<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 28, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CYPRESS BIOSCIENCE, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 3845 22-2389839
<S> <C> <C>
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) 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, M.D., PH.D.
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)
---------------
COPIES TO:
FREDERICK T. MUTO, ESQ.
D. BRADLEY PECK, ESQ.
LAUREN D. BOYD, ESQ.
COOLEY GODWARD LLP
4365 EXECUTIVE DRIVE, SUITE 1100
SAN DIEGO, CA 92121
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
If the only 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>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE PRICE(1) FEE
--------------------------- ------------- --------- -------- ---
<S> <C> <C> <C> <C>
Common Stock, $.02 par value per share 3,063,561 $2.89 8,853,604.59 2,461.33
</TABLE>
(1) Estimated in accordance with Rule 457(c) solely for the purpose of
calculating the amount of the registration fee based on the average of the high
and low prices of the Registrant's common stock as reported on the Nasdaq
SmallCap Market on October 26, 1998.
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.
================================================================================
<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.
SUBJECT TO COMPLETION - DATED OCTOBER 28, 1998
PROSPECTUS
3,063,561 SHARES
CYPRESS BIOSCIENCE, INC.
COMMON STOCK
In September 1998, we sold shares of our Series A Convertible Preferred
Stock to certain individuals and entities. These shares of preferred stock are
convertible into 3,063,561 shares of our common stock. We have filed this
prospectus to register the shares of common stock underlying the Series A
Convertible Preferred Stock so that the stockholders may offer and sell shares
in the public market and otherwise. The selling stockholders and the number of
shares of our common stock each selling stockholder may sell under this
prospectus are listed on pages 6-7 of this prospectus.
The selling stockholders may offer their Cypress common stock through
public or private transactions, on or off the Nasdaq SmallCap Market, at
prevailing market prices, or at privately negotiated prices.
Our common stock is listed on the Nasdaq SmallCap Market under the
ticker symbol "CYPB." On October 27, 1998, the closing price of one share of
Cypress common stock on the Nasdaq SmallCap Market was $2.6875.
----------------
THE SHARES OF CYPRESS COMMON STOCK OFFERED OR SOLD UNDER THIS
PROSPECTUS INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE
3.
----------------
THE SHARES OF CYPRESS COMMON STOCK OFFERED OR SOLD UNDER THIS
PROSPECTUS HAVE NOT BEEN APPROVED BY THE SEC OR ANY STATE SECURITIES COMMISSION,
NOR HAVE THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS DATED _______ __, 1998.
1.
<PAGE> 3
THIS PROSPECTUS IS PART OF A REGISTRATION STATEMENT THAT WE FILED WITH
THE SEC. THE REGISTRATION STATEMENT INCLUDES EXHIBITS AND ADDITIONAL INFORMATION
NOT INCLUDED IN THE PROSPECTUS.
WE HAVE NOT AUTHORIZED ANY PERSON TO GIVE YOU ANY SUPPLEMENTAL
INFORMATION OR MAKE ANY REPRESENTATIONS FOR US. YOU SHOULD NOT RELY UPON ANY
INFORMATION ABOUT CYPRESS THAT IS NOT CONTAINED IN THIS PROSPECTUS OR IN ONE OF
CYPRESS'S PUBLIC REPORTS FILED WITH THE SEC AND INCORPORATED INTO THIS
PROSPECTUS. INFORMATION CONTAINED IN THIS PROSPECTUS OR IN CYPRESS'S PUBLIC
REPORTS MAY BECOME OUTDATED. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS
PROSPECTUS IS ACCURATE OR COMPLETE AS OF ANY DATE OTHER THAN THE DATE ON THE
FRONT OF THIS PROSPECTUS OR OTHER DATE TO WHICH SPECIFIC INFORMATION CONTAINED
HEREIN IS QUALIFIED. WE ARE NOT MAKING AN OFFER OF SECURITIES IN ANY STATE WHERE
THE OFFER IS NOT PERMITTED.
THE COMPANY
At Cypress, we research, develop, manufacture and market medical
devices and therapeutics for the treatment of human immune system disorders, and
we develop novel therapeutic agents for the treatment of blood platelet
disorders. We currently market one product, the Prosorba(R) column, for only one
indication, the treatment of idiopathic thromboxylopene purpura ("ITP"). Our
goal is to continue to market the Prosorba column for the treatment of ITP and
to obtain regulatory approval to market the Prosorba column for the treatment of
rheumatoid arthritis. We also plan to attempt to discover other disease
indications for which the Prosorba column may be used as a treatment and to
market the Prosorba column in those areas. In addition, we intend to continue to
develop Cyplex(R) (Infusible Platelet Membranes), a platelet alternative, as an
alternative to traditional platelet transfusions.
Our principal executive offices are located at 4350 Executive Drive,
Suite 325, San Diego, California 92121, and our telephone number is (619)
452-2323. We were incorporated in Delaware in 1981.
Prosorba column and Cyplex, platelet alternative, are registered
trademarks of the Company. All other brand names or trademarks appearing in this
Prospectus are the property of their respective holders.
2.
<PAGE> 4
RISK FACTORS
Investment in Cypress shares involves a high degree of risk. You should
consider the following discussion of risks as well as other information in this
prospectus before purchasing any Cypress shares.
Except for historical information, the information contained in this
prospectus and in our SEC reports are "forward looking" statements about our
expected future business and performance. Our actual operating results and
financial performance may prove to be very different from what we might have
predicted as of the date of this prospectus. The risks described below address
some of the factors that may affect our future operating results and financial
performance.
OUR NEED FOR ADDITIONAL CAPITAL
We are actively seeking opportunities to raise additional capital to be
used primarily to develop new and complete existing research, to fund the
proposed commercial launch of the Prosorba column for the rheumatoid arthritis
indication, and to further the development and marketing of Cyplex, platelet
alternative. We may need to raise additional capital to complete the development
and commercialization of our existing products. If we decide to continue the
development of products other than the Prosorba column and Cyplex, platelet
alternative, we will be required to raise additional capital. The amount of
capital we will require is difficult to predict, and we cannot assure you that
we will be able to raise any additional capital from any source. If we are
unable to obtain additional financing, we may have to delay, scale back or
eliminate some or all of our research and development activities. In addition,
we may be required to license to third parties technologies that we would
otherwise seek to develop ourselves, to seek financing at potentially higher
costs to us or to seek additional methods of financing. Such results may have a
detrimental effect on our financial condition and could prevent us from
realizing our long-term goals.
OUR HISTORY OF OPERATING LOSSES
We are operating at a loss and have been operating at a loss since our
formation in October 1981. As of June 30, 1998, we had an accumulated deficit of
approximately $73.5 million. Our ability to become profitable is dependent upon
our obtaining U.S. Food and Drug Administration (the "FDA") marketing approval
of the Prosorba column in rheumatoid arthritis and disease indications other
than ITP in a timely manner, and successfully increasing the sales of the
Prosorba column. If we do not receive marketing approval from the FDA for the
Prosorba column for the treatment of rheumatoid arthritis, or for Cyplex,
platelet alternative, for the treatment of platelet disorders, we will have to
significantly scale back our plans, curtail clinical trials, and limit our
present operations in order to become profitable or operate on a break-even
basis.
PENDING FDA DECISION ON OUR PRE-MARKET APPROVAL APPLICATION
Our only FDA-approved product is the Prosorba column, which the FDA
approved in 1987 for use by patients with ITP. However, sales of the Prosorba
column for use by patients with ITP have declined over the last two years.
3.
<PAGE> 5
We are currently focused on obtaining FDA approval to market the Prosorba
column for the treatment of rheumatoid arthritis. We filed a Pre-Market Approval
application with the FDA in July 1998 to allow us to market the Prosorba column
for use in the treatment of rheumatoid arthritis (the "PMA Application"). The
Company will appear at a hearing before the FDA's Gastroenterology and Urology
Device Advisory Panel (the "FDA Panel") on October 29, 1998. The FDA Panel will
recommend on that day to the FDA whether to approve the Company's PMA
Application. If the PMA Application is not approved and the Prosorba column is
restricted to the treatment of ITP, the Company would be required to
significantly scale back its plans and limit its present operations.
OUR SALES FORCE
We have a small domestic sales force that sells the Prosorba column
directly to customers for use in the treatment of ITP. To date, our sales force
has made commercial sales of the Prosorba column only for use in the treatment
of ITP. Our sales force has had no experience in marketing the Prosorba column
for use in the treatment of disease indications other than ITP. Accordingly, if
we receive FDA approval to use the Prosorba column for the treatment of
rheumatoid arthritis or any other disease indications other than ITP, our sales
force may not be able to successfully market the Prosorba column for such uses.
Any failure by our sales force to successfully market the Prosorba column for
rheumatoid arthritis, if approved, would have a material adverse effect on our
overall financial performance.
COMPETITIVE ENVIRONMENT
The healthcare field in general and the particular areas in which we
market our products are extremely competitive. In developing and marketing
medical devices to treat immune-mediated diseases, we compete with other
products, therapeutic techniques and treatments offered by national and
international healthcare and pharmaceutical companies, many of which have
greater marketing, human and financial resources than we do.
The immunological therapy market is characterized by rapid
technological change and potential introductions of new products or therapies.
To respond to these changes, we may be required to develop or purchase new
products to protect our technology from obsolescence. We may not be able to
develop or obtain such products. Even if we develop or obtain new products, such
products may not be commercially viable. In addition, we cannot assure you that
our Prosorba column will prove effective in the treatment of rheumatoid
arthritis or that Cyplex, platelet alternative, if approved for sale by the FDA,
will be an effective alternative to traditional platelet therapy. If the
Prosorba column fails to be effective in the treatment of rheumatoid arthritis
or if Cyplex, platelet alternative, fails to be an effective alternative to
traditional platelet therapy, our entire business will be materially adversely
affected.
UNCERTAINTY OF OUR PATENT PROTECTION
As a policy, we seek to protect our proprietary technology and inventions
which are used in the Prosorba column and Cyplex, platelet alternative, through
patents, trade secret law and other legal protections. We may, however, incur
significant expense in protecting our intellectual property and defending or
assessing claims with respect to intellectual property owned by others.
4.
<PAGE> 6
Any patent or other infringement litigation by or against us could result in
significant expense to us and diversion of our management resources, which in
turn could have an adverse effect on our financial performance. We also could be
forced to modify or abandon the Prosorba column or Cyplex, platelet alternative,
based upon our assessment of intellectual property risks or actual or threatened
claims by others. Since the Prosorba column is our only FDA-approved product,
our entire business would be materially adversely affected if we were unable to
sell that product.
CONCENTRATION OF OUR OWNERSHIP
As of October 16, 1998, Paramount Capital, Inc., through its
affiliates, beneficially owns 19.2% of our outstanding common stock and Allen &
Company Incorporated beneficially owned approximately 13.6% of our outstanding
common stock. Individually or collectively, Paramount Capital, Inc. and Allen &
Company Incorporated may be able to exert substantial influence over the outcome
of matters requiring stockholder approval.
INSURANCE REIMBURSEMENT
Successful commercialization of a new medical product, such as the
Prosorba column or Cyplex, platelet alternative, depends on reimbursement by
public and private health insurers to health care providers for use of such
products. Such reimbursement may not be available due to a variety of factors,
many of which could affect us as we commercialize use of the Prosorba column for
rheumatoid arthritis and continue the development and commercialization of
Cyplex, platelet alternative. We have generally been successful in assisting
health care providers in arranging reimbursement for the use of the Prosorba
column in the treatment of ITP. We cannot assure you, however, that public and
private insurers will continue to reimburse us for the use of the Prosorba
column in the treatment of ITP or in the treatment of any other disease
indications approved by the FDA. In addition, we do not know whether health care
providers will reimburse us for the use of Cyplex, platelet alternative.
PRODUCT LIABILITY FOR OUR PRODUCTS
The use of the Prosorba column and, if approved for use by the FDA,
Cyplex, platelet alternative, may result in adverse side effects to the
end-users that could expose us to product liability claims. We currently hold
product liability insurance of $15 million, which we believe is adequate in
light of our business. However, we cannot predict all the possible harms or side
effects that may result from treatment of patients with our products and
therefore, we cannot assure you that the amount of coverage we currently hold
will be adequate to protect us. We also cannot assure you that we will have
sufficient resources to pay any liability resulting from such a claim beyond our
insurance coverage.
POSSIBLE VOLATILITY OF OUR STOCK PRICE
Like other smaller-capitalization technology companies, our stock price has
fluctuated significantly at times and is subject to a risk of ongoing
volatility. The price of our shares may be adversely affected by our financial
performance or the performance of our competitors, the market for technology
company stocks, the market for small cap company stocks, general economic trends
or other factors that we cannot predict or control.
5.
<PAGE> 7
In addition, in connection with our acquisition of PRP, Inc. in November
1996, we must make a $5 million milestone payment to the former holders of
equity securities of PRP, Inc. when there is a public announcement of an FDA
approval letter relating to the use of Cyplex, platelet alternative, for the
treatment of thrombocytopenia. We have the option to make that payment in cash
or shares of our common stock. If we decide to make that payment in cash, a cash
payment of $5 million might have a material adverse effect on our financial
condition. If we decide to make that payment in common stock, the issuance of
additional shares of common stock with a value of $5 million might have a
significant impact on the market price of our common stock.
USE OF PROCEEDS
All net proceeds from the sale of the Cypress shares which are covered
by this prospectus will go to the selling stockholders who offer and sell their
shares. Cypress will not receive any proceeds from sales of Cypress shares by
the selling stockholders.
SELLING STOCKHOLDERS
Under a Stockholder Rights Agreement dated as of September 15, 1998
among Cypress and certain selling stockholders, we agreed to register the shares
of common stock issued on conversion of the Series A Convertible Preferred Stock
and to use our best efforts to keep the registration statement effective until
the earlier of:
- all securities have been sold under the registration
statement; or
- all securities have been sold under Rule 144.
Our registration of these Cypress shares does not necessarily mean that
the selling stockholders will sell all or any such shares.
<TABLE>
<CAPTION>
Shares Shares
Beneficially Beneficially
Owned Prior to Shares Being Owned After
Offering(1) Percent(2) Offered Offering(1)(3)
----------- ------- ------- --------------
Name of Selling Stockholders Number Number Number
- ---------------------------- ------ ------ ------
<S> <C> <C> <C> <C>
Abbnuzzese, Anthony 95,666 * 66,666 29,000
Adler, Larry D. 30,000 * 30,000 0
Angell, Richard A. 66,667 * 66,667 0
Aries Domestic Fund, L.P. (4) 3,018,700(5) 7.6 173,333 2,845,367
Braziel, Ronald W. 210,000 * 100,000 110,000
Century Publishing Company 133,333 * 133,333 0
Clearwater Fund I, L.P. 200,000 * 200,000 0
Clearwater Offshore Fund Ltd. 973,900 2.5 400,000 573,900
Drobny, Irving 2,000 * 2,000 0
</TABLE>
6.
<PAGE> 8
<TABLE>
<CAPTION>
Shares
Beneficially Shares
Owned Beneficially
Prior to Shares Being Owned After
Offering(1) Percent(2) Offered Offering(1)(3)
----------- ------- ------- --------------
Name of Selling Stockholders Number Number Number
- ---------------------------- ------ ------ ------
<S> <C> <C> <C> <C>
Drueke, Paul Charles 61,000 * 33,000 28,000
Finkelstein, Jerry 13,333 * 13,333 0
Freedman, Rick M. 26,800 * 13,400 13,400
Goulding, Dr. Richard E. 60,291(6) * 26,666 33,625
Goulding, Randall S. 54,000(7) * 24,000 30,000
Hennessy, Paul E. 16,666 * 16,666 0
Higgins, James R., M.D. 91,666 * 66,666 25,000
Holland, James A. 20,000(8) * 15,000 5,000
Hyman Lezell Revocable Trust 39,000 * 34,000 5,000
Jerome P. Seiden, Trustee
of the Jerome P. Seiden
Revocable Trust Agreement
dated 4/22/83 33,333 * 33,333 0
Katzman, Marshall 31,750(9) * 13,000 18,750
Levine, Fred 10,000 * 10,000 0
Levitas, Doron 100,000 * 100,000 0
Lisenby, Sr., S. Alan 33,333 * 33,333 0
Michael T. Jackson Trust- New
Technologies Fund, Michael T.
Jackson TTEE 150,000 * 150,000 0
Morrongiello, John 82,666(10) * 66,666 16,000
Nagler, Steven B. 15,500(11) * 2,000 13,500
Nordruk Partners Investment
Co. Limited Partners 100,000 * 51,500 48,500
Paradigm Group, LLC 161,333 * 161,333 0
Rosin, Joseph A. 163,333 * 143,333 20,000
Samuel D. Anderson and
Mary Ann H. Anderson, Trustees
of the Samuel and Mary Ann
Anderson Trust Dated
March 22, 1979 100,000 * 100,000 0
Savino, Joseph E. 26,666 * 26,666 0
Schachter, Jerome 73,333 * 73,333 0
Schachter, Michael 4,000 * 4,000 0
Schwartz, Sarah 38,650(12) * 25,000 13,650
Sheldon B. Cohen & Samuel
Spiro, as tenants in common 66,667 * 66,667 0
</TABLE>
7.
<PAGE> 9
<TABLE>
<CAPTION>
Shares Shares
Beneficially Beneficially
Owned Prior to Shares Being Owned After
Offering(1) Percent(2) Offered Offering(1)(3)
----------- ------- ------- --------------
Name of Selling Stockholders Number Number Number
- ---------------------------- ------ ------ ------
<S> <C> <C> <C> <C>
Shiman, Stewart A. 258,333(13) * 33,333 225,000
The Aries Trust 5,269,535(14) 13.3 493,334 4,776,201
Vulcano, Michael 18,000 * 18,000 0
Wierenga, Peter Douglas 135,000 * 34,000 101,000
Zerfass, Robb 10,000 * 10,000 0
</TABLE>
* Less than 1%
(1) Unless otherwise indicated below, the persons named in the table have
sole voting and investment power with respect to all shares
beneficially owned by them, subject to community property laws where
applicable.
(2) Applicable percentage of ownership is based on 39,447,397 shares of
common stock outstanding on October 27, 1998.
(3) Assumes the sale of all shares offered hereby.
(4) Paramount Capital Asset Management, Inc. ("PCAM") is the investment
manager of the Aries Fund, a Cayman Island Trust (the "Trust") and the
general partner of Aries Domestic Fund, L.P. (the "Partnership" and
collectively with the Trust, the "Aries Funds"). Lindsay A. Rosenwald,
M.D. is the President and sole shareholder of PCAM. Dr. Rosenwald and
PCAM share voting and dispositive power with respect to the shares held
by the Aries Funds. Dr. Rosenwald and PCAM disclaim beneficial
ownership of the shares held by the Aries Funds except to the extent of
their pecuniary interest therein, if any.
(5) Includes warrants to purchase 37,500 shares of our common stock.
(6) Includes warrants to purchase 3,625 shares of our common stock.
(7) Includes warrants to purchase 30,000 shares of our common stock.
(8) Mr. Holland's brother-in-law is Samuel D. Anderson, a member of our
board of directors.
(9) Includes warrants to purchase 6,250 shares of our common stock.
(10) Includes warrants to purchase 5,000 shares of our common stock.
(11) Includes warrants to purchase 6,250 shares of our common stock.
(12) Includes warrants to purchase 6,250 shares of our common stock.
(13) Includes warrants to purchase 75,000 shares of our common stock.
(14) Includes warrants to purchase 87,500 shares of our common stock.
8.
<PAGE> 10
PLAN OF DISTRIBUTION
The selling stockholders may offer their Cypress shares at various
times in one or more of the following transactions:
- on the Nasdaq SmallCap Market;
- in the over-the-counter market;
- in negotiated transactions other than the Nasdaq SmallCap
Market or the over-the-counter market;
- in connection with short sales of the Cypress shares;
- by pledge to secure debts and other obligations;
- in connection with the writing of call options, in hedge
transactions and in settlement of other transactions in
standardized or over-the-counter options; or
- in a combination of any of the above transactions.
The selling stockholders may sell their shares at market prices at the
time of sale, at prices related to such prevailing market prices, at negotiated
or at fixed prices.
The selling stockholders may use broker-dealers to sell their shares.
If this happens, broker-dealers will either receive discounts or commissions
from the selling stockholders, or they will receive commissions from purchasers
for whom they acted as agents.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy the documents we file at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
from the SEC's website at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities and Exchange Act of 1934:
1. Annual report on Form 10-K for the fiscal year ended December
31, 1997;
2. Quarterly report on Form 10-Q for the quarter ended March 31,
1998;
3. Quarterly report on Form 10-Q for the quarter ended June 30,
1998; and
4. Current report on Form 8-K/A dated April 16, 1998.
9.
<PAGE> 11
You may request a copy of these filings, at no cost, by writing the
Company at the following address:
Cypress Bioscience, Inc.
Attn: Investor Relations
4350 Executive Drive, Suite 325
San Diego, CA 92121
10.
<PAGE> 12
DESCRIPTION OF CAPITAL STOCK
GENERAL
As of the date of this prospectus, our Certificate of Incorporation
authorizes us to issue 60,000,000 shares of common stock and 15,000,000 shares
of preferred stock, including 3,333,333 shares of Series A Convertible Preferred
Stock. As of October 27, 1998, 39,447,397 shares of common stock and 3,063,561
shares of Series A Convertible were outstanding. The Board of Directors may
issue shares of the preferred stock at any time, in one or more series without
stockholder approval. The Board of Directors determines the designation,
relative rights, preferences and limitations of each series of preferred stock.
COMMON STOCK AND PREFERRED STOCK
Each share of Series A Convertible Preferred has a liquidation
preference of $1.50 per share plus unpaid dividends. Each share of Series A
Convertible Preferred is entitled to any dividends that are declared on the
common stock. Our common stockholders and our preferred stockholders have the
right to receive dividends that our Board of Directors declares in the form of
cash, securities or property.
The Series A Convertible Preferred Stock is not redeemable. The holders
may convert each share of Series A Convertible Preferred Stock into one share of
common stock (subject to anti-dilution adjustments).
Common stockholders have the right to vote one vote per share on all
matters that require their vote. This could change if we amend our charter
documents. Holders of Series A Convertible Preferred Stock are entitled to one
vote for each share of preferred and vote together with common stock on all
matters submitted to the common stockholders.
WARRANTS
As of October 27, 1998 there were warrants outstanding to purchase up
to 2,724,149 shares of our common stock at an exercise price of $2.00 per
share, the warrants were registered under the Securities Act. The warrants were
issued in October and November 1996 as a part of a "Unit," which was two shares
of our common stock and one warrant to purchase one share of our common stock.
The warrants were issued in registered form under a Warrant Agreement, dated as
of September 18, 1996 between the Company and American Stock Transfer and Trust
Company, who agreed to serve as the warrant agent for the warrants.
Under certain circumstances, all or any portion of the warrants are
redeemable, in whole or in part, at our option at a redemption price of $0.10
per warrant. If we attempt to redeem any warrants, the warrant may be exercised
until the close of business on the fifth business day preceding the day on which
we call for the redemption, the day on which we call for the redemption will be
specified in a notice of redemption.
The warrants are fully exercisable as of the date of this Prospectus
and will generally expire on October 1, 2001, unless exercised earlier.
COMPENSATION WARRANTS
As of October 27, 1998, there were warrants outstanding to purchase
154,000 shares of our common stock at an exercise price of $1.875 per share. We
originally issued these warrants to our directors, officers, employees and
consultants as compensation for their services (the
11.
<PAGE> 13
"Compensation Warrants"). The Compensation Warrants are fully exercisable as of
the date of this Prospectus and will generally expire in June 2001, unless they
are exercised earlier.
We are obligated to register the shares of common stock underlying the
Compensation Warrants. We will try to keep any such registration statement and
prospectus filed with the SEC to register the Compensation Warrants effective
for the life of the Compensation Warrants. We agreed to pay all the expenses of
registration of the shares underlying the Compensation Warrants.
OTHER WARRANTS
As of October 27, 1998, there were warrants outstanding to purchase
300,000 shares of our common stock at an exercise price of $2.875 per share,
which we originally issued in April 1994 to Allen & Company Incorporated as a
placement agent fee in connection with a private placement of 7% Convertible
Debentures. Such warrants are fully exercisable as of the date of this
prospectus and will expire in April 1999 unless they are exercised earlier. In
addition, as of October 27, 1998, Allen & Company Incorporated held an
additional warrant to purchase 125,000 shares of our common stock at an exercise
price of $2.00 per share. These warrants, which were acquired by Allen & Company
Incorporated in connection with our October 1996 private placement of Units,
are fully exercisable as of the date of this prospectus and generally expire
October 2001, unless exercised earlier.
As of October 27, 1998, there were outstanding warrants to purchase
150,000 shares of our common stock at a weighted average price of $2.27 per
share. The warrants were issued in November 1996 to certain or our consultants
in exchange for consulting services. Such warrants are exercisable as of the
date of this prospectus and expire November 2001, unless exercised earlier.
LEGAL MATTERS
For purposes of this offering, Cooley Godward LLP, San Diego,
California, is giving its opinion on the validity of the shares.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1997 and 1996 and for each of the three years in the period ended December 31,
1997 incorporated herein by reference from the Company's Annual Report
(Form 10-K) have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
12.
<PAGE> 14
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses payable by the Registrant
in connection with the sale of the Securities being registered. All the amounts
shown are estimates except for the SEC registration fee and the Nasdaq SmallCap
Market listing fee.
<TABLE>
<S> <C>
SEC Registration fee...........................................$ 2,461
Nasdaq SmallCap Market listing fee............................. 7,500
Legal fees and expenses........................................ 10,000
Blue sky qualification fees and expenses ...................... 1,000
Accounting fees and expenses................................... 3,000
Printing and engraving expenses................................ 1,000
Miscellaneous 539
------
Total......................................................$ 25,500
======
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the General Corporation Law of the State of Delaware
(the "Delaware Law") empowers a Delaware corporation to indemnify any persons
who are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person was an officer or director
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement of such action, suit or proceeding, provided that
such officer or director acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the corporation's best interest,
and, for criminal proceedings, had no reasonable cause to believe his or her
conduct was illegal. A Delaware corporation may indemnify officers and directors
against expenses (including attorney's fees) in connection with the defense or
settlement of an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him or
her against the expenses which such officer or director actually and reasonably
incurred.
The Registrant's Bylaws contain a provision to limit the personal
liability of the directors of the Registrant for violations of their fiduciary
duty, except to the extent such limitation of liability is prohibited by the
Delaware Law. This provision eliminates each director's liability to the
Registrant or its stockholders for monetary damages except (i) for any breach of
the director's
II-1
<PAGE> 15
duty of loyalty to the Registrant or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware Law providing for
liability of directors for unlawful payment of dividends or unlawful stock
purchases or redemptions, or (iv) for any transaction from which a director
derived an improper personal benefit. The Registrant's Bylaws provide that the
Registrant shall indemnify directors and officers to the fullest extent
permitted by law. The effect of these provisions is to eliminate the personal
liability of directors for monetary damages for actions involving a breach of
their fiduciary duty of care, including any such actions involving gross
negligence.
In addition, Registrant has entered into indemnity agreements with its
executive officers and directors whereby Registrant obligates itself to
indemnify such officers and directors from any amounts which the officer or
director becomes obligated to pay because of any claim made against him or her
arising out of any act or omission committed while he or she is acting in his or
her capacity as a director and/or officer of Registrant.
Registrant maintains directors and officers liability insurance
coverage that insures its officers and directors against certain losses that may
arise out of their positions with the Registrant and insures the Registrant for
liabilities it may incur to indemnify its officers and directors.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<S> <C>
5.1 Opinion of Cooley Godward LLP
10.1 Form of Stock Purchase Agreement
10.2 Form of Stockholder Rights Agreement
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1
24.1 Power of Attorney. Reference is made to page II-4.
</TABLE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors and executive officers 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 or executive officer of
II-2
<PAGE> 16
the Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director or executive officer 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.
(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
II-3
<PAGE> 17
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-4.
<PAGE> 18
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 October 28,
1998.
CYPRESS BIOSCIENCE, INC.
By: /s/ Jay D. Kranzler
---------------------------------
Jay D. Kranzler, M.D., Ph.D
Chief Executive Officer
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 Debby Jo
Blank, 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, M.D., Ph.D. Chief Executive Officer, October 28, 1998
- --------------------------------- Chief Scientific Officer,
Jay D. Kranzler, M.D., Ph.D. Chief Financial Officer
and Chairman of the Board
(Principal Executive Officer
and Principal Financial
and Accounting Officer)
/s/ Debby Jo Blank, M.D. President, Chief Operating October 28, 1998
- --------------------------------- Officer and Director
Debby Jo Blank, M.D.
/s/ Richard M. Crooks, Jr. Director October 28, 1998
- ---------------------------------
Richard M. Crooks, Jr.
/s/ Philip J. O'Reilly Director October 28, 1998
- ---------------------------------
Philip J. O'Reilly
</TABLE>
II-5
<PAGE> 19
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Jack H. Vaughn Director October 28, 1998
- -------------------------------------
Jack H. Vaughn
/s/ Samuel D. Anderson Director October 28, 1998
- -------------------------------------
Samuel D. Anderson
/s/ David Golde Director October 28, 1998
- -------------------------------------
David Golde
</TABLE>
II-6
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<S> <C>
5.1 Opinion of Cooley Godward LLP
10.1 Form of Stock Purchase Agreement
10.2 Form of Stockholder Rights Agreement
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1
24.1 Power of Attorney. Reference is made to page II-5.
</TABLE>
<PAGE> 1
EXHIBIT 5.1
[COOLEY GODWARD LLP LETTERHEAD]
October 28, 1998
Cypress Bioscience, Inc.
4350 Executive Drive
Suite 325
San Diego, CA 92121
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Cypress Bioscience, Inc. (the "Company") of the Registration
Statement on Form S-3 (the "Registration Statement") with the Securities and
Exchange Commission (the "Commission") covering the offering of 3,063,561 shares
of the Company's Common Stock to be sold by certain stockholders, as described
in the Registration Statement (the "Shares").
In connection with this opinion, we have examined and relied upon the
Registration Statement and related Prospectus, the Company's Restated
Certificate of Incorporation and Bylaws, as amended, and such other documents,
records, certificates, memoranda and other instruments as we deem necessary as a
basis for this opinion. We have assumed the genuineness and authenticity of all
documents submitted to us as originals, the conformity to originals of all
documents submitted to us as copies thereof, and the due execution and delivery
of all documents where due execution and delivery are a prerequisite to the
effectiveness thereof.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Shares are validly issued, fully paid and nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in the
Prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
COOLEY GODWARD LLP
/s/ D. Bradley Peck
- ----------------------------------
D. Bradley Peck
<PAGE> 1
EXHIBIT 10.1
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
CYPRESS BIOSCIENCE, INC.
4350 EXECUTIVE DRIVE, SUITE 325
SAN DIEGO, CA 92121
SEPTEMBER ____, 1998
<PAGE> 2
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES A PREFERRED STOCK PURCHASE AGREEMENT is made as of September
____, 1998 (this "Agreement"), by and among Cypress Bioscience, Inc., a Delaware
corporation (the "Company"), and the purchaser whose name and address is set
forth on the signature page hereof (the "Purchaser"). The parties hereby agree
as follows:
1. AUTHORIZATION OF SECURITIES. Subject to the terms and conditions of this
Agreement, the Company has authorized the issuance and sale (the "Offering") in
one or more closings to occur no later than November 30th, 1998, of up to
3,333,333 shares of Series A Convertible Preferred Stock (the "Series A
Preferred Stock"), having the rights, preferences and privileges set forth in
the Company's Certificate of Designation of Preferences (the "Certificate of
Designation"), in the form attached hereto as Exhibit A. The Series A Preferred
Stock is convertible into the Company's common stock (the "Common Stock"), as
provided for in the Certificate of Designation. The shares of Common Stock of
the Company into which the Series A Preferred Stock is convertible is referred
to herein as the "Conversion Shares." The Series A Preferred Stock and the
Conversion Shares are collectively referred to herein as the "Securities."
2. SALE OF THE STOCK.
2.1 SALE. Subject to the terms and conditions hereof, the Company will
issue and sell to the Purchaser, and the Purchaser shall purchase from the
Company, upon the terms and conditions set forth herein, the number of shares of
Series A Preferred Stock set forth below, at a price of $1.50 per share:
<TABLE>
<CAPTION>
Number of Shares of Aggregate
Series A Preferred Stock Price Per Share Purchase Price
------------------------ --------------- ---------------
<S> <C> <C>
$1.50
</TABLE>
Purchaser acknowledges that the Company reserves the right and may, at
its sole discretion, enter into this same form of Series A Preferred Stock
Purchase Agreement with certain other investors such that the Company may sell
up to an aggregate of 3,333,333 shares of Series A Preferred Stock (including
all shares sold in the First Closing (as defined below) and all Subsequent
Closings (as defined below), if any, which additional sales of Series A
Preferred Stock may be completed in one or more closings, but all of which will
occur on or before November 30th, 1998.
1.
<PAGE> 3
3. CLOSING DATES; DELIVERY.
3.1 CLOSING DATE.
(a) PURCHASE AND SALE. The closing of the purchase and sale of
the Series A Preferred Stock shall take place in a series of one or more
closings, each to be held at the offices of Cooley Godward LLP, 4365 Executive
Drive, Suite 1100, San Diego, California 92121, or at such other place as the
Company and Purchaser shall agree. The first closing of such purchase and sale
hereunder (the "First Closing") shall take place as soon as possible after all
of the conditions to closing set forth in Sections 7.1 and 7.2 have been waived
or satisfied, but in no event later than November 30th, 1998; provided, however,
that the First Closing shall not occur before a minimum of $1,000,000 of Series
A Preferred Stock is purchased and sold in the First Closing. Each subsequent
closing of the purchase and sale of Series A Preferred Stock hereunder, if any
(a "Subsequent Closing"), shall be held promptly after the First Closing at a
time and place mutually agreed to by the Company and each purchaser purchasing
shares of Series A Preferred Stock in such Subsequent Closing.
(b) CLOSING. The date of the First Closing is hereinafter
referred to as the "First Closing Date" and the date of each Subsequent Closing,
if any, is referred to herein as the "Subsequent Closing Date."
3.2 DELIVERY. Subject to the terms of this Agreement, at the First
Closing, or any Subsequent Closing, the Company will deliver to the Purchaser
certificates representing the Series A Preferred Stock purchased by each such
Purchaser from the Company, against payment of the purchase price therefor by
check or wire transfer of funds. The Company's obligation to complete the
purchase and sale of the Series A Preferred Stock and deliver the stock
certificates representing any such shares shall be subject to the satisfaction
of each of the conditions set forth in Section 6.2, any of which may be waived
by the Company.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents
and warrants to the Purchaser that, except as set forth in the Company
Disclosure Documents (as defined herein):
4.1 ORGANIZATION AND STANDING. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has all requisite corporate power and authority to carry on its
business as now conducted. The Company is qualified as a foreign corporation and
is in good standing in all jurisdictions where such qualification is required,
except where the failure to so qualify or be in good standing would not have a
material adverse effect upon the business, results of operations or financial
condition of the Company.
2.
<PAGE> 4
4.2 CORPORATE POWER. The Company has now, or will have as of the First
Closing Date and as of each Subsequent Closing Date, all requisite corporate
power and authority to enter into this Agreement and the Stockholder Rights
Agreement dated of even date herewith in the form attached hereto as Exhibit B
(the "Stockholder Rights Agreement" and together with this Agreement, the
"Purchase Agreements"), and has or will have taken all actions necessary for the
authorization, execution and delivery of this Agreement, to designate, issue and
sell the Series A Preferred Stock hereunder, to issue the Conversion Shares, and
to carry out and perform its obligations under the terms of this Agreement. This
Agreement and the Stockholder Rights Agreement, are each a valid and binding
obligation of the Company enforceable in accordance with its terms except (a) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or affecting the enforcement of creditors' rights
generally, and (b) as limited by equitable principles generally, including any
specific performance.
4.3 SUBSIDIARIES. The Company does not control or have an investment in
(whether by way of ownership of stock or other securities or by loan, advance or
otherwise), directly or indirectly, any other corporation, limited liability
company, partnership, association or business entity, other than PRP, Inc., a
Delaware corporation. PRP, Inc. has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware and is qualified as a foreign corporation and in good standing in all
jurisdictions where such qualification is required except where the failure to
so qualify or be in good standing would not have a material adverse effect upon
the business, results of operations or financial condition of the Company.
4.4 CAPITALIZATION. Immediately prior to the First Closing, the
authorized capital stock of the Company will consist of (i) 60,000,000 shares of
Common Stock, of which 39,420,116 shares are issued and outstanding, and (ii)
15,000,000 shares of Preferred Stock, of which 3,333,333 shares have been
designated Series A Convertible Preferred Stock, none of which are issued or
outstanding. Other than the Series A Convertible Preferred Stock, there are no
other shares of Preferred Stock designated, issued or outstanding. All issued
and outstanding securities have been duly authorized and validly issued, and are
fully paid and nonassessable. The Company has reserved 11,249,250 shares of
Common Stock for issuance pursuant to stock option plans and agreements, of
which 7,655,629 shares are available for issuance upon the exercise of
outstanding options and 2,950,736 shares of which remain available for future
issuance. The Company has also reserved for issuance 3,453,149 shares of Common
Stock upon exercise of Warrants to purchase up to 3,453,149 shares of Common
Stock and 139,130 shares of Common Stock issuable upon conversion of outstanding
7% Convertible Debentures of the Company. Except as set forth above or as
disclosed in Schedule 4.4, there are no outstanding rights, options, warrants,
conversion rights, commitments or agreements for the purchase or acquisition
from the Company of any shares of its capital stock or any securities
convertible into, or exercisable or exchangeable for, or evidencing the right to
subscribe for, any shares of its capital stock and the Company has not reserved
for issuance any other shares. The Company is under no obligation (contingent or
otherwise) to purchase or otherwise acquire or retire any shares of its capital
stock.
3.
<PAGE> 5
4.5 AUTHORIZATION.
(a) CORPORATE ACTION. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the designation,
sale and issuance of the Series A Preferred Stock pursuant hereto, the
reservation and issuance of the Conversion Shares and the performance of the
Company's obligations has been taken or will be taken prior to the First Closing
or any Subsequent Closing, as applicable. The Company has duly reserved an
aggregate of 3,333,333 shares of Common Stock for issuance upon conversion of
the Series A Preferred Stock.
(b) VALID ISSUANCE. The Series A Preferred Stock, when issued and
paid for in compliance with the provisions of this Agreement, will be validly
issued, fully paid and nonassessable and the Purchaser will have good and
marketable title to the Series A Preferred Stock, free and clear of any liens,
encumbrances, security interests, pledges, charges, stockholders agreements or
voting trusts (other than any created by the Purchaser); provided, however, that
the Series A Preferred Stock may be subject to restrictions on transfer under
state and/or federal securities laws. The rights, preferences, privileges and
restrictions of the Series A Preferred Stock are as set forth in the Certificate
of Designation. Upon conversion of the Series A Preferred Stock into the
Conversion Shares in conformity with the Certificate of Designation, such
Conversion Shares will be duly authorized, validly issued, fully paid and
nonassessable, and the Purchaser will have good and marketable title to such
Conversion shares, free and clear of any liens, encumbrances, security
interests, pledges, charges, stockholders agreements or voting trusts (other
than any created by the Purchaser); provided, however, that the Conversion
Shares may be subject to restriction on transfer under state and/or federal
securities laws.
(c) NO PREEMPTIVE RIGHTS. No person or entity has any right of
first refusal or any preemptive rights in connection with the issuance of the
Series A Preferred Stock or the Conversion Shares.
4.6 SEC DOCUMENTS; FINANCIAL STATEMENTS. The Company has filed in a
timely manner all documents that the Company was required to file with the
United States Securities and Exchange Commission (the "SEC") under Sections 13,
14(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), during the twelve (12) months preceding the date of this
Agreement. As of their respective filing dates (or, if amended, when amended),
all documents filed by the Company with the SEC (the "SEC Documents") complied
in all material respects with the requirements of the Exchange Act. The SEC
Documents, as of their respective dates, do not contain any untrue statement of
a material fact or omit to state a material fact required (under the federal
securities laws in connection with the sale of the Series A Preferred Stock) to
be stated therein or necessary to make the statements made therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC (the "Financial Statements")
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto. The Financial Statements have been prepared in accordance with
generally accepted accounting principles consistently applied and fairly present
the financial position of the Company at the dates thereof and the results of
its operations and cash flows for
4.
<PAGE> 6
the periods then ended (subject, in the case of unaudited statements, to normal,
recurring adjustments). At June 30, 1998 (the "Balance Sheet Date"), the Company
had no liabilities or obligations, secured or unsecured (whether accrued,
absolute, contingent or otherwise), not reflected in the Financial Statements or
the accompanying notes thereto except for liabilities or obligations as may have
arisen in the ordinary course of business prior to the Balance Sheet Date which,
under generally accepted accounting principles, were not required to be
reflected in the Financial Statements or the accompanying notes thereto.
4.7 INTELLECTUAL PROPERTY. The Company owns or possesses adequate rights
to use all material patents, patent rights, inventions, trade secrets and
know-how described or referred to in the Company Disclosure Documents as owned
or used by it or that are necessary for the conduct of its business as presently
conducted and as described in the Company Disclosure Documents. The Company has
not received any notice of, nor has any knowledge of, any infringement of or
conflict with asserted rights of others with respect to any patent, patent
right, invention, trade secret or know-how that, individually or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a material adverse effect on the business, properties, financial condition
or results or operations of the Company.
4.8 LITIGATION. There is no action, suit, arbitration, proceeding
(formal or informal) or investigation pending or, to the best of the Company's
knowledge, any threat thereof) to which the Company is a party or to which its
businesses, property or assets are subject. The Company is not a party to or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality.
4.9 GOVERNMENT CONSENT. No consent, approval, or authorization of or
designation, declaration or filing with any governmental authority on the part
of the Company is required in connection with: (a) the valid execution, delivery
and performance of this Agreement or the Stockholder Rights Agreement; or (b)
the designation, offer, sale or issuance of the Series A Preferred Stock or the
issuance of the Conversion Shares; except (i) the filing of the Certificate of
Designation, (ii) the compliance with the securities and blue sky laws in the
states and other jurisdictions in which the Securities are offered and/or sold,
which compliance will be effected in accordance with such laws, and (iii) the
filing of a registration statement as required under the Stockholder Rights
Agreement.
4.10 COMPLIANCE WITH SECURITIES LAWS. Subject to the accuracy of the
representations and warranties of the Purchaser contained in Section 5 hereof,
the offer, sale and issuance of the Series A Preferred Stock and the Conversion
Shares will comply with all applicable federal and state securities laws.
4.11 MATERIAL CONTRACTS AND COMMITMENTS. The Company Disclosure
Documents collectively list each material contract or agreement to which the
Company is a party, including all contracts or agreements between the Company
and any of its officers, directors, consultants, employees or stockholders
(collectively, the "Contracts"). The Company is not in default under any such
Contracts where such default will have a material adverse effect on the
Company's business, operations or financial condition and no party to any of
such Contracts has made a claim to the effect that the Company has failed to
perform an obligation thereunder.
5.
<PAGE> 7
4.12 EMPLOYEE MATTERS. The Company Disclosure Documents identifies each
stock option plan and other similar employee benefit plan (including the
Company's 401(k) plan maintained, sponsored or contributed to by the Company for
the benefit of the Company's employees. The Company does not, for the benefit of
employees of the Company, maintain, sponsor or contribute to (i) any employee
benefit plan (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), or (ii) any employee welfare
benefit plan (as defined in Section 3(1) of ERISA).
4.13 TAX MATTERS. The Company has filed within the time (including any
extensions of applicable due dates) required by law all material returns,
reports and statements required to be filed by the Company under federal and
state laws relating to the payment of Taxes (as defined below). The Company has,
within the time required by law, paid all Taxes that are due and payable, except
Taxes that individually or in the aggregate, are not material. For purposes of
this Agreement, "Taxes" shall mean all taxes, charges, fees, levies or other
assessments including net income, gross income, gross receipts, sales, use,
transfer, ad-valorem, value-added, license, withholding, payroll, employment,
property or charges of any kind imposed by a taxing authority upon or payable by
the Company.
4.14 COMPLIANCE WITH LAWS AND CHARTER DOCUMENTS. The Company is not in
violation of, or delinquent in respect to, any decree, order or arbitration
award or law, statute or regulation of any governmental authority to which its
properties, assets, personnel or business activities are subject, including
laws, rules and regulations relating to the environment, occupational health and
safety, employee benefits, wages, equal employment opportunity and race,
religious, sex and age discrimination which, individually or in the aggregate,
has had or would reasonably be expected to have a material adverse effect on the
Company. The Company is not in violation of, and the execution and performance
of this Agreement and the transactions contemplated hereby will not violate, the
Company's certificate of incorporation, as amended, the Certificate of
Designation, or the bylaws of the Company as in effect on the date hereof.
4.15 COMPLIANCE WITH YEAR 2000 REQUIREMENTS. The Company is aware of the
"Year 2000 Issue" and is in the process of assessing the impact of the Year 2000
Issue on its business and operations. To the Company's knowledge, the total
amounts to be expended by the Company to render its business and operations Year
2000 compliant will not have a material adverse effect on the Company's
business, results of operations or financial condition.
5. REPRESENTATIONS, WARRANTIES OF THE PURCHASER AND RESTRICTIONS ON
TRANSFER.
5.1 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER. The
Purchaser represents, warrants and covenants to the Company as follows:
(a) The Purchaser, taking into account the personnel and
resources it can practically bring to bear on the purchase of the Securities
contemplated hereby, is knowledgeable, sophisticated and experienced in making,
and is qualified to make, decisions with respect to investments in shares
presenting an investment decision like that involved in the purchase of the
Securities, including investments in securities issued by the Company, and has
requested, reviewed and considered, all information the Purchaser deems relevant
(including the
6.
<PAGE> 8
SEC documents) in making an informed decision to purchase the Securities,
including the following:
(i) the Company's Annual Report on Form 10-K for the
year ended December 31, 1997;
(ii) the Company's Quarterly Reports on Form 10-Q for
the three-month periods ended March 31, 1998 and June 30, 1998; and
(iii) the Company's Proxy Statement for its 1998 Annual
Meeting of Stockholders.
The reports and registration statements referenced in subsections (i)
through (iii) above are referred to herein collectively as the "Company
Disclosure Documents."
(b) The Purchaser is an "accredited investor" as that term is
defined in Rule 501(a) promulgated under the Securities Act.
(c) The Purchaser is acquiring the Securities being acquired by
the Purchaser pursuant to this Agreement in the ordinary course of its business
and for its own account for investment only and with no present intention of
distributing any of such Securities or any arrangement or understanding with any
other persons regarding the distribution of such Securities, except in
compliance with Section 5.1(d).
(d) 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 Securities purchased
hereunder except in compliance with applicable federal and state securities
laws.
(e) The Purchaser has completed or caused to be completed the
subscription documents enclosed with this Agreement, including the Registration
Statement Questionnaire, for use in preparation of the Registration Statement to
be filed by the Company pursuant to the Stockholder Rights Agreement, and the
answers thereto are true and correct as of the date hereof and will be true and
correct as of the effective date of the applicable 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 such
Registration Statement).
(f) The Purchaser has, in connection with its decision to
purchase the Securities, relied with respect to the Company and its affairs
solely upon the Company Disclosure Documents and the other information delivered
to the Purchaser by the Company as described in Sections 4.6 and 5.1(a) above
and the representations and warranties of the Company contained herein.
(g) The Purchaser has full right, power, authority and capacity
to enter into the Purchase Agreements and to consummate the transactions
contemplated hereby and thereby and has taken all necessary action to authorize
the execution, delivery and performance of the Purchase Agreements.
7.
<PAGE> 9
(h) Upon the execution and delivery of the Purchase Agreements by
the Purchaser, the Purchase Agreements shall constitute valid and binding
obligations of the Purchaser, enforceable against the Purchaser in accordance
with their terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting the
enforcement of creditors' rights generally, and (ii) as limited by equitable
principles generally, including any specific performance.
(i) The Purchaser represents and warrants to and covenants with
the Company that it has not engaged and will not engage in any short sales of
the Company's Common Stock prior to the effectiveness of the registration
statement to be filed pursuant to the terms of the Stockholder Rights Agreement
covering the registration of the Conversion Shares for resale (the "Registration
Statement"), except to the extent that any such short sale is fully covered by
shares of Common Stock of the Company.
(j) The Purchaser understands that nothing in the Company
Disclosure Documents, the Purchase Agreements or any other materials presented
to the Purchaser in connection with the purchase and sale of the Securities
constitutes legal, tax or investment advice and that no independent legal
counsel has reviewed these documents and materials on the Purchaser's behalf.
The Purchaser has consulted such legal, tax and investment advisors as it, in
its sole discretion, has deemed necessary or appropriate in connection with its
purchase of the Securities.
5.2 LEGENDS. Each certificate representing the Series A Preferred Stock
and to the extent the Conversion Shares are issued prior to the effectiveness of
the Registration Statement, the Conversion Shares shall be endorsed with
substantially the following legend and such other legends as may be required by
applicable state blue sky laws:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS
AND UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND
ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
8.
<PAGE> 10
5.3 LOCK-UP PERIOD. Each Purchaser agrees, from time to time, upon
request of the Company and its underwriters, without the prior written consent
of the Company's underwriters, to enter into agreements providing that they will
not sell or offer for sale any securities of the Company for up to 90 days
following the closing of an underwritten offering of the Company's Common Stock;
provided, however, that all executive officers and directors of the Company and
holders of warrants of the Company to purchase at least 5% of the Company's
Common Stock on a fully diluted basis, shall have entered into similar
agreements providing for the same restriction, and provided further that the
Company shall have complied with its obligations under the Stockholder Rights
Agreement in connection with the underwritten offering.
6. CONDITIONS TO CLOSING.
6.1 CONDITIONS TO PURCHASER'S OBLIGATIONS. The obligations of Purchaser
to purchase the Series A Preferred Stock at the First Closing, or at any
Subsequent Closing, is subject to the fulfillment, on or prior to the First
Closing Date, or the applicable Subsequent Closing Date, of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES CORRECT. The representations
and warranties made by the Company in Section 4 hereof shall be true and correct
in all material respects on the First Closing Date, or the applicable Subsequent
Closing Date, with the same force and effect as if they had been made on and as
of said date.
(b) FILING OF CERTIFICATE OF DESIGNATION. The Certificate of
Designation shall have been filed with the Secretary of State of Delaware on or
prior to the First Closing Date.
(c) STOCKHOLDER RIGHTS AGREEMENT. The Company and the Purchaser
shall have executed the Stockholder Rights Agreement.
(d) SUPPORTING DOCUMENTS. Purchaser shall have received complete
copies of the Company Disclosure Documents.
(e) OPINION OF COUNSEL. Purchaser shall have received from the
Company's counsel, Cooley Godward LLP, an opinion, dated the First Closing Date,
substantially in the form attached as Exhibit C hereto (the "Cooley Opinion").
6.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the
Company to issue and sell the Series A Preferred Stock at the First Closing, or
at any Subsequent Closing, is subject to the fulfillment, on or prior to the
First Closing Date, or the applicable Subsequent Closing Date, of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES CORRECT. The representations
and warranties made by Purchaser in Section 5 hereof shall be true and correct
in all material respects on the First Closing Date, or the applicable Subsequent
Closing Date, with the same force and effect as if they had been made on and as
of said date.
9.
<PAGE> 11
(b) AGREEMENTS, DOCUMENTS AND PURCHASE PRICE. The Company shall
have received from Purchaser all of the following:
(i) a duly executed copy of this Agreement;
(ii) a duly executed Stockholder Rights Agreement;
(iii) a completed and executed Registration Statement
Questionnaire;
(iv) a completed and executed Accredited Investor
Questionnaire;
(v) a completed and executed Stock Certificate
Questionnaire; and
(vi) the purchase price for the Series A Preferred Stock
being purchased by such Purchaser in accordance with Section 2.
(c) LEGAL OPINION. Purchaser shall have received the Cooley
Opinion, dated as of the First Closing Date.
7. CERTIFICATES; REGISTRATION.
7.1 LOST CERTIFICATES. Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
any certificate evidencing any Series A Preferred Stock or Conversion Shares
owned by the Purchaser, and (in the case of loss, theft or destruction) of an
unsecured indemnity satisfactory to it, and upon surrender and cancellation of
such certificate, if mutilated, the Company will make and deliver in lieu of
such certificate a new certificate of like tenor and for the number of shares
evidenced by such certificate which remain outstanding. Upon surrender of any
certificate representing any Series A Preferred Stock or Conversion Shares for
exchange at the office of the Company, the Company at its expense will cause to
be issued in exchange therefor new certificates in such denomination or
denominations as may be requested for the same aggregate number of Series A
Preferred Stock or Conversion Shares, as the case may be, represented by the
certificate so surrendered and registered as such holder may request. The
Company will also pay the cost of all deliveries of certificates for such shares
to the office of the Purchaser (including the cost of insurance against loss or
theft in an amount satisfactory to the holders) upon any exchange provided for
in this Section 7.1.
7.2 REGISTRATION. The Company shall be obligated to file with the SEC a
registration statement covering the registration of the Conversion Shares for
resale by the Purchaser in accordance with the terms and conditions of the
Stockholder Rights Agreement.
8. MISCELLANEOUS.
8.1 WAIVERS AND AMENDMENTS. This Agreement may not be amended or
modified, and no provision hereof may be waived, except upon the approval of the
Company and the Holders of at least a majority of the then outstanding shares of
Series A Preferred Stock;
10.
<PAGE> 12
provided, however, this Agreement may be amended to add additional parties
without the consent of the Purchaser so long as the Company does not sell or
offer for sale any Series A Preferred Stock in excess of that permitted under
Section 2.1; provided, further, however, the conditions to the First Closing and
any Subsequent Closing set forth in Section 6.1 hereof may only be waived by
each Purchaser in order for such waiver to be effective against such Purchaser.
The failure of any of the parties hereto to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver of that
term or deprive such party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement.
8.2 GOVERNING LAW. This Agreement shall be governed in all respects by
the law of the State of California, without giving effect to its principles
regarding conflicts of law.
8.3 SUCCESSORS AND ASSIGNS; ENTIRE AGREEMENT. All covenants and
agreements contained in this Agreement by or on behalf of any of the signatories
shall bind and inure to the benefit of the respective successors and permitted
assigns of the signatories, whether so expressed or not. This Agreement is
intended by the parties as a final expression of their agreement and a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
8.4 NOTICES. All notices, consents and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given when
(a) delivered by hand, (b) sent by telecopier (with receipt confirmed), provided
that a copy is mailed by registered mail, return receipt requested, or (c) when
received by the addressee, if sent by Express Mail, Federal Express or other
express delivery service (receipt requested), in each case to the appropriate
addresses and telecopier numbers set forth below (or to such other addresses and
telecopier numbers as a party may designate as to itself by notice to the other
parties):
(a) If to the Company: 4350 Executive Drive, Suite 325, San
Diego, CA 92121, Attention: President, telecopier no. (619) 452-1222.
(b) If to Purchaser: at the address set forth on the signature
page hereof.
8.5 SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the Holders
shall be enforceable to the fullest extent permitted by law.
8.6 FINDER'S FEES AND OTHER FEES. The Purchaser represents and warrants
that Purchaser has retained no finder or broker in connection with the
transactions contemplated by this Agreement and hereby agree to indemnify and to
hold the Company harmless of and from any liability for any commission or
compensation in the nature of a finder's fee to any broker or
11.
<PAGE> 13
other person or firm (and the costs and expenses of defending against such
liability or asserted liability) for which the Purchaser, or any of its
employees or representatives, are responsible.
8.7 EXPENSES. The Company and the Purchaser shall bear their own
expenses and legal fees.
8.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
[signature page follows]
12.
<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Series A Preferred
Stock Purchase Agreement as of the date and year first above written.
CYPRESS BIOSCIENCE INC.
By:
-----------------------------------------
Jay D. Kranzler, M.D., Ph.D.
President and Chief Executive Officer
PURCHASER:
---------------------------------------------
By:
------------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
Address:
-----------------------------------------
-----------------------------------------
-----------------------------------------
-----------------------------------------
13.
<PAGE> 15
EXHIBIT A
Certificate of Designation of Preferences
<PAGE> 16
EXHIBIT B
Stockholder Rights Agreement
<PAGE> 17
EXHIBIT C
Form of Opinion of Cooley Godward, LLP
<PAGE> 1
EXHIBIT 10.2
STOCKHOLDER RIGHTS AGREEMENT
THIS STOCKHOLDER RIGHTS AGREEMENT, dated as of September ___, 1998 (this
"Agreement"), is made by and among Cypress Bioscience, Inc., a Delaware
corporation (the "Company") and the person or entity set forth on the signature
page hereof (the "Purchaser" and together with the Company, the "Parties").
The Parties hereby agree as follows:
1. CERTAIN DEFINITIONS. Any capitalized terms used herein and not
defined shall have the meaning ascribed to them in that certain Series A
Preferred Stock Purchase Agreement dated September ___, 1998 by and among the
Company and the Purchaser (the "Purchase Agreement"). As used in this Agreement,
the following terms shall have the following respective meanings:
"CERTIFICATE OF DESIGNATIONS" means that certain Certificate of
Designations filed with the office of the Delaware Secretary of State relating
to the Series A Preferred Stock.
"COMMISSION" means the United States Securities and Exchange Commission.
"COMMON STOCK" means the common stock of the Company, par value $0.02
per share.
"ELIGIBLE SECURITIES" means the shares of Common Stock to be issued upon
the conversion of the Series A Preferred Stock into Common Stock.
"HOLDER" means a registered holder of outstanding Eligible Securities or
securities convertible into or exercisable for Eligible Securities.
"SERIES A PREFERRED STOCK" means the Series A Convertible Preferred
Stock of the Company to be issued to the Purchaser pursuant to terms of the
Purchase Agreement
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
2. SHELF REGISTRATION. Within 45 days after the Closing Date, the
Company shall file a registration statement on Form S-3 pursuant to Rule 415 (or
similar rule that may be adopted by the Commission) under the Securities Act
(the "Registration Statement"), covering the resale of all of the Eligible
Securities. The Company agrees to use its best efforts to cause the Registration
Statement to be declared effective by the Commission as soon as practicable
following filing thereof and thereafter to maintain the effectiveness of the
Registration Statement until the earlier to occur of: (i) all the Eligible
Securities have been sold pursuant to the Registration Statement, or (ii) all
the Eligible Securities are salable in the public markets without volume
restrictions under Rule 144 as promulgated under the Securities Act.
1.
<PAGE> 2
3. RESTRICTIONS IN UNDERWRITTEN OFFERINGS. Each Holder of Eligible
Securities agrees, if requested by the managing underwriters in an underwritten
offering, to enter into an agreement providing that such Holder shall not sell
or offer, without the prior written consent of such managing underwriters, any
securities of the Company of the same class as the securities included in such
registration statement, including a sale pursuant to Rule 144 under the
Securities Act (except as part of such underwritten registration), for up to 90
days following consummation of the underwritten offering; provided, however,
that no Holder of Eligible Securities shall be subject to the restrictions of
such agreement unless all executive officers, directors and holders of
publicly-traded warrants of the Company to purchase at least 5% of the Company's
Common Stock on a fully diluted basis have entered into similar lock-up
agreements, and further provided that the Company shall have complied with its
obligations under the terms of this Agreement. The foregoing provisions shall
not apply to any Holder of Eligible Securities if such Holder is prevented by
applicable statute or regulation from entering any such agreement; provided,
however, that any such Holder shall undertake, in its request to participate in
any such underwritten offering, not to effect any public sale or distribution of
any Eligible Securities commencing on the date of sale of the shares being
offered in the underwritten offering unless it has provided 45 days prior
written notice of such sale or distribution to the underwriter or underwriters.
4. REGISTRATION PROCEDURES. If and whenever the Company is required by
the provisions of Section 2 to effect the registration of any Eligible
Securities under the Securities Act, the Company shall:
(a) include in any such registration statement all financial
statements required by the Commission to be filed therewith, cooperate and
assist in any filings required to be made with the National Association of
Securities Dealers, Inc., and use its best efforts to cause such registration
statement to become effective; provided that before filing a registration
statement or prospectus or any amendments or supplements thereto, the Company
will furnish to the Holders of the Eligible Securities covered by such
registration statement and the underwriters, if any, copies of all such
documents proposed to be filed, and the Company will not file any registration
statement or amendment thereto or any prospectus or any supplement thereto to
which a Holder or underwriter of the Eligible Securities covered by such
registration statement shall reasonably object to information pertaining to such
Holder or underwriter;
(b) engage in the following actions: (i) prepare and file with
the Commission such amendments and post-effective amendments to the registration
statement as may be necessary to keep the registration statement effective for
the applicable period; (ii) cause the prospectus to be supplemented by any
required prospectus supplement, and as so supplemented to be filed pursuant to
Rule 424 under the Securities Act; and (iii) comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement during the applicable period in accordance with the
intended method or methods of distribution by the sellers thereof set forth in
such registration statement or supplement to the prospectus; the Company shall
not be deemed to have used its best efforts to keep a registration statement
effective during the applicable period if it voluntarily takes any action that
would result in selling Holders of the Eligible Securities covered thereby not
being able to sell such Eligible Securities during that period unless such
action is required under applicable law, provided that the foregoing shall not
apply to actions taken by the Company in good faith and for
2.
<PAGE> 3
valid business reasons, so long as the Company promptly thereafter complies with
the requirements of Section 4(k), if applicable;
(c) notify the selling Holders of Eligible Securities and the
managing underwriters, if any, as soon as practicable, but in no event later
than five business days, (i) when the prospectus or any prospectus supplement or
post-effective amendment has been filed, and, with respect to the registration
statement or any post-effective amendment, when the same has become effective,
(ii) of any request by the Commission for amendments or supplements to the
registration statement or the prospectus or for additional information, (iii) of
the issuance by the Commission of any stop order suspending the effectiveness of
the registration statement or the initiation of any proceedings for that
purpose, (iv) of the receipt by the Company of any notification with respect to
the suspension of the qualification of the Eligible Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, and (v) of the happening of any event which makes any statement made in
the registration statement, the prospectus or any document incorporated therein
by reference untrue or which requires the making of any changes in the
registration statement, the prospectus or any document incorporated therein by
reference in order to make the statements therein not misleading;
(d) use best efforts to obtain the withdrawal of any order
suspending the effectiveness of the registration statement as soon as
practicable;
(e) if requested by the managing underwriter or underwriters,
promptly incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriters agree should be included therein
relating to the plan of distribution with respect to such Eligible Securities,
including, without limitation, information with respect to the number of
Eligible Securities being sold to such underwriters, the purchase price being
paid therefor by such underwriters and with respect to any other terms of the
underwritten (or best efforts underwritten) offering of the Eligible Securities
to be sold in such offering; and make all required filings of such prospectus
supplement or post-effective amendment as soon as notified of the matters to be
incorporated in such prospectus supplement or post-effective amendment;
(f) furnish to each selling Holder of Eligible Securities and
each managing underwriter, without charge, at least one signed copy of the
registration statement and any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(g) deliver to each selling Holder of Eligible Securities and
the underwriters, if any, without charge, as many copies of the prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
as such Holder may reasonably request; the Company consents to the use of the
prospectus or any amendment or supplement thereto by each of the selling Holders
of Eligible Securities and the underwriters, if any, in connection with the
offering and sale of the Eligible Securities covered by the prospectus or any
amendment or supplement thereto;
(h) prior to any public offering of Eligible Securities,
register or qualify or cooperate with the selling Holders of Eligible
Securities, the underwriters, if any, and their respective counsel in connection
with the registration or qualification of such Eligible Securities
3.
<PAGE> 4
for offer and sale under the securities or blue sky laws of such jurisdictions
as any seller or underwriter reasonably requests in writing and do any and all
other acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Eligible Securities covered by the registration statement,
except that under no circumstances will the Company be required to consent to
service of process in any such jurisdictions;
(i) cooperate with the selling Holders of Eligible Securities
and the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Eligible Securities to be sold and not
bearing any restrictive legends; and enable such Eligible Securities to be in
such denominations and registered in such names as the managing underwriters may
request at least two business days prior to any sale of Eligible Securities to
the underwriters;
(j) use its best efforts to cause the Eligible Securities
covered by the applicable registration statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the seller or sellers thereof or the underwriters, if any, to
consummate the disposition of such Eligible Securities;
(k) upon the occurrence of any event contemplated by paragraph
(c)(v) above, prepare a supplement or post-effective amendment to the
registration statement or the related prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Eligible Securities, the prospectus will not
contain an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading;
(l) cause all Eligible Securities covered by the registration
statement to be listed on each securities exchange on which similar securities
issued by the Company are then listed if requested by the holders of a majority
of such Eligible Securities or the managing underwriters, if any;
(m) not later than the effective date of the registration
statement, provide a CUSIP number for all Eligible Securities; and
(n) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make generally available to its
security holders, earnings statements satisfying the provisions of Section 11(a)
of the Securities Act, no later than 45 days after the end of each quarter (or
90 days, if such quarter is the end of a fiscal year) (1) commencing at the end
of any fiscal quarter in which Eligible Securities are sold to underwriters in a
firm or best efforts underwritten offering, or (2) if not sold to underwriters
in such an offering, beginning with the first fiscal quarter commencing after
the effective date of the registration statement.
5. INFORMATION AND LIMITATIONS ON DISTRIBUTIONS. If and whenever the
Company is required by the provisions of Section 2 to effect the registration of
any Eligible Securities under the Securities Act, the Company may require each
seller of Eligible Securities as to which any registration is being effected to
furnish to the Company such information regarding the distribution of such
securities as the Company may from time to time reasonably request in
4.
<PAGE> 5
writing. If, at any time following the effectiveness of a registration statement
filed pursuant to Section 2 hereunder, the Company shall have determined that
the Company may be required to disclose any material corporate development, the
Company may suspend the effectiveness of such registration statement until such
time as an amendment to the registration statement has been filed by the Company
and declared effective by 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
(a "Suspension Period"), by giving notice to the Purchaser. The Company will use
its best efforts to minimize the length of any Suspension Period. The Purchaser
agrees that, upon the receipt of any notice from the Company of a Suspension
Period, the Purchaser will not sell any Eligible Securities pursuant to any
registration statement covering such Eligible Securities until (i) the Purchaser
is advised in writing by the Company that the use of the applicable prospectus
may be resumed, (ii) the Purchaser has received copies of any additional,
supplemental or amended prospectus, if applicable, and (iii) the Purchaser has
received copies of any additional or supplemental filings which are incorporated
or deemed to be incorporated by reference in such prospectus.
6. EXPENSES. All expenses incident to the Company's performance of or
compliance with this Agreement, including without limitation all registration
and filing fees, fees and expenses associated with filings required to be made
with the National Association of Securities Dealers, Inc., fees and expenses of
compliance with securities or blue sky laws (including fees and disbursements of
counsel for the underwriters in connection with blue sky qualifications of the
Eligible Securities and determination of their eligibility for investment under
the laws of such jurisdictions as the managing underwriters may designate),
printing expenses, messenger, telephone and delivery expenses, and fees and
disbursements of counsel for the Company, accountant's fees, and underwriters'
fees (excluding discounts, commissions or fees of underwriters, selling brokers,
dealer managers or similar securities industry professionals relating to the
distribution of the Eligible Securities) (all such expenses being herein called
"Registration Expenses") will be borne by the Company, regardless whether the
registration statement becomes effective. The Company will, in any event, pay
its internal expenses (including, without limitation, all salaries and expenses
of its officers and employees performing legal or accounting duties), the
expense of any annual audit, the fees and expenses incurred in connection with
the listing of the securities to be registered on each securities exchange on
which similar securities issued by the Company are then listed, rating agency
fees and the fees and expenses of any person or entity, including special
experts, retained by the Company.
7. INDEMNIFICATION.
(a) In the event of a registration of Eligible Securities under
the Securities Act pursuant to Section 2, to the extent permitted by law, the
Company shall indemnify and hold harmless each selling Holder, and each other
person, if any, who controls such selling Holder within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which such selling Holder, or controlling person may become subject
under the Securities Act or otherwise or in any action in respect thereof, and
will reimburse each such selling Holder, and controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, as such expenses
are incurred, insofar as such losses, claims, damages or liabilities (or
5.
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actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any registration
statement under which such Eligible Securities were registered under the
Securities Act pursuant to Section 2, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, provided however, that the Company shall not be liable
to any such Holder or controlling person, in any such case if and to the extent
that any such loss, claim, damage or liability is based exclusively upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in conformity with information furnished by such selling Holder or
controlling person in writing specifically for use in such registration
statement or prospectus.
(b) In the event of a registration of any of the Eligible
Securities under the Securities Act pursuant to Section 2, to the extent
permitted by law, each selling Holder of such Eligible Securities, severally and
not jointly, will indemnify and hold harmless the Company, each underwriter and
each person, if any, who controls the Company or any underwriter within the
meaning of the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each other seller of
securities registered by the registration statement covering such Eligible
Securities and each person, if any, who controls such seller, against all
losses, claims, damages or liabilities, joint or several, to which the Company
or any such officer, director, underwriter, other seller or controlling person
may become subject under the Securities Act or otherwise, and shall reimburse
the Company and each such officer, director, underwriter, other seller and
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action, but only to the extent that any such loss, claim, damage or
liability (or action in respect thereof) is based exclusively upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with information pertaining to such Holder
furnished in writing to the Company by such Holder specifically for use in the
registration statement or prospectus relating to such Eligible Securities.
Notwithstanding the immediately preceding sentence, the liability of each such
Holder hereunder shall, not in any event exceed the net proceeds received by
such Holder from the sale of Eligible Securities covered by such registration
statement.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party, if a claim in
respect thereof is to be made against an indemnifying party hereunder, shall
notify such indemnifying party in writing thereof, but the omission so to notify
such indemnifying party shall not relieve such indemnifying party from any
liability that it may have to any indemnified party other than under this
Section 7 and, unless the failure to so provide notice materially adversely
affects or prejudices such indemnifying party's defense against any action,
shall not relieve such indemnifying party from any liability that it may have to
any indemnified party under this Section 7. In case any such action shall be
brought against any indemnified party and it shall notify an indemnifying party
of the commencement thereof, such indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and undertake the
defense thereof with counsel reasonably satisfactory to such indemnified party,
and, after notice from such indemnifying party to such indemnified party of its
election so to assume and undertake the defense thereof, such indemnifying party
shall not be liable to such indemnified party under this Section 7 for any
6.
<PAGE> 7
legal expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation and of
liaison with counsel so selected; provided, however, that, if the defendants in
any such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be
reasonable defenses available to it that are different from or additional to
those available to the indemnifying party or if the interests of the indemnified
party reasonably may be deemed to conflict with the interests of the
indemnifying party, the indemnified party shall have the right to select a
separate counsel and to assume and undertake the defense of such action, with
the expenses and fees of such separate counsel and other expenses related to
such defense to be reimbursed by the indemnifying party as incurred.
(d) The obligations of the Company and holders under this
Section 7 shall survive completion of any offering of Eligible Securities in a
registration statement and the termination of this Agreement. No indemnifying
party shall be liable for any amounts paid in a settlement effected without the
consent of such indemnifying party, which consent shall not be unreasonably
withheld. No indemnifying party shall consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the plaintiff to the indemnified party of a release from all liability
in respect of such claim or litigation.
(e) The reimbursements required by this Section 7 shall be made
by periodic payments during the course of the investigation or defense, as and
when bills are received and expenses incurred.
8. CONTRIBUTION. If for any reason the indemnity set forth in Section 7
is unavailable or is insufficient to hold harmless an indemnified party, then
the indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of the aggregate losses, claim, damages,
liabilities and expenses of the nature contemplated by said indemnity (i) in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and such indemnified party on the other
(determined by reference to, among other things, whether the untrue statement of
a material fact or omission to state a material fact relates to information
supplied by the indemnifying party or such indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission), or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law or provides a lesser sum
to such indemnified party than the amount hereinafter calculated, in such
proportion as is appropriate to reflect not only the relative fault of the
indemnifying party and such indemnified party but also the relative benefits
received by the indemnifying party on the one hand and such indemnified party on
the other, as well as any other relevant equitable considerations.
The Company and the Parties agree that it would not be just and
equitable if contribution pursuant to this Section 8 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or expenses referred to in such paragraph shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any
7.
<PAGE> 8
such action or claim. Notwithstanding the provisions of this Section 8, a Holder
shall not be required to contribute any amount in excess of the amount by which
the net proceeds of the sale of Eligible Securities sold by such Holder and
distributed to the public exceeds the amount of any damages which such Holder
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person which is not guilty of such
fraudulent misrepresentation.
9. RULE 144. The Company covenants with the Holders of Eligible
Securities that, if and to the extent the Company shall be required to do so
under the Exchange Act, and the rules and regulations thereunder, as the same
may be amended and in effect at the time, the Company shall timely file the
reports required to be filed by it under the Exchange Act or the Securities Act
(including, but not limited to, the reports under Sections 13 and 15(d) of the
Exchange Act referred to in subparagraph (c)(1) of Rule 144 adopted by the
Commission under the Securities Act), all to the extent required from time to
time to enable such Holder to sell Eligible Securities without registration
under the Securities Act within the limitations of the exemption provided by
Rule 144 under the Securities Act, as such Rule may be amended from time to
time, or any similar rule or regulation hereafter adopted by the Commission.
Upon the request of any Holder of Eligible Securities, the Company shall deliver
to such Holder a written statement as to whether it has complied with such
requirements.
10. MISCELLANEOUS.
(a) All covenants and agreements contained in this Agreement by
or on behalf of any of the signatories shall bind and inure to the benefit of
the respective successors and permitted assigns of the signatories, whether so
expressed or not.
(b) All notices, consents and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given when
(a) delivered by hand, (b) sent by telecopier (with receipt confirmed), provided
that a copy is mailed by registered mail, return receipt requested, or (c) when
received by the addressee, if sent by Express Mail, Federal Express or other
express delivery service (receipt requested), in each case to the appropriate
addresses and telecopier numbers set forth below (or to such other addresses and
telecopier numbers as a party may designate as to itself by notice to the other
parties):
(i) If to the Company: 4350 Executive Drive, Suite 325,
San Diego, CA 92121, Attention: President, telecopier no. (619) 452-1222; or
(ii) If to Purchaser: at the address set forth on the
signature page hereof.
(c) This Agreement shall be governed in all respects by the law
of the State of California, without giving effect to its principles regarding
conflicts of law.
(d) This Agreement may not be amended or modified, and no
provision hereof may be waived, except upon the approval of the Company and the
Holders of at least a majority of the then outstanding shares of Series A
Preferred Stock; provided, however, this Agreement may be amended to add
additional parties without the consent of the Purchaser. The failure of
8.
<PAGE> 9
any of the Parties to insist upon strict adherence to any term of this Agreement
on any occasion shall not be considered a waiver of that term or deprive such
Party of the right thereafter to insist upon strict adherence to that term or
any other term of this Agreement.
(e) This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(f) In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the Holders
shall be enforceable to the fullest extent permitted by law.
(g) This Agreement is intended by the parties as a final
expression of their agreement and a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties or
undertakings other than those set forth or referred to herein. This Agreement
supersedes all prior agreements and understandings between the Parties with
respect to such subject matter.
9.
<PAGE> 10
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
CYPRESS BIOSCIENCE, INC.
By
----------------------------------
Name: Jay D. Kranzler, M.D., Ph.D.
Title: Chief Executive Officer
PURCHASER:
--------------------------
By
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Name:
Title:
ADDRESS:
----------------------------
----------------------------
10.
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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 February 13, 1998, in the Registration Statement (Form
S-3) and related Prospectus of Cypress Bioscience, Inc. for the registration of
shares of its common stock.
ERNST & YOUNG LLP
San Diego, California
October 26, 1998
