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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 29, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INSITE VISION INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 2836 94-3015807
(STATE OR OTHER JURISDICTION
OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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965 ATLANTIC AVENUE
ALAMEDA, CALIFORNIA 94501
(510) 865-8800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
S. KUMAR CHANDRASEKARAN, PH.D.
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
INSITE VISION INCORPORATED
965 ATLANTIC AVENUE
ALAMEDA, CALIFORNIA 94501
(510) 865-8800
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
J. STEPHAN DOLEZALEK, ESQ.
BROBECK, PHLEGER & HARRISON LLP
TWO EMBARCADERO PLACE
2200 GENG ROAD
PALO ALTO, CA 94301
(650) 424-0160
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED(1)(2) REGISTERED(1)(2) PER SHARE(3) OFFERING PRICE REGISTRATION FEE(3)
- ----------------------------------------------------------------------------------------------------------------
Common Stock, $0.01 par
value per share........ 2,626,000 shares $4.21875 $11,078,437.50 $3,357.10
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(1) Consists of shares of Registrant's Common Stock issuable upon conversion of
the Registrant's Series A Convertible Preferred Stock.
(2) In addition to the shares of Common Stock set forth in the Calculation of
Registration Fee Table, which includes a good faith estimate of the number
of shares of Common Stock underlying the Series A Convertible Preferred
Stock, pursuant to Rule 416 of the Securities Act of 1933, as amended (the
"Securities Act"), this Registration Statement also registers such
additional number of shares of the Registrant's Common Stock as may become
issuable (i) upon conversion of the Series A Convertible Preferred Stock or
(ii) as a result of any premium paid on the Series A Convertible Preferred
Stock in Common Stock, stock splits, stock dividends and antidilution
provisions (including, by reason of any reduction in the floating rate
conversion price mechanism, as set forth in the Series A Certificate of
Designations, Preferences and Rights).
(3) Based on the average of the high and low bid prices of the Common Stock as
reported by The Nasdaq Stock Market on September 23, 1997, estimated solely
for the purpose of calculating the registration fee in accordance with Rule
457(c) under the Securities Act.
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 THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a)
MAY DETERMINE.
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PROSPECTUS (SUBJECT TO COMPLETION)
DATED SEPTEMBER 29, 1997
2,626,000 SHARES
INSITE VISION INCORPORATED
COMMON STOCK
This Prospectus relates to the offer and sale by certain persons listed
herein under "Selling Stockholders" (collectively, the "Selling Stockholders")
of a maximum of 2,626,000 shares (collectively, the "Shares") of Common Stock,
par value $0.01 per share (the "Common Stock"), of InSite Vision Incorporated
(the "Company") consisting of shares of Common Stock to be issued from time to
time to the Selling Stockholders upon conversion of the Company's Series A
Convertible Preferred Stock (the "Preferred Shares").
Pursuant to Rule 416 under the Securities Act of 1933, as amended (the
"Securities Act"), this Prospectus also relates to such presently indeterminate
number of additional Shares as may be issuable upon conversion of the Preferred
Shares or as a result of stock splits, stock dividends, a premium payable on the
Preferred Shares in Common Stock and antidilution provisions (including, by
reason of any reductions in the conversion price of the Preferred Shares). All
of the Shares may be offered by the Selling Stockholders or by pledgees, donees,
transferees or other successors in interest that receive such shares as a gift,
partnership distribution or other non-sale related transfer. The Preferred
Shares and the Common Stock to be issuable upon conversion thereof have been and
will be, respectively, issued in transactions exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof. See
"Selling Stockholders" and "Plan of Distribution." The Shares are being
registered by the Company pursuant to registration rights granted to the Selling
Stockholders.
The Selling Stockholders have not advised the Company of any specific plans
for the distribution of the Shares covered by this Prospectus. It is
anticipated, however, that the Shares will be offered and sold by the Selling
Stockholders from time to time in transactions on The Nasdaq National Market, in
privately negotiated transactions, or by a combination of such methods of sale,
at such fixed prices as may be negotiated from time to time, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The Selling Stockholders may effect such
transactions by selling the Shares to or through broker-dealers and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Stockholders or the purchasers of the Shares for
whom such broker-dealers may act as agent or to whom they sell as principal or
both (which compensation to a particular broker-dealer might be in excess of
customary commissions). See "Plan of Distribution."
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Stockholders. The Company has agreed to bear substantially
all the expenses in connection with the registration and sale of the Shares
being offered by the Selling Stockholders. In addition, the Company has agreed
to indemnify the Selling Stockholders against certain liabilities, including
liabilities under the Securities Act.
The Common Stock of the Company is traded on The Nasdaq National Market
tier of The Nasdaq Stock Market under the symbol "INSV." On September 26, 1997,
the last sale price for the Common Stock as quoted on The Nasdaq National Market
was $4.75 per share.
The Selling Stockholders and any broker-dealers or agents that participate
with the Selling Stockholders in the distribution of the Shares may be deemed to
be "underwriters" within the meaning of Section 2(11) of the Securities Act, and
any commissions received by them and any profit on the resale of the Shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. See "Plan of Distribution" herein for a description of
agreements by the Company to indemnify the Selling Stockholders against certain
liabilities.
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS SEPTEMBER , 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
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No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company, any Selling
Stockholders or by any other person. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any securities other than the
shares of Common Stock offered hereby, nor does it constitute an offer to sell
or a solicitation of an offer to buy any of the shares offered hereby to any
person in any jurisdiction in which such offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall under any circumstances create any implication that the information
contained herein is correct as of any date subsequent to the date hereof.
AVAILABLE INFORMATION
This Prospectus, which constitutes a part of a Registration Statement on
Form S-3 (the "Registration Statement") filed by the Company with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), omits certain of the information set forth in
the Registration Statement. For further information with respect to the Company
and the Common Stock offered hereby, reference is hereby made to such
Registration Statement, exhibits and schedules. Statements contained in this
Prospectus regarding the contents of any contract or other document are not
necessarily complete; with respect to each such contract or document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference. A copy of the
Registration Statement, including the exhibits and schedules thereto, may be
inspected without charge at the public reference facilities of the Commission
described below, and copies of such material may be obtained from such office
upon payment of the fees prescribed by the Commission.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by the
Company with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and the following regional offices of
the Commission: New York Regional Office, Seven World Trade Center, 13th Floor,
New York, New York 10048; and Chicago Regional Office, Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, upon payment of prescribed rates.
Furthermore, the Commission maintains a Web site that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission. Such Web site is located at
http://www.sec.gov. The Company's Common Stock is quoted on The Nasdaq National
Market tier of The Nasdaq Stock Market. Reports, proxy statements and other
information concerning the Company may be inspected at the National Association
of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or portions of documents filed by the Company (File
No. 0-22332) with the Commission are hereby incorporated herein by reference:
(a) the Company's Annual Report on Form 10-K for the year ended December 31,
1996; (b) Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997
and June 30, 1997; (c) Definitive Proxy Statement dated April 17, 1997, filed in
connection with the Company's 1997 Annual Meeting of Stockholders held June 2,
1997; and (d) the description of the Company's Common Stock contained in its
Registration Statement on Form 8-A, as amended, filed with the Commission on
August 27, 1993, including any amendments or reports filed for the purpose of
updating such description.
All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the filing
of a post-effective amendment which indicates that all
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securities offered hereby have been sold or which deregisters all securities
remaining unsold, shall be deemed to be incorporated by reference herein and to
be a part hereof from the date of filing of such reports and documents. Any
statement contained in a document incorporated by reference herein shall be
deemed modified or superseded for purposes of this Prospectus to the extent that
a statement contained or incorporated by reference herein modifies or supersedes
such statement. Any 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 this
Prospectus is delivered, upon written or oral request of such person, a copy of
any and all of the information that has been or may be incorporated by reference
in this Prospectus, other than exhibits to such documents (unless such exhibits
are specifically incorporated by reference into such documents). Such requests
should be directed to InSite Vision Incorporated, 965 Atlantic Avenue, Alameda,
California 94501, telephone (510) 865-8800, Attn: S. Kumar Chandrasekaran,
Ph.D., Chairman of the Board, President and Chief Executive Officer.
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THE COMPANY
The following information is qualified in its entirety by the more detailed
information and financial statements, including notes thereto, appearing
elsewhere herein or incorporated by reference in this Prospectus. This
Prospectus contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Actual
results could differ materially from those projected in the forward-looking
statements as a result of certain of the risk factors set forth elsewhere in
this Prospectus. Investors should carefully consider the information set forth
under the heading "Risk Factors."
InSite Vision Incorporated ("InSite," "InSite Vision" or the "Company") is
developing genetically-based tools for the diagnosis and prognosis of glaucoma,
ophthalmic, and pharmaceutical products based on its proprietary DuraSite(R)
eyedrop-based drug delivery technology. In addition, the Company recently
licensed a device for the delivery of drugs to the retina.
The Company is collaborating with academic researchers to develop new
diagnostic tools for primary congenital, juvenile and primary open angle
glaucoma. Primary congenital glaucoma is an inherited eye disorder and is one of
the leading causes of blindness and visual impairment affecting infants. A
gene-based diagnostic kit may allow early detection of the disease before
considerable irreversible damage has occurred and may improve the ability to
treat it successfully. Primary open angle glaucoma usually affects people over
the age of forty. Current glaucoma tests are generally unable to detect the
disease before substantial damage to the optic nerve has occurred. Gene-based
tests may make it possible to identify patients at risk and initiate treatment
before permanent optic nerve damage and vision loss occurs.
The DuraSite delivery system is a patented eyedrop formulation comprising a
cross-linked carboxyl-containing polymer which incorporates the drug to be
delivered to the eye. The formulation is instilled in the cul-de-sac of the eye
as a small volume eyedrop. DuraSite can be customized to deliver a wide variety
of potential drug candidates with a broad range of molecular weights and other
properties. The DuraSite formulation remains in the eye for up to several hours
during which time the active drug ingredient is gradually released. DuraSite
extends the residence time of the drug due to a combination of mucoadhesion,
surface tension and viscosity. Eyedrops delivered in the DuraSite system
contrast to conventional eyedrops which typically only last in the eye a few
minutes, thus requiring delivery of a highly concentrated burst of drug and
frequent administration to sustain therapeutic levels. The increased residence
time for DuraSite is designed to permit lower concentrations of a drug to be
administered over a longer period of time, thereby minimizing the inconvenience
of frequent dosing and reducing the potential related adverse side effects.
The Company has also licensed a patented device for the controlled,
non-surgical delivery of ophthalmic drugs to the retina and other tissues in the
posterior chamber (rear) of the eye. The device has a needle with an adjustable
collar that limits its depth of penetration and is attached to a curved neck to
facilitate use. It is inserted above the eyeball and beneath the upper eyelid by
the ophthalmologist and reaches around the globe to the back of the eye. A
metering pump regulates the amount of drug to be delivered. The combination of
this device technology with polymer based drug platforms may permit long term
delivery of therapeutic agents to treat retinal disease.
The Company's executive offices are located at 965 Atlantic Avenue,
Alameda, California 94501 and its telephone number is (510) 865-8800. InSite
Vision Limited, a United Kingdom corporation, is a wholly owned subsidiary of
the Company.
InSite, InSite Vision Incorporated, the InSite Vision Incorporated logo,
InSite Vision Limited, DuraSite, AquaSite(R), MethaSite(TM), PilaSite(R),
BetaSite(R) and ToPreSite(TM) are trademarks of the Company. All other brand
names or trademarks appearing or incorporated by reference in this Prospectus
are the property of their respective holders.
RECENT DEVELOPMENTS
On July 1, 1997, the Company entered into a license agreement with the
University of Connecticut Health Center ("UCHC") pursuant to which it obtained
an exclusive, worldwide license for diagnostic purposes of a newly-discovered
gene for primary congenital glaucoma. The Company and UCHC are
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collaborating to develop a diagnostic kit for primary congenital glaucoma. The
license provides for royalties to be paid to UCHC based on the net sales of
licensed product(s), subject to minimum annual amounts.
On August 4, 1997, the Company received $1 million from the sale of common
stock to Bausch and Lomb Incorporated pursuant to the terms of a transaction
announced in 1996.
On August 19, 1997, the Company entered into a license agreement with the
University of Rochester (New York), pursuant to which it obtained an exclusive,
worldwide license to a patented device for the controlled, non-surgical delivery
of ophthalmic drugs to the retina and other tissues in the posterior chamber of
the eye. The license provides for royalties to be paid to the University of
Rochester based on net sales of the licensed products.
On August 20, 1997, the Company announced that it commenced a Phase II
Study on its ISV-120 product candidate for the prevention of recurrent pterygia,
an abnormal tissue growth across the front of the eye. The study is designed to
evaluate the safety and efficacy of a three-month course of treatment with
ISV-120 following surgical removal of the pterygia. Up to 20 patients will be
enrolled in the double-masked, placebo-controlled study and such patients will
be followed for one year following surgery.
On September 15, 1997, John L. Mattana was appointed to the Company's Board
of Directors.
The terms of the agreement relating to the shares issued in September 1997
provides for conversion of the preferred shares into the Company's common stock
at various stated discounts to the bid price quoted on the Nasdaq National
Market. These discounts will result in an increase in the net loss attributable
to common stockholders over amounts that would otherwise be reported beginning
with the Company's quarter ending September 30, 1997.
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RISK FACTORS
The shares offered hereby involve a high degree of risk. The following risk
factors should be considered carefully in addition to the other information
contained or incorporated by reference in this Prospectus before purchasing the
shares of Common Stock offered hereby. In addition to the historical information
contained herein, the discussion in this Prospectus contains certain
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations and intentions. The
cautionary statements made in this Prospectus should be read as being applicable
to all related forward-looking statements wherever they appear in this
Prospectus. The Company's actual results could differ materially from those
discussed in this Prospectus. Factors that could cause or contribute to such
differences include those discussed below as well as those cautionary statements
and other factors set forth elsewhere herein.
EARLY STAGE OF DEVELOPMENT; TECHNOLOGICAL UNCERTAINTY
InSite is at an early stage of development. Only one product utilizing the
Company's DuraSite technology, an over-the-counter ("OTC") dry eye treatment, is
currently being marketed. Most of the potential products currently under
development by the Company will require significant additional research and
development, and preclinical and clinical testing, prior to submission to
regulatory authorities for marketing approval. The Company's potential products
are subject to the risks of failure inherent in the development of products
based on new technologies. These risks include the possibilities that the
Company's technology or any or all of its potential products will be found to be
unsafe, ineffective, or otherwise fail to receive necessary marketing clearance;
that the potential products, if safe and effective, will be difficult to
manufacture or market; that proprietary rights of third parties will preclude
the Company from marketing products; or that third parties will market superior,
equivalent or more cost-effective products. As a result, there can be no
assurance that the Company's research and development activities will result in
any commercially viable products.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company will require substantial additional funds to conduct the
development and testing of its potential products and to manufacture and market
any products that may be developed. The Company's future capital requirements
will depend on numerous factors, including the progress of its research and
development programs, the progress of preclinical and clinical testing, the time
and costs involved in obtaining regulatory approvals, the cost of filing,
prosecuting, defending and enforcing patent claims and other intellectual
property rights, competing technological and market developments, changes in the
Company's existing collaborative and licensing relationships, the ability of the
Company to establish corporate partnerships for the manufacture and marketing of
its potential products, and the purchase of additional capital equipment. The
Company intends to seek additional funding through public or private financings,
collaborative or other arrangements, or from other sources. There can be no
assurance that additional financing will be available from any of these sources
or, if available, that it will be available on acceptable terms. Any failure by
the Company to obtain additional funding on acceptable terms, or at all, would
have a material adverse effect on the Company's business, financial condition
and results of operations. If additional funds are raised by issuing equity
securities, significant dilution to existing stockholders may result. If
adequate funds are not otherwise available, the Company may be required to
delay, scale back or eliminate one or more of its research, discovery or
development programs, or to obtain funds through entering into arrangements with
collaborators or others that may require the Company to relinquish rights to
certain of its technologies, product candidates or products, or to cease
operations.
The Company believes that its existing cash and cash equivalents will be
sufficient to finance its working capital and capital expenditure requirements
through the third quarter of 1998.
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HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE FINANCIAL RESULTS
The Company has incurred significant operating losses since its inception
in 1986 and it expects to continue to incur significant operating losses for at
least the next several years. As of June 30, 1997, the Company's accumulated
deficit was approximately $71 million. The amount of net losses and the time
required by the Company to reach profitability are uncertain. The Company's
ability to achieve profitability depends upon its ability, alone or with others,
to complete successful development of its potential products, conduct clinical
trials, obtain required regulatory approvals and successfully manufacture and
market its products. There can be no assurance that the Company will ever
achieve significant revenue or profitability.
DEPENDENCE ON THIRD PARTIES
In connection with its restructuring in November 1995, the Company elected
not to proceed with plans to establish a dedicated sales and marketing
organization. In order to successfully commercialize its product candidates, the
Company will be required to enter into arrangements with one or more companies
that will: provide for Phase III clinical testing, commercial scale-up and
manufacture of the Company's potential products; obtain or assist the Company in
other activities associated with obtaining regulatory approvals for its product
candidates; and market and sell the Company's products, if approved.
To date, the Company has entered into agreements with CIBA Vision
Ophthalmics ("Ciba Vision" ) for co-exclusive rights with the Company in the
U.S. to manufacture and market AquaSite, MethaSite, ToPreSite and ISV-205 for
certain non-glaucoma-related indications. Of these, only AquaSite, an OTC
product for which regulatory approval is not required, has been marketed.
Through the Company's agreement with CIBA Vision in May 1996, the Company
regained full U.S. marketing rights to the Company's PilaSite product candidate
for glaucoma, which was subsequently licensed on a worldwide basis to Bausch and
Lomb Incorporated ("B&L"). In exchange, CIBA Vision received royalty-bearing,
co-exclusive U.S. marketing rights to ToPreSite product candidate for ocular
inflammation/infection. CIBA Vision assumed all subsequent product development,
clinical and regulatory responsibility for ToPreSite. In addition, CIBA Vision
received royalty-bearing, co-exclusive U.S. marketing rights to the Company's
ISV-205 product candidate for certain non-glaucoma-related indications. CIBA
Vision has no obligation to fund the further development of MethaSite or
ISV-205.
In July 1996, the Company entered into agreements with B&L pursuant to
which: (i) B&L has agreed to manufacture InSite product candidates at B&L's
facility in Tampa, Florida using equipment owned by InSite; B&L and InSite have
agreed to share the cost of certain leasehold improvements in connection with
the installation and operation of the equipment; (ii) B&L will receive, for a
license fee of $500,000, an exclusive worldwide royalty-bearing license to
manufacture and market PilaSite; (iii) B&L and InSite have agreed to collaborate
to develop and sell a new DuraSite based eyedrop formulation; and (iv) B&L has
agreed to make a $2 million equity investment in the Company, $1 million of
which was received by the Company in August 1996. The remaining $1 million was
received in August 1997. In connection with this equity investment, the Company
issued an aggregate of 415,655 shares of Common Stock. The Company is currently
in the process of determining whether it will file a New Drug Application
("NDA") with the U.S. Food and Drug Administration ("FDA") for PilaSite.
There can be no assurance that, even if regulatory approvals are obtained,
the Company's products will be successfully marketed, or that the Company will
be able to conclude arrangements with other companies to support the
commercialization of such products on acceptable terms, if at all.
The Company's strategy for research, development and commercialization of
certain of its products requires the Company to enter into various arrangements
with corporate and academic collaborators, licensors, licensees and others, and
is dependent on the subsequent success of these outside parties in performing
their responsibilities. For example, the Company is dependent upon British
Biotechnology plc ("British Biotech") for the supply of batimastat and
lexipafant, the active drugs incorporated into the Company's ISV-120 and ISV-611
product candidates, respectively. British Biotech is conducting clinical testing
of lexipafant for non-ophthalmic indications, but it has discontinued clinical
testing of batimastat and informed the Company that it will no longer
manufacture the product. The Company may have no source of ongoing raw materials
for such
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product candidates and its business may be adversely affected. In addition,
there can be no assurance that the Company's collaborators will not take the
position that they are free to compete using the Company's technology without
compensating or entering into agreements with the Company, or will not pursue
alternative technologies or develop alternative products either on their own or
in collaboration with others, including the Company's competitors, as a means
for developing treatments for the diseases or disorders targeted by these
collaborative programs.
UNCERTAINTY OF PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend in large part on its ability to obtain
patents, protect trade secrets and operate without infringing upon the
proprietary rights of others. A substantial number of patents in the field of
ophthalmology have been issued to pharmaceutical, biotechnology and
biopharmaceutical companies. Moreover, competitors may have filed patent
applications, may have been issued patents or may obtain additional patents and
proprietary rights relating to products or processes competitive with those of
the Company. There can be no assurance that the Company's patent applications
will be approved, that the Company will develop additional proprietary products
that are patentable, that any issued patents will provide the Company with
adequate protection for its inventions or will not be challenged by others, or
that the patents of others will not impair the ability of the Company to
commercialize its products. The patent position of firms in the pharmaceutical
industry generally is highly uncertain, involves complex legal and factual
questions, and has recently been the subject of much litigation. No consistent
policy has emerged from the U.S. Patent and Trademark Office or the courts
regarding the breadth of claims allowed or the degree of protection afforded
under pharmaceutical patents. There can be no assurance that others will not
independently develop similar products, duplicate any of the Company's products
or design around any patents of the Company.
A number of pharmaceutical and biotechnology companies and research and
academic institutions have developed technologies, filed patent applications or
received patents on various technologies that may be related to the Company's
business. Some of these technologies, applications or patents may conflict with
the Company's technologies or patent applications. Such conflicts could limit
the scope of the patents, if any, that the Company 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 have been or are issued to other
companies, there can be no assurance that the Company would be able to obtain
licenses to these patents, at all, or at a reasonable cost, or be able to
develop or obtain alternative technology. If the Company does not obtain such
licenses, it could encounter delays or be precluded from introducing products to
the market. Litigation may be necessary to defend against or assert claims of
infringement, to enforce patents issued to the Company or to protect trade
secrets or know-how owned by the Company, and could result in substantial cost
to and diversion of effort by, and may have a material adverse effect on, the
Company. In addition, there can be no assurance that these efforts by the
Company will be successful or, even if successful, will not result in
substantial cost to the Company.
The Company's competitive position is also dependent upon unpatented trade
secrets. There can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets, that such trade secrets will not be
disclosed or that the Company can effectively protect its rights to unpatented
trade secrets. To the extent that the Company or its consultants or research
collaborators use intellectual property owned by others in their work for the
Company, disputes also may arise as to the rights in related or resulting
know-how and inventions.
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
The Company may, at any time in the future, pursue acquisitions of
companies, product lines, technologies or businesses that its management
believes are complementary or otherwise beneficial. In the event that such an
acquisition does occur, there can be no assurance as to the effect thereof on
the Company's business, financial condition and operating results. Future
acquisitions by the Company may result in substantial dilution to the Company's
stockholders, the incurrence by the Company of additional debt and amortization
expenses related to goodwill, research and development and other intangible
assets, which could materially adversely affect the Company's business,
financial condition and results of operations. In addition, acquisitions involve
numerous risks, including difficulties in the assimilation of the employees,
operations,
8
<PAGE> 10
technologies and products of the acquired companies, the diversion of
management's attention from other business concerns, risks of entering markets
in which the Company has no or limited direct experience and the potential loss
of key employees of the acquired company.
NO COMMERCIAL MANUFACTURING EXPERIENCE
The Company has no experience in the manufacture of products for commercial
purposes. The Company has a pilot facility licensed by the State of California
to manufacture certain of its products for Phase I and Phase II clinical trials.
In July 1996, the Company entered into an alliance under which B&L has agreed to
manufacture Company products. If the Company should encounter delays or
difficulties in establishing and maintaining its relationship with B&L or other
qualified manufacturers to produce, package and distribute its finished
products, then clinical trials, regulatory filings, market introduction and
subsequent sales of such products would be adversely affected.
Contract manufacturers must adhere to Good Manufacturing Practices ("GMP")
regulations strictly enforced by the FDA on an ongoing basis through its
facilities inspection program. Contract manufacturing facilities must pass a
pre-approval plant inspection before the FDA will approve an NDA. Certain
material manufacturing changes that occur after approval are also subject to FDA
review and clearance or approval. There can be no assurance that the FDA or
other regulatory agencies will approve the process or the facilities by which
any of the Company's products may be manufactured. The Company's dependence on
third parties for the manufacture of products may adversely affect the Company's
ability to develop and deliver products on a timely and competitive basis.
Should the Company be required to manufacture products itself, the Company will
be subject to the regulatory requirements described above, and to similar risks
regarding delays or difficulties encountered in manufacturing any such products
and will require substantial additional capital. There can be no assurance that
the Company will be able to manufacture any such products successfully or in a
cost-effective manner. In addition, certain of the raw materials the Company
uses in formulating its DuraSite drug delivery system are available from only
one source. Any significant interruption in the supply of these raw materials
could delay the Company's clinical trials, product development or product sales
and could have a material adverse effect on the Company's business.
GOVERNMENT REGULATION AND PRODUCT APPROVAL
FDA and comparable agencies in state and local jurisdictions and in foreign
countries impose substantial requirements upon preclinical and clinical testing,
manufacturing and marketing of pharmaceutical products. Lengthy and detailed
preclinical and clinical testing, validation of manufacturing and quality
control processes, and other costly and time-consuming procedures are required.
Satisfaction of these requirements typically takes several years and the time
needed to satisfy them may vary substantially, based on the type, complexity and
novelty of the pharmaceutical product. The effect of government regulation may
be to delay or to prevent marketing of potential products for a considerable
period of time and to impose costly procedures upon the Company's activities.
There can be no assurance that the FDA or any other regulatory agency will grant
approval for any products developed by the Company on a timely basis, or at all.
Success in preclinical or early stage clinical trials does not assure success in
later stage clinical trials. Data obtained from preclinical and clinical
activities are susceptible to varying interpretations which could delay, limit
or prevent regulatory approval. If regulatory approval of a product is granted,
such approval may impose limitations on the indicated uses for which a product
may be marketed. Further, even if regulatory approval is obtained, later
discovery of previously unknown problems with a product may result in
restrictions on the product, including withdrawal of the product from the
market. Delay in obtaining or failure to obtain regulatory approvals would have
a material adverse effect on the Company's business.
The FDA's policies may change and additional government regulations may be
promulgated which could prevent or delay regulatory approval of the Company's
potential products. Moreover, increased attention to the containment of health
care costs in the U.S. could result in new government regulations which could
have a material adverse effect on the Company's business. The Company is unable
to predict the likelihood of adverse governmental regulation which might arise
from future legislative or administrative action, either in the U.S. or abroad.
See "Risk Factors -- Uncertainty of Product Pricing, Reimbursement and Related
Matters."
9
<PAGE> 11
COMPETITION
The Company's success depends upon developing and maintaining a competitive
position in the development of products and technologies in its areas of focus.
There are many competitors of the Company in the U.S. and abroad, including
pharmaceutical, biotechnology and other companies with varying resources and
degrees of concentration on the ophthalmic pharmaceuticals market. The Company's
competitors may have existing products or products under development which may
be technically superior to those of the Company or which may be less costly or
more acceptable to the market. Competition from such companies is intense and
expected to increase as new products enter the market and new technologies
become available. The Company's competitors, many of which have substantially
greater financial, technical, marketing and human resources than the Company,
may also succeed in developing technologies and products that are more
effective, safer, less expensive or otherwise more commercially acceptable than
any which have been or are being developed by the Company. The Company's
competitors may obtain cost advantages, patent protection or other intellectual
property rights that would block or limit the Company's ability to develop its
potential products, or may obtain regulatory approval for the commercialization
of their products more effectively or rapidly than the Company. To the extent
that the Company determines to manufacture and market its products by itself, it
will also compete with respect to manufacturing efficiency and marketing
capabilities, areas in which it has limited or no experience.
MARKETING AND SALES
The Company plans to market and sell its products through arrangements with
one or more pharmaceutical companies with expertise in the ophthalmic drug
industry. There can be no assurance that the Company will be able to enter into
such arrangements on acceptable terms, if at all. If the Company is not
successful in concluding such arrangements, it may be required to establish its
own sales and marketing organization, although the Company has no experience in
sales, marketing or distribution. There can be no assurance that the Company
will be able to build such a marketing staff or sales force, or that the
Company's sales and marketing efforts will be cost-effective or successful. To
the extent the Company has entered into or enters into co-marketing,
co-promotion or other licensing arrangements for the marketing and sale of its
products, any revenues received by the Company will be dependent on the efforts
of third parties (such as CIBA Vision and B&L), and there can be no assurance
that such efforts will be successful.
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on Dr. Chandrasekaran and other principal
members of its scientific and management staff, the loss of whose services might
significantly delay the achievement of planned development objectives.
Furthermore, recruiting and retaining qualified personnel will be critical to
the Company's success. Competition for skilled individuals in the biotechnology
business is highly intense and there can be no assurance that the Company will
be able to continue to attract and retain personnel necessary for the
development of the Company's business. The loss of key personnel or the failure
to recruit additional personnel or to develop needed expertise could have a
material adverse effect on the Company's business, financial condition and
results of operations.
PRODUCT LIABILITY EXPOSURE; LIMITED INSURANCE COVERAGE
The Company's business exposes it to potential product liability risks
which are inherent in the development, testing, manufacturing, marketing and
sale of human therapeutic products. Product liability insurance for the
pharmaceutical industry generally is expensive. There can be no assurance that
the Company's present product liability insurance coverage is adequate. Such
existing coverage will not be adequate as the Company further develops its
products, and no assurance can be given that adequate insurance coverage against
potential claims will be available in sufficient amounts or at a reasonable
cost.
10
<PAGE> 12
UNCERTAINTY OF PRODUCT PRICING, REIMBURSEMENT AND RELATED MATTERS
The Company's business may be materially adversely affected by the
continuing efforts of governmental and third party payers to contain or reduce
the costs of health care through various means. For example, in certain foreign
markets the pricing or profitability of health care products is subject to
government control. In the U.S., there have been, and the Company expects there
will continue to be, a number of federal and state proposals to implement
similar government control. While the Company cannot predict whether any such
legislative or regulatory proposals or reforms will be adopted, the announcement
of such proposals or reforms could have a material adverse effect on the
Company's ability to raise capital or form collaborations, and the adoption of
such proposals or reforms could have a material adverse effect on the Company's
business, financial condition or results of operations.
In addition, in the U.S. and elsewhere, sales of health care products are
dependent in part on the availability of reimbursement from third party payers,
such as government and private insurance plans. Significant uncertainty exists
as to the reimbursement status of newly approved health care products, and third
party payers are increasingly challenging the prices charged for medical
products and services. If the Company succeeds in bringing one or more products
to the market, there can be no assurance that reimbursement from third party
payers will be available or will be sufficient to allow the Company to sell its
products on a competitive or profitable basis.
HAZARDOUS MATERIALS; ENVIRONMENTAL MATTERS
The Company's research, development and manufacturing processes involve the
controlled use of small amounts of radioactive and other hazardous materials.
The Company is subject to federal, state and local laws, regulations and
policies governing the use, manufacture, storage, handling and disposal of such
materials and certain waste products. Although the Company believes that its
safety procedures for handling and disposing of such materials comply with the
standards prescribed by such laws and regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident, the Company could be held liable for any damages
that result, and any such liability could exceed the resources of the Company.
Moreover, the Company may be required to incur significant costs to comply with
environmental laws and regulations, especially to the extent that the Company
manufactures its own products.
CONTROL BY MANAGEMENT AND EXISTING STOCKHOLDERS
As of June 30, 1997, the Company's management and principal stockholders in
the aggregate owned beneficially approximately 17% of the Company's outstanding
shares of Common Stock. As a result, these stockholders, acting together, would
be able to effectively control most matters requiring approval by the
stockholders of the Company, including the election of a majority of the
directors and the approval or disapproval of business combinations.
VOLATILITY OF STOCK PRICE; NO DIVIDENDS
The market prices for securities of biopharmaceutical and biotechnology
companies (including the Company) have been highly volatile, and the market has
from time to time experienced significant price and volume fluctuations that are
unrelated to the operating performance of particular companies. In addition,
future announcements concerning the Company, its competitors or other
biopharmaceutical companies including the results of testing and clinical
trials, technological innovations or new therapeutic products, governmental
regulation, developments in patent or other proprietary rights, litigation or
public concern as to the safety of products developed by the Company or others
and general market conditions may have a significant effect on the market price
of the Common Stock. The Company has not paid any cash dividends on its Common
Stock and does not anticipate paying any dividends in the foreseeable future.
11
<PAGE> 13
ANTI-TAKEOVER EFFECT OF DELAWARE LAW AND CERTAIN CHARTER AND BYLAWS PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
may have the effect of making it more difficult for a third party to acquire, or
discouraging a third party from attempting to acquire, control of the Company.
Such provisions could limit the price that certain investors might be willing to
pay in the future for shares of the Company's Common Stock. The Company's Board
of Directors has the authority to issue up to 5,000,000 shares of Preferred
Stock, 7,070 of which have been designated as Series A Convertible Preferred
Stock. Furthermore, the Company's Board of Directors has the authority to
determine the price, rights, preferences, privileges and restrictions of the
remaining unissued shares of Preferred Stock without any further vote or action
by the stockholders. The rights of the holders of Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any Preferred
Shares and of Preferred Stock that may be issued in the future. The issuance of
Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. Certain provisions of Delaware law
applicable to the Company could also delay or make more difficult a merger,
tender offer or proxy contest involving the Company, including Section 203 of
the Delaware General Corporation Law, which prohibits a Delaware corporation
from engaging in any business combination with any interested stockholder for a
period of three years unless certain conditions are met.
CONVERTIBLE SECURITIES; DILUTION; REDEMPTION
Sales of substantial amounts of the shares of Common Stock issuable upon
conversion of the Preferred Shares could adversely affect the market value of
the Common Stock, depending upon the timing of such sales, and may effect a
dilution of the book value per share of Common Stock.
As of September 29, 1997, 7,070 Preferred Shares were issued and
outstanding. The actual number of shares of Common Stock issuable upon
conversion of the Preferred Shares will equal (i) the aggregate stated value of
the Preferred Shares then being converted ($1,000 per share) plus a premium in
the amount of 6% per annum accruing from September 12, 1997 through the date of
conversion, divided by (ii) a conversion price equal to the lower of $5.04 or
the product of the average of the lowest closing bid prices for the Common Stock
for any five (5) trading days during the twenty-two (22) consecutive trading day
period immediately preceding the date of conversion multiplied by a conversion
percentage equal to (A) 90% if the conversion occurs prior to June 10, 1998, (B)
87.5% if the conversion occurs on or after June 10, 1998 and prior to September
13, 1998, (C) 85% if the conversion occurs on or after September 13, 1998 and
prior to December 7, 1998, or (D) 82.5% if the conversion occurs on or after
December 7, 1998. For a complete description of the relative rights,
preferences, privileges, powers and restrictions of the Preferred Shares, see
the Certificate attached as Exhibit 4.1 to the Registration Statement of which
this Prospectus forms a part. Depending on market conditions at the time of
conversion, the number of shares of Common Stock issuable could increase
significantly in the event of a decrease in the trading price of the Common
Stock. Purchasers of Common Stock could therefore experience substantial
dilution upon conversion of the Preferred Shares. In addition, in the event that
any holder of Preferred Shares is unable to convert any such securities into
Common Stock, any or all such holders may cause the Company to redeem any such
Preferred Shares that cannot be so converted. In the event that the Company
fails to so redeem such shares, the holders of the Preferred Shares shall have
additional remedies as set forth in the Certificate. The shares of Common Stock
into which the Preferred Shares may be converted are being registered pursuant
to this Registration Statement.
As of September 29, 1997, 3,300,000 shares of Common Stock were reserved
for issuance upon conversion of the Preferred Shares. At September 12, 1997,
there were 13,175,504 shares of Common Stock outstanding, nearly all of which
are freely-tradeable without restriction under the Securities Act unless held by
affiliates.
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<PAGE> 14
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation limits, to the maximum extent
permitted by Delaware Law, the personal liability of directors for monetary
damages for breach of their fiduciary duties as a director. The Company's Bylaws
provide that the Company shall indemnify its officers and directors and may
indemnify its employees and other agents to the fullest extent permitted by law.
The Company has entered into indemnification agreements with its officers and
directors containing provisions which are in some respects broader than the
specific indemnification provisions contained in Delaware Law. The
indemnification agreements may require the Company, among other things, to
indemnify such officers and directors against certain liabilities that may arise
by reason of their status or service as directors or officers (other than
liabilities arising from willful misconduct of a culpable nature), to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified, and to obtain directors' and officers' insurance, if
available on reasonable terms. Section 145 of the Delaware Law provides that a
corporation may indemnify a director, officer, employee or agent made or
threatened to be made a party to an action by reason of the fact that he was a
director, officer, employee or agent of the corporation or was serving at the
request of the corporation against expenses actually and reasonably incurred in
connection with such action if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Delaware Law does not
permit a corporation to eliminate a director's duty of care, and the provisions
of the Company's Certificate of Incorporation have no effect on the availability
of equitable remedies, such as injunction or rescission, for a director's breach
of the duty of care.
13
<PAGE> 15
SELLING STOCKHOLDERS
The following table sets forth certain information, as of the date hereof,
with respect to the number of shares of Common Stock owned by each of the
Selling Stockholders and as adjusted to give effect to the sale of the Shares
offered hereby. The Shares are being registered to permit public secondary
trading of the Shares, and the Selling Stockholders may offer the Shares for
resale from time to time. See "Plan of Distribution."
The Shares being offered hereby by the Selling Stockholders may be
acquired, from time to time, upon the conversion of an aggregate of 7,070
Preferred Shares, 7,000 of which were acquired by certain of the Selling
Stockholders from the Company in a private placement pursuant to that certain
Securities Purchase Agreement among the Company and the Selling Stockholders
dated as of September 12, 1997 (the "Agreement"), and 70 of which may be
acquired by William Blair & Company LLC pursuant to an engagement letter, dated
as of April 1, 1997. This Prospectus covers the resale by the Selling
Stockholders of up to 2,626,000 Shares, which includes a good faith estimate of
the number of shares of Common Stock underlying the Series A Convertible
Preferred Stock. Pursuant to Rule 416 under the Securities Act, this
Registration Statement also registers such additional number of shares of the
Company's Common Stock as may become issuable as a result of any premium paid on
the Series A Convertible Preferred Stock in Common Stock, or pursuant to stock
splits, stock dividends and antidilution provisions (including, by reason of any
reduction in the floating rate conversion price mechanism, as set forth in the
Company's Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock (the "Certificate")).
Each Selling Stockholder that purchased Preferred Shares pursuant to the
Agreement represented to the Company that it was acquiring the Preferred Shares
for investment and with no present intention of distributing the Preferred
Shares. Pursuant to the Selling Stockholders' demand registration rights set
forth in the Registration Rights Agreement dated September 12, 1997, by and
among the Company and certain Selling Stockholders, the Company has filed with
the Commission, under the Securities Act, a Registration Statement on Form S-3,
of which this Prospectus forms a part, with respect to the resale of the Shares
from time to time on The Nasdaq National Market or in privately-negotiated
transactions and has agreed to prepare and file such amendments and supplements
to the Registration Statement as may be necessary to keep such Registration
Statement effective until the Shares are no longer required to be registered for
the sale thereof by the Selling Stockholders.
The Company has agreed to register a specified number of Shares for resale
by the Selling Stockholders. The number of Shares shown in the following table
as being offered by the Selling Stockholders does not include such presently
indeterminate number of shares of Common Stock as may be issuable upon
conversion of or otherwise with respect to the Preferred Shares in accordance
with the terms of the Certificate, but which shares are, in accordance with Rule
416 under the Securities Act, included in the Registration Statement of which
this Prospectus forms a part.
The Shares covered by this Prospectus may be offered from time to time by
the Selling Stockholders named below:
<TABLE>
<CAPTION>
OWNERSHIP
NUMBER OF SHARES NUMBER OF AFTER OFFERING(1)
OWNED SHARES -------------------
NAME AND ADDRESS OF PRIOR TO OFFERING BEING NUMBER OF
SELLING STOCKHOLDERS (1)(2) OFFERED SHARES PERCENT
- ---------------------------------------------------- ----------------- --------- --------- -------
<S> <C> <C> <C> <C>
Capital Ventures International...................... 555,555 555,555 0 0%
c/o Heights Capital Management
425 California Street
Suite 1100
San Francisco, CA 94104
Proprietary Convertible Investment Group, Inc....... 446,428 446,428 0 0%
11 Madison Avenue
New York, NY 10010
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
OWNERSHIP
NUMBER OF SHARES NUMBER OF AFTER OFFERING(1)
OWNED SHARES -------------------
NAME AND ADDRESS OF PRIOR TO OFFERING BEING NUMBER OF
SELLING STOCKHOLDERS (1)(2) OFFERED SHARES PERCENT
- ---------------------------------------------------- ----------------- --------- --------- -------
<S> <C> <C> <C> <C>
Special Situations Private Equity Fund, L.P......... 327,381 327,381 0 0%
153 East 53rd Street
Fifty-First Floor
New York, NY 10022
Hull Overseas, Ltd.................................. 39,682 39,682 0 0%
Charlotte House
Charlotte Street
Nassau, Bahamas
Banque du Credit Agricole........................... 19,841 19,841 0 0%
c/o Hull Capital Corp.
152 West 57th Street
New York, NY 10019
William Blair & Company LLC(3)...................... 13,888 13,888 0 0%
222 West Adam Street
Suite 3300
Chicago, IL 60606
Total..................................... 1,402,775 1,402,775
</TABLE>
- ---------------
(1) Percentage of beneficial ownership is calculated assuming 13,175,504 shares
of Common Stock were outstanding as of September 12, 1997. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Shares of Common Stock subject to options or warrants
currently exercisable or convertible, or exercisable or convertible within
60 days of September 12, 1997, are deemed outstanding for computing the
percentage of the person holding such option or warrant but are not deemed
outstanding for computing the percentage of any other person.
(2) Represents the pro-rata allocation of the number of shares of Common Stock
issuable upon conversion of the Preferred Shares calculated using an assumed
conversion price of $5.04 (the "Fixed Conversion Price" set forth in the
Certificate). The conversion price could fluctuate from time to time based
on changes in the closing bid price of the Common Stock as reported by The
Nasdaq Stock Market. The actual number of shares of Common Stock issuable
upon conversion of the Preferred Shares will equal (i) the aggregate stated
value of the Preferred Shares then being converted ($1,000 per share) plus a
premium in the amount of 6% per annum accruing from September 12, 1997
through the date of conversion, divided by (ii) a conversion price equal to
the lower of $5.04 or the product of the average of the lowest closing bid
prices for the Common Stock for any five (5) trading days during the
twenty-two (22) consecutive trading day period immediately preceding the
date of conversion multiplied by a conversion percentage equal to (A) 90% if
the conversion occurs prior to June 10, 1998, (B) 87.5% if the conversion
occurs on or after June 10, 1998 and prior to September 13, 1998, (C) 85% if
the conversion occurs on or after September 13, 1998 and prior to December
7, 1998, or (D) 82.5% if the conversion occurs on or after December 7, 1998.
For a complete description of the relative rights, preferences, privileges,
powers and restrictions of the Preferred Shares, see the Certificate
attached as Exhibit 4.1 to the Registration Statement of which this
Prospectus forms a part. Except under certain limited circumstances, no
holder of the Preferred Shares is entitled to convert such securities to the
extent that the shares to be received by such holder upon such conversion
would cause such holder to beneficially own more than 4.9% of the Common
Stock. Moreover, pursuant to the Rules of The Nasdaq National Market, in the
absence of stockholder approval, the aggregate number of shares of Common
Stock issuable to the holders of Preferred Shares at a discount from market
price upon conversion of the Preferred Shares which have been and may be
issued to the holders of Preferred Shares pursuant to the Agreement may not
exceed 19.99% of the outstanding Common Shares on September 12, 1997
(2,635,100 shares). In the event that any holder of Preferred Shares is
unable to convert any such securities into Common Stock due to operation of
the immediately preceding sentence, any or all such holders may cause the
Company to redeem any such Preferred Shares that cannot be so converted. In
the
15
<PAGE> 17
event that the Company fails to so redeem such shares, the holders of the
Preferred Shares shall have additional remedies as set forth in the
Certificate.
(3) Represents shares issuable upon exercise of a warrant to acquire 70
Preferred Shares issued to WB & Co. as a finder's fee in connection with the
Agreement. The exercise price equals the stated value of the Preferred
Shares, $1,000 per share, and the term of the warrant is three years.
PLAN OF DISTRIBUTION
The Shares are being offered on behalf of the Selling Stockholders, and the
Company will not receive any proceeds from the offering. The Shares may be sold
or distributed from time to time by the Selling Stockholders, or by pledgees,
donees or transferees of, or other successors in interest to, the Selling
Stockholders, directly to one or more purchasers (including pledgees) or through
brokers, dealers or underwriters who may act solely as agents or may acquire
Shares as principals, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices, at negotiated prices, or at fixed
prices, which may be changed. The distribution of the Shares may be effected in
one or more of the following methods: (i) ordinary brokers' transactions, which
may include long or short sales; (ii) transactions involving cross or block
trades or otherwise on The Nasdaq National Market; (iii) purchases by brokers,
dealers or underwriters as principal and resale by such purchasers for their own
accounts pursuant to this Prospectus; (iv) "at the market" to or through market
makers or into an existing market for the Common Shares; (v) in other ways not
involving market makers or established trading markets, including direct sales
to purchasers or sales effected through agents; (vi) through transactions in
options, swaps or other derivatives (whether exchange-listed or otherwise); or
(vii) any combination of the foregoing, or by any other legally available means.
In addition, the Selling Stockholders or their successors in interest may enter
into hedging transactions with broker-dealers who may engage in short sales of
Shares in the course of hedging the positions they assume with the Selling
Stockholders. The Selling Stockholders or their successors in interest may also
enter into option or other transactions with broker-dealers that require the
delivery by such broker-dealers of the Shares, which Shares may be resold
thereafter pursuant to this Prospectus.
Brokers, dealers, underwriters or agents participating in the distribution
of the Shares as agents may receive compensation in the form of commissions,
discounts or concessions from the Selling Stockholders and/or purchasers of the
Shares for whom such broker-dealers may act as agent, or to whom they may sell
as principal, or both (which compensation as to a particular broker-dealer may
be less than or in excess of customary commissions). The Selling Stockholders
and any broker-dealers who act in connection with the sale of Shares hereunder
may be deemed to be "Underwriters" within the meaning of the Securities Act, and
any commissions they receive and proceeds of any sale of Shares may be deemed to
be underwriting discounts and commissions under the Securities Act. Neither the
Company nor any Selling Stockholder can presently estimate the amount of such
compensation. The Company knows of no existing arrangements between any Selling
Stockholder, any other stockholder, broker, dealer, underwriter or agent
relating to the sale or distribution of the Shares.
The Company will pay substantially all of the expenses incident to the
registration, offering and sale of the Shares to the public other than
commissions or discounts of underwriters, broker-dealers or agents. The Company
has also agreed to indemnify certain of the Selling Stockholders and certain
related persons against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for the
Company by Brobeck, Phleger & Harrison LLP, Palo Alto, California.
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<PAGE> 18
EXPERTS
The consolidated financial statements of the Company appearing in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
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<PAGE> 19
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
The Company........................... 4
Risk Factors.......................... 6
Selling Stockholders.................. 14
Plan of Distribution.................. 16
Legal Matters......................... 16
Experts............................... 17
</TABLE>
======================================================
======================================================
2,626,000 SHARES
INSITE VISION
INCORPORATED
COMMON STOCK
------------------------
PROSPECTUS
------------------------
SEPTEMBER , 1997
======================================================
<PAGE> 20
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses expected to be incurred
by the Registrant in connection with the sale and distribution of the securities
being registered hereby. All amounts are estimated except the Securities and
Exchange Commission registration fee and The Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC registration fee...................................... $ 3,358
NNM listing fees.......................................... 17,500
Accounting fees and expenses.............................. 5,000
Legal fees and expenses................................... 75,000
Printing and engraving expenses........................... 5,000
Miscellaneous fees and expenses........................... 15,000
-------
Total........................................... $120,858
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, as amended (the
"DGCL"), provides that a corporation may 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 or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he 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 attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding, if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 145 further provides that a corporation similarly may indemnify any such
person serving in any such capacity 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, against expenses
actually and reasonably incurred in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation and
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 Delaware Court of Chancery or
such other 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
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director (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 a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
unlawful payment of dividends and unlawful stock purchase and redemption) or
(iv) for any transaction from which the director derived an improper personal
benefit.
The Registrant's Certificate of Incorporation provides that the
Registrant's directors shall not be liable to the Registrant or its stockholders
for monetary damages for breach of fiduciary duty as a director, except to the
extent that exculpation from liabilities is not permitted under the DGCL as in
effect at the time such
II-1
<PAGE> 21
liability is determined. The Registrant has entered into indemnification
agreements with all of its officers and directors, as permitted by the DGCL.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The exhibits listed in the Exhibit Index as filed as part of this
Registration Statement.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ----------------------------------------------------------------------------------
<C> <S>
4.1* Certificate of Designations, Preferences and Rights of Series A Convertible
Preferred Stock as filed with the Delaware Secretary of State on September 11,
1997.
4.2* Certificate of Correction of the Certificate of Designations, Preferences and
Rights of Series A Convertible Preferred Stock as filed with the Delaware
Secretary of State on September 26, 1997.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1* Engagement Agreement, dated April 1, 1997, by and between Registrant and William
Blair & Company LLC.
10.2*+ License Agreement, dated July 1, 1997, by and between The University of
Connecticut Health Center and Registrant.
10.3*+ License Agreement, dated August 19, 1997, by and between the University of
Rochester and Registrant.
10.4* Form of Securities Purchase Agreement, dated September 12, 1997, by and among
Registrant and the Selling Stockholders.
10.5* Form of Registration Rights Agreement, dated September 12, 1997, by and among
Registrant and the Selling Stockholders.
10.6* Form of Warrant, issued September 12, 1997, to William Blair & Company LLC.
23.1* Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Brobeck, Phleger & Harrison LLP (included in the opinion filed as
Exhibit 5.1).
24.1* Power of Attorney (included in Part II of this Registration Statement under the
caption "Signatures").
</TABLE>
- ---------------
* Filed herewith.
+ Confidential treatment has been requested as to certain portions of this
agreement. Such omitted confidential information has been designated by an
asterisk and has been filed separately with the Commission pursuant to Rule
406 under the Securities Act of 1933, as amended, pursuant to an application
for confidential treatment.
(b) FINANCIAL STATEMENT SCHEDULES
No financial statement schedules are included because they are not required
or the required information is included in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS
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;
(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,
represent a fundamental change in the information set forth in the
Registration Statement; and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement; provided, however, that (i) and (ii) do not apply
if the Registration Statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by (i)
and (ii) is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to
II-2
<PAGE> 22
Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, 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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
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 Alameda, State of California, on the 26th day of
September, 1997.
INSITE VISION INCORPORATED
By /s/ S. KUMAR CHANDRASEKARAN
------------------------------------
S. Kumar Chandrasekaran, Ph.D.
Chairman of the Board, President,
Chief Executive
Officer and Chief Financial Officer
(on behalf of the registrant and as
Principal
Executive and Financial Officer)
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below does hereby constitute and appoint jointly and severally, S. Kumar
Chandrasekaran as his or her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign the Registration
Statement filed herewith and any and all amendments to said Registration
Statement (including post-effective amendments and registration statements filed
pursuant to Rule 462 and otherwise), and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the persons whose signatures
appear below, which persons have signed such Registration Statement in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------------------- ------------------------- -------------------
<C> <S> <C>
/s/ S. KUMAR CHANDRASEKARAN Chairman of the Board, September 26, 1997
- ----------------------------------------------- President, Chief
S. Kumar Chandrasekaran, Ph.D. Executive Officer and
Chief Financial Officer
Director September , 1997
- -----------------------------------------------
Mitchell H. Friedlaender, M.D.
/s/ GRANT M. INMAN Director September 26, 1997
- -----------------------------------------------
Grant M. Inman
/s/ JOHN E. LUCAS Director September 26, 1997
- -----------------------------------------------
John E. Lucas
/s/ JOHN L. MATTANA Director September 26, 1997
- -----------------------------------------------
John L. Mattana
/s/ ANDERS P. WIKLUND Director September 26, 1997
- -----------------------------------------------
Anders P. Wiklund
</TABLE>
II-4
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ----------------------------------------------------------------------------------
<S> <C>
4.1* Certificate of Designations, Preferences and Rights of Series A Convertible
Preferred Stock as filed with the Delaware Secretary of State on September 11,
1997.
4.2* Certificate of Correction of the Certificate of Designations, Preferences and
Rights of Series A Convertible Preferred Stock as filed with the Delaware
Secretary of State on September 26, 1997.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1* Engagement Agreement, dated April 1, 1997, by and between Registrant and William
Blair & Company LLC.
10.2*+ License Agreement, dated July 1, 1997, by and between The University of
Connecticut Health Center and Registrant.
10.3*+ License Agreement, dated August 19, 1997, by and between the University of
Rochester and Registrant.
10.4* Form of Securities Purchase Agreement, dated September 12, 1997, by and among
Registrant and the Selling Stockholders.
10.5* Form of Registration Rights Agreement, dated September 12, 1997, by and among
Registrant and the Selling Stockholders.
10.6* Form of Warrant, issued September 12, 1997, to William Blair & Company LLC.
23.1* Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Brobeck, Phleger & Harrison LLP (included in the opinion filed as
Exhibit 5.1).
24.1* Power of Attorney (included in Part II of this Registration Statement under the
caption "Signatures" ).
</TABLE>
- ---------------
* Filed herewith.
+ Confidential treatment has been requested as to certain portions of this
agreement. Such omitted confidential information has been designated by an
asterisk and has been filed separately with the Commission pursuant to Rule
406 under the Securities Act of 1933, as amended, pursuant to an application
for confidential treatment.
<PAGE> 1
EXHIBIT 4.1
PAGE 1
State of Delaware
Office of the Secretary of State
----------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION ON "INSITE VISION INCORPORATED", FILED IN THIS OFFICE ON THIS
ELEVENTH DAY OF SEPTEMBER, A.D. 1997, AT 4:30 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL]
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
2116645 81000 AUTHENTICATION: 8648113
971304739 DATE: 09/12/97
<PAGE> 2
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
INSITE VISION INCORPORATED
(Pursuant to Section 151 of the
Delaware General Corporation Law)
InSite Vision Incorporated, a corporation organized and existing under
the laws of the State of Delaware (the "CORPORATION"), hereby certifies that the
following resolutions were adopted by the Board of Directors of the Corporation
pursuant to authority of the Board of Directors as required by Section 151 of
the Delaware General Corporation Law.
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (the "BOARD OF DIRECTORS" or the "BOARD")
in accordance with the provisions of its Certificate of Incorporation and
Bylaws, each as amended and restated through the date hereof, the Board of
Directors hereby authorizes a series of the Corporation's previously authorized
Preferred Stock, par value $.01 per share (the "PREFERRED STOCK"), and hereby
states the designation and number of shares, and fixes the relative rights,
preferences, privileges, powers and restrictions thereof as follows:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 7,070 shares of
Preferred Stock, is the Series A Convertible Preferred Stock (the "SERIES A
PREFERRED STOCK") and the face amount shall be One Thousand U.S. Dollars
($1000.00) per share (the "FACE AMOUNT").
<PAGE> 3
II. NO DIVIDENDS
The Series A Preferred Stock will bear no dividends, and the holders of
the Series A Preferred Stock shall not be entitled to receive dividends on the
Series A Preferred Stock.
III. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, the following terms
shall have the following meanings:
A. "CLOSING BID PRICE" means, for any security as of any date, the
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Corporation and reasonably acceptable to holders of a majority
of the then outstanding shares of Series A Preferred Stock if Bloomberg
Financial Markets is not then reporting closing bid prices of such security
(collectively, "BLOOMBERG"), or if the foregoing does not apply, the last
reported sale price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
sale price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Closing Bid Price of such security on such date shall be the fair market value
as reasonably determined by an investment banking firm selected by the
Corporation and reasonably acceptable to holders of a majority of the then
outstanding shares of Series A Preferred Stock, with the costs of such appraisal
to be borne by the Corporation.
B. "CONVERSION DATE" means, for any Optional Conversion, the date
specified in the notice of conversion in the form attached hereto (the "NOTICE
OF CONVERSION"), so long as the copy of the Notice of Conversion is faxed (or
delivered by other means resulting in notice) to the Corporation before 11:59
p.m., New York City time, on the Conversion Date indicated in the Notice of
Conversion. If the Notice of Conversion is not so faxed or otherwise delivered
before such time, then the Conversion Date shall be the date the holder faxes or
otherwise delivers the Notice of Conversion to the Corporation. The Conversion
Date for the Required Conversion at Maturity shall be the Maturity Date (as such
terms are defined in Paragraph D of Article IV).
-2-
<PAGE> 4
C. "CONVERSION PERCENTAGE" shall have the following meaning and shall be
subject to adjustment as provided herein:
IF THE CONVERSION DATE IS: THEN THE CONVERSION PERCENTAGE IS:
Prior to the 271st day following 90%
the Issuance Date
On or after the 271st day following 87.5%
the Issuance Date and prior to
the 366th day following the Issuance Date
On or after the 366th day following 85%
the Issuance Date and prior to
the 451st day following the Issuance Date
On or after the 451st day following 82.5%
the Issuance Date
D. "CONVERSION PRICE" means the lower of the Fixed Conversion Price and
the Variable Conversion Price, each in effect as of such date and subject to
adjustment as provided herein.
E. "FIXED CONVERSION PRICE" means $5.04 and shall be subject to reset
pursuant to Article VII.C hereof and to adjustment as provided herein.
F. "ISSUANCE DATE" means the date of the closing under that certain
Securities Purchase Agreement by and among the Corporation and the purchasers
named therein with respect to the issuance of the Series A Preferred Stock (the
"SECURITIES PURCHASE AGREEMENT").
G. "N" means the number of days from, but excluding, the Issuance Date.
H. "PREMIUM" means an amount equal to (.06)x(N/365)x(1,000).
I. "VARIABLE CONVERSION PRICE" means, as of any date of determination,
the amount obtained by multiplying the Conversion Percentage then in effect by
the average of the lowest Closing Bid Prices for the Corporation's common stock,
par value $.01 per share ("COMMON STOCK"), for any five (5) trading days during
the twenty-two (22) consecutive trading days ending on the trading day
immediately preceding such date of determination (subject to equitable
adjustment for any stock splits, stock dividends, reclassifications or similar
events during such twenty-two (22) trading day period), and shall be subject to
adjustment as provided herein.
-3-
<PAGE> 5
IV. CONVERSION
A. Conversion at the Option of the Holder. Subject to the limitations on
conversions contained in Paragraph C of this Article IV, each holder of shares
of Series A Preferred Stock may, at any time and from time to time on or after
the earliest of (i) the date the Registration Statement filed pursuant to
Section 2(a) of the Registration Rights Agreement (as defined herein) is
declared effective, (ii) the ninetieth day following the Issuance Date and (iii)
the occurrence of a Redemption Event or an Announcement Date (as such terms are
defined herein), convert (an "OPTIONAL CONVERSION") each of its shares of Series
A Preferred Stock into a number of fully paid and nonassessable shares of Common
Stock determined in accordance with the following formula:
1,000 + THE PREMIUM
-------------------
CONVERSION PRICE
B. Mechanics of Conversion. In order to effect an Optional Conversion, a
holder shall: (x) fax (or otherwise deliver) a copy of the fully executed Notice
of Conversion to the Corporation or the transfer agent for the Common Stock and
(y) surrender or cause to be surrendered the original certificates representing
the Series A Preferred Stock being converted (the "PREFERRED STOCK
CERTIFICATES"), duly endorsed, along with a copy of the Notice of Conversion as
soon as practicable thereafter to the Corporation or the transfer agent. Upon
receipt by the Corporation of a facsimile copy of a Notice of Conversion from a
holder, the Corporation shall immediately send, via facsimile, a confirmation to
such holder stating that the Notice of Conversion has been received, the date
upon which the Corporation expects to deliver the Common Stock issuable upon
such conversion and the name and telephone number of a contact person at the
Corporation regarding the conversion. The Corporation shall not be obligated to
issue shares of Common Stock upon a conversion unless either the Preferred Stock
Certificates are delivered to the Corporation or the transfer agent as provided
above, or the holder notifies the Corporation or the transfer agent that such
certificates have been lost, stolen or destroyed (subject to the requirements of
Article XIV.B).
(i) Delivery of Common Stock Upon Conversion. Upon the surrender
of Preferred Stock Certificates from a holder of Series A Preferred Stock
accompanied by a Notice of Conversion, the Corporation shall, no later than (a)
the second business day following the Conversion Date and (b) the business day
following the date of such surrender (or, in the case of lost, stolen or
destroyed certificates, after provision of indemnity pursuant to Article XIV.B)
(the "DELIVERY PERIOD"), issue and deliver to the holder or its nominee (x) that
number of shares of Common Stock issuable upon conversion of such shares of
Series A Preferred Stock being converted and (y) a certificate representing the
number of shares of Series A Preferred Stock not being converted, if any. If the
Corporation's transfer agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer program, and so long as the
certificates therefor do not bear a legend and the holder thereof is not
obligated to return such certificate for the placement of a legend thereon, the
Corporation shall cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the holder by crediting the account of the
holder or its nominee with DTC through its Deposit Withdrawal Agent Commission
system ("DTC
-4-
<PAGE> 6
TRANSFER"). If the aforementioned conditions to a DTC Transfer are not
satisfied, the Corporation shall deliver to the holder physical certificates
representing the Common Stock issuable upon conversion. Further, a holder may
instruct the Corporation to deliver to the holder physical certificates
representing the Common Stock issuable upon conversion in lieu of delivering
such shares by way of DTC Transfer.
(ii) Taxes. The Corporation shall pay any and all taxes which
may be imposed upon it with respect to the issuance and delivery of the shares
of Common Stock upon the conversion of the Series A Preferred Stock.
(iii) No Fractional Shares. If any conversion of Series A
Preferred Stock would result in the issuance of a fractional share of Common
Stock, such fractional share shall be disregarded and the number of shares of
Common Stock issuable upon conversion of the Series A Preferred Stock shall be
the next higher whole number of shares.
(iv) Conversion Disputes. In the case of any dispute with
respect to a conversion, the Corporation shall promptly issue such number of
shares of Common Stock as are not disputed in accordance with subparagraph (i)
above. If such dispute involves the calculation of the Conversion Price, the
Corporation shall submit the disputed calculations to an independent outside
accountant via facsimile within two (2) business days of receipt of the Notice
of Conversion. The accountant, at the Corporation's sole expense, shall audit
the calculations and notify the Corporation and the holder of the results no
later than two (2) business days from the date it receives the disputed
calculations. The accountant's calculation shall be deemed conclusive, absent
manifest error. The Corporation shall then issue the appropriate number of
shares of Common Stock in accordance with subparagraph (i) above.
C. Limitations on Conversions. The conversion of shares of Series A
Preferred Stock shall be subject to the following limitations (each of which
limitations shall be applied independently):
(i) Cap Amount. Unless permitted by the applicable rules and
regulations of the principal securities market on which the Common Stock is
listed or traded, in no event shall the total number of shares of Common Stock
issued upon conversion of the Series A Preferred Stock exceed the maximum number
of shares of Common Stock that the Corporation can so issue pursuant to Rule
4460(i) of the Nasdaq National Market ("NASDAQ") (or any successor rule) (the
"CAP AMOUNT") which, as of the date of issuance of the Series A Preferred Stock,
shall be 2,635,100 shares. The Cap Amount shall be allocated pro-rata to the
holders of Series A Preferred Stock as provided in Article XIV.C. In the event
the Corporation is prohibited from issuing shares of Common Stock as a result of
the operation of this subparagraph (i), the Corporation shall comply with
Article VII.
(ii) No Five Percent Holders. Except in a Required Conversion at
Maturity, in no event shall a holder of shares of Series A Preferred Stock be
entitled to receive shares of Common Stock upon a conversion to the extent that
the sum of (x) the number of shares of Common
-5-
<PAGE> 7
Stock beneficially owned by the holder and its affiliates (exclusive of shares
issuable upon conversion of the unconverted portion of the shares of Series A
Preferred Stock or the unexercised or unconverted portion of any other
securities of the Corporation subject to a limitation on conversion or exercise
analogous to the limitations contained herein) and (y) the number of shares of
Common Stock issuable upon the conversion of the shares of Series A Preferred
Stock with respect to which the determination of this subparagraph is being
made, would result in beneficial ownership by the holder and its affiliates of
more than 4.9% of the outstanding shares of Common Stock. For purposes of this
subparagraph, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13 D-G thereunder, except as otherwise provided in clause (x) above. The
restriction contained in this subparagraph (ii) shall not be altered, amended,
deleted or changed in any manner whatsoever unless the holders of a majority of
the outstanding shares of Common Stock and each holder of outstanding shares of
Series A Preferred Stock shall approve such alteration, amendment, deletion or
change.
D. Required Conversion at Maturity. Subject to the limitations set forth
in Paragraph C(i) of this Article IV and provided all shares of Common Stock
issuable upon conversion of all outstanding shares of Series A Preferred Stock
are then (i) authorized and reserved for issuance, (ii) registered under the
Securities Act of 1933, as amended (the "SECURITIES ACT") for resale by the
holders of such shares of Series A Preferred Stock and (iii) eligible to be
traded on either the Nasdaq, the New York Stock Exchange or the American Stock
Exchange, each share of Series A Preferred Stock issued and outstanding on the
third anniversary of the Issuance Date (the "MATURITY DATE"), automatically
shall be converted into shares of Common Stock on such date in accordance with
the conversion formulas set forth in Paragraph A of this Article IV (the
"REQUIRED CONVERSION AT MATURITY"). If the Required Conversion at Maturity
occurs, the Corporation and the holders of Series A Preferred Stock shall follow
the applicable conversion procedures set forth in Paragraph B of this Article
IV; provided, however, that the holders of Series A Preferred Stock are not
required to deliver a Notice of Conversion to the Corporation or its transfer
agent. If the Required Conversion at Maturity does not occur, each holder of
Series A Preferred Stock shall thereafter have the option, exercisable in whole
or in part at any time and from time to time by delivery of a Redemption Notice
to the Corporation, to require the Corporation to purchase for cash, at an
amount per share equal to the Redemption Amount, the holder's Series A Preferred
Stock. If the Corporation fails to redeem any of such shares within five (5)
business days after the day on which the Corporation receives such Redemption
Notice (the "REDEMPTION DATE"), then such holder shall be entitled to the
remedies provided in Article VIII.C.
V. RESERVATION OF SHARES OF COMMON STOCK
A. Reserved Amount. Upon the initial issuance of the shares of Series A
Preferred Stock, the Corporation shall reserve [3,300,000] shares of the
authorized but unissued shares of Common Stock for issuance upon conversion of
the Series A Preferred Stock and thereafter the number of authorized but
unissued shares of Common Stock so reserved (the "RESERVED AMOUNT") shall not be
decreased and shall at all times be sufficient to provide for the conversion of
the Series
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<PAGE> 8
A Preferred Stock outstanding at the then current Conversion Price. The Reserved
Amount shall be allocated to the holders of Series A Preferred Stock as provided
in Article XIV.C.
B. Increases to Reserved Amount. If the Reserved Amount for any three
(3) consecutive trading days (the last of such three (3) trading days being the
"AUTHORIZATION TRIGGER DATE") shall be less than 125% of the number of shares of
Common Stock issuable upon conversion of the Series A Preferred Stock on such
trading days, the Corporation shall immediately notify the holders of Series A
Preferred Stock of such occurrence and shall take immediate action (including,
if necessary, seeking shareholder approval to authorize the issuance of
additional shares of Common Stock) to increase the Reserved Amount to 150% of
the number of shares of Common Stock then issuable upon conversion of the
outstanding Series A Preferred Stock. In the event the Corporation fails to so
increase the Reserved Amount within ninety (90) days after an Authorization
Trigger Date, each holder of Series A Preferred Stock shall thereafter have the
option, exercisable in whole or in part at any time and from time to time by
delivery of a Redemption Notice to the Corporation, to require the Corporation
to purchase for cash, at an amount per share equal to the Redemption Amount (as
defined in Article VIII.B), a portion of the holder's Series A Preferred Stock
such that, after giving effect to such purchase, the holder's allocated portion
of the Reserved Amount exceeds 125% of the total number of shares of Common
Stock issuable to such holder upon conversion of its Series A Preferred Stock.
If the Corporation fails to redeem any of such shares within five (5) business
days after such Redemption Date, then such holder shall be entitled to the
remedies provided in Article VIII.C.
VI. FAILURE TO SATISFY CONVERSIONS
A. Conversion Default Payments. If, at any time, (x) a holder of shares
of Series A Preferred Stock submits a Notice of Conversion and the Corporation
fails for any reason (other than because such issuance would exceed such
holder's allocated portion of the Reserved Amount or Cap Amount (for which
failures the holders shall have the remedies set forth in Articles V and VII) or
because such issuance is not permitted by Article IV.C (ii)) to deliver, on or
prior to the fourth business day following the expiration of the Delivery Period
for such conversion, such number of freely tradeable shares of Common Stock to
which such holder is entitled upon such conversion, or (y) the Corporation
provides notice to any holder of Series A Preferred Stock at any time of its
intention not to issue freely tradeable shares of Common Stock upon exercise by
any holder of its conversion rights in accordance with the terms of this
Certificate of Designation (other than because such issuance would exceed such
holder's allocated portion of the Reserved Amount or Cap Amount) (each of (x)
and (y) being a "CONVERSION DEFAULT"), then the Corporation shall pay to the
affected holder, in the case of a Conversion Default described in clause (x)
above, and to all holders, in the case of a Conversion Default described in
clause (y) above, an amount equal to:
(.24) x (D/365) x (the Default Amount)
where:
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"D" means the number of days after the expiration of the Delivery Period
through and including the Default Cure Date;
"DEFAULT AMOUNT" means (i) the total Face Amount of all shares of Series
A Preferred Stock held by such holder plus (ii) the total accrued Premium as of
the first day of the Conversion Default on all shares of Series A Preferred
Stock included in clause (i) of this definition; and
"DEFAULT CURE DATE" means (i) with respect to a Conversion Default
described in clause (x) of its definition, the date the Corporation effects the
conversion of the full number of shares of Series A Preferred Stock and (ii)
with respect to a Conversion Default described in clause (y) of its definition,
the date the Corporation begins to issue freely tradeable Common Stock in
satisfaction of all conversions of Series A Preferred Stock in accordance with
Article IV.A.
The payments to which a holder shall be entitled pursuant to this
Paragraph A are referred to herein as "CONVERSION DEFAULT PAYMENTS." A holder
may elect to receive accrued Conversion Default Payments in cash or to convert
all or any portion of such accrued Conversion Default Payments, at any time,
into Common Stock at the lowest Conversion Price in effect during the period
beginning on the date of the Conversion Default through the Conversion Date for
such conversion. In the event a holder elects to receive any Conversion Default
Payments in cash, it shall so notify the Corporation in writing. Such payment
shall be made in accordance with and be subject to the provisions of Article
XIV.E. In the event a holder elects to convert all or any portion of the
Conversion Default Payments into Common Stock, the holder shall indicate on a
Notice of Conversion such portion of the Conversion Default Payments which such
holder elects to so convert and such conversion shall otherwise be effected in
accordance with the provisions of Article IV.
B. Adjustment to Conversion Price. If a holder has not received
certificates for all shares of Common Stock prior to the tenth (10th) business
day after the expiration of the Delivery Period with respect to a conversion of
Series A Preferred Stock for any reason (other than because such issuance would
exceed such holder's allocated portion of the Reserved Amount or Cap Amount, for
which failures the holders shall have the remedies set forth in Articles V and
VII), then the Fixed Conversion Price in respect of any shares of Series A
Preferred Stock held by such holder (including shares of Series A Preferred
Stock submitted to the Corporation for conversion, but for which shares of
Common Stock have not been issued to such holder) shall thereafter be the lesser
of (i) the Fixed Conversion Price on the Conversion Date specified in the Notice
of Conversion which resulted in the Conversion Default and (ii) the lowest
Conversion Price in effect during the period beginning on, and including, such
Conversion Date through and including the earlier of (x) the day such shares of
Common Stock are delivered to the holder and (y) the day on which the holder
regains its rights as a holder of Series A Preferred Stock with respect to such
unconverted shares of Series A Preferred Stock pursuant to the provisions of
Article XIV.F hereof. If there shall occur a Conversion Default of the type
described in clause (y) of Article VI.A, then the Fixed Conversion Price with
respect to any conversion thereafter shall be the lowest Conversion Price in
effect at any time during the period beginning on, and including, the date of
the occurrence of such Conversion Default through and
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including the Default Cure Date. The Fixed Conversion Price shall thereafter be
subject to further adjustment for any events described in Article XI.
C. Buy-In Cure. Unless the Corporation has notified the applicable
holder in writing prior to the delivery by such holder of a Notice of Conversion
that the Corporation is unable to honor conversions, if (i) (a) the Corporation
fails for any reason to deliver during the Delivery Period shares of Common
Stock to a holder upon a conversion of shares of Series A Preferred Stock or (b)
there shall occur a Legend Removal Failure (as defined in Article VIII.A(iii)
below) and (ii) thereafter, such holder purchases (in an open market transaction
or otherwise) shares of Common Stock to make delivery in satisfaction of a sale
by such holder of the unlegended shares of Common Stock (the "SOLD SHARES")
which such holder anticipated receiving upon such conversion (a "BUY-IN"), the
Corporation shall pay such holder (in addition to any other remedies available
to the holder) the amount by which (x) such holder's total purchase price
(including brokerage commissions, if any) for the unlegended shares of Common
Stock so purchased exceeds (y) the net proceeds received by such holder from the
sale of the Sold Shares. For example, if a holder purchases unlegended shares of
Common Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to shares of Common Stock it sold for $10,000, the Corporation will be
required to pay the holder $1,000. A holder shall provide the Corporation
written notification indicating any amounts payable to such holder pursuant to
this Paragraph C. The Corporation shall make any payments required pursuant to
this Paragraph C in accordance with and subject to the provisions of Article
XIV.E.
D. Redemption Right. If the Corporation fails, and such failure
continues uncured for five (5) business days after the Corporation has been
notified thereof in writing by the holder, for any reason (other than because
such issuance would exceed such holder's allocated portion of the Reserved
Amount or Cap Amount, for which failures the holders shall have the remedies set
forth in Articles V and VII) to issue shares of Common Stock within ten (10)
business days after the expiration of the Delivery Period with respect to any
conversion of Series A Preferred Stock, then the holder may elect at any time
and from time to time prior to the Default Cure Date for such Conversion
Default, by delivery of a Redemption Notice to the Corporation, to have all or
any portion of such holder's outstanding shares of Series A Preferred Stock
purchased by the Corporation for cash, at an amount per share equal to the
Redemption Amount (as defined in Article VIII.B). If the Corporation fails to
redeem any of such shares within five (5) business days after such Redemption
Date, then such holder shall be entitled to the remedies provided in Article
VIII.C.
VII. INABILITY TO CONVERT SHARES OF SERIES A PREFERRED STOCK DUE
TO CAP AMOUNT
A. Obligation to Eliminate Trading Prohibitions. If at any time the
Corporation shall have issued to any holder upon conversion of such holder's
shares of Series A Preferred Stock, a number of shares of Common Stock equal to
such holder's Cap Amount (a "TRADING MARKET TRIGGER EVENT"), the Fixed
Conversion Price then in effect shall be subject to reset in accordance with the
provisions of Paragraph C of this Article VII and the Corporation shall
immediately notify
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the holders of Series A Preferred Stock of such occurrence. Further, in the
event that (i) the Corporation breaches its obligations under Sections 4(o) of
the Securities Purchase Agreement or (ii) a Trading Market Trigger Event occurs
and the Corporation fails, on or before August 9, 1998 to eliminate, in
accordance with the provisions of Section 4(o) of the Securities Purchase
Agreement, all prohibitions (the "TRADING PROHIBITIONS") under applicable law or
the rules or regulations of any stock exchange, interdealer quotation system or
other self-regulatory organization with jurisdiction over the Corporation or any
of its securities on the Corporation's ability to issue shares of Common Stock
in excess of the Cap Amount, then each holder of Series A Preferred Stock shall
thereafter have the option, exercisable in whole or in part at any time and from
time to time by delivery of a Redemption Notice to the Corporation, to require
the Corporation to purchase for cash, at an amount per share equal to the
Redemption Amount (as defined in Article VIII.B), a number of the holder's
shares of Series A Preferred Stock such that after such redemption, the then
unissued portion of such holder's Cap Amount is greater than the number of
shares of Common Stock issuable upon conversion of such holder's shares of
Series A Preferred Stock. If the Corporation fails to redeem any of such shares
within five (5) business days after such Redemption Date, then such holder shall
be entitled to the remedies provided in Articles VII.B and VIII.C.
B. Remedies. If the Corporation fails to redeem any shares of Series A
Preferred Stock pursuant to Article VII.A within five (5) business days after
the Redemption Date therefor and thereafter the Corporation is prohibited, at
any time, from issuing shares of Common Stock upon conversion of Series A
Preferred Stock to any holder because such issuance would exceed the then
unissued portion of such holder's Cap Amount because of applicable law or the
rules or regulations of any stock exchange, interdealer quotation system or
other self-regulatory organization with jurisdiction over the Corporation or its
securities, any holder who is so prohibited from converting its Series A
Preferred Stock may elect either or both of the following additional remedies:
(i) to require, with the consent of holders of at least fifty
percent (50%) of the outstanding shares of Series A Preferred Stock (including
any shares of Series A Preferred Stock held by the requesting holder), the
Corporation to terminate the listing of its Common Stock on the Nasdaq (or any
other stock exchange, interdealer quotation system or trading market) and to
cause its Common Stock to be eligible for trading on the Nasdaq SmallCap Market
or on the over-the-counter electronic bulletin board, at the option of the
requesting holder; or
(ii) to require the Corporation to issue shares of Common Stock
in accordance with such holder's Notice of Conversion at a conversion price
equal to the average of the Closing Bid Prices of the Common Stock for the five
(5) consecutive trading days (subject to equitable adjustment for any stock
splits, stock dividends, reclassifications or similar events during such five
(5) trading day period) preceding the date of the holder's written notice to the
Corporation of its election to receive shares of Common Stock pursuant to this
subparagraph (ii).
C. Reset of Fixed Conversion Price. Upon the occurrence of a Trading
Market Trigger Event, the Fixed Conversion Price then in effect automatically
shall be permanently reduced, but not increased, for any and all conversions
thereafter to an amount equal to the lowest Conversion Price
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<PAGE> 12
in effect during the period commencing on the day of the Trading Market Trigger
Event and ending on the day on which all Trading Prohibitions have been
eliminated (the "RESET PERIOD"). Upon the occurrence of each reset of the Fixed
Conversion Price pursuant to this Paragraph C, the Corporation, at its expense,
shall promptly compute such new Fixed Conversion Price and prepare and furnish
to each holder of Series A Preferred Stock a certificate setting forth such new
Fixed Conversion Price and showing in detail each Conversion Price in effect
during the Reset Period.
VIII. REDEMPTION DUE TO CERTAIN EVENTS
A. Redemption by Holder. In the event (each of the events described in
clauses (i)-(vi) below after expiration of the applicable cure period (if any)
being a "REDEMPTION EVENT"):
(i) the Common Stock (including any of the shares of Common
Stock issuable upon conversion of the Series A Preferred Stock) is suspended
from trading on any of, or is not listed (and authorized) for trading on at
least one of, the New York Stock Exchange, the American Stock Exchange or Nasdaq
for an aggregate of ten (10) trading days in any nine (9) month period;
(ii) the Registration Statement required to be filed by the
Corporation pursuant to Section 2(a) of the Registration Rights Agreement
entered into in connection with and pursuant to the Securities Purchase
Agreement (the "REGISTRATION RIGHTS AGREEMENT"), has not been declared effective
by January 31, 1998 or such Registration Statement, after being declared
effective, cannot be utilized by the holders of Series A Preferred Stock for the
resale of all of their Registrable Securities (as defined in the Registration
Rights Agreement) for an aggregate of more than thirty (30) days;
(iii) the Corporation fails to remove any restrictive legend on
any certificate or any shares of Common Stock issued to the holders of Series A
Preferred Stock upon conversion of the Series A Preferred Stock as and when
required by this Certificate of Designation, the Securities Purchase Agreement
or the Registration Rights Agreement (a "LEGEND REMOVAL FAILURE"), and any such
failure continues uncured for five (5) business days after the Corporation has
been notified thereof in writing by the holder;
(iv) the Corporation provides notice to any holder of Series A
Preferred Stock, including by way of public announcement, at any time, of its
intention not to issue shares of Common Stock to any holder of Series A
Preferred Stock upon conversion in accordance with the terms of this Certificate
of Designation (other than due to the circumstances contemplated by Articles V
or VII for which the holders shall have the remedies set forth in such
Articles);
(v) the Corporation shall:
(a) sell, convey or dispose of all or substantially all
of its assets;
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<PAGE> 13
(b) merge, consolidate or engage in any other business
combination with any other entity (other than pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation of
the Corporation); or
(c) have fifty percent (50%) or more of the voting power
of its capital stock owned beneficially by one person, entity or "group" (as
such term is used under Section 13(d) of the Securities Exchange Act of 1934, as
amended);
(vi) the Corporation otherwise shall breach any material term
hereunder or under the Securities Purchase Agreement or the Registration Rights
Agreement;
then, upon the occurrence of any such Redemption Event, each holder of shares of
Series A Preferred Stock shall thereafter have the option, exercisable in whole
or in part at any time and from time to time by delivery of a Redemption Notice
(as defined in Paragraph C below) to the Corporation while such Redemption Event
continues, to require the Corporation to purchase for cash any or all of the
then outstanding shares of Series A Preferred Stock held by such holder for an
amount per share equal to the Redemption Amount (as defined in Paragraph B
below) in effect at the time of the redemption hereunder. For the avoidance of
doubt, the occurrence of any event described in clauses (i), (ii), (iv), (v) or
(vi) above shall immediately constitute a Redemption Event and there shall be no
cure period. Upon the Corporation's receipt of any Redemption Notice hereunder
(other than during the three (3) trading day period following the Corporation's
delivery of a Redemption Announcement (as defined below) to all of the holders),
the Corporation shall immediately (and in any event within one (1) business day
following such receipt) deliver a written notice (a "REDEMPTION ANNOUNCEMENT")
to all holders of Series A Preferred Stock stating the date upon which the
Corporation received such Redemption Notice and the amount of Series A Preferred
Stock covered thereby. The Corporation shall not redeem any shares of Series A
Preferred Stock during the three (3) trading day period following a required
Redemption Announcement hereunder. At any time and from time to time during such
three (3) trading day period, each holder of Series A Preferred Stock may
request (either orally or in writing) information from the Corporation with
respect to the instant redemption (including, but not limited to, the aggregate
number of shares of Series A Preferred Stock covered by Redemption Notices
received by the Corporation) and the Corporation shall furnish (either orally or
in writing) as soon as practicable such requested information to such requesting
holder.
B. Definition of Redemption Amount. The "REDEMPTION AMOUNT" with respect
to a share of Series A Preferred Stock means an amount equal to:
V
------ X M
CP
where:
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"V" means the face amount thereof plus the accrued Premium thereon and
all Conversion Default Payments (if any) with respect thereto through the date
of payment of the Redemption Amount;
"CP" means the Conversion Price in effect on the Redemption Date; and
"M" means (i) with respect to all redemptions other than redemptions
pursuant to Article VIII.A(v) and Article VIII.D hereof, the highest Closing Bid
Price of the Corporation's Common Stock during the period beginning on the
Redemption Date and ending on the date immediately preceding the date of payment
of the Redemption Amount, (ii) with respect to redemptions pursuant to (A)
Article VIII.D hereof where the transaction which triggers the redemption is
between the Corporation and an entity whose securities are not publicly traded
and (B) Article VIII.A(v) hereof, the greater of (a) the amount determined
pursuant to clause (i) of this definition and (b) the fair market value, as of
the Redemption Date, of the consideration payable to the holder of a share of
Common Stock pursuant to the transaction which triggers the redemption and (iii)
with respect to redemptions pursuant to Article VIII.D where the transaction
which triggers the redemption is between the Corporation and an entity whose
securities are publicly traded, the fair market value, as of the Redemption
Date, of the consideration payable to the holder of a share of Common Stock
pursuant to the transaction which triggers the redemption. For purposes of this
definition, "fair market value" shall be determined by the mutual agreement of
the Company and holders of a majority of the shares of Series A Preferred Stock
then outstanding, or if such agreement cannot be reached within five (5)
business days prior to the date of redemption, by an investment banking firm
selected by the Corporation and reasonably acceptable to holders of a majority
of the then outstanding shares of Series A Preferred Stock, with the costs of
such appraisal to be borne by the Corporation.
C. Redemption Defaults. If the Corporation fails to pay any holder the
Redemption Amount with respect to any share of Series A Preferred Stock within
five (5) business days after its receipt of a notice requiring such redemption
(a "REDEMPTION NOTICE"), then the holder of Series A Preferred Stock delivering
such Redemption Notice (i) shall be entitled to interest on the Redemption
Amount at a per annum rate equal to the lower of twenty-four percent (24%) and
the highest interest rate permitted by applicable law from the Redemption Date
until the date of payment of the Redemption Amount hereunder, and (ii) shall
have the right, at any time and from time to time, to require the Corporation,
upon written notice, to immediately convert (in accordance with the terms of
Paragraph A of Article IV) all or any portion of the Redemption Amount, plus
interest as aforesaid, into shares of Common Stock at the lowest Conversion
Price in effect during the period beginning on the Redemption Date and ending on
the Conversion Date with respect to the conversion of such Redemption Amount. In
the event the Corporation is not able to redeem all of the shares of Series A
Preferred Stock subject to Redemption Notices delivered prior to the date upon
which such redemption is to be effected, the Corporation shall redeem shares of
Series A Preferred Stock from each holder pro rata, based on the total number of
shares of Series A Preferred Stock outstanding at the time of redemption
included by such holder in all Redemption Notices delivered prior to the date
upon which such redemption is to be effected relative to the total number
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of shares of Series A Preferred Stock outstanding at the time of redemption
included in all of the Redemption Notices delivered prior to the date upon which
such redemption is to be effected.
D. Redemption by Corporation. In the event that the Corporation shall
desire to sell all or substantially all of the Corporation's assets, merge or
consolidate (other than a merger or consolidation whereby the stockholders of
the Corporation immediately prior to the merger or consolidation continue to own
greater than fifty percent (50%) of the voting securities of the entity
surviving such merger or consolidation), upon not less than twenty (20) business
days prior written notice from the Corporation to each holder of Series A
Preferred Stock, the Corporation shall have the right immediately prior to the
consummation of such transaction to redeem all but not less than all of the then
outstanding shares of Series A Preferred Stock by paying to each holder an
amount per share of Series A Preferred Stock equal to the Redemption Amount. At
all times prior to redemption pursuant to this Article VIII.D (including after
receipt of the notice required by this Article), each holder of Series A
Preferred Stock shall remain entitled to convert shares of Series A Preferred
Stock into shares of Common Stock in accordance with the terms of Article IV
hereof.
IX. RANK
All shares of the Series A Preferred Stock shall rank (i) prior to the
Corporation's Common Stock; (ii) prior to any class or series of capital stock
of the Corporation hereafter created (unless, with the consent of the holders of
Series A Preferred Stock obtained in accordance with Article XIII hereof, such
class or series of capital stock specifically, by its terms, ranks senior to or
pari passu with the Series A Preferred Stock) (collectively with the Common
Stock, "JUNIOR SECURITIES"); (iii) pari passu with any class or series of
capital stock of the Corporation hereafter created (with the consent of the
holders of Series A Preferred Stock obtained in accordance with Article XIII
hereof) specifically ranking, by its terms, on parity with the Series A
Preferred Stock (the "PARI PASSU SECURITIES"); and (iv) junior to any class or
series of capital stock of the Corporation hereafter created (with the consent
of the holders of Series A Preferred Stock obtained in accordance with Article
XIII hereof) specifically ranking, by its terms, senior to the Series A
Preferred Stock (the "SENIOR SECURITIES"), in each case as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary.
X. LIQUIDATION PREFERENCE
A. If the Corporation shall commence a voluntary case under the U.S.
Federal bankruptcy laws or any other applicable bankruptcy, insolvency or
similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an
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<PAGE> 16
involuntary case under the U.S. Federal bankruptcy laws or any other applicable
bankruptcy, insolvency or similar law resulting in the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and any such decree or
order shall be unstayed and in effect for a period of sixty (60) consecutive
days and, on account of any such event, the Corporation shall liquidate,
dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve
or wind up, including, but not limited to, the sale or transfer of all or
substantially all of the Corporation's assets in one transaction or in a series
of related transactions (a "LIQUIDATION EVENT"), no distribution shall be made
to the holders of any shares of capital stock of the Corporation (other than
Senior Securities) upon liquidation, dissolution or winding up unless prior
thereto the holders of shares of Series A Preferred Stock shall have received
the Liquidation Preference with respect to each share. If, upon the occurrence
of a Liquidation Event, the assets and funds available for distribution among
the holders of the Series A Preferred Stock and holders of Pari Passu Securities
shall be insufficient to permit the payment to such holders of the preferential
amounts payable thereon, then the entire assets and funds of the Corporation
legally available for distribution to the Series A Preferred Stock and the Pari
Passu Securities shall be distributed ratably among such shares in proportion to
the ratio that the Liquidation Preference payable on each such share bears to
the aggregate Liquidation Preference payable on all such shares.
B. The purchase or redemption by the Corporation of stock of any class,
in any manner permitted by law, shall not, for the purposes hereof, be regarded
as a liquidation, dissolution or winding up of the Corporation. Neither the
consolidation or merger of the Corporation with or into any other entity nor the
sale or transfer by the Corporation of less than substantially all of its assets
shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Corporation.
C. The "LIQUIDATION PREFERENCE" with respect to a share of Series A
Preferred Stock means an amount equal to the Face Amount thereof plus the
accrued Premium thereon through the date of final distribution. The Liquidation
Preference with respect to any Pari Passu Securities shall be as set forth in
the Certificate of Designation filed in respect thereof.
XI. ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price shall be subject to adjustment from time to time as
follows:
A. Stock Splits, Stock Dividends, Etc. If at any time on or after the
Issuance Date, the number of outstanding shares of Common Stock is increased by
a stock split, stock dividend, combination, reclassification or other similar
event, the Fixed Conversion Price shall be proportionately reduced, or if the
number of outstanding shares of Common Stock is decreased by a reverse stock
split, combination or reclassification of shares, or other similar event, the
Fixed Conversion Price shall be proportionately increased. In such event, the
Corporation shall notify the Corporation's transfer agent of such change on or
before the effective date thereof.
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B. Adjustment Due to Merger, Consolidation, Etc. If, at any time after
the Issuance Date, there shall be (i) any reclassification or change of the
outstanding shares of Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination), (ii) any consolidation or merger of the
Corporation with any other entity (other than a merger in which the Corporation
is the surviving or continuing entity and its capital stock is unchanged), (iii)
any sale or transfer of all or substantially all of the assets of the
Corporation or (iv) any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property (each of
(i) - (iv) above being a "CORPORATE CHANGE"), then the holders of Series A
Preferred Stock shall thereafter have the right to receive upon conversion, in
lieu of the shares of Common Stock otherwise issuable, such shares of stock,
securities and/or other property as would have been issued or payable in such
Corporate Change with respect to or in exchange for the number of shares of
Common Stock which would have been issuable upon conversion (without giving
effect to the limitations contained in Article IV.C) had such Corporate Change
not taken place, and in any such case, appropriate provisions shall be made with
respect to the rights and interests of the holders of the Series A Preferred
Stock to the end that the provisions hereof (including, without limitation,
provisions for adjustment of the Conversion Price and of the number of shares of
Common Stock issuable upon conversion of the Series A Preferred Stock) shall
thereafter be applicable, as nearly as may be practicable in relation to any
shares of stock or securities thereafter deliverable upon the conversion
thereof. The Corporation shall not effect any transaction described in this
Paragraph B unless (i) each holder of Series A Preferred Stock has received
written notice of such transaction at least thirty (30) days prior thereto, but
in no event later than ten (10) days prior to the record date for the
determination of shareholders entitled to vote with respect thereto, and (ii)
the resulting successor or acquiring entity (if not the Corporation) assumes by
written instrument the obligations of this Paragraph B. The above provisions
shall apply regardless of whether or not there would have been a sufficient
number of shares of Common Stock authorized and available for issuance upon
conversion of the shares of Series A Preferred Stock outstanding as of the date
of such transaction, and shall similarly apply to successive reclassifications,
consolidations, mergers, sales, transfers or share exchanges.
C. Adjustment Due to Major Announcement. In the event the Corporation at
any time after the Issuance Date (i) makes a public announcement that it intends
to consolidate or merge with any other entity (other than a merger in which the
Corporation is the surviving or continuing entity and its capital stock is not
reclassified into other securities) or to sell or transfer all or substantially
all of the assets of the Corporation or (ii) any person, group or entity
(including the Corporation) publicly announces a tender offer, exchange offer or
another transaction to purchase 50% or more of the Corporation's Common Stock
(the date of the announcement referred to in clause (i) or (ii) of this
Paragraph C is hereinafter referred to as the "ANNOUNCEMENT DATE"), then the
Conversion Price shall, effective upon the Announcement Date and continuing
through the sixth trading day following the earlier of the consummation of the
proposed transaction or tender offer, exchange offer or another transaction or
the Abandonment Date (as defined below), be equal to the lower of (x) the
Conversion Price which would have been applicable for an Optional Conversion
occurring on the Announcement Date and (y) the Conversion Price determined in
accordance with Section III.D on
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<PAGE> 18
the Conversion Date set forth in the Notice of Conversion for the Optional
Conversion. From and after the sixth trading day following the Abandonment Date,
the Conversion Price shall be determined as set forth in Section III.D.
"ABANDONMENT DATE" means with respect to any proposed transaction or tender
offer, exchange offer or another transaction for which a public announcement as
contemplated by this Paragraph C has been made, the date upon which the
Corporation (in the case of clause (i) above) or the person, group or entity (in
the case of clause (ii) above) publicly announces the termination or abandonment
of the proposed transaction or tender offer, exchange offer or another
transaction which caused this Paragraph B to become operative.
D. Adjustment Due to Distribution. If at any time after the Issuance
Date the Corporation shall declare or make any distribution of its assets (or
rights to acquire its assets) to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise (including any
dividend or distribution to the Corporation's shareholders in cash or shares (or
rights to acquire shares) of capital stock of a subsidiary (i.e. a spin-off)) (a
"DISTRIBUTION"), then the holders of Series A Preferred Stock shall be entitled,
upon any conversion of shares of Series A Preferred Stock after the date of
record for determining shareholders entitled to such Distribution, to receive
the amount of such assets which would have been payable to the holder with
respect to the shares of Common Stock issuable upon such conversion (without
giving effect to the limitations contained in Article IV.C) had such holder been
the holder of such shares of Common Stock on the record date for the
determination of shareholders entitled to such Distribution.
E. Issuance of Other Securities With Variable Conversion Price. If the
Corporation shall issue any securities which are convertible into or
exchangeable for Common Stock ("CONVERTIBLE SECURITIES") at a conversion or
exchange rate based on a discount to the market price of the Common Stock at the
time of conversion or exercise, then the Conversion Percentage in respect of any
conversion of Series A Preferred Stock after such issuance shall be calculated
utilizing the higher of the greatest discount applicable to any such Convertible
Securities and the discount then in effect in calculating the Variable
Conversion Price.
F. Purchase Rights. If at any time after the Issuance Date, the
Corporation issues any Convertible Securities or rights to purchase stock,
warrants, securities or other property (the "PURCHASE RIGHTS") pro rata to the
record holders of any class of Common Stock, then the holders of Series A
Preferred Stock will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Common Stock acquirable
upon complete conversion of the Series A Preferred Stock (without giving effect
to the limitations contained in Article IV.C) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights.
G. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Article XI, the
Corporation, at its expense, shall promptly
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<PAGE> 19
compute such adjustment or readjustment and prepare and furnish to each holder
of Series A Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish to such holder a like
certificate setting forth (i) such adjustment or readjustment, (ii) the
Conversion Price at the time in effect and (iii) the number of shares of Common
Stock and the amount, if any, of other securities or property which at the time
would be received upon conversion of a share of Series A Preferred Stock.
XII. VOTING RIGHTS
The holders of the Series A Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Delaware General Corporation Law
(the "BUSINESS CORPORATION LAW"), in this Article XII and in Article XIII below.
Notwithstanding the above, the Corporation shall provide each holder of
Series A Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). If the Corporation takes a record of its shareholders for the
purpose of determining shareholders entitled to (a) receive payment of any
dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or (b) to vote in connection with any proposed sale,
lease or conveyance of all or substantially all of the assets of the
Corporation, or any proposed merger, consolidation, liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
holder, at least twenty (20) days prior to the record date specified therein (or
thirty (30) days prior to the consummation of the transaction or event,
whichever is earlier, but in no event earlier than public announcement of such
proposed transaction), of the date on which any such record is to be taken for
the purpose of such vote, dividend, distribution, right or other event, and a
brief statement regarding the amount and character of such vote, dividend,
distribution, right or other event to the extent known at such time.
To the extent that under the Business Corporation Law the vote of the
holders of the Series A Preferred Stock, voting separately as a class or series,
as applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the holders of at least a majority of the shares
of the Series A Preferred Stock represented at a duly held meeting at which a
quorum is present or by written consent of a majority of the shares of Series A
Preferred Stock (except as otherwise may be required under the Business
Corporation Law) shall constitute the approval of such action by the class. To
the extent that under the Business Corporation Law holders of the Series A
Preferred Stock are entitled to vote on a matter with holders of Common Stock,
voting together as one class, each share of Series A Preferred Stock shall be
entitled to a number of votes equal to the number of shares of Common Stock into
which it is then convertible (without giving effect to the limitations contained
in Article IV.C) using the record date for the taking of such vote of
shareholders as the date as of which the Conversion Price is calculated.
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<PAGE> 20
XIII. PROTECTION PROVISIONS
So long as any shares of Series A Preferred Stock are outstanding, the
Corporation shall not, prior to the date on which the Registration Statement is
declared effective and, thereafter, without first obtaining the approval (by
vote or written consent, as provided by the Business Corporation Law) of the
holders of (i) all of the then outstanding shares of Series A Preferred Stock
with respect to subsection (a) below or (ii) at least 66.67% of the then
outstanding shares of Series A Preferred Stock with respect to subsections (b)
through (h) below:
(a) alter or change the rights, preferences or privileges
of the Series A Preferred Stock;
(b) alter or change the rights, preferences or privileges
of any capital stock of the Corporation so as to affect adversely the Series A
Preferred Stock;
(c) create any new class or series of capital stock having
a preference over the Series A Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously defined
in Article IX hereof, "SENIOR SECURITIES");
(d) create any new class or series of capital stock
ranking pari passu with the Series A Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined in Article IX hereof, "PARI PASSU SECURITIES") other than
securities issuable to the Purchasers (and their affiliates) pursuant to the
second sentence of Section 4(e) of the Securities Purchase Agreement;
(e) increase the authorized number of shares of Series A
Preferred Stock;
(f) issue any shares of Senior Securities or Pari Passu
Securities;
(g) issue any shares of Series A Preferred Stock other
than pursuant to the
Securities Purchase Agreement or pursuant to those certain warrants issued to
William Blair & Company, L.L.C. in connection with the transactions contemplated
by the Securities Purchase Agreement; or
(h) redeem, or declare or pay any cash dividend or
distribution on, any Junior Securities.
XIV. MISCELLANEOUS
A. Cancellation of Series A Preferred Stock. If any shares of Series A
Preferred Stock are converted pursuant to Article IV, the shares so converted
shall be canceled, shall return to the
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<PAGE> 21
status of authorized, but unissued preferred stock of no designated series, and
shall not be issuable by the Corporation as Series A Preferred Stock.
B. Lost or Stolen Certificates. Upon receipt by the Corporation of (i)
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of
indemnity reasonably satisfactory to the Corporation, or (z) in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Corporation shall execute and deliver new Preferred Stock
Certificate(s) of like tenor and date. However, the Corporation shall not be
obligated to reissue such lost or stolen Preferred Stock Certificate(s) if the
holder contemporaneously requests the Corporation to convert such Series A
Preferred Stock.
C. Allocations of Cap Amount and Reserved Amount. The initial Cap Amount
and Reserved Amount shall be allocated pro rata among the holders of Series A
Preferred Stock based on the number of shares of Series A Preferred Stock issued
to each holder. Each increase to the Cap Amount and Reserved Amount shall be
allocated pro rata among the holders of Series A Preferred Stock based on the
number of shares of Series A Preferred Stock held by each holder at the time of
the increase in the Cap Amount or Reserved Amount, as the case may be. In the
event a holder shall sell or otherwise transfer any of such holder's shares of
Series A Preferred Stock, each transferee shall be allocated a pro rata portion
of such transferor's Cap Amount and Reserved Amount. Any portion of the Cap
Amount or Reserved Amount which remains allocated to any person or entity which
does not hold any Series A Preferred Stock shall be allocated to the remaining
holders of shares of Series A Preferred Stock, pro rata based on the number of
shares of Series A Preferred Stock then held by such holders.
D. Quarterly Statements of Available Shares. For each calendar quarter
beginning in the quarter in which the registration statement required to be
filed pursuant to Section 2(a) of the Registration Rights Agreement is declared
effective and thereafter so long as any shares of Series A Preferred Stock are
outstanding, the Corporation shall deliver (or cause its transfer agent to
deliver) to each holder a written report notifying the holders of any occurrence
which prohibits the Corporation from issuing Common Stock upon any such
conversion. The report shall also specify (i) the total number of shares of
Series A Preferred Stock outstanding as of the end of such quarter, (ii) the
total number of shares of Common Stock issued upon all conversions of Series A
Preferred Stock prior to the end of such quarter, (iii) the total number of
shares of Common Stock which are reserved for issuance upon conversion of the
Series A Preferred Stock as of the end of such quarter, and (iv) the total
number of shares of Common Stock which may thereafter be issued by the
Corporation upon conversion of the Series A Preferred Stock before the
Corporation would exceed the Cap Amount and the Reserved Amount. The Corporation
(or its transfer agent) shall deliver the report for each quarter to each holder
prior to the fifteenth business day of the calendar month following the quarter
to which such report relates. In addition, the Corporation (or its transfer
agent) shall provide, within fifteen (15) business days after delivery to the
Corporation of a written request by any holder, any of the information
enumerated in clauses (i) - (iv) of this Paragraph D as of the date of such
request.
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<PAGE> 22
E. Payment of Cash; Defaults. Whenever the Corporation is required to
make any cash payment to a holder under this Certificate of Designation (as a
Conversion Default Payment, upon redemption or otherwise), such cash payment
shall be made to the holder within five (5) business days after delivery by such
holder of a notice specifying that the holder elects to receive such payment in
cash and the method (e.g., by check, wire transfer) in which such payment should
be made. If such payment is not delivered within such five (5) business day
period, such holder shall thereafter be entitled to interest on the unpaid
amount at a per annum rate equal to the lower of twenty-four percent (24%) and
the highest interest rate permitted by applicable law until such amount is paid
in full to the holder.
F. Status as Stockholder. Upon submission of a Notice of Conversion by a
holder of Series A Preferred Stock, (i) the shares covered thereby (other than
the shares, if any, which cannot be issued because their issuance would exceed
such holder's allocated portion of the Reserved Amount or Cap Amount) shall be
deemed converted into shares of Common Stock and (ii) the holder's rights as a
holder of such converted shares of Series A Preferred Stock shall cease and
terminate, excepting only the right to receive certificates for such shares of
Common Stock and to any remedies provided herein or otherwise available at law
or in equity to such holder because of a failure by the Corporation to comply
with the terms of this Certificate of Designation. In situations where Article
VI.B is applicable, the number of shares of Common Stock referred to in clauses
(i) and (ii) of the immediately preceding sentence shall be determined on the
date on which such shares of Common Stock are delivered to the holder.
Notwithstanding the foregoing, if a holder has not received certificates for all
shares of Common Stock prior to the tenth (10th) business day after the
expiration of the Delivery Period with respect to a conversion of Series A
Preferred Stock for any reason, then (unless the holder otherwise elects to
retain its status as a holder of Common Stock by so notifying the Corporation
within five (5) business days after the expiration of such ten (10) business day
period after expiration of the Delivery Period) the holder shall regain the
rights of a holder of Series A Preferred Stock with respect to such unconverted
shares of Series A Preferred Stock and the Corporation shall, as soon as
practicable, return such unconverted shares to the holder. In all cases, the
holder shall retain all of its rights and remedies (including, without
limitation, (i) the right to receive Conversion Default Payments pursuant to
Article VI.A to the extent required thereby for such Conversion Default and any
subsequent Conversion Default and (ii) the right to have the Conversion Price
with respect to subsequent conversions determined in accordance with Article
VI.B) for the Corporation's failure to convert Series A Preferred Stock.
G. Remedies Cumulative. The remedies provided in this Certificate of
Designation shall be cumulative and in addition to all other remedies available
under this Certificate of Designation, at law or in equity (including a decree
of specific performance and/or other injunctive relief), and nothing herein
shall limit a holder's right to pursue actual damages for any failure by the
Corporation to comply with the terms of this Certificate of Designation. The
Corporation acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the holders of Series A Preferred Stock and that the
remedy at law for any such breach may be inadequate. The Corporation therefore
agrees, in the event of any such breach or threatened breach, that the holders
of Series A Preferred Stock shall be entitled, in addition to all other
available remedies, to an injunction
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<PAGE> 23
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 24
IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation this 11th day of September, 1997.
INSITE VISION INCORPORATED
By: /s/ S. Kumar Chandrasekaran
--------------------------------------
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<PAGE> 25
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series A Preferred Stock)
The undersigned hereby irrevocably elects to convert ____________ shares of
Series A Preferred Stock (the "CONVERSION"), represented by stock certificate
No(s). ___________ (the "PREFERRED STOCK CERTIFICATES") into shares of common
stock ("COMMON STOCK") of InSite Vision Incorporated (the "CORPORATION")
according to the conditions of the Certificate of Designations, Preferences and
Rights of Series A Convertible Preferred Stock (the "CERTIFICATE OF
DESIGNATION"), as of the date written below. If securities are to be issued in
the name of a person other than the undersigned, the undersigned will pay
all transfer taxes payable with respect thereto. No fee will be
charged to the holder for any conversion, except for transfer taxes, if any. A
copy of each Preferred Stock Certificate is attached hereto (or evidence of
loss, theft or destruction thereof).
The Corporation, through its transfer agent, shall electronically transmit the
Common Stock issuable pursuant to this Notice of Conversion to the account of
the undersigned or its nominee (which is _________________) with DTC through its
Deposit Withdrawal Agent Commission System ("DTC TRANSFER").
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Series A Preferred Stock shall be made pursuant to registration of the Common
Stock under the Securities Act of 1933, as amended (the "ACT"), or pursuant to
an exemption from registration under the Act.
[ ] In lieu of receiving the shares of Common Stock issuable pursuant to
this Notice of Conversion by way of DTC Transfer, the undersigned hereby
requests that the Corporation issue and deliver to the undersigned
physical certificates representing such shares of Common Stock.
Date of Conversion:
---------------------
Applicable Conversion Price:
------------
Amount of Conversion Default Payments
to be Converted, if any:
----------------
Number of Shares of
Common Stock to be Issued:
--------------
Signature:
------------------------------
Name:
-----------------------------------
Address:
--------------------------------
--------------------------------
--------------------------------
ACKNOWLEDGED AND AGREED:
INSITE VISION INCORPORATED
By: Date:
------------------------------- -----------------------------------
Name:
-----------------------------
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<PAGE> 26
Title:
----------------------------
-25-
<PAGE> 1
EXHIBIT 4.2
PAGE 1
State of Delaware
Office of the Secretary of State
----------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
CORRECTION OF "INSITE VISION INCORPORATED", FILED IN THIS OFFICE ON THE
TWENTY-SIXTH DAY OF SEPTEMBER, A.D. 1997, AT 4:30 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL]
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
2116645 8100 AUTHENTICATION: 8674446
971325771 DATE: 09/29/97
<PAGE> 2
EXHIBIT 4.2
CERTIFICATE OF CORRECTION
OF THE
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
INSITE VISION INCORPORATED
A DELAWARE CORPORATION
InSite Vision Incorporated, a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify:
FIRST: The name of the Corporation is InSite Vision
Incorporated and the Corporation was originally incorporated under the name
"InSite Vision Incorporated" on February 3, 1987 pursuant to the General
Corporation Law of the State of Delaware;
SECOND: A Certificate of Designation of Preferences,
Privileges and Rights of Series A Convertible Preferred Stock (the
"Certificate") was filed by the Corporation on September 11, 1997 and that said
Certificate requires correction as permitted by Section 103(f) of the General
Corporation Law of the State of Delaware; and
THIRD: The Certificate of Correction of the Certificate of
Designations, Preferences and Rights of Series A Convertible Preferred Stock of
the Corporation does not alter the wording of any resolution or written consent
which was in fact adopted by the board of directors.
1. Article V.A. of the Certificate shall be corrected in its entirety
to read as follows:
"A. Reserved Amount. Upon the initial issuance of the shares
of Series A Preferred Stock, the Corporation shall reserve 3,300,000 shares
of the authorized but unissued shares of Common Stock for issuance upon
conversion of the Series A Preferred Stock and thereafter the number of
authorized but unissued shares of Common Stock so reserved (the "RESERVED
AMOUNT") shall not be decreased and shall at all times be sufficient to
provide for the conversion of the Series A Preferred Stock outstanding at
the then current Conversion Price. The Reserved Amount shall be
allocated to the holders of Series A Preferred Stock as provided in Article
XIV.C."
2. The Notice of Conversion attached as an exhibit to the
Certificate shall be corrected in its entirety to read as specified on the
attached Exhibit A.
<PAGE> 3
IN WITNESS WHEREOF, the undersigned has executed this
Certificate of Correction of the Certificate of Designation, Preferences and
Rights of Series A Convertible Preferred Stock on September 26, 1997.
INSITE VISION INCORPORATED
By: /s/ S. KUMAR CHANDRASEKARAN
---------------------------
S. Kumar Chandrasekaran, Ph.D.
President and Chief Executive Officer
2.
<PAGE> 4
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series A Preferred Stock)
The undersigned hereby irrevocably elects to convert shares of Series A
Preferred Stock (the "CONVERSION"), represented by stock certificate No(s).
(the "PREFERRED STOCK CERTIFICATES") into shares of common stock ("COMMON
STOCK") of InSite Vision Incorporated (the "CORPORATION") according to the
conditions of the Certificate of Designations, Preferences and Rights of Series
A Convertible Preferred Stock (the "CERTIFICATE OF DESIGNATION"), as of the date
written below. If securities are to be issued in the name of a person other than
the undersigned, (i) the undersigned will pay all transfer taxes payable with
respect thereto and (ii) the undersigned will execute a stock power with respect
to such transfer and the signature of the undersigned on such stock power shall
be medallion guaranteed. No fee will be charged to the holder for any
conversion, except for transfer taxes, if any. A copy of each Preferred Stock
Certificate is attached hereto (or evidence of loss, theft or destruction
thereof).
The Corporation, through its transfer agent, shall electronically transmit the
Common Stock issuable pursuant to this Notice of Conversion to the account of
the undersigned or its nominee (which is ) with DTC through its Deposit
Withdrawal Agent Commission System ("DTC TRANSFER").
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Series A Preferred Stock shall be made pursuant to registration of the Common
Stock under the Securities Act of 1933, as amended (the "ACT"), or pursuant to
an exemption from registration under the Act.
[ ] In lieu of receiving the shares of Common Stock issuable pursuant to
this Notice of Conversion by way of DTC Transfer, the undersigned
hereby requests that the Corporation issue and deliver to the
undersigned physical certificates representing such shares of Common
Stock.
Date of Conversion:_________________________
Applicable Conversion Price:________________
Amount of Conversion Default
Payments to be Converted, if any:___________
Number of Shares of
Common Stock to be Issued:__________________
Signature:__________________________________
Name:_______________________________________
Address:____________________________________
____________________________________
____________________________________
ACKNOWLEDGED AND AGREED:
INSITE VISION INCORPORATION:
By: __________________________ Date:_________________________
Name:
<PAGE> 1
EXHIBIT 5.1
September 29, 1997
InSite Vision Incorporated
965 Atlantic Avenue
Alameda, CA 94501
Ladies and Gentlemen:
We have acted as counsel to InSite Vision Incorporated, a
Delaware corporation (the "Company"), in connection with the registration of up
to Two Million Six Hundred Twenty-Six Thousand (2,626,000) shares of the
Company's Common Stock (the "Shares"), as described in the Company's
Registration Statement on Form S-3 filed with the Securities and Exchange
Commission on September 29, 1997 under the Securities Act of 1933, as amended
(the "Registration Statement").
We have examined originals or copies of (i) the Restated
Certificate of Incorporation of the Company, as amended from time to time; (ii)
the Certificate of Designations, Preferences and Rights of Series A Preferred
Stock of the Company; (iii) the Bylaws of the Company; (iv) certain resolutions
of the Board of Directors of the Company; and (v) such other documents and
records as we have deemed necessary and relevant for the purposes hereof. In
addition, we have relied on certificates of officers of the Company and
certificates of public officials as to certain matters of fact relating to this
opinion and have made such investigations of law as we have deemed necessary and
relevant as a basis hereof.
We have assumed the genuineness of all signatures, the
authenticity of all documents, certificates and records submitted to us as
originals, the conformity to authentic original documents, certificates and
records of all such documentation submitted to us as copies and the truthfulness
of all statements of facts contained therein. Based on the foregoing and subject
to the limitations set forth herein and having due regard for such legal
considerations as we deem relevant, we are of the opinion that the Shares, when
issued and sold in the manner described in the Registration Statement, will be
validly issued, fully paid and nonassessable shares of the Common Stock.
The foregoing opinion is based on and limited to the General
Corporation Law of the State of Delaware and the relevant federal laws of the
United States, and we express no opinion with respect to the laws of any other
jurisdiction.
<PAGE> 2
InSite Vision Incorporated September 29, 1997
Page 2
We consent to the use of this opinion as an exhibit to the
Registration Statement, and further consent to the use of our name wherever
appearing in the Registration Statement, including the prospectus constituting a
part thereof, and in any amendment or supplement thereto.
Very truly yours,
/s/ Brobeck, Phleger & Harrison
BROBECK, PHLEGER & HARRISON LLP
<PAGE> 1
EXHIBIT 10.1
[WILLIAM BLAIN & COMPANY LETTERHEAD]
April 1, 1997
S. Kumar Chandrasekaran, Ph.D.
President and Chief Executive Officer
InSite Vision Incorporated
965 Atlantic Avenue
Alameda, CA 94501
Dear Dr. Chandrasekaran:
William Blair & Company, L.L.C. ("Blair") is very pleased to serve as InSite
Vision Inc.'s ("InSite" or the "Company") exclusive agent in connection with a
private placement of equity securities (the "Securities"). This letter
summarizes our proposed approach to the private placement and confirms the fee
arrangement which we have discussed.
In connection with the private placement of approximately $5 million in
Securities, Blair will work closely with you and your lawyers in all stages of
this transaction. Our services will include: 1) assisting in preparing and
distributing the Offering Memorandum; 2) contacting potential investors; 3)
coordinating roadshow meetings and follow-up due-diligence visits with
management as well as responses to additional information requests; 4) managing
negotiations with prospective investors; and 5) coordinating and managing the
closing process. InSite will have the right, at any time, to remove from the
list of potential investors any investor that it determines to be unsuitable as
an investor. We will use our best efforts to bring the private placement of the
Securities to the attention of potential investors who we feel are compatible
with InSite and to assist the Company in consummating the sale of the Securities
on terms agreeable to both parties.
In compensation for our services provided in this transaction, InSite agrees to
pay Blair a fee of five percent (5.0%) of the gross proceeds raised from
investors payable in cash at closing, subject to a minimum cash placement fee of
$250,000. The minimum cash placement fee shall be due to Blair if a minimum of
$2 million is raised and a closing takes place. In the event that Blair does not
raise $2 million, then the cash fee will be calculated by multiplying 0.05 times
the gross proceeds raised. In addition to the cash fee, Blair shall receive a
three year warrant to purchase Securities (the "Warrant") from InSite at a price
per share equal to the price per share paid by the Securities investors. The
Warrant shall entitle Blair to purchase that number of shares of Securities that
when multiplied by the price per share equals one percent (1%) of the gross
proceeds raised from the Securities investors. Blair shall be entitled to a) the
fees discussed in this letter if a transaction is consummated within one year
following the termination of this agreement with an investor with whom Blair has
introduced to the Company in connection with its assignment provided herein, and
b) the indemnification provided in the accompanying letter.
The Company recognizes and confirms that: (i) in performing these services Blair
will be using and relying on information as may be furnished and approved by the
Company (collectively, the "Information"); (ii) it has not taken and will not
take any action, directly or indirectly, to cause the transaction to fail to be
entitled to the exemption provided under applicable securities laws; (iii) Blair
does not assume responsibility for the accuracy and completeness of the
Information; and (iv) Blair will not undertake to independently verify the
Information. Blair agrees that it will not intentionally misrepresent the
Information to potential investors.
<PAGE> 2
InSite Vision Incorporated
Page 2 of 2
April 1, 1997
Since we will be acting on your behalf, it is our practice to receive
indemnification and we request that you sign the attached letter. The Company
agrees to reimburse Blair for its reasonable out-of-pocket expenses including
the fees and expenses of our counsel, as appropriate. Blair's out-of-pocket
expenses shall not exceed $25,000 without the prior written consent of the
Company. The two preceding sentences shall be superseded by the provisions set
forth in the separate indemnification agreement in the event of a threatened or
pending claim covered by the indemnification agreement. This engagement may be
terminated by the Company or by Blair at any time, with or without cause, with
thirty days written notice to that effect by the other party.
Blair agrees that all information furnished by InSite to Blair, whether oral or
written, shall be kept confidential by Blair and by its officers, employees and
agents, will be disclosed by Blair only to such officers, employees and agents
of Blair and its affiliates as need to know such information in connection with
the performance of Blair's services hereunder or as may be required by law, and
shall be used only for purposes of this engagement. Blair agree that its
obligations pursuant to the provisions of this paragraph shall survive any
termination of Blair's engagement.
If the foregoing is in accordance with your understanding, please sign one copy
of the engagement letter and indemnification form and return it to us.
Very truly yours,
/s/ RONALD D. EMERICK
Ronald D. Emerick
Principal
InSite Vision, Incorporated
By: [SIG]
---------------------------
Date: 14 April, 1997
-------------------------
<PAGE> 1
EXHIBIT 10.2
LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("Agreement") is made as of the 1st day
of July, 1997 (the "Effective Date") by and between The University of
Connecticut Health Center, a public institution of higher education, having a
business address at 263 Farmington Avenue, Farmington, Connecticut 06030
(hereinafter referred to as "UCHC") and InSite Vision Incorporated, a Delaware
corporation with its principal place of business at 965 Atlantic Avenue,
Alameda, California 94501 (hereinafter referred to as "Licensee").
WHEREAS, the UCHC Laboratory of Dr. Mansoor Sarfarazi has
invented technology for genetic-based prognosis and diagnosis of Primary
Congenital Glaucoma ("PCG"), as defined under Section 1.7 hereof;
WHEREAS, UCHC owns UCHC Technology and Patent Rights, as
defined below, related to the PCG technology;
WHEREAS, Licensee desires to exercise its option under
Sections 9.2 and 9.3 of the Research Agreement to secure a license to use such
UCHC Technology and Patent Rights to produce, use and sell Licensed Products
related to PCG and is willing to expend efforts and resources to do so if it
can obtain a license to use such UCHC Technology and Patent Rights related to
PCG under the terms and conditions set forth herein; and
WHEREAS, UCHC desires to facilitate a timely transfer of its
information and technology concerning the UCHC Technology and the Patent Rights
related to PCG for the ultimate benefit of the public and this transfer is best
accomplished by the grant of this license;
NOW THEREFORE, for and in consideration of the covenants,
conditions, and undertakings hereinafter set forth, it is agreed by and between
the parties as follows:
1. Definitions
1.1 "UCHC Technology" means any research and
development information, know-how, and technical data relating only to PCG
which has been developed in the UCHC laboratory of Dr. Mansoor Sarfarazi and is
in the possession of UCHC prior to the Effective Date which relates to and is
necessary for the practice of the Patent Rights relating only to prognosis and
diagnosis of PCG and which UCHC has the right to provide to Licensee.
1.2 "Licensed Products" means any method,
procedure, process, prognostic kit, diagnostic kit, product, or component part
thereof whose manufacture, sale
<PAGE> 2
or use includes a material use of UCHC Technology or Patent Rights for
prognosis and/or diagnosis of PCG.
1.3 "Patent Rights" means all rights of UCHC to
any subject matter relating to prognosis and/or diagnosis of PCG described by,
claimed in or covered by United States Patent Application [ * ] titled
[ * ] filed [ * ] (the "Existing Application"), any continuations,
continuations-in-part ("CIP"), divisions and substitutions thereof, and any
foreign patents corresponding thereto, and/or any divisions, continuations, or
reissues thereof, provided that, in order to be included in Patent Rights, the
new subject matter contained in any CIP, or foreign counterparts thereto, must
have been developed in the UCHC laboratory of Dr. Mansoor Sarfarazi during the
term of the Research Agreement and as a result of the work performed under the
Research Agreement, and the new subject matter must relate to prognosis and/or
diagnosis of PCG.
1.4 "Net Sales" means total billings for Licensed
Products, determined in accordance with generally accepted accounting
principles, sold by Licensee and its Affiliates, less:
(a) import, export, excise, use, value-added and
sales taxes, and custom duties actually paid by Licensee to the extent
separately stated on invoices or other sales documents;
(b) to the extent actually paid by Licensee,
costs of insurance, packing, and transportation from the place of manufacture
to the customer's premises or point of installation to the extent separately
stated on invoices or other sales documents;
(c) credit for returns, allowances, and discounts
actually allowed by Licensee; and
(d) Medicaid rebates and rebates actually allowed
by Licensee made or taken in amounts customary in the industry.
Licensed Products shall be considered sold when paid
for or thirty (30) days after invoiced, whichever is sooner.
1.5 "Affiliate" means any entity which controls,
is controlled by or is under common control with Licensee. An entity shall be
regarded as in control of another entity if it owns or controls more than fifty
percent (50%) of the voting power of such entity.
1.6 "Valid Claim" means a claim of an issued,
unexpired patent which has not been: held invalid or unenforceable by a final
decision of a court or governmental agency of competent jurisdiction, which
decision is unappealable or was not
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
2.
<PAGE> 3
appealed within the time allowed therefor; or admitted in writing to be invalid
or unenforceable by the holder(s) pursuant to a reissue, disclaimer or
otherwise.
1.7 "PCG" is defined throughout this Agreement as
primary congenital glaucoma related to the GLC3A locus and other GLC3 loci, if
any, for which Dr. Sarfarazi identifies mutations under the terms of the
Research Agreement between UCHC and Licensee dated October 23, 1996, as
amended, (the "Research Agreement").
2. Grant of License and Term
2.1 UCHC grants to Licensee and its Affiliates an
exclusive, worldwide right and license to use UCHC Technology, and to make,
have made, use, import, export and sell Licensed Products incorporating, made,
using or derived from UCHC Technology, upon the terms and conditions of this
Agreement.
2.2 UCHC grants to Licensee and its Affiliates an
exclusive, worldwide license under the Patent Rights to make, use and sell
Licensed Products, and to practice any process, method or procedure covered by
the Patent Rights related to prognosis and/or diagnosis of PCG, upon the terms
and conditions set forth herein.
2.3 The rights and licenses granted under
Sections 2.1 and 2.2 above shall include the exclusive right to grant
sublicenses.
2.4 UCHC shall promptly disclose to Licensee the
UCHC Technology and provide Licensee with copies of the physical embodiments
thereof. UCHC shall provide Licensee with reasonable assistance in
understanding and implementing the UCHC Technology related to PCG. The amount
of such assistance to be provided by Dr. Mansoor Sarfarazi will be mutually
agreed by Dr. Sarfarazi and Licensee, and Dr. Sarfarazi will be compensated
for time spent providing such assistance at the same rate as for services
provided pursuant to his existing consulting agreement with Licensee. Licensee
shall not disclose any unpublished UCHC Technology furnished by UCHC pursuant
to this Agreement to third parties during the term of this Agreement or any
time thereafter, provided, however, that Licensee may disclose any such UCHC
Technology at any time: (1) with the prior written consent of Dr. Sarfarazi and
UCHC, (2) after the same shall have become public through no fault of Licensee
or (3) to sublicensees of Licensee or other persons or entities with whom
Licensee proposes to enter into a business relationship, provided that such
sublicensee or third party enters into a confidentiality agreement containing
provisions equivalent to Section 8 of this Agreement. The Licensee will not
disclose proprietary information which is unpublished and not included in a
patent application without Dr. Sarfarazi's prior permission, which shall not be
unreasonably withheld or delayed.
2.5 In the event that the laboratory of Dr.
Mansoor Sarfarazi at UCHC develops any improvements relating only to the
prognosis and diagnosis of PCG
3.
<PAGE> 4
("Improvements") as a result of the work performed under the Research Agreement
during the time the Research Agreement is in effect, UCHC shall promptly notify
Licensee of such Improvements in writing and provide Licensee with a detailed
written description of such Improvements. Licensee shall have the right to
include such Improvements under the rights granted in this Agreement and all
rights granted to Licensee herein with respect to the UCHC Technology and the
Patent Rights shall apply to such Improvements, provided that Licensee shall
notify UCHC and Dr. Sarfarazi in writing of its election to have the
Improvements included under the grant and all other provisions of this
Agreement within ninety (90) days of receipt of written notice of such
Improvements from UCHC.
2.6 During the term of the Research Agreement,
Licensee shall have the option, as described in Article 9 of the Research
Agreement, to obtain from UCHC an exclusive, worldwide right and license to use
any invention which has been developed in the UCHC laboratory of Dr. Mansoor
Sarfarazi and is in the possession of UCHC which relates to therapeutic
approaches to PCG and which UCHC has the right to provide to Licensee. The
terms and conditions of such license shall be determined in good faith.
3. License Fee and Royalties
3.1 Licensee shall pay to UCHC a license issue
fee of [ * ] upon the execution of this Agreement. In addition, Licensee
shall pay to UCHC the following milestone payment: [ * ] upon submission
of an application for regulatory approval of the first Licensed Product for
prognostic or diagnostic use to the U.S. Food and Drug Administration ("FDA")
or upon beginning commercial sale of Licensed Products. For the purpose of
this Section 3.1, payments shall be made to UCHC within thirty (30) days of the
triggering event.
3.2 Licensee shall pay UCHC:
(a) [ * ] of Net Sales of Licensed Products
for prognostic or diagnostic use as earned royalties, provided that such
Licensed Products are covered by a Valid Claim in the country in which, and at
the time, they are sold, provided, however, that the foregoing earned royalty
rate of [ * ] shall be reduced to an earned royalty equal to the UCHC
Portion (as defined below) multiplied by [ * ] in the case of sales of
Licensed Products that incorporate the UCHC Technology or the Patent Rights and
components licensed by Licensee from other third parties. The "UCHC Portion"
means the portion of the total detectable incidence of Primary Congenital
Glaucoma in the target population defined by the parties that is attributable
to the detection capabilities of and/or the genes identified by the UCHC
Technology and the Patent Rights. Documentation for the above calculation will
be based on the reported results of the UCHC research and on other relevant
data from published materials; and
4.
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 5
(b) [ * ] of Net Sales of Licensed Products
for prognostic or diagnostic use as earned royalties, provided that such
Licensed Products are not covered by a Valid Claim in the country in which, and
at the time, they are sold, provided, however, that the foregoing earned
royalty rate of [ * ] shall be reduced to an earned royalty equal to the
UCHC Portion multiplied by [ * ] in the case of sales of Licensed Products
that incorporate the UCHC Technology and components licensed by Licensee from
other third parties. Documentation for the above calculation will be based on
the reported results of the UCHC research and on other relevant data from
published materials.
3.3 Within forty-five (45) days after the end of
the first four (4) full calendar quarters following the first commercial sale
of Licensed Products, or at the end of the calendar quarter which falls four
(4) years after the Effective Date and each year thereafter during the term of
this Agreement, Licensee shall pay to UCHC the amount, if any, by which the
following minimum annual royalty payments exceed the earned royalty payments
made by Licensee to UCHC pursuant to Section 3.2 above for the corresponding
year:
<TABLE>
<S> <C>
First year [ * ]
Second year [ * ]
Third year [ * ]
Each year thereafter [ * ]
</TABLE>
Notwithstanding any provision of this Agreement to the
contrary, in the event of Licensee's breach of any of its obligations under
Section 3, UCHC shall have the right, at its sole discretion, to terminate this
Agreement or to convert the exclusive licenses granted under Section 2.1 and
2.2 hereof to non-exclusive licenses upon providing Licensee with written
notice of such conversion if Licensee has failed to cure any such breach within
ninety (90) days of receipt of written notice from UCHC describing such breach.
3.4 Notwithstanding any provision of this
Agreement to the contrary, Licensee shall pay to UCHC:
(a) fifty percent (50%) of royalties that
Licensee and/or its Affiliates receive as earned royalty income from
sublicensees, up to the amount that UCHC would receive if such sales had been
made by Licensee; and
(b) fifty percent (50%) of all sublicensing fees
that Licensee and/or its Affiliates receive from sublicensees, including, but
not limited to, initial sublicensing fees, minimums, maintenance fees, equity
or other ownership interest, and milestone payments.
Licensee shall provide UCHC with a complete copy of each
sublicense granted by Licensee within thirty (30) days of execution of such
sublicense.
5.
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 6
3.5 Sales of Licensed Products between or among
Licensee, its Affiliates and sublicensees shall not be subject to any royalty
hereunder, and in such cases royalties shall be calculated upon Licensee's or
its Affiliates' or sublicensees' Net Sales to an independent third party.
Licensee shall be responsible for payment of any royalty accrued on Net Sales
of Licensed Products to such independent third party through Licensee's
Affiliates or sublicensees. Royalties shall accrue hereunder only once in
respect of the same unit of the Licensed Product.
4. Timing of Royalty Payments; Records
4.1 Within forty-five (45) days after the end of
each calendar quarter, Licensee shall pay to UCHC the royalty payment and
sublicensing income due for such quarter in U.S. dollars. Such royalties shall
be converted, where applicable, from the currency of the country in which the
sale was made into U.S. dollars in accordance with generally accepted
accounting principles.
4.2 Together with each quarterly payment,
Licensee shall submit to UCHC a written accounting showing its computation of
royalties and sublicensing income due under this Agreement for such quarter.
Said accounting shall set forth gross sales, credits and other offsets, Net
Sales, total sublicensing income, the exchange rate applied, if any, and the
total payment due for the quarter in question.
4.3 Licensee shall keep full and accurate books
and records reflecting the sales of Licensed Products and the data used in
arriving at Net Sales and the amount of royalties and/or share of sublicense
income payable to UCHC hereunder for no less than three years after the end of
each such quarter. Licensee shall permit UCHC, at UCHC's expense, to have such
books and records examined by independent certified public accountants retained
by UCHC and reasonably acceptable to Licensee, during regular business hours
upon reasonable advance notice, but not later than three years following the
rendering of any such reports, accounting and payments, and no more often than
one time per year. Such independent accountants shall keep confidential any
information obtained during such examination and shall report to UCHC only the
amounts of royalties and/or share of sublicense income which the independent
accountant believes to be due and payable hereunder.
5. Due Diligence. Licensee shall use its reasonable
commercial efforts to proceed with the research, development and
commercialization of Licensed Products and shall thereafter use its reasonable
commercial efforts to commercialize and sell the Licensed Products so developed
during the term of this Agreement. If Licensee has not made commercial sales
of Licensed Products within five (5) years after the Effective Date. UCHC may
terminate this Agreement upon sixty (60) days prior written notice at the sole
discretion of UCHC.
6.
<PAGE> 7
6. Government Rights. Notwithstanding Sections 2.1 and
2.2 above, any and all licenses granted hereunder are subject the following
rights of the United States Government which arise out of its partial
sponsorship of the research which led to the UCHC Technology or the Patent
Rights: (i) a nonexclusive, nontransferable, irrevocable, paid-up license to
practice or have practiced for or on behalf of the United States any invention
within the Patent Rights throughout the world; and (ii) march-in rights as
provided in 35 U.S.C. Section 203. Upon the written request of the Licensee,
UCHC will use reasonable efforts to obtain a waiver of the requirement under 35
U.S.C. Section 203 that products embodying such inventions or produced through
the use of such inventions sold in the United States be manufactured
substantially in the United States.
7. Term and Termination.
7.1 Unless earlier terminated in accordance with
this Section 7, this Agreement and the licenses granted herein shall continue
until the later of (a) the expiration of the last-to-expire patent within the
Patent Rights, or (b) the abandonment of the last application within the Patent
Rights or (c) fifteen (15) years from the Effective Date of this Agreement.
Upon the expiration, but not the earlier abandonment or termination of this
Agreement, Licensee's rights under Section 2.1 shall survive.
7.2 UCHC may terminate this Agreement if Licensee
is: in significant breach of a material term of this Agreement and Licensee
fails to remedy such breach within sixty (60) days after written notice of
breach from UCHC; or adjudged bankrupt or enter into a composition with or
assignment to its creditors with respect to substantially all of its assets.
7.3 Licensee may terminate this Agreement at any
time upon one hundred eighty (180) days written notice to UCHC, provided that
Licensee shall be obligated to pay to UCHC all milestone, minimum, earned
royalty, sublicense income or other amounts due and payable to UCHC as of the
effective date of the written notice. In addition to the above, if Licensee
terminates this Agreement within five (5) years after the Effective Date, and
if Licensee, together with its sublicensees and affiliates, has failed to
achieve commercial sales of Licensed Products of at least [ * ] per year,
Licensee shall also pay to UCHC an early termination fee equal to six (6) months
of minimum royalties as outlined in Section 3.3 and as calculated for the six
(6) months after the effective date of the termination. All payments required
under this Section 7.3 shall be paid to UCHC within thirty (30) days of the
effective date of the termination.
7.4 The provisions of Sections 1, 7.1, 7.4, 8,
12, 13 and 14 hereof shall survive any expiration or termination of this
Agreement.
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
7.
<PAGE> 8
8. Confidentiality
8.1 UCHC and Licensee shall keep any technology,
formula, trade secrets, technical data or business information ("Information")
provided or made available by the other party or its Affiliates hereunder
confidential, and neither UCHC nor Licensee shall, without the prior written
consent of the other party or its Affiliates, as the case may be, use (except
as expressly permitted by this Agreement or for the purposes of this
Agreement), or disclose to any third party, any Information provided or made
available by the other party or its Affiliates hereunder; provided, however,
that the foregoing shall not apply to information which the party receiving
such information can establish by written documentation to (i) have been
publicly known at the time of disclosure by the other party or its Affiliates,
as the case may be, (ii) have become publicly known, without fault on its part,
subsequent to such disclosure, (iii) have been otherwise known by it from a
source (other than the other party or its agents or Affiliates), lawfully
having possession of such information, or (v) have been developed by it or its
Affiliates independently of the disclosure by the other party or its
Affiliates.
The foregoing shall not preclude the disclosure of
information by UCHC or Licensee:
(a) to its legal representatives, Affiliates,
consultants, outside contractors and (if it has the right to grant the license
or sublicense) its licensees and sublicensees, under like confidentiality
obligations on the part of the recipients, or
(b) to the extent required by law or regulation,
provided that, to the extent reasonably possible, it shall give prompt written
notice of the proposed disclosure to the other party or its Affiliates, as the
case may be, so as to allow the other party or its Affiliates, as the case may
be, an opportunity to object to such requirement and, if applicable, assure
that confidential treatment will be accorded to such information, or
(c) to the extent that such information is
reasonably required to be disclosed for the purpose of securing necessary
governmental authorization for the clinical testing or marketing of products or
for the purpose of conducting clinical testing or marketing of products, or of
prosecuting or defending litigation.
8.2 The terms of this Agreement shall not be
disclosed by either party to any third party (other than as provided in
Subsections 8.1(a), (b) and (c) above) or be published unless both parties
expressly agree otherwise in writing. Furthermore, neither party shall use the
name of the other party or its Affiliates without their prior written consent.
However, the foregoing restrictions shall not apply to the disclosure of
information set forth in the form of an agreed-upon press release, if any,
which may be prepared in mutually agreeable format and substance for release on
the Effective Date, or to disclosures required by law or regulation. Both UCHC
and Licensee may include the existence of this
8.
<PAGE> 9
Agreement and the Research Agreement in annual reports and other public
documents without the permission of the other party.
9. Use of UCHC's Name. Licensee shall not use the name
of UCHC or Dr. Sarfarazi or its then current employees in advertising or
promoting the sale of Licensed Products or for any other business purpose
without the prior written consent of UCHC and/or Dr. Sarfarazi, as
appropriate.
10. UCHC Use. It is expressly agreed that,
notwithstanding any provisions herein, UCHC is free to use the UCHC Technology
and the Patent Rights for its own research, teaching and educational purposes
without limitation and without payment of royalties or any other form of
payment.
11. Patents.
(a) Filing for, prosecuting and maintaining
patent applications and patents included within the Patent Rights shall be made
at the discretion of and in the name of UCHC. Licensee and its sublicensees
shall have the opportunity to provide input on the strategy for seeking such
patent protection, including a reasonable opportunity to review future patent
applications and related documents associated with the Patent Rights. Licensee
shall cooperate with and assist UCHC in filing for and prosecution of such
Patent Rights. UCHC shall keep Licensee fully informed as to the status of such
Patent Rights. In addition, UCHC will use diligent efforts to advise Licensee
of all proposed patent filings of a substantive nature in time reasonably
sufficient for Licensee to review such filings. Licensee will reimburse UCHC
for reasonable costs incurred by UCHC in the preparation, filing, prosecution
and maintenance of the Patent Rights. Unless otherwise agreed by the parties
in writing, the law firm of Hamilton, Brook, Smith and Reynolds shall be
utilized for purposes of preparing, filing, prosecuting, and maintaining patent
applications hereunder.
(b) If UCHC elects to terminate either the
prosecution or maintenance of the Patent Rights in any country prior to the
completion of normal prosecution before the patent examiner of such country or
prior to the end of the corresponding term for maintenance, as the case may be,
it will give Licensee sixty (60) days prior written notice of such election
prior to any time limit on any action due. Licensee, upon receipt of such
notice, shall have the option to undertake the continuation of such prosecution
or maintenance and UCHC will transfer title to Licensee for such patent
application or patent.
(c) Each party shall promptly inform the other of
any suspected or threatened infringement of any Patent Rights by a third party
and cooperate to develop an appropriate response to the infringement. UCHC and
Licensee each shall have the right to institute an action for infringement of
the Patent Rights against such third party in accordance with the following:
9.
<PAGE> 10
i. If UCHC and Licensee agree to institute suit
jointly, the suit shall be brought in both
their names, the out-of-pocket costs thereof
shall be borne equally, provided that UCHC
will be responsible for its share of costs
only by allowing Licensee to withhold up to
fifty percent (50%) of the royalties or
sublicensing income otherwise due and payable
to UCHC, and any recovery or settlement shall
be shared in the following proportions:
seventy-five percent (75%) to Licensee and
twenty-five percent (25%) to UCHC. UCHC and
Licensee shall agree to the manner in which
they shall exercise control over such action.
Either party may, if it so desires, also be
represented by separate counsel of its own
selection, the fees for which counsel shall
be paid by such party;
ii. In the absence of agreement to institute a
suit jointly, UCHC may institute suit, and,
at its option, join Licensee as a plaintiff,
provided, however, that UCHC must provide
Licensee with written notice of its decision
to institute suit within thirty (30) days of
UCHC becoming reasonably aware of the
possibility of instituting a suit. UCHC shall
bear the entire cost of litigation that it
institutes and shall be entitled to retain
the entire amount of any recovery or
settlement. In the event UCHC fails to
provide the foregoing notice, Licensee may
institute suit, and, at its option, join UCHC
as a plaintiff. Licensee shall bear the
entire cost of such litigation that it
institutes and shall be entitled to retain
the entire amount of any recovery or
settlement; and
iii. In either of the foregoing cases, each party
will provide the other party with reasonable
assistance and full cooperation in connection
with an action instituted.
12. Indemnity. Licensee agrees to indemnify, hold
harmless and defend UCHC, its officers, employees, and agents, against any and
all claims, suits, losses, damage, costs, fees, and expenses asserted by third
parties, both government and private, for death, illness, personal injury and
property damage resulting from or arising out of Licensee's development, use or
sale of the Licensed Products, provided that Licensee shall not be responsible
for amounts paid in settlement of any claim without its approval. In the event
of loss resulting from acts of omission or commission by UCHC and/or its
employees in connection with this Agreement, the Licensee or any third party
shall have recourse through the Connecticut Claims Commission as provided under
Chapter 53 of the Statutes of the State of Connecticut in which all claims
against the State of Connecticut and the University of Connecticut shall be
filed with the State of Connecticut Claims Commissioner. In
10.
<PAGE> 11
addition, this provision shall apply to any claims against UCHC made in
conjunction with Section 14.2 of this Agreement.
IN NO EVENT SHALL EITHER PARTY HAVE ANY LIABILITY FOR ANY
SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES INCLUDING, WITHOUT LIMITATION,
DAMAGES FOR LOST PROFITS, LOSS OF DATA OR COSTS OF PROCUREMENT OF SUBSTITUTE
GOODS OR SERVICES, ARISING IN ANY WAY OUT OF THIS AGREEMENT UNDER ANY CAUSE OF
ACTION, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING THE FAILURE OF THE
ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
13. Warranties. UCHC warrants that it: has the lawful
right to grant the licenses provided in this Agreement; has not granted rights
or licenses in conflict with of this Agreement; has not received any notice of
a claim of infringement or misappropriation of any alleged rights asserted by
any third party in relation to the UCHC Technology or the Patent Rights; is not
aware that any third party is infringing the Patent Rights; and, except as
disclosed to Licensee, UCHC is not aware of any patents or other proprietary
rights of any third party which would materially affect the exercise of the
license rights granted hereunder to Licensee. UCHC agrees that during the term
of this Agreement (or any license granted hereunder), UCHC shall not enter into
any other agreements that conflict with rights or obligations provided
hereunder, including any rights and obligations that survive termination
hereof.
14. Miscellaneous.
14.1 Notices. Any notice required or permitted to
be given to the parties hereto shall be deemed to have been properly given if
delivered in person or when received if mailed by first-class certified mail to
the other party at the appropriate address as set forth at the beginning of
this Agreement, or to such other addresses as may be designated in writing by
the parties from time to time during the term of this Agreement.
14.2 Governing Law and Dispute Resolution. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Connecticut without regard to the conflict of laws provisions thereof.
Any controversy arising under or related to this Agreement, or any disputed
claim by either party against the other under this Agreement, excluding any
dispute relating to patent validity or infringement arising under this
Agreement, shall be first addressed by good faith negotiation between the
parties; if such efforts fail to resolve the dispute, the parties shall seek
the assistance of a mutually acceptable third-party mediator.
11.
<PAGE> 12
Notwithstanding anything to the contrary, nothing in this Agreement shall be
deemed as preventing either party from seeking injunctive relief (or any other
provisional remedy) from any court having jurisdiction over the parties and the
subject matter of the dispute as necessary to protect either party's name,
proprietary information, trade secrets, know-how or any other proprietary
rights.
14.3 Waiver. It is agreed that no waiver by either
party hereto of any breach or default of any of the covenants or agreements
herein set forth shall be deemed a waiver as to any subsequent and/or similar
breach or default.
14.4 Assignment. This Agreement shall not be
assignable by either party without the written consent of the other party,
which consent shall not be withheld unreasonably. Notwithstanding the
foregoing, either party may transfer and assign this Agreement, without the
other party's consent, to an entity that succeeds to substantially all of the
business or assets of such party to which this Agreement pertains.
14.5 Independent Contractors. The relationship of
UCHC and Licensee established by this Agreement is that of independent
contractors, and nothing contained in this Agreement shall be construed (i) to
give either party the power to direct or control the day-to-day activities of
the other or (ii) to constitute the parties as partners, joint venturers,
co-owners or otherwise as participants in a joint or common undertaking.
14.6 Severability. If any provision of this
Agreement is held to be invalid by a court of competent jurisdiction, then the
remaining provisions shall nevertheless remain in full force and effect. The
parties further agree to negotiate in good faith a substitute, valid and
enforceable provision that most nearly effects the parties' intent and to be
bound by the mutually agreed substitute provision.
14.7 Force Majeure. Nonperformance of either
party shall be excused to the extent that performance is rendered impossible by
strike, fire, flood, governmental acts or orders or restrictions, failure of
suppliers, or any other reason where failure to perform is beyond the
reasonable control and not caused by the negligence of the nonperforming party.
14.8 Entire Agreement. This Agreement constitutes
the entire, final, complete and exclusive agreement between the parties and
supersedes all previous agreements or representations, oral or written,
relating to the licensing and commercial development of the PCG technology for
prognostic and diagnostic use. This Agreement may not be modified or amended
except in a writing signed by a duly authorized representative of each party.
Both parties acknowledge having read the terms and conditions set forth in this
Agreement, understand all terms and conditions, and agree to be bound thereby.
12.
<PAGE> 13
14.9 UCHC is authorized to enter into this Agreement
under Section 10a-104 and Sections 10a-110 to 10a-110g of the General Statutes
of Connecticut, as amended as of the Effective Date.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed by their duly authorized representatives as of the day and year
first above written.
THE UNIVERSITY OF CONNECTICUT INSITE VISION
HEALTH CENTER INCORPORATED
By: /s/ LEONARD P. PAPLAUSKAS By: /s/ MICHAEL D. BAER
-------------------------- ------------------------------
Name: Leonard P. Paplauskas Name: Michael D. Baer
------------------------ -----------------------------
Title: Asst. Vice Chancellor for Title: Vice President
Research ---------------------------
------------------------
13.
<PAGE> 1
EXHIBIT 10.3
[UNIVERSITY OF ROCHESTER LETTERHEAD]
LICENSE AGREEMENT
TABLE OF CONTENTS
PREAMBLE
ARTICLES
<TABLE>
Page
<S> <C> <C>
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II GRANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III DUE DILIGENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE IV ROYALTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE V REPORTS AND RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE VI PATENT PROSECUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE VII INFRINGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE VIII PRODUCT LIABILITY; CONFIDENTIALITY; LIMITATION OF LIABILITY; WARRANTIES . . . . . . . . . . . . . . . . . 8
ARTICLE IX EXPORT CONTROLS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE X NON-USE OF NAMES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE XI ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE XII ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE XIII TERMINATION AND TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE XIV PAYMENTS, NOTICES AND OTHER COMMUNICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE XV MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
<PAGE> 2
2
LICENSE AGREEMENT
This license agreement (the "Agreement") is made and entered
into this 19th day of August, 1997, (the Effective Date) by and between the
UNIVERSITY OF ROCHESTER, an educational institution chartered by the State of
New York (hereinafter referred to as ROCHESTER), and InSite Vision
Incorporated, a corporation duly organized under the laws of Delaware and
having its principal office at 965 Atlantic Avenue, Alameda, CA 94501
(hereinafter referred to as INSITE).
WITNESSETH
WHEREAS, ROCHESTER is the owner of certain "Patent Rights" (as
later defined herein) relating to ROCHESTER Case No. 6-11401-337,
"Intraretinal Delivery System" and has the right to grant licenses under said
Patent Rights;
WHEREAS, ROCHESTER desires to have the Patent Rights utilized
in the public interest and is willing to grant a license thereunder;
WHEREAS, INSITE has represented to ROCHESTER that it shall
commit itself to a thorough, vigorous and diligent program of exploiting the
Patent Rights so that public utilization shall result therefrom; and
WHEREAS, INSITE desires to obtain a license under the Patent
Rights upon the terms and conditions hereafter set forth.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein, the parties hereto agree as follows:
ARTICLE I - DEFINITIONS
For the purposes of this Agreement, the following words and
phrases shall have the following meanings:
1.1 "INSITE" shall include a related company of INSITE,
the voting stock of which is directly or indirectly at least fifty percent
(50%) owned or controlled by INSITE, an organization which directly or
indirectly controls more than fifty percent (50%) of the voting stock of INSITE
and an organization, the majority ownership of which is directly or indirectly
common to the ownership of INSITE.
<PAGE> 3
3
1.2 "Patent Rights" shall mean all of the following
ROCHESTER intellectual property:
(a) the United States and foreign patents and/or
patent applications listed in Appendix A;
(b) United States and foreign patents issued from
the applications listed in Appendix A and from divisionals and
continuations of these applications;
(c) claims of U.S. and foreign
continuation-in-part applications, and of the resulting
patents, which are directed to subject matter specifically
described in the U.S. and foreign applications listed in
Appendix A;
(d) claims of all foreign patent applications,
and of the resulting patents, which are directed to subject
matter specifically described in the United States patents
and/or patent applications described in (a), (b) or (c) above;
(e) any reissues of United States patents
described in (a), (b), (c) or (d) above.
1.3 A "Licensed Product" shall mean any product or part
thereof which:
(a) is covered in whole or in substantial part by
an issued, unexpired claim or a pending claim contained in the
Patent Rights in the country in which any Licensed Product is
made, used or sold;
(b) is manufactured by using a process which is
covered in whole or in substantial part by an issued, unexpired
claim or a pending claim contained in the Patent Rights in the
country in which any Licensed Process is used or in which such
product or substantial part thereof is used or sold.
1.4 A "Licensed Process" shall mean any process which is
covered in whole or in substantial part by an issued, unexpired claim or a
pending claim contained in the Patent Rights.
1.5 "Net Sales" shall mean INSITE's (and its
sublicensee's) billings for Licensed Products and Licensed Processes produced
hereunder less the sum of the following:
(a) discounts allowed in amounts customary in the
trade;
<PAGE> 4
4
(b) sales, import, export, excise, and
value-added taxes and customs and tariff duties and/or use
taxes directly imposed and with reference to particular
sales;
(c) outbound transportation prepaid or allowed,
costs of insurance and packing from the place of manufacture
to customer's premises; and
(d) amounts allowed or credited on returns.
No deductions shall be made for commissions paid to individuals whether they be
with independent sales agencies or regularly employed by INSITE and on its
payroll, or for cost of collections. Licensed Products shall be considered
"sold" when paid for or thirty (30) days after invoicing, whichever is sooner.
ARTICLE II - GRANT
2.1 ROCHESTER hereby grants to INSITE the exclusive
worldwide right and license to make, have made, use, import, export, lease and
sell the Licensed Products, and to practice the Licensed Processes to the end
of the term for which the Patent Rights are granted unless sooner terminated
according to the terms hereof.
2.2 ROCHESTER hereby agrees that it shall not grant any
other license to make, have made, use, lease and sell Licensed Products or to
utilize Licensed Processes during the period of time commencing with the
Effective Date of this Agreement and coinciding with the term or terms for
which any Patent Rights are issued, unless sooner terminated as hereinafter
provided.
2.3 ROCHESTER reserves the right to practice under the
Patent Rights for its own noncommercial research purposes.
2.4 INSITE shall have the exclusive, worldwide right to
enter into sublicensing agreements for the rights, privileges and licenses
granted hereunder.
2.5 INSITE hereby agrees that every sublicensing agreement
to which it shall be a party and which shall relate to the rights, privileges
and license granted hereunder shall contain a statement setting forth the date
upon which INSITE's exclusive rights, privileges and license hereunder shall
terminate.
<PAGE> 5
5
2.6 INSITE agrees that any sublicenses granted by it shall
provide that the obligations to ROCHESTER of Articles II, V, VII, IX, X, XII
and XIII of this Agreement shall be binding upon the sublicense as if it were a
party to this Agreement. INSITE further agrees to attach copies of these
Articles to sublicense agreements.
2.7 INSITE agrees to forward to ROCHESTER a copy of any
and all fully executed sublicense agreements, and further agrees to forward to
ROCHESTER annually a copy of such reports received by INSITE from its
sublicensees during the preceding twelve (12) month period under the
sublicenses as shall be pertinent to a royalty accounting under said sublicense
agreements.
2.8 INSITE shall not receive from sublicensees anything of
value in lieu of cash payments in consideration for any sublicense under this
Agreement, without the express prior written permission of ROCHESTER.
2.9 The license granted hereunder shall not be construed
to confer any rights upon INSITE by implication, estoppel or otherwise as to
any technology not specifically set forth in Appendix A hereof.
ARTICLE III - DUE DILIGENCE
3.1 INSITE shall use reasonable commercial efforts to
bring one or more Licensed Products or Licensed Processes to market through a
thorough, vigorous and diligent program for exploitation of the Patent Rights.
3.2 In addition, INSITE shall adhere to the following
milestones:
(a) INSITE shall deliver to
ROCHESTER on or before March 31, 1998 a business plan showing
the amount of money, number and kind of personnel and time
budgeted and planned for each phase of development of the
Licensed Products and Licensed Processes and shall provide
similar reports to ROCHESTER on an annual basis on or before
the ninetieth (90th) day following the close of INSITE's
fiscal year.
(b) INSITE shall develop a working
prototype model on or before December 31, 1998; INSITE shall
file an IDE for the Licensed Product by
<PAGE> 6
6
March 31, 2000; and INSITE shall file a 510K for the Licensed
Product by June 30, 2002.
3.3 INSITE's failure to perform in accordance with
Paragraphs 3.1 and 3.2 above shall be grounds for ROCHESTER to terminate this
Agreement pursuant to Paragraph 13.3 hereof.
ARTICLE IV - ROYALTIES
4.1 For the rights, privileges and license granted
hereunder, INSITE shall pay royalties to ROCHESTER in the manner hereinafter
provided to the end of the term of the Patent Rights or until this Agreement
shall be terminated as hereinafter provided:
(a) License Issue Fee of [ * ] which
said License Issue Fee shall be deemed earned and due
immediately upon the execution of this Agreement.
(b) License Maintenance Fees of [ * ]
per year payable on the first anniversary of the Effective Date
and each year thereafter; provided, however, that the License
Maintenance Fee for a given year shall be creditable against
any Running Royalties subsequently due during said year
under subparagraph 4.1(c) below, and also creditable against
any payments to the University of Rochester during said year
to support research in the Laboratory of Dr. Manuel
del Cerro.
(c) Running Royalty in an amount equal to
[ * ] of the Net Sales of the Licensed Products or Licensed
Processes used, leased, or sold by or for INSITE.
(d) [ * ] of all payments to INSITE
by any sublicense as compensation for the right to make, have
made, use, import, export, lease and sell the Licensed
Products.
4.2 No multiple royalties shall be payable because any
Licensed Product, its manufacture, use, lease or sale shall be covered by more
than one Patent Rights patent application or Patent Rights patent licensed
under this Agreement.
*CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 7
7
4.3 Royalty payments shall be paid in United States
dollars in Rochester, New York, or at such other place as ROCHESTER may
reasonably designate consistent with the laws and regulations controlling in
any foreign country. If any currency conversion shall be required in
connection with the payment of royalties hereunder, such conversion shall be
made by using the exchange rate published in the Wall Street Journal on the
last business day of the calendar quarterly reporting period to which such
royalty payments relate.
ARTICLE V - REPORTS AND RECORDS
5.1 INSITE shall keep full, true and accurate books of
account containing all particulars that may be necessary for the purpose of
showing the amounts payable to ROCHESTER hereunder. Said books of account
shall be kept at INSITE's principal place of business or the principal place of
business of the appropriate division of INSITE to which this Agreement relates.
Said books and the supporting data shall be open, subject to ROCHESTER
providing INSITE with reasonable, advance written notice, at all reasonable
times for three (3) years following the end of the calendar year to which they
pertain, to the inspection of ROCHESTER or its agents for the purpose of
verifying INSITE's royalty statement or compliance in other respects with this
Agreement.
5.2 INSITE, within sixty (60) days after December 31, of
each year, shall deliver to ROCHESTER true and accurate reports, giving such
particulars of the business conducted by INSITE and its sublicensees during the
preceding year under this Agreement as shall be pertinent to a royalty
accounting hereunder. These shall include at least the following:
(a) number of Licensed Products manufactured and
sold.
(b) total billings for Licensed Products sold.
(c) deductions applicable as provided in
Paragraph 1.5.
(d) total royalties due.
(e) names and addresses of all sublicensees of
INSITE.
5.3 With each such report submitted, INSITE shall pay to
ROCHESTER the royalties due and payable under this Agreement. If no royalties
shall be due, INSITE shall so report.
<PAGE> 8
8
5.4 On or before the ninetieth (90th) day following the
close of INSITE's fiscal year, INSITE shall provide ROCHESTER with INSITE's
certified financial statements for the preceding fiscal year, including, at a
minimum, a Balance Sheet and an Operating Statement.
5.5 The royalty payments set forth in this Agreement, if
overdue, bear interest until payment at a per annum rate four percent (4%)
above the then current reference rate in effect at the Chase Lincoln First
Bank, Rochester, New York, on the due date. The payment of such interest shall
not foreclose ROCHESTER from exercising any other rights it may have as a
consequence of the lateness of any payment.
ARTICLE VI - PATENT PROSECUTION
6.1 ROCHESTER shall apply for, seek prompt issuance of,
and maintain during the term of this Agreement the Patent Rights in the United
States and in the foreign countries listed in Appendix A hereto. Appendix A
may be amended by verbal agreement of both parties, such agreement to be
confirmed in writing within ten (10) days. The prosecution, filing and
maintenance of all Patent Rights patents and applications shall be the primary
responsibility of ROCHESTER; provided, however, INSITE shall have reasonable
opportunities to advise ROCHESTER and shall cooperate with ROCHESTER in such
prosecution, filing and maintenance.
6.2 Payment of all fees and costs relating to the filing,
prosecution, and maintenance of the Patent Rights incurred by the University
after the Effective Date shall be the responsibility of INSITE.
ARTICLE VII - INFRINGEMENT
7.1 INSITE shall inform ROCHESTER promptly in writing of
any alleged infringement of the Patent Rights by a third party that it becomes
reasonably and sufficiently aware of and of any available evidence thereof.
7.2 During the term of this Agreement, ROCHESTER shall
have the right, but shall not be obligated, to prosecute at its own expense any
such infringements of the Patent Rights and, in furtherance of such right,
INSITE hereby agrees that ROCHESTER may join
<PAGE> 9
9
INSITE as a party plaintiff in any such suit, without expense to INSITE. The
total cost of any such infringement action commenced or defended solely by
ROCHESTER shall be borne by ROCHESTER and ROCHESTER shall keep any recovery or
damages for past infringement derived therefrom.
7.3 If within six (6) months after having been notified of
any alleged infringement, ROCHESTER shall have been unsuccessful in persuading
the alleged infringer to desist and shall not have brought and shall not be
diligently prosecuting an infringement action, or if ROCHESTER shall notify
INSITE at any time prior thereto of its intention not to bring suit against any
alleged infringer, then, and in those events only, INSITE shall have the right,
but shall not be obligated, to prosecute at its own expense any infringement of
the Patent Rights, and INSITE may, for such purposes, use the name of ROCHESTER
as party plaintiff, provided, however, that such right to bring an infringement
action shall remain in effect only for so long as the license granted herein
remains exclusive. No settlement, consent judgment or other voluntary final
disposition of the suit may be entered into without the consent of ROCHESTER,
which consent shall not be unreasonably withheld. INSITE shall indemnify
ROCHESTER against any order for costs that may be made against ROCHESTER in
such proceedings.
7.4 In the event that INSITE shall undertake the
enforcement and/or defense of the Patent Rights by litigation, INSITE may
withhold up to fifty percent (50%) of the royalties otherwise thereafter due
ROCHESTER hereunder and apply the same toward reimbursement of its associated
costs and expenses, including reasonable attorneys' fees in connection
therewith. Any recovery of damages by INSITE for any such suit shall be
applied first in satisfaction of any unreimbursed expenses and legal fees of
INSITE relating to the suit, and next toward reimbursement of ROCHESTER for any
royalties past due or withheld and applied pursuant to this Article VII. The
balance remaining from any such recovery shall be divided equally between
INSITE and ROCHESTER.
7.5 In the event that a declaratory judgment action
alleging invalidity or noninfringement of any of the Patent Rights shall be
brought against INSITE, ROCHESTER, at its option, shall have the right, within
thirty (30) days after commencement of such action, to intervene and take over
the sole defense of the action at its own expense.
<PAGE> 10
10
7.6 In any infringement suit as either party may institute
to enforce the Patent Rights pursuant to this Agreement, the other party hereto
shall, at the request and expense of the party initiating such suit, cooperate
in all respects and, to the extent possible, have its employees testify when
requested and make available relevant records, papers, information, samples,
specimens, and the like.
7.7 INSITE, during the exclusive period of this Agreement,
shall have the sole right in accordance with the terms and conditions herein to
sublicense any alleged infringer for future use of the Patent Rights.
ARTICLE VIII - PRODUCT LIABILITY; CONFIDENTIALITY; LIMITATION
OF LIABILITY; WARRANTIES
8.1 INSITE shall at all times during the term of this
Agreement and thereafter, indemnify, defend and hold ROCHESTER, its trustees,
officers, employees and affiliates, harmless against all claims and expenses,
including legal expenses and reasonable attorneys' fees arising out of the
death of or injury to any person or persons or out of any damage to property
and against any other claim proceeding, demand, expense and liability of any
kind whatsoever resulting from the production, manufacture, sale, use, lease,
consumption or advertisement of the Licensed Product(s) and/or Licensed
Process(es) or arising from any obligation of INSITE hereunder.
8.2 INSITE shall obtain and carry in full force and effect
liability insurance which shall protect INSITE and ROCHESTER in regard to
events covered by Paragraph 8.1 above.
8.3 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS
AGREEMENT, ROCHESTER MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY
KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND VALIDITY OF PATENT
RIGHTS CLAIMS, ISSUED OR PENDING.
8.4 ROCHESTER and INSITE shall keep any technology,
formula, trade secrets, technical data or business information ("Information")
provided or made available by the
<PAGE> 11
11
other party hereunder confidential, and neither ROCHESTER nor INSITE shall,
without the prior written consent of the other party, as the case may be, use
(except as expressly permitted by this Agreement or for the purposes of the
Agreement), or disclose to any third party, any Information provided or made
available by the other party hereunder; provided, however, that the foregoing
shall not apply to information which the party receiving such information can
establish by written documentation to (i) have been publicly known at the time
of disclosure by the other party, as the case may be, (ii) have been publicly
known, without fault on its part, subsequent to such disclosure, (iii) have
been otherwise known by it from a source (other than the other party or its
agents), lawfully having possession of such information, or (iv) have been
developed by it independently of the disclosure by the other party. The
foregoing shall not preclude the disclosure of information by ROCHESTER or
INSITE:
(a) to its legal representatives,
consultants, outside contractors and (if it has the right to grant the
license or sublicense) its licensees and sublicensees, under like
confidentiality obligations on the part of the requirements, or
(b) to the extent required by law or
regulation, provided that, to the extent reasonably possible, it shall
give prompt written notice of the proposed disclosure to the other
party, as the case may be, so as to allow the other party, as the case
may be, an opportunity to object to such requirement and, if
applicable, assure that confidential treatment will be accorded to such
information, or
(c) to the extent that such information
is reasonably required to be disclosed for the purpose of securing
necessary governmental authorization for the clinical testing or
marketing of products or for the purpose of conducting clinical testing
or marketing of products, or of prosecuting or defending litigation.
8.5 IN NO EVENT SHALL EITHER PARTY HAVE ANY LIABILITY FOR
ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES INCLUDING, WITHOUT LIMITATION,
DAMAGES FOR LOST PROFITS, LOSS OF DATA OR COSTS OF PROCUREMENT OF SUBSTITUTE
GOODS OR SERVICES, ARISING IN ANY WAY OUT OF THIS AGREEMENT UNDER ANY CAUSE OF
ACTION, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF
<PAGE> 12
12
SUCH DAMAGES. THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING THE FAILURE OF THE
ESSENTIAL PURPOSE OF ANY LISTED REMEDY.
8.6 ROCHESTER warrants that it: has the lawful right to
grant the licenses provided in this Agreement; it has not granted rights or
licenses in conflict with this Agreement; has not received any notice of a
claim of infringement or misappropriation of any alleged rights asserted by any
third party in relation to the Patent Rights; and, except as disclosed to
INSITE, ROCHESTER is not aware of any patents or other proprietary rights of
any third party which would materially affect the exercise of the license
rights granted hereunder to INSITE. ROCHESTER agrees that during the term of
this Agreement (or any license granted hereunder), ROCHESTER shall not enter
into any other agreements that conflict with rights or obligations provided
hereunder, including any rights and obligations that survive termination
hereof.
ARTICLE IX - EXPORT CONTROLS
It is understood that ROCHESTER is subject to United States
laws and regulations controlling the export of technical data, computer
software, laboratory prototypes and other commodities (including the Arms
Export Control Act, as amended and the Export Administration Act of 1979), and
that its obligations hereunder are contingent on compliance with applicable
United States export laws and regulations. The transfer of certain technical
data and commodities may require a license from the cognizant agency of the
United States Government and/or written assurances by INSITE that INSITE shall
not export data or commodities to certain foreign countries without prior
approval of such agency. ROCHESTER neither represents that a license shall not
be required nor that, if required, it shall be issued.
ARTICLE X - NON-USE OF NAMES
INSITE shall not use the names of the University of Rochester
nor of any of its employees, nor any adaptation thereof, in any advertising,
promotional or sales literature without prior written consent obtained from
ROCHESTER in each case, which consent shall
<PAGE> 13
13
not be unreasonably withheld or delayed, except that INSITE may state that it
is licensed by ROCHESTER under one or more of the patents and/or applications
comprising the Patent Rights.
ARTICLE XI - ASSIGNMENT
This Agreement shall not be assignable by either party without
the written consent of the other party, which consent shall not be withheld
unreasonably. Notwithstanding the foregoing, either party may transfer and
assign this Agreement without the other party's consent, to an entity that
succeeds to substantially all of the business or assets of such party to which
this Agreement pertains.
ARTICLE XII - ARBITRATION
12.1 Any and all claims, disputes or controversies arising
under, out of, or in connection with this Agreement, including any dispute
relating to patent validity of infringement, which have not been resolved by
good faith negotiations between the parties, shall be resolved by final and
binding arbitration in New York, New York, under the then current rules of the
American Arbitration Association, or the Patent Arbitration Rules if
applicable, then obtaining. The arbitrators shall have no power to add to,
subtract from or modify any of the terms or conditions of this Agreement. Any
award rendered in such arbitration may be enforced by either party in either
the courts of the State of New York or in the United States District Court for
the District of New York, to whose jurisdiction for such purposes ROCHESTER and
INSITE each hereby irrevocably consents and submits.
12.2 Notwithstanding the foregoing, nothing in this Article
shall be construed to waive any rights or timely performance of any obligations
existing under this Agreement.
<PAGE> 14
14
ARTICLE XIII - TERMINATION AND TERM
13.1 If INSITE shall cease to carry on its business, this
Agreement shall terminate upon notice by ROCHESTER.
13.2 Should INSITE fail to pay ROCHESTER royalties due and
payable hereunder within sixty (60) days after such royalties are due and
payable, ROCHESTER shall have the right to terminate this Agreement on thirty
(30) days' notice, unless INSITE shall pay ROCHESTER within the thirty (30) day
period, all such royalties and interest due and payable. Upon the expiration
of the thirty (30) day period, if INSITE shall not have paid all such royalties
and interest due and payable, the rights, privileges and license granted
hereunder shall terminate.
13.3 Upon any material breach or default of this Agreement
by INSITE, other than those occurrences set out in Paragraphs 13.1 and 13.2
hereinabove, which shall always take precedence in that order over all material
breach or default referred to in this Paragraph 13.3, ROCHESTER shall have the
right to terminate this Agreement and the rights, privileges and license
granted hereunder by ninety (90) days' notice to INSITE. Such termination
shall become effective unless INSITE shall have cured any such breach or
default prior to the expiration of the ninety (90) day period.
13.4 INSITE shall have the right to terminate this
Agreement at any time on sixty (60) days written notice to ROCHESTER, and upon
payment of all amounts due ROCHESTER through the effective date of the
termination.
13.5 Upon termination of this Agreement for any reason,
nothing herein shall be construed to release either party from any obligation
that matured prior to the effective date of such termination. INSITE and any
sublicensee thereof may, however, after the effective date of such termination,
sell all Licensed Products, and complete Licensed Products in the process of
manufacture at the time of such termination and sell the same, provided that
INSITE shall pay to ROCHESTER the royalties thereon as required by Article IV
of this Agreement and shall submit the reports required by Article V hereof on
the sales of Licensed Products.
13.6 Upon termination of this Agreement for any reason, any
sublicensee not then in default shall have the right to seek a license from
ROCHESTER.
<PAGE> 15
15
13.7 Unless terminated in accordance with this Article 13,
this Agreement and the licenses granted herein shall continue until the
expiration of the last to expire Patent Rights.
ARTICLE XIV - PAYMENTS, NOTICES AND
OTHER COMMUNICATIONS
Any payment, notice or other communication pursuant to this
Agreement shall be sufficiently made or given on the date of mailing if sent to
such party by certified first class mail, postage prepaid, addressed to it at
its address below or as it shall designate by written notice given to the other
party:
In the case of ROCHESTER: In the case of INSITE:
Director Chief Executive Officer
Office of Technology Transfer InSite Vision Incorporated
University of Rochester 965 Atlantic Avenue
518 Hylan Building Alameda, CA 94501
Rochester, NY 14627-0140
ARTICLE XV - MISCELLANEOUS
15.1 This Agreement shall be construed, governed,
interpreted and applied in accordance with the laws of the State of New York,
U.S.A., except that questions affecting the construction and effect of any
patent shall be determined by the law of the country in which the patent was
granted.
15.2 The parties hereto acknowledge that this Agreement
sets forth the entire Agreement and understanding of the parties hereto as to
the subject matter hereof, merges all prior discussions between them, and shall
not be subject to any change or modification except by the execution of a
written instrument subscribed to by the parties hereto.
15.3 The provisions of this Agreement are severable, and in
the event that any provisions of this Agreement shall be determined to be
invalid or unenforceable under any controlling body of the law, such invalidity
or unenforceability shall not in any way affect the validity or enforceability
of the remaining provisions hereof.
15.4 INSITE agrees to market the Licensed Products sold in
the United States with all applicable United States patent numbers. All
Licensed Products shipped to or sold in
<PAGE> 16
16
other countries shall be marked in such a manner as to conform with the patent
laws and practice of the country of manufacture or sale.
15.5 The failure of either party to assert a right
hereunder or to insist upon compliance with any term or condition of this
Agreement shall not constitute a waiver of that right or excuse a similar
subsequent failure to perform any such term or condition by the other party.
IN WITNESS WHEREOF, the parties have hereunto set their hands
and duly executed this Agreement the day and year set forth below.
UNIVERSITY OF ROCHESTER INSITE VISION INCORPORATED
By: /s/ ROBERT R. GOODWIN By: /s/ MICHAEL D. BAER
--------------------------- ------------------------
Name: Robert R. Goodwin, Ph.D. Name: Michael D. Baer
Title: Director, Technology Transfer Title: Vice President
Date: August 13, 1997 Date: August 19, 1997
<PAGE> 17
17
APPENDIX A
ROCHESTER Case No. 6-11401-337
"Intraretinal Delivery System"
U.S. Patent No. 5,273,530
"INTRARETINAL DELIVERY AND WITHDRAWAL INSTRUMENTS"
Issue Date: December 28, 1993
U.S. Patent No. 5,409,457 (divisional of 5,273,530)
"INTRARETINAL DELIVERY AND WITHDRAWAL INSTRUMENTS"
Issue Date: April 25, 1995
Canadian Application No. 2,096,006
"INTRARETINAL DELIVERY AND WITHDRAWAL INSTRUMENTS"
Examination Request due: November 13, 1998
Japanese Application No. 4-502282
"INTRARETINAL DELIVERY AND WITHDRAWAL INSTRUMENTS"
Examination Request due: November 13, 1998
<PAGE> 1
EXHIBIT 10.4
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of September
12, 1997, by and among INSITE VISION INCORPORATED, a corporation organized under
the laws of the State of Delaware (the "COMPANY"), with headquarters located at
965 Atlantic Avenue, Alameda, California 94501 and each of the purchasers (the
"PURCHASERS") set forth on the execution pages hereof (the "EXECUTION PAGES").
WHEREAS:
A. The Company and each Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("REGULATION D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "SECURITIES ACT");
B. Each Purchaser desires to purchase, upon the terms and conditions
stated in this Agreement, shares of the Company's Series A Convertible Preferred
Stock, par value $.01 per share (the "PREFERRED SHARES"), convertible into the
Company's common stock, par value $.01 per share (the "COMMON STOCK"). The
rights, preferences and privileges of the Preferred Shares, including the terms
upon which such Preferred Shares are convertible into shares of Common Stock,
are set forth in the form of Certificate of Designations, Preferences and Rights
attached hereto as Exhibit A (the "CERTIFICATE OF DESIGNATION"). The shares of
Common Stock issuable upon conversion of the Preferred Shares or otherwise
pursuant to the Certificate of Designation are referred to herein as the
"CONVERSION SHARES" and the Preferred Shares and the Conversion Shares are
collectively referred to herein as the "SECURITIES."
C. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as Exhibit B (the "REGISTRATION RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities laws;
NOW, THEREFORE, the Company and the Purchasers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
a. Purchase of Preferred Shares. On the Closing Date (as defined below),
subject to the satisfaction (or waiver) of the conditions set forth in Section 6
and Section 7 below, the Company shall issue and sell to each Purchaser and each
Purchaser severally agrees to purchase from the Company, such number of
Preferred Shares as is set forth on such Purchaser's Execution Page
<PAGE> 2
hereto. The purchase price (the "PURCHASE PRICE") per Preferred Share shall be
equal to One Thousand Dollars ($1,000.00). Each Purchaser's obligation to
purchase Preferred Shares hereunder is distinct and separate from each other
Purchaser's obligation to purchase Preferred Shares and no Purchaser shall be
required to purchase hereunder more than the number of Preferred Shares set
forth on such Purchaser's Execution Page hereto notwithstanding any failure by
any other Purchaser to purchase Preferred Shares hereunder.
b. Form of Payment. On the Closing Date, each Purchaser shall pay the
aggregate Purchase Price for the Preferred Shares being purchased by such
Purchaser on the Closing Date by wire transfer to the Company, in accordance
with the Company's written wiring instructions, against delivery of duly
executed certificates representing the Preferred Shares being purchased by such
Purchaser and the Company shall deliver such certificates against delivery of
such aggregate Purchase Price.
c. Closing Date. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Preferred Shares to each of the Purchasers
pursuant to this Agreement (the "Closing") shall be 12:00 noon Eastern Daylight
Savings Time on September 8, 1997, or such other time as may be mutually agreed
upon by the Company and the Purchasers (but in any event not later than
September 12, 1997) (the "CLOSING DATE"). The closing shall occur at the offices
of Klehr, Harrison, Harvey, Branzburg & Ellers, 1401 Walnut Street,
Philadelphia, Pennsylvania 19102.
2. PURCHASERS' REPRESENTATIONS AND WARRANTIES
Each Purchaser severally represents and warrants to the Company that:
a. Investment Purpose. Purchaser is purchasing the Preferred Shares for
Purchaser's own account for investment purposes only and not with a present view
towards the public sale or distribution thereof, except pursuant to sales that
are exempt from the registration requirements of the Securities Act and/or sales
registered under the Securities Act. Purchaser understands that Purchaser must
bear the economic risk of this investment indefinitely, unless the Securities
are registered pursuant to the Securities Act and any applicable state
securities or blue sky laws or an exemption from such registration is available,
and that the Company has no present intention of registering any such Securities
other than as contemplated by the Registration Rights Agreement. Notwithstanding
anything in this Section 2(a) to the contrary, by making the representations
herein, the Purchaser does not agree to hold the Securities for any minimum or
other specific term and reserves the right to dispose of the Securities at any
time in accordance with or pursuant to a registration statement or an exemption
under the Securities Act.
b. Accredited Investor Status. Purchaser is an "ACCREDITED INVESTOR" as
that term is defined in Rule 501(a) of Regulation D.
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<PAGE> 3
c. Reliance on Exemptions. Purchaser understands that the Preferred
Shares are being offered and sold to Purchaser in reliance upon specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and Purchaser's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of Purchaser set forth herein in order to
determine the availability of such exemptions and the eligibility of Purchaser
to acquire the Preferred Shares.
d. Information. Purchaser and its counsel, if any, have been furnished
all materials relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Preferred Shares which have
been specifically requested by Purchaser or its counsel. Purchaser and its
counsel, if any, have been afforded the opportunity to ask questions of the
Company and have received what Purchaser believes to be satisfactory answers to
any such inquiries. Neither such inquiries nor any other due diligence
investigation conducted by Purchaser or its counsel or any of its
representatives shall modify, amend or affect Purchaser's right to rely on the
Company's representations and warranties contained in Section 3 below. Purchaser
understands that Purchaser's investment in the Securities involves a high degree
of risk.
e. Governmental Review. Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Resale. Purchaser understands that (i) except as provided
in the Registration Rights Agreement, the Securities have not been and are not
being registered under the Securities Act or any state securities laws, and may
not be transferred unless (a) subsequently registered thereunder, or (b)
Purchaser shall have delivered to the Company an opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration or (c) sold under Rule 144 promulgated under the Securities Act (or
a successor rule) ("RULE 144") or (d) sold or transferred to an affiliate of
Purchaser; and (ii) neither the Company nor any other person is under any
obligation to register such Securities under the Securities Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder (in each case, other than pursuant to the Registration Rights
Agreement).
g. Legends. Purchaser understands that the Preferred Shares and, until
such time as the Conversion Shares have been registered under the Securities Act
(including registration pursuant to Rule 416 thereunder) as contemplated by the
Registration Rights Agreement or otherwise may be sold by Purchaser under Rule
144, the certificates for the Conversion Shares may bear a restrictive legend in
substantially the following form:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment and may not be sold, transferred or assigned in
the absence of an effective
-3-
<PAGE> 4
registration statement for the securities under said Act, or an opinion
of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, that registration is not required
under said Act or unless sold under Rule 144 under said Act.
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by state securities laws, (a) the sale of
such Security is registered under the Securities Act (including registration
pursuant to Rule 416 thereunder) as contemplated by the Registration Rights
Agreement, or (b) such holder provides the Company with an opinion of counsel,
in form, substance and scope customary for opinions of counsel in comparable
transactions, to the effect that a public sale or transfer of such Security may
be made without registration under the Securities Act or (c) such holder
provides the Company with reasonable assurances that such Security can be sold
under Rule 144. Purchaser agrees to sell all Securities, including those
represented by a certificate(s) from which the legend has been removed, pursuant
to an effective registration statement or in compliance with an exemption from
the registration requirements of the Securities Act. In the event the above
legend is removed from any Security and thereafter the effectiveness of a
registration statement covering such Security is suspended or the Company
determines that a supplement or amendment thereto is required by applicable
securities laws, then upon reasonable advance notice to Purchaser the Company
may require that the above legend be placed on any such Security that cannot
then be sold pursuant to an effective registration statement or under Rule 144
and Purchaser shall cooperate in the prompt replacement of such legend. Such
legend shall be removed when such Security may be sold pursuant to an effective
registration statement or under Rule 144.
h. Authorization; Enforcement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of Purchaser and are valid and binding agreements of Purchaser
enforceable in accordance with their terms.
i. Residency. Purchaser is a resident of the jurisdiction set forth
under such Purchaser's name on the Execution Page hereto executed by such
Purchaser.
j. No "Short Position". Purchaser did not create a "short position" (as
defined in Section 4(l) hereof) in the Common Stock at any time on or after July
17, 1997 through, and including, the date hereof.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Purchaser that:
a. Organization and Qualification. The Company and each of its
subsidiaries is a corporation duly organized and existing in good standing under
the laws of the jurisdiction in which it is incorporated, and has the requisite
corporate power to own its properties and to carry on its business as now being
conducted. The Company and each of its subsidiaries is duly qualified as a
-4-
<PAGE> 5
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary and where the failure so to qualify would have a Material Adverse
Effect. "MATERIAL ADVERSE EFFECT" means any material adverse effect on (i) the
Securities, (ii) the ability of the Company to perform its obligations
hereunder, the Certificate of Designation or the Registration Rights Agreement
or (iii) the business, operations, properties, prospects or financial condition
of the Company and its subsidiaries, taken as a whole.
b. Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement and the
Registration Rights Agreement, to issue and sell the Preferred Shares in
accordance with the terms hereof, and to issue the Conversion Shares upon
conversion of the Preferred Shares in accordance with the terms of the
Certificate of Designation; (ii) the execution, delivery and performance of this
Agreement and the Registration Rights Agreement by the Company and the
consummation by it of the transactions contemplated hereby and thereby
(including without limitation the issuance of the Preferred Shares and the
issuance and reservation for issuance of the Conversion Shares) have been duly
authorized by the Company's Board of Directors and, no further consent or
authorization of the Company, its Board of Directors, or its stockholders is
required (under Rule 4460(i) promulgated by the National Association of
Securities Dealers or otherwise); (iii) this Agreement has been duly executed
and delivered by the Company; and (iv) this Agreement constitutes, and, upon
execution and delivery by the Company of the Registration Rights Agreement, such
agreement will constitute, valid and binding obligations of the Company
enforceable against the Company in accordance with their terms.
c. Capitalization. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for issuance pursuant to
the Company's stock option plans, the number of shares issuable and reserved for
issuance pursuant to securities (other than the Preferred Shares) exercisable
for, or convertible into or exchangeable for any shares of Common Stock and the
number of shares to be reserved for issuance upon conversion of the Preferred
Shares is set forth on Schedule 3(c). All of such outstanding shares of capital
stock have been, or upon issuance will be, validly issued, fully paid and
nonassessable. No shares of capital stock of the Company (including the
Preferred Shares and the Conversion Shares) are subject to preemptive rights or
any other similar rights of the stockholders of the Company or any liens or
encumbrances. Except for the Securities and as set forth on Schedule 3(c), as of
the date of this Agreement, (i) there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exercisable or
exchangeable for, any shares of capital stock of the Company or any of its
subsidiaries, or arrangements by which the Company or any of its subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its subsidiaries, and (ii) there are no agreements or arrangements
under which the Company or any of its subsidiaries is obligated to register the
sale of any of its or their securities under the Securities Act (except the
Registration Rights Agreement). Except as set forth on Schedule 3(c), there are
no securities or instruments containing antidilution or similar provisions that
-5-
<PAGE> 6
will be triggered by the issuance of the Securities in accordance with the terms
of this Agreement or the Certificate of Designation. The Company has furnished
to each Purchaser true and correct copies of the Company's Certificate of
Incorporation as in effect on the date hereof ("CERTIFICATE OF INCORPORATION"),
the Company's By-laws as in effect on the date hereof (the "BY-LAWS"), and all
other instruments and agreements governing securities convertible into or
exercisable or exchangeable for Common Stock of the Company. The Certificate of
Designation, in the form attached hereto, has been duly filed with the Secretary
of State of the State of Delaware and, upon the issuance of the Preferred Shares
in accordance with the terms hereof, each Purchaser shall be entitled to the
rights set forth therein.
d. Issuance of Shares. The Preferred Shares are duly authorized and,
upon issuance in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and free from all taxes, liens, claims
and encumbrances and will not be subject to preemptive rights or other similar
rights of stockholders of the Company and will not impose personal liability on
the holders thereof. The Conversion Shares are duly authorized and reserved for
issuance, and, upon conversion of the Preferred Shares in accordance with the
terms thereof, will be validly issued, fully paid and non-assessable, and free
from all taxes, liens, claims and encumbrances and will not be subject to
preemptive rights or other similar rights of stockholders of the Company and
will not impose personal liability upon the holder thereof.
e. No Conflicts. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement by the Company, the performance
by the Company of its obligations under the Certificate of Designation, and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the issuance and reservation for issuance, as
applicable, of the Preferred Shares and the Conversion Shares) will not (i)
result in a violation of the Certificate of Incorporation or By-laws or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its subsidiaries is a
party, or result in a violation of any law, rule, regulation, order, judgment or
decree (including U.S. federal and state securities laws and regulations)
applicable to the Company or any of its subsidiaries or by which any property or
asset of the Company or any of its subsidiaries is bound or affected (except,
with respect to clause (ii), for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). Neither the
Company nor any of its subsidiaries is in violation of its Certificate of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its subsidiaries is in default (and no event has occurred which, with
notice or lapse of time or both, would put the Company or any of its
subsidiaries in default) under, nor has there occurred any event giving others
(with notice or lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, except for possible defaults
or rights as would not, individually or in the aggregate, have a Material
Adverse Effect. The businesses of the Company and its subsidiaries are not being
conducted, and shall not be conducted so long as a Purchaser owns any of the
Securities, in violation of any law, ordinance
-6-
<PAGE> 7
or regulation of any governmental entity, except for possible violations the
sanctions for which either singly or in the aggregate would not have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and the
Registration Rights Agreement, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or any regulatory or self regulatory agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or the Registration Rights Agreement or to perform its obligations
under the Certificate of Designation, in each case in accordance with the terms
hereof or thereof. The Company is not in violation of the listing requirements
of the Nasdaq National Market ("NASDAQ") and does not reasonably anticipate that
the Common Stock will be delisted by NASDAQ for the foreseeable future.
f. SEC Documents, Financial Statements. Since December 31, 1993, the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT") (all of the foregoing, filed prior to the date hereof and after December
31, 1993, and all exhibits included therein and financial statements and
schedules thereto and documents (other than exhibits) incorporated by reference
therein, being hereinafter referred to herein as the "SEC DOCUMENTS"). The
Company has delivered to each Purchaser true and complete copies of the SEC
Documents, except for such exhibits, schedules and incorporated documents. As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the Exchange Act or the Securities Act, as the case may be,
and the rules and regulations of the SEC promulgated thereunder applicable to
the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. As of their respective dates, the financial statements of
the Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with U.S. generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Except as
set forth in the financial statements of the Company included in the SEC
Documents filed prior to the date hereof, the Company has no liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to the date of such financial statements and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in such financial statements, which liabilities and obligations
referred to in clauses (i) and (ii) individually or in the aggregate, are not
material to the financial condition or operating results of the Company.
-7-
<PAGE> 8
g. Absence of Certain Changes. Since December 31, 1996, there has been
no material adverse change and no material adverse development in the business,
properties, operations, prospects, financial condition or results of operations
of the Company except as disclosed in Schedule 3(g) or in the SEC Documents.
h. Absence of Litigation. Except as disclosed in the SEC Documents,
there is no action, suit, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company or any of its subsidiaries,
threatened against or affecting the Company, any of its subsidiaries, or any of
their respective directors or officers in their capacities as such.
i. Intellectual Property. Each of the Company and its subsidiaries owns
or is licensed to use all patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, copyright applications,
licenses, permits, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures) and
other similar rights and proprietary knowledge (collectively, "INTANGIBLES")
necessary for the conduct of its business as now being conducted and as
described in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996. To the best knowledge of the Company, neither the Company nor
any subsidiary of the Company infringes or is in conflict with any right of any
other person with respect to any Intangibles which, individually or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a Material Adverse Effect. Neither the Company nor any of its subsidiaries
has received written notice of any pending conflict with or infringement upon
such third party Intangibles. Neither the Company nor any of its subsidiaries
has entered into any consent, indemnification, forbearance to sue or settlement
agreements with respect to the validity of the Company's or its subsidiaries'
ownership or right to use its Intangibles and, to the best knowledge of the
Company, there is no reasonable basis for any such claim to be successful. The
Intangibles are valid and enforceable and no registration relating thereto has
lapsed, expired or been abandoned or canceled or is the subject of cancellation
or other adversarial proceedings, and all applications therefor are pending and
are in good standing. The Company and its subsidiaries have complied, in all
material respects, with their respective contractual obligations relating to the
protection of the Intangibles used pursuant to licenses. To the best knowledge
of the Company, no person is infringing on or violating the Intangibles owned or
used by the Company or its subsidiaries.
j. Foreign Corrupt Practices. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977;
or made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
-8-
<PAGE> 9
k. Disclosure. All information relating to or concerning the Company set
forth in this Agreement or provided to the Purchasers pursuant to Section 2(d)
hereof and otherwise in connection with the transactions contemplated hereby is
true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or exists with respect to the
Company or its subsidiaries or their respective businesses, properties,
prospects, operations or financial conditions, which has not been publicly
disclosed but, under applicable law, rule or regulation, would be required to be
disclosed by the Company in a registration statement filed on the date hereof by
the Company under the Securities Act with respect to the primary issuance of the
Company's securities.
l. Acknowledgment Regarding Purchasers' Purchase of the Preferred
Shares. The Company acknowledges and agrees that none of the Purchasers is
acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement or the transactions contemplated
hereby, and any advice given by any Purchaser or any of their representatives or
agents in connection with this Agreement and the transactions contemplated
hereby is merely incidental to each Purchaser's purchase of Preferred Shares and
has not been relied upon by the Company in any way. The Company further
represents to each Purchaser that the Company's decision to enter into this
Agreement has been based solely on an independent evaluation by the Company and
its representatives.
m. Form S-3 Eligibility. The Company is currently eligible to register
the resale of its Common Stock on a registration statement on Form S-3 under the
Securities Act. There exist no facts or circumstances that would prohibit or
delay the preparation and filing of a registration statement on Form S-3 with
respect to the Registrable Securities (as defined in the Registration Rights
Agreement).
n. No General Solicitation. Neither the Company nor any distributor
participating on the Company's behalf in the transactions contemplated hereby
(if any) nor any person acting for the Company, or any such distributor, has
conducted any "GENERAL SOLICITATION," as such term is defined in Regulation D,
with respect to any of the Securities being offered hereby.
o. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offerers to
buy any security under circumstances that would require registration of the
Securities being offered hereby under the Securities Act or cause this offering
of Securities to be integrated with any prior offering of securities of the
Company for purposes of the Securities Act or any applicable stockholder
approval provisions.
p. No Brokers. The Company has taken no action which would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by any Purchaser
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<PAGE> 10
relating to this Agreement or the transactions contemplated hereby, except for
dealings with William Blair & Company, L.L.C. whose commissions and fees will be
paid for by the Company.
q. Acknowledgment of Dilution. The number of Conversion Shares issuable
upon conversion of the Preferred Shares may increase in certain circumstances,
including the circumstance wherein the bid price of the Common Stock declines.
The Company acknowledges that its obligation to issue Conversion Shares upon
conversion of the Preferred Shares in accordance with the Certificate of
Designation is absolute and unconditional, regardless of the dilution that such
issuance may have on the ownership interests of other stockholders. Taking the
foregoing into account, the Company's Board of Directors has determined that the
issuance of the Preferred Shares hereunder and the consummation of the other
transactions contemplated hereby are in the best interests of the Company and
its stockholders.
r. Title. The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in Schedule 3(r) or such as do not
materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company and
its subsidiaries. Any real property and facilities held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
materially interfere with the use made and proposed to be made of such property
and buildings by the Company and its subsidiaries.
s. Tax Status. Except as set forth on Schedule 3(s), the Company and
each of its subsidiaries has made or filed all federal and state income and all
other tax returns, reports and declarations required by any jurisdiction to
which it is subject (unless and only to the extent that the Company and each of
its subsidiaries has set aside on its books provisions reasonably adequate for
the payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books a reserve
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim. The Company has not executed a waiver with respect to any statute of
limitations relating to the assessment or collection of any federal, state or
local tax. Except as set forth on Schedule 3(s), none of the Company's tax
returns has been or is being audited by any taxing authority.
4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts timely to
satisfy each of the conditions described in Section 6 and 7 of this Agreement.
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<PAGE> 11
b. Form D: Blue Sky Laws. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Purchaser promptly after such filing. The Company shall, on or
before the Closing Date take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Purchasers
pursuant to this Agreement under applicable securities or "blue sky" laws of the
states of the United States or obtain exemption therefrom, and shall provide
evidence of any such action so taken to the Purchasers on or prior to the
Closing Date.
c. Reporting Status. So long as any Purchaser beneficially owns any of
the Securities, the Company shall timely file all reports required to be filed
with the SEC pursuant to the Exchange Act, and the Company shall not terminate
its status as an issuer required to file reports under the Exchange Act even if
the Exchange Act or the rules and regulations thereunder would permit such
termination.
d. Use of Proceeds. The Company shall use the proceeds from the sale of
the Preferred Shares as set forth in Schedule 4(d).
e. Additional Equity Capital. The Company agrees that during the period
beginning on the date hereof and ending March 31, 1998 (the "LOCK-UP PERIOD"),
the Company will not, without the prior written consent of Purchasers (or their
designated agents) holding at least two thirds (2/3) of the then outstanding
Preferred Shares, contract with any party to obtain additional equity financing
(including any debt financing with an equity component) ("FUTURE OFFERINGS").
The limitation referred to in the immediately preceding sentence is referred to
as the "CAPITAL RAISING LIMITATION." The Capital Raising Limitation shall not
apply to any transaction involving issuances of securities as consideration in a
merger, consolidation or acquisition of assets, or in connection with any
strategic partnership or joint venture (the primary purpose of which is not to
raise equity capital), or as consideration for the acquisition of a business,
product or license by the Company or exercise of options by employees,
consultants or directors. The Capital Raising Limitation also shall not apply
(i) to the issuance of securities pursuant to a firm commitment underwritten
public offering, (ii) so long as the shares of Common Stock underlying such
options, warrants or other securities are reserved for issuance as of the date
hereof, the issuance of securities upon exercise or conversion of the Company's
options, warrants or other convertible securities outstanding as of the date
hereof, (iii) so long as the shares of Common Stock underlying such options,
warrants or other securities are reserved for issuance as of the date hereof,
the grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option or restricted stock plan for the
benefit of the Company's employees, consultants or directors in existence as of
the date hereof or (iv) Future Offerings in an aggregate amount less than or
equal to three million dollars ($3,000,000.00). In the event the Company
conducts any Future Offering during the Lock-Up Period, the Company shall not
permit any securities issued in such Future Offering to any person or entity
which is not a Purchaser (or any securities issuable upon conversion, exercise,
exchange or redemption of any such securities) to be registered for sale under
the Securities Act until after January 15, 1998 (subject to extension as
provided below) (the "FUTURE OFFERING REGISTRATION DATE"). The restriction
contained in the immediately preceding sentence is in addition to the Capital
-11-
<PAGE> 12
Raising Limitation but shall not apply to a firm committment underwritten public
offering. In the event that the registration statement required to be filed
pursuant to the Registration Rights Agreement shall not have been (a) filed on
or before the fifteenth (15th) day after the date hereof or (b) declared
effective on or before the sixtieth (60th) day after the date hereof, then, for
each additional day required to satisfy either of the preceding deadlines, the
Future Offering Registration Date shall be extended by one day.
f. Expenses. Except as otherwise provided in Section 5 of the
Registration Rights Agreement, each party hereto shall be responsible for its
own expenses incurred in connection with the negotiation, preparation,
execution, delivery and performance of this Agreement and the other agreements
to be executed in connection herewith; provided, however, that the Company shall
pay on the Closing Date the fees and expenses (in an amount not to exceed
$35,000) of Klehr, Harrison, Harvey, Branzburg & Ellers incurred in connection
with the negotiation, documentation and execution of this Agreement and the
transactions contemplated hereby.
g. Financial Information. The Company agrees to send the following
reports to each Purchaser until such Purchaser transfers, assigns or sells all
of its Securities: (i) within ten (10) days after the filing with the SEC, a
copy of its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, its
proxy statements and any Current Reports on Form 8-K; and (ii) within one (1)
day after release, copies of all press releases issued by the Company or any of
its subsidiaries.
h. Reservation of Shares. The Company shall at all times have authorized
and reserved for the purpose of issuance a sufficient number of shares of Common
Stock to provide for the full conversion of the outstanding Preferred Shares and
issuance of the Conversion Shares in connection therewith and as otherwise
required by the Certificate of Designation.
i. Listing. The Company shall promptly secure the listing of the
Conversion Shares upon NASDAQ and each other national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of all
Conversion Shares from time to time issuable upon conversion of the Preferred
Shares. The Company will use its best efforts to continue the listing and
trading of its Common Stock on the NASDAQ, the New York Stock Exchange ("NYSE")
or the American Stock Exchange ("AMEX") and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the National Association of Securities Dealers ("NASD") and such exchanges, as
applicable. The Company shall promptly provide to each holder of Preferred
Shares copies of any notices it receives regarding the continued eligibility of
the Common Stock for trading in the over-the-counter market (including the
NASDAQ) or, if applicable, any securities exchange on which securities of the
same class or series issued by the Company are then listed or quoted, if any.
j. Corporate Existence. So long as a Purchaser beneficially owns any
Preferred Shares, the Company shall maintain its corporate existence, and in the
event of a merger, consolidation or sale of all or substantially all of the
Company's assets, the Company shall ensure that the surviving
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<PAGE> 13
or successor entity in such transaction (i) assumes the Company's obligations
hereunder and under the Certificate of Designation and the agreements and
instruments entered into in connection herewith regardless of whether or not the
Company would have had a sufficient number of shares of Common Stock authorized
and available for issuance in order to effect the conversion of all Preferred
Shares outstanding as of the date of such transaction and (ii) is a publicly
traded corporation whose common stock is listed for trading on the Nasdaq, NYSE
or AMEX. For the avoidance of doubt, if the Company effects a redemption of
Preferred Shares pursuant to and in accordance with the provisions of Article
VIII.D of the Certificate of Designation, immediately thereafter, no Purchaser
will beneficially own any Preferred Shares and the conditions of this Section
4(j) need not be satisfied with respect to such immediately ensuing merger,
consolidation or sale of all or substantially all of the Company's assets.
k. No Integrated Offerings. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
Securities Act or cause this offering of Securities to be integrated with any
other offering of securities by the Company for purposes of NASDAQ Rule 4460(i).
l. Short Sales. Except as otherwise provided herein, no Purchaser shall
create a "short position" in the Common Stock at any time during the period
following the date hereof until the earlier to occur of (i) the 90th day after
the Closing Date and (ii) the date on which the Registration Statement required
to be filed by the Company pursuant to Section 2(a) of the Registration Rights
Agreement is declared effective. For purposes hereof, a "short position" shall
be deemed to have been created by a Purchaser if such Purchaser (i) enters into
a "short sale" (as such term is defined in Rule 3b-3 under the Exchange Act),
(ii) purchases a put option to sell shares of Common Stock or (iii) enters into
any other agreement or arrangement designed to achieve the same purposes or
effects as those to be derived from the transactions enumerated in clauses (i)
or (ii) of this sentence.
m. Intentionally omitted.
n. Low Bid Price. No Purchaser shall create a Closing Bid Price (as
defined in the Certificate of Designation) for the Common Stock which is used to
determine the Variable Conversion Price (as defined in the Certificate of
Designation) for any conversion of Preferred Shares by such Purchaser.
o. Stockholder Approval. At the next annual or special meeting of the
stockholders of the Company, which meeting shall be held no later than June 10,
1998, the Company shall use its best efforts to obtain such approvals of the
Company's stockholders as may be required to issue all of the shares of Common
Stock issuable upon conversion of, or otherwise with respect to, the Preferred
Shares without violating NASD Rule 4460(i) (or any successor rule thereto which
may then be in effect). The Company shall comply with the filing and disclosure
requirements of Section 14 promulgated under the Exchange Act in connection with
the solicitation, acquisition and disclosure of such stockholder approval. The
Company represents and warrants that its Board of
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<PAGE> 14
Directors has unanimously recommended that the Company's stockholders approve
the proposals contemplated by this Section 4(o) and shall use its best efforts
to cause such recommendation to be included in the proxy statement used to
solicit such stockholder approval.
5. TRANSFER AGENT INSTRUCTIONS.
a. The Company shall instruct its transfer agent to issue certificates,
registered in the name of each Purchaser or its nominee, for the Conversion
Shares in such amounts as specified from time to time by such Purchaser to the
Company upon conversion of the Preferred Shares. To the extent and during the
periods provided in Section 2(f) and 2(g) of this Agreement, all such
certificates shall bear the restrictive legend specified in Section 2(g) of this
Agreement.
b. The Company warrants that no instruction other than such instructions
referred to in this Section 5, and stop transfer instructions to give effect to
Section 2(f) hereof in the case of the transfer of the Conversion Shares prior
to registration of the Conversion Shares under the Securities Act or without an
exemption therefrom, will be given by the Company to its transfer agent and that
the Securities shall otherwise be freely transferable on the books and records
of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section shall affect in any way
each Purchaser's obligations and agreement set forth in Section 2(g) hereof to
resell the Securities pursuant to an effective registration statement or in
compliance with an exemption from the registration requirements of applicable
securities law.
c. If a Purchaser provides the Company with an opinion of counsel, which
opinion of counsel shall be in form, substance and scope customary for opinions
of counsel in comparable transactions, to the effect that the Securities to be
sold or transferred may be sold or transferred pursuant to an exemption from
registration, or a Purchaser provides the Company with reasonable assurances
that such Securities may be sold under Rule 144, or a Purchaser desires to sell
or transfer the Securities to an affiliate of Purchaser, the Company shall
permit the transfer, and, in the case of the Conversion Shares promptly instruct
its transfer agent to issue one or more certificates in such name and in such
denominations as specified by a Purchaser.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Preferred
Shares to a Purchaser hereunder is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion. The obligation of the Company to issue and
sell the Preferred Shares to any Purchaser hereunder is distinct and separate
from its obligation to issue and sell Preferred Shares to any other Purchaser
hereunder and any failure by one or more Purchasers to fulfill the conditions
set forth herein or to consummate the purchase of Preferred Shares hereunder
will not relieve the Company of its obligations with respect to any other
Purchaser.
-14-
<PAGE> 15
a. The applicable Purchaser shall have executed the signature page to
this Agreement and the Registration Rights Agreement, and delivered the same to
the Company.
b. The applicable Purchaser shall have delivered the Purchase Price for
the Preferred Shares in accordance with Section 1(b) above.
c. The representations and warranties of the applicable Purchaser shall
be true and correct as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date, which representations and warranties shall be true and
correct as of such date), and the applicable Purchaser shall have performed,
satisfied and complied in all material respects with the covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the applicable Purchaser at or prior to the Closing Date.
d. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
7. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE.
The obligation of each Purchaser hereunder to purchase the Preferred
Shares to be purchased by it at the Closing is subject to the satisfaction, at
or before the Closing Date, of each of the following conditions, provided that
these conditions are for such Purchaser's sole benefit and may be waived by such
Purchaser at any time in the Purchaser's sole discretion:
a. The Company shall have executed the signature page to this Agreement
and the Registration Rights Agreement, and delivered the same to such Purchaser.
b. The Certificate of Designation shall have been accepted for filing
with the Secretary of State of the State of Delaware and a copy thereof
certified by the Secretary of State of Delaware shall have been delivered to
such Purchaser.
c. The Company shall have delivered to such Purchaser duly executed
certificates (in such denominations as such Purchaser shall request)
representing the Preferred Shares being so purchased by such Purchaser in
accordance with Section 1(b) above.
d. The Common Stock shall be authorized for quotation on NASDAQ and
trading in the Common Stock (or NASDAQ generally) shall not have been suspended
by the SEC or the NASD.
e. The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Closing Date as though made at
that time (except for representations
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<PAGE> 16
and warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. Such Purchaser
shall have received a certificate, executed by the Chief Executive Officer of
the Company, dated as of the Closing Date to the foregoing effect and as to such
other matters as may be reasonably requested by such Purchaser.
f. No statute, rule, regulation, executive order, decree, ruling,
injunction, action or proceeding shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent jurisdiction or
any self-regulatory organization having authority over the matters contemplated
hereby which questions the validity of, challenges or prohibits the consummation
of any of the transactions contemplated by this Agreement.
g. Such Purchaser shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Purchaser and in substantially the form of Exhibit C
attached hereto.
h. The Company shall have delivered evidence reasonably satisfactory to
the Purchasers that the Company's transfer agent has agreed to act in accordance
with irrevocable instructions in the form attached hereto as Exhibit D.
i. The aggregate number of Preferred Shares being purchased hereunder by
all Purchasers hereunder shall be 7,000.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Company and the
Purchasers irrevocably consent to the exclusive jurisdiction of the United
States federal and state courts located in the State of Delaware in any suit or
proceeding based on or arising under this Agreement and irrevocably agrees that
all claims in respect of such suit or proceeding may be determined in such
courts. The Company irrevocably waives the defense of an inconvenient forum to
the maintenance of such suit or proceeding. Service of process on the Company
mailed by first class mail shall be deemed in every respect effective service of
process upon the Company in any such suit or proceeding. Nothing herein shall
affect the right of any Purchaser to serve process in any other manner permitted
by law. The Company agrees that a final non-appealable judgment in any such suit
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
b. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts
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<PAGE> 17
have been signed by each party and delivered to the other party. This Agreement,
once executed by a party, may be delivered to the other parties hereto by
facsimile transmission of a copy of this Agreement bearing the signature of the
party so delivering this Agreement. In the event any signature is delivered by
facsimile transmission, the party using such means of delivery shall cause the
manually executed Execution Page(s) to be physically delivered to the other
party within five (5) days of the execution hereof.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein. No provision of this Agreement may be
waived other than by an instrument in writing signed by the party to be charged
with enforcement and no provision of this Agreement may be amended other than by
an instrument in writing signed by the Company and each Purchaser.
f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier or confirmed telecopy, in each case addressed to a party. The addresses
for such communications shall be:
If to the Company:
InSite Vision Incorporated
965 Atlantic Avenue
Alameda, California 94501
Telecopy: (510) 865-5715
Attn: President
with a copy to:
Brobeck, Phleger & Harrison, L.L.P.
2200 Geng Road
Two Embarcadero Place
Palo Alto, California 94303
Telecopy: (415) 496-2736
Attn: J. Stephan Dolezalek
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<PAGE> 18
If to any Purchaser, to such address set forth under such Purchaser's
name on the Execution Page hereto executed by such Purchaser.
Each party shall provide notice to the other parties of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Except as
provided herein, neither the Company nor any Purchaser shall assign this
Agreement or any rights or obligations hereunder. Notwithstanding the foregoing,
any Purchaser may assign its rights hereunder to any of its "AFFILIATES," as
that term is defined under the Exchange Act, without the consent of the Company
or to any other person or entity with the consent of the Company. This provision
shall not limit a Purchaser's right to transfer the Securities pursuant to the
terms of the Certificate of Designation and this Agreement or to assign such
Purchaser's rights hereunder to any such transferee.
h. Third Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and assigns, and
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.
i. Survival. The representations and warranties of the Company and the
agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive the
closing hereunder notwithstanding any due diligence investigation conducted by
or on behalf of any Purchasers. Moreover, none of the representations and
warranties made by the Company herein shall act as a waiver of any rights or
remedies a Purchaser may have under applicable federal or state securities laws.
The Company agrees to indemnify and hold harmless each Purchaser and each of
such Purchaser's officers, directors, employees, partners, members, agents and
affiliates for loss or damage arising as a result of or related to any breach or
alleged breach by the Company of any of its representations or covenants set
forth herein, including advancement of expenses as they are incurred.
j. Publicity. The Company and each Purchaser shall have the right to
approve before issuance any press releases, SEC, NASDAQ or NASD filings, or any
other public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of the Purchasers, to make any press release or SEC, NASDAQ or NASD
filings with respect to such transactions as is required by applicable law and
regulations (although the Purchasers shall be consulted by the Company in
connection with any such press release prior to its release and shall be
provided with a copy thereof).
k. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
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<PAGE> 19
l. Termination. In the event that the Closing Date shall not have
occurred on or before September 12, 1997, unless the parties agree otherwise,
this Agreement shall terminate at the close of business on such date.
Notwithstanding any termination of this Agreement, any party not in breach of
this Agreement shall preserve all rights and remedies it may have against
another party hereto for a breach of this Agreement prior to or relating to the
termination hereof.
m. Joint Participation in Drafting. Each party to this Agreement has
participated in the negotiation and drafting of this Agreement. As such, the
language used herein shall be deemed to be the language chosen by the parties
hereto to express their mutual intent, and no rule of strict construction will
be applied against any party to this Agreement.
n. Equitable Relief. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to a Purchaser by vitiating
the intent and purpose of the transactions contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
hereunder (including, but not limited to, its obligations pursuant to Section 5
hereof) will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Agreement (including, but not
limited to, its obligations pursuant to Section 5 hereof), that a Purchaser
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 20
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.
INSITE VISION INCORPORATED
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
PURCHASER:
CAPITAL VENTURES INTERNATIONAL
By: Heights Capital Management, its authorized agent
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
RESIDENCE: Cayman Islands
ADDRESS: c/o Heights Capital Management
425 California Street
Suite 1100
San Francisco, CA 94104
Telecopy: (415) 403-6525
Attn: Michael Spolan
AGGREGATE SUBSCRIPTION AMOUNT
Number of Preferred Shares to be Purchased: 2,800
Purchase Price ($1,000 per Preferred Share): $2,800,000.00
<PAGE> 21
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.
INSITE VISION INCORPORATED
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
PURCHASER:
PROPRIETARY CONVERTIBLE INVESTMENT GROUP, INC.
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
RESIDENCE:
-----------------------------
ADDRESS: 11 Madison Avenue
New York, NY 10010
Telecopy: (212) 325-6519
Attn: Allan D. Weine
AGGREGATE SUBSCRIPTION AMOUNT
Number of Preferred Shares to be Purchased: 2,250
Purchase Price ($1,000 per Preferred Share): $2,250,000.00
<PAGE> 22
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.
INSITE VISION INCORPORATED
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
PURCHASER:
SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.
By:
------------------------------------
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
RESIDENCE:
-----------------------------
ADDRESS: 153 E. 53rd Street
51st Floor
New York, NY 10022
AGGREGATE SUBSCRIPTION AMOUNT
Number of Preferred Shares to be Purchased: 1,650
Purchase Price ($1,000 per Preferred Share): $1,650,000.00
<PAGE> 23
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.
INSITE VISION INCORPORATED
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
PURCHASER:
HULL OVERSEAS, LTD.
By:
------------------------------------
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
RESIDENCE:
-----------------------------
ADDRESS:
-------------------------------
-------------------------------
-------------------------------
AGGREGATE SUBSCRIPTION AMOUNT
Number of Preferred Shares to be Purchased: 200
Purchase Price ($1,000 per Preferred Share): $200,000.00
<PAGE> 24
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.
INSITE VISION INCORPORATED
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
PURCHASER:
BANQUE du CREDIT AGRICOLE
By:
------------------------------------
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
RESIDENCE:
-----------------------------
ADDRESS:
-------------------------------
-------------------------------
-------------------------------
AGGREGATE SUBSCRIPTION AMOUNT
Number of Preferred Shares to be Purchased: 100
Purchase Price ($1,000 per Preferred Share): $100,000.00
<PAGE> 1
EXHIBIT B
TO
SECURITIES PURCHASE
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of September
12, 1997 by and among INSITE VISION INCORPORATED, a corporation organized under
the laws of the State of Delaware, with headquarters located at 965 Atlantic
Avenue, Alameda, California 94501 (the "COMPANY"), and the undersigned (together
with affiliates, the "INITIAL INVESTORS").
WHEREAS:
A. In connection with the Securities Purchase Agreement of even date
herewith by and between the Company and the Initial Investors (the "SECURITIES
PURCHASE AGREEMENT"), the Company has agreed, upon the terms and subject to the
conditions contained therein, to issue and sell to the Initial Investors shares
of its Series A Convertible Preferred Stock (the "PREFERRED STOCK") that is
convertible into shares (the "CONVERSION SHARES") of the Company's common stock,
par value $.01 per share (the "COMMON STOCK"), upon the terms and subject to the
limitations and conditions set forth in the Certificate of Designations, Rights
and Preferences with respect to such Preferred Stock (the "CERTIFICATE OF
DESIGNATION");
B. To induce the Initial Investors to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"SECURITIES ACT"), and applicable state securities laws; and
C. In connection with the transactions contemplated by the Securities
Purchase Agreement, the Company has issued William Blair & Company, L.L.C. (the
"PLACEMENT AGENT") warrants (the "WARRANTS") to purchase Preferred Stock that is
convertible into Conversion Shares and has agreed to provide the Placement Agent
the rights set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investors hereby agree as follows:
<PAGE> 2
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have the
following meanings:
(i) "INVESTORS" means the Initial Investors and any
transferees or assignees who agree to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "REGISTER," "REGISTERED," and "REGISTRATION" refer to
a registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("RULE 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(iii) "REGISTRABLE SECURITIES" means the Conversion Shares
(including any Conversion Shares issuable with respect to Conversion Default
Payments under the Certificate of Designation or in redemption of any Preferred
Stock) issued or issuable with respect to the Preferred Stock and any shares of
capital stock issued or issuable, from time to time (with any adjustments), as a
distribution on or in exchange for or otherwise with respect to any of the
foregoing.
(iv) "REGISTRATION STATEMENT" means a registration
statement of the Company under the Securities Act.
b. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Securities Purchase
Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, on or
before the thirtieth (30th) day after the date hereof, file with the SEC a
Registration Statement on Form S-3 (or, if Form S-3 is not then available, on
such form of Registration Statement as is then available to effect a
registration of all of the Registrable Securities, subject to the consent of the
Initial Investors (as determined pursuant to Section 11(j) hereof)) covering the
resale of at least 2,600,000 Registrable Securities, which Registration
Statement, to the extent allowable under the Securities Act and the Rules
promulgated thereunder (including Rule 416), shall state that such Registration
Statement also covers such indeterminate number of additional shares of Common
Stock as may become issuable upon conversion of the Preferred Stock (i) to
prevent dilution resulting from stock splits, stock dividends or similar
transactions or (ii) by reason of reductions in the Conversion Price of the
Preferred Stock in accordance with the terms thereof, including, but not limited
to, the terms which cause the Variable Conversion Price to decrease as the bid
price of the Common Stock decreases. The Registrable Securities included in the
Registration Statement shall be allocated to the Investors
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<PAGE> 3
as set forth in Section 11(k) hereof. The Registration Statement (and each
amendment or supplement thereto, and each request for acceleration of
effectiveness thereof) shall be provided to (and subject to the approval of) the
Initial Investors and their counsel prior to its filing or other submission.
b. Underwritten Offering. If any offering pursuant to a
Registration Statement pursuant to Section 2(a) hereof involves an underwritten
offering, the Investors who hold a majority in interest of the Registrable
Securities subject to such underwritten offering, with the consent of the
Initial Investors, shall have the right to select one legal counsel to represent
the Investors and an investment banker or bankers and manager or managers to
administer the offering, which investment banker or bankers or manager or
managers shall be reasonably satisfactory to the Company. In the event that any
Investors elect not to participate in such underwritten offering, the
Registration Statement covering all of the Registrable Securities shall contain
appropriate plans of distribution reasonably satisfactory to the Investors
participating in such underwritten offering and the Investors electing not to
participate in such underwritten offering (including, without limitation, the
ability of nonparticipating Investors to sell from time to time and at any time
during the effectiveness of such Registration Statement).
c. Payments by the Company. The Company shall cause the
Registration Statement required to be filed pursuant to Section 2(a) hereof to
become effective as soon as practicable, but in no event later than December 11,
1997. If (i) the Registration Statement(s) covering the Registrable Securities
required to be filed by the Company pursuant to Section 2(a) hereof is not
declared effective by the SEC on or before December 11, 1997 (the "REGISTRATION
DEADLINE") or if, after the Registration Statement has been declared effective
by the SEC, sales of all the Registrable Securities (including any Registrable
Securities required to be registered pursuant to Section 3(b) hereof) cannot be
made pursuant to the Registration Statement (by reason of a stop order or the
Company's failure to update the Registration Statement or any other reason
outside the control of the Investors) or (ii) the Common Stock is not listed or
included for quotation on the Nasdaq National Market ("NASDAQ"), the New York
Stock Exchange (the "NYSE") or the American Stock Exchange (the "AMEX") at any
time after the Registration Deadline, then the Company will make payments to the
Investors in such amounts and at such times as shall be determined pursuant to
this Section 2(c) as partial relief for the damages to the Investors by reason
of any such delay in or reduction of their ability to sell the Registrable
Securities (which remedy shall not be exclusive of any other remedies available
at law or in equity). The Company shall pay to each Investor an amount equal to
the product of (i) the aggregate Purchase Price of the Preferred Stock held by
such Investor (including, without limitation, Preferred Stock that has been
converted into Conversion Shares then held by such Investor) (the "AGGREGATE
SHARE PRICE") multiplied by (ii) two hundredths (.02) multiplied by (iii) the
sum of: (y) the number of months (prorated for partial months) after the
Registration Deadline and prior to the date the Registration Statement filed
pursuant to Section 2(a) is declared effective by the SEC and (z) the number of
months (prorated for partial months) that sales of any Registrable Securities
cannot be made pursuant to the Registration Statement after the Registration
Statement has been declared effective or the Common Stock is not listed or
included for quotation on Nasdaq, the NYSE or AMEX; provided, however that there
shall be excluded from each such period any delays which are solely attributable
to changes (other than corrections of
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<PAGE> 4
Company mistakes with respect to information previously provided by the
Investors) required by the Investors in the Registration Statement with respect
to information relating to the Investors, including, without limitation, changes
to the plan of distribution. (For example, if the Registration Statement is not
effective by the Registration Deadline, the Company would pay $20,000 per month
for each $1,000,000 of Aggregate Share Price until the Registration Statement
becomes effective.) Such amounts shall be paid in cash or, at each Investor's
option, may be convertible into Common Stock at the "CONVERSION PRICE" (as
defined in the Certificate of Designation). Any shares of Common Stock issued
upon conversion of such amounts shall be Registrable Securities. If the Investor
desires to convert the amounts due hereunder into Registrable Securities it
shall so notify the Company in writing within two (2) business days after the
date on which such amounts are first payable in cash and such amounts shall be
so convertible (pursuant to the mechanics set forth under Article IV of the
Certificate of Designation), beginning on the last day upon which the cash
amount would otherwise be due in accordance with the following sentence.
Payments of cash pursuant hereto shall be made within five (5) days after the
end of each period that gives rise to such obligation, provided that, if any
such period extends for more than thirty (30) days, interim payments shall be
made for each such thirty (30) day period.
d. Piggy-Back Registrations. If at any time prior to the
expiration of the Registration Period (as hereinafter defined) the Company shall
file with the SEC a Registration Statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities (other than on Form S-4 or Form S-8 or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans), the Company shall
send to each Investor who is entitled to registration rights under this Section
2(d) written notice of such determination and, if within fifteen (15) days after
the date of such notice, such Investor shall so request in writing, the Company
shall include in such Registration Statement all or any part of the Registrable
Securities such Investor requests to be registered, except that if, in
connection with any underwritten public offering for the account of the Company
the managing underwriter(s) thereof shall impose a limitation on the number of
shares of Common Stock which may be included in the Registration Statement
because, in such underwriter(s)' judgment, marketing or other factors dictate
such limitation is necessary to facilitate public distribution, then the Company
shall be obligated to include in such Registration Statement only such limited
portion of the Registrable Securities with respect to which such Investor has
requested inclusion hereunder as the underwriter shall permit. Any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking to
include Registrable Securities, in proportion to the number of Registrable
Securities sought to be included by such Investors; provided, however, that the
Company shall not exclude any Registrable Securities unless the Company has
first excluded all outstanding securities, the holders of which are not entitled
to inclusion of such securities in such Registration Statement or are not
entitled to pro rata inclusion with the Registrable Securities; and provided,
further, however, that, after giving effect to the immediately preceding
proviso, any exclusion of Registrable Securities shall be made pro rata with
holders of other securities having the right to include such securities in the
Registration Statement other than holders of securities entitled to inclusion of
their securities in such Registration Statement by reason of demand registration
rights.
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<PAGE> 5
No right to registration of Registrable Securities under this Section 2(d) shall
be construed to limit any registration required under Section 2(a) hereof. If an
offering in connection with which an Investor is entitled to registration under
this Section 2(d) is an underwritten offering, then each Investor whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering.
e. Eligibility for Form S-3. The Company represents and warrants
that it meets the requirements for the use of Form S-3 for registration of the
sale by the Initial Investors and any other Investor of the Registrable
Securities and the Company shall file all reports required to be filed by the
Company with the SEC in a timely manner so as to maintain such eligibility for
the use of Form S-3.
f. Rule 416. The Company and the Investors each acknowledge that
an indeterminate number of Registrable Securities shall be registered pursuant
to Rule 416 under the Securities Act so as to include in such Registration
Statement any and all Registrable Securities which may become issuable (i) to
prevent dilution resulting from stock splits, stock dividends or similar
transactions and (ii) by reason of reductions in the Conversion Price of the
Preferred Stock in accordance with the terms thereof, including, but not limited
to, the terms which cause the Variable Conversion Price to decrease as the bid
price of the Common Stock decreases (collectively, the "RULE 416 SECURITIES").
In this regard, the Company agrees to take all steps necessary to ensure that
the maximum number of Registrable Securities which may be registered pursuant to
Rule 416 under the Securities Act are covered by the Registration Statement and,
absent guidance from the SEC or other definitive authority to the contrary, the
Company shall affirmatively support and not take any action adverse to the
position that the Registration Statements filed hereunder cover all of the Rule
416 Securities. If the Company determines that the Registration Statements filed
hereunder do not cover all of the Rule 416 Securities, the Company shall
immediately provide to each Investor written notice (a "RULE 416 NOTICE")
setting forth the basis for the Company's position and the authority therefor.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall prepare promptly and file with the SEC the
Registration Statement required by Section 2(a), and cause such Registration
Statement relating to Registrable Securities to become effective as soon as
practicable after such filing, but in no event later than the Registration
Deadline, and keep the Registration Statement effective pursuant to Rule 415 at
all times until such date as is the earlier of (i) the date on which all of the
Registrable Securities have been sold and (ii) the date on which all of the
Registrable Securities (in the reasonable opinion of
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<PAGE> 6
counsel to the Initial Investors) may be immediately sold to the public without
registration under Rule 144(k) under the Securities Act (the "REGISTRATION
PERIOD"), which Registration Statement (including any amendments or supplements
thereto and prospectuses contained therein and all documents incorporated by
reference therein) shall not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein, or necessary to
make the statements therein not misleading.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary to keep the Registration Statement
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the Securities Act with respect to the disposition
of all Registrable Securities of the Company covered by the Registration
Statement until such time as all of such Registrable Securities have been
disposed of in accordance with the intended methods of disposition by the seller
or sellers thereof as set forth in the Registration Statement. In the event (i)
the Company delivers a Rule 416 Notice to the Investors or the Investors who
hold a majority in interest of the Registrable Securities shall reasonably
determine or the SEC shall state formally or informally that Rule 416 under the
Securities Act does not permit a registration statement to cover securities
which may become issuable upon conversion or exercise of convertible or
exercisable securities by reason of reductions in the conversion or exercise
price of such securities and (ii) the number of shares available under a
Registration Statement filed pursuant to this Agreement is, for any three (3)
consecutive trading days (the last of such three (3) trading days being the
"REGISTRATION TRIGGER DATE"), insufficient to cover one hundred twenty-five
percent (125%) of the Registrable Securities issued or issuable upon conversion
(without giving effect to any limitations on conversion contained in Article
IV.C of the Certificate of Designation) of the Preferred Stock (including the
Preferred Stock issuable upon exercise of the Warrants), the Company shall amend
the Registration Statement, or file a new Registration Statement (on the short
form available therefor, if applicable), or both, so as to cover one hundred
fifty percent (150%) of the Registrable Securities issued or issuable (without
giving effect to any limitations on conversion contained in Article IV.C of the
Certificate of Designation) as of the Registration Trigger Date, in each case,
as soon as practicable, but in any event within fifteen (15) days after the
Registration Trigger Date (based on the market price then in effect of the
Common Stock and other relevant factors on which the Company reasonably elects
to rely); provided, however, that, to the extent that the Company would
otherwise be required to register the resale of a number of Registrable
Securities in excess of the Cap Amount (as defined in Article IV.C(i) of the
Certificate of Designation), the Company shall not be required to register that
number of Registrable Securities which exceeds the Cap Amount until on or before
June 30, 1998. The Company shall cause such amendment and/or new Registration
Statement to become effective as soon as practicable following the filing
thereof. In the event the Company fails to obtain the effectiveness of any such
Registration Statement within sixty (60) days after a Registration Trigger Date
(or June 30, 1998, if applicable), each Investor shall thereafter have the
option, exercisable in whole or in part at any time and from time to time by
delivery of a written notice to the Company (a "REDEMPTION NOTICE"), to require
the Company to purchase for cash, at an amount per share equal to the Redemption
Amount (as defined in Article VIII.B of the Certificate of Designation), a
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<PAGE> 7
portion of the Investor's Preferred Stock such that the total number of
Registrable Securities included on the Registration Statement for resale by such
Investor exceeds all of the Registrable Securities issued or issuable upon
conversion (without giving effect to any limitations on conversion contained in
Article IV.C of the Certificate of Designation) of such Investor's Preferred
Stock (including such Preferred Stock as may be issuable upon exercise of such
Investor's Warrants). If the Corporation fails to redeem any of such shares
within five (5) business days after its receipt of a Redemption Notice, then
such Investor shall be entitled to the remedies provided in Article VIII.C of
the Certificate of Designation.
c. The Company shall furnish to each Investor whose Registrable
Securities are included in the Registration Statement and its legal counsel (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of the Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statement referred
to in Section 2(a), each letter written by or on behalf of the Company to the
SEC or the staff of the SEC (including, without limitation, any request to
accelerate the effectiveness of any Registration Statement or amendment
thereto), and each item of correspondence from the SEC or the staff of the SEC,
in each case relating to such Registration Statement (other than any portion, if
any, thereof which contains information for which the Company has sought
confidential treatment), (ii) on the date of effectiveness of the Registration
Statement or any amendment thereto, a notice stating that the Registration
Statement or amendment has been declared effective, and (iii) such number of
copies of a prospectus, including a preliminary prospectus, and all amendments
and supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor.
d. The Company shall use its best efforts to (i) register and
qualify the Registrable Securities covered by the Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as each Investor who holds Registrable Securities being offered
reasonably requests, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (a) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (b) subject itself to general taxation in any such
jurisdiction, (c) file a general consent to service of process in any such
jurisdiction, (d) provide any undertakings that cause the Company undue expense
or burden, or (e) make any change in its charter or bylaws, which in each case
the Board of Directors of the Company determines to be contrary to the best
interests of the Company and its stockholders.
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<PAGE> 8
e. In the event the Investors who hold a majority in interest of
the Registrable Securities being offered in an offering select underwriters for
the offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.
f. As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor of the happening of any event, of
which the Company has knowledge, as a result of which the prospectus included in
the Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its best
efforts promptly to prepare a supplement or amendment to the Registration
Statement to correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to each Investor as such Investor may
reasonably request.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest practicable moment (including in each
case by amending or supplementing such Registration Statement) and to notify
each Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance of such
order and the resolution thereof (and if such Registration Statement is
supplemented or amended, deliver such number of copies of such supplement or
amendment to each Investor as such Investor may reasonably request).
h. The Company shall permit a single firm of counsel designated
by the Initial Investors to review the Registration Statement and all amendments
and supplements thereto a reasonable period of time prior to their filing with
the SEC, and not file any document in a form to which such counsel reasonably
objects.
i. The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the Securities Act) covering a
twelve-month period beginning not later than the first day of the Company's
fiscal quarter next following the effective date of the Registration Statement.
j. At the request of any Investor, the Company shall furnish, on
the date of effectiveness of the Registration Statement (i) an opinion, dated as
of such date, from counsel representing the Company addressed to the Investors
and in form, scope and substances as is customarily given in an underwritten
public offering and (ii) in the case of an underwriting, a letter, dated such
date, from the Company's independent certified public accountants in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and the Investors.
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<PAGE> 9
k. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Investors, and (iv) one firm of attorneys
retained by all such underwriters (collectively, the "INSPECTORS") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "RECORDS"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence; provided, however, that each Inspector shall
hold in confidence and shall not make any disclosure (except to an Investor) of
any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (b) the release of such
Records is ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction, or (c) the information in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall not be required
to disclose any confidential information in such Records to any Inspector until
and unless such Inspector shall have entered into confidentiality agreements (in
form and substance satisfactory to the Company) with the Company with respect
thereto, substantially in the form of this Section 3(k). Each Investor agrees
that it shall, upon learning that disclosure of such Records is sought in or by
a court or governmental body of competent jurisdiction or through other means,
give prompt notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, the Records deemed confidential. Nothing herein shall be deemed to
limit the Investors' ability to sell Registrable Securities in a manner which is
otherwise consistent with applicable laws and regulations.
l. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement, or (v) such Investor
consents to the form and content of any such disclosure. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
m. The Company shall use its best efforts to promptly either (i)
cause all the Registrable Securities covered by the Registration Statement to be
listed on the NYSE or the AMEX or another national securities exchange and on
each additional national securities exchange on which
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<PAGE> 10
securities of the same class or series issued by the Company are then listed, if
any, if the listing of such Registrable Securities is then permitted under the
rules of such exchange, or (ii) secure the designation and quotation, of all the
Registrable Securities covered by the Registration Statement on the Nasdaq and,
without limiting the generality of the foregoing, to arrange for or maintain at
least two market makers to register with the National Association of Securities
Dealers, Inc. ("NASD") as such with respect to such Registrable Securities.
n. The Company shall provide a transfer agent and registrar,
which may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request, and, within three (3)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver, to the transfer agent
for the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an opinion of such
counsel in the form attached hereto as EXHIBIT 1.
p. At the request of any Investor, the Company shall prepare and
file with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and the prospectus used in connection
with the Registration Statement as may be necessary in order to change the plan
of distribution set forth in such Registration Statement.
q. The Company shall comply with all applicable laws related to
a Registration Statement and offering and sale of securities and all applicable
rules and regulations of governmental authorities in connection therewith
(including without limitation the Securities Act and the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated by the SEC.)
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
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Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least five (5)
business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor.
b. Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement.
c. In the event Investors holding a majority in interest of the
Registrable Securities being offered determine to engage the services of an
underwriter, each Investor agrees to enter into and perform such Investor's
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities, unless such Investor has notified the
Company in writing of such Investor's election not to participate in such
underwritten distribution.
d. Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(f)
or 3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten distribution
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements in usual and
customary form entered into by the Company, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements, and (iii) agrees to pay its pro rata share of all underwriting
discounts and commissions and any expenses in excess of those payable by the
Company pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, the
11
<PAGE> 12
fees and disbursements of counsel for the Company, the fees and disbursements
contemplated by Section 3(j) hereof, and the reasonable fees and disbursements
of one counsel selected by the Investors pursuant to Section 2(b) hereof shall
be borne by the Company. In addition, the Company shall pay all of the
Investors' costs and expenses (including legal fees) incurred in connection with
the enforcement of the rights of the Investors hereunder.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify,
hold harmless and defend (i) each Investor who holds such Registrable
Securities, and (ii) the directors, officers, partners, members, employees,
agents and each person who controls any Investor within the meaning of Section
15 of the Securities Act or Section 20 of the Securities Exchange Act of 1934,
as amended (the "EXCHANGE ACT"), if any, (each, an "INDEMNIFIED PERSON"),
against any joint or several losses, claims, damages, liabilities or expenses
(collectively, together with actions, proceedings or inquiries by any regulatory
or self-regulatory organization, whether commenced or threatened, in respect
thereof, "CLAIMS") to which any of them may become subject insofar as such
Claims arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact in a Registration Statement or the omission
or alleged omission to state therein a material fact required to be stated or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities (the matters in the foregoing clauses (i) through (iii) being,
collectively, "VIOLATIONS"). Subject to the restrictions set forth in Section
6(c) with respect to the number of legal counsel, the Company shall reimburse
the Investors and each other Indemnified Person, promptly as such expenses are
incurred and are due and payable, for any reasonable legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person expressly for use in the Registration
Statement or any such amendment thereof or supplement thereto; (ii) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld; and (iii) with respect to any preliminary prospectus,
shall not inure to the benefit of any Indemnified Person if the untrue statement
or omission of material fact contained in the preliminary prospectus
12
<PAGE> 13
was corrected on a timely basis in the prospectus, as then amended or
supplemented, if such corrected prospectus was timely made available by the
Company pursuant to Section 3(c) hereof, and the Indemnified Person was promptly
advised in writing not to use the incorrect prospectus prior to the use giving
rise to a Violation and such Indemnified Person, notwithstanding such advice,
used it. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section
9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, its employees, agents and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act, and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such stockholder or
underwriter within the meaning of the Securities Act or the Exchange Act
(collectively and together with an Indemnified Person, an "INDEMNIFIED PARTY"),
against any Claim to which any of them may become subject, under the Securities
Act, the Exchange Act or otherwise, insofar as such Claim arises out of or is
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for use in
connection with such Registration Statement; and subject to Section 6(c) such
Investor will reimburse any legal or other expenses (promptly as such expenses
are incurred and are due and payable) reasonably incurred by them in connection
with investigating or defending any such Claim; provided, however, that the
indemnity agreement contained in this Section 6(b) shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld; provided, further, however, that the Investor shall be liable under
this Agreement (including this Section 6(b) and Section 7) for only that amount
as does not exceed the net proceeds actually received by such Investor as a
result of the sale of Registrable Securities pursuant to such Registration
Statement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Registrable Securities by the Investors pursuant to
Section 9. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(b) with respect to any
preliminary prospectus shall not inure to the benefit of any Indemnified Party
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented, and the Indemnified Party failed to utilize such
corrected prospectus.
c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and,
13
<PAGE> 14
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense thereof
with counsel mutually satisfactory to the indemnifying party and the Indemnified
Person or the Indemnified Party, as the case may be; provided, however, that
such indemnifying party shall not be entitled to assume such defense and an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses to be paid by the indemnifying party, if, in
the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
conflicts of interest between such Indemnified Person or Indemnified Party and
any other party represented by such counsel in such proceeding or the actual or
potential defendants in, or targets of, any such action include both the
Indemnified Person or the Indemnified Party and the indemnifying party and any
such Indemnified Person or Indemnified Party reasonably determines that there
may be legal defenses available to such Indemnified Person or Indemnified Party
which are different from or in addition to those available to such indemnifying
party. The indemnifying party shall pay for only one separate legal counsel for
the Indemnified Persons or the Indemnified Parties, as applicable, and such
legal counsel shall be selected by Investors holding a majority-in-interest of
the Registrable Securities included in the Registration Statement to which the
Claim relates (with the approval of the Initial Investors if they hold
Registrable Securities included in such Registration Statement), if the
Investors are entitled to indemnification hereunder, or by the Company, if the
Company is entitled to indemnification hereunder, as applicable. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is actually prejudiced in its
ability to defend such action. The indemnification required by this Section 6
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is prohibited
or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6, (ii) no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
such fraudulent misrepresentation, and (iii) contribution (together with any
indemnification or other obligations under this Agreement) by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities.
14
<PAGE> 15
8. REPORTS UNDER THE EXCHANGE ACT.
With a view to making available to the Investors the benefits of Rule
144 promulgated under the Securities Act or any other similar rule or regulation
of the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees to:
a. file with the SEC in a timely manner and make and keep
available all reports and other documents required of the Company under the
Securities Act and the Exchange Act so long as the Company remains subject to
such requirements (it being understood that nothing herein shall limit the
Company's obligations under Section 4(c) of the Securities Purchase Agreement)
and the filing and availability of such reports and other documents is required
for the applicable provisions of Rule 144; and
b. furnish to each Investor so long as such Investor owns shares
of Preferred Stock, Warrants or Registrable Securities, promptly upon request,
(i) a written statement by the Company that it has complied with the reporting
requirements of Rule 144, the Securities Act and the Exchange Act, (ii) a copy
of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company, and (iii) such other information
as may be reasonably requested to permit the Investors to sell such securities
under Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights of the Investors hereunder, including the right to have the
Company register Registrable Securities pursuant to this Agreement, shall be
automatically assignable by each Investor to any transferee of all or any
portion of the shares of Preferred Stock, the Warrants or the Registrable
Securities if: (i) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company after such assignment, (ii) the Company is furnished with written notice
of (a) the name and address of such transferee or assignee, and (b) the
securities with respect to which such registration rights are being transferred
or assigned, (iii) following such transfer or assignment, the further
disposition of such securities by the transferee or assignee is restricted under
the Securities Act and applicable state securities laws, (iv) the transferee or
assignee agrees in writing for the benefit of the Company to be bound by all of
the provisions contained herein, and (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company and
Investors who hold a majority interest of the Registrable Securities; provided,
however, that no amendment hereto which restricts the ability of an Investor
15
<PAGE> 16
to elect not to participate in an underwritten offering shall be effective
against any Investor which does not consent in writing to such amendment. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices required or permitted to be given under the terms
of this Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier or by confirmed telecopy, and
shall be effective five (5) days after being placed in the mail, if mailed, or
upon receipt or refusal of receipt, if delivered personally or by courier or
confirmed telecopy, in each case addressed to a party. The addresses for such
communications shall be:
If to the Company:
InSite Vision Incorporated
965 Atlantic Avenue
Alameda California 94501
Telecopy: (510) 865-5715
Attn: President
with a copy to:
Brobeck, Phleger & Harrison, L.L.P.
2200 Geng Road
Two Embarcadero Place
Palo Alto, California 94303
Telecopy: (415) 496-2736
Attn: J. Stephan Dolezalek
and if to any Investor, at such address as such Investor shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 11(b).
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
16
<PAGE> 17
d. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts made
and to be performed in the State of Delaware. The Company irrevocably consents
to the exclusive jurisdiction of the United States federal and state courts
located in Delaware in any suit or proceeding based on or arising under this
Agreement and irrevocably agrees that all claims in respect of such suit or
proceeding may be determined in such courts. The Company irrevocably waives the
defense of an inconvenient forum to the maintenance of such suit or proceeding.
The Company further agrees that service of process upon the Company, mailed by
first class mail shall be deemed in every respect effective service of process
upon the Company in any such suit or proceeding. Nothing herein shall affect the
Investors' right to serve process in any other manner permitted by law. The
Company agrees that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
e. This Agreement, the Securities Purchase Agreement and the
Warrants (including all schedules and exhibits thereto) constitute the entire
agreement among the parties hereto with respect to the subject matter hereof and
thereof. This Agreement, the Securities Purchase Agreement and the Warrants
supersede all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. All consents and other determinations to be made by the
Investors or the Initial Investors pursuant to this Agreement shall be made by
the Investors or the Initial Investors holding a majority of the Registrable
Securities (determined as if all shares of Preferred Stock and Warrants then
outstanding had been converted into or exercised for Registrable Securities)
held by all Investors or Initial Investors, as the case may be.
17
<PAGE> 18
k. The initial number of Registrable Securities included on any
Registration Statement and each increase to the number of Registrable Securities
included thereon shall be allocated pro rata among the Investors based on the
number of Registrable Securities held by each Investor at the time of such
establishment or increase, as the case may be. In the event an Investor shall
sell or otherwise transfer any of such holder's Registrable Securities, each
transferee shall be allocated a pro rata portion of the number of Registrable
Securities included on a Registration Statement for such transferor. Any shares
of Common Stock included on a Registration Statement and which remain allocated
to any person or entity which does not hold any Registrable Securities shall be
allocated to the remaining Investors, pro rata based on the number of shares of
Registrable Securities then held by such Investors. For the avoidance of doubt,
the number of Registrable Securities held by any Investor shall be determined as
if all shares of Preferred Stock then outstanding or then issuable upon exercise
of the Warrants were converted into or exercised for Registrable Securities.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
18
<PAGE> 19
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
INSITE VISION INCORPORATED
By:
-------------------------------------
Name:
-----------------------------------
Its:
------------------------------------
INITIAL INVESTORS:
PROPRIETARY CONVERTIBLE INVESTMENT GROUP, INC.
By:
-------------------------------------
Name:
-----------------------------------
Its:
------------------------------------
CAPITAL VENTURES INTERNATIONAL
By: Heights Capital Management, its authorized agent
By:
-------------------------------------
Name:
-----------------------------------
Its:
------------------------------------
SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.
By:
-------------------------------------
Name:
-----------------------------------
Its:
------------------------------------
HULL OVERSEAS, LTD.
By:
-------------------------------------
Name:
-----------------------------------
Its:
------------------------------------
BANQUE du CREDIT AGRICOLE
By:
-------------------------------------
Name:
-----------------------------------
Its:
------------------------------------
<PAGE> 20
EXHIBIT 1
TO
REGISTRATION
RIGHTS
AGREEMENT
[Date]
[Name and address
of transfer agent]
RE: INSITE VISION INCORPORATED
Ladies and Gentlemen:
We are counsel to InSite Vision Incorporated, a corporation organized
under the laws of the State of Delaware (the "COMPANY"), and we understand that
[Name of Investor] (the "HOLDER") has purchased from the Company shares of the
Company's Series A Convertible Preferred Stock (the "PREFERRED STOCK") that are
convertible into shares of the Company's common stock, par value $.01 per share
(the "COMMON STOCK"). Pursuant to a Registration Rights Agreement, dated as of
September 12, 1997, by and among the Company and the signatories thereto (the
"REGISTRATION RIGHTS AGREEMENT"), the Company agreed with the Holder, among
other things, to register the Registrable Securities (as that term is defined in
the Registration Rights Agreement) under the Securities Act of 1933, as amended
(the "SECURITIES ACT"), upon the terms provided in the Registration Rights
Agreement. In connection with the Company's obligations under the Registration
Rights Agreement, on _____ __, 1997, the Company filed a Registration Statement
on Form S-___ (File No. 333- _____________) (the "REGISTRATION STATEMENT") with
the Securities and Exchange Commission (the "SEC") relating to the Registrable
Securities, which names the Holder as a selling stockholder thereunder.
[Other customary introductory and scope of examination language to be
inserted]
Based on the foregoing, we are of the opinion that the Registrable
Securities have been registered under the Securities Act.
[Other customary language to be included.]
Very truly yours,
cc: [Name of Investor]
<PAGE> 1
EXHIBIT 10.6
WARRANT TO PURCHASE
SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, OFFERED FOR SALE,
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT
IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED.
INSITE VISION INCORPORATED
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
Void after September 12, 2000
THIS CERTIFIES THAT, for value received, William Blair and
Company LLC ("Holder") is entitled to purchase, on the terms hereof, seventy
(70) shares of Series A Convertible Preferred Stock (as adjusted pursuant to
Section 4 hereof, the "Shares") of InSite Vision Incorporated, a Delaware
corporation (the "Company"), subject to the provisions and upon the terms and
conditions hereinafter set forth. As used herein, the term "Series A Preferred
Stock" shall mean the Company's presently authorized and designated Series A
Convertible Preferred Stock, par value $.01 per share and face amount $1,000.00
per share, and any stock into or for which such Series A Preferred Stock may
hereafter be converted or exchanged. The term "Common Stock" shall mean the
Company's presently authorized Common Stock, par value $.01 per share, and any
stock into or for which such Common Stock may hereafter be converted or
exchanged. The term "Warrant" as used herein shall include this Warrant, and
any warrants delivered in substitution or exchange therefor as provided herein.
The following terms shall apply to this Warrant:
1. Term of Warrant. Subject to the terms and conditions
set forth herein, the term of this Warrant shall commence, this Warrant shall
be exercisable for the Shares, commencing September 12, 1997 and expiring at
5:00 p.m. Pacific Daylight Time on September 12, 2000.
2. Exercise Price; Number of Shares. The exercise price
per share ("Exercise Price") at which this Warrant may be exercised shall be
One Thousand Dollars ($1,000.00), as adjusted from time to time pursuant to
Section 4 hereof. The number of shares of Series A Preferred Stock for which
this Warrant is initially exercisable is seventy (70) shares of Series A
Preferred Stock, which number is subject to adjustment pursuant to Section 4 of
this Warrant.
3. Exercise of Warrant.
3.1 Method of Exercise. Subject to the terms of Section
1 hereof, the purchase rights represented by this Warrant are exercisable by
Holder during the term hereof, in whole or in part and from time to time, by
the surrender of this Warrant (with the notice of exercise form attached hereto
as Exhibit A duly executed) at the principal office of the Company and by
payment to the Company, by check or wire transfer of an amount equal to the
then applicable Exercise Price multiplied by the number of Shares then being
purchased or exercise of the right to credit the Exercise Price against the
fair market value of the Shares at the time of exercise (the "Net Exercise
Right") pursuant to Section 3.2. In the event of any exercise of the rights
represented by this Warrant, certificates for the Shares so purchased shall be
delivered to Holder hereof as soon as possible and, unless this Warrant has
been fully exercised or expired, a new Warrant representing the portion
<PAGE> 2
of the Shares, if any, with respect to which this Warrant shall not then have
been exercised shall also be issued to Holder hereof as soon as possible.
3.2 Net Exercise Right. If the Company shall receive
written notice from Holder at the time of exercise of this Warrant that Holder
elects to exercise Holder's Net Exercise Right, the Company shall deliver to
the Holder (without payment by the Holder of any exercise price or any cash or
other consideration) that number of shares of fully paid and nonassessable
Series A Preferred Stock equal to the quotient obtained by dividing (x) the
value of this Warrant (or the specified portion hereof) on the date of
exercise, which value shall be determined by subtracting (1) the aggregate
Exercise Price of the Shares immediately prior to the exercise of this Warrant
from (2) the aggregate fair market value of the Shares issuable upon exercise
of this Warrant (or the specified portion hereof) on the date of exercise by
(y) the fair market value of one share of Series A Preferred Stock on the date
of exercise. For purposes of this Section 3.2, "fair market value" of a share
of Series A Preferred Stock shall mean the price per share as determined in
good faith by the Board of Directors. No fractional shares shall be issuable
upon exercise of the Net Exercise Right, and, if the number of shares to be
issued determined in accordance with the foregoing formula is other than a
whole number, the Company shall pay to the Holder an amount in cash equal to
the fair market value of the resulting fractional share on the date of
exercise. For purposes of Section 3 of this Warrant, shares issued pursuant to
the Net Exercise Right shall be treated as if they were issued upon the
exercise of this Warrant.
4. Certain Adjustments.
4.1 Adjustments for Splits, Subdivisions,
Recapitalizations and other Combinations. In case the Company shall (i) pay a
dividend in Series A Preferred Stock or make a distribution in the form of
Series A Preferred Stock, (ii) subdivide the outstanding shares of Series A
Preferred Stock, (iii) combine its outstanding shares of Series A Preferred
Stock into a smaller number of shares of Series A Preferred Stock, (iv) issue by
reclassification of its Series A Preferred Stock other securities of the
Company, or (v) take any other action, the effect of which is to reclassify or
reorganize the outstanding shares of Series A Preferred Stock into a different
number of shares or class of securities, the number of shares purchasable upon
exercise of this Warrant immediately prior thereto shall be adjusted so that the
Holder shall be entitled to receive the kind and number of shares or other
securities of the Company which it would have owned or would have been entitled
to receive immediately after the happening of any of the events described above,
had the Warrant been exercised immediately prior to the happening of such event
or any record date with respect thereto. Any adjustment made with respect to
this Section 4.1 shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event. Whenever the
number of Shares purchasable upon the exercise of this Warrant is adjusted, as
herein provided, the Exercise Price payable upon the exercise of this Warrant
shall be adjusted by multiplying such Exercise Price immediately prior to such
adjustment by a fraction, of which the numerator shall be the number of Shares
purchasable upon the exercise of the Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Warrant shares
so purchasable immediately thereafter. Except as provided above, no adjustment
in respect of any dividends or distributions out of earnings shall be made
during the term of this Warrant or upon the exercise of this Warrant.
4.2 Mergers, Consolidations or Sale of Assets. If at any
time there shall be a capital reorganization (other than a combination or
subdivision of Shares otherwise provided for herein), or a merger or
consolidation of the Company with or into another corporation, or the sale of
the Company's properties and assets as, or substantially as, an entirety to any
other person, then, as a part of such reorganization, merger, consolidation or
sale, lawful provision shall be made so that the Holder shall thereafter be
entitled to receive upon exercise of this Warrant, during the period specified
in this Warrant and upon payment of the purchase price, the number of shares of
stock or other securities or property of the Company or the successor
corporation resulting from such reorganization, merger, consolidation or sale,
to which a holder of Series A Preferred Stock deliverable upon exercise of this
Warrant would have been entitled under the provisions of the agreement in such
reorganization, merger, consolidation or sale if this Warrant had been
exercised immediately before that reorganization, merger, consolidation or
sale. In any such case, appropriate adjustment (as determined in good
2.
<PAGE> 3
faith by the Company's Board of Directors) shall be made in the application of
the provisions of this Warrant with respect to the rights and interests of the
Holder after the reorganization, merger, consolidation or sale to the end that
the provisions of this Warrant (including adjustment of the purchase price then
in effect and the number of the Shares) shall be applicable after that event,
as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon exercise of this Warrant; provided, however,
that the aggregate purchase price shall not be adjusted.
4.3 Conversion or Redemption of Series A Preferred Stock.
Should all of the Series A Preferred Stock be, or if outstanding would be, at
any time prior to the expiration of this Warrant or any portion thereof,
redeemed or converted into shares of Common Stock in accordance with the
Certificate of Designations, Preferences and Rights of Series A Convertible
Preferred Stock of the Company (the "Certificate"), then this Warrant shall
immediately become exercisable for that number of shares of Common Stock equal
to the number of shares of Common Stock which would have been received if this
Warrant had been exercised in full and the Series A Preferred Stock received
thereupon had been simultaneously converted immediately prior to such event,
and the Exercise Price shall be immediately adjusted to equal the quotient
obtained by dividing (x) the aggregate Exercise Price of the maximum number of
shares of Series A Preferred Stock for which this Warrant was exercisable
immediately prior to such conversion or redemption, by (y) the number of shares
of Common Stock for which this Warrant is exercisable immediately after such
conversion or redemption. For purposes of the foregoing, the "Certificate"
shall mean the Certificate as amended and/or restated and effective immediately
prior to the redemption or conversion of all of the Series A Preferred Stock.
4.4 Certificate as to Adjustments. In the case of each
adjustment or readjustment of the purchase price pursuant to this Section 4,
the Company will promptly compute such adjustment or readjustment in accordance
with the terms hereof and cause a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based to be delivered to the Holder of this Warrant. The
Company will, upon the written request at any time of the Holder of this
Warrant, furnish or cause to be furnished to such Holder a certificate setting
forth:
(a) Such adjustments and readjustments;
(b) The purchase price at the time in effect; and
(c) The number of Shares and the amount, if any,
of other property at the time receivable upon the exercise of the Warrant.
4.5 Notice of Record Date. In the event of any taking by
the Company of a record of its stockholders for the purpose of determining
stockholders who are entitled to receive payment of any dividend or other
distribution, any right to subscribe for, purchase or otherwise acquire any
share of any class or any other securities or property, or to receive any other
right, or for the purpose of determining stockholders who are entitled to vote
in connection with any proposed merger or consolidation of the Company with or
into any other corporation, or any proposed sale, lease or conveyance of all or
substantially all of the assets of the Company, or any proposed liquidation,
dissolution or winding up of the Company, the Company shall mail a notice to
Holder, at least ten (10) days prior to the date specified therein, the date on
which any such record is to be taken for the purpose of such dividend,
distribution, right or other event, and the amount and character of such
dividend, distribution, right or other event.
5. Fractional Stock. No fractional shares shall be
issued in connection with any exercise of this Warrant. In lieu of the
issuance of such fractional share, the Company shall make a cash payment equal
to the then fair market value of such fractional share as determined in good
faith by the Company's Board of Directors.
3.
<PAGE> 4
6. Reservation of Series A Preferred Stock and Common
Stock. The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Series A Preferred Stock, solely for the
purpose of effecting the exercise of this Warrant, such number of its shares of
Series A Preferred Stock as shall from time to time be sufficient to effect the
exercise of this Warrant. The Company shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of effecting the conversion of any shares of Series A Preferred
Stock for which this Warrant is exercisable, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of the Shares.
7. Restrictions on Transfer.
Unless the issuance of the Shares has been registered under
the Securities Act of 1933, as amended (the "1933 Act"):
7.1 this Warrant and any Shares may not be sold,
transferred, pledged, hypothecated or otherwise disposed of except: (i) to a
person who, in the opinion of counsel to the Company, is a person to whom this
Warrant or the Shares may legally be transferred without registration and
without the delivery of a current prospectus under the 1933 Act with respect
thereto and then only against receipt of an agreement of such person to comply
with the provisions of this Section 7 with respect to any resale or other
disposition of such securities; or (ii) to any person upon the delivery of a
prospectus then meeting the requirements of the 1933 Act relating to such
securities and the offering thereof for such sale or disposition, and
thereafter to all successive assignees;
7.2 upon exercise of any of the Warrants and the issuance
of any of the Shares prior to the time a registration statement registering the
Shares issuable upon exercise hereof is declared effective by the Securities
and Exchange Commission, all certificates representing such shares shall bear
on the face thereof substantially the following legend, insofar as is
consistent with California law, as well as any other legends necessary to
comply with applicable state and federal laws for the issuance of such shares:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"1933 ACT"), OR UNDER THE PROVISIONS OF ANY APPLICABLE STATE
SECURITIES LAWS, BUT HAVE BEEN ACQUIRED BY THE REGISTERED
HOLDER HEREOF FOR PURPOSES OF INVESTMENT AND IN RELIANCE ON
STATUTORY EXEMPTIONS UNDER THE 1933 ACT, AND UNDER ANY
APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE
SOLD, PLEDGED, TRANSFERRED OR ASSIGNED, EXCEPT IN A
TRANSACTION WHICH IS EXEMPT UNDER PROVISIONS OF THE 1933 ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT; AND IN THE CASE OF AN
EXEMPTION; ONLY IF THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH TRANSACTION DOES
NOT REQUIRE REGISTRATION OF ANY SUCH SECURITIES.
8. Rights as Stockholders; Information. Holder shall
not be entitled to vote or receive dividends or be deemed the holder of Series
A Preferred Stock, or Common Stock into which such Series A Preferred Stock is
convertible, or any other securities of the Company which may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon Holder 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 shareholders or at any meeting thereof, or to receive
notice of meetings, or to receive dividends or subscription rights or otherwise
until this Warrant shall have been exercised and the Shares purchasable upon
the exercise hereof shall have become deliverable, as provided herein.
4.
<PAGE> 5
9.1 Transfers and Exchanges. Subject to the terms and
conditions of the applicable Federal and state securities laws, this Warrant is
transferable in whole or in part by the Holder. All new warrants issued in
connection with transfers or exchanges shall be identical in form and provision
to this Warrant except as to the number of shares.
9.2 Successors and Assigns. The terms and provisions of
this Warrant shall be binding upon the Company and the Holder and their
respective successors and assigns.
10. Regulated Financial Institutions Compliance
Obligations. Nothing in this Warrant shall diminish the continuing obligations
of any financial institution to comply with applicable requirements of law that
it maintain responsibility for the disposition of, and control over its
admitted assets, investments and property, including (without limiting the
generality of the foregoing) the provisions of Section 1411(b) of the New York
Insurance Law, as amended, and as hereinafter from time to time in effect.
11. Amendments. This Warrant and any provision hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
12. Registration Rights. The Holder shall have and be
entitled to exercise the rights of registration with respect to the Common
Stock into which the Series A Preferred Stock underlying this Warrant is
convertible as provided in that certain Registration Rights Agreement dated of
even date herewith between the Company and certain investors including the
Holder.
13. Loss, Theft, Destruction or Mutilation of Warrant.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to the
Company, and upon reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will make and deliver a new warrant of like tenor and
dated as of such cancellation, in lieu of this Warrant.
14. Saturdays, Sundays, Holidays, etc. If the last or
appointed day for the taking of any action or the expiration of any right
required or granted herein shall be a Saturday or Sunday or shall be a legal
holiday, then such action may be taken or such right may be exercised on the
next succeeding day not a legal holiday.
15. Governing Law. The terms and conditions of this
Warrant shall be governed by and construed in accordance with California law as
such laws are applied to agreements which are entered into solely between
California residents and are to be performed entirely within that state.
Dated: INSITE VISION INCORPORATED
----------------------
By:
-------------------------------
Its:
-------------------------------
SIGNATURE PAGE TO WARRANT TO PURCHASE SHARES OF SERIES A PREFERRED STOCK
5.
<PAGE> 6
EXHIBIT A
NOTICE OF EXERCISE
To: InSite Vision Incorporated
1. The undersigned hereby elects to purchase __________ shares of
Series A Convertible Preferred Stock of InSite Vision Incorporated pursuant to
the terms of the attached Warrant, and
______ tenders herewith payment of the purchase price of such
shares in full.
______ exercises Holder's Net Exercise Right
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned or in such other name or names as are
specified below:
________________________________
(Name)
________________________________
________________________________
(Address)
3. The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
HOLDER
By:
-------------------------------
Name:
-------------------------------
Its:
-------------------------------
Dated: __________________________
6.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG, LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of InSite Vision
Incorporated for the registration of 2,626,000 shares of its common stock and to
the incorporation by reference therein of our report dated January 24, 1997,
with respect to the consolidated financial statements of InSite Vision
Incorporated included in its Annual Report (Form 10-K) for the year ended
December 31, 1996, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Walnut Creek, California
September 26, 1997
