the
Registered Holder of this Warrant, upon the exercise hereof, in addition to the
Warrant Shares purchased upon such exercise, the Liquidating Dividend which
would have been paid to such Registered Holder if it had been the owner of
record of such Warrant Shares immediately prior to the date on which a record is
taken for such Liquidating Dividend or, if no record is taken, the date as of
which the record holders of Common Stock entitled to such dividends or
distribution are to be determined.
7. Notices of Record Date, etc. In case:
(a) The Company shall take a record of the holders of its
Common Stock (or other stock or securities at the time deliverable upon the
exercise of this Warrant) for the purpose of entitling or enabling them to
receive any dividend or other distribution, or to receive any right to subscribe
for or purchase any shares of stock of any class or any other securities, or to
receive any other right; or
(b) Of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the surviving entity), or any
transfer of all or substantially all of the assets of the Company; or
C. Of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
then, and in each such case, the Company will send or cause to be sent to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, (ii) the date on which such conversion was effective, or
(iii) the effective date on which such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or such other stock or securities at the time
deliverable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable
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upon such reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up. Such notice shall be given at least ten
(10) days, or if such advance notice is not practicable, then such shorter
period as may be practicable, prior to the record date or effective date for an
event specified in Subsections 7(a), 7(b) or 7(c). Such notice shall be given no
later than ten (10) days after the effective date of an event specified in
Subsection 7(b).
8. Reservation of Stock. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant
such number of Warrant Shares and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant.
9. Exchange of Warrants. Upon the surrender by the Registered Holder of
any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 4
hereof, issue and deliver to or upon the order of such Registered Holder, at the
Company's expense, a new Warrant or Warrants of like tenor, in the name of such
Registered Holder or as such Registered Holder (upon payment by such Registered
Holder of any applicable transfer taxes) may direct, calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant or Warrants so surrendered.
10. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company (provided that, for purposes of this Section 10, a
letter of indemnity from an entity having total assets of at least $100,000,000
shall be deemed sufficient indemnity), or (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will issue, in lieu
thereof, a new Warrant of like tenor.
11. Transfers, etc.
(a) The Company will maintain a register containing the names
and addresses of the Registered Holders of the Warrants. Any Registered Holder
may change its or his address as shown on such register by written notice to the
Company requesting such change.
(b) Subject to the provisions of Section 4 hereof, this
Warrant and all rights hereunder are transferable, in whole or in part, upon
surrender of this Warrant with a properly executed assignment (in the form of
Exhibit II hereto) at the principal office of the Company.
(c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and when this
Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
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(d) Overseas Holders. If such Registered Holder's principal
address is a location outside of the United States of America and its
territories, such Registered Holder (an "Overseas Holder"):
(i) is not a U.S. person (as defined in Securities Act
Rule 902(o)) and is not acquiring this Warrant or any Warrant Shares purchased
hereunder for the account or benefit of any U.S. person;
(ii) will transfer this Warrant or any Warrant Shares
purchased pursuant to any exercise hereunder only (A) in accordance with the
provisions of Regulation S promulgated under the Securities Act ("Regulation
S"), (B) pursuant to an effective registration statement under the Securities
Act, or (C) pursuant to an available exemption from registration under the
Securities Act; and
(iii) will not offer or sell this Warrant or any Warrant
Shares purchased hereunder to a U.S. person or to or for the account or benefit
of a U.S. person prior to the expiration of the one-year period after the date
of this Warrant, with respect to a transfer of this Warrant, or one year after
the exercise of this Warrant, with respect to any Warrant Shares purchased
hereunder.
12. Giving of Notices, etc. All notices and other communications from
the Company to the Registered Holder of this Warrant shall be in writing and
shall be deemed effective (i) upon delivery by hand, (ii) two business days
after deposit with an express courier service for delivery no later than two
business days after such deposit, addressed to the Registered Holder at the
address set forth on the warrant register maintained by the Company (or at such
other address as may have been last furnished to the Company in writing by the
holder), or (iii) upon confirmation of transmittal by telecopy to the Registered
Holder, with a hard copy sent in accordance with the preceding clause (ii), to
the telecopy number set forth on the warrant register maintained by the Company
(or to such telecopy number as may have been last furnished to the Company in
writing by the holder). All notices and other communications from the Registered
Holder of this Warrant to the Company shall be in writing and shall be deemed
effective (i) upon delivery by hand, (ii) two business days after deposit with
an express courier service for delivery no later than two business days after
such deposit, addressed to the Company at its principal office set forth below,
or (iii) upon confirmation of transmittal by telecopy, with a hard copy sent in
accordance with the preceding clause (ii), to the telecopy number of the Company
set forth below. If the Company should at any time change the location of its
principal office to a place other than as set forth below or change its telecopy
number to a number other than as set forth below, it shall give prompt written
notice to the Registered Holder of this Warrant in the manner prescribed herein,
and thereafter all references in this Warrant to the location of its principal
office or telecopy number at the particular time shall be as so specified in
such notice.
13. No Rights as Stockholder. Except as otherwise expressly set forth
in the Purchase Agreement or the other Transaction Documents (as defined in the
Purchase Agreement), until the
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exercise of this Warrant, the Registered Holder of this Warrant shall not have
or exercise any rights by virtue hereof as a stockholder of the Company.
14. Change or Waiver. Any term of this Warrant may be amended and the
observance of any term of this Warrant may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the written
consent of the Company and the holders of at least a majority of the Series A
Warrants and the Series B Warrants (as defined in the Purchase Agreement).
15. Headings. The headings in this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
16. Governing Law. This Warrant will be governed by and construed in
accordance with the laws of The Commonwealth of Massachusetts.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed as of the Date of Issuance set forth on the first page hereof.
ASCENT PEDIATRICS, INC.
[Corporate Seal] By:
ATTEST: Title: Chairman of the Board
Address: 9 Linnell Circle
Billerica, MA 01821
Telephone: 508-667-6300
Telecopier: 508-667-5322
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EXHIBIT I
PURCHASE FORM
To: ____________ Dated: _____________
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No. __), hereby irrevocably elects to purchase shares of the Common
Stock covered by such Warrant and herewith makes payment of $___________,
representing the full purchase price for such shares at the price per share
provided for in such Warrant.
Signature:
Address:
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EXHIBIT II
ASSIGNMENT FORM
FOR VALUE RECEIVED, __________________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (No. __) with respect to the number of shares of Common Stock covered
thereby set forth below, unto:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
Dated: Signature:
Dated: Signature:
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Exhibit B-2
FORM OF SERIES B WARRANT
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR PURSUANT TO THE SECURITIES OR
"BLUE SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT IN ACCORDANCE
WITH APPLICABLE "BLUE SKY" LAWS AND PURSUANT TO (I) A REGISTRATION STATEMENT
WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER SUCH ACT, (II) RULE 144
OR RULE 144A UNDER SUCH ACT, OR (III) ANY OTHER EXEMPTION FROM REGISTRATION
UNDER SUCH ACT RELATING TO SUCH ACT, PROVIDED THAT, IF REQUESTED BY THE COMPANY,
AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM AND SUBSTANCE IS FURNISHED
TO THE COMPANY THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT
IS AVAILABLE.
Warrant No. B-__ Number of Shares: ______
(subject to adjustment)
Date of Issuance: __________, 199_
ASCENT PEDIATRICS, INC.
Series A Warrant to Purchase Common Stock
(Void after January 31, 2004)
Ascent Pediatrics, Inc. (formerly known as Ascent Pharmaceuticals,
Inc.), a Delaware corporation (the "Company"), for value received, hereby
certifies that _____________, or its registered assigns (the "Registered
Holder"), is entitled, subject to the terms set forth below, upon exercise of
this Warrant to purchase from the Company, at any time or from time to time on
or before January 31, 2004 (the "Expiration Date"), __________________ (______)
shares of the Company's common stock, $.00004 par value per share (the "Common
Stock"), at a purchase price of $4.50 per share. The shares purchasable upon
exercise of this Warrant, and the purchase price per share, each as adjusted
from time to time pursuant to the provisions of this Warrant, are hereinafter
referred to as the "Warrant Shares" and the "Purchase Price," respectively.
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This Warrant is one of a series of warrants comprising the Company's
Series B Warrants (as defined in that certain Securities Purchase Agreement
dated as of January 31, 1997, among the Company and the purchasers named therein
(the "Purchase Agreement")).
1. Purchase.
(a) This Warrant may be exercised by the Registered Holder, in
whole or in part, at any time and from time to time after the Date of Issuance
hereof until 5:00 p.m. (Boston, Massachusetts time) on the Expiration Date, by
surrendering this Warrant, with the purchase form appended hereto as Exhibit I
duly executed by such Registered Holder or by such Registered Holder's duly
authorized attorney, at the principal office of the Company, or at such other
office or agency as the Company may designate, accompanied by payment in full,
in lawful currency of the United States, of the Purchase Price payable in
respect of the number of shares of Warrant Shares purchased upon such exercise.
(b) The Registered Holder may, at its option, elect to pay
some or all of the Purchase Price payable upon an exercise of this Warrant by
canceling a portion of this Warrant exercisable for such number of Warrant
Shares as is determined by dividing (i) the total Purchase Price payable in
respect of the number of Warrant Shares being purchased upon such exercise by
(ii) the excess of the Fair Market Value per share of Common Stock as of the
effective date of exercise, as determined pursuant to Subsection l(c) below (the
"Exercise Date"), over the Purchase Price per share.
(c) The Fair Market Value per share of Common Stock shall be
determined as follows:
(i) if the Common Stock is listed on a national securities
exchange, the NASDAQ National Market, the NASDAQ system, or another nationally
recognized exchange or trading system as of the Exercise Date, the Fair Market
Value per share of Common Stock shall be deemed to be the last reported sale
price per share of Common Stock thereon on the Exercise Date; or, if no such
price is reported on such date, such price on the next preceding business day
(provided that if no such price is reported on the next preceding business day,
the Fair Market Value per share of Common Stock shall be determined pursuant to
clause (ii)).
(ii) If the Common Stock is not listed on a national securities
exchange, the NASDAQ National Market, the NASDAQ system or another nationally
recognized exchange or trading system as of the Exercise Date, (A) the Board of
Directors of the Company and the Registered Holder shall independently determine
the Fair Market Value per share of Common Stock on the basis of an assumed sale
of the Company as a whole and no effect shall be given to any discount for lack
of liquidity or to the fact that the Company has no class of equity securities
registered under the Exchange Act, if such is the case, (B) each of the Board of
Directors of the Company and the Registered Holder shall deliver to the other a
report stating the Fair Market Value of Common Stock as of a specified date and
setting forth a brief statement as to the nature
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and scope of the examination or investigation upon which the determination of
such Fair Market Value was made, (C) in the event that such reports disagree as
to such Fair Market Value, the Company and the Registered Holder shall promptly
consult with each other to resolve such disagreement, and (D) in the event the
Company and the Registered Holder cannot resolve such disagreement, the Company
and the Registered Holder shall choose a nationally-recognized, independent
investment bank mutually acceptable to such parties which shall determine the
Fair Market Value per share of Common Stock and shall deliver to each party a
fairness opinion with respect to such determination. All costs and expenses of
such investment bank shall be borne by the Company.
(d) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in Subsection
1(a) above. At such time, the person or persons in whose name or names any
certificates for Warrant Shares shall be issuable upon such exercise as provided
in Subsection 1(e) below shall be deemed to have become the holder or holders of
record of the Warrant Shares represented by such certificates.
(e) As soon as practicable after the exercise of this Warrant
in full or in part, and in any event within 10 days thereafter, the Company, at
its expense, will cause to be issued in the name of, and delivered to, the
Registered Holder, or as such Registered Holder (upon payment by such Registered
Holder of any applicable transfer taxes) may direct:
(i) certificate or certificates for the number of full Warrant
Shares to which such Registered Holder shall be entitled upon such exercise
plus, in lieu of any fractional share to which such Registered Holder would
otherwise be entitled, cash in an amount determined pursuant to Subsection 1(g)
below; and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the aggregate on the
face or faces thereof for the number of Warrant Shares equal (without giving
effect to any adjustment therein) to the number of such shares called for on the
face of this Warrant minus the number of such shares purchased by the Registered
Holder upon such exercise as provided in Subsection l(a) above.
(f) All shares of Common Stock issuable upon the exercise of
this Warrant pursuant to the terms hereof shall be validly issued, fully paid
and non-assessable and free from all liens and charges with respect to the
issuance thereof. The Company shall pay all expenses in connection with, and all
taxes and other governmental charges that may be imposed with respect to, the
issue or delivery thereof; provided, however, that the Company shall not be
required to pay any federal, state or local income taxes incurred by the
Registered Holder in connection with the issuance or delivery of such shares. In
addition, the Company shall not be required to pay any tax or other charge
imposed in connection with any transfer involved in the issue of any Warrant
Shares issuable upon exercise of this Warrant in any name other than that of the
Registered Holder, and in such case the Company shall not be required to issue
or deliver any
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certificate representing Warrant Shares until such tax or other charge has been
paid or it has been established to the satisfaction of Company that no such tax
or other charge is due.
(g) The Company shall not be required upon the exercise of
this Warrant to issue any fractional shares (as determined on an aggregate basis
for each exercise pursuant to this Warrant), but shall make an adjustment
therefor in cash on the basis of the Fair Market Value per share of Common
Stock, as determined pursuant to Subsection 1(c) above.
(h) Reference is made to the Purchase Agreement with respect
to the right of the Company to repurchase a portion of the Warrants under the
circumstances more fully described therein.
(i) The Registered Holder shall have such rights with respect
to the registration of this Warrant and the Warrant Shares under the Securities
Act of 1933, as amended (the "Securities Act") as are set forth in the Purchase
Agreement.
2. Adjustments.
(a) If the outstanding shares of Common Stock shall be
subdivided into a greater number of shares or a dividend in Common Stock shall
be declared or distributed in respect of the Common Stock or the outstanding
shares of Common Stock shall be combined or reclassified into a smaller number
of shares, the Purchase Price in effect immediately after the record date for
such dividend or distribution or the effective date of such subdivision,
combination or reclassification shall be adjusted so that it shall equal the
price determined by multiplying the Purchase Price in effect immediately prior
thereto by a fraction, of which the numerator shall be the number of shares of
Common Stock outstanding immediately before such dividend, distribution,
subdivision, combination or reclassification, and of which the denominator shall
be the number of shares of Common Stock outstanding immediately after such
dividend, distribution, subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any event specified above shall
occur.
(b) If the Company shall fix a record date for the issuance
of rights, options, warrants or convertible or exchangeable securities to all
holders of Common Stock entitling them to subscribe for or purchase shares of
Common Stock at a price per share of Common Stock less than the Fair Market
Value per share of Common Stock (as determined in accordance with Subsection
1(c) hereof) on such record date, the Purchase Price shall be adjusted
immediately thereafter so that it shall equal the price determined by
multiplying the Purchase Price in effect immediately prior thereto by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding on such record date plus the number of shares of Common Stock which
the aggregate offering price of the total number of shares of Common Stock so
offered would purchase at the Fair Market Value per share of Common Stock on
such record date, and of which the denominator shall be the number of shares of
Common Stock outstanding on such record date plus the number of additional
shares of Common Stock offered for subscription or purchase. Such adjustment
shall be made successively whenever such a record date is fixed. To
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the extent that any such rights, options, warrants or convertible or
exchangeable securities are not so issued or expire unexercised, the Purchase
Price then in effect shall be readjusted to the Purchase Price which would then
be in effect if such unissued or unexercised rights, options, warrants or
convertible or exchangeable securities had not been issuable.
(c) In case the Company shall fix a record date for the making
of a distribution to all holders of shares of Common Stock (i) of shares of any
class other than Common Stock or (ii) of evidences of its indebtedness or (iii)
of assets (excluding cash dividends or distributions (other than extraordinary
cash dividends or distributions), and dividends or distributions referred to in
Subsection 2(a) hereof) or (iv) of rights, options, warrants or convertible or
exchangeable securities (excluding those rights, options, warrants or
convertible or exchangeable securities referred to in Subsection 2(b) hereof),
then in each such case the Purchase Price in effect immediately thereafter shall
be determined by multiplying the Purchase Price in effect immediately prior
thereto by a fraction, of which the numerator shall be the total number of
shares of Common Stock outstanding on such record date multiplied by the Fair
Market Value per share of Common Stock (as determined in accordance with
Subsection 1(c) hereof) on such record date, less the aggregate fair market
value as determined in good faith by the Board of Directors of the Company of
said shares or evidences of indebtedness or assets or rights, options, warrants
or convertible or exchangeable securities so distributed, and of which the
denominator shall be the total number of shares of Common Stock outstanding on
such record date multiplied by the Fair Market Value per share of Common Stock
on such record date. Such adjustment shall be made successively whenever such a
record date is fixed. In the event that such distribution is not so made, the
Purchase Price then in effect shall be readjusted to the Purchase Price which
would then be in effect if such record date had not been fixed.
(d) In case the Company shall on or after the date hereof
issue any Common Stock or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Common Stock (excluding Excluded Securities, as defined in Subsection 2(e)
below) at a price per share of Common Stock (determined by dividing (i) the
aggregate amount paid to the Company for such Common Stock, rights, options,
warrants or convertible or exchangeable securities, plus the aggregate
consideration or premiums stated in such rights, options, warrants or
convertible or exchangeable securities to be payable for the shares of Common
Stock covered thereby (the "Aggregate Consideration Receivable"), by (ii) the
total number of shares of Common Stock issued or covered by such rights,
options, warrants or convertible or exchangeable securities) less than the Fair
Market Value per share of Common Stock (as determined in accordance with
Subsection 1(c) hereof) on the date of such issuance, then the Purchase Price
shall be adjusted immediately thereafter so that it shall equal the price
determined by multiplying the Purchase Price in effect immediately prior thereto
by a fraction, of which the numerator shall be the number of shares of Common
Stock outstanding immediately prior to such issuance plus the number of
additional shares of Common Stock the Aggregate Consideration Receivable would
purchase at the Fair Market Value per share of Common Stock on such date, and of
which the denominator shall be the number of shares of Common Stock outstanding
immediately prior to such issuance plus the number of additional shares of
Common Stock sold or offered for subscription or purchase. Such adjustment shall
be
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made successively whenever such issuance shall occur. To the extent that any
such shares, rights, options, warrants or convertible or exchangeable securities
are not so issued or expire unexercised, the Purchase Price then in effect shall
be readjusted to the Purchase Price which would then be in effect if such
unissued or unexercised rights, options, warrants or convertible or exchangeable
securities had not been issuable.
(e) "Excluded Securities" means (i) rights, options, warrants,
or convertible or exchangeable securities issued in any of the transactions
described in Subsections 2(b), 2(c) and 2(h) hereof, (ii) shares of Common Stock
issuable upon exercise of the Warrants, (iii) shares of Common Stock issuable
upon exercise of rights, options or warrants or conversion or exchange of
convertible or exchangeable securities issued or sold under circumstances
causing an adjustment pursuant to Subsection 2(d), (iv) the 40,067 shares of
Series D Convertible Preferred Stock, $.00004 par value per share, of the
Company (the "Series D Preferred Stock") issuable upon the exercise of certain
warrants to purchase shares of such Series D Preferred Stock outstanding as of
the Date of Issuance of this Warrant, (v) shares of Common Stock issuable upon
the exercise or conversion of any of (A) the 800,000 shares of Series A
Convertible Preferred Stock, $.00004 par value per share, of the Company
outstanding as of the Date of Issuance of this Warrant, (B) the 399,999 shares
of Series B Convertible Preferred Stock, $.00004 par value per share, of the
Company outstanding as of the Date of Issuance of this Warrant, (C) the
1,359,522 shares of Series D Preferred Stock outstanding and the 40,067 shares
of Series D Preferred Stock issuable as of the Date of this Warrant, (D) the
733,371 shares of Series E Convertible Preferred Stock, $.00004 par value per
share, of the Company (the "Series E Preferred Stock") outstanding as of the
Date of Issuance of this Warrant, (E) shares of Series F Convertible Preferred
Stock, $.00004 par value per share, of the Company (the "Series F Preferred
Stock") issued or issuable pursuant to the Series F Convertible Preferred Stock
and Warrant Purchase Agreement by and among the Company and the purchasers
parties thereto, dated as of June 28, 1996, as the same may be amended or
supplemented from time to time (the "Series F Financing Agreement"), (F) the
warrants to purchase up to 238,572 shares of Common Stock held by certain
holders of Series D Preferred Stock as of the date of this Warrant, (G) the
warrants to purchase up to 122,228 shares of Common Stock held by certain
holders of Series E Preferred Stock as of the date of this Warrant, and (H)
warrants to purchase shares of Common Stock issued or issuable to holders of
Series F Preferred Stock pursuant to the Series F Financing Agreement (such
warrants being hereinafter referred to as the "Series F Common Warrants"), and
(vi) up to 850,000 shares of Common Stock or rights, options or warrants to
acquire Common Stock issued or issuable to directors, employees or consultants
of the Company pursuant to a stock option plan, employee stock purchase plan,
restricted stock plan or other similar stock plan or agreement approved by the
Board of Directors of the Company, and, in the case of rights, options or
warrants, the shares of Common Stock issuable upon exercise thereof (the shares
of Common Stock issued or issuable as described in this clause (vi) are
hereinafter referred to as the "Employee Shares").
(f) In case the Company shall sell and issue Common Stock or
rights, options, warrants or convertible or exchangeable securities containing
the right to subscribe for or purchase shares of Common Stock, for a
consideration consisting, in whole or in part, of property
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(other than cash) or services or its equivalent, then in determining the "price
per share of Common Stock" referred to in Sections 2(b) and 2(d) above and the
"Aggregate Consideration Receivable" referred to in Sections 2(d) above, the
Board of Directors of the Company shall determine, in good faith and on a
reasonable basis, the fair value of said property.
(g) When any adjustment is required to be made in the Purchase
Price as a result of the operation of Subsections 2(a), 2(b), 2(c) or 2(d)
hereof, the number of Warrant Shares purchasable upon the exercise of this
Warrant shall be changed to the number determined by dividing (i) an amount
equal to the number of shares issuable upon the exercise of this Warrant
immediately prior to such adjustment, multiplied by the Purchase Price in effect
immediately prior to such adjustment, by (ii) the Purchase Price in effect
immediately after such adjustment.
(h) If there shall occur any capital reorganization or
reclassification of or other change in the Common Stock (other than a change in
par value or a subdivision or combination as provided for in Subsection 2(a)
above), or any consolidation or merger of the Company with or into another
entity (other than a merger or consolidation in which the Company is the
surviving corporation and which does not result in any reclassification of the
outstanding shares of Common Stock or the conversion of such outstanding shares
of Common Stock into shares of other stock or other securities or property), or
a transfer of all or substantially all of the assets of the Company then, as
part of any such reorganization, reclassification, consolidation, merger or
transfer, as the case may be, lawful provision shall be made so that the
Registered Holder of this Warrant shall receive upon the exercise hereof the
kind and amount of shares of stock or other securities or property which such
Registered Holder would have been entitled to receive if, immediately prior to
any such reorganization, reclassification, consolidation, merger or transfer as
the case may be, such Registered Holder had held the number of shares of Common
Stock which were then purchasable upon the exercise of this Warrant, provided
that, in all cases, appropriate adjustment (as reasonably determined in good
faith by the Board of Directors of the Company) shall be made in the application
of the provisions set forth herein with respect to the rights and interests
thereafter of the Registered Holder of this Warrant, such that the provisions
set forth in this Section 2 (including provisions with respect to adjustment of
the Purchase Price) shall thereafter be applicable, as nearly as is reasonably
practicable, in relation to any shares of stock or other securities or property
thereafter deliverable upon the exercise of this Warrant, and in the case of any
consolidation or merger, the successor or acquiring entity (if other than the
Company) shall expressly assume the due and punctual observance and performance
of each and every provision of this Warrant.
3. Registered Holder's Put Right.
(a) In the event that the Company shall not have consummated a
Qualified Public Offering (as hereinafter defined) or a Qualified Merger (as
hereinafter defined) on or before January 31, 2002, the Registered Holder shall
have the right (a "Put Right") at any time and from time to time prior to the
Expiration Date to require the Company to purchase, and the Company shall be
obligated to purchase the Warrants, in whole or in part, with any such
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purchase (the "Put Purchase") to be made as provided in this Section 3. Upon
exercise by the Registered Holder of any Put Right, the purchase price to be
paid by the Company (the "Put Purchase Price") shall be in an amount equal to
the product of (i) the aggregate number of Warrant Shares that would be issuable
upon the exercise of this Warrant and that the Registered Holder elects to sell
to the Company pursuant to this Section 3, multiplied by (ii) the Fair Market
Value per share of Common Stock less the Purchase Price. At the option of the
Company, the Company may pay all of the Put Purchase Price in cash, or,
alternatively, may issue Put Notes (as hereinafter defined) in a principal
amount equal to not more than two-thirds of the Put Purchase Price, with the
remaining balance of the Put Purchase Price to be paid in cash as set forth
below.
(b) The Registered Holder may exercise any Put Right by
providing written notice (the "Put Notice") to the Company at least thirty (30)
days prior to the requested date of the Put Purchase (the "Put Purchase Date").
The Put Notice shall set forth the Put Purchase Date and the aggregate number of
Warrants which the Registered Holder elects to sell to the Company pursuant to
this Section 3. Any Put Notice given by the Registered Holder shall constitute a
binding agreement of the Registered Holder to sell the Warrants set forth in
such Put Notice pursuant to the terms and conditions of this Section 3.
(c) The closing of any Put Purchase (the "Put Closing")
pursuant to a duly given Put Notice shall take place on the Put Purchase Date.
On the Put Purchase Date, the Registered Holder shall deliver to the Company the
Warrants to be sold at such Put Closing, duly endorsed for transfer to the
Company, and the Company shall (i) pay, by wire transfer of immediately
available funds, to the Registered Holder, the portion of the Put Purchase Price
to be paid by the Company in cash, and (ii) issue to the Registered Holder (or
its designee), one or more Put Notes (in such denominations as the Registered
Holder shall designate) in an aggregate principal amount equal to the remaining
balance, if any, of the Put Purchase Price.
(d) As used in this Section 3, the terms: "Qualified Public
Offering" shall mean an underwritten public offering of the Common Stock of the
Company, for the account of the Company, pursuant to an effective registration
statement filed pursuant to the Securities Act, in which the gross proceeds to
the Company are not less than $15,000,000; and "Qualified Merger" shall mean a
merger of the Company with and into a corporation whose common stock is publicly
traded on a national securities exchange on terms and conditions which shall
have been approved by the holders of a majority of the outstanding Warrants.
(e) As used in this Section 3, the term "Put Notes" shall
mean, notes of the Company with a maturity date of not more than two years from
the date of the Put Closing, payable in equal quarterly installments commencing
not later than 90 days after the Put Closing and bearing interest at the
Applicable Put Note Rate (as hereinafter defined) payable quarterly in arrears
commencing not later than 90 days after the Put Closing. The Put Notes shall be
subordinated to Senior Indebtedness (as defined in the Purchase Agreement) on
substantially the same subordination terms as set forth in the Purchase
Agreement, but shall rank pari passu with all other Indebtedness (as defined in
the Purchase Agreement) of the Company. The "Applicable
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Put Note Rate" means a rate of interest per annum equal to the lesser of (i) ten
percent (10%) and (ii) the Base Rate (as hereinafter defined) plus three and
one-half percent (3 1/2%). The "Base Rate" means the rate of interest announced
from time to time by The First National Bank of Boston at its main office in
Boston, Massachusetts as its Base Rate.
4. Restrictions on Transfer.
(a) Except as otherwise permitted by this Section 4, each
certificate representing shares of Common Stock initially issued upon the
exercise of this Warrant, and each certificate representing shares of Common
Stock issued to any subsequent transferee of any such certificate, shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, NOR PURSUANT TO THE SECURITIES OR "BLUE
SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT IN ACCORDANCE WITH
APPLICABLE "BLUE SKY" LAWS AND PURSUANT TO (i) A REGISTRATION STATEMENT WITH
RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER SUCH ACT, (ii) RULE 144 OR
RULE 144A UNDER SUCH ACT, OR (iii) ANY OTHER EXEMPTION FROM REGISTRATION UNDER
SUCH ACT RELATING TO SUCH ACT, PROVIDED THAT, IF REQUESTED BY THE COMPANY, AN
OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM AND SUBSTANCE IS FURNISHED TO
THE COMPANY THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT IS
AVAILABLE.
If at any time any securities other than shares of Common Stock shall be
issuable upon the exercise of this Warrant, such securities shall bear a legend
similar to the one set forth above. Whenever the legend requirement imposed by
this Subsection 4(a) shall terminate, as provided in Subsection 4(b) hereof, the
Registered Holder of this Warrant shall be entitled to receive from the Company,
at the Company's expense, a new Warrant certificate or certificates without such
legend.
(b) The legend requirements of this Section 4 shall terminate
as to any particular shares of Common Stock issuable upon the exercise of this
Warrant (a) when and so long as such security shall have been effectively
registered under the Securities Act and disposed of pursuant thereto or (b) when
the Company shall have received an opinion of counsel to the Registered Holder
reasonably satisfactory to the Company pursuant to the requirements of Section
10.2 of the Purchase Agreement.
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5. No Impairment. The Company will not, by amendment of its Amended and
Restated Certificate of Incorporation or through reorganization, consolidation,
merger, dissolution, sale of assets or any other voluntary action, avoid or seek
to avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Registered Holder of this Warrant against impairment.
6. Liquidating Dividends. If the Company pays a dividend or makes a
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the
Registered Holder of this Warrant, upon the exercise hereof, in addition to the
Warrant Shares purchased upon such exercise, the Liquidating Dividend which
would have been paid to such Registered Holder if it had been the owner of
record of such Warrant Shares immediately prior to the date on which a record is
taken for such Liquidating Dividend or, if no record is taken, the date as of
which the record holders of Common Stock entitled to such dividends or
distribution are to be determined.
7. Notices of Record Date, etc. In case:
(a) The Company shall take a record of the holders of its
Common Stock (or other stock or securities at the time deliverable upon the
exercise of this Warrant) for the purpose of entitling or enabling them to
receive any dividend or other distribution, or to receive any right to subscribe
for or purchase any shares of stock of any class or any other securities, or to
receive any other right; or
(b) Of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the surviving entity), or any
transfer of all or substantially all of the assets of the Company; or
(c) Of the voluntary or involuntary dissolution, liquidation
or winding-up of the Company;
then, and in each such case, the Company will send or cause to be sent to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, (ii) the date on which such conversion was effective, or
(iii) the effective date on which such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or such other stock or securities at the time
deliverable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable
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<PAGE> 107
upon such reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up. Such notice shall be given at least ten
(10) days, or if such advance notice is not practicable, then such shorter
period as may be practicable, prior to the record date or effective date for an
event specified in Subsections 7(a), 7(b) or 7(c). Such notice shall be given no
later than ten (10) days after the effective date of an event specified in
Subsection 7(b).
8. Reservation of Stock. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant
such number of Warrant Shares and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant.
9. Exchange of Warrants. Upon the surrender by the Registered Holder of
any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 4
hereof, issue and deliver to or upon the order of such Registered Holder, at the
Company's expense, a new Warrant or Warrants of like tenor, in the name of such
Registered Holder or as such Registered Holder (upon payment by such Registered
Holder of any applicable transfer taxes) may direct, calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant or Warrants so surrendered.
10. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company (provided that, for purposes of this Section 10, a
letter of indemnity from an entity having total assets of at least $100,000,000
shall be deemed sufficient indemnity), or (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will issue, in lieu
thereof, a new Warrant of like tenor.
11. Transfers, etc.
(a) The Company will maintain a register containing the names
and addresses of the Registered Holders of the Warrants. Any Registered Holder
may change its or his address as shown on such register by written notice to the
Company requesting such change.
(b) Subject to the provisions of Section 4 hereof, this
Warrant and all rights hereunder are transferable, in whole or in part, upon
surrender of this Warrant with a properly executed assignment (in the form of
Exhibit II hereto) at the principal office of the Company.
(c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and when this
Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
-11-
<PAGE> 108
(d) Overseas Holders. If such Registered Holder's principal
address is a location outside of the United States of America and its
territories, such Registered Holder (an "Overseas Holder"):
(i) is not a U.S. person (as defined in Securities Act Rule
902(o)) and is not acquiring this Warrant or any Warrant Shares purchased
hereunder for the account or benefit of any U.S. person;
(ii) will transfer this Warrant or any Warrant Shares
purchased pursuant to any exercise hereunder only (A) in accordance with the
provisions of Regulation S promulgated under the Securities Act ("Regulation
S"), (B) pursuant to an effective registration statement under the Securities
Act, or (C) pursuant to an available exemption from registration under the
Securities Act; and
(iii) will not offer or sell this Warrant or any Warrant Shares
purchased hereunder to a U.S. person or to or for the account or benefit of a
U.S. person prior to the expiration of the one-year period after the date of
this Warrant, with respect to a transfer of this Warrant, or one year after the
exercise of this Warrant, with respect to any Warrant Shares purchased
hereunder.
12. Giving of Notices, etc. All notices and other communications from
the Company to the Registered Holder of this Warrant shall be in writing and
shall be deemed effective (i) upon delivery by hand, (ii) two business days
after deposit with an express courier service for delivery no later than two
business days after such deposit, addressed to the Registered Holder at the
address set forth on the warrant register maintained by the Company (or at such
other address as may have been last furnished to the Company in writing by the
holder), or (iii) upon confirmation of transmittal by telecopy to the Registered
Holder, with a hard copy sent in accordance with the preceding clause (ii), to
the telecopy number set forth on the warrant register maintained by the Company
(or to such telecopy number as may have been last furnished to the Company in
writing by the holder). All notices and other communications from the Registered
Holder of this Warrant to the Company shall be in writing and shall be deemed
effective (i) upon delivery by hand, (ii) two business days after deposit with
an express courier service for delivery no later than two business days after
such deposit, addressed to the Company at its principal office set forth below,
or (iii) upon confirmation of transmittal by telecopy, with a hard copy sent in
accordance with the preceding clause (ii), to the telecopy number of the Company
set forth below. If the Company should at any time change the location of its
principal office to a place other than as set forth below or change its telecopy
number to a number other than as set forth below, it shall give prompt written
notice to the Registered Holder of this Warrant in the manner prescribed herein,
and thereafter all references in this Warrant to the location of its principal
office or telecopy number at the particular time shall be as so specified in
such notice.
13. No Rights as Stockholder. Except as otherwise expressly set forth
in the Purchase Agreement or the other Transaction Documents (as defined in the
Purchase Agreement), until the
-12-
<PAGE> 109
exercise of this Warrant, the Registered Holder of this Warrant shall not have
or exercise any rights by virtue hereof as a stockholder of the Company.
14. Change or Waiver. Any term of this Warrant may be amended and the
observance of any term of this Warrant may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the written
consent of the Company and the holders of at least a majority of the Series A
Warrants and the Series B Warrants (as defined in the Purchase Agreement).
15. Headings. The headings in this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
16. Governing Law. This Warrant will be governed by and construed in
accordance with the laws of The Commonwealth of Massachusetts.
-13-
<PAGE> 110
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed as of the Date of Issuance set forth on the first page hereof.
ASCENT PEDIATRICS, INC.
[Corporate Seal] By:
ATTEST: Title: Chairman of the Board
Address: 9 Linnell Circle
Billerica, MA 01821
Telephone: 508-667-6300
Telecopier: 508-667-5322
-14-
<PAGE> 111
EXHIBIT I
PURCHASE FORM
To: ____________ Dated: _____________
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No. __), hereby irrevocably elects to purchase shares of the Common
Stock covered by such Warrant and herewith makes payment of $___________,
representing the full purchase price for such shares at the price per share
provided for in such Warrant.
Signature:
Address:
-15-
<PAGE> 112
EXHIBIT II
ASSIGNMENT FORM
FOR VALUE RECEIVED, __________________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (No. __) with respect to the number of shares of Common Stock covered
thereby set forth below, unto:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
Dated: Signature:
Dated: Signature:
-16-
<PAGE> 113
Exhibit C
February 3, 1997
To each of the Purchasers set forth
on EXHIBIT A attached hereto of
Subordinated Secured Notes due
January 31, 2002 and Warrants to
Purchase Common Stock
Re: Ascent Pediatrics, Inc.
----------------------
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section 3.1(f) of the
Securities Purchase Agreement (the "Agreement"), dated as of January 31, 1997,
among Ascent Pediatrics, Inc., a Delaware corporation (the "Company") and the
parties listed on the signature pages thereto (the "Purchasers") in connection
with the purchase of an aggregate principal amount of $7,000,000 of Subordinated
Secured Notes, due January 31, 2002 (the "Notes"), and warrants to purchase
Common Stock (the "Warrants") of the Company. The capitalized terms used herein
but not otherwise defined herein shall have the meanings assigned to them in the
Agreement.
We have represented the Company in connection with the preparation,
execution and delivery of the Agreement and the issuance of the Notes and
Warrants. We are familiar with the proceedings taken by the Company in
connection with the foregoing.
We have examined and relied upon the following:
1. The Agreement (including the Schedules and Exhibits thereto);
2. The Notes;
3. The Security Agreement (the "Security Agreement"), dated as of January
31, 1997, between the Company and Triumph-Connecticut Limited
Partnership, a Connecticut limited partnership, as collateral agent
for the Holders of the Note Obligations (as defined in the Security
Agreement);
4. The Warrants;
5. The UCC-1 financing statements in the form annexed hereto (the
"Financing Statements") for filing in the filing offices listed on
SCHEDULE I;
<PAGE> 114
February 3, 1997
Page 2
6. The Third Amended and Restated Voting Rights Agreement, dated as of
January 31, 1997, among the Company and certain stockholders of the
Company set forth on the signature pages thereto (the "Voting Rights
Agreement");
7. Resolutions adopted by the Board of Directors of the Company by
Written Action of Directors in Lieu of a Meeting dated various dates
during January, 1997;
8. Written Consent, Waiver and Amendment Agreement of the Stockholders of
the Company dated various dates in January 1997;
9. The Company's Amended and Restated Certificate of Incorporation, as
filed with the Secretary of State of the State of Delaware on June 28,
1996 (the "Amended and Restated Certificate");
10. The Certificate of Correction to the Company's Amended and Restated
Certificate of Incorporation, as filed with the Secretary of State of
the State of Delaware on December 11, 1996;
11. The Certificate of Amendment to the Company's Amended and Restated
Certificate of Incorporation, as filed with the Secretary of State of
the State of Delaware on February 3, 1997 (the "Certificate of
Amendment");
12. A Certificate of Good Standing and Legal Existence relating to the
Company, issued by the Office of the Secretary of State of the State
of Delaware, dated January 31, 1997 (the "Delaware Certificate");
13. A Certificate of Qualification to do Business relating to the Company,
issued by the Office of the Secretary of State of the Commonwealth of
Massachusetts, dated January 30, 1997 (the "Massachusetts
Certificate");
14. A Certificate of the Company, executed on behalf of the Company by an
officer of the Company, dated January 31, 1997, certifying as to the
correctness of representations and warranties and as to the
fulfillment of the agreements and conditions of the Company specified
in the Agreement;
15. A Certificate of the Assistant Secretary of the Company, dated
February 3, 1997;
16. A Certificate of the Vice President of Finance of the Company, dated
January 31, 1997, certifying as to payment of state and federal income
taxes;
<PAGE> 115
February 3, 1997
Page 3
17. The Company's By-laws and corporate minute and stock record books;
18. Such other documents, corporate records, certificates and materials as
we have deemed necessary for the purposes of the opinions rendered
herein;
19. A Certificate of the Vice President, Finance of the Company, dated
January 31, 1997, certifying as to certain factual matters, attached
hereto as EXHIBIT B; and
20. A Certificate of the Chairman of the Board of the Company, dated
February 3, 1997, certifying as to certain factual matters, attached
hereto as EXHIBIT C.
The Agreement, the Notes, and the Security Agreement shall hereinafter
collectively be referred to as the "Loan Documents."
In our examination, we have assumed the completeness of the corporate
minute books and stock record books of the Company as provided to us by the
Company, the authenticity of original documents, the accuracy of all copies
(whether certified or not), the genuineness of all signatures and the legal
capacity of all persons executing all documents examined by us.
In rendering this opinion, we have relied, as to all questions of fact
material to this opinion, upon certificates of public officials and officers of
the Company and upon the representations and warranties made by you and the
Company in the Agreement. Except for our examination of the documents listed
above, we have not attempted to verify independently such facts, although we
know of no facts which lead us to question the accuracy of such information. In
particular, for purposes of the opinions expressed in Paragraphs (d) and (h)
below, we have relied solely on representations of officers of the Company, and
we have not conducted a search of any computerized or electronic databases or
the dockets of any court, administrative or other regulatory body, agency or
other filing office in any jurisdiction. Any reference to "our knowledge" or
"knowledge" or any variation thereof shall mean the conscious awareness of the
attorneys in this firm who have rendered substantive attention to this
transaction of the existence or absence of any facts which would contradict our
opinions set forth below. We have not undertaken any independent investigation
to determine the existence or absence of such facts, and no inference as to our
knowledge of the existence or absence of such facts should be drawn from the
fact of our representation of the Company.
We have not made an independent review of the laws of any state or
jurisdiction other than the state laws of the Commonwealth of Massachusetts, the
federal securities laws of the United States and the General Corporation Law
statute
<PAGE> 116
February 3, 1997
Page 4
of the State of Delaware. Accordingly, we express no opinion herein with
respect to the laws of any country, state or jurisdiction other than the state
laws of the Commonwealth of Massachusetts, the federal securities laws of the
United States and the General Corporation Law statute of the State of Delaware.
To the extent that the laws of any jurisdiction other than the state laws of the
Commonwealth of Massachusetts or the federal securities laws of the United
States or the General Corporation Law statute of the State of Delaware govern
any agreement to which the Company is a party, we have assumed that the laws of
such jurisdiction are identical to the laws of the Commonwealth of
Massachusetts. For the purposes of this opinion, we have assumed that the facts
and law governing the performance by the respective parties of their respective
obligations under the Agreement will be identical to the facts and law governing
such performance as of the date of this opinion.
We are expressing no opinion as to compliance by the Company with the
so-called "blue sky" or state securities laws (other than the securities laws of
the Commonwealth of Massachusetts) in connection with the (i) issuance and sale
of the Notes and the Warrants or (ii) issuance of shares of Common Stock of the
Company upon the conversion of the Notes or the exercise of the Warrants.
We are expressing no opinion as to the implications under United States tax
law, including all federal, state and local tax laws, or the tax laws of any
foreign jurisdiction with respect to any of the transactions contemplated by the
Agreement.
We are expressing no opinion as to the implications under the rules and
regulations of the United States Food and Drug Administration with respect to
any of the transactions contemplated by the Agreement.
We are expressing no opinion as to the implications under any applicable
antitrust or usury laws.
We are expressing no opinion as to state or federal securities antifraud
laws.
We are expressing no opinion as to the validity of the security interest
granted to you in the Company's trademarks, and our opinion in Paragraph (e) is
limited accordingly provided, Paragraph (e) does reflect our opinion of the
filing requirements necessary to perfect such security interest to the extent
permitted by applicable state and federal law.
The opinions hereinafter expressed are qualified to the extent that
they may be subject to or affected by (i) applicable bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium or other laws relating to or
affecting the rights of creditors generally, (ii) statutory or decisional law
concerning recourse by creditors to security in the absence of notice or
hearing, and (iii) duties and standards imposed
<PAGE> 117
February 3, 1997
Page 5
on creditors and parties to contracts, including, without limitation,
requirements of good faith, reasonableness and fair dealing. Furthermore, we
express no opinion as to the availability of any equitable or specific remedy
upon any breach of any of the covenants, warranties or other provisions
contained in any of such agreements, instruments or documents, or upon the
successful assertion of any equitable defense. Moreover, we express no opinion
as to the enforceability of any indemnity provision that indemnifies any person
against damages arising from its own negligence or misconduct.
The opinions hereinafter expressed are also subject to the qualification
that we render no opinion as to the validity or enforceability of any provisions
of the Loan Documents regarding the rights of the Purchasers to set-off against
the accounts of the Company, to the extent that (i) the funds on deposit in
accounts of the Company are subjected to trustee process or any other valid
claim or right of a third party, (ii) the accounts of the Company are special
accounts created solely for the benefit of another party, such as payroll or tax
escrow accounts, and (iii) the funds on deposit in accounts of the Company are
contained in a separate account containing the proceeds of collateral securing
the obligation of the Company to a secured party other than the Purchasers under
Article 9 of the Uniform Commercial Code as enacted in the Commonwealth of
Massachusetts (the "Code").
We have assumed that the Agreement has been duly authorized, executed and
delivered by the Purchasers and that each of the Purchasers has all requisite
power and authority to effect the transactions contemplated by the Agreement. We
have also assumed that the Agreement is the valid and binding obligation of each
of the Purchasers, enforceable against each of the Purchasers in accordance with
its terms. We do not render any opinion as to the application of any foreign,
federal or state law or regulation to the power, authority or competence of any
of the Purchasers.
For purposes of the opinions expressed in Paragraph (a) below as to the
valid existence and good standing of the Company in Delaware, and the
qualification and good standing of the Company in Massachusetts, we have relied
solely upon the Delaware Certificate and the Massachusetts Certificate,
respectively, and such opinions are limited accordingly and rendered as of the
respective dates thereof.
For purposes of the opinion expressed in Paragraph (b) below as to the
issued and outstanding shares of capital stock of the Company, we have relied
solely on our review of the corporate minute books and stock record books of the
Company, and such opinion is limited accordingly.
For purposes of our opinion in Paragraph (j) below, we have relied on
the accuracy of the facts set forth in the Officer's Certificate of even date
attached as EXHIBIT B. Furthermore, our opinion in Paragraph (j) below is
qualified as it is based on the analysis of the Securities and Exchange
Commission (the "SEC") set forth in
<PAGE> 118
February 3, 1997
Page 6
the exemptive order issued to the ICOS Corporation (SEC Release No. IC-19334)
(March 16, 1993) (the "ICOS Order") pursuant to Section 3(b)(2) under the
Investment Company Act of 1940, as amended (the "1940 Act"), and in the proposed
position of the SEC set forth in SEC Release No. IC-19566 (July 8, 1993)
proposing Rule 3a-8 under the 1940 Act which proposed rule has never been
adopted). Accordingly, because of differences between the facts set forth in the
application of the ICOS Order and those set forth in the certificate, there can
be no guarantee that a court or the SEC would agree with our conclusions set
forth below.
Based upon and subject to the foregoing, we are of the opinion that:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has full corporate
power and authority to conduct its business as to our knowledge it is presently
conducted, to enter into and perform the Agreement and to carry out the
transactions contemplated by such Agreement. The Company is duly qualified to do
business and in good standing in the Commonwealth of Massachusetts.
(b) By reason of the filing of the Certificate of Amendment with the
Secretary of State of the State of Delaware, the authorized capital stock of the
Company consists of 11,461,540 shares of Common Stock and 6,120,103 shares of
Preferred Stock, $.00004 par value per share (the "Preferred Stock"), and (based
solely on our review of the Company's stock record books and, with respect to
the number of shares of Common Stock each series of Preferred Stock is
convertible, the Officer's Certificate) 233,125 shares of Common Stock are
issued and outstanding of record. Of the 6,120,103 shares of Preferred Stock so
authorized:
(i) 800,000 shares have been designated Series A Convertible
Preferred Stock, $.00004 par value per share, and (based solely on our review of
the Company's stock record books) all of which shares are issued and outstanding
of record and convertible on an aggregate basis into 800,000 shares of Common
Stock;
(ii) 399,999 shares have been designated Series B Convertible
Preferred Stock, $.00004 par value per share, and (based solely on our review of
the Company's stock record books) all of which shares are issued and outstanding
of record and convertible on an aggregate basis into 415,565 shares of Common
Stock;
(iii) 1,399,589 shares have been designated Series D Preferred,
$.00004 par value per share ("Series D Preferred"), and (based solely on our
review of the Company's stock record books) 1,359,522 of which shares are issued
and outstanding of record and convertible on an aggregate basis into 1,359,522
shares of Common Stock;
<PAGE> 119
February 3, 1997
Page 7
(iv) 1,166,667 shares have been designated Series E Preferred,
$.00004 par value per share ("Series E Preferred"), and (based solely on our
review of the Company's stock record books) 733,371 of which shares are issued
and outstanding of record and convertible on an aggregate basis into 733,371
shares of Common Stock; and
(v) 2,353,848 shares have been designated Series F Preferred,
and, prior to the sale and issuance of the Subsequent Purchaser First Shares and
Follow-On Funding Shares, (based solely on our review of the Company's stock
record books) 1,729,997 of which shares are issued and outstanding of record and
convertible on an aggregate basis into 1,729,997 shares of Common Stock.
In addition, (based solely on our review of the Company's stock record books)
there are outstanding warrants to purchase an aggregate of 40,067 shares of
Series D Preferred and an aggregate of 1,052,805 shares of Common Stock, as
described in Schedule 4.2 of the Agreement and excluding any outstanding options
under the Company's 1992 Equity Incentive Plan, as amended. Except as set forth
above (based solely on our review of the Company's stock record books and the
Officer's Certificate), immediately prior to the First Closing, to our
knowledge, there are no outstanding subscriptions, options, warrants, rights
convertible or exchangeable securities outstanding obligating the Company to
issue securities, other than any options under the Company's 1992 Equity
Incentive Plan, as amended.
(c) The issuance, sale and delivery of the Notes and Warrants in
accordance with the Agreement, and the issuance and delivery of the shares of
Common Stock issuable upon conversion of the Notes or exercise of the Warrants,
have been duly authorized by all necessary corporate action on the part of the
Company, and the Notes and Warrants when so issued, sold and delivered against
payment therefor in accordance with the provisions of the Agreement, and the
shares of Common Stock issuable upon conversion of the Notes or exercise of the
Warrants, when issued upon such conversion or exercise, in accordance with the
provisions of the Notes and Warrants, will have been duly and validly issued,
fully paid and nonassessable. Neither the issuance, sale or delivery of the
Notes or Warrants is, nor will the issuance or delivery of the shares of Common
Stock upon conversion or exercise thereof be, subject to any preemptive right of
stockholders of the Company arising under the General Corporation Law statute of
the State of Delaware or the Amended and Restated Certificate, as amended by the
Certificate of Amendment, or By-laws of the Company, or, to our knowledge, under
any contractual right of first refusal or other right in favor of any person
that has not been waived or complied with.
(d) The execution, delivery and performance by the Company of the Loan
Documents and the execution and filing of the Amended and Restated Certificate,
as amended by the Certificate of Amendment, have been duly authorized
<PAGE> 120
February 3, 1997
Page 8
by all necessary corporate action, and the Loan Documents have been duly
executed and delivered by the Company. The Loan Documents (other than
subsections 12.5 and 12.6 of the Agreement, as to which we express no opinion)
constitute the valid and binding obligation of the Company, enforceable in
accordance with their respective terms. The execution, delivery and performance
of the Loan Documents and the offer, issuance and sale of the Notes and
Warrants, and the issuance of shares of Common Stock upon conversion of the
Notes and exercise of the Warrants, will not conflict with, or result in any
breach of any of the terms, conditions, or provisions of, or constitute a
default under, the Amended and Restated Certificate, as amended, or By-laws of
the Company or under any indenture, lease, agreement, or other instrument known
to us to which the Company is a party or by which it or any of its properties
are bound and which is identified on the Schedules to the Agreement, or any
decree, judgment or order specifically naming the Company and known to us or any
statute, rule or regulation applicable to the Company.
(e) The Security Agreement creates a valid and enforceable security
interest under the Code with respect to the Collateral (as such term is defined
therein and in the Security Agreement) located in Massachusetts and the
Company's interest in patents and trademarks listed in the Security Agreement,
or Collateral as to which Massachusetts law governs perfection by virtue of the
location of the Company in Massachusetts, in which a security interest can be
created under the Code. Subject to the limitations set forth in paragraph B
below, the Purchasers' security interest in the Collateral will be perfected
under the Code by the filing of the Financing Statements in the offices listed
on SCHEDULE I and the filing of the Security Agreement with the United States
Patent and Trademark Office.
(f) Except as obtained and in effect at the First Closing and Second
Closing, no consent, approval, order or authorization of, or registration,
qualification, designation, declaration, or filing with, any governmental
authority other than filings required to be made under applicable federal and
state securities laws, is required on the part of the Company in connection with
the execution, delivery and performance of the Agreement, Notes or Warrants and
(assuming no change in applicable facts or circumstances) the shares of Common
Stock to be issued and delivered upon exercise of the Warrants, or the other
transactions to be consummated at the First Closing and the Second Closing
pursuant to the Agreement.
(g) Based on the representations of each of the Purchasers in Section
5 of the Agreement, the offer, issuance and sale of the Notes and Warrants to be
sold at the First Closing and the Second Closing pursuant to the Agreement and
the issuance of the shares of Common Stock to be issued upon conversion or
exercise thereof, respectively, are exempt from registration under the
Securities Act of 1933, as amended.
<PAGE> 121
February 3, 1997
Page 9
(h) To our knowledge, except as set forth in the Schedules to the
Agreement, there is no action, suit or proceeding, or governmental inquiry or
investigation, pending or threatened against the Company.
(i) Based on representations made by the Company, neither the issuance
and sale of the Notes or Warrants sold at the First Closing and the Second
Closing nor the intended use of proceeds thereof will violate Regulations G, T,
U or X of the Board of Governors of the Federal Reserve System, and it is not
necessary for a Purchaser to obtain a statement in conformity with the
requirements of Federal Reserve Form FR G-3.
(j) The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
The foregoing opinions are subject to the following additional comments and
qualifications:
(A) We express no opinion as to the existence of, or the right, title
or interest of the Company in, to or under, any property in which the Company
has granted a security interest to you.
(B) We express no opinion as to the creation of security interests in
property in which a security interest cannot be created under the Code or the
perfection of security interests in fixtures or in property in which a security
interest cannot be perfected by the filing of UCC-1 financing statements
pursuant to Article 9 of the Code except with respect to the perfection of a
security interest in trademarks and patents to the extent aforesaid.
(C) Under certain circumstances, described in Section 9-306 of the
Code, the right of a secured party to enforce a perfected security interest in
the proceeds of collateral may be limited.
(D) The grant of, or any realization on, security interests in
governmental licenses, permits, authorizations and other rights, in contracts
with government or governmental instrumentalities, commissions, boards or
agencies and in the proceeds thereof are or may be subject to restrictions or
limitations set forth therein or in applicable statutes, laws, rules or
regulations, and we express no opinion as to the creation or perfection of
security interests in such rights, contracts or proceeds.
(E) We express no opinion as to the priority of any security interests
granted by the Company to the Purchasers.
<PAGE> 122
February 3, 1997
Page 10
(F) The perfection of the security interests may be terminated as to
any Collateral acquired more than four months after the Company changes its
name, identity or corporate structure so as to make the Financing Statements
seriously misleading (within in the meaning of Section 9-402(7) of the Code)
unless new, appropriate financing statements indicating the new name, identity
or corporate structure of the Company are properly filed before the expiration
of such four-month period and all fees in connection therewith are paid. The
perfection of security interests in accounts, including receivables, general
intangibles and certain other Collateral, may be terminated if the Company
changes the location of its chief executive offices outside of the Commonwealth
of Massachusetts.
(G) Pursuant to the Code, continuation statements are required from
time to time to be filed in order to preserve valid, perfected security
interests.
(H) We have assumed that the Collateral in Massachusetts is located at
the location described on SCHEDULE II hereto and that the chief executive office
of the Borrower is located in Billerica, Massachusetts.
(I) We express no opinion as to the adequacy of the description of the
Collateral as defined in the Security Agreement insofar as such description
includes terms which are not defined under Article 9 of the Code.
This opinion is provided to the Purchasers as a legal opinion only and not
as a guaranty or warranty of the matters discussed herein.
This opinion is based upon currently existing statutes, rules, regulations
and judicial decisions, and we disclaim any obligation to advise you of any
changes in any of these sources of law or subsequent developments which might
affect any matters or opinions set forth herein. Please note that we are opining
only as to the matters expressly set forth herein, and no opinion should be
inferred as to any other matters.
<PAGE> 123
February 3, 1997
Page 11
This opinion is furnished to you by us as counsel to the Company in
connection with the transactions contemplated by the Agreement, and may not be
relied upon by any other person or entity or for any other purpose without our
prior written consent. David E. Redlick of this firm is Secretary of the
Company.
Very truly yours,
HALE AND DORR LLP
<PAGE> 124
EXHIBIT A
---------
List of Purchasers:
Triumph-Connecticut Limited Partnership
21st Floor
60 State Street
Boston, Massachusetts 02109
John D. and Lauren R. Howard
80 Irving Place
New York, New York 10003
Frederick S. Moseley IV and
E. Mark Noonan, as Trustees of
the Triumph Capital Group, Inc.
401(k) Plan and Trust for the
account of Thomas W. Janes
c/o Triumph Capital Group, Inc.
60 State Street, 21st Floor
Boston, Massachusetts 02109
Duane E. Thurman
705 Newtown Road
Berwyn, Pennsylvania 19312
<PAGE> 125
EXHIBIT B
---------
[Officer's Certificate]
<PAGE> 126
SCHEDULE I
----------
UCC-1 Filing Offices:
Massachusetts Secretary of State
Billerica, Massachusetts Town Clerk
Wilmington, Massachusetts Town Clerk
<PAGE> 127
SCHEDULE II
-----------
Assumed location of collateral:
Ascent Pediatrics, Inc.
9 Linnell Circle
Billerica, Massachusetts 01821
<PAGE> 1
Exhibit 10.12
WAIVER AND AMENDMENT
MARCH 13, 1997
WHEREAS, a Securities Purchase Agreement (the "Securities Purchase
Agreement") by and among Ascent Pediatrics, Inc. (the "Company"),
Triumph-Connecticut Limited Partnership ("Triumph"), and certain other
purchasers listed on the signature pages thereto (together with Triumph, the
"Purchasers") was executed on January 31, 1997;
WHEREAS, at the First Closing and pursuant to Section 1.3 of the
Securities Purchase Agreement, the Purchasers purchased from the Company Notes
in the aggregate principal amount of $2,000,000 and Series A Warrants to
purchase in the aggregate 264,036 shares of Common Stock of the Company at an
aggregate purchase price of $2,000,000;
WHEREAS, Section 1.4 of the Securities Purchase Agreement provides for
a Second Closing wherein the Purchasers shall purchase from the Company Notes
in the aggregate principal amount of $5,000,000, Series A Warrants to purchase
in the aggregate of 396,054 shares of Common Stock of the Company, and Series B
Warrants to purchase in the aggregate 256,072 shares of Common Stock of the
Company, at an aggregate purchase price of $5,000,000.
WHEREAS, Section 3.1 of the Securities Purchase Agreement sets forth
certain conditions precedent to the Purchasers' obligations at the Second
Closing; and
WHEREAS, Section 14.3 of the Securities Purchase Agreement provides
that the Securities Purchase Agreement may be amended, modified or
supplemented, and waivers or consents to departures from the provisions of the
Securities Purchase Agreement may be given, if the same are in writing and
signed by the Company, the holders of a majority of the principal amount of the
Notes and the holders of a majority of the Warrants.
NOW, THEREFORE, in contemplation of the Second Closing, for good and
valuable consideration and pursuant to Section 14.3 of the Securities Purchase
Agreement, the Company and Triumph, as a holder of the majority of the
principal amount of the Notes and the Warrants, expressly agree to the
following:
1. That Section 3.1(1)(ii) of the Securities Purchase Agreement
be waived in its entirety;
<PAGE> 2
2. That Section 3.1(q) be amended so that it shall read in its
entirety as follows:
"3.1(q) ADDITIONAL CONDITIONS TO SECOND CLOSING. Prior
to or contemporaneous with the Second Closing, the Company
shall have either (x) received the Primsol Solution Final FDA
Approval or (y) closed a Qualified Public Offering." and
3. That Section 8.2(b) be amended so that it shall read in its
entirety as follows:
"(b) LIMITATION ON ADDITIONAL INDEBTEDNESS. The Company
shall not, and shall not permit any of its Subsidiaries to,
incur, directly or indirectly, any Indebtedness (including
Acquired Indebtedness), other than (a) the Indebtedness
evidenced by the Notes, (b) Senior Indebtedness, and (c)
the Series A Preferred, the Series B preferred, the Series D
Preferred, the Series E Preferred and the Series F Preferred,
(d) up to $5,500,000 of purchase money Indebtedness in
connection with the Feverall Acquisition, and (e) Indebtedness
in an aggregate amount not in excess of $500,000 secured by
Capitalized Leases or Purchase Money Liens"
Capitalized terms used herein but not otherwise defined herein have the
meanings ascribed thereto in the Securities Purchase Agreement.
IN WITNESS WHEREOF, The Company and Triumph have duly executed this
Waiver and Amendment under seal as of the date first above written.
TRIUMPH-CONNECTICUT
LIMITED PARTNERSHIP
as Principal Purchaser
By: /s/ Thomas W. Janes
------------------------
Title: Managing Director
ASCENT PEDIATRICS, INC.
By: /s/ John G. Bernardi
------------------------
Title: Vice President Finance
-2-
<PAGE> 1
Exhibit 11.1
ASCENT PEDIATRICS, INC.
Computation of pro forma and historical net loss
per Common Share
Pro Forma
For the year ended December 31, 1996
Common stock outstanding, beginning of year............ 197,838
Cheap stock shares relating to SAB No 83(1)............ 1,387,413
Assumed conversion of common stock(2).................. 2,798,957
---------
4,384,208
=========
Historical
For the year ended December 31, 1994
Common stock outstanding, beginning of year............ 197,625
Cheap stock shares relating to SAB No 83(1)............ 1,387,413
Weighted average common stock issued during 1994....... 10
---------
1,585,048
=========
For the year ended December 31, 1995
Common stock outstanding, beginning of year............ 197,838
Cheap stock shares relating to SAB No 83(1)............ 1,387,413
Weighted average common stock issued during 1995....... --
---------
1,585,251
=========
For the year ended December 31, 1996
Common stock outstanding, beginning of year............ 197,838
Cheap stock shares relating to SAB No 83(1)............ 1,387,413
---------
1,585,251
=========
- ------------
(1) In accordance with SEC Staff Accounting Bulletin ("SAB No. 83"), issuances
of Common Stock equivalents (preferred stock, common stock, stock options
and warrants) one year prior to the initial filing date of this
registration statement at share prices below the public offering price
of $12.00 per share "Cheap Stock"), are considered to have been made in
anticipation of the contemplated public offering for which this registration
statement was prepared and have been included as if the shares were
outstanding for all periods presented until the effectiveness of the
initial public offering using the treasury stock method at the assumed
public offering price of $12.00 per share.
(2) Assumes the conversion of all outstanding shares of Common Stock, except
those Convertible Preferred Stock shares which qualify as Cheap Stock
shares relating to SAB No. 83.
<PAGE> 1
EXHIBIT 23.2
This is the form of the consent which will be issued upon the effectiveness
of the reverse common stock split discussed in Note B of Notes to Financial
Statements:
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 14, 1997
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion, in this registration statement on Form S-1 to
issue shares of Common Stock, of our report dated March , 1997, on our audits
of the financial statements of Ascent Pediatrics, Inc. We also consent to the
references to our firm under the captions "Selected Financial Data" and
"Experts."
Boston, Massachusetts
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Upsher-Smith Laboratories, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the Prospectus of Ascent Pediatrics,
Inc.
Our report dated February 21, 1997, contains an explanatory paragraph that
states that the financial statements were prepared to present the assets related
to the product line to be sold by Upsher-Smith Laboratories, Inc. (Upsher-Smith)
and the net sales and the identified costs and expenses and that they are not
intended to be a complete presentation of the product line's financial position,
results of operations or cash flows.
KPMG PEAT MARWICK LLP
Minneapolis, Minnesota
March 13, 1997
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<CURRENCY> U.S. DOLLARS
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
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17,832,342
2,855,103
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