<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 4, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CYPRESS BIOSCIENCE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 22-2389839
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
4350 EXECUTIVE DRIVE, SUITE 325
SAN DIEGO, CA 92121
(619) 452-2323
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JAY D. KRANZLER
VICE CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER
CYPRESS BIOSCIENCE, INC.
4350 EXECUTIVE DRIVE, SUITE 325
SAN DIEGO, CA 92121
(619) 452-2323
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
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COPIES TO:
FREDERICK T. MUTO, ESQ.
COOLEY GODWARD LLP
4365 EXECUTIVE DRIVE, SUITE 1100
SAN DIEGO, CA 92121
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
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If any of the securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
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>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
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Common Stock, $.02 par value per
share............................... 5,510,798 $2.0625(1) $11,366,020.88(1) $3,444.25
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Warrants, each to purchase one share
of Common Stock..................... 2,755,399 $2.00(2) $ 5,510,798.00(2) $1,669.94
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Common Stock, $.02 par value per
share, issuable upon exercise of the
Warrants included herein(3)......... 2,755,399(3) $2.0625(1) $ 5,683,010.44(1) (4)
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Total Registration Fee........................................................................ $5,114.19
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</TABLE>
(1) Estimated in accordance with Rule 457(c) solely for the purpose of computing
the amount of the registration fee.
(2) Calculated pursuant to Rule 457(g) solely for the purpose of computing the
amount of the registration fee.
(3) In addition to shares issuable upon exercise of warrants being registered
hereunder, includes pursuant to Rule 416(a), such indeterminate number of
shares of Common Stock as may be issuable pursuant to the antidilution
provisions contained therein.
(4) No separate registration fee required pursuant to Rule 457(g).
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 THAT 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.
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<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.
PRELIMINARY PROSPECTUS DATED NOVEMBER 4, 1996
SUBJECT TO COMPLETION
CYPRESS BIOSCIENCE, INC.
5,510,798 SHARES OF COMMON STOCK
2,755,399 COMMON STOCK PURCHASE WARRANTS
2,755,399 SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
COMMON STOCK PURCHASE WARRANTS
This Prospectus relates to the offer and sale by certain securityholders
(the "Selling Securityholders") of Cypress Bioscience, Inc. (the "Company") of
up to 5,510,798 shares of Common Stock of the Company (the "Shares"), redeemable
warrants to purchase up to 2,755,399 shares of Common Stock of the Company at an
exercise price of $2.00 per share until October 1, 2001 or, if earlier, until
redemption of such warrants by the Company (the "Warrants"), and 2,755,399
shares of Common Stock of the Company issuable upon exercise of the Warrants
(the "Warrant Shares"). The Shares, Warrants and Warrant Shares are sometimes
referred to herein as the "Securities."
The Shares and Warrants were issued by the Company in the form of "Units"
(each Unit consisting of two Shares and one Warrant), in connection with the
Company's September 1996 private placement of Units (the "Private Placement")
and pursuant to the acquisition (the "Merger") by the Company of PRP, Inc., a
Delaware company ("PRP"), whereby the Company issued Units to certain holders of
indebtedness of PRP in cancellation of such indebtedness and to PRP's investment
advisor in satisfaction of amounts owed to such advisor for services rendered to
PRP in connection with the Merger. The offering price of the Units in the
Private Placement and the Merger was $4.00 per Unit. The price of the Units and
the exercise price of the Warrants were determined by the Company and do not
necessarily relate to the fair market value of the Company's Common Stock, book
value, net worth or any other established criteria of value. See "The Private
Placement," "The Warrants" and "The Merger."
The Shares, Warrants and Warrant Shares may be offered by the Selling
Securityholders from time to time in transactions on the Nasdaq SmallCap Market,
in privately negotiated transactions or a combination of such methods of sale,
at prices related to such prevailing market prices or at negotiated prices. The
Selling Securityholders may effect such transactions by selling the Shares,
Warrants or Warrant Shares to or through broker-dealers, and such broker-dealers
may receive compensation in the form of discounts, concessions or commissions
from the Selling Securityholders or the purchasers of the Shares, Warrants or
Warrant Shares for whom such broker-dealers may act as agent or to whom they
sell as principal or both (which compensation to a particular broker-dealer
might be in excess of customary commissions). See "Selling Securityholders" and
"Plan of Distribution."
None of the proceeds from the sale of the Shares, Warrants or Warrant
Shares by the Selling Securityholders will be received by the Company. The
Company has agreed to bear certain expenses (other than fees and expenses, if
any, of counsel or other advisors to the Selling Securityholders) in connection
with the registration of the Shares, Warrants and Warrant Shares being offered
by the Selling Securityholders. Such expenses are estimated to be $35,000. The
Company has agreed also to indemnify the Selling Securityholders against certain
liabilities, including certain liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Plan of Distribution."
The Common Stock of the Company is traded on the Nasdaq SmallCap Market
under the symbol "CYPB." The Warrants will be traded on the Nasdaq SmallCap
Market under the symbol "CYPBZ." The last reported sales price of the Company's
Common Stock on the Nasdaq SmallCap Market on November 1, 1996 was $1.9375 per
share.
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THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD
BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED HEREBY.
------------------------
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.
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE> 3
No person is authorized in connection with any offering made hereby to give
any information or make any representation not contained or incorporated by
reference in this Prospectus, and any information not contained or incorporated
herein must not be relied upon as having been authorized by the Company. This
Prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy, by any person in any jurisdiction in which it is unlawful for such
person to make such offer or solicitation. Neither the delivery of this
Prospectus at any time nor any sale made hereunder shall, under any
circumstances, imply that the information herein is correct as of any date
subsequent to the date hereof.
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") that involve risks and uncertainties.
The Company's actual results could differ materially from those projected in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited, to those discussed in Risk Factors, as
well as those discussed elsewhere in this Prospectus. The information contained
in this Prospectus should be considered carefully before purchasing any of the
securities being offered hereby.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the
Commission's following Regional Offices: Chicago Regional Office, Suite 1400,
Northwest Atrium Center, 500 West Madison Street, Chicago, Illinois 60661; and
New York Regional Office, 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of such material also can be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549. The Commission also makes electronic filings
publicly available on the Internet within 24 hours of acceptance. The
Commission's Internet address is http://www.sec.gov. The Commission Web site
also contains reports, proxy and information statements, and other information
regarding the registrant that has been filed electronically with the Commission.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act, with respect to the Shares, Warrants and Warrant
Shares being offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
are omitted in accordance with the rules and regulations of the Commission. For
further information pertaining to the Company and the Shares, Warrants and
Warrant Shares reference is made to the Registration Statement and the exhibits
and schedules thereto, which may be inspected without charge at, and copies
thereof may be obtained at prescribed rates from, the office of the Commission
at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
PROSORBA(@) column and IPM are registered trademarks of the Company. All
other brand names or trademarks appearing in this Prospectus are the property of
their respective holders.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1995, the Company's Proxy Statement for the 1996 Annual Meeting of
Stockholders filed pursuant to Rule 14a-6 of the Exchange Act, the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, the
Company's Current Report on Form 8-K dated as of March 8, 1996 and the Company's
Current Report on Form 8-K dated as of April 1, 1996 filed by the Company with
the Commission are hereby incorporated by reference in this Prospectus except as
superseded or modified herein. All documents filed by the Company with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
after the date of this Prospectus and prior to the termination of the offering
shall be deemed to be incorporated by reference into
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this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained in any document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as modified or
superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner of shares of Common Stock of the Company, to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any and all of the documents that have been or may be incorporated by reference
herein (other than exhibits to such documents which are not specifically
incorporated by reference into such documents). Such requests should be directed
to the Director of Finance at the Company's executive offices at 4350 Executive
Drive, Suite 325, San Diego, California 92121 (telephone (619) 452-2323).
3
<PAGE> 5
THE COMPANY
GENERAL
Cypress Bioscience, Inc. was incorporated under the laws of the State of
Delaware in 1981 to research, develop, manufacture and market medical devices
for the treatment and diagnosis of select immune-mediated diseases,
transplantations and cancers. The Company's first product, the PROSORBA column,
a medical device, treats a patient's defective immune system so that it can more
effectively respond to certain diseases. The Company received marketing approval
from the U.S. Food and Drug Administration (the "FDA") in December 1987 to
distribute the PROSORBA column for treatment of idiopathic thrombocytopenic
purpura ("ITP"), an immune-mediated bleeding disorder. Since 1987, the Company
has had approximately $24,000,000 of sales of the PROSORBA column.
The Company is in the process of completing a substantial restructuring of
its operations. To date, the restructuring has included a streamlining of
operations and a relocation of all operations of the Company, except
manufacturing operations, to San Diego, California. In addition, the Company has
elected to establish its own internal sales force dedicated solely to selling
the PROSORBA column. In this regard, the Company has hired six salespersons to
date and is in the process of training such sales force. There can be no
assurance that the restructuring, once completed, will be successfully
implemented.
In November 1996, the Company completed the acquisition, pursuant to a
merger (the "Merger"), of PRP, Inc. a Delaware corporation ("PRP"), a
Boston-based biopharmaceutical company engaged in the development of products to
treat disorders of blood platelet functions. In consideration of the purchase of
PRP, the Company issued Units with a value of approximately $4,585,645 to
certain holders of indebtedness and a creditor of PRP and is obligated to make a
certain milestone payment and payments on net sales of products based upon the
technology of PRP that was acquired in the Merger to the former holders of
equity securities and a creditor of PRP. In connection with the acquisition, the
Company has agreed to allocate certain amounts of funding to commercialize PRP's
lead product, Infusible Platelet Membranes ("IPM"). See "The Merger."
The Company's executive offices are located at 4350 Executive Drive, Suite
325, San Diego, California 92121 and its telephone number is (619) 452-2323.
THE PRIVATE PLACEMENT
In General. In October 1996, the Company completed a private placement of
1,734,000 Units which were sold to certain "accredited investors" (as defined in
Rule 501 of the Securities Act) (the "Private Placement") at a per Unit sales
price of $4.00. Net proceeds to the Company from the Private Placement (after
deducting placement agent fees of approximately $506,880) were $6,429,120. The
Private Placement was made in reliance on exemptions from the registration and
qualification requirements of the Securities Act and applicable state securities
laws.
Use of Proceeds. The Company intends to use the net proceeds from the
Private Placement (i) to fund clinical and product development, manufacturing
and administrative services in support of IPM, (ii) to fund the transition and
integration of PRP with and into the operations of the Company and (iii) for
general corporate and working capital purposes. The Company intends to use a
minimum of $4,000,000 of the net proceeds to commercialize and advance IPM as a
principal product of the Company. In addition, the Company may use some of the
proceeds of the Private Placement for the acquisition of businesses, products or
technologies complementary to the Company's current business. The Company has
not determined what other amounts it plans to expend on any of the foregoing
uses or the timing of such expenditures. The Company has made certain
assumptions with respect to how it intends to use the net proceeds from the
Private Placement. The amounts actually expended on any of the foregoing uses,
if any, may vary significantly depending on a number of factors including, but
not limited to, the results of Phase II clinical trials of IPM, the success of
the integration of PRP's operations into the Company and the amount of cash
generated by the Company's operations and other resources. The Company will not
receive any of the proceeds from the sale of the Shares, Warrants or Warrant
Shares being offered hereby.
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The Units. The Units sold in the Private Placement each consist of two
shares of Common Stock of the Company and one warrant to purchase one share of
Common Stock of the Company. The Shares and Warrants (including the Warrant
Shares) comprising the Units are separately transferable only upon the
effectiveness of a registration statement filed under the Securities Act
covering such securities.
THE WARRANTS
In General. The Warrants comprising the Units entitle the holder thereof to
purchase one share of Common Stock of the Company at a purchase price of $2.00
per share, subject to adjustment under certain circumstances. The Warrants are
evidenced by a warrant certificate (the "Warrant Certificate"). The terms of the
Warrants are set forth in the Warrant Certificate and in that certain Warrant
Agreement dated September 18, 1996 (the "Warrant Agreement") between the Company
and American Stock Transfer & Trust Company (the "Warrant Agent"). Reference is
made to the Warrant Agreement and Warrant Certificate filed as exhibits to the
registration statement of which this Prospectus is a part for a complete
description of the terms and conditions of the Warrants (the description
contained herein being qualified by reference thereto).
Term and Exercise of Warrants. The Warrants are exercisable immediately
upon issuance by the Company, but prior to redemption, until October 1, 2001
upon surrender of the Warrants to the Company (or the Company's Warrant Agent)
and receipt by the Company of payment of the exercise price for such Warrants
and any other documents reasonably requested by the Company. The Warrants may be
exercised in whole or in part with respect to the shares of Common Stock
underlying such Warrants. The exercise price of the Warrants may, at the option
of the Warrant holder, be paid by check or bank draft made payable to the order
of the Company. Certificates representing the Warrant Shares so purchased shall
be delivered to the holder of the Warrants within a reasonable time after
exercise.
Redemption. Warrants may be redeemed at the option of the Company, in whole
or in part, on either a selective or non-discriminatory basis, at a price equal
to $0.10 per Warrant (the "Redemption Price") at any time (i) commencing twelve
(12) months after September 18, 1996 if the First Average Closing Price
Requirement (as hereafter defined) is satisfied or (ii) after their initial
issuance by the Company if the Second Average Closing Price Requirement (as
hereafter defined) is satisfied (with any such date of redemption referred to
herein as the "Redemption Date"). The First Average Closing Price Requirement
will be satisfied if the average closing bid price of the Common Stock as
reported by the National Association of Securities Dealers, Inc. electronic
interdealer quotation system ("Nasdaq") (or average closing sales price, if the
Common Stock is quoted on the Nasdaq National Market System) equals or exceeds
$3.00 per share of Common Stock for any twenty (20) trading days within a period
of thirty (30) consecutive trading days ending on the fifth trading day prior to
the date of the notice of redemption. The Second Average Closing Price
Requirement will be satisfied if the average closing bid, or if applicable,
closing sales price as determined and for the periods specified in the preceding
sentence exceeds $4.00. On the Redemption Date, the holders of record of
redeemed Warrants shall be entitled to payment of the Redemption Price upon
surrender of such redeemed Warrants to the Company at the principal office of
the Warrant Agent in New York, New York.
Notice of redemption of Warrants must be given at least twenty (20) and not
more than forty-five (45) calendar days prior to the Redemption Date by mailing,
by registered or certified mail, return receipt requested, a copy of such notice
to all holders of record of Warrants to be redeemed at their respective
addresses appearing on the books or transfer records of the Company or such
other address designated in writing by the holder of record to the Warrant Agent
not less than sixty (60) calendar days prior to the Redemption Date and will be
effective upon receipt.
In addition, notice of such redemption will be published in The Wall Street
Journal not less than ten (10) nor more than twenty (20) calendar days prior to
the mailing of the notice of redemption. Any Warrant so called for redemption
may be exercised until the close of business on the fifth business day preceding
the Redemption Date specified in such notice of redemption. If less than all the
Warrants are to be redeemed, the Warrant Agent shall select the Warrants to be
redeemed by a method the Warrant Agent considers fair and appropriate.
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From and after the Redemption Date, all rights of the holders of Warrants
(except the right to receive the Redemption Price) shall terminate, but only if
(i) on or prior to the Redemption Date the Company shall have irrevocably
deposited with the Warrant Agent (or its successor as Warrant Agent) a
sufficient amount to pay on the Redemption Date the Redemption Price for all
Warrants called for redemption and (ii) the notice of redemption shall have
stated the name and address of the Warrant Agent and the intention of the
Company to deposit such amount with the Warrant Agent on or before the
Redemption Date.
If the Company fails to make a sufficient deposit with the Warrant Agent as
provided above, the holder of any Warrants called for redemption may at the
option of the holder (i) by notice to the Company declare the notice of
redemption a nullity, or (ii) maintain an action against the Company for the
Redemption Price. If the holder brings such an action, the Company will pay
reasonable attorneys' fees of the holder. If the holder fails to bring an action
against the Company for the redemption price within sixty (60) days after the
Redemption Date, the holder shall be deemed to have elected to declare the
notice of redemption to be a nullity and such notice shall be without any force
or effect.
There have been reserved, and the Company shall at all times keep reserved,
out of the authorized and unissued shares of Common Stock, a number of shares
sufficient to provide for the exercise of the Warrants.
Transfer or Assignment of Warrants; Registration. No Warrant will be
subject to division or combination with other Warrants or be exchangeable,
transferable or assignable apart from the Common Stock with which it was sold as
a Unit unless, at such time of division, combination, exchange, transfer or
assignment, the Company has on file with the Commission an effective
registration statement covering the Warrants, or earlier if so notified by the
Company (the "Separation Date"). Absent an effective registration statement, the
Warrant Agent will not record an exchange, assignment or transfer of a Warrant
without certification that the Warrant holder has transferred its Common Stock
to the assignee or transferee. The Company is obligated to use commercially
reasonable efforts to keep the registration statement covering the Warrants
effective for a period of three years after the date of issuance of the Warrants
or, if earlier, until all of the securities covered by the registration
statement have been sold pursuant thereto.
Adjustment. The exercise price and the number of shares issuable upon
exercise of the Warrants will be subject to adjustment from time to time upon
the occurrence of certain events, including but not limited to
recapitalizations, stock splits, certain mergers or consolidations of the
Company and the payment of stock dividends.
THE MERGER
In General. On November 1, 1996, the Company completed the acquisition of
PRP pursuant to that certain Agreement and Plan of Merger and Reorganization
dated as of October 10, 1996 by and among the Company, Cypress Acquisition Sub,
Inc., a Delaware corporation and wholly-owned subsidiary of the Company ("Merger
Sub") and PRP. Of the Shares and Warrants (including the Warrant Shares) being
offered hereby, 2,292,798 Shares and Warrants to purchase up to 1,146,399 shares
of Common Stock (including up to 1,146,399 Warrant Shares) are being offered by
certain Selling Securityholders whom acquired such securities in connection with
the Merger.
CONSIDERATION PAID OR PAYABLE IN CONNECTION WITH THE MERGER.
Debt Holders of PRP. In connection with the Merger, the Company issued to
the holders of certain indebtedness of PRP (the "Bridge Debtholders") in full
satisfaction and settlement of such debt a total of 1,118,438 Units (consisting
of 2,236,876 Shares and Warrants to purchase up to 1,118,438 Shares of Common
Stock of the Company), with a total value equal to $4,473,799.85 (based upon a
price of $4.00 per Unit).
Equity Holders of PRP. Pursuant to the terms of the Merger, the holders of
PRP equity securities (including holders of options and warrants of PRP) (the
"Equity Holders") will be entitled to receive certain payments (the "Earn-Out
Payments"), if any, on a pro rata basis, on net sales of products developed
using PRP's technology (the "Earn-Out Products"). The Company's obligation to
make Earn-Out Payments with respect to Earn-Out Products shall commence on the
date of first commercial sale to any third party of such
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<PAGE> 8
Earn-Out Product by the Company, its affiliates or licensees and shall terminate
on a country-by-country basis upon the later of (i) the expiration or
invalidation of the last issued patent owned, licensed or otherwise controlled
by the Company in such country, or abandonment, disclaimer or rejection of the
last pending patent application owned, licensed or otherwise controlled by the
Company in such country, covering the manufacture, use or sale of such Earn-Out
Product, and (ii) fourteen years after the first commercial sale anywhere in the
world of the Earn-Out Product by the Company, its affiliates or sublicensees.
The amount of any Earn-Out Payment to be paid on Earn-Out Products sold in a
country in which, at the time of such sale, the Earn-Out Product is not covered
by and encompassed within the scope of one or more claims contained in an
unexpired patent or in a pending patent application included in the patents and
patent applications acquired by the Company pursuant to the Merger, shall be
reduced by 50%.
In addition to the Earn-Out Payments described above, the Company shall,
upon receipt by the Company of FDA approval of IPM for the treatment of
thrombocytopenia (the "FDA Approval"), make a single milestone payment of
$5,000,000 to the Equity Holders (the "Milestone Payment"). The Milestone
Payment may be made, at the option of the Company, in cash, shares of Common
Stock of the Company or a combination of cash and shares of Common Stock. In the
event the Company elects to make the Milestone Payment, in whole or in part, in
the form of Common Stock of the Company, the value of such Common Stock shall be
determined based upon the average closing sales prices, if the Company's Common
Stock is quoted on a stock exchange or the Nasdaq National Market System (or the
average of the bid and asked prices of the Company's Common Stock as reported by
the National Association of Securities Dealers, Inc. electronic interdealer
quotation system) for the 15 trading day period commencing on the 10 trading
days immediately prior to and including the day of receipt of the FDA Approval
and for the 5 trading days immediately after the day of receipt of the FDA
Approval. In the event the Company elects to make the Milestone Payment, in
whole or in part, in shares of Common Stock, the Company will be obligated, at
its own expense, to register such shares for resale under the Securities Act.
EGS Securities Corp. In consideration of certain investment banking
advisory services provided by EGS Securities Corp. ("EGS") to PRP in connection
with the transactions contemplated by the Merger, the Company issued to EGS
27,961 Units (consisting of 55,922 Shares and Warrants to purchase up to 27,961
Shares of Common Stock of the Company) with a total value equal to $118,845
(based upon a price of $4.00 per Unit). In addition, the Company is obligated,
upon the payment of the Milestone Payment, if any, and each time any Earn-Out
Payment is made to the Equity Holders, to pay to EGS, for services rendered to
PRP in connection with the Merger, from such Milestone Payment or Earn-Out
Payment, as the case may be, prior to any distribution to be made to the Equity
Holders, an amount in cash equal to two and one-half percent (2 1/2%) of the
Milestone Payment and each Earn-Out Payment.
Board Observation Rights. In connection with the Merger, the Company
granted to the Equity Holders the right to designate a representative to attend
meetings of the Board of Directors of the Company (the "Board") in a non-voting,
observer capacity (the "Observer"). The Observer is entitled to attend all
meetings of the Board and to receive all written materials and information
provided to members of the Board in their capacity as directors (the "Observer
Rights"). The Observer shall not be entitled to any compensation or
reimbursement for any expenses incurred in connection with attending Board
meetings or otherwise serving in an observer capacity, except as provided below
to the Equity Holders' Representatives. The Observer Rights shall terminate on
the earlier of (i) the date on which the Equity Holders no longer have a
material continuing financial interest in the Company, and (ii) October 1, 2005.
Equity Holders' Representatives. Under the terms of the Merger, the former
stockholders of PRP are entitled to appoint certain representatives (the "Equity
Holders' Representatives") to act as attorneys-in-fact of said stockholders with
authority to make all decisions on behalf of said stockholders with respect to
any matters arising in regard to any Milestone Payment or Earn-Out Payments. The
Company is entitled to deal exclusively with the Equity Holders' Representatives
on matters relating to the Merger and shall be entitled to rely conclusively on
any document executed or purported to be executed and on any other action taken
or purported to be taken on behalf of any Equity Holder by the Equity Holders'
Representatives, as fully binding upon such Equity Holder. The Company is
obligated to pay to the Equity Holders' Representatives the sum of $12,000 per
year. Upon payment by the Company of the initial Milestone Payment or Earn-Out
Payment, the
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Company will be entitled to reimbursement of all amounts previously paid to the
Equity Holders' Representatives. Upon the initial distribution of the Milestone
Payment or Earn-Out Payments to the Equity Holders, as the case may be, the
Company shall pay to the Equity Holders' Representatives out of the Milestone
Payment or Earn-Out Payment the sum of $12,000 per year.
Indemnification. With certain limited exceptions, the representations and
warranties made by the Company and Merger Sub and the representations and
warranties made by PRP in connection with the Merger expire on November 1, 1997.
Each of the Company and Merger Sub, on the one hand and PRP, on the other hand,
are entitled to indemnification for damages suffered as a result of a breach of
a representation or warranty made by the other party. The sole recourse of the
Company for any damages suffered as a result of a breach of a representation or
warranty made by PRP prior to the consummation of the Merger shall be to offset
any such damages against any Earn-Out Payments, Milestone Payment or any other
payments otherwise due to the Equity Holders in an aggregate amount not to
exceed (i) $500,000 plus (ii) an additional amount equal to ten percent (10%) of
any Earn-Out Payments, Milestone Payment or any other payments paid or otherwise
payable to the Equity Holders. Similarly, the indemnification obligations of the
Company for a breach of a representation or warranty made by the Company or
Merger Sub is limited to (i) $500,000 plus (ii) an additional amount equal to
ten percent (10%) of any Earn-Out Payments, Milestone Payment or any other
payments otherwise paid or payable to the Equity Holders.
In addition to the foregoing indemnification obligations, the Company is
also obligated to indemnify, defend and hold harmless the former officers and
directors of PRP and any persons who acted as fiduciaries under any employee
benefit plan of PRP, and the heirs, executors and administrators of any such
person against any action, suit or proceeding, whether commenced before or after
the consummation of the Merger.
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RISK FACTORS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act that
involve risks and uncertainties. The Company's actual results could differ
materially from those projected in the forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited, to
those discussed in this section, as well as those discussed elsewhere in this
Prospectus. The following risk factors should be considered carefully in
addition to the other information contained in this Prospectus before purchasing
any of the Securities being offered hereby.
INTEGRATION OF OPERATIONS. If the Company is to realize the anticipated
benefits of the Merger, the operations of PRP and the Company must be integrated
and combined efficiently. The process of rationalizing management and
administrative resources, facilities, management information systems and other
aspects of operations, while managing a larger and geographically expanded
entity, will present a significant challenge to the management of the combined
company. There can be no assurance that the integration process will be
successful or that the anticipated benefits of the business combination will be
fully realized. The dedication of management resources to such integration may
detract attention from the day-to-day business of the combined company. The
difficulties of integration may be increased by the necessity of coordinating
geographically separated organizations, integrating personnel with disparate
business backgrounds and combining different corporate cultures. There can be no
assurance that there will not be substantial costs associated with the
integration process, that such activities will not result in a decrease in
revenues or that there will not be other material adverse effects of these
integration efforts.
NEED FOR ADDITIONAL CAPITAL. The Company is actively seeking opportunities
to raise additional capital to be used primarily to fund existing operations
related to the manufacture and sale of the PROSORBA column, to develop new and
complete existing research and development activities, and to fund clinical
trials related to the proposed use of the PROSORBA column for the treatment of
rheumatoid arthritis and certain platelet disorders. Except in very limited
circumstances, the Company is obligated to expend no less than $4,000,000 on the
development of IPM. In addition, the Company will require substantial additional
capital over a period of a number of years to further development and marketing
of IPM. To the extent the Company decides to continue the development of other
products previously being developed by PRP, it will be required to raise
additional capital. The amount of capital required by the Company is primarily
dependent upon the following factors: results of clinical trials, results of
current research and development efforts, the FDA regulatory process, potential
competitive and technological advances and levels of product sales. Because the
Company is unable to predict the outcome of the previously noted factors, some
of which are beyond the Company's control, the Company is unable to estimate,
with certainty, its mid- to long-term total capital needs. Although the Company
may seek to raise additional capital through a combination of additional equity
offerings, joint ventures, strategic alliances, borrowings and other available
sources, there can be no assurance that the Company will be able to raise
additional capital through such sources or that funds raised thereby will allow
the Company to maintain its current and planned operations as provided herein.
If the Company is unable to obtain additional financing, it may be required to
delay, scale back or eliminate some or all of its research and development
activities, including those activities associated with the acquisition of PRP,
to license to third parties technologies that the Company would otherwise seek
to develop itself, to seek financing through the debt market at potentially
higher costs to the Company and/or to seek additional methods of financing.
HISTORY OF OPERATING LOSSES. The Company has operated at a loss since its
formation in October 1981. As of September 30, 1996, the Company had an
accumulated deficit of approximately $49,000,000. The ability of the Company to
achieve profitability is dependent upon, among other things, successful
completion of anticipated clinical trials and obtaining FDA marketing approval
of the PROSORBA column in additional disease indications in a timely manner. The
Company would have to significantly scale back its plans, curtail clinical
trials, and limit its present operations in order to become profitable or
operate on a break-even basis if it does not receive marketing approval from the
FDA for the PROSORBA column for the treatment of diseases in addition to ITP.
There can be no assurance that the Company will successfully complete any
present or future clinical trials, gain approval to begin any new clinical
trials, meet applicable regulatory standards or successfully market its products
to generate sufficient revenues to render the Company profitable. See "-- Prior
Exclusive Agreement with Baxter; Necessity of Establishing a Sales Force."
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<PAGE> 11
MANAGEMENT CHANGES; RESTRUCTURING PLAN; DEPENDENCE UPON KEY PERSONNEL. The
Company has recently undergone changes in senior management. In December 1995,
Martin D. Cleary resigned as Chief Executive Officer and a member of the Board
of Directors of the Company. Mr. Cleary's resignation was a result of the
Company's determination that it would best be served by having senior management
resident on the West Coast near the Company's principal executive offices and
other operations. Mr. Cleary, resident on the East Coast, was unable to relocate
and consequently agreed to resign as Chief Executive Officer and as a director.
Also in December 1995, Harvey J. Hoyt, M.D. resigned as Executive Vice President
and as a director as a result of the appointments of new members of senior
management and the restructuring of the Company, which restructuring eliminated
Dr. Hoyt's position. In March 1996, Frank R. Jones resigned as Chief Scientific
Officer and as Chairman of the Board and in May 1996, Alex P. de Soto resigned
as the Company's Vice President, Chief Financial Officer, Secretary and
Treasurer. Messrs. Jones' and de Soto's resignations were a result of the
restructuring of the Company and the Company's relocation of its executive
offices to San Diego, California. In December 1995, Jay D. Kranzler, M.D., Ph.D.
was appointed as Chief Executive Officer and Vice Chairman of the Board of
Directors and Debby Jo Blank, M.D. was appointed as President, Chief Operating
Officer and a member of the Board of Directors of the Company. In April 1996,
Susan E. Feiner was appointed as the Company's Director of Finance, Controller,
Secretary and Treasurer.
The Company is in the process of completing a substantial restructuring
plan. The restructuring plan is intended to reduce the Company's overhead and
recurring costs by reducing the Company's work force and consolidating its two
manufacturing facilities into one central manufacturing facility located in
Redmond, Washington. By eliminating approximately 20 positions, the Company
expects to realize an annual salary savings in excess of $1,000,000. However, to
date the Company has incurred approximately $700,000 in connection with the
consolidation of its manufacturing operations and estimates it will incur a
total of approximately $1,000,000 in capital expenditures associated with such
consolidation. In connection with the restructuring plan, the Company has
relocated all of its operations, except manufacturing, from Seattle, Washington
to San Diego, California. The restructuring is not yet completed and there can
be no assurance that such a restructuring will be completed as scheduled, if at
all. Even if such a restructuring is completed, there can be no assurance that
it will be successfully implemented.
The Company's success is dependent upon certain key management and
technical personnel, including the new members of senior management. The loss of
the services of any of these key employees could have a material adverse effect
on the Company. The Company does not currently maintain any key employee
insurance coverage.
FDA APPROVAL AND REGULATIONS. The Company is currently conducting a
controlled clinical trial of the PROSORBA column for treatment of rheumatoid
arthritis. Although the FDA has approved the commercial sale of the PROSORBA
column for the treatment of ITP, there can be no assurance that current or
future clinical trials will produce data satisfactory to the FDA to establish
the effectiveness of the PROSORBA column for treatment of diseases other than
ITP, such as rheumatoid arthritis, transplantations and certain cancers, or that
the FDA will approve the PROSORBA column for treatment of such diseases in a
timely manner, if at all.
The Company plans to continue the Phase II clinical trials of IPM currently
underway. Clinical trials are vigorously regulated by the FDA and must meet
requirements for institutional review board oversight and informed consent as
well as FDA review and oversight and good clinical practice regulations. There
can be no assurance that the clinical trials being conducted for IPM will be
completed successfully within any specified period of time, if at all, or that
if successful the Company will be able to further develop IPM. Furthermore, the
Company or the FDA may delay or suspend clinical trials at any time if it is
determined that the subjects participating in such trials are being exposed to
unacceptable health risks. Any such delay or suspension could have a material
adverse effect on the Company's business.
The PROSORBA column is commercially distributed under a premarket approval
("PMA") application that was approved by the FDA in 1987. Changes to the product
and its manufacturing process, and certain types of labeling changes must be
approved by the FDA prior to implementation. The Company currently has one
supplement to the PMA pending with the FDA for a labeling change addressing the
use of ancillary
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equipment during the use of the PROSORBA column therapy. The FDA has indicated
to the Company that the PMA supplement would be approvable if certain additional
information is provided. There can be no assurance that the Company will receive
approval of its pending PMA supplement or any future PMA supplements will be
approved by the FDA.
Even if FDA approval is granted to market a product for the treatment of a
particular disease, subsequent discovery of previously unknown problems may
result in restrictions on the product's future use or withdrawal of the product
from the market. In addition, any other products developed in the future will
require clinical testing and FDA marketing approval before they can be
commercially exploited in the United States. Such approval process is typically
very lengthy and there is no assurance that FDA approvals will be obtained.
The manufacture and distribution of medical devices are subject to
continuing FDA regulation. In addition to the requirement that the device be
marketed only for its approved use, applicable law requires compliance with the
FDA's good manufacturing practices ("GMP") regulations. Failure to comply with
the GMP regulations or with other applicable legal requirements can lead to
federal seizure of non-complying products, injunctive actions brought by the
federal government, and potential criminal liability on the part of the Company
and of the officers and employees of the Company who are responsible for the
activities that lead to the violations.
To date, production of commercial quantities of the raw materials utilized
in production of the PROSORBA column has been performed at the Redmond facility.
Final assembly of the PROSORBA column has been performed at the Seattle
facility. In conjunction with the Company's restructuring plan and corresponding
reduction in facilities, the Seattle and Redmond, Washington facilities are
being consolidated into a single manufacturing facility in Redmond. The Company
has already subleased a major portion of its Seattle facility to a third party.
Under the terms of the Company's sub-lease of its Seattle facility, the Company
must vacate the remainder of the facility no later than December 31, 1996 or
else be subject to substantial financial penalties. The Redmond facility is
under renovation in order to enable both the production of raw materials, as
well as the final assembly of the PROSORBA column, to be performed in the
Redmond facility. The renovated Redmond facility, when complete, must comply
with the FDA's GMP regulations and must complete the GMP re-approval process.
There can be no assurance that the Company will complete the renovations in time
to sustain uninterrupted production of the PROSORBA column. In addition, there
can be no assurance that the renovated facility will receive GMP approval in a
timely manner, if at all.
Furthermore, PRP occupies a facility that includes a GMP-approved pilot
production plant where all phases of production of clinical-grade IPM occurs,
except for filling and lyophilization. There can be no assurance that the
Company will be able to maintain the facility's GMP-approved status or that, if
approval is not maintained, it will be able to find an alternate GMP-approved
production facility.
COMPETITIVE ENVIRONMENT; TECHNOLOGICAL CHANGE; EFFECTIVENESS OF
PRODUCTS. The field of medical devices in general and the particular areas in
which the Company will market its products are extremely competitive. In
developing and marketing medical devices to treat immune-mediated diseases and
cancers, the Company competes with other products, therapeutic techniques and
treatments which are offered by national and international healthcare and
pharmaceutical companies, many of which have greater marketing, human and
financial resources than the Company.
The immunological therapy market is characterized by rapid technological
change and potential introductions of new products or therapies. To respond to
these changes, the Company may be required to develop or purchase new products
to protect its technology from obsolescence. There can be no assurance that the
Company will be able to develop or obtain such products, or, if developed or
obtained, that such products will be commercially viable. In addition, there can
be no assurance that the Company's PROSORBA column will prove effective in the
treatment of diseases other than ITP or that IPM, if approved for sale by the
FDA, will be effective in treating thrombocytopenia or other blood platelet
disorders.
DEPENDENCE ON THIRD PARTY ARRANGEMENTS. The Company's commercial sale of
its proposed products and its future product development may be dependent upon
entering into arrangements with corporate
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partners and other third parties for the development, marketing, distribution
and/or manufacturing of products utilizing the Company's proprietary technology.
While the Company is currently seeking collaborative research and development
arrangements and joint venture opportunities with corporate sponsors and other
partners, there can be no assurance that the Company will be successful in
entering into such arrangements or joint ventures or that any such arrangements
will prove to be successful.
PRIOR EXCLUSIVE AGREEMENT WITH BAXTER; NECESSITY OF ESTABLISHING A SALES
FORCE. In February 1994, the Company entered into a 10-year exclusive
distribution agreement with Baxter, granting to Baxter distribution rights to
its PROSORBA column in the United States and Canada for the treatment of
thrombocytopenia and the first right to negotiate for new PROSORBA column
indications. Baxter, at its own expense, was to provide sales and marketing
support for the sale of the product during the term of the agreement. Baxter
assumed the Company's sales and distribution responsibilities in April 1994.
In March 1996, the Company and Baxter terminated the exclusive distribution
agreement, whereby, effective May 1, 1996, the Company regained the right, among
other things, to sell its PROSORBA column directly to customers who had
previously purchased PROSORBA columns through Baxter as well as to any other
potential customers who wish to purchase PROSORBA columns. As a result of the
termination of the distribution agreement, the Company is in the process of
establishing an internal domestic sales force dedicated solely to marketing and
selling its PROSORBA column. To date, the Company has hired six salespersons
whom are directed solely to selling and marketing the PROSORBA column. There can
be no assurance that the Company will be successful in selling its PROSORBA
columns directly to any new customers or to any customers who previously
purchased PROSORBA columns through Baxter.
LIMITED INTERNATIONAL SALES AND MARKETING. The Company conducts limited
marketing of the PROSORBA column outside the United States through foreign
distributors. Sales to foreign distributors have not been material to the
Company's results from operations. There can be no assurance that foreign sales
arrangements will become material to the Company's results of operations.
UNCERTAINTY OF PATENT PROTECTION AND CLAIMS TO TECHNOLOGY. With the
acquisition of PRP, the Company now holds 13 United States and 8 foreign patents
relating to its technology and has also filed other U.S. and foreign patent
applications related to its technology. In addition, the Company has an
exclusive license for a U.S. patent for a genetic screening test to predict
which rheumatoid arthritis patients will develop severe disease. Neither the
protection afforded by these patents nor their enforceability can be assured.
Furthermore, there can be no assurance that additional patents will be obtained
either in the United States or in foreign jurisdictions or that, if issued, such
additional patents will provide sufficient protection to the Company's
technology or be of commercial benefit to the Company. Insofar as the Company
relies on trade secrets and unpatented proprietary know-how, there can be no
assurance that others will not independently develop similar technology or that
secrecy will not be breached. There can be no assurance that the Company will be
able to develop further technological innovations.
Others have filed applications for, or have been issued, patents and may
obtain additional patents and other proprietary rights relating to products or
processes competitive with those of the Company. The scope and validity of all
such patents is presently unknown. However, the holder of one such patent has
challenged the use by the Company of certain technology covered by such patent.
The Company is currently in the process of attempting to obtain a license
agreement with such holder that would enable the Company to continue the use of
such technology. There can be no assurances that the Company will be successful
in obtaining such a license on favorable terms, if at all. If other existing or
future patents are challenged in litigation or interference proceedings, the
Company may become subject to significant liabilities to third parties or be
required to seek licenses from third parties. There can be no assurance that
such licenses would be available or, if available, obtainable on acceptable
terms.
In connection with the Merger, the Company acquired certain exclusive
rights with respect to the use, manufacture and sale of products and/or
processes related to analogs of the compound diadenosine tetraphosphate
("AP4A"), which rights were granted to PRP in July 1992 pursuant to a license
agreement between PRP and a collaborator of PRP (the "Licensor"). Under the
terms of the license agreement, PRP was obligated to file an IND with respect to
the commercial application of such rights within four years of acquiring such
rights. Neither PRP nor the Company has filed such IND. Due to such failure,
Licensor has
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the right to cancel upon 30 days written notice the exclusive license or to
convert the exclusive license to a nonexclusive license. If Licensor elects to
cancel such license, there can be no assurance that the Company will be able to
acquire or license the similar rights on terms acceptable to the Company, if at
all.
Various scientific personnel of the Company were previously associated with
non-profit research or education institutions that typically require researchers
to execute agreements giving such institutions broad rights to inventions
created or developed during the period that the scientist is associated with
such institution. While no such institution has to date asserted rights to the
Company's technology, such assertions may be made in the future, and if made,
there can be no assurances that the Company will be successful in any such
litigation.
CONCENTRATION OF OWNERSHIP. As of November 1, 1996, Allen & Company
Incorporated and Mr. Richard M. Crooks, a director of the Company, beneficially
owned approximately 16% and 3.0%, respectively, of the outstanding Common Stock
of the Company. Mr. Crooks is also a director and consultant to Allen & Company
Incorporated. Together, Mr. Crooks and Allen & Company Incorporated own a
significant amount of the total outstanding Common Stock of the Company and may
be able to exert substantial influence over the outcome of matters requiring
stockholder approval.
RECOVERABILITY OF ENDING INVENTORIES. As of September 30, 1996, the
Company's ending inventory balances consisted of $335,856 of raw materials,
$686,392 of work in process and $261,720 of finished goods. In order to recover
such ending inventory balances, the Company would have to sell approximately 20%
more PROSORBA column units to customers than that amount sold to customers by
Baxter during 1995. Such increase represents approximately 60% of the total
sales made by the Company's sales force in fiscal year 1993 prior to entering
into the Baxter agreement. As a result of the termination of the distribution
agreement with Baxter, the Company is actively establishing a domestic sales
force to sell the PROSORBA column directly to customers who previously purchased
PROSORBA columns from Baxter and to other potential customers who wish to
purchase PROSORBA columns directly from the Company. To date, the Company has
hired 6 salespersons whom are dedicated solely to selling the PROSORBA column.
Although there can be no assurances that the Company's sales force will be
successful in selling the Company's product, the Company believes, based upon
historical sales figures, that it can generate sufficient sales to recover the
ending inventory balances described above with a sales force of between 5 and 7
salespersons dedicated solely to selling the Company's PROSORBA column. On May
1, 1996, the Company increased the sales price of the PROSORBA columns to be
sold directly to customers by approximately 9%. This is the first such price
increase implemented by the Company since January 1, 1994. The Company believes
that such price increase reflects a nominal price increase for a medical device
for the period covered by such increase. However, there can be no assurance that
the Company will be successful in selling the PROSORBA column at the increased
price, if at all. See "-- Prior Exclusive Agreement with Baxter; Necessity of
Establishing a Sales Force."
INSURANCE REIMBURSEMENT. Successful commercialization of a new medical
product, such as the PROSORBA column or IPM depends, in part, on reimbursement
by public and private health insurers to health care providers for use of such
products. The availability of such reimbursement is subject to a variety of
factors, many of which could affect the Company as it commercializes use of the
PROSORBA column and continues development and commercialization of IPM. Although
the Company has been generally successful in assisting health care providers in
arranging reimbursement for the use of the PROSORBA column in the treatment of
ITP, there can no assurance that public and private insurers will continue to
reimburse for the use of the PROSORBA column. In addition, there can be no
assurance that health care providers will reimburse for the use of IPM, when and
if commercialized.
UNCERTAINTY OF HEALTH CARE REFORM. There are widespread efforts to control
health care costs in the U.S. and worldwide. Various federal and state
legislative initiatives regarding health care reform and similar issues continue
to be at the forefront of social and political discussion. These trends may lead
third-party payors to decline or limit reimbursement for the Company's product,
which could negatively impact the pricing and profitability of, or demand for,
the Company's product. The Company believes that government and private efforts
to contain or reduce health care costs are likely to continue. There can be no
assurance concerning the likelihood that any such legislative or regulatory
initiative will be enacted, or market reform
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initiated, or that, if enacted such reform or initiative will not result in a
material adverse impact on the business, financial condition or results of
operations of the Company.
PRODUCT LIABILITY. The use of the PROSORBA column and, when and if approved
for use by the FDA, IPM, involve the possibility of adverse effects occurring to
end-users that could expose the Company to product liability claims. The Company
believes that its product liability insurance coverage is adequate in light of
the Company's business. However, although the Company currently maintains
product liability insurance coverage, there can be no assurance that such
coverage or any increased amount of coverage will be adequate to protect the
Company and there can be no assurance that the Company will have sufficient
resources to pay any liability resulting from such a claim.
EXERCISE PRICE OF WARRANTS; POSSIBLE VOLATILITY OF STOCK PRICE; ABSENCE OF
DIVIDENDS. The exercise price of the Warrants was determined by the Company in
its sole discretion and is not necessarily related to the fair market value of
the Company's Common Stock, the Company's book value, net worth or any other
established means of valuation.
There has been significant volatility in the market prices of securities of
biomedical companies in general, including the Company's securities. Factors
such as announcements by the Company or others of technological innovations,
results of clinical trials, new commercial products, regulatory approvals or
proprietary rights developments, coverage decisions by third-party payors for
therapies and public concerns regarding the safety and other implications of
biotechnology and biomedical products may have a significant impact on the
Company's business and market price of the Company's securities. In addition, in
connection with the Merger, the Company is obligated to make a $5,000,000
milestone payment to the former holders of equity securities (including holders
of warrants and options) of PRP upon the public announcement of an FDA
approvable letter relating to the use of IPM for the treatment of
thrombocytopenia. The Company has the option to make such milestone payment in
the form of Common Stock of the Company. The issuance of Common Stock with a
value of $5,000,000 could have a significant impact on the market price of the
Company's securities.
No dividends have been paid on the Company's Common Stock to date, and the
Company does not anticipate paying dividends on its Common Stock in the
foreseeable future.
HAZARDOUS MATERIAL. The Company's research and development programs involve
the controlled use of biohazardous materials such as viruses, and may include
the use of the HIV virus that causes AIDS. Although the Company believes that
its safety procedures for handling such materials comply with the standards
prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident, the Company could be held liable for any damages
that result, and any such liability could exceed the resources of the Company.
LIMITATION OF NET OPERATING LOSS CARRYFORWARDS. The Company's sale of
Common Stock in November 1990 and September 1991 when taken together with prior
issuances, caused the limitation of Section 382 of the Internal Revenue Code of
1986, as amended, to be applicable. This limitation will allow the Company to
use only a portion of the net operating loss carryforwards to offset future
taxable income, if any, for federal income tax purposes. Based on the
limitations of Section 382 and before consideration of the effect of the sale of
securities offered hereby, the Company may be allowed to use no more than
approximately $2,450,000 of such losses each year to reduce taxable income, if
any. To the extent not utilized by the Company, unused losses will carry forward
subject to the limitations to offset future taxable income, if any, until such
unused losses expire. All unused net operating losses will expire 15 years after
any year in which they were generated. The years in which such expiration will
take place range from 1998 to 2010.
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SELLING SECURITYHOLDERS
The Selling Securityholders represented in their purchase agreements that
they were acquiring the Shares, Warrants and Warrant Shares for investment and
with no present intention of distributing the Shares, Warrants and Warrant
Shares. In recognition of the fact that the Selling Securityholders, even though
purchasing the Shares, Warrants and Warrant Shares without a view to distribute,
may wish to be legally permitted to sell the Shares, Warrants and Warrant Shares
when each deems appropriate, the Company has filed with the Commission a
Registration Statement on Form S-3, which this Prospectus forms a part, with
respect to, among other things, the resale of the Shares, Warrants and Warrant
Shares from time to time at prevailing prices in the over-the-counter market or
in privately-negotiated transactions and has agreed to prepare and file such
amendments and supplements to the Registration Statement as may be necessary to
keep the Registration Statement effective until all Shares, Warrants and Warrant
Shares offered hereby have been sold pursuant thereto or until such Shares,
Warrants and Warrant Shares are no longer, by reason of Rule 144 under the
Securities Act or any other rule of similar effect, required to be registered
for the sale thereof by the Selling Securityholders.
The following table sets forth the (i) name of each Selling Securityholder,
(ii) number of shares of Common Stock (including Warrant Shares) and Warrants
beneficially owned by each Selling Securityholder as of November 1, 1996, (iii)
number of Shares (including Warrant Shares) and Warrants which may be offered
pursuant to this Prospectus and (iv) number of shares of Common Stock (including
Warrant Shares and Warrants beneficially owned by each Selling Securityholder
upon the completion of this offering). This information is based upon
information provided to the Company by the Selling Securityholders. Because the
Selling Securityholders may offer all, some or none of their Shares, Warrants or
Warrant Shares, no definitive estimate as to the number of shares thereof that
will be held by the Selling Securityholders after such offering can be provided.
<TABLE>
<CAPTION>
SHARES
WARRANTS BENEFICIALLY
SHARES BENEFICIALLY BENEFICIALLY NUMBER OF NUMBER OF OWNED
OWNED PRIOR TO OWNED PRIOR TO SHARES WARRANTS AFTER
OFFERING OFFERING BEING OFFERED BEING OFFERED OFFERING
NAME OF SELLING ---------------------- -------------------- ------------- ------------- ---------
SECURITYHOLDERS(1) NUMBER(2) PERCENT(3) NUMBER PERCENT(4) NUMBER(2) NUMBER NUMBER(5)
- ---------------------------------- --------- ---------- ------- ---------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Allen, Susan...................... 1,005,119 2.9% 125,000 4.3% 375,000 125,000 630,119
Altorfer, John.................... 7,599 * 2,533 * 7,599 2,533 0
Ambit & Co........................ 75,000 * 25,000 * 75,000 25,000 0
Anthony, Garner................... 300,000 * 100,000 3.5% 300,000 100,000 0
Aries Domestic Fund............... 1,009,166 2.9% 37,500 1.3% 112,500 37,500 896,666
Baradaran, Sharyar & Sharon....... 75,000 * 25,000 * 75,000 25,000 0
Battle Fowler LLP................. 29,121 * 9,707 * 29,121 9,707 0
Berger, Michael J................. 18,750 * 6,250 * 18,750 6,250 0
Bowles, Joanne.................... 9,045 * 3,015 * 9,045 3,015 0
Brady, Jane Wilde................. 18,750 * 6,250 * 18,750 6,250 0
Buono, Timothy.................... 1,356 * 452 * 1,356 452 0
Cato Holding Company.............. 224,412 * 74,804 2.6% 224,412 74,804 0
Chao, Johanna T................... 20,268 * 6,756 * 20,268 6,756 0
<CAPTION>
WARRANTS BENEFICIALLY
OWNED AFTER OFFERING
NAME OF SELLING ----------------------
SECURITYHOLDERS(1) PERCENT(3) NUMBER(6) PERCENT(5)
- ---------------------------------- ---------- --------- ----------
<S> <<C> <C> <C>
Allen, Susan...................... 1.8% 0 0%
Altorfer, John.................... 0% 0 0%
Ambit & Co........................ 0% 0 0%
Anthony, Garner................... 0% 0 0%
Aries Domestic Fund............... 2.6% 0 0%
Baradaran, Sharyar & Sharon....... 0% 0 0%
Battle Fowler LLP................. 0% 0 0%
Berger, Michael J................. 0% 0 0%
Bowles, Joanne.................... 0% 0 0%
Brady, Jane Wilde................. 0% 0 0%
Buono, Timothy.................... 0% 0 0%
Cato Holding Company.............. 0% 0 0%
Chao, Johanna T................... 0% 0 0%
Cless, Gerhard.................... 490,000 1.4% 50,000 1.7% 150,000 50,000 340,000
Cole, Lorelei..................... 21,000 * 7,000 * 21,000 7,000 0
Coolidge, Peter................... 9,000 * 3,000 * 9,000 3,000 0
Curran Partners LP................ 187,500 * 62,500 2.2% 187,500 62,500 0
D'Amato, Anthony.................. 18,750 * 6,250 * 18,750 6,250 0
David & Angella Nazarian Family
Trust............................ 37,500 * 12,500 * 37,500 12,500 0
Dickerson, Claire M............... 20,004 * 6,668 * 20,004 6,668 0
Dickerson, Thomas P............... 57,345 * 19,115 * 57,345 19,115 0
Doctor Thwack, Ltd................ 9,375 * 3,125 * 9,375 3,125 0
Douglas S. Winter, Inc. Profit
Sharing Plan..................... 9,375 * 3,125 * 9,375 3,125 0
Drobny/Fischer Partnership........ 421,500 1.2% 62,500 2.2% 187,500 62,500 234,000
Dynamics Technology, Inc.......... 825,174 2.4% 275,058 9.5% 825,174 275,058 0
EBC Investors, an Illinois general
partnership...................... 52,500 * 17,500 * 35,000 17,500 0
EGS Securities Corp............... 83,883 * 27,961 * 83,883 27,961 0
Emer, Randy....................... 9,375 * 3,125 * 9,375 3,125 0
Gelber, Howard.................... 30,000 * 5,000 * 15,000 5,000 15,000
Goby, Jeff........................ 38,000 * 6,000 * 18,000 6,000 20,000
<CAPTION>
Cless, Gerhard.................... 1.0% 0 0%
<S> <<C> <C> <C>
Cole, Lorelei..................... 0% 0 0%
Coolidge, Peter................... 0% 0 0%
Curran Partners LP................ 0% 0 0%
D'Amato, Anthony.................. 0% 0 0%
David & Angella Nazarian Family
Trust............................ 0% 0 0%
Dickerson, Claire M............... 0% 0 0%
Dickerson, Thomas P............... 0% 0 0%
Doctor Thwack, Ltd................ 0% 0 0%
Douglas S. Winter, Inc. Profit
Sharing Plan..................... 0% 0 0%
Drobny/Fischer Partnership........ * 0 0%
Dynamics Technology, Inc.......... 0% 0 0%
EBC Investors, an Illinois general
partnership...................... 0% 0 0%
EGS Securities Corp............... 0% 0 0%
Emer, Randy....................... 0% 0 0%
Gelber, Howard.................... * 0 0%
Goby, Jeff........................ * 0 0%
</TABLE>
17
<PAGE> 17
<TABLE>
<CAPTION>
SHARES
WARRANTS BENEFICIALLY
SHARES BENEFICIALLY BENEFICIALLY NUMBER OF NUMBER OF OWNED
OWNED PRIOR TO OWNED PRIOR TO SHARES WARRANTS AFTER
NAME OF SELLING OFFERING OFFERING BEING OFFERED BEING OFFERED OFFERING
SECURITYHOLDERS(1) NUMBER(2) PERCENT(3) NUMBER PERCENT(4) NUMBER(2) NUMBER NUMBER(5)
- ---------------------------------- --------- ---------- ------- ---------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
WARRANTS BENEFICIALLY
NAME OF SELLING OWNED AFTER OFFERING
SECURITYHOLDERS(1) PERCENT(3) NUMBER(6) PERCENT(5)
- ---------------------------------- ---------- --------- ----------
<S> <<C> <C> <C>
Goldberg, David S................. 37,500 * 12,500 * 12,500 12,500 0
Goulding, M.D., Richard E......... 47,450 * 6,250 * 18,750 6,250 28,700
Goulding, Randall S............... 53,684 * 9,500 * 28,500 9,500 25,184
Green, Richard.................... 23,375 * 3,125 * 9,375 3,125 14,000
Greenwald, Jonathan............... 18,750 * 6,250 * 18,750 6,250 0
Groh, James H., Sr................ 18,750 * 6,250 * 18,750 6,250 0
Gutman, Craig..................... 18,750 * 6,250 * 18,750 6,250 0
Heidenreich, Jenny................ 4,521 * 1,507 * 4,521 1,507 0
Horberg, Howard Todd.............. 75,000 * 25,000 * 75,000 25,000 0
Howard J. Bernstein Trustee under
Declaration of Trust dated April
28, 1987......................... 18,750 * 6,250 * 18,750 6,250 0
Incavo, Noel F.................... 85,000 * 25,000 * 75,000 25,000 10,000
Infinity Fund, L.P................ 300,000 * 100,000 3.5% 300,000 100,000 0
Jayhawk Institutional, L.P........ 45,000 * 15,000 * 45,000 15,000 0
Jayhawk Investments, L.P.......... 405,000 1.2% 135,000 4.7% 405,000 135,000 0
Jerome P. Seiden Revocable
Trust............................ 37,500 * 12,500 * 37,500 12,500 0
Jerome Schachter and Associates
Pension Plan and Trust........... 37,500 * 12,500 * 37,500 12,500 0
Kamensky, Marvin.................. 18,750 * 6,250 * 18,750 6,250 0
Katzman, Howard L................. 18,750 * 6,250 * 18,750 6,250 0
Katzman, Marshall................. 18,750 * 6,250 * 18,750 6,250 0
Kushnir, Richard D................ 60,000 * 10,000 * 20,000 10,000 30,000
Kornreich, Joseph................. 9,000 * 3,000 * 9,000 3,000 0
Leonard Loventhal Trust Account
U/A/D 9/24/92, Leonard Loventhal
& Mark Litner Trustees........... 45,000 * 15,000 * 45,000 15,000 0
LeVine, Fred...................... 18,750 * 6,250 * 18,750 6,250 0
Levy, Steve....................... 117,500 * 12,500 * 37,500 12,500 80,000
Liss, Arthur...................... 25,000 * 5,000 * 15,000 5,000 10,000
Lydon, Harris R. L., Jr........... 18,750 * 6,250 * 18,750 6,250 0
Mateles, Richard I................ 9,375 * 3,125 * 9,375 3,125 0
McCallion, Gerald A............... 37,500 * 12,500 * 37,500 12,500 0
Melohn, Alfons.................... 150,000 * 50,000 1.7% 150,000 50,000 0
Michael Associates................ 37,500 * 12,500 * 37,500 12,500 0
Miller, Richard J................. 9,045 3,015 * 9,045 3,015 0
Morgenstern, J.M.................. 22,000 * 4,000 * 12,000 4,000 10,000
Mullins, Jerome J................. 150,000 * 50,000 1.7% 150,000 50,000 0
Nagorsky, Sy...................... 25,000 * 5,000 * 15,000 5,000 10,000
Neuscheler, Joan P................ 13,083 * 4,361 * 13,083 4,361 0
Olson, Arthur M................... 29,375 * 3,125 * 9,375 3,125 20,000
Olshansky, Melvin A............... 85,000 * 25,000 * 75,000 25,000 10,000
Pelts, James J.................... 15,000 * 5,000 * 15,000 5,000 0
Philip C. Goldstick Revocable
Trust............................ 71,500 * 12,500 * 37,500 12,500 34,000
Platelet Productions
International, Ltd............... 261,768 * 87,256 3.0% 261,768 87,256 0
Polinsky, Mark.................... 18,750 * 6,250 * 18,750 6,250 0
Priority Investments, Inc......... 93,000 * 31,000 * 93,000 31,000 0
Pritikin, Mark.................... 26,750 * 6,250 * 18,750 6,250 8,000
Rabinowitz, Beryl................. 9,375 * 3,125 * 9,375 3,125 0
Rabuck, Vivian.................... 18,750 * 6,250 * 18,750 6,250 0
Richard E. Goulding, M.D. Profit
Sharing Plan..................... 10,875 * 3,625 * 10,875 3,625 0
Richcourt $ Strategies, Inc....... 129,000 * 43,000 1.5% 129,000 43,000 0
Rosenberg, Reuben................. 22,500 * 7,500 * 22,500 7,500 0
Rosin, Joseph A................... 46,700 * 10,000 * 30,000 10,000 16,700
Schachter, Jerome................. 57,500 * 12,500 * 37,500 12,500 20,000
Schwartz, Sarah................... 18,750 * 6,250 * 18,750 6,250 0
Seminer, Scott.................... 17,725 * 3,125 * 9,375 3,125 8,350
Shapland, George T................ 18,750 * 6,250 * 18,750 6,250 0
Sharon D. Gonsky DBA SDG
Associates....................... 59,500 * 6,500 * 19,500 6,500 40,000
<CAPTION>
Goldberg, David S................. 0% 0 0%
Goulding, M.D., Richard E......... * 0 0%
Goulding, Randall S............... * 0 0%
Green, Richard.................... * 0 0%
Greenwald, Jonathan............... 0% 0 0%
Groh, James H., Sr................ 0% 0 0%
Gutman, Craig..................... 0% 0 0%
Heidenreich, Jenny................ 0% 0 0%
Horberg, Howard Todd.............. 0% 0 0%
Howard J. Bernstein Trustee under
Declaration of Trust dated April
28, 1987......................... 0% 0 0%
Incavo, Noel F.................... * 0 0%
Infinity Fund, L.P................ 0% 0 0%
Jayhawk Institutional, L.P........ 0% 0 0%
Jayhawk Investments, L.P.......... 0% 0 0%
Jerome P. Seiden Revocable
Trust............................ 0% 0 0%
Jerome Schachter and Associates
Pension Plan and Trust........... 0% 0 0%
Kamensky, Marvin.................. 0% 0 0%
Katzman, Howard L................. 0% 0 0%
Katzman, Marshall................. 0% 0 0%
Kushnir, Richard D................ * 0 0%
Kornreich, Joseph................. 0% 0 0%
Leonard Loventhal Trust Account
U/A/D 9/24/92, Leonard Loventhal
& Mark Litner Trustees........... 0% 0 0%
LeVine, Fred...................... 0% 0 0%
Levy, Steve....................... * 0 0%
Liss, Arthur...................... * 0 0%
Lydon, Harris R. L., Jr........... 0% 0 0%
Mateles, Richard I................ 0% 0 0%
McCallion, Gerald A............... 0% 0 0%
Melohn, Alfons.................... 0% 0 0%
Michael Associates................ 0% 0 0%
Miller, Richard J................. 0% 0 0%
Morgenstern, J.M.................. * 0 0%
Mullins, Jerome J................. 0% 0 0%
Nagorsky, Sy...................... * 0 0%
Neuscheler, Joan P................ 0% 0 0%
Olson, Arthur M................... * 0 0%
Olshansky, Melvin A............... * 0 0%
Pelts, James J.................... 0% 0 0%
Philip C. Goldstick Revocable
Trust............................ * 0 0%
Platelet Productions
International, Ltd............... 0% 0 0%
Polinsky, Mark.................... 0% 0 0%
Priority Investments, Inc......... 0% 0 0%
Pritikin, Mark.................... * 0 0%
Rabinowitz, Beryl................. 0% 0 0%
Rabuck, Vivian.................... 0% 0 0%
Richard E. Goulding, M.D. Profit
Sharing Plan..................... 0% 0 0%
Richcourt $ Strategies, Inc....... 0% 0 0%
Rosenberg, Reuben................. 0% 0 0%
Rosin, Joseph A................... 0 0%
Schachter, Jerome................. 0 0%
Schwartz, Sarah................... 0% 0 0%
Seminer, Scott.................... 0 0%
Shapland, George T................ 0% 0 0%
Sharon D. Gonsky DBA SDG
Associates....................... * 0 0%
</TABLE>
18
<PAGE> 18
<TABLE>
<CAPTION>
SHARES
WARRANTS BENEFICIALLY
SHARES BENEFICIALLY BENEFICIALLY NUMBER OF NUMBER OF OWNED
OWNED PRIOR TO OWNED PRIOR TO SHARES WARRANTS AFTER
OFFERING OFFERING BEING OFFERED BEING OFFERED OFFERING
NAME OF SELLING ---------------------- -------------------- ------------- ------------- ---------
SECURITYHOLDERS(1) NUMBER(2) PERCENT(3) NUMBER PERCENT(4) NUMBER(2) NUMBER NUMBER(5)
- ---------------------------------- --------- ---------- ------- ---------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
WARRANTS BENEFICIALLY
OWNED AFTER OFFERING
NAME OF SELLING ----------------------
SECURITYHOLDERS(1) PERCENT(3) NUMBER(6) PERCENT(5)
- ---------------------------------- ---------- --------- ----------
<S> <<C> <C> <C>
Shepco............................ 18,750 * 6,250 * 18,750 6,250 0
Shepco Enterprises IncorporateD... 37,500 * 12,500 * 37,500 12,500 0
Sheppard, Neil.................... 18,750 * 6,250 * 18,750 6,250 0
Sherman, Lawrence A............... 25,000 * 5,000 * 15,000 5,000 10,000
Shiman, Stewart A................. 225,000 * 25,000 * 75,000 25,000 150,000
Simons, Aric and Corey............ 75,000 * 25,000 * 75,000 25,000 0
Sirazi, Semir..................... 57,500 * 12,500 * 37,500 12,500 20,000
Sutker, Allen..................... 18,750 * 6,250 * 18,750 6,250 0
Swager, Eugene.................... 9,045 * 3,015 * 9,045 3,015 0
Swager, Harriet................... 4,521 * 1,507 * 4,521 1,507 0
The Alfred J. Anzalone Family
Limited Partnership.............. 75,000 * 25,000 * 75,000 25,000 0
The Aries Trust................... 1,156,666 3.3% 87,500 3.0% 262,500 87,500 894,166
Tullis-Dickerson Capital Focus,
L.P.............................. 1,414,836 4.0% 471,612 16.4% 1,414,836 471,612 0
Tullis, James L.L................. 105,042 * 35,014 1.2% 105,042 35,014 0
Tullis, Linda A................... 4,521 * 1,507 * 4,521 1,507 0
Urban & Co........................ 9,375 * 3,125 * 9,375 3,125 0
Vance, Carol...................... 9,045 * 3,015 * 9,045 3,015 0
Weber, Merrill.................... 22,500 * 7,500 * 22,500 7,500 0
Wholegainer Company Limited....... 150,048 * 50,016 1.7% 150,048 50,016 0
Wienckoski, Thomas J.............. 35,450 * 6,250 * 18,750 6,250 16,700
Wm. Smith & Co.................... 37,500 * 12,500 * 25,000 12,500 0
Wu, Johnny I-Mon.................. 175,515 * 58,505 2.0% 175,515 58,505 0
Yahav, Yigal...................... 52,750 * 6,250 * 18,750 6,250 34,000
Zipper, Lance..................... 9,000 * 3,000 * 9,000 3,000 0
<CAPTION>
Shepco............................ 0% 0 0%
Shepco Enterprises IncorporateD... 0% 0 0%
Sheppard, Neil.................... 0% 0 0%
Sherman, Lawrence A............... * 0 0%
Shiman, Stewart A................. 0 0%
Simons, Aric and Corey............ 0% 0 0%
Sirazi, Semir..................... 0 0%
Sutker, Allen..................... 0% 0 0%
Swager, Eugene.................... 0% 0 0%
Swager, Harriet................... 0% 0 0%
The Alfred J. Anzalone Family
Limited Partnership.............. 0% 0 0%
The Aries Trust................... 2.6% 0 0%
Tullis-Dickerson Capital Focus,
L.P.............................. 0% 0 0%
Tullis, James L.L................. 0% 0 0%
Tullis, Linda A................... 0% 0 0%
Urban & Co........................ 0% 0 0%
Vance, Carol...................... 0% 0 0%
Weber, Merrill.................... 0% 0 0%
Wholegainer Company Limited....... 0% 0 0%
Wienckoski, Thomas J.............. * 0 0%
Wm. Smith & Co.................... 0% 0 0%
Wu, Johnny I-Mon.................. 0% 0 0%
Yahav, Yigal...................... * 0 0%
Zipper, Lance..................... 0% 0 0%
</TABLE>
- ---------------
* Less than 1%
(1) Unless otherwise indicated below, the persons named in the foregoing table
have sole voting and investment power with respect to all shares
beneficially owned by them, subject to community property laws where
applicable.
(2) Includes Warrant Shares issuable to each respective Selling Securityholder
upon exercise of Warrants held by such Selling Securityholders as of the
date hereof.
(3) Applicable percentage of ownership is based on 34,551,410 shares of Common
Stock of the Company outstanding on November 1, 1996, adjusted as required
by rules promulgated by the Commission.
(4) Applicable percentage of ownership is based on 2,880,399 Warrants of the
Company outstanding on November 1, 1996.
(5) Assumes the sale of all Shares offered hereby.
(6) Assumes the sale of all Warrants offered hereby.
17
<PAGE> 19
PLAN OF DISTRIBUTION
The Company has been advised that the Selling Securityholders or pledgees,
donees, tranferees of or other successors in interest to the Selling
Securityholders may sell Shares, Warrants and Warrant Shares from time to time
in transactions on the Nasdaq SmallCap Market, in privately negotiated
transactions or a combination of such methods of sale, at fixed prices which may
be changed, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. The Selling
Securityholders may effect such transactions by selling the Shares, Warrants and
Warrant Shares to or through broker-dealers, and such broker-dealers may receive
compensation in the form of discounts, concession or commissions from the
Selling Securityholders or the purchasers of the Shares, Warrants and Warrant
Shares for whom such broker-dealers may act as agent or to whom they sell as
principal, or both (which compensation to a particular broker-dealer might be in
excess of customary commission).
At any time a particular offer of Shares, Warrants or Warrant Shares is
made, to the extent required, a supplemental Prospectus will be distributed
which will set forth the number of Shares, Warrants or Warrant Shares offered
and the terms of the offering including the names or names of any underwriters,
dealers or agents, the purchase price paid by any underwriter for the Shares,
Warrants or Warrant Shares purchased from the Selling Securityholders, any
discounts, commission and other items constituting compensation from the Selling
Securityholders and any discounts, concessions or commissions allowed or
reallowed or paid to dealers.
The Selling Securityholders and any broker-dealers who act in connection
with the sale of Shares, Warrants or Warrant Shares hereunder may be deemed to
be "underwriters" as that term is defined in the Securities Act, and any
commissions received by them and profit on any resale of the Shares, Warrants or
Warrant Shares as principal might be deemed to be underwriting discounts and
commissions under the Securities Act.
Any or all of the sales or other transactions involving the Shares,
Warrants or Warrant Shares described above, whether effected by the Selling
Securityholders, any broker-dealer or others, may be made pursuant to this
Prospectus. In addition, any Shares, Warrants or Warrant Shares that qualify for
sale pursuant to Rule 144 under the Act may be sold under rule 144 rather than
pursuant to this Prospectus.
In order to comply with the securities laws of certain states, if
applicable, the Shares, Warrants and Warrant Shares may be sold in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain states the Shares, Warrants and Warrant Shares may not be
sold unless they have been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Shares, Warrants or Warrant Shares may not
simultaneously engage in market making activities with respect to the Company's
Common Stock or Warrants for a period of two business days prior to the
commencement of such distribution. In addition and without limiting the
foregoing, the Selling Securityholders will be subject to applicable provisions
of the Exchange Act and the rules and regulations thereunder, including without
limitation, Rules 10b-6 and 10b-7, which provisions may limit the timing of
purchases and sales of Shares, Warrants or Warrant Shares by the Selling
Securityholders.
Notwithstanding the foregoing, broker-dealers who are qualifying registered
market makers on the National Association of Securities Dealers Automated
Quotation System (the "Nasdaq") may engage in passive market making transactions
in the Common Stock of the Company on the Nasdaq Stock Market in accordance with
Rule 10b-6A under the Exchange Act, during the two business day period before
commencement of sales in this offering. The passive market making transactions
must comply with applicable price and volume limits and be identified as such.
In general, a passive market maker may display its bid at a price not in excess
of the highest independent bid for the security. If all independent bids are
lowered below the passive market maker's bid, however, such bid must then be
lowered when certain purchase limits are exceeded. Net purchases by a passive
market maker on each day are generally limited to a specified percentage of the
passive market maker's average daily trading volume in the Common Stock of the
Company
20
<PAGE> 20
during a prior period and must be discontinued when such limit is reached.
Passive market making may stabilize the market price of the Common Stock of the
Company at a level above that which might otherwise prevail and, if commenced,
may be discontinued at any time.
All costs and expenses associated with registering the Shares, Warrants and
Warrant Shares being offered hereunder with the Securities and Exchange
Commission will be paid by the Company. Such costs and expenses are estimated to
be $35,000.
The Company and the Selling Securityholders may agree to indemnify certain
persons including broker-dealers or others, against certain liabilities in
connection with any offering of the Shares, Warrants and Warrant Shares,
including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the issuance of the Shares, Warrants and Warrant Shares
will be passed upon for the Company by Cooley Godward LLP, San Diego,
California.
EXPERTS
The consolidated financial statements of the Company incorporated herein by
reference from the Company's Annual Report (Form 10-K/A) for the years ended
December 31, 1995 and 1994, have been audited by Ernst & Young LLP, independent
auditors, and for the year ended December 31, 1993 by Coopers & Lybrand L.L.P.,
independent accountants, as set forth in their respective reports thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
reports given upon the authority of such firms as experts in accounting and
auditing.
19
<PAGE> 21
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses payable by the Registrant in
connection with the sale of the Securities being registered. All the amounts
shown are estimates except for the SEC registration fee and the Nasdaq SmallCap
Market Listing fee.
<TABLE>
<S> <C>
SEC Registration fee............................................... $ 5,114
Nasdaq SmallCap Market Listing fee................................. 8,500
Legal fees and expenses............................................ 10,000
Blue sky qualification fees and expenses........................... 2,500
Accounting fees and expenses....................................... 5,000
Printing and engraving expenses.................................... 1,000
Miscellaneous...................................................... 2,886
-------
Total.............................................................. $35,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Under Section 145 of the Delaware General Corporation Law (the "DGCL"), the
Registrant has broad powers to indemnify its directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act").
The Registrant's Certificate of Incorporation and Bylaws include provisions
to (i) eliminate the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty to the extent permitted by
Section 102(b)(7) of the DGCL and (ii) require the Registrant to indemnify its
directors and officers to the fullest extent permitted by applicable law,
including circumstances in which indemnification is otherwise discretionary.
Pursuant to Section 145 of the DGCL, a corporation generally has the power to
indemnify its present and former directors, officers, employees and agents
against expenses incurred by them in connection with any suit to which they are
or are threatened to be made, a party by reason of their serving in such
positions so long as they acted in good faith and in a manner they reasonably
believed to be in or not opposed to, the best interests of the corporation and
with respect to any criminal action, they had no reasonable cause to believe
their conduct was unlawful. The Registrant believes that these provisions are
necessary to attract and retain qualified persons as directors and officers.
These provisions do not eliminate the directors' or officers' duty of care, and,
in appropriate circumstances, equitable remedies such as injunctive or other
forms of non-monetary relief will remain available under the DGCL. In addition,
each director will continue to be subject to liability pursuant to Section 174
of the DGCL, for breach of the director's duty of loyalty to the Registrant, for
acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for acts or omissions that the director believes to
be contrary to the best interests of the Registrant or its stockholders, for any
transaction from which the director derived an improper personal benefit, for
acts or omissions involving a reckless disregard for the director's duty to the
Registrant or its stockholders when the director was aware or should have been
aware of a risk of serious injury to the Registrant or its stockholders, for
acts or omission that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to the Registrant or its
stockholders, for improper transactions between the director and the Registrant
and for improper loans to directors and officers. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities law or state or federal environmental laws.
II-1
<PAGE> 22
The Registrant has an insurance policy covering the directors and officers
of the Registrant with respect to certain liabilities, including liabilities
arising under the Securities Act or otherwise.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------------------------------------------------------------------------
<C> <S>
5.1 Opinion of Cooley Godward LLP
10.1 Warrant Agreement dated September 18, 1996 between the Registrant and American Stock
Transfer & Trust Company
10.2 Form of Warrant Certificate
10.3 Form of Units Purchase Agreement
*10.4 Agreement and Plan of Merger and Reorganization dated as of September 18, 1996 by and
among Registrant, Cypress Acquisition Sub, Inc. and PRP, Inc.
10.5 Form of Exchange of Bridge Debt and Warrant Termination Agreement
10.6 Modified Fee Agreement dated October 10, 1996 by and among Registrant, PRP, Inc. and EGS
Securities Corp.
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Coopers & Lybrand LLP, Independent Auditors
23.3 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1
24.1 Power of Attorney. Reference is made to page II-6
</TABLE>
(*) To be filed by amendment
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 provisions described in Item 15 or otherwise, the
Registrant has been advised that in the opinion of the 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:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement to include
any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change
to such information in the registration statement.
(2) That, for purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report pursuant to
Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To deliver or cause to be delivered with the Prospectus, to each
person to whom the Prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the Prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule
14c-3 under the Exchange Act; and where interim financial information
required to be presented by Article 3 of Regulation S-X are not set forth
in the Prospectus, to deliver or caused to be delivered to each person to
whom the Prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the Prospectus to provide such
interim financial information.
II-2
<PAGE> 23
(4) That, for the purposes of determining liability under the
Securities Act, each post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(5) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(6) That, 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.
(7) 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 the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Diego, State of California, on November 1, 1996.
CYPRESS BIOSCIENCE, INC.
By: /s/ Susan E. Feiner
------------------------------------
Susan E. Feiner
Director of Finance, Controller and
Secretary
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Jay D. Kranzler, M.D., Ph.D. and Susan E.
Feiner, and each of them, as his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming that all said attorneys-in-fact
and agents, or any of them or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- -----------------
<S> <C> <C>
/s/ Jay D. Kranzler Vice Chairman of the Board November 1, 1996
- --------------------------------------------- of Directors and Chief
Jay D. Kranzler, M.D. Ph.D. Executive Officer
(Principal Executive
Officer)
/s/ Susan E. Feiner Director of Finance, November 1, 1996
- --------------------------------------------- Controller and Secretary
Susan E. Feiner (Principal Financial
Officer)
/s/ Debby Jo Blank Director, President and November 1, 1996
- --------------------------------------------- Chief Operating Officer
Debby Jo Blank, M.D.
/s/ Richard M. Crooks, Jr. Chairman of the Board November 1, 1996
- ---------------------------------------------
Richard M. Crooks, Jr.
/s/ Philip J. O'Reilly Director November 1, 1996
- ---------------------------------------------
Philip J. O'Reilly
/s/ Jack H. Vaughn Director November 1, 1996
- ---------------------------------------------
Jack H. Vaughn
</TABLE>
II-4
<PAGE> 25
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------ ------------------------------------------------------------------------ ------------
<C> <S> <C>
5.1 Opinion of Cooley Godward LLP...........................................
10.1 Warrant Agreement dated September 18, 1996 between the Registrant and
American Stock Transfer & Trust Company.................................
10.2 Form of Warrant Certificate.............................................
10.3 Form of Units Purchase Agreement........................................
*10.4 Agreement and Plan of Merger and Reorganization dated as of September
18, 1996 by and among Registrant, Cypress Acquisition Sub, Inc. and PRP,
Inc.....................................................................
10.5 Form of Exchange of Bridge Debt and Warrant Termination Agreement.......
10.6 Modified Fee Agreement dated October 10, 1996 by and among Registrant,
PRP, Inc. and EGS Securities Corp.......................................
23.1 Consent of Ernst & Young LLP, Independent Auditors......................
23.2 Consent of Coopers & Lybrand LLP, Independent Auditors..................
23.3 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.........
24.1 Power of Attorney. Reference is made to page II-6.......................
</TABLE>
* To be filed by amendment
<PAGE> 1
EXHIBIT 10.1
WARRANT AGREEMENT
DATED AS OF SEPTEMBER 18, 1996
BETWEEN
CYPRESS BIOSCIENCE, INC.
AND
AMERICAN STOCK TRANSFER & TRUST COMPANY,
AS WARRANT AGENT
<PAGE> 2
<TABLE>
<S> <C> <C>
Section 1. Appointment of Warrant Agent ................................... 1
Section 2. Purchase Price; Form of Warrant ................................ 1
Section 3. Registration and Countersignature .............................. 2
Section 4. Registration of Transfers and Exchanges ........................ 2
Section 5. Duration and Exercise of Warrants .............................. 3
Section 5A. Redemption of Warrants. ........................................ 4
Section 5B. Exchange, Transfer or Assignment of Warrants ................... 6
Section 6. Payment of Taxes ............................................... 6
Section 7. Mutilated or Missing Warrants .................................. 7
Section 8. Reservation of Common Stock .................................... 7
Section 9. Adjustments to Exercise Price and Number of Shares ............. 7
Section 10. Fractional Shares .............................................. 10
Section 11. Warrant Holder Not Deemed a Stockholder; Notices ............... 11
Section 12. Disposition of Proceeds on Exercise of Warrants ................ 11
Section 13. Merger or Consolidation or Change of Name of
Warrant Agent................................................... 11
Section 14. Duties of Warrant Agent ........................................ 12
Section 15. Change of Warrant Agent ........................................ 13
Section 16. Identity of Transfer Agent ..................................... 14
Section 17 Indemnification ................................................ 14
Section 18. Notices ........................................................ 14
Section 19. Supplements and Amendments ..................................... 15
Section 20. Successors ..................................................... 15
Section 21. Termination .................................................... 15
Section 22. Governing Law .................................................. 15
Section 23. Benefits of this Agreement ..................................... 15
Section 24. Descriptive Headings ........................................... 16
Section 25. Counterparts ................................................... 16
</TABLE>
<PAGE> 3
WARRANT AGREEMENT
This WARRANT AGREEMENT dated as of September 18, 1996 (the "Agreement")
is made and entered into between CYPRESS BIOSCIENCE, INC., a Delaware
corporation (the "Company), and AMERICAN STOCK TRANSFER & TRUST
COMPANY, as warrant agent (the "Warrant Agent").
WHEREAS, pursuant to the terms of a Private Placement Memorandum to be
dated as of September 3, 1996 (the "Memorandum"), the Company is offering for
sale (the "Offering") up to an aggregate of 1,500,000 units (each a "Unit" and,
collectively the "Units"), each Unit consisting of two shares (each a "Share"
and, collectively, the "Shares") of Common Stock, $0.02 par value, of the
Company and one Common Stock Purchase Warrant (each a "Warrant" and,
collectively, the "Warrants"), entitling the holder thereof to purchase one
share of Common Stock of the Company at an exercise price of $2.00 at any time
until 5:00 P.M. Eastern Time, on October 1, 2001;
WHEREAS, the Units, the Shares, the Warrants and the shares of Common
Stock underlying the Warrants (the "Warrant Shares") are collectively referred
to herein as the "Securities;"
WHEREAS, the Company intends to register the Securities for resale
pursuant to a registration statement filed under the Securities Act of 1933, as
amended (the "Securities Act") on Form S-3 or other appropriate form as
determined by the Company (the "Registration Statement"); and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance, registration, registration of transfer, replacement and exchange of
the certificates evidencing the warrants (the "Warrant Certificates") and the
exercise of the Warrants.
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein set forth, the parties hereto agree as follows:
SECTION 1. APPOINTMENT OF WARRANT AGENT. The Company hereby appoints
the Warrant Agent to act as agent for the Company in accordance with the
instructions hereinafter in this Agreement set forth, and the Warrant Agent
hereby accepts such appointment.
SECTION 2. PURCHASE PRICE; FORM OF WARRANT. The Warrants shall be
evidenced by a Warrant Certificate. The text of the Warrant Certificate and of
the form
1.
<PAGE> 4
of Assignment and Notice of Exercise shall be substantially as set forth in
Exhibit A attached hereto which is made a part hereof by this reference.
Each Warrant shall entitle the holder thereof to purchase one share of
Common Stock of the Company upon the exercise thereof at the applicable exercise
price (the "Exercise Price") specified in Section 5 hereof subject to adjustment
provided in Section 9. The Warrant shall be executed on behalf of the Company by
the manual or facsimile signature of the present or any future Chairman of the
Board or the Chief Executive Officer of the Company, under its corporate seal,
affixed or in facsimile, attested by the manual or facsimile signature of the
present or any future Secretary or Assistant Secretary of the Company. Warrants
shall be dated as of the date of their initial issuance.
SECTION 3. REGISTRATION AND COUNTERSIGNATURE. The Warrant Agent shall maintain
books for the registration, and certification of transfer, of the Warrants. The
Warrants shall be countersigned by the Warrant Agent and shall not be valid for
any purpose unless so countersigned. The Warrants shall be so countersigned,
however, by the Warrant Agent and shall be delivered by the Warrant Agent,
notwithstanding that the persons whose manual or facsimile signatures appear
thereon as proper officers of the Company shall have ceased to be such officers
at the time of such countersignature or delivery.
Prior to due presentment for registration of transfer of the Warrants,
the Company and the Warrant Agent may deem and treat the registered Warrant
holder thereof as the absolute owner of the Warrants (notwithstanding any
notation of ownership or other writing thereon made by anyone other than the
Company or the Warrant Agent), for the purpose of any exercise thereof and for
all other purposes, and neither the Company nor the Warrant Agent shall be
affected by any notice to the contrary.
SECTION 4. REGISTRATION OF TRANSFERS AND EXCHANGES. The Warrant Agent shall from
time to time register the transfer of any outstanding Warrants upon the books to
be maintained by the Warrant Agent for that purpose, upon surrender thereof to
the Company or the Warrant Agent accompanied (if so required by the Company or
the Warrant Agent) by a written instrument or instruments of transfer in form
satisfactory to the Company and the Warrant Agent, duly executed by the
registered Warrant holder or by a duly authorized representative or attorney.
Upon any such registration of transfer, a new Warrant shall be issued to the
transferee and the surrendered Warrant shall be canceled by the Warrant Agent.
Warrants so canceled shall be delivered by the Warrant Agent to the Company from
time to time or otherwise disposed of by the Warrant Agent in a manner
satisfactory to the Company. Warrants may be exchanged at the option of the
Warrant holder thereof, when surrendered at the principal office of the Warrant
Agent in New York, New York or the principal office of the Company in San Diego,
California (in which event the Company shall forward the Warrants surrendered
and the instruments
2.
<PAGE> 5
of transfer to the Warrant Agent) for another Warrant or other Warrants of like
tenor and representing in the aggregate the number of Warrants evidenced by the
Warrant or Warrants so surrendered. The Warrant Agent shall countersign and
deliver, in accordance with the provisions of this Section 4 and of Section 3,
the new Warrant or Warrants required pursuant to the provisions of this Section
4, and the Company, whenever required by the Warrant Agent, will supply the
Warrant Agent with Warrants duly executed on behalf of the Company for such
purpose.
SECTION 5. DURATION AND EXERCISE OF WARRANTS. The Warrants may be exercised at
any time commencing from the date of the closing of the Offering, but prior to
redemption, until 5:00 p.m., Eastern Time on October 1, 2001 (the "Expiration
Date"), at which time all rights evidenced by the Warrants shall cease and the
Warrants shall become void. Subject to the provisions of this Agreement, the
holder of each Warrant shall have the right to purchase from the Company (and
the Company shall issue and sell to such holder of a Warrant) one fully paid and
non-assessable share of Common Stock at an exercise price of $2.00 per share
(the "Exercise Price") (subject to adjustment as provided in Section 9) upon
surrender of the Warrants to the Company at the principal office of the Warrant
Agent in New York, New York with the form of Notice of Exercise appearing as the
last page thereof duly filled in and signed, and upon payment of the Exercise
Price in lawful money of the United States of America to the Warrant Agent for
the account of the Company. No adjustment shall be made for any dividends on any
share of Common Stock issuable on the exercise of a Warrant.
The Exercise Price payable upon exercise of Warrants may, at the option
of the Warrant holder, be paid by check or bank draft made payable to the order
of the Company. Subject to Sections 6 and 11, upon such surrender of a Warrant
and payment of the Exercise Price (and if the Exercise Price is paid by check
other than a certified or bank cashier's check, upon collection of the proceeds
of such check) the Company shall issue and cause to be registered, countersigned
and delivered to or upon the written order of the registered holder of such
Warrant and in such name or names as may duly be designated, a certificate for
the shares of Common Stock being issued pursuant to the Warrant then being
exercised (as adjusted as provided in Section 9). Such certificate shall be
deemed to have been issued and any person so designated to be named therein
shall be deemed to have become a holder of record of such share or shares of
Common Stock, as of the date of the surrender of such Warrant and payment of the
Exercise Price; provided, however, that if, at the date of surrender of such
Warrant and payment of such Exercise Price, the transfer books for the Common
Stock shall be closed, the certificate for such share of shares of Common Stock
shall be issuable as of the date on which such books shall next be opened
(whether before, on or after the Expiration Date) and until such date the
Company shall be under no duty to deliver any certificate for such share or
shares; provided, further, that such books, unless otherwise required by law,
shall not be closed at any one time for a period longer than twenty (20)
calendar days.
3.
<PAGE> 6
The Warrants shall be exercisable immediately upon issuance by the
Company, at the election of the registered Warrant holders thereof, either as an
entirety or from time to time for part only of the number of shares purchasable
upon exercise of the Warrant. In the event that less than all of the Warrants
are exercised as an entirety on or after the date hereof and prior to redemption
or before 5:00 p.m. Eastern Time on the Expiration Date, a new Warrant will be
issued for the remaining number of Warrants exercisable pursuant to the Warrant
so surrendered, and the Warrant Agent shall countersign and deliver the required
new Warrant pursuant to the provisions of this Section 5 and of Section 3 and
the Company, whenever required by the Warrant holder, will supply the Warrant
Agent with a Warrant duly executed on behalf of the Company for such purpose.
All Warrants surrendered upon exercise shall be canceled by the Warrant Agent
and shall thereafter be delivered to the Company or otherwise disposed of in a
manner satisfactory to the Company.
SECTION 5A. REDEMPTION OF WARRANTS. Warrants may be redeemed at the option of
the Company, in whole or in part, on either a selective or non-discriminatory
basis, at a price equal to $0.10 per Warrant (the "Redemption Price") at any
time (i) commencing twelve (12) months after the date hereof if the First
Average Closing Price Requirement (as hereafter defined) is satisfied or (ii)
after their initial issuance by the Company if the Second Average Closing Price
Requirement (as hereafter defined) is satisfied (with any such date of
redemption referred to herein as the "Redemption Date"). The First Average
Closing Price Requirement will be satisfied if the average closing bid price of
the Common Stock as reported by the National Association of Securities Dealers,
Inc. electronic interdealer quotation system ("Nasdaq") (or average closing
sales price, if the Common Stock is quoted on the Nasdaq National Market System)
equals or exceeds $3.00 per share of Common Stock for any twenty (20) trading
days within a period of thirty (30) consecutive trading days ending on the fifth
trading day prior to the date of the notice of redemption. The Second Average
Closing Price Requirement will be satisfied if the average closing bid or, if
applicable, closing sales price as determined and for the periods specified in
the preceding sentence exceeds $4.00. On the Redemption Date, the holders of
record of redeemed Warrants shall be entitled to payment of the Redemption Price
upon surrender of such redeemed Warrants to the Company at the principal office
of the Warrant Agent in New York, New York.
Notice of redemption of Warrants shall be given at least twenty (20)
and not more than forty-five (45) calendar days prior to the Redemption Date by
mailing, by registered or certified mail, return receipt requested, a copy of
such notice to all of the holders of record of Warrants to be redeemed at their
respective addresses appearing on the books or transfer records of the Company
or such other address designated in writing by the holder of record to the
Warrant Agent not less than sixty (60) calendar days prior to the Redemption
Date and shall be effective upon receipt. In addition, notice of such redemption
will be published in The Wall Street Journal not less than ten (10) nor more
4.
<PAGE> 7
than twenty (20) calendar days prior to the mailing of the notice. Any Warrant
so called for redemption may be exercised until the close of business on the
fifth business day preceding the Redemption Date specified in such notice of
redemption. If less than all the Warrants are to be redeemed, the Warrant Agent
shall select the Warrants to be redeemed by a method the Warrant Agent considers
fair and appropriate.
From and after the Redemption Date, all rights of the holders of
Warrants (except the right to receive the Redemption Price) shall terminate, but
only if (a) on or prior to the Redemption Date the Company shall have
irrevocably deposited with the Warrant Agent (or its successor as Warrant Agent)
a sufficient amount to pay on the Redemption Date the Redemption Price for all
Warrants called for redemption and (b) the notice of redemption shall have
stated the name and address of the Warrant Agent and the intention of the
Company to deposit such amount with the Warrant Agent on or before the
Redemption Date.
The Warrant Agent shall pay to the holders of record of redeemed
Warrants all monies received by the Warrant Agent for the redemption of Warrants
to which the holders of record of such redeemed Warrants who shall have
surrendered their Warrants are entitled under the provisions of this Agreement.
Any amounts deposited with the Warrant Agent which are not required for
redemption of Warrants may be withdrawn by the Company. Any amounts deposited
with the Warrant Agent which shall be unclaimed after six (6) months after the
Redemption Date may be withdrawn by the Company, and thereafter the holders of
the Warrants called for redemption for which such funds were deposited shall
look solely to the Company for payment. The Company shall not be entitled to the
interest, if any, on funds deposited with the Warrant Agent, and the holders of
redeemed Warrants shall have no right to any such interest.
If the Company fails to make a sufficient deposit with the Warrant
Agent as provided above, the holder of any Warrants called for redemption may at
the option of the holder (a) by notice to the Company declare the notice of
redemption a nullity, or (b) maintain an action against the Company for the
Redemption Price. If the holder brings such an action, the Company will pay
reasonable attorneys' fees of the holder. If the holder fails to bring an action
against the Company for the redemption price within sixty (60) days after the
Redemption Date, the holder shall be deemed to have elected to declare the
notice of redemption to be a nullity and such notice shall be without any force
or effect.
5.
<PAGE> 8
SECTION 5B. EXCHANGE, TRANSFER OR ASSIGNMENT OF WARRANTS
Prior to the effective date of the Registration Statement, or earlier
if so notified by the Company (the "Separation Date"), a Warrant may not be
divided or combined with other Warrants or exchanged, assigned or transferred
apart from the Common Stock with which it was sold as a Unit to the Warrant
holder. Absent an effective Registration Statement, the Warrant Agent will not
record an exchange, assignment or transfer of a Warrant in the Warrant Register
without certification that the Warrant holder has transferred its Common Stock
to the assignee named on the form of Warrant Assignment contained in the
Warrant.
After the Separation Date, and subject to compliance with all
applicable securities laws, the Warrants may be exchanged or transferred, at the
option of the Warrant holder, upon presentation and surrender of Warrants to the
Warrant Agent or to the Company, for other Warrants of different denominations,
entitling the holder or holders thereof to exercise in the aggregate the same
number of Warrants. Subject to the preceding sentence, a Warrant may be divided
or combined with other Warrants that carry the same rights upon presentation
thereof at the office of the Warrant Agent or the Company, together with written
notice specifying the names and denominations in which new Warrants are to be
issued and signed by the holder thereof.
After the Separation Date, Warrants may be assigned or transferred, at
the option of the Warrant holder, upon surrender of Warrants to the Warrant
Agent, with the Warrant assignment form contained therein duly executed and
accompanied by funds sufficient to pay any transfer tax. The Warrant Agent shall
execute and deliver a new Warrant in the name of the assignee or assignees named
in such instrument or assignment and, if the holder's entire interest in the
Warrants is not being transferred or assigned, in the name of the Warrant
holder, and the Warrant surrendered shall promptly be canceled.
Any transfer, exchange or assignment of the Warrants shall be without
charge (other than the cost of any transfer tax to be paid by the Warrant holder
pursuant to Section 6 hereof) to the Warrant holder and any new Warrant issued
pursuant to this Section 5B shall be dated the date such new Warrant is issued.
SECTION 6. PAYMENT OF TAXES. The Company will pay all documentary stamp
taxes attributable to the original issuance of shares of Common Stock upon the
exercise of Warrants; provided, however, that the Company shall not be required
(i) to pay any tax which may be payable in respect of any transfer involved in
the transfer and delivery of Warrants or the issuance or delivery of
certificates of Common Stock in a name other than that of the registered holder
of the Warrant surrendered for purchase, or (ii) to issue or deliver any
certificate for shares of Common Stock upon the exercise of any Warrants
6.
<PAGE> 9
until any such tax required to be paid under paragraph (i) shall have been paid,
all such tax being payable by the holder of such Warrant at the time of
surrender.
SECTION 7. MUTILATED OR MISSING WARRANTS. In case any of the Warrants
shall be mutilated, lost, stolen or destroyed, the Company may in its discretion
issue and the Warrant Agent may countersign and deliver in exchange and
substitution for and upon cancellation of the mutilated Warrant, or in lieu of
and substitution for the lost, stolen or destroyed Warrant, a new Warrant of
like tenor and evidencing the number of shares purchasable upon exercise of the
Warrant so mutilated, lost, stolen or destroyed, but only upon receipt of
evidence satisfactory to the Warrant Agent of such loss, theft or destruction of
such Warrant and indemnity, if requested, also satisfactory to it. Applicants
for such substitute Warrants shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company or the Warrant
Agent may prescribe.
SECTION 8. RESERVATION OF COMMON STOCK. There have been reserved, and
the Company shall at all times keep reserved, out of the authorized and unissued
shares of Common Stock, a number of shares sufficient to provide for the
exercise of the Warrants. Unless all Warrants shall have been exercised prior to
the Expiration Date of the Warrants, the Warrant Agent shall certify to the
Company, as of the close of business on the Expiration Date, the total aggregate
amount of Warrants then outstanding and thereafter no shares of Common Stock
shall be subject to reservation in respect of such Warrants.
SECTION 9. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SHARES.
The initial Exercise Price and the number of shares of Common Stock
issuable upon exercise of any Warrant (the "Warrant Shares") shall be subject to
adjustment from time to time as follows:
(a) In case, prior to the expiration of any Warrant by
exercise or by its terms, the Company shall issue any shares of its Common Stock
as a stock dividend or subdivide the number of outstanding shares of Common
Stock into a greater number of shares, then, in either of such cases, the
Exercise Price per share of the Warrant Shares purchasable pursuant to any
Warrant in effect at the time of such action shall be proportionately reduced
and the number of Warrant Shares at that time purchasable pursuant to any
Warrant shall be proportionately increased; and conversely, in the event the
Company shall contract the number of outstanding shares of Common Stock by
combining such shares into a smaller number of shares, then in such case, the
Exercise Price per share of the Warrant Shares in effect at the time of such
action shall be proportionately increased and the number of Warrant Shares at
that time purchasable pursuant to any Warrant shall be proportionately
decreased. Any dividend paid or
7.
<PAGE> 10
distributed upon the Common Stock in stock or any other class of securities
convertible into shares of Common Stock shall be treated as a dividend paid in
Common Stock to the extent that shares of Common Stock are issuable upon the
conversion thereof.
(b) In case, prior to the expiration of any Warrant by
exercise or by its terms, the Company shall be recapitalized by reclassifying
its outstanding Common Stock, par value $.02, into stock with a different par
value or by changing its outstanding Common Stock with par value to stock
without par value, or the Company or a successor corporation shall be
consolidated or merge with or convey all or substantially all of its or any
successor corporation's property and assets to any other corporation or
corporations (any such corporation being included within the meaning of the term
"successor corporation" in the event of any consolidation or merger of any such
corporation with, or the sale of all or substantially all of the property of any
such corporation to, another corporation or corporations), in exchange for stock
or securities of a successor corporation, the holder of any Warrant shall
thereafter have the right to purchase upon the terms and conditions and during
the time specified in such Warrant, in lieu of the Warrant Shares theretofore
purchasable upon the exercise of such Warrant, the kind and amount of shares of
stock and other securities receivable upon such recapitalization or
consolidation, merger or conveyance by a holder of the number of shares of
Common Stock which the holder of such Warrant might have purchased immediately
prior to such recapitalization or consolidation, merger or conveyance.
(c) In case, prior to the expiration of any Warrant by
exercise or by its terms, the Company shall issue to all holders of its
outstanding Common Stock rights, warrants or options (expiring forty five (45)
days after the record date for determining shareholders entitled to receive such
rights, warrants or options) to subscribe for or purchase shares of Common Stock
at less than current market price, then, in such case, the Exercise Price per
share of the Warrant Shares purchasable pursuant to any Warrant shall be
proportionately increased.
(d) In case, prior to the expiration of any Warrant by
exercise or by its terms, the Company shall distribute to all holders of shares
of stock (other than Common Stock), evidences of indebtedness, or assets
(excluding cash dividends or distributions payable out of Common Stock) rights,
warrants or options (other than those described in paragraph (c) above) to
subscribe for or purchase shares of Common Stock, then, in such case, the
Exercise Price per share of the Warrant Shares purchasable pursuant to any
Warrant shall be proportionately increased.
(e) In case:
(i) the Company shall take a record of the holders of
its Common Stock for the purpose of entitling them to receive
a dividend or any other
8.
<PAGE> 11
distribution in respect of the Common Stock (including cash),
pursuant to, without limitation, any spin-off, split-off or
distribution of the Company's assets; or
(ii) the Company shall take a record of the holders
of its Common Stock for the purpose of entitling them to
subscribe for or purchase any shares of stock of any class or
to receive any other rights; or
(iii) the Company shall take a record of the holders
of its Common Stock for the purpose of any classification,
reclassification or other reorganization of the capital stock
of the Company, consolidation or merger of the Company with or
into another corporation, or conveyance of all or
substantially all of the assets of the Company; or
(iv) the Company shall take a record of the holders
of its Common Stock for the purpose of the voluntary or
involuntary dissolution, liquidation or winding up of the
Company;
then, and in any such case, the Company shall mail by
first-class mail, postage prepaid, to the Warrant holder, at
least fifteen (15) calendar days prior thereto, a notice
stating the date or expected date on which a record is to be
taken for the purpose of such dividend, distribution or
rights, or the date on which such classification,
reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up is to take
place, as the case may be. Such notice shall also specify the
date or expected date, if any is to be fixed, as of which
holders of Common Stock of record shall be entitled to
participate in said dividend, distribution or rights, or shall
be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such
classification, reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or
winding up, as the case may be. The failure to give such
notice shall not affect the validity of any such proceeding or
transaction and shall not affect the right of the holder of
any Warrant to participate in said dividend, distribution or
rights or any such exchange.
(f) In case the Company at any time while any Warrant shall
remain unexpired and unexercised, shall dissolve, liquidate or wind up its
affairs, the holder of any Warrant may thereafter receive upon exercise hereof
in lieu of each share of Common Stock of the Company which it would have been
entitled to receive, the same kind and amount of any securities or assets as may
be issuable, distributable or payable upon any such dissolution, liquidation or
winding up with respect to each share of Common Stock of the Company.
9.
<PAGE> 12
(g) Whenever the Exercise Price shall be adjusted as required
by the provisions of this Section 9, the Company shall forthwith file in the
custody of its Secretary at its principal office, with the Warrant Agent, and
with its stock transfer agent, if different than the Warrant Agent, an officer's
certificate showing the adjusted Exercise Price determined as therein provided,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, the consideration for such shares, determined as in this Section 9
provided, and such other facts as shall be necessary to show the reason for and
the manner of computing such adjustment. Each such officer's certificate shall
be made available at all reasonable times for inspection by the Warrant holder
and the Company shall, forthwith after each such adjustment, mail by first-class
mail, postage prepaid, a copy of such certificate to the Warrant holder, and
thereafter said certificate shall be conclusive and shall be binding upon each
Warrant holder unless contested by such Warrant holder by written notice to the
Company within ten (10) calendar days after receipt of the certificate by the
Warrant holder.
SECTION 10. FRACTIONAL SHARES. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of any Warrant.
With respect to any fraction of a share called for upon exercise hereof, the
Company shall pay to the Warrant holder an amount in cash equal to such fraction
multiplied by the current market value of such fractional share, which shall be
determined by the Company as follows:
(a) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange (or is
quoted on the Nasdaq National Market System) the current value shall be the last
reported sale price of the Common Stock on such exchange or the National Market
System on the last business day prior to the date of exercise of the Warrant; or
(b) If the Common Stock is not so listed or admitted to
unlisted trading privileges, the current market value shall be the closing bid
price as furnished by Nasdaq on the last business day prior to the date of
exercise, or if not so quoted on Nasdaq, the current market value shall be the
average of the high bid and low asked prices as reported on the "pink sheets" by
the National Daily Quotation Bureau, Inc., dated the last business day prior to
the date of exercise of any Warrant; provided that the term "business day" as
used in this sentence shall mean a day on which trading took place in the
domestic over-the-counter market.
(c) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
current value shall be an amount, not less than book value, determined by the
Company in such reasonable manner as may be prescribed by the Board of Directors
of the Company.
10.
<PAGE> 13
SECTION 11. WARRANT HOLDER NOT DEEMED A STOCKHOLDER; NOTICES. No
holder, as such, of any Warrant shall be entitled to vote or receive dividends
or be deemed the holder of Common Stock or any other securities of the Company
which may at any time be issuable on the exercise thereof for any purpose
whatever, nor shall anything contained herein or in any Warrant be construed to
confer upon the holder of any Warrant, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any recapitalization,
issue of stock, reclassification of stock, change of par value or change of
stock to no par value, consolidation, merger, conveyance or otherwise), or to
receive notice of meetings, or to receive dividends or subscription rights, or
otherwise, until such Warrant shall have been exercised in accordance with the
provisions hereof and the receipt by the Warrant Agent of the Exercise Price
payable upon such exercise.
SECTION 12. DISPOSITION OF PROCEEDS ON EXERCISE OF WARRANTS.
(a) The Warrant Agent shall account promptly to the Company
with respect to Warrants exercised and concurrently pay to the Company all
monies received by the Warrant Agent for the purchase of shares of Common Stock
through the exercise of such Warrants.
(b) The Warrant Agent shall keep copies of this Agreement
available for inspection by holders of Warrants during normal business hours at
its principal office in New York, New York.
SECTION 13. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF WARRANT AGENT.
Any corporation into which the Warrant Agent may be merged or with which it may
be consolidated, or any corporation resulting from any merger or consolidation
to which the Warrant Agent shall be a party, or any corporation succeeding to
the corporate trust business of the Warrant Agent, shall be the successor to the
Warrant Agent hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor warrant agent under
the provisions of Section 15. In case at the time such successor to the Warrant
Agent shall succeed to the agency created by this Agreement, and in case at that
time any of the Warrants shall have been countersigned but not delivered, any
such successor to the Warrant Agent may adopt the countersignature of the
predecessor warrant agent and deliver such Warrants so countersigned; and in
case at that time any of the Warrants shall not have been countersigned, any
successor to the Warrant Agent may countersign such Warrants either in the name
of the predecessor warrant agent or in the name of the successor warrant agent;
and in all such cases such Warrants shall have the full force and effect
provided in the Warrants and in this Agreement.
11.
<PAGE> 14
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrants shall have been countersigned but not
delivered, the Warrant Agent may adopt the countersignature under its prior name
and deliver Warrants so countersigned; and in case at that time any of the
Warrants shall not have been countersigned, the Warrant Agent may countersign
such Warrants either in its prior name or in its changed name; and in all such
cases such Warrants shall have the full force and effect provided in the
Warrants and in this Agreement.
SECTION 14. DUTIES OF WARRANT AGENT. The Warrant Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Warrants, by their
acceptance thereof, shall be bound:
(a) The statements contained herein and in the Warrant
Certificates shall be taken as statements of the Company, and the Warrant Agent
assumes no responsibility for the correctness of any of the same except such as
describe the Warrant Agent or action taken or to be taken by it. The Warrant
Agent assumes no responsibility with respect to the delivery of Warrants except
as herein otherwise provided.
(b) The Warrant Agent shall not be responsible for any failure
of the Company to comply with any of the covenants contained in this Agreement
or in the Warrant Certificates to be complied with by the Company.
(c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant Agent
shall incur no liability or responsibility to the Company or to any holder of
any Warrant in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with the opinion or the advice of such counsel,
provided the Warrant Agent shall have exercised reasonable care in the selection
and continued employment of such counsel.
(d) The Warrant Agent shall incur no liability or
responsibility to the Company or to any holder of any Warrant for any action
taken in reliance on any notice, resolution, waiver, consent, order, certificate
or other paper, document or instrument believed by it to be genuine and to have
been signed, sent or presented by the party or parties to this Agreement.
(e) The Company agrees (i) to pay to the Warrant Agent
reasonable compensation for all services rendered by the Warrant Agent in the
execution of this Agreement, (ii) to reimburse the Warrant Agent for all
expenses, taxes and governmental charges and other charges of any kind and
nature incurred by the Warrant Agent in the execution of this Agreement (other
than taxes measured by the Warrant Agent's net
12.
<PAGE> 15
income), and (iii) upon request, to advance to the Warrant Agent funds to pay
cash in lieu of fractional shares of Common Stock issuable on exercise of
Warrants.
(f) The Warrant Agent shall be under no obligation to
institute any action, suit or legal proceeding or to take any other action
likely to involve expense unless the Company or one or more registered holders
of Warrants shall furnish the Warrant Agent with reasonable security and
indemnity for any costs and expenses which may be incurred. All rights of action
under this Agreement or under any of the Warrants may be enforced by the Warrant
Agent without the possession of any of the Warrant Certificates or the
production thereof at any trial or other proceeding relative thereto, and any
such action, suit or proceeding instituted by the Warrant Agent shall be brought
in its name as Warrant Agent, and any recovery of judgment shall be for the
ratable benefit of the registered holders of the Warrants, as their respective
rights or interests may appear.
(g) The Warrant Agent and any stockholder, director, officer
or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to or otherwise act as fully and freely as though it were not Warrant
Agent under this Agreement. Nothing herein shall preclude the Warrant Agent from
acting in any other capacity for the Company or for any other legal entity.
The Warrant Agent shall act hereunder solely as agent, and its
duties shall be determined solely by the provisions hereof. The Warrant Agent
shall not be liable for anything which it may do or refrain from doing in
connection with this Agreement except for its own gross negligence or bad faith.
SECTION 15. CHANGE OF WARRANT AGENT. The Warrant Agent may resign and
be discharged from its duties under this Agreement by giving to the Company
notice in writing, and to the holders of the Warrants notice in writing and sent
by first-class mail, postage prepaid, to each registered holder of a Warrant at
such holder's address appearing in the Warrant register, specifying a date when
such resignation shall take effect, which notice shall be sent at least thirty
(30) calendar days prior to the date so specified. The Company may replace the
Warrant Agent by giving written notice to the Warrant Agent and to the holders
of the Warrants, such notice to be sent by first-class mail, postage prepaid, to
each registered holder of a Warrant at such holder's address appearing in the
Warrant Register, specifying a date when such replacement shall take effect,
which notice shall be sent at least thirty (30) calendar days prior to the date
so specified. If the Warrant Agent shall resign, be replaced or shall otherwise
become incapable of acting, the Company shall appoint a successor to the Warrant
Agent. If the Company shall fail to make such appointment within a period of
thirty (30) calendar days after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated
13.
<PAGE> 16
Warrant Agent or by the registered holder of a Warrant (who shall, with such
notice, submit such holder's Warrant Certificate for inspection by the Company),
then the registered holder of any Warrant may apply to any court of competent
jurisdiction for the appointment of a successor to the Warrant Agent. After
appointment the successor warrant agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as
Warrant Agent without further act or deed; but the former Warrant Agent shall
deliver and transfer to the successor warrant agent any property at the time
held by it hereunder, and execute and deliver any further assurance, conveyance,
act or deed necessary for the purpose. Failure to give any notice provided for
in this Section 15, however, or any defect therein, shall not affect the
legality or validity of the resignation or removal of the Warrant Agent or the
appointment of the successor warrant agent, as the case may be.
SECTION 16. IDENTITY OF TRANSFER AGENT. Forthwith upon the appointment
after the date hereof of any Transfer Agent for the Common Stock other than the
Warrant Agent, or of any subsequent Transfer Agent for shares of the Common
Stock, the Company will file with the Warrant Agent a statement setting forth
the name and address of such Transfer Agent.
SECTION 17. INDEMNIFICATION. The Company agrees to pay to the Warrant
Agent reasonable compensation for all services rendered by the Warrant Agent in
the execution of this Agreement, to reimburse the Warrant Agent for all
expenses, taxes and governmental charges and other charges of any kind and
nature incurred by the Warrant Agent in the execution of this Agreement and to
indemnify the Warrant Agent and save it harmless against any and all
liabilities, including judgments, costs and reasonable counsel fees, for
anything done or omitted by the Warrant Agent in the execution of this Agreement
except as a result of Warrant Agent's negligence or bad faith.
SECTION 18. NOTICES. Any notice pursuant to this Agreement to be given
by the Warrant Agent or by the registered holder of any Warrant Certificate to
the Company shall be sufficiently given if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing by the Company
with the Warrant Agent) as follows:
Cypress Bioscience, Inc.
4350 Executive Drive, Suite 325
San Diego, CA 92121
Attn: Chief Executive Officer
Any notice pursuant to this Agreement to be given by the Company or by the
registered holder of any Warrant to the Warrant Agent shall be sufficiently
given if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing by the Warrant Agent with the Company) as follows:
14.
<PAGE> 17
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
Attn: Stock Transfer Department
SECTION 19. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant
Agent may from time to time supplement or amend this Agreement without the
approval of any holders of Warrants in order to cure any ambiguity or to correct
or supplement any provision contained herein which may be defective or
inconsistent with any provision herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Company and the
Warrant Agent may deem necessary or desirable and which shall not adversely
affect the interests of the holders of Warrants. The Company and the Warrant
Agent also may supplement or amend the Warrant Agreement in any other respect
with the written consent of the holders of at least two-thirds in number of the
Warrants then outstanding; however, no such supplement nor amendment may (a)
make any modification of the terms upon which the Warrants are exercisable or
may be redeemed or (b) change the percentage of the holders of the Warrants who
must consent to such amendment or supplement, without the consent of each
Warrant holder affected thereby.
SECTION 20. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company, the Warrant Agent or holders of
the Warrants shall bind and inure to the benefit of their respective successors,
assigns, heirs and personal representatives.
SECTION 21. TERMINATION. This Agreement shall terminate at 5:00 p.m.,
Eastern Time, on October 1, 2001 or such earlier date upon which all Warrants
have been exercised or redeemed, except that the Warrant Agent shall account to
the Company pursuant to Section 12 for all cash held by it at 5:00 p.m., Eastern
Time, on such date of termination. The provisions of Section 14 shall survive
such termination.
SECTION 22. GOVERNING LAW. This Agreement and each Warrant issued
hereunder shall be deemed to be a contract made under the laws of the State of
Delaware and for all purposes shall be construed in accordance with the laws of
said State.
SECTION 23. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Warrant Agent and the holders of the Warrants any legal or equitable right,
remedy or claim under this Agreement, and this Agreement shall be for the sole
and exclusive benefit of the Company, the Warrant Agent and the registered
holders of the Warrants.
15.
<PAGE> 18
SECTION 24. DESCRIPTIVE HEADINGS. The descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meanings or construction of any of the provisions
hereof.
SECTION 25. COUNTERPARTS. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
16.
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed, all as of the day and year first above written.
CYPRESS BIOSCIENCE, INC.
By:_____________________________
Name:___________________________
Title:__________________________
[seal]
Attest:
______________________________
Susan E. Feiner, Secretary
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By:_______________________________
Name:_____________________________
Title:____________________________
[seal]
Attest:
______________________________
17.
<PAGE> 1
EXHIBIT 10.2
[FORM OF WARRANT CERTIFICATE]
CYPRESS BIOSCIENCE, INC.
WARRANT CERTIFICATE (FRONT)
NEITHER THE WARRANTS REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES ISSUABLE
UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR CERTAIN STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR
SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS THEY ARE SO REGISTERED OR AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE AND THIS COMPANY SHALL HAVE
RECEIVED AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THIS
COMPANY, THAT SUCH AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE
VOID AFTER 5:00 P.M. EASTERN TIME
ON OCTOBER 1, 2001
CYPRESS BIOSCIENCE, INC.
THIS CERTIFIES THAT for value received ____________________________, or
registered assigns, is the registered holder of the number of Warrants (the
"Warrants") specified above. Each Warrant entitles the registered holder thereof
to purchase one fully paid and nonassessable share (subject to adjustment as
hereinafter referred to) of the Common Stock, par value $0.02, of Cypress
Bioscience, Inc., a Delaware corporation (the "Company"), upon surrender of this
Warrant Certificate and payment of the purchase price in lawful money of the
United States of America at the principal office of the Warrant Agent in New
York, New York, hereinafter referred to (or at the principal office of its
successor as Warrant Agent), but only subject to the conditions set forth herein
and in the Warrant Agreement dated as of September 18, 1996 between the Company
and American Stock Transfer & Trust Company, as Warrant Agent (the "Warrant
Agent"). The Warrants may be exercised on and after the date of their issuance
and prior to 5:00 p.m., Eastern Time on October 1, 2001. The purchase price
payable upon exercise of a Warrant (the "Purchase Price") shall be $2.00 per
share at any time on or after the date of issuance (subject to adjustment as
hereinafter referred to).
The Purchase Price shall be paid at the principal office of the Warrant Agent in
New York, New York (or at the principal office of its successor as Warrant
Agent) by bank cashier's check or personal check which shall be subject to
collection. Checks shall be payable to the order of the Company.
Upon any exercise of Warrants evidenced hereby, the form of Notice of Exercise
set forth on the reverse side hereof shall be properly completed and executed;
in the event that upon any exercise of Warrants evidenced hereby the number of
Warrants exercised shall be less than the total number of Warrants
1.
<PAGE> 2
evidenced hereby, there shall be issued to the holder hereof, a new Warrant
Certificate, in all respects similar to this Warrant Certificate, evidencing the
number of Warrants not exercised.
Upon the occurrence of certain events set forth in the Warrant Agreement, the
Purchase Price per share and the number of shares of Common Stock issuable upon
exercise hereof shall be adjusted, all as provided in the Warrant Agreement. No
fractional shares of Common Stock will be issued upon the exercise of any
Warrant or Warrants evidenced hereby, but in lieu thereof a cash payment will be
made, as provided in the Warrant Agreement.
This Warrant Certificate shall not be valid unless countersigned by the Warrant
Agent.
The Warrant Certificate is issued under and the Warrants evidenced hereby are
subject to the terms and provisions contained in the Warrant Agreement, all the
terms and provisions of which the holder of this Warrant Certificate, by
acceptance hereof, assents. Reference is hereby made to said Warrant Agreement
for a more complete statement of the rights and obligations of the Company
thereunder. Copies of said Warrant Agreement are on file at the principal office
of the Warrant Agent in New York, New York and at the principal office of the
Company in San Diego, California.
This Warrant Certificate and similar Warrant Certificates, when surrendered at
the principal office of the Warrant Agent in New York, New York (or at the
principal office of its successor Warrant Agent) by the registered holder hereof
or by his duly authorized attorney or representative, may be exchanged, in the
manner and subject to the limitations provided in the Warrant Agreement, but
without payment of any service charge, for another Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate the number of
Warrants evidenced by the Warrant Certificates so surrendered.
Prior to due presentment for registration of transfer of this Warrant
Certificate, the Company and the Warrant Agent may deem and treat the registered
holder hereof as the absolute owner of this Warrant Certificate (notwithstanding
any notation of ownership or other writing hereof made by anyone other than the
Company or the Warrant Agent), for the purpose of any exercise hereof and for
all other purposes, and neither the Company nor the Warrant Agent shall be
affected by any notice in the contrary.
If this Warrant Certificate shall be surrendered upon exercise of Warrants
evidenced hereby within any period during which the transfer books for the
Company's Common Stock are closed for any purpose, the Company shall not be
required to make delivery of certificates for shares of Common Stock until the
date of the reopening of said transfer books.
Warrant may be redeemed at the option of the Company, in whole or in part, on
either a selective or non-discriminatory basis, at a price equal to $0.10 per
Warrant at any time (i) commencing twelve (12) months after the date hereof if
the First Average Closing Price Requirement (as hereafter defined) is satisfied
or (ii) after their initial issuance by the Company if the Second Average
Closing Price Requirement is satisfied. The First Average Closing Price
Requirement will be satisfied if the average closing bid price of the Common
Stock as reported by the National Association of Securities Dealers, Inc.
electronic interdealer quotation system ("Nasdaq") (or average closing sales
price, if the Common Stock is quoted on the Nasdaq National Market System)
equals or exceeds $3.00 per share of Common Stock for any twenty (20) trading
days within a period of thirty (30) consecutive trading days ending on the fifth
trading day prior to the date of the notice of redemption. The Second Average
Closing Price Requirement will be satisfied if the average closing bid or, if
applicable, closing sales price as determined and for the periods specified in
the preceding sentence exceeds $4.00 per share of Common Stock.
2.
<PAGE> 3
No Warrant may be exercised after 5:00 p.m., Eastern Time on October 1, 2001 and
to the extent not exercised by such time, all Warrants evidenced hereby shall
become void.
The Company agrees that while this Warrant and all other similar Warrants are
exercisable, it will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the delivery of shares of Common
Stock pursuant to the exercise of this or any other such Warrants.
This Warrant shall not entitle the holder hereof to any voting rights or other
rights as a stockholder of the Company, or to any other rights whatsoever except
the rights herein expressed and such as are set forth, and no dividends shall be
payable or accrue in respect of this Warrant or the interest represented hereby
or the shares purchasable hereunder until or unless, and except to the extent
that, this Warrant shall be exercised.
3.
<PAGE> 4
ELECTION TO EXERCISE
TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO EXERCISE WARRANTS
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant(s) for and to purchase thereunder,
_____________ shares of Common Stock provided for therein and tenders herewith
payment of the purchase price in full to the order of the Corporation and
requests that certificates for such shares shall be issued in the name of
[Please Insert Social Security Number _______________________ and be delivered
to ____________________________________ at ___________________________________]
and, if said number of shares shall not be all the shares purchasable
thereunder, that a new Warrant for the balance remaining of the shares
purchasable under the within Warrant be registered in the name of, and delivered
to, the undersigned at the address stated below.
Dated: ____________________________ Signature:______________________________
Note: The above signature must
correspond with the name as
written upon the face of this
Warrant or with the name of the
assignee appearing in the
assignment form below in every
particular without alteration
or enlargement or any change
whatsoever.
Name:______________________________
Address:___________________________ Signature Guaranteed:____________________
NOTICE: The signature must be guaranteed
by an eligible guarantor institution
(banks, stockbrokers, savings and loan
associations and credit unions with
membership in an approved signature
guarantee medallion program), pursuant to
SEC Rule 17Ad-15.
ASSIGNMENT
TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO ASSIGN WARRANTS
For value received ___________________________________________ hereby sell,
assign and transfer unto [Please Insert Social Security Number _______________]
_________________________________ represented by the within Warrant Certificate,
together with all right, title and interest therein, and do hereby irrevocably
constitute and appoint ____________________________________ attorney, to
transfer said Warrant on the books of the within named Corporation, with full
power of substitution in the premises.
Dated:_________________________
Signature:______________________________
Note: The above signature must
correspond with the name as
written upon the face of this
Warrant in every particular
without alteration or
enlargement or any change
whatever.
Signature Guaranteed:____________________
Notice: The signature must be guaranteed
by an eligible guarantor institution
(banks, stockbrokers, savings and loan
associations and credit unions with
membership in an approved signature
guarantee medallion program), pursuant to
SEC Rule 17Ad-15.
4.
<PAGE> 1
EXHIBIT 10.3
UNITS PURCHASE AGREEMENT
BY AND BETWEEN
CYPRESS BIOSCIENCE, INC.
AND
THE PURCHASER NAMED HEREIN
<PAGE> 2
<TABLE>
<S> <C> <C>
1. AUTHORIZATION OF SALE OF THE UNITS...................................................................... 1
2. AGREEMENT TO SELL AND PURCHASE THE UNITS................................................................ 1
3. CLOSING DATE; DELIVERY.................................................................................. 2
3.1 Closing........................................................................................ 2
3.2 Delivery Payments.............................................................................. 2
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
COMPANY................................................................................................. 3
4.1 Organization and Qualification................................................................. 3
4.2 Due Execution, Delivery and Performance of the Agreements...................................... 3
4.3 Issuance, Sale and Delivery of the Units....................................................... 4
4.4 Additional Information......................................................................... 4
4.5 No Material Change............................................................................. 4
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
PURCHASER............................................................................................... 5
6. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.................................................. 7
7. REGISTRATION OF THE SECURITIES; COMPLIANCE WITH THE
SECURITIES ACT.......................................................................................... 7
7.1 Restrictions on Transfer....................................................................... 7
7.2 Registration Procedures and Expenses........................................................... 8
7.3 Transfer of Securities After Registration...................................................... 9
7.4 Indemnification................................................................................ 9
7.5 Termination of Conditions and Obligations...................................................... 11
7.6 Information Available.......................................................................... 11
8. BROKER'S FEE............................................................................................ 12
9. NOTICES................................................................................................. 12
10. CHANGES................................................................................................. 13
11. HEADINGS................................................................................................ 13
12. SEVERABILITY............................................................................................ 13
13. GOVERNING LAW........................................................................................... 13
14. COUNTERPARTS............................................................................................ 13
15. REMEDIES................................................................................................ 13
</TABLE>
APPENDICES
Appendix I Stock and Warrant Certificates and Funds Transfer Questionnaire
Appendix II Registration Statement Questionnaire
Appendix III Investor Qualification Questionnaires (Individual/Partnership,
Trust or Entity)
Appendix IV Certificate of Subsequent Sale
<PAGE> 3
UNITS PURCHASE AGREEMENT
This UNITS PURCHASE AGREEMENT ("AGREEMENT") is made as of September
___, 1996 between CYPRESS BIOSCIENCE, INC., a Delaware corporation with its
principal place of business at 4350 Executive Drive, Suite 325, San Diego,
California 92121 (the "COMPANY"), and the purchaser whose name and address is
set forth on the signature page hereof (the "PURCHASER").
IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration, the receipt of which is hereby
acknowledged, the Company and the Purchaser agree as follows:
1. AUTHORIZATION OF SALE OF THE UNITS. Subject to the terms and
conditions of this Agreement, the Company has authorized the issuance and sale
in one or more closings of up to one million five hundred thousand (1,500,000)
units of the Company (each a "Unit" and, collectively, the "Units") at a price
of $4.00 per Unit. Each Unit consists of two shares of Common Stock of the
Company (each a "Share" and collectively, the "Shares") and one Common Stock
Purchase Warrant (each a "Warrant" and, collectively, the "Warrants"), entitling
the holder to purchase one share of Common Stock of the Company at a purchase
price of $2.00, at any time until 5:00 P.M. Eastern Time, on October 1, 2001.
The Warrants will be issued pursuant to that certain Warrant Agreement dated as
of September 18, 1996 between the Company and American Stock Transfer & Trust
Company (the "Warrant Agent"), a copy of which is attached hereto as Exhibit A
(the "Warrant Agreement"), and will be evidenced by warrant certificates in the
form attached hereto as Exhibit B (the "Warrant Certificates"). The shares of
Common Stock issuable upon exercise of the Warrants are referred to herein as
the "Warrant Shares." The Units, the Shares, the Warrants and the Warrant Shares
are sometimes collectively referred to herein as the "Securities."
2. AGREEMENT TO SELL AND PURCHASE THE UNITS. At the Closing (as defined
in Section 3), the Company will sell to the Purchaser, and the Purchaser will
buy from the Company, upon the terms and conditions hereinafter set forth, the
number of Units (at the purchase price) shown below:
<TABLE>
<CAPTION>
NUMBER OF UNITS TO BE PRICE PER UNIT IN AGGREGATE
PURCHASED DOLLARS PURCHASE PRICE
--------------------- ----------------- --------------
<S> <C> <C>
$4.00
</TABLE>
The Company proposes to enter into this same form of purchase agreement with
certain other investors (the "Other Purchasers") and expects to complete sales
of
1.
<PAGE> 4
Units to them. The Purchaser and the Other Purchasers are hereinafter sometimes
collectively referred to as the "Purchasers," and this Agreement and the
agreements executed by the Other Purchasers are hereinafter sometimes
collectively referred to as the "Agreements."
3. CLOSING DATE; DELIVERY.
3.1 CLOSING. The completion of the purchase and sale of the Units to be
issued pursuant to this Agreement (the "Initial Closing") shall occur as soon as
practicable after the date on which the Company receives subscriptions for Units
in the Minimum Amount, as such term is defined in the Company's Private
Placement Memorandum dated September 3, 1996 (the "Memorandum"), and the date on
which the Merger Agreement, as defined in the Company's Supplement to Private
Placement Memorandum dated September 18, 1996, is executed, or on such other
date or dates as may be agreed to by the Company and the Purchaser, but in any
event no later than October 15, 1996. The Company may from time to time schedule
additional closings (the "Additional Closings") until the Company has sold the
Maximum Amount, as such term is defined in the Memorandum, but in any event any
and all Additional Closings shall have occurred no later than October 31, 1996.
The Initial Closing and any and all Additional Closings are referred to herein
as the "Closing."
All funds received by the Company for the purchase of Units will be
held by the Company in an account in the Company's name (the "Escrow Account")
established for such purpose by the Company at Union Bank of California until
the earlier of the date on which the Company and PRP execute a definitive merger
agreement (the "Merger Agreement") and October 15, 1996. Upon receipt of the
Minimum Amount and the execution of the Merger Agreement by the Company and PRP
on or before October 15, 1996, the Closing will occur and all funds will be
released to the Company from the Escrow Account. In the event that the Company
and PRP have not executed the Merger Agreement on or before October 15, 1996,
all funds held in the Escrow Account will be promptly refunded to subscribers
for Units.
3.2 DELIVERY PAYMENTS. At the Closing, or as soon as practicable
following the Closing, the Company shall deliver or cause to be delivered to the
Purchaser or the Purchaser's custodian bank, in accordance with the Purchaser's
delivery instructions, one or more stock and warrant certificates registered in
the name of the Purchaser, or in such nominee name(s) as designated by the
Purchaser, representing the number of Shares and Warrants comprising the Units
set forth in Section 2 above, dated as of the date of Closing. The Company's
obligation to complete the purchase and sale of the Units and deliver such stock
and warrant certificates to the Purchaser at the Closing shall be subject to the
following conditions, any one or more of which may be waived by the Company:
2.
<PAGE> 5
(a) receipt by the Company of a signed and completed Agreement, (b) receipt by
the Company, either contemporaneously with the receipt of a signed and completed
Agreement or prior to Closing, of immediately available funds, by check or wire
transfer, in the full amount of the purchase price for the Units being purchased
hereunder; (c) receipt by the Company of a completed Stock and Warrant
Certificates and Funds Transfer Questionnaire attached hereto as Appendix I; (d)
receipt by the Company of a completed Registration Statement Questionnaire
attached hereto as Appendix II; (e) receipt by the Company of a signed and dated
Investor Qualification Questionnaire attached hereto as Appendix III; (f) the
accuracy of the representations and warranties made by the Purchaser herein as
of the Closing; and (g) the fulfillment of those undertakings of the Purchaser
to be fulfilled prior to the Closing. The Purchaser's obligation to accept
delivery of such stock and warrant certificates and to pay for the Units
evidenced thereby shall be subject to the following conditions: (i) the accuracy
of the representations and warranties made by the Company herein as of the
Closing; and (ii) the fulfillment in all material respects of those undertakings
of the Company to be fulfilled prior to the Closing. The Purchaser's obligations
hereunder are expressly conditioned on the sale and issuance by the Company of
the Units equal to the Minimum Amount and, so long as the Minimum Amount is
issued and sold, are not conditioned on the purchase by any or all of the Other
Purchasers of the Units, if any, that such Other Purchasers have agreed to
purchase from the Company.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The
Company hereby represents and warrants to, and covenants with, the Purchaser as
follows:
4.1 ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to conduct its
business as currently conducted.
4.2 DUE EXECUTION, DELIVERY AND PERFORMANCE OF THE AGREEMENTS. The
Company's execution, delivery and performance of the Agreements (a) have been
duly authorized under Delaware law by all requisite corporate action by the
Company, and (b) will not violate any law or the Certificate of Incorporation or
Bylaws of the Company or any provision of any material indenture, mortgage,
agreement, contract or other material instrument to which the Company or any
subsidiary is a party or by which the Company or any subsidiary or any of their
respective properties or assets is bound as of the date hereof, or result in a
breach of or constitute (upon notice or lapse of time or both) a default under
any such indenture, mortgage, agreement, contract or other material instrument
or result in the creation or imposition of any lien, security interest,
mortgage, pledge, charge or other encumbrance, of any material nature
whatsoever, upon any
3.
<PAGE> 6
properties or assets of the Company or any subsidiary. Upon their execution and
delivery, and assuming the valid execution thereof by the respective Purchasers,
the Agreements will constitute valid and binding obligations of the Company,
enforceable in accordance with their respective terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' and contracting parties' rights generally
and except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law) and except as the indemnification agreements of the Company in
Section 7.4 hereof may be legally unenforceable.
4.3 ISSUANCE, SALE AND DELIVERY OF THE UNITS. When issued and paid for,
the Securities to be sold hereunder by the Company will be validly issued and
outstanding, fully paid and non-assessable.
4.4 ADDITIONAL INFORMATION. The Company represents and warrants that
the information contained in the following documents, which the Company has
furnished to the Purchaser, or will furnish if requested by the Purchaser prior
to the Closing, is or will be true and correct in all material respects as of
their respective final dates:
(a) the Company's Annual Report on Form 10-K/A for the fiscal
year ended December 31, 1995 (without exhibits);
(b) the Company's Current Report on Form 8-K dated as of
February 2, 1996;
(c) the Company's Quarterly Reports on Form 10-Q for the
periods ended March 31 and June 30, 1996;
(d) the Company's Current Report on Form 8-K dated as of March
8, 1996;
(e) the Company's Proxy Statement dated March 15, 1996 for the
Company's 1996 Annual Meeting of Stockholders;
(f) the Company's Current Report on Form 8-K dated April 1,
1996; and
(g) the Memorandum.
4.5 NO MATERIAL CHANGE. As of the date hereof, except as may be
reflected in the Memorandum, there has been no material adverse change in the
financial condition or results of operations of the Company since June 30, 1996.
4.
<PAGE> 7
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER.
The Purchaser hereby represents, warrants and covenants with the
Company as follows:
5.1 The Purchaser represents and warrants to, and covenants with, the
Company that: (i) the Purchaser, taking into account the personnel and resources
it can practically bring to bear on the purchase of the Units contemplated
hereby, is knowledgeable, sophisticated and experienced in making, and is
qualified to make, decisions with respect to investments in securities
presenting an investment decision like that involved in the purchase of the
Units, including investments in securities issued by the Company, and has
requested, received, reviewed and considered all information it deems relevant
in making an informed decision to purchase the Units; (ii) the Purchaser is
acquiring the number of Units set forth in Section 2 above in the ordinary
course of its business and for its own account for investment (as defined for
purposes of the Hart- Scott-Rodino Antitrust Improvement Act of 1976 and the
regulations thereunder) only and with no present intention of distributing any
of such Units or any arrangement or understanding with any other persons
regarding the distribution of such Units (this representation and warranty not
limiting the Purchaser's right to sell in the future); (iii) the Purchaser will
not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose
of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge
of) any of the Units except in compliance with the Securities Act of 1933, as
amended (the "Securities Act"), and the rules and regulations promulgated
thereunder; (iv) the Purchaser has completed or caused to be completed the Stock
and Warrant Certificates and Funds Transfer Questionnaire and the Registration
Statement Questionnaire, both attached hereto as Appendix I and Appendix II,
respectively, for use in preparation of the registration statement to be filed
by the Company pursuant to Section 7.2 (the "Registration Statement") and the
answers thereto are true and correct to the best knowledge of the Purchaser as
of the date hereof and will be true and correct as of the effective date of the
Registration Statement (provided that the Purchaser shall be entitled to update
such information by providing notice thereof to the Company prior to the
effective date of the Registration Statement); (v) the Purchaser has, in
connection with its decision to purchase the number of Units set forth in
Section 2 above, relied solely upon the information delivered to the Purchaser
as described in Section 4.4 above and the representations and warranties of the
Company contained herein; and (vi) the Purchaser is an "accredited investor"
within the meaning of Rule 501 of Regulation D promulgated under the Securities
Act and has completed or caused to be completed the Investor Qualification
Questionnaire attached hereto as Appendix III.
5.2 The Purchaser hereby covenants with the Company as follows: (i)
prior to the effective date of the Registration Statement (the "Effective
Date"), the Purchaser shall
5.
<PAGE> 8
not transfer any Securities except in compliance with the Securities Act and the
rules and regulations promulgated thereunder, and any transferee of Securities
prior to the Effective Date shall agree in advance in a writing acceptable to
the Company to be subject to all of the provision of this Agreement with respect
to the Securities; and (ii) commencing as of the Effective Date, the Purchaser
shall not make any sale of the Securities without effectively causing the
prospectus delivery requirements under the Securities Act to be satisfied,
except sales otherwise made in compliance with the Securities Act and the rules
and regulations thereunder. In the event the Purchaser sells Securities by
delivery of a prospectus, the Purchaser acknowledges and agrees that on and
after the Effective Date, such Securities are not transferable on the books of
the Company unless the certificate submitted to the transfer agent evidencing
the Securities is accompanied by a separate certificate: (i) in the form of
Appendix IV hereto, (ii) executed by the Purchaser or by an officer of, or other
authorized person designated by, the Purchaser, and (iii) to the effect that (A)
the Securities have been sold in accordance with the Registration Statement and
(B) the requirement of delivering a current prospectus has been satisfied. The
Purchaser acknowledges that there may occasionally be times when the Company
must suspend the use of the prospectus forming a part of the Registration
Statement until such time as an amendment to the Registration Statement has been
filed by the Company and declared effective by the Securities and Exchange
Commission (the "Commission"), or until such time as the Company has filed an
appropriate report with the Commission pursuant to the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), which suspension shall endure for such
period as deemed necessary by the Company upon advice of counsel. The Purchaser
hereby covenants that it will not sell any Securities pursuant to said
prospectus during the period commencing at the time at which the Company gives
the Purchaser notice of the suspension of the use of said prospectus and ending
at the time the Company gives the Purchaser notice that the Purchaser may
thereafter effect sales pursuant to said prospectus. In the event the Company
shall give any such notice, the Registration Period, as defined in Section
7.2(c), shall be extended by the number of days during the period from and
including the date of the giving of such notice hereunder to and including the
date when Purchaser shall then be entitled to sell the Securities pursuant to
said prospectus. The Purchaser further covenants to notify the Company promptly
of the sale of all of its Securities.
5.3 The Purchaser further represents and warrants to, and covenants
with, the Company that (i) the Purchaser has full right, power, authority and
capacity to enter into this Agreement and to consummate the transactions
contemplated hereby and has taken all necessary action to authorize the
execution, delivery and performance of this Agreement, and (ii) upon the
execution and delivery of this Agreement, this Agreement shall constitute a
valid and binding obligation of the Purchaser enforceable in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors' and
6.
<PAGE> 9
contracting parties' rights generally and except as enforceability may be
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and except as
the indemnification agreements of the Purchaser in Section 7.4 hereof may be
legally unenforceable.
6. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
Notwithstanding any investigation made by any party to this Agreement, all
covenants, agreements, representations and warranties made by the Company and
the Purchaser herein and in the certificates for the Securities delivered
pursuant hereto shall survive the execution of this Agreement, the delivery to
the Purchaser of the Securities being purchased and the payment therefor.
7. REGISTRATION OF THE SECURITIES; COMPLIANCE WITH THE
SECURITIES ACT.
7.1 RESTRICTIONS ON TRANSFER. The Purchaser understands that:
(a) each Warrant and each certificate representing the
Securities shall (unless otherwise permitted by the provisions of the Agreement)
be stamped or otherwise imprinted with a legend substantially similar to the
following (in addition to any legend required under applicable state securities
laws or as provided elsewhere in the Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR CERTAIN STATE
SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE AND THE COMPANY SHALL
HAVE RECEIVED AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL
FOR THE COMPANY, THAT SUCH AN EXEMPTION FROM REGISTRATION UNDER THE ACT
IS AVAILABLE.
(b) the Company shall be obligated to reissue promptly
unlegended certificates at the request of any holder thereof if the holder shall
have obtained an opinion of counsel (which counsel may be counsel to the
Company) reasonably acceptable to the Company to the effect that the Securities
proposed to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
7.
<PAGE> 10
(c) any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions with respect
to such Securities shall be removed upon receipt by the Company of an order of
the appropriate blue sky authority authorizing such removal.
7.2 REGISTRATION PROCEDURES AND EXPENSES. The Company shall:
(a) within twenty-five (25) days after the release to the
Company of the funds held in the Escrow Account, prepare and file with the
Commission a Registration Statement in order to register with the Commission the
sale of Securities by the Purchaser from time to time through underwriters,
agents or otherwise, in negotiated or market transactions or through the
automated quotation system of the Nasdaq or the facilities of any national
securities exchange on which the Company's common stock is then traded or in
privately negotiated transactions;
(b) use commercially reasonable efforts, subject to the
receipt of necessary information from the Purchasers, to cause the Registration
Statement to become effective promptly after the Registration Statement is filed
by the Company,
(c) use commercially reasonable efforts to prepare and file
with the Commission such amendments and supplements to the Registration
Statement and the prospectus used in connection therewith as may be necessary to
keep the Registration Statement effective for a period of three years following
the Closing (the "Registration Period") or, if earlier, until all of the
Securities have been sold pursuant thereto (provided that the Company shall not
be deemed to have used its best efforts to keep the Registration Statement
effective if it voluntarily takes any action that would result in Purchaser not
being able to sell any of its Securities pursuant to the Registration Statement
unless (i) such action is the redemption of the Warrants by the Company; (ii)
such action is required under applicable law or taken by the Company in good
faith and for valid business reasons, including without limitation the
acquisition or divestiture of assets and (iii) the Company promptly complies
with the requirements of this Section 7.2(c), if applicable);
(d) furnish to the Purchaser with respect to the Securities
registered under the Registration Statement such number of copies of
prospectuses and preliminary prospectuses in conformity with the requirements of
the Securities Act, in order to facilitate the public sale or other disposition
of all or any of the Securities by the Purchaser; provided, however, that the
obligation of the Company to deliver copies of prospectuses or preliminary
prospectuses to the Purchaser shall be subject to the receipt by the Company of
reasonable assurances from the Purchaser that the Purchaser will comply with the
applicable provisions of the Securities Act and of such other securities or
8.
<PAGE> 11
blue sky laws as may be applicable in connection with any use of such
prospectuses or preliminary prospectuses;
(e) file documents required of the Company for normal blue sky
clearance in states specified in writing by the Purchaser; provided, however,
that the Company shall not be required to qualify to do business or consent to
service of process in any jurisdiction in which it is not now so qualified or
has not so consented;
(f) bear all expenses in connection with the procedures in
paragraphs (a) through (e) of this Section 7.1 and the registration of the
Securities pursuant to the Registration Statement; and
(g) file the reports required to be filed by it under the
Securities Act and the Exchange Act and the rules and regulations adopted by the
SEC thereunder (or, if the Company is not required to file such reports, it
will, upon the request of Purchaser, make publicly available other information
so long as necessary to permit sales pursuant to Rule 144 under the Securities
Act) and it will take such further action as the Purchaser may reasonably
request, all to the extent required from time to time to enable the Purchaser to
sell its Securities without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144 under the Securities Act,
as such rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the SEC. Upon the request of the Purchaser, the
Company shall deliver to Purchaser a written statement as to whether it has
complied with such requirements.
7.3 TRANSFER OF SECURITIES AFTER REGISTRATION. The Purchaser agrees
that it will not effect any disposition of the Securities or its right to
purchase the Securities that would constitute a sale within the meaning of the
Securities Act except as contemplated in Section 5(b) and that it will promptly
notify the Company of any changes in the information set forth in the
Registration Statement regarding the Purchaser or its plan of distribution.
7.4 INDEMNIFICATION.
(a) the term "Selling Shareholder" shall mean the Purchaser
and, if the Purchaser is an institution, the Purchaser's directors or trustees,
officers and employees and each person who controls the Purchaser within the
meaning of the Securities Act;
(b) the term "Registration Statement" shall include any final
prospectus, exhibit, supplement or amendment included in or relating to the
Registration Statement referred to in Section 7.2; and
9.
<PAGE> 12
(c) the term "untrue statement" shall include any untrue
statement or alleged untrue statement, or any omission or alleged omission to
state in the Registration Statement a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
The Company agrees to indemnify and hold harmless each Selling
Shareholder from and against any losses, claims, damages or liabilities to which
such Selling Shareholder may become subject (under the Securities Act or
otherwise) insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of, or are based upon, any untrue
statement of a material fact contained in the Registration Statement on the
effective date thereof, or arise out of any failure by the Company to fulfill
any undertaking included in the Registration Statement, and the Company will
reimburse such Selling Shareholder for any reasonable legal or other expenses
reasonably incurred in investigating, defending or preparing to defend any such
action, proceeding or claim; provided, however, that the Company shall not be
liable in any such case to the extent that such loss, claim, damage or liability
arises out of, or is based upon, an untrue statement made in such Registration
Statement in reliance upon and in conformity with written information furnished
to the Company by or on behalf of such Selling Shareholder specifically for use
in preparation of the Registration Statement, or the failure of such Selling
Shareholder to comply with the covenants and agreements contained in Section
5(b) or 7.3 hereof respecting sale of the Securities or any statement or
omission in any prospectus that is corrected in any subsequent prospectus that
was delivered to the Purchaser prior to the pertinent sale or sales by the
Purchaser.
The Purchaser agrees to indemnify and hold harmless the Company (and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act, each officer of the Company who signs the Registration
Statement and each director of the Company) from and against any losses, claims,
damages or liabilities to which the Company (or any such officer, director or
controlling person) may become subject (under the Securities Act or otherwise),
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of, or are based upon, any failure to
comply with the covenants and agreements contained in Section 5(b) or 7.3 hereof
respecting sale of the Securities, or any untrue statement of a material fact
contained in the Registration Statement on the Effective Date if such untrue
statement was made in reliance upon and in conformity with written information
furnished by or on behalf of the Purchaser specifically for use in preparation
of the Registration Statement, and the Purchaser will reimburse the Company (or
such officer, director or controlling person), as the case may be, for any legal
or other expenses reasonably incurred in investigating, defending or preparing
to defend any such action, proceeding or claim. In no event shall the liability
of the Purchaser hereunder be greater in amount than the dollar
10.
<PAGE> 13
amount of the proceeds received by the Purchaser upon the sale of Securities
giving rise to such indemnification obligation.
Promptly after receipt by any indemnified person of a notice of a claim
or the beginning of any action in respect of which indemnity is to be sought
against an indemnifying person pursuant to this Section 7.4, such indemnified
person shall notify the indemnifying person in writing of such claim or of the
commencement of such action, and, subject to the provisions hereinafter stated,
in case any such action shall be brought against an indemnified person and such
indemnifying person shall have been notified thereof, such indemnifying person
shall be entitled to participate therein, and, to the extent it shall wish, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified person. After notice from the indemnifying person to such
indemnified person of its election to assume the defense thereof, such
indemnifying person shall not be liable to such indemnified person for any legal
expenses subsequently incurred by such indemnified person in connection with the
defense thereof; provided, however, that if there exists or shall exist a
conflict of interest that would make it inappropriate, in the opinion of counsel
to the indemnified person, for the same counsel to represent both the
indemnified person and such indemnifying person or any affiliate or associate
thereof, the indemnified person shall be entitled to retain its own counsel at
the expense of such indemnifying person; provided, however, that no indemnifying
person shall be responsible for the fees and expenses of more than one separate
counsel for all indemnified parties.
7.5 TERMINATION OF CONDITIONS AND OBLIGATIONS. Notwithstanding anything
stated herein to the contrary, the conditions precedent imposed by Section 5 or
this Section 7 upon the transferability of the Securities shall cease and
terminate as to any particular number of the Securities when such Securities
shall have been effectively registered under the Securities Act and sold or
otherwise disposed of in accordance with the intended method of disposition set
forth in the Registration Statement covering such Securities or at such time as
an opinion of counsel satisfactory to the Company shall have been rendered to
the effect that such conditions are not necessary in order to comply with the
Securities Act.
7.6 INFORMATION AVAILABLE. So long as the Registration Statement is
effective covering the resale of Securities owned by the Purchaser, the Company
will furnish to the Purchaser:
(a) as soon as practicable after available (but, in the case
of the Company's Annual Report to Stockholders, within 120 days after the end of
each fiscal year of the Company), one copy of (i) its Annual Report to
Stockholders (which Annual Report shall contain financial statements audited in
accordance with generally accepted
11.
<PAGE> 14
accounting principles by a national firm of certified public accountants), (ii)
its Annual Report on Form 10-K, (iii) its quarterly reports on Form 10-Q, and
(iv) a full copy of the particular Registration Statement covering the
Securities (the foregoing, in each case, excluding exhibits);
(b) upon the reasonable request of the Purchaser, all exhibits
excluded by the parenthetical to paragraph (a) of this Section 7.6; and
(c) upon the reasonable request of the Purchaser, an adequate
number of copies of the prospectuses to supply to any other party requiring such
prospectuses.
8. BROKER'S FEE.
(a) Each of the parties hereto hereby represents that, except
as provided in Section 8(b), on the basis of any actions and agreements by it,
there are no brokers or finders entitled to compensation in connection with the
sale of the Units to the Purchaser; and
(b) The Company shall pay to Allen and Company Incorporated
and certain other parties (each a "Broker") a fee in an amount of up to eight
percent (8%) of the total sales price of any Units sold by such Broker on behalf
of the Company.
9. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing, shall be sent by facsimile or mailed by first
class registered or certified airmail, or nationally recognized overnight
express courier postage prepaid, and shall be deemed given when so sent by
facsimile or mailed and shall be delivered as follows:
(a) if to the Company, to:
Cypress Bioscience, Inc.
4350 Executive Drive, Suite 325
San Diego, California 92121
Attention: Susan E. Feiner
with a copy so mailed to:
12.
<PAGE> 15
Cooley Godward Castro Huddleson & Tatum
4365 Executive Drive, Suite 1100
San Diego, California 92121
Attention: Frederick T. Muto, Esq.
or to such other person at such other place as the Company
shall designate to the Purchaser in writing; and
(b) if to the Purchaser, at its address as set forth at the
end of this Agreement, or at such other address or addresses as may have been
furnished to the Company in writing.
10. CHANGES. This Agreement may not be modified or amended except
pursuant to an instrument in writing signed by the Company and the Purchaser.
11. HEADINGS. The headings of the various sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed to
be part of this Agreement.
12. SEVERABILITY. In case any provision contained in this Agreement
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware as applied to contracts
entered into and performed entirely in Delaware by Delaware residents.
14. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument, and shall become effective
when one or more counterparts have been signed by each party hereto and
delivered to the other parties.
15. REMEDIES. In addition to being entitled to exercise all rights and
remedies provided herein or granted by law for any breach by the Company
hereunder, the Purchaser will be entitled to specific performance of its rights
under this Agreement. In that regard, the Company acknowledges and agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Agreement and hereby agrees
to waive the defense in any action for specific performance that a remedy at law
would be adequate.
13.
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
above written.
CYPRESS BIOSCIENCE, INC. PURCHASER
By_______________________________ By:_________________________________
Name:____________________________ Name:_______________________________
Title:___________________________ Title:_______________________________
Address:_____________________________
_____________________________
_____________________________
_____________________________
Telephone:___________________________
Telecopier:__________________________
14.
<PAGE> 17
SUMMARY INSTRUCTION SHEET FOR PURCHASER
(TO BE READ IN CONJUNCTION WITH THE ENTIRE
PURCHASE AGREEMENT WHICH FOLLOWS)
1. Complete the following items on the Purchase Agreement:
1.1 (a) Page 1 - Fill in the number of Units to be Purchased
(b) Page 14 - Signature
(i) Name of Purchaser (Individual or Institution)
(ii) Name of Individual representing Purchaser (if an
Institution)
(iii) Title of Individual representing Purchaser (if
an Institution)
(iv) Signature of Individual Purchaser or Individual
representing Purchaser
1.2 Appendices I and II - Stock and Warrant Certificates and Funds
Transfer Questionnaire and the Registration Statement
Questionnaire, respectively:
Provide the information requested by the Stock and
Warrant Certificates and Funds Transfer Questionnaire
and the Registration Statement Questionnaire.
1.3 Appendix III - Investor Qualification Questionnaire:
Provide the information requested by the Investor
Qualification Questionnaire. Ensure that you execute
the signature page of the Investor Qualification
Questionnaire.
1.4 Return the properly completed and signed Purchase Agreement
including properly completed Appendix I, Appendix II and
Appendix III to:
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121
Attn: Kelly A. Nelle
T: (619) 550-6443
F: (619) 453-3555
PLEASE RETURN THE COMPLETED AND SIGNED AGREEMENT BY FACSIMILE
WITH THE ORIGINAL FOLLOWING BY OVERNIGHT COURIER.
<PAGE> 18
2. Upon the resale of the Securities by the Purchasers
after the Registration Statement covering the
Securities is effective, as described in the Purchase
Agreement, the Purchaser:
(c) must deliver a current prospectus, and
annual and quarterly reports of the Company
(Forms 10-K and 10-Q) to the buyer
(prospectuses and annual and quarterly
reports must be obtained from the Company at
the Purchaser's request); and
(d) must send a letter in the form of Appendix
IV to the Company so that the Securities may
be properly transferred.
<PAGE> 19
APPENDIX I
APPENDIX II
CYPRESS BIOSCIENCE, INC.
REGISTRATION STATEMENT QUESTIONNAIRE
In connection with the preparation of the Registration Statement,
please provide us with the following information:
1. Please state your or your organization's name exactly as it should
appear in the Registration Statement:__________________________________________.
2. Please provide the following information, as of ______________,
1996:
<TABLE>
<CAPTION>
(1) (2)
<S> <C>
Number of Shares
and Warrants, if any,
which you will own
after completion of
Number of Shares sale of Shares and
and Warrants which Warrants you wish
you wish to be to be included in the
included in the Registration Statement
Registration
Statement
</TABLE>
3. Have you or your organization had any position, office or other
material relationship within the past three years with the Company or its
affiliates other than as disclosed in the Proxy Statement prepared in connection
with the Company's 1996 Annual Meeting of Stockholders?
/ / Yes / / No
If yes, please indicate the nature of any such relationships below:
_______________________________________________________________________________
_______________________________________________________________________________
<PAGE> 20
APPENDIX III
CYPRESS BIOSCIENCE, INC.
INVESTOR QUALIFICATION QUESTIONNAIRE
[INDIVIDUALS]
In connection with a proposed offer to the undersigned of securities of
Cypress Bioscience, Inc., a Delaware corporation (the "Company"), the
undersigned makes the following representations on which the Company shall be
entitled to rely:
1. The undersigned makes the following representations regarding his or
her net worth and/or income, AND HAS CHECKED THE APPLICABLE REPRESENTATION:
( ) a. The undersigned has a net worth, either individually or
upon a joint basis with the undersigned's spouse, of at
least $1,000,000.
( ) b. The undersigned has had an individual income in excess
of $200,000 for each of the two most recent years, or
joint income with the undersigned's spouse in excess of
$300,000 in each of those years, and has a reasonable
expectation of reaching the same income level in the
current year.
( ) c. The undersigned is a director or executive officer of
the Company.
( ) d. The undersigned cannot make any of the representations
set forth above.
In addition, the undersigned represents as follows:
2. My full name and primary business address and phone number are
______________________________________________________________
3. I am a resident of the state of ___________________________.
<PAGE> 21
4. I am acquiring the securities solely for my own account and not
directly or indirectly for the account of any other person whatsoever, for
investment and not with a view to, or for sale in connection with, any
distribution of the securities. I do not have any contract, undertaking or
arrangement with any person to sell, transfer or grant a participation to any
person with respect to the securities.
____________________________________
(Signature)
____________________________________
(Date)
<PAGE> 22
APPENDIX III
CYPRESS BIOSCIENCE, INC.
INVESTOR QUALIFICATION QUESTIONNAIRE
[PARTNERSHIP, TRUST OR OTHER ENTITY]
In connection with a proposed offer to the undersigned of securities of
Cypress Bioscience, Inc., a Delaware corporation (the "Company"), the
undersigned makes the following representations on which the Company shall be
entitled to rely:
1. The undersigned makes one of the following representations regarding
its net worth and certain related matters, AND HAS CHECKED THE APPLICABLE
REPRESENTATION:
( ) a. The undersigned is a trust with total assets in excess
of $5,000,000, whose purchase is directed by a person
with such knowledge and experience in financial and
business matters that he is capable of evaluating the
merits and risks of the prospective investment.
( ) b. The undersigned represents that it is a bank, insurance
company, investment company registered under the
Investment Company Act of 1940, a business development
company, Small Business Investment Company licensed by
the U.S. Small Business Administration, or a private
business development company.
( ) c. If the undersigned is an employee benefit plan, the
undersigned represents either that all investment
decisions are made by a bank, insurance company,
or registered investment advisor, or that the
undersigned has total assets in excess of $5,000,000.
( ) d. If the undersigned is a corporation, partnership or
business trust, the undersigned represents that it has
total assets in excess of $5,000,000.
( ) e. If the undersigned is not an entity described in
paragraphs "a" through "d", the undersigned represents
that each of its equity owners is either (i) an entity
described in paragraphs "b" through "d"; or (ii) an
individual who (A) has an individual net worth, or a
joint net worth with such individual's spouse, in excess
of $1,000,000, or (B) has had an individual income in
excess of $200,000 in each of the two most recent years
and reasonably expects an income in excess of $200,000
<PAGE> 23
in the current year, or (C) is a director or executive
officer of the Company.
( ) f. The undersigned cannot make any of the representations
set forth in paragraphs "a" through "e" above.
In addition, the undersigned represents as follows:
2. Its full name and primary business address and phone number are:
______________________________________________________________________________
______________________________________________________________________________
3. Its form, state and date of organization are (i.e., partnership,
corporation or trust, state where organized, date of organization):
______________________________________________________________________________
4. The entity has sufficient profits and net assets that it does not
contemplate disposing of any investment in the Company to satisfy other
undertakings or indebtedness. It has made other investments in early stage
privately-held companies and the person(s) making the investment decision on its
behalf understand the risks attendant with such investments. The knowledge and
experience in financial and business matters of the person(s) making the
investment decision on its behalf are such that he/she/they are capable of
evaluating the merits and risks of an investment in the Company. It is able to
bear the economic risk of an investment in the Company as well as the
restriction on its ability to sell or transfer the investment for an indefinite
period of time. It has had access to such information concerning the Company and
the securities as it considered necessary to make an informed decision
concerning the proposed investment.
5. It was not formed for the specific purpose of making an investment
in the Company.
<PAGE> 24
6. It is acquiring the securities solely for its own account and not
directly or indirectly for the account of any other person whatsoever, for
investment and not with a view to, or for sale in connection with, any
distribution of the securities. It does not have any contract, undertaking or
arrangement with any person to sell, transfer or grant a participation to any
person with respect to the securities.
Name of Entity:
By:_____________________________________
(Signature)
_____________________________________
(Name)
_____________________________________
(Title)
_____________________________________
(Date)
<PAGE> 25
APPENDIX IV
Attention:
CERTIFICATE OF SUBSEQUENT SALE
The undersigned, an officer of, or other person duly authorized by
__________________________________________________________________
[fill in official name of individual or institution]
hereby certifies that he/she sold the units evidenced by the attached
certificate on ________ in accordance with registration statement
[date]
number ______________________________________ and the requirement of
[fill in the number of or otherwise identify registration statement]
delivering a current prospectus has been complied with in connection
with such sale.
Print or Type: ___________________________
Name (Individual or Institution): ___________________________
Name of Individual representing Institution
(if applicable) ___________________________
Title of Individual representing Institution
(if applicable): ___________________________
Signature by:
Individual Purchaser or Individual
representing Institution: ___________________________
<PAGE> 1
Exhibit 10.5
EXCHANGE OF BRIDGE DEBT
AND WARRANT TERMINATION AGREEMENT
THIS EXCHANGE OF BRIDGE DEBT AND WARRANT TERMINATION AGREEMENT is
entered into as of the date set forth on the signature page hereof (the
"Agreement") between Cypress Bioscience, Inc. ("Parent") and the holders of
certain indebtedness and warrants of PRP, Inc. (the "Company") set forth on
Schedule I hereto (each a "Bridge Debtholder" and, collectively, the "Bridge
Debtholders"). Capitalized terms not otherwise defined herein shall have the
meaning ascribed to such terms in the Agreement and Plan of Merger and
Reorganization dated October 10, 1996 between Parent, Cypress Acquisition Sub,
Inc., a wholly-owned subsidiary of Parent ("Merger Sub") and the Company, a copy
of which is attached hereto as Exhibit A (the "Merger Agreement").
WHEREAS, this Agreement is entered into by the parties concurrently and
in connection with the Merger Agreement, whereby the Company and Merger Sub will
merge and the Company will be the surviving corporation;
WHEREAS, pursuant to the terms of the Merger Agreement, upon the
Closing, the Bridge Debtholders will (i) receive in exchange for all outstanding
indebtedness of the Company held by each such Bridge Debtholder as set forth on
Schedule I (the "Bridge Debt"), that number of Units of Parent set forth
opposite each such Bridge Debtholders' name on Schedule I, with such number of
Units being subject to adjustment pursuant to Section 3.1(a) hereof, and (ii) be
entitled to receive, in exchange for and in consideration of the surrender and
cancellation of all Company Warrants held by each Bridge Debtholder as reflected
on Schedule I, the percentage share to be paid to such Bridge Debtholders
pursuant to the Allocation Schedule (the "Allocation Percentage") of any
Earn-Out Payments and Milestone Payment paid by Parent to the Equity Holders, as
set forth in the Merger Agreement; and
WHEREAS, in order to induce Parent to enter into the Merger Agreement
and to proceed with the Merger, the parties hereto wish to provide for certain
undertakings to be carried out by each of the parties hereto.
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. WAIVER OF PROHIBITIONS TO MERGER. Each Bridge Debtholder hereby
irrevocably waives any and all restrictions on and prohibitions to the Merger
and any of the transactions contemplated thereby contained in (i) any document
set forth on Schedule II hereto, and (ii) any other document or documents to
which each such Bridge Debtholder is a party and that relates to the
indebtedness of the Company to any of the Bridge Debtholders (such documents
referred to in clauses (i) and (ii) being collectively referred to herein as the
"Loan Documents").
1
<PAGE> 2
2. CONSENT TO MERGER. Each Bridge Debtholder hereby consents to the
Merger on substantially the terms set forth in the Merger Agreement attached as
Exhibit A hereto, with such consent being given pursuant to any requirement
contained in any Loan Documents, or otherwise. Each Bridge Debtholder agrees to
execute any necessary amendments, terminations, consents or waivers to or
required by the Loan Documents or Company Warrants held by each such Bridge
Debtholder in order to effectuate the Merger.
3. EXCHANGE OF BRIDGE DEBT AND TERMINATION OF COMPANY WARRANTS
3.1 EXCHANGE OF BRIDGE DEBT.
(a) At or prior to the Closing, Parent shall issue to
each Bridge Debtholder and each Bridge Debtholder shall accept, in exchange for
and in full satisfaction and settlement of all indebtedness (including accrued
and unpaid interest) owed by the Company to such Bridge Debtholder, that number
of Units set forth opposite such Bridge Debtholder's name on Schedule I hereto,
all upon the terms and conditions set forth in the Merger Agreement; provided,
however, that the number of Units to be issued to each Bridge Debtholder
pursuant to Schedule I shall be subject to adjustment for any accrued and unpaid
interest on the Bridge Debt as of the Closing Date and for any Units to be
issued to a Bridge Debtholder under Subsection (b) below.
(b) To the extent the cash balances of the Company as
of the Closing Date are insufficient to satisfy the aggregate amount of all
fees, costs and expenses which were incurred by the Company in connection with
the transactions contemplated by the Merger Agreement and actually paid by the
Company to (i) the Company's legal and accounting advisors, and (ii) the Bridge
Debtholders' legal advisors, each Bridge Debtholder shall advance sufficient
additional Bridge Debt not reflected on Schedule I (the "Additional Bridge
Debt"), on a pro rata basis, necessary to satisfy such fees, costs and expenses;
provided, however, that the aggregate amount of all Bridge Debt advanced
hereunder and pursuant to subsection (a) above shall in no event exceed
$4,800,000. Any Bridge Debtholder that advances Additional Bridge Debt under
this subsection (b) shall be entitled to receive that additional number of Units
(valued at $4.00 per Unit) equal to the quotient of (i) the aggregate amount of
all Additional Bridge Debt (including accrued and unpaid interest on such
Additional Bridge Debt) advanced by such Bridge Debtholder, and (ii) $4.00.
(c) No fractional shares of Parent Common Stock shall
be issued in connection with the satisfaction and settlement of the Bridge Debt
contemplated hereunder, and no certificates for any such fractional shares shall
be issued. In lieu of such fractional shares, any Bridge Debtholder who would
otherwise be entitled to receive a fraction of a share of Parent Common Stock
(after aggregating all shares of Parent Common Stock issuable to such Bridge
Debtholder) shall, upon surrender of such Bridge Debtholder's Company Promissory
Notes or an affidavit and indemnity agreement, as the case may be and as set
forth in Section 1.8(a) of the Merger Agreement, be paid in cash the dollar
amount (rounded to the nearest whole cent), without interest, determined by
multiplying such fraction by the closing sales price of Parent's Common Stock if
such Common Stock is quoted on the Nasdaq/NMS on the day immediately
2
<PAGE> 3
prior to the Closing Date (or, if not quoted on the Nasdaq/NMS, the average of
the bid and asked prices of Parent's Common Stock as quoted in the NASD
electronic interdealer quotation system).
3.2 TERMINATION OF COMPANY WARRANTS.
(a) Immediately prior to the Closing, all Company
Warrants held by each Bridge Debtholder shall be canceled and all rights and
obligations under such Company Warrants shall terminate and be of no further
force or effect. In exchange for and in consideration of such cancellation and
termination, each Bridge Debtholder shall be entitled to receive its respective
Allocation Percentage of any Earn-Out Payments and Milestone Payment that may be
made by Parent to the Equity Holders pursuant to the Merger Agreement. Such
Allocation Percentage is set forth in the Allocation Schedule. Any Milestone
Payment made by Parent to the Bridge Debtholders pursuant to the Merger
Agreement may be made, at the option of the Parent, in the form of cash, Parent
Common Stock or a combination of cash and Parent Common Stock, all in accordance
with Section 1.5(c) of the Merger Agreement.
(b) Each Bridge Debtholder, in its capacity as an
Equity Holder by virtue of such Bridge Debtholder's ownership of Company
Warrants, hereby agrees, severally, and not jointly, to the appointment of the
Equity Holders' Representatives to act as attorneys-in-fact of such Bridge
Debtholders in all matters relating to such Bridge Debtholder's rights as an
Equity Holder of the Company, all in accordance with and pursuant to Section 12
of the Merger Agreement.
3.3 DELIVERY OF COMPANY PROMISSORY NOTES AND COMPANY WARRANTS
INTO ESCROW. Contemporaneously with the signing of this Agreement, each Bridge
Debtholder shall deliver to Nutter, McClennen & Fish, LLP (the "Escrow Agent")
all Company Promissory Notes and all other evidences of indebtedness relating to
the Bridge Debt and all Company Warrants held by such Bridge Debtholder or its
affiliates (collectively, the "Escrowed Documents"). The Escrow Agent shall
maintain in escrow such Escrowed Documents. The Escrow Agent shall deliver the
Escrowed Documents to Parent upon the Closing of the Merger. In the event the
Merger is not consummated by November 15, 1996, the Escrow Agent shall promptly
return the Escrowed Documents to each respective Bridge Debtholder.
3.4 EXECUTION OF LOCK-UP AGREEMENTS. Contemporaneously with
the signing of this Agreement, each Bridge Debtholder shall sign a lock-up
agreement in the form of Exhibit B attached hereto.
4. REPRESENTATIONS AND WARRANTIES. Each of the Bridge Debtholders
hereby represent and warrant, severally, and not jointly, to and for the benefit
of Parent, as follows:
4.1 REPRESENTATION REGARDING BRIDGE DEBT AND COMPANY WARRANTS.
Schedule I hereto sets forth an accurate and complete list of (i) the names of
each Bridge Debtholder, (ii) the aggregate principal amount of all indebtedness
of the Company held by each Bridge Debtholder as of October 3, 1996, including
the applicable rate of interest on all such
3
<PAGE> 4
indebtedness, (iii) all Company Warrants held by each Bridge Debtholder, and
(iv) the number of Units to be received by each Bridge Debtholder in
cancellation of all outstanding principal on the Bridge Debt pursuant to Section
1.5(a) of the Merger Agreement. Schedule II sets forth each document or
instrument to which the Bridge Debtholders are a party that relate to the Bridge
Debt and the Company Warrants. None of the Bridge Debtholders have assigned,
transferred, conveyed, pledged or hypothecated, in whole or in part, any of the
Bridge Debt or Company Warrants or any interest therein. From the date of
signing this Agreement until the Effective Time, no Bridge Debtholder shall
exercise any Company Warrants.
4.2 POWER AND AUTHORITY. Each Bridge Debtholder has all
requisite power and authority, whether corporate or otherwise, to enter into
this Agreement and to carry out and perform all of its obligations under this
Agreement. All actions on the part of each Bridge Debtholder that are necessary
for the authorization, execution, delivery and performance of this Agreement
have been taken. This Agreement, when executed and delivered, shall constitute
the legal and binding obligations of the Bridge Debtholders enforceable against
each such Bridge Debtholder in accordance with its terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditor's rights
and by rules of law governing specific performance, injunctive relief or other
equitable remedies.
4.3 ACCREDITED INVESTOR. Each of the Bridge Debtholders is an
"accredited investor" within the meaning of Rule 501(a) of Regulation D as
promulgated under the Act, and is able to bear the risk of losing its entire
investment in Parent.
4.4 EXPERIENCE. Each Bridge Debtholder has, from time to time,
evaluated investments in companies in the early stages of development and has,
either individually or through the personal experience of one or more of its
current officers or partners, experience in evaluating and investing in such
companies. No Bridge Debtholder, if such Bridge Debtholder is an entity other
than an individual, was formed for the purpose of investing in Parent.
4.5 INVESTMENT. Each Bridge Debtholder is acquiring the Units
for investment for its own account and not with a view to, or for resale in
connection with, any distribution thereof, and it has no present intention of
selling or distributing the Units or any of Parent Common Stock or warrants (the
"Parent Warrants") or shares subject to the Parent Warrants (the "Warrant
Shares") comprising the Units. Each Bridge Debtholder understands and
acknowledges that the Units (including the shares of Parent Common Stock, Parent
Warrants and Warrant Shares) to be issued to it have not been registered under
the Act and will be issued by reason of a specific exemption from the
registration provisions of the Act which depends upon, among other things, the
bona fide nature of the investment intent as expressed herein.
4.6 RULE 144. Each Bridge Debtholder acknowledges that, prior
to the time any of the Units held by such Bridge Debtholder have been registered
under the Act pursuant to Section 4 herein or otherwise, the Units being issued
to it must be held indefinitely until such registration or an exemption from
such registration is available. Each Bridge Debtholder is aware of the
provisions of Rule 144 promulgated under the Act which would permit limited
4
<PAGE> 5
resales of the Units subject to the satisfaction of certain conditions,
including, among other things, the existence of a public market for the Units
(or for the shares of Parent Common Stock, Parent Warrants and Warrant Shares
comprising the Units), the availability of certain current public information
about Parent, the resale not occurring less than two years after a Bridge
Debtholder has properly acquired its Units, the sale being through a "broker's
transaction" or in transactions directly with a market maker (as provided by
Rule 144(f)) and the number of shares of Parent Common Stock, Parent Warrants or
Warrant Shares being sold during any three-month period not exceeding specified
limitations (unless the sale is within the requirements of Rule 144(k)).
4.7 ACCESS TO DATA. Each Bridge Debtholder has received a copy
of Parent's (i) Private Placement Memorandum dated September 3, 1996 and all
supplements thereto, (ii) Annual Report on Form 10-K/A for the year ended
December 31, 1995, (iii) Quarterly Report on Form 10-Q for the period ended
march 31, 1996, (iv) Quarterly Report on Form 10-Q for the period ended June 30,
1996, (v) Current Report on Form 8-K dated as of February 2, 1996, (vi) Current
Report on Form 8-K dated as of March 8, 1996, (vii) Current Report on Form 8-K
dated as of April 1, 1996, and (viii) Proxy Statement for the Annual Meeting of
Stockholders held on April 15, 1996. The documents set forth in subsections (i)
through (viii) are referred to herein as the "Public Disclosure Documents." Each
Bridge Debtholder has had an opportunity to review the Public Disclosure
Documents and has had an opportunity to obtain any additional information
necessary to verify the accuracy of the information given to such Bridge
Debtholder.
5. REGISTRATION RIGHTS. Notwithstanding the representations and
warranties set forth in Section 4 hereof, Parent has agreed to register all
Units (which includes the shares of Parent Common Stock, Parent Warrants and
shares of Parent Common Stock underlying the Parent Warrants that comprise the
Units) received by the Bridge Debtholders pursuant to Section 3.1 or Section 3.2
herein, under the Securities Act of 1933, as amended (the "Act"), in accordance
with the terms and subject to the conditions set forth in Section 11 of the
Merger Agreement. In addition, Parent shall provide to the Bridge Debtholders a
copy of the registration statement as soon as practicable after execution of
this Agreement and prior to filing.
6. RELEASE OF CLAIMS. Subject to and upon the consummation of the
Merger and the issuance to the Bridge Debtholders of the Units pursuant to
Section 3.1 and the rights granted under Section 3.2 hereof, each Bridge
Debtholder, for itself and for such Bridge Debtholder's predecessors,
successors, executors, administrators, heirs and estate, hereby irrevocably,
unconditionally and completely releases and forever discharges Parent and its
affiliates, successors or assigns from, and hereby irrevocably, unconditionally
and completely waives and relinquishes, any past, present or future dispute,
claim, controversy, demand, right, obligation, liability, action and cause of
action of every kind and nature that such Bridge Debtholder may have or acquire
under any of the Company Warrants or Loan Documents or in connection with any of
the Bridge Debt or indebtedness held by such Bridge Debtholder , except as
contemplated under this Agreement and the Merger Agreement with respect to the
rights granted hereunder and thereunder. Each Bridge Debtholder shall disclose
to Parent on Schedule III hereto any other obligations of the Company to such
Bridge Debtholder and any other claims such Bridge Debtholder may have against
the Company. Failure to disclose any such obligations or claims
5
<PAGE> 6
on Schedule III shall be deemed a release of such obligation or claim to the
full extent provided in this Section 6.
7. TERMINATION. This Agreement shall terminate upon the termination of
the Merger Agreement.
8. GENERAL
8.1 AMENDMENTS. This Agreement may not be amended, modified,
altered or supplemented other than by means of a written instrument duly
executed and delivered on behalf of Parent and, with respect to any Bridge
Debtholder, that Bridge Debtholder.
8.2 GOVERNING LAW. This Agreement shall be construed in
accordance with, and governed in all respects by, the internal laws of the State
of California (without giving effect to principles of conflicts of laws).
8.3 SEVERABILITY. In the event any provision of this
Agreement, or the application of any such provision to any party hereto or set
of circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to parties or circumstances other than those as to
which it is determined to be invalid, unlawful, void or unenforceable, shall not
be impaired or otherwise affected and shall continue to be valid and enforceable
to the fullest extent permitted by law.
8.4 THIRD PARTY BENEFICIARIES. Subject to the limitations
contained in the Merger Agreement, the terms of the Merger Agreement, including
without limitation, the representations and warranties of Parent and Merger Sub
contained in the Merger Agreement, are intended to benefit the Bridge
Debtholders as third party beneficiaries and shall inure to and benefit such
Bridge Debtholders as third party beneficiaries.
8.5 ENTIRE AGREEMENT. This Agreement and the other agreements
referred to herein set forth the entire understanding of the parties hereto
relating to the subject matter hereof and thereof and supersede all prior
agreements and understandings among or between any of the parties relating to
the subject matter hereof and thereof.
8.6 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original and, when taken
together, shall constitute one and the same instrument, provided that the
failure of any one or more Bridge Debtholders to execute this Agreement shall
not render this Agreement invalid with respect to any Bridge Debtholder who has
executed this Agreement.
6
<PAGE> 7
IN WITNESS WHEREOF, the undersigned parties have hereto caused this
Agreement to be executed as of the date set forth below.
CYPRESS BIOSCIENCE, INC.,
a Delaware corporation
By:___________________________________
Name:_________________________________
Title:________________________________
SIGNATURE PAGE TO EXCHANGE OF
BRIDGE DEBT AND WARRANT TERMINATION AGREEMENT
<PAGE> 8
BRIDGE DEBTHOLDER:
TULLIS-DICKERSON CAPITAL FOCUS, L.P.
By:___________________________________
Name:_________________________________
Title:________________________________
Date:_________________________________
SIGNATURE PAGE TO EXCHANGE OF
BRIDGE DEBT AND WARRANT TERMINATION AGREEMENT
<PAGE> 9
BRIDGE DEBTHOLDER:
DYNAMICS TECHNOLOGY, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
Date:_________________________________
SIGNATURE PAGE TO EXCHANGE OF
BRIDGE DEBT AND WARRANT TERMINATION AGREEMENT
<PAGE> 10
BRIDGE DEBTHOLDER:
PLATELET PRODUCTS INTERNATIONAL, LTD.
By:___________________________________
Name:_________________________________
Title:________________________________
Date:_________________________________
SIGNATURE PAGE TO EXCHANGE OF
BRIDGE DEBT AND WARRANT TERMINATION AGREEMENT
<PAGE> 11
BRIDGE DEBTHOLDER:
CATO HOLDING COMPANY
By:___________________________________
Name:_________________________________
Title:________________________________
Date:_________________________________
SIGNATURE PAGE TO EXCHANGE OF
BRIDGE DEBT AND WARRANT TERMINATION AGREEMENT
<PAGE> 12
BRIDGE DEBTHOLDER:
______________________________________
JOHNNY I-MON WU
Date:_________________________________
SIGNATURE PAGE TO EXCHANGE OF
BRIDGE DEBT AND WARRANT TERMINATION AGREEMENT
<PAGE> 13
BRIDGE DEBTHOLDER:
WHOLEGAINER COMPANY LIMITED
By:___________________________________
Name:_________________________________
Title:________________________________
Date:_________________________________
SIGNATURE PAGE TO EXCHANGE OF
BRIDGE DEBT AND WARRANT TERMINATION AGREEMENT
<PAGE> 14
BRIDGE DEBTHOLDER:
TULLIS DICKERSON & CO.
By:___________________________________
Name:_________________________________
Title:________________________________
Date:_________________________________
SIGNATURE PAGE TO EXCHANGE OF
BRIDGE DEBT AND WARRANT TERMINATION AGREEMENT
<PAGE> 15
BRIDGE DEBTHOLDER:
______________________________________
JAMES L. L. TULLIS
Date:_________________________________
SIGNATURE PAGE TO EXCHANGE OF
BRIDGE DEBT AND WARRANT TERMINATION AGREEMENT
<PAGE> 16
BRIDGE DEBTHOLDER:
BATTLE FOWLER LLP
By:___________________________________
Name:_________________________________
Title:________________________________
Date:_________________________________
SIGNATURE PAGE TO EXCHANGE OF
BRIDGE DEBT AND WARRANT TERMINATION AGREEMENT
<PAGE> 17
BRIDGE DEBTHOLDER:
______________________________________
JOHANNA T. CHAO
Date:_________________________________
SIGNATURE PAGE TO EXCHANGE OF
BRIDGE DEBT AND WARRANT TERMINATION AGREEMENT
<PAGE> 18
BRIDGE DEBTHOLDER:
______________________________________
LINDA TULLIS
Date:_________________________________
SIGNATURE PAGE TO EXCHANGE OF
BRIDGE DEBT AND WARRANT TERMINATION AGREEMENT
<PAGE> 19
BRIDGE DEBTHOLDER:
______________________________________
JOAN P. NEUSCHELER
Date:_________________________________
SIGNATURE PAGE TO EXCHANGE OF
BRIDGE DEBT AND WARRANT TERMINATION AGREEMENT
<PAGE> 20
BRIDGE DEBTHOLDER:
______________________________________
THOMAS P. DICKERSON
Date:_________________________________
SIGNATURE PAGE TO EXCHANGE OF
BRIDGE DEBT AND WARRANT TERMINATION AGREEMENT
<PAGE> 21
BRIDGE DEBTHOLDER:
______________________________________
CLAIRE M. DICKERSON
Date:_________________________________
SIGNATURE PAGE TO EXCHANGE OF
BRIDGE DEBT AND WARRANT TERMINATION AGREEMENT
<PAGE> 22
BRIDGE DEBTHOLDER:
______________________________________
RICHARD J. MILLER
Date:_________________________________
SIGNATURE PAGE TO EXCHANGE OF
BRIDGE DEBT AND WARRANT TERMINATION AGREEMENT
<PAGE> 23
BRIDGE DEBTHOLDER:
______________________________________
TIMOTHY M. BOUNO
Date:_________________________________
SIGNATURE PAGE TO EXCHANGE OF
BRIDGE DEBT AND WARRANT TERMINATION AGREEMENT
<PAGE> 24
BRIDGE DEBTHOLDER:
______________________________________
EUGENE C. SWAGER
Date:_________________________________
SIGNATURE PAGE TO EXCHANGE OF
BRIDGE DEBT AND WARRANT TERMINATION AGREEMENT
<PAGE> 25
BRIDGE DEBTHOLDER:
______________________________________
EUGENE C. SWAGER
Date:_________________________________
SIGNATURE PAGE TO EXCHANGE OF
BRIDGE DEBT AND WARRANT TERMINATION AGREEMENT
<PAGE> 26
BRIDGE DEBTHOLDER:
______________________________________
HARRIETT P. SWAGER
Date:_________________________________
SIGNATURE PAGE TO EXCHANGE OF
BRIDGE DEBT AND WARRANT TERMINATION AGREEMENT
<PAGE> 27
BRIDGE DEBTHOLDER:
______________________________________
JENNY HEIDENREICH
Date:_________________________________
SIGNATURE PAGE TO EXCHANGE OF
BRIDGE DEBT AND WARRANT TERMINATION AGREEMENT
<PAGE> 28
BRIDGE DEBTHOLDER:
______________________________________
JOHN H. ALTORFER
Date:_________________________________
SIGNATURE PAGE TO EXCHANGE OF
BRIDGE DEBT AND WARRANT TERMINATION AGREEMENT
<PAGE> 29
BRIDGE DEBTHOLDER:
______________________________________
CAROL VANCE
Date:_________________________________
SIGNATURE PAGE TO EXCHANGE OF
BRIDGE DEBT AND WARRANT TERMINATION AGREEMENT
<PAGE> 30
BRIDGE DEBTHOLDER:
______________________________________
JOANNE BOWLES
Date:_________________________________
SIGNATURE PAGE TO EXCHANGE OF
BRIDGE DEBT AND WARRANT TERMINATION AGREEMENT
<PAGE> 31
SCHEDULE I
BRIDGE DEBTHOLDERS, RELATED BRIDGE DEBT, COMPANY WARRANTS AND UNITS
AS OF OCTOBER 3, 1996
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Total Bridge Debt
Debtholder (including interest) Total Warrants Total Units (#)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tullis-Dickerson Capital $1,981,188.36 1,289,012 495,297
Focus, L.P.
- -----------------------------------------------------------------------------------------------
Dynamics Technology, 1,092,321.79 767,738 273,080
Inc.
- -----------------------------------------------------------------------------------------------
Platelet Products 346,516.19 205,784 86,629
International, Ltd.
- -----------------------------------------------------------------------------------------------
Cato Holding Company 234,537.43 55,842 58,634
- -----------------------------------------------------------------------------------------------
Johnny I-Mon Wu 232,339.74 164,713 58,084
- -----------------------------------------------------------------------------------------------
Wholegainer Company 173,842.55 147,792 43,460
Limited
- -----------------------------------------------------------------------------------------------
Tullis-Dickerson & Co. 120,633.18 72,560 30,158
- -----------------------------------------------------------------------------------------------
James L. L. Tullis 106,960.29 213,921 26,740
- -----------------------------------------------------------------------------------------------
Battle Fowler LLP 53,561.46 60,884 13,390
- -----------------------------------------------------------------------------------------------
Johanna T. Chao 26,828.29 53,657 6,707
- -----------------------------------------------------------------------------------------------
TOTAL $4,368,729.28 3,031,901 1,092,179
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 32
SCHEDULE II
[LIST OF ALL DOCUMENTS UNDERLYING BRIDGE DEBT AND COMPANY WARRANTS]
<PAGE> 33
SCHEDULE III
[OTHER CLAIMS OF BRIDGE DEBTHOLDERS]
<PAGE> 34
EXHIBIT A
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
<PAGE> 35
EXHIBIT B
FORM OF LOCK-UP AGREEMENT
<PAGE> 1
EXHIBIT 10.6
MODIFIED FEE AGREEMENT
This MODIFIED FEE AGREEMENT (the "Agreement) dated October 10, 1996, by
and among Cypress Bioscience, Inc. ("Parent"), PRP, Inc. ("PRP") and EGS
Securities Corp. ("EGS") modifies that certain letter agreement dated May 30,
1995 between EGS and PRP (the "Engagement Letter"). Capitalized terms used and
not otherwise defined herein shall have the meanings ascribed to such terms in
the Merger Agreement (as defined herein).
RECITALS
WHEREAS, the Engagement Letter sets forth the terms and conditions by
which EGS will provide certain investment banking services to PRP in connection
with negotiations with respect to possible transactions, including a merger of
PRP with a third party;
WHEREAS, this Agreement modifies the Engagement Letter and is entered
into by the parties concurrently and in connection with that certain Agreement
and Plan of Merger and Reorganization (the "Merger Agreement") by and among
Parent, Cypress Acquisition Sub, Inc., a Delaware corporation and wholly owned
subsidiary of the Company ("Merger Sub"), and PRP, Inc., a Delaware corporation
(the "Company"), whereby the Company and Merger Sub will merge (the "Merger")
and the Company will be the surviving corporation;
WHEREAS, in connection with the Merger, EGS has provided to the
Company certain investment banking advisory services;
WHEREAS, pursuant to the Merger Agreement, Parent has agreed to
satisfy certain of the obligations of the Company owed to EGS for such services
by issuing Units of Parent to EGS and by making certain future payments, if
any, to EGS, all as more fully set forth herein and in the Merger Agreement;
and
WHEREAS, in order to induce Parent to enter into the Merger Agreement
and to proceed with the Merger, the parties hereto wish to provide for certain
undertakings to be carried out by each of the parties hereto.
NOW, THEREFORE, in consideration of the foregoing premises, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
1. PAYMENT FOR SERVICES RENDERED. In consideration of the
services provided by EGS to the Company in connection with the transactions
contemplated by the Merger Agreement, at the Closing, Parent shall issue to
EGS, in full and complete satisfaction of all amounts due at Closing as a
result of the transactions contemplated by the Merger Agreement
<PAGE> 2
pursuant to the Engagement Letter, that number of Units (valued at $4.00 per
Unit) equal in value to two and one-half percent (2-1/2%) of the total Bridge
Debt and Additional Bridge Debt (including accrued interest thereon)
outstanding as of the Closing Date; provided, however, that the aggregate value
of all Units to be issued to EGS under this Section 1 shall not exceed
$120,000.
2. FUTURE CONTINGENT PAYMENTS. Upon payment of the Milestone
Payment, if any, and each time any Earn-Out Payment is paid to Equity Holders,
Parent shall pay to EGS from such Milestone Payment or Earn-Out Payment, as the
case may be, prior to any distribution to be made to the Equity Holders
pursuant to the Merger Agreement in full satisfaction of all monetary
obligations owed to EGS by the Company for services rendered in connection with
the Merger, an amount equal to two and one-half percent (2-1/2%) of the
Milestone Payment and each Earn- Out Payment. Each payment to be made to EGS
under this Section 2 shall be made in cash at the same time payments of the
Milestone Payment and each Earn-Out Payment are made to the Equity Holders.
3. NO OTHER PAYMENTS. EGS agrees that the payments to be made by
Parent to EGS under Section 1 and Section 2 hereof are the only payments to be
made by Parent or PRP under the Engagement Letter and that EGS hereby releases
Parent and PRP from all other claims for any payments for services provided to
PRP pursuant to the Engagement Letter; provided, however, that EGS shall be
entitled to reasonable out-of- pocket expenses as provided in and subject to
the limitations of Section 2.11(d) of the Merger Agreement.
4. FRACTIONAL SHARES. No fractional shares of Parent Common
Stock shall be issued in connection with the satisfaction and settlement of
Parent's obligations under Section 1 and Section 2 above, and no certificates
for any such fractional shares shall be issued. In lieu of any such fractional
share to which EGS may be entitled, Parent shall pay in cash to EGS the dollar
amount (rounded to the nearest whole cent), without interest, determined by
multiplying such fraction by the closing sales price of Parent's Common Stock
if such Common Stock is quoted on the Nasdaq/NMS on the day immediately prior
to the Closing Date (or, if not quoted on the Nasdaq/NMS, the average of the
bid and asked prices of Parent's Common Stock as quoted in the NASD electronic
interdealer quotation system).
5. EXECUTION OF LOCK-UP AGREEMENTS. Contemporaneously with the
signing of this Agreement, EGS shall sign a lock-up agreement in the form of
Exhibit A attached hereto.
6. REPRESENTATIONS AND WARRANTIES. EGS hereby represents and
warrants, to and for the benefit of Parent, as follows:
6.1 POWER AND AUTHORITY. EGS has all requisite power and
authority, whether corporate or otherwise, to enter into this Agreement and to
carry out and perform all of its obligations under this Agreement. All actions
on the part of EGS that are necessary for the authorization, execution,
delivery and performance of this Agreement have been taken. This Agreement,
when executed and delivered, shall constitute the legal and binding obligations
of EGS enforceable against EGS in accordance with its terms, except as limited
by applicable
2
<PAGE> 3
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditor's rights and by
rules of law governing specific performance, injunctive relief or other
equitable remedies.
6.2 ACCREDITED INVESTOR. EGS is an "accredited investor"
within the meaning of Rule 501(a) of Regulation D as promulgated under the Act,
and is able to bear the risk of losing its entire investment in Parent.
6.3 EXPERIENCE. EGS has, from time to time,
evaluated investments in companies in the early stages of development and has,
through the personal experience of one or more of its current officers or
partners, experience in evaluating and investing in such companies. EGS was
not formed for the purpose of investing in Parent.
6.4 INVESTMENT. EGS is acquiring the Units for
investment for its own account and not with a view to, or for resale in
connection with, any distribution thereof, and it has no present intention of
selling or distributing the Units or any of Parent Common Stock or warrants
(the "Parent Warrants") or shares subject to the Parent Warrants (the "Warrant
Shares") comprising the Units. EGS understands and acknowledges that the Units
(including the shares of Parent Common Stock, Parent Warrants and Warrant
Shares) to be issued to it have not been registered under the Act and will be
issued by reason of a specific exemption from the registration provisions of
the Act which depends upon, among other things, the bona fide nature of the
investment intent as expressed herein.
6.5 RULE 144. EGS acknowledges that, prior to the time
any of the Units held by it have been registered under the Act pursuant to
Section 7 herein or otherwise, the Units being issued to it must be held
indefinitely until such registration or an exemption from such registration is
available. EGS is aware of the provisions of Rule 144 promulgated under the
Act which would permit limited resales of the Units subject to the satisfaction
of certain conditions, including, among other things, the existence of a public
market for the Units (or for the shares of Parent Common Stock, Parent Warrants
and Warrant Shares comprising the Units), the availability of certain current
public information about Parent, the resale not occurring less than two years
after EGS has properly acquired its Units, the sale being through a "broker's
transaction" or in transactions directly with a market maker (as provided by
Rule 144(f)) and the number of shares of Parent Common Stock, Parent Warrants
or Warrant Shares being sold during any three-month period not exceeding
specified limitations (unless the sale is within the requirements of Rule
144(k)).
6.6 ACCESS TO DATA. EGS has received a copy of Parent's
(i) Private Placement Memorandum dated September 3, 1996 and all supplements
thereto, (ii) Annual Report on Form 10-K/A for the year ended December 31,
1995, (iii) Quarterly Report on Form 10-Q for the period ended March 31, 1996,
(iv) Quarterly Report on Form 10-Q for the period ended June 30, 1996, (v)
Current Report on Form 8-K dated as of February 2, 1996, (vi) Current Report on
Form 8-K dated as of March 8, 1996, (vii) Current Report on Form 8-K dated as
of April 1, 1996, and (viii) Proxy Statement for the Annual Meeting of
Stockholders held on April 15, 1996. The documents set forth in subsections
(i) through (viii) are referred to herein as the
3
<PAGE> 4
"Public Disclosure Documents." EGS has had an opportunity to review the Public
Disclosure Documents and has had an opportunity to obtain any additional
information necessary to verify the accuracy of the information given to EGS.
7. REGISTRATION RIGHTS. Notwithstanding the representations and
warranties set forth in Section 6 hereof, Parent has agreed to register all
Units (which includes the shares of Parent Common Stock, Parent Warrants and
shares of Parent Common Stock underlying the Parent Warrants that comprise the
Units) received by EGS pursuant to Section 1 and any Units that may be issued
pursuant to Section 2 hereof under the Securities Act of 1933, as amended (the
"Act"), in accordance with the terms and subject to the conditions set forth in
Section 11 of the Merger Agreement. In addition, Parent shall provide to EGS a
copy of the registration statements as soon as practicable after execution of
this Agreement and prior to filing.
8. TERMINATION. This Agreement shall terminate in the event the
Merger is not consummated.
9. GENERAL
9.1 MODIFICATION OF ENGAGEMENT LETTER. This Agreement
modifies the terms and conditions of the Engagement Letter. Except as set
forth herein, the terms and conditions of the Engagement Letter, including the
indemnification provisions set forth therein, shall remain in full force and
effect.
9.2 AMENDMENTS. This Agreement may not be amended,
modified, altered or supplemented other than by means of a written instrument
duly executed and delivered on behalf of Parent and EGS.
9.3 GOVERNING LAW. This Agreement shall be construed in
accordance with, and governed in all respects by, the internal laws of the
State of California (without giving effect to principles of conflicts of laws).
9.4 SEVERABILITY. In the event any provision of this
Agreement, or the application of any such provision to any party hereto or set
of circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to parties or circumstances other than those as
to which it is determined to be invalid, unlawful, void or unenforceable, shall
not be impaired or otherwise affected and shall continue to be valid and
enforceable to the fullest extent permitted by law.
9.5 ENTIRE AGREEMENT. This Agreement and the other
agreements referred to herein set forth the entire understanding of the parties
hereto relating to the subject matter hereof and thereof and supersede all
prior agreements and understandings among or between any of the parties
relating to the subject matter hereof and thereof.
4
<PAGE> 5
9.6 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original and, when
taken together, shall constitute one and the same instrument.
IN WITNESS WHEREOF,the undersigned parties have hereto caused this
Agreement to be executed as of the date first above written.
CYPRESS BIOSCIENCE, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
PRP, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
EGS SECURITIES CORP.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
5
<PAGE> 6
EXHIBIT A
LOCK-UP AGREEMENT
<PAGE> 7
CYPRESS BIOSCIENCE, INC.
LOCK-UP AGREEMENT
October 10, 1996
Cypress Bioscience, Inc.
4350 Executive Drive, Suite 325
San Diego, CA 92121
Ladies and Gentlemen:
Reference is made to that certain Modified Fee Agreement dated as of
October 10, 1996 by and among Cypress Bioscience, Inc. ("Cypress") EGS
Securities Corp. ("EGS") and PRP, Inc. (the "Company ") whereby Cypress will
issue to EGS Units of Cypress in consideration of certain services rendered by
EGS to the Company in connection with the Merger (as defined herein).
Reference is also made to that certain Agreement and Plan of Merger and
Reorganization dated October 10, 1996 (the "Merger Agreement") among Cypress,
Cypress Acquisition Sub, Inc., a Delaware corporation and wholly-owned
subsidiary of Cypress ("Merger Sub") and the Company, which provides for, among
other things, the merger of Merger Sub with and into the Company (the "Merger")
and the filing of a registration statement under the Securities Act of 1933, as
amended, covering the Cypress Units to be received by, among others, EGS in
connection with the transactions contemplated by the Merger. Capitalized terms
used and not otherwise defined herein shall have the meanings ascribed to such
terms in the Merger Agreement.
As an inducement to and in consideration of Cypress' agreement to
enter into the Services Agreement and the Merger Agreement and proceed with the
Merger, and for other good and valuable consideration, receipt of which is
hereby acknowledged, the undersigned hereby agrees, for a period beginning on
the date hereof and ending on the dates specified below (the "Lock-Up Period"),
not to offer to sell, contract to sell or otherwise sell, dispose of, loan,
pledge or grant (collectively a "Disposition") any rights with respect to
seventy five percent (75%) of the Cypress Units received by the undersigned
pursuant to the terms of the Services Agreement, including the shares of
Cypress Common Stock and the warrants to purchase Cypress Common Stock
(including the shares of Cypress Common Stock underlying such warrants) that
comprise the Units (collectively, the "Securities") acquired by the
undersigned. The foregoing restrictions shall not apply to a bona fide gift or
gifts, or to transfers to Affiliates (including employees and officers of the
undersigned), provided the donee, donees or transferees thereof agree to be
bound by this Lock-Up Agreement. Twenty five percent (25%) of the Securities
received by the undersigned pursuant to the terms of the Services Agreement
shall be free of any restrictions on Disposition imposed hereunder as of the
Closing Date. The restrictions on Disposition of the Securities imposed by
this Lock-Up Agreement shall lapse as follows: 25% of the Securities held by
the undersigned shall be free of such restriction on each three-month
anniversary following the Closing Date.
<PAGE> 8
The foregoing restrictions on Disposition are expressly intended to
preclude the undersigned holder of the Securities from engaging in any hedging
or other transaction which is designed to or reasonably expected to lead to or
result in a Disposition of Securities during the Lock-Up Period (or of more
than the permitted amount of Securities during the nine-month period following
the Lock-Up Period) even if such Securities would be disposed of by someone
other than the undersigned. Such prohibited hedging or other transactions
would include without limitation any short sale (whether or not against the
box) or any purchase, sale or grant of any right (including without limitation
any put or call option) with respect to any Securities or with respect to any
security (other than a broad-based market basket or index) that includes,
relates to or derives any significant part of its value from Securities.
Furthermore, the undersigned hereby agrees and consents to the entry
of stop transfer instructions with Cypress' transfer agent against the transfer
of the Securities held by the undersigned except in compliance with this
Lock-Up Agreement.
Very truly yours,
EGS SECURITIES CORP.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Accepted as of the ____ day of October, 1996:
CYPRESS BIOSCIENCE, INC.
By:
---------------------------
Name:
------------------------
Title:
-----------------------
<PAGE> 1
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 23, 1996, in the Registration Statement (Form
S-3) and related Prospectus of Cypress Bioscience, Inc. for the registration of
shares of its common stock.
/s/ Ernst & Young LLP
-----------------------------
ERNST & YOUNG LLP
Seattle, Washington
November 1, 1996
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement on
Form S-3 dated November 4, 1996 of our report dated March 15, 1994 on our audit
of the consolidated statements of operations, cash flows and stockholders'
equity of IMRE Corporation for the year ended December 31, 1993, which report is
included in the Annual Report on Form 10-K for the year ended December 31, 1995
which is incorporated herein by reference. We also consent to the reference to
our Firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
- -----------------------------
COOPERS & LYBRAND L.L.P.
Seattle, Washington
February 20, 1996
