<PAGE>
As filed with the Securities and Exchange Commission on April 28, 1997
Registration Number ___________
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
XYTRONYX, INC.
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(Exact name of registrant as specified in its charter)
Delaware 36-3258753
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(State of incorporation) (I.R.S. Employer Identification No.)
6730 Mesa Ridge Road, Suite A, San Diego, CA 92121 - (619) 550-3900
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(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Dr. H. Laurence Shaw
President and Chief Executive Officer
6730 Mesa Ridge Road, Suite A, San Diego, CA 92121 - (619) 550-3900
-------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code,
of agent for service)
With a copy to:
Edward F. Cox, Esq.
Donovan Leisure Newton & Irvine
30 Rockefeller Plaza, New York, New York 10112 (212) 632-3050
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being 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 ]
Calculation of Registration Fee
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Title of Each Class Proposed Maximum Proposed Maximum Amount of
of Securities to be Amount to be Offering Price Aggregate Offering Registration
Registered Registered Per Unit (1)(2) Price (1)(2) Fee
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 10,416,978 $1.0625 $11,067,720 $3,353.85
($0.02 par value)(3) Shares
Common Stock 5,250,150 $1.0625 $ 5,578,284 $1,690,39
($0.02 par value)(4) Shares
Common Stock 309,734 $1.0625 $ 329,092 $ 99.72
($0.02 par value)(5) Shares
Common Stock 1,250,038 $1.0625 $ 1,328,165 $ 402.47
($0.02 par value)(6) Shares
Common Stock 2,604,245 $1.0625 $ 2,767,010 $ 838.49
($0.02 par value)(7) Shares
Class A Warrants(8) 6,500,188 $1.1875 $ 7,718,973 $2,339.08
Warrants
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 475(c) under the Securities Act of 1933 on the basis of
the average of the high and low prices per share of the Registrant's Common
Stock as reported by the American Stock Exchange on April 21, 1997.
(2) Estimated solely for the purpose of calculating the registration fee on the
basis of the difference between the highest exercise price of the Warrants
and the average of the high and low prices per share of the Common Stock as
in (1) above.
(3) Represents shares of Common Stock issuable upon the conversion of shares of
Series A Convertible Preferred Stock (the "Convertible preferred Stock").
(4) Represents shares of Common Stock underlying Class A Warrants (includes
5,000,150 shares underlying Warrants issued with the private placement of
the Convertible Preferred Stock, 100,000 shares underlying Warrants issued
to Wound Healing of Oklahoma, Inc. in consideration of a license agreement,
and 150,000 shares underlying Warrants issued to Aries Trust in
consideration for a Line of Credit).
(5) Represents shares of Common Stock underlying Class B Warrants (the
"Settlement Warrants").
(6) Represents shares of Common Stock underlying certain warrants (the
"Placement Agent's Warrants") issued to the Placement Agent pursuant to a
Unit Purchase Warrant (the "Unit Purchase Warrant") for the private
placement of the Convertible Preferred Stock.
(7) Represents shares of Common Stock underlying Advisory Options issued to the
Placement Agent (the "Advisory Options").
(8) Class A Warrants to purchase Common Stock (includes 5,000,150 Class A
Warrants issued in the March 1997 Private Placement, 100,000 warrants
issued to Wound Healing of Oklahoma in consideration of a License
Agreement, 150,000 warrants issued to Aries Trust in consideration for a
Line of Credit, and 1,250,038 warrants issued to the Placement Agent
pursuant to the Unit Purchase Warrant).
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Pursuant to Rule 416, also being registered hereunder are an
indeterminable number of shares of Common Stock which may be issued pursuant to
anti-dilution provisions of the Convertible Preferred Stock, the Class A
Warrants, the Settlement Warrants, the Placement Agent's Warrants and the
Advisory Options.
<PAGE>
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 this 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 April 25, 1997
PROSPECTUS
XYTRONYX, INC.
19,831,145 SHARES OF COMMON STOCK
6,500,188 CLASS A WARRANTS
_______________________________________
This Prospectus relates to an offering (the "offering") by the holders of the
Settlement Warrants and by the Securityholders named herein under the caption
"Selling Securityholders" (collectively, the "Selling Securityholders") or by
pledgees, donees, transferees or other successors in interest of the Selling
Stockholders (the "Transferees") for sale to the public of the following
securities of Xytronyx, Inc., a Delaware corporation (the "Company"): (i)
10,416,978 shares of the Company's common stock, par value $0.02 per share (the
"Common Stock") issuable upon the conversion of shares of Series A Convertible
Preferred Stock ("Convertible Preferred Stock"); (ii) 5,250,150 shares of Common
Stock issuable upon the exercise of currently exercisable Class A Warrants (the
"Class A Warrants"); (iii) 309,734 shares of Common Stock issuable upon the
exercise of currently exercisable Class B Warrants (the "Settlement Warrants");
(iv) 1,250,038 shares of Common Stock issuable upon the exercise of currently
exercisable Unit Purchase Warrants (the "Unit Purchase Warrants"); (v) 2,604,245
shares of Common Stock issuable upon the exercise of currently exercisable
Advisory Options (the "Advisory Options"); and (vi) 6,500,188 Class A Warrants
to purchase shares of Common Stock issued by the Company and held by the Selling
Securityholders. The number of shares of Common Stock issuable upon conversion
of the Convertible Preferred Stock and upon exercise of the Class A Warrants,
the Settlement Warrants, the Unit Purchase Warrants and the Advisory Options is
subject to adjustment in certain events.
The Common Stock and Class A Warrants are separately tradable. Each Class A
Warrant entitles the holder thereof to purchase one share of Common Stock at a
price of $1.00 per share subject to adjustment, at any time from issuance until
November 26, 2005. The Class A Warrants are subject to redemption by the Company
at $.10 per warrant on 60 days' prior written notice provided that the closing
bid quotation of the Common Stock as reported on the American Stock Exchange
("AMEX"), or on such exchange on which the Common Stock is then traded, exceeds
400% of the exercise price per share for 20 consecutive trading days ending
three days prior to the date of redemption. See "Description of Securities".
If a market for the Class A Warrants develops, a holder may sell Class A
Warrants instead of exercising them.
<PAGE>
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE 'RISKS AND
OTHER INVESTMENT CONSIDERATIONS.'
The Company will not receive any of the proceeds from the sale of shares of
Common Stock or Class A Warrants. The Registration Statement of which this
Prospectus forms a part is being filed pursuant to the terms of certain
agreements between the Company and the Selling Securityholders.
The Selling Securityholders have advised the Company that they or the
Transferees may sell, directly or through brokers, all or a portion of the
securities offered hereby in negotiated transactions or in one or more
transactions in the market at the price prevailing at the time of sale. In
connection with such sales, the Selling Securityholders, the Transferees and any
participating broker may be deemed to be "underwriters" of the Common Stock
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"). It is anticipated that usual and customary brokerage fees will be paid
by the Selling Securityholders or Transferees in all open market transactions.
The Company will pay all other expenses of this Offering. See "Plan of
Distribution."
The Company has informed the Selling Securityholders that the anti-manipulation
provisions of Regulation M under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") may apply to the sales of their shares offered hereby. The
Company also has advised the Selling Securityholders of the requirement for
delivery of this Prospectus in connection with any sale of the shares offered
hereby. Certain Selling Securityholders may from time to time purchase shares
of Common Stock in the open market. The Selling Securityholders have been
notified that they should not commence any distribution of shares of Common
Stock unless they have terminated their purchasing and bidding for Common Stock
in the open market as provided in applicable securities regulations.
The Common Stock is listed and traded on the American Stock Exchange under
symbol "XYX." The closing price of the Common Stock on April 21, 1997 was
$1 1/16 per share. No trading market for the Class A Warrants or the Settlement
Warrants currently exists.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is April __, 1997.
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information concerning the Company can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C., 20549, and at
the Commission's Regional Offices at the 13th Floor, World Trade Center, New
York, New York, 10048; and 500 West Madison Street, Suite 1400, Chicago,
Illinois, 60661. Copies of such material can be obtained upon written request
addressed to the Commission, Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web
site at http://www.sec.gov that also contains such material regarding the
registrant. Such documents filed by the Company can also be inspected at the
offices of the American Stock Exchange, 86 Trinity Place, New York, New York,
10006.
The Company has filed with the Commission a registration statement on Form S-3
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement, which may be inspected and copied in the manner and at
the sources described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant to the
Exchange Act are incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1996;
(2) The Company's Quarterly Report on Form 10-Q for the fiscal quarters
ended June 30, 1996, September 30, 1996 and December 31, 1996;
(3) The Company's Current Reports on Form 8-K filed with the Commission on
July 9, 1996, October 28, 1996, December 19, 1996, and March 7, 1997;
(4) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A (File No. 0-14838),
declared effective on September 23, 1986, by which the Company's
shares of Common Stock were registered under Section 12 of the
Exchange Act and any other amendments or reports filed for the purpose
of updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the
3
<PAGE>
offering of the shares of Common Stock or Class A Warrants shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained in any subsequently filed document which is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide, without charge, to each person to whom a copy of this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the documents incorporated herein by reference (other than
exhibits thereto, unless such exhibits are specifically incorporated by
reference into the information that this Prospectus incorporates). Written or
telephone requests for such copies should be directed to Xytronyx, Inc., 6730
Mesa Ridge Road, Suite A, San Diego, CA 92121, Attention: Investor Relations.
Telephone: (619) 550-3900.
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
Certain of the statements set forth under the captions "Risks and Other
Investment Considerations" and "Use of Proceeds" and set forth elsewhere in this
Prospectus constitute "Forward Looking Statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, which are intended to be covered
by the safe harbors from liability created thereby. All such forward looking
statements involve risks and uncertainties, including those statements regarding
risks of new product development; market uncertainty; government regulation;
need for FDA and other regulatory approval; lengthy and uncertain approval
process; dependence on WHO license agreement and BTI agreement; risk of loss of
technology; dependence on others for marketing and manufacturing; uncertainty of
protection offered by patents and trade secrets; absence of market for Class A
Warrants; and the impact of potential AMEX delisting on marketability of
securities. Many other important factors set forth under the caption "Risks and
Other Investment Considerations" affect the Company's ability to achieve the
stated outcomes and to successfully develop and commercialize its products,
including those statements regarding development stage company; accumulated
deficit; anticipated future losses; limited cash resources; qualification of
auditors' opinion; potential need for substantial additional funds; dilution;
competition; and dependence upon key personnel. As a result, there can be no
assurance that the forward looking statements in this Prospectus will prove to
be accurate. In light of the significant uncertainties inherent in the forward
looking statements included herein, the inclusion of such information should not
be regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
4
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE INFORMATION INCLUDED ELSEWHERE
IN THIS PROSPECTUS AND THE DETAILED INFORMATION AND FINANCIAL STATEMENTS
APPEARING IN THE DOCUMENTS INCORPORATED IN THIS PROSPECTUS BY REFERENCE.
THE COMPANY
Xytronyx, Inc. (the "Company" or "Xytronyx"), is engaged primarily in the
development and commercialization of medical products based on biotechnological
research relating to the treatment and detection of cancer and other diseases.
The Company holds rights to two proprietary technologies in the area of cancer
therapy, both of which are undergoing preparation for human clinical trials.
First is an option held by the Company to acquire Binary Therapeutics, Inc., the
holder of certain proprietary technologies in the Photodynamic Therapy ("PDT")
area for the treatment of cancer. Second is an exclusive license to the
Photodynamic Immunotherapy-TM- ("PDIT-TM-") technology, also for the treatment
of cancer. The Company believes that these two separate technologies and
product development opportunities complement each other and offer potential
efficiencies and other strategic benefits in relation to development
requirements and expected uses.
Beyond the cancer therapy area, the Company also has two products which are
further along in development and are undergoing commercialization: The
Periodontal Tissue Monitor (the "PTM"), a disposable test used to assist with
the diagnosis and monitoring of periodontal disease, and the Company's
Kephra-TM- photochromic technology.
PHOTODYNAMIC THERAPY (PDT) / BINARY THERAPEUTICS, INC.
In June 1996, Xytronyx entered into an agreement which granted the Company the
option to acquire Binary Therapeutics, Inc. ("BTI"), a privately held company.
This agreement was amended by a letter dated February 27, 1997 signed by BTI and
acknowledged and agreed to by Xytronyx, Inc., and Xytronyx Acquisition Corp.
(together with the June 1996 agreement, the "BTI Agreement"). BTI holds certain
proprietary technologies in the areas of both Photodynamic Therapy (PDT) and a
related area, Boron Neutron Capture Therapy. PDT is an emerging mode of
treatment for cancer which uses the combination of light-activated drugs and
nonthermal light to achieve selective, photochemical destruction of cancer cells
with minimal effect on surrounding normal tissue.
BTI and the Company are currently conducting pre-clinical work necessary for the
submission of an Investigational New Drug Application ("IND") to the United
States Food and Drug Administration ("FDA") with respect to BTI's Boronated
Porphyrin ("BOPP") compound for treatment of brain cancer. Preclinical testing
has indicated that BOPP may serve as an effective photosensitizing drug for use
in PDT treatment of cancer and that BOPP may have certain advantages over
existing PDT agents, including increased selectivity and more efficient killing
of tumor cells. BTI's current objective is to commence a Phase I clinical study
of PDT using BOPP in the treatment of brain cancer patients during 1997 after
seeking IND approval. There can be no assurance, however, that IND approval will
be obtained within that time frame or at all.
5
<PAGE>
The Company believes, based upon the results of preclinical studies, that BOPP
may also be useful as a photosensitizing drug for PDT treatment of pancreatic
tumors. Patents encompassing the BOPP technology have been issued in the United
States and certain major international markets, and patent applications are
pending in other major international markets.
Under the terms of the BTI Agreement, the Company will assist BTI with certain
product development efforts and in exchange has received an option to acquire
BTI at any time up to a period of ten business days after the completion of a
BOPP clinical study where results reach a specified threshold (the "Option
Period").
PHOTODYNAMIC IMMUNOTHERAPY (PDIT) TREATMENT FOR CANCER
Photodynamic Immunotherapy ("PDIT") cancer treatment consists of the injection
of a combination of an infrared absorbing dye (photosensitizing drug) and an
immunoadjuvant directly into a tumor, followed by illumination with an infrared
laser. Similar to traditional Photodynamic Therapy (PDT), PDIT treatment is
intended to produce tumor tissue destruction in the primary area of therapy.
However, an important difference between PDIT and PDT is that PDIT treatment is
also intended to trigger an immune reaction in the patient to complete the
destruction of the primary tumor and to also destroy metastatic tumors. The
Company believes that the potential of PDIT therapy to destroy metastatic tumors
may offer an improved methodology for treatment of cancers such as breast, lung
and prostate cancer. There is no assurance that the Company's belief will prove
correct.
The Company's scientific collaborators have obtained high response rates with
PDIT in a very challenging animal breast tumor model. Accordingly, the Company
has targeted breast cancer for initial human clinical studies with PDIT
treatment. The Company's current objective is to facilitate the initiation of a
physician-sponsored human clinical study of the treatment of breast cancer
patients in 1997. Patent applications encompassing PDIT treatment have been
filed in the United States and in major international markets.
AST DIAGNOSTIC TECHNOLOGY: THE PERIODONTAL TISSUE MONITOR (PTM)
The Periodontal Tissue Monitor (the "PTM") is a disposable test developed by the
Company to assist dental practitioners with the diagnosis and monitoring of the
treatment of periodontitis, a serious form of periodontal disease and the most
common cause of tooth loss in adults. The PTM is a simple, chairside,
eye-readable test based on the identification of aspartate aminotransferase
("AST"), an enzyme which is released when cells die. The PTM is approved for
sale in Canada, China and much of Western Europe. U.S. clinical trials were
completed in March 1996, and the Company submitted a Premarket Approval ("PMA")
application to the FDA in September 1996.
In May 1996 the Company entered into an agreement with Hawe-Neos Dental to
distribute the PTM in Europe. Hawe-Neos, which is headquartered in Bioggio,
Switzerland, has more than 60 years experience in manufacturing and marketing
dental products in Europe. Hawe-Neos launched PTM at the 27th International
Dental Show in Cologne, Germany in April, 1997. The Company is currently
evaluating marketing alternatives for the product for the United States market
and expects to move closer to selecting a marketing partner by the time a
response to the PMA application is received from the FDA.
* * * * *
The Company's offices are at 6730 Mesa Ridge Road, Suite A, San Diego, CA 92121
Tel: (619) 550-3900.
6
<PAGE>
THE OFFERING
Securities Offered:
Common Stock . . . . . . . . . . 19,831,145 shares of Common Stock, par
value $0.02 per share, offered by the
Selling Securityholders.(1)(2) (3)(4)(5)
Class A Warrants . . . . . . . . 6,500,188 Class A Warrants to purchase
Common Stock, currently issued and
outstanding, offered by the Selling
Securityholders.(6)
Common Stock Outstanding . . . . . . 8,151,029 shares as of April 21,
prior to the Offering 1997.(7)
Class A Warrants Outstanding . . . . 13,427,157 warrants as of
prior to the Offering April 21, 1997.
Plan of Distribution . . . . . . . . The Common Stock and Class A Warrants
offered hereby may be sold from time to
time in one or more transactions at
market prices prevailing at the time of
the sale, at prices related to such
prevailing market prices or at
negotiated prices.
Use of Proceeds . . . . . . . . . . The Company will not receive any of the
proceeds from the sale of the shares of
Common Stock and Class A Warrants
offered hereby. The proceeds, if any,
from the exercise of Class A Warrants
will be used for product development and
general corporate purposes.
AMEX Symbol for Common Stock . . . . XYX
(1) Includes 10,416,978 shares of Common Stock underlying the Convertible
Preferred Stock.
(2) Includes 5,250,150 shares of Common Stock underlying the Class A Warrants.
(3) Includes 309,734 shares of Common Stock underlying the Settlement Warrants.
(4) Includes 1,250,038 shares of Common Stock underlying the Unit Purchase
Warrants.
(5) Includes 2,604,245 shares of Common Stock underlying the Advisory Options.
(6) Includes 5,000,150 Class A Warrants issued in the March 1997 Private
Placement, 100,000 warrants issued to Wound Healing of Oklahoma in
consideration of a License Agreement, 150,000 warrants issued to Aries
Trust in consideration for a Line of Credit, and 1,250,038 warrants issued
to the Placement Agent pursuant to a Unit Purchase Warrant.
(7) Does not include (i) 5,317,400 shares of Common Stock available for
issuance to management, key employees, directors, and consultants under
various stock option plans or by direct grant from the Board of Directors
(of which options to purchase 1,710,000 shares of common stock at a
weighted average price of $3.08 have been granted to date), (ii) 13,427,157
shares of Common Stock reserved for issuance upon exercise of currently
exercisable Class A Warrants issued by the Company, (iii) 309,734 shares of
Common Stock issuable at a price of $22.00 per share to holders of warrants
to be issued by the Company under a June 1994 settlement agreement (see
"Plan of Distribution"), and (iv) 348,500 shares of Common Stock, and
435,625 shares of Common Stock underlying Warrants, reserved for issuance
upon exercise of purchase options currently held by Selling Stockholders
(see "Selling Stockholders").
7
<PAGE>
RISKS AND OTHER INVESTMENT CONSIDERATIONS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS SPECULATIVE AND INVOLVES A
HIGH DEGREE OF RISK. INVESTORS SHOULD BE ABLE TO WITHSTAND THE LOSS OF THEIR
ENTIRE INVESTMENT. PROSPECTIVE PURCHASERS SHOULD CAREFULLY REVIEW THE
INFORMATION SET FORTH BELOW.
DEVELOPMENT STAGE COMPANY; ACCUMULATED DEFICIT; ANTICIPATED FUTURE LOSSES
The Company has generated only limited revenues from operations to date. As of
December 31, 1996, the Company had an accumulated deficit of $30,994,213, and
expects substantial losses to continue for the foreseeable future. The
Company's operations are subject to numerous risks associated with the
establishment and development of new products, particularly those based on
innovative or novel technologies. These risks include the possibility that any
or all of the Company's products will be found to be ineffective or unsafe, that
the products, once developed, although effective, are uneconomical to market,
that third parties hold proprietary rights that preclude the Company from
marketing such products or that third parties market a superior or equivalent
product. The Company's ability to generate significant revenues and
profitability will depend, among other factors, on the successful completion of
product development, obtaining regulatory approvals, establishing manufacturing
and marketing capabilities, gaining market acceptance for its products, and
obtaining adequate funds to finance operations. There can be no assurance that
the Company will generate any revenues or achieve profitability.
LIMITED CASH RESOURCES; QUALIFICATION OF AUDITORS' OPINION
As of December 31, 1996 the Company had cash of approximately $2,932,616. The
Company sold additional equity securities in a private placement which closed on
March 7, 1997 in which it raised $5,779,000 (net of commissions and expenses).
The Company anticipates that its cash resources will be depleted by the end of
calendar 1998, unless the Company undertakes additional financings or generates
revenues from product sales or marketing and research alliances. The Company's
independent auditors included an explanatory paragraph in their report on the
Company's financial statements for the fiscal year ended March 31, 1996 as to
the uncertainty relating to the Company's ability to continue as a going
concern.
POTENTIAL NEED FOR SUBSTANTIAL ADDITIONAL FUNDS; DILUTION
The Company has expended and intends to continue to expend substantial funds to
conduct research and development activities, including preclinical and clinical
testing of its cancer therapy technologies and its funding commitments under its
agreement with BTI. (See "Prospectus Summary" - "The Company -- Photodynamic
Therapy (PDT) / Binary Therapeutics, Inc.") The Company currently estimates
that its existing capital resources, will fund the Company's operations through
the end of calendar year 1998. Accordingly, the Company will require
significant additional funds, either from marketing partners, product sales, or
additional equity or debt financing, to complete development and commence
commercial-scale manufacturing of its products. The actual date through which
the proceeds of this Offering and the existing cash resources will be adequate
to fund the Company's operations, and the timing and magnitude of the need for
additional funds, may vary significantly based on numerous factors, including
(i) the timing and receipt of U.S. regulatory approval, if any, for the PTM,
(ii) the timing and receipt of U.S. regulatory approval, if any, to commence
human clinical studies of the PDT and PDIT cancer technologies (all of which in
turn are dependent upon the successful completion of preclinical activities),
(iii) the timing of the establishment of any marketing
8
<PAGE>
partnership(s) for the PTM and strategic partnership(s) for the PDT and PDIT
technologies, (iv) the timing and the amount, if any, of payments received from
any such partner(s), (v) the timing and amount, if any, of revenues generated
from sales of the PTM, (vi) the timing and amount, if any, of revenues from
Kephra products and (vii) the timing and the amount, if any, of proceeds
available from the exercise of the Class A Warrants included in this Offering as
well as the currently outstanding Class A Warrants and Settlement Warrants. The
Company has no commitments for any additional funding and there can be no
assurance that such funding will be available on acceptable terms, if at all.
If adequate funds on acceptable terms are not available to the Company, the
Company may be required to delay, scale back or eliminate product development
efforts, or cease operations, in whole or in part. In the event the Company
obtains any additional funding, the terms thereof may have a dilutive effect on
holders of the Company's securities.
In addition, the Company currently has a stock option plan pursuant to which its
directors, key employees and consultants may be eligible to receive stock
options exercisable for Common Stock at exercise prices which may be lower than
the initial conversion price of the Convertible Preferred Stock or the exercise
price of the Class A Warrants registered herein. Future option grants, if any,
may dilute the value of the Common Stock.
RISKS OF NEW PRODUCT DEVELOPMENT; MARKET UNCERTAINTY
BTI's PDT technology is new and emerging and only limited preclinical and
clinical data on its safety and efficacy exits. Data relating to the Company's
PDIT technology is even more limited. The PDT and PDIT technologies have been
tested only in animal models to date; human clinical trials have not commenced
on either of these potential cancer products. There is no assurance that
commencement of human clinical trials will be approved by the FDA or any other
regulatory agencies, or that the technologies will prove effective in any such
clinical trials. None of the products underlying these technologies that the
Company proposes to develop or is developing have been approved for marketing by
regulatory authorities in the United States or elsewhere, and all will require
significant research and development, including lengthy clinical testing, prior
to their commercialization. The results of preclinical testing discussed in
this Prospectus for the Company's drug compounds and technologies are subject to
varying interpretations. Furthermore, studies conducted with alternative
designs or on alternative populations could produce results that vary from those
discussed in this Prospectus. Therefore, there can be no assurance that the
results discussed in this Prospectus or the Company's interpretation of them
will be accepted by governmental regulators or the medical community. Even if
the development of the Company's products in the preclinical phase advances to
the clinical stage, there can be no assurance that the products will prove to be
safe and effective. The products that are successfully developed, if any, will
be subject to requisite regulatory approval prior to their commercial sale, and
the approval, if obtainable, is likely to take several years. Generally, only a
very small percentage of the number of new pharmaceutical products initially
developed is approved for sale. Even if the Company's products are approved for
sale, there can be no assurance that they will be commercially successful. The
Company may encounter unanticipated problems relating to development,
manufacturing, distribution and marketing, some of which may be beyond the
Company's financial and technical capacity to solve. The failure to address
such problems adequately could have a material adverse effect on the Company's
business and prospects. No assurance can be given that the Company will succeed
in the development and marketing of any new drug products, or that the products
will not be rendered obsolete by products of competitors.
9
<PAGE>
This Prospectus includes estimates of the number of patients with a particular
type of cancer or other diseases and the number of patients who might have been
candidates for a particular type of treatment. There can be no assurance of the
extent to which any of the Company's products, if successfully developed, will
actually be used by patients. Furthermore, there can be no assurance that the
Company's sales of its products for such uses will be profitable even if patient
use occurs.
GOVERNMENT REGULATION; NEED FOR FDA AND OTHER REGULATORY APPROVAL; LENGTHY AND
UNCERTAIN APPROVAL PROCESS
Prior to marketing, each of the Company's proposed medical products, including
both the drug and light delivery components of the proposed PDT and PDIT
treatment systems, and the PTM, must undergo an extensive regulatory approval
process conducted by the FDA and applicable agencies in other countries. The
process, which focuses on safety and efficacy and includes a review by the FDA
of preclinical testing and clinical trials and investigation as to whether good
laboratory and clinical practices were maintained during testing, is likely to
take many years and require the expenditure of substantial resources. The
Company is and will be dependent on the external laboratories and medical
institutions conducting its preclinical testing and clinical trials to maintain
both good laboratory practices established by the FDA and good clinical
practices. Data obtained from preclinical and clinical testing are subject to
varying interpretations which could delay, limit or prevent regulatory approval.
In addition, delays, limitations or rejections may be encountered based upon
changes in FDA policy for drug or medical device approval during the period of
development and by the requirement for regulatory review of each IND and New
Drug Application ("NDA") relating to any pharmaceutical product proposed to be
introduced by the Company and an application for PMA relating to any medical
device proposed to be introduced by the Company. There can be no assurance
that, even after significant expenditures, regulatory approval will be obtained
for any of the Company's product candidates. Moreover, such approval may entail
significant limitations on the indicated uses for which a medical product may be
marketed. Any denials of or substantial delays in obtaining requisite approvals
or limitations on such approvals may have a material adverse effect on the
Company. Such denials, and delays in obtaining regulatory approvals and
limitations on such approvals could be experienced both domestically and abroad.
Even if such regulatory approval is obtained, a marketed medical product and its
manufacturer are subject to continual regulatory review, and later discovery of
previously unknown problems with a product or manufacturer may result in
restrictions on such product or the manufacturing thereof, including withdrawal
of such product from the market. Change in the manufacturing procedures used by
the Company for any of the Company's approved medical products are subject to
FDA review, which could have an adverse effect upon the Company's ability to
continue the commercialization or sale of a product. The process of obtaining
FDA approval is costly and time consuming, and there can be no assurance that
any of the Company's products will be deemed to be safe and effective by the
FDA. The Company will not be permitted to market any of its medical products in
any jurisdiction in which the product does not receive regulatory approval.
Neither the Company nor its licensor has had any contact with the FDA or any
foreign regulatory authority regarding the PDIT technology.
10
<PAGE>
DEPENDENCE ON WHO LICENSE AGREEMENT AND BTI AGREEMENT; RISK OF LOSS OF
TECHNOLOGY
The right of the Company to acquire rights to the PDT technology is derived from
the option the Company has to acquire BTI pursuant to an agreement between the
Company and BTI (the "BTI Agreement"). Under the terms of the BTI Agreement,
the Company is required to satisfy certain conditions, including funding up to
$1,250,000 of product development expenses incurred by BTI during the Option
Period, in order to exercise its rights to acquire BTI by merger under the BTI
Agreement. The Company is also required to advance to BTI funds to repay
certain indebtedness in the event the Company completes an equity financing.
The BTI Agreement was amended by a letter agreement between the Company and BTI.
The letter agreement extends the period for the Company to exercise its option
to acquire BTI and suspends the Company's obligation to advance to BTI funds to
repay the indebtedness until after the successful completion of a clinical study
of BOPP. In addition BTI agreed to irrevocably waive the obligation of the
Company to fund further product development expenses for the period commencing
February 24, 1997, and ending the earlier of June 24, 1997 or the successful
completion of the clinical study.
The right of the Company to the PDIT technology are derived from the Company's
license agreement (the "WHO License Agreement") with Wound Healing of Oklahoma
("WHO"). The WHO License Agreement requires the Company to pay royalties to WHO
based on sales of products incorporating the PDIT technology, including a
minimum royalty of $50,000 per year.
If the Company does not meet its obligations under the BTI Agreement, as
amended, or the WHO License Agreement in a timely manner, the Company could lose
its rights to either or both the proprietary PDT or PDIT technology. Any such
loss could have a material adverse effect on the Company.
DEPENDENCE ON OTHERS FOR MARKETING AND MANUFACTURING
The Company expects to rely upon marketing partnerships with unaffiliated
medical product companies to market all of its medical products. Such reliance
may limit the Company's ability to control the commercialization of such
products. Although the Company believes that any such collaborative partners
will have an economic motivation to commercialize the products which they have
the right and responsibility to market, the amount and timing of resources
devoted to these activities generally will be controlled by each individual
partner. There can be no assurance that the Company will be successful in
establishing any such marketing partnerships, or that, if established, such
future partners will be successful in commercializing the products.
The Company also relies upon collaborative agreements with unaffiliated
companies for the manufacturing of the PTM product and the drug compounds under
development, and expects to continue to rely upon such relationships at least in
respect to production associated with initial commercial sales, and perhaps
beyond the initial stages of commercialization. Such reliance may adversely
affect profit margins on its products, and there are no assurances that the
Company can develop or maintain contract manufacturing relationships in the
future on acceptable terms, if at all. In addition, manufacturers of the
Company's products will be subject to applicable current good manufacturing
practices ("GMP") prescribed by the FDA or other rules and regulations
prescribed by foreign regulatory authorities. The Company will be dependent on
such manufacturers for continued compliance with GMP and applicable foreign
11
<PAGE>
standards. Failure by a manufacturer of the Company's products to comply with
GMP or applicable foreign standards could result in significant time delays or
the inability of the Company to commercialize a product and could have a
material adverse effect on the Company.
UNCERTAINTY OF PROTECTION OFFERED BY PATENTS AND TRADE SECRETS
The medical industry, particularly the pharmaceutical segment, places
considerable importance on obtaining patent and trade secret protection for new
technologies, products and processes. The Company's success will depend, in
part, on its ability to enjoy or obtain protection for its products and
technologies under United States and foreign patent laws and other intellectual
property laws, to preserve its trade secrets and to operate without infringing
the proprietary rights of third parties. To date, the Company has received a
number of patents, and has filed a number of other patent applications, relating
to the Company's technologies in the United States and internationally. BTI and
the Company have each benefited as a licensee from such issuances or filings of
others.
The patent positions of pharmaceutical, medical and biotechnology firms,
including the Company, are uncertain and involve complex legal and factual
questions for which important legal principles are largely unresolved. To date,
no consistent policy has been developed by the U.S. Patent and Trademark Office
regarding the breadth of claims allowed in medical device or biotechnology
patents or the degree of protection afforded under such patents. The coverage
claimed in a patent application can be significantly reduced before a patent is
issued. Consequently, the Company does not know whether any patent applications
will result in the issuance of patents. Additionally, the Company does not know
whether its existing patents (and any patents related to its patent applications
which subsequently may be issued) will provide significant proprietary
protection or will be circumvented or invalidated. Since patent applications in
the United States are maintained in secrecy until foreign counterparts, if any,
publish or issue patents and since publication of discoveries in the scientific
or patent literature often lag behind actual discoveries, the Company cannot be
certain that it or any licensor was the first creator of inventions covered by
existing patents or pending patent applications or that it or such licensor was
the first to file patent applications for such inventions. Moreover, the
Company might have to participate in interference proceedings declared by the
U.S. Patent and Trademark Office to determine priority of inventions, which
could result in substantial cost to the Company even if the eventual outcome
were favorable to the Company. There can be no assurance that the Company's
current patents, or patents relating to its patent applications, if issued,
would be held valid by a court or that a competitor's technology or product
would be found to infringe such patents.
A number of biotechnology and high-tech companies and research and academic
institutions have developed technologies, filed patent applications or received
patents on various technologies that may compete with the Company's business.
Some of these technologies, applications or patents may conflict with the
Company's technologies, applications or patents. Such conflict could limit the
scope of the patents that the Company has or may be able to obtain or result in
the denial of the Company's patent applications. In addition, if patents that
cover the Company's activities are issued to other companies, there can be no
assurance that the Company would be able to obtain licenses to these patents at
a reasonable cost or be able to develop or obtain alternative technology.
The Company also relies upon trade secret protection for its unpatented
confidential and proprietary technology and information. There can be no
assurance that others will not
12
<PAGE>
independently develop substantially equivalent proprietary technology and
information, gain access to the Company's trade secrets or disclose such
technology and information, or, in general, that the Company can meaningfully
protect its unpatented technology and information.
COMPETITION
The biotechnology and medical device industries are characterized by rapidly
evolving technology and intense competition. The consumer markets into which the
Kephra reversible photochromic technology is targeted for marketing are also
extremely competitive. Many of the companies in these industries have
substantially greater financial resources and development capabilities than the
Company, and many in the biotechnology and medical device industries have
substantially greater experience in undertaking clinical testing of products,
obtaining regulatory approvals and manufacturing and marketing such products.
There can be no assurance that the Company's products will be more effective or
achieve greater market acceptance than any current or future competitive
products, or that competitors will not develop products that are more effective
than the Company's or that would render the Company's products and technologies
less competitive or obsolete.
DEPENDENCE UPON KEY PERSONNEL
The Company is currently dependent on certain executive officers, management and
scientific personnel. The loss of these individuals might have a material
adverse effect on the research and development programs and other operations of
the Company. Competition for qualified employees among medical companies is
intense, and the loss of any of such persons, or an inability to attract, retain
and motivate additional highly skilled employees, could adversely affect the
Company's business and prospects. There can be no assurance that the Company
will be able to retain its existing personnel or to attract additional qualified
employees.
UNCERTAIN THIRD-PARTY REIMBURSEMENT; UNCERTAIN HEALTH CARE REFORM MEASURES
The Company's ability to commercialize drugs through its strategic partners will
depend, in part, on the extent to which reimbursement for the cost of such
products and related treatments will be available from government health
administration authorities, private health coverage insurers and other
organizations. There can be no assurance that adequate third-party coverage
will be available for the Company or its strategic partners to obtain
satisfactory price levels for third-party payor reimbursements. Government and
other third-party payors are increasingly attempting to contain health care
costs by limiting both coverage and the level of reimbursement for new drugs.
If adequate coverage and reimbursement levels are not provided by government and
third-party payors for uses of the Company's potential products, the market
acceptance of these products would be adversely affected. In certain European
markets pricing and profitability of prescription pharmaceuticals are subject to
government control. In France, as well as the United States, there have been
and the Company expects that there will continue to be, a number of proposals to
implement similar government controls. In addition, increasing emphasis on
managed care in the United States will continue to put pressure on the pricing
of pharmaceutical products and diagnostic tests. Cost control initiatives could
decrease the price that the Company or any of its strategic partners receives
for any products in the future and have a material adverse effect on the
Company's business, financial condition and results of operations. Further, to
the extent that cost control initiatives have a material adverse effect on
13
<PAGE>
the Company's strategic partners, the Company's ability to commercialize its
products and to realize royalties may be adversely affected.
UNCERTAINTY OF PHARMACEUTICAL PRICING, REIMBURSEMENT AND RELATED MATTERS
The Company's business, financial condition and results of operations may be
materially adversely affected by the continuing efforts of government and third
party payors to contain or reduce the costs of health care through various
means. For example, in certain foreign markets pricing and profitability of
prescription pharmaceuticals are subject to government control. In the United
States, the Company expects that there will continue to be a number of federal
and state proposals to implement similar government control. In addition,
increasing emphasis on managed care in the United States will continue to put
pressure on the pricing of pharmaceutical products and diagnostic tests. Cost
control initiatives could decrease the price that the Company or any of its
strategic partners receives for any products in the future and have a material
adverse effect on the Company's business, financial condition and results of
operations. Further, to the extent that cost control initiatives have a
material adverse effect on the Company's strategic partners, the Company's
ability to commercialize its products and to realize royalties may be adversely
affected.
The ability of the Company and any strategic partner to commercialize
pharmaceutical or diagnostic products may depend in part on the extent to which
reimbursement for the products will be available from government and health
administration authorities, private health insurers and other third party
payors. Significant uncertainty exists as to the reimbursement status of newly
approved health care products. Third party payors, including Medicare,
increasingly are challenging the prices charged for medical products and
services. Government and other third party payors are increasingly attempting
to contain health care costs by limiting both coverage and the level of
reimbursement for new therapeutic products and by refusing in some cases to
provide coverage for uses of approved products for disease indications for which
the FDA has not granted labeling approval. There can be no assurance that any
third party insurance coverage will be available to patients for any products
discovered and developed by the Company or its strategic partners. If adequate
coverage and reimbursement levels are not provided by government and other third
party payors for the Company's products, the market acceptance of these products
may be reduced, which may have a material adverse effect on the Company's
business, financial condition and results of operations.
PRODUCT LIABILITY; LIMITED INSURANCE COVERAGE
The Company faces an inherent business risk of exposure to product liability
claims in the event that the use or misuse of its products and proposed products
result in adverse effects. The Company currently maintains $5 million of
product liability insurance coverage. There can be no assurance that such
coverage is or in the future will be adequate or that adequate insurance will be
available in the future at an acceptable cost, if at all. In addition, there
can be no assurance that a product liability claim, even if the Company has
insurance coverage, would not materially adversely affect the business or
financial condition of the Company.
ABSENCE OF MARKET FOR CLASS A WARRANTS; RESTRICTIONS ON TRANSFERABILITY
There is no established trading market for the Class A Warrants and there can be
no assurance that the Class A Warrants will be listed for trading on any
national securities exchange or quoted on NASDAQ, or that any active trading
market will develop for the Class A Warrants.
14
<PAGE>
No predictions can be made of the effect that future market sales of the shares
of Common Stock underlying the Class A Warrants, or future market sales of the
Class A Warrants, or the availability of such shares or Class A Warrants for
sale, will have on the market price of the Common Stock prevailing from time to
time. Sales of substantial amounts of Common Stock or Class A Warrants, or the
perception that such sales might occur, could adversely affect prevailing market
prices.
IMPACT OF POTENTIAL AMEX DELISTING ON MARKETABILITY OF SECURITIES; RISK OF PENNY
STOCK REGULATION
The Company currently falls below the AMEX stockholders' equity guidelines
outlined. The Company is actively taking steps to address the Exchange's
guidelines, and has recently met with representatives of the Exchange to discuss
its situation and the basis of which a determination of listing might be
deferred. If delisting were to occur, it is possible that the trading in the
Company's Common Stock would thereafter be conducted in the over-the-counter
market in the so-called "pink sheets" or the NASD's "Electronic Bulletin Board",
and it would be more difficult to dispose of the Common Stock or to obtain as
favorable a price for the Common Stock. Consequently, the liquidity of the
Common Stock could be impaired, not only in the number of shares of Common Stock
that could be bought and sold at a given price, but also through delays in the
timing of transactions and reduction in security analysts' and the media's
coverage of the Company, which could result in lower prices for the Common Stock
than might otherwise be attained and in a larger spread between the bid and
asked prices for the Common Stock. Accordingly, an investor would find it more
difficult to dispose of, or obtain accurate quotations as to the price of, the
Company's currently listed securities, resulting in a material adverse effect on
the Company and the prices of its securities.
In addition, if the Company's Common Stock were delisted from the AMEX it is
likely that the Common Stock would be deemed "penny stock." Penny stock rules
place significant restrictions on activities relating to penny stocks, including
requiring a broker-dealer, prior to a transaction in a penny stock not otherwise
exempt from the rules, to (i) deliver a standardized risk disclosure document
prepared by the Commission that provide information about penny stocks and the
nature and level of risks in the penny stock market and (ii) provide the
customer with bid and offer quotations of the penny stock, the compensation of
the broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer's
account. These disclosure requirements may have the effect of reducing the
level of trading activity in the secondary market for a stock that becomes
subject to the penny stock rules. If the Company's Common Stock becomes subject
to the penny stock rules, investors in this Offering may find it difficult to
sell their shares.
LIMITED TRADING VOLUME; POSSIBLE PRICE VOLATILITY
Historically, the Common Stock has generally experienced relatively low daily
trading volumes in relation to the aggregate number of shares issuable in this
Offering. The market price of the Common Stock also has been volatile and it
may continue to be volatile as has been the case with the securities of other
public medical-technology companies. Factors such as announcements by the
Company or its competitors concerning technological innovations, results of
clinical trials, new commercial products or procedures, proposed government
regulations and developments or disputes relating to patents or proprietary
rights may have a significant effect on the market price of the Company's
securities. Changes in the market price of the Common Stock may bear no
relation
15
<PAGE>
to the Company's actual operations or financial results. Each of the foregoing
factors may also be applicable to the Class A Warrants if a trading market in
the warrants develops in the future.
RISK OF REDEMPTION OF CLASS A WARRANTS
The Class A Warrants are subject to redemption by the Company at $.10 per
warrant on 60 days' prior written notice provided that the closing bid quotation
for the Common Stock as reported on the AMEX, or on such exchange on which the
Common Stock is then traded, exceeds 400% of the exercise price per share for 20
consecutive trading days ending three days prior to the date of redemption.
Notice of redemption of the Class A Warrants could cause the holders thereof to
exercise the Class A Warrants and pay the exercise price at a time when it may
be disadvantageous for the holders to do so, to sell the Class A Warrants at the
current market price when they might otherwise wish to hold the Class A
Warrants, or to accept the redemption price, which is likely to be less than the
market value of the Class A Warrants at the time of redemption. See
"Description of Securities - Class A Warrants."
TERMS OF SETTLEMENT WARRANTS
The exercise price and other terms of the Settlement Warrants were determined as
a result of settlement negotiations between the Company and representatives of
the plaintiffs in the class-action lawsuit described under "Settlement
Warrants." The exercise price of $22.00 per share of Common Stock does not
necessarily bear any relationship to the financial condition, results of
operations or business or financial prospects of the Company, or any other
recognized investment criteria, and should not be considered an indication of
the actual value of the Company's Common Stock. See "Plan of Distribution."
USE OF PROCEEDS
The Company will not receive any proceeds resulting from the sale of the shares
of Common Stock and Class A Warrants by the Selling Securityholders. See
"Selling Securityholders."
The Class A Warrants entitle the holder to purchase one share of Common Stock
from the Company at an exercise price of $1.00 per share. Exercise of the Class
A Warrants offered hereby would result in total gross proceeds to the Company of
$6,500,188. The Settlement Warrants entitle the holder to purchase one shares
of Common Stock from the Company at an exercise price of $22.00 per share. The
exercise of all the Settlement Warrants would result in total gross proceeds to
the Company of $6,814,148. In the event that any of the Class A Warrants or
Settlement Warrants are exercised in the future, net cash proceeds to the
Company would be used for general working capital purposes. The Company is not
expected to receive any proceeds from the exercise of the Placement Warrants or
the Advisory Options since they may be exercised pursuant to a cashless exercise
provision. Whether, how and to what extent any of the Class A Warrants,
Settlement Warrants, Placement Warrants or the Advisory Options will be
exercised, and whether the Placement Warrants and Advisory Options are exercised
for cash or not, cannot be predicted by the Company.
16
<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth certain information concerning the number of
shares of Common Stock and Class A Warrants offered hereby by each of the
Selling Securityholders and as adjusted to reflect the ownership of shares of
Common Stock and Class A Warrants after the offering.
<TABLE>
<CAPTION>
Securities
Offered by this Prospectus After Offering
--------------------------------- ------------------------------------------------
Common Stock Class A Warrants
Name of Selling ------------ ----------------
Stockholder Common Stock Warrants Shares Percent (1) Number Percent (2)
----------- ------------ -------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Ross D. Ain 30,833 10,000 0 (*) 0 (*)
Aries Domestic
Fund, LP 1,370,525 474,900 1,570,525 4.24% 679,900 6.61%
The Aries Trust 2,676,500 939,000 2,876,500 8.29% 1,084,020 12.83%
Armen Partners L.P. 308,333 100,000 0 (*) 100,000 1.54%
Armen Offshore
Fund Ltd. 77,083 25,000 0 (*) 0 (*)
Ronald S. Baruch 38,542 12,500 0 (*) 0 (*)
Alan R. Batkin 77,083 25,000 0 (*) 0 (*)
Mark Berg 154,167 50,000 0 (*) 0 (*)
David J. Bershad 154,167 50,000 0 (*) 0 (*)
Paine Webber
c/f IRA Alan M. Blender 38,542 12,500 0 (*) 0 (*)
Elliott Broidy 154,167 50,000 0 (*) 0 (*)
Anthony Broy 30,833 10,000 0 (*) 0 (*)
Donald C. Carter 308,333 100,000 0 (*) 100,000 1.54%
Cass & Co.
Magnum Capital
Growth Fund 77,083 25,000 0 (*) 0 (*)
Thomas L. Cassidy
IRA Rollover 77,083 25,000 0 (*) 0 (*)
IRA FBO
Richard B. Chanin 77,083 25,000 0 (*) 0 (*)
Andrew and Barbara
Cichelli 30,833 10,000 0 (*) 0 (*)
Robert J. Conrads 77,083 25,000 0 (*) 0 (*)
Lilia Cordero de Adame
Lilia Ma Olvera 38,542 12,500 0 (*) 0 (*)
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Securities
Offered by this Prospectus After Offering
--------------------------------- ------------------------------------------------
Common Stock Class A Warrants
Name of Selling ------------ ----------------
Stockholder Common Stock Warrants Shares Percent (1) Number Percent (2)
----------- ------------ -------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Archibald Cox, Jr. 308,333 100,000 308,333 (*) 100,000 1.54%
Daniel J. &
Patricia Ann Dorman 38,542 12,500 0 (*) 0 (*)
Dan Drykerman 77,083 25,000 0 (*) 0 (*)
Nathan Eisen 77,083 25,000 0 (*) 0 (*)
Joseph A. Fabiani 53,958 17,500 93,958 (*) 67,500 1.04%
Albert Fried, Jr. 154,167 50,000 0 (*) 0 (*)
Morris Friedman 77,083 25,000 0 (*) 0 (*)
Gerald and Gloria
Frolich 38,542 12,500 0 (*) 0 (*)
Giant Trading Inc. 61,667 20,000 0 (*) 0 (*)
Gilbert Goldstein, Trustee
UIT Howard Gittis,
dated 12/23/88 154,167 50,000 0 (*) 0 (*)
Laura Gold Galleries Ltd.
Profit Sharing Trust 38,542 12,500 0 (*) 0 (*)
The Gordon Fund, L.P. 77,083 25,000 0 (*) 0 (*)
Michael J. Gordon 15,417 5,000 0 (*) 0 (*)
Robert P. Gordon 77,083 25,000 0 (*) 0 (*)
Michael G. Jesselson
12/18/80 Trust 770,833 250,000 770,833 2.39% 250,000 3.84%
12/18/80 Trust FBO
Jesselson Grandchildren 770,833 250,000 770,833 2.39% 250,000 3.84%
Patrick M. Kane 77,083 25,000 0 (*) 0 (*)
Melvin L. Katten 38,542 12,500 0 (*) 0 (*)
Donald R. Kendall, Jr
& Diane S Kendall
JTWROS 38,542 12,500 78,542 (*) 67,500 1.04%
John R. Kennedy
Pension Fund 77,083 25,000 0 (*) 0 (*)
Jay Kestenbaum 77,083 25,000 0 (*) 0 (*)
Keys Foundation 308,333 100,000 0 (*) 250,000 3.85%
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Securities
Offered by this Prospectus After Offering
--------------------------------- ------------------------------------------------
Common Stock Class A Warrants
Name of Selling ------------ ----------------
Stockholder Common Stock Warrants Shares Percent (1) Number Percent (2)
----------- ------------ -------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Martin & Miriam
Knecht, JTWRS 38,542 12,500 0 (*) 0 (*)
Robert A. Knox 77,083 25,000 0 (*) 0 (*)
Harvey Krauss, Trustee
Brian Michael Krauss 38,542 12,500 0 (*) 0 (*)
Gregory & Domenica
Lechner 77,083 25,000 0 (*) 0 (*)
Benjamin Lehrer 38,542 12,500 0 (*) 0 (*)
The Lincoln Fund
Tax Advantaged, L.P. 77,083 25,000 177,083 (*) 100,000 1.54%
Lion Tower Corporation 77,083 25,000 0 (*) 0 (*)
Frank J. and Mary Anne
Loccisano 77,083 25,000 0 (*) 0 (*)
John L. Loeb, Jr. 38,542 12,500 0 (*) 0 (*)
Managed Risk
Trading, L.P. 77,083 25,000 0 (*) 0 (*)
Lawrence Manus 154,167 50,000 0 (*) 0 (*)
Dennis M. McCormack 38,542 12,500 0 (*) 0 (*)
Sean & Erin McGould 38,542 12,500 0 (*) 0 (*)
MDBC Capital Corp. 77,083 25,000 0 (*) 0 (*)
Albert R. Miller, Trustee 38,542 12,500 0 (*) 0 (*)
Albert Milstein 77,083 25,000 0 (*) 0 (*)
Reed Moskowitz 38,542 12,500 0 (*) 0 (*)
M.S.I.
Investments, LTD 154,167 50,000 0 (*) 0 (*)
Charles J. Murphy, Jr. 38,542 12,500 0 (*) 0 (*)
Arthur J. Nagle 38,542 12,500 0 (*) 0 (*)
Dr. Edmund C. Neuhaus
Olga M. Neuhaus 15,417 5,000 0 (*) 0 (*)
John S. Osterweis, Trustee
The Osterweis
Revocable Trust 38,542 12,500 0 (*) 0 (*)
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Securities
Offered by this Prospectus After Offering
--------------------------------- ------------------------------------------------
Common Stock Class A Warrants
Name of Selling ------------ ----------------
Stockholder Common Stock Warrants Shares Percent (1) Number Percent (2)
----------- ------------ -------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Paul & Rebecca
Ostrovsky 19,271 6,250 0 (*) 0 (*)
Steven N. Ostrovsky 77,083 25,000 0 (*) 0 (*)
Palmetto Partners, Ltd. 308,333 100,000 308,333 (*) 350,000 1.54%
Paramount Capital, Inc.(3) 3,854,283 1,250,038 3,854,283 11.90% 1,250,038 19.23%
Ruth Peyser 77,083 25,000 0 (*) 0 (*)
Alexander Pomper 154,167 50,000 0 (*) 0 (*)
Bruce Pomper 154,167 50,000 0 (*) 0 (*)
Dr. Tis Prager 38,542 12,500 0 (*) 0 (*)
RHL Associates L.P. 77,083 25,000 0 (*) 0 (*)
Maritine Rothblatt 38,542 12,500 0 (*) 0 (*)
Abel Quezada Rueda
Mercedes Pesqueira V.,
JTWROS 15,417 5,000 0 (*) 0 (*)
David W. Ruttenberg 38,542 12,500 0 (*) 0 (*)
Sanger Investments II 30,833 10,000 0 (*) 0 (*)
Bernard Selz 231,250 75,000 0 (*) 75,000 1.15%
Harold and Bess
Schaeffer, JTWROS 38,542 12,500 0 (*) 0 (*)
Roy and Marlena
Schaeffer, JTWROS 77,083 25,000 0 (*) 0 (*)
J.F. Shea Co., Inc. 462,500 150,000 462,500 1.43% 150,000 2.31%
Andrew W. Schonzeit 154,167 50,000 174,167 (*) 68,750 1.05%
Richard A. Smith 77,083 25,000 0 (*) 0 (*)
Philip Solomon 38,542 12,500 0 (*) 0 (*)
Aaron Speisman 38,542 12,500 0 (*) 0 (*)
William M. Spencer III 154,167 50,000 0 (*) 0 (*)
Suan Investments 154,167 50,000 0 (*) 150,000 2.31%
Michael Schwartz 154,167 50,000 0 (*) 0 (*)
Michael H. Schwartz
Profit Plan 77,083 25,000 0 (*) 0 (*)
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Securities
Offered by this Prospectus After Offering
--------------------------------- ------------------------------------------------
Common Stock Class A Warrants
Name of Selling ------------ ----------------
Stockholder Common Stock Warrants Shares Percent (1) Number Percent (2)
----------- ------------ -------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Hindy H. Taub 154,167 50,000 0 (*) 0 (*)
Herman Tauber 77,083 25,000 114,083 (*) 75,000 1.15%
Myron Teitelbaum 57,813 18,750 0 (*) 0 (*)
Joseph A. Umbach 38,542 12,500 0 (*) 0 (*)
Donald E. and Virginia
V. Vinson Trust 38,542 12,500 0 (*) 0 (*)
Peri Wayne 38,542 12,500 0 (*) 0 (*)
Melvyn I. Weiss 154,167 50,000 0 (*) 0 (*)
Izaak Wilder 38,542 12,500 0 (*) 0 (*)
Wolcot Capital Inc. 38,542 12,500 0 (*) 0 (*)
Andrew B. Woldow 19,271 6,250 0 (*) 0 (*)
Robert B. Wolford 38,542 12,500 0 (*) 0 (*)
Wolfson Descendants'
1983 Trust 1,541,667 500,000 1,541,667 4.77% 500,000 7.70%
Wound Healing of
Oklahoma, Inc. 100,000 100,000 100,000 (*) 100,000 1.54%
Zapco Holdings, Inc.
Deferred Compensation
Plan Trust 77,083 25,000 0 (*) 0 (*)
Holders of Settlement
Warrants as a Group 309,734 0 309,734 (*) 0 (*)
</TABLE>
___________
(*) Represents, after the sale of all shares of Common Stock and Class A
Warrants encompassed by this Prospectus, less than 1% of the outstanding
Common Stock or Class A Warrants.
(1) The percentage of the outstanding Common Stock to be held by the Selling
Securityholders after the offering is calculated based on the total of
32,304,900 shares comprised of 8,151,029 shares issued and outstanding on
April 21, 1997, plus 13,736,892 shares issuable upon exercise of warrants,
and 10,416,979 shares issuable upon conversion of preferred stock.
(2) The percentage of the outstanding Class A Warrants to be held by the
Selling Securityholders after the offering is calculated based on the total
of 13,427,157 Class A Warrants issued and outstanding on April 21, 1997.
(3) 2,604,245 shares of Common Stock underlying the Advisory Options are not
exercisable until September 11, 1997, pursuant to the Placement Agreement
between such holder and the Company.
(4) Each of the named Selling Securityholders, other than Paramount Capital,
Inc., has agreed to a nine-month lock-up period in respect of 75% of the
offered holding of each security; provided that following each three-month
period after the effective date of the registration statement of which this
Prospectus forms part, a further amount of 25% of such securities becomes
exempt from such lock-up period.
___________
21
<PAGE>
The shares of Common Stock and the Class A Warrants are being registered under
the Securities Act pursuant to the terms of certain registration rights
agreements between the Selling Securityholders and the Company entered into at
the time the Selling Securityholders acquired the shares of Common Stock and
Class A Warrants. Each Selling Securityholder will be entitled to receive all
of the proceeds from the future sale of his, her or its respective shares of
Common Stock or Class A Warrants. Except for the costs of including such shares
of Common Stock and Class A Warrants within the registration statement of which
this Prospectus forms a part, which costs are borne by the Company, the Selling
Securityholders will bear all expenses of any offering by them of their shares
of Common Stock or Class A Warrants, including the costs of their counsel and
any sales commissions incurred.
Except as noted below, none of the Selling Securityholders named in the
preceding table have had any position, office or other material relationship
with the Company or any of its predecessors or affiliates: in March 1997 the
Company completed a private placement (the "Private Placement") of Premium
Preferred Stock in which Paramount Capital, Inc. ("Paramount"), acted as
placement agent. As compensation Paramount received from the Company (i) cash
commission in the amount of $900,027, (ii) a non-accountable expense allowance
totaling $400,012 and (iii) an option to purchase 2,604,245 shares of Common
Stock and 1,250,038 Class A Warrants for an aggregate purchase price of
$4,239,711. In addition, the Company will pay Paramount an amount in cash equal
to 6% of the aggregate proceeds from any exercise of the Class A Warrants and
has entered into an agreement under which Paramount will act as a financial
consultant to the Company for at least a period of eighteen months at a fee of
$2,500 per month. Paramount may designate the purchase option to and among
certain of the persons listed in the above table. Paramount Capital Asset
Management, Inc., an affiliate of Paramount, is the General Partner and
Investment Manager, respectively, of Aries Domestic Fund, L.P. and The Aries
Trust. Michael S. Weiss, a director of the Company, is a Senior Managing
Director of Paramount.
PLAN OF DISTRIBUTION
The Settlement Warrants were offered and distributed in an offering exempt from
registration under the Securities Act pursuant to Section 3(a)(10) thereof,
pursuant to the settlement of a class-action lawsuit (the "Action") against the
Company. On February 4, 1992, the Company received service of a putative
stockholder class action complaint against it, Dr. Peter Baram, its then
Chairman and CEO, and Larry O. Bymaster, its then President and COO, filed in
the U.S. District Court, Southern District of California. The Complaint alleged
various claims, including the claim that the Company failed to disclose
information regarding the prospects for U.S. Food and Drug Administration of the
Periodontal Tissue Monitor Kit. Additional similar complaints were thereafter
filed by other individuals. The Company's Board of Directors believed the
claims to be without merit but concluded that it was in its best interest to
settle the matter to avoid the expenses and risks of continued litigation. On
June 17, 1994, the U.S. District Court approved a Stipulation of Settlement of
the litigation. The settlement included all persons who purchased the Company's
stock from October 4, 1990 through and including November 14, 1991. The
settlement to the plaintiff class included a cash payment of $2,800,000, all of
which was paid by the insurers providing liability coverage for the Company's
directors and officers, and five-year warrants (the "Settlement Warrants") to
purchase 309,734 shares of Common Stock at an exercise price of $22.00 per
share. For a description of the Settlement Warrants, see "Description of
Securities -- Settlement Warrants."
22
<PAGE>
All other shares of Common Stock and Class A Warrants offered hereby relate to
the private placement which the Company completed in March, 1997.
The shares of Common Stock and Class A Warrants may be sold by the Selling
Securityholders or Transferees from time to time in one or more transactions at
market prices prevailing at the time of the sale, at prices related to such
prevailing market prices or at negotiated prices. The Selling Securityholders
or Transferees may sell the shares of Common Stock and Class A Warrants offered
hereby (i) through brokers and dealers; (ii) on the American Stock Exchange in
the case of the shares; (iii) any other exchanges upon which the shares or Class
A Warrants are listed; (iv) "at the market" to or through a market maker or into
an existing trading market; or (v) in other ways not involving exchanges, market
makers or established trading markets, including direct sales to purchasers.
Additionally, the shares and Class A Warrants may also be publicly offered
through agents, underwriters or dealers. In such event the Selling
Securityholders or Transferees may enter into agreements with respect to any
such offering.
The Selling Securityholders or Transferees and any dealers or agents that
participate in the distribution of shares of the Common Stock and Class A
Warrants may be deemed to be underwriters, and any profit on the sale of shares
of Common Stock and Class A Warrants by the Selling Securityholders or
Transferees and any discounts, commissions or concessions received by any such
dealers or agents might be deemed to be underwriting discounts and commissions
under the Securities Act.
The sale of the shares of Common Stock and Class A Warrants by the Selling
Securityholders or Transferees may also be effected from time to time by selling
shares or Class A Warrants directly to purchasers or to or through certain
broker-dealers. In connection with any such sale, any such broker-dealer may
act as agent for the Selling Securityholders or may purchase from the Selling
Securityholders or Transferees all or a portion of the shares or Class A
Warrants as principal and thereafter may resell any shares or Class A Warrants
so purchased. Sales by any such broker-dealer, acting as agent or as principal,
may be made pursuant to any of the methods described below. Such sales may be
made on the American Stock Exchange or other exchanges on which the Company's
Common Stock is then traded, on any exchange, if any, on which the Class A
Warrants are traded, in the over-the-counter market, in negotiated transactions
or otherwise at prices and at terms then prevailing or at prices related to the
then-current market prices or at negotiated prices.
The shares of Common Stock and Class A Warrants offered under the Registration
Statement (of which this Prospectus is part) may also be sold in one or more of
the following transactions (i) block transactions (which may involve crosses) in
which a broker-dealer may sell all or a portion of such shares or Class A
Warrants as agent but may position and resell all or a portion of the block as
principal to facilitate the transaction; (ii) purchases by any such
broker-dealer for its own account pursuant to this Prospectus; (iii) a special
offering, and exchange distribution or a secondary distribution in accordance
with applicable stock exchange rules; or (iv) ordinary brokerage transactions
and transactions in which broker-dealers solicit purchasers. In effecting
sales, broker-dealers engaged by the Selling Securityholders or Transferees may
arrange for other broker-dealers to participate. Broker-dealers will receive
commissions or other compensation from the Selling Securityholders or
Transferees in amounts to be negotiated immediately prior to the sale that will
not exceed those customary in the types of transactions involved. Broker-
dealers may also receive compensation from purchasers of the shares or Class
23
<PAGE>
A Warrants, which is not expected to exceed that which is customary in the types
of transactions involved.
The Selling Securityholders and Transferees will pay all of the expenses
incident to the offering and sale of the shares of the Common Stock and Class A
Warrants offered under this Prospectus, including commissions and fees of
dealers or agents. The Company has paid or will pay all expenses related to the
Registration Statement, including registration fees and the fees of counsel or
other experts retained by the Company in connection with the registration.
The Company has informed the Selling Securityholders that the anti-manipulation
provisions of Regulation M under the Exchange Act may apply to the sales of
their shares offered hereby. The Company also has advised the Selling
Securityholders of the requirement for delivery of this Prospectus in connection
with any sale of the shares offered hereby.
Certain Selling Securityholders may from time to time purchase shares of Common
Stock in the open market. These Selling Securityholders have been notified that
they should not commence any distribution of shares of Common Stock unless they
have terminated their purchasing and bidding for Common Stock in the open market
as provided in applicable securities regulations.
There is no assurance that the Selling Securityholders or the Transferees will
sell any or all of the shares of Common Stock or Class A Warrants offered by
them hereby.
DESCRIPTION OF SECURITIES
AUTHORIZED STOCK
The authorized capital stock of the Company consists of 30,000,000 shares of
Common Stock and 300,000 shares of Preferred Stock. All of the issued and
outstanding capital stock of the Company is fully paid and nonassessable. The
following descriptions of securities is not complete and is qualified in all
respects by the Company's Certificate of Corporation, as amended, Certificates
of Designations and Warrant Agreements, respectively, the forms of which are
filed as Exhibits to the Company's filings with the Commission, including the
registration statement of which this Prospectus forms part.
COMMON STOCK
There are outstanding 8,151,029 shares of Common Stock owned of record by 392
holders at April 21, 1997. The holders of Common Stock (i) have equal and
ratable rights to dividends from funds legally available therefor, when, as and
if declared by the Board of Directors of the Company; (ii) are entitled to share
ratably in all assets of the Company available for distribution to holders of
Common Stock upon liquidation, dissolution or winding up of the affairs of the
Company; and (iii) do not have preemptive or subscription rights. There are no
redemption or sinking fund provisions applicable to the Common Stock. Each
holder of Common Stock is entitled to one vote per share for all purposes. The
Board of Directors is authorized to issue additional shares of Common Stock
within the limits authorized by the Company's Certificate of Incorporation, as
amended, without stockholder action.
24
<PAGE>
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the Board of Directors,
without further vote or action by stockholders, to issue shares of Preferred
Stock in one or more series and to determine the rights, preferences, privileges
and restrictions thereof, including the dividend rights, dividend rate,
conversion rights, voting rights, terms of redemption (including sinking fund
provisions), redemption price or prices, liquidation preferences and the number
of shares constituting any series or the designations of such series. These
rights and privileges could limit the voting power of holders of Common Stock
and restrict their rights to receive dividends or liquidation proceeds in an
adverse manner.
The Company has granted the Board of Directors authority to issue Preferred
Stock and to determine its rights and preferences to eliminate delays associated
with a stockholder vote on specific issuances. The Company believes that this
power to issue Preferred Stock will provide flexibility in connection with
possible corporate transactions. It could also have the effect, however, of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of the Company. See
"Stockholders Rights Plan." The Company has no outstanding shares of Preferred
Stock and no present plans to issue any shares of Preferred Stock other than the
Convertible Preferred Stock.
The Board of Directors has authorized the issuance of up to 56,250 shares of
Convertible Preferred Stock to be designated as the Company's Series A
Convertible Preferred Stock (the "Convertible Preferred Stock"). There are
outstanding 50,000 shares of Convertible Preferred Stock, owned of record by 100
holders at April 21, 1997. The rights, preferences and characteristics of the
Convertible Preferred Stock are as follows:
DIVIDENDS
The holders of Convertible Preferred Stock will be entitled to receive dividends
as, when and if declared by the Board of Directors out of funds legally
available therefor. No dividend or distribution, as the case may be, shall be
declared or paid on any junior stock unless first the holders of the Convertible
Preferred Stock are paid a special dividend in the amount of $260 per share, and
the same dividend as proposed to be paid to the junior stock is also paid to the
Convertible Preferred Stock. The Company does not intend to pay cash dividends
on the Convertible Preferred Stock or the underlying Common Stock for the
foreseeable future.
CONVERSION
Each share of Convertible Preferred Stock may be converted at the option of the
holder at any time after the initial issuance date into Common Stock at an
initial conversion price (the "Initial Conversion Price") equal to the lesser of
(i) $2.00 and (ii) 80% of the average bid price of the Common Stock on AMEX for
the thirty consecutive trading days immediately preceding the (a) the initial
closing date, (b) any interim closing date or (c) the final closing date,
whichever is lowest. The conversion price applicable at any time to the
Convertible Preferred Stock (the "Preferred Conversion Price") is subject to
adjustment upon the occurrence of a merger, reorganization, consolidation,
reclassification, stock dividend or stock split which will result in an increase
or decrease in the number of shares of Common Stock outstanding (other than the
proposed merger with BTI (see "Prospectus Summary" - "The Company --
Photodynamic Therapy (PDT) - Binary Therapeutics, Inc."). In addition, the
Preferred Conversion Price is subject to adjustment on the date which is twelve
months after the final closing date (the "Reset Date") if the average closing
bid price of the Common Stock for the thirty consecutive trading days
immediately preceding the Reset Date (the "Reset Trading Price") is less than
130% of the
25
<PAGE>
Initial Conversion Price as adjusted (a "Reset Event"). Upon a Reset Event, the
Preferred Conversion Price will be reduced to equal the greater of (i) the Reset
Trading Price divided by 1.3 and (ii) 50% of the Initial Conversion Price.
MANDATORY CONVERSION
The Company has the right at any time after the Reset Date to cause the
Convertible Preferred Stock to be converted in whole or in part, on a PRO RATA
basis, into shares of Common Stock if the closing price of the Common Stock
exceeds 200% of the then applicable Preferred Conversion Price for at least 20
trading days in any 30 consecutive trading day period.
LIQUIDATION
Upon (i) a liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, (ii) a sale or other disposition of all or
substantially all of the assets of the Company or (iii) any consolidation,
merger (other than the proposed merger with BTI (see "Prospectus Summary" -
"The Company -- Photodynamic Therapy (PDT) - Binary Therapeutics, Inc."),
combination, reorganization or other transaction in which the Corporation is not
the surviving entity or in which shares of Common Stock constituting in excess
of 50% of the voting power of the Corporation are exchanged for or changed into
other stock or securities, cash or any other property, after payment or
provision for payment of the debts and other liabilities of the Company, the
holders of the Convertible Preferred Stock then outstanding will first be
entitled to receive, PRO RATA (on the basis of the number of shares of the
Convertible Preferred Stock then outstanding), and in preference to the holders
of the Common Stock and any other series of preferred stock, an amount per share
equal to $260.00 plus accrued but unpaid dividends, if any.
VOTING RIGHTS
The holders of the Convertible Preferred Stock have the right at all meetings of
stockholders to the number of votes equal to the number of shares of Common
Stock issuable upon conversion of the Convertible Preferred Stock at the record
date for determination of the stockholders entitled to vote. So long as a
majority of the shares of Convertible Preferred Stock remain outstanding, the
holders of 66.67% of the Convertible Preferred Stock then outstanding are
entitled to approve (i) the issuance of any securities of the Company senior to
or on parity with the Convertible Preferred Stock; (ii) any alteration or change
in the rights, preferences or privileges of the Convertible Preferred Stock; and
(iii) the declaration or payment of any dividend on any junior stock or the
repurchase of any junior securities of the Company. Except as provided above or
as required by applicable law, the holders of the Convertible Preferred Stock
will be entitled to vote together with the holders of the Common Stock and not
as a separate class.
CLASS A WARRANTS
EXERCISE PRICE AND TERMS
Each Class A Warrant entitles the holder thereof to purchase one share of Common
Stock at a price of $1.00 per share subject to adjustment in accordance with the
adjustment provisions set forth in the Warrant Agreement summarized below. The
Class A Warrants may be exercised upon surrender of the Class A Warrant
certificate on or prior to November 26, 2005 (or, if redeemed prior thereto, the
date immediately preceding the redemption date) at the offices of the Warrant
Agent, with the subscription form on the reverse side of the Warrant certificate
completed as indicated, accompanied by payment of the full exercise price (by
cashier's or certified check payable to the order of the Warrant Agent, or by
wire transfer) for the number of
26
<PAGE>
Class A Warrants being exercised. No fractional shares will be issued upon the
exercise of the Class A Warrants, and the Company will pay cash in lieu of
fractional shares. After November 26, 2005, the Class A Warrants will become
void and of no value. If a market for the Class A Warrants develops, a holder
may sell Class A Warrants instead of exercising them. There can be no
assurance, however, that a market for the Class A Warrants will develop or
continue.
The exercise price of the Class A Warrants bears no relation to any objective
criteria of value and should in no event be regarded as an indication of any
future market price of any of the securities offered hereby.
ADJUSTMENT
The exercise price and the number of shares of Common Stock purchasable upon the
exercise of the Class A Warrants are subject to adjustments upon the occurrence
of certain events, such as stock dividends or stock splits of the Common Stock.
Additionally, an adjustment would be made in the case of the reclassification
or exchange of the Common Stock, consolidation or merger of the Company with or
into another corporation or sale of all or substantially all of the assets of
the Company, in order to enable Class A Warrant holders to acquire the kind and
number of shares of stock or other securities or property receivable in such
event by holders of the number of shares of Common Stock that might otherwise
have been purchased upon the exercise of the Class A Warrant. No adjustment to
the exercise price of the shares subject to the Class A Warrants will be made
for dividends (other than dividends in the form of stock), if any, paid on the
Common Stock.
REDEMPTION
The Class A Warrants are subject to redemption by the Company at $.10 per
warrant on 60 days' prior written notice provided that the closing bid quotation
for the Common Stock as reported on the AMEX, or on such exchange on which the
Common Stock is then traded, exceeds 400% of the exercise price per share for 20
consecutive trading days ending three days prior to the date of redemption.
WARRANT HOLDER NOT A STOCKHOLDER
The Class A Warrants do not confer upon holders thereof any voting or any other
rights of a stockholder of the Company. The shares of Common Stock issuable
upon exercise of the Class A Warrants in accordance with the terms thereof will
be fully paid and nonassessable.
SETTLEMENT WARRANTS
The Board of Directors authorized the issuance of 309,734 Settlement Warrants,
to be designated as the Company's Series B Warrants, in settlement of the
Action. See "Plan of Distribution." Class B Warrants are owned of record by
522 holders at April 21, 1997. The following description of the Settlement
Warrants is not complete and is qualified in all respects by the Warrant
Agreement and the form of Settlement Warrant filed as exhibits to the
registration statement of which this Prospectus forms part.
EXERCISE PRICE AND TERMS
Each Class B Warrant entitles the holder thereof to purchase one share of Common
Stock at a price of $22.00 per share subject to adjustment in accordance with
the adjustment provisions set forth in the Warrant Agreement summarized below.
The Class B Warrants may be exercised at any time prior to August 11, 2001, at
the offices of the Warrant Agent, with the subscription form on the reverse side
of the Warrant certificate completed as indicated, accompanied by
27
<PAGE>
payment of the full exercise price (by cashier's or certified check payable to
the order of the Warrant Agent, or by wire transfer) for the number of Class B
Warrants being exercised. No fractional shares will be issued upon the exercise
of the Class B Warrants, and the Company will pay cash in lieu of fractional
shares. After August 12, 2001, the Class B Warrants will become void and of no
value. If a market for the Class B Warrants develops, a holder may sell Class B
Warrants instead of exercising them. There can be no assurance, however, that a
market for the Class B Warrants will develop or continue.
The exercise price of the Class B Warrants bears no relation to any objective
criteria of value and should in no event be regarded as an indication of any
future market price of any of the securities offered hereby.
ADJUSTMENT
The exercise price and the number of shares of Common Stock purchasable upon the
exercise of the Class B Warrants are subject to adjustments upon the occurrence
of certain events, such as stock dividends or stock splits of the Common Stock.
Additionally, an adjustment would be made in the case of the reclassification
or exchange of the Common Stock, consolidation or merger of the Company with or
into another corporation or sale of all or substantially all of the assets of
the Company, in order to enable Class B Warrant holders to acquire the kind and
number of shares of stock or other securities or property receivable in such
event by holders of the number of shares of Common Stock that might otherwise
have been purchased upon the exercise of the Class B Warrant. No adjustment to
the exercise price of the shares subject to the Class B Warrants will be made
for dividends (other than dividends in the form of stock), if any, paid on the
Common Stock.
WARRANT HOLDER NOT A STOCKHOLDER
The Class B Warrants do not confer upon holders thereof any voting or any other
rights of a stockholder of the Company. The shares of Common Stock issuable
upon exercise of the Class B Warrants in accordance with the terms thereof will
be fully paid and nonassessable.
STOCKHOLDERS' RIGHTS PLAN
In April 1991, the Company's Board of Directors adopted a stockholders' rights
plan (the "Plan"). The Plan provides for the distribution of preferred stock
purchase rights to common stockholders which separate from the Common Stock ten
business days following: (a) an announcement of an acquisition by a person (or
group) ("Acquiring Party") of 15% or more of the outstanding shares of Common
Stock of the Company, (b) the commencement of a tender offer or exchange offer
for 15% or more of the Common Stock or (c) a merger or asset sale as defined in
the Plan. Under the Plan, certain related parties are not considered to be an
Acquiring Party. In addition, the Plan was amended in December 1996 to allow
the Placement Agent (and affiliates) to acquire an unlimited amount of the
outstanding Common Stock without being characterized as an Acquiring Party. One
right attached to each share of Common Stock outstanding as of April 15, 1991
and attaches to all shares issued thereafter. Each right entitles the holder to
purchase one one-hundredth of one share of Series R junior participating
cumulative preferred stock, par value $25.00 per share ("Unit of Preferred
Stock"), at an exercise price of $120 per Unit of Preferred Stock. The Units of
Preferred Stock are non redeemable, voting and are entitled to certain
preferential dividend and liquidation rights. The exercise price and the number
of Units of Preferred Stock issuable are subject to adjustment to prevent
dilution.
28
<PAGE>
If, after the rights have been distributed, the Company is a party to a business
combination or other specifically defined transaction, each right (other than
those held by the Acquiring Party) will entitle the holder to receive, upon
exercise, Units of Preferred Stock or shares of common stock of the surviving
company with a value equal to two times the exercise price of the right.
Alternatively, a majority of the independent Directors of the Company may direct
the Company to exchange all of the then outstanding rights for Common Stock at
an exchange ratio of one share of Common Stock per right. The rights expire
April 15, 2001 and are redeemable (at the option of a majority of the
independent Directors of the Company) at $.01 per right at any time until the
tenth day following an announcement of the acquisition of 15% or more of the
Company's Common Stock.
TRANSFER AND WARRANT AGENT
The transfer agent for the Common Stock, Class A Warrants and Settlement
Warrants is the American Stock Transfer and Trust Company, 6201 15th Avenue, 3rd
Floor, Brooklyn, New York 11219.
LEGAL OPINIONS
The validity of the shares of Common Stock and Class A Warrants offered hereby
will be passed upon for the Company and Selling Securityholders by Donovan
Leisure Newton & Irvine, 30 Rockefeller Plaza, New York, New York, 10112.
EXPERTS
The consolidated financial statements of Xytronyx, Inc., and its subsidiaries
(the "Company," a development stage enterprise) as of March 31, 1996 and 1995
and for each of the three years in the period ended March 31, 1996, and for the
period from September 23, 1983 (date of incorporation of Xytronyx, Inc.) to
March 31, 1996 incorporated in this Prospectus by reference from the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1996 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report (which report contains an explanatory paragraph referring to the
Company's activities as those of a development stage enterprise and describes
the uncertainty regarding the Company's ability to continue as a going concern),
which is incorporated herein by reference, and have been so incorporated in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
29
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS
BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION NOT
CONTAINED IN THIS PROSPECTUS, AND, IF 19,831,145 SHARES OF
GIVEN OR MADE, SUCH INFORMATION OR COMMON STOCK ($0.02 PAR VALUE)
REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE SELLING SECURITYHOLDERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER 6,500,188 CLASS A WARRANTS
TO BUY ANY OF THESE SECURITIES OFFERED TO PURCHASE
HEREBY IN ANY JURISDICTION TO ANY PERSON COMMON STOCK
TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER IN SUCH JURISDICTION.
CONTENTS
PAGE XYTRONYX, INC.
Available Information . . . . . . 3
Incorporation of Certain
Documents by Reference . . . . . . 3
Prospectus Summary . . . . . . . . 5 ____________________________
Risks and Other Investment
Considerations . . . . . . . . . . 8 PROSPECTUS
Use of Proceeds . . . . . . . . . 16 ____________________________
Selling Securityholders . . . . . 17
Plan of Distribution . . . . . . 22 APRIL 28, 1997
Description of Securities . . . . 24
Legal Opinions . . . . . . . . . 29
Experts . . . . . . . . . . . . . 29
30
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various estimated amount of fees and
expenses payable in connection with this offering other than sales commissions.
All such expenses will be borne by the Registrant.
Item Amount of Expenses
---- ------------------
Commission Registration Fees $8,724.01
Printing and Engraving Expenses 2,500.00
Accounting Fees and Expenses 3,000.00
Legal Fees and Expenses 15,000.00
Transfer Agent's Fee 1,000.00
Miscellaneous 2,000.00
----------
Total $32,224.01
----------
----------
__________
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify any persons, including directors and officers, 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) by reason of their being directors or officers of such
corporation. The indemnity may include expenses, attorneys' fees, judgments,
fines and amounts paid in settlement, provided such sums were actually and
reasonably incurred in connection with such action, suit or proceeding and
provided the director or officer acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the corporation's best interests
and, in the case of criminal proceedings, he or she had no reasonable cause to
believe that his or her conduct was unlawful. The corporation may indemnify
directors and officers in a derivative action (in which suit is brought by a
stockholder on behalf of the corporation) under the same conditions, except that
no indemnification is permitted without judicial approval if the director or
officer is adjudged liable to the corporation. If the director or officer is
successful on the merits or otherwise in defense of any such actions referred to
above, the corporation must indemnify him or her against the expenses and
attorneys' fees he or she actually and reasonably incurred.
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The Sixth Article of the Registrant's Certificate of Incorporation, as
amended, provides for indemnification by the Registrant of its officers and
directors to the full extent allowed under Section 145 of the Delaware General
Corporation Law, and reads as follows:
Sixth: A director of this Corporation shall not be personally liable to
the Corporation or any stockholder for monetary damages for breach of
fiduciary duty as a director, except that this Article Sixth shall not
eliminate or limit a director's liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or knowing violation of law, (iii) under Section 174 of the Delaware
General Corporation Law, or (iv) for a transaction from which the director
derived an improper personal benefit.
Any repeal or modification of the foregoing provision of this Article Sixth
shall not increase the personal liability of any director of this
Corporation for any act or occurrence taking place prior to such repeal or
modification, or otherwise adversely affect any right or protection of a
director of the corporation existing at the time of such repeal or
modification.
The Corporation shall, to the fullest extent permitted by Section 145 of
the Delaware General Corporation Law, as amended from time to time,
indemnify all persons who are eligible for indemnification pursuant
thereto. The provisions of this Article Sixth shall not be deemed to limit
or preclude indemnification of a director by the Corporation for any
liability of a director which has not been eliminated by the provisions of
the Article Sixth.
Article VIII of the Registrant's Amended and Restated Bylaws provides for
indemnification by the Registrant of its officers and directors to the full
extent permitted under Section 145 of the Delaware General Corporation Law, and
reads as follows:
ARTICLE VIII: INDEMNIFICATION
Section 8.1. GENERAL. (a) The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that he or she is or
was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorney's fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him or
her in connection with such action, suit or proceeding if he or she acted
in good faith and in a manner he or she reasonable believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, has no reasonable cause to believe his or
her conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement or conviction, or upon a plea of
NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that such person did not act in good faith and in a manner
which he or she reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his or her conduct was
unlawful.
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(b) The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment
in its favor by reason of the fact that he or she is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorney's fees) actually and reasonably
incurred by him or her in connection with the defense or settlement of such
action or suit if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have been adjudged
to be liable to the Corporation unless and only to the extent that the
Court of Chancery of the State of Delaware or the court in which such
action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnification of
such expenses which such Court of Chancery or such other court shall deem
proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in paragraphs (a) and (b) of
this Section 8.1, or in defense of any claim, issue or matter therein, he
or she shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him or her in connection therewith.
(d) Any indemnification under paragraphs (a) and (b) of this Section 8.1
(unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification
of the director, officer, employee or agent is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in
paragraphs (a) and (b) of this Section 8.1 (such person being referred to
herein as an "Indemnitee"). Such determination shall be made (i) by the
Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, (ii) if such a
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion or
(iii) by the stockholders.
(e) Any Indemnitee shall be entitled to control the defense of any
action, suit or proceeding against him or her which may give rise to a
right of indemnification pursuant to this Article VIII, PROVIDED, HOWEVER,
that the Corporation shall select counsel to conduct such defense, which
counsel shall be reasonably acceptable to the Indemnitee. In the event
that an Indemnitee and other parties indemnified by the Corporation (such
Indemnitee and other parties indemnified being herein referred to
collectively as the "Indemnified Parties") are made or threatened to be
made parties to the same or similar threatened, pending or completed
action, suit or proceeding, the Indemnified Parties shall not be entitled
to separate counsel unless the counsel selected by the Corporation advises
the Corporation that there exists such material conflicts of interests
among some or all of the Indemnified Parties so as to require separate
representation for some or all of the Indemnified Parties, and such counsel
advises the Corporation of the basis for such conflict and the group of
Indemnified Parties so affected. Upon receipt of such advice of counsel,
the Corporation shall select separate counsel for such group of Indemnified
Parties, which counsel shall be reasonably acceptable to such group.
II-3
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(f) Expenses (including attorneys' fees) incurred by a director or
officer in defending any civil, criminal, administrative or investigative
action, suit or proceeding shall be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he or she is not entitled
to be indemnified by the Corporation pursuant to this Article VIII. Such
expenses (including attorney's fees) incurred by other employees and agents
may be so paid upon such terms and conditions, if any, as the Board of
Directors deems appropriate.
(g) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VIII shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of
expenses may be entitled under any law, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in
an official capacity and as to action in another capacity while holding
such office.
(h) For purposes of the Article VIII, references to the "Corporation"
shall include, in addition to the resulting or surviving corporation, any
constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its directors,
officers, employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
the provisions of this Article VIII with respect to the resulting or
surviving corporation as he or she would have with respect to such
constituent corporation if its separate existence had continued.
(i) For purposes of this Article VIII, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect to any employee benefit
plan; and references to "serving at the request of the Corporation" shall
include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves service by, such director,
officer, employee or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in
a manner he or she reasonably believed to be in the interest of the
participants and beneficiaries of an employees benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this Article VIII.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VIII shall continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such person.
Section 8.2. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
any liability asserted against him or her and incurred by him or her in
II-4
<PAGE>
any such capacity, or arising out of his or her status as such, whether or
not the Corporation would have the power to indemnify him or her against
such liability under the provisions of Section 145 of the General
Corporation Law of the State of Delaware.
Under a policy of insurance, the Company is entitled to be reimbursed for
indemnity payments it is required or permitted to make to its directors and
officers. In addition, the Registrant's officers and directors are covered by
certain directors' and officers' liability insurance policies maintained by the
Registrant.
The Registrant has entered into Indemnity Agreements with its directors and
its officers which provide that the Registrant will pay any reasonable amount
which an Indemnitee is legally obligated to pay because of claims which may be
made against such Indemnitee by reason of the fact that such Indemnitee is or
was a director or officer of the Registrant, or is or was serving at the request
of the Registrant as a director or officer of some other entity. However, no
indemnification is provided in cases involving dishonesty or improper personal
profit. The payments to be made under such Indemnity Agreements include the
amounts of all reasonable expenses, judgments, fines, and amounts paid in
settlement, except that the Registrant is not obligated to pay fines or other
fees imposed by law which the Registrant is prohibited by law from paying as an
indemnity of for any other reason.
ITEM 16. EXHIBITS.
4.7 Form of Warrant Agreement between the Xytronyx, Inc. and American
Stock Transfer and Trust Company, including specimen Class B
Warrant. (1)
5.1 Opinion of Donovan Leisure Newton & Irvine regarding the legality
of the Shares of Common Stock and Class A Warrants. (1)
10.48 Form of Placement Agent Agreement between Company and Paramount
Capital, Inc. (1)
10.49 Form of Amendment No. 1 to Placement Agent Agreement between
Company and Paramount Capital, Inc. (1)
10.50 Form of Subscription Agreement between Company and certain
Selling Stockholders. (1)
23.1 Consent of Deloitte & Touche LLP. (1)
23.2 Consent of Donovan Leisure Newton & Irvine incorporated by
reference to Exhibit 5 hereof.(included in Exhibit 5.1)(1)
25 Powers-of-Attorney for each person executing this Registration
Statement, see signature page hereof.
_____________
(1) Filed herewith.
ITEM 17. UNDERTAKINGS.
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<PAGE>
(a) 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:
(i) to include any prospectus required by Section 10 (a) (3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represents a fundamental change in the information set
forth in the Registration Statement;
(iii) to include any material information with respect to the Plan of
Distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement;
PROVIDED, HOWEVER, that paragraphs (i) and (ii) do not apply to this
Registration Statement if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the Registrant pursuant to Section 13 or Section 15 (d) of the
Securities Exchange Act of 1934 and incorporated by reference in this
Registration Statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such 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;
(3) 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.
(b) The undersigned Registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13 (a) or section 15 (d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new Registration Statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described in the first
paragraph of Item 15 above, or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange commission such indemnification is
against public policy as expressed in said Securities Act and is, therefore,
unenforceable. In the event that as claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such
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<PAGE>
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, 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 April 21, 1997.
XYTRONYX, INC.
By: /s/ Dr. H. Laurence Shaw
------------------------
Dr. H. Laurence Shaw,
President and CEO
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Dr. H. Laurence Shaw and James Hertzog, and each
of them, 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 or 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 and about the
foregoing, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their substitutes, may lawfully do or cause to be
done by virtue hereof.
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.
Signature Title Date
- --------- ----- ----
OFFICERS
/s/ DR. H. LAURENCE SHAW President and April 21, 1997
- ------------------------ Chief Executive Officer
Dr. H. Laurence Shaw (Principal Executive Officer)
/s/ JAMES HERTZOG Controller April 21, 1997
- ------------------------ (Principal Financial and
James Hertzog Accounting Officer)
BOARD OF DIRECTORS
/s/ DR. H. LAURENCE SHAW* Chairman of the Board and April 21, 1997
- ------------------------ Director
Dr. H. Laurence Shaw
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<PAGE>
/s/ JACK H. HALPERIN* Director April 21, 1997
- ------------------------
Jack H. Halperin
/s/ ELLIOTT H. VERNON* Director April 21, 1997
- ------------------------
Elliott H. Vernon
/s/ JERRY A. WEISBACH* Director April 21, 1997
- ------------------------
Jerry A. Weisbach
/s/ MICHAEL S. WEISS* Director April 21, 1997
- ------------------------
Michael S. Weiss
_________________________
* A majority of the directors of the registrant.
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<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
4.7 Form of Warrant Agreement between the Xytronyx, Inc. and American
Stock Transfer and Trust Company, including specimen Class B Warrant.
(1)
5.1 Opinion of Donovan Leisure Newton & Irvine regarding the legality of
the Shares of Common Stock and Class A Warrants. (1)
10.48 Form of Placement Agent Agreement between Company and Paramount
Capital, Inc. (1)
10.49 Form of Amendment No. 1 to Placement Agent Agreement between Company
and Paramount Capital, Inc. (1)
10.50 Form of Subscription Agreement between Company and certain Selling
Stockholders. (1)
23.1 Consent of Deloitte & Touche LLP. (1)
23.2 Consent of Donovan Leisure Newton & Irvine incorporated by reference
to Exhibit 5 hereof. (included in Exhibit 5.1) (1)
25 Powers-of-Attorney for each person executing this Registration
Statement, see signature page hereof.
________
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<PAGE>
Exhibit 4.7
WARRANT AGREEMENT
FOR "CLASS B WARRANTS"
AGREEMENT (this "Agreement") dated as of August 9, 1996, by and
between XYTRONYX, INC., a Delaware corporation (the "Company") and AMERICAN
STOCK TRANSFER & TRUST COMPANY, as warrant agent (the "Warrant Agent").
W I T N E S S E T H
WHEREAS, in connection with the settlement of a class action lawsuit
(the "Settlement") the Company will issue 309,734 Class B Warrants ("Warrants"),
each Warrant exercisable to purchase one share of common stock, par value $.02
per share of the Company ("Common Stock"); and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS. As used herein, the following terms shall
have the following meanings:
(a) "Common Stock" shall mean stock of the Company of any class,
whether now or hereafter authorized, which has the right to participate in the
distributions of earnings and assets of the Company without limit as to amount
or percentage, which at the date hereof consists of 30,000,000 authorized shares
of Common Stock.
(b) "Corporate Office" shall mean the office of the Warrant Agent (or
its successor) at which at any particular time its principal business shall be
administered, which office is located at the date hereof at 40 Wall Street, New
York, NY 10005.
(c) "Exercise Date" shall mean, as to any Warrant, the date on which
the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing, and
(b) payment in cash, or by official bank or certified check made payable to the
Company, of an amount in lawful money of the United States of America equal to
the applicable Purchase Price.
(d) "Purchase Price" shall mean the purchase price to be paid upon
exercise of each Warrant in accordance with the terms hereof, which price shall
be $22.00 per share
1
<PAGE>
Exhibit 4.7
subject to adjustment from time to time pursuant to the provisions of Section 8
hereof, and subject to the Company's right to reduce the Purchase Price upon
notice to all warrantholders.
(e) "Registered Holder" shall mean the person in whose name any
certificate representing Warrants shall be registered on the books maintained by
the Warrant Agent pursuant to Section 6.
(f) "Transfer Agent" shall mean American Stock Transfer & Trust
Company, as the Company's transfer agent, or its authorized successor, as such.
(g) "Warrant Expiration Date" shall mean 5:00 P.M. (New York time) on
August 11, 2001; provided that if such date shall in the State of New York be a
holiday or a day on which banks are authorized to close, then 5:00 P.M. (New
York time) on the next following day which in the State of New York is not a
holiday or a day on which banks are authorized to close. Upon notice to all
warrantholders the Company shall have the right to extend the Warrant Expiration
Date.
SECTION 2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES.
(a) A Warrant shall initially entitle the Registered Holder of the
Warrant Certificate representing such Warrant to purchase one share of Common
Stock upon the exercise thereof, in accordance with the terms hereof, subject to
modification and adjustment as provided in Section 8.
(b) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall execute and deliver stock certificates in required whole
number denominations representing up to an aggregate of 309,734 shares of Common
Stock, subject to adjustment as described herein, upon the exercise of Warrants
in accordance with this Agreement.
(c) From time to time, up to the Warrant Expiration Date, the Warrant
Agent shall execute and deliver Warrant Certificates in required whole number
denominations to the persons entitled thereto in connection with any transfer or
exchange permitted under this Agreement; provided that no Warrant Certificates
shall be issued except (i) those initially issued hereunder, (ii) those issued
upon the exercise of fewer than all Warrants represented by any Warrant
Certificate, to evidence any unexercised Warrants held by the exercising
Registered Holder, (iii) those issued upon any transfer or exchange pursuant to
Section 6; (iv) those issued in replacement of lost, stolen, destroyed or
mutilated Warrant Certificates pursuant to Section 7; and (v) at the option of
the Company, in such form as may be approved by the its Board of Directors, to
reflect (a) any adjustment or change in the Purchase Price or the number of
shares of Common Stock purchasable upon exercise of the Warrants, made pursuant
to Section 8 hereof and (b) other modifications approved by Warrantholders in
accordance with Section 16 hereof.
SECTION 3. FORM AND EXECUTION OF WARRANT CERTIFICATES. (a) The
Warrant Certificates shall be substantially in the form annexed hereto as
Exhibit A (the provisions of which are hereby incorporated herein) and may have
such letters, numbers or other marks of identification or designation and such
legends, summaries or endorsements printed, lithographed,
2
<PAGE>
Exhibit 4.7
engraved or typed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any law or with any rule or regulation made pursuant thereto or with
any rule or regulation of any stock exchange on which the Warrants may be
listed, or to conform to usage. The Warrant Certificates shall be dated the
date of issuance thereof (whether upon initial issuance, transfer, exchange or
in lieu of mutilated, lost, stolen, or destroyed Warrant Certificates) and
issued in registered form. Warrants shall be numbered serially with the letters
"WB."
(b) Warrant Certificates shall be executed on behalf of the Company
by its Chairman of the Board, President or any Vice President and by its
Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. In case any officer of the Company who shall have signed any of
the Warrant Certificates shall cease to be such officer of the Company before
the date of issuance of the Warrant Certificates and issue and delivery thereof,
such Warrant Certificates may nevertheless be issued and delivered with the same
force and effect as though the person who signed such Warrant Certificates had
not ceased to be such officer of the Company. After execution by the Company,
Warrant Certificates shall be delivered by the Warrant Agent to the Registered
Holder.
SECTION 4. EXERCISE. Each Warrant may be exercised by the
Registered Holder thereof at any time prior to the Warrant Expiration Date upon
the terms and subject to the conditions, including without limitation,
compliance with applicable securities laws, set forth herein and in the
applicable Warrant Certificate. A Warrant shall be deemed to have been
exercised immediately prior to the close of business on the Exercise Date and
the person entitled to receive the securities deliverable upon such exercise
shall be treated for all purposes as the holder upon exercise thereof as of the
close of business on the Exercise Date. As soon as practicable on or after the
Exercise Date, the Warrant Agent shall deposit the proceeds received from the
exercise of a Warrant, and promptly after clearance of checks received in
payment of the Purchase Price pursuant to such Warrants, cause to be issued and
delivered by the Transfer Agent, to the person or persons entitled to receive
the same, a certificate or certificates for the securities deliverable upon such
exercise, (plus a certificate for any remaining unexercised Warrants of the
Registered Holder). Notwithstanding the foregoing, in the case of payment made
in the form of a check drawn on an account of such investment banks and
brokerage houses as the Company shall approve, certificates shall immediately be
issued without any delay. Upon the exercise of any Warrant and clearance of the
funds received, the Warrant Agent shall promptly remit the payment received for
the Warrant to the Company or as the Company may direct in writing.
SECTION 5. RESERVATION OF SHARES; LISTING; PAYMENT OF TAXES; ETC.
(a) The Company covenants that it will at all times reserve and keep available
out of its authorized Common Stock, solely for the purpose of issue upon
exercise of Warrants, such number of shares of Common Stock as shall then be
issuable upon the exercise of all outstanding Warrants. The Company covenants
that all shares of Common Stock which shall be issuable upon exercise of the
Warrants and payment of the Purchase Price shall, at the time of delivery, be
duly and validly issued, fully paid, nonassessable and free from all taxes,
liens and charges with respect to
3
<PAGE>
Exhibit 4.7
the issue thereof (other than those that arise as a result of the action or
inaction of the Registered Holder).
(b) The Company will use reasonable efforts to obtain appropriate
approvals or registrations under state "blue sky" securities laws with respect
to the exercise of the Warrants; provided, however, that the Company shall not
be obligated to file any general consent to service of process or qualify as a
foreign corporation in any jurisdiction. With respect to any such securities
laws, however, Warrants may not be exercised by, or shares of Common Stock
issued to, any Registered Holder in any state in which such exercise would be
unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and
other governmental charges that may be imposed with respect to the issuance of
Warrants, or the issuance, or delivery of any shares upon exercise of the
Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requesting the same has paid to the Warrant
Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to requisition
the Company's Transfer Agent from time to time for certificates representing
shares of Common Stock required upon exercise of the Warrants, and the Company
will authorize the Transfer Agent to comply with all such proper requisitions.
SECTION 6. EXCHANGE AND REGISTRATION OF TRANSFER.
Subject to the restrictions on transfer contained in the Warrant
Certificates and the Subscription Agreements between the Company and the
purchasers of Units:
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part; provided that no transfers,
sales or other dispositions of the Warrants may be made except after the time
periods and in the percentages set forth in Section 1.9 of the Subscription
Agreements. Warrant Certificates to be exchanged shall be surrendered to the
Warrant Agent at its Corporate Office, and upon satisfaction of the terms and
provisions hereof, the Company shall execute, and the Warrant Agent shall
countersign, issue and deliver in exchange therefor the Warrant Certificate or
Certificates which the Registered Holder making the exchange shall be entitled
to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with its regular
practice. Upon due presentment for registration of transfer of any Warrant
Certificate at its office, the Company shall execute and the Warrant Agent shall
issue and deliver to the transferee or transferees a new Warrant Certificate or
Certificates representing an equal aggregate number of Warrants.
4
<PAGE>
Exhibit 4.7
(c) With respect to all Warrant Certificates presented for
registration of transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company, duly executed by the Registered Holder or his attorney-in-fact duly
authorized in writing.
(d) The Company may require payment by such holder of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange
in case of mutilated Warrant Certificates shall be promptly canceled by the
Warrant Agent and thereafter retained by the Warrant Agent until termination of
this Agreement or resignation of the Warrant Agent, or, with the prior written
consent of Paramount, disposed of or destroyed, at the direction of the Company.
(f) Prior to due presentment for registration of transfer thereof,
the Company and the Warrant Agent may deem and treat the Registered Holder of
any Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary.
SECTION 7. LOSS OR MUTILATION. Upon receipt by the Company and
the Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction or mutilation of any Warrant Certificate and (in case of
loss, theft or destruction) of indemnity satisfactory to them, and (in the case
of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall (in the absence of notice to the Company
and/or Warrant Agent that the Warrant Certificate has been acquired by a
bonafide purchaser) countersign and deliver to the Registered Holder in lieu
thereof a new Warrant Certificate of like tenor representing an equal aggregate
number of Warrants. Applicants for a substitute Warrant Certificate shall
comply with such other reasonable regulations and pay such other reasonable
charges as the Warrant Agent may prescribe.
SECTION 8. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES OF
COMMON STOCK OR WARRANTS. The Purchase Price in effect at any time and the
number and kind of securities purchasable upon the exercise of the Warrants
shall be subject to adjustment from time to time upon the happening of certain
events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect at the time of the record date for such dividend or distribution or the
effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the Purchase
Price by a fraction, the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such
5
<PAGE>
Exhibit 4.7
action, and the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such action. Such adjustment shall be
successively whenever any event listed above shall occur.
(b) Whenever the Purchase Price payable upon exercise of each Warrant
is adjusted pursuant to Subsection (a) above, the number of Shares purchasable
upon exercise of this Warrant shall simultaneously be adjusted by multiplying
the number of Shares initially issuable upon exercise of this Warrant by the
Purchase Price in effect on the date hereof and dividing the product so obtained
by the Purchase Price, as adjusted.
(c) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least five cents (0.05)
in such price; provided, however, that any adjustments which by reason of this
Subsection (c) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment required to be made hereunder. All
calculations under this Section 8 shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Anything in this Section
8 to the contrary notwithstanding, the Company shall be entitled, but shall not
be required, to make such changes in the Purchase Price, in addition to those
required by this Section 8 as it shall determine, in its sole discretion, to be
advisable in order that any dividend or distribution in shares of Common Stock
or any subdivision, reclassification or combination of Common Stock, hereafter
made by the Company shall not result in any Federal Income tax liability to the
Registered Holder of Common Stock or securities convertible into Common Stock
(including Warrants).
(d) Whenever the Purchase Price is adjusted, as herein provided, the
Company shall promptly but no later than 20 days after any request for such an
adjustment by the Registered Holder, cause a notice setting forth the adjusted
Purchase Price and adjusted number of Shares issuable upon exercise of each
Warrant, and, if requested, information describing the transactions giving rise
to such adjustments, to be mailed to the Registered Holder at his last address
appearing in the warrant register of the Warrant Agent, and shall cause a
certified copy thereof to be mailed to its Warrant Agent. The Company may
retain a firm of independent certified public accountants selected by the Board
of Directors (who may be the regular accountants employed by the Company) to
make any computations required by this Section 8, and a certificate signed by
such firm shall be conclusive evidence of the correctness of such adjustment.
(e) In the event that at any time, as a result of an adjustment made
pursuant to Subsection (a) above, the Registered Holder of this Warrant
thereafter shall become entitled to receive any shares of the Company, other
than Common Stock, thereafter the number of such other shares so receivable upon
exercise of this Warrant shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in Subsection (a) above.
(f) Irrespective of any adjustments in the Purchase Price or the
number or kind of shares purchasable upon exercise of this Warrant, Warrants
theretofore or thereafter
6
<PAGE>
Exhibit 4.7
issued may continue to express the same price and number and kind of shares as
are stated in the similar Warrants initially issuable pursuant to this
Agreement.
SECTION 9. RECLASSIFICATION, REORGANIZATION OR MERGER. In case of
any reclassification, capital reorganization or other change of outstanding
shares of Common Stock of the Company, or in case of any consolidation or
merger of the Company with or into another corporation (other than a merger with
a subsidiary in which merger the Company is the continuing corporation and which
does not result in any reclassification, capital reorganization or other change
of outstanding shares of Common Stock of the class issuable upon exercise of
this Warrant) or in case of any sale, lease or conveyance to another corporation
of the property of the Company as an entirety, the Company shall, as a condition
precedent to such transaction, cause effective provisions to be made so that the
holder shall have the right thereafter by exercising this Warrant at any time
prior to the expiration of the Warrant, to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
which might have been purchased upon exercise of this Warrant immediately prior
to such reclassification, change, consolidation, merger, sale or conveyance.
Any such provision shall include provision for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section 9 shall similarly apply to
successive reclassifications, capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances.
In the event that in connection with any such capital reorganization or
reclassification, consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for a security of the Company other that Common
Stock, any such issue shall be treated as an issue of Common Stock covered by
the provisions of Subsection (a) of Section (8) hereof.
SECTION 10. FRACTIONAL WARRANTS AND FRACTIONAL SHARES.
(a) If the number of shares of Common Stock purchasable upon the
exercise of each Warrant is adjusted pursuant to Section 8 hereof, the Company
shall nevertheless not be required to issue fractions of shares, upon exercise
of the Warrants or otherwise, or to distribute certificates that evidence
fractional shares. With respect to any fraction of a share called for upon any
exercise hereof, the Company shall pay to the Holder an amount in cash equal to
such fraction multiplied by the current market value of such fractional share,
determined as follows:
(1) If the Common Stock is listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange or listed for
trading on the Nasdaq National Market System ("NMS"), the current
market value shall be the last reported sale price of the Common Stock
on such exchange on the last business day prior to the date of
exercise of this Warrant or if no such sale is made on such day or no
closing sale price is quoted, the average of the closing bid and asked
prices for such day on such exchange or system; or
(2) If the Common Stock is listed in the over-the-counter market (other
than on NMS) or admitted to unlisted trading privileges, the current
market value shall
7
<PAGE>
Exhibit 4.7
be the mean of the last reported bid and asked prices reported by the
National Quotation Bureau, Inc. on the last business day prior to the
date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, the current
market value shall be prescribed by the Board of Directors of the
Company.
SECTION 11. WARRANT HOLDERS NOT DEEMED STOCKHOLDERS. No holder of
Warrants shall, as such, be entitled to vote or to receive dividends or be
deemed the holder of Common Stock that may at any time be issuable upon exercise
of such Warrants for any purpose whatsoever, nor shall anything contained herein
be construed to confer upon the holder of Warrants, as such, any of the rights
of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issue or reclassification of stock, change of par value or
change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such Holder shall have exercised such Warrants and
been issued shares of Common Stock in accordance with the provisions hereof.
SECTION 12. RIGHTS OF ACTION. All rights of action with respect to
this Agreement are vested in the respective Registered Holders of the Warrants,
and any Registered Holder of a Warrant, without consent of the Warrant Agent or
of the holder of any other Warrant, may, on his own behalf and for his own
benefit, enforce against the Company his right to exercise his Warrants for the
purchase of shares of Common Stock in the manner provided in the Warrant
Certificate and this Agreement.
SECTION 13. AGREEMENT OF WARRANT HOLDERS. Every holder of a
Warrant, by his acceptance thereof, consents and agrees with the Company, the
Warrant Agent and every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books of the
Warrant Agent by the Registered Holder thereof in person or by his attorney duly
authorized in writing and only if the Warrant Certificates representing such
Warrants are surrendered at the office of the Warrant Agent, duly endorsed or
accompanied by a proper instrument of transfer satisfactory to the Warrant Agent
and the Company in their sole discretion, together with payment of any
applicable transfer taxes; and
(b) The Company may deem and treat the person in whose name the
Warrant Certificate is registered as the holder and as the absolute, true and
lawful owner of the Warrants represented thereby for all purposes, and the
Company shall not be affected by any notice or knowledge to the contrary, except
as otherwise expressly provided in Section 7 hereof.
SECTION 14. CANCELLATION OF WARRANT CERTIFICATES. If the Company
shall purchase or acquire any Warrant or Warrants, the Warrant Certificate or
Warrant Certificates evidencing the same shall thereupon be canceled by it and
retired. The Warrant Agent shall also
8
<PAGE>
Exhibit 4.7
cancel Common Stock following exercise of any or all of the Warrants represented
thereby or delivered to it for transfer, split up, combination or exchange.
SECTION 15. CONCERNING THE WARRANT AGENT. The Warrant Agent acts
hereunder as agent and in a ministerial capacity for the Company, and its duties
shall be determined solely by the provisions hereof. The Warrant Agent shall
not, by issuing and delivering Warrant Certificates or by any other act
hereunder be deemed to make any representations as to the validity, value or
authorization of the Warrant Certificates or the Warrants represented thereby or
of any securities or other property delivered upon exercise of any Warrant or
whether any stock issued upon exercise of any Warrant is fully paid and
nonassessable.
The Warrant Agent shall account promptly to the Company with respect
to Warrants exercised and concurrently pay the Company, as provided in
Section 4, all moneys received by the Warrant Agent upon the exercise of such
Warrants. The Warrant Agent shall, upon request of the Company from time to
time, deliver to the Company such complete reports of registered ownership of
the Warrants and such complete records of transactions with respect to the
Warrants and the shares of Common Stock as the Company may request. The Warrant
Agent shall also make available to the Company and Paramount for inspection by
their agents or employees, from time to time as either of them may request, such
original books of accounts and record (including original Warrant Certificates
surrendered to the Warrant Agent upon exercise of Warrants) as may be maintained
by the Warrant Agent in connection with the issuance and exercise of Warrants
hereunder, such inspections to occur at the Warrant Agent's office as specified
in Section 17, during normal business hours.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price provided in this Agreement, or to determine
whether any fact exists which may require any such adjustments, or with respect
to the nature or extent of any such adjustment, when made, or with respect to
the method employed in making the same. It shall not (i) be liable for any
recital or statement of facts contained herein or for any action taken, suffered
or omitted by it in reliance on any Warrant Certificate or other document or
instrument believed by it in good faith to be genuine and to have been signed or
presented by the proper party or parties, (ii) be responsible for any failure on
the part of the Company to comply with any of its covenants and obligations
contained in this Agreement or in any Warrant Certificate, or (iii) be liable
for any act or omission in connection with this Agreement except for its own
negligence or willful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the written opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument signed by
the Chairman of the Board, President, any Vice President, its Secretary, or
Assistant Secretary, (unless other evidence in
9
<PAGE>
Exhibit 4.7
respect thereof is herein specifically prescribed). The Warrant Agent shall not
be liable for any action taken, suffered or omitted by it in accordance with
such notice, statement, instruction, request, direction, order or demand
believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable compensation
for its services hereunder and to reimburse it for its reasonable expenses
hereunder; it further agrees to indemnify the Warrant Agent and save it harmless
against any and all losses, expenses and liabilities, including judgments, costs
and counsel fees, for anything done or omitted by the Warrant Agent in the
execution of its duties and powers hereunder except losses, expenses and
liabilities arising as a result of the Warrant Agent's negligence or willful
misconduct.
The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own negligence or willful misconduct), after giving 30
days' prior written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall cause a copy of
such notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any inability
of the Warrant Agent to act as such hereunder, the Company shall appoint a new
warrant agent in writing. If the Company shall fail to make such appointment
within a period of 15 days after it has been notified in writing of such
resignation by the resigning Warrant Agent, then the Registered Holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company. After acceptance in
writing of such appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment the Company
shall file notice thereof with the resigning Warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant agent
may be converted or merged or any corporation resulting from any consolidation
to which the Warrant Agent or any new warrant agent shall be a party or any
corporation succeeding to the trust business of the Warrant Agent shall be a
successor warrant agent under this Agreement without any further act, provided
that such corporation is eligible for appointment as successor to the Warrant
Agent under the provisions of the preceding paragraph. Any such successor
warrant agent shall promptly cause notice of its succession as warrant agent to
be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of its or
their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise
10
<PAGE>
Exhibit 4.7
deal with the Company in the same manner and to the same extent and with like
effects as though it were not Warrant Agent. Nothing herein shall preclude the
Warrant Agent from acting in any other capacity for the Company or for any other
legal entity.
SECTION 16. MODIFICATION OF AGREEMENT. The parties hereto may by
supplemental agreement make any changes or corrections in this Agreement
(i) that it shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; (ii) that it may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Warrant Certificates; PROVIDED,
HOWEVER, that this Agreement shall not otherwise be modified, supplemented or
altered in any respect except with the consent in writing of the Registered
Holders of Warrant Certificates representing not less than 50% of the Warrants
then outstanding; and PROVIDED, FURTHER, that no change in the number or nature
of the securities purchasable upon the exercise of any Warrant, or the Purchase
Price therefor, or the acceleration of the Warrant Expiration Date, shall be
made without the consent in writing of the Registered Holder of the Warrant
Certificate representing such Warrant, other than such changes as are
specifically prescribed by this Agreement as originally executed.
SECTION 17. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class registered or certified mail, postage
prepaid as follows: if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company, at 6555 Nancy Ridge Drive, Suite 200, San Diego,
California 92121, Attention: Dale A. Sander, and if to the Warrant Agent, at 40
Wall Street, New York, NY 10005, Attention _______________.
SECTION 18. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to its principles of conflict of laws.
SECTION 19. BINDING EFFECT. This Agreement shall be binding upon
and inure to the benefit of the Company and the Warrant Agent (and their
respective successors and assigns) and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
SECTION 20. TERMINATION. This Agreement shall terminate on the
earlier to occur of (i) the close of business on the Expiration Date of all the
Warrants; (ii) the date upon which all Warrants have been exercised.
SECTION 21. COUNTERPARTS. This Agreement may be executed in
several counterparts, which taken together shall constitute a single document.
11
<PAGE>
Exhibit 4.7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
XYTRONYX, INC.
By: /s/ Dale A. Sander
--------------------------------
Dale A. Sander
Chief Financial Officer
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By: /s/ Herbert J. Lemmer
--------------------------------
Name: Herbert J. Lemmer
Title: Vice-President
12
<PAGE>
Exhibit 4.7
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE
TRANSFERRED NOR MAY THIS WARRANT BE EXERCISED UNTIL (1) A REGISTRATION STATEMENT
UNDER THE ACT SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO, OR (2) RECEIPT
BY THE ISSUER OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER TO
THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED TRANSFER OR EXERCISE NOR IS SUCH TRANSFER OR EXERCISE IN VIOLATION
OF ANY APPLICABLE STATE SECURITIES LAWS.
No. Warrants
VOID AFTER [ ], 2005
WARRANT CERTIFICATE FOR PURCHASE
OF COMMON STOCK
XYTRONYX, INC.
This certifies that FOR VALUE RECEIVED _____________________________
____________ or registered assigns (the "Registered Holder") is the owner of the
number of Warrants ("Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of Common Stock, $.02 par value
("Common Stock"), of XYTRONYX, INC., a Delaware corporation (the "Company"), at
any time commencing [ ], 1995 and prior to the Expiration Date (as
hereinafter defined), upon the presentation and surrender of this Warrant
Certificate with the Subscription Form on the reverse hereof duly executed, at
the corporate office of First Chicago Trust Company of New York, as Warrant
Agent, or its successor (the "Warrant Agent"), accompanied by payment of an
amount equal to $1.00 for each Warrant (the "Purchase Price") in lawful money of
the United States of America in cash or by official bank or certified check made
payable to Xytronyx, Inc. The Company may, at its election, reduce the Purchase
Price.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated September
____, 1995 by and among the Company, the Warrant Agent and Paramount Capital,
Inc.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
1
<PAGE>
Exhibit 4.7
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York time) on [
], 2005. If such date shall in the State of New York be a holiday or a day on
which the banks are authorized to close, then the Expiration Date shall mean
5:00 P.M. (New York time) the next following day which in the State of New York
is not a holiday or a day on which banks are authorized to close. The Company
may, at its election, extend the Expiration Date.
This Warrant is not redeemable at the option of the Company prior to [
], 1996 unless the closing bid quotation for the Common Stock as reported
on the American Stock Exchange, or on such other exchange on which the Common
Stock is then traded, exceeds 600% of the Purchase Price for twenty (20)
consecutive trading days ending three days prior to the date of redemption.
Thereafter, the Company may redeem in whole but not in part all the Warrants on
60 days prior notice at $.10 per Warrant at any time, provided that the closing
bid quotation for the Common Stock as reported on the American Stock Exchange,
or on such other exchange on which the Common Stock is then traded, exceeds 400%
of the Purchase Price for twenty (20) consecutive trading days ending three days
prior to the date of redemption.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any tax or other governmental
charge imposed in connection therewith, for registration of transfer of this
Warrant Certificate at such office, a new Warrant Certificate or Warrant
Certificates representing an equal aggregate number of Warrants will be issued
to the transferee in exchange therefor, subject to the limitations provided in
the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any limitation, the right to vote or
to receive dividends or other distributions, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided in the
Warrant Agreement.
Prior to due presentment for registration of transfer hereof, the
Company may deem and treat the Registered Holder as the absolute owner hereof
and of each Warrant represented hereby (notwithstanding any notations of
ownership or writing hereon made by anyone other than a duly authorized officer
of the Company) for all purposes and shall not be affected by any notice to the
contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York without reference to its
principles of conflict of laws.
2
<PAGE>
Exhibit 4.7
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
XYTRONYX, INC.
Dated: [ ], 1995
By ________________________________________
Name: Larry O. Bymaster
Title:
________________________________________
Name: Dale A. Sander
Title: Secretary
[seal]
FIRST CHICAGO TRUST COMPANY OF
NEW YORK
By ________________________________________
Name:
Title:
3
<PAGE>
Exhibit 4.7
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
[please print or type name and address]
and be delivered to
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
4
<PAGE>
Exhibit 4.7
The undersigned represents that the exercise of the within Warrant was
solicited by a member of the National Association of Securities Dealers, Inc.
If not solicited by an NASD member, please write "unsolicited" in the space
below. Unless otherwise indicated by listing the name of another NASD member
firm, it will be assumed that the exercise was solicited by Paramount Capital,
Inc.
________________________________________
(Name of NASD Member if other
than Paramount Capital, Inc.)
Dated: _______________________
________________________________________
________________________________________
________________________________________
Address
________________________________________
Taxpayer Identification Number
______________________________
Signature Guaranteed
______________________________
5
<PAGE>
Exhibit 4.7
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
[please print or type name and address]
of the Warrants represented by this Warrant Certificate,
and hereby irrevocably constitutes and appoints
Attorney to
transfer this Warrant Certificate on the books of the Company, with full power
of substitution in the premises.
Dated:
X
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
6
<PAGE>
EXHIBIT 5.1
-3000
April 25, 1997
Xytronyx, Inc.
6730 Mesa Ridge Road
Suite A
San Diego, California 92121
Re: 19,831,145 shares of Common Stock
and 6,500,188 Class A Warrants to
Purchase Common Stock
---------------------
Gentlemen:
We refer to the Registration Statement on Form S-3 (the "Registration
Statement") being filed by Xytronyx, Inc., a Delaware corporation (the
"Company"), with the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Securities Act"), relating to the
shelf registration of:
(a) 19,831,145 shares (the "Shares") of Common Stock, $0.02 par value, of the
Company (the "Common Stock"), comprised of (i) 10,416,978 shares of Common Stock
issuable upon the conversion of shares of Series A Convertible Preferred Stock
("Convertible Preferred Stock"); (ii) 5,250,150 shares of Common Stock issuable
upon the exercise of currently exercisable Class A Warrants (the "Class A
Warrants"); (iii) 309,734 shares of Common Stock issuable upon the exercise of
currently exercisable Class B Warrants (the "Settlement Warrants"); (iv)
1,250,038 shares of Common Stock issuable upon the exercise of certain Unit
Purchase Warrants (the "Unit Purchase Warrants"); and (v) 2,604,245 shares of
Common Stock issuable upon the exercise of certain Advisory Options (the
"Advisory Options"); and (b) 6,500,188 Class A Warrants to purchase shares of
Common Stock (the "Class A Warrants"), on behalf of certain holders of these
securities named in the Registration Statement, and on behalf of the holders of
the Settlement Warrants. The Settlement Warrants were previously offered and
distributed to the holders thereof in an offering exempt from registration under
the Securities Act pursuant to Section 3(a)(10) thereof. You have requested
that we furnish our opinion as to the matters set forth below.
In this connection, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of such documents, corporate records,
certificates of public officials
<PAGE>
and other instruments as we have considered necessary or advisable for the
purpose of this opinion. We have relied as to factual matters on certificates
or other documents furnished by the Company or its officers and directors and by
governmental authorities and upon such other documents and data as we have
deemed appropriate. We have assumed the authenticity of all documents submitted
to us as originals and the conformity to original documents of all documents
submitted to us as copies. We have not independently verified such information
and assumptions.
We express no opinion as to the law of any jurisdiction other than the
laws of the State of New York and the General Corporation Law of the State of
Delaware.
Subject to the foregoing and to the assumption that the Advisory
Options will not be exercised until appropriate action has been taken to
increase the authorized Common Stock of the Company, so that the shares of
Common Stock underlying the Advisory Options, when taken together with the
shares of Common Stock theretofore issued or reserved (or required to be
reserved) for issuance, will not exceed the authorized Common Stock of the
Company, and based on such examination, we are of the opinion that (i) the
Shares have been duly authorized and, upon delivery and payment therefor in
accordance with the terms of the Convertible Preferred Stock, Class A
Warrants, Settlement Warrants, Unit Purchase Warrants and the Advisory
Options (when exercised), respectively, will be validly issued, fully paid
and nonassessable, and (ii) the Class A Warrants have been duly authorized
and validly issued.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm which appears in the
Prospectus constituting a part thereof under the caption "Legal Opinions." In
giving such consent, we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Commission thereunder.
Very truly yours,
/s/ Donovan Leisure Newton & Irvine
<PAGE>
EXHIBIT 10.48
XYTRONYX, INC.
PLACEMENT AGENCY AGREEMENT
September 27, 1996
Paramount Capital, Inc.
787 Seventh Avenue
New York, New York 10019
Dear Sirs:
Xytronyx, Inc., a Delaware corporation (the "Company"),
hereby confirms its agreement to retain Paramount Capital, Inc. (the "Placement
Agent") on an exclusive basis to introduce the Company to and to procure
subscriptions from certain "accredited investors" (as defined in Regulation D
under the Securities Act of 1933, as amended) as prospective purchasers of a
minimum of ten (10) Units (the "Minimum Offering") and a maximum of forty (40)
Units (the "Maximum Offering"), with an option in favor of the Company to offer
up to an additional thirty (20) Units to cover over-allotments at a purchase
price of $100,000, with each "Unit" consisting of (a) 500 shares of Premium
Preferred StockTM, stated value $200 per share, of the Company (the "Preferred
Stock") and (b) Class A warrants (the "Warrants") to purchase 15,000 shares of
Common Stock of the Company, par value $.02 at an exercise price per underlying
share of Common Stock equal to $1.00 at any time on or prior to November 26,
2005. The Preferred Stock and the Warrants shall have the terms set forth in
the Memorandum (as defined below).
The sale to such purchasers (the "Offering") will be made through a
private placement by the Placement Agent (or its designated selected dealers
which will be bound by agreements substantially the same as contained herein for
the Placement Agent) on a "best efforts" basis pursuant to the Confidential
Offering Memorandum dated October 1, 1996, and all supplements, amendments and
exhibits thereto, all of which constitute an integral part thereof (the
"Memorandum"), separate purchase agreements and related documents (the
"Subscription Agreements") in accordance with Section 4(2) of the Securities Act
of 1933, as amended (the "Securities Act") and Regulation D promulgated
thereunder.
The Memorandum, the Subscription Agreements, the exhibits to the
Subscription Agreements, the Certificate of Designations relating to the
Preferred Stock, the agreements setting forth the terms of the Warrants
(collectively with the Warrants, the "Warrant Agreements"), the Warrants, the
Escrow Agreement, dated September 27, 1996 (the "Escrow Agreement"), the
Financial Advisory Agreement (as extended pursuant to Section 5(k) below),
<PAGE>
Page 2
the Unit Purchase Option (as defined in Section 4(d) below), the Advisory
Options (as defined in Section 5(k) below) and this Placement Agency Agreement,
are collectively referred to herein as the "Offering Documents."
The Company, at its sole cost, shall prepare and deliver to the
Placement Agent a reasonable number of copies of the Offering Documents in form
and substance satisfactory to the Placement Agent.
Each prospective investor subscribing to purchase Units shall be
required to deliver, among other things, a Subscription Agreement, which shall
include a Confidential Investor Questionnaire ("Questionnaire"). The Company
shall make available to each prospective purchaser at a reasonable time prior to
the purchase of the Units the opportunity to ask questions of and receive
answers from the Company concerning the terms and conditions of the Offering and
the opportunity to obtain additional information necessary to verify the
accuracy of the documents delivered in connection with the purchase of the Units
to the extent it possesses such information or can acquire it without
unreasonable effort or expense. After the Offering Documents have been reviewed
by investors, and they have had the opportunity to address all inquiries to the
Company, separate Subscription Agreements shall be completed by each prospective
investor. The Company or Placement Agent shall have the right to reject
subscriptions in its sole discretion. The Company shall evidence its acceptance
of a subscription by countersigning a copy of the applicable Subscription
Agreement and returning the same to the Placement Agent.
Capitalized terms used herein, unless otherwise defined or unless the
context otherwise indicates, shall have the same meanings provided in the
Offering Documents.
1. APPOINTMENT OF PLACEMENT AGENT.
(a) You are hereby appointed exclusive placement agent of the
Company (subject to your right to have Selected Dealers, as defined in
Section 1(c) hereof, participate in the Offering) during the Offering Period
herein specified for the purposes of assisting the Company in finding qualified
Subscribers pursuant to the Offering described in the Offering Documents. You
shall not be deemed an agent of the Company for any other purpose. The Offering
Period shall commence on the day (the "Commencement Date") the Offering
Documents are first made available to you by the Company for delivery in
connection with the offering for the sale of the Units. Upon receipt of the
Minimum Offering amount, the Placement Agent may conduct a closing (the "Initial
Closing Date") and may conduct subsequent closings on an interim basis until the
Maximum Offering amount (and any over-allotment amount) has been reached (the
"Final Closing Date"). Each such closing may be referred to herein as a
"Closing". The Offering Period shall terminate at 11:59 p.m. New York City
Time on the date sixty (60) days following the Commencement Date, subject to an
extension, at the option of the Placement Agent, for an additional sixty (60)
days.
(b) Subject to the performance by the Company of all of its
obligations to be performed under this Agreement and to the completeness and
accuracy of all
<PAGE>
Page 3
representations and warranties of the Company contained in this Agreement, the
Placement Agent hereby accepts such agency and agrees to use its best efforts to
assist the Company in finding qualified subscribers pursuant to the Offering
described in the Offering Documents and to keep the Company or its counsel
reasonably informed of subscriptions received. It is understood that the
Placement Agent has no commitment to sell the Units. Your agency hereunder is
not terminable by the Company except upon termination of the Offering Period.
(c) You may engage other persons, selected by you in your
discretion, that are members of the National Association of Securities Dealers,
Inc., ("NASD") or who are located outside the United States and that have
executed a Selected Dealers Agreement in the form provided to the Company to
assist you in the Offering (each such person being hereinafter referred to as a
"Selected Dealer") and you may allow such persons such part of the compensation
and payment of expenses payable to you hereunder as you shall determine,
provided that (i) such compensation shall be received pursuant to Section 4(d)
hereof, and (ii) any assignment of the Unit Purchase Option (as defined herein)
shall conform with the requirements of Section 4(2) of the Securities Act and
Regulation D promulgated thereunder.
(d) Subscriptions for Units shall be evidenced by the execution
by qualified subscribers of a Subscription Agreement. No Subscription Agreement
shall be effective unless and until it is accepted by the Company. Until a
closing is held, all subscription funds received shall be held as described in
the Subscription Agreement. The Placement Agent shall not have any independent
obligation to verify the accuracy or completeness of any information contained
in any Subscription Agreement or the authenticity, sufficiency, or validity of
any check delivered by any prospective investor in payment for Units.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Placement Agent and each Selected Dealer, if any,
as follows:
(a) SECURITIES LAW COMPLIANCE. The Offering Documents, as of
their respective dates, do and will, as of the date of the Memorandum and the
Closing, describe the material aspects of an investment in the Company and
conform in all respects with the requirements of Section 4(2) of the Securities
Act and Regulation D promulgated thereunder and with the requirements of all
other published rules and regulations of the Securities and Exchange Commission
(the "Commission") currently in effect relating to "private offerings" to
"accredited investors" of the type contemplated by the Company. The Offering
Documents will not as of the date of the Memorandum and the Closing contain an
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading, provided, however, that no representation
is made with respect to information, relating to the Placement Agent which is
provided in writing by the Placement Agent to the Company specifically for
inclusion in the Offering Documents. If at any time prior to the completion of
the Offering or other termination of this Agreement any event shall occur as a
result of which it might become necessary to amend or supplement the Offering
Documents so that they do not include any untrue statement of any material fact
or omit to state any material fact necessary in order to
<PAGE>
Page 4
make the statements therein, in the light of the circumstances then existing,
not misleading, the Company will promptly notify the Placement Agent and will
supply the Placement Agent (or the prospective purchasers designated by the
Placement Agent) with amendments or supplements correcting such statement or
omission. The Company will also provide the Placement Agent for delivery to all
offerees and purchasers and their representatives, if any, any information,
documents and instruments which the Placement Agent and the Company's counsel
reasonably deem necessary to comply with applicable state and federal law.
The Company acknowledges that the Placement Agent (i) has not supplied
any information for inclusion in the Offering Documents other than information
furnished in writing to the Company by the Placement Agent specifically for
inclusion in the Offering Documents; (ii) has no obligation to independently
verify any of the information in the Offering Documents; and (iii) has no
responsibility for the accuracy or completeness of the Offering Documents,
except for the information, relating to the Placement Agent, furnished in
writing by the Placement Agent to the Company specifically for inclusion in the
Offering Documents.
(b) ORGANIZATION. 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 own and lease
its properties, to carry on its business as currently conducted and as proposed
to be conducted, to execute and deliver this Agreement and to carry out the
transactions contemplated by this Agreement, as appropriate and is duly licensed
or qualified to do business as a foreign corporation in California and each
jurisdiction in which the conduct of its business or ownership or leasing of its
properties requires it to be so qualified, except where the failure to be so
qualified would not have a material adverse effect on the business, financial
condition or prospects of the Company.
(c) CAPITALIZATION. The authorized, issued and outstanding
capital stock of the Company prior to the consummation of the transactions
contemplated hereby is as set forth in the Offering Documents. All issued and
outstanding shares of the Company are validly issued, fully paid and
nonassessable and have not been issued in violation of the preemptive rights of
any stockholder of the Company. The Preferred Stock, when issued, will have the
rights, preferences and privileges substantially as set forth in the Form of
Certificate of Designations attached as Exhibit A to the Memorandum. All prior
sales of securities of the Company were either registered under the Act and
applicable state securities laws or exempt from such registration, and no
security holder has any rescission rights with respect thereto. Except as set
forth in the Memorandum, there are no outstanding options, warrants, agreements,
convertible securities, preemptive rights or other rights to subscribe for or to
purchase any shares of capital stock of the Company. Except as set forth in the
Memorandum and as otherwise required by law, there are no restrictions upon the
voting or transfer of any shares of the Company's capital stock pursuant to the
Company's Certificate of Incorporation, By-Laws or other governing documents or
any agreement or other instruments to which the Company is a party or by which
the Company is bound.
(d) WARRANTS, PREEMPTIVE RIGHTS, ETC. Except as set forth in or
contemplated by the Memorandum, there are not, nor will there be immediately
after the
<PAGE>
Page 5
Closing (as hereinafter defined), any outstanding warrants, options, agreements,
convertible securities, rights of first refusal, rights of first offer,
preemptive rights or other rights to subscribe for or to purchase or other
commitments pursuant to which the Company is, or may become, obligated to issue
any shares of its capital stock or other securities of the Company and this
Offering will not cause any anti-dilution adjustments to such securities or
commitments except as reflected in the Memorandum.
(e) SUBSIDIARIES AND INVESTMENTS. Other than as disclosed in
the Memorandum, the Company does not own, directly or indirectly, capital stock
or other equity ownership or proprietary interests in any other corporation,
association, trust, partnership, joint venture or other entity.
(f) FINANCIAL STATEMENTS. The financial information contained
in the Offering Documents is accurate in all material respects. The Company's
financial statements have been prepared in conformity with generally accepted
accounting principles consistently applied and show all material liabilities,
absolute or contingent, of the Company required to be recorded thereon and
present fairly the financial position and results of operations of the Company
as of the dates and for the periods indicated.
(g) ABSENCE OF CHANGES. Since the date of the Memorandum,
except as has been or will be reflected in the Memorandum prior to Closing, the
Company has not incurred any liabilities or obligations, direct or contingent,
not in the ordinary course of business, or entered into any transaction not in
the ordinary course of business, which is material to the business of the
Company, and there has not been any change in the capital stock of, or any
incurrence of long-term debt by, the Company, or any issuance of options,
warrants or other rights to purchase the capital stock of the Company, or any
adverse change or any development involving, so far as the Company can now
reasonably foresee, a prospective adverse change in the condition (financial or
otherwise), net worth, results of operations, business, key personnel or
properties which would be material to the business or financial condition of the
Company, and the Company has not become a party to, and neither the business nor
the property of the Company has become the subject of, any material litigation
whether or not in the ordinary course of business.
(h) TITLE. The Company has good and marketable title to all
tangible properties and assets owned by it, free and clear of all liens,
charges, encumbrances or restrictions, except such as are not materially
significant or important in relation to the Company's business; all of the
material leases and subleases under which the Company is the lessor or sublessor
of properties or assets or under which the Company holds properties or assets as
lessee or sublessee are in full force and effect, and the Company is not in
default in any material respect with respect to any of the terms or provisions
of any of such leases or subleases, and no material claim has been asserted by
anyone adverse to rights of the Company as lessor, sublessor, lessee or
sublessee under any of the leases or subleases mentioned above, or affecting or
questioning the right of the Company to continued possession of the leased or
subleased premises or assets under any such lease or sublease. The Company owns
or leases all such tangible properties as are necessary to its operations as now
conducted and to be
<PAGE>
Page 6
conducted and except to the extent described in the Memorandum, the Company does
not presently anticipate the need for any capital expenditures.
(i) PROPRIETARY RIGHTS. To the best of the Company's knowledge
and except as has been or will be reflected in the Memorandum prior to each
Closing, the Company owns or possesses adequate and enforceable rights to use
all patents, patent applications, trademarks, service marks, trade names,
corporate names, copyrights, trade secrets, processes, mask works, licenses,
inventions, formulations, technology or know-how or other intangible property
used or proposed to be used in the conduct of its business as described in or
contemplated by the Memorandum (the "Proprietary Rights"). To the best of the
Company's knowledge and except as has been or will be reflected in the
Memorandum prior to Closing, the Company or the entities from whom the Company
has acquired rights has taken all necessary action to protect all of its
Proprietary Rights. Except as set forth in the Memorandum, the Company has not
received any notice of, and there are not any facts known to the Company which
indicate the existence of (i) any infringement or misappropriation by any third
party of any of the Proprietary Rights or (ii) any claim by a third party
contesting the validity of any of the Proprietary Rights; the Company has not
received any notice of any infringement, misappropriation or violation by the
Company or any of its employees of any Proprietary Rights of third parties, and,
to the best of the Company's knowledge, neither the Company nor any of its
employees has infringed, misappropriated or otherwise violated any Proprietary
Rights of any third parties; and, to the best of the Company's knowledge, no
infringement, illicit copying, misappropriation or violation of any intellectual
property rights of any third party has occurred or will occur with respect to
any products currently being sold by the Company or with respect to any products
currently under development by the Company or with respect to the conduct of the
Company's business as currently contemplated. Except as described in the
Memorandum, the Company is not aware that any of its employees are obligated
under any contract (including licenses, covenants or commitments of any nature)
or other agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of the employee's best
efforts to promote the interests of the Company or that would conflict with the
Company's business as proposed to be conducted. To the best of the Company's
knowledge, neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's business by the employees of the Company, nor the
conduct of the Company's business, as proposed, will conflict with or result in
a breach of the terms, conditions or provisions of, or constitute a default
under, any contract, covenant or instrument under which any such employee is now
obligated.
(j) LITIGATION. Except as set forth in the Memorandum, there is
no material action, suit, claim or proceeding at law or in equity, or to the
Company's knowledge, investigation or customer complaint, by or before any
arbitrator, governmental instrumentality or other agency now pending or, to the
knowledge of the Company, threatened against the Company (or basis therefor
known to the Company which the Company believes will result in the foregoing)
the adverse outcome of which would materially adversely affect the Company's
business or prospects. The Company is not subject to any judgment, order, writ,
injunction or decree of any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign which would materially adversely affect
<PAGE>
Page 7
the Company's business or prospects.
(k) NON-DEFAULTS, NON-CONTRAVENTION. The Company is not in
violation of or default under, nor will the execution and delivery of this
Agreement or any of the Offering Documents and the Escrow Agreement, or
consummation of the transactions contemplated herein or therein result in a
violation of or constitute a default in the performance or observance of any
obligation (i) under its Certificate of Incorporation, or its By-laws, or any
indenture, mortgage, contract, material purchase order or other agreement or
instrument to which the Company is a party or by which it or its property is
bound or affected or (ii) with respect to any material order, writ, injunction
or decree of any court of any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, and there is no existing condition, event or act which constitutes, nor
which after notice, the lapse of time or both, could constitute a default under
any of the foregoing, which in either case would have a material adverse effect
on the business, financial condition or prospects of the Company.
(l) TAXES. The Company has filed all Federal, state, local and
foreign tax returns which are required to be filed by it and all such returns
are true and correct in all material respects. The Company has paid all taxes
pursuant to such returns or pursuant to any assessments received by it or which
it is obligated to withhold from amounts owing to any employee, creditor or
third party, to the extent that the same have become due. The Company has
properly accrued all taxes required to be accrued. The tax returns of the
Company have never been audited by any state, local or Federal authorities. The
Company has not waived any statute of limitations with respect to taxes or
agreed to any extension of time with respect to any tax assessment or
deficiency.
(m) COMPLIANCE WITH LAWS, LICENSES, ETC. The Company has not
received notice of any violation of or noncompliance with any Federal, state,
local or foreign, laws, ordinances, regulations and orders applicable to its
business which has not been cured, the violation of, or noncompliance with
which, would have a materially adverse effect on the business or operations of
the Company. The Company has all governmental licenses and permits and other
governmental certificates, authorizations and permits and approvals
(collectively, "Licenses") required by every Federal, state and local government
or regulatory body for the operation of its business as currently conducted and
the use of its properties, except where the failure to be licensed would not
have a material adverse effect on the business of the Company. The Licenses are
in full force and effect and no violations are or have been recorded in respect
of any License and no proceeding is pending or, to the best knowledge of the
Company, threatened to revoke or limit any thereof.
(n) AUTHORIZATION OF DOCUMENTS AND UNITS. Each of the Offering
Documents, has been, or prior to any Closing will be, duly and validly
authorized, executed and delivered by the Company and the execution, delivery
and performance by the Company of the Offering Documents, has been duly
authorized by all requisite corporate action by the Company and when delivered,
constitute or will constitute the legal, valid and binding obligations of the
Company, enforceable in accordance with their respective terms, subject to
<PAGE>
Page 8
the availability and enforceability of equitable remedies and to applicable
bankruptcy and other laws relating to the rights of creditors generally and
except as the enforcement of the rights to indemnification and contribution
hereunder and under any other Offering Documents may be limited by federal or
state securities laws or public policy. The Corporation has full power and
lawful authority to authorize, issue and sell the Units to be sold to the
Purchasers.
(o) EXEMPTION FROM REGISTRATION. Assuming (i) the accuracy of
the information provided by the respective Purchasers in the Subscription
Agreements, (ii) that the Placement Agent has complied in all material respects
with the provisions of Regulation D promulgated under the Securities Act and
(iii) the timely filing of a Form D by the Company, the offer and sale of the
Units and the granting of the Unit Purchase and Advisory Options pursuant to the
terms of this Agreement are exempt from the registration requirements of the
Securities Act and the rules and regulations promulgated thereunder (the
"Regulations"). The Company is not disqualified from the exemption under
Regulation D by virtue of the disqualifications contained in
Rule 505(b)(2)(iii) or Rule 507 promulgated thereunder.
(p) REGISTRATION RIGHTS. Except as set forth in the Memorandum
or Section 5 of the Subscription Agreement or disclosed to the Placement Agent
in writing, no person has any right to cause the Company to effect the
registration under the Securities Act of any securities of the Company.
(q) BROKERS. Neither the Company nor any of its officers,
directors, employees or stockholders has employed any broker or finder in
connection with the transactions contemplated by this Agreement other than the
Placement Agent.
(r) TITLE TO UNITS. When certificates representing the Preferred
Stock shall have been duly delivered to the Purchasers and payment shall have
been made for the Units, the several Purchasers shall have good and valid title
to the Preferred Stock, and upon conversion of such Preferred Stock, will have
good and valid title to the Common Stock issuable upon such conversion (the
"Conversion Shares"), in each case, free and clear of all liens, encumbrances
and claims, including without limitation, adverse claims, whatsoever (with the
exception of claims arising through the acts of the Purchasers themselves and
except as arising from applicable Federal and state securities laws), and the
Company shall have paid all taxes, if any, in respect of the original issuance
thereof. When certificates representing the Warrants shall have been duly
delivered to the Purchasers and payment shall have been made for the Units, the
several Purchasers shall have good and valid title to the Warrants, and upon
exercise of such Warrants and the payment of the exercise price thereof, will
have good and valid title to the Common Stock issuable upon such exercise (the
"Warrant Shares"), in each case, free and clear of all liens, encumbrances and
claims, including without limitation, adverse claims, whatsoever (with the
exception of claims arising through the acts of the Purchasers and except as
arising from applicable Federal and state securities laws), and the Company
shall have paid all taxes, if any, in respect of the original issuance thereof.
When certificates representing the Unit Purchase Options and the Advisory
Options shall have been duly delivered to the Placement Agent, the Placement
Agent or its designees shall have good and valid title to the Unit Purchase
Options and the Advisory Options, and upon exercise of either such Options, will
have good and valid title to the
<PAGE>
Page 9
Preferred Stock and Warrants issuable upon such exercise, and upon conversion of
the Preferred Stock issuable upon exercise of such Options or upon exercise of
the Warrants issuable upon such exercise and the payment of the exercise price
thereof, will have good and valid title to the Common Stock into which such
Preferred Stock is converted or for which such Warrants are exercised, in each
case, free and clear of all liens, encumbrances and claims, including without
limitation, adverse claims, whatsoever (with the exception of claims arising
through the acts of the Placement Agent and except as arising from applicable
Federal and state securities laws), and the Company shall have paid all taxes,
if any, in respect of the original issuance thereof.
(s) NON-AFFILIATED DIRECTORS. The Company's Board of Directors
has not less than two directors who are independent from, and unaffiliated with,
management of the Company.
(t) ACCURACY OF REPORTS. All material reports required to be
filed by the Corporation within the two years prior to the date of this
Agreement under the Securities and Exchange Act of 1934 (the "Exchange Act"), as
amended, have been duly filed with the SEC, complied at the time of filing in
all material respects with the requirements of their respective forms and,
except to the extent updated or superseded by the Memorandum or any subsequently
filed report, were complete and correct in all material respects as of the dates
at which the information was furnished, and contained (as of such dates) no
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
3. REPRESENTATIONS AND WARRANTIES OF PARAMOUNT CAPITAL, INC. The
Placement Agent represents and warrants as follows:
(a) The Placement Agent is duly organized and validly existing
and in good standing as a corporation under the laws of the State of New York
with full and adequate power and authority to enter into and perform this
Agreement.
(b) In offering the Units, the Placement Agent will deliver (or
direct the Company to deliver) to each prospective purchaser, prior to the
Company's acceptance of any subscription from such prospective purchaser, the
appropriate Offering Documents. The Placement Agent will cooperate with the
Company in the preparation of the Offering Documents and will not engage in a
general solicitation or employ general advertising in connection with the
Offering.
(c) The Placement Agent will use its reasonable efforts to
conduct the Offering in compliance with applicable federal and state securities
laws so as to preserve the exemption provided in Section 4(2) of the Act and any
applicable rules or regulations promulgated thereunder or under such state
securities laws. The Placement Agent will use reasonable efforts to make offers
only to persons who the Placement Agent has reasonable grounds to believe are
"accredited investors" (as defined in Regulation D under the Securities Act of
1933, as amended). The final acceptance of any subscription shall be made only
after the Company has reviewed the Subscription Agreement and agreed to such
final acceptance and
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determination as to the status of such subscriber.
(d) The Placement Agent is, and at each closing will be, (i) a
securities broker-dealer registered with the Commission and any jurisdiction
where broker-dealer registration is required in order for the Company to sell
the Units in such jurisdiction and (ii) a member in good standing of the
National Association of Securities Dealers, Inc. ("NASD").
(e) There is no material litigation, governmental or NASD
proceeding, pending or, to the best of the Placement Agent's knowledge,
threatened against the Placement Agent or any controlling person of the
Placement Agent that involves allegations of improper or illegal conduct under
federal or state securities laws.
(f) The Placement Agent will handle, transmit and deposit all
funds from the sale of Units in accordance with the requirements of Rule
15c-2(4) promulgated under the Act.
4. CLOSING; PLACEMENT AND FEES.
(a) CLOSING. Provided that the Placement Agent has received
subscriptions for the Minimum Offering amount, the Placement Agent may conduct,
in its sole discretion, closings (the date of each a "Closing Date") at the
offices of the Placement Agent, 787 Seventh Avenue, New York, N.Y., until the
Final Closing Date. On each Closing Date, payment for the Units issued and sold
by the Company shall be made to the Company in immediately available funds
against delivery of certificates evidencing the Preferred Stock and Warrants
comprising such Units.
(b) CONDITIONS TO PLACEMENT AGENT'S OBLIGATIONS. The
obligations of the Placement Agent hereunder will be subject to the accuracy of
the representations and warranties of the Company herein contained as of the
date hereof and as of each Closing Date, to the performance by the Company of
its obligations hereunder and to the following additional conditions:
(i) DUE QUALIFICATION OR EXEMPTION. (A) The Offering
contemplated by this Agreement will become qualified or be exempt from
qualification under the securities laws of the several states pursuant to
paragraph 4(c) below not later than the Closing Date, subject to any filings to
be made thereafter, and (B) at the Closing Date no stop order suspending the
sale of the Units shall have been issued, and no proceeding for that purpose
shall have been initiated or threatened;
(ii) NO MATERIAL MISSTATEMENTS. Neither the Blue Sky
qualification materials nor the Memorandum, nor any supplement thereto, will
contain an untrue statement of a fact which in the opinion of the Placement
Agent is material, or omit to state a fact, which in the opinion of the
Placement Agent is material and is required to be stated therein, or is
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading;
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(iii) COMPLIANCE WITH AGREEMENTS. The Company will have
complied with all agreements and satisfied all conditions on its part to be
performed or satisfied hereunder and under the Subscription Agreements at or
prior to each Closing;
(iv) CORPORATE ACTION. The Company will have taken all
necessary corporate action, including, without limitation, obtaining the
approval of the Company's board of directors, for the execution and delivery of
the Offering Documents, the performance by the Company of its obligations
hereunder and the offering contemplated hereby;
(v) OPINION OF COUNSEL TO THE COMPANY. The Placement Agent
shall receive the opinion of counsel to the Company (stating that each of the
Purchasers may rely thereon as though addressed directly to such Purchaser),
dated as of each Closing Date, substantially to the effect that:
(A) the Company is duly incorporated and is validly
existing and in corporate good standing under the laws of the State of Delaware,
has all requisite corporate power and authority necessary to own or hold its
properties and conduct its business as described in the Memorandum and is duly
qualified or licensed to do business as a foreign corporation and is in good
standing in the State of California and is so duly qualified in each other
jurisdiction in which the nature of the business conducted, or as proposed to be
conducted in the Memorandum, by it or the properties owned, leased or operated
by it, makes such qualification or licensing necessary and where the failure to
be so qualified or licensed would have a material adverse effect upon the
Company. To such counsel's knowledge, the Company has no subsidiaries and the
Company does not own, directly or indirectly, any capital stock or other equity
ownership or proprietary interests in any other corporation, association, trust,
partnership, joint venture or other entity;
(B) the execution, delivery and performance of each of
the Offering Documents to which the Company is a signatory, and the issuance of
(I) the Units, the Preferred Stock and Warrants included in the Units, the Unit
Purchase Options and the Advisory Options, (II) the Preferred Stock and Warrants
issuable upon exercise of the Unit Purchase Options and the Advisory Options and
(III) the Conversion Shares and the Warrant Shares (including the Conversion
Shares underlying the Preferred Stock and the Warrant Shares underlying the
Warrants issuable upon exercise of the Unit Purchase Options and the Advisory
Options), have been duly authorized by all necessary corporate action on the
part of the Company. Each of the Offering Documents to which the company is a
signatory has been duly executed and delivered by the Company and constitutes a
legal, valid and binding obligation of the Company enforceable in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance,
receivership or other laws of general application relating to or affecting
generally the enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law. Such counsel shall not be
required to express any opinion as to the availability of any equitable remedy
upon
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Page 12
breach of any of the agreements, documents or obligations referred to herein, or
as to the enforceability of any indemnification provisions of any agreement,
document or instrument referred to herein under any federal or state securities
law;
(C) the authorized, issued and outstanding capital
stock of the Company as of the date hereof (before giving effect to the
transactions contemplated by this Agreement) is as set forth in the Offering
Documents. There are no outstanding warrants, options, agreements, convertible
securities, preemptive rights or other commitments to the best knowledge of such
counsel pursuant to which the Company is, or may become, obligated to issue any
shares of its capital stock or other securities of the Company other than as set
forth in the Memorandum. All of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully paid and
nonassessable and have not been issued in violation of the preemptive rights of
any security holder of the Company to the best knowledge of such counsel have
not been issued in violation of the preemptive rights of any security holder of
the Company;
(D) assuming (x) the accuracy of the information
provided by the Subscribers in the Subscription Documents, (y) that the
Placement Agent has complied in all material respects with the requirements of
section 4(2) of the Securities Act (and the provisions of Regulation D
promulgated thereunder) and (z) the timely filing with the Securities and
Exchange Commission and any applicable state securities authority of a Form D
and amendments thereto containing accurate and complete information, the
issuance and sale of the Units is exempt from registration under the Securities
Act and Rule 506 of Regulation D promulgated thereunder;
(E) neither the execution and delivery of the Offering
Documents nor compliance with the terms hereof or thereof, nor the consummation
of the transactions herein or therein contemplated, has, nor will, conflict
with, result in a breach of, or constitute a default under the Certificate of
Incorporation or By-laws of the Company, or any material contract, instrument or
document known to such counsel to which the Company is a party, or by which it
or any of its properties is bound or, to the knowledge of such counsel, violate
any applicable order or decree of any governmental agency or court having
jurisdiction over the Company or any of its properties or business;
(F) Except as disclosed in the Memorandum, to such
counsel's best knowledge, there are no claims, actions, suits, investigations or
proceedings before or by any arbitrator, court, governmental authority or
instrumentality pending or threatened against the Company which could, if
adversely determined, materially and adversely affect the business, properties
or financial condition of the Company, the transactions or other acts
contemplated by the Offering Documents or the validity or enforceability of the
Offering Documents. Except as disclosed in the Memorandum, to such counsel's
knowledge, the Company is not a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality naming the Company;
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(G) upon the issuance of the Units, the Preferred
Stock and the Warrants (including the shares of Preferred Stock and Warrants
issuable upon exercise of the Unit Purchase Options and the Advisory Options),
theUnit Purchase Options, the Advisory Options, and the Conversion Shares and
the Warrant Shares (including the Conversion Shares underlying the Preferred
Stock and the Warrant Shares underlying the Warrants issuable upon exercise of
the Unit Purchase Options and the Advisory Options), each of the purchasers or
the Placement Agent and its designees, as the case may be, shall acquire such
securities, free and clear of all pledges, liens, claims, encumbrances,
preemptive rights, rights of first offer or right of first refusal and
restrictions known to such counsel, and imposed by or through the Company,
except for the transfer restrictions set forth in the Subscription Agreements
and any action taken to encumber such securities by the holders thereof;
(H) the Warrants, Unit Purchase Options and Advisory
Options to be issued as of the date of such opinion, when issued in accordance
with the terms of this Agreement and/or the Subscription Agreement, as
applicable, for the consideration expressed therein, will have been validly
issued and will constitute legal, valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating or affecting generally the enforcement of creditors' rights and the
application of equitable principles in any action, legal or equitable. The
Units and the Preferred Stock to be issued as of the date of such opinion, when
issued in accordance with the terms of this Agreement and the Subscription
Agreement for the consideration expressed therein, will have been validly issued
and such Preferred Stock will be fully paid and nonassessable. The Preferred
Stock and Warrants issuable upon exercise of the Placement Option and the
Advisory Options issued as of the date of such opinion, when issued in
accordance with the terms thereof for the consideration expressed therein, will
have been duly issued; such Preferred Stock will be fully paid and
nonassessable, and such Warrants will constitute legal, valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating or affecting generally the enforcement of creditors' rights
and the application of equitable principles in any action, legal or equitable.
The Conversion Shares and the Warrant Shares (including the Conversion Shares
underlying the Preferred Stock and the Warrant Shares underlying the Warrants
issuable upon exercise of the Unit Purchase Options and the Advisory Options
issued as of the date of such opinion), have been duly authorized and reserved
for issuance and, when issued in accordance with the terms of the Preferred
Stock or the Warrants, as applicable, will have been validly issued and will be
fully paid and nonassessable.
Such counsel shall state that, in opining on any matter
stated to be subject to the knowledge of such counsel, such counsel has made
appropriate inquiries of officers of the Company with respect to the subject
matter of such opinion and has reviewed all documents the existence of which is
disclosed by such inquiries or of which such counsel otherwise is aware of as a
result of its representation of the Company.
In addition, such counsel shall state that in course of
the
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Page 14
preparation of the Offering Documents, which involved, among other things,
discussions and inquiries concerning the various legal matters and the review of
certain corporate records, documents and proceedings, counsel participated in
conferences with certain officers and other representatives of the Company and
the Placement Agent during which the contents of the Offering Documents and
related matters were discussed. Such counsel shall advise the Placement Agent
that although such counsel does not assume responsibility for the accuracy or
fairness of the Term Sheet, the information which was developed by such counsel
in the course of the activities described above (relying as to materiality upon
the representations, warranties and certifications of the Company and its
representatives and auditors), gave such counsel no reason to believe that as of
the Closing Date, the Term Sheet contained an untrue statement of a material
fact relating to the Company or omitted to state a material fact relating to the
Company required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made, it being understood that such counsel need not comment upon the financial
statements, schedules and related financial or accounting data included in the
Term Sheet. Such counsel shall be entitled to such assumptions and
qualifications as may be reasonably acceptable to the Placement Agent and its
counsel.
In the event that, at any Closing, Units, Unit Purchase
Options and/or Advisory Options are sold and the shares of Common Stock
underlying the Preferred Stock and Warrants included therein or subject thereto,
when taken together with the shares of Common Stock theretofore issued or
reserved (or required to be reserved) for issuance, exceed the authorized Common
Stock of the Company, such counsel may except from its opinions on due
authorization and reservation for issuance such excess shares of Common Stock.
(vi) OPINION OF PATENT COUNSEL. If requested by the
Placement Agent, the Placement Agent shall receive the opinion of patent counsel
to the Company (which such counsel shall be satisfactory to the Placement
Agent), dated the Closing Date in the form and substance satisfactory to counsel
for the Placement Agent.
(vii) COMFORT LETTER. The Company shall cause the Company's
independent public accountants to address and deliver to the Company and the
Placement Agent a letter or letters (which letters are frequently referred to as
"Comfort Letters") dated as of each Closing Date and the effective date of the
registration statement required to be filed in connection with the Subscription
Agreements.
(viii) OFFICER'S CERTIFICATE. The Placement Agent shall
receive an Officer's Certificate substantially in the form of Exhibit A hereto
and a Secretary's Certificate substantially in the form of Exhibit B hereto,
signed by the appropriate parties and dated as of each Closing Date. These
certificates shall state, among other things, that the representations and
warranties contained in Section 2 hereof are true and accurate in all material
respects at such Closing Date with the same effect as though expressly made at
such Closing Date.
(ix) ESCROW AGREEMENT. The Placement Agent shall receive a
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Page 15
copy of a duly executed Escrow Agreement with Fleet Bank, N.A.
(x) TRANSMITTAL LETTERS. The Placement Agent shall receive
copies of all letters from the Company to the investors transmitting the
Preferred Stock and Warrants and shall receive a letter from the Company
confirming transmittal of the securities to the investors.
(c) BLUE SKY. A summary blue sky survey, at the sole cost of
the Company (including, without limitation, the legal fees and disbursements in
connection therewith not to exceed $10,000), shall be prepared by counsel to the
Placement Agent stating the extent to which and the conditions upon which offers
and sales of the Units may be made in certain jurisdictions. It is understood
that such survey may be based on or rely upon (i) the representations of each
Subscriber set forth in the Subscription Agreement delivered by such Subscriber,
(ii) the representations, warranties and agreements of the Company set forth in
Section 2 of this Agreement, (iii) the representations and warranties of the
Placement Agent, and (iv) the representations of the Company set forth in the
certificate to be delivered at the Closing pursuant to paragraph (iii) of
Section 3(b).
(d) PLACEMENT FEES AND EXPENSES. (i) Simultaneously with
payment for and delivery of the Units at each Closing as provided in
paragraph 4(a) above, the Company shall at such Closing pay to the Placement
Agent (i) a commission (the "Cash Commission") equal to nine percent (9%) of the
aggregate purchase price of the Units sold and (ii) a non-accountable expense
allowance (the "Expense Allowance") equal to four percent (4%) of the aggregate
purchase price of the Units sold. The Company shall also pay all expenses in
connection with the qualification of the Units under the securities or Blue Sky
laws of the states which the Placement Agent shall designate. In addition, upon
each closing of the sale of the Units being offered, the Company will sell to
the Placement Agent and/or its designees, for $.001 per option, options (the
"Unit Purchase Options") to acquire a number of newly issued Units equal to 10%
of the Units issued at such closing, exercisable for a period of ten years
commencing six months after the Closing Date at an exercise price equal to 110%
of the initial offering price of the Units. The Company agrees with the
Placement Agent and its successors and assigns that the securities underlying
the Unit Purchase Options will not be subject to redemption by the Company nor
will they be callable or mandatorily convertible by the Company. The Unit
Purchase Options cannot be transferred, sold, assigned or hypothecated for six
months except that they may be assigned in whole or in part during such period
to any NASD member participating in the Offering or any officer or employee of
the Placement Agent or any such NASD member. The Unit Purchase Options will
contain a cashless exercise feature and antidilution provisions and the right to
have the Warrants underlying such options, the Warrant Shares issuable upon
exercise of such Warrants and the Conversion Shares issuable upon conversion of
the Preferred Stock underlying such options included on the Shelf Registration
Statement. In addition to the foregoing, the Company will pay the Placement
Agent a commission of 6% upon the exercise of any of the Warrants. Any
out-of-pocket costs incurred by the Placement Agent in connection with the
solicitation of Warrant exercises or the redemption of Warrants shall be borne
by the Company.
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(ii) The Cash Commission, Expense Allowance, Unit Purchase
Options and Advisory Options as set forth in this Agreement shall be paid to the
Placement Agent with respect to any investment by any investors ("Covered
Investors") introduced to the Company by the Placement Agent in the event that
any such Covered Investor purchases securities from the Company during the
twelve (12) months following the Final Closing Date of the Offering.
(e) NO ADVERSE CHANGES. There shall not have occurred, at any
time prior to the Closing (i) any domestic or international event, act or
occurrence which has materially disrupted, or in the Placement Agent's opinion
will in the immediate future materially disrupt, the securities markets; (ii) a
general suspension of, or a general limitation on prices for, trading in
securities on the New York Stock Exchange or the American Stock Exchange or in
the over-the-counter market; (iii) any outbreak of major hostilities or other
national or international calamity; (iv) any banking moratorium declared by a
state or federal authority; (v) any moratorium declared in foreign exchange
trading by major international banks or other persons; (vi) any material
interruption in the mail service or other means of communication within the
United States; (vii) any material adverse change in the business, properties,
assets, results of operations, or financial condition of the Company; or
(viii) any change in the market for securities in general or in political,
financial, or economic conditions which, in the Placement Agent's reasonable
judgment, makes it inadvisable to proceed with the offering, sale, and delivery
of the Units.
5. COVENANTS OF THE COMPANY.
(a) USE OF PROCEEDS. The net proceeds of the Offering will be
used by the Company substantially as set forth in the Memorandum.
(b) EXPENSES OF OFFERING. The Company shall be responsible for
and shall bear all expenses incurred in connection with the proposed Offering,
including but not limited to, the costs of preparing and duplicating the
Memorandum and all exhibits thereto; the costs of preparing, printing and filing
with the Securities and Exchange Commission (the "SEC") the Shelf Registration
Statement and amendments, post-effective amendments and supplements thereto;
preparing, duplicating and delivering exhibits thereto and copies of the
preliminary, final and supplemental prospectus; preparing, duplicating and
delivering (including by facsimile) all selling documents, including but not
limited to the Memorandum, the Placement Agency Agreement, Subscription
Agreements, Warrant agreements, blue sky memorandum and stock and warrant
certificates; blue sky fees, filing fees and legal fees and disbursements of the
Placement Agent's counsel in connection with blue sky matters; fees and
disbursements of the transfer and warrant agent; the cost of a total of two sets
of bound closing volumes for the Placement Agent and its counsel; and the cost
of one tombstone advertisement, which shall appear in either a national business
newspaper or a major New York newspaper, to be decided by the Company (or, at
the option of the Company, 40 lucite deal mementos) (collectively, the "Company
Expenses"). The Company shall pay to the Placement Agent a non-accountable
expense allowance equal to 4% of the total proceeds of the Offering (the
"Expense Allowance"), of which $40,000 shall be due and payable on the
Commencement Date, to cover the cost of our mailing, telephone, telegraph,
travel, due diligence meetings and
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other similar expenses including legal fees of our counsel (other than legal
fees in connection with blue sky matters as to which fees you shall be
responsible and any items designated above as Company Expenses). Such prepaid
expense allowances shall be non-refundable. If the proposed financing is not
completed because the Company prevents it or because of a breach by the Company
of any covenants, representations or warranties contained herein, the Company
shall pay to the Placement Agent a fee of $100,000 (in addition to the Company
Expenses for which the Company shall in all events remain liable).
(c) NOTIFICATION. The Company shall notify the Placement Agent
immediately, and in writing, (A) when any event shall have occurred during the
period commencing on the date hereof and ending on the later of the Closing or
the Final Closing Date as a result of which the Offering Documents would include
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they were made and (B) of
the receipt of any notification with respect to the modification, rescission,
withdrawal or suspension of the qualification or registration of the Units and
the Warrants, or of any exemption from such registration or qualification, in
any jurisdiction. The Company will use its best efforts to prevent the issuance
of any such modification, rescission, withdrawal or suspension and, if any such
modification, rescission, withdrawal or suspension is issued and you so request,
to obtain the lifting thereof as promptly as possible.
(d) BLUE SKY. The Company will use its best efforts to qualify
the Units for offering and sale under exemptions from qualification or
registration requirements under the securities or "blue sky" laws of such
jurisdictions as you may reasonably request; provided however, that the Company
will not be obligated to qualify as a dealer in securities in any jurisdiction
in which it is not so qualified. The Company will not consummate any sale of
Units in any jurisdiction in which it is not so qualified or in any manner in
which such sale may not be lawfully made.
(e) REGISTRATION STATEMENT FILING. The Company will, as soon as
practicable, but not later than 30 days after the Final Closing Date, (i) file a
shelf registration statement (the "Shelf Registration Statement") with respect
to (x) the Common Stock issuable upon conversion of the Preferred Stock and
exercise of the Warrants and (y) the Warrants (the "Registrable Capital Stock")
with the Commission and use its best efforts to have such Shelf Registration
Statement declared effective by the SEC and (ii) cause such Shelf Registration
Statement to remain effective until such date as the holders of the securities
have completed the distribution described in the Shelf Registration Statement or
at such time that such shares are no longer, by reason of Rule 144(k) under the
Securities Act, required to be registered for the sale thereof by such holders.
(f) FORM D FILING. The Company shall file five copies of a
Notice of Sales of Securities on Form D with the Commission no later than 15
days after the first Closing Date. The Company shall file promptly such
amendments to such Notices on Form D as shall become necessary and shall also
comply with any filing requirement imposed by the laws of any state or
jurisdiction in which offers and sales are made. The Company shall furnish the
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Placement Agent with copies of all such filings.
(g) PRESS RELEASES, ETC. Except as otherwise required by
applicable law, the Company shall not, during the period commencing on the date
hereof and ending thirty days after the Final Closing Date, issue any press
release or other communication, or hold any press conference with respect to the
Company, its financial condition, results of operations, business, properties,
assets, or liabilities, or the Offering, without the prior written consent of
the Placement Agent, which consent shall not be unreasonably withheld, except
upon the advice of counsel in which case the Company shall deliver to the
Placement Agent a copy of such press release prior to publication.
(h) PUBLIC DOCUMENTS. Following the Final Closing Date of the
Offering, the Company will furnish to the Placement Agent: (i) as soon as
practicable (but in the case of the annual report of the Company to its
stockholders, within 120 days after the end of each fiscal year of the Company)
one copy of: (A) its annual report to its stockholders (which annual report
shall contain financial statements audited in accordance with generally accepted
accounting principles in the United States of America by a firm of certified
public accountants of recognized standing), (B) if not included in substance in
its annual report to stockholders, its annual report on Form 10-K, (C) each of
its quarterly reports to its stockholders, and if not included in substance in
its quarterly reports to stockholders, its quarterly report on Form 10-Q, (D)
each of its current reports on Form 8-K, and (E) a copy of the full Shelf
Registration Statement, (the foregoing, in each case, excluding exhibits); and
(ii) upon reasonable request, all exhibits excluded by the parenthetical to the
immediately preceding clause 5(h)(i)(E) and all other information that is
generally available to the public. In addition, the Company upon reasonable
request will meet with the Placement Agent or its representatives to discuss all
information relevant for disclosure in any Shelf Registration Statement covering
shares purchased by purchasers from the Company and offered by them for resale
and will cooperate in any reasonable investigation undertaken by the Placement
Agent for the purpose of confirming the accuracy of the Shelf Registration
Statement, including the production of information at the Company's offices.
(i) RESTRICTIONS ON SECURITIES. During the eighteen (18) months
following the Closing of the Offering, the Company shall not, without the prior
written consent of the Placement Agent, offer or sell any of its securities in
reliance on Regulation S of the Securities Act. During the eighteen (18) month
period following the date hereof, (i) the Placement Agent shall have the right
of first refusal to act as placement agent for the offering of any securities of
the Company issued for fund raising purposes and (ii) the Company will not
extend the expiration date or decrease the exercise price of any options (other
than stock options issued pursuant to the Company's stock option plans) or
warrants or other similar security purchase rights without the prior written
consent of the Placement Agent.
(j) LISTING. The Company will promptly file an American Stock
Exchange ("AMEX") Notification Form for Listing of Additional Securities and
hereby represents and warrants to the Placement Agent and to the Purchasers that
it will take all action necessary to list all Conversion Shares and the Warrant
Shares as promptly as practicable in
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accordance with the rules of the AMEX.
(k) FINANCIAL ADVISORY AGREEMENT. Upon the Final Closing Date,
the Company and the Placement Agent will agree to an eighteen month extension of
the Financial Advisory Agreement currently in effect between the Placement Agent
and the Company, pursuant to which the Placement Agent is engaged as the
Company's non-exclusive financial advisor.
Such engagement will provide that the Placement Agent will
receive (i) a monthly retainer of $2,500, (ii) out-of-pocket expenses and (iii)
standard success fees. In addition, pursuant to the Financial Advisory
Agreement, the Company will sell to the Placement Agent and/or its designees,
for $.001 per option, options (the "Advisory Options") to acquire a number of
newly issued Units equal to 2.5% of the Units issued in the Offering,
exercisable for a period of ten years commencing six months after the Closing
Date at an exercise price equal to 110% of the initial offering price of the
Units. The Advisory Options will contain a cashless exercise feature,
antidilution provisions and the right to have the Common Stock issuable upon
exercise of the the Warrants underlying the Advisory Options, such Warrants and
the Common Stock issuable upon conversion of the Preferred Stock underlying the
Advisory Options included in the Shelf Registration Statement and will otherwise
have features identical to the Unit Purchase Options. The Company agrees with
the Placement Agent and its successors and assigns that the securities
underlying the Advisory Options will not be subject to redemption by the Company
nor will they be callable or mandatorily convertible by the Company.
(l) NO OFFERINGS. Pending completion or termination of the
Offering in accordance with the terms of this Agreement, the Company agrees that
it will not enter into an agreement (whether binding or not) with any other
person or entity relating to a possible public or private offering or placement
of its securities (other than in connection with a corporate partnership,
strategic alliance or government funding)
(m) LOCK-UP AGREEMENT. If requested by the Placement Agent, the
Company will use its best efforts to obtain from its directors and executive
officers an agreement that, for a period of thirteen (13) months from the Final
Closing Date, they will not sell, assign or transfer any of their shares of the
Company's securities without the Placement Agent's prior written consent.
6. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless the
Placement Agent and each Selected Dealer, if any, and their respective partners,
affiliates, shareholders, directors, officers, agents, advisors,
representatives, employees, counsel and controlling persons within the meaning
of the Act (a "Paramount Indemnified Party") against any and all losses,
liabilities, claims, damages and expenses whatsoever (and all actions in respect
thereof), and to reimburse the Placement Agent for legal fees and related
expenses as incurred (including, but not limited to the costs of giving
testimony or furnishing documents in response to a subpoena or otherwise, the
costs of investigating, preparing, pursuing or
<PAGE>
Page 20
defending any such action or claim whether or not pending or threatened and
whether or not the Placement Agent or any Paramount Indemnified Party is a party
thereto), in so far as such losses, liabilities, claims, damages or expenses
arise out of, relate to, are in incurred in connection with or are in any way a
result of (i) the engagement of the Placement Agent pursuant to this Agreement
and in connection with the transactions contemplated by this Agreement and the
other Offering Documents (the "Engagement"), including any modifications or
future additions to such engagement and related activities prior to the date
hereof, (ii) any act by the Placement Agent or any Paramount Indemnified Party
taken in connection with the Engagement, (iii) a breach of any representation,
warranty, covenant, or agreement of the Company contained in this Agreement,
(iv) the employment by the Company of any device, scheme or artifice to defraud,
or the engaging by the Company in any act, practice or course of business which
operates or would operate as a fraud or deceit, or any conspiracy with respect
thereto, in connection with the sale of the Units, or (v) any untrue statement
or alleged untrue statement of a material fact contained in the Offering
Documents or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, provided, however, that the Company
will not be liable in any such case if and to the extent that any such loss,
claim, damage, liability or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by any such Paramount Indemnified Party in
writing specifically for use in the Offering Documents;
(b) The Company agrees to indemnify and hold harmless a
Paramount Indemnified Party to the same extent as the foregoing indemnity, and
subject to the limitations set forth therein, against any and all loss,
liability, claim, damage and expense whatsoever directly arising out of the
exercise by any person of any right under the Securities Act or the Exchange Act
or the securities or Blue Sky laws of any state on account of violations of the
representations, warranties or agreements set forth in Section 2 hereof.
(c) The Placement Agent agrees to indemnify and hold harmless
the Company, the Company's directors, officers, employees and agents and
controlling persons within the meaning of the Act (a "Company Indemnified
Party") and each and all of them, to the same extent as set forth in Section
6(a)(v) of the foregoing indemnity from the Company to the Placement Agent, but
only with reference to information, relating to the Placement Agent, furnished
in writing to the Company by the Placement Agent specifically for inclusion in
the Offering Documents and only to the extent that any losses, claims, damages,
and liabilities in respect of which indemnification is claimed are finally
judicially determined to have resulted primarily and directly from the bad faith
or gross negligence of the Placement Agent.
(d) Promptly after receipt by a person entitled to
indemnification pursuant to subsection (a), (b), or (c) (an "indemnified party")
of this Section of notice of the commencement of any action, the indemnified
party will, if a claim in respect thereof is to be made against a person
granting indemnification (an "indemnifying party") under this Section, notify in
writing the indemnifying party of the commencement thereof; but the omission so
to notify the indemnifying party will not relieve it from any liability which it
may have to the
<PAGE>
Page 21
indemnified party otherwise than under this Section. In case any such action is
brought against an indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, subject to the
provisions herein stated, with counsel reasonably satisfactory to the
indemnified party, and after notice from the indemnifying party to the
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to the indemnified party under this
Section for any legal or other expenses subsequently incurred by the indemnified
party in connection with the defense thereof other than reasonable costs of
investigation. The indemnified party shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but the
fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided
that the fees and expenses of such counsel shall be at the expense of the
indemnifying party if (i) the employment of such counsel has been specifically
authorized in writing by the indemnifying party or (ii) the named parties to any
such action (including any impleaded parties) include both the indemnified party
or parties and the indemnifying party and, in the judgment of the indemnified
party, it is advisable for the indemnified party or parties to be represented by
separate counsel in which case the indemnifying party shall not have the right
to assume the defense of such action on behalf of the indemnified party or
parties, it being understood, however, that the indemnifying party shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys for the indemnified party or parties.
No settlement, compromise, consent to entry of judgment or other termination of
any action (collectively, "Terminations") in respect of which a Paramount
Indemnified Party may seek indemnification hereunder (whether or not any
Paramount Indemnified Party is a party thereto) shall be made without the prior
written consent of the Paramount Indemnified Party, which such consent may be
withheld at the sole discretion of such Paramount Indemnified Party, provided,
however, that the foregoing requirement of prior written consent for
Terminations shall not apply to the Placement Agent who may agree to such
Terminations without the prior written consent of any Paramount Indemnified
Party.
(e) Notwithstanding any of the provisions of this Agreement, the
aggregate indemnification or contribution of the Placement Agent for or on
account of any losses, claims, damages, liabilities or actions under this
Section 6, Section 7 or any other applicable section of this Agreement, SHALL
NOT exceed the Selling Commissions actually paid to the Placement Agent. The
respective indemnity and contribution agreements by the Company and the
Placement Agent contained in subsections (a), (b), (c) and (d) of this Section 6
and Section 7, and the covenants, representations and warranties of the Company
and the Placement Agent set forth in Sections 1, 2, 3, 4 and 5 shall remain
operative and in full force and effect regardless of (i) any investigation made
by the Placement Agent, on the Placement Agent's behalf or by or on behalf of
any person who controls the Placement Agent, the Company or any controlling
person of the Company or any director or officer of the Company, (ii) acceptance
of any of the Units and payment therefor or (iii) any termination of this
Agreement, and shall
<PAGE>
Page 22
survive the delivery of the Units, and any successor of the Placement Agent or
of the Company or of any person who controls the Placement Agent or the Company,
as the case may be, shall be entitled to the benefit of such respective
indemnity and contribution agreements. The respective indemnity and
contribution agreements by the Company and the Placement Agent contained in
subsections (a), (b) and (c) of this Section 6 and Section 7 shall be in
addition to any liability which the Company and the Placement Agent may
otherwise have.
7. CONTRIBUTION.
(a) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 6 but it
is found in a final judicial determination, by a court of competent
jurisdiction, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Securities Act, the Exchange Act, or otherwise,
then the Company (including for this purpose any contribution made by or on
behalf of any officer, director, employee or agent for the Company, or any
controlling person of the Company), on the one hand, and the Placement Agent and
any Selected Dealers (including for this purpose any contribution by or on
behalf of an indemnified party), on the other hand, shall contribute to the
losses, liabilities, claims, damages, and expenses whatsoever to which any of
them may be subject, in such proportions as are appropriate to reflect the
relative benefits received by the Company, on the one hand, and the Placement
Agent and the Selected Dealers, on the other hand; provided, however, that if
applicable law does not permit such allocation, then other relevant equitable
considerations such as the relative fault of the Company and the Placement Agent
and the Selected Dealers in connection with the facts which resulted in such
losses, liabilities, claims, damages, and expenses shall also be considered. In
no case shall the Placement Agent or a Selected Dealer be responsible for a
portion of the contribution obligation in excess of the compensation received by
it pursuant to Section 4 hereof or the Selected Dealer Agreement, as the case
may be. No person guilty of a fraudulent misrepresentation shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 7, each person, if any, who
controls the Placement Agent or a Selected Dealer within the meaning of
Section 15 of the Securities Act or Section 20(a) of the Exchange Act and each
officer, director, stockholder, employee and agent of the Placement Agent or a
Selected Dealer, shall have the same rights to contribution as the Placement
Agent or the Selected Dealer, and each person, if any who controls the Company
within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act and each officer, director, employee and agent of the Company,
shall have the same rights to contribution as the Company, subject in each case
to the provisions of this Section 7. Anything in this Section 7 to the contrary
notwithstanding, no party shall be liable for contribution with respect to the
settlement of any claim or action effected without its written consent. This
Section 7 is intended to supersede any right to contribution under the
Securities Act, the Exchange Act, or otherwise.
8. MISCELLANEOUS.
<PAGE>
Page 23
(a) SURVIVAL. Any termination of the Offering without any
Closing shall be without obligation on the part of any party except that the
provisions regarding fees and expenses contained in Section 5(b), the
indemnification provided in Section 6 hereof and the contribution provided in
Section 7 hereof shall survive any termination and shall survive any Closing.
(b) REPRESENTATIONS, WARRANTIES AND COVENANTS TO SURVIVE
DELIVERY. Except as provided in Section 8(a), the respective representations,
warranties, indemnities, agreements, covenants and other statements of the
Company and the Placement Agent as of the date hereof shall survive execution of
this Agreement and delivery of the Units and the termination of this Agreement.
(c) NO OTHER BENEFICIARIES. This Agreement is intended for the
sole and exclusive benefit of the parties hereto and their respective successors
and controlling persons, and no other person, firm or corporation shall have any
third-party beneficiary or other rights hereunder.
(d) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the law of the State of New York without regard to
conflict of law provisions.
(e) COUNTERPARTS. This Agreement may be signed in counterparts
with the same effect as if both parties had signed one and the same instrument.
(f) NOTICES. Any communications specifically required hereunder
to be in writing, if sent to the Placement Agent, will be mailed, delivered and
confirmed to it at Paramount Capital, 787 Seventh Avenue, New York, New York,
10019, Att: Michael S. Weiss and if sent to the Company, will be mailed,
delivered or telegraphed and confirmed to it at Xytronyx, Inc., 6555 Nancy Ridge
Drive, Suite 200, San Diego, CA 92121, Att: Chief Executive Officer.
(g) TERMINATION. Subject to the general survival provisions
contained in Sections 8(a) and 8(b), this Agreement may be terminated by either
party prior to any Closing upon written notice to the other party.
(h) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties with respect to the matters herein referred and
supersedes all prior agreements and understandings, written and oral, between
the parties with respect to the subject matter hereof. Neither this Agreement
nor any term hereof may be changed, waived or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver or termination is sought.
(i) Nothing contained herein or otherwise shall create a
partnership or joint venture between you and the Company.
<PAGE>
Page 24
(j) The headings and captions of the various subdivisions of
this Agreement are for convenience or reference only and shall in no way modify
or affect the meaning or construction of any of the terms or provisions hereof.
<PAGE>
Page 25
If you find the foregoing is in accordance with our understanding,
kindly sign and return to us a counterpart hereof, whereupon this instrument
along with all counterparts will become a binding agreement between us.
Very truly yours,
XYTRONYX, INC.
By: /s/ Larry O. Bymaster
---------------------
Name: Larry O. Bymaster
Title: President & Chief Executive Officer
Agreed to by:
PARAMOUNT CAPITAL, INC.
By: /s/ Lindsay A. Rosenwald, M.D.
------------------------------
Name: Lindsay A. Rosenwald, M.D.
Title: Chairman
<PAGE>
Page 26
EXHIBIT A
XYTRONYX, INC.
OFFICERS' CERTIFICATE
[ ], 1996
I, Larry O. Bymaster certify that I am the President and Chief
Executive Officer of Xytronyx, Inc., a Delaware corporation (the "Company"), and
that, as such, I am authorized to execute this certificate on behalf of the
Company. All Capitalized terms used herein but not otherwise defined herein
shall the meanings ascribed to such terms in the Agency Agreement (as defined
below). Reference is made herein to the closing held on [ ] (the "Closing
Date"). I do hereby certify that I have carefully examined all of the Offering
Documents (as defined in the Placement Agency Agreement dated as of [ ],
1996 between the Company and Paramount Capital, Inc. (the "Agency Agreement")),
and do hereby further certify that:
1. All of the representations and warranties of the Company
contained in the subscription agreements (the "Subscription Agreements") between
the Company and the purchasers (the "Purchasers") of the Units of Preferred
Stock and Warrants of the Company contemplated by the Company's Private
Placement Memorandum, dated October 1, 1996 (as supplemented, the "Memorandum")
are true and correct in all material respects on the Closing Date with the same
force and effect as if made on and as of the Closing Date, and the Company has
performed all covenants and agreements and has satisfied all conditions in the
Subscription Agreements to be performed or satisfied on its part before the
Closing Date in all material respects.
2. The Memorandum does not contain any untrue statement of a
material fact or omit to state any fact required to be stated in order to make
the statements therein not misleading as of the Closing Date. Since the date of
the Memorandum, no event has occurred concerning which information is required
to be contained in an amended or supplemented Memorandum concerning which such
information is not contained herein.
3. All of the representations and warranties of the Company
contained in the Agency Agreement are true and correct in all material respects
on the Closing Date, and the Company has performed all covenants and agreements
and has satisfied all conditions contained in the Agency Agreement to be
performed and satisfied on its part at or prior to the Closing Date in all
material respects.
4. All of the representations and warranties of the Company
contained each of the other Offering Documents are true and correct in all
material respects on the Closing Date, and the Company has performed all
covenants and agreements and has satisfied all conditions contained in such
Offering Documents to be performed and satisfied on its part at or prior to the
Closing Date in all material respects.
<PAGE>
Page 27
5. Since the date of the most recent financial statements and the
information included in the Memorandum, there has been no material adverse
change in the condition (financial or other), earnings, business or properties
of the Company and its subsidiaries taken as a whole, whether or not arising
from transactions in the ordinary course of business, nor has there occurred any
material event required to be set forth in the Memorandum, including, without
limitation, in accordance with Section 1(b) of the Agency Agreement.
6. There is no litigation pending or, to our knowledge, threatened
by or against the Company, except as disclosed in the Memorandum.
7. The Company will promptly file a Notification Form for Listing of
Additional Shares with the American Stock Exchange (the "AMEX") in accordance
with Rule 10b-17 under the Securities Exchange Act of 1934 and hereby represents
and warrants to Paramount Capital, Inc. and to the Purchasers that it will take
all action necessary to list all shares of Common Stock issuable upon conversion
or exercise, as the case may be, of the Preferred Stock, the Warrants and the
Unit Purchase and Advisory Options in accordance with the rules of the AMEX.
8. Since [ ], 1996, the Company has not offered to sell to or
solicited any offers to buy from any person shares of capital stock of the
Company, except in connection with the Offering contemplated by the Memorandum.
IN WITNESS WHEREOF, I have executed this certificate on this [ ]th
day of [ ], 1996.
_____________________________________
Name: Larry O. Bymaster
Title: President and Chief Executive Officer
<PAGE>
Page 28
EXHIBIT B
XYTRONYX, INC.
SECRETARY'S CERTIFICATE
[ ], 1996
I, [___], certify that I am the duly elected, qualified and acting
Secretary of Xytronyx, Inc., a Delaware corporation (the "Company"), and as
such, I am duly authorized to execute this Certificate on behalf of the Company,
and that I am familiar with the facts certified below. All Capitalized terms
used herein but not otherwise defined herein shall the meanings ascribed to such
terms in the Agency Agreement dated as of [ ], 1996 between the Company
and Paramount Capital, Inc. (the "Agency Agreement"). Reference is made herein
to the closing held on [ ] (the "Closing Date"). In connection with the
offering and sale of up to 60 units (the "Units") each consisting of (1) 500
shares of the Premium Preferred Stock, stated value $200 per share (the
"Preferred Stock"), and (2) Class A warrants (the "Warrants") to purchase 15,000
shares of common stock, par value $.02 per share, of the Company (the "Common
Stock"), for which Paramount Capital, Inc. ("Paramount") has acted as placement
agent, I do hereby further certify as follows:
1. Attached hereto as Exhibit A is a true, correct and complete copy
of the Company's Certificate of Incorporation, as amended, which is in full
force and effect and, except as set forth in Paragraph 2 below, no amendment to
such certificate has been approved by the Board of Directors or stockholders of
the Company or filed with the Delaware Secretary of State since October 1, 1996.
As of the Closing Date, the Company is duly incorporated and in good standing in
its state of incorporation and has paid all fees and taxes due and payable by it
on or prior to the Closing Date necessary for the maintenance or continuation of
its corporate existence. As of the Closing Date, there are no proceedings or
actions contemplated by the Company, relating to the merger, liquidation,
consolidation, or sale of all or substantially all of the assets or business of
the Company or which would otherwise threaten or impair the Company's corporate
existence.
2. Attached hereto as Exhibit B is a true, correct and complete copy
of the Certificate of Designations of the Company's Series A Convertible
Preferred Stock, as filed with the Delaware Secretary of State on [ ] and as in
effect on the Closing Date.
3. Attached hereto as Exhibit C is a true, correct and complete copy
of the Bylaws of the Company, as in full force and effect on the Closing Date
and at all times from October 1, 1996 through the Closing Date.
4. As of the Closing Date, each of the Offering Documents is in the
form authorized by the board of directors of the Company pursuant to the
resolutions set forth in Exhibit D.
<PAGE>
Page 29
5. Attached hereto as Exhibit D is a true, correct and complete copy
of resolutions duly adopted at meetings of the Company's board of directors duly
called and held on [ ], 1996, which resolutions authorize the issuance and
sale of the Units, the Unit Purchase and Advisory Options in accordance with the
requirements of Delaware law, the Certificate and Bylaws of the Company are the
only resolutions adopted by the board of directors of the Company or any
committee thereof with respect to the offering and sale of the units and the
transactions relating thereto, and which have not been revoked, modified and
amended or rescinded and are in full force and effect on the Closing Date.
6. Attached hereto as Exhibit E are true, correct and complete
specimens of the certificates representing the Preferred Stock heretofore
approved and adopted by the board of directors of the Company. Each of the
certificates representing Preferred Stock delivered on the Closing Date to each
of the Purchasers pursuant to the Subscription Agreements has been executed by
the genuine or facsimile signature of officers of the Company who have been duly
elected or appointed, qualified and acting as such officers on the date such
certificates were executed and delivered, all in accordance with the Certificate
and Bylaws of the Company and the requirements of applicable law.
7. Attached hereto as Exhibit F is a true, correct and complete
specimen of the certificate representing the Warrants heretofore approved and
adopted by the board of directors of the Company. Each of the certificates
representing Warrants delivered on the Closing Date to each of the Purchasers
pursuant to the Subscription Agreements has been executed by the genuine or
facsimile signature of officers of the Company who have been duly elected or
appointed, qualified and acting as such officers on the date such certificates
were executed and delivered, all in accordance with the Certificate and Bylaws
of the Company and the requirements of applicable law.
8. Attached hereto as Exhibit G is a true, correct and complete copy
of the form of Unit Purchase and Advisory Options heretofore approved and
adopted by the Board of Directors of the Company. Each of the Unit Purchase and
Advisory Options delivered on the date hereof to each of the holders pursuant to
the Agency Agreement has been executed by the genuine or facsimile signature of
officers of the Company who have been duly elected or appointed, qualified and
acting as such officers on the date such certificates were executed and
delivered, all in accordance with the Certificate and Bylaws of the Company and
the requirements of applicable law.
9. The minute books and records of the Company, relating to all
proceedings of the stockholders, the Board of Directors of the Company and the
Compensation Committee, the Audit Committee and the Nominating Committee of such
Board have been made available to [ ], counsel to Paramount, and, in such
form, are the original minute books and records of the Company. There have been
no material changes, alterations or additions in such minutes or records since
their examination by [ ] on behalf of Paramount.
10. Each person who, as an officer or director of the Company, signed
any of the Offering Documents or any other document in connection with the
offering and sale of
<PAGE>
Page 30
the Preferred Stock, the Warrants, the Unit Purchase Options and the closing
relating thereto was duly elected or appointed, qualified and acting as such
officer or director at the respective times of the signing and delivery thereof
and was duly authorized to sign such document on behalf of the Company, and the
signature of each such person appearing on each such document is the genuine
signature of such officer, director or person duly appointed for the purpose of
executing such documents under valid powers of attorney, and each individual who
signed such signature pages, personally or by an attorney-in-fact, was then duly
elected, qualified and acting as an officer or director of the Company as stated
therein.
11. The following persons are, and have been at all times since
October 1, 1996, duly qualified and acting officers of the Company, duly elected
or appointed to the offices set forth opposite their respective names, and the
signature opposite the name of each such officer is his or her, or a facsimile
of his or her, authentic signature, and the seal affixed hereto is the duly
adopted seal of the Company:
Name Office Signature
---- ------ ---------
Larry O. Bymaster President and CEO
David A. Okrongly Vice President, Research & Development
[__] Vice President of Finance,
Chief Financial Officer, Secretary and Treasurer
Randal R. Lane Director of Manufacturing,
Acting Director of Regulatory Affairs
This certificate is made for the benefit of, and may be relied upon
by, Paramount, [ ], as counsel to Paramount, and each of the Purchasers.
IN WITNESS WHEREOF, I have hereunto set forth my hand this []th day of
[ ], 1996.
[SEAL]
_____________________________________
Name: [__]
Title: Secretary
I, Larry O. Bymaster, President and Chief Executive Officer of the
Company, do hereby certify that Dale A. Sander whose genuine signature appears
above, is, and has been
<PAGE>
Page 31
at all times since [ ], 1996, the duly elected or appointed, qualified and
acting Secretary of the Company.
IN WITNESS WHEREOF, I have hereunto set forth my hand this []th day of
[ ], 1996.
_____________________________________ Name:
Larry O. Bymaster
Title: President and Chief Executive Officer
<PAGE>
EXHIBIT 10.49
SIDE LETTER NO. 1
TO THE
PLACEMENT AGENCY AGREEMENT
December 14, 1996
Paramount Capital, Inc.
787 Seventh Avenue
New York, New York 10019
Dear Sirs:
This letter shall constitute Side Letter No. 1 to the Placement Agency
Agreement (the "Placement Agency Agreement") dated September 27, 1996 between
Xytronyx, Inc., a Delaware corporation (the "Company") and Paramount Capital,
Inc. (the "Placement Agent").
The parties hereto agree to the following amendments to the Placement
Agency Agreement:
1. The Company and the Placement Agent hereby agree to extend the
Final Closing Date of the Offering until January 31, 1996, subject to the right
of the Placement Agent to extend the Offering for an additional 30 days.
2. The Company and the Placement Agent hereby agree to increase the
size of the Offering from a Maximum Offering of 40 Units to a Maximum Offering
of 100 Units, for an aggregate dollar amount of $10,000,000. In addition, the
Company hereby grants the Placement Agent an option to offer up to an additional
25 Units, in addition to the Maximum Offering, to cover over-allotments.
3. The Company and the Placement Agent hereby agree to increase the
number of shares of Common Stock underlying the Class A Warrants per Unit from
15,000 to 50,000.
<PAGE>
4. The Company and the Placement Agent hereby agree that Section
5(k) of the Placement Agency Agreement shall be replaced with the following
paragraph:
(k) FINANCIAL ADVISORY AGREEMENT. Upon the Final Closing
Date, the Company and the Placement Agent will agree to an eighteen month
extension of the Financial Advisory Agreement currently in effect between
the Placement Agent and the Company, pursuant to which the Placement Agent
is engaged as the Company's non-exclusive financial advisor.
Such engagement will provide that the Placement Agent will
receive (i) a monthly retainer of $2,500, (ii) out-of-pocket expenses and
(iii) standard success fees. In addition, pursuant to the Financial
Advisory Agreement, the Company will sell to the Placement Agent and/or its
designees, for $.001 per option, options (the "Advisory Options") to
acquire a number of newly issued Units equal to 15% of the Units issued in
the Offering, exercisable for a period of ten years commencing six months
after the Closing Date at an exercise price equal to 110% of the initial
offering price of the Units. The Advisory Options will contain a cashless
exercise feature, antidilution provisions and the right to have the Common
Stock issuable upon exercise of the Warrants underlying the Advisory
Options, such Warrants and the Common Stock issuable upon conversion of the
Preferred Stock underlying the Advisory Options included in the Shelf
Registration Statement and will otherwise have features identical to the
Unit Purchase Options. The Company agrees with the Placement Agent and its
successors and assigns that the securities underlying the Advisory Options
will not be subject to redemption by the Company nor will they be callable
or mandatorily convertible by the Company.
4. The Company and the Placement Agent hereby agree to add the
following paragraph as Section 5(n) of the Placement Agency Agreement:
(n) AUTHORIZED SHARES. The Company shall (a) use its best efforts to
increase the authorized Common Stock of the Company to 100,000,000 shares (or
such higher number as may be approved by the Board of Directors) within 90 days
after the Final Closing Date but in any event shall effect such increase no
later than 270 days after the Final Closing Date and (b) at all times after the
date upon which such stock is authorized, use its best efforts to reserve and
keep available out of its authorized but unissued shares of Common Stock solely
for the purpose of effecting the conversion of the shares of Preferred Stock,
such number of shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all outstanding shares of the Preferred Stock. If
after 270 days following the Final Closing Date the Company has failed to
authorize sufficient shares, the Company agrees that each Subscriber shall be
entitled at its option to require the Company to repurchase such Subscriber's
shares of Preferred Stock for $200.00 per share and the Company hereby agrees to
repurchase such securities at such prices if requested by the Subscriber.
<PAGE>
5. The Company hereby agrees to increase its authorized number of
shares of Preferred Stock to 1,000,000 shares.
Capitalized terms used but not defined in this letter shall have the
meanings provided in the Placement Agency Agreement. Except as expressly
provided herein, the terms of the Placement Agency Agreement shall remain in
full force and effect without modification or amendment. If the foregoing
correctly sets forth the understanding between us, please so indicate in the
space provided below for that purpose, whereupon this shall constitute a binding
agreement between us.
XYTRONYX, INC.
By: /s/ Larry O. Bymaster
---------------------
Name: Larry O. Bymaster
Title: President and CEO
Agreed to by:
PARAMOUNT CAPITAL, INC.
By: /s/ Lindsay A. Rosenwald, M.D.
-------------------------------
Name: Lindsay A. Rosenwald, M.D.
Title: Chairman
<PAGE>
EXHIBIT 10.50
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT (this "Agreement") made as of the date set
forth on the signature page hereof between Xytronyx, Inc., a Delaware
corporation with its principal offices at 6555 Nancy Ridge Drive, Suite 200, San
Diego, CA 92121 (the "Company") and the undersigned (the "Subscriber").
W I T N E S S E T H:
WHEREAS, the Company desires to issue a minimum (the "Minimum
Offering") of ten (10) units (the "Units") and a maximum (the "Maximum
Offering") of forty (40) Units, with an option in favor of the Placement Agent
to offer up to an additional twenty (20) Units to cover over-allotments, in a
private placement offering (the "Offering"), each Unit consisting of (a) 500
shares of Premium Preferred Stock of the Company, par value $25.00 per share and
stated value $200.00 per share, (the "Preferred Stock") and (b) Class A warrants
to purchase 15,000 shares of Common Stock of the Company, par value $.02 per
share (the "Common Stock") at an exercise price per underlying share of Common
Stock equal to $1.00, subject to adjustment pursuant to the terms of the
Warrants (the "Warrants," and collectively with the Preferred Stock and the
Common Stock underlying the Warrants and Preferred Stock, the "Shares"), and the
Subscriber desires to purchase that number of Units set forth on the signature
page hereof on the terms and conditions hereinafter set forth;
WHEREAS, the Company has engaged Paramount Capital, Inc. (the
"Placement Agent") as Placement Agent for the Offering on a "best-efforts"
basis.
NOW, THEREFORE, in consideration of the premises and the mutual
representations and covenants hereinafter set forth, the parties hereto do
hereby agree as follows:
SUBSCRIPTION FOR UNITS AND REPRESENTATIONS BY SUBSCRIBER
1.1 Subject to the terms and conditions hereinafter set forth, the
Subscriber hereby subscribes for and agrees to purchase from the Company such
number of Units or fractions thereof and the Company agrees to sell such Units
to the Subscriber as is set forth upon the signature page hereof. The Units
will be offered at $100,000 per Unit (the "Initial Offering Price"). The
purchase price is payable by personal or business check, wire transfer of
immediately available funds or money order made payable to "Fleet Bank, NA,
Escrow Agent, F/B/O Xytronyx, Inc." contemporaneously with the execution and
delivery of this Agreement. The Units will be delivered by the Company within
ten (10) days following the consummation
<PAGE>
of the Offering as set forth in Article III hereof.
1.2 The Subscriber recognizes that the purchase of Units involves a
high degree of risk in that (i) the Company remains a development stage business
with limited operating history and requires substantial funds in addition to the
proceeds of the Offering; (ii) an investment in the Company is highly
speculative, and only investors who can afford the loss of their entire
investment should consider investing in the Company and the Units; (iii) the
Subscriber may not be able to liquidate his investment; (iv) transferability of
the Shares is extremely limited; and (v) in the event of a disposition, the
Subscriber could sustain the loss of his entire investment. Such risks are more
fully set forth in the Memorandum (as defined below) furnished by the Company to
the Subscriber.
1.3 The Subscriber represents that the Subscriber is an "accredited
investor" as such term is defined in Rule 501 of Regulation D promulgated under
the Securities Act of 1933, as amended (the "Act"), as indicated by his
responses to the questions contained in Article VIII hereof, and that the
Subscriber is able to bear the economic risk of an investment in the Units.
1.4 The Subscriber hereby acknowledges and represents that (i) the
Subscriber has prior investment experience, including investment in non-listed
and unregistered securities, or the Subscriber has employed the services of an
investment advisor, attorney and/or accountant to read all of the documents
furnished or made available by the Company both to the Subscriber and to all
other prospective investors in the Units and to evaluate the merits and risks of
such an investment on the Subscriber's behalf; (ii) the Subscriber recognizes
the highly speculative nature of this investment; and (iii) the Subscriber is
able to bear the economic risk which the Subscriber hereby assumes.
1.5 The Subscriber hereby acknowledges receipt and careful review of
the Confidential Private Placement Memorandum the ("Memorandum") dated September
27, 1996, as supplemented and amended, and the following exhibits thereto:
Certificate of Designations of the Series C Convertible Preferred Stock; Form of
warrant agreement (the "Warrant Agreement") and Warrant; 1996 Annual Report,
including audited financial statements as of March 31, 1996 and for the fiscal
year ended March 31, 1996; Annual Report on Form 10-K for the fiscal year ended
March 31, 1996; Proxy statement for the 1996 Annual Meeting of Shareholders;
Quarterly report on Form 10-Q for the three months ended June 30, 1996; Reports
on Form 8-K issued subsequent to June 30, 1996; and Xytronyx, Inc. and Binary
Therapeutics, Inc. Pro Forma Financial Statements (unaudited), all of which
constitute an integral part of the Memorandum, and hereby represents that the
Subscriber has been furnished by the Company during the course of this
transaction with all information regarding the Company which the Subscriber has
requested or desired to know, has been afforded the opportunity to ask questions
of and receive answers from duly authorized officers or other representatives of
the Company concerning the terms and conditions of the Offering and has received
any additional information which Subscriber has requested.
<PAGE>
1.6 (a) The Subscriber has relied solely upon the information
provided by the Company in the Memorandum in making the decision to invest in
the Units. To the extent necessary, the Subscriber has retained, at the expense
of the Subscriber, and relied upon appropriate professional advice regarding the
investment, tax and legal merits and consequences of this Agreement and its
purchase of the Units hereunder. The Subscriber acknowledges and agrees that
the Placement Agent has not supplied any information for inclusion in the
Memorandum other than information furnished in writing to the Company by the
Placement Agent specifically for inclusion in the Memorandum relating to the
Placement Agent, that the Placement Agent has no responsibility for the accuracy
or completeness of the Memorandum and that the Subscriber has not relied upon
the independent investigation or verification, if any, which may have been
undertaken by the Placement Agent.
(b) To the best of its knowledge, (i) the Subscriber was
contacted regarding the sale of the Units by the Placement Agent, (or an
authorized agent or representative thereof) with whom the Subscriber had a prior
substantial pre-existing relationship and (ii) no Units were offered or sold to
it by means of any form of general solicitation or general advertising, and in
connection therewith the Subscriber: did not (A) receive or review any
advertisement, article, notice or other communication published in a newspaper
or magazine or similar media or broadcast over television or radio whether
closed circuit, or generally available; or (B) attend any seminar meeting or
industry investor conference whose attendees were invited by any general
solicitation or general advertising.
1.7 The Subscriber hereby represents that the Subscriber either by
reason of the Subscriber's business or financial experience or the business or
financial experience of the Subscriber's professional advisors (who are
unaffiliated with and who are not compensated by the Company or any affiliate or
selling agent of the Company, including the Placement Agent, directly or
indirectly) has the capacity to protect the Subscriber's own interests in
connection with the transaction contemplated hereby. The Subscriber hereby
acknowledges that the Offering has not been reviewed by the United States
Securities and Exchange Commission (the "SEC") because of the Company's
representations that this is intended to be exempt from the registration
requirements of Section 5 of the Act pursuant to Sections 4(2) of the Act and
Regulation D promulgated thereunder. The Subscriber agrees that the Subscriber
will not sell or otherwise transfer the Shares unless they are registered under
the Act or unless an exemption from such registration is available.
1.8 The Subscriber understands that the Shares comprising the Units
have not been registered under the Act by reason of a claimed exemption under
the provisions of the Act which depends, in part, upon the Subscriber's
investment intention. In this connection, the Subscriber hereby represents that
the Subscriber is purchasing the Shares comprising the Units for the
Subscriber's own account for investment and not with a view toward the resale or
distribution to others. The Subscriber, if an entity, was not formed for the
purpose of purchasing the Shares.
1.9 The Subscriber understands that although there currently is a
public market for the Common Stock, Rule 144 promulgated under the Act requires,
among other
<PAGE>
conditions, a two-year holding period prior to the resale (in limited amounts)
of securities acquired in a non-public offering without having to satisfy the
registration requirements under the Act. The Subscriber understands and hereby
acknowledges that the Company is under no obligation to register the Units or
any of the Shares comprising the Units under the Act or any state securities or
"blue sky" laws other than as set forth in Article V. The Subscriber consents
that the Company may, if it desires, permit the transfer of the Shares
comprising the Units under or issuable upon exercise thereof out of the
Subscriber's name only when the Subscriber's request for transfer is accompanied
by an opinion of counsel reasonably satisfactory to the Company that neither the
sale nor the proposed transfer results in a violation of the Act or any
applicable state "blue sky" laws (collectively, "Securities Laws").
1.10 The Subscriber consents to the placement of a legend on any
certificate or other document evidencing the Shares that such Shares have not
been registered under the Act or any state securities or "blue sky" laws and
setting forth or referring to the restrictions on transferability and sale
thereof contained in this Agreement. The Subscriber is aware that the Company
will make a notation in its appropriate records with respect to the restrictions
on the transferability of such Shares. The Subscriber understands that any
transfer agent of the Company will be issued stop-transfer instructions with
respect to the Shares and the Conversion Shares unless such transfer is
subsequently registered under the Securities Act and applicable state and other
securities laws or unless an exemption from such registration is available.
1.11 The Subscriber understands that the Company will review this
Agreement and is hereby given authority by the Subscriber to call Subscriber's
bank or place of employment or otherwise review the financial standing of the
Subscriber; and it is further agreed that the Company reserves the unrestricted
right to reject or limit any subscription, to accept subscriptions for
fractional Units and to close the Offering to the Subscriber at any time.
1.12 The Subscriber hereby represents that the address of the
Subscriber furnished by the Subscriber on the signature page hereof is the
Subscriber's principal residence if the Subscriber is an individual or its
principal business address if it is a corporation or other entity.
1.13 The Subscriber represents that he or it has full power and
authority (corporate, statutory and otherwise) to execute and deliver this
Agreement and to purchase the Units. This Agreement constitutes the legal,
valid and binding obligation of the Subscriber, enforceable against the
Subscriber in accordance with its terms.
1.14 If the Subscriber is a corporation, company, trust, employee
benefit plan, individual retirement account, Keogh Plan, or other tax-exempt
entity, it is authorized and qualified to become an investor in the Company and
the person signing this Agreement on behalf of such entity has been duly
authorized by such entity to do so.
1.15 The Subscriber acknowledges that if he is a Registered
Representative of an NASD member firm, he must give such firm the notice
required by the NASD's Rules of Fair Practice, receipt of which must be
acknowledged by such firm in Section 8.4 below.
<PAGE>
1.16 The Subscriber acknowledges that at such time, if ever, as the
Shares are registered, sales of the Shares will be subject to state securities
laws, including those of the State of New Jersey which requires any securities
sold in New Jersey to be sold through a registered broker-dealer or in reliance
upon an exemption from registration.
1.17 Subject to the proviso below, the Subscriber hereby agrees that
from the date hereof and continuing for a period (the "Lock-Up Period") of nine
(9) months from the Effective Date (as defined below), Subscriber will not,
without the prior written consent of Placement Agent, offer, pledge, sell,
contract to sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, 75% of the Registrable Securities (as defined in Section
5.1) purchased by the Subscriber, PROVIDED, HOWEVER, that, following each three
month period after the Effective Date, an amount of Registrable Securities equal
to 25% of the Registrable Securities purchased by the Subscriber shall become
exempt from the lock-up provisions contained in this sentence. For the sake of
clarity, 25% of the Registrable Securities purchased by the Subscriber will not
be subject to any lock-up. In addition, the Subscriber agrees that during the
sixty (60) days prior to the Final Closing Date and while it holds any
Registrable Securities, the Subscriber will not directly or indirectly, through
related parties, affiliates or otherwise sell "short" or "short against the box"
(as those terms are generally understood) any equity security of the Company;
PROVIDED, HOWEVER, that it shall not be a violation of this Section 1.17, if the
Subscriber places a sell order for Class A Warrants or for Common Stock
underlying Preferred Stock or Class A Warrants prior to the conversion or
exercise thereof, in reliance on the Company delivering such Registrable
Securities in accordance with Section 5.4(h) and completes the sale of such
Registrable Securities before the Company delivers the Registrable Securities to
the Subscriber. In addition, the Subscriber agrees that during any applicable
Lock-Up Period it will not exercise any Class A Warrants which are subject to
such Lock-Up Period.
REPRESENTATIONS BY AND COVENANTS OF THE COMPANY
Except as set forth on the Schedule of Exceptions attached hereto as
EXHIBIT A, the Company hereby represents and warrants to the Subscriber that, as
of the date of the Memorandum and as of the date on which the Subscriber's
subscription is accepted by the Company:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has full corporate power and authority to conduct
its business as described in the Memorandum. The Company is duly qualified to
do business as a foreign corporation and is in good standing in the State of
California.
2.2 CAPITALIZATION AND VOTING RIGHTS. The authorized, issued and
outstanding capital stock of the Company is as set forth in the Memorandum under
"Capitalization"; all issued and outstanding shares of the Company are validly
issued, fully paid and nonassessable.
<PAGE>
The Shares comprising the Units have been duly and validly authorized and, when
issued and paid for pursuant to this Agreement and, with respect to the Common
Stock underlying the Warrants, the Warrant Agreement, will be validly issued,
fully paid and nonassessable. Except as set forth in the Memorandum, there are
no outstanding options, warrants, agreements, convertible securities, preemptive
rights or other rights to subscribe for or to purchase any shares of capital
stock of the Company. Except as set forth in the Memorandum and in this
Agreement and as otherwise required by law, there are no restrictions upon the
voting or transfer of the Shares pursuant to the Company's Certificate of
Incorporation, By-Laws or other governing documents or any agreement or other
instruments to which the Company is a party or by which the Company is bound.
2.3 AUTHORIZATION; ENFORCEABILITY. The Company has all corporate
right, power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. All corporate action on the part of the
Company, its directors and stockholders necessary for the authorization,
execution, delivery and performance of this Agreement by the Company, the
authorization, sale, issuance and delivery of the Preferred Stock and Warrants
contemplated hereby and the Shares underlying such securities and the
performance of the Company's obligations hereunder has been taken. This
Agreement has been duly executed and delivered by the Company and constitutes a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies,
and to limitations of public policy. Upon the issuance and delivery of the
Preferred Stock and Warrants as contemplated by this Agreement, such securities
will be validly issued, fully paid and nonassessable. Upon the issuance and
delivery of the Shares underlying such securities or upon conversion or
exercise, as the case may be, of such Shares, the Shares will be validly issued,
fully paid and nonassessable. The issuance and sale of the Preferred Stock and
Warrants contemplated hereby and the conversion or exercise, as the case may be,
of the Shares underlying such securities, will not give rise to any preemptive
rights or rights of first refusal on behalf of any person.
2.4 CERTIFICATE OF DESIGNATIONS OF PREFERRED STOCK. The Preferred
Stock has the rights, preferences and privileges substantially as set forth in
the Form of Certificate of Designations attached as Exhibit A to the Memorandum
with the initial conversion rate corresponding to a conversion price equal to
the lesser of (i) $2.00 and (ii) 80% of the average closing bid price of the
Common Stock on the AMEX for the 30 consecutive trading days immediately
preceding (a) the initial closing date, (b) any interim closing date and (c) the
Final Closing Date, whichever is lowest (the "Initial Conversion Price").
2.5 NO CONFLICT; GOVERNMENTAL CONSENTS.
(i) The execution and delivery by the Company of this
Agreement and the consummation of the transactions contemplated hereby will not
result in the violation of any law, statute, rule, regulation, order, writ,
injunction, judgment or decree of any court or governmental authority to or by
which the Company is bound, or of any provision
<PAGE>
of the Certificate of Incorporation or By-Laws of the Company, and will not
conflict with, or result in a breach or violation of, any of the terms or
provisions of, or constitute (with due notice or lapse of time or both) a
default under, any lease, loan agreement, mortgage, security agreement, trust
indenture or other agreement or instrument to which the Company is a party or by
which it is bound or to which any of its properties or assets is subject, nor
result in the creation or imposition of any lien upon any of the properties or
assets of the Company.
(ii) No consent, approval, authorization or other order of
any governmental authority is required to be obtained by the Company in
connection with the authorization, execution and delivery of this Agreement or
with the authorization, issue and sale of the Units or the Shares comprising the
Units, except such filings as may be required to be made with the SEC and the
American Stock Exchange ("AMEX") and with any state or foreign blue sky or
securities regulatory authority.
2.6 LICENSES. Except as set forth in the Memorandum, the Company
has sufficient licenses, permits and other governmental authorizations currently
required for the conduct of its business or ownership of properties and is in
all material respects complying therewith.
2.7 LITIGATION. Except as set forth in the Memorandum, the Company
knows of no pending or threatened legal or governmental proceedings against the
Company which could materially adversely affect the business, property,
financial condition or operations of the Company.
2.8 ACCURACY OF REPORTS. All material reports required to be filed
by the Company within the two years prior to the date of this Agreement under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), have been
duly filed with the SEC, complied at the time of filing in all material respects
with the requirements of their respective forms and, except to the extent
updated or superseded by the Memorandum or any subsequently filed report, were
complete and correct in all material respects as of the dates at which the
information was furnished, and contained (as of such dates) no untrue statement
of a material fact or omitted to state a material fact necessary in order to
make the statements contained therein, in light of the circumstances under which
they were made, not misleading.
2.9 MEMORANDUM; DISCLOSURE. No information set forth in the
Memorandum contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained therein, in
light of the circumstances under which they were made, not misleading.
2.10 INVESTMENT COMPANY. The Company is not an "investment company"
within the meaning of such term under the Investment Company Act of 1940 and the
rules and regulations of the SEC thereunder.
2.11 OPEN MARKET PURCHASES. The Company (a) has not during the 60
days prior to the date hereof, directly or indirectly, through related parties
or otherwise, purchased
<PAGE>
any equity securities of the Company and (b) will not, directly or indirectly,
through related parties or otherwise, purchase any equity securities of the
Company during the 30 trading days prior to the (x) Reset Date, (y) any date of
mandatory conversion (as more fully described in the Certificate of
Designations) or (z) any date of redemption (as more fully described in the
Warrant Agreement).
TERMS OF SUBSCRIPTION
3.1 The Company shall issue a minimum of ten (10) Units and a
maximum of forty (40) Units. The Placement Agent, at its sole option, may offer
and sell up to an additional twenty (20) Units to cover over-allotments. The
Offering Period shall begin September 27, 1996. Upon receipt of the Minimum
Offering amount, the Placement Agent may conduct a closing (the "Initial Closing
Date") and may conduct subsequent closings on an interim basis (each a
"Closing") until the Maximum Offering amount (including any over-allotment
amount) has been reached (the "Final Closing Date"). The Offering Period shall
terminate on November 26, 1996, subject to an extension, at the sole option of
the Placement Agent, for an additional sixty (60) days. The Units will be
offered on a "best efforts" basis. The purchase price is payable by personal or
business check, wire transfer of immediately available funds or money order made
payable to "Fleet Bank, NA, Escrow Agent, F/B/O Xytronyx, Inc."
3.2 Placement of the Units will be made by the Placement Agent, who
will receive certain compensation as described in the Memorandum.
3.3 Pending the sale of the Units, all funds paid hereunder shall
be deposited by the Company in escrow with Fleet Bank, NA, having a branch at
345 Park Avenue, New York, NY 10022. If the Company shall not have obtained
subscriptions (including this subscription) for purchases of 10 Units on or
before the Final Closing Date, then this subscription shall be void and all
funds paid hereunder by the Subscriber shall be promptly returned to the
Subscriber, with interest, subject to paragraph 3.5 hereof.
3.4 The Subscriber hereby authorizes and directs the Company to
deliver the Shares comprising the Units to be issued to the Subscriber pursuant
to this Agreement directly to the Subscriber's account maintained by the
Placement Agent, if any, or, if no such account exists to the residential or
business address indicated on the signature page hereto.
3.5 The Subscriber hereby authorizes and directs the Company to
return any funds for unaccepted subscriptions to the same account from which the
funds were drawn, including any customer account maintained with the Placement
Agent.
CONDITIONS TO OBLIGATIONS OF THE SUBSCRIBERS
4.1 The Subscribers' obligation to purchase the Units at the
Closing is subject to the fulfillment on or prior to each Closing Date of the
following conditions, which
<PAGE>
conditions may be waived at the option of each Subscriber to the extent
permitted by law:
(a) REPRESENTATIONS AND WARRANTIES CORRECT. The representations
and warranties made by the Company in Section 2 hereof shall be true and correct
in all material respects when made, and shall be true and correct in all
material respects on each Closing Date with the same force and effect as if they
had been made on and as of said date.
(b) COVENANTS. All covenants, agreements and conditions
contained in this Agreement to be performed by the Company on or prior to such
purchase shall have been performed or complied with in all material respects.
(c) LISTING. The Company will promptly file an Application for
Listing of Additional Shares with AMEX in accordance with Rule 10b-7 under the
Securities Exchange Act of 1934 and hereby represents and warrants to the
Placement Agent and to the Subscribers that it will take all action reasonably
necessary to list all Shares (excluding the Preferred Stock but including the
Common Stock into which the Preferred Stock is convertible) in accordance with
the rules of AMEX.
(d) NO LEGAL ORDER PENDING. There shall not then be in effect
any legal or other order enjoining or restraining the transactions contemplated
by this Agreement.
(e) NO LAW PROHIBITING OR RESTRICTING SUCH SALE. There shall
not be in effect any law, rule or regulation prohibiting or restricting such
sale or requiring any consent or approval of any person which shall not have
been obtained to issue the Shares (except as otherwise provided in this
Agreement).
(f) MINIMUM SUBSCRIPTIONS. The Company shall have received
binding subscriptions for at least 10 Units.
(g) LEGAL OPINION. On each Closing Date, Counsel to the Company
shall have delivered to the Placement Agent for the benefit of the Placement
Agent and the Subscribers, legal opinions to such effect with respect to legal
matters relating to this Agreement and the Memorandum as the Placement Agent may
require.
(h) COMFORT LETTER. On the Closing Date, the Company's auditors
shall have delivered to the Agent for the benefit of the Placement Agent and the
Subscribers, a comfort letter to such effect as the Agent may require.
REGISTRATION RIGHTS
5.1 As used in this Article V of this Agreement, the following terms
shall have the following meanings:
(a) "AFFILIATE" shall mean, with respect to any person, any
other person controlling, controlled by or under direct or indirect common
control with such person
<PAGE>
(for the purposes of this definition "control," when used with respect to any
specified person, shall mean the power to direct the management and policies of
such person, directly or indirectly, whether through ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" shall have meanings correlative to the foregoing).
(b) "BUSINESS DAY" shall mean a day Monday through Friday on
which banks are generally open for business in New York.
(c) "HOLDERS" shall mean the Subscribers and any person holding
Registrable Securities to whom the rights under Section 5 have been transferred
in accordance with Section 5.9 hereof.
(d) "PERSON" shall mean any person, individual, corporation,
partnership, trust or other nongovernmental entity or any governmental agency,
court, authority or other body (whether foreign, federal, state, local or
otherwise).
(e) The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer
to the registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
(f) "REGISTRABLE SECURITIES" shall mean (A) the Shares of Common
Stock issuable upon the conversion of the Preferred Stock , (B) the Warrants,
(C) the shares of Common Stock underlying the Warrants and (D) any shares of
Common Stock issued as (or issuable upon the conversion of any warrant, right or
other security which is issued as) a dividend or other distribution with respect
to or in replacement of the Shares; provided, however, that securities shall
only be treated as Registrable Securities if and only for so long as they (I)
have not been disposed of pursuant to a registration statement declared
effective by the SEC, (II) have not been sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act so that
all transfer restrictions and restrictive legends with respect thereto are
removed upon the consummation of such sale or (III) are held by a Holder or a
permitted transferee pursuant to subsection 5.9.
(g) "REGISTRATION EXPENSES" shall mean all expenses incurred by
the Company in complying with Section 5.2 hereof, including, without limitation,
all registration, qualification and filing fees, printing expenses, escrow fees,
fees and expenses of counsel for the Company, blue sky fees and expenses (for a
reasonable number of states) and the expense of any special audits incident to
or required by any such registration (but excluding the fees of legal counsel
for any Holder).
(h) "REGISTRATION STATEMENT" shall have the meaning ascribed to
such term in Section 5.2.
(i) "REGISTRATION PERIOD" shall have the meaning ascribed to
such term in Section 5.4.
<PAGE>
(j) "SELLING EXPENSES" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and all
fees and expenses of legal counsel for any Holder.
5.2 No later than 30 days after the Final Closing Date (the "Filing
Date"), the Company will file a registration statement (the "Registration
Statement") with the SEC and use its reasonable best efforts to effect the
registration, qualifications or compliances (including, without limitation, the
execution of any required undertaking to file post-effective amendments,
appropriate qualifications or exemptions under applicable blue sky or other
state securities laws and appropriate compliance with applicable securities
laws, requirements or regulations) as may be so reasonably requested and as
would permit or facilitate the sale and distribution of all Registrable
Securities. Notwithstanding the foregoing, the Company will not be obligated to
enter into any underwriting agreement for the sale of any of the Shares.
5.3 All Registration Expenses incurred in connection with any
registration, qualification, exemption or compliance pursuant to Section 5.2
shall be borne by the Company. All Selling Expenses relating to the sale of
securities registered by or on behalf of Holders shall be borne by such Holders
pro rata on the basis of the number of securities so registered.
5.4 In the case of the registration, qualification, exemption or
compliance effected by the Company pursuant to this Agreement, the Company will,
upon reasonable request, inform each Holder as to the status of such
registration, qualification, exemption and compliance. At its expense the
Company will:
(a) use its reasonable best efforts to keep such registration,
and any qualification, exemption or compliance under state securities laws which
the Company determines to obtain, continuously effective until at least the
third anniversary of the Closing Date or until the Holders have completed the
distribution described in the registration statement relating thereto, whichever
first occurs. The period of time during which the Company is required hereunder
to keep the Registration Statement effective is referred to herein as "the
Registration Period." Notwithstanding the foregoing at the Company's election,
the Company may cease to keep such registration, qualification or compliance
effective with respect to any Registrable Securities, and the registration
rights of a Holder shall expire, at such time as the Holder may sell under Rule
144 under the Securities Act (or other exemption from registration acceptable to
the Company) in a three-month period all Registrable Securities then held by
such Holder; and
(b) advise the Holders:
(i) when the Registration Statement or any amendment
thereto has been filed with the Commission and when the registration statement
or any post-effective amendment thereto has become effective;
<PAGE>
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the prospectus included therein 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 such purpose;
(iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Shares included therein
for sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose; and
(v) of the happening of any event that requires the making
of any changes in the Registration Statement or the prospectus so that, as of
such date, the statements therein are not misleading and do not omit to state a
material fact required to be stated therein or necessary to make the statements
therein (in the case of the prospectus, in the light of the circumstances under
which they were made) not misleading;
(c) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of any Registration Statement at the earliest
possible time;
(d) furnish to each Holder, without charge, at least one copy of
such Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, and, if the Holder so requests in writing,
all exhibits (including those incorporated by reference) in the form filed with
the Commission;
(e) during the Registration Period, deliver to each Holder,
without charge, as many copies of the prospectus included in such Registration
Statement and any amendment or supplement thereto as such Holder may reasonably
request; and the Company consents to the use, consistent with the provisions
hereof, of the prospectus or any amendment or supplement thereto by each of the
selling Holders of Registrable Securities in connection with the offering and
sale of the Registrable Securities covered by the prospectus or any amendment or
supplement thereto. In addition, upon the reasonable request of the Subscriber
and subject in all cases to confidentiality protections reasonably acceptable to
the Company, the Company will meet with a Subscriber or a representative thereof
at the Company's headquarters to discuss all information relevant for disclosure
in the Registration Statement covering the Registrable Securities, and will
otherwise cooperate with any Subscriber conducting an investigation for the
purpose of reducing or eliminating such Subscriber's exposure to liability under
the Securities Act, including the reasonable production of information at the
Company's headquarters;
(f) during the Registration Period, deliver to each Holder,
without charge, (i) as soon as practicable (but in the case of the annual report
of the Company to its stockholders, within 120 days after the end of each fiscal
year of the Company) one copy of: (A) its annual report to its stockholders
(which annual report shall contain financial statements
<PAGE>
audited in accordance with generally accepted accounting principles in the
United States of America by a firm of certified public accountants of recognized
standing); (B) if not included in substance in its annual report to
stockholders, its annual report on Form 10-K (or similar form); (C) each of its
quarterly reports to its stockholders, and, if not included in substance in its
quarterly reports to stockholders, its quarterly report on Form 10-Q (or similar
form), and (D) a copy of the full Registration Statement (the foregoing, in each
case, excluding exhibits); and (ii) upon reasonable request, all exhibits
excluded by the parenthetical to the immediately preceding clause (D), and all
other information that is generally available to the public;
(g) prior to any public offering of Registrable Securities
pursuant to any Registration Statement, register or qualify or obtain an
exemption for offer and sale under the securities or blue sky laws of such
jurisdictions as any such Holders reasonably request in writing, provided that
the Company shall not for any such purpose be required to qualify generally to
transact business as a foreign corporation in any jurisdiction where it is not
so qualified or to consent to general service of process in any such
jurisdiction, and do any and all other acts or things reasonably necessary or
advisable to enable the offer and sale in such jurisdictions of the Registrable
Securities covered by such Registration Statement;
(h) cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold pursuant to any Registration Statement free of any restrictive legends
to the extent not required at such time and in such denominations and registered
in such names as Holders may request at least three business days prior to sales
of Registrable Securities pursuant to such Registration Statement;
(i) upon the occurrence of any event contemplated by Section
5.4(b)(v) above, the Company shall promptly prepare a post-effective amendment
to the Registration Statement or a supplement to the related prospectus, or file
any other required document so that, as thereafter delivered to purchasers of
the Registrable Securities included therein, the prospectus will not include any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; and
(j) use its reasonable efforts to comply with all applicable
rules and regulations of the Commission, and will make generally available to
the Holders not later than 45 days (or 90 days if the fiscal quarter is the
fourth fiscal quarter) after the end of its fiscal quarter in which the first
anniversary date of the effective date of the Registration Statement occurs, an
earnings statement satisfying the provisions of Section 11(a) of the Act.
5.5 The Holders shall have no right to take any action to restrain,
enjoin or otherwise delay any registration pursuant to Section 5.2 hereof as a
result of any controversy that may arise with respect to the interpretation or
implementation of this Agreement.
5.6 (a) To the extent permitted by law, the Company will indemnify
each Holder, each underwriter of the Registrable Securities and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
with respect to which any registration,
<PAGE>
qualification or compliance has been effected pursuant to this Agreement,
against all claims, losses, damages and liabilities (or action in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened (subject to Section 5.6(c) below), arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement, prospectus or offering
circular, or any amendment or supplement thereof, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in light of the
circumstances in which they were made, and will reimburse each Holder, each
underwriter of the Registrable Securities and each person controlling such
Holder, for reasonable legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action as incurred; provided that the Company will not be liable in
any such case to the extent that any untrue statement or omission or allegation
thereof is made in reliance upon and in conformity with written information
furnished to the Company by or on behalf of such Holder and stated to be
specifically for use in preparation of such registration statement, prospectus
or offering circular; further provided that the indemnity contained in this
Section 5.6(a) shall not apply to amounts paid in settlement of any such claim,
loss, damages, liability, action or proceeding if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case where the claim,
loss, damage or liability arises out of or is related to the failure of the
Holder to comply with the covenants and agreements contained in this Agreement
respecting sales of Registrable Securities, and except that the foregoing
indemnity agreement is subject to the condition that, insofar as it relates to
any such untrue statement or alleged untrue statement or omission or alleged
omission made in the preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the SEC at the time the registration statement
becomes effective or in the amended prospectus filed with the SEC pursuant to
Rule 424(b) or in the prospectus subject to completion and term sheet under Rule
434 of the Securities Act, which together meet the requirements of Section 10(a)
of the Securities Act (the "Final Prospectus"), such indemnity agreement shall
not inure to the benefit of any such Holder, any such underwriter or any such
controlling person, if a copy of the Final Prospectus was not furnished to the
person or entity asserting the loss, liability, claim or damage at or prior to
the time such furnishing is required by the Securities Act.
(b) Each Holder will severally, if Registrable Securities held
by such Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter of the Shares and each person who
controls the Company within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened (subject to Section 5.6(c) below), arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement, prospectus or offering
circular, or any amendment or supplement thereof, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in light of the
circumstances in which they were made, and will reimburse the
<PAGE>
Company, such directors and officers, each underwriter of the Shares and each
person controlling the Company for reasonable legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action as incurred, in each case to the
extent, but only to the extent, that such untrue statement or omission or
allegation thereof is made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Holder and stated to
be specifically for use in preparation of such registration statement,
prospectus or offering circular; provided that the indemnity shall not apply to
the extent that such claim, loss, damage or liability results from the fact that
a current copy of the prospectus that was made available to the Holder was not
sent or given to the person asserting any such claim, loss, damage or liability
at or prior to the written confirmation of the sale of the Registrable
Securities confirmed to such person if such current copy of the prospectus would
have cured the defect giving rise to such loss, claim, damage or liability.
Notwithstanding the foregoing, in no event shall a Holder be liable for any such
claims, losses, damages or liabilities in excess of the proceeds received by
such Holder in the offering, except in the event of fraud by such Holder.
(c) Each party entitled to indemnification under this Section
5.6 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
Indemnified Party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement, unless such failure
is prejudicial to the Indemnifying Party in defending such claim or litigation.
An Indemnifying Party shall not be liable for any settlement of an action or
claim effected without its written consent (which consent will not be
unreasonably withheld).
(d) If the indemnification provided for in this Section 5.6 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party thereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
<PAGE>
5.7 (a) Each Holder agrees that, upon receipt of any notice from the
Company of the happening of any event requiring the preparation of a supplement
or amendment to a prospectus relating to Registrable Securities so that, as
thereafter delivered to the Holders, such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, each
Holder will forthwith discontinue disposition of Registrable Securities pursuant
to the registration statement contemplated by Section 5.2 until its receipt of
copies of the supplemented or amended prospectus from the Company and, if so
directed by the Company, each Holder shall deliver to the Company all copies,
other than permanent file copies then in such Holder's possession, of the
prospectus covering such Registrable Securities current at the time of receipt
of such notice.
(b) Each Holder agrees to suspend, upon request of the Company,
any disposition of Registrable Securities pursuant to the registration statement
and prospectus contemplated by Section 5.2 during (A) any period not to exceed
two 30-day periods within any one 12-month period the Company requires in
connection with a primary underwritten offering of equity securities and (B) any
period, not to exceed one 30-day period per circumstance or development, when
the Company determines in good faith that offers and sales pursuant thereto
should not be made by reason of the presence of material undisclosed
circumstances or developments with respect to which the disclosure that would be
required in such a prospectus is premature, would have an adverse effect on the
Company or is otherwise inadvisable.
(c) As a condition to the inclusion of its Registrable
Securities, each Holder shall furnish to the Company such information regarding
such Holder and the distribution proposed by such Holder as the Company may
request in writing or as shall be required in connection with any registration,
qualification or compliance referred to in this Article V.
(d) Each Holder hereby covenants with the Company (1) not to
make any sale of the Registrable Securities without effectively causing the
prospectus delivery requirements under the Securities Act to be satisfied, and
(2) if such Registrable Securities are to be sold by any method or in any
transaction other than on AMEX (or other national securities exchange), in the
over-the-counter market, in privately negotiated transactions, or in a
combination of such methods, to notify the Company at least five business days
prior to the date on which the Holder first offers to sell any such Shares.
(e) Each Holder acknowledges and agrees that the Registrable
Securities sold pursuant to the registration statement described in this Section
are not transferable on the books of the Company unless the stock certificate
submitted to the transfer agent evidencing such Registrable Securities is
accompanied by a certificate reasonably satisfactory to the Company to the
effect that (A) the Registrable Securities have been sold in accordance with
such registration statement and (B) the requirement of delivering a current
prospectus has been satisfied.
(f) Each Holder agrees not to take any action with respect to
any
<PAGE>
distribution deemed to be made pursuant to such registration statement, that
constitutes a violation of Rule 10(b)-6 under the Exchange Act or any other
applicable rule, regulation or law.
(g) At the end of the period during which the Company is
obligated to keep the registration statement current and effective as described
above, the Holders of Registrable Securities included in the registration
statement shall discontinue sales of shares pursuant to such registration
statement upon receipt of notice from the Company of its intention to remove
from registration the shares covered by such registration statement which remain
unsold, and such Holders shall notify the Company of the number of shares
registered which remain unsold immediately upon receipt of such notice from the
Company.
5.8 With a view to making available to the Holders the benefits of
certain rules and regulations of the SEC which at any time permit the sale of
the Registrable Securities to the public without registration, the Company
agrees to use its reasonable best efforts to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Exchange Act; and
(c) so long as a Holder owns any unregistered Registrable
Securities, furnish to such Holder upon any reasonable request a written
statement by the Company as to its compliance with Rule 144 under the Securities
Act, and of the Exchange Act, a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents of the Company as
such Holder may reasonably request in availing itself of any rule or regulation
of the SEC allowing a Holder to sell any such securities without registration.
5.9 The rights to cause the Company to register Registrable
Securities granted to the Holders by the Company under Section 5.1 may be
assigned in full by a Holder, provided, that such transfer may otherwise be
effected in accordance with applicable securities laws; (ii) such Holder gives
prior written notice to the Company; and (iii) such transferee agrees to comply
with the terms and provisions of this Agreement, and such transfer is otherwise
in compliance with this Agreement. Except as specifically permitted by this
Section 5.9, the rights of a Holder with respect to Registrable Securities as
set out herein shall not be transferable to any other Person, and any attempted
transfer shall cause all rights of such Holder therein to be forfeited.
5.10 With the written consent of the Company and the Holders holding
at least a majority of the Registrable Securities that are then outstanding, any
provision of this Article V may be waived (either generally or in a particular
instance, either retroactively or prospectively and either for a specified
period of time or indefinitely) or amended. Upon the effectuation of each such
waiver or amendment, the Company shall promptly give written notice thereof to
the Holders, if any, who have not previously received notice thereof or
<PAGE>
consented thereto in writing.
6. MISCELLANEOUS
6.1 Any notice or other communication given hereunder shall be deemed
sufficient if in writing and sent by registered or certified mail, return
receipt requested, or delivered by hand against written receipt therefor,
addressed to Xytronyx, Inc. 6555 Nancy Ridge Drive, Suite 200, San Diego, CA
92121, Attn: President, and to the Subscriber at his address indicated on the
signature page of this Agreement. Notices shall be deemed to have been given or
delivered on the date of mailing, except notices of change of address, which
shall be deemed to have been given or delivered when received.
6.2 This Agreement shall not be changed, modified or amended except
by a writing signed by the parties to be charged, and this Agreement may not be
discharged except by performance in accordance with its terms or by a writing
signed by the party to be charged.
6.3 Subject to the provisions of Section 5.9, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and to their
respective heirs, legal representatives, successors and assigns. This Agreement
sets forth the entire agreement and understanding between the parties as to the
subject matter hereof and merges and supersedes all prior discussions,
agreements and understandings of any and every nature among them.
6.4 Upon the execution and delivery of this Agreement by the
Subscriber, this Agreement shall become a binding obligation of the Subscriber
with respect to the purchase of Units as herein provided; subject, however, to
the right hereby reserved to the Company to enter into the same agreements with
other subscribers and to add and/or delete other persons as subscribers.
6.5 NOTWITHSTANDING THE PLACE WHERE THIS AGREEMENT MAY BE EXECUTED BY
ANY OF THE PARTIES HERETO, THE PARTIES EXPRESSLY AGREE THAT ALL THE TERMS AND
PROVISIONS HEREOF SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
6.6 In order to discourage frivolous claims the parties agree that
unless a claimant in any proceeding arising out of this Agreement succeeds in
establishing his claim and recovering a judgment against another party
(regardless of whether such claimant succeeds against one of the other parties
to the action), then the other party shall be entitled to recover from such
claimant all of its/their reasonable legal costs and expenses relating to such
proceeding and/or incurred in preparation therefor.
6.7 The holding of any provision of this Agreement to be invalid or
unenforceable by a court of competent jurisdiction shall not affect any other
provision of this Agreement, which shall remain in full force and effect. If
any provision of this Agreement shall be declared by a court of competent
jurisdiction to be invalid, illegal or incapable of being
<PAGE>
enforced in whole or in part, such provision shall be interpreted so as to
remain enforceable to the maximum extent permissible consistent with applicable
law and the remaining conditions and provisions or portions thereof shall
nevertheless remain in full force and effect and enforceable to the extent they
are valid, legal and enforceable, and no provisions shall be deemed dependent
upon any other covenant or provision unless so expressed herein.
6.8 It is agreed that a waiver by either party of a breach of any
provision of this Agreement shall not operate, or be construed, as a waiver of
any subsequent breach by that same party.
6.9 The parties agree to execute and deliver all such further
documents, agreements and instruments and take such other and further action as
may be necessary or appropriate to carry out the purposes and intent of this
Agreement.
6.10 This Agreement may be executed in two or more counterparts each
of which shall be deemed an original, but all of which shall together constitute
one and the same instrument.
6.11 (a) The Subscribers severally agree not to issue any public
statement with respect to the Subscribers' investment or proposed investment in
the Company or the terms of any agreement or covenant between them and the
Company without the Company's prior written consent, except such disclosures as
may be required under applicable law or under any applicable order, rule or
regulation.
(b) The Company agrees not to disclose the names, addresses or
any other information about the Subscribers, except as required by law;
provided, that the Company may use the name (but not the address) of the
Subscriber in the Registration Statement.
6.12 (a) Each Subscriber severally represents and warrants that it
has not engaged, consented to or authorized any broker, finder or intermediary
to act on its behalf, directly or indirectly, as a broker, finder or
intermediary in connection with the transactions contemplated by this Agreement.
Each Subscriber hereby severally agrees to indemnify and hold harmless the
Company from and against all fees, commissions or other payments owing to any
such person or firm acting on behalf of such Subscriber hereunder.
(b) The Company has engaged, consented to and authorized the
Placement Agent in connection with the transactions contemplated by this
Agreement. The Company hereby agrees to pay the Placement Agent a commission
and to reimburse expenses in accordance with the Placement Agency Agreement
dated September 27, 1996 (the "Placement Agency Agreement"), and the Company
agrees to indemnify and hold harmless the Subscribers from and against all fees,
commissions or other payments owing by the Company to any other person or firm
acting on behalf of the Company hereunder.
6.13 Nothing in this Agreement shall create or be deemed to create
any rights
<PAGE>
in any person or entity not a party to this Agreement, except (a) for the
holders of Registrable Securities and (b) for the Placement Agent pursuant to
Sections 1.6(a) and 6.12(b) hereof.
6.14 The Company acknowledges and agrees that irreparable damage
would occur in the event that any of the provisions of Article V of this
Agreement were not performed in accordance with its specific terms or were
otherwise breached and that such damage would not be compensable in money
damages and that it would be extremely difficult or impracticable to measure the
resultant damages. It is accordingly agreed that any Subscriber shall be
entitled to an injunction or injunctions to prevent breaches of the provisions
of this Agreement and to enforce specifically the terms and provisions hereof,
in addition to any other remedy to which it may be entitled at law or in equity,
and the Company expressly waives any defense that a remedy in damages would be
adequate and expressly waives any requirement in an action for specific
performance for the posting of a bond by the Subscriber bringing such action.
STATE RESIDENTS
7.1 FLORIDA RESIDENTS: The undersigned acknowledges that the Units
have not been registered under the Florida Securities and Investor
Protection Act (the "Florida Act")in reliance upon exemption provisions
contained therein. Section 517.061 (11)(a)(5) of the Florida Act provides
that any Purchaser of securities in Florida which are exempted from
registration under Section 517.061(11) of the Florida Act may withdraw his
subscription agreement and receive a full refund of all monies paid, within
three business days after he tenders consideration for such securities.
Therefore, any Florida resident who purchases securities is entitled to
exercise the foregoing statutory rescission right within three business
days after tendering consideration for the investment packages by
telephone, telegram or letter notice to the Company.
<PAGE>
8. CONFIDENTIAL INVESTOR QUESTIONNAIRE
8.1 The Subscriber represents and warrants that he, she or it comes
within one category marked below, and that for any category marked, he or she
has truthfully set forth, where applicable, the factual basis or reason the
Subscriber comes within that category. ALL INFORMATION IN RESPONSE TO THIS
SECTION WILL BE KEPT STRICTLY CONFIDENTIAL. The undersigned agrees to furnish
any additional information which the Company deems necessary in order to verify
the answers set forth below.
Category A ____ The undersigned is an individual (not a partnership,
corporation, etc.) whose individual net worth, or joint
net worth with his or her spouse, presently exceeds
$1,000,000.
Explanation. In calculating net worth you may include
equity in personal property and real estate, including
your principal residence, cash, short-term investments,
stock and securities. Equity in personal property and
real estate should be based on the fair market value of
such property less debt secured by such property.
Category B ____ The undersigned is an individual (not a partnership,
corporation, etc.) who had an income in excess of $200,000
in each of the two most recent years, or joint income with
his or her spouse in excess of $300,000 in each of those
years (in each case including foreign income, tax exempt
income and full amount of capital gains and losses but
excluding any income of other family members and any
unrealized capital appreciation) and has a reasonable
expectation of reaching the same income level in the
current year.
Category C ____ The undersigned is a director or executive officer of the
Company which is issuing and selling the Units.
Category D ____ The undersigned is a bank; a savings and loan association;
insurance company; registered investment company;
registered business development company; licensed small
business investment company ("SBIC"); or employee benefit
plan within the meaning of Title 1 of ERISA and (a) the
investment decision is made by a plan fiduciary which is
either a bank, savings and loan association, insurance
company or registered investment advisor, or (b) the plan
has total assets in excess of $5,000,000 or is a self
directed plan with investment decisions made solely by
persons that are accredited investors.
__________________________________
__________________________________
(describe entity)
<PAGE>
Category E ____ The undersigned is a private business development company
as defined in section 202(a)(22) of the Investment
Advisors Act of 1940.
__________________________________
__________________________________
(describe entity)
Category F ____ The undersigned is either a corporation, partnership,
Massachusetts business trust, or non-profit organization
within the meaning of Section 501(c)(3) of the Internal
Revenue Code, in each case not formed for the specific
purpose of acquiring the Units and with total assets in
excess of $5,000,000.
__________________________________
(describe entity)
Category G ____ The undersigned is a trust with total assets in excess of
$5,000,000, not formed for the specific purpose of
acquiring the Units, where the purchase is directed by a
"sophisticated person" as defined in Regulation
506(b)(2)(ii).
Category H ____ The undersigned is an entity (other than a trust) all the
equity owners of which are "accredited investors" within
one or more of the above categories. If relying upon this
Category alone, each equity owner must complete a separate
copy of this Agreement.
__________________________________
(describe entity)
Category I ____ The undersigned is not within any of the categories above
and is therefore not an accredited investor.
The undersigned agrees that the undersigned will notify the Company at any time
on or prior to the Closing Date in the event that the representations and
warranties in this Agreement shall cease to be true, accurate and complete.
<PAGE>
8.2 SUITABILITY (please answer each question)
(a) For an individual Subscriber, please describe your current employment,
including the company by which you are employed and its principal business:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
____________________________________________________
(b) For an individual Subscriber, please describe any college or graduate
degrees held by you:
________________________________________________________________________________
________________________________________________________________________________
___________________________________________________________
(c) For all subscribers, please types of prior investments:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
___________________________________________________________
(d) For all Subscribers, please state whether you have you participated in
other private placements before:
YES_______ NO_______
(e) For all Subscribers, please indicate frequency of such prior participation
in private placements of:
Public Private Public or Private
Companies Companies Biotechnology Companies
--------- --------- -----------------------
Frequently _
Occasionally _
Never _
(f) For individual Subscribers, do you expect your current level of income to
significantly decrease in the foreseeable future:
YES_______ NO_______
(g) For trust, corporate, partnership and other institutional Subscribers, do
you expect your total assets to significantly decrease in the foreseeable
future:
YES_______ NO_______
<PAGE>
(h) For all Subscribers, do you have any other investments or contingent
liabilities which you reasonably anticipate could cause you to need sudden cash
requirements in excess of cash readily available to you:
YES_______ NO_______
(i) For all Subscribers, are you familiar with the risk aspects and the
non-liquidity of investments such as the securities for which you seek to
subscribe?
YES_______ NO_______
(j) For all Subscribers, do you understand that there is no guarantee of
financial return on this investment and that you run the risk of losing your
entire investment?
YES_______ NO_______
8.3 MANNER IN WHICH TITLE IS TO BE HELD. (circle one)
(a) Individual Ownership
(b) Community Property
(c) Joint Tenant with Right of Survivorship
(both parties must sign)
(d) Partnership*
(e) Tenants in Common
(f) Company*
(g) Trust*
(h) Other
*If Units are being subscribed for by an entity, the attached Certificate
of Signatory must also be completed.
8.4 NASD AFFILIATION.
Are you affiliated or associated with an NASD member firm (please check one):
Yes _________ No __________
If Yes, please describe:
_________________________________________________
_________________________________________________
_________________________________________________
*If Subscriber is a Registered Representative with an NASD member firm, have the
following
<PAGE>
acknowledgment signed by the appropriate party:
The undersigned NASD member firm acknowledges receipt of the notice required by
Article 3, Sections 28(a) and (b) of the Rules of Fair Practice.
_________________________________
Name of NASD Member Firm
By: ______________________________
Authorized Officer
Date: ____________________________
8.5 The undersigned is informed of the significance to the Company
of the foregoing representations and answers contained in the Confidential
Investor Questionnaire contained in this Section 8 and such answers have been
provided under the assumption that the Company will rely on them.
<PAGE>
SIGNATURE PAGE
NUMBER OF UNITS ___________ X $100,000 = _____________ (THE "PURCHASE PRICE")
______
Signature Signature (if purchasing jointly)
______
Name Typed or Printed Name Typed or Printed
______
Address Address
______
City, State and Zip Code City, State and Zip Code
______
Telephone-Business Telephone--Business
______
Telephone-Residence Telephone--Residence
______
Facsimile-Business Facsimile--Business
______
Facsimile-Residence Facsimile--Residence
______
Tax ID # or Social Security # Tax ID # or Social Security #
Name in which securities should be issued:
Dated: , 1996.
This Subscription Agreement is agreed to and accepted as of ______________,
1996.
XYTRONYX, INC.
By: _______________________________________
Name: Larry O. Bymaster
Title: Chief Executive Officer and President
<PAGE>
CERTIFICATE OF SIGNATORY
(To be completed if Units are
being subscribed for by an entity)
I,___________________________________, am
the_______________________________ of
_____________________________________________ (the "Entity").
I certify that I am empowered and duly authorized by the Entity to execute
and carry out the terms of the Subscription Agreement and to purchase and hold
the Units, and certify further that the Subscription Agreement has been duly and
validly executed on behalf of the Entity and constitutes a legal and binding
obligation of the Entity.
IN WITNESS WHEREOF, I have set my hand this ________day of
_________________, 1996.
_______________________________________
(Signature)
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Xytronyx, Inc. on Form S-3 of our report dated May 8, 1996 (June 4, 1996 as to
Note 7), which report includes an explanatory paragraph referring to the
activities of the Company as those of a development stage enterprise and
describes the uncertainty regarding the Company's ability to continue as a going
concern, appearing in the Annual Report on Form 10-K of Xytronyx, Inc. for the
year ended March 31, 1996 and to the reference to us under the heading "Experts"
in the Prospectus which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
San Diego, California
April 25, 1997
