UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) May 1, 1998
EMISPHERE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-10615 13-3306985
(State or jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification Number)
15 Skyline Drive
Hawthorne, New York 10532
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (914) 347-2220
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 8-K constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"). Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company, or industry results, to be
materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: uncertainties related to future test results and
viability of the Company's product candidates, which are in the early stages of
development; the need to obtain regulatory approval for the Company's product
candidates; the Company's dependence on partnerships with pharmaceutical and
other companies to develop manufacture and commercialize products using the
Company's drug delivery technologies; the Company's dependence on the success
of its joint venture with Elan Corporation plc ("Elan") for the development and
commercialization of an oral heparin and low molecular weight heparin product,
its strategic alliance with Eli Lilly and Company ("Lilly") for the development
and commercialization of certain of Lilly's therapeutic proteins and its
research collaboration with Novartis Pharma AG ("Novartis") to investigate the
Company's technology for oral delivery of two selected Novartis compounds; the
risk of technological obsolescence and risks associated with the Company's
highly competitive industry; the Company's dependence on patents and
proprietary rights; the Company's absence of profitable operations and need for
additional capital; the Company's dependence on others to manufacture the
Company's chemical compounds; the risk of product liability and policy limits
of product liability insurance; potential liability for human clinical trials;
the Company's dependence on key personnel and the quality, judgment and
strategic decisions of management and other personnel; uncertain availability
of third-party reimbursement for commercial medical products; general business
and economic conditions; and other factors referenced in the Company's Annual
Report on Form 10-K for the fiscal year ended July 31, 1997 and other periodic
filings with the Securities and Exchange Commission.
Item 5. Other Events.
On May 1, 1998 Emisphere Technologies, Inc. (the "Company") issued in a
private placement $13,500,000 in aggregate principal amount of its 5% Senior
Convertible Notes due 2001 (the "Notes"). The Notes were sold at par, mature
on May 1, 2001 and bear interest at 5% per annum, payable in cash or, at the
election of the Company, shares of the Company's common stock, par value $.01
per share (the "Common Stock"). The Company intends to use the proceeds from
the private placement for general corporate purposes, including the funding of
its share of the cost of the clinical trials for its oral heparin product.
Pending such use, the Company will invest the funds in interest bearing
marketable securities.
The Notes are convertible at any time into shares of the Common Stock at
conversion prices, subject to certain minimums, based on a formula measuring
market price at the time of conversion. Upon the occurrence of certain
specified events, the Company can, at its option, redeem the Notes at agreed
upon prices. Upon the occurrence of certain other specified events, the
Company can be required to redeem the Notes at agreed upon prices, including
certain premiums.
-2-
<PAGE>
Diaz & Altschul Capital, LLC served as the placement agent in connection
with the transaction.
The Company has agreed to file a registration statement with respect to the
resale of the shares issuable upon conversion of the Notes and upon payment of
interest thereon. The Company expects initially to register up to 1,202,500
shares of the Common Stock.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
EMISPHERE TECHNOLOGIES, INC.
by/s/ Michael M. Goldberg
Date: May 1, 1998 Michael M. Goldberg, M.D.
Chairman of the Board and
Chief Executive Officer
-3-
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
4(a) form of the 5% Senior Convertible Notes due 2001 issued May 1, 1998
in the aggregate principal amount of $13,500,000
4(b) form of the Note Purchase Agreement dated as of May 1, 1998 by and
between the registrant and each of Delta Opportunity Fund, Ltd.,
OTATO Limited Partnership, Fisher Capital Ltd., Wingate Capital Ltd.,
CCG Capital Ltd. and CCG Investment Fund Ltd.
<PAGE>
Exhibit 4(a)
[FORM OF 5% SENIOR CONVERTIBLE NOTES DUE 2001]
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "1933 ACT"), OR ANY STATE SECURITIES LAWS. THE SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION OF THIS NOTE OR IN PAYMENT OF INTEREST ON THIS NOTE
ARE NOT REGISTERED UNDER THE 1933 ACT OR UNDER STATE SECURITIES LAWS. THIS
NOTE HAS BEEN ACQUIRED, AND SUCH SHARES MUST BE ACQUIRED, FOR INVESTMENT ONLY
AND MAY NOT BE OFFERED, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
REGISTRATION OF THE RESALE THEREOF UNDER THE 1933 ACT EXCEPT PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT AND DELIVERY TO THE COMPANY OF
AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM, SCOPE AND SUBSTANCE TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. THIS NOTE IS ISSUED
PURSUANT TO AND SUBJECT TO THE TERMS OF A NOTE PURCHASE AGREEMENT, DATED AS OF
MAY 1, 1998, BY AND BETWEEN THE COMPANY AND THE ORIGINAL HOLDER OF THIS NOTE,
AS AMENDED FROM TIME TO TIME. THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS
PROVIDED IN SECTION 8.7. THE HOLDER AND ANY ASSIGNEE, BY ACCEPTANCE OF THIS
NOTE, ACKNOWLEDGE AND AGREE THAT, BY REASON OF THE PROVISIONS OF SECTION
2.3(B), FOLLOWING CONVERSION OF A PORTION OF THIS NOTE, THE UNPAID AND
UNCONVERTED PRINCIPAL AMOUNT OF THIS NOTE REPRESENTED BY THIS NOTE MAY BE LESS
THAN THE AMOUNT STATED ON THE FACE HEREOF.
EMISPHERE TECHNOLOGIES, INC.
5% SENIOR CONVERTIBLE NOTE DUE 2001
No. $
New York, New York
May 1, 1998
FOR VALUE RECEIVED, EMISPHERE TECHNOLOGIES, INC., a Delaware
corporation (hereinafter called the "Company"), hereby promises to pay to
[BUYER], or registered assigns (the "Holder") or order, the principal sum of
[ ] ($ _________) on the Maturity Date, and to pay interest on the
unpaid principal balance hereof at the Applicable Rate from the date hereof to
maturity, whether the Maturity Date or upon acceleration or by redemption or
repurchase in accordance with the terms hereof or otherwise. Interest shall be
payable in arrears on each Interest Payment Date, commencing on May 1, 1999.
Interest on this Note shall be computed on the basis of actual days elapsed
over a year of 365 or 366 days, as the case may be. Any amount of principal of
(and premium, if any) or interest on this Note which is not paid when due shall
bear interest ("Default Interest") at the Default Rate from the due date
thereof until the same is paid. No interest shall be payable on an Interest
Payment Date on any portion of the principal amount of this Note which shall
have been converted or redeemed prior to such Interest Payment Date so long as
the Company shall have complied in full with its obligations with respect to
such conversion or redemption.
All payments of principal of (and premium, if any) and interest on
this Note shall be made in lawful money of the United States of America, except
that at the option of the Company and subject to the provisions of this Note,
interest payable on the Interest Payment Dates may be paid in whole or in part
in fully paid and nonassessable shares of Common Stock. All cash payments
shall be made by wire transfer of immediately available funds to such account
as the Holder may from time to time designate by written notice in accordance
with the provisions of this Note. Whenever any amount expressed to be due by
the terms of this Note is due on any day which is not a Business Day, the same
shall instead be due on the next succeeding day which is a Business Day and, in
the case of any Interest Payment Date which is not the date on which this Note
is paid in full, the extension of the due date thereof shall not be taken into
account for purposes of determining the amount of interest due on such date.
Certain capitalized terms used in this Note are defined in Article VII.
<PAGE>
The obligations of the Company under this Note shall rank in right of
payment on a parity with all other unsubordinated obligations of the Company
for the payment of borrowed money or the purchase price of property. This Note
is issued pursuant to the Note Purchase Agreement and is subject to the terms
of the Note Purchase Agreement. The aggregate original principal amount of
this Note and the Other Notes is $13,500,000.00.
The following terms shall apply to this Note:
ARTICLE I
PAYMENT OF INTEREST IN COMMON STOCK; NO PREPAYMENT
1.1 Issuance of Common Stock in Lieu of Cash Interest. (a) If the
Company exercises its option to make a payment of interest on this Note due on
an Interest Payment Date wholly or partly in shares of Common Stock (herein
sometimes called the "Stock Payment Option"), the issuance of Payment Shares
upon such exercise of the Stock Payment Option shall have been authorized by
the Board of Directors of the Company.
(b) The Company shall not be permitted to exercise the Stock Payment
Option with respect to any payment of interest on this Note if and so long as
any of the following shall be true:
(i) the number of shares of Common Stock authorized, unissued and
unreserved for all purposes, or held in the Company's treasury, is
insufficient to pay the portion of such interest to be paid in Common
Stock;
(ii) the issuance or delivery of Payment Shares or the public resale
of such Payment Shares by the Holder would require registration with or
approval of any governmental authority under any law or regulation, and
such registration or approval has not been effected or obtained or is not
in effect or the Registration Statement is unavailable for use by the
Holder for the resale of the Payment Shares other than as permitted by
this Note or the Note Purchase Agreement; provided, however, that with
respect to compliance with the securities or blue sky laws of the states
of the United States, the requirements of this clause (ii) shall be deemed
satisfied if at the applicable time the Company is in compliance with
Section 8(b) of the Note Purchase Agreement;
2
<PAGE>
(iii) the Payment Shares shall not at the time of issuance, upon
official notice of issuance, be included in Nasdaq or, if the Common Stock
is listed on a registered national securities exchange, have been
authorized for listing on the principal registered national securities
exchange on which the Common Stock is then listed and traded;
(iv) the Computed Price for the Payment Shares is less than the par
value of the Common Stock;
(v) an Event of Default has occurred and is continuing;
(vi) the Common Stock is neither (i) listed or admitted for trading
on a registered national securities exchange nor (ii) included in the
Nasdaq National Market tier of Nasdaq; or
(vii) the issuance of Payment Shares would result in the Holder
(including all Aggregated Persons) beneficially owning more than 4.9% of
the Common Stock, determined as provided in Section 2.1(b).
(c) If the Stock Payment Option is elected, the Company shall issue
and deliver to the Holder one or more certificates for the aggregate number of
whole shares of Common Stock determined by dividing the per share Computed
Price of the Common Stock on the applicable Interest Payment Date into the
total amount of lawful money of the United States of America which the Holder
would receive if the aggregate amount of interest on this Note which is being
paid in shares of Common Stock were being paid in such lawful money; provided,
however, that if in connection with any such election the Company shall have
failed to notify the Holder on or before the particular Interest Payment Date
that the Company has elected to use the Stock Payment Option with respect to
such Interest Payment Date or to deliver the appropriate number of shares of
Common Stock to the Holder within five Trading Days after the applicable
Interest Payment Date, then the Company shall not be entitled to use the Stock
Payment Option in respect of such Interest Payment Date, such cash interest
shall be immediately due and payable and the Company shall pay the interest for
such Interest Payment Date in cash with Default Interest, at the rate provided
in the Note, from such Interest Payment Date until paid. No fractional shares
will be issued in payment of interest on this Note. In lieu thereof, the
Company may, at its option, issue a number of shares of Common Stock which
reflects a rounding up to the next whole number or may pay lawful money of the
United States of America in an amount equal to the value of the fractional
share not being issued.
(d) If the Company exercises the Stock Payment Option with respect
to a payment of interest on this Note, the Company shall deliver to the Holder,
on or prior to the date on which Payment Shares for such payment of interest on
this Note are to be received by the Holder, a Company Certificate setting forth
(i) the total amount of the interest payment to which the Holder is entitled,
(ii) the portion of the interest payment being made in Payment Shares, (iii)
the number of Payment Shares allocable to such payment, as calculated pursuant
to this Section 1.1, (iv) any rounding adjustment to such number or any payment
3
<PAGE>
necessary to be made pursuant to Section 1.1(c), (v) a brief statement of the
facts requiring such adjustment, (vi) the number of Payment Shares issuable
with respect to each $100 of interest on this Note after such adjustment and
(vii) a brief statement that none of the conditions set forth in Section 1.1(b)
has occurred and is existing. Such Company certificate shall be accompanied by
certificates, each duly issued in the name of the Holder or its nominee,
representing the Payment Shares. Such Company Certificate shall be conclusive
evidence of the correctness of the calculation of the number of Payment Shares
allocable to the payments to which such Company Certificate relates and of any
adjustments to such number made pursuant to this Section 1.1 in the absence of
manifest error. In addition, on or before the pertinent payment date, the
Company shall cause the transfer agent for the Common Stock to prepare and
issue the certificates representing the Payment Shares in the name of the
Holder before being so delivered by the Company on the payment date.
(e) The Payment Shares, when issued and delivered pursuant to and in
compliance with this Section 1.1, shall be, and for all purposes shall be
deemed to be, duly and validly authorized and issued, fully paid and
nonassessable shares of Common Stock; and the issuance thereof, together with
lawful money of the United States of America, if any, paid in lieu of
fractional shares of such Common Stock, will be, and for all purposes shall be
deemed to be, in full discharge and satisfaction of the Company's obligation to
pay the interest on this Note to which such Payment Shares relate.
(f) Upon request of the Company from time to time, the Holder shall
provide information concerning the number of Payment Shares which may be issued
to the Holder within the limitation provided in Section 1.1(b)(vii).
1.2 No Prepayment, Etc. Except as otherwise provided herein, this
Note may not be prepaid, redeemed or repurchased at the option of the Company
prior to the Maturity Date.
ARTICLE II
CONVERSION; CERTAIN MANDATORY REDEMPTION
RIGHTS AND OBLIGATIONS
2.1 Conversion Right. (a) Subject to Sections 2.1(b) and Section
2.4, the Holder shall have the right, on and after the Issuance Date and at any
time prior to the Maturity Date, to convert at any time all or from time to
time any part of the outstanding and unpaid principal amount of this Note, in
each such case of at least $10,000, or such lesser amount as shall remain
unpaid at the time of the conversion or shall be convertible within the
limitation on beneficial ownership provided in Section 2.1(b) or may be
permitted from time to time by the Company in its discretion, and in each such
case accrued and unpaid interest on the principal amount to be converted and
Default Interest on any such interest, into fully paid and nonassessable shares
of Common Stock at the Conversion Price in effect on the date the applicable
Conversion Notice is given in accordance with this Note.
4
<PAGE>
(b) The Holder shall not be entitled to convert any portion of the
principal amount of this Note (and accrued and unpaid interest thereon and
Default Interest, if any), at any time if, upon the conversion of such portion
of the principal amount of this Note (and accrued and unpaid interest thereon
and Default Interest, if any) the sum of (1) the number of shares of Common
Stock beneficially owned by the Holder (including shares of Common Stock
beneficially owned by all Aggregated Persons) (other than shares of Common
Stock deemed beneficially owned by the Holder or any Aggregated Person of the
Holder through the ownership of (x) the unconverted portion of the principal
amount of this Note and the Other Notes (and accrued and unpaid interest
thereon and Default interest, if any, and (y) the unconverted or unexercised
portion of any instrument which contains limitations similar to those set forth
in this sentence) and (2) the number of shares of Common Stock issuable upon
conversion of the portion of the principal amount of this Note and accrued and
unpaid interest thereon and Default Interest, if any, on any such interest with
respect to which the determination in this sentence is being made, the
beneficial ownership by the Holder and all Aggregated Persons of the Holder of
outstanding shares of Common Stock would exceed 4.9% of the outstanding shares
of Common Stock of the Company. For purposes of the immediately preceding
sentence, beneficial ownership and the number of outstanding shares of Common
Stock of the Company shall be determined in accordance with Section 13(d) of
the 1934 Act, and Regulation 13D-G thereunder, except as otherwise provided in
clause (1) of the immediately preceding sentence. For purposes of the second
preceding sentence, the Company shall be entitled to rely, and shall be fully
protected in relying, on any statement or representation made by the Holder to
the Company in connection with a particular conversion, without any obligation
on the part of the Company to make any inquiry or investigation or to examine
its records or the records of any transfer agent for the Common Stock and
without any liability of the Company with respect thereto. The number of
shares of Common Stock to be issued upon each conversion of this Note shall be
determined by dividing (x) the sum of (1) that portion of the principal amount
of this Note to be converted plus (2) accrued and unpaid interest on such
principal amount to the date the Conversion Notice for such conversion is given
plus (3) accrued and unpaid Default Interest, if any, on the amount referred to
in the immediately preceding clause (2) to the date such Conversion Notice is
given, by (y) the Conversion Price in effect on the date the Conversion Notice
for such conversion is given.
2.2 Company to Reserve Authorized Shares etc. The Company covenants
that the Company will reserve and keep reserved from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the conversion in full of this Note. The Company
represents and warrants that upon issuance upon conversion all such shares of
Common Stock will be duly and validly authorized and issued, fully paid and
non-assessable. The Company agrees that its issuance of this Note shall
constitute full authority to its officers and agents who are charged with the
duty of executing stock certificates to execute and issue the necessary
certificates for shares of Common Stock issued upon the conversion of this
Note or as Payment Shares in accordance with this Note.
2.3 Method of Conversion. (a) The right of the Holder to convert
this Note shall be exercised by delivering (which may be made by facsimile
transmission) to the Company and the Transfer Agent at the addresses or
facsimile transmission numbers provided in or pursuant to the Transfer Agent
5
<PAGE>
Agreement, a Conversion Notice stating the principal amount of this Note which,
together with interest and Default Interest, if any, as provided in this Note,
is being converted and the number of shares of Common Stock to be issued upon
such conversion. The Holder shall make reasonable efforts to deliver a copy of
such Conversion Notice to the Company's legal counsel when such notice is
delivered to the Company and the Transfer Agent or as soon as practical
thereafter, provided that the failure to do so shall not relieve the Company or
the Transfer Agent of its obligations or prejudice the Holder's rights. The
number of shares of Common Stock to be issued upon each conversion of this Note
shall be the number set forth in the applicable Conversion Notice, which number
shall be conclusive absent manifest error. The Company shall notify the Holder
of any claim by the Company of manifest error in a Conversion Notice within two
Trading Days after the Company receives such Conversion Notice and no such
claim of error shall limit or delay performance of the Company's obligation to
issue upon such conversion the number of shares of Common Stock which are not
in dispute. A Conversion Notice shall be deemed for all purposes to be in
proper form unless the Company notifies the Holder by facsimile transmission
within two Trading Days after a Conversion Notice has been given (which notice
from the Company shall specify all defects in the Conversion Notice) and any
Conversion Notice containing any such defect shall nonetheless be effective on
the date given if the Holder promptly undertakes in writing to correct all such
defects and corrects such defects within a reasonable period of time
thereafter. The Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of
shares of Common Stock or other securities or property on conversion of this
Note in a name other than that of the Holder, and the Company shall not be
required to issue or deliver any such shares or other securities or property
unless and until the person or persons requesting the issuance thereof shall
have paid to the Company the amount of any such tax or shall have established
to the satisfaction of the Company that such tax has been paid and has
otherwise complied with the terms of the Note Purchase Agreement. The Holder
shall be responsible for the amount of any withholding tax payable in
connection with any conversion of this Note.
(b) If the Holder elects to convert this Note in accordance with
Section 2.1, the Holder shall not be required to surrender this Note physically
unless the entire unpaid principal amount of this Note is so converted or the
Holder receives notice from the Company pursuant to this Section. The Company
shall maintain records showing the principal amount so converted and the dates
of such conversions or shall use such other method, reasonably satisfactory to
the Holder, so as not to require physical surrender of this Note upon each such
conversion. In the event of any dispute or discrepancy, such records of the
Company shall be controlling and determinative in the absence of manifest
error. Notwithstanding the foregoing, if any portion of this Note is converted
without physical surrender of this Note to the Company as aforesaid, the Holder
may not transfer this Note unless (1) the Holder first physically surrenders
this Note to the Company, whereupon the Company will forthwith issue and
deliver upon the order of the Holder a new note of like tenor, registered as
the Holder (upon payment by the Holder of any applicable transfer taxes) may
request, representing in the aggregate the remaining unpaid principal amount of
this Note and (2) such transfer is otherwise in compliance with Section 8.7
hereof. The Company may by notice to the Holder from time to time require the
Holder to surrender this Note in exchange for the issuance by the Company of a
new Note in a principal amount equal to the outstanding principal amount of
this Note and otherwise having terms identical to this Note. Such new Note
shall be delivered by the Company to the Holder within three Trading Days after
6
<PAGE>
the Company receives this Note from the Holder in response to such notice. The
Holder and any assignee, by acceptance of this Note, acknowledge and agree
that, by reason of the provisions of this paragraph, following conversion of a
portion of this Note, the unpaid and unconverted principal amount of this Note
represented by this Note may be less than the amount stated on the face hereof.
(c) In case of any consolidation or merger of the Company with any
other corporation (other than a wholly-owned subsidiary of the Company) in
which the Company is not the surviving corporation, or in case of any sale or
transfer of all or substantially all of the assets of the Company, or in the
case of any share exchange pursuant to which all of the outstanding shares of
Common Stock are converted into other securities or property, the Company shall
make appropriate provision or cause appropriate provision to be made so that
the Holder shall have the right thereafter to convert this Note into the kind
of shares of stock and other securities and property receivable upon such
consolidation, merger, sale, transfer or share exchange by the persons who were
holders of Common Stock immediately prior to the effective date of such
consolidation, merger, sale, transfer or share exchange and on a basis which
preserves the economic benefits of the conversion rights of the Holder on a
basis as nearly as practical as such rights existed prior to such
consolidation, merger, sale, transfer or share exchange. If, in connection
with any such consolidation, merger, sale, transfer or share exchange each
holder of shares of Common Stock is entitled to elect to receive either
securities, cash or other assets upon completion of such transaction, the
Company shall provide or cause to be provided to the Holder the right to elect
the securities, cash or other assets into which this Note shall be convertible
after completion of any such transaction on the same terms and subject to the
same conditions applicable to holders of the Common Stock (including, without
limitation, notice of the right to elect, limitations on the period in which
such election shall be made, and the effect of failing to exercise the
election). Notwithstanding the foregoing, in connection with any such merger,
consolidation, sale, transfer or exchange, the Company shall have the right, in
lieu of making provision for preservation of the economic benefits of the
conversion rights of the Holder, to redeem this Note immediately after
completion of such transaction at a redemption price equal to the sum of (1)
the product obtained by multiplying (A) the sum of (i) the outstanding
principal amount of this Note on the date of such redemption plus (ii) accrued
and unpaid interest on such principal amount to the date of such redemption
times (B) the applicable Business Combination Redemption Percentage plus (2)
accrued and unpaid Default Interest, if any, on the amount referred to in the
immediately preceding clause (1)(A)(ii) at the rate provided in this Note to
the date of such redemption. Such right shall be exercised by notice from the
Company to the Holder stating that the Company is exercising its redemption
right under this Section 2.3(c), which notice shall be given at least 20
Trading Days (or such lesser period as the Company gives notice of such
transaction to the holders of outstanding shares of Common Stock) prior to
completion of such transaction. The Company shall not effect any such
transaction described in this paragraph unless the provisions of this paragraph
have been complied with. The above provisions shall similarly apply to
successive consolidations, mergers, sales, transfers or share exchanges.
Whenever the Company shall propose to take any of the actions
specified in this Section 2.3(c), the Company shall cause a notice to be mailed
to the Holder at least 15 days prior to the date on which the books of the
Company will close or on which a record will be taken for such action. Such
7
<PAGE>
notice shall specify the action proposed to be taken by the Company and the
date as of which holders of record of the Common Stock shall participate in any
such actions or be entitled to exchange their Common Stock for securities or
other property, as the case may be.
(d) Upon receipt by the Company and the Transfer Agent from the
Holder of a Conversion Notice meeting the requirements for conversion as
provided in Section 2.1 and this Section 2.3, the Company shall issue and
deliver or cause to be issued and delivered to the Holder, absent manifest
error in the Notice, certificates for the Common Stock issuable upon such
conversion by the close of business on the third Trading Day after the date of
such receipt, and as of the close of business on the date of receipt of such
Conversion Notice the Holder shall be deemed to be the holder of record of the
Common Stock issuable upon such conversion, the outstanding principal amount
and the amount of accrued and unpaid interest on this Note shall be reduced to
reflect such conversion, and all rights with respect to the portion of this
Note being so converted shall forthwith terminate except the right to receive
the Common Stock or other securities, cash or other assets, as herein provided,
on such conversion. The Holder shall make reasonable efforts to deliver a copy
of such Conversion Notice to the Company's legal counsel when such notice is
delivered to the Company and the Transfer Agent or as soon as practical
thereafter, provided that the failure to do so shall not relieve the Company or
the Transfer Agent of its obligations or prejudice the Holder's rights. If the
Holder shall have given a Conversion Notice in accordance with the terms of
this Note, the Company's obligation to issue and deliver the certificates for
Common Stock shall be absolute and unconditional, irrespective of any action or
inaction by the Holder to enforce the same, any waiver or consent with respect
to any provision thereof, the recovery of any judgment against any person or
any action to enforce the same, any failure or delay in the enforcement of any
other obligation of the Company to the Holder, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the
Holder or any other person of any obligation to the Company or any violation or
alleged violation of law by the Holder or any other person, and irrespective of
any other circumstance which might otherwise limit such obligation of the
Company to the Holder in connection with such conversion; provided, however,
that nothing herein shall limit or prejudice the right of the Company to pursue
any such claim in any other manner permitted by applicable law. The occurrence
of an event which requires an equitable adjustment of the Trading Price as
contemplated by the definition thereof in Section 7.1 shall in no way restrict
or delay the right of the Holder to receive certificates for Common Stock upon
conversion of this Note and the Company shall use its best efforts to implement
such adjustment on terms reasonably acceptable to the Holder within two Trading
Days of such occurrence. If the Company fails to issue and deliver the
certificates for the Common Stock to the Holder pursuant to the first sentence
of this Section 2.3(d) as and when required to do so, in addition to any other
liabilities the Company may have hereunder and under applicable law, (1) the
Company shall pay or reimburse the Holder on demand for all out-of-pocket
expenses including, without limitation, fees and expenses of legal counsel
incurred by the Holder as a result of such failure, (2) the Conversion Price
applicable to such conversion shall be reduced by one-tenth of one percent of
the amount thereof otherwise applicable to such conversion for each Trading Day
during the period from the date the Company was required to deliver such
certificates to the date the Company so delivers such certificates; provided,
however, that in no event shall any such reduction be made for any Trading Day
8
<PAGE>
in such period which is after the date which is 120 days after the date the
Company was required to deliver such certificates in connection with such
conversion, and (3) the Holder may by written notice (which may be given by
mail, courier, personal service or facsimile transmission) or oral notice
(promptly confirmed in writing) given at any time prior to delivery to the
Holder of the certificates for the shares of Common Stock issuable upon such
conversion of this Note, rescind such conversion, whereupon the Holder shall
have the right to convert this Note thereafter in accordance herewith;
provided, however, that the Company shall not be liable to the Holder under the
preceding clause (1) or clause (2) to the extent the failure of the Company to
deliver or cause to be delivered such shares of Common Stock results from fire,
flood, storm, earthquake, shipwreck, strike, war, acts of terrorism, crash
involving facilities of a common carrier, act of God or any similar event
outside the control of the Company (it being understood that the actions or
failure to act of the Transfer Agent shall not be deemed an event outside the
control of the Company except to the extent resulting from fire, flood, storm,
earthquake, shipwreck, strike, war, acts of terrorism, crash involving
facilities of a common carrier, acts of God, the bankruptcy, liquidation or
reorganization of the Transfer Agent under any bankruptcy, insolvency or other
similar law or any similar event outside the control of the Transfer Agent).
The Holder shall notify the Company in writing (or by telephone conversation,
confirmed in writing) as promptly as practicable after becoming aware that
shares of Common Stock issued on conversion of this Note have not been received
as provided in this Section 2.3(d).
(e) No fractional shares of Common Stock shall be issued upon
conversion of this Note but, in lieu of any fraction of a share of Common Stock
which would otherwise be issuable in respect of the aggregate number of such
shares converted at one time by the same holder, the Company may round the
number of shares of Common Stock issued on such conversion up to the next
highest whole share or may pay lawful money of the United States of America in
an amount equal to the fractional share amount not being issued, based on a
value of one share of Common Stock being equal to the Market Price of the
Common Stock on the date the applicable Conversion Notice is given to the
Company.
2.4 Limitation on Shares Issuable on Conversion; Mandatory
Redemption. (a) Notwithstanding any other provision herein, unless the
Stockholder Approval shall have been obtained from the stockholders of the
Company or waived by the NASD, the Company shall not be required to issue upon
conversion of this Note a number of shares of Common Stock in excess of the
NASD Limitation Amount. In addition, the Company shall not be required to
issue upon conversion of this Note a number of shares of Common Stock in excess
of the Maximum Share Amount. The Company shall maintain records which show the
number of shares of Common Stock issued by the Company upon conversion from
time to time of this Note and issued by the Company pursuant to Section 1.1 in
payment of interest on this Note, which records shall be controlling in the
absence of manifest error. Upon surrender of this Note for transfer or re-
registration hereof (or, at the option of the Holder, for conversion pursuant
to Section 2.1 of less than all of this Note), the Company shall make a
notation on the new Note issued upon such transfer or re-registration or
evidencing such unconverted portion of this Note, as the case may be, as to the
remaining numbers of shares of Common Stock from the NASD Limitation Amount and
the Maximum Share Amount (as reduced by the first proviso of the definition of
9
<PAGE>
"Maximum Share Amount" in Section 7.1 hereof), respectively, remaining
available for conversion of the Note evidenced by such new certificate
(including, without limitation, by taking into account the number of shares of
Common Stock issued by the Company pursuant to Section 1.1 in payment of
interest on this Note and not previously reflected on the Note so surrendered,
as shown on the records maintained by the Company). If this Note is
surrendered for split-up into two or more Notes representing an aggregate
principal amount equal to the principal amount of this Note at the time so
surrendered (as reduced by any contemporaneous conversion of this Note), each
Note issued on such split-up shall bear a notation of the portions of the NASD
Limitation Amount and the Maximum Share Amount allocated thereto determined by
pro rata allocation from among the remaining portion of the NASD Limitation
Amount and the Maximum Share Amount, respectively, allocated to this Note at
the time so surrendered. If any Other Note is converted in full or repaid,
repurchased or redeemed in full, all of the portions of the NASD Limitation
Amount and the Maximum Share Amount (as defined in such Other Note) allocated
to such Other Note which remain unissued after such conversion, repayment,
repurchase or redemption shall be re-allocated to this Note and the Other Notes
outstanding at the close of business on the date of such conversion, repayment,
repurchase or redemption of the Other Note so converted, repaid, repurchased or
redeemed pro rata based on the principal amounts thereof originally issued, and
the Company shall promptly, but in any event within five Business Days, furnish
the Holder a Statement of the amounts so re-allocated and a brief description
of the calculation thereof.
(b)(1) If a Maximum Share Amount Inconvertibility occurs, then the
Company shall promptly, but in no event later than three Business Days after
each such occurrence, give an Inconvertibility Notice to the Holder and the
Holder may at any time after such occurrence give an Inconvertibility Notice to
the Company. If the Company shall have given or been required to give, or if
the Holder shall have given, any Inconvertibility Notice, then within the
applicable Redemption Election Period the Holder shall have the right by a
Redemption Election given to the Company (which may be contained in the
Inconvertibility Notice given by the Holder) to direct the Company to redeem,
at the applicable Redemption Price, the portion of this Note (which, if
applicable, shall be all of this Note) as shall not, on the Business Day prior
to the applicable Redemption Date, be convertible into shares of Common Stock
by reason of a Maximum Share Amount Inconvertibility. If the Holder gives a
Redemption Election to the Company by reason of a Maximum Share Amount
Inconvertibility and, prior to the date the Company is required to redeem this
Note or any portion hereof, any two Trading Days within any period of three
consecutive Trading Days commencing after Measurement Period which gave rise to
the applicable Inconvertibility Notice are not Maximum Share Inconvertibility
Days, then the Company shall not be required to redeem any of this Note by
reason of such Redemption Election.
(2) If on any day after the Issuance Date the Conversion Price is
less than the Redemption Trigger Price, then an "Optional Redemption Trigger
Event" shall be deemed to have occurred and the Company may, at its option,
within five Business Days thereafter, call for redemption of this Note in full
or in part by giving notice to the Holder, and on the fifth Business Day
following the giving of such notice the Company shall redeem this Note in full
or in part at a Redemption Price; provided, however, that if an Optional
Redemption Trigger Event shall occur and the Company shall fail to exercise
such option to redeem this Note in full within such five Business Day period,
10
<PAGE>
the Company shall not thereafter be entitled to call this Note for redemption
in full or in part pursuant to this provision unless and until the Conversion
Price is less than the immediately preceding Redemption Trigger Price. If the
Company shall exercise such option to redeem this Note, notwithstanding the
existence of a Maximum Share Amount Inconvertibility (but subject to the
limitation on beneficial ownership contained in Section 2.1(b)), the Holder of
this Note shall be entitled at any time after notice of redemption is given and
prior to the date of payment in full of the Redemption Price of this Note to
convert any portion up to 20% of the outstanding principal balance of this Note
(and interest accrued thereon and Default Interest, if any) at the Conversion
Price except to the extent, if any, that such conversion would conflict with
Section 2.4(a).
(3) An Inconvertibility Notice or a Redemption Election given by the
Holder shall be deemed for all purposes to be in proper form unless the Company
notifies the Holder in writing within three Business Days after an
Inconvertibility Notice or a Redemption Election has been given (which notice
shall specify all defects in the Inconvertibility Notice or Redemption
Election), and any Inconvertibility Notice or Redemption Election containing
any such defect shall nonetheless be effective on the date given if the Holder
promptly undertakes in writing to correct all such defects. In the absence of
any such undertaking from the Holder, no such claim of error shall limit or
delay performance of the Company's obligation to redeem the full amount of the
Inconvertible Portion as to which a Redemption Election has been given and
which is not in dispute.
(c) Notwithstanding the giving of any Inconvertibility Notice by the
Company to the Holder or the giving or the absence of any Inconvertibility
Notice or Redemption Election by the Holders or any redemption of an
Inconvertible Portion pursuant to Section 2.4(b), thereafter the provisions of
Section 2.4(b) shall continue to be applicable on any occasion unless, in the
case of a Maximum Share Amount Inconvertibility which arises when the Maximum
Share Amount is the NASD Limitation Amount, the Stockholder Approval shall have
been obtained or waived by the NASD.
(d) On each Redemption Date, the Company shall make payment in
immediately available funds of the applicable Redemption Price to or upon the
order of the Holder as specified by the Holder in writing to the Company at
least one Business Day prior to such Redemption Date. If the Company is
required to redeem any Inconvertible Portion pursuant to this Section 2.4, the
Company shall make payment to the Holder of an amount equal to the Redemption
Price. Upon redemption of less than all of this Note, promptly, but in no
event later than three Business Days after surrender of this Note to the
Company, the Company shall issue a replacement Note of like tenor having a
principal amount equal to the principal amount of this Note remaining after
such redemption.
(e) If the Company shall have failed to pay in full the Redemption
Price for any portion (which, if applicable, may be all) of any Inconvertible
Portion when the same is due and payable by reason of a Maximum Share Amount
Inconvertibility and the Maximum Share Amount Inconvertibly arises from the
first sentence of Section 2.4(a), without in any way relieving the Company of
its obligation to pay such amount in accordance with Sections 2.4(b) and
2.4(d), upon the written request of the Majority Holders, the Company shall use
its best efforts to obtain a waiver from the NASD of the requirement for
11
<PAGE>
Stockholder Approval for issuance of all shares of Common Stock issuable upon
conversion of this Note and the Other Notes. If such a waiver, in form
reasonably satisfactory to the Majority Holders, is not obtained within 15 days
after the Company's receipt of such request from the Majority Holders, the
Company promptly shall call a special meeting of its stockholders, to be held
not later than 60 days after the expiration of the foregoing 15-day period, to
seek the Stockholder Approval for issuance of all shares of Common Stock
issuable upon conversion of this Note and the Other Notes in accordance with
Section 2.1.
ARTICLE III
CERTAIN COVENANTS
So long as any principal of (and premium, if any) or interest on this
Note or any other amount payable under or with respect to this Note or the Note
Purchase Agreement remains unpaid:
3.1 Limitations on Certain Indebtedness. The Company will not
itself, and will not permit any Subsidiary to, create, assume, incur or in any
manner become liable in respect of, including, without limitation, by reason of
any business combination transaction (all of which are referred to herein as
"incurring"), any Indebtedness other than Permitted Indebtedness.
3.2 Tender Offers. The Company will not itself, and will not permit
any Subsidiary to (1) make any Tender Offer for outstanding shares of Common
Stock unless the Company contemporaneously therewith makes an offer, or (2)
enter into an agreement regarding a Tender Offer for outstanding shares of
Common Stock by any person other than the Company or any Subsidiary, unless
such person agrees with the Company to make an offer, in either such case, to
the Holder to purchase the same percentage of the outstanding principal amount
of this Note held by the Holder as the percentage of outstanding shares of
Common Stock offered to be purchased in such Tender Offer, at a price equal to
the greater of (i) an amount equal to the sum of (1) the sum of (A) the
outstanding principal amount of this Note plus (B) accrued and unpaid interest
on such principal amount to the date of payment plus (C) accrued and unpaid
Default Interest, if any, on the amount referred to in the immediately
preceding clause (B) at the rate provided in this Note to the date of purchase
pursuant to such Tender Offer plus (2) an amount equal to the product obtained
by multiplying (a) the sum of the amount stated in the immediately preceding
clause (1)(A) times (b) either (I) if the date of purchase pursuant to such
Tender Offer is on or before the date which is 120 days after the Issuance
Date, 12.5%, (II) if the date of purchase pursuant to such Tender Offer is on
or after the date which is 121 days after the Issuance Date and on or before
the date which is 270 days after the Issuance Date, 15%, and (III) if the date
of purchase pursuant to such Tender Offer is on or after the 271st day after
the Issuance Date, 20% and (ii) an amount equal to the product obtained by
multiplying (x) the number of shares of Common Stock which would, but for the
purchase pursuant to such Tender Offer, be issuable on conversion in accordance
with Section 2.1 of the portion of this Note tendered by the Holder and any
accrued and unpaid interest thereon and any accrued and unpaid Default Interest
if a Conversion Notice were given by the Holder on the date of purchase
pursuant to such Tender Offer (determined without regard to any limitation on
conversion contained in the first sentence of Section 2.1(b)) times (y) the
highest price per share of Common Stock paid or payable pursuant to such Tender
Offer.
12
<PAGE>
3.3 Payment of Obligations. The Company will pay and discharge, and
will cause each Significant Subsidiary to pay and discharge, all their
respective material obligations and liabilities, including, without limitation,
tax liabilities, except where the same may be contested in good faith by
appropriate proceedings.
3.4 Maintenance of Property; Insurance. (a) The Company will keep,
and will cause each Significant Subsidiary to keep, all property useful and
necessary in its business in good working order and condition, ordinary wear
and tear excepted.
(b) The Company will maintain, and will cause each Significant
Subsidiary to maintain, with financially sound and responsible insurance
companies, insurance in at least such amounts and against such risks as it
believes is reasonably adequate for the conduct of their respective businesses
and the value of their respective properties.
3.5 Conduct of Business and Maintenance of Existence. The Company
will continue, and will cause each Subsidiary to continue, to engage in
business of the same general type as now conducted by the Company, and will
preserve, renew and keep in full force and effect, and will cause each
Significant Subsidiary to preserve, renew and keep in full force and effect,
their respective corporate existence and their respective rights, privileges
and franchises necessary or desirable in the normal conduct of business.
3.6 Compliance with Laws. The Company will comply, and will cause
each Significant Subsidiary to comply, in all material respects with all
applicable laws, ordinances, rules, regulations, decisions, orders and
requirements of governmental authorities and courts (including, without
limitation, environmental laws) except (i) where compliance therewith is
contested in good faith by appropriate proceedings or (ii) where non-compliance
therewith could not reasonably be expected to have a material adverse effect on
the business, financial condition, operations, performance or properties of the
Company and its subsidiaries taken as a whole.
3.7 Investment Company Act. The Company will not be or become an
open-end investment trust, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act of 1940, as amended.
ARTICLE IV
EVENTS OF DEFAULT
4.1 Events of Default. Each of the following shall be an
"Event of Default":
(1) Failure to Pay Principal or Interest. The Company fails (a) to
pay the principal, Redemption Price, Repurchase Price or Registration
Repurchase Price hereof when due, whether at maturity, upon redemption, upon
acceleration or otherwise, as applicable, or (b) to pay any installment of
interest hereon when due and, in the case of this clause (b) of this Section
4.1(1) only, such failure continues for a period of five Business Days after
the due date thereof; or
13
<PAGE>
(2) Conversion and the Shares. The Company fails to issue or cause
to be issued shares of Common Stock to the Holder upon exercise by the Holder
of the conversion rights of the Holder in accordance with the terms of this
Note or fails to transfer any certificate for shares of Common Stock issued to
the Holder upon conversion of this Note or in payment of interest on this Note
as and when required by this Note, the Note Purchase Agreement or the Transfer
Agent Agreement; or
(3) Breach of Covenant. The Company (a) fails to comply with
Section 3.2 or (b) fails to comply in any material respect with any provision
of Article III of this Note (other than Section 3.2) or breaches any other
material covenant or other material term or condition of this Note (other than
as specifically provided in Sections 4.1(1), 4.1(2), 4.1(3)(a)), the Note
Purchase Agreement, or the Transfer Agent Agreement, and in the case of this
clause (b) of this Section 4.1(3) only, such breach continues (i) for a period
of fifteen days after written notice thereof to the Company from the Holder or
(ii) for a period of thirty days after delivery of such notice if, and only if
(x) such cure cannot be completed within such 15-day period, (y) such default
is reasonably capable of cure within 30 days after such notice and (z) at all
times during such 30-day period the Company has been diligently taking action
to cure such default.
(4) Breach of Representations and Warranties. Any material
representation or warranty of the Company made herein or in any agreement,
statement or certificate given in writing pursuant hereto or in connection
herewith (including, without limitation, the Note Purchase Agreement, and the
Transfer Agent Agreement) shall be false or misleading in any material respect
when made; or
(5) Certain Voluntary Proceedings. The Company or any Significant
Subsidiary shall commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator, custodian
or other similar official of it or any substantial part of its property, or
shall consent to any such relief or to the appointment of or taking possession
by any such official in an involuntary case or other proceeding commenced
against it, or shall make a general assignment for the benefit of creditors, or
shall fail generally to pay its debts as they become due or shall admit in
writing its inability generally to pay its debts as they become due; or
(6) Certain Involuntary Proceedings. An involuntary case or other
proceeding shall be commenced against the Company or any Significant Subsidiary
seeking liquidation, reorganization or other relief with respect to it or its
debts under any bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator, custodian
or other similar official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain undismissed and unstayed
for a period of sixty (60) consecutive days; or
(7) Judgments. Any court of competent jurisdiction shall enter one
or more final judgments against the Company or any Subsidiary or any of their
respective properties or other assets in an aggregate amount in excess of
$500,000 which is not vacated, bonded, stayed, discharged, satisfied or waived
for a period of thirty consecutive days; or
14
<PAGE>
(8) Default Under Other Agreements. (a) The Company or any
Subsidiary shall (i) default in any payment with respect to any indebtedness
for borrowed money (other than this Note) which indebtedness has an outstanding
principal amount in excess of $2,000,000 individually or $5,000,000 in the
aggregate for the Company and its Subsidiaries, beyond the period of grace, if
any, provided in the instrument or agreement under which such indebtedness was
created or (ii) default in the observance or performance of any agreement,
covenant or condition relating to any such indebtedness or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other
event shall occur or condition exist, the effect of which default or other
event or condition is to cause, or to permit the holder or holders of such
indebtedness (or a trustee or agent on behalf of such holder or holders) to
cause, any such indebtedness to become due prior to its stated maturity and
such default or event shall continue beyond the period of grace, if any,
provided in the instrument or agreement under which such indebtedness was
created (after giving effect to any consent or waiver obtained and then in
effect thereunder); provided, however, that the events and conditions described
in the preceding clauses (i) and (ii) shall not constitute an Event of Default
unless and until the Company fails to take the action necessary to correct such
event or condition within five (5) Business Days of becoming aware of such
event or condition; or (b) any indebtedness of the Company or any of its
Subsidiaries which has an outstanding principal amount in excess of $1,500,000
individually or $3,500,000 in the aggregate shall, in accordance with its
terms, be declared to be due and payable, or required to be prepaid other than
by a regularly scheduled or required payment prior to the stated maturity
thereof; provided, however, that the acceleration of any indebtedness as a
result of the Company's relocation from its current facilities shall not
constitute an Event of Default unless and until an event of default is declared
under the instrument or agreement under which such indebtedness was created and
such default is not cured by the Company within five Business Days of receipt
of notice of such event of default; or
(9) Delisting of Common Stock. The Common Stock shall cease to be
listed on any of Nasdaq, the NYSE or the AMEX and shall remain unlisted for a
period of three Trading Days.
4.2 Rights of Holder Upon Occurrence of Event of Default. Upon the
occurrence and during the continuation of any Event of Default specified in
Section 4.1(1), 4.1(2), 4.1(3), 4.1(4), 4.1(7), 4.1(8), or 4.1(9), the Holder,
by notice to the Company, may declare the entire unpaid principal balance of
this Note and all interest accrued thereon to be, and the same shall thereupon
become, immediately due and payable, without any presentment, demand, protest
or other notice of any kind, all of which are expressly waived. When an Event
of Default specified in Section 4.1(5) or 4.1(6) occurs, then the unpaid
principal balance of this Note and all interest accrued thereon shall
immediately become due and payable without any notice, presentment, demand or
protest of any kind, all of which are hereby expressly waived. Upon this Note
becoming due and payable as a result of the occurrence of any Event of Default
as aforesaid, the Company shall, pay to the Holder an amount equal to the sum
of:
15
<PAGE>
(1) the sum of (A) the outstanding principal amount of this
Note plus (B) accrued and unpaid interest on such principal amount to the
date of payment plus (C) accrued and unpaid Default Interest, if any, on
the amount referred to in the immediately preceding subclause (B) at the
rate provided in this Note to the date of payment, plus
(2) to the extent not prohibited by applicable law, an amount
as liquidated damages for loss of bargain (and not as a penalty) equal to
the product of (X) the applicable Acceleration Percentage and (Y) the sum
of the amounts referred to in subclauses (A) and (B) of the preceding
clause (1); provided, however, that if in connection with any Event of
Default the Company shall not at such time be in compliance with Section
2.3(c), then in lieu of payment of the aforesaid amount provided in this
clause (2), the Company shall pay to the Holder an amount equal to the
amount which would be so payable if, instead of multiplying the amount
referred to in subclause (Y) by the applicable Acceleration Percentage,
such amount is multiplied by the excess of the applicable Business
Combination Redemption Percentage over 100%, plus
(3) all other amounts payable hereunder, including, without
limitation, legal fees and expenses and other costs of collection.
In addition, the Holder shall be entitled to exercise all other rights
and remedies available at law or in equity.
ARTICLE V
REPURCHASE UPON A REPURCHASE EVENT OR
REGISTRATION REPURCHASE EVENT
5.1 Repurchase Right Upon Repurchase Event. If there shall occur a
Repurchase Event, then the Holder shall have the right, at the Holder's option,
to require the Company to repurchase all of this Note, or any portion hereof
(in a minimum principal amount of $100,000 or integral multiples thereof (or
such lesser remaining principal amount of this Note)), on the repurchase date
that is five Business Days after the date of the Holder Notice delivered with
respect to such Repurchase Event. The Holder shall have the right to require
the Company to repurchase all or any such portion of this Note if a Repurchase
Event occurs at any time while any portion of the principal amount of this Note
is outstanding at a price equal to the Repurchase Price; provided, however,
that if such right to require repurchase of this Note arises in connection with
a transaction that (i) is intended to qualify as a pooling of interests under
the Pooling Standards and (ii) but for the exercise of repurchase rights under
Section 5.1 of this Note and Section 5.1 of the Other Notes, may qualify as a
pooling of interests under the Pooling Standards, then the Company may, in the
reasonable exercise of its discretion, elect not to repurchase such Note in
order to comply with the Pooling Standards.
5.2 Notices; Method of Exercising Repurchase Rights, Etc. (a) On or
before the fifth (5th) Business Day after the occurrence of a Repurchase Event,
the Company shall give to the Holder a Company Notice of the occurrence of the
Repurchase Event and of the repurchase right set forth herein arising as a
result thereof. Such Company Notice shall set forth:
(i) the date by which the repurchase right must be exercised, and
16
<PAGE>
(ii) a description of the procedure (set forth below) which the
Holder must follow to exercise the repurchase right.
No failure of the Company to give a Company Notice or defect therein shall
limit the Holder's right to exercise the repurchase right or affect the
validity of the proceedings for the repurchase of this Note or portion hereof.
(b) To exercise the repurchase right, the Holder shall deliver to
the Company on or before the thirtieth (30th) day after a Company Notice (or if
no such Company Notice has been given, within forty (40) days after the Holder
first learns of the Repurchase Event) (i) a Holder Notice setting forth the
name of the Holder and the principal amount of this Note to be repurchased, and
(ii) this Note, duly endorsed for transfer to the Company of the portion of the
principal amount of this Note to be repurchased. A Holder Notice may be
revoked by the Holder at any time prior to the time the Company pays the
applicable Repurchase Price to the Holder.
5.3 Repurchase Right Upon Registration Repurchase Event. Upon the
occurrence of a Registration Repurchase Event, the Holder shall have the right,
at the Holder's option, to require the Company to repurchase all of this Note,
or from time to time any portion hereof (in a minimum principal amount of
$100,000 or integral multiples thereof (or such lesser remaining principal
amount of this Note)), on the repurchase date that is five (5) Business Days
after the date a Holder Registration Repurchase Notice is given by the Holder.
The Holder shall exercise its right to require repurchase pursuant to this
Section 5.3 by giving a Holder Registration Repurchase Notice as follows: (i)
if the Registration Repurchase Event occurs by reason of the Company's failure
to timely file the Registration Statement with the SEC, within 30 days after
such event or (ii) if the Registration Repurchase Event occurs by reason of the
non-occurrence of the SEC Effective Date within 100 days after the Issuance
Date, at any time prior to the SEC Effective Date. If the Holder shall have
given a Holder Registration Repurchase Notice, the Company shall repurchase
this Note or the portion of this Note as stated in such Holder Registration
Repurchase Notice at a purchase price equal to the Registration Repurchase
Price. A Holder Registration Repurchase Notice may be revoked by the Holder at
any time prior to the time the Company pays the applicable Registration
Repurchase Price.
5.4 Other. (a) If the Company fails to repurchase on the applicable
repurchase date this Note (or portion hereof) as to which the repurchase right
has been properly exercised pursuant to this Article V, then the Repurchase
Price or the Registration Repurchase Price, as the case may be, for the portion
(which, if applicable, may be all) of this Note which is required to have been
so repurchased shall bear interest to the extent not prohibited by applicable
law from the applicable repurchase date until paid at the Default Rate.
(b) If a portion of this Note is to be repurchased, upon surrender
of this Note to the Company in accordance with the terms of this Article V, the
Company shall execute and deliver to the Holder without service charge, a new
Note or Notes, having the same date hereof and containing identical terms and
conditions, in such denomination or denominations as requested by the Holder in
aggregate principal amount equal to, and in exchange for, the unrepurchased
portion of the principal amount of the Note so surrendered.
17
<PAGE>
(c) The Company shall notify the Holder of any claim by the Company
of manifest error in a Holder Notice or a Holder Registration Repurchase Notice
within three Business Days after the Holder gives such notice and no such claim
of error shall limit or delay performance of the Company's obligation to
repurchase such portion of the Note which is not in dispute and (ii) such
notice shall be deemed for all purposes to be in proper form unless the Company
notifies the Holder within two Business Days after such notice has been given
(which notice from the Company shall specify all defects in such notice) and
any Holder Notice or Holder Registration Repurchase Notice containing any such
defect shall nonetheless be effective on the date given if the Holder promptly
undertakes in writing to correct all such defects.
ARTICLE VI
ELECTIONS AT MATURITY DATE
6.1 Holder Election. The Holder shall have the right, exercisable
at any time prior to the Maturity Date (or such later date as the Company may
permit) by giving a Final Conversion Election, to elect that upon the Maturity
Date the outstanding amount of this Note shall be converted into shares of
Common Stock in accordance with Section 2.1. The Holder may make such election
by giving notice of the Final Conversion Election at any time prior to the
Maturity Date. If the Holder gives a Final Conversion Election, then on the
Maturity Date the outstanding amount of this Note shall be converted into the
number of shares of Common Stock determined in accordance with Section 2.1
(determined without regard to the limitation, if any, on beneficial ownership
by the Holder contained in Section 2.1(b)). Such conversion, however, shall be
subject to the limitations contained in Section 2.4. The Company shall notify
the Holder of any claim by the Company of manifest error in a Final Conversion
Election within three Business Days after the Holder gives such Final
Conversion Election and no such claim or error shall limit or delay performance
of the Company's obligation to issue upon such conversion the number of shares
of Common Stock which are not in dispute. A Final Conversion Election shall be
deemed for all purposes to be in proper form unless the Company notifies the
Holder within three Business Days after a Final Conversion Election has been
given (which notice shall specify all defects in the Final Conversion Election)
and any Final Conversion Election containing any such defect shall nonetheless
be effective on the date given if the Holder promptly undertakes in writing to
correct all such defects.
6.2 Final Maturity Note Issuance at Option of Company. (a) If the
Holder fails timely to make the Final Conversion Election, then the Company
shall have the option, which may be exercised by the Company by notice given to
the Holder at any time on or before the Maturity Date, to require the Holder to
exchange all or a portion of the principal of this Note (and interest accrued
thereon and Default Interest, if any) as of the Maturity Date for a Final
Maturity Note in the principal amount herein specified provided that the
Company shall comply with the provisions of this Section 6.2. The principal
amount of the Final Maturity Note shall be (a) the sum of (1) the outstanding
principal amount of this Note, (2) the amount of accrued and unpaid interest on
such principal amount to the Maturity Date and (3) Default Interest, if any, on
the amount referred to in the immediately preceding clause (2) to the Maturity
Date less (b) the sum of (1) the principal amount of this Note, if any, which
on the Maturity Date is inconvertible pursuant to Section 2.4, (2) accrued and
unpaid interest on such principal amount to the Maturity Date and (3) Default
18
<PAGE>
Interest, if any, on the amount referred to in the immediately preceding clause
(2) to the Maturity Date. Notwithstanding the issuance of the Final Maturity
Note, the Company shall remain liable for payment of all unpaid amounts due
under this Note which are not included in the Final Maturity Note, including,
without limitation, any unpaid premium constituting a portion of the Redemption
Price, the Repurchase Price, or Registration Repurchase Price and any amount
referred to in clause (b) of the preceding sentence. If the Holder shall have
failed to give a Final Conversion Election prior to the Maturity Date, then
prior to issuance of the Final Maturity Note, the Company shall have the right
within 15 days after the Maturity Date to contact the Holder and for a period
of 15 days after such notice to seek a Final Conversion Election from the
Holder; provided, however, that if the Holder fails to give a Final Conversion
Election within such 15 days, the Company shall immediately issue the Final
Maturity Note, which shall be dated the Maturity Date. The Final Maturity Note
shall be accompanied by an opinion of counsel, in form, scope and substance
satisfactory to the Holder, to the effect that the Final Maturity Note
constitutes a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance or transfer, reorganization, moratorium and other laws of
general applicability relating to or affecting creditors' rights and to general
equitable principles.
(b) The Holder of this Note by its acceptance hereof, acknowledges
and agrees that the Final Maturity Note shall bear a restrictive legend in
substantially the following form (and a stop-transfer order to such effect may
be placed against transfer of the Final Maturity Note):
THIS FINAL MATURITY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS FINAL MATURITY
NOTE HAS BEEN ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION
OF COUNSEL REASONABLY SATISFACTORY IN FORM, SCOPE AND SUBSTANCE TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
The Final Maturity Note may not be transferred except as provided in
Section 3.7 of the Final Maturity Note.
ARTICLE VII
DEFINITIONS
7.1 Certain Defined Terms. (a) All the agreements or instruments
herein defined shall mean such agreements or instruments as the same may from
time to time be supplemented or amended or the terms thereof waived or modified
to the extent permitted by, and in accordance with, the terms thereof and of
this Note.
(b) The following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"Acceleration Percentage" means with respect to the date of payment
in full of the amount due in respect of this Note as set forth in Section 4.2,
the applicable percentage set forth below determined with respect to such date
as follows:
19
<PAGE>
Date Percentage
Issuance Date to and including the 120th day thereafter 15%
121st through 270th day after the Issuance Date 17.5%
On and after the 271st day after the Issuance Date 22.5%
"Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with the subject Person. For purposes
of the term "Affiliate", the term "control" (including the terms "controlling",
"controlled by" and "under common control with") means the possession, direct
or indirect, of the power to direct or to cause the direction of the management
and policies of a Person, whether through the ownership of securities, by
contract or otherwise.
"Aggregated Person" means any person whose beneficial ownership of
shares of Common Stock would be aggregated with the Holder's beneficial
ownership of shares of Common Stock for purposes of Section 13(d) of the 1934
Act and Regulation 13D-G thereunder.
"AMEX" means the American Stock Exchange, Inc.
"Applicable Rate" means five percent (5%) per annum.
"Business Combination Redemption Percentage" means for any redemption
of this Note in accordance with Section 2.3(c) the applicable percentage set
forth below:
Redemption Date Percentage
On or after Issuance Date through 125.0%
120th day after the Issuance Date
On and after the 121st day after the Issuance Date 130.0%
through the 365th day after the Issuance Date
On or after 366th day after the Issuance Date 135.0%
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which commercial banks in The City of New York are authorized or
required by law or executive order to remain closed.
"Common Stock" shall mean the Common Stock, $.01 par value, together
with any related "poison pill" preferred stock purchase rights or similar
rights, of the Company or any shares of capital stock and related rights of the
Company into which such stock shall be changed or reclassified after the
Issuance Date.
"Company" shall have the meaning provided in the first paragraph of
this Note.
"Company Certificate" means a certificate of the Company signed by an
Officer.
20
<PAGE>
"Company Notice" means a Company Notice in the form attached hereto
as Exhibit E.
"Computed Price" for any date means the arithmetic average of the
lowest per share Trading Price on the two Trading Days during the applicable
Measurement Period for such date on which the two lowest per share Trading
Prices occur.
"Conversion Notice" means a Notice of Conversion of 5% Senior
Convertible Note Due 2001 substantially in the form attached hereto as Exhibit
A, properly completed and duly executed by the Holder or the Holder's attorney-
in-fact.
"Conversion Price" for any date means the lowest Trading Price of the
Common Stock during the applicable Measurement Period; provided, however, that
notwithstanding the foregoing, from the Issuance Date through the 180th day
following the Issuance Date, the Conversion Price shall not be less than a
price (the "Floor Price") equal to the product of (x) the applicable Floor
Percentage specified in the table below and (y) the average closing bid prices
of the Common Stock as reported by the Price Source for the five consecutive
Trading Days immediately preceding the Issuance Date (the "Base Price") and
provided further that, notwithstanding anything herein to the contrary, in no
event shall the Conversion Price be less than $10.00 (such price to be
equitably adjusted from time to time on terms reasonably acceptable to the
Holder for stock splits, stock dividends, combinations, capital reorganizations
and similar events relating to the Common Stock occurring after the Issuance
Date).
Period Floor Percentage
Issuance Date to 30th Day 130%
Following Issuance Date
31st Day Following Issuance 120%
Date to 60th Day Following
Issuance Date
61st Day Following Issuance 110%
Date to 90th Day Following
Issuance Date
91st Day Following Issuance 100%
Date to 120th Day Following
Issuance Date
121st Day Following Issuance 87.5%
Date to 150th Day Following
Issuance Date
151st Day Following Issuance 75%
Date to 180th Day Following
Issuance Date
"Default Interest" shall have the meaning provided in the first
paragraph of this Note.
21
<PAGE>
"Default Rate" means 10 percent per annum (or such lesser rate equal
to the highest rate permitted by applicable law).
"Event of Default" shall have the meaning provided in Article IV.
"Final Conversion Election" means a Holder Notice of Final Conversion
of 5% Senior Convertible Note in the form attached hereto as Exhibit H.
"Final Maturity Note" shall mean a note issued by the Company in the
form attached hereto as Exhibit I.
"Generally Accepted Accounting Principles" for any Person means the
generally accepted accounting principles and practices applied by such Person
from time to time in the preparation of its audited financial statements.
"Holder" shall have the meaning provided in the first paragraph of
this Note.
"Holder Notice" means a Holder Notice in the form attached hereto as
Exhibit F.
"Holder Registration Repurchase Notice" means a Holder Registration
Repurchase Notice in the form attached hereto as Exhibit G.
"Inconvertibility Day" means any Trading Day on which (x) the Company
would not have been required to convert in accordance with Section 2.1 any
portion of this Note as a consequence of the limitations set forth in Section
2.4(a) had the Holder converted this Note in full on such Trading Day,
determined at the Conversion Price applicable on such Trading Day and without
regard to the limitation, if any, on beneficial ownership contained in Section
2.1(b) (a "Maximum Share Inconvertibility Day") or (y) the Company does not
have reserved from its authorized and unissued shares of Common Stock for
purposes of conversion of this Note and the Other Notes the number of shares of
Common Stock so required to be reserved pursuant to Section 2.2.
"Inconvertibility Notice" means a notice from the Company to the
Holder in the form set forth in Exhibit B or a notice from the Holder to the
Company in the form set forth in Exhibit C.
"Inconvertible Portion" means the portion of this Note as shall not,
on the Business Day immediately preceding the applicable Redemption Date, be
convertible into shares of Common Stock by reason of the limitations set forth
in Section 2.4(a) (determined without regard to the limitation, if any, on
beneficial ownership contained in Section 2.1(b)).
"Indebtedness" as used in reference to any Person means all
indebtedness of such person for borrowed money, the deferred purchase price of
property, goods and services and obligations under leases which are required to
be capitalized in accordance with Generally Accepted Accounting Principles and
shall include all such indebtedness guaranteed in any manner by such person or
in effect guaranteed by such person through a contingent agreement to purchase
and all indebtedness for the payment or purchase of which such person has
contingently agreed to advance or supply funds and all indebtedness secured by
22
<PAGE>
mortgage or other lien upon property owned by such person, although such person
has not assumed or become liable for the payment of such indebtedness, and, for
all purposes hereof, such indebtedness shall be treated as though it has been
assumed by such person.
"Interest Payment Dates" shall mean the first annual anniversary of
the Issuance Date and each annual anniversary of the Issuance Date thereafter
and the Maturity Date.
"Issuance Date" means the date and time this Note was originally
issued to the original Holder of this Note.
"Majority Holders" means the holders of the majority of the original
principal amount of this Note and the Other Notes on the date hereof.
"Market Price" of any security on any date shall mean the closing bid
price of such security on such date on Nasdaq or such other securities exchange
or other market on which such security is listed for trading which constitutes
the principal securities market for such security, as reported by Nasdaq or
such exchange or other market.
"Maturity Date" means May 1, 2001.
"Maximum Share Amount" shall mean a number of shares of Common Stock
equal to the product of (x) the Specified Maximum Amount and (y) a fraction
(the "Note Fraction"), the numerator of which shall be (p) the original
principal amount of this Note and the denominator of which shall be (q) the
aggregate original principal amount of this Note and the Other Notes; provided,
however, that the Maximum Share Amount shall be reduced by the number of shares
issued to the holder upon the conversion of this Note; and provided further,
that the Specified Maximum Amount shall be equitably adjusted from time to time
on terms reasonably acceptable to the Holder for stock splits, stock dividends,
combinations, capital reorganizations and similar events relating to the Common
Stock occurring after the Issuance Date. The "Specified Maximum Amount" means
at any time after the Issuance Date, 1,000,000 shares, subject to adjustment as
described in the preceding provisos.
"Maximum Share Amount Inconvertibility" means the occurrence of five
or more Inconvertibility Days within any Measurement Period occurring after the
earlier of the SEC Effective Date and 100 days after the date hereof.
"Measurement Period" means with respect to any date the period of 10
consecutive Trading Days ending one Trading Day prior to such date.
"NASD" means the National Association of Securities Dealers, Inc. or
any successor.
"NASD Limitation Amount" means the product of (x) 20% of the number
of shares of Common Stock outstanding on the date prior to the Issuance Date
and (y) the Note Fraction. "Note Fraction" has the meaning set forth in the
definition of Maximum Share Amount.
"Nasdaq" means the Nasdaq Stock Market of the NASD.
"1933 Act" means the Securities Act of 1933, as amended, or any
successor statute.
23
<PAGE>
"1934 Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute.
"Note" means this 5% Senior Convertible Note Due 2001 as originally
executed, or if later amended or supplemented, then as so amended or
supplemented and any other 5% Senior Convertible Note Due 2001 issued upon any
split-up or transfer of this 5% Senior Convertible Note Due 2001 or any
predecessor hereof .
"Note Purchase Agreement" shall mean the Note Purchase Agreement,
dated as of May 1, 1998, by and between the Company and the original Holder of
this Note.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Officer" means the Chairman of the Board, the Chief Executive
Officer, the President or the Chief Financial Officer of the Company.
"Other Notes" means the several 5% Senior Convertible Notes due 2001
issued by the Company pursuant to the Other Note Purchase Agreements.
"Other Note Purchase Agreements" means the several Note Purchase
Agreements, dated as of the date of the Note Purchase Agreement, between the
Company and the several buyers named therein.
"Payment Shares" means the shares of Common Stock issuable in payment
of interest on this Note in accordance with Section 1.1.
"Permitted Indebtedness" means
(1) Indebtedness not in excess of $8.0 million aggregate principal
amount which is outstanding on the Issuance Date and which would be
reflected on a balance sheet of the Company as of the Issuance Date
prepared in accordance with Generally Accepted Accounting Principles;
(2) Indebtedness incurred after the Issuance Date consisting of (a)
equipment lease obligations or other equipment financings which are
required to be capitalized in accordance with Generally Accepted
Accounting Principles; and (b) Indebtedness incurred in connection with
the acquisition of furniture, fixtures and equipment;
(3) Indebtedness incurred (a) in connection with a strategic
alliance, collaboration, joint venture, partnership or other similar
arrangement of the Company with another Person which is engaged in a
business similar to or related to the business of the Company and (b)
after the Issuance Date that is secured solely by the Company's interest
in real estate, improvements to real estate and office and laboratory
facilities; and
(4) Indebtedness (other than as permitted by the preceding clauses
(1) through (3)) in a principal amount not in excess of $4.0 million
outstanding at any one time;
so long as (x) in the case of Indebtedness permitted by the preceding clauses
(2) through (4), on the date of incurrence of such Indebtedness no Event of
24
<PAGE>
Default has occurred and is continuing, and (y) in the case of Indebtedness
permitted by the preceding clause (2), the aggregate amount thereof (other than
any amount thereof permitted by clause (1) of this definition) outstanding at
any one time does not exceed $15.0 million.
"Permitted Transferee" means any person who is (1) an "accredited
investor" as defined in Regulation D under the 1933 Act and (2) a Person which
is an Affiliate of the Holder or the holder of any Other Note.
"Person" means an individual, partnership, corporation, limited
liability company, trust or incorporated organization, and a government or a
governmental agency or political subdivision.
"Pooling Standards" means Opinion No. 16 of the Accounting Principles
Board (or any successor accounting standard of the Financial Accounting
Standards Board (or any successor or replacement Person or board the accounting
pronouncements of which are applicable to issuers having a class of securities
registered pursuant to Section 12(b) or 12(g) of the 1934 Act)) and any
applicable requirements of the SEC relating to pooling of interests accounting
for business combination transactions, in each case as in effect from time to
time.
"Price Source" means Bloomberg L.P. (or any successor to the share
price reporting business of Bloomberg L.P.); provided, however, that if
Bloomberg L.P. (or any successor) shall no longer be reporting prices of the
Common Stock, "Price Source" shall mean a commercial price source available to
broker-dealers which reports such prices selected by the Majority Holders by
notice to the Company. The Company shall immediately notify the Holder of any
Price Source substituted for Bloomberg L.P. (or any successor).
"Redemption Date" means the date which is five Business Days after
the date the Holder gives a Redemption Election to the Company.
"Redemption Election" means (1) a notice by the Holder to the Company
substantially in the form set forth in Exhibit D or (2) a notice by the Holder
to the Company included in the form of Inconvertibility Notice set forth in
Exhibit C.
"Redemption Election Period" means, with respect to a particular
Maximum Share Amount Inconvertibility or Registration Restriction
Inconvertibility, the period of ten Business Days after the later of (x) the
date an Inconvertibility Notice with respect to such Maximum Share Amount
Inconvertibility or Registration Restriction Inconvertibility is given or (y)
the date such Inconvertibility Notice was required to have been given by the
Company.
"Redemption Percentage" means:
(i) in the case of a redemption at the option of the Company
pursuant to Section 2.4(b)(2), 110%; and
(ii) in the case of a redemption at the option of the Holder
pursuant to Section 2.4(b)(1), with respect to each Redemption Date, the
applicable percentage set forth below determined with respect to such date
as follows:
25
<PAGE>
Redemption Date Percentage
Issuance Date to the 120th day 112.5%
Following Issuance Date
121st Day Following Issuance Date
and thereafter 110.0%
"Redemption Price" means an amount in cash equal to the sum of (1)
the product obtained by multiplying (A) the sum of (i) the principal amount of
this Note to be redeemed on a particular Redemption Date plus (ii) accrued and
unpaid interest on such principal amount to such Redemption Date times (B) the
applicable Redemption Percentage plus (2) accrued and unpaid Default Interest,
if any, on the amount referred to in the immediately preceding clause
(1)(A)(ii) at the rate provided in this Note to such Redemption Date.
"Redemption Trigger Price" means a price per share of Common Stock
equal to $10.00 (such price to be equitably adjusted from time to time on terms
reasonably acceptable to the Holder for stock splits, stock dividends,
combinations, capital reorganizations and similar events relating to the Common
Stock occurring after the Issuance Date).
"Registration Repurchase Event" means the occurrence of either of the
following events:
(a) the Company fails to file the Registration Statement within the
30-day period provided in Section 8(a)(1) of the Note Purchase Agreement;
or
(b) the SEC Effective Date shall not have occurred on or before the
date which is 100 days after the Issuance Date.
"Registration Repurchase Price" means an amount in cash equal to the
sum of (1) the product obtained by multiplying (A) the sum of (i) the principal
amount of this Note to be repurchased plus (ii) accrued and unpaid interest on
such principal amount to the date of such repurchase times (B) 110%, plus (2)
accrued and unpaid Default Interest, if any, on the amount referred to in the
immediately preceding clause (1)(A)(ii) at the rate provided in this Note to
the date of repurchase in accordance with Article V.
"Registration Statement" means the Registration Statement required to
be filed by the Company with the SEC pursuant to Section 8(a) of the Note
Purchase Agreement.
"Repurchase Event" means the occurrence of any one or more of the
following events:
(a) For any period of five consecutive Trading Days following the
date hereof there shall be no reported sale price of the Common Stock on
any of Nasdaq, the NYSE or the AMEX;
(b) The Common Stock ceases to be included in the Nasdaq National
Market tier of Nasdaq, or listed on the NYSE or the AMEX;
26
<PAGE>
(c) Any consolidation or merger of the Company or any Subsidiary
with or into another entity (other than a merger or consolidation of a
Subsidiary into the Company or a wholly-owned Subsidiary) where the
stockholders of the Company immediately prior to such transaction do not
collectively own at least 51% of the outstanding voting securities of the
surviving corporation of such consolidation or merger immediately
following such transaction; or the sale of all or substantially all of the
assets of the Company and its Subsidiaries;
(d) The adoption of any amendment to the Company's Certificate of
Incorporation or the filing of any articles of serial designation or other
supplement to the Certificate of Incorporation which materially and
adversely affects the rights of the Holder or the taking of any other
action which materially and adversely affects the rights of the Holder; or
(e) Except as set forth in Section 8(c)(7) of the Note Purchase
Agreement, the inability of the Holder for 25 Trading Days (whether or not
consecutive) during any annual period commencing on the SEC Effective Date
or any annual anniversary of the SEC Effective Date to sell shares of
Common Stock issued upon conversion of this Note pursuant to the
Registration Statement required to be filed by the Company pursuant to the
Note Purchase Agreement (1) by reason of the requirements of the 1933 Act,
the 1934 Act or any of the rules or regulations under either thereof or
(2) due to the Registration Statement containing any untrue statement of
material fact or omitting to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or any
failure of the Registration Statement or the Prospectus included therein
or any amendment or supplement thereto to comply with the rules and
regulations of the SEC.
"Repurchase Price" means with respect to any repurchase pursuant to
Sections 5.1 and 5.2 an amount in cash equal to the sum of (1) the product
obtained by multiplying the sum of (A) the outstanding principal amount of this
Note plus (B) accrued and unpaid interest on such principal amount to the date
of such repurchase times (x) 112.5%, if the date of such repurchase is on or
before the 120th day after the Issuance Date, (y) 115%, if the date of such
repurchase is on or after the 121st day after the Issuance Date and on or
before the 270th day after the Issuance Date, or (z) 120%, if the date of such
repurchase is on or after the 271st day after the Issuance Date plus (2)
accrued and unpaid Default Interest, if any, on the amount referred to in the
immediately preceding clause (1)(B) at the rate provided in this Note to the
date of such repurchase.
"SEC" means the Securities and Exchange Commission, or any successor.
"SEC Effective Date" means the date on which the Registration
Statement is first declared effective by the SEC.
"Significant Subsidiary" means a Subsidiary which is a "significant
subsidiary," as that term is defined in Rule 1-02(w) of Regulation S-X of the
SEC as in effect on the date of this Agreement.
"Stock Payment Option" shall have the meaning provided in Section
1.1(a).
27
<PAGE>
"Stockholder Approval" means the approval by a majority of the votes
cast by the holders of shares of Common Stock (in person or by proxy) at a
meeting of the stockholders of the Company (duly convened at which a quorum was
present), or a written consent of holders of shares of Common Stock entitled to
such number of votes given without a meeting, of the issuance by the Company of
20% or more of the outstanding Common Stock of the Company for less than the
greater of the book or market value of such Common Stock on conversion of the
Note and the Other Notes, as and to the extent required under Rule 4460(i) of
the NASD (or any successor or replacement provision thereof).
"Subsidiary" means any corporation or other entity of which a
majority of the capital stock or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are at the time directly or indirectly owned by
the Company.
"Tender Offer" means a tender offer or exchange offer.
"Trading Day" means a day on which either the national securities
exchange or Nasdaq which then constitutes the principal securities market for
the Common Stock is open for general trading.
"Trading Price" on any date means the lowest sale price (regular way)
for one share of the Common Stock on such date, on the first applicable among
the following: (a) the national securities exchange on which the shares of
Common Stock are listed which constitutes the principal securities market for
the Common Stock, (b) Nasdaq, or (c) such other market as at the time
constitutes the principal trading market for the Common Stock, in any such case
as reported by the Price Source provided, however, that if on any Trading Day
there shall be no reported sale price (regular way) of the Common Stock, the
"Trading Price" on such Trading Day shall be the lowest sale price (regular
way) of the Common Stock on the Trading Day next preceding such Trading Day on
which a sale price (regular way) for the Common Stock has been so reported;
provided further, however, that the Trading Price shall be equitably adjusted
from time to time on terms reasonably acceptable to the Majority Holders for
(i) stock splits, (ii) stock dividends, (iii) combinations, (iv) capital
reorganizations, (v) issuance to all holders of Common Stock of rights or
warrants to purchase shares of Common Stock at a price per share less than the
Trading Price which would otherwise be applicable, (vi) the distribution by the
Company to all holders of Common Stock of evidences of indebtedness of the
Company or cash (other than regular quarterly cash dividends), (vii) tender
offers by the Company or any subsidiary of the Company or other repurchases of
shares of Common Stock in one or more transactions which, individually or in
the aggregate, result in the purchase of more than 10% of the Common Stock
outstanding and (viii) similar events relating to the Common Stock, in each
such case which occur on or after the Issuance Date).
"Transaction Documents" means this Note, the Note Purchase Agreement,
the Final Maturity Note, the Transfer Agent Agreement, and the other
agreements, instruments and documents contemplated hereby and thereby.
"Transfer Agent" means Continental Stock Transfer & Trust Company or
any successor transfer agent appointed by the Company.
"Transfer Agent Agreement" means the Transfer Agent Agreement, dated
as of May 1, 1998, by and among the Company, the Transfer Agent, the original
Holder of this Note and the Original Holders of the Other Notes.
28
<PAGE>
ARTICLE VIII
MISCELLANEOUS
8.1 Failure or Indulgence Not Waiver. No failure or delay on the
part of the Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof
or of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
8.2 Notices. All notices and other communications hereunder to any
party shall be deemed to be sufficient if contained in a written instrument
delivered in person or by a nationally recognized courier service or duly sent
by facsimile or first class, registered or certified mail, postage prepaid,
addressed to:
(a) if to the Company, to:
Emisphere Technologies, Inc.
15 Skyline Drive
Hawthorne, New York 10532
Telephone: (914) 347-2498
Facsimile: (914) 347-2220
Attention: Michael M. Goldberg, Chairman
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Telephone: (212) 373-3000
Facsimile: (212) 757-3990
Attention: Edwin S. Maynard, Esq.
and to:
H. Warren Browne, Esq.
25 Five Ponds Drive
Waccabuc, New York 10597
Telephone: (914) 763-5599
Facsimile: (914) 763-6321
and:
(b) if to the Holder, to:
All such notices and communications shall be deemed to have been received (i)
in the case of personal or courier delivery, on the date of such delivery, (ii)
in the case of facsimile transmission, on the date on which the sender receives
confirmation that such was received by the addressee and (iii) in the case of
mailing, on the third business day following the date of such mailing.
29
<PAGE>
8.3 Amendment Provision. None of this Note or any Other Note or any
terms hereof or thereof may be changed, waived, discharged or terminated unless
such change, waiver, discharge or termination is in writing signed by the
Majority Holders, provided that no such change, waiver, discharge or
termination shall, without the consent of the Holder and the holders of the
Other Notes affected thereby, (i) extend the scheduled final maturity of this
Note or any Other Note, or reduce the rate or extend the time of payment of
interest (other than as a result of waiving the applicability of any post-
default increase in interest rates) hereon or thereon or reduce the principal
amount hereof or thereof or the Redemption Price, Repurchase Price or
Registration Repurchase Price, (ii) amend, modify or waive any provision of
this Section 8.3, (iii) reduce any percentage specified in, or otherwise
modify, the definition of Majority Holders or (iv) change the method of
calculating the Conversion Price in a manner adverse to the Holder.
8.4 Assignability. This Note shall be binding upon the Company and
its successors, and shall inure to the benefit of and be binding upon the
Holder and its successors and permitted assigns. The Company may not assign
any of its rights or delegate any of its obligations under this Note.
8.5 Certain Expenses. The Company shall pay on demand all expenses
incurred by the Holder, including reasonable attorneys' fees and expenses, as a
consequence of, or in connection with, (x) any default or breach of any of the
Company's obligations set forth in the Transaction Documents and (y) the
enforcement or restructuring of any right of, including the collection of any
payments due, the Holder under the Transaction Documents, including any action
or proceeding relating to such enforcement or any order, injunction or other
process seeking to restrain the Company from paying any amount due the Holder.
8.6 Governing Law. This Note shall be governed by the internal laws
of the State of New York, without regard to the principles of conflict of laws.
8.7 Transfer of Note. This Note has not been and is not being
registered under the provisions of the 1933 Act or any state securities laws
and this Note may not be transferred unless (1) the transferee is a Permitted
Transferee and (2) the Holder shall have delivered to the Company an opinion of
counsel, reasonably satisfactory in form, scope and substance to the Company,
to the effect that this Note may be sold or transferred without registration
under the 1933 Act. Prior to any such transfer, such transferee shall have
represented in writing to the Company that such transferee has requested and
received from the Company all information relating to the business, properties,
operations, condition (financial or other), results of operations or prospects
of the Company deemed relevant by such transferee; that such transferee has
been afforded the opportunity to ask questions of the Company concerning the
foregoing and has had the opportunity to obtain and review the Registration
Statement and the prospectus included therein, each as amended or supplemented
to the date of transfer to such transferee, and the reports and other
information concerning the Company which at the time of such transfer have been
filed by the Company with the SEC pursuant to the 1934 Act and which are
incorporated by reference in such prospectus as of the date of such transfer.
If such transfer is intended to assign the rights and obligations under
Sections 5(a), 5(b) and 8 of the Note Purchase Agreement, such transfer shall
otherwise be made in compliance with Section 10.7 of the Note Purchase
Agreement.
30
<PAGE>
8.8 Enforceable Obligation. The Company represents and warrants
that at the time of the original issuance of this Note it received the full
purchase price payable pursuant to the Note Purchase Agreement in an amount at
least equal to the original principal amount of this Note, and that this Note
is an enforceable obligation of the Company which is not subject to any offset,
reduction, counterclaim or disallowance of any sort, subject to bankruptcy,
insolvency, fraudulent conveyance or transfer, reorganization, moratorium and
other laws of general applicability relating to or affecting creditors' rights
and to general equitable principles.
8.9 Certain Amounts. Whenever pursuant to this Note the Company is
required to pay an amount in excess of the outstanding principal amount (or the
portion thereof required to be paid at that time) plus accrued and unpaid
interest plus Default Interest on such interest, the Company and the Holder
agree that the actual damages to the Holder from the receipt of cash payment on
this Note may be difficult to determine and the amount to be so paid by the
Company represents stipulated damages and not a penalty and is intended to
compensate the Holder in part for loss of the opportunity to convert this Note
and to earn a return from the sale of shares of Common Stock acquired upon
conversion of this Note at a price in excess of the price paid for such shares
pursuant to this Note. The Company and the Holder hereby agree that such
amount of stipulated damages is not plainly disproportionate to the possible
loss to the Holder from the receipt of a cash payment without the opportunity
to convert this Note into shares of Common Stock.
8.10 Replacement of Notes. Upon receipt by the Company of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of this Note and (a) in the case of loss, theft or
destruction, of indemnity from the Holder reasonably satisfactory in form to
the Company (and without the requirement to post any bond or other security) or
(b) in the case of mutilation, upon surrender and cancellation of this Note,
the Company will execute and deliver to the Holder a new Note of like tenor.
IN WITNESS WHEREOF, the Company has caused this Note to be signed in
its name by its duly authorized officer on the day and in the year first above
written.
EMISPHERE TECHNOLOGIES, INC.
By:
Name:
Title:
31
<PAGE>
Exhibit 4(b)
[FORM OF NOTE PURCHASE AGREEMENT]
NOTE PURCHASE AGREEMENT
DATED AS OF MAY 1, 1998
BY AND BETWEEN
EMISPHERE TECHNOLOGIES, INC.
AND
[NAME OF BUYER]
5% SENIOR CONVERTIBLE NOTES DUE 2001
PLACEMENT AGENT:
DIAZ & ALTSCHUL CAPITAL, LLC
<PAGE>
TABLE OF CONTENTS
PAGE
1. DEFINITIONS..........................................................1
2. PURCHASE AND SALE; PURCHASE PRICE....................................6
(a) Purchase........................................................6
(b) Closing.........................................................6
3. REPRESENTATIONS, WARRANTIES, COVENANTS, ETC. OF THE BUYER............6
(a) Purchase for Investment.........................................7
(b) Accredited Investor.............................................7
(c) Reoffers and Resales............................................7
(d) Company Reliance................................................7
(e) Information Provided............................................7
(f) Absence of Approvals............................................8
(g) Note Purchase Agreement.........................................8
(h) Buyer Status....................................................8
4. REPRESENTATIONS, WARRANTIES, COVENANTS, ETC. OF THE COMPANY..........8
(a) Organization and Authority......................................8
(b) Qualifications..................................................8
(c) Capitalization..................................................9
(d) Material Losses.................................................9
(e) Concerning the Shares and the Common Stock.....................10
(f) Corporate Authorization........................................10
(g) Non-contravention..............................................10
(h) Approvals......................................................11
(i) Conduct of Business............................................11
(j) SEC Filings....................................................11
(lk Absence of Certain Proceedings.................................12
(l) Liabilities....................................................12
(m) Absence of Certain Changes.....................................12
(n) Intellectual Property..........................................12
(o) Internal Accounting Controls...................................12
(p) Compliance with Law............................................13
(q) Properties.....................................................13
(r) Labor Relations................................................13
(s) Insurance......................................................13
(t) Tax Matters....................................................13
(u) Investment Company.............................................13
(v) Absence of Brokers, Finders, Etc...............................14
(w) No Solicitation................................................14
(x) Certain Issuances of Securities................................14
5. CERTAIN COVENANTS...................................................14
(a) Transfer Restrictions..........................................14
(b) Restrictive Legends............................................15
(c) Transfer Agent Agreement.......................................16
(d) Nasdaq Inclusion; Reporting Status.............................16
(e) State Securities Laws..........................................16
(f) Certain Future Financings and Related Actions..................17
(g) Use of Proceeds................................................18
(h) Best Efforts...................................................18
(i) Debt Obligation................................................18
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL......................18
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE....................19
8. REGISTRATION RIGHTS.................................................20
(a) Mandatory Registration.........................................20
(b) Obligations of the Company.....................................21
(c) Obligations of the Buyer and other Investors...................25
(d) Rule 144.......................................................27
<PAGE>
PAGE
9. INDEMNIFICATION AND CONTRIBUTION....................................27
(a) Indemnification................................................27
(b) Contribution...................................................29
(c) Other Rights...................................................30
10. MISCELLANEOUS.......................................................30
(a) Governing Law..................................................30
(b) Headings.......................................................30
(c) Severability...................................................30
(d) Notices........................................................30
(e) Counterparts...................................................31
(f) Entire Agreement; Benefit......................................31
(g) Waiver.........................................................31
(h) Amendment......................................................31
(i) Further Assurances.............................................31
(j) Assignment of Certain Rights and Obligations...................31
(k) Expenses.......................................................32
(l) Termination....................................................32
(m) Survival.......................................................33
(n) Public Statements, Press Releases, Etc.........................33
(o) Construction...................................................33
SCHEDULES
SCHEDULE 4(C) Preemptive Rights/Anti-dilution Protections; Registration Rights
SCHEDULE 4(e) Concerning the Shares and the Common Stock
ANNEXES
ANNEX I - 5% Senior Convertible Note due 2001
ANNEX II - Transfer Agent Agreement
ANNEX III Instructions to Transfer Agent
ANNEX IV - Opinion of Counsel to the Company
ANNEX V - Opinion of Company Counsel to Be Delivered in Connection with
Effectiveness of the Registration Statement
<PAGE>
NOTE PURCHASE AGREEMENT, dated as of May 1, 1998 (this
"Agreement"), by and between EMISPHERE TECHNOLOGIES, INC.,
a Delaware corporation, with headquarters located at 15
Skyline Drive, Hawthorne, New York 10532 (the "Company"),
and [Name of Buyer], a [ ] corporation (the
"Buyer").
WHEREAS, the Buyer wishes to purchase from the Company and the
Company wishes to sell to the Buyer, upon the terms and subject to the
conditions of this Agreement, a promissory note of the Company having the
aggregate principal amount set forth on the signature page of this Agreement
and which will be convertible into shares of Common Stock (such capitalized
term and all other capitalized terms used in this Agreement having the meanings
provided in Section 1);
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 parties agree as
follows:
1. Definitions.
(a) As used in this Agreement, the terms "Agreement", "Buyer" and
"Company" shall have the respective meanings assigned to such terms in the
introductory paragraph of this Agreement.
(b) All the agreements or instruments herein defined shall mean such
agreements or instruments as the same may from time to time be supplemented or
amended or the terms thereof waived or modified to the extent permitted by, and
in accordance with, the terms thereof and of this Agreement.
(c) The following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with the subject Person. For purposes
of this definition, "control" (including, with correlative meaning, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
"Business Day" means any day other than a Saturday, Sunday or a day
on which commercial banks in The City of New York are authorized or required by
law or executive order to remain closed.
"Claims" means any losses, claims, damages, liabilities or expenses
(joint or several), incurred by a Person.
"Closing Date" means 12:00 noon, New York City time, on May 1, 1998
or such other mutually agreed to time.
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder and published interpretations thereof.
"Common Stock" shall mean the Common Stock, $.01 par value, together
with any related "poison pill" preferred stock purchase rights or similar
rights, of the Company or any shares of capital stock and related rights of the
Company into which such stock shall be changed or reclassified after the
Issuance Date.
"Conversion Notice" means a Notice of Conversion of 5% Senior
Convertible Note due 2001 substantially in the form of Exhibit A to the Note.
"Conversion Shares" means the shares of Common Stock issuable upon
conversion of the Note.
"Event of Default" shall have the meaning provided in the Note.
"Final Maturity Note" means the note of the Company issuable on the
maturity date of the Note in the form attached as Exhibit J to the Note.
"Indemnified Party" means the Company, each of its directors, each of
its officers who signs the Registration Statement, each Person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act, any
underwriter 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 1933 Act or
the 1934 Act.
"Indemnified Person" means each Investor who holds Registrable
Securities and each Investor who sells such Registrable Securities in the
manner permitted under this Agreement, the directors, if any, of such Investor,
the officers, if any, of such Investor, each Person, if any, who controls any
Investor within the meaning of the 1933 Act or the 1934 Act, any underwriter
(as defined in the 1933 Act) acting on behalf of an Investor who participates
in the offering of Registrable Securities of such Investor in accordance with
the plan of distribution contained in the Prospectus included in the
Registration Statement, the directors, if any, of such underwriter and the
officers, if any, of such underwriter, and each Person, if any, who controls
any such underwriter within the meaning of the 1933 Act or the 1934 Act .
"Inspector" means any attorney, accountant or other agent reasonably
acceptable to the Company retained by an Investor for the purposes provided in
Section 8(b)(9).
"Investor" means the Buyer and any Permitted Transferee who agrees to
become bound by the provisions of Section 8 of this Agreement.
"January 1998 10-Q" means the Company's Quarterly Report on Form 10-Q
for the quarter ended January 31, 1998 (including any information or documents
incorporated therein by reference).
"Margin Stock" shall have the meaning provided in Regulation U of the
Board of Governors of the Federal Reserve System (12 CFR part 221).
"Maturity Date" shall have the meaning provided in the Note.
"Maximum Share Amount" shall have the meaning provided in the Note.
-2-
<PAGE>
"Nasdaq" means the National Market tier of the Nasdaq Stock Market.
"NASD" means the National Association of Securities Dealers, Inc.
"1997 10-K" means the Company's Annual Report on Form 10-K for the
fiscal year ended July 31, 1997 (including any information or documents
incorporated therein by reference).
"1934 Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute.
"1933 Act" means the Securities Act of 1933, as amended, or any
successor statute.
"Non-Responsive Investor" means an Investor who does not provide the
Requested Information to the Company at least one (1) Business Day prior to the
filing of the Registration Statement.
"Note" means the 5% Senior Convertible Note due 2001 of the Company
in the form of Annex I to this Agreement.
"Other Notes" shall have the meaning provided in the Note (including
any information or documents incorporated therein by reference).
"Payment Shares" means the shares of Common Stock issuable in payment
of interest on the Note.
"Person" means any natural person, corporation, partnership, limited
liability company, trust, incorporated organization, government, governmental
agency or political subdivision.
"Prospectus" means the prospectus forming part of the Registration
Statement at the time the Registration Statement is declared effective and any
amendment or supplement thereto.
"Purchase Price" means 100% of the principal amount of the Note as
set forth on the signature page hereof.
"Questionnaire" means the Prospective Purchaser Questionnaire
completed by the Buyer.
"Preferred Shares" means the Preferred Stock, par value $.01 per
share, of the Company, of which 200,000 shares have been designated Series A
Junior Participating Preferred Stock.
"Permitted Transferee" means any person who is (1) an "accredited
investor" as defined in Regulation D under the 1933 Act and (2) a Person which
is an Affiliate of any Investor or the holder of any Other Note.
"Record" means all pertinent financial and other records, pertinent
corporate documents and properties of the Company subject to inspection for the
purposes provided in Section 8(b)(9).
-3-
<PAGE>
"Register," "Registered," and "Registration" refer to a registration
effected by preparing and filing a Registration Statement or Statements in
compliance with the 1933 Act and pursuant to Rule 415, and the declaration or
ordering of effectiveness of such Registration Statement by the SEC.
"Registrable Securities" means the Shares and any stock or other
securities into which or for which the Common Stock may hereafter be changed,
converted or exchanged by the Company, and any other securities issued to
holders of such Common Stock (or such shares into which or for which such
shares are so changed, converted or exchanged) upon any reclassification, share
combination, share subdivision, share dividend, merger, consolidation or
similar transaction or event.
"Registration Period" means the period from the SEC Effective Date to
the earlier of (i) the date which is three years after the Closing Date (or, if
(x) the Note shall have been fully converted into shares of Common Stock, (y)
the Maturity Date shall have occurred or (z) the Note shall no longer remain
outstanding, such date after which each Investor may sell all of its
Registrable Securities without registration under the 1933 Act pursuant to Rule
144, free of any limitation on the volume of such securities which may be sold
in any period) and (ii) the date on which the Investors no longer own any
Registrable Securities.
"Registration Statement" means a registration statement on Form S-3,
or any successor form, of the Company under the 1933 Act which names the
Investors as selling stockholders.
"Regulation D" means Regulation D under the 1933 Act.
"Repurchase Event" shall have the meaning provided in the Note.
"Requested Information" means the information the Company requires
from each Investor in connection with the preparation of the Registration
Statement.
"Rule 415" means Rule 415 under the 1933 Act or any successor rule
providing for offering securities on a delayed or continuous basis.
"Rule 144" means Rule 144 promulgated under the 1933 Act or any other
similar rule or regulation of the SEC that may at any time permit a holder of
any securities to sell securities of the Company to the public without
registration under the 1933 Act.
"SEC" means the Securities and Exchange Commission or successor.
"SEC Effective Date" means the date the Registration Statement is
declared effective by the SEC.
"SEC Filing Date" means the date the Registration Statement is first
filed with the SEC pursuant to Section 8.
-4-
<PAGE>
"SEC Reports" means the 1997 10-K, the January 1998 10-Q, the
Company's definitive Proxy Statement for its 1998 Annual Meeting of
Stockholders, and all other periodic and other reports filed by the Company
with the SEC pursuant to the 1934 Act subsequent to July 31, 1996 and prior to
the date hereof, in each case as filed with the SEC and including the
information and documents (other than exhibits) incorporated therein by
reference.
"Securities" means, collectively, the Note, the Final Maturity Note
and the Shares.
"Shares" means the Conversion Shares and the Payment Shares.
"Subsidiary" means any corporation or other entity of which a
majority of the capital stock or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are at the time directly or indirectly owned by
the Company.
"Trading Day" means at any time a day on which any of a national
securities exchange, Nasdaq or such other securities market as at such time
constitutes the principal securities market for the Common Stock is open for
general trading of securities.
"Trading Price" shall have the meaning provided in the Note.
"Transaction Documents" means, collectively, this Agreement, the
Securities, the Transfer Agent Agreement and the other agreements, instruments
and documents contemplated hereby and thereby.
"Transfer Agent" means Continental Stock Transfer & Trust Company or
any successor thereof, serving as transfer agent and registrar for the Common
Stock upon conversion of the Note.
"Transfer Agent Agreement" means the Transfer Agent Agreement among
the Company, the Transfer Agent, the Buyer and the purchasers of the Other
Notes, in substantially the form attached hereto as Annex II.
"Violation" means
(i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or any post-effective amendment
thereof or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading,
(ii) any untrue statement or alleged untrue statement of a material
fact contained in any 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,
(iii)any violation or alleged violation by the Company of the 1933
Act, the 1934 Act, any state securities law or any rule or regulation under the
1933 Act, the 1934 Act or any state securities law, or
-5-
<PAGE>
(iv) any breach or alleged breach by the Company or the Transfer
Agent of any representation, warranty, covenant, agreement or other term of any
of the Transaction Documents which materially adversely affects or potentially
materially adversely affects the issuance of the Shares within the time periods
set forth herein and in the Note.
2. Purchase And Sale; Purchase Price.
(a) Purchase; Option to Purchase Additional Notes. (i) The Buyer
hereby agrees to purchase, and the Company hereby agrees to sell to the Buyer,
on the Closing Date, the Note in the principal amount set forth on the
signature page of this Agreement and having the terms and conditions as set
forth in the form of the Note attached hereto as Annex I for the Purchase
Price.
(ii) As additional consideration for the Buyer's purchase of the
Notes, the Company hereby grants the Investor an option, exercisable for a
period of 45 days immediately succeeding the last day of any Measurement Period
(as defined in the Note) during which the average closing bid price of the
Common Stock exceeds $36, to purchase notes, on substantially the same terms as
the Note, with a principal amount equal to 30% of the original face amount of
the Note; provided however that such option shall be equitably adjusted from
time to time on terms reasonably acceptable to the Investor for stock splits,
stock dividends, combinations, capital reorganizations and similar events
relating to the Common Stock occurring after the date hereof and prior to the
Investor's exercise of such option.
(b) Closing. The issuance and sale of the Note shall occur on the
Closing Date at the offices of Howard, Darby & Levin, 1330 Avenue of the
Americas, New York, New York. At the closing, upon the terms and subject to
the conditions of this Agreement, the Company shall issue and deliver to the
Buyer the Note against payment by the Buyer to the Company of an amount equal
to the Purchase Price by wire transfer of immediately available funds to:
ACH Transfers: Fed Wires
Bank of NY Bank of NYC
For Credit to: Emisphere Technologies ABA# 021000018
ABA# 021902352 GLA# 111363
A/C# 670-1771816 Emisphere Technologies
A/C# 107315
3. Representations, Warranties, Covenants, Etc. of the Buyer.
The Buyer represents and warrants to, and covenants and agrees with,
the Company as follows:
-6-
<PAGE>
(a) Purchase for Investment. The Buyer is purchasing the Note for
its own account for investment and not with a view towards the public sale or
distribution thereof within the meaning of the 1933 Act; the Buyer will acquire
any Shares issued to the Buyer prior to the SEC Effective Date for its own
account for investment and not with a view towards the public sale or
distribution thereof within the meaning of the 1933 Act prior to the SEC
Effective Date; and the Buyer has no intention of making any distribution,
within the meaning of the 1933 Act, of the Shares except in compliance with the
registration requirements of the 1933 Act or pursuant to an exemption
therefrom;
(b) Accredited Investor. The Buyer is an "accredited investor" as
that term is defined in Rule 501 of Regulation D under the 1933 Act by reason
of Rule 501(a)(3) thereof;
(c) Reoffers and Resales. The Buyer will not, directly or
indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit
any offers to buy, purchase or otherwise acquire or take a pledge of) any of
the Securities unless registered under the 1933 Act, based on an opinion of
counsel, pursuant to an exemption from registration under the 1933 Act, or in a
transaction not requiring registration under the 1933 Act;
(d) Company Reliance. The Buyer understands that (1) the Note is
being offered and sold to the Buyer, (2) the Shares and the Final Maturity Note
are being offered to the Buyer, (3) upon conversion of the Note, the Conversion
Shares will be issued to the Buyer, (4) and the Payment Shares will be issued
to the Buyer, in each such case in reliance on one or more exemptions from the
registration requirements of the 1933 Act, including, without limitation,
Regulation D, and exemptions from state securities laws and that the Company is
relying upon the truth and accuracy of, and the Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Buyer set forth herein and in the Questionnaire, a true and accurate copy
of which has been delivered by the Buyer to the Company, in order to determine
the availability of such exemptions and the eligibility of the Buyer to acquire
or receive an offer to acquire the Securities; and the information with respect
to the Buyer set forth in the Questionnaire is accurate and complete in all
material respects;
(e) Information Provided. The Buyer and its advisors, if any, have
requested, received and considered all information relating to the business,
properties, operations, financial condition or results of operations of the
Company and information relating to the offer and sale of the Note and the
offer and, upon conversion of the Note, sale of the Shares deemed relevant by
them; the Buyer and its advisors have been afforded the opportunity to ask
questions of the Company concerning the terms of the offering of the Securities
and the business, properties, operations, financial condition or results of
operations of the Company and have received satisfactory answers to any such
inquiries; without limiting the generality of the foregoing, the Buyer has had
the opportunity to obtain and to review the SEC Reports and the schedules
attached hereto; in connection with its decision to purchase the Note, the
Buyer has relied solely upon the SEC Reports, the schedules, the
representations, warranties, covenants and agreements of the Company set forth
in this Agreement and to be contained in the other Transaction Documents, as
well as any investigation of the Company completed by the Buyer or its
advisors; the Buyer understands that its investment in the Securities involves
a high degree of risk;
-7-
<PAGE>
(f) Absence of Approvals. The Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities; and
(g) Note Purchase Agreement. The Buyer has all requisite power and
authority, corporate or otherwise, to execute, deliver and perform its
obligations under this Agreement and the other agreements executed by the Buyer
in connection herewith and to consummate the transactions contemplated hereby
and thereby; and this Agreement has been duly and validly authorized, duly
executed and delivered by the Buyer and, assuming due execution and delivery by
the Company, is a valid and binding agreement of the Buyer enforceable in
accordance with its terms, except as the enforceability hereof may be limited
by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and general principles of equity, regardless of
whether enforcement is considered in a proceeding in equity or at law.
(h) Buyer Status. The Buyer is not a "broker" or "dealer" as those
terms are defined in the 1934 Act which is required to be registered with the
SEC pursuant to Section 15 of the 1934 Act.
4. Representations, Warranties and Covenants of the Company.
The Company represents and warrants to the Buyer that the following
matters are true and correct on the date of execution and delivery of this
Agreement and will be true and correct on the Closing Date, and the Company
covenants and agrees with the Buyer as follows:
(a) Organization and Authority. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power and authority to (i) own, lease
and operate its properties and to carry on its business as described in the SEC
Reports and as currently conducted, and (ii) to execute, deliver and perform
its obligations under this Agreement and the other Transaction Documents
executed and delivered by the Company in connection herewith, and to consummate
the transactions contemplated hereby and thereby. The Company has no
Subsidiaries.
(b) Qualifications. The Company is duly qualified to do business as
a foreign corporation and is in good standing in all jurisdictions where such
qualification is necessary and where failure so to qualify could have a
material adverse effect on the business, properties, operations, financial
condition or results of operations of the Company.
-8-
<PAGE>
(c) Capitalization. The authorized capital of the Company consists
of (a) 20,000,000 shares of Common Stock and 1,000,000 shares of Preferred
Stock, of which 10,719,594 shares of Common Stock were outstanding on April 20,
1998 and no shares of Preferred Stock of the Company were outstanding. The
1997 10-K discloses as of July 31, 1997 all outstanding options or warrants
for the purchase of, or other rights to purchase or subscribe for, or
securities convertible into or exchangeable for, Common Stock or other capital
stock of the Company, or any contracts or commitments to issue or sell Common
Stock or other capital stock of the Company or any such options, warrants,
rights or other securities; and from July 31, 1997 to the date hereof there has
been no material change in the amount or terms of any of the foregoing except
for the grant of options to purchase shares of Common Stock pursuant to the
Company's stock option plans in effect on the date of this Agreement and except
as disclosed in the SEC Reports. The Company has duly reserved from its
authorized and unissued shares of Common Stock the full number of shares
required for (a) all options, warrants, convertible securities and other rights
to acquire shares of Common Stock which are outstanding and (b) all shares of
Common Stock and options and other rights to acquire shares of Common Stock
which may be issued or granted under the stock option and similar plans which
have been adopted by the Company. Except as set forth on Schedule 4(c), no
antidilution adjustment will occur with respect to any outstanding class or
series of securities of the Company, by reason of issuance or conversion of the
Note or the Other Notes. The outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable and all of such options, warrants and other rights have been duly
authorized by the Company. None of the holders of such outstanding shares of
capital stock is subject to personal liability solely by reason of being such a
holder. None of the outstanding shares of capital stock and options, warrants
and other rights to acquire Common Stock has been issued in violation of the
preemptive rights of any security holder of the Company. The offers and sales
of the outstanding shares of capital stock of the Company and options, warrants
and other rights to acquire Common Stock were at all relevant times either
registered under the 1933 Act and applicable state securities laws or exempt
from such requirements. Except as disclosed in the SEC Reports or on Schedule
4(c), no holder of any of the Company's securities has any rights, "demand,"
"piggy-back" or otherwise, to have such securities registered by reason of the
intention to file, filing or effectiveness of the Registration Statement.
(d) Material Losses. Since the date as of which information is
given in the January 1998 10-Q, the Company has not sustained any loss or
interference with its business or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree, which loss or
interference would be material to the business, properties, operations,
financial condition or results of operations of the Company.
-9-
<PAGE>
(e) Concerning the Shares and the Common Stock. The Shares have
been duly authorized and the Conversion Shares, when issued upon conversion of
the Note and the Payment Shares, when issued in payment of interest on the
Note, will be duly and validly issued, fully paid and non-assessable and will
not subject the holder thereof to personal liability by reason of being such
holder. Except as set forth on Schedule 4(e), the holders of outstanding
shares of capital stock of the Company are not entitled to preemptive rights to
subscribe for the Shares, or the Note. The Company has duly reserved the
required number of shares of Common Stock for issuance upon conversion of the
Note and the Other Notes, and such shares shall remain so reserved, and the
Company shall from time to time reserve such additional shares of Common Stock
as shall be required to be reserved pursuant to the Note, as long as the Note
may be converted. The Common Stock is listed for trading on Nasdaq and (1) the
Company and the Common Stock meet the criteria for continued listing and
trading on Nasdaq; (2) the Company has not been notified since January 1, 1996
by the NASD of any failure or potential failure to meet the criteria for
continued listing and trading on Nasdaq and (3) no suspension of trading in the
Common Stock is in effect. The Company knows of no reason why the Shares will
not be eligible for listing on Nasdaq.
(f) Corporate Authorization. This Agreement and the other
Transaction Documents have been duly and validly authorized by the Company;
this Agreement has been duly executed and delivered by the Company and,
assuming due execution and delivery by the Buyer, this Agreement is, and the
Transfer Agent Agreement will be, when duly executed and delivered by the
Company and the Transfer Agent, and the Note, and the Final Maturity Note will
be, when executed and delivered by the Company, valid and binding obligations
of the Company enforceable in accordance with their respective terms, except as
the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws now or
hereafter in effect relating to or affecting creditors' rights generally and
general principles of equity, regardless of whether enforcement is considered
in a proceeding in equity or at law.
(g) Non-contravention. The execution and delivery of this
Agreement, the Transfer Agent Agreement, the Note, and the Final Maturity Note
by the Company and the consummation by the Company of the issuance of the
Securities and the other transactions contemplated by this Agreement, the
Transfer Agent Agreement, the Note, and the Final Maturity Note do not and will
not, with or without the giving of notice or the lapse of time, or both, (i)
result in any violation of any provision of the certificate of incorporation or
by-laws of the Company, (ii) conflict with or result in a breach by the Company
of any of the terms or provisions of, or constitute a default under, or result
in the modification of, or result in the creation or imposition of any lien,
security interest, charge or encumbrance upon any of the properties or assets
of the Company pursuant to, any indenture, mortgage, deed of trust or other
agreement or instrument to which the Company is a party or by which the Company
or any of its properties or assets are bound or affected (iii) violate or
contravene any applicable law, rule or regulation or any applicable decree,
judgment or order of any court, United States federal or state regulatory body,
administrative agency or other governmental body having jurisdiction over the
Company or any of its properties or assets, in each case in clause (ii) and
(iii), as could be reasonably likely to materially adversely affect the
business, properties, operations, financial condition or results of operations
of the Company; provided that any such breach, default, modification,
contravention or violation or other event or action does not and will not
affect the obligation or ability of the Company to perform any of its duties
under this Agreement, the Note or the Other Notes, including without
-10-
<PAGE>
limitation, the issuance of the Shares or (iv) have any material adverse effect
on any permit, certification, registration, approval, consent, license or
franchise necessary for the Company to own or lease and operate any of its
properties and to conduct any of its business or the ability of the Company to
make use thereof.
(h) Approvals. No authorization, approval or consent of, or filing
with, any court, governmental body, regulatory agency, self-regulatory
organization, or stock exchange or market or the stockholders of the Company is
necessary to be obtained or made by the Company in connection with the
execution, delivery and performance of this Agreement, the Transfer Agent
Agreement, the Note, and the Final Maturity Note and the issuance and sale of
the Securities as contemplated by this Agreement and the terms of the Note,
other than (1) approval of the Shares for quotation on Nasdaq, (2) registration
of the resale of the Shares under the 1933 Act as contemplated by Section 8 and
(3) as may be required for the issuance of the Notes under applicable state
securities or "blue sky" laws.
(i) Conduct of Business. Except as set forth in the SEC Reports,
since July 31, 1997, the Company has not (i) incurred any material obligation
or liability (absolute or contingent) other than in the ordinary course of
business; (ii) canceled, without payment in full, any material notes, loans or
other obligations receivable or other debts or claims held by it other than in
the ordinary course of business; (iii) sold, assigned, transferred, abandoned,
mortgaged, pledged or subjected to lien any of its material properties,
tangible or intangible, or rights under any material contract, permit, license,
franchise or other agreement; (iv) conducted its business in a manner
materially different from its business as conducted on such date; (v) declared,
made or paid or set aside for payment any cash or non-cash distribution on any
shares of its capital stock; or (vi) consummated, or entered into any agreement
with respect to, any transaction or event which would constitute a Repurchase
Event. Except as disclosed in the SEC Reports, the Company owns, possesses or
has obtained all governmental, administrative and third party licenses,
permits, certificates, registrations, approvals, consents and other
authorizations necessary to own or lease (as the case may be) and operate its
properties, whether tangible or intangible, and to conduct its business or
operations as currently conducted, except such licenses, permits,
certificates, registrations, approvals, consents and authorizations the failure
of which to obtain would not reasonably be expected to have a material adverse
effect on the business, properties, operations, financial condition or results
of operations of the Company.
(j) SEC Filings. The Company has timely filed all reports required
to be filed under the 1934 Act and any other material reports or documents
required to be filed with the SEC since January 1, 1997. All of such reports
and documents complied, when filed, in all material respects, with all
applicable requirements of the 1933 Act and the 1934 Act. Since January 1,
1997, no event has occurred which would require the filing of a report on Form
8-K under the 1934 Act which has not been filed or any amendment for any of
such filings. The Company meets the requirements for the use of Form S-3 for
the registration of the resale of the Shares by the Buyer and any other
Investor.
-11-
<PAGE>
(k) Absence of Certain Proceedings. Except as described in the SEC
Reports, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board or body pending or, to the knowledge of the
Company, threatened against or affecting the Company wherein an unfavorable
decision, ruling or finding would have a material adverse effect on the
business, properties, operations, financial condition or results of operations
of the Company or the transactions contemplated by this Agreement or any of the
other Transaction Documents or which could adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of the other Transaction Documents;
the Company does not have pending before the SEC any request for confidential
treatment of information and to the best of the Company's knowledge no such
request will be made by the Company prior to the SEC Effective Date; and to the
best of the Company's knowledge there is not pending or contemplated, and there
has been no, investigation by the SEC involving the Company or any current
director or officer of the Company.
(l) Liabilities. Except as and to the extent disclosed, reflected
or reserved against in the financial statements of the Company and the notes
thereto included in the SEC Reports, the Company has no material (individually
or in the aggregate) liability, debt or obligation whether accrued, absolute,
contingent or otherwise, and whether due or to become due except liabilities
(a) incurred subsequent to July 31, 1997 in the ordinary course of business
consistent with past practice (b) of any nature whatsoever which would not
individually or in the aggregate have a material adverse effect on the
business, properties, operations, financial condition or results of operation
of the Company and (c) incurred in connection with this Agreement.
(m) Absence of Certain Changes. Since July 31, 1997, there has been
no material adverse change in the business, properties, operations, financial
condition or results of operations of the Company, except as disclosed in the
SEC Reports.
(n) Intellectual Property. Except as disclosed in the SEC Reports,
the Company (1) to its knowledge after reasonable investigation for the
purposes hereof, owns, or possesses adequate rights to use, all patents,
patent rights, inventions, trade secrets, know-how, proprietary techniques,
including processes and substances, trademarks, service marks, trade names and
copyrights described or referred to in the SEC Reports or owned or used by it
or which are necessary for the conduct of its business, except for failure to
own or possess any such rights as would not individually or in the aggregate
have a material adverse effect on the business, properties, operations,
financial condition or results of operations of the Company, and (2) has no
reason to believe, and is not aware of any claim, that the conduct of its
business will conflict with any such rights of others which conflict or claim
is material to the business, properties, operations, financial condition or
results of operations of the Company.
(o) Internal Accounting Controls. The Company maintains a system of
internal accounting controls meeting the requirements of Section 13(b)(2) of
the 1934 Act in all material respects.
-12-
<PAGE>
(p) Compliance with Law. To the best of the Company's knowledge,
the Company is not in violation of any statute, law, rule, regulation,
ordinance, decision or order of any governmental agency or body or any court,
domestic or foreign, including, without limitation, those relating to the use,
operation, handling, transportation, disposal or release of hazardous or toxic
substances or wastes or relating to the protection or restoration of the
environment or human exposure to hazardous or toxic substances or wastes,
except where such violation would not individually or in the aggregate have a
material adverse effect on the business, properties, operations, financial
condition or results of operations of the Company; and the Company is not aware
of any pending investigation which would reasonably be expected to lead to such
a claim.
(q) Properties. The Company has good title to all property real and
personal (tangible and intangible) and other assets owned by it which are
individually or in the aggregate material to the Company, free and clear of all
security interests, charges, mortgages, liens or other encumbrances, except
such as are described in the SEC Reports or such as do not materially interfere
with the use of such property made, or proposed to be made, by the Company. To
the best of the Company's knowledge, the leases, licenses or other contracts or
instruments under which the Company leases, holds or is entitled to use any
property, real or personal, which individually or in the aggregate are material
to the Company, are valid, subsisting and enforceable with only such exceptions
as do not materially interfere with the use of such property made, or proposed
to be made by the Company. The Company has not received notice of any material
violation of any applicable law, ordinance, regulation, order or requirement
relating to its owned or leased properties.
(r) Labor Relations. No material labor problem exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company.
(s) Insurance. The Company maintains insurance against loss or
damage by fire or other casualty and such other insurance, including but not
limited to, product liability insurance, in such amounts and covering such
risks as it believes is reasonably adequate for the conduct of its business
and the value of its properties.
(t) Tax Matters. The Company has filed all federal, state and local
income and franchise tax returns required to be filed and has paid all taxes
shown by such returns to be due, and no tax deficiency has been determined
adversely to the Company which has had (nor does the Company have any knowledge
of any tax deficiency which, if determined adversely to the Company, might
have) a material adverse effect on the business, properties, operations,
financial condition or results of operations of the Company.
(u) Investment Company. The Company is not an "investment company"
within the meaning of such term under the Investment Company Act of 1940, as
amended, and the rules and regulations of the SEC thereunder.
-13-
<PAGE>
(v) Absence of Brokers, Finders, Etc. No broker, finder, or similar
Person is entitled to any commission, fee, or other compensation by reason of
the transactions contemplated by this Agreement other than Diaz & Altschul
Capital, LLC.
(w) No Solicitation. No form of general solicitation or general
advertising was used by the Company or, to the best of its knowledge, any other
Person acting on behalf of the Company, in respect of the Securities or in
connection with the offer and sale of the Securities. Neither the Company nor,
to its knowledge, any Person acting on behalf of the Company has, either
directly or indirectly, sold or offered for sale to any Person any of the Notes
(other than Diaz & Altschul Capital, LLC with respect to the Notes) or, within
the six months prior to the date hereof, any other similar security of the
Company except as contemplated by this Agreement, and the Company represents
that neither the Company nor any Person authorized to act on its behalf will
sell or offer for sale any such security to, or solicit any offers to buy any
such security from, or otherwise approach or negotiate in respect thereof with,
any Person so as thereby to cause the issuance or sale of any of the Securities
to be in violation of any of the provisions of Section 5 of the 1933 Act.
(x) Certain Issuances of Securities. The Company has not issued any
shares of Common Stock or shares of any series of preferred stock or other
securities convertible into, exchangeable for or otherwise entitling the holder
to acquire shares of Common Stock which are subject to Section 4460(i)(1)(D) of
the rules of the NASD and which would be integrated with the sale of the Note
to the Buyer or the issuance of Conversion Shares upon conversion thereof or
the issuance of the Payment Shares in payment of interest thereon for purposes
of such Section 4460(i)(1)(D).
5. Certain Covenants.
(a) Transfer Restrictions. The Buyer acknowledges and agrees that
(1) the Note to be issued to it hereunder and the Final Maturity Note which may
be issued pursuant to the Note have not been and are not being registered under
the provisions of the 1933 Act or any state securities laws and, except as
provided in Section 8, the Shares have not been and are not being registered
under the 1933 Act or any state securities laws, and that the Note and the
Final Maturity Note may not be transferred unless the Buyer shall have
delivered to the Company an opinion of counsel, reasonably satisfactory in
form, scope and substance to the Company, to the effect that the Note or the
Final Maturity Note to be transferred, may be transferred without such
registration; (2) no sale, assignment or other transfer of the Note or the
Final Maturity Note or any interest therein may be made except in accordance
with the terms thereof to a Permitted Transferee; (3) the Shares are not
transferable in the absence of registration under the 1933 Act and applicable
state securities laws, or applicable exemptions therefrom; (4) any sale of the
Securities made in reliance on Rule 144 may be made only in accordance with the
terms of said Rule and further, if the exemption provided by Rule 144 is not
available, any resale of the Securities under circumstances in which the
seller, or the Person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (5) the Company is under no obligation to register the
Securities (other than registration of the resale of the Shares in accordance
with Section 8) under the 1933 Act or, except as provided in Section 8, to
comply with the terms and conditions of any exemption thereunder. The Buyer
may not transfer the Shares in a transaction which does not constitute a
transfer thereof pursuant to the Registration Statement in accordance with the
-14-
<PAGE>
plan of distribution set forth therein or in any supplement to the Prospectus
forming part of the Registration Statement unless the Buyer shall have
delivered to the Company an opinion of counsel, reasonably satisfactory in
form, scope and substance to the Company, that such Shares may be transferred
without registration under the 1933 Act.
(b) Restrictive Legends. (1) The Buyer acknowledges and agrees that
the Note shall bear a restrictive legend in substantially the following form
(and a stop-transfer order may be placed against transfer of the Note):
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT"), OR ANY STATE SECURITIES LAWS. THE SHARES OF
COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE AND IN PAYMENT OF
INTEREST ON THIS NOTE ARE NOT REGISTERED UNDER THE 1933 ACT OR UNDER STATE
SECURITIES LAWS. THIS NOTE HAS BEEN ACQUIRED, AND SUCH SHARES MUST BE
ACQUIRED, FOR INVESTMENT ONLY AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED
IN THE ABSENCE OF REGISTRATION OF THE RESALE THEREOF UNDER THE 1933 ACT OR
AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM, SCOPE AND SUBSTANCE
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
(2) The Buyer further acknowledges and agrees that until such time
as the Shares have been registered for resale under the 1933 Act as
contemplated by Section 8, the certificates for the Shares, may bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the certificates for the Shares):
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 RESOLD, TRANSFERRED OR ASSIGNED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
(3) Once the Registration Statement required to be filed by the
Company pursuant to Section 8 has been declared effective, thereafter (1) upon
request of the Buyer the Company will substitute certificates without
restrictive legend for certificates for any Shares issued prior to the SEC
Effective Date which bear such restrictive legend and remove any stop-transfer
restriction relating thereto promptly, but in no event later than three Trading
Days after surrender of such certificates by the Buyer and (2) the Company
shall not place any restrictive legend on certificates for Conversion Shares
issued on conversion of the Note or Payment Shares issued in payment of
interest on the Note or impose any stop-transfer restriction thereon except in
accordance with this Agreement and the Note.
-15-
<PAGE>
(c) Transfer Agent Agreement. Simultaneously with the execution and
delivery of this Agreement and the delivery by the Buyer of the Purchase Price
in accordance with Section 2(b) hereof the Company will (1) irrevocably
instruct the Transfer Agent, pursuant to the Transfer Agent Agreement, to issue
certificates for the Conversion Shares from time to time upon conversion of the
Note in such amounts as specified from time to time to the Company and the
Transfer Agent in the Conversion Notice surrendered in connection with each
such conversion in accordance with the terms of this Agreement and (2) appoint
the Transfer Agent the issuing agent for the Note. The certificates for the
Shares shall be registered in the name of the Buyer or its nominee and in such
denominations to be specified by the Buyer in connection with each conversion
of the Note, as the case may be. The Company warrants that except as provided
in this Agreement and the Note no instruction with respect to the Shares other
than (x) such instructions referred to in this Section 5(c), (y) stop transfer
instructions to give effect to Section 5(a) hereof prior to registration of the
resale of the Shares under the 1933 Act and (z) the instructions required by
Section 8(b)(12) will be given by the Company to the Transfer Agent and that
the Shares shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the Note. If
the Buyer provides the Company with an opinion of counsel reasonably
satisfactory in form, scope and substance to the Company that registration of a
resale by the Buyer of any of the Shares in accordance with the last sentence
of Section 5(a) is not required under the 1933 Act, the Company shall permit
the transfer of such shares and promptly, but in no event later than three days
after receipt of such opinion, instruct the Transfer Agent to issue upon
transfer one or more share certificates in such names and in such denominations
as reasonably requested by the Buyer. Nothing in this Section 5(c) shall limit
the obligations of the Company under Section 8(b)(12).
(d) Nasdaq Inclusion; Reporting Status. Not later than the Business
Day following the Closing Date, the Company will file with Nasdaq an
application or other document required by Nasdaq for the approval of the Shares
for quotation on the Nasdaq and shall provide evidence of such filing to the
Buyer. So long as the Buyer beneficially owns any portion of the Note or any
Shares, the Company will use its best efforts to maintain the approval of the
Common Stock for quotation on Nasdaq or another registered national securities
exchange. During the Registration Period, the Company shall timely file all
reports required to be filed with the SEC pursuant to Section 13 or 15(d) of
the 1934 Act, and the Company shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would permit such termination. So long as the Buyer
owns the Note or any Shares, the Company shall furnish to the Buyer copies of
all reports and other information filed by the Company with the SEC pursuant to
Sections 13, 14(a), 14(c) and 15(d) of the 1934 Act promptly, but in no event
later than ten days, after the same are filed with the SEC.
(e) State Securities Laws. On or before the Closing Date, the
Company shall take such action as shall be necessary to qualify, or to obtain
an exemption for, the Note for sale to the Buyer pursuant to this Agreement
under such of the securities laws of jurisdictions in the United States as
shall be applicable. Prior to the issuance of the Final Maturity Note, the
Company shall take such actions under applicable state securities laws as shall
be necessary to qualify, or to obtain an exemption for such issuance. In
connection with the foregoing obligations of the Company in this Section 5(g),
the Company shall not be required (1) to qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 5(e), (2) to subject itself to general taxation in any such
jurisdiction, (3) to file a general consent to service of process in any such
-16-
<PAGE>
jurisdiction, (4) to provide any undertakings that cause more than nominal
expense or burden to the Company or (5) to make any change in its charter or
by-laws which the Board of Directors of the Company determines to be contrary
to the best interests of the Company and its stockholders. The Company shall
furnish the Buyer with copies of all filings, applications, orders and grants
or confirmations of exemptions relating to such securities laws on or before
the Closing Date.
(f) Certain Future Financings and Related Actions. (1) The Company
shall not issue any equity securities or securities convertible into,
exchangeable for or otherwise entitling the holder to acquire, any equity
securities of the Company which would, for purposes of Section 4460(i)(1)(D) of
the rules of the NASD (or any successor or replacement provision thereof), be
integrated with the sale of the Note and the issuance of Shares upon conversion
of, or in payment of interest on, the Note.
(2) The Company shall not offer, sell, contract to sell or issue (or
engage any Person to assist the Company in taking any such action) any equity
securities or securities convertible into, exchangeable for or otherwise
entitling the holder to acquire, any Common Stock at a price below the market
price of the Common Stock during the period from the date of this Agreement to
the date on which the Registration Statement shall have been effective with the
SEC and available for use by the selling stockholders named therein for 90
consecutive days; provided, however, that nothing in this Section 5(g)(2) shall
prohibit the Company from issuing securities (w) pursuant to compensation plans
for employees, directors, officers, advisers or consultants of the Company and
in accordance with the terms of such plans as in effect as of the date of this
Agreement (or as such plans may be amended from time to time), (x) upon
exercise of conversion, exchange, purchase or similar rights issued, granted or
given by the Company and outstanding as of the date of this Agreement,
including the rights granted pursuant to this Agreement, (y) pursuant to a
public offering underwritten on a firm commitment basis registered under the
1933 Act or (z) as part of a transaction involving a strategic alliance,
collaboration, joint venture, partnership or other similar arrangement of the
Company with another corporation, partnership or other business entity which is
engaged in a business similar to or related to the business of the Company, so
long as in the case of this clause (z) the Board of Directors by resolution
duly adopted (and a copy of which shall be furnished to the Buyer promptly
after adoption) determines that such issuance is fair to the holders of each
class and series of capital stock of the Company and to the Buyer in respect of
its equity interest in the Company that is represented by the Note.
-17-
<PAGE>
(g) Use of Proceeds. The Company represents and agrees that: (1) it
does not own or have any present intention of acquiring any "margin stock" as
defined in Regulation U (12 CFR part 221) of the Board of Governors of the
Federal Reserve System ("margin stock"); (2) the proceeds of sale of the Note
will be used for general working capital purposes and in the operation of the
Company's business; (3) none of such proceeds will be used, directly or
indirectly (A) to make any loan to or investment in any other Person or (B) for
the purpose, whether immediate, incidental or ultimate, of purchasing or
carrying any margin stock or for the purpose of maintaining, reducing or
retiring any indebtedness which was originally incurred to purchase or carry
any stock that is currently a margin stock or for any other purpose which might
constitute the transactions contemplated by this Agreement a "purpose credit"
within the meaning of such Regulation U; and (4) neither the Company nor any
agent acting on its behalf has taken or will take any action which might cause
this Agreement or the transactions contemplated hereby to violate Regulation U,
Regulation T or any other regulation of the Board of Governors of the Federal
Reserve System or to violate the 1934 Act, in each case as in effect now or as
the same may hereafter be in effect.
(h) Best Efforts. Each of the parties shall use its best efforts
timely to satisfy each of the conditions to the other party's obligations to
sell and purchase the Note set forth in Sections 6 or 7, as the case may be, of
this Agreement on or before the Closing Date.
(i) Debt Obligation. So long as any portion of the Note is
outstanding, the Company shall cause its books, records and financial
statements to reflect the Note as a debt of the Company in its unpaid principal
amount.
6. Conditions to the Company's Obligation to Sell.
The Buyer understands that the Company's obligation to sell the Note
to the Buyer pursuant to this Agreement is conditioned upon satisfaction of the
following conditions precedent on or before the Closing Date (any or all of
which may be waived by the Company in its sole discretion):
(a) The delivery by the Buyer of an amount equal to the Purchase
Price;
(b) On the Closing Date, no legal action, suit or proceeding shall
be pending or threatened which seeks to restrain or prohibit the transactions
contemplated by this Agreement;
(c) The representations and warranties of the Buyer contained in
this Agreement and in the Questionnaire shall have been true and correct on the
date of this Agreement and on the Closing Date as if made on the Closing Date
and on or before the Closing Date the Buyer shall have performed all covenants
and agreements of the Buyer required to be performed by the Buyer on or before
the Closing Date; and
-18-
<PAGE>
(d) No event which, if the Note were outstanding, (1) would
constitute an Event of Default shall have occurred and be continuing or (2)
would constitute a Repurchase Event shall have occurred and be continuing
unless the Buyer shall have waived in writing such (and only such) Event of
Default or Repurchase Event, as the case may be, and the rights of the Buyer
under the Note with respect to such (and only such) Event of Default or
Repurchase Event, as the case may be.
7. Conditions to the Buyer's Obligation to Purchase.
The Company understands that the Buyer's obligation to purchase the
Note is conditioned upon satisfaction of the following conditions precedent on
or before the Closing Date (any or all of which may be waived by the Buyer in
its sole discretion):
(a) Delivery by the Company of the Note in
accordance with this Agreement;
(b) Delivery by the Transfer Agent of the Transfer Agent Agreement;
(c) On the Closing Date, no legal action, suit or proceeding shall
be pending or threatened which seeks to restrain or prohibit the transactions
contemplated by this Agreement;
(d) The representations and warranties of the Company contained in
this Agreement that are qualified as to materiality shall be true and correct,
and the representations and warranties of the Company set forth in this
Agreement that are not so qualified shall be true and correct in all material
respects, in each case as of the date of this Agreement and as of the Closing
Date, as though made on and as of the Closing Date (except for representations
given as of a specific date, which representations shall be true and correct as
of such date), and on or before the Closing Date the Company shall have
performed all covenants and agreements of the Company contained herein required
to be performed by the Company on or before the Closing Date;
(e) No event which, if the Note were outstanding, (1) would
constitute an Event of Default shall have occurred and be continuing or (2)
would constitute a Repurchase Event shall have occurred and be continuing;
(f) The Company shall have delivered to the Buyer its certificate,
dated the Closing Date, duly executed by its Chief Executive Officer to the
effect set forth in subparagraphs (c), (d), and (e) of this Section 7;
(g) The receipt by the Buyer of a certificate, dated the Closing
Date, of the Secretary of the Company certifying (1) the Certificate of
Incorporation and By-Laws of the Company as in effect on the Closing Date, (2)
all resolutions of the Board of Directors (and committees thereof) of the
Company relating to this Agreement and the transactions contemplated hereby and
(3) such other matters as reasonably requested by the Buyer;
(h) On the Closing Date, the Buyer shall have received an opinion of
Paul, Weiss, Rifkind, Wharton & Garrison, counsel for the Company, dated the
Closing Date, addressed to the Buyer, in form, scope and substance reasonably
satisfactory to the Buyer, substantially in the form of Annex V attached
hereto;
-19-
<PAGE>
(i) On the Closing Date, (i) trading in securities on the New York
Stock Exchange, Inc., the American Stock Exchange, Inc. or Nasdaq shall not
have been suspended or materially limited and (ii) a general moratorium on
commercial banking activities in the State of New York shall not have been
declared by either federal or state authorities.
8. Registration Rights.
(a) Mandatory Registration. (1) The Company shall prepare and, on
or prior to the date which is 30 days after the Closing Date, file with the SEC
a Registration Statement on Form S-3 which on the SEC Filing Date covers the
resale by the Buyer of a number of shares of Common Stock equal to (A) at least
the number of Conversion Shares issuable to the Buyer under the Note,
determined as if the Note, together with accrued and unpaid interest, were
converted in full (determined without regard to the limitation on beneficial
ownership contained in Section 2.1(b) of the Note) on the SEC Filing Date and
as if the Note were convertible on the SEC Filing Date, and (B) such additional
number of shares of Common Stock as the Company shall in its discretion
determine to register in connection with the issuance of the Payment Shares, as
Registrable Securities, and which Registration Statement shall state that, in
accordance with Rule 416 under the 1933 Act, such Registration Statement also
covers such indeterminate number of additional shares of Common Stock as may
become issuable upon conversion of the Note to prevent dilution resulting from
stock splits, stock dividends or similar transactions. If, notwithstanding
Rule 416 under the 1933 Act, the Registration Statement is not deemed to cover
such indeterminate number of shares of Common Stock as shall be issuable upon
conversion of the Note based on changes from time to time in the conversion
price thereof such that at any time the number of shares of Common Stock
included in the Registration Statement required to be filed as provided in the
first sentence of this Section 8(a) shall be insufficient to cover the number
of shares of Common Stock issuable on conversion in full of the unconverted
portion of the Note (after taking into account any redemptions pursuant to
Section 2.4(b) of the Note), then promptly, but in no event later than 30 days
after such insufficiency shall occur, the Company shall file with the SEC an
additional Registration Statement on Form S-3 (which shall not constitute a
post-effective amendment to the Registration Statement filed pursuant to the
first sentence of this Section 8(a)) covering such number of shares of Common
Stock as shall be sufficient to permit such conversion; provided, however, that
nothing in this Section 8(a) shall limit the rights of the holder of the Note
to have all or a portion of the Note redeemed pursuant to Section 2.4(b) of the
Note. For all purposes of this Agreement, such additional Registration
Statement shall be deemed to be the Registration Statement required to be filed
by the Company pursuant to this Section 8(a), and the Company and the Investors
shall have the same rights and obligations with respect to such additional
Registration Statement as they shall have with respect to the initial
Registration Statement required to be filed by the Company pursuant to this
Section 8(a).
-20-
<PAGE>
(2) Prior to the SEC Effective Date and during any time subsequent
to the SEC Effective Date when the Registration Statement for any reason is not
available for use by any Investor for the resale of any Registrable Securities,
except as provided in Section 8(c)(7) hereof, the Company shall not file any
other registration statement or any amendment thereto with the SEC under the
1933 Act or request the acceleration of the effectiveness of any other
registration statement previously filed with the SEC, other than (A) any
registration statement on Form S-8 or any registration statement on Form S-4
filed for which a request for confidential treatment has been granted and (B)
any registration statement or amendment which the Company is required to file
or as to which the Company is required to request acceleration pursuant to any
obligation in effect on the date of execution and delivery of this Agreement.
(b) Obligations of the Company. In connection with the registration
of the Registrable Securities, the Company shall:
(1) use its best efforts to cause the Registration Statement
referred to in Section 8(a) to become effective as promptly as possible after
the Closing Date, and keep the Registration Statement effective pursuant to
Rule 415 at all times during the Registration Period. The Company shall submit
to the SEC, within three Business Days after the Company learns that no review
of the Registration Statement will be made by the staff of the SEC or that the
staff of the SEC has no further comments on the Registration Statement, as the
case may be, a request for acceleration of effectiveness of the Registration
Statement to a time and date not later than 48 hours after the submission of
such request. The Company represents and warrants to the Investors that (a)
the Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein), at the time it is first filed with the SEC, at
the time it is ordered effective by the SEC and at all times during which it is
required to be effective hereunder (and each such amendment and supplement at
the time it is filed with the SEC and at all times during which it is available
for use in connection with the offer and sale of the Registrable Securities)
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 and (b) the Prospectus, at the time the Registration
Statement is declared effective by the SEC and at all times that the Prospectus
is required by this Agreement to be available for use by any Investor and, in
accordance with Section 8(c)(4), any Investor is entitled to sell Registrable
Securities pursuant to the Prospectus, and any amendment or supplement to the
Prospectus at all times during which it is available for use by any Investor in
connection with the offer or sale of Registrable Securities, 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, in
light of the circumstances under which they were made, not misleading;
(2) subject to Section 8(b)(5), prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement and the Prospectus as may be necessary to keep the
Registration Statement effective, and the Prospectus current, at all times
during the Registration Period, and, during the Registration Period, comply
with the provisions of the 1933 Act applicable to the Company in order to
permit the disposition by the Investors of all Registrable Securities covered
by the Registration Statement;
-21-
<PAGE>
(3) as soon as reasonably practicable, furnish to each Investor
whose Registrable Securities are included in the Registration Statement and its
legal counsel, (a) 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 Prospectus and each
amendment or supplement thereto, (b) each letter written by or on behalf of the
Company to the SEC or the staff of the SEC and each item of correspondence from
the SEC or the staff of the SEC relating to such Registration Statement (other
than any portion of any thereof which contains information for which the
Company has sought confidential treatment), each of which the Company hereby
determines to be confidential information and which the Buyer hereby agrees to
keep confidential as a confidential Record in accordance with Section 8(b)(9)
and (c) such number of copies of a 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;
(4) subject to Section 8(b)(5), use its best efforts to (a) register
and qualify the Registrable Securities covered by the Registration Statement
under the securities or blue sky laws of such jurisdictions as the Investors
who hold a majority in interest of the Registrable Securities reasonably
request, (b) 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 at all
times during the Registration Period and (c) take all other actions reasonably
necessary or advisable to qualify the Registrable Securities for sale by the
Investors in such jurisdictions; provided, however, that the Company shall not
be required in connection therewith or as a condition thereto (I) to qualify to
do business in any jurisdiction where it would not otherwise be required to
qualify but for this Section 8(b)(4), (II) to subject itself to general
taxation in any such jurisdiction, (III) to file a general consent to service
of process in any such jurisdiction, (IV) to provide any undertakings that
cause more than nominal expense or burden to the Company or (V) to make any
change in its charter or by-laws which the Board of Directors of the Company
determines to be contrary to the best interests of the Company and its
stockholders;
(5) as promptly as practicable after becoming aware of such event or
circumstance, notify each Investor of the occurrence of an event or
circumstance of which the Company has knowledge, (x) as a result of which the
Prospectus included in the Registration Statement, as then in effect, or any
amendment or supplement thereto, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading or (y) which requires the Company to amend
or supplement the Registration Statement due to the receipt from an Investor of
new or additional information about an Investor or its intended plan of
distribution of its Shares, and use its best efforts promptly to prepare a
supplement or amendment to the Registration Statement and Prospectus to correct
such untrue statement or omission or to add any new or additional information,
and deliver a number of copies of such supplement or amendment to each Investor
as such Investor may reasonably request;
-22-
<PAGE>
(6) as promptly as reasonably practicable after becoming aware of
such event, notify each Investor who holds Registrable Securities being sold of
the issuance by the SEC of any stop order or other suspension of effectiveness
of the Registration Statement;
(7) permit the Investors who hold Registrable Securities being
included in the Registration Statement, at such Investors' sole cost and
expense (except as otherwise specifically provided in Section 10(k)) to review
and have a reasonable opportunity to comment on the Registration Statement and
all amendments and supplements thereto at least three Business Days (or such
shorter period as may reasonably be specified by the Company) prior to their
filing with the SEC; provided, however, that all comments by such Investors
shall be given to Howard, Darby & Levin (or such other counsel as designated by
Investors who hold a majority in interest of the Registrable Securities
proposed to be offered) to convey to the Company;
(8) make generally available to its security holders as soon as
practical, but not later than 90 days after the close of the period covered
thereby, an earning statement (in form complying with the provisions of Rule
158 under the 1933 Act) covering a 12-month period beginning not later than the
first day of the Company's fiscal quarter next following the effective date of
the Registration Statement;
(9) make available for inspection by any Investor and any Inspectors
retained by any such Investor at such Investor's sole expense, all Records as
shall be reasonably necessary to enable each Investor to exercise its due
diligence responsibility with respect to Section 11 of the 1933 Act as it
relates to the Registration Statement or any amendment thereof, and cause the
Company's officers 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 (i) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement, (ii) the
release of such Records is ordered pursuant to a subpoena or other order from a
court or government body of competent jurisdiction or (iii) 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; provided further,
however, that each Investor understands that in the course of exercising the
rights provided in this Section 8(b)(9) such Investor may come into possession
of material non-public information about the Company and that by reason of the
requirements of the 1934 Act any such Investor who possesses such material non-
public information may be restricted in making purchases and sales of the
Common Stock unless such information has been publicly disclosed. 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, the provisions of which shall provide
substantially the same protections as set forth in this Section 8(b)(9). 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 the Company's expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. The Company shall hold in confidence and shall not make any
disclosure of information concerning an Investor provided to the Company
pursuant to this Agreement unless (i) disclosure of such information is
-23-
<PAGE>
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 or (iv) such information has been made generally
available to the public other than by disclosure in violation of this or any
other agreement. 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 and allow such Investor, at such Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information;
(10) use its best efforts to cause all the Registrable Securities
covered by the Registration Statement as of the SEC Effective Date to be
approved for quotation on the Nasdaq or listed on such other registered
national securities exchange as constitutes the principal market on which
securities of the same class or series issued by the Company are then listed or
traded;
(11) provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the SEC Effective Date;
(12) cooperate with the Investors who hold Registrable Securities
being offered 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 Investors may reasonably request and
registered in such names as the Investors may request; and, not later than the
SEC Effective Date, the Company shall deliver, and shall cause legal counsel
selected by the Company to deliver, (i) to the Transfer Agent (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) an instruction substantially in the form attached hereto as Annex
III and (ii) to the Investors whose Registrable Securities are included in such
Registration Statement and, if required by the Transfer Agent, to the Transfer
Agent an opinion of counsel, substantially in the form attached hereto as Annex
IV; and
-24-
<PAGE>
(13) during the Registration Period, the Company shall not bid for or
purchase any Common Stock or any right to purchase Common Stock or attempt to
induce any Person to purchase any such security or right if such bid, purchase
or attempt would in any way limit the right of the Investors to sell
Registrable Securities by reason of the limitations set forth in Regulation M
under the 1934 Act.
(c) Obligations of the Buyer and other Investors. In connection
with the registration of the Registrable Securities, the Investors shall have
the following obligations:
(1) 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
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 four (4) Business Days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify each Investor of the Requested
Information if any of such Investor's Registrable Securities are eligible for
inclusion in the Registration Statement. If at least one (1) Business Day
prior to the SEC Filing Date the Company has not received the Requested
Information from an Investor, then the Company may file the Registration
Statement without including Registrable Securities of such Non-Responsive
Investor;
(2) 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 of such
Investor's election to exclude all of such Investor's Registrable Securities
from the Registration Statement;
(3) Each Investor agrees that it will not effect any disposition of
the Registrable Securities except as contemplated in the Registration Statement
or as otherwise in compliance with applicable securities laws and that it will
promptly notify the Company of any material changes in the information set
forth in the Registration Statement regarding such Investor or its plan of
distribution; each Investor agrees (a) to notify the Company if such Investor
enters into any material agreement with a broker or a dealer for the sale of
the Registrable Securities through a block trade, special offering, exchange
distribution or a purchase by a broker or dealer and (b) in connection with
such agreement, to provide to the Company in writing the information necessary
to prepare any supplemental prospectus pursuant to Rule 424(c) under the 1933
Act which is required with respect to such transaction;
(4) Each Investor acknowledges that during the times specified in
Sections 8(b)(5), 8(b)(6) and 8(c)(7) the Company must suspend the use of the
Prospectus until such time as an amendment to the Registration Statement has
been filed by the Company and declared effective by the SEC, the Company has
prepared a supplement to the Prospectus or the Company has filed an appropriate
report with the SEC pursuant to the 1934 Act. Each Investor hereby covenants
that it will not sell any Registrable Securities pursuant to the Prospectus in
accordance with Sections 8(b)(5), 8(b)(6) or 8(c)(7) during the period
commencing at the time at which the Company gives such Investor notice of the
suspension of the use of the Prospectus and ending at the time the Company
-25-
<PAGE>
gives such Investor notice that such Investor may thereafter effect sales
pursuant to the Prospectus, or until the Company delivers to such Investor an
amended or supplemented Prospectus;
(5) In connection with any sale of Registrable Securities which is
made by an Investor pursuant to the Registration Statement (a) if such sale is
made through a broker, such Investor shall instruct its broker or brokers to
deliver the Prospectus to the purchaser or purchasers in connection with such
sale, shall supply copies of such Prospectus to such broker or brokers (b) if
such sale is made in a transaction directly with a purchaser and not through
the facilities of any securities exchange or market, such Investor shall
deliver, or cause to be delivered, the Prospectus to such purchaser; and (c) if
such sale is made by any means other than those described in the immediately
preceding clauses (a) and (b), such Investor shall otherwise use its reasonable
best efforts to comply with the prospectus delivery requirements of the 1933
Act applicable to such sale;
(6) Each Investor agrees to notify the Company promptly after the
event of the completion of the sale by such Investor of all Registrable
Securities to be sold by such Investor pursuant to the Registration Statement;
and
-26-
<PAGE>
(7) During the marketing of a public offering of the Company's
securities underwritten on a firm commitment basis registered under the 1933
Act, at the Company's request, each Investor agrees to limit, as described
below, open market transactions in the Common Stock (or derivatives thereof)
for a period (the "Blackout Period") beginning on the date of such written
request (the "Blackout Notice Date") and ending on the earlier of (a) 15
Trading Days after the Blackout Notice Date and (b) the date the syndicate (if
any) is broken by the managing underwriter of such offering; provided however,
that no more than two Blackout Periods may be noticed by the Company and occur
during any 18 month period and no Blackout Period may be noticed earlier than
the 181st day following the cessation of the immediately preceding Blackout
Period. During any Blackout Period, open market transactions in the Common
Stock (or derivatives thereof) for any Trading Day shall be limited, in the
aggregate for the holders of the Note and the Other Notes (to be allocated
among such holders on a pro-rata basis based on the original principal amounts
of such notes), to the greater of (a) 15,000 shares or (b) transactions having
an aggregate value, as reported on the Price Source, of $200,000, calculated,
with respect to derivative transactions, using nominal value.
(d) Rule 144. With a view to making available to the Investors the
benefits of Rule 144, the Company agrees to:
(1) promptly furnish to each Investor so long as such Investor owns
Registrable Securities, such information as may be necessary to permit the
Investors to sell Registrable Securities pursuant to Rule 144 without
registration; and
(2) if at any time the Company is not required to file such reports
with the SEC under Sections 13 or 15(d) of the 1934 Act, use its best efforts
to, upon the request of an Investor, make publicly available other information
so long as is necessary to permit publication by brokers and dealers of
quotations for the Common Stock and sales of the Registrable Securities in
accordance with Rule 15c2-11 under the 1934 Act.
9. Indemnification and Contribution.
(a) Indemnification. (1) To the extent not prohibited by applicable
law, the Company will indemnify and hold harmless each Indemnified Person
against any Claims to which any of them may become subject under the 1933 Act,
the 1934 Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any Violation. Subject to the restrictions set forth in Section 9(a)(3)
with respect to the number of legal counsel, the Company shall reimburse the
Investors and each such controlling Person, promptly as such expenses are
incurred and are due and payable, for any documented reasonable legal fees or
other documented and 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 9(a)(1) shall not apply to: (I) a Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
relating to an Indemnified Person furnished in writing to the Company by such
Indemnified Person or underwriter for such Indemnified Person expressly for use
in connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto, if such Prospectus was timely made
available by the Company pursuant to Section 8(b)(3) hereof; and (II) amounts
paid in settlement of any Claim if such settlement is effected without the
prior written consent of the Company and (III) an Indemnified Person with
respect to a Claim which arises solely from the failure of such Indemnified
-27-
<PAGE>
Person to comply in any material respect with Sections 8(c)(4) and 8(c)(5).
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.
(2) In connection with the Registration Statement, each Investor
agrees to indemnify and hold harmless, to the same extent and in the same
manner set forth in Section 9(a)(1), each Indemnified Party against any Claim
to which any of them may become subject, under the 1933 Act, the 1934 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 such Investor will reimburse any legal or other expenses
reasonably incurred by any Indemnified Party in connection with investigating
or defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 9(a)(2) 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 Section 9(a)(2)
for only that amount of a Claim as does not exceed the amount by which the
proceeds to such Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement exceeds the amount paid by such
Investor for such Registrable Securities. 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. Notwithstanding anything to the contrary contained herein,
the indemnification agreement contained in this Section 9(a)(2) 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 provided that the Indemnified Party shall have
complied with Section 8(c)(5).
-28-
<PAGE>
(3) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 9(a) 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 be made against any
indemnifying party under this Section 9(a), deliver to the indemnifying party a
notice of the commencement thereof and the indemnifying party shall have the
right to participate in, and, 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 reasonably satisfactory to the Indemnified
Person or the Indemnified Party, as the case may be; provided, however, that 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
differing interests between such Indemnified Person or Indemnified Party and
any other party represented by such counsel in such proceeding; provided
further, however, that no indemnifying person shall be responsible for the fees
and expenses of more than one separate counsel for all Indemnified Persons
hereunder and one separate counsel in each jurisdiction in which a claim is
pending or threatened. The failure to deliver 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 9(a), except to the extent that the
indemnifying party is prejudiced in its ability to defend such action. The
indemnification required by this Section 9(a) 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; provided that, in the event there is a final determination by a court
of competent jurisdiction that the Indemnified Person or the Indemnified Party
was not entitled to indemnification under this Section 9(a), the Indemnified
Person or Indemnified Party shall promptly repay to the indemnifying party all
amounts subject to such determination that were paid or reimbursed to the
Indemnified Person or Indemnified Party, as applicable. .
(b) Contribution. To the extent any indemnification by an
indemnifying party as set forth in Section 9(a) above is applicable by its
terms but 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 9(a) to the fullest extent permitted by law.
In determining the amount of contribution to which the respective parties are
entitled, there shall be considered the relative fault of each party, the
parties' relative knowledge of and access to information concerning the matter
with respect to which the claim was asserted, the opportunity to correct and
prevent any statement or omission and any other equitable considerations
appropriate under the circumstances; provided, however, that (a) 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
9(a), (b) no Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
other Person who was not guilty of such fraudulent misrepresentation and (c)
contribution by any seller of Registrable Securities shall be limited to the
amount by which the proceeds received by such seller from the sale of such
Registrable Securities exceeds the amount paid by such Investor for such
Registrable Securities.
-29-
<PAGE>
(c) Other Rights. The indemnification and contribution provided in
this Section shall be in addition to any other rights and remedies available at
law or in equity.
10. Miscellaneous.
(a) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO CONFLICT OF LAWS PROVISIONS.
(b) Headings. The headings, captions and footers of this Agreement
are for convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
(c) 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.
(d) Notices. All notices and other communications hereunder to any
party shall be deemed to be sufficient if contained in a written instrument
delivered in person or by a nationally recognized courier service or duly sent
by facsimile, addressed to:
(a) if to the Company, to:
EMISPHERE TECHNOLOGIES, INC.
15 Skyline Drive
Hawthorne, New York 10532
Telephone: (914) 347-2498
Facsimile: (914) 347-2220
Attention: Michael M. Goldberg, Chairman
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Telephone: (212) 373-3000
Facsimile: (212) 757-3990
Attention: Edwin S. Maynard, Esq.
and to:
H. Warren Browne, Esq.
25 Five Ponds Drive
Waccabuc, New York 10597
Telephone: (914) 763-5599
Facsimile: (914) 763-6321
and:
(b) if to the Buyer, to:
-30-
<PAGE>
or courier delivery, on the date of such delivery and (ii) in the case of
facsimile transmission, on the date on which the sender receives confirmation
that such was received by the addressee.
(e) Counterparts. This Agreement may be executed in counterparts
and by the parties hereto on separate counterparts, each of which shall be
deemed to be an original but all of which together shall constitute one and the
same instrument. A facsimile transmission of this Agreement bearing a
signature on behalf of a party hereto shall be legal and binding on such party.
(f) Entire Agreement; Benefit. This Agreement, including the
Annexes, Schedules and the schedules attached hereto constitute the entire
agreement among the parties hereto with respect to the subject matter hereof.
There are no restrictions, promises, warranties, or undertakings, other than
those set forth or referred to herein and therein. This Agreement, including
the Annexes and the schedules attached hereto supersede all prior agreements
and understandings, whether written or oral, between the parties hereto with
respect to the subject matter hereof. This Agreement and the terms and
provisions hereof are for the sole benefit of only the Company, the Buyer and
their respective successors and permitted assigns.
(g) Waiver. 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, or course of dealing between the parties shall not operate as a
waiver thereof or an amendment hereof, nor shall any single or partial exercise
of any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof
or exercise of any other right or power.
(h) Amendment. No amendment, modification, waiver, discharge or
termination of any provision of this Agreement nor consent to any departure by
the Buyer or the Company therefrom shall in any event be effective unless the
same shall be in writing and signed by the party to be charged with
enforcement, and then shall be effective only in the specific instance and for
the purpose for which given. No course of dealing between the parties hereto
shall operate as an amendment of this Agreement.
(i) Further Assurances. Each party to this Agreement will perform
any and all acts and execute any and all documents as may be necessary and
proper under the circumstances in order to accomplish the intents and purposes
of this Agreement and to carry out its provisions.
(j) Assignment of Certain Rights and Obligations. The rights of an
Investor under Sections 5(a), 5(b), 8 and 9 of this Agreement may be assigned
by such Investor to any transferee of all or any portion of such Investor's
Registrable Securities (or all or any portion of the Note) who is a Permitted
Transferee if: (1) such Investor agrees in writing with such transferee to
assign such rights, and a copy of such agreement is furnished to the Company
within a reasonable time after such assignment, (2) the Company is, within a
reasonable time after such transfer, furnished with notice of (A) the name and
address of such transferee and (B) the securities with respect to which such
rights and obligations are being transferred, (3) immediately following such
transfer or assignment the further disposition of Registrable Securities by the
transferee or assignee is restricted under the 1933 Act and applicable state
securities laws, and (4) at or before the time the Company received the notice
contemplated by clause (2) of this sentence the transferee agrees in writing
with the Company to be bound by all of the provisions contained in Sections
-31-
<PAGE>
5(a), 5(b), 8 and 9 hereof. Upon any such transfer, the Company shall be
obligated to such transferee to perform all of its covenants under Sections 5,
8 and 9 of this Agreement as if such transferee were the Buyer. In connection
with any such transfer the Company shall, at its sole cost and expense,
promptly after such transfer take such actions as shall be reasonably
acceptable to the transferring Investor and such transferee to assure that the
Registration Statement and related Prospectus are available for use by such
transferee for sales of the Registrable Securities in respect of which such
rights and obligations have been so transferred.
(k) Expenses. All reasonable expenses incurred in connection with
registrations, filings or qualifications pursuant to this Agreement shall be
paid by the Company, including, without limitation, all registration, listing
and qualifications fees, printers and accounting fees and the fees and
disbursements of counsel for the Company but excluding (a) fees and expenses of
investment bankers retained by any Investor, (b) brokerage commissions incurred
by any Investor and (c) fees and disbursements of counsel for the Investors.
The Company shall pay on demand all expenses incurred by the Buyer, including
reasonable attorneys' fees and expenses, as a consequence of, or in connection
with, (1) any default or breach of any of the Company's obligations set forth
in the Transaction Documents and (2) the enforcement or restructuring of any
right of, including the collection of any payments due, the Buyer under the
Transaction Documents, including any action or proceeding relating to such
enforcement or any order, injunction or other process seeking to restrain the
Company from paying any amount due the Buyer. Except as otherwise provided in
this Section 10(k), each of the Company and the Buyer shall bear its own
expenses in connection with this Agreement and the transactions contemplated
hereby.
(l) Termination. The Buyer shall have the right to terminate this
Agreement by giving notice to the Company at any time at or prior to the
Closing Date if:
(1) the Company shall have failed, refused, or been unable at or
prior to the date of such termination of this Agreement to perform any of its
obligations hereunder;
(2) any other condition of the Buyer's obligations hereunder is not
fulfilled; or
(3) the Closing shall not have occurred on a Closing Date on or
before May 1, 1998, other than solely by reason of a breach of this Agreement
by the Buyer.
Any such termination shall be effective upon the giving of notice thereof by
the Buyer. Upon such termination, the Buyer shall have no further obligation
to the Company hereunder and the Company shall remain liable for any breach of
this Agreement or the other documents contemplated hereby which occurred on or
prior to the date of such termination.
-32-
<PAGE>
(m) Survival. The respective representations, warranties, covenants
and agreements of the Company and the Buyer contained in this Agreement and the
documents delivered in connection with this Agreement shall survive the
execution and delivery of this Agreement and the Closing hereunder and delivery
of and payment for the Note, and shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of the Buyer or any
Person controlling or acting on behalf of the Buyer or by the Company or any
Person controlling or acting on behalf of the Company.
(n) Public Statements, Press Releases, Etc. The Company and the
Buyer shall have the right to approve before issuance any press releases 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 Buyer, to make any press release or other public disclosure
with respect to such transactions as is required by applicable law and
regulations, including the 1933 Act and the rules and regulations promulgated
thereunder (although the Buyer shall be consulted by the Company in connection
with any such press release or other public disclosure prior to its release and
shall be provided with a copy thereof).
(o) Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of the
date first set forth above.
Principal Amount: $
Purchase Price: $
EMISPHERE TECHNOLOGIES, INC.
By: ___________________________________
Name:
Title:
[Buyer]
By ____________________________________
Name:
Title:
-33-
