FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the Quarter Ended September 30, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ____________ to ____________
Commission File No. 0-11572
Endorex Corp.
(Exact name of registrant as specified in its charter)
Delaware 41-1505029
(State of other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
900 North Shore Drive Lake Bluff, IL 60044
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (847) 604-7555
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
At November 5, 1997, 9,736,641 shares of the registrant's common stock
(par value, $.001 per share) were outstanding.
<PAGE>
<TABLE>
PART I.
ITEM 1 - Financial Statements
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<CAPTION>
September 30,
1997
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 800,707
Prepaid Expenses 131,527
------------
TOTAL CURRENT ASSETS 932,234
Leasehold improvements and equipment, net of
accumulated amortization of $916,277. 99,019
Patent issuance costs, net of accumulated
amortization of $36,300. 260,382
------------
TOTAL ASSETS $ 1,291,635
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 252,988
------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.05 par value.
Authorized 100,000 shares;
none issued and outstanding --
Common stock, $.001 par value.
Authorized 50,000,000 shares;
issued 2,071,432; outstanding 1,952,790 2,071
Additional paid-in capital 13,527,230
(Deficit) accumulated during the development stage (12,046,904)
------------
1,482,397
Less:
Treasury Stock, at cost, 118,642 shares (443,750)
------------
TOTAL STOCKHOLDERS' EQUITY 1,038,647
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,291,635
============
<F/N>
See accompanying condensed notes to financial statements
</TABLE>
<PAGE>
<TABLE>
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Cumulative from
Nine Months February 15, 1985
Ended September 30, (date of inception)
1997 1996 to September 30, 1997
<S> <C> <C> <C>
SBIR contract revenue $ -- $ -- $ 100,000
Expenses:
SBIR contract
research and
development -- -- 86,168
Proprietary research
and development 1,103,003 775,538 9,152,088
General and
administrative 738,889 292,692 3,705,146
------------ ------------ -------------
Total operating expenses 1,841,892 1,068,230 12,943,402
------------ ------------ -------------
(Loss) from operations (1,841,892) (1,068,230) (12,843,402)
Other income -- -- 1,512
Interest income 19,597 37,302 840,553
Interest expense (4,929) -- (45,567)
------------ ------------ -------------
Net loss $(1,827,224) $(1,030,928) $(12,046,904)
============ ============ =============
Net loss per share $ (1.36) $ (1.83)
Weighted average
common shares
outstanding 1,329,322 562,655
</TABLE>
<F/N>
See accompanying condensed notes to financial statements
<PAGE>
<TABLE>
ENDOREX CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended September 30,
1997 1996
<S> <C> <C>
SBIR contract revenue $ -- $ --
Expenses:
SBIR contract
research and
development -- --
Proprietary research
and development 369,006 196,952
General and
administrative 226,211 137,979
----------- ------------
Total operating expenses 595,217 334,931
----------- ------------
(Loss) from operations (595,217) (334,931)
Other income -- --
Interest income 11,648 17,521
Interest expense (4,929) --
----------- ------------
Net loss $ (588,498) $ (317,410)
=========== ============
Net loss per share $ (0.33) $ (0.42)
Weighted average
common shares
outstanding 1,810,230 760,122
</TABLE>
<F/N>
See accompanying condensed notes to financial statements
<PAGE>
<TABLE>
ENDOREX CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Cumulative from
Nine months February 15, 1985
ended September 30, (date of inception)
1997 1996 to September 30,
1997
<S> <C> <C> <C>
Net cash used in operating
activities $(1,827,224) $(1,030,928) $(12,046,904)
------------ ----------- -------------
INVESTING ACTIVITIES:
Patent issuance cost (64,945) (19,755) (397,688)
Organizational costs
incurred -- -- (135)
Deposit on leasehold
improvements -- -- (5,000)
Purchase of leasehold
improvements -- -- (414,671)
Purchases of office
and lab equipment (52,977) (5,219) (606,776)
Proceeds from assets
sold -- -- 1,000
----------- ----------- -------------
Net cash used in
investing activities (117,922) (24,974) (1,423,270)
----------- ----------- -------------
FINANCING ACTIVITIES:
Net proceeds from
issuance of common
stock 1,746,408 1,324,999 12,666,284
Proceeds from exercise
of options -- 132,049 134,236
Proceeds from borrowings
from President -- -- 41,433
Repayment of borrowings
from President -- -- (41,433)
Proceeds from borrowings
under line of credit 287,490 -- 587,490
Repayment of borrowings
under line of credit (287,490) -- (587,490)
Proceeds from note
payable to bank -- -- 150,000
Payments on note
payable to bank -- -- (150,000)
Proceeds from borrowings
from stockholders -- -- 15,867
Repayment of borrowings
from stockholders -- -- (15,867)
Advances from parent
Company -- -- 135,000
Payments to Parent
company -- -- (135,000)
Repayment of long-
term note receivable -- -- 50,315
Repayment of note
payable issued in
exchange for legal
service -- -- (71,968)
Purchase of treasury
stock -- -- (443,750)
----------- ----------- -------------
Net cash provided by
financing activities 1,746,408 1,457,048 12,335,117
----------- ----------- -------------
Net increase (decrease)
in cash and cash
equivalents (105,200) 547,230 800,707
Cash and cash equivalents at
beginning of periods 905,907 1,146,351 --
----------- ----------- -------------
Cash and cash equivalents at
end of periods $ 800,707 $1,603,362 $ 800,707
=========== =========== =============
<F/N>
See accompanying Condensed Notes to Financial Statements
</TABLE>
<PAGE>
ENDOREX CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
The unaudited interim consolidated financial statements included herein
are prepared pursuant to the rules and regulations for reporting on
Form 10-QSB. Accordingly, certain information and footnote disclosures
normally accompanying the annual financial statements have been
omitted. The interim financial statements and notes should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's latest annual report on Form 10-KSB. In the
opinion of management, the consolidated financial statements include all
adjustments necessary for a fair statement of the results operations,
financial position and cash flows for the interim periods. All
adjustments were of a normally recurring nature. The results of operations
for interim periods are not necessarily indicative of the results for the
full fiscal year.
On January 31, 1997, the Company changed its fiscal year end from January 31
to December 31. The Transition Period resulting from the change was
reported in the annual report on Form 10-KSB for the period ended
December 31, 1996.
On May 19, 1997, the Company entered into a senior line of credit agreement
with The Aries Funds, two of its major stockholders, pursuant to which the
Company could borrow up to $500,000 (the "Bridge Loan"). The Bridge Loan
accrued interest at the rate of 12% per annum and was due and payable
on August 19, 1997. In consideration of the Bridge Loan, the Company has
granted warrants to purchase an aggregate of 66,668 shares of Common Stock at
an initial exercise price equal to the Offering Price of the Company's
private placement. The exercise price of such warrants and the
number of shares of common stock purchasable thereunder are subject to
adjustment in certain circumstances. Such warrants are exercisable from
May 19, 1997 until May 19, 2002. On July 18, 1997, the Company paid the
outstanding principal and interest on the Bridge Loan.
On June 11, 1997, the Company effected a one-for-fifteen reverse stock split
of its common stock. All share and per share amounts have been adjusted to
reflect such reverse stock split.
On July 16, 1997, the Company issued and sold an aggregate of 864,865 shares
of Common Stock to The Aries Funds for an aggregate consideration of
$2 million.
On July 29, 1997, the Company formed Wisconsin Genetics, Inc. ("WGI") a new
majority owned subsidiary devoted to the development of new drugs for the
prevention and treatment of cancer.
On August 13, 1997, the Company's warrants issued in connection with the
secondary offering on August 13, 1992 expired.
Pursuant to a Private Placement, the Company issued and sold an aggregate
of 7,783,851 shares of Common Stock on October 10 and October 16, 1997 to
certain accredited investors. The aggregate proceeds of the July 16,
October 10 and October 16, 1997 issuances were $20 million and the net
proceeds to the Company after deducting commissions and expenses were
$17,400,000. In connection with Private Placement, the Company issued
warrants to purchase 2,162,162 shares of Common Stock at an exercise
price of $2.54375 per share to Paramount Capital, Inc., the Placement
Agent. The warrants are exercisable after April 16, 1998 and expire on
April 16, 2003.
Common stock equivalents are excluded in the computation of primary earnings
per share on the face of the Consolidated Statements of Operations because
the effect would be anti-dilutive. Fully diluted earnings per share are not
disclosed on the face of the Consolidated Statement of Operations because
the effect is anti-dilutive.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Plan of Operation
The following "Plan of Operation" provides information which management
believes is relevant to an assessment and understanding of the Company's
results of operation and financial condition. The discussion should be
read in conjunction with the Company's unaudited consolidated interim
financial statements and notes thereto and the Company's Annual Report on
Form 10-KSB. This report contains certain statements of a forward-looking
nature relating to future events or the future financial performance of
the Company. Investors are cautioned that such statements are only
predictions and that actual events or results may differ materially. In
evaluating such statements, investors should carefully consider the various
factors identified in this report, which could cause actual results to differ
materially from those indicated from such forward-looking statements,
including those set forth in Exhibit 99 "Certain Factors that may Effect
Future Results, Financial Condition and the Market Price of Securities" of
this Quarterly Report on Form 10-QSB.
The Company is a development stage enterprise and expects no significant
revenue from the sale of products in the near future. The Company's
proprietary immunomodulator, ImmTher, has completed some Phase II clinical
trials for cancer with limited response in gross metastatic disease and its
immuno-adjuvant, Theramide, has completed a Phase I clinical trial
for cancer. The Company plans to initiate new Phase II clinical trials for
ImmTher in treating micro-metastasis in pediatric sarcomas with two major
cancer centers and new preclinical programs as an anti-infective agent in
immuno-compromised patients. For Theramide, the Company is completing
preclinical data for new Phase I trials as an adjuvant for a vaccine
program.
Orasomal Technologies, Inc. ("Orasomal"), a majority-owned subsidiary, has
initiated preclinical evaluation of at least one new product utilizing its
proprietary oral and mucosal delivery system, and plans to expand, during
1997, its oral vaccine program and oral therapeutics program. Orasomal plans
to select products for this program that are only available in injectable
form and for which oral therapy is not available. Orasomal believes its
technology, if effective, will increase patient compliance and ease of
administration of therapy and is currently evaluating a range of therapies
including insulin, allergens, vaccines and cancer chemotherapy. Orasomal
is also evaluating several vaccines of other biotechnology companies in its
proprietary delivery system and expects to license its Orasome technology for
oral and/or mucosal delivery of other companies' products in the near future.
On August 1, 1997, WGI signed an exclusive worldwide license agreement with
the Wisconsin Alumni Research Foundation ("WARF"), a non-profit organization
dedicated to receive and license new discoveries made by University of
Wisconsin-Madison researchers, for the development of a new cancer therapy.
The new drug, perillyl alcohol, is completing Phase I human trials sponsored
by the National Cancer Institute (NCI) at several cancer centers. WGI plans
to initiate NCI-sponsored Phase II trials for breast, prostate and ovarian
cancer in the near future. The Company has the option to license another
perillyl alcohol analog with WARF.
On September 30, 1997 and December 31, 1996, the Company had cash and cash
equivalents of $800,707 and $905,907, respectively, and working capital
of $679,246 and $824,821, respectively. On October 16, 1997, the Company
sold Common Stock which, net of commissions and expenses, raised approx-
imately $15.7 million.
The Company's current level of research and development activities requires
the expenditure of approximately $250,000 per month. Additional expenses
will be incurred in outside expanded clinical trials to accomplish the
necessary data collection and clinical trials required by the FDA for the
commercial production, marketing and distribution of the Company's first
proposed product. Management of the Company believes that its current cash
resources, including the proceeds from the October 1997 sale of Common Stock
will be sufficient to support its operations for at least the next twelve
months. The Company's cash resources may not be sufficient at current
levels to permit the Company to complete the clinical trials of its initial
proposed product necessary to obtain any FDA approvals. Accordingly, the
Company may be required to collaborate with one or more large pharmaceutical
companies which will provide the necessary financing and expertise to obtain
regulatory approvals, complete clinical development, manufacture and market
such product. Alternatively, the Company will be required to seek additional
funds from other sources not now identified. There can be no assurance that
the Company will be able to enter into the collaborative agreements or
raise additional capital necessary to complete its clinical trials, obtain
necessary regulatory approvals, or fully develop or commercialize its
proposed product on acceptable terms. In such event, if the Company was
unable to obtain from alternative sources the substantial financing
necessary on acceptable terms, it would be unable to complete the development
or commercialize any products.
The Company intends, from time to time in the future, to seek to expand its
research and development activities into other technologies and/or products
that it either may license from other persons or develop. There can be no
assurance that the Company will be successful in this regard. Any such
activities may require the expenditure of funds not presently available to
the Company. The Company may seek to obtain these funds from possible
future public or private sales of its securities or other sources.
In October 1997, the Company completed a private placement of Common Stock
with gross proceeds of $20 million. However, the Company may be required
to seek additional financing to continue operations in the event of cost
overruns, unanticipated expenses, a determination to pursue additional
research projects, or failure to receive funds anticipated from other sources.
The Company has no current commitment to obtain other additional funds and
is unable to state the amount or potential source of any other funds.
The Company does not intend to significantly increase employees during the
next twelve months, but will recruit some key personnel to accelerate
preclinical development of products.
The Company uses a number of outside consultants skilled in the area of
government regulatory management, clinical trial management, Good
Manufacturing Practices ("GMP") and business development. The Company also
formed a Scientific Advisory Board for Orasomal and in January appointed as
co-chairman Robert Langer, Ph.D., Professor of Biomedical Engineering of
M.I.T. and Henry Brem, M.D., Director of Neurosurgical Oncology at Johns
Hopkins Hospital. Both individuals are recognized leaders in drug delivery
systems. Dr. Langer is a co-inventor of the Orasome(TM) technology currently
under development by Orasomal and licensed from M.I.T. WGI is currently
assembling s Scientific Advisory Board to be comprised of a select group of
oncologists to guide the clinical development of perillyl alcohol.
<PAGE>
Impact of New Accounting Standards
During 1996, the Financial Accounting Standards Board ("FASB")issued a new
pronouncement, SFAS No. 128 "Earnings per Share" which is relevant to the
Company's operations. The statement is effective for financial statements
for both interim and annual periods ending after December 15, 1997.
Earlier application is not permitted. The Company intends to adopt SFAS
No. 128 at year end 1997 and expects no significant effect on loss per
share.
During 1997, FASB issued SFAS No. 130 "Reporting Comprehensive Income" and
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information". The Company has not determined the effect of the adoption of
these pronouncements.
<PAGE>
PART II.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The Company's Annual Meeting of Stockholders was held on July 16, 1997.
c) The motions before the stockholders were:
1) To elect four directors:
<TABLE>
<CAPTION>
Votes Votes Votes
Broker
Name of Director For Against Withheld Abstentions
Nonvotes
<S> <C> <C> <C> <C> <C>
Michael S. Rosen 12,217,403 21,331 - - -
Gerald J. Vosika, MD 12,221,472 17,262 - - -
Steve H. Kanzer, Esq. 12,221,272 17,462 - - -
Kenneth F. Tempero, MD 12,221,472 17,262 - - -
</TABLE>
2) To ratify the appointment of Coopers & Lybrand L.L.P. as
independent public accountants for the year ending
December 31, 1997.
Votes For: 12,229,277
Votes Against: 5,750
Votes Withheld: -
Abstentions: 3,707
Broker Nonvotes: -
3) To ratify a Private Placement of the sale of up to 60 units of the
Company's securities for a purchase price of $100,000 per unit.
Votes For: 3,702,143
Votes Against: 19,982
Votes Withheld: -
Abstentions: 6,017,132
Broker Nonvotes: 2,499,477
ITEM 6 - EXHIBITS AND REPORTS OF FORM 8-K
a)Exhibits: 4(i)(c) Warrant for the Purchase of 864,865 shares of
Common Stock.
4(i)(d) Warrant for the Purchase of 1,297,297 shares of
Common Stock
10.13 Placement Agency Agreement between the Registrant
and Paramount Capital, Inc. dated July 1, 1997
10.14 Side Letter #1 to Placement Agency Agreement
10.15 Form of Subscription Agreement for the purchase
of Common Stock
10.16 Financial Advisory Agreement between the Registrant
and Paramount Capital, Inc. dated October 16, 1997
27 Financial Data Schedule.
99 Certain Factors that may Effect Future Results,
Financial Condition and the Market Price of
Securities.
b)Reports on Form 8-K:
None.
<PAGE>
SIGNATURES
Pursuant to requirements 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.
ENDOREX CORP.
Michael S. Rosen
President and CEO
David G. Franckowiak
Controller/Treasurer
(principal financial officer)
</PAGE>
EXHIBIT 4(i)(c)
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAW. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH SALE OR TRANSFER
IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT.
ENDOREX CORP.
Warrant for the Purchase of Shares of
Common Stock
No. 1 864,865 Shares
FOR VALUE RECEIVED, ENDOREX CORP., a Delaware
corporation (the "Company"), hereby certifies that Paramount
Capital, Inc., its designee or its permitted assigns is
entitled to purchase from the Company, at any time or from
time to time commencing on April 16, 1998 and prior to 5:00
P.M., New York City time, on April 16, 2003, EIGHT HUNDRED SIXTY
FOUR THOUSAND EIGHTY HUNDRED SIXTY FIVE (864,865) fully paid and non-
assessable shares of common stock, $.001 par value per share,
of the Company for an aggregate purchase price of $2,200,000.
(Hereinafter, (i) said common stock, $.001 par value per
share, of the Company, is referred to as the "Common Stock",
(ii) the shares of the Common Stock purchasable hereunder or
under any other Warrant (as hereinafter defined) are referred
to as the "Warrant Shares", (iii) the aggregate purchase price
payable for the Warrant Shares purchaseable hereunder is
referred to as the "Aggregate Warrant Price", (iv) the price
payable (initially $2.54375 per share, subject to adjustment)
for each of the Warrant Shares hereunder is referred to as the
"Per Share Warrant Price", (v) this Warrant, all similar
Warrants issued on the date hereof and all warrants hereafter
issued in exchange or substitution for this Warrant or such
similar Warrants are referred to as the "Warrants", (vi) the
holder of this Warrant is referred to as the "Holder" and the
holder of this Warrant and all other Warrants and Warrant
Shares are referred to as the "Holders" and Holders of more
than fifty percent (50%) of the outstanding Warrants and
Warrant Shares are referred to as the "Majority of the
Holders") and (vii) the then Current Market Price per share of
the Common Stock (the "Current Market Price") shall be deemed
to be the last sale price of the Common Stock on the trading
day prior to such date or, in case no such reported sales take
place on such day, the average of the last reported bid and
asked prices of the Common Stock on such day, in either case
on the principal national securities exchange on which the
Common Stock is admitted to trading or listed, or if not
listed or admitted to trading on any such exchange, the
representative closing sale price of the Common Stock as
reported by the National Association of Securities Dealers,
Inc. Automated Quotations System ("NASDAQ"), or other similar
organization if NASDAQ is no longer reporting such
information, or, if the Common Stock is not reported on
NASDAQ, the high per share sale price for the Common Stock in
the over-the-counter market as reported by the National
Quotation Bureau or similar organization, or if not so
available, the fair market value of the Common Stock as
determined in good faith by the Board of Directors. The
Aggregate Warrant Price is not subject to adjustment. The Per
Share Warrant Price is subject to adjustment as hereinafter
provided; in the event of any such adjustment, the number of
Warrant Shares deliverable upon exercise of this Warrant shall
be adjusted by dividing the Aggregate Warrant Price by the Per
Share Warrant Price in effect immediately after such
adjustment.
This Warrant, together with warrants of like tenor,
constituting in the aggregate Warrants to purchase 864,865
Warrant Shares, was originally issued pursuant to an agency
agreement between the Company and Paramount Capital, Inc., as
placement agent (the "Placement Agent") in connection with a
private placement (the "Offering") of twenty (20) units (the
"Offering Units"), each Offering Unit consisting of 42,243.243
shares of Common Stock.
1a Exercise of Warrant.
(a) This Warrant may be exercised in whole at any
time, or in part from time to time, commencing on April 16,
1998 and prior to 5:00 P.M., New York City time, on April 16,
2003 by the Holder:
(i) by the surrender of this Warrant (with the
subscription form at the end hereof duly executed) at the
address set forth in Section 9(a) hereof, together with
proper payment of the Aggregate Warrant Price, or the
proportionate part thereof if this Warrant is exercised
in part, with payment for the Warrant Shares made by
certified or official bank check payable to the order of
the Company; or
(ii) by the surrender of this Warrant (with the
cashless exercise form at the end hereof duly executed)
(a "Cashless Exercise") at the address set forth in Sec-
tion 9(a) hereof. Such presentation and surrender shall
be deemed a waiver of the Holder's obligation to pay the
Aggregate Warrant Price, or the proportionate part
thereof if this Warrant is exercised in part. In the
event of a Cashless Exercise, the Holder shall exchange
its Warrant for that number of Warrant Shares subject to
such Cashless Exercise multiplied by a fraction, the
numerator of which shall be the difference between the
then Current Market Price and the Per Share Warrant
Price, and the denominator of which shall be the then
Current Market Price. For purposes of any computation
under this Section 1(a), the then Current Market Price
shall be based on the trading day prior to the Cashless
Exercise.
(iii) by the surrender of this Warrant (with
the subscription (promissory note) form at the end hereof
duly executed) at the address set forth in Subsection
9(a) hereof, together with the presentation of a
promissory note made payable to the corporation, duly
executed and in the form at the end hereof. Such
promissory note shall be secured by the securities
underlying this Warrant, which shall be held in safe-
keeping by the Company as collateral for such
indebtedness.
(b) If this Warrant is exercised in part, this
Warrant must be exercised for a number of whole shares of the
Common Stock and the Holder is entitled to receive a new
Warrant covering the Warrant Shares that have not been
exercised and setting forth the proportionate part of the
Aggregate Warrant Price applicable to such Warrant Shares.
Upon surrender of this Warrant, the Company will (i) issue a
certificate or certificates in the name of the Holder for the
largest number of whole shares of the Common Stock to which
the Holder shall be entitled and, if this Warrant is exercised
in whole, in lieu of any fractional share of the Common Stock
to which the Holder shall be entitled, pay to the Holder cash
in an amount equal to the fair value of such fractional share
(determined in such reasonable manner as the Board of
Directors of the Company shall determine), and (ii) deliver
the other securities and properties receivable upon the
exercise of this Warrant, or the proportionate part thereof if
this Warrant is exercised in part, pursuant to the provisions
of this Warrant; provided, however that if this Warrant is
exercised pursuant to paragraph 1(a)(iii), the Company will
issue but shall not deliver such shares until such time as the
promissory note and all accrued interest thereon shall have
been paid in full.
2a Reservation of Warrant Shares; Listing.
The Company agrees that, prior to the expiration of
this Warrant, the Company shall at all times (a) have
authorized and in reserve, and shall keep available, solely
for issuance and delivery upon the exercise of this Warrant,
the shares of the Common Stock and other securities and
properties as from time to time shall be receivable upon the
exercise of this Warrant, free and clear of all restrictions
on sale or transfer, other than under Federal or state
securities laws, and free and clear of all preemptive rights
and rights of first refusal and (b) if the Company hereafter
lists its Common Stock on any national securities exchange,
the Nasdaq National Market or the Nasdaq Smallcap Market, use
its best efforts to keep the Warrant Shares authorized for
listing on such exchange upon notice of issuance.
3a Protection Against Dilution.
(a) If, at any time or from time to time after the
date of this Warrant, the Company shall issue or distribute to
the holders of shares of Common Stock evidence of its
indebtedness, any other securities of the Company or any cash,
property or other assets (excluding a subdivision, combination
or reclassification, or dividend or distribution payable in
shares of Common Stock, referred to in Section 3(b), and also
excluding cash dividends or cash distributions paid out of net
profits legally available therefor in the full amount thereof
(any such non-excluded event being herein called a "Special
Dividend")), the Per Share Warrant Price shall be adjusted by
multiplying the Per Share Warrant Price then in effect by a
fraction, the numerator of which shall be the then Current
Market Price in effect on the record date of such issuance or
distribution less the fair market value (as determined in good
faith by the Company's Board of Directors) of the evidence of
indebtedness, cash, securities or property, or other assets
issued or distributed in such Special Dividend applicable to
one share of Common Stock and the denominator of which shall
be the then Current Market Price in effect on the record date
of such issuance or distribution. An adjustment made pursuant
to this Subsection 3(a) shall become effective immediately
after the record date of any such Special Dividend.
(b) In case the Company shall hereafter (i) pay a
dividend or make a distribution on its capital stock in shares
of Common Stock, (ii) subdivide its outstanding shares of
Common Stock into a greater number of shares, (iii) combine
its outstanding shares of Common Stock into a smaller number
of shares or (iv) issue by reclassification of its Common
Stock any shares of capital stock of the Company, the Per
Share Warrant Price shall be adjusted to be equal to a
fraction, the numerator of which shall be the Aggregate
Warrant Price and the denominator of which shall be the number
of shares of Common Stock or other capital stock of the
Company that the Holder would have owned immediately following
such action had such Warrant been exercised immediately prior
thereto. An adjustment made pursuant to this Subsection 3(b)
shall become effective immediately after the record date in
the case of a dividend or distribution, and shall become
effective immediately after the effective date in the case of
a subdivision, combination or reclassification.
(c) Except as provided in Subsections 3(a) and
3(d), in case the Company shall hereafter issue or sell any
Common Stock, any securities convertible into Common Stock,
any rights, options or warrants to purchase or otherwise
receive issuances of Common Stock or any securities
convertible into, or exerciseable or exchangeable for, Common
Stock, in each case for a price per share or entitling the
holders thereof to purchase Common Stock at a price per share
(determined by dividing (i) the total amount, if any, received
or receivable by the Company in consideration of the issuance
or sale of such securities plus the total consideration, if
any, payable to the Company upon exercise thereof (the "Total
Consideration") by (ii) the number of additional shares of
Common Stock issued, sold or issuable upon exercise of such
securities) that is less than either the then Current Market
Price in effect on the date of such issuance or sale or the
Per Share Warrant Price, then the Per Share Warrant Price
shall be adjusted as of the date of such issuance or sale by
multiplying the Per Share Warrant Price then in effect by a
fraction, the numerator of which shall be (x) the sum of (A)
the number of shares of Common Stock outstanding on the record
date of such issuance or sale plus (B) the Total Consideration
divided by the Current Market Price or the current Per Share
Warrant Price, whichever is greater, and the denominator of
which shall be (y) the number of shares of Common Stock
outstanding on the record date of such issuance or sale plus
the maximum number of additional shares of Common Stock
issued, sold or issuable upon exercise or conversion of such
securities.
(d) No adjustment in the Per Share Warrant Price
shall be required in the case of the issuance by the Company
of Common Stock (i) pursuant to the exercise of any warrant;
(ii) pursuant to the exercise of any stock options or warrants
currently outstanding or securities issued after the date
hereof, which may be approved by the Company's Board of
Directors pursuant to any Company benefit plan or exercised,
under any employee benefit plan of the Company to officers,
directors, consultants or employees, but only with respect to
such warrants or stock options as are exercisable at prices no
lower than the closing bid price of the Common Stock as of the
date of grant thereof; or (iii) upon the issuance of Common
Stock to Rights Holders (as defined in the subscription
agreement (the "Subscription Agreement") pursuant to which the
Offering Units were sold) pursuant to any Semi-Annual Issuance
(as defined in the Subscription Agreement) or Dilution
Issuance (as defined in the Subscription Agreement).
(e) In case of any capital reorganization or
reclassification, or any consolidation or merger to which the
Company is a party other than a merger or consolidation in
which the Company is the continuing corporation, or in case of
any sale or conveyance to another entity of the property of
the Company as an entirety or substantially as a entirety, or
in the case of any statutory exchange of securities with
another corporation (including any exchange effected in
connection with a merger of a third corporation into the
Company), the Holder of this Warrant shall have the right
thereafter to receive on the exercise of this Warrant the kind
and amount of securities, cash or other property which the
Holder would have owned or have been entitled to receive
immediately after such reorganization, reclassification,
consolidation, merger, statutory exchange, sale or conveyance
had this Warrant been exercised immediately prior to the
effective date of such reorganization, reclassification,
consolidation, merger, statutory exchange, sale or conveyance
and in any such case, if necessary, appropriate adjustment
shall be made in the application of the provisions set forth
in this Section 3 with respect to the rights and interests
thereafter of the Holder of this Warrant to the end that the
provisions set forth in this Section 3 shall thereafter cor-
respondingly be made applicable, as nearly as may reasonably
be, in relation to any shares of stock or other securities or
property thereafter deliverable on the exercise of this
Warrant. The above provisions of this Section 3(e) shall
similarly apply to successive reorganizations, reclassifica-
tions, consolidations, mergers, statutory exchanges, sales or
conveyances. The Company shall require the issuer of any
shares of stock or other securities or property thereafter
deliverable on the exercise of this Warrant to be responsible
for all of the agreements and obligations of the Company
hereunder. Notice of any such reorganization,
reclassification, consolidation, merger, statutory exchange,
sale or conveyance and of said provisions so proposed to be
made, shall be mailed to the Holders of the Warrants not less
than thirty (30) days prior to such event. A sale of all or
substantially all of the assets of the Company for a
consideration consisting primarily of securities shall be
deemed a consolidation or merger for the foregoing purposes.
(f) No adjustment in the Per Share Warrant Price
shall be required unless such adjustment would require an
increase or decrease of at least $0.05 per share of Common
Stock; provided, however, that any adjustments which by reason
of this Subsection 3(g) are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment; provided, further, however, that adjustments shall
be required and made in accordance with the provisions of this
Section 3 (other than this Subsection 3(g)) not later than
such time as may be required in order to preserve the tax-free
nature of a distribution to the Holder of this Warrant or
Common Stock issuable upon the exercise hereof. All
calculations under this Section 3 shall be made to the nearest
cent or to the nearest 1/100th of a share, as the case may be.
Anything in this Section 3 to the contrary notwithstanding,
the Company shall be entitled to make such reductions in the
Per Share Warrant Price, in addition to those required by this
Section 3, as it in its discretion shall deem to be advisable
in order that any stock dividend, subdivision of shares or
distribution of rights to purchase stock or securities
convertible or exchangeable for stock hereafter made by the
Company to its stockholders shall not be taxable.
(g) Whenever the Per Share Warrant Price is
adjusted as provided in this Section 3 and upon any modifi-
cation of the rights of a Holder of Warrants in accordance
with this Section 3, the Company shall promptly prepare a
brief statement of the facts requiring such adjustment or
modification and the manner of computing the same and cause
copies of such certificate to be mailed to the Holders of the
Warrants. The Company may, but shall not be obligated to
unless requested by a Majority of the Holders, obtain, at its
expense, a certificate of a firm of independent public
accountants of recognized standing selected by the Board of
Directors (who may be the regular auditors of the Company)
setting forth the Per Share Warrant Price and the number of
Warrant Shares in effect after such adjustment or the effect
of such modification, a brief statement of the facts requiring
such adjustment or modification and the manner of computing
the same and cause copies of such certificate to be mailed to
the Holders of the Warrants.
(h) If the Board of Directors of the Company shall
declare any dividend or other distribution with respect to the
Common Stock other than a cash distribution out of earned
surplus, the Company shall mail notice thereof to the Holders
of the Warrants not less than ten (10) days prior to the
record date fixed for determining stockholders entitled to
participate in such dividend or other distribution.
(i) If, as a result of an adjustment made pursuant
to this Section 3, the Holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive
shares of two or more classes of capital stock or shares of
Common Stock and other capital stock of the Company, the Board
of Directors (whose determination shall be conclusive and
shall be described in a written notice to the Holder of any
Warrant promptly after such adjustment) shall determine the
allocation of the adjusted Per Share Warrant Price between or
among shares or such classes of capital stock or shares of
Common Stock and other capital stock.
(j) Upon the expiration of any rights, options,
warrants or conversion privileges with respect to the issuance
of which an adjustment to the Per Share Warrant Price had been
made, if such shall not have been exercised, the number of
Warrant Shares purchasable upon exercise of this Warrant, to
the extent this Warrant has not then been exercised, shall,
upon such expiration, be readjusted and shall thereafter be
such as they would have been had they been originally adjusted
(or had the original adjustment not been required, as the case
may be) on the basis of (A) the fact that Common Stock, if
any, actually issued or sold upon the exercise of such rights,
options, warrants or conversion privileges, and (B) the fact
that such shares of Common Stock, if any, were issued or sold
for the consideration actually received by the Company upon
such exercise plus the consideration, if any, actually
received by the Company for the issuance, sale or grant of all
such rights, options, warrants or conversion privileges
whether or not exercised; provided, however, that no such
readjustment shall have the effect of decreasing the number of
Warrant Shares purchasable upon exercise of this Warrant by an
amount in excess of the amount of the adjustment initially
made in respect of the issuance, sale or grant of such rights,
options, warrants or conversion privileges.
4a Fully Paid Stock; Taxes. The shares of the
Common Stock represented by each and every certificate for
Warrant Shares delivered on the exercise of this Warrant shall
at the time of such delivery, be duly authorized, validly
issued and outstanding, fully paid and nonassessable, and not
subject to preemptive rights or rights of first refusal, and
the Company will take all such actions as may be necessary to
assure that the par value, if any, per share of the Common
Stock is at all times equal to or less than the then Per Share
Warrant Price. The Company shall that it will pay, when due
and payable, any and all Federal and state stamp, original
issue or similar taxes which may be payable in respect of the
issue of any Warrant Share or any certificate thereof to the
extent required because of the issuance by the Company of such
security.
5a Registration Under Securities Act of 1933.
(a) The Holder shall have the right to participate in the
registration rights granted to purchasers of Common Stock
pursuant to Article 5 of the subscription agreement (the
"Subscription Agreement") between such purchasers and the
Company that were entered into at the time of the initial sale
of the Common Stock. By acceptance of this Warrant, the
Holder agrees to comply with the provisions in Article 5 of
the Subscription Agreement to same extent as if it were a
party thereto.
(b) Until all of the Warrant Shares and any shares
of Common Stock issuable pursuant to the Article VI Rights (as
defined below) with respect to the Warrant Shares have been
sold under a Registration Statement or pursuant to Rule 144,
the Company shall use its reasonable best efforts to file with
the Securities and Exchange Commission all current reports and
the information as may be necessary to enable the Holder to
effect sales of its shares in reliance upon Rule 144
promulgated under the Act.
6. Article VI Rights. Upon exercise of this Warrant,
the Holder shall be entitled to the contractual rights set
forth in Article VI of the Subscription Agreement pursuant to
which the Offering Units were sold with respect to any Warrant
Shares acquired upon such exercise.
7 Investment Intent; Limited Transferability.
(a) The Holder represents, by accepting this
Warrant, that it understands that this Warrant and any
securities obtainable upon exercise of this Warrant have not
been registered for sale under Federal or state securities
laws and are being offered and sold to the Holder pursuant to
one or more exemptions from the registration requirements of
such securities laws. In the absence of an effective
registration of such securities or an exemption therefrom, any
certificates for such securities shall bear the legend set
forth on the first page hereof. The Holder understands that
it must bear the economic risk of its investment in this
Warrant and any securities obtainable upon exercise of this
Warrant for an indefinite period of time, as this Warrant and
such securities have not been registered under Federal or
state securities laws and therefore cannot be sold unless
subsequently registered under such laws, unless an exemption
from such registration is available.
(b) The Holder, by its acceptance of this Warrant,
represents to the Company that it is acquiring this Warrant
and will acquire any securities obtainable upon exercise of
this Warrant for its own account for investment and not with
a view to, or for sale in connection with, any distribution
thereof in violation of the Securities Act of 1933, as amended
(the "Act"). The Holder agrees that this Warrant and any such
securities will not be sold or otherwise transferred unless
(i) a registration statement with respect to such transfer is
effective under the Act and any applicable state securities
laws or (ii) such sale or transfer is made pursuant to one or
more exemptions from the Act.
(c) This Warrant may not be sold, transferred,
assigned or hypothecated for six (6) months from the date
hereof except (i) to any firm or corporation that succeeds to
all or substantially all of the business of Paramount Capital,
Inc., (ii) to any of the officers, employees, associates or
affiliated companies of Paramount Capital, Inc., or of any
such successor firm, (iii) to any NASD member participating in
the Offering or any officer or employee of any such NASD
member or (iv) in the case of an individual, pursuant to such
individual's last will and testament or the laws of descent
and distribution, and is so transferable only upon the books
of the Company which the Company shall cause to be maintained
for such purpose. The Company may treat the registered Holder
of this Warrant as it appears on the Company's books at any
time as the Holder for all purposes. The Company shall permit
any Holder of a Warrant or its duly authorized attorney, upon
written request during ordinary business hours, to inspect and
copy or make extracts from its books showing the registered
Holders of Warrant. All Warrants issued upon the transfer or
assignment of this Warrant will be dated the same date as this
Warrant, and all rights of the holder thereof shall be
identical to those of the Holder.
8. Loss, etc., of Warrant. Upon receipt of
evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and of indemnity
reasonably satisfactory to the Company, if lost, stolen or
destroyed, and upon surrender and cancellation of this
Warrant, if mutilated, the Company shall execute and deliver
to the Holder a new Warrant of like date, tenor and
denomination.
9. Warrant Holder Not Stockholder. This Warrant
does not confer upon the Holder any right to vote on or
consent to or receive notice as a stockholder of the Company,
as such, in respect of any matters whatsoever, nor any other
rights or liabilities as a stockholder, prior to the exercise
hereof; this Warrant does, however, require certain notices to
Holders as set forth herein.
10. Communication. No notice or other communi-
cation under this Warrant shall be effective unless, but any
notice or other communication shall be effective and shall be
deemed to have been given if, the same is in writing and is
mailed by first-class mail, postage prepaid, addressed to:
(a) the Company at 900 North Shore Blvd., Lake
Bluff, IL 60044 Attn: President or such other address as
the Company has designated in writing to the Holder, or
(b) the Holder at c/o Paramount Capital, Inc., 787
Seventh Avenue, New York, NY 10019 or other such address
as the Holder has designated in writing to the Company.
11. Headings. The headings of this Warrant have
been inserted as a matter of convenience and shall not affect
the construction hereof.
12. Applicable Law. This Warrant shall be
governed by and construed in accordance with the law of the
State of New York without giving effect to the principles of
conflicts of law thereof.
13. Amendment, Waiver, etc. Except as expressly
provided herein, neither this Warrant nor any term hereof may
be amended, waived, discharged or terminated other than by a
written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or
termination is sought; provided, however, that any provisions
hereof may be amended, waived, discharged or terminated upon
the written consent of the Company and the Majority of the
Holders.
IN WITNESS WHEREOF, the Company has caused this
Warrant to be signed by its President and has caused its
corporate seal to be hereunto affixed and attested by its
Secretary this 16th day of October, 1997.
Company
By: /s/ Michael S. Rosen
Name: Michael Rosen
Title: President and Chief Executive Officer
ATTEST:
/s/ D. Franckowiak
Secretary
SUBSCRIPTION (cash)
The undersigned, ___________________, pursuant to
the provisions of the foregoing Warrant, hereby agrees to
subscribe for and purchase ____________________ shares of the
Common Stock, par value $.001 per share, of Endorex Corp.
covered by said Warrant, and makes payment therefor in full at
the price per share provided by said Warrant.
Dated:_______________ Signature:____________________
Address:______________________
SUBSCRIPTION (promissory note)
The undersigned, __________________________,
pursuant to the provisions of the foregoing Warrant, hereby
agrees to subscribe for and purchase ________________ shares
of the Common Stock, par value $.001 per share, of Endorex
Corp. covered by said Warrant, and makes payment therefor in
full at the price per share provided by said Warrant by
delivery of the attached Promissory Note. The undersigned
hereby confirms the representations and warranties made by it
in the Warrant and in the attached Promissory Note.
Dated:_______________ Signature:______________________
Address:_______________________
CASHLESS EXERCISE
The undersigned ___________________, pursuant to
the provisions of the foregoing Warrant, hereby elects to
exchange its Warrant for ___________________ shares of Common
Stock, par value $.001 per share, of Endorex Corp. pursuant to
the Cashless Exercise provisions of the Warrant.
Dated:_______________ Signature:____________________
Address:______________________
ASSIGNMENT
FOR VALUE RECEIVED _______________ hereby sells,
assigns and transfers unto ____________________ the foregoing
Warrant and all rights evidenced thereby, and does irrevocably
constitute and appoint _____________________, attorney, to
transfer said Warrant on the books of Endorex Corp.
Dated:_______________ Signature:____________________
Address:______________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED _______________ hereby assigns
and transfers unto ____________________ the right to purchase
_______ shares of Common Stock, par value $.001 per share, of
Endorex Corp. covered by the foregoing Warrant, and a
proportionate part of said Warrant and the rights evidenced
thereby, and does irrevocably constitute and appoint
____________________, attorney, to transfer such part of said
Warrant on the books of Endorex Corp.
Dated:_______________ Signature:____________________
Address:______________________
[Form]
PROMISSORY NOTE
$[ ] New York, New York
[ ]
Warrantholder ("Borrower"), for value received,
hereby promises to pay to the order of Endorex Corp. (together
with any such subsequent holder of the Note, the "Holder") the
sum of [ ]($ ), or
such lesser amount as shall then equal the outstanding
principal amount hereof. Such amount shall be due and payable
on April__, 2003 (the "Maturity Date"), together with interest
thereon at a rate per annum equal to the prime rate as stated
by Citibank, N.A. as of the date hereof, (the "Interest
Rate"), and which shall be calculated on the basis of a
360-day year for actual days elapsed, on the terms and
conditions set forth hereinafter. Payment for all amounts due
hereunder shall be made by certified check or wire transfer to
the Holder at c/o 900 North Shore Blvd., Lake Bluff, IL 60044
Attn: [President], or other such address as the Holder may
designate by notice to Borrower. If this Promissory Note is
prepaid in whole or in part by the tendering of shares
pursuant to Paragraph 2 below, the repayment date shall be the
date on which the Borrower delivers a notice to the Company in
accordance with Paragraph 4 irrevocably stating the Borrower's
intention to repay the Promissory Note by tendering such
shares. The Borrower is delivering this Promissory Note as
payment of the exercise price for the purchase of the shares
of common stock (the "Stock") underlying the Warrant dated
October 15, 1997 (the "Warrant") issued to the Borrower. The
Promissory Note shall be secured by the Stock which the Holder
shall hold in safe-keeping as collateral for the indebtedness
represented by this Promissory Note.
1. Prepayment; Repayment. The Borrower may at
any time prepay in whole or in part the principal sum, plus
accrued interest to date of payment, of this Note, without
penalty or premium. All sums paid hereon shall be applied
first to accrued, unpaid interest on this Note and the
balance, if any, to the reduction of the principal hereof.
This Note shall not be due and payable until the Maturity
Date. On the Maturity Date, the entire principal amount
of, and all accrued interest on, this Note shall automatically
become immediately due and payable without presentment,
demand, protest or other formalities of any kind, all of which
are hereby expressly waived by the Company.
2. Prepayment or Repayment by Tendering of
Shares. Any prepayment or repayment may be made by
instructing the Company to withhold that number of shares of
Stock currently held by the Company as collateral for this
Promissory Note in accordance with Paragraph 1(a)(iii) of the
Warrant and having a value, based upon the Current Market
Price (as defined in the introductory paragraph of the
Warrant) of the Common Stock, equal to the outstanding
principal sum plus accrued interest. The Company will deliver
the balance of the shares not withheld pursuant to the
immediately preceding sentence of this Paragraph 2 to the
Borrower at the address set forth in Paragraph 3 below within
five (5) days of the date of such prepayment or repayment, as
the case may be.
3. Events of Default. If any events specified in
this Paragraph 3 shall occur and continue uncured for a period
of 90 days following notice from the Holder to the Borrower
that such event has occurred(herein individually referred to
as an "Event of Default"), the Holder of the Note may, so long
as such condition exists, declare the entire principal and
unpaid accrued interest hereon immediately due and payable, by
notice in writing to Borrower:
3.1. Default in the payment of the principal
and unpaid accrued interest of the Note when due and payable;
or
3.2. The institution by Borrower of
proceedings to be adjudicated as bankrupt or insolvent, or the
consent by Borrower to institution of bankruptcy or insolvency
proceedings against Borrower or the filing by Borrower of a
petition or answer or consent seeking reorganization or
release under the federal Bankruptcy Act, or any other
applicable federal or state law, or the consent by Borrower to
the filing of any such petition or the appointment of a
receiver, liquidator, assignee, trustee or other similar
official for all or any substantial part of its property, of
the taking of any action by Borrower in furtherance of any
such action; or
3.3. If, within sixty (60) days after the
commencement of an action against Borrower (and service of
process in connection therewith on Borrower) seeking any
bankruptcy, insolvency, reorganization, liquidation or similar
relief under any present or future statute, law of regulation,
such action shall not have been resolved in favor of Borrower
of all orders or proceedings thereunder affecting the property
of Borrower stayed, or if the stay of any such order or
proceeding shall thereafter be set aside, or if, within sixty
(60) days after the appointment without the consent or
acquiescence of Borrower of any trustee or receiver for all or
any substantial part of the property of Borrower, such
appointment shall not have been vacated
4. Notices. Any notice required, desired or
permitted to be given hereunder shall be in writing and shall
be delivered personally, sent certified or registered United
States mail, return receipt requested or sent by overnight
courier service addressed to:
If to the Holder:
c/o [company name]
[address]
Attn: President
If to Borrower:
[name and address]
Such notices shall be deemed given (i) if delivered
personally, upon delivery, (ii) if mailed as aforesaid, two
(2) business days after deposit in the United States mail and
(iii) if sent by overnight courier service one (1) business
day after deposit with the courier service. Any party may
change its address by notice to the other parties.
IN WITNESS WHEREOF, the Borrower has caused this
Note to be issued this [ ] day of [ ] 199[ ].
BORROWER:
Name:
Address:
___________________________
EXHIBIT 4(i)(d)
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAW. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
ENDOREX CORP.
Warrant for the Purchase of Shares of
Common Stock
No. 2 1,297,297 Shares
FOR VALUE RECEIVED, ENDOREX CORP., a Delaware corporation (the "Company"),
hereby certifies that Paramount Capital, Inc., its designee or its permitted
assigns is entitled to purchase from the Company, at any time or from time to
time commencing on April 16, 1998 and prior to 5:00 P.M., New York City time, on
April 16, 2003, ONE MILLION TWO HUNDRED NINETY SEVEN THOUSAND TWO HUNDRED NINETY
SEVEN (1,297,297) fully paid and non-assessable shares of common stock, $.001
par value per share, of the Company for an aggregate purchase price of
$3,299,999. (Hereinafter, (i) said common stock, $.001 par value per share, of
the Company, is referred to as the "Common Stock", (ii) the shares of the Common
Stock purchasable hereunder or under any other Warrant (as hereinafter defined)
are referred to as the "Warrant Shares", (iii) the aggregate purchase price
payable for the Warrant Shares purchaseable hereunder is referred to as the
"Aggregate Warrant Price", (iv) the price payable (initially $2.54375 per share,
subject to adjustment) for each of the Warrant Shares hereunder is referred to
as the "Per Share Warrant Price", (v) this Warrant, all similar Warrants issued
on the date hereof and all warrants hereafter issued in exchange or substitution
for this Warrant or such similar Warrants are referred to as the "Warrants",
(vi) the holder of this Warrant is referred to as the "Holder" and the holder of
this Warrant and all other Warrants and Warrant Shares are referred to as the
"Holders" and Holders of more than fifty percent (50%) of the outstanding
Warrants and Warrant Shares are referred to as the "Majority of the Holders")
and (vii) the then Current Market Price per share of the Common Stock (the
"Current Market Price") shall be deemed to be the last sale price of the Common
Stock on the trading day prior to such date or, in case no such reported sales
take place on such day, the average of the last reported bid and asked prices of
the Common Stock on such day, in either case on the principal national
securities exchange on which the Common Stock is admitted to trading or listed,
or if not listed or admitted to trading on any such exchange, the representative
closing sale price of the Common Stock as reported by the National Association
of Securities Dealers, Inc. Automated Quotations System ("NASDAQ"), or other
similar organization if NASDAQ is no longer reporting such information, or, if
the Common Stock is not reported on NASDAQ, the high per share sale price for
the Common Stock in the over-the-counter market as reported by the National
Quotation Bureau or similar organization, or if not so available, the fair
market value of the Common Stock as determined in good faith by the Board of
Directors. The Aggregate Warrant Price is not subject to adjustment. The Per
Share Warrant Price is subject to adjustment as hereinafter provided; in the
event of any such adjustment, the number of Warrant Shares deliverable upon
exercise of this Warrant shall be adjusted by dividing the Aggregate Warrant
Price by the Per Share Warrant Price in effect immediately after such
adjustment.
This Warrant, together with warrants of like tenor, constituting in the
aggregate Warrants to purchase 1,297,297 Warrant Shares, was originally issued
pursuant to an agency agreement between the Company and Paramount Capital, Inc.,
as placement agent (the "Financial Advisor") in connection with a private
placement (the "Offering") of twenty (20) units (the "Offering Units"), each
Offering Unit consisting of 42,243.243 shares of Common Stock.
1a Exercise of Warrant.
(a) This Warrant may be exercised in whole at any time, or in part from time
to time, commencing on April 16, 1998 and prior to 5:00 P.M., New York City
time, on April 16, 2003 by the Holder:
(i) by the surrender of this Warrant (with the subscription form at the end
hereof duly executed) at the address set forth in Section 9(a) hereof, together
with proper payment of the Aggregate Warrant Price, or the proportionate part
thereof if this Warrant is exercised in part, with payment for the Warrant
Shares made by certified or official bank check payable to the order of the
Company; or
(ii) by the surrender of this Warrant (with the cashless exercise form at the
end hereof duly executed) (a "Cashless Exercise") at the address set forth in
Section 9(a) hereof. Such presentation and surrender shall be deemed a waiver
of the Holder's obligation to pay the Aggregate Warrant Price, or the
proportionate part thereof if this Warrant is exercised in part. In the event
of a Cashless Exercise, the Holder shall exchange its Warrant for that number of
Warrant Shares subject to such Cashless Exercise multiplied by a fraction, the
numerator of which shall be the difference between the then Current Market Price
and the Per Share Warrant Price, and the denominator of which shall be the then
Current Market Price. For purposes of any computation under this Section 1(a),
the then Current Market Price shall be based on the trading day prior to the
Cashless Exercise.
(iii) by the surrender of this Warrant (with the subscription (promissory note)
form at the end hereof duly executed) at the address set forth in Subsection
9(a) hereof, together with the presentation of a promissory note made payable to
the corporation, duly executed and in the form at the end hereof. Such
promissory note shall be secured by the securities underlying this Warrant,
which shall be held in safe-keeping by the Company as collateral for such
indebtedness.
(b) If this Warrant is exercised in part, this Warrant must be exercised for a
number of whole shares of the Common Stock and the Holder is entitled to receive
a new Warrant covering the Warrant Shares that have not been exercised and
setting forth the proportionate part of the Aggregate Warrant Price applicable
to such Warrant Shares. Upon surrender of this Warrant, the Company will (i)
issue a certificate or certificates in the name of the Holder for the largest
number of whole shares of the Common Stock to which the Holder shall be entitled
and, if this Warrant is exercised in whole, in lieu of any fractional share of
the Common Stock to which the Holder shall be entitled, pay to the Holder cash
in an amount equal to the fair value of such fractional share (determined in
such reasonable manner as the Board of Directors of the Company shall
determine), and (ii) deliver the other securities and properties receivable upon
the exercise of this Warrant, or the proportionate part thereof if this Warrant
is exercised in part, pursuant to the provisions of this Warrant; provided,
however that if this Warrant is exercised pursuant to paragraph 1(a)(iii), the
Company will issue but shall not deliver such shares until such time as the
promissory note and all accrued interest thereon shall have been paid in full.
2a Reservation of Warrant Shares; Listing.
The Company agrees that, prior to the expiration of this Warrant, the Company
shall at all times (a) have authorized and in reserve, and shall keep available,
solely for issuance and delivery upon the exercise of this Warrant, the shares
of the Common Stock and other securities and properties as from time to time
shall be receivable upon the exercise of this Warrant, free and clear of all
restrictions on sale or transfer, other than under Federal or state securities
laws, and free and clear of all preemptive rights and rights of first refusal
and (b) if the Company hereafter lists its Common Stock on any national
securities exchange, the Nasdaq National Market or the Nasdaq Smallcap Market,
use its best efforts to keep the Warrant Shares authorized for listing on such
exchange upon notice of issuance.
3a Protection Against Dilution.
(a) If, at any time or from time to time after the date of this Warrant, the
Company shall issue or distribute to the holders of shares of Common Stock
evidence of its indebtedness, any other securities of the Company or any cash,
property or other assets (excluding a subdivision, combination or
reclassification, or dividend or distribution payable in shares of Common Stock,
referred to in Section 3(b), and also excluding cash dividends or cash
distributions paid out of net profits legally available therefor in the full
amount thereof (any such non-excluded event being herein called a "Special
Dividend")), the Per Share Warrant Price shall be adjusted by multiplying the
Per Share Warrant Price then in effect by a fraction, the numerator of which
shall be the then Current Market Price in effect on the record date of such
issuance or distribution less the fair market value (as determined in good faith
by the Company's Board of Directors) of the evidence of indebtedness, cash,
securities or property, or other assets issued or distributed in such Special
Dividend applicable to one share of Common Stock and the denominator of which
shall be the then Current Market Price in effect on the record date of such
issuance or distribution. An adjustment made pursuant to this Subsection 3(a)
shall become effective immediately after the record date of any such Special
Dividend.
(b) In case the Company shall hereafter (i) pay a dividend or make a
distribution on its capital stock in shares of Common Stock, (ii) subdivide its
outstanding shares of Common Stock into a greater number of shares, (iii)
combine its outstanding shares of Common Stock into a smaller number of shares
or (iv) issue by reclassification of its Common Stock any shares of capital
stock of the Company, the Per Share Warrant Price shall be adjusted to be equal
to a fraction, the numerator of which shall be the Aggregate Warrant Price and
the denominator of which shall be the number of shares of Common Stock or other
capital stock of the Company that the Holder would have owned immediately
following such action had such Warrant been exercised immediately prior thereto.
An adjustment made pursuant to this Subsection 3(b) shall become effective
immediately after the record date in the case of a dividend or distribution, and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification.
(c) Except as provided in Subsections 3(a) and 3(d), in case the Company shall
hereafter issue or sell any Common Stock, any securities convertible into Common
Stock, any rights, options or warrants to purchase or otherwise receive
issuances of Common Stock or any securities convertible into, or exerciseable or
exchangeable for, Common Stock, in each case for a price per share or entitling
the holders thereof to purchase Common Stock at a price per share (determined by
dividing (i) the total amount, if any, received or receivable by the Company in
consideration of the issuance or sale of such securities plus the total
consideration, if any, payable to the Company upon exercise thereof (the "Total
Consideration") by (ii) the number of additional shares of Common Stock issued,
sold or issuable upon exercise of such securities) that is less than either the
then Current Market Price in effect on the date of such issuance or sale or the
Per Share Warrant Price, then the Per Share Warrant Price shall be adjusted as
of the date of such issuance or sale by multiplying the Per Share Warrant Price
then in effect by a fraction, the numerator of which shall be (x) the sum of (A)
the number of shares of Common Stock outstanding on the record date of such
issuance or sale plus (B) the Total Consideration divided by the Current Market
Price or the current Per Share Warrant Price, whichever is greater, and the
denominator of which shall be (y) the number of shares of Common Stock
outstanding on the record date of such issuance or sale plus the maximum number
of additional shares of Common Stock issued, sold or issuable upon exercise or
conversion of such securities.
(d) No adjustment in the Per Share Warrant Price shall be required in the case
of the issuance by the Company of Common Stock (i) pursuant to the exercise of
any warrant; (ii) pursuant to the exercise of any stock options or warrants
currently outstanding or securities issued after the date hereof, which may be
approved by the Company's Board of Directors pursuant to any Company benefit
plan or exercised, under any employee benefit plan of the Company to officers,
directors, consultants or employees, but only with respect to such warrants or
stock options as are exercisable at prices no lower than the closing bid price
of the Common Stock as of the date of grant thereof; or (iii) upon the issuance
of Common Stock to Rights Holders (as defined in the subscription agreement (the
"Subscription Agreement") pursuant to which the Offering Units were sold)
pursuant to any Semi-Annual Issuance (as defined in the Subscription Agreement)
or Dilution Issuance (as defined in the Subscription Agreement).
(e) In case of any capital reorganization or reclassification, or any
consolidation or merger to which the Company is a party other than a merger or
consolidation in which the Company is the continuing corporation, or in case of
any sale or conveyance to another entity of the property of the Company as an
entirety or substantially as a entirety, or in the case of any statutory
exchange of securities with another corporation (including any exchange effected
in connection with a merger of a third corporation into the Company), the Holder
of this Warrant shall have the right thereafter to receive on the exercise of
this Warrant the kind and amount of securities, cash or other property which the
Holder would have owned or have been entitled to receive immediately after such
reorganization, reclassification, consolidation, merger, statutory exchange,
sale or conveyance had this Warrant been exercised immediately prior to the
effective date of such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance and in any such case, if necessary,
appropriate adjustment shall be made in the application of the provisions set
forth in this Section 3 with respect to the rights and interests thereafter of
the Holder of this Warrant to the end that the provisions set forth in this
Section 3 shall thereafter correspondingly be made applicable, as nearly as may
reasonably be, in relation to any shares of stock or other securities or
property thereafter deliverable on the exercise of this Warrant. The above
provisions of this Section 3(e) shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, statutory
exchanges, sales or conveyances. The Company shall require the issuer of any
shares of stock or other securities or property thereafter deliverable on the
exercise of this Warrant to be responsible for all of the agreements and
obligations of the Company hereunder. Notice of any such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
and of said provisions so proposed to be made, shall be mailed to the Holders of
the Warrants not less than thirty (30) days prior to such event. A sale of all
or substantially all of the assets of the Company for a consideration consisting
primarily of securities shall be deemed a consolidation or merger for the
foregoing purposes.
(f) No adjustment in the Per Share Warrant Price shall be required unless such
adjustment would require an increase or decrease of at least $0.05 per share of
Common Stock; provided, however, that any adjustments which by reason of this
Subsection 3(g) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment; provided, further, however, that
adjustments shall be required and made in accordance with the provisions of this
Section 3 (other than this Subsection 3(g)) not later than such time as may be
required in order to preserve the tax-free nature of a distribution to the
Holder of this Warrant or Common Stock issuable upon the exercise hereof. All
calculations under this Section 3 shall be made to the nearest cent or to the
nearest 1/100th of a share, as the case may be. Anything in this Section 3 to
the contrary notwithstanding, the Company shall be entitled to make such
reductions in the Per Share Warrant Price, in addition to those required by this
Section 3, as it in its discretion shall deem to be advisable in order that any
stock dividend, subdivision of shares or distribution of rights to purchase
stock or securities convertible or exchangeable for stock hereafter made by the
Company to its stockholders shall not be taxable.
(g) Whenever the Per Share Warrant Price is adjusted as provided in this
Section 3 and upon any modification of the rights of a Holder of Warrants in
accordance with this Section 3, the Company shall promptly prepare a brief
statement of the facts requiring such adjustment or modification and the manner
of computing the same and cause copies of such certificate to be mailed to the
Holders of the Warrants. The Company may, but shall not be obligated to unless
requested by a Majority of the Holders, obtain, at its expense, a certificate of
a firm of independent public accountants of recognized standing selected by the
Board of Directors (who may be the regular auditors of the Company) setting
forth the Per Share Warrant Price and the number of Warrant Shares in effect
after such adjustment or the effect of such modification, a brief statement of
the facts requiring such adjustment or modification and the manner of computing
the same and cause copies of such certificate to be mailed to the Holders of the
Warrants.
(h) If the Board of Directors of the Company shall declare any dividend or
other distribution with respect to the Common Stock other than a cash
distribution out of earned surplus, the Company shall mail notice thereof to the
Holders of the Warrants not less than ten (10) days prior to the record date
fixed for determining stockholders entitled to participate in such dividend or
other distribution.
(i) If, as a result of an adjustment made pursuant to this Section 3, the
Holder of any Warrant thereafter surrendered for exercise shall become entitled
to receive shares of two or more classes of capital stock or shares of Common
Stock and other capital stock of the Company, the Board of Directors (whose
determination shall be conclusive and shall be described in a written notice to
the Holder of any Warrant promptly after such adjustment) shall determine the
allocation of the adjusted Per Share Warrant Price between or among shares or
such classes of capital stock or shares of Common Stock and other capital stock.
(j) Upon the expiration of any rights, options, warrants or conversion
privileges with respect to the issuance of which an adjustment to the Per Share
Warrant Price had been made, if such shall not have been exercised, the number
of Warrant Shares purchasable upon exercise of this Warrant, to the extent this
Warrant has not then been exercised, shall, upon such expiration, be readjusted
and shall thereafter be such as they would have been had they been originally
adjusted (or had the original adjustment not been required, as the case may be)
on the basis of (A) the fact that Common Stock, if any, actually issued or sold
upon the exercise of such rights, options, warrants or conversion privileges,
and (B) the fact that such shares of Common Stock, if any, were issued or sold
for the consideration actually received by the Company upon such exercise plus
the consideration, if any, actually received by the Company for the issuance,
sale or grant of all such rights, options, warrants or conversion privileges
whether or not exercised; provided, however, that no such readjustment shall
have the effect of decreasing the number of Warrant Shares purchasable upon
exercise of this Warrant by an amount in excess of the amount of the adjustment
initially made in respect of the issuance, sale or grant of such rights,
options, warrants or conversion privileges.
4a Fully Paid Stock; Taxes. The shares of the Common Stock represented by
each and every certificate for Warrant Shares delivered on the exercise of this
Warrant shall at the time of such delivery, be duly authorized, validly issued
and outstanding, fully paid and nonassessable, and not subject to preemptive
rights or rights of first refusal, and the Company will take all such actions as
may be necessary to assure that the par value, if any, per share of the Common
Stock is at all times equal to or less than the then Per Share Warrant Price.
The Company shall that it will pay, when due and payable, any and all Federal
and state stamp, original issue or similar taxes which may be payable in respect
of the issue of any Warrant Share or any certificate thereof to the extent
required because of the issuance by the Company of such security.
5a Registration Under Securities Act of 1933. (a) The Holder shall have the
right to participate in the registration rights granted to purchasers of Common
Stock pursuant to Article 5 of the subscription agreement (the "Subscription
Agreement") between such purchasers and the Company that were entered into at
the time of the initial sale of the Common Stock. By acceptance of this
Warrant, the Holder agrees to comply with the provisions in Article 5 of the
Subscription Agreement to same extent as if it were a party thereto.
(b) Until all of the Warrant Shares and any shares of Common Stock issuable
pursuant to the Article VI Rights (as defined below) with respect to the Warrant
Shares have been sold under a Registration Statement or pursuant to Rule 144,
the Company shall use its reasonable best efforts to file with the Securities
and Exchange Commission all current reports and the information as may be
necessary to enable the Holder to effect sales of its shares in reliance upon
Rule 144 promulgated under the Act.
6. Article VI Rights. Upon exercise of this Warrant, the Holder shall be
entitled to the contractual rights set forth in Article VI of the Subscription
Agreement pursuant to which the Offering Units were sold with respect to any
Warrant Shares acquired upon such exercise.
7 Investment Intent; Limited Transferability.
(a) The Holder represents, by accepting this Warrant, that it understands that
this Warrant and any securities obtainable upon exercise of this Warrant have
not been registered for sale under Federal or state securities laws and are
being offered and sold to the Holder pursuant to one or more exemptions from the
registration requirements of such securities laws. In the absence of an
effective registration of such securities or an exemption therefrom, any
certificates for such securities shall bear the legend set forth on the first
page hereof. The Holder understands that it must bear the economic risk of its
investment in this Warrant and any securities obtainable upon exercise of this
Warrant for an indefinite period of time, as this Warrant and such securities
have not been registered under Federal or state securities laws and therefore
cannot be sold unless subsequently registered under such laws, unless an
exemption from such registration is available.
(b) The Holder, by its acceptance of this Warrant, represents to the Company
that it is acquiring this Warrant and will acquire any securities obtainable
upon exercise of this Warrant for its own account for investment and not with a
view to, or for sale in connection with, any distribution thereof in violation
of the Securities Act of 1933, as amended (the "Act"). The Holder agrees that
this Warrant and any such securities will not be sold or otherwise transferred
unless (i) a registration statement with respect to such transfer is effective
under the Act and any applicable state securities laws or (ii) such sale or
transfer is made pursuant to one or more exemptions from the Act.
(c) This Warrant may not be sold, transferred, assigned or hypothecated for six
(6) months from the date hereof except (i) to any firm or corporation that
succeeds to all or substantially all of the business of Paramount Capital, Inc.,
(ii) to any of the officers, employees, associates or affiliated companies of
Paramount Capital, Inc., or of any such successor firm, (iii) to any NASD member
participating in the Offering or any officer or employee of any such NASD member
or (iv) in the case of an individual, pursuant to such individual's last will
and testament or the laws of descent and distribution, and is so transferable
only upon the books of the Company which the Company shall cause to be
maintained for such purpose. The Company may treat the registered Holder of
this Warrant as it appears on the Company's books at any time as the Holder for
all purposes. The Company shall permit any Holder of a Warrant or its duly
authorized attorney, upon written request during ordinary business hours, to
inspect and copy or make extracts from its books showing the registered Holders
of Warrant. All Warrants issued upon the transfer or assignment of this Warrant
will be dated the same date as this Warrant, and all rights of the holder
thereof shall be identical to those of the Holder.
8. Loss, etc., of Warrant. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver to the Holder a new Warrant of like date, tenor and
denomination.
9. Warrant Holder Not Stockholder. This Warrant does not confer upon the
Holder any right to vote on or consent to or receive notice as a stockholder of
the Company, as such, in respect of any matters whatsoever, nor any other rights
or liabilities as a stockholder, prior to the exercise hereof; this Warrant
does, however, require certain notices to Holders as set forth herein.
10. Communication. No notice or other communication under this Warrant shall
be effective unless, but any notice or other communication shall be effective
and shall be deemed to have been given if, the same is in writing and is mailed
by first-class mail, postage prepaid, addressed to:
(a) the Company at 900 North Shore Blvd., Lake Bluff, IL 60044 Attn: President
or such other address as the Company has designated in writing to the Holder, or
(b) the Holder at c/o Paramount Capital, Inc., 787 Seventh Avenue, New York,
NY 10019 or other such address as the Holder has designated in writing to the
Company.
11. Headings. The headings of this Warrant have been inserted as a matter of
convenience and shall not affect the construction hereof.
12. Applicable Law. This Warrant shall be governed by and construed in
accordance with the law of the State of New York without giving effect to the
principles of conflicts of law thereof.
13. Amendment, Waiver, etc. Except as expressly provided herein, neither this
Warrant nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought; provided,
however, that any provisions hereof may be amended, waived, discharged or
terminated upon the written consent of the Company and the Majority of the
Holders.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
President and has caused its corporate seal to be hereunto affixed and attested
by its Secretary this 16th day of October, 1997.
Company
By: /s/ Michael S. Rosen
Name: Michael Rosen
Title: President and Chief Executive Officer
ATTEST:
/s/ D. Franckowiak
Secretary
SUBSCRIPTION (cash)
The undersigned, ___________________, pursuant to the provisions of the
foregoing Warrant, hereby agrees to subscribe for and purchase
____________________ shares of the Common Stock, par value $.001 per share, of
Endorex Corp. covered by said Warrant, and makes payment therefor in full at the
price per share provided by said Warrant.
Dated:_______________ Signature:____________________
Address:______________________
SUBSCRIPTION (promissory note)
The undersigned, __________________________, pursuant to the provisions of the
foregoing Warrant, hereby agrees to subscribe for and purchase ________________
shares of the Common Stock, par value $.001 per share, of Endorex Corp. covered
by said Warrant, and makes payment therefor in full at the price per share
provided by said Warrant by delivery of the attached Promissory Note. The
undersigned hereby confirms the representations and warranties made by it in the
Warrant and in the attached Promissory Note.
Dated:_______________ Signature:______________________
Address:_______________________
CASHLESS EXERCISE
The undersigned ___________________, pursuant to the provisions of the foregoing
Warrant, hereby elects to exchange its Warrant for ___________________ shares of
Common Stock, par value $.001 per share, of Endorex Corp. pursuant to the
Cashless Exercise provisions of the Warrant.
Dated:_______________ Signature:____________________
Address:______________________
ASSIGNMENT
FOR VALUE RECEIVED _______________ hereby sells, assigns and transfers unto
____________________ the foregoing Warrant and all rights evidenced thereby, and
does irrevocably constitute and appoint _____________________, attorney, to
transfer said Warrant on the books of Endorex Corp.
Dated:_______________ Signature:____________________
Address:______________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED _______________ hereby assigns and transfers unto
____________________ the right to purchase _______ shares of Common Stock, par
value $.001 per share, of Endorex Corp. covered by the foregoing Warrant, and a
proportionate part of said Warrant and the rights evidenced thereby, and does
irrevocably constitute and appoint ____________________, attorney, to transfer
such part of said Warrant on the books of Endorex Corp.
Dated:_______________ Signature:____________________
Address:______________________
[Form]
PROMISSORY NOTE
$[ ] New York, New York
[ ]
Warrantholder ("Borrower"), for value received, hereby promises to pay to the
order of Endorex Corp. (together with any such subsequent holder of the Note,
the "Holder") the sum of [ ]($ ), or
such lesser amount as shall then equal the outstanding principal amount hereof.
Such amount shall be due and payable on April__, 2003 (the "Maturity Date"),
together with interest thereon at a rate per annum equal to the prime rate as
stated by Citibank, N.A. as of the date hereof, (the "Interest Rate"), and which
shall be calculated on the basis of a 360-day year for actual days elapsed, on
the terms and conditions set forth hereinafter. Payment for all amounts due
hereunder shall be made by certified check or wire transfer to the Holder at c/o
900 North Shore Blvd., Lake Bluff, IL 60044 Attn: [President], or other such
address as the Holder may designate by notice to Borrower. If this Promissory
Note is prepaid in whole or in part by the tendering of shares pursuant to
Paragraph 2 below, the repayment date shall be the date on which the Borrower
delivers a notice to the Company in accordance with Paragraph 4 irrevocably
stating the Borrower's intention to repay the Promissory Note by tendering such
shares. The Borrower is delivering this Promissory Note as payment of the
exercise price for the purchase of the shares of common stock (the "Stock")
underlying the Warrant dated October 15, 1997 (the "Warrant") issued to the
Borrower. The Promissory Note shall be secured by the Stock which the Holder
shall hold in safe-keeping as collateral for the indebtedness represented by
this Promissory Note.
1. Prepayment; Repayment. The Borrower may at any time prepay in whole or in
part the principal sum, plus accrued interest to date of payment, of this Note,
without penalty or premium. All sums paid hereon shall be applied first to
accrued, unpaid interest on this Note and the balance, if any, to the reduction
of the principal hereof. This Note shall not be due and payable until the
Maturity Date. On the Maturity Date, the entire principal amount of, and all
accrued interest on, this Note shall automatically become immediately due and
payable without presentment, demand, protest or other formalities of any kind,
all of which are hereby expressly waived by the Company.
2. Prepayment or Repayment by Tendering of Shares. Any prepayment or
repayment may be made by instructing the Company to withhold that number of
shares of Stock currently held by the Company as collateral for this Promissory
Note in accordance with Paragraph 1(a)(iii) of the Warrant and having a value,
based upon the Current Market Price (as defined in the introductory paragraph of
the Warrant) of the Common Stock, equal to the outstanding principal sum plus
accrued interest. The Company will deliver the balance of the shares not
withheld pursuant to the immediately preceding sentence of this Paragraph 2 to
the Borrower at the address set forth in Paragraph 3 below within five (5) days
of the date of such prepayment or repayment, as the case may be.
3. Events of Default. If any events specified in this Paragraph 3 shall
occur and continue uncured for a period of 90 days following notice from the
Holder to the Borrower that such event has occurred(herein individually referred
to as an "Event of Default"), the Holder of the Note may, so long as such
condition exists, declare the entire principal and unpaid accrued interest
hereon immediately due and payable, by notice in writing to Borrower:
3.1. Default in the payment of the principal and unpaid accrued interest of the
Note when due and payable; or
3.2. The institution by Borrower of proceedings to be
adjudicated as bankrupt or insolvent, or the consent by Borrower to institution
of bankruptcy or insolvency proceedings against Borrower or the filing by
Borrower of a petition or answer or consent seeking reorganization or release
under the federal Bankruptcy Act, or any other applicable federal or state law,
or the consent by Borrower to the filing of any such petition or the appointment
of a receiver, liquidator, assignee, trustee or other similar official for all
or any substantial part of its property, of the taking of any action by Borrower
in furtherance of any such action; or
3.3. If, within sixty (60) days after the commencement of an action against
Borrower (and service of process in connection therewith on Borrower) seeking
any bankruptcy, insolvency, reorganization, liquidation or similar relief under
any present or future statute, law of regulation, such action shall not have
been resolved in favor of Borrower of all orders or proceedings thereunder
affecting the property of Borrower stayed, or if the stay of any such order or
proceeding shall thereafter be set aside, or if, within sixty (60) days after
the appointment without the consent or acquiescence of Borrower of any trustee
or receiver for all or any substantial part of the property of Borrower, such
appointment shall not have been vacated
4. Notices. Any notice required, desired or permitted to be given hereunder
shall be in writing and shall be delivered personally, sent certified or
registered United States mail, return receipt requested or sent by overnight
courier service addressed to:
If to the Holder:
c/o [company name]
[address]
Attn: President
If to Borrower:
[name and address]
Such notices shall be deemed given (i) if delivered personally, upon delivery,
(ii) if mailed as aforesaid, two (2) business days after deposit in the United
States mail and (iii) if sent by overnight courier service one (1) business day
after deposit with the courier service. Any party may change its address by
notice to the other parties.
IN WITNESS WHEREOF, the Borrower has caused this Note to be issued this [ ] day
of [ ] 199[ ].
BORROWER:
Name:
Address:
___________________________
EXHIBIT 10.13
ENDOREX CORP.
PLACEMENT AGENCY AGREEMENT
July 1, 1997
Paramount Capital, Inc.
787 Seventh Avenue
New York, New York 10019
Dear Sirs:
Endorex Corp., a Delaware corporation (the "Company"),
hereby confirms its agreement to retain Paramount Capital, Inc.
(the "Placement Agent") on an exclusive basis to introduce the
Company to and to procure subscriptions from certain "accredited
investors" (as defined in Regulation D under the Securities Act
of 1933, as amended) as prospective purchasers of a minimum of
ten (10) Units (the "Minimum Offering") and a maximum of sixty
(60) Units (the "Maximum Offering"), with an option in favor of
the Placement Agent to offer up to an additional one hundred
forty (140) Units to cover over-allotments at a purchase price of
one hundred thousand dollars ($100,000) per Unit, with each Unit
consisting of a number of shares of Common Stock of the Company,
par value $.001 per share, determined by dividing one hundred
thousand dollars ($100,000) by the lesser of (a) $2.3125 and (b)
the average closing bid price of the Common Stock on the over the
counter ("OTC") Bulletin Board for the thirty (30) consecutive
trading days or five (5) consecutive trading days immediately
preceding (i) the Initial Closing Date (as defined below), (ii)
any Interim Closing Date (as defined below), or (iii) the Final
Closing Date (as defined below) of this Offering, whichever is
lowest (the "Offering Price").
The sale to such purchasers (the "Offering") will be made
through a private placement by the Placement Agent (or its
designated selected dealers) on a "best efforts" basis pursuant
to the Confidential Term Sheet dated July 15, 1997, and all
supplements, amendments and exhibits thereto, all of which
constitute an integral part thereof (the "Term Sheet"), separate
subscription agreements and related documents (the "Subscription
Agreements") in accordance with Section 4(2) of the Securities
Act of 1933, as amended (the "Act") and Regulation D promulgated
thereunder.
The Term Sheet, the Subscription Agreement, any exhibits to
the Term Sheet, the Escrow Agreement, dated March 14, 1997 (the
"Escrow Agreement"), the Financial Advisory Agreement (as defined
in Section 5(k) below), the Placement Warrants (as defined in
Section 4(d) below), the Advisory Warrants (as defined in Section
4(d) below), and this Placement Agency Agreement (this
"Agreement"), are collectively referred to herein as the
"Offering Documents."
The Company, at its sole cost, shall prepare and deliver to
the Placement Agent a reasonable number of copies of the Offering
Documents in form and substance satisfactory to the Placement
Agent.
Each prospective investor subscribing to purchase Units
shall be required to deliver, among other things, a Subscription
Agreement, which shall include a Confidential Investor
Questionnaire (the "Questionnaire"). The Company shall make
available to each prospective investor, at a reasonable time
prior to the purchase of the Units, the opportunity to ask
questions of and receive answers from the Company concerning the
terms and conditions of the Offering and the opportunity to
obtain additional information necessary to verify the accuracy of
the documents delivered in connection with the purchase of the
Units to the extent it possesses such information or can acquire
it without unreasonable effort or expense. After the Offering
Documents have been reviewed by investors, and the prospective
investors have had the opportunity to address all inquiries to
the Company, separate Subscription Agreements shall be completed
by each prospective investor. The Company, with the consent of
the Placement Agent and the Placement Agent, in its sole
discretion, shall have the right to reject subscriptions in whole
or in part. The Company shall evidence its acceptance of a
subscription by countersigning a copy of the applicable
Subscription Agreement and returning the same to the Placement
Agent.
Capitalized terms used herein, unless otherwise defined
herein or unless the context otherwise indicates, shall have the
same meanings provided in the Offering Documents.
1. Appointment of Placement Agent.
(a) The Placement Agent is hereby appointed
exclusive placement agent of the Company (subject to the
Placement Agent's right to have Selected Dealers, as defined in
Section 1(c) hereof, participate in the Offering) during the
Offering Period herein specified for the purposes of assisting
the Company in finding qualified subscribers pursuant to the
Offering described in the Offering Documents. The Placement
Agent shall not be deemed an agent of the Company for any other
purpose. The Offering Period shall commence on the day the
Offering Documents are first made available to the Placement
Agent by the Company for delivery in connection with the offering
for the sale of the Units (the "Commencement Date"). Upon
receipt of the Minimum Offering amount, the Placement Agent may
conduct a closing (the "Initial Closing Date") and may conduct
subsequent closings on an interim basis until the Maximum
Offering amount (and any over-allotment) has been reached (the
"Final Closing Date"). Each such closing may be referred to
herein as a "Closing". The Offering Period shall terminate at
11:59 p.m. New York City Time on the date which is sixty (60)
days following the Commencement Date, subject to an extension, at
the option of the Placement Agent, for an additional sixty (60)
days. If subscriptions for the minimum ten (10) Units have not
been received prior to the end of the Offering Period, then the
Offering will be terminated and all funds received from
subscribers will be returned with interest and without deduction.
(b) Subject to the performance by the Company of all
obligations to be performed by it under this Agreement and to the
completeness and accuracy of all representations and warranties
of the Company contained herein, the Placement Agent hereby
accepts such agency and agrees to use its best efforts to assist
the Company in finding qualified subscribers pursuant to the
Offering described in the Offering Documents. It is understood
that the Placement Agent has no commitment to sell the Units.
The Placement Agent's agency hereunder is not terminable by the
Company except upon termination of the Offering Period.
(c) The Placement Agent may engage other persons,
selected by it in its discretion, who are members of the National
Association of Securities Dealers, Inc., ("NASD") or who are
located outside the United States and who have executed a
Selected Dealers Agreement (each such person being hereinafter
referred to as a "Selected Dealer") and the Placement Agent may
allow such persons to receive a part of the compensation and
payment of expenses payable to the Placement Agent hereunder as
the Placement Agent shall determine in its discretion.
(d) Subscriptions for Units shall be evidenced by the
execution by qualified subscribers of a Subscription Agreement.
No Subscription Agreement shall be effective unless and until it
is accepted by the Company. Until a closing is held, all
subscription funds received shall be held as described in the
Subscription Agreement. The Placement Agent shall not have any
independent obligation to verify the accuracy or completeness of
any information contained in any Subscription Agreement or the
authenticity, sufficiency, or validity of any check delivered by
any prospective investor in payment for Units nor shall the
Placement Agent incur any liability with respect to any such
check.
(e) Company Insiders. Officers, directors or
principal stockholders of the Company may invest in the Offering.
Any such investments will be included in calculating whether the
ten (10) Units have been sold in the Minimum Offering, whether
the sixty (60) Units have been sold in the Maximum Offering, and
whether the one hundred forty (140) Units have been sold pursuant
to the over-allotment option.
(f) Placement Agent Insiders. Certain affiliates
of the Placement Agent may purchase Units in the Offering.
Affiliates of the Placement Agent will invest net of cash
commissions and expenses. Accordingly, the Placement Agent will
not receive a commission on the Units purchased by its affiliates
and the Company will receive net proceeds equivalent to the net
proceeds received from the purchase of Units by persons not
affiliated with the Placement Agent. The aggregate offering
price of any such investments will be included in calculating
whether the ten (10) Units have been sold in the Minimum
Offering, whether the sixty (60) Units have been sold in the
Maximum Offering, and whether the one hundred forty (140) Units
have been sold pursuant to the over-allotment option.
(g) Subscription Checks. All subscription checks
and funds shall be promptly and directly delivered without offset
or deduction to the bank account at the Escrow Agent described in
the Escrow Agreement.
2. Representations and Warranties of the Company. For
purposes of this section 2, the Company, unless expressly stated
otherwise, shall include any subsidiary of the Company. The
Company represents, covenants and warrants to the Placement Agent
and each Selected Dealer, if any, as follows:
(a) Securities Law Compliance. The Offering
Documents, as of their respective dates, do and shall, as of the
date of the Term Sheet and each Closing, describe the material
aspects of an investment in the Company and conform in all
respects with the requirements of Section 4(2) of the Act and
Regulation D promulgated thereunder and with the requirements of
all other published rules and regulations of the Securities and
Exchange Commission (the "SEC") currently in effect relating to
"private offerings" to "accredited investors" of the type
contemplated by the Company. The Offering Documents will not, as
of the date of the Term Sheet and each Closing, contain any
untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading;
provided, however, that no representation is made with respect to
information relating to the Placement Agent which is provided in
writing by the Placement Agent to the Company specifically for
inclusion in the Offering Documents. If at any time prior to the
completion of the Offering or other termination of this Agreement
any event shall occur as a result of which it might become
necessary to amend or supplement the Offering Documents so that
they do not include any untrue statement of any material fact or
omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances then
existing, not misleading, the Company will promptly notify the
Placement Agent and will supply the Placement Agent (or the
prospective purchasers designated by the Placement Agent) with
amendments or supplements correcting such statement or omission.
The Company will also provide the Placement Agent for delivery to
all offerees and purchasers and their representatives, if any,
with any information, documents and instruments which the
Placement Agent and the Company's counsel reasonably deem
necessary to comply with applicable state and federal law.
The Company acknowledges that the Placement Agent (i) has
not supplied any information for inclusion in the Offering
Documents other than information relating to the Placement Agent
furnished in writing to the Company by the Placement Agent
specifically for inclusion in the Offering Documents; (ii) has no
obligation to independently verify any of the information in the
Offering Documents; and (iii) has no responsibility for the
accuracy or completeness of the Offering Documents, except for
the information relating to the Placement Agent furnished in
writing by the Placement Agent to the Company specifically for
inclusion in the Offering Documents.
(b) Organization. The Company is a corporation duly
incorporated, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate
power and authority to own and lease its properties, to conduct
its business as proposed in the Term Sheet, to execute and
deliver this Agreement and to carry out the transactions
contemplated by this Agreement. The Company is duly qualified to
do business as a foreign corporation and is in good standing in
the States of North Dakota and Illinois and in each jurisdiction
in which the conduct of its business or ownership or leasing of
its properties requires it to be so qualified, except where the
failure to be so qualified would not have a material adverse
effect on the business, financial condition or prospects of the
Company.
(c) Capitalization. The authorized, issued and
outstanding capital stock of the Company prior to the
consummation of the transactions contemplated hereby is as set
forth in the Offering Documents (excluding any supplement not
approved by the Placement Agent) issued, fully paid and
nonassessable and have not been issued in violation of the
preemptive rights of any stockholder of the Company. All prior
sales of securities of the Company were either registered under
the Act and applicable state securities laws or exempt from such
registration, and no security holder has any rescission rights
with respect thereto. Except as set forth in the Term Sheet
(excluding any supplement not approved by the Placement Agent)
there are no outstanding options, warrants, agreements,
convertible securities, preemptive rights or other rights to
subscribe for or to purchase any shares of capital stock of the
Company. Except as set forth in the Term Sheet (excluding any
supplement not approved by the Placement Agent) and as otherwise
required by law, there are no restrictions upon the voting or
transfer of any shares of the Company's capital stock pursuant to
the Company's Certificate of Incorporation, By-Laws or other
governing documents or any agreement or other instruments to
which the Company is a party or by which the Company is bound.
(d) Warrants, Preemptive Rights, Etc. Except as set
forth in or contemplated by the Term Sheet (excluding any
supplement not approved by the Placement Agent) or any amendments
thereto, there are not now, nor will there be immediately after
any Closing, any outstanding warrants, options, agreements,
convertible securities, rights of first refusal, rights of first
offer, preemptive rights or other rights to subscribe for or to
purchase or other commitments pursuant to which the Company is,
or may become, obligated to issue any shares of its capital stock
or other securities of the Company and this Offering will not
cause any anti-dilution adjustments to such securities or
commitments except as reflected in the Term Sheet (excluding any
supplement not approved by the Placement Agent).
(e) Subsidiaries and Investments. Other than as
disclosed in the Term Sheet, the Company does not own, directly
or indirectly, capital stock or other equity ownership or
proprietary interests in any other corporation, association,
trust, partnership, joint venture or other entity.
(f) Financial Statements. The financial information
contained in the Offering Documents is accurate in all material
respects. The Company's financial statements have been prepared
in conformity with generally accepted accounting principles
consistently applied and show all material liabilities, absolute
or contingent, of the Company required to be recorded thereon and
present fairly the financial position and results of operations
of the Company as of the dates and for the periods indicated.
(g) Absence of Changes. Since the date of the Term
Sheet, except as has been or will be reflected in the Term Sheet
prior to any Closing, the Company has incurred no liabilities or
obligations, direct or contingent, other than those in the
ordinary course of business, nor has the Company entered into any
transaction, which is material to the business of the Company,
and there has been no change in the capital stock of, or any
incurrence of long-term debt by, the Company, or any issuance of
options, warrants or other rights to purchase the capital stock
of the Company, or any adverse change or any development
involving a prospective adverse change in the condition
(financial or otherwise), net worth, results of operations,
business, key personnel or properties which would be material to
the business, financial condition or prospects of the Company,
and the Company has not become a party to, and neither the
business nor the property of the Company has become the subject
of, any litigation whether or not in the ordinary course of
business.
(h) Title. The Company has good and marketable title
to all tangible properties and assets owned by it, free and clear
of all liens, charges, encumbrances or restrictions, except such
as are not materially significant or important in relation to the
Company's business; all of the material leases and subleases
under which the Company is the lessor or sublessor of properties
or assets or under which the Company holds properties or assets
as lessee or sublessee are in full force and effect, and the
Company is not in default in any material respect with respect to
any of the terms or provisions of any of such leases or
subleases, and no claim has been asserted by anyone adverse to
rights of the Company as lessor, sublessor, lessee or sublessee
under any of the leases or subleases mentioned above, or
affecting or questioning the right of the Company to continued
possession of the leased or subleased premises or assets under
any such lease or sublease. The Company owns or leases all such
tangible properties as are necessary to its operations as now
conducted and proposed to be conducted and except to the extent
described in the Term Sheet, the Company does not presently
anticipate the need for any capital expenditures.
(i) Proprietary Rights. Except as has been or will be
reflected in the Term Sheet prior to each Closing, the Company
owns or possesses adequate and enforceable rights to use all
patents, patent applications, trademarks, service marks, trade
names, corporate names, copyrights, trade secrets, processes,
mask works, licenses, inventions, formulations, technology and
know-how and other intangible property used or proposed to be
used in the conduct of its business as described in or
contemplated by the Term Sheet (the "Proprietary Rights"). Except
as has been, or will be, reflected in the Term Sheet prior to
each Closing, the Company or the entities from whom the Company
has acquired rights has taken all necessary action to protect all
of the Company's Proprietary Rights. Except as set forth in the
Term Sheet, the Company has not received any notice of, and there
are no facts known to the Company which indicate the existence of
(i) any infringement or misappropriation by any third party of
any of the Proprietary Rights or (ii) any claim by a third party
contesting the validity of any of the Proprietary Rights. The
Company has not received any notice of any infringement,
misappropriation or violation by the Company or any of its
employees of any Proprietary Rights of third parties, and, to the
best of the Company's knowledge, neither the Company nor any of
its employees has infringed, misappropriated or otherwise
violated any Proprietary Rights of any third parties. To the
best of the Company's knowledge, no infringement, illicit
copying, misappropriation or violation of any intellectual
property rights of any third party has occurred or will occur
with respect to any products currently being sold by the Company
or with respect to any products currently under development by
the Company or with respect to the conduct of the Company's
business as currently contemplated. Except as described in the
Term Sheet, the Company is not aware that any of its employees
are obligated under any contract (including licenses, covenants
or commitments of any nature) or other agreement, or subject to
any judgment, decree or order of any court or administrative
agency, that would interfere with the use of the employee's best
efforts to promote the interests of the Company or that would
conflict with the Company's business as presently conducted or as
proposed to be conducted. To the best of the Company's knowl-
edge, neither the execution nor delivery of this Agreement, nor
the carrying on of the Company's business by the employees of the
Company, nor the conduct of the Company's business, as presently
conducted or as proposed to be conducted with or result in a
breach of the terms, conditions or provisions of, or constitute a
default under, any contract, covenant or instrument under which
any such employee is now obligated. In addition, all employees
are required to assign intellectual property rights to the
Company.
(j) Litigation. Except as set forth in the Term
Sheet, there is no action, suit, claim or proceeding at law or in
equity, or to the Company's knowledge, investigation or customer
complaint, by or before any arbitrator, governmental
instrumentality or other agency now pending or, to the knowledge
of the Company, threatened against the Company (or basis therefor
known to the Company which the Company believes may result in the
foregoing) the adverse outcome of which would have a materially
adverse effect on the Company's business, prospects or financial
condition. The Company is not subject to any judgment, order,
writ, injunction or decree of any Federal, state, municipal or
other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign which would materially
adversely affect the Company's business, prospects or financial
condition.
(k) Non-Defaults, Non-Contravention. The Company is
not in violation of or default under, nor will the execution and
delivery of this Agreement and any of the Offering Documents, and
consummation of the transactions contemplated herein or therein,
result in a violation of, or constitute a default in the
performance or observance of, any obligation (i) under its
Certificate of Incorporation, as amended, or its By-laws, or any
indenture, mortgage, contract, material purchase order or other
agreement or instrument to which the Company is a party or by
which it or its property is bound or affected, or (ii) with
respect to any material order, writ, injunction or decree of any
court of any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, and there is no existing condition, event or
act which constitutes, nor which after notice, the lapse of time
or both, could constitute a default under any of the foregoing,
which in either case would have a material adverse effect on the
business, financial condition or prospects of the Company.
(l) Taxes. The Company has filed all Federal, state,
local and foreign tax returns which are required to be filed by
it and all such returns are true and correct in all respects.
The Company has paid all taxes pursuant to such returns or
pursuant to any assessments received by it or which it is
obligated to withhold from amounts owing to any employee,
creditor or third party. The Company has properly accrued all
taxes required to be accrued. The tax returns of the Company
have never been audited by any state, local or Federal
authorities. The Company has not waived any statute of
limitations with respect to taxes or agreed to any extension of
time with respect to any tax assessment or deficiency.
(m) Compliance With Laws, Licenses, Etc. The Company
is in compliance with all Federal, state, local or foreign, laws,
ordinances, regulations and orders applicable to its business,
the violation of, or noncompliance with which, could have a
materially adverse effect on the business, operations, prospects
or financial condition of the Company. The Company has all
governmental licenses and permits and other governmental
certificates, authorizations and permits and approvals
(collectively, "Licenses") required by every Federal, state and
local government or regulatory body for the operation of its
business as currently conducted and the use of its properties,
except where the failure to be licensed would not have a
materially adverse effect on the business, operations, financial
condition, or prospects of the Company. The Company's Licenses
are in full force and effect and no violations are or have been
recorded in respect of any License and no proceeding is pending
or, to the best knowledge of the Company, threatened to revoke or
limit any License.
(n) Authorization of Documents and Units. Each of the
Offering Documents has been, or prior to any Closing will be,
duly and validly authorized, executed and delivered by the
Company and the execution, delivery and performance by the
Company of the Offering Documents, has been duly authorized by
all requisite corporate action by the Company and when delivered
constitute, or will constitute, the legal, valid and binding
obligations of the Company, enforceable in accordance with their
respective terms, subject to the availability and enforceability
of equitable remedies and to applicable bankruptcy and other laws
relating to the rights of creditors generally and except as the
enforcement of the rights to indemnification and contribution
hereunder and under any other Offering Documents may be limited
by federal or state securities laws or public policy. The
Corporation has full corporate power and lawful authority to
authorize, issue and sell the Units and the securities underlying
the Units to be sold to the Purchasers. No consent is required
by the Company from any third party to perform any of its
obligations under this Agreement or any of the Offering Documents
(o) Exemption from Registration. Assuming (i) the
accuracy of the information provided by the respective Purchasers
in the Subscription Agreements, (ii) the timely filing of a Form
D by the Company and (iii) the accuracy of the representations
and warranties of the Placement Agent contained herein, the offer
and sale of the Units and the granting of the Placement Warrants
and Advisory Warrants (as hereinafter defined) pursuant to the
terms of this Agreement are exempt from the registration
requirements of the Act and the rules and regulations promulgated
thereunder (the "Regulations"). The Company is not disqualified
from the exemption under Regulation D by virtue of the
disqualifications contained in Rule 505(b)(2)(iii) or Rule 507
promulgated thereunder. There exists no fact or set of facts
which may cause the Offering to be integrated with any other
offering of the Company's securities nor which would cause this
Offering to lose its exemption under Regulation D.
(p) Registration Rights. Except as set forth on
Schedule A attached hereto, in the Term Sheet (excluding any
supplement not approved by the Placement Agent) or in Article V
of the Subscription Agreement, no person has any right to cause
the Company to effect the registration under the Act of any
securities of the Company.
(q) Brokers. Neither the Company nor any of its
officers, directors, employees or stockholders has employed any
broker or finder in connection with the transactions contemplated
by this Agreement other than the Placement Agent.
(r) Title to Units. When certificates representing the
Common Stock shall have been duly delivered to the Purchasers and
payment shall have been made for the Units (including the Units
issuable upon exercise of the Placement Warrants and the Advisory
Warrants) the several Purchasers will have good and valid title
to the Common Stock, free and clear of all liens, encumbrances
and adverse claims except for those claims arising out of the
acts of the Purchasers themselves, whatsoever (except as arising
from applicable Federal and state securities laws), and the
Company shall have paid all taxes, if any, in respect of the
original issuance thereof. When certificates representing the
Placement Warrants and the Advisory Warrants shall have been duly
delivered to the Placement Agent, the Placement Agent or any of
its respective designees shall have good and valid title to the
Placement Warrants and Advisory Warrants, and upon exercise of
such Placement Warrants and Advisory Warrants, will have good and
valid title to the Common Stock issuable upon such exercise, free
and clear of all liens, encumbrances and claims except for those
claims rising out of the acts of the Placement Agent and any of
its respective designees themselves, including without
limitation, adverse claims, whatsoever (except as arising from
applicable Federal and state securities laws), and the Company
shall have paid all taxes, if any, in respect of the original
issuance thereof.
(s) Accuracy of Reports. All material reports
required to be filed by the Corporation within the two (2) years
prior to the date of this Agreement under the Securities Exchange
Act of 1934 , as amended (the "Exchange Act"), have been duly
filed with the SEC, complied at the time of filing in all
material respects with the requirements of their respective forms
and, except to the extent updated or superseded by the Term Sheet
or any subsequently filed report, were complete and correct in
all material respects as of the dates at which the information
was furnished, and contained (as of such dates) no untrue
statement of a material fact or omitted to state a material fact
necessary in order to make the statements contained therein, in
light of the circumstances under which they were made, not
misleading.
3. Representations and Warranties of Placement Agent. The
Placement Agent represents and warrants as follows:
(a) The Placement Agent is duly organized, validly
existing and in good standing as a corporation under the laws of
the State of New York with full and adequate power and authority
to enter into and perform this Agreement.
(b) In offering the Units, the Placement Agent shall
deliver (or direct the Company to deliver) to each prospective
purchaser, prior to the Company's acceptance of any subscription
from such prospective purchaser, the appropriate Offering
Documents. The Placement Agent will not engage in a general
solicitation or employ general advertising in connection with the
Offering.
(c) The Placement Agent shall use its reasonable
efforts to conduct the Offering in material compliance with
applicable federal and state securities laws so as to preserve
the exemption provided in Section 4(2) of the Act and any
applicable rules or regulations promulgated thereunder or under
such state securities laws. The Placement Agent shall use
reasonable efforts to make offers only to persons who the
Placement Agent has reasonable grounds to believe are "accredited
investors" (as defined in Regulation D under the Act). The final
acceptance of any subscription shall be made only after the
Company has reviewed the Subscription Agreement and agreed to
such final acceptance and determination as to the status of such
subscriber which such acceptance and determination shall remain
solely the responsibility of the Company.
(d) The Placement Agent is, and at each closing will
be, (i) a securities broker-dealer registered with the SEC and
any jurisdiction where broker-dealer registration is required in
order for the Company to sell the Units in such jurisdiction and
(ii) a member in good standing of the NASD.
4. Closing; Placement and Fees.
(a) Closing. Provided that the Placement Agent has
received subscriptions for the Minimum Offering amount, the
Placement Agent may conduct, in its sole discretion, closings
(the date of each a "Closing Date") at the offices of the
Placement Agent, located at 787 Seventh Avenue, New York, New
York, until the Final Closing Date. On each Closing Date,
payment for the Units issued and sold by the Company shall be
made to the Company in immediately available funds against
delivery of certificates evidencing the Common Stock comprising
such Units.
(b) Conditions to Placement Agent's Obligations. The
obligations of the Placement Agent hereunder are subject to the
accuracy of the representations and warranties of the Company
herein contained as of the date hereof and as of each Closing
Date, to the performance by the Company of its obligations
hereunder and to the following additional conditions:
(i) Due Qualification or Exemption. (A) The
Offering contemplated by this Agreement shall become qualified or
be exempt from qualification under the securities laws of the
several states pursuant to paragraph 4(c) below not later than
the Closing Date, subject to any filings to be made thereafter,
and (B) at the applicable Closing Date no stop order suspending
the sale of the Units shall have been issued, and no proceeding
for that purpose shall have been initiated or threatened;
(ii) No Material Misstatements. Neither the Blue
Sky qualification materials, the Offering Documents, nor any
attachment or supplement thereto, will contain an untrue
statement of a fact, which in the opinion of the Placement Agent,
is material, or omit to state a fact, which, in the opinion of
the Placement Agent, is material and is required to be stated
therein, or is, in the opinion of the Placement Agent, necessary
to make the statements therein, in light of the circumstances
under which they were made, not misleading;
(iii) Compliance with Agreements. The Company
shall have complied with all agreements and satisfied all
conditions on its part to be performed or satisfied hereunder and
under the Subscription Agreements at or prior to each Closing;
(iv) Corporate Action. The Company shall have
taken all corporate action necessary in order to permit the valid
execution, delivery and performance of the Offering Documents by
the Company, including, without limitation, obtaining the
approval of the Company's board of directors, for the execution
and delivery of the Offering Documents, the performance by the
Company of its obligations hereunder and the Offering
contemplated hereby;
(v) Opinion of Counsel to the Company. The
Placement Agent shall receive the opinion of counsel to the
Company (stating that each of the Purchasers may rely thereon as
though addressed directly to such Purchaser), dated as of each
Closing Date, substantially to the effect that:
(A) the Company is duly incorporated and is
validly existing and in good standing under the laws of the State
of Delaware, has all requisite corporate power and authority
necessary to own or hold its properties and conduct its business
as described in the Term Sheet and is duly qualified or licensed
to do business as a foreign corporation and is in good standing
in the States of North Dakota and Illinois and is duly qualified
in each other jurisdiction in which the nature of the business
conducted, or as proposed to be conducted in the Term Sheet, by
it or the properties owned, leased or operated by it, makes such
qualification or licensing necessary and where the failure to be
so qualified or licensed would have a material adverse effect
upon the business, financial condition or prospects of the
Company. To such counsel's best knowledge and except as disclosed
in the term sheet, the Company has no subsidiaries and the
Company does not own, directly or indirectly, any capital stock
or other equity ownership or proprietary interests in any other
corporation, association, trust, partnership, joint venture or
other entity;
(B) the execution, delivery and performance
of each of the Offering Documents to which the Company is a
signatory, and the issuance of (I) the Units, the Common Stock
included in the Units, the Placement Warrants and Advisory
Warrants (II) the Units issuable upon exercise of the Placement
Warrants and the Advisory Warrants and (III) the Common Stock
included in the Units issuable upon exercise of the Placement
Warrants and Advisory Warrants, have been duly authorized by all
necessary corporate action on the part of the Company. Each of
the Offering Documents to which the Company is a signatory has
been duly executed and delivered by the Company and constitutes a
legal, valid and binding obligation of the Company enforceable in
accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, receivership or other laws of
general application relating to or affecting generally the
enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as
rights to indemnity or contribution may be limited by applicable
law;
(C) assuming (x) the accuracy of the
information provided by the Subscribers in the Subscription
Documents and (y) the timely filing with the SEC and any
applicable state securities authority of a Form D and amendments
thereto containing accurate and complete information, the
issuance and sale of the Units is exempt from registration under
the Act and Rule 506 of Regulation D promulgated thereunder and
is not subject to integration with any other offering of the
Company's securities;
(D) neither the execution and delivery of
the Offering Documents nor compliance with the terms hereof or
thereof, nor the consummation of the transactions herein or
therein contemplated, has, nor will, conflict with, result in a
breach of, or constitute a default under the Certificate of
Incorporation, as amended, or the By-laws of the Company, or any
material contract, instrument or document known to such counsel
to which the Company is a party, or by which it or any of its
properties is bound or, to the best knowledge of such counsel
after due inquiry, violate any applicable order or decree of any
governmental agency or court having jurisdiction over the Company
or any of its properties or business;
(E) except as disclosed in the Term Sheet,
to such counsel's knowledge, there are no claims, actions, suits,
investigations or proceedings before or by any arbitrator, court,
governmental authority or instrumentality pending or threatened
against the Company which could, if adversely determined,
materially and adversely affect the business, properties or
financial condition of the Company, the transactions or other
acts contemplated by the Offering Documents or the validity or
enforceability of the Offering Documents. Except as disclosed in
the Term Sheet, to such counsel's knowledge, the Company is not
a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency
or instrumentality naming the Company;
(F) upon the issuance of the Units
(including the Units issuable upon exercise of the Placement
Warrants and the Advisory Warrants, the Common Stock (including
the shares of Common Stock included in the Units issuable upon
exercise of the Placement Warrants and the Advisory Warrants),
the Placement Warrants and the Advisory Warrants, each of the
purchasers or the Placement Agent and its designees, as the case
may be, shall acquire such securities, free and clear of all
pledges, liens, claims, encumbrances, preemptive rights, rights
of first offer or right of first refusal and restrictions known
to such counsel after due inquiry, and imposed by or through the
Company, except for the transfer restrictions set forth in the
Subscription Agreements and any action taken to encumber such
securities by the holders thereof;
(G) the Common Stock when issued in
accordance with the terms of the Subscription Agreement for the
consideration expressed therein will have been duly authorized,
fully paid, validly issued and nonassessable. The Placement
Warrants and Advisory Warrants when issued in accordance with the
terms of this Agreement and/or the Subscription Agreement, as
applicable, for the consideration expressed therein, will have
been validly issued and will constitute legal, valid and binding
obligations of the Company enforceable against the Company in
accordance with their respective terms, except as such
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application relating or affecting generally the enforcement of
creditors' rights and the application of equitable principles in
any action, legal or equitable. The Units to be issued as of the
date of such opinion, when issued in accordance with the terms of
this Agreement and the Subscription Agreement for the
consideration expressed therein, will have been validly issued
and the Common Stock comprising such Units will be fully paid and
nonassessable. The Common Stock included in the Units issuable
upon exercise of the Placement Warrants and the Advisory Warrants
have been duly authorized and reserved for issuance and, when
issued in accordance with the terms thereof for the consideration
expressed therein, will have been duly issued; such Common Stock
will be fully paid and nonassessable and will constitute legal,
valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application relating or affecting generally the enforcement of
creditors' rights and the application of equitable principles in
any action, legal or equitable.
(H) the Company's By-laws and/or
Certificate of Incorporation, as amended, as in effect as of the
date of such opinion, contain provisions indemnifying all
directors against liability and absolving all directors from
liability to the Company and its stockholders to the maximum
extent permitted under the laws of the State of Delaware.
Such counsel shall state, in opining on any
matter stated to be subject to the knowledge of such counsel,
that such counsel has made appropriate inquiries of officers of
the Company with respect to the subject matter of such opinion
and has reviewed all documents the existence of which is
disclosed by such inquiries or of which such counsel otherwise is
aware of as a result of its representation of the Company.
In addition, such counsel shall state that in
the course of the preparation of the Offering Documents, which
involved, among other things, discussions and inquiries
concerning the various legal matters and the review of certain
corporate records, documents and proceedings, counsel
participated in conferences with certain officers and other
representatives of the Company and the Placement Agent during
which the contents of the Offering Documents and related matters
were discussed. Such counsel shall advise the Placement Agent in
the form of an opinion of counsel that such counsel has no reason
to believe that, as of each Closing Date, the Term Sheet or any
document incorporated by reference therein contained any untrue
statement of a material fact relating to the Company or omitted
to state a material fact relating to the Company required to be
stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they
were made.
(vi) Opinion of Patent Counsel. If requested by
the Placement Agent, the Placement Agent shall receive the
opinion of patent counsel to the Company (which counsel shall be
satisfactory to the Placement Agent), dated the Closing Date in
the form and substance satisfactory to counsel for the Placement
Agent;
(vii) Comfort Letter. The Company shall cause
the Company's independent public accountants to address and
deliver to the Company and the Placement Agent a letter or
letters (which letters are frequently referred to as "Comfort
Letters") dated as of each Closing Date and the effective date of
the registration statement required to be filed in connection
with the Subscription Agreements;
(viii) Officer's Certificate. The Placement
Agent shall receive an Officer's Certificate substantially in the
form of Exhibit A hereto and a Secretary's Certificate
substantially in the form of Exhibit B hereto, signed by the
appropriate parties and dated as of each Closing Date. These
certificates shall state, among other things, that the
representations and warranties contained in Section 2 hereof are
true and accurate in all material respects at such Closing Date
with the same effect as though expressly made at such Closing
Date;
(ix) Escrow Agreement. The Placement Agent shall
receive a copy of a duly executed Escrow Agreement with Fleet
Bank, N.A. dated March 14, 1997; and
(x) Transmittal Letters. The Placement Agent
shall receive copies of all letters from the Company to the
investors transmitting the Common Stock and shall receive a
letter from the Company confirming transmittal of the securities
to the investors.
(c) Blue Sky. A summary blue sky survey, at the sole
cost of the Company (including, without limitation, the legal
fees and disbursements in connection therewith), shall be
prepared by counsel to the Placement Agent stating the extent to
which and the conditions upon which offers and sales of the Units
may be made in certain jurisdictions. It is understood that such
survey may be based on or rely upon (i) the representations of
each Subscriber set forth in the Subscription Agreement delivered
by such Subscriber, (ii) the representations, warranties and
agreements of the Company set forth in Section 2 of this
Agreement, (iii) the representations and warranties of the
Placement Agent, and (iv) the representations of the Company set
forth in the certificate to be delivered at each Closing pursuant
to paragraph (viii) of Section 4(b).
(d) Placement Fees and Expenses. (i) Simultaneously
with payment for, and delivery of, the Units at each Closing as
provided in paragraph 4(a) above, the Company shall at such
Closing pay to the Placement Agent (i) a commission (the "Cash
Commission") equal to nine percent (9%) of the aggregate purchase
price of the Units sold and (ii) a non-accountable expense
allowance (the "Expense Allowance") equal to four percent (4%) of
the aggregate purchase price of the Units sold. The Company
shall also pay all expenses in connection with the qualification
of the Units under the securities or Blue Sky laws of the states
which the Placement Agent shall designate. In addition, upon
each Closing of the sale of the Units being offered, the Company
will sell to the Placement Agent and/or its designees warrants
(the "Placement Warrants") to acquire a number of newly issued
Units equal to ten percent (10%) of the Units issued in the
Offering, for $.001 per warrant, exercisable for a period of five
(5) years commencing six (6) months after the Final Closing Date
at an exercise price equal to one hundred ten percent (110%) of
the initial offering price of the Units. The Company shall
register the Common Stock underlying the Placement Warrants and
the Advisory Warrants for resale under the Act on the Shelf
Registration Statement. The securities underlying the Placement
Warrants and the Advisory Warrants shall not be subject to
redemption by the Company nor shall they be callable or
mandatorily convertible by the Company. The Placement Warrants
shall not be transferred, sold, assigned or hypothecated for a
period of (6) six months; provided, however, that the Placement
Agent may assign in whole or in part during such period to any
NASD member participating in the Offering, any officer or
employee of the Placement Agent, or any such NASD member. The
Placement Warrants shall contain a cashless exercise feature and
antidilution provisions and the right to have the Common Stock
issuable upon exercise of the Placement Warrants and the Advisory
Warrants included on the Shelf Registration Statement.
(ii) The Company shall pay to the Placement Agent
with respect to any investment by any investors introduced to the
Company by the Placement Agent ("Covered Investors") for any
purchase of securities by such Covered Investor from the Company
during the twelve (12) months following the Final Closing Date of
the Offering: (A) a cash commission equal to nine percent (9%) of
the aggregate amount of any such investment; (B) a non-
accountable expense allowance equal to four percent (4%); and (C)
warrants to acquire a number of securities of even class with the
securities purchased by any such Covered Investor equal to ten
percent (10%) of the number of securities purchased by such
Covered Investor.
(e) No Adverse Changes. There shall not have
occurred, at any time prior to each Closing (i) any domestic or
international event, act or other similar occurrence which has
disrupted, or in the Placement Agent's determination, will
materially disrupt, the securities markets; (ii) a general
suspension of, or a general limitation on prices for, trading in
securities on the New York Stock Exchange, the American Stock
Exchange, the NASDAQ National Market, the NASDAQ Smallcap Market,
or on the OTC Bulletin Board; (iii) any outbreak of major
hostilities or other national or international calamity not
having a material effect on the performance of this Agreement;
(iv) any banking moratorium declared by a state or federal
authority; (v) any moratorium declared in foreign exchange
trading by major international banks or other persons; (vi) any
material interruption in the mail service or other means of
communication within the United States; (vii) any materially
adverse change in the business, properties, assets, results of
operations, prospects or financial condition of the Company; or
(viii) any change in the market for securities in general or in
political, financial, or economic conditions which, in the
Placement Agent's reasonable judgment, makes it inadvisable to
proceed with the offering, sale, and delivery of the Units.
5. Covenants of the Company.
(a) Use of Proceeds. The net proceeds of the Offering
shall be used by the Company substantially as set forth in the
Term Sheet. The Company shall not use any proceeds from the
Bridge Loan or the Offering to repay any indebtedness (other than
capital lease obligations) of the Company, including but not
limited to any indebtedness to current executive officers or
principal stockholders of the Company, but excluding accounts
payable to non-affiliates incurred in the ordinary course of
business.
(b) Expenses of Offering. The Company shall be
responsible for and shall bear all expenses incurred in
connection with the proposed Offering, including but not limited
to, the costs of preparing and duplicating the Term Sheet and all
exhibits thereto; the costs of preparing, printing and filing
with the SEC the Shelf Registration Statement and amendments,
post-effective amendments and supplements thereto; preparing,
duplicating and delivering exhibits thereto and copies of the
preliminary, final and supplemental prospectus; preparing,
duplicating and delivering (including by facsimile) all selling
documents, including but not limited to the Term Sheet, the
Placement Agency Agreement, Subscription Agreements, blue sky
memorandum and stock certificates; blue sky fees, filing fees and
legal fees and disbursements of the Placement Agent's counsel in
connection with blue sky matters; fees and disbursements of the
transfer; the cost of a total of two (2) sets of bound closing
volumes for the Placement Agent and its counsel; and the cost of
three (3) tombstone advertisements, at least one of which shall
appear in a national business newspaper and one of which shall
appear in a major New York newspaper (or, at the option of the
Placement Agent, forty (40) lucite deal mementos) (collectively,
the "Company Expenses"). The Company agrees to use a printer
designated by the Placement Agent and which is reasonably
acceptable to the Company. The Company shall pay to the
Placement Agent a non-accountable expense allowance equal to four
percent (4%) of the total proceeds of the Offering, of which
twenty thousand dollars ($20,000) shall have been paid upon
execution of the Letter of Intent between the Company and the
Placement Agent dated March 4, 1997 and twenty thousand dollars
($20,000) of which shall be due and payable upon the date the
Term Sheet is completed, to cover the cost of the Placement
Agent's mailing, telephone, telecopy, travel, due diligence
meetings and other similar expenses including legal fees of the
Placement Agent's counsel (other than legal fees in connection
with blue sky matters as to which fees the Company shall be
responsible and any items designated above as Company Expenses).
Such prepaid expense allowances shall be non-refundable. If the
proposed Offering is not completed because the Company prevents
it or because of a breach by the Company of any covenants,
representations or warranties contained herein, the Company shall
pay to the Placement Agent a fee of one hundred thousand dollars
($100,000) (the "Break-up Fee") (in addition to the Company
Expenses for which the Company shall in all events remain
liable). The Company shall have the right, however, to terminate
this Agreement at any time prior to the Closing and its
obligations and liabilities to the Placement Agent shall
thereupon be limited to the payment of the Break-up Fee and the
Company Expenses and other expenses as set forth in this
paragraph. In addition, If the proposed financing is not
completed for any reason, then the Company shall be responsible
for and shall reimburse the Placement Agent for all reasonable
costs incurred in connection with the preparation of the Offering
Documents (including, without limitation, attorney's fees,
expenses and disbursements).
(c) Notification. The Company shall notify the
Placement Agent immediately, and in writing, (i) when any event
shall have occurred during the period commencing on the date
hereof and ending on the Final Closing Date as a result of which
the Offering Documents would include any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they were
made, and (ii) of the receipt of any notification with respect to
the modification, rescission, withdrawal or suspension of the
qualification or registration of the Units, or of any exemption
from such registration or qualification, in any jurisdiction.
The Company will use its best efforts to prevent the issuance of
any such modification, rescission, withdrawal or suspension and,
if any such modification, rescission, withdrawal or suspension is
issued and the Placement Agent so requests, to obtain the lifting
thereof as promptly as possible.
(d) Blue Sky. The Company shall use its best efforts
to qualify the Units for offering and sale under exemptions from
qualification or registration requirements under the securities
or "blue sky" laws of such jurisdictions as the Placement Agent
may reasonably request; provided however, that the Company will
not be obligated to qualify as a dealer in securities in any
jurisdiction in which it is not so qualified. The Company will
not consummate any sale of Units in any jurisdiction in which it
is not so qualified or in any manner in which such sale may not
be lawfully made.
(e) Registration Statement Filing. The Company shall,
as soon as practicable, but not later than thirty days (30) days
after the Final Closing Date, (i) file a shelf registration
statement (the "Shelf Registration Statement") with respect to
the resale of (A) the Common Stock underlying the Units
(including the Common Stock underlying the Units issuable upon
exercise of the Placement Warrants and Advisory Warrants) and (B)
shares of Common Stock issuable upon any Article VI Issuances (as
defined in the Subscription Agreement) (together, the
"Registrable Capital Stock") with the SEC and use its best
efforts to have such Shelf Registration Statement declared
effective by the SEC prior to the date which is seventy-five (75)
days after the Final Closing Date (subject to penalties for
failure to effect such registration in the time frames required)
and (ii) cause such Shelf Registration Statement to remain
effective until such date as the holders of the securities have
completed the distribution described in the Shelf Registration
Statement or at such time that such shares are no longer, by
reason of Rule 144(k) under the Act, required to be registered
for the sale thereof by such holders. If requested by the
Placement Agent, and in accordance with applicable securities
laws, the Shelf Registration Statement shall cover the direct
sale of such Registrable Capital Stock to the holders of such
securities. The Registrable Capital Stock may be subject to a
staggered "lock-up" as may be deemed advisable by the Placement
Agent.
(f) Form D Filing. The Company shall file five (5)
copies of a Notice of Sales of Securities on Form D with the SEC
no later than fifteen (15) days after the first Closing Date.
The Company shall file promptly such amendments to such Notices
on Form D as shall become necessary and shall also comply with
any filing requirement imposed by the laws of any state or
jurisdiction in which offers and sales are made. The Company
shall furnish the Placement Agent with copies of all such
filings.
(g) Press Releases, Etc. Except as otherwise required
by applicable law, the Company shall not, during the period
commencing on the date hereof and ending thirty (30) days after
the Final Closing Date, issue any press release or other
communication, or hold any press conference with respect to the
Company, its financial condition, results of operations,
business, properties, assets, or liabilities, or the Offering,
without the prior written consent of the Placement Agent. Upon
the request of the Placement Agent, the Company shall make a Rule
135(c) (under the Act) announcement prior to the commencement of
the Offering.
(h) Public Documents. Following the Final Closing
Date of the Offering, and for a period of five (5) years
thereafter, the Company will furnish to the Placement Agent: (i)
as soon as practicable (but in the case of the annual report of
the Company to its stockholders, within one hundred twenty (120)
days after the end of each fiscal year of the Company) one (1)
copy of: (A) its annual report to its stockholders (which annual
report shall contain financial statements audited in accordance
with generally accepted accounting principles in the United
States of America by a firm of certified public accountants of
recognized standing), (B) if not included in substance in its
annual report to stockholders, its annual report on Form 10-K,
(C) each of its quarterly reports to its stockholders, and if not
included in substance in its quarterly reports to stockholders,
its quarterly report on Form 10-Q, (D) each of its current
reports on Form 8-K, and (E) a copy of the full Shelf
Registration Statement, (the foregoing, in each case, excluding
exhibits); and (ii) upon reasonable request, all exhibits
excluded by the parenthetical to the immediately preceding clause
5(h)(i)(E) and all other information that is generally available
to the public. In addition, the Company upon reasonable request
will meet with the Placement Agent or its representatives to
discuss all information relevant for disclosure in any Shelf
Registration Statement covering shares purchased by purchasers
from the Company and offered by them for resale and will
cooperate in any reasonable investigation undertaken by the
Placement Agent for the purpose of confirming the accuracy of the
Shelf Registration Statement, including the production of
information at the Company's offices.
(i) Restrictions on Securities. During the eighteen
(18) months following the Final Closing Date, the Company shall
not, without the prior written consent of the Placement Agent,
offer or sell any of its securities in reliance on Regulation S
of the Act. During the 18-month period following the date
hereof, the Placement Agent shall have the right of first refusal
to act as placement agent for the offering of any securities of
the Company other than through employee benefit plans. Except as
otherwise contemplated hereby, during the thirty six (36) month
period following the completion of the Offering, the Company will
not extend the expiration date or lower the exercise or the
conversion price of any options, warrants, convertible securities
or other security purchase rights without the prior written
consent of the Placement Agent.
(j) Listing. The Company will take all action
necessary to promptly file an Application for Listing of
Additional Shares with the New York Stock Exchange, the American
Stock Exchange, the NASDAQ National Market, the NASDAQ Smallcap
Market, or the OTC Electronic Bulletin Board, if necessary and/or
take any other necessary action to enable the Common Stock
(including the Common Stock issuable upon exercise of the
Placement Warrants and the Advisory Warrants) to trade on any of
the foregoing markets.
(k) Financial Advisory Agreement. Upon the Final
Closing Date, the Company and the Placement Agent will enter into
an engagement agreement (the "Financial Advisory Agreement")
whereby the Placement Agent will act as the Company's financial
advisor. Such engagement will provide that the Placement Agent
(i) receive a retainer commencing upon the Final Closing Date, in
an amount equal to four thousand dollars ($4,000) per month
(minimum engagement of twenty four (24) months), (ii) out-of-
pocket expenses and (iii) standard cash and equity success fees
in the event that the Placement Agent or any of its affiliates
assists the Company in connection with financings, business
combinations, technology acquisitions and/or strategic
transactions. In addition, upon the execution of the Financial
Advisory Agreement, the Company will sell to the Placement Agent
and/or its designees, for $.001 per warrant, warrants (the
"Advisory Warrants") to acquire a number of newly issued Units
equal to fifteen percent (15%) of the Units issued in the
Offering, exercisable for a period of five (5) years commencing
six (6) months after the Final Closing Date at an exercise price
equal to 110% of the initial offering price of the Units. The
Company shall register the securities underlying the Advisory
Warrants for resale under the Act on the Shelf Registration
Statement. The securities underlying the Advisory Warrants will
not be subject to mandatory conversion or redemption by the
Company nor will they be callable by the Company. The Advisory
Warrants shall contain a cashless exercise feature and
antidilution provisions.
(l) No Offerings. Pending completion or termination
of the Offering in accordance with the terms of this Agreement,
the Company agrees that it shall not enter into an agreement
(whether binding or not) with any other person or entity relating
to a possible public or private offering or placement of its
securities (other than in connection with a corporate
partnership, strategic alliance or government funding) or any
other transaction which would prevent the consummation of the
Offering.
(m) Lock-Up Agreement. As requested by the Placement
Agent, the Company shall obtain from its executive officers and
Directors of the Company and holders of five percent (5%) or more
of the Company's securities an agreement that, for a period of
twenty-four (24) months from the Final Closing of the Offering,
they will not sell, assign or transfer any of their shares of the
Company's securities without the Placement Agent's prior written
consent. Notwithstanding the foregoing, such "lock-up" shall not
apply to intra family, estate planning and similar transfers and
transfers without consideration, or transfers pursuant to a
merger, tender offer or similar transaction.
(n) No Statements. The Company shall not use the name
of the Placement Agent or any officer, director, employee or
shareholder thereof without the express written consent of the
Placement Agent and such person.
(o) Directors and Observers.
(i) For a period of three (3) years after the
Initial Closing Date, the Placement Agent shall be entitled to
propose up to three (3) persons for nomination as voting
directors ("Directors") of the Company. In no event shall the
Board of Directors exceed six (6) members during the three (3)
year period following the Final Closing Date without the
Placement Agent's consent. If necessary, the Directors of the
Company will elect each such person to the Board of Directors of
the Company (A) on the Initial Closing Date, by causing an
existing Director of the Company to resign and (B) thereafter, by
creating a new position on the Board of Directors promptly
following such person's nomination by the Placement Agent and
shall nominate each such person for election in connection with
any stockholder vote for Directors, and the Company will use its
best efforts to ensure that the stockholders of the Company agree
to vote all their securities in favor of each such person's
election. The Company agrees to vote all voting securities for
which the Company holds proxies granting it voting discretion, or
which the Company is otherwise entitled to vote, in favor of, and
to use its best efforts in all respect to cause, the election of
each such individual proposed by the Placement Agent. In the
event that a vacancy is created on the Board of Directors at any
time by the death, disability, resignation or removal (with or
without cause) of any such individual proposed and nominated by
the Placement Agent pursuant to this Agreement, the Company
shall, and shall use its best efforts to ensure that the
stockholders of the Company, vote all its or their voting
securities to elect each individual proposed by the Placement
Agent and nominated for election by the Placement Agent to fill
such vacancy and serve as a voting Director.
(ii) At the Placement Agent's option, in addition
to or in lieu of proposing for nomination and election of one or
both of the Directors of the Company to be proposed by the
Placement Agent as set forth in Section 5(o)(i), the Placement
Agent may, for a period of three (3) years after the Initial
Closing Date, designate a nonvoting observer or observers who
shall be entitled to attend all meetings of the Board of
Directors and any of its committees and who shall be (A) provided
reasonable prior notice of all meetings of the Board of Directors
and any of its committees, (B) provided reasonable prior notice
of any action that the Board of Directors or any of its
committees may take by written consent, (C) promptly delivered
copies of all minutes and other records of action by, and all
written information furnished to, the Board of Directors or any
of its committees, and (D) promptly furnished any other
information requested by such observer or observers which a
member of the Board of Directors would be entitled to request to
discharge his or her duties. Such observers shall be entitled to
the same rights to reimbursement for the expense of attendance at
meetings as any outside Director.
(iii) If the Placement Agent gives notice to the
Company that the Placement Agent desires to remove a Director
proposed by the Placement Agent pursuant to this Agreement, the
Company shall, and shall use its best effort to ensure that the
stockholders of the Company shall, vote all its or their voting
securities in favor of removing such Director if a vote of
holders of such securities shall be required to remove the
Director, and the Company agrees to take any action necessary to
facilitate such removal.
(iv) Each Director nominated by the Placement
Agent shall be entitled to the same type of compensation, and an
amount of compensation at least equal to the highest amount,
payable to any other Director for serving in such capacity.
(v) Not later than three (3) business days after
the Initial Closing Date, the Company shall have (A) caused the
appointment of the initial Directors nominated by the Placement
Agent to its Board of Directors in accordance with the provisions
of this Section 5(o), to the extent such individuals have been
identified in writing to the Company by such time, and (B) taken
such action as shall be necessary to cause the Board of Directors
to be composed of, and limited to, five members. The Company
will use its best efforts to ensure continuing compliance with
the terms of Clause (B) of the preceding sentence for a period of
three (3) years following the Final Closing Date.
(p) Board of Directors.
(i) The Company shall promptly reimburse each
Director or observer of the Company designated by the Placement
Agent who is not an employee of the Company for all of his
reasonable expenses incurred in attending each meeting of the
Board of Directors of the Company or any committee thereof.
(ii) The Company shall at all times maintain
provisions in its By-laws and/or Certificate of Incorporation
indemnifying all directors against liability and absolving all
directors from liability to the Company and its stockholders to
the maximum extent permitted under the laws of the State of
Delaware.
(iii) The By-laws of the Company shall always
contain provisions consistent with the provisions of this Section
5(p) except to the extent this Section 5(p) deals with the
possible observers.
(q) Placement Agent Approval Rights. So long as at
least 50% of the shares of Common Stock included in the Units
(including those issuable upon exercise of the Placement Warrants
and the Advisory Warrants) remain outstanding and subject to
Article VI Rights or are required to be issued pursuant to any
Article VI Rights, the Company shall not do any of the following
without the Placement Agent's prior approval: (i) issue or
increase the authorized amount, alter any of the terms of any
securities of the Company senior to, or on parity with, the
Common Stock with respect to voting, liquidation or dividends,
(ii) alter the Company's charter documents in any manner that
would adversely affect the relative rights, preferences,
qualifications, limitations or restrictions of the Common Stock
or of the Article VI Rights relating to the Common Stock included
in the Units, (iii) incur indebtedness in excess of $1,000,000,
(iv) incorporate or acquire any subsidiaries and (v) enter into
any transactions with affiliates of the Company.
6. Indemnification.
(a) The Company agrees to indemnify and hold harmless
the Placement Agent and each Selected Dealer, if any, and their
respective partners, affiliates, shareholders, directors,
officers, agents, advisors, representatives, employees, counsel
and controlling persons within the meaning of the Act (a
"Paramount Indemnified Party") from and against any and all
losses, liabilities, claims, damages and expenses whatsoever (and
all actions in respect thereof), and to reimburse the Paramount
Indemnified Party for legal fees and related expenses as incurred
(including, but not limited to the costs of giving testimony or
furnishing documents in response to a subpoena or otherwise, the
costs of investigating, preparing, pursuing or defending any such
action or claim whether or not pending or threatened, whether or
not resulting in any liability, and whether or not the Placement
Agent or any Paramount Indemnified Party is a party thereto),
insofar as such losses, liabilities, claims, damages or expenses
arise out of, relate to, whether or not resulting in any
liability, are in incurred in connection with or are in any way a
result of (i) the engagement of the Placement Agent pursuant to
this Agreement and in connection with the transactions
contemplated by this Agreement and the other Offering Documents
(the "Engagement"), including any modifications or future
additions to such engagement and related activities prior to the
date hereof, (ii) any act by the Placement Agent or any Paramount
Indemnified Party taken in connection with the Engagement, (iii)
a breach of any representation, warranty, covenant, or agreement
of the Company contained in this Agreement, (iv) the employment
by the Company of any device, scheme or artifice to defraud, or
the engaging by the Company in any act, practice or course of
business which operates or would operate as a fraud or deceit, or
any conspiracy with respect thereto, in connection with the sale
of the Units, or (v) any untrue statement or alleged untrue
statement of a material fact contained in the Offering Documents
or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading,
provided, however, that the Company will not be liable in any
such case if and to the extent that any such loss, claim, damage,
liability or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any
such Paramount Indemnified Party in writing specifically for use
in the Offering Documents;
(b) The Company agrees to indemnify and hold harmless
a Paramount Indemnified Party to the same extent as the foregoing
indemnity, and subject to the limitations set forth therein,
against any and all loss, liability, claim, damage and expense
whatsoever directly arising out of the exercise by any person of
any right under the Act or the Exchange Act or the securities or
Blue Sky laws of any state on account of violations of the
representations, warranties or agreements set forth in Section 2
hereof.
(c) The Placement Agent agrees to indemnify and hold
harmless the Company, the Company's directors, officers,
employees, counsel, advisors, representatives and agents and
controlling persons within the meaning of the Act (a "Company
Indemnified Party") and each and all of them, to the same extent
as set forth in Section 6(a)(v) of the foregoing indemnity from
the Company to the Placement Agent, but only with reference to
information, relating to the Placement Agent, furnished in
writing to the Company by the Placement Agent specifically for
inclusion in the Offering Documents and only to the extent that
any losses, claims, damages, and liabilities in respect of which
indemnification is claimed are finally judicially determined to
have resulted primarily and directly from the bad faith or gross
negligence of the Placement Agent.
(d) Promptly after receipt by a person entitled to
indemnification pursuant to subsection (a), (b), or (c) (an
"indemnified party") of this Section of notice of the
commencement of any action, the indemnified party will, if a
claim in respect thereof is to be made against a person granting
indemnification (an "indemnifying party") under this Section,
notify in writing the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to the
indemnified party otherwise than under this Section. In case any
such action is brought against an indemnified party, and it
notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to
the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, subject
to the provisions herein stated, with counsel reasonably
satisfactory to the indemnified party, and after notice from the
indemnifying party to the indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be
liable to the indemnified party for any legal or other expenses
subsequently incurred by the indemnified party in connection with
the defense thereof other than reasonable costs of investigation.
The indemnified party shall have the right to employ separate
counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall not be
at the expense of the indemnifying party if the indemnifying
party has assumed the defense of the action with counsel
reasonably satisfactory to the indemnified party; provided that
the fees and expenses of such counsel shall be at the expense of
the indemnifying party if (i) the employment of such counsel has
been specifically authorized in writing by the indemnifying party
or (ii) the named parties to any such action (including any
impleaded parties) include both the indemnified party or parties
and the indemnifying party and, in the judgment of the
indemnified party, it is advisable for the indemnified party or
parties to be represented by separate counsel in which case the
indemnifying party shall not have the right to assume the defense
of such action on behalf of the indemnified party or parties, it
being understood, however, that the indemnifying party shall not,
in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one
separate firm of attorneys for the indemnified party or parties
(plus local counsel). No settlement, compromise, consent to
entry of judgment or other termination of any action
(collectively, "Terminations") in respect of which a Paramount
Indemnified Party may seek indemnification hereunder (whether or
not any Paramount Indemnified Party is a party thereto) shall be
made without the prior written consent of the Paramount
Indemnified Party, which such consent may be withheld at the sole
discretion of such Paramount Indemnified Party, provided,
however, that the foregoing requirement of prior written consent
for Terminations shall not apply to the Placement Agent who may
agree to such Terminations on behalf of a Paramount Indemnified
Party without the prior written consent of any Paramount
Indemnified Party.
(e) Notwithstanding any of the provisions of this
Agreement, the aggregate indemnification or contribution of the
Placement Agent for or on account of any losses, claims, damages,
liabilities or actions under this Section 6, Section 7 or any
other applicable section of this Agreement, shall not exceed the
Cash Commissions actually paid to the Placement Agent. The
respective indemnity and contribution agreements by the Company
and the Placement Agent contained in subsections (a), (b), (c)
and (d) of this Section 6 and Section 7, and the covenants,
representations and warranties of the Company and the Placement
Agent set forth in Sections 1, 2, 3, 4 and 5 shall remain
operative and in full force and effect regardless of (i) any
investigation made by the Placement Agent, on the Placement
Agent's behalf or by or on behalf of any person who controls the
Placement Agent, the Company or any controlling person of the
Company or any director or officer of the Company, (ii)
acceptance of any of the Units and payment therefor or (iii) any
termination of this Agreement, and shall survive the delivery of
the Units, and any successor of the Placement Agent or of the
Company or of any person who controls the Placement Agent or the
Company, as the case may be, shall be entitled to the benefit of
such respective indemnity and contribution agreements. The
respective indemnity and contribution agreements by the Company
and the Placement Agent contained in subsections (a), (b) and (c)
of this Section 6 and Section 7 shall be in addition to any
liability which the Company and the Placement Agent may otherwise
have.
7. Contribution.
(a) To provide for just and equitable contribution, if
(i) an indemnified party makes a claim for indemnification
pursuant to Section 6 but it is found in a final judicial
determination, by a court of competent jurisdiction, not subject
to further appeal, that such indemnification may not be enforced
in such case, even though this Agreement expressly provides for
indemnification in such case, or (ii) any indemnified or
indemnifying party seeks contribution under the Act, the Exchange
Act, or otherwise, then the Company (including for this purpose
any contribution made by or on behalf of any officer, director,
employee or agent for the Company, or any controlling person of
the Company), on the one hand, and the Placement Agent and any
Selected Dealers (including for this purpose any contribution by
or on behalf of an indemnified party), on the other hand, shall
contribute to the losses, liabilities, claims, damages, and
expenses whatsoever to which any of them may be subject, in such
proportions as are appropriate to reflect the relative benefits
received by the Company, on the one hand, and the Placement Agent
and the Selected Dealers, on the other hand; provided, however,
that if applicable law does not permit such allocation, then
other relevant equitable considerations such as the relative
fault of the Company and the Placement Agent and the Selected
Dealers in connection with the facts which resulted in such
losses, liabilities, claims, damages, and expenses shall also be
considered. In no case shall the Placement Agent or a Selected
Dealer be responsible for a portion of the contribution
obligation in excess of the compensation received by it pursuant
to Section 4 hereof or the Selected Dealer Agreement, as the case
may be. No person guilty of a fraudulent misrepresentation shall
be entitled to contribution from any person who is not guilty of
such fraudulent misrepresentation. For purposes of this
Section 7, each person, if any, who controls the Placement Agent
or a Selected Dealer within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act and each officer, director,
stockholder, employee and agent of the Placement Agent or a
Selected Dealer, shall have the same rights to contribution as
the Placement Agent or the Selected Dealer, and each person, if
any who controls the Company within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act and each officer,
director, employee and agent of the Company, shall have the same
rights to contribution as the Company, subject in each case to
the provisions of this Section 7. Anything in this Section 7 to
the contrary notwithstanding, no party shall be liable for
contribution with respect to the settlement of any claim or
action effected without its written consent. This Section 7 is
intended to supersede any right to contribution under the Act,
the Exchange Act, or otherwise.
8. Miscellaneous.
(a) Survival. Any termination of the Offering without
any Closing shall be without obligation on the part of any party
except that the provisions regarding fees and expenses contained
in Section 5(b), the indemnification provided in Section 6 hereof
and the contribution provided in Section 7 hereof shall survive
any termination and shall survive any Closing.
(b) Representations, Warranties and Covenants to
Survive Delivery. Except as provided in Section 8(a), the
respective representations, warranties, indemnities, agreements,
covenants and other statements of the Company and the Placement
Agent as of the date hereof shall survive execution of this
Agreement and delivery of the Units and the termination of this
Agreement.
(c) No Other Beneficiaries. This Agreement is
intended for the sole and exclusive benefit of the parties hereto
and their respective successors and controlling persons, and no
other person, firm or corporation shall have any third-party
beneficiary or other rights hereunder.
(d) Governing Law. This Agreement shall be governed
by and construed in accordance with the law of the State of New
York without regard to conflict of law provisions.
(e) Counterparts. This Agreement may be signed in
counterparts with the same effect as if both parties had signed
one and the same instrument.
(f) Notices. Any communications specifically required
hereunder to be in writing, if sent to the Placement Agent, shall
be mailed, delivered and confirmed to it at Paramount Capital,
Inc., 787 Seventh Avenue, New York, New York, 10019, Attn:
Michael S. Weiss and if sent to the Company, shall be mailed,
delivered or telegraphed and confirmed to it at Endorex
Corporation, 900 North Shore Drive, Ste. 224, Lake Bluff,
Illinois 60044, Attn: Chief Executive Officer..
(g) Termination. Subject to the general survival
provisions contained in Sections 8(a) and 8(b) and payment of the
Break-up Fee contained in Section 5(a), this Agreement may be
terminated by either party prior to any Closing upon written
notice to the other party.
(h) Entire Agreement. This Agreement constitutes the
entire agreement of the parties with respect to the matters
herein referred and supersedes all prior agreements and
understandings, written and oral, between the parties with
respect to the subject matter hereof. Neither this Agreement nor
any term hereof may be changed, waived or terminated orally, but
only by an instrument in writing signed by the party against
which enforcement of the change, waiver or termination is sought.
(i) Independent Contractor. The Placement Agent shall
act as an independent contractor and nothing contained herein or
otherwise shall be construed to create any partnership or joint
venture between the Placement Agent and the Company.
(j) Headings. The headings and captions of the various
subdivisions of this Agreement are for convenience or reference
only and shall in no way modify or affect the meaning or
construction of any of the terms or provisions hereof.
If you find the foregoing is in accordance with our understanding, kindly
sign and return to us a counterpart hereof, whereupon this instrument along
with all counterparts will become a binding agreement between us.
Very truly yours,
Endorex Corporation
By: /s/ Michael S. Rosen
Name: Michael Rosen
Title: President & Chief Executive Officer
Agreed to by:
PARAMOUNT CAPITAL, INC.
By: /s/ Lindsay A. Rosenwald
Name: Lindsay A. Rosenwald, M.D.
Title: Chairman
EXHIBIT A
ENDOREX CORPORATION
OFFICERS' CERTIFICATE
[Month] __, 1997
I, Michael Rosen certify that I am the President and
Chief Executive Officer of Endorex Corporation, a Delaware
corporation (the "Company"), and that, as such, I am authorized
to execute this certificate on behalf of the Company. All
capitalized terms used herein but not otherwise defined herein
shall the meanings ascribed to such terms in the Agency Agreement
(as defined below). Reference is made herein to the closing held
on [DATE] (the "Closing Date"). I do hereby certify that I have
carefully examined all of the Offering Documents (as defined in
the Placement Agency Agreement dated as of July 1, 1997 (the
"Agency Agreement") between the Company and Paramount Capital,
Inc. ("Paramount")), and do hereby further certify that:
1. All of the representations and warranties of the
Company contained in the subscription agreements (the
"Subscription Agreements") between the Company and the purchasers
(the "Purchasers") of the Units of Common Stock of the Company
contemplated by the Company's Confidential Term Sheet, dated July
15, 1997, as supplemented and amended, (the "Term Sheet") are
true and correct in all respects on the Closing Date with the
same force and effect as if made on and as of the Closing Date,
and the Company has performed all covenants and agreements and
has satisfied all conditions in the Subscription Agreements to be
performed or satisfied on its part before the Closing Date in all
respects.
2. The Term Sheet does not contain any untrue
statement of a fact or omit to state any fact required to be
stated in order to make the statements therein not misleading as
of the Closing Date. Since the date of the Term Sheet, no event
has occurred concerning which information is required to be
contained in an amended or supplemented Term Sheet concerning
which such information is not contained therein.
3. All of the representations and warranties of the
Company contained in the Agency Agreement are true and correct in
all respects on the Closing Date, and the Company has performed
all covenants and agreements and has satisfied all conditions
contained in the Agency Agreement to be performed and satisfied
on its part at or prior to the Closing Date in all respects.
4. All of the representations and warranties of the
Company contained in each of the other Offering Documents are
true and correct in all respects on the Closing Date, and the
Company has performed all covenants and agreements and has
satisfied all conditions contained in such Offering Documents to
be performed and satisfied on its part at or prior to the Closing
Date in all respects.
5. Since the date of the most recent financial
statements and the information included in the Term Sheet, there
has been no adverse change in the condition (financial or other),
earnings, business, prospects or properties of the Company and
its subsidiaries taken as a whole, whether or not arising from
transactions in the ordinary course of business, nor has there
occurred any event required to be set forth in the Term Sheet,
including, without limitation, in accordance with Section 1(b) of
the Agency Agreement.
6. There is no litigation pending or threatened by or
against the Company, except as disclosed in the Term Sheet.
7. The Company will promptly take all action
necessary to list all shares of Common Stock comprising the Units
and all shares of Common Stock, including the Common Stock
issuable upon exercise of the Placement Warrants and Advisory
Warrants, on the OTC Bulletin Board.
8. Since [MONTH] __, 1997, the Company has not
offered to sell to, or solicited any offers to buy from any
person, shares of capital stock of the Company, except in
connection with the Offering contemplated by the Term Sheet.
This certificate is made for the benefit of, and may be
relied upon by, Paramount, Kramer, Levin, Naftalis & Frankel, as
counsel to Paramount, and each of the Purchasers.
IN WITNESS WHEREOF, I have executed this certificate on
this __ day of [MONTH], 1997.
By_____________________________________
Name: Michael Rosen
Title: President and Chief Executive Officer
EXHIBIT B
ENDOREX CORPORATION
SECRETARY'S CERTIFICATE
[MONTH] __, 1997
I, [___], certify that I am the duly elected, qualified
and acting Secretary of Endorex Corporation, a Delaware
corporation (the "Company"), and as such, I am duly authorized to
execute this Certificate on behalf of the Company, and that I am
familiar with the facts certified below. All capitalized terms
used herein but not otherwise defined herein shall have the
meanings ascribed to such terms in the Placement Agency Agreement
dated as of July 1, 1997 between the Company and Paramount
Capital, Inc. (the "Agency Agreement"). Reference is made herein
to the closing held on [MONTH] __, 1997 (the "Closing Date"). In
connection with the offering and sale of up to sixty (60) units
(the "Units") with an option in favor of the Placement Agent to
offer up to an additional one hundred forty (140) Units to cover
over-allotments at a purchase price of one hundred thousand
dollars ($100,000) per Unit, with each Unit consisting of a
number of shares of Common Stock of the Company, par value $.001
per share, determined by dividing one hundred thousand dollars
($100,000) by the lesser of (a) $2.3125 and (b) the average
closing bid price of the Common Stock on the Over the Counter
("OTC") Bulletin Board for the thirty (30) consecutive trading
days or five (5) consecutive trading days immediately preceding
(i) the Initial Closing Date, (ii) any Interim Closing Date, or
(iii) the Final Closing Date of this Offering, whichever is
lowest, for which Paramount Capital, Inc. ("Paramount") has acted
as placement agent, I do hereby further certify as follows:
1. Attached hereto as Exhibit A is a true, correct
and complete copy of the Company's Certificate of Incorporation,
as amended (the "Certificate"), which is in full force and effect
and, except as otherwise provided herein, no amendment to such
certificate has been approved by the Board of Directors or
stockholders of the Company or filed with the Delaware Secretary
of State since [DATE]. As of the Closing Date, the Company is
duly incorporated and in good standing in the State of Delaware
and has paid all fees and taxes due and payable by it on or prior
to the Closing Date necessary for the maintenance or continuation
of its corporate existence. As of the Closing Date, there are no
proceedings or actions contemplated by the Company, relating to
the merger, liquidation, consolidation, or sale of all or
substantially all of the assets or business of the Company or
which would otherwise threaten or impair the Company's corporate
existence.
2. Attached hereto as Exhibit B is a true, correct
and complete copy of the Bylaws of the Company, as in full force
and effect on the Closing Date and at all times from [__] through
the Closing Date.
3. As of the Closing Date, each of the Offering
Documents is in the form authorized by the board of directors of
the Company pursuant to the resolutions set forth in Exhibit C.
4. Attached hereto as Exhibit D is a true, correct
and complete copy of the resolutions duly adopted at meetings of
the Company's board of directors duly called and held on [MONTH]
__, 1997, which resolutions authorize the issuance and sale of
the Units, the Common Stock underlying the Units, the Placement
Warrants, the Advisory Warrants and the Common Stock underlying
the Placement Warrants and Advisory Warrants in accordance with
the requirements of Delaware law, the Certificate and Bylaws of
the Company, which are the only resolutions adopted by the board
of directors of the Company or any committee thereof with respect
to the offering and sale of the Units and the transactions
relating thereto, and which have not been revoked, modified and
amended or rescinded and are in full force and effect on the
Closing Date.
5. Attached hereto as Exhibit E are true, correct and
complete specimens of the certificates representing the Common
Stock heretofore approved and adopted by the board of directors
of the Company. Each of the certificates representing Common
Stock delivered on the Closing Date to each of the Purchasers
pursuant to the Subscription Agreements has been executed by the
genuine or facsimile signature of officers of the Company who
have been duly elected or appointed, qualified and acting as such
officers on the date such certificates were executed and
delivered, all in accordance with the Certificate and Bylaws of
the Company and the requirements of applicable law.
6. Attached hereto as Exhibit F is a true, correct
and complete copy of the form of Placement Warrants and Advisory
Warrants heretofore approved and adopted by the Board of
Directors of the Company. Each of the Placement Warrants and the
Advisory Warrants delivered on the date hereof to each of the
holders pursuant to the Agency Agreement and the Financial
Advisory Agreement (the "Financial Advisory Agreement"),
respectively, has been executed by the genuine or facsimile
signature of officers of the Company who have been duly elected
or appointed, qualified and acting as such officers on the date
such certificates were executed and delivered, all in accordance
with the Certificate and Bylaws of the Company and the
requirements of applicable law.
7. The minute books and records of the Company,
relating to all proceedings of the stockholders, the Board of
Directors of the Company and the Compensation Committee, the
Audit Committee and the Nominating Committee of such Board have
been made available to Kramer, Levin, Naftalis & Frankel, counsel
to Paramount, and, in such form, are the original minute books
and records of the Company. There have been no changes,
alterations or additions in such minutes or records since their
examination by counsel on behalf of Paramount.
8. Each person who, as an officer or director of the
Company, signed any of the Offering Documents or any other
document in connection with the offering and sale of the Common
Stock, the Placement Warrants and Advisory Warrants, and the
closing relating thereto was duly elected or appointed, qualified
and acting as such officer or director at the respective times of
the signing and delivery thereof and was duly authorized to sign
such document on behalf of the Company, and the signature of each
such person appearing on each such document is the genuine
signature of such officer, director or person duly appointed for
the purpose of executing such documents under valid powers of
attorney, and each individual who signed such signature pages,
personally or by an attorney-in-fact, was then duly elected,
qualified and acting as an officer or director of the Company as
stated therein.
9. The following persons are, and have been at all
times since [DATE], duly qualified and acting officers of the
Company, duly elected or appointed to the offices set forth
opposite their respective names, and the signature opposite the
name of each such officer is his or her, or a facsimile of his or
her, authentic signature, and the seal affixed hereto is the duly
adopted seal of the Company:
Name Office
Signature
Michael Rosen President and CEO ___________________
David Franckowiak Controller/Treasurer ___________________
[__] [__] ___________________
This certificate is made for the benefit of, and may be
relied upon by, Paramount, Kramer, Levin, Naftalis & Frankel, as
counsel to Paramount, and each of the Purchasers.
IN WITNESS WHEREOF, I have hereunto set forth my hand this __ day
of [MONTH], 1997.
[SEAL]
_____________________________________
Name: [__]
Title: Secretary
I, Michael Rosen, President and Chief Executive Officer
of the Company, do hereby certify that [__] whose genuine
signature appears above, is, and has been at all times since [
], 1997, the duly elected or appointed, qualified and acting
Secretary of the Company.
IN WITNESS WHEREOF, I have hereunto set forth my hand
this __th day of [MONTH], 1997.
_____________________________________
Name: Michael Rosen
Title: President and Chief Executive Officer
Paramount Capital, Inc.
EXHIBIT 10.14
SIDE LETTER NO. 1
TO THE
PLACEMENT AGENCY AGREEMENT
October 8, 1997
Paramount Capital, Inc.
787 Seventh Avenue
New York, New York 10019
Dear Sirs:
This letter shall constitute Side Letter No. 1 to the Placement Agency
Agreement(the "Placement Agency Agreement") dated July 1, 1997 between Endorex
Corp., a Delaware corporation (the "Company") and Paramount Capital, Inc.
(the "Placement Agent").
The parties hereto agree that the following shall replace, supersede and amend
Section 5(o) of the Placement Agency Agreement:
(o) Directors and Observers.
(i) In no event shall the Board of Directors exceed seven (7)
members during the three (3) year period following the Final Closing Date
without the Placement Agent's consent. The prior written consent of the
Placement Agent shall be obtained prior to any change in the Board of Directors
involving a majority of the current Board of Directors. No directors shall be
added or removed from the Company's Board of Director's without first obtaining
the written consent of the Placement Agent.
(ii) At the Placement Agent's option, the Placement Agent may,
for a period of three (3) years after the Initial Closing Date, designate a
non-voting observer or observers who shall be entitled to attend all meetings of
the Board of Directors and any of its committees and who shall be (A) provided
reasonable prior notice of all meetings of the Board of Directors and any of
its committees, (B) provided reasonable prior notice of any action that the
Board of Directors or any of its committees may take by written consent, (C)
promptly delivered copies of all minutes and other records of action by, and
all written information furnished to, the Board of Directors or any of its
committees, and (D) promptly furnished any other information requested by such
observer or observers which a member of the Board of Directors would be
entitled to request to discharge his or her duties. One observer shall be
entitled to the same rights to reimbursement for the expense of attendance at
meetings as any outside Director.
(iii) Each Director nominated by the Placement Agent shall be
entitled to the same type of compensation, and an amount of compensation at
least equal to the highest amount, payable to any other Director for serving
in such capacity and to be covered by Directors and Officers indemnification
insurance on terms at least as favorable as those applicable to any other
Director of the Company.
(iv) The Company shall take such action as shall be necessary to cause the
Board of Directors to be composed of, and limited to, seven members. The
Company will use its best efforts to ensure continuing compliance with the
terms of the preceding sentence for a period of three (3) years following
the Final Closing Date.
Capitalized terms used but not defined in this letter shall have the meanings
provided in the Placement Agency Agreement. Except as expressly provided
herein, the terms of the Placement Agency Agreement shall remain in full force
and effect without modification or amendment. If the foregoing correctly sets
forth the understanding between us, please so indicate in the space provided
below for that purpose, whereupon this shall constitute a binding agreement
between us.
ENDOREX CORP.
By: /s/ Michael S. Rosen
Name: Michael S. Rosen
Title: President & CEO
Agreed to by:
PARAMOUNT CAPITAL, INC.
By: /s/ Lindsay A. Rosenwald
Name: Lindsay A. Rosenwald, M.D.
Title: Chairman
EXHIBIT 10.15
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT (this "Agreement") made as of the date set forth on the
signature page hereof between Endorex Corp., a Delaware corporation (the
"Company") and the undersigned (the "Subscriber").
W I T N E S S E T H:
WHEREAS, the Company has retained Paramount Capital, Inc. (the "Placement
Agent") as Placement Agent, on a "best efforts" basis, in a private placement
offering (the "Offering") of units (the "Units") of common stock of the Company,
par value $.001 per share (the "Common Stock");
WHEREAS, the Company desires to issue a minimum of ten (10) Units (the "Minimum
Offering") and a maximum of sixty (60) Units (the "Maximum Offering"), with an
option in favor of the Placement Agent to offer up to an additional one hundred
forty (140) Units to cover over-allotments, each Unit consisting of a number of
shares (the "Offering Quantity") of Common Stock equal to the quotient of
$100,000 divided by the lesser of (i) $2.3125 and (ii) the Market Price (as
defined below) of the Common Stock as of (A) the Initial Closing Date (as
defined below), (B) any interim closing date, or (C) the Final Closing Date (as
defined below) of this Offering, whichever is lowest (the Common Stock to be
issued pursuant to this Agreement and the Placement Agency Agreement (as defined
below) (including (x) the Common Stock issuable upon exercise of the Placement
Warrants and the Advisory Warrants and (y) the Common Stock issuable as a Semi-
Annual Issuance or Dilutive Issuance) (being collectively referred to herein as
the "Subscription Common" or the "Securities");
WHEREAS, the Subscriber desires to purchase that number of Units set forth on
the signature page hereof on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and the mutual representations
and covenants hereinafter set forth, the parties hereto do hereby agree as
follows:
I. SUBSCRIPTION FOR UNITS AND REPRESENTATIONS BY SUBSCRIBER
1.1 Subject to the terms and conditions hereinafter set forth, the Subscriber
hereby subscribes for and shall purchase from the Company such number of Units
or fractions thereof and the Company shall sell such Units to the Subscriber as
is set forth upon the signature page hereof at a price equal to one hundred
thousand dollars ($100,000) per Unit (the "Initial Offering Price"). The
purchase price is payable by personal or business check, wire transfer of
immediately available funds or money order made payable to "Fleet Bank, NA,
Escrow Agent, F/B/O Endorex Corp." contemporaneously with the execution and
delivery of this Agreement by the Subscriber. The certificates representing the
Subscription Common will be delivered by the Company within ten (10) days
following each applicable Closing as set forth in Article III hereof. The
Subscriber understands, however, that this purchase of Units is contingent upon
the Company making sales of a minimum of ten (10) Units prior to the termination
date of the Offering.
1.2 The Subscriber recognizes that the purchase of Units involves a high
degree of risk including, but not limited to, the following: (i) the Company
remains a development stage business with limited operating history and requires
substantial funds in addition to the proceeds of the Offering; (ii) an
investment in the Company is highly speculative, and only investors who can
afford the loss of their entire investment should consider investing in the
Company and the Units; (iii) the Subscriber may not be able to liquidate his
investment; (iv) transferability of the Securities is extremely limited; (v) in
the event of a disposition of the Securities, the Subscriber could sustain the
loss of his entire investment and (vi) the Company has not paid any dividends
since inception and does not anticipate the payment of dividends in the
foreseeable future. Such risks are more fully set forth in the Term Sheet (as
defined below) furnished by the Company to the Subscriber.
1.3 The Subscriber represents that the Subscriber is an "accredited investor"
as such term is defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933, as amended (the "Act"), as indicated by the Subscriber's
responses to the questions contained in Article VIII hereof, and that the
Subscriber is able to bear the economic risk of an investment in the Units.
1.4 The Subscriber hereby acknowledges and represents that (i) the Subscriber
has prior investment experience, including investment in securities which are
non-listed, unregistered and are not traded on the Nasdaq National Market or the
Nasdaq SmallCap Market, nor on the National Association of Securities Dealers,
Inc.'s (the "NASD") automated quotation system for actively traded stocks, or
the Subscriber has employed at its own expense and relied upon the services of
an investment advisor, attorney and/or accountant to read all of the documents
furnished or made available by the Company to the Subscriber and to evaluate the
investment, tax and legal merits and the consequences and risks of such a
transaction on the Subscriber's behalf and that person has such knowledge and
experience in financial and business matters that such person is capable of
evaluating the merits and risks of the prospective investment and satisfies the
conditions set out in Rule 501(h) under the Act; (ii) the Subscriber recognizes
the highly speculative nature of this investment; and (iii) the Subscriber is
able to bear the economic risk which the Subscriber hereby assumes.
1.5 The Subscriber hereby acknowledges receipt and careful review of (a) the
Confidential Term Sheet dated July 15, 1997 as supplemented and amended, and the
attachments and exhibits thereto, all of which constitute an integral part
thereof (the "Term Sheet") and (b) this Agreement and all attachments to it, and
hereby represents that the Subscriber has been furnished by the Company during
the course of this transaction with all information regarding the Company which
the Subscriber has requested or desired to know, has been afforded the
opportunity to ask questions of and receive answers from duly authorized
officers or other representatives of the Company concerning the terms and
conditions of the Offering and the affairs of the Company and has received any
additional information which the Subscriber has requested.
1.6 (a) The Subscriber has relied solely upon the information provided by the
Company in the Term Sheet and in this Agreement in making the decision to
Invest in the Units. To the extent necessary, the Subscriber has retained, at
the expense of the Subscriber, and relied upon appropriate professional advice
regarding the investment, tax and legal merits and consequences of this
Agreement and its purchase of the Units hereunder. The Subscriber acknowledges
and agrees (i) that the Company has prepared the Term Sheet and that no other
person, including, without limitation, the Placement Agent, has supplied any
information for inclusion in the Term Sheet other than information furnished in
writing to the Company by the Placement Agent specifically for inclusion in the
Term Sheet relating to the Placement Agent, (ii) that the Placement Agent has no
responsibility for the accuracy or completeness of the Term Sheet and (iii) that
the Subscriber has not relied upon the independent investigation or
verification, if any, which may have been undertaken by the Placement Agent.
(b) The Subscriber represents that (i) the Subscriber was contacted regarding
the sale of the Units by the Placement Agent (or an authorized agent or
representative thereof) with whom the Subscriber had a prior substantial pre-
existing relationship and (ii) no Units were offered or sold to it by means of
any form of general solicitation or general advertising, and in connection
therewith the Subscriber did not (A) receive or review any advertisement,
article, notice or other communication published in a newspaper or magazine or
similar media or broadcast over television or radio whether closed circuit, or
generally available; or (B) attend any seminar meeting or industry investor
conference whose attendees were invited by any general solicitation or general
advertising.
1.7 The Subscriber hereby represents that the Subscriber either by reason of
the Subscriber's business or financial experience or the business or financial
experience of the Subscriber's professional advisors (who are unaffiliated with
and who are not compensated by the Company or any affiliate or selling agent of
the Company, including the Placement Agent, directly or indirectly) has the
capacity to protect the Subscriber's own interests in connection with the
transaction contemplated hereby.
1.8 The Subscriber hereby acknowledges that the Offering has not been reviewed
by the United States Securities and Exchange Commission (the "SEC" or
"Commission") or any state regulatory authority, since the Offering is intended
to be exempt from the registration requirements of Section 5 of the Act pursuant
to Regulation D promulgated under the Act. The Subscriber shall not sell or
otherwise transfer the Securities unless they are registered under the Act or
unless an exemption from such registration is available.
1.9 The Subscriber understands that the Securities comprising the Units have
not been registered under the Act by reason of a claimed exemption under the
provisions of the Act which depends, in part, upon the Subscriber's investment
intention. In this connection, the Subscriber hereby represents that the
Subscriber is purchasing the Securities comprising the Units for the
Subscriber's own account for investment and not with a view toward the resale or
distribution to others. The Subscriber, if an entity, was not formed for the
purpose of purchasing the Securities.
1.10 The Subscriber understands that although there currently is a public
market for the Common Stock, Rule 144 ("Rule 144") promulgated under the Act
requires, among other conditions, a one-year holding period prior to the resale
(in limited amounts) of securities acquired in a non-public offering without
having to satisfy the registration requirements under the Act. The Subscriber
understands and hereby acknowledges that the Company is under no obligation to
register any of the Units or any of the Securities comprising the Units under
the Act or any state securities or "blue sky" laws other than as set forth in
Article V. The Subscriber shall hold the Company and its directors, officers,
employees, controlling persons and agents (including the Placement Agent and its
officers, directors, employees, counsel, controlling persons and agents) and
their respective heirs, representatives, successors and assigns harmless and to
indemnify them against all liabilities, costs and expenses incurred by them as a
result of, (i) any misrepresentation made by the Subscriber contained in this
Agreement (including the Confidential Investor Questionnaire contained in
Article VIII herein), (ii) any sale or distribution by the Subscriber in
violation of the Act or any applicable state securities or "blue sky" laws or
(iii) any untrue statement of a material fact made by the Subscriber and
contained herein or omission to state herein a material fact necessary in order
to make the statements contained herein, in light of the circumstances under
which they were made, not misleading..
1.11 The Subscriber consents to the placement of a legend on any certificate or
other document evidencing the Securities that such Securities have not been
registered under the Act or any state securities or "blue sky" laws and setting
forth or referring to the restrictions on transferability and sale thereof
contained in this Agreement. The Subscriber is aware that the Company will make
a notation in its appropriate records with respect to the restrictions on the
transferability of such Securities.
1.12 The Subscriber understands that the Company will review this Agreement and
is hereby given authority by the Subscriber to call Subscriber's bank or place
of employment or otherwise review the financial standing of the Subscriber; and
it is further agreed that the Company (with the consent of the Placement Agent)
and the Placement Agent, at its sole discretion, reserves the unrestricted
right, without further documentation or agreement on the part of the Subscriber,
to reject or limit any subscription, to accept subscriptions for fractional
Units and to close the Offering to the Subscriber at any time.
1.13 The Subscriber hereby represents that the address of the Subscriber
furnished by Subscriber on the signature page hereof is the Subscriber's
principal residence if Subscriber is an individual or its principal business
address if it is a corporation or other entity.
1.14 The Subscriber represents that the Subscriber has full power and authority
(corporate, statutory and otherwise) to execute and deliver this Agreement and
to purchase the Units and the Securities. This Agreement constitutes the legal,
valid and binding obligation of the Subscriber, enforceable against the
Subscriber in accordance with its terms.
1.15 If the Subscriber is a corporation, partnership, limited liability
company, trust, employee benefit plan, individual retirement account, Keogh
Plan, or other entity, then (a) it is authorized and qualified to become an
investor in the Company and the person signing this Agreement on behalf of such
entity has been duly authorized by such entity to do so and (b) it is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization.
1.16 The Subscriber acknowledges that if he or she is a registered
representative of an NASD member firm, he or she must give such firm the notice
required by the NASD's Rules of Fair Practice, receipt of which must be
acknowledged by such firm in Section 8.4 below.
1.17 The Subscriber acknowledges that at such time, if ever, as the Securities
are registered, sales of the Securities will be subject to state securities
laws, including those of the State of New Jersey which require any securities
sold in New Jersey to be sold through a registered broker-dealer or in reliance
upon an exemption from registration.
1.18 Subject to the proviso below, the Subscriber hereby agrees that from the
date hereof and continuing for a period (the "Lock-Up Period") of nine (9)
months from the effective date of the Registration Statement (as defined in
Section 5.2 hereof) (the "Effective Date"), the Subscriber will not, without the
prior written consent of the Placement Agent, offer, pledge, sell, contract to
sell, grant any option for the sale of, or otherwise dispose of, directly or
indirectly, 75% of the Registrable Securities (as defined in Section 5.1)
purchased or acquired by the Subscriber, provided, however, that, following each
three month period after the Effective Date, an amount of Registrable Securities
equal to 25% of the number of Registrable Securities purchased or acquired by
the Subscriber shall become exempt from the lock-up provisions contained in this
sentence. For the sake of clarity, 25% of the Registrable Securities will not
be subject to any lock-up. In addition, the Subscriber agrees that during the
period from the date that Subscriber was first contacted with respect to the
potential purchase of Securities through the last date upon which Subscriber
holds any Securities or Registrable Securities, the Subscriber shall not,
directly or indirectly, through related parties, affiliates or otherwise, (i)
sell "short" or "short against the box" (as those terms are generally
understood) any equity security of the Company or (ii) otherwise engage in any
transaction, except for any transaction contemplated by this Agreement, that
involves hedging of the Subscriber's position in any equity security of the
Company.
1.19 The Subscriber represents and warrants that it has not engaged, consented
to nor authorized any broker, finder or intermediary to act on its behalf,
directly or indirectly, as a broker, finder or intermediary in connection with
the transactions contemplated by this Agreement. The Subscriber shall indemnify
and hold harmless the Company from and against all fees, commissions or other
payments owing to any such person or firm acting on behalf of such Subscriber
hereunder.
1.20 The Subscriber, whose name appears on the signature line below, is the
beneficial owner of the Securities subscribed for.
II. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
Except as set forth on the Schedule of Exceptions attached hereto as Exhibit A,
the Company hereby represents, warrants and covenants to the Subscriber that:
2.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has full corporate power and authority to conduct
its business as described in the Term Sheet. The Company is duly qualified to
do business as a foreign corporation and is in good standing in the states of
North Dakota and Illinois.
2.2 Capitalization and Voting Rights. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Term Sheet under the
headings "Offering Summary -- Securities Outstanding" and "Capitalization"; all
issued and outstanding shares of the Company are validly issued, fully paid and
nonassessable. The Securities comprising the Units have been duly and validly
authorized and, when issued and paid for pursuant to this Agreement, will be
validly issued, fully paid and nonassessable. Except as set forth in the Term
Sheet, there are no outstanding options, warrants, agreements, convertible
securities, preemptive rights or other rights to subscribe for or to purchase
any shares of capital stock of the Company. Except as set forth in the Term
Sheet, in this Agreement and as otherwise required by law, there are no
restrictions upon the voting or transfer of the Securities pursuant to the
Company's Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), By-laws or other governing documents or any agreement or other
instruments to which the Company is a party or by which the Company is bound.
2.3 Authorization; Enforceability. The Company has all corporate right, power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. All corporate action on the part of the Company, its
directors and stockholders necessary for the authorization, execution, delivery
and performance of this Agreement by the Company, the authorization, sale,
issuance and delivery of the Subscription Common contemplated hereby and the
performance of the Company's obligations hereunder has been taken. This
Agreement has been duly executed and delivered by the Company and constitutes a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies,
and to limitations of public policy. Upon the issuance and delivery of the
Subscription Common, as contemplated by this Agreement, such securities will be
duly and validly authorized and issued, fully paid and nonassessable. The
issuance and sale of the Subscription Common contemplated hereby will not give
rise to any preemptive rights or rights of first refusal on behalf of any
person.
2.4 No Conflict; Governmental Consents.
(a) The execution and delivery by the Company of this Agreement and the
consummation of the transactions contemplated hereby will not result in the
violation of any law, statute, rule, regulation, order, writ, injunction,
judgment or decree of any court or governmental authority to or by which the
Company is bound, or of any provision of the Certificate of Incorporation or By-
laws of the Company, and will not conflict with, or result in a breach or
violation of, any of the terms or provisions of, or constitute (with due notice
or lapse of time or both) a default under, any lease, loan agreement, mortgage,
security agreement, trust indenture or other agreement or instrument to which
the Company is a party or by which it is bound or to which any of its properties
or assets is subject, nor result in the creation or imposition of any lien upon
any of the properties or assets of the Company.
(b) No consent, approval, authorization or other order of any governmental
authority or other third party is required to be obtained by the Company in
connection with the authorization, execution and delivery of this Agreement or
with the authorization, issue and sale of the Units or the Securities comprising
the Units, except such filings as may be required to be made with the
Commission, the NASD and The Nasdaq Stock Market, Inc. ("Nasdaq") and with any
state or foreign blue sky or securities regulatory authority.
2.5 Licenses. Except as set forth in the Term Sheet, the Company has all
licenses, permits and other governmental authorizations currently required for
the conduct of its business or ownership of properties and is in all material
respects complying therewith.
2.6 Litigation. Except as set forth in the Term Sheet, the Company knows of
no pending or threatened legal or governmental proceedings against the Company
which could materially adversely affect the business, property, financial
condition, operations or prospects of the Company.
2.7 Accuracy of Reports. All material reports required to be filed by the
Company within the two years prior to the date of this Agreement under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), have been duly
filed with the SEC, complied at the time of filing in all material respects with
the requirements of their respective forms and, except to the extent updated or
superseded by the Term Sheet or any subsequently filed report, to the best of
the Company's knowledge, were complete and correct in all material respects as
of the dates at which the information was furnished, and contained (as of such
dates) no untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements contained therein, in light of
the circumstances under which they were made, not misleading.
2.8 Term Sheet; Disclosure. No information set forth in the Term Sheet
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained therein, in light of
the circumstances under which they were made, not misleading.
2.9 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 Commission thereunder.
2.10 Listing. The Company shall, prior to the issuance of any Subscription
Common, take all actions necessary so that the shares comprising any such
issuance are listed on any stock exchange or quotation system on which the
Common Stock trades.
2.11 Reservation of Shares; Transfer Taxes, Etc. The Company shall at all
times reserve and keep available, out of its authorized and unissued shares of
Common Stock, solely for the purpose of effecting any Semi-Annual Issuance (as
defined below) and Dilution Issuance (as defined below and, together with Semi-
Annual Issuances, referred to herein as "Article VI Issuances"), such number of
shares of its Common Stock free of preemptive rights as shall be sufficient to
effect the Article VI Issuances from time to time required or reasonably
anticipated. The Company shall use its best efforts from time to time, in
accordance with the laws of the State of Delaware to increase the authorized
number of shares of Common Stock if at any time the number of shares of
authorized, unissued and unreserved Common Stock shall not be sufficient to
permit any required or reasonably anticipated Article VI Issuance.
The Company shall pay any and all issue or other taxes that may be payable in
respect of any Article VI Issuance.
III. TERMS OF SUBSCRIPTION
3.1 The Company shall issue a minimum of ten (10) Units and a maximum of sixty
(60) Units. The Placement Agent, at its sole option, may offer and sell up to
an additional one hundred forty (140) Units to cover over-allotments. The
offering period (the "Offering Period") shall begin on July 15, 1997. Upon
receipt of the Minimum Offering amount, the Placement Agent may conduct a
closing (the "Initial Closing Date") and may conduct subsequent closings on an
interim basis (each a "Closing") until the Maximum Offering and any over-
allotment amount has been reached (the "Final Closing Date"). The Offering
Period shall terminate at 11:59 p.m. New York City time on October 1, 1997,
subject to an extension, at the sole option of the Placement Agent, for an
additional sixty (60) days. The Units will be offered on a "best efforts"
basis. The purchase price is payable by personal or business check, wire
transfer of immediately available funds or money order made payable to "Fleet
Bank, N.A., Escrow Agent, F/B/O Endorex Corp."
3.2 Placement of the Units will be made by the Placement Agent, who will
receive certain compensation as described in the Term Sheet.
3.3 Pending the sale of the Units, all funds paid hereunder shall be deposited
by the Company in escrow with Fleet Bank, N.A., having a branch at 345 Park
Avenue, New York, New York 10022. If the Company shall not have obtained
subscriptions (including this subscription) for purchases of the minimum ten
(10) Units on or before the Final Closing Date, then this subscription shall be
void and all funds paid hereunder by the Subscriber shall be promptly returned
to the Subscriber, with interest, subject to paragraph 3.5 hereof.
3.4 The Subscriber hereby authorizes and directs the Company to deliver the
Securities to be issued to the Subscriber pursuant to this Agreement directly to
the Subscriber's account maintained by the Placement Agent, if any, or, if no
such account exists, to the residential or business address indicated on the
signature page hereto.
3.5 The Subscriber hereby authorizes and directs the Company to return any
funds for unaccepted subscriptions to the same account from which the funds were
drawn, including any customer account maintained with the Placement Agent.
IV. CONDITIONS TO OBLIGATIONS OF THE SUBSCRIBER
4.1 The Subscriber's obligation to purchase the Units at any Closing is
subject to the fulfillment on or prior to each Closing of the following
conditions, which conditions may be waived at the option of the Subscriber to
the extent permitted by law:
(a) Representations and Warranties Correct. The representations and
warranties made by the Company in Article II hereof shall be true and correct in
all material respects when made, and shall be true and correct in all material
respects on each Closing with the same force and effect as if they had been made
on and as of said date.
(b) Covenants. All covenants, agreements and conditions contained in this
Agreement to be performed by the Company on or prior to such purchase shall have
been performed or complied with in all material respects.
(c) No Legal Order Pending. There shall not then be in effect any legal or
other order enjoining or restraining the transactions contemplated by this
Agreement.
(d) No Law Prohibiting or Restricting Such Sale. There shall not be in effect
any law, rule or regulation prohibiting or restricting such sale or requiring
any consent or approval of any person which shall not have been obtained to
issue the Securities (except as otherwise provided in this Agreement).
(e) Minimum Subscriptions. The Company shall have received binding
subscriptions for at least ten (10) Units.
(f) Legal Opinion. On each Closing, if requested by the Placement Agent,
counsel to the Company shall have delivered to the Placement Agent for the
benefit of the Placement Agent and the Subscriber, a legal opinion concerning
legal matters relating to this Agreement and the Term Sheet as the Placement
Agent may require.
(g) Comfort Letter. On each Closing, if requested by the Placement Agent, the
Company's auditors, Coopers & Lybrand, LLP, shall have delivered to the
Placement Agent for the benefit of the Placement Agent and the Subscriber, a
comfort letter to such effect as the Placement Agent may require.
V. REGISTRATION RIGHTS
5.1 As used in this Agreement, the following terms shall have the following
meanings:
(a) "Affiliate" shall mean, with respect to any Person (as defined below), any
other Person controlling, controlled by or under direct or indirect common
control with such Person (for the purposes of this definition "control," when
used with respect to any specified Person, shall mean the power to direct the
management and policies of such person, directly or indirectly, whether through
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" shall have meanings correlative to the
foregoing).
(b) "Business Day" shall mean a day Monday through Friday on which banks are
generally open for business in New York.
(c) "Holders" shall mean the Subscriber and any person holding Registrable
Securities (including the shares of Subscription Common underlying the placement
warrants (the "Placement Warrants") and the advisory warrants (the "Advisory
Warrants") to be granted to the Placement Agent and/or its designees pursuant to
the Placement Agency Agreement between the Company and the Placement Agent dated
July 1, 1997 (the "Placement Agency Agreement") or any person to whom the rights
under Article V have been transferred in accordance with Section 5.9 hereof).
(d) "Person" shall mean any person, individual, corporation, limited liability
company, partnership, trust or other nongovernmental entity or any governmental
agency, court, authority or other body (whether foreign, federal, state, local
or otherwise).
(e) The terms "register," "registered" and "registration" refer to the
registration effected by preparing and filing a registration statement in
compliance with the Act, and the declaration or ordering of the effectiveness of
such registration statement.
(f) "Registrable Securities" shall mean (i) the shares of Common Stock
constituting the Units, (ii) the shares of Common Stock underlying the Placement
Warrants and the Advisory Warrants, (iii) any shares of Common Stock issued (or
then required to be issued) as a Semi-Annual Issuance (as defined below) or
Dilution Issuance (as defined below) and (iv) any shares of Common Stock issued
as (or issuable upon the conversion of any warrant, right or other security
which is issued as) a dividend or other distribution with respect to or in
replacement of the Securities; provided, however, that securities shall only be
treated as Registrable Securities if, and only for so long as, they (A) have not
been disposed of pursuant to a registration statement declared effective by the
Commission, (B) have not been sold in a transaction exempt from the registration
and prospectus delivery requirements of the Act so that all transfer
restrictions and restrictive legends with respect thereto are removed upon the
consummation of such sale or (C) are held by a Holder or a permitted transferee
pursuant to Section 5.9.
(g) "Registration Expenses" shall mean all expenses incurred by the Company in
complying with Section 5.2 hereof, including, without limitation, all
registration, qualification and filing fees, printing expenses, escrow fees,
fees and expenses of counsel for the Company, blue sky fees and expenses and the
expense of any special audits incident to or required by any such registration
(but excluding the fees of legal counsel for any Holder).
(h) "Registration Statement" shall have the meaning ascribed to such term in
Section 5.2.
(i) "Registration Period" shall have the meaning ascribed to such term in
Section 5.4.
(j) "Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
expenses of legal counsel for any Holder.
5.2 No later than thirty (30) days after the Final Closing Date (the "Filing
Date"), the Company shall file a "shelf" registration statement on the
appropriate form (the "Registration Statement") with the Commission and use its
best efforts to effect the registration, qualifications or compliances
(including, without limitation, the execution of any required undertaking to
file post-effective amendments, appropriate qualifications or exemptions under
applicable blue sky or other state securities laws and appropriate compliance
with applicable securities laws, requirements or regulations) of the Registrable
Securities prior to the date which is 75 days after the Final Closing Date.
Notwithstanding the foregoing, the Company shall not be obligated to enter into
any underwriting agreement for the sale of any of the Registrable Securities.
5.3 All Registration Expenses incurred in connection with any registration,
qualification, exemption or compliance pursuant to Section 5.2 shall be borne
by the Company. All Selling Expenses relating to the sale of securities
registered by or on behalf of Holders shall be borne by such Holders pro rata on
the basis of the number of securities so registered; provided that if a Holder
uses its own legal counsel in addition to one counsel for all of the Holders of
securities registered on behalf of the Holders, such Holder shall bear the cost
of such counsel.
5.4 In the case of the registration, qualification, exemption or compliance
effected by the Company pursuant to this Agreement, the Company shall, upon
reasonable request, inform each Holder as to the status of such registration,
qualification, exemption and compliance. At its expense the Company shall:
(a) use its best efforts to keep such registration, and any qualification,
exemption or compliance under state securities laws which the Company determines
to obtain, continuously effective until the Holders have completed the
distribution described in the registration statement relating thereto of all
Subscription Common now or hereafter issued pursuant to this Agreement. The
period of time during which the Company is required hereunder to keep the
Registration Statement effective is referred to herein as "the Registration
Period." Notwithstanding the foregoing, at the Company's election, the Company
may cease to keep such registration, qualification, exemption or compliance
effective with respect to any Registrable Securities, and the registration
rights of a Holder shall expire, at such time as the Holder may sell under Rule
144 under the Act (or other exemption from registration acceptable to the
Company) in a three-month period all Registrable Securities then held by such
Holder, but this sentence shall not relieve the Company of any obligation to
comply with this Article V as to any Subscription Common thereafter issued; and
(b) advise the Holders:
(i) when the Registration Statement or any amendment thereto has been filed
with the Commission and when the Registration Statement or any post-effective
amendment thereto has become effective;
(ii) of any request by the Commission for amendments or supplements to the
Registration Statement or the prospectus included therein or for additional
information;
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any proceedings
for such purpose;
(iv) of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Registrable Securities included therein
for sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose; and
(v) of the happening of any event that requires the making of any changes in
the Registration Statement or the prospectus so that, as of such date, the
statements therein are not misleading and do not omit to state a material fact
required to be stated therein or necessary to make the statements therein (in
the case of the prospectus, in the light of the circumstances under which they
were made) not misleading;
(c) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of any Registration Statement at the earliest
possible time;
(d) furnish to each Holder, without charge, at least one copy of such
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, and, if the Holder so requests in writing,
all exhibits (including those incorporated by reference) in the form filed with
the Commission;
(e) during the Registration Period, deliver to each Holder, without charge, as
many copies of the prospectus included in such Registration Statement and any
amendment or supplement thereto as such Holder may reasonably request; and the
Company consents to the use, consistent with the provisions hereof, of the
prospectus and any amendment or supplement thereto by each of the selling
Holders of Registrable Securities in connection with the offering and sale of
the Registrable Securities covered by the prospectus and any amendment or
supplement thereto. In addition, upon the reasonable request of the Holder and
subject in all cases to confidentiality protections reasonably acceptable to the
Company, the Company will meet with a Holder or a representative thereof at the
Company's headquarters to discuss all information relevant for disclosure in the
Registration Statement covering the Registrable Securities, and will otherwise
cooperate with any Holder conducting an investigation for the purpose of
reducing or eliminating such Holder's exposure to liability under the Act,
including the reasonable production of information at the Company's
headquarters;
(f) during the Registration Period, deliver to each Holder, without charge,
(i) as soon as practicable (but in the case of the annual report of the Company
to its stockholders, within 120 days after the end of each fiscal year of the
Company) one copy of: (A) its annual report to its stockholders, if any (which
annual report shall contain financial statements audited in accordance with
generally accepted accounting principles in the United States of America by a
firm of certified public accountants of recognized standing); (B) if not
included in substance in its annual report to stockholders, its annual report on
Form 10-K (or similar form); (C) each of its quarterly reports to its
stockholders, and, if not included in substance in its quarterly reports to
stockholders, its quarterly report on Form 10-Q (or similar form), and (D) a
copy of the full Registration Statement (the foregoing, in each case, excluding
exhibits); and (ii) upon reasonable request, all exhibits excluded by the
parenthetical to the immediately preceding clause (D), and all other information
that is generally available to the public;
(g) prior to any public offering of Registrable Securities pursuant to any
Registration Statement, register or qualify or obtain an exemption for offer and
sale under the securities or blue sky laws of such jurisdictions as any such
Holders reasonably request in writing, provided that the Company shall not for
any such purpose be required to qualify generally to transact business as a
foreign corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction, and do any and
all other acts or things reasonably necessary or advisable to enable the offer
and sale in such jurisdictions of the Registrable Securities covered by such
Registration Statement;
(h) cooperate with the Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold pursuant
to any Registration Statement free of any restrictive legends to the extent not
required at such time and in such denominations and registered in such names as
Holders may request at least three (3) business days prior to sales of
Registrable Securities pursuant to such Registration Statement;
(i) upon the occurrence of any event contemplated by Section 5.4(b)(v) above,
the Company shall promptly prepare a post-effective amendment to the
Registration Statement or a supplement to the related prospectus, or file any
other required document so that, as thereafter delivered to purchasers of the
Registrable Securities included therein, the prospectus will not include any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; and
(j) use its best efforts to comply with all applicable rules and regulations
of the Commission, and will make generally available to the Holders not later
than 45 days (or 90 days if the fiscal quarter is the fourth fiscal quarter)
after the end of its fiscal quarter in which the first anniversary date of the
effective date of the Registration Statement occurs, an earnings statement
satisfying the provisions of Section 11(a) of the Act.
5.5 The Holders shall have no right to take any action to restrain, enjoin or
otherwise delay any registration pursuant to Section 5.2 hereof as a result of
any controversy that may arise with respect to the interpretation or
implementation of this Agreement.
5.6 (a) To the extent permitted by law, the Company shall indemnify each
Holder, each underwriter of the Registrable Securities and each person
controlling such Holder within the meaning of Section 15 of the Act, with
respect to which any registration, qualification or compliance has been effected
pursuant to this Agreement, against all claims, losses, damages and liabilities
(or action in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened (subject to Section 5.6(c)
below), arising out of or based on (i) any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus or offering circular, or any amendment or supplement thereof,
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
light of the circumstances in which they were made, or (ii) any violation or
alleged violation by the Company of the Act, the Exchange Act, or any rule or
regulation promulgated under the Act, or the Exchange Act, and shall reimburse
each Holder, each underwriter of the Registrable Securities and each person
controlling such Holder, for legal and other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action as incurred; provided that the Company shall not be liable
in any such case to the extent that any untrue statement or omission or
allegation thereof is made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Holder and stated
to be specifically for use in preparation of such registration statement,
prospectus or offering circular; provided that the Company shall not be liable
in any such case where the claim, loss, damage or liability arises out of or is
related to the failure of the Holder to comply with the covenants and agreements
contained in this Agreement respecting sales of Registrable Securities, and
except that the foregoing indemnity agreement is subject to the condition that,
insofar as it relates to any such untrue statement or alleged untrue statement
or omission or alleged omission made in the preliminary prospectus but
eliminated or remedied in the amended prospectus on file with the Commission at
the time the registration statement becomes effective or in the amended
prospectus filed with the Commission pursuant to Rule 424(b) of the Act or in
the prospectus subject to completion and term sheet under Rule 434 of the Act,
which together meet the requirements of Section 10(a) of the Act (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit of any
such Holder, any such underwriter or any such controlling person, if a copy of
the Final Prospectus furnished by the Company to the Holder for delivery was not
furnished to the person or entity asserting the loss, liability, claim or damage
at or prior to the time such furnishing is required by the Act and the Final
Prospectus would have cured the defect giving rise to such loss, liability,
claim or damage.
(b) Each Holder will severally, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter of the Registrable Securities and each person who
controls the Company within the meaning of Section 15 of the Act, against all
claims, losses, damages and liabilities (or actions in respect thereof),
including any of the foregoing incurred in settlement of any litigation,
commenced or threatened (subject to Section 5.6(c) below), arising out of or
based on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus or offering circular, or any
amendment or supplement thereof, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in light of the circumstances in which
they were made, and will reimburse the Company, such directors and officers,
each underwriter of the Registrable Securities and each person controlling the
Company for reasonable legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action as incurred, in each case to the extent, but only to the
extent, that such untrue statement or omission or allegation thereof is made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Holder and stated to be specifically for use in
preparation of such registration statement, prospectus or offering circular;
provided that the indemnity shall not apply to the extent that such claim, loss,
damage or liability results from the fact that a current copy of the prospectus
or offering circular was not made available to the Holder and such current copy
of the prospectus or offering circular would have cured the defect giving rise
to such loss, claim, damage or liability. Notwithstanding the foregoing, in no
event shall a Holder be liable for any such claims, losses, damages or
liabilities in excess of the proceeds received by such Holder in the offering,
except in the event of fraud by such Holder.
(c) Each party entitled to indemnification under this Section 5.6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
Indemnified Party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement, unless such failure
is materially prejudicial to the Indemnifying Party in defending such claim or
litigation. An Indemnifying Party shall not be liable for any settlement of an
action or claim effected without its written consent (which consent will not be
unreasonably withheld).
(d) If the indemnification provided for in this Section 5.6 is held by a court
of competent jurisdiction to be unavailable to an Indemnified Party with respect
to any loss, liability, claim, damage or expense referred to therein, then the
Indemnifying Party, in lieu of indemnifying such Indemnified Party thereunder,
shall contribute to the amount paid or payable by such Indemnified Party as a
result of such loss, liability, claim, damage or expense in such proportion as
is appropriate to reflect the relative fault of the Indemnifying Party on the
one hand and of the Indemnified Party on the other in connection with the
statements or omissions which resulted in such loss, liability, claim, damage or
expense as well as any other relevant equitable considerations. The relative
fault of the Indemnifying Party and of the Indemnified Party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the Indemnifying Party or by the Indemnified Party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
5.7 (a) Each Holder agrees that, upon receipt of any notice from the Company
of the happening of any event requiring the preparation of a supplement or
amendment to a prospectus relating to Registrable Securities so that, as
thereafter delivered to the Holders, such prospectus shall not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, each
Holder will forthwith discontinue disposition of Registrable Securities pursuant
to the registration statement contemplated by Section 5.2 until its receipt of
copies of the supplemented or amended prospectus from the Company and, if so
directed by the Company, each Holder shall deliver to the Company all copies,
other than permanent file copies then in such Holder's possession, of the
prospectus covering such Registrable Securities current at the time of receipt
of such notice.
(b) Each Holder shall suspend, upon request of the Company, any disposition of
Registrable Securities pursuant to the Registration Statement and prospectus
contemplated by Section 5.2 during (i) any period not to exceed two 30-day
periods within any one 12-month period the Company requires in connection with a
primary underwritten offering of equity securities and (ii) any period, not to
exceed one 45-day period per circumstance or development, when the Company
determines in good faith that offers and sales pursuant thereto should not be
made by reason of the presence of material undisclosed circumstances or
developments with respect to which the disclosure that would be required in such
a prospectus is premature, would have an adverse effect on the Company or is
otherwise inadvisable.
(c) As a condition to the inclusion of its Registrable Securities, each Holder
shall furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may request in writing or as
shall be required in connection with any registration, qualification or
compliance referred to in this Article V.
(d) Each Holder hereby covenants with the Company (i) not to make any sale of
the Registrable Securities without effectively causing the prospectus delivery
requirements under the Act to be satisfied, and (ii) if such Registrable
Securities are to be sold by any method or in any transaction other than on a
national securities exchange, the Nasdaq National Market, Nasdaq SmallCap Market
or in the over-the-counter market, in privately negotiated transactions, or in a
combination of such methods, to notify the Company at least five (5) business
days prior to the date on which the Holder first offers to sell any such
Registrable Securities.
(e) Each Holder acknowledges and agrees that the Registrable Securities sold
pursuant to the Registration Statement described in this Section are not
transferable on the books of the Company unless the stock certificate submitted
to the transfer agent evidencing such Registrable Securities is accompanied by a
certificate reasonably satisfactory to the Company to the effect that (i) the
Registrable Securities have been sold in accordance with such Registration
Statement and (ii) the requirement of delivering a current prospectus has been
satisfied.
(f) Each Holder shall not take any action with respect to any distribution
deemed to be made pursuant to such registration statement, which would
constitute a violation of Regulation M under the Exchange Act or any other
applicable rule, regulation or law.
(g) At the end of the period during which the Company is obligated to keep the
Registration Statement current and effective as described above, the Holders of
Registrable Securities included in the Registration Statement shall discontinue
sales of shares pursuant to such Registration Statement upon receipt of notice
from the Company of its intention to remove from registration the shares covered
by such Registration Statement which remain unsold, and such Holders shall
notify the Company of the number of shares registered which remain unsold
immediately upon receipt of such notice from the Company.
5.8 With a view to making available to the Holders the benefits of certain
rules and regulations of the Commission which at any time permit the sale of the
Registrable Securities to the public without registration, the Company shall use
its reasonable best efforts to:
(a) make and keep public information available, as those terms are understood
and defined in Rule 144 under the Act, at all times;
(b) file with the Commission in a timely manner all reports and other
documents required of the Company under the Exchange Act; and
(c) so long as a Holder owns any unregistered Registrable Securities, furnish
to such Holder upon any reasonable request a written statement by the Company as
to its compliance with Rule 144 under the Act, and of the Exchange Act, a copy
of the most recent annual or quarterly report of the Company, and such other
reports and documents of the Company as such Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing a Holder to
sell any such securities without registration.
5.9 The rights to cause the Company to register Registrable Securities granted
to the Holders by the Company under Section 5.1 may be assigned in full by a
Holder in connection with a transfer by such Holder of its Registrable
Securities, provided, however, that (i) such transfer shall otherwise be
effected in accordance with applicable securities laws and Section 6.9; (ii)
such Holder gives prior written notice to the Company; and (iii) such transferee
agrees to comply with the terms and provisions of this Agreement, and such
transfer is otherwise in compliance with this Agreement. Except as specifically
permitted by this Section 5.9, the rights of a Holder with respect to
Registrable Securities as set out herein shall not be transferable to any other
Person, and any attempted transfer shall cause all rights of such Holder therein
to be forfeited.
5.10 With the written consent of the Company and the Holders holding at least a
majority of the Registrable Securities that are then outstanding, any provision
of this Article V may be waived (either generally or in a particular instance,
either retroactively or prospectively and either for a specified period of time
or indefinitely) or amended. Upon the effectuation of each such waiver or
amendment, the Company shall promptly give written notice thereof to the
Holders, if any, who have not previously received notice thereof or consented
thereto in writing.
5.11 Listing. The Company will promptly file an Application for Listing of
Additional Shares with the OTC Electronic Bulletin Board (the "Bulletin Board")
and hereby represents and warrants to the Placement Agent and the Subscriber
that it will take any other necessary action in accordance with the rules of the
Bulletin Board to enable the Subscription Common to trade on the Bulletin Board.
VI. ADDITIONAL CONTRACTUAL RIGHTS
6.1 Definitions. As used in this Agreement, the following terms shall have
the following meanings, unless the context otherwise requires:
(a) "Article VI Rights" shall mean the rights to receive all Semi-Annual
Issuances (as defined below) and Dilution Issuances (as defined below) and the
right to exercise the Liquidation Put, as provided herein.
(b) "Change of Shares" shall mean any event that necessitates an adjustment
to the Dilution Value (as defined below) pursuant to Section 6.7 below.
(c) The "Closing Bid Price" of any security, for any trading day (as defined
below), shall be the reported per share closing bid price, regular way, of such
security on the relevant Stock Market (as defined below) on such trading day or,
if there were no transactions on such trading day, the average of the reported
closing bid and asked prices, regular way, of such security on the relevant
Stock Market on such trading day.
(d) "Dilution Event" shall mean any event which necessitates an adjustment to
the Dilution Value (as defined below) pursuant to Section 6.6 below.
(e) The "Dilution Value" initially shall be the lesser of (i) $2.3125 and (ii)
the Market Price (as defined below) immediately preceding (A) the Initial
Closing Date, (B) any interim closing date or (C) the Final Closing Date,
whichever is lowest. The Dilution Value is subject to adjustment pursuant to
Sections 6.6 and 6.7.
(f) "Fair Market Value" of any asset (including any security) means the fair
market value thereof as mutually determined by the Company and the Placement
Agent. If the Company and the Placement Agent are unable to reach agreement on
any valuation matter, such valuation shall be submitted to and determined by a
nationally recognized independent investment bank selected by the Board of
Directors of the Company and the Placement Agent (or, if such selection cannot
be agreed upon promptly, or in any event within ten days, then such valuation
shall be made by a nationally recognized independent investment banking firm
selected by the American Arbitration Association in New York City in accordance
with its rules), the costs of which valuation shall be paid for by the Company.
(g) The "Issuance Base Amount" for the Subscriber, at any time, means the sum
of (i) the product of the Offering Quantity multiplied by the number of Units
the Subscriber has subscribed for, (ii) the number of shares of any Semi-Annual
Issuances (as defined below) made to such Subscriber occurring before such time
and (iii) the number of shares of any Dilution Issuances (as defined below) made
to such Subscriber occurring before such time (with appropriate adjustments for
any Change of Shares and subject to reduction pursuant to Section 6.10). For
any transferee Rights Holder, the Issuance Base Amount, at any time, shall be
the number of shares of Common Stock related to such Article VI Rights as were
transferred to such Rights Holder plus the number of shares of any Semi-Annual
Issuance and Dilution Issuance made to such Rights Holder occurring subsequent
to such transfer but before such time. The Issuance Base Amount shall include
Dilution Issuances which would have been required but for the operation of
Paragraph 6.6(b)(i).
(h) "Liquidation Event" shall mean any (i) liquidation, dissolution or winding
up of the Company, whether voluntary or involuntary, (ii) sale or other
disposition of all or substantially all of the assets of the Company or (iii)
any consolidation, merger, combination, reorganization or other transaction in
which the Company is not the surviving entity or shares of Common Stock
constituting more than 50% of the voting power of the Company are exchanged for
or changed into stock or securities of another entity, cash and/or any other
property (clause (iii) of this Subsection being referred to as a "Merger
Transaction"). Notwithstanding the above, any consolidation, merger,
combination, reorganization or other transaction in which the Company is not the
surviving entity but the stockholders of the Company immediately prior to such
transaction own in excess of 50% of the voting power of the corporation
surviving such transaction and own such interest in substantially the same
proportions as prior to such transaction, shall not be considered a Liquidation
Event or a Merger Transaction, provided that the surviving corporation has made
appropriate provisions acceptable to the Placement Agent to ensure that the
Article VI Rights survive any such transaction.
(i) "Market Price" shall mean the average Closing Bid Price (adjusted, where
appropriate, for any Change of Shares) for thirty (30) or five (5) consecutive
trading days, ending with the trading day prior to the date as of which the
Market Price is being determined, whichever is lower, provided that if the
prices referred to in the definition of Closing Bid Price cannot be determined
for such period, "Market Price" shall mean Fair Market Value.
(j) The "Post-Dilution Common Quantity" means the quotient of the Pre-Dilution
Common Value (as defined below) divided by the Dilution Value immediately
following the relevant Dilution Event.
(k) The "Pre-Dilution Common Value" means the product of the Issuance Base
Amount times the Dilution Value immediately preceding the relevant Dilution
Event.
(l) "Rights Holder" shall mean the Subscriber or any Person who succeeds to
such Subscriber's Article VI Rights pursuant to Section 6.9.
(m) The "Stock Market" shall mean, with respect to any security, the principal
national securities exchange on which such security is listed or admitted to
trading or, if such security is not listed or admitted to trading on any
national securities exchange, shall mean The Nasdaq National Market System or
The Nasdaq SmallCap Market (collectively, "Nasdaq") or, if such security is not
quoted on Nasdaq, shall mean the OTC Bulletin Board or, if such security is not
quoted on the OTC Bulletin Board, shall mean the over-the-counter market as
furnished by any NASD member firm selected from time to time by the Company for
that purpose.
(n) A "trading day" shall mean a day on which the Stock Market is open for the
transaction of business.
(o) The "Transfer Agent" shall mean American Stock Transfer & Trust Company or
the duly appointed successor thereto serving as the transfer agent for the
Common Stock.
6.2 [Reserved]
6.3 [Reserved]
6.4 Semi-Annual Issuances. On each six month anniversary (or the next
succeeding business day) of the first anniversary of the Final Closing Date
ending with the fifth anniversary of the Final Closing Date, the Company shall
issue (each a "Semi-Annual Issuance") to the Rights Holder a number of shares of
Common Stock equal to 5% of the Issuance Base Amount on the applicable six month
anniversary date.
6.5 Dilution Issuances. Upon the occurrence of any Dilution Event, the
Company shall issue (each a "Dilution Issuance") to the Rights Holder a number
of shares of Common Stock equal to the difference of the Post-Dilution Common
Quantity minus the Issuance Base Amount.
6.6 Anti-Dilution Adjustments.
(a) Except as otherwise provided in Subsection 6.6(c), in the event the
Company shall, at any time or from time to time after the date hereof, sell or
issue any shares of Common Stock for a consideration per share less than either
(i) the Dilution Value in effect on the date of such sale or issuance or (ii)
the Market Price of the Common Stock as of the date of the sale or issuance (any
such sale or issuance a "Dilutive Issuance"), then, and thereafter upon each
further Dilutive Issuance, the Dilution Value in effect immediately prior to
such Dilutive Issuance shall be changed to a price (rounded to the nearest cent)
determined by multiplying the Dilution Value in effect immediately prior thereto
by a fraction, the numerator of which shall be the sum of the number of shares
of Common Stock outstanding immediately prior to the Dilutive Issuance and the
number of shares of Common Stock which the aggregate consideration received
(determined as provided in Paragraph 6.6(b)(v) below) for the issuance of such
additional shares would purchase at the greater of (x) the Dilution Value in
effect on the date of such issuance or (y) the Market Price of the Common Stock
as of such date, and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after the Dilutive Issuance. Such
adjustment shall be made successively whenever such an issuance is made.
(b) For purposes of Subsection 6.6(a), the following Paragraphs (i) to (v)
shall also be applicable:
(i) No adjustment of the Dilution Value shall be made unless such adjustment
would require a decrease of at least $.01; provided that any adjustments which
by reason of this Paragraph 6.6(b)(i) are not required to be made shall be
carried forward and shall be made at the time of and together with the next
subsequent adjustment which, together with adjustments so carried forward, shall
require a decrease of at least $.01 in the Dilution Value then in effect
hereunder.
(ii) In case of (A) the sale or other issuance by the Company (including as a
component of a unit) of any rights or warrants to subscribe for or purchase, or
any options for the purchase of, Common Stock or any securities convertible into
or exchangeable for Common Stock (such securities convertible, exercisable or
exchangeable into Common Stock being herein called "Convertible Securities"), or
(B) the issuance by the Company, without the receipt by the Company of any
consideration therefor, of any rights or warrants to subscribe for or purchase,
or any options for the purchase of, Common Stock or Convertible Securities,
whether or not such rights, warrants or options, or the right to convert or
exchange such Convertible Securities, are immediately exercisable, and the
consideration per share for which Common Stock is issuable upon the exercise of
such rights, warrants or options or upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the minimum aggregate
consideration, as set forth in the instrument relating thereto without regard to
any antidilution or similar provisions contained therein for a subsequent
adjustment of such amount, payable to the Company upon the exercise of such
rights, warrants or options, plus the consideration received by the Company for
the issuance or sale of such rights, warrants or options, plus, in the case of
such Convertible Securities, the minimum aggregate amount, as set forth in the
instrument relating thereto without regard to any antidilution or similar
provisions contained therein for a subsequent adjustment of such amount, of
additional consideration, if any, other than such Convertible Securities,
payable upon the conversion or exchange thereof, by (y) the total maximum
number, as set forth in the instrument relating thereto without regard to any
antidilution or similar provisions contained therein for a subsequent adjustment
of such amount, of shares of Common Stock issuable upon the exercise of such
rights, warrants or options or upon the conversion or exchange of such
Convertible Securities issuable upon the exercise of such rights, warrants or
options) is less than either the Dilution Value or the Market Price of the
Common Stock as of the date of the issuance or sale of such rights, warrants or
options, then such total maximum number of shares of Common Stock issuable upon
the exercise of such rights, warrants or options or upon the conversion or
exchange of such Convertible Securities (as of the date of the issuance or sale
of such rights, warrants or options) shall be deemed to be "Common Stock" for
purposes of Subsection 6.6(a) and shall be deemed to have been sold for an
amount equal to such consideration per share and shall cause an adjustment to be
made in accordance with Subsection 6.6(a).
(iii) In case of the sale or other issuance by the Company of any Convertible
Securities, whether or not the right of conversion or exchange thereunder is
immediately exercisable, and the price per share for which Common Stock is
issuable upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the total amount of consideration received by the
Company for the sale of such Convertible Securities, plus the minimum aggregate
amount, as set forth in the instrument relating thereto without regard to any
antidilution or similar provisions contained therein for a subsequent adjustment
of such amount, of additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by (y) the total
maximum number, as set forth in the instrument relating thereto without regard
to any antidilution or similar provisions contained therein for a subsequent
adjustment of such amount, of shares of Common Stock issuable upon the
conversion or exchange of such Convertible Securities) is less than either the
Dilution Value or the Market Price of the Common Stock as of the date of the
sale of such Convertible Securities, then such total maximum number of shares of
Common Stock issuable upon the conversion or exchange of such Convertible
Securities (as of the date of the sale of such Convertible Securities) shall be
deemed to be "Common Stock" for purposes of Subsection 6.6(a) and shall be
deemed to have been sold for an amount equal to such consideration per share and
shall cause an adjustment to be made in accordance with Subsection 6.6(a).
(iv) In case the Company shall modify the rights of conversion, exchange or
exercise of any of the securities referred to in Paragraphs (ii) or (iii) of
this Subsection 6.6(b) or any other securities of the Company convertible,
exchangeable or exercisable for shares of Common Stock, for any reason other
than an event that would require adjustment to prevent dilution, so that the
consideration per share received by the Company after such modification is less
than either the Dilution Value or the Market Price of the Common Stock as of the
date prior to such modification, then such securities, to the extent not
theretofore exercised, converted or exchanged, shall be deemed to have expired
or terminated immediately prior to the date of such modification and the Company
shall be deemed for purposes of calculating any adjustments pursuant to this
Section 6.6 to have issued such new securities upon such new terms on the date
of modification. Such adjustment shall become effective as of the date upon
which such modification shall take effect. On the expiration or cancellation of
any such right, warrant or option or the termination or cancellation of any such
right to convert or exchange any such Convertible Securities, the Dilution Value
then in effect hereunder shall forthwith be readjusted to such Dilution Value as
would have obtained (A) had the adjustments made upon the issuance or sale of
such rights, warrants, options or Convertible Securities been made upon the
basis of the issuance of only the number of shares of Common Stock theretofore
actually delivered (and the total consideration received therefor) upon the
exercise of such rights, warrants or options or upon the conversion or exchange
of such Convertible Securities and (B) had adjustments been made on the basis of
the Dilution Value as adjusted under clause (A) of this sentence for all
transactions (which would have affected such adjusted Dilution Value) made after
the issuance or sale of such rights, warrants, options or Convertible
Securities.
(v) In case of the sale of any shares of Common Stock, any Convertible
Securities, any rights or warrants to subscribe for or purchase, or any options
for the purchase of, Common Stock or Convertible Securities, the consideration
received by the Company therefor shall be deemed to be the gross sales price
therefor without deducting therefrom any expense paid or incurred by the Company
or any underwriting discounts or commissions or concessions paid or allowed by
the Company in connection therewith. In the event that any securities shall be
issued in connection with any other securities of the Company, together
comprising one integral transaction in which no specific consideration is
allocated among the securities, then each of such securities shall be deemed to
have been issued for such consideration as the Board of Directors of the Company
determines in good faith; provided, however that if the Placement Agent
disagrees with such determination, the Company shall retain, at its own expense,
an independent investment banking firm acceptable to the Placement Agent for the
purpose of obtaining an appraisal.
(c) Notwithstanding any other provision hereof, no adjustment to the Dilution
Value will be made:
(i) upon the exercise of any of the options outstanding on the date hereof
under the Company's existing stock option plans; or
(ii) upon the issuance or exercise of options which may hereafter be granted
with the approval of the Board of Directors, or exercised, under any employee
benefit plan of the Company to officers, directors, consultants or employees,
but only with respect to such options as are exercisable at prices no lower than
the Closing Bid Price (or, if the prices referenced in the definition of Closing
Bid Price cannot be determined, the Fair Market Value) of the Common Stock as of
the date of grant thereof; or
(iii) upon the sale of any shares of Common Stock, warrants to purchase Common
Stock or Convertible Securities in a firm commitment underwritten public
offering, including, without limitation, shares sold upon the exercise of any
overallotment option granted to the underwriters in connection with such
offering; or
(iv) upon the issuance of Common Stock to Rights Holders pursuant to any Semi-
Annual Issuance or Dilution Issuance, or upon issuance or exercise of the
Placement Warrants or Advisory Warrants with respect to shares of Common Stock
included in the Units issued (A) on or prior to the Final Closing Date or (B)
pursuant to the exercise of the Placement Warrants or Advisory Warrants; or
(v) upon the issuance or sale of Common Stock or Convertible Securities
pursuant to the exercise of any rights, options or warrants to receive,
subscribe for or purchase, or any options for the purchase of, Common Stock or
Convertible Securities, whether or not such rights, warrants or options were
outstanding on the Final Closing Date or were thereafter issued or sold,
provided that an adjustment was either made or not required to be made in
accordance with Subsection 6.6(a) in connection with the issuance or sale of
such securities or any modification of the terms thereof; or
(vi) upon the issuance or sale of Common Stock upon conversion or exchange of
any Convertible Securities, provided that any adjustments required to be made
upon the issuance or sale of such Convertible Securities or any modification of
the terms thereof were so made, and whether or not such Convertible Securities
were outstanding on the Final Closing Date or were thereafter issued or sold.
Paragraph 6.6(b)(iv) shall nevertheless apply to any modification of the rights
of conversion, exchange or exercise of any of the securities referred to in
Paragraphs (i), (ii), (v) and (vi) of this Subsection 6.6(c).
(d) As used in this Section 6.6, the term "Common Stock" shall mean and
include the Company's Common Stock authorized on the date of the original issue
of the Units and shall also include any capital stock of any class of the
Company thereafter authorized which shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to participate in
dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company.
(e) The Company from time to time may decrease the Dilution Value by any
amount for any period of time if the period is at least 20 days and if the
decrease is irrevocable during the period. Whenever the Dilution Value is so
decreased, the Company shall mail to the Rights Holders a notice of the decrease
at least 15 days before the date the decreased Dilution Value takes effect, and
such notice shall state the decreased Dilution Value and the period it will be
in effect.
The Company may make such decreases in the Dilution Value, in addition to those
required or allowed by this Article VI, as shall be determined by it, as
evidenced by a resolution of the Board of Directors, to be advisable in order to
avoid or diminish any income tax to holders of Common Stock resulting from any
dividend or distribution of stock or issuance of rights or warrants to purchase
or subscribe for stock or from any event treated as such for income tax
purposes.
6.7 Change of Shares Adjustments. In the event the Company shall, at any time
or from time to time after the date hereof (i) issue any shares of Common Stock
as a stock dividend to the holders of Common Stock or (ii) subdivide or combine
the outstanding shares of Common Stock into a greater or lesser number of shares
(any such issuance, subdivision or combination being herein called a "Change of
Shares"), then the Dilution Value shall be changed to a price (rounded to the
nearest cent) determined by multiplying the Dilution Value in effect immediately
prior to such Change of Shares by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to the Change
of Shares and the denominator of which shall be the number of shares of Common
Stock outstanding immediately following the Change of Shares.
6.8 Liquidation Put. (a) The Rights Holder may require the Company to
repurchase with cash any number (not to exceed such Rights Holder's Issuance
Base Amount) of shares of Common Stock then owned by such Rights Holder for 130%
of the aggregate Dilution Value of such shares; provided, however, in the event
of a Merger Transaction, any repurchase pursuant to this Section 6.8 may be paid
in cash, property (valued as provided in Subsection 6.8 (d)) and/or securities
(valued as provided in Subsection 6.8 (d)) of the entity surviving such Merger
Transaction.
(b) The Rights Holder covenants not to exercise the Liquidation Put unless a
Liquidation Event has occurred.
(c) The Rights Holder's Article VI Rights shall be terminated to the pro rata
extent of any exercise of such Rights Holder's Liquidation Put.
(d) Any securities or other property to be delivered to the Rights Holder
pursuant to this Section 6.8 shall be valued as follows:
(i) Securities not subject to an investment letter or other similar
restriction on free marketability:
(A) If actively traded on the Stock Market, the value shall
be deemed to be the Market Price of such securities as of the third day prior to
the date of valuation.
(B) If not actively traded on the Stock Market, the value shall be the Fair
Market Value of such securities.
(ii) For securities for which there is an active public market but which are
subject to an investment letter or other restrictions on free marketability,
the value shall be the Fair Market Value thereof, determined by discounting
appropriately the Market Price thereof.
(iii) For all other securities, the value shall be the Fair Market Value
thereof.
6.9 Transfer of Rights Under This Article VI. The Rights Holder's Article VI
Rights are not transferable unless the transferee will be both the record and
beneficial owner of the related Common Stock and executes and delivers to the
Company a counterpart to this Agreement agreeing to be bound by the obligations
of the Subscriber hereunder. Any such transferee must provide his or her name
and address, which name and address must be that of the beneficial owner, to the
Company. Any transfer of Common Stock and related Article VI Rights must be
performed in accordance with applicable securities laws and regulations, and the
transferor must provide the Company with an opinion of counsel, satisfactory to
the Company, to that effect. Furthermore, no transfer of Article VI Rights may
be made relating to fewer shares of Common Stock than the quotient of 25,000
divided by the Dilution Value. ANY PURPORTED TRANSFER OF ARTICLE VI RIGHTS NOT
IN COMPLIANCE WITH THIS SECTION 6.9 SHALL BE NULL AND VOID AND THE RIGHTS HOLDER
SHALL FORFEIT ALL ARTICLE VI RIGHTS RELATED TO SUCH TRANSFERRED COMMON STOCK.
Upon, and to the extent of, any transfer of Common Stock without the related
Article VI Rights, such related Article VI Rights shall terminate.
6.10 Adjustments to Issuance Base Amount. Upon the termination of any of the
Rights Holder's Article VI Rights, such Rights Holder's Issuance Base Amount
shall be proportionally reduced.
6.11 Notices.
(a) After each adjustment of the Dilution Value pursuant to Sections 6.6 and
6.7 the Company will promptly prepare a certificate signed by the Chief
Executive Officer or President, and by the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary, of the Company setting forth: (i)
the Dilution Value as so adjusted and (ii) a brief statement of the facts
accounting for such adjustment. The Company will promptly file such certificate
with the Transfer Agent and cause a brief summary thereof to be sent by ordinary
first class mail to each Rights Holder at his or her last address as it shall
appear on the Transfer Agent's record books. No failure to mail such notice nor
any defect therein or in the mailing thereof shall affect the validity of such
adjustment. The affidavit of an officer of the Transfer Agent or the Secretary
or an Assistant Secretary of the Company that such notice has been mailed shall,
in the absence of fraud, be prima facie evidence of the facts therein stated.
The Transfer Agent may rely on the information in the certificate as true and
correct and has no duty nor obligation independently to verify the amounts or
calculations therein set forth.
(b) After any adjustment in the Issuance Base Amount resulting from (i) any
Semi-Annual Issuances or Dilution Issuances, (ii) any Change in Shares or (iii)
any termination of Article VI Rights, the Company will promptly prepare a
certificate signed by the Chief Executive Officer or President, and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary,
of the Company setting forth: (x) the Issuance Base Amount immediately
preceding and succeeding such adjustment and (y) a brief statement of the facts
accounting for such adjustment. The Company will promptly file such certificate
with the Transfer Agent and cause a brief summary thereof to be sent by ordinary
first class mail to each Rights Holder at his or her last address as it shall
appear on the Transfer Agent's record books. No failure to mail such notice nor
any defect therein or in the mailing thereof shall affect the validity of such
adjustment. The affidavit of an officer of the Transfer Agent or the Secretary
or an Assistant Secretary of the Company that such notice has been mailed shall,
in the absence of fraud, be prima facie evidence of the facts therein stated.
The Transfer Agent may rely on the information in the certificate as true and
correct and has no duty nor obligation independently to verify the amounts or
calculations therein set forth.
6.12 Treasury Stock. Any Semi-Annual Issuance and Dilution Issuance shall be
made with duly authorized, fully-paid and non-assessable shares of Common Stock,
in accordance with Delaware Law, and shall be drawn from the treasury stock of
the Company to the extent available. The Company shall promptly furnish to the
Placement Agent, upon request, an opinion of counsel reasonably satisfactory to
the Placement Agent that the requirements of this Section 6.12 have been met as
to any issuance referred to herein. The Company shall not otherwise sell,
issue, cancel or otherwise impair any of its treasury stock without the
Placement Agent's prior written consent.
6.13 Mandatory Termination of Article VI Rights. At any time on or after the
first anniversary of the Final Closing Date, the Company may cause the Rights
Holder's Article VI Rights to be terminated if the Market Price of the Common
Stock shall have exceeded 200% of the then applicable Dilution Value as of the
third business day prior to the date of notice of termination. No greater than
60 nor fewer than 20 days prior to the date of any such mandatory termination,
notice by first class mail, postage prepaid, shall be given to the Rights
Holders, addressed to such Rights Holders at their last addresses as they shall
appear in the Transfer Agent's record books. Each such notice shall specify the
date fixed for termination. Any notice which is mailed as herein provided shall
be conclusively presumed to have been duly given by the Company on the date
deposited in the mail, whether or not the Rights Holder receives such notice;
and failure properly to give such notice by mail, or any defect in such notice,
to any Rights Holders shall not affect the validity of the proceedings for the
termination of any other Rights Holders' Article VI Rights.
6.14 With the written consent of the Company and the Rights Holders holding at
least a majority of the issued and outstanding Common Stock subject to Article
VI Rights, any provision of this Article VI may be waived (either generally or
in a particular instance, either retroactively or prospectively and either for a
specified period of time or indefinitely) or amended. Upon the effectuation of
each such waiver or amendment, the Company shall promptly give written notice
thereof to the Rights Holders, if any, who have not previously received notice
thereof or consented thereto in writing.
VII. MISCELLANEOUS
7.1 Any notice or other communication given hereunder shall be deemed
sufficient if in writing and sent by registered or certified mail, return
receipt requested, or delivered by hand against written receipt therefor,
addressed to Endorex Corp., 900 North Shore Drive, Ste. 224, Lake Bluff,
Illinois, 60044, Attn: President, to the Subscriber at the Subscriber's address
indicated on the signature page of this Agreement and to any Rights Holder at
his or her last address as it shall appear in the Transfer Agent's record books.
Notices shall be deemed to have been given or delivered on the date of mailing,
except notices of change of address, which shall be deemed to have been given or
delivered when received.
7.2 Except as provided in Section 5.10 above, this Agreement shall not be
changed, modified nor amended except by a writing signed by the parties to be
charged, and this Agreement may not be discharged except by performance in
accordance with its terms or by a writing signed by the party to be charged.
7.3 Subject to the provisions of Sections 1.6(a), 5.9, 6.9 and 7.12, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and to their respective heirs, legal representatives, successors and assigns.
In addition, the Placement Agent is intended to be, and shall be, a third party
beneficiary of the provisions hereof. This Agreement sets forth the entire
agreement and understanding between the parties as to the subject matter hereof
and merges and supersedes all prior discussions, agreements and understandings
of any and every nature among them.
7.4 Upon the execution and delivery of this Agreement by the Subscriber, this
Agreement shall become a binding obligation of the Subscriber with respect to
the purchase of Units as herein provided, subject, however, to the right hereby
reserved by the Company to enter into the same agreements with other subscribers
and to add and/or delete other persons as subscribers.
7.5 NOTWITHSTANDING THE PLACE WHERE THIS AGREEMENT MAY BE EXECUTED BY ANY OF
THE PARTIES HERETO, THE PARTIES EXPRESSLY AGREE THAT ALL THE TERMS AND
PROVISIONS HEREOF SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. IN
THE EVENT THAT A JUDICIAL PROCEEDING IS NECESSARY, THE EXCLUSIVE FORA FOR
RESOLVING DISPUTES ARISING OUT OF OR RELATING TO THIS AGREEMENT ARE EITHER THE
SUPREME COURT OF THE STATE OF NEW YORK IN AND FOR THE COUNTY OF NEW YORK OR THE
FEDERAL COURTS FOR SUCH STATE AND COUNTY, AND ALL RELATED APPELLATE COURTS, THE
PARTIES HEREBY IRREVOCABLY CONSENT TO THE JURISDICTION OF SUCH COURTS AND AGREE
TO SAID VENUE.
7.6 In order to discourage frivolous claims the parties agree that unless a
claimant in any proceeding arising out of this Agreement succeeds in
establishing his claim and recovering a judgment against another party
(regardless of whether such claimant succeeds against one of the other parties
to the action), then the other party shall be entitled to recover from such
claimant all of its/their reasonable legal costs and expenses relating to such
proceeding and/or incurred in preparation therefor.
7.7 The holding of any provision of this Agreement to be invalid or
unenforceable by a court of competent jurisdiction shall not affect any other
provision of this Agreement, which shall remain in full force and effect. If
any provision of this Agreement shall be declared by a court of competent
jurisdiction to be invalid, illegal or incapable of being enforced in whole or
in part, such provision shall be interpreted so as to remain enforceable to the
maximum extent permissible consistent with applicable law and the remaining
conditions and provisions or portions thereof shall nevertheless remain in full
force and effect and enforceable to the extent they are valid, legal and
enforceable, and no provisions shall be deemed dependent upon any other covenant
or provision unless so expressed herein.
7.8 It is agreed that a waiver by either party of a breach of any provision of
this Agreement shall not operate, or be construed, as a waiver of any subsequent
breach by that same party.
7.9 The parties agree to execute and deliver all such further documents,
agreements and instruments and take such other and further action as may be
necessary or appropriate to carry out the purposes and intent of this Agreement.
7.10 This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which shall together constitute one and
the same instrument.
7.11 (a) The Subscriber shall not issue any public statement with respect to
the Subscriber's investment or proposed investment in the Company or the terms
of any agreement or covenant between them and the Company without the Company's
prior written consent, except such disclosures as may be required under
applicable law or under any applicable order, rule or regulation.
(b) The Company agrees not to disclose the names, addresses or any other
information about the Subscriber, except as required by law; provided, that the
Company may use the name (but not the address) of the Subscriber in the
Registration Statement.
7.12 Nothing in this Agreement shall create or be deemed to create any rights
in any person or entity not a party to this Agreement, except (a) for the
holders of Registrable Securities, (b) for the Placement Agent pursuant to
Section 1.6(a) and where otherwise explicitly noted, including, without
limitation, the provisions of Article V and Section 7.3 and (c) for any Rights
Holder to whom Article VI Rights were transferred pursuant to Section 6.9.
7.13 The Company acknowledges and agrees that irreparable damage would occur in
the event that any of the provisions of Article V or Article VI of this
Agreement were not performed in accordance with its specific terms or were
otherwise breached and that such damage would not be compensable in money
damages and that it would be extremely difficult or impracticable to measure the
resultant damages. Accordingly, the Subscriber shall be entitled to an
injunction or injunctions with respect to the provisions of this Agreement and
to enforce specifically the terms and provisions hereof, in addition to any
other remedy to which it may be entitled at law or in equity, and the Company
expressly waives any defense that a remedy in damages would be adequate and
expressly waives any requirement in an action for specific performance for the
posting of a bond by the Subscriber bringing such action.
7.14 The Subscriber acknowledges that (i) the Company has engaged, consented to
and authorized the Placement Agent in connection with the transactions
contemplated by this Agreement, and (ii) the Company shall pay the Placement
Agent a commission and reimburse the Placement Agent's expenses in accordance
with the Placement Agency Agreement, and the Company shall indemnify and hold
harmless the Subscriber from and against all fees, commissions or other payments
owing by the Company to the Placement Agent or any other person or firm acting
on behalf of the Company hereunder and (iii) registered representatives of the
Placement Agent and/or its designees (including, without limitation, registered
representatives of the Placement Agent and/or its designees who participate in
the Offering and sale of the securities sold in the Offering) will be paid a
portion of the commissions paid to the Placement Agent including a portion of
the Placement Warrants.
VIII. CONFIDENTIAL INVESTOR QUESTIONNAIRE
8.1 The Subscriber represents and warrants that he, she or it comes within one
category marked below, and that for any category marked, he, she or it has
truthfully set forth, where applicable, the factual basis or reason the
Subscriber comes within that category. ALL INFORMATION IN RESPONSE TO THIS
SECTION WILL BE KEPT STRICTLY CONFIDENTIAL. The undersigned agrees to furnish
any additional information which the Company deems necessary in order to verify
the answers set forth below.
Category A The undersigned is an individual (not a partnership,
corporation, etc.) whose individual net worth, or joint net worth with his or
her spouse, presently exceeds $1,000,000.
Explanation. In calculating net worth you may include equity in personal
property and real estate, including your principal residence, cash, short-term
investments, stock and securities. Equity in personal property and real estate
should be based on the fair market value of such property less debt secured by
such property.
Category B The undersigned is an individual (not a partnership,
corporation, etc.) who had an individual income in excess of $200,000 in each of
the two most recent years, or joint income with his or her spouse in excess of
$300,000 in each of those years (in each case including foreign income, tax
exempt income and full amount of capital gains and losses but excluding any
income of other family members and any unrealized capital appreciation) and has
a reasonable expectation of reaching the same income level in the current year.
Category C The undersigned is a director or executive officer of the
Company which is issuing and selling the Units.
Category D The undersigned is a bank; a savings and loan association;
insurance company; registered investment company; registered business
development company; licensed small business investment company ("SBIC"); or
employee benefit plan within the meaning of Title 1 of ERISA and (a) the
investment decision is made by a plan fiduciary which is either a bank, savings
and loan association, insurance company or registered investment advisor, or (b)
the plan has total assets in excess of $5,000,000 or is a self directed plan
with investment decisions made solely by persons that are accredited investors.
(describe entity)
Category E The undersigned is a private business development company as
defined in section 202(a)(22) of the Investment Advisors Act of 1940.
(describe entity)
Category F The undersigned is either a corporation, partnership,
Massachusetts business trust, or non-profit organization within the meaning of
Section 501(c)(3) of the Internal Revenue Code, in each case not formed for the
specific purpose of acquiring the Units and with total assets in excess of
$5,000,000.
(describe entity)
Category G The undersigned is a trust with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring the Units, where
the purchase is directed by a person described in Regulation 506(b)(2)(ii) under
the Act.
Category H The undersigned is an entity (other than a trust) all the
equity owners of which are "accredited investors" within one or more of the
above categories. If relying upon this Category alone, each equity owner must
complete a separate copy of this Agreement.
(describe entity)
Category I The undersigned is not within any of the categories above and
is therefore not an accredited investor.
The undersigned agrees that the undersigned will notify the Company at any time
on or prior to the Final Closing Date in the event that the representations and
warranties in this Agreement shall cease to be true, accurate and complete.
8.2 SUITABILITY (please answer each question)
(a) For an individual Subscriber, please describe your current employment,
including the company by which you are employed and its principal business:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________
(b) For an individual Subscriber, please describe any college or graduate
degrees held by you:
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________
(c) For all Subscribers, please list types of prior investments:
______________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________
(d) For all Subscribers, please state whether you have you participated in
other private placements before:
YES_______ NO_______
(e) If your answer to question (d) above was "YES", please indicate frequency of
such prior participation in private placements of:
Public Private Public or Private
Companies Companies Biotechnology Companies
Frequently
Occasionally
Never
(f) For individual Subscribers, do you expect your current level of income to
significantly decrease in the foreseeable future:
YES_______ NO_______
(g) For trust, corporate, partnership and other institutional Subscribers, do
you expect your total assets to significantly decrease in the foreseeable
future:
YES_______ NO_______
(h) For all Subscribers, do you have any other investments or contingent
liabilities which you reasonably anticipate could cause you to need sudden cash
requirements in excess of cash readily available to you:
YES_______ NO_______
(i) For all Subscribers, are you familiar with the risk aspects and the non-
liquidity of investments such as the securities for which you seek to subscribe?
YES_______ NO_______
(j) For all Subscribers, do you understand that there is no guarantee of
financial return on this investment and that you run the risk of losing your
entire investment?
YES_______ NO_______
8.3 MANNER IN WHICH TITLE IS TO BE HELD. (circle one)
(a) Individual Ownership
(b) Community Property
(c) Joint Tenant with Right of Survivorship (both parties must sign)
(d) Partnership*
(e) Tenants in Common
(f) Company*
(g) Trust*
(h) Other
*If Units are being subscribed for by an entity, the attached Certificate of
Signatory must also be completed.
8.4 NASD AFFILIATION.
Are you affiliated or associated with an NASD member firm (please check one):
Yes _________ No __________
If Yes, please describe:
_________________________________________________________
_________________________________________________________
_________________________________________________________
*If Subscriber is a Registered Representative with an NASD member firm, have the
following acknowledgment signed by the appropriate party:
The undersigned NASD member firm acknowledges receipt of the notice required by
Article 3, Sections 28(a) and (b) of the Rules of Fair Practice.
_________________________________
Name of NASD Member Firm
By: ______________________________
Authorized Officer
Date: ____________________________
8.5 QUESTIONNAIRE REPRESENTATIONS AND WARRANTIES. The Subscriber hereby
represents and warrants to the Company as follows:
(a) The Subscriber has been informed of the significance to the Company of the
foregoing representations and answers contained in this Confidential Investor
Questionnaire and this Agreement.
(b) The answers to the foregoing questions are true, complete and correct and
have been provided with the understanding that the Company will rely upon them
for all purposes, including but not limited to the purpose of determining
whether the offering in which the Subscriber proposes to participate is exempt
from registration under federal and state securities laws.
(c) The Subscriber is able to bear the economic risk of the investment and, at
the present time, can afford a complete loss of such investment.
[Signature Page]
NUMBER OF UNITS X $100,000 = (the "Purchase Price")
Signature Signature (if purchasing jointly)
Name Typed or Printed Name Typed or Printed
Entity Name Entity Name
Address Address
City, State and Zip Code City, State and Zip Code
Telephone-Business Telephone--Business
Telephone-Residence Telephone--Residence
Facsimile-Business Facsimile--Business
Facsimile-Residence Facsimile--Residence
Tax ID # or Social Security # Tax ID # or Social Security #
Name in which securities should be issued:
Check the box marked YES if you would like the securities to be delivered
to your account with Paramount Capital, Inc. Yes ___ No ___
(If you check "No", securities will be delivered to you at the address provided
above)
Dated: , 1997
This Subscription Agreement is agreed to and accepted as of
__________________________, 1997.
ENDOREX CORP.
By: _______________________________________
Name:
Title:
CERTIFICATE OF SIGNATORY
(To be completed if Units are
being subscribed for by an entity)
I,___________________________________, am the_______________________________ of
_____________________________________________ (the "Entity").
I certify that I am empowered and duly authorized by the Entity to execute and
carry out the terms of the Subscription Agreement and to purchase and hold the
Units, and certify further that the Subscription Agreement has been duly and
validly executed on behalf of the Entity and constitutes a legal and binding
obligation of the Entity.
IN WITNESS WHEREOF, I have set my hand this________day of _________________,
1997.
_______________________________________
(Signature)
EXHIBIT 10.16
FINANCIAL ADVISORY AGREEMENT
October 16, 1997
Endorex Corp.
900 North Shore Drive, Ste. 224
Lake Bluff, Illinois 60044
Re: Financial Advisory Agreement
Dear Sirs:
1. This is to confirm our understanding that Paramount
Capital, Inc. ("Paramount"), its affiliates and designees have been
engaged as a non-exclusive financial advisor of Endorex Corp. (the
"Company") for a period of twenty-four (24) months commencing on
the date hereof (as extended pursuant to Paragraph 12 hereto, or by
mutual agreement of the parties hereto, the "Term").
2. The Company will pay Paramount a non-refundable
retainer fee for Paramount's services hereunder in an amount equal
to four thousand dollars ($4,000) per month, minimum engagement of
twenty-four (24) months, with the first $24,000 non-refundable
retainer fee due and payable upon the execution of this Agreement.
The Company also agrees to pay in cash all out-of-pocket
expenses incurred by Paramount in providing its services hereunder,
including reasonable fees and disbursements of Paramount's counsel,
such expenses to be paid upon submission of a bill or bills by
Paramount from time to time. If any individual expense shall
exceed $5,000, Paramount agrees to obtain prior written
authorization for such expense from the Company.
3. Upon the Closing of each Investment (as defined
below) during the Term or during the twelve-month period following
the expiration or earlier termination of the Term, the Company
shall pay to Paramount a fee in an amount equal to nine percent
(9%) of the aggregate value of such Investment and shall issue to
Paramount warrants to purchase an amount of securities equal to ten
percent (10%) of the securities sold as part of such Investment at
an exercise price equal to one-hundred-ten percent (110%) of the
price of such securities, exercisable until five (5) years from the
date of issuance of such warrants. For the purposes of this
Agreement, an Investment shall mean any purchase of securities of
the Company which is made during the Term or during the twelve-
month period following the expiration of the Term by an investor
first introduced to the Company by or through Paramount during or
prior to the Term; provided, however, that no compensation shall be
due to Paramount pursuant to this paragraph 3 for an Investment
with respect to which Paramount is entitled to compensation
pursuant to that certain Placement Agency Agreement dated July 1,
1997 (the "Placement Agency Agreement") and provided further that
if the terms of both the Placement Agency Agreement and this
Agreement would be applicable to any particular investment, the
terms of the Placement Agency Agreement shall govern and Paramount
shall be entitled to the compensation set forth therein.
4. (a) Should the Company enter into an agreement with
a party first introduced to the Company by or through Paramount
during or prior to the Term pursuant to which the Company
consummates a sale, merger, consolidation, tender offer, business
combination or similar transaction involving a majority of the
business assets or stock of the Company (a "Sale") during the Term,
or during the twelve-month period following the expiration of such
Term, then the Company shall pay Paramount: (i) a cash fee equal to
eight percent (8%) of the aggregate consideration paid to the
Company by the acquiror, such fee to be payable in cash
simultaneously with the closing of such Sale; and (ii) a payment in
the form of equity securities in an amount to be agreed upon
between the parties, but in no event shall the equity received be
worth less than eight percent (8%) of the value of the aggregate
consideration received by the Company (or the aggregate amount of
equity received by the Company's shareholders) as a result of the
Sale.
(b) Should the Company enter into an agreement
with a party first introduced to the Company by or through
Paramount during or prior to the Term pursuant to which the Company
consummates a transaction wherein the Company acquires all or
substantially all of the business assets or stock of another entity
in which the Company is the surviving entity (an "Acquisition")
during the Term, or during the twelve-month period following the
expiration of such Term, then the Company shall pay Paramount: (i)
a fee equal to eight percent (8%) of the aggregate consideration
paid by the Company to the entity acquired, such fee to be payable
in cash simultaneously with the closing of such Acquisition; and
(ii) a payment in the form of equity securities of the Company in
an amount to be agreed upon between the parties, but in no event
shall the equity received be worth less than eight percent (8%) of
the value of aggregate consideration paid by the Company as a
result of the Acquisition.
(c) For purposes of calculating Paramount's fee
under this Paragraph 4, the aggregate consideration paid with
respect to the business, assets or stock of the Company shall be
equal to the total of all cash, securities and/or other assets paid
for such business, assets or stock by the acquiror. Aggregate
consideration shall also include: (i) any commercial bank or
similar indebtedness of the Company which is repaid or for which
the responsibility to pay is assumed by the acquiror in connection
with such transaction; (ii) the greater of the stated value or the
liquidation value of preferred stock of the Company which is
assumed or acquired by the acquiror and which is not converted into
common stock upon the consummation of such transaction; (iii)
future payments for which the acquiror is obligated absolutely
("Acquiror Future Payments"); and (iv) future payments for which
the acquiror is obligated upon the attainment of milestones or
financial results ("Acquiror Contingent Payments"). The fee to be
paid to Paramount as a result of Acquiror Future Payments shall be
paid upon the date of closing of such Acquisition and shall be
valued at the present value of the Acquiror Future Payments. The
fee to be paid to Paramount as a result of Acquiror Contingent
Payments shall be paid upon the receipt of such payments by the
Company. In the event that a Sale of the Company or an Acquisition
by the Company is consummated through a multiple-step transaction
wherein the acquiror is not obligated either absolutely or upon the
attainment of milestones or financial results to make future
payments to further increase the acquiror's ownership in the
Company (the "Multiple-Step Payments"), the Company agrees to pay
Paramount a fee on such Multiple-Step Payments which shall be
calculated pursuant to this Paragraph 4. Such fee shall be paid to
Paramount upon receipt by the Company of such Multiple-Step
Payments and shall be in addition to the fee paid to Paramount in
the first step of such transaction.
5. Should the Company enter into an agreement with an
investor first introduced to the Company by or through Paramount
during or prior to the Term pursuant to which the Company
consummates a Strategic Alliance(s) (as defined below) during the
term, or during the twelve-month period following the expiration of
such Term, then the Company shall pay Paramount: (a) a cash fee
equal to eight percent (8%) of the present value of the Aggregate
Consideration (as defined below) to be received by the Company, its
shareholders or employees in each such transaction; and (b) a
payment in the form of equity securities in an amount to be agreed
upon between the parties, but in no event less than eight percent
(8%) of the Aggregate Consideration. Such fee shall be paid to
Paramount in cash simultaneously with the closing of each such
transaction. For the purpose of calculating Paramount's fee under
this Paragraph 5, Aggregate Consideration shall include, but not be
limited to: (i) all payments made at the closing of such
transaction for equity securities, equity security rights or
similar rights; (ii) technology access fees or similar up-front
payments, (iii) other future payments, including without
limitation, licensing fees, lump sum payments, royalties and
deferred technology access fees, to be made to the Company or its
employees for which the Strategic Alliance partner(s) or other
counter-parties (each a "Partner") is obligated either absolutely
("Strategic Future Payments") or upon the attainment of milestones
or on a percentage or royalty basis ("Strategic Contingent
Payments"); (iv) funding provided, arranged or introduced by the
Partner (through reimbursement or otherwise) relative to research
and development, testing, clinical trials and related expenditures,
whether such work is performed, subcontracted or managed by the
Company or the Partner; and (v) the repayment or assumption by the
Partner of obligations of the Company, including indebtedness for
money borrowed or amounts owed by the Company to inventors or
owners of technology. It is further understood that Aggregate
Consideration shall not be reduced by the amount of the fee due to
Paramount hereunder. Any portion of the Aggregate Consideration
constituting Strategic Future Payments shall be paid at closing and
shall be valued at the present value of the Strategic Future
Payments. The fee to be paid to Paramount as a result of Strategic
Contingent Payments shall be paid upon the receipt of such payments
and shall be in addition to any fees paid at closing. A "Strategic
Alliance" may include, but is not limited to: (i) any joint
venture, partnership, license or other contract for the research,
development, manufacturing, marketing, distribution, sale or other
activity relating to the Company's present and/or future products;
(ii) the purchase of, or commitment to purchase from the Company,
less than a majority of the business, assets or stock of the
Company by one or more Partner(s); (iii) the sale of any of the
Company's assets or any rights in respect to its products and /or
technology; and (iv) a commitment to provide funding for all or
part of the Company's research and development activities, whether
such work is performed or managed by the Company or such
Partner(s).
For purposes of calculating the present value of any
Strategic Future Payments, Strategic Contingent Payments, Acquiror
Future Payments or Acquiror Contingent Payments, the Company and
Paramount agree to discount all such payments by a discount factor
equal to fifteen percent (15%) per annum, and, where necessary, to
use the projections which have been provided to prospective
Partners in the course of the transaction to quantify these
Strategic Future Payments, Strategic Contingent Payments, Acquiror
Future Payments or Acquiror Contingent Payments. For the purposes
of calculating Paramount's fee, securities constituting part of
Aggregate Consideration which are traded on a national or
recognized foreign securities exchange or the Nasdaq National
Market System shall be valued at the last closing bid price thereof
prior to the date of the consummation or closing of any such
transaction. Such securities which are traded over-the-counter
shall be valued at the mean between the latest bid and asked prices
prior to date of the consummation or closing of any such
transaction.
6. Should Paramount introduce the Company to a
potential product, process, intellectual property or technology
which is subsequently licensed or otherwise acquired by the
Company, the Company and Paramount shall negotiate in good faith a
fee for such introduction provided that in no event shall such fee
be less than: (a) two hundred thousand dollars ($200,000) in cash;
and (b) an equity payment in an amount to be agreed upon between
the parties, but in no event less than ten percent (10%) of the
total outstanding shares on a fully diluted basis of any subsidiary
through which any such potential product, process, intellectual
property or technology may be owned or developed.
7. In the event that the Company, its directors or
management initiate any discussions with a third party in
furtherance of any Sale, Acquisition, Investment or Strategic
Alliance or receive any meaningful inquiry or are aware of the
interest of any third party concerning a Sale, Acquisition,
Investment or Strategic Alliance which is the subject of this
Agreement, they shall promptly inform Paramount of the party and
its interest.
8. Any financial advice rendered by Paramount pursuant
to this Agreement, as well as the existence of this Agreement,
shall not be disclosed publicly in any manner without Paramount's
prior written approval and shall be treated by the Company as
confidential information; provided, however, that if Paramount has
refused to give prior written approval and the Company has obtained
a written opinion of independent counsel stating that such action
is necessary for the Company to comply with such action and that
any course of action not involving disclosure would likely result
in a violation of law. The Company shall provide Paramount with
all financial and other information requested by Paramount for the
purposes of rendering its services pursuant to this Agreement.
9. (a) The Company agrees not to divulge information
which Paramount discloses to it and which is marked as
"Confidential" (the "Confidential Information") to any third party
or parties. The Company further agrees to limit disclosure only to
those of its officers, employees, agents, affiliates and
consultants as the Company considers necessary. The Company shall
use its best efforts to prevent the disclosure of the Confidential
Information as provided herein. This obligation shall be binding
upon the Company and shall continue for a period of five (5) years
from the date of this Agreement.
10. All non-public information given to Paramount by the
Company shall be treated by Paramount as confidential information
and shall not be used by Paramount except in rendering its services
pursuant to this Agreement. Paramount may rely, without
independent verification, on the accuracy and completeness of any
information furnished to Paramount by the Company, subject to its
obligations under the securities laws.
11. In the event that Paramount becomes involved in any
capacity in any action, proceeding, investigation or inquiry in
connection with any matter referred to in this Agreement or arising
out of the matters contemplated by this Agreement, the Company
shall reimburse Paramount for its legal and other expenses
(including the cost of any investigation and preparation) as they
are incurred by Paramount in connection therewith. The Company
also agrees to indemnify each of Paramount, the directors,
officers, employees and agents thereof (the "Indemnitees"), pay on
demand and protect, defend, save and hold each Indemnitee harmless
from and against any and all liabilities, damages, losses,
settlements, claims, actions, suits, penalties, fines, costs or
expenses (including, without limitation, attorneys' fees) (any of
the foregoing, a "Claim") incurred by or asserted against any
Indemnitee of whatever kind or nature, arising from, in connection
with or occurring as a result of this Agreement or the matters
contemplated by this Agreement. The foregoing agreement shall be
in addition to any rights that any Indemnitee may have at common
law or otherwise. This indemnity shall not apply to the gross
negligence or willful misconduct of Paramount. This indemnity
shall not apply to Claims resulting from the intentional misconduct
of Paramount.
12. The Term of this Agreement shall be twenty-four (24)
months commencing on the date hereof. Thereafter, this Agreement
shall continue on a month to month basis until terminated by either
party upon not less than thirty (30) days notice with the monthly
retainer fee payable on the first day of each month (the "Extended
Term"); provided, however, regardless of any termination, the
rights to compensation contained in Paragraphs 4 and 5 and to
indemnity and reimbursement contained in Paragraph 11 shall
survive. In addition to any retainer fees, Paramount shall be
entitled to the reimbursement of reasonable expenses incurred by
Paramount as a result of services rendered prior to the date of the
termination.
13. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to
principles of conflicts of law. The parties hereto irrevocably
consent to the jurisdiction of the courts of the State of New York
and of any federal court located in such State in connection with
any action or proceeding arising out of or relating to this
Agreement, any document or instrument delivered pursuant to, in
connection with or simultaneously with this Agreement, or a breach
of this Agreement or any such document or instrument. In any such
action or proceeding, each party hereto waives personal service of
any summons, complaint or other process and agrees that service
thereof may be made in accordance with this Section 13. Within
thirty (30) days after such service, or such other time as may be
mutually agreed upon in writing by the attorneys for the parties to
such action or proceeding, the party so served shall appear or
answer such summons, complaint or other process.
14. This Agreement shall be binding upon Paramount and
the Company and the successors and assigns of Paramount. The
Company shall not assign or sell all or substantially all of the
Company's business and/or assets without first requiring in writing
that such assignee or successor is bound by the provisions of this
Agreement.
15. (a) Paramount shall not be in any way precluded from
(i) entering into similar agreements with companies which engage in
similar business activities or lines of business as the Company or
developing or marketing any products, services or technologies that
do or may in the future compete, directly or indirectly, with those
of the Company, (ii) investing or owning any interest publicly or
privately in, or developing a business relationship with, any
corporation, partnership or other person or entity engaged in the
same or similar activities or lines or business as, or otherwise in
competition with, the Company or (iii) doing business with any
client, collaborator, licensor, consultant, vendor or customer of
the Company. Paramount and any of its officers, directors,
employees or former employees and affiliates shall not have any
obligation, or be liable, to the Company solely on account of the
conduct described in the preceding sentence. The Company
recognizes that Paramount is not obligated to present any
opportunities for an Investment, Sale, Acquisition, Strategic
Alliance or any other opportunities to the Company and nothing in
this Agreement shall be construed to limit Paramount's ability to
introduce Investment, Sale, Acquisition, Strategic Alliance or any
other opportunities to any other company. In the event that
Paramount and/or any officer, director, employee or former employee
or affiliate thereof acquires knowledge of a potential transaction,
agreement, arrangement or other matter which may be a corporate
opportunity for both Paramount and the Company, neither Paramount
nor any of its officers, directors, employees or former employees
or affiliates shall have any duty to communicate or offer such
corporate opportunity to the Company and neither Paramount nor any
of its officers, directors, employees or former employees or
affiliates shall be liable to the Company for breach of any
fiduciary or other duty, as a stockholder or otherwise, solely by
reason of the fact that Paramount or any of its officers,
directors, employees or former employees or affiliates pursue or
acquire such corporate opportunity for Paramount, direct such
corporate opportunity to another person or entity or communicate
or fail to communicate such corporate opportunity or entity to the
Company.
(b) The provisions of this Section 15 shall be
enforceable to the fullest extent permitted by law.
Please confirm that the foregoing is in accordance with
your understanding by signing and returning to us the enclosed
duplicate of this letter.
Sincerely yours,
PARAMOUNT CAPITAL, INC.
By: /s/ Lindsay Rosenwald
Name: Lindsay A. Rosenwald, M.D.
Title: Chairman
Confirmed as of the date hereof:
ENDOREX CORP.
By: /s/ Michael S. Rosen
Name: Michael Rosen
Title: President and Chief Executive Officer
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THIS SCHEDULE CONTAINS AMMENDED FINANCIAL INFORMATION EXTRACTED
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STATEMENTS
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</TABLE>
Certain Factors that may Effect Future Results, Financial Condition and the
Market Price of Securities
Need for Substantial Additional Funds, Risk of Insolvency -- The Company will
require substantial additional funds to finance its business activities on an
ongoing basis. The Company currently estimates that it will cost at least
$10,000,000 to complete the product development, manufacturing requirements
and clinical trials necessary to allow commercial sale of either its
macrophage activator product for cancer treatment, ImmTher, in the United
States or Perillyl Alcohol, its monoterpene-based anti-cancer agent. The
Company's actual future capital requirements will depend on numerous factors,
including, but not limited to, progress in its research and development
programs, including preclinical and clinical trials, costs of filing and
prosecuting patent applications and, if necessary, enforcing issued patents
or obtaining additional licenses to patents, competing technological and
market developments, the cost and timing of regulatory approvals, the
ability of the Company to establish collaborative relationships, and the
cost of establishing manufacturing, sales and marketing capabilities.
Because of the Company's potential long-term capital requirements, it may
undertake additional equity offerings whenever conditions are favorable,
even if it does not have an immediate need for additional capital at that
time. There can be no assurance that the Company will be able to obtain
additional funding when needed, or that such funding, if available, will be
obtainable on reasonable terms. Any such additional funding may result in
significant dilution to existing stockholders. If adequate funds are not
available, the Company may be required to accept unfavorable alternatives,
including (i) the delay, reduction or elimination of research and
development programs, capital expenditures, and marketing and other
operating expenses, (ii) arrangements with collaborative partners that may
require the Company to relinquish material rights to its products that it
would not otherwise relinquish, or (iii) a merger of the Company or a sale
of the Company or its assets. See "History of Losses; Going Concern
Reports, Uncertainty of Future Financial Results."
Early Stage of Development -- The Company is a development stage enterprise
and expects no significant revenue from the sale of products in the
near future. The Company's proprietary immunomodulator, ImmTher, has
completed some Phase II clinical trials for cancer with limited response
in gross metastatic disease and its immuno-adjuvant, Theramide, has
completed a Phase I clinical trial for cancer. The Company plans to
initiate new Phase II clinical trials for ImmTher in treating
micro-metastasis in pediatric sarcomas with two major cancer centers and
new preclinical programs as an anti-infective agent in immuno-compromised
patients. For Theramide, the Company is completing preclinical data for
new Phase I trials as an adjuvant for a vaccine program. Additionally,
perillyl alcohol is completing several Phase I trials as an anti-cancer
drug. The Company's oral drug delivery technology is in the preclinical
evaluation stage. As a result, the Company must be evaluated in light
of the problems, delays, uncertainties and complications encountered in
connection with early-stage biopharmaceutical development. The risks
include, but are not limited to, the possibilities that any or all of
the Company's potential products will be found to be ineffective or
toxic, or fail to receive necessary regulatory clearances in the United
States or abroad. To achieve profitable operations, the Company must
successfully develop, obtain regulatory approval for, introduce and
successfully market through a larger pharmaceutical partner at a profit
products that are currently in the research and development phase. The
Company is currently not profitable, and no assurance can be given that
the Company's research and development efforts will be successful, that
required regulatory approvals will be obtained, that any of the Company's
proposed products will be safe and effective, that any such products, if
developed and introduced, will be successfully marketed or achieve market
acceptance, or that such products can be marketed at prices that will allow
profitability to be achieved or sustained. Failure of the Company to
successfully develop, obtain regulatory approval for, introduce and market
its products under development would have a material adverse effect on the
business, financial condition and results of operations of the Company.
<PAGE>
History of Losses; Going Concern Reports; Uncertainty of Future Financial
Results -- The Company has experienced significant operating losses since
its inception, and expects to incur losses for the next several years. As
of December 31, 1996, the Company's accumulated deficit was $10,219,680.
The Company's independent auditors have included an explanatory paragraph
in their report on the Company's financial statements at December 31, 1996,
which paragraph expresses substantial doubt concerning the Company's
ability to continue as a going concern. The amount of net losses may vary
significantly from year-to-year and quarter-to-quarter and depend on, among
other factors, the success of the Company in securing collaborative
partners and the progress of research and preclinical and clinical
development programs. The Company's ability to attain profitability will
depend, among other things, on its successfully completing development of
its product candidates, obtaining regulatory approvals, establishing
manufacturing, sales and marketing capabilities and obtaining sufficient
funds to finance its activities. There can be no assurance that the
Company will be able to achieve profitability or that profitability, if
achieved, can be sustained.
Limited Experience and Dependence on Third Parties for Completion of
Clinical Trials, Manufacturing and Marketing -- The Company has no
experience with receipt of government approvals or marketing pharmaceutical
products and has limited experience with clinical testing and
manufacturing. The Company may seek to form alliances with established
pharmaceutical companies for the testing, manufacturing and marketing of,
and pursuit of regulatory approval for, its products. There can be no
assurance that the Company will be successful in forming such alliances or
that the Company's partners would devote adequate resources to, and
successfully market, the Company's products. If the Company instead
performs such tasks itself, it will be required to develop expertise
internally or contract with third parties to perform these tasks. This
will place increased demands on the Company's resources, requiring the
addition of new management personnel and the development of additional
expertise by existing management personnel. The failure to acquire such
services or to develop such expertise could materially adversely affect
prospects for the Company's success. All of the Company's scientific and
clinical advisors are employed by others and may have commitments to or
consulting or advisory contracts with other entities that may limit their
availability to the Company.
Reliance on Patents and Other Proprietary Rights -- The pharmaceutical
industry places considerable importance on obtaining patent and trade
secret protection for new technologies, products and processes. The
Company's success will depend, in part, on its ability to obtain
protection for its products and technologies under United States and
foreign patent laws and other intellectual property laws, to preserve its
trade secrets and to operate without infringing the proprietary rights of
third parties. There can be no assurance that the research conducted by or
on behalf of the Company will result in any patentable technology or
products. Even if patents are obtainable, the procedure for obtaining
patents is expensive, time consuming and can be subject to lengthy
litigation. Moreover, it is possible, with respect to some patentable
items, that the Company may conclude that better protection would be
afforded by not seeking patents. Although the Company has endeavored and
will continue to endeavor to prevent disclosure of any confidential
information by adopting a policy to bind its scientific advisors and
scientific and management employees and consultants by confidentiality
agreements, there can be no assurance that such information will not be
wrongfully disclosed. Any such disclosure would likely have an adverse
effect on the Company. The Company currently has two patents issued and
four patent applications pending in the United States and foreign
countries. Although the Company intends to apply for additional patents,
there can be no assurance that the Company will obtain patents either under
the pending applications or any future applications or that any of its
existing or any future patent will provide effective protection against
competitive products. If patent or other proprietary rights cannot be
obtained and maintained by the Company, its products may face significantly
increased competition.
<PAGE>
The application of patent law to the area of biotechnology is relatively
new and has resulted in considerable litigation. The ability of the
Company to obtain patents, licenses and similar rights and the nature,
extent and enforceability of the intellectual property rights, if any, that
are obtained as a result of its research programs involve complex legal and
factual issues. The issues are more significant with respect to any
product based upon natural substances, for which available patent
protection may be limited due to the prior use or reported utility of such
products (or their natural sources) to treat various disorders or diseases.
There can be no assurance as to the degree of protection that proprietary
rights, when and if established, will afford the Company. To the extent
that the Company relies on trade secret protection and confidentiality
agreements to protect technology, there can be no assurance that others
will not independently develop similar technology, or otherwise obtain
access to the Company's findings or research materials embodying those
findings.
There is also a substantial risk in the rapidly developing biotechnology
industry that patents and other intellectual property rights held by the
Company could be infringed by others or that products developed by the
Company or their method of manufacture could be covered by patents owned by
other companies. To the extent that any infringement should occur with
respect to any patents issued to the Company or licenses granted to the
Company, or if the Company is alleged to have infringed on patents or
licenses held by others, the Company could be faced with the expensive
prospect of litigating such claims; if the Company were to have
insufficient funds on hand to finance its litigation, it might be forced to
negotiate a license with such other parties or to otherwise resolve such a
dispute on terms less favorable to the Company than could result from
successful litigation.
Uncertainty of Clinical Trials and Results -- The results of clinical trial
and preclinical testing for the Company's products are subject to varying
interpretations. Furthermore, studies conducted with alternative designs or
on alternative populations could produce results that vary from those
expected. Therefore, there can be no assurance that the results or the
Company's interpretation of them will be accepted by governmental regulators
or the medical community. Even if the development of the Company's products
in the preclinical phase advances to the clinical stage, there can be no
assurance that they will prove to be safe and effective. The products that
are successfully developed, if any, will be subject to requisite regulatory
approval prior to their commercial sale, and the approval, if obtainable, may
take several years. Generally, only a very small percentage of the number
of new pharmaceutical products initially developed is approved for sale.
Even if they are approved for sale, there can be no assurance that they will
be commercially successful. The Company may encounter unanticipated problems
relating to development, manufacturing, distribution and marketing, some of
which may be beyond the Company's financial and technical capacity to solve.
The failure to address such problems adequately could have a material adverse
effect on the Company's business, financial condition or results of
operations. No assurance can be given that the Company will succeed in the
development and marketing of any new drug products, or that they will not be
rendered obsolete by products of competitors.
<PAGE>
Uncertainty of Health Care Reform Measures -- Federal, state and local
officials and legislators (and certain foreign government officials and
legislators) have proposed or are reportedly considering proposing a
variety of reforms to the health care systems in the United States and
abroad. The Company cannot predict what health care reform legislation, if
any, will be enacted in the United States or elsewhere. Significant
changes in the health care system in the United States or elsewhere are
likely to have a substantial impact over time on the manner in which the
Company conducts its business. Such proposals and changes could have a
material adverse effect on the Company's ability to raise capital.
Furthermore, the Company's ability to commercialize its potential products
may be adversely affected to the extent that such proposals have a material
adverse effect on the business, financial condition and profitability of
other companies that are prospective corporate partners with respect to
certain of the Company's proposed products.
Uncertain Extent of Price Flexibility and Third-Party Reimbursement -- The
Company's ability to commercialize its products successfully will depend in
part on the extent to which appropriate reimbursement levels for the cost
of such products and related treatment are obtained from government
authorities, private health insurers and other organizations, such as
health maintenance organizations ("HMOs"). Third party payers are
increasingly challenging the prices charged for medical products
and services. Also, the trend towards managed health care in the United
States and the concurrent growth of organizations such as HMOs, which could
control or significantly influence the purchase of health care services and
products, as well as legislative proposals to reduce government insurance
programs, may all result in lower prices for the Company's products. The
cost containment measures that health care providers are instituting could
affect the Company's ability to sell its products and may have a material
adverse effect on the Company.
Government Regulation; Need for FDA and Other Regulatory Approval -- Prior
to marketing, each of the Company's products must undergo an extensive
regulatory approval process conducted by the FDA and applicable agencies in
other countries. The process, which focuses on safety and efficacy and
includes a review by the FDA of preclinical testing and clinical trials and
investigating as to whether good laboratory and clinical practices were
maintained during testing, takes many years and requires the expenditure of
substantial resources. The Company is, and will be dependent on the
external laboratories and medical institutions conducting its preclinical
testing and clinical trials to maintain both good laboratory practices
established by the FDA and good clinical practices. Data obtained from
preclinical and clinical testing are subject to varying interpretations
which could delay, limit or prevent regulatory approval. In addition,
delays or rejection may be encountered based upon changes in FDA policy for
drug approval during the period of development and by the requirement
for regulatory review of each submitted Product License Approval or New
Drug Application. There can be no assurance that, even after such time and
expenditures, regulatory approval will be obtained for any of the Company's
product candidates. Moreover, such approval may entail significant
limitations on the indicated uses for which a drug may be marketed. Even
if such regulatory approval is obtained, a marketed therapeutic product and
its manufacturer are subject to continual regulatory review, and later
discovery of previously unknown problems with a product or manufacturer may
result in restrictions on such product or manufacturing, including
withdrawal of such product from the market. Change in the manufacturing
procedures used by the Company for any of the Company's approved drugs are
subject to FDA review, which could have an adverse effect upon the
Company's ability to continue the commercialization or sale of a drug. The
process of obtaining FDA and foreign regulatory approval is costly and time
consuming, and there can be no assurance that any product that
the Company may develop will be deemed to be safe and effective by the FDA.
The Company will not be permitted to market any product it may develop in
any jurisdiction in which the product does not receive regulatory approval.
The Company is also subject to various foreign, federal, state and local laws
regulations and recommendations (collectively "Governmental Regulations")
relating to safe working conditions, laboratory and manufacturing practices,
the experimental use of animals and the use, manufacture, storage, handling
and disposal of hazardous or potentially hazardous substances, including
radioactive compounds and infectious disease agents, used in connection with
the Company's research and development work and manufacturing processes.
Included in this area is Good Manufacturing Practices ("GMP") compliance and
its European equivalent, ISO 9000, a measure of quality control and assurance.
The Company's manufacturing activities for preclinical and clinical supplies
are not fully in GMP compliance, although the Company expects to reach full
compliance in the near future. There can be no assurance that the Company
will achieve GMP compliance. Although the Company believes it is in
compliance with Governmental Regulations in all material respects, there
can be no assurance that the Company will not be required to incur
significant costs to comply with Governmental Regulations in the future.
<PAGE>
Competition; Technological Change -- There is substantial competition in the
pharmaceutical field in general and in vaccine development and liposomal
formulation in particular. The Company's competitors include companies
with financial resources, and licensing, research and development staffs
and facilities substantially greater than those of the Company.
Competitors in the vaccine development field include major pharmaceutical
companies, specialized biotechnology firms, universities and governmental
agencies, including American Home Products, the Merck Company, SmithKline
Beecham, MedImmune, Aviron and Chiron. Competitors in the liposomal
formulation field include The Liposome Company, NexStar and Sequus. A
competitor in the field of oral delivery of drugs is Emisphere which is
currently in Phase I trials for oral heparin and in pre-clinical development
with an oral human growth hormone. Many competitors have greater experience
than the Company in undertaking preclinical testing and clinical trials and
obtaining FDA and other regulatory approvals. There can be no assurance that
the Company's competitors will not succeed in developing similar technologies
and products more rapidly than the Company and that these technologies and
products will not be more effective than any of those that are being or
will be developed by the Company, or that such competitors' technologies
and products will not render the Company's technologies and products
obsolete or noncompetitive.
Manufacturing and Marketing Capabilities -- The Company does not now have
and probably will not have in the foreseeable future, the resources to
manufacture or directly market on a large commercial scale any products
which it may develop. In connection with the Company's research and
development activities, it will seek to enter into collaborative
arrangements with pharmaceutical companies to assist in funding development
costs, including the costs of clinical testing necessary to obtain
regulatory approvals. It is expected that these entities will also be
responsible for commercial scale manufacturing which must be in compliance
with applicable FDA regulations. The Company anticipates that such
arrangements may involve the grant by the Company of the exclusive or semi-
exclusive right to sell specific products to specified market segments in
particular geographic territories in exchange for a royalty, joint venture,
future co-marketing or other financial interest. The Company believes that
these arrangements will be more effective in promoting and distributing
therapeutic products in the United States in view of the Company's limited
resources and the extensive marketing networks and large advertising
budgets of large pharmaceutical companies. To date, the Company has not
entered into any collaborative agreements or distributorship arrangements
for any of its proposed products and there can be no assurance that the
Company will be able to enter into any such arrangements on favorable terms
or at all. The Company may ultimately determine to establish its own
manufacturing and/or marketing capability, at least for certain products,
in which case it will require substantial additional funds and personnel.
<PAGE>
Use of Hazardous Materials; Environmental Matters -- The Company's research
and development involves the controlled use of small quantities of hazardous
materials, chemicals and various radioactive compounds. Although the Company
believes that its safety procedures for handling and disposing of such
materials comply with the standards prescribed by federal, state and local
regulations, the risk of accidental contamination or injury from these
materials cannot be eliminated. In the event of such an accident, the
Company could be held liable for any resulting damages, and any such
liability could exceed the resources of the Company. There can be no
assurance that the Company will not be required to incur significant costs
to comply with environmental laws and regulations in the future, nor that the
operations, business or assets of the Company will not be materially
adversely effected by current or future environmental laws or regulations.
Product Liability Exposure; Limited Insurance Coverage -- The testing and
marketing of pharmaceutical products entails an inherent risk of exposure
to product liability claims from adverse effects of products. The Company
has obtained liability insurance with limits of liability of $1,000,000 for
each claim and $3,000,000 in the aggregate. There is no assurance that
current or future policy limits will be sufficient to cover all possible
liabilities. Further, there can be no assurance that adequate product
liability insurance will continue to be available in the future or that
it can be maintained at reasonable costs to the Company. In the event of a
successful product liability claim against the Company, lack or
insufficiency of insurance coverage could have an adverse effect
on the Company.
Dependence on Key Personnel and Scientific Advisors; Evolution of
Management -- The Company is dependent on the principal members of its
management and scientific staff, the loss of whose services could impede
the achievement of development objectives. Furthermore, as the Company's
focus evolves, the Company's need for certain skills may diminish and the
need for other skills may arise. Thus, recruiting and retaining qualified
scientific personnel to perform research and development work in the future
will also be critical to the Company's success and may lead to further
evolution of the Company's management. Although the Company believes it
will be successful in attracting and retaining skilled and experienced
scientific personnel, there can be no assurance that the Company will be
able to attract and retain such personnel on acceptable terms given the
competition among numerous pharmaceutical and health care companies,
universities and non-profit research institutions for experienced
scientists and managers.
The Company's scientific advisors are employed on a full-time basis by
unrelated employers and some have one or more consulting or other advisory
arrangements with other entities which at times may conflict with their
obligations to the Company. Inventions or processes discovered by such
persons, other than those to which the Company's licenses relate, or those
for which the Company is able to acquire licenses or those which were
invented while performing consulting services under contract to the
Company, will most likely not become the property of the Company, but will
remain the property of such persons or such persons' full-time employers.
Failure to obtain needed patents, licenses or proprietary information held
by others could have a material adverse effect on the Company's business,
financial condition or results of operations.
<PAGE>
Limited Personnel; Dependence on Contractors -- The Company has twelve full-
time and one part-time employee. With these exceptions, the Company
relies, and for the foreseeable future will rely, on certain independent
organizations, advisors and consultants to provide certain services with
regard to clinical research. There can be no assurance that their services
will continue to be available to the Company on a timely basis when needed,
or that the Company could find qualified replacements. The Company's
advisors and consultants generally sign agreements that provide for
confidentiality of the Company's proprietary information. However, there
can be no assurance that the Company will be able to maintain the
confidentiality of the Company's technology, the dissemination of which
could have a material adverse effect on the Company's business, financial
condition or results of operations. See "Reliance on Patents and Other
Proprietary Rights."
Conducting Business Abroad -- Although the Company currently does not
conduct business outside the United States, it is in discussions with
potential strategic partners for the in-licensing and out-licensing of
technology and the development and marketing of its products. No assurance
can be given that the Company will be able to establish arrangements
covering foreign countries, that the necessary foreign regulatory approvals
for its product candidates will be obtained, that foreign patent coverage
will be available or that the development and marketing of its products
through such licenses, joint ventures or other arrangements will be
commercially successful. The Company might also have greater difficulty
obtaining proprietary protection for its products and technologies outside
the United States rather than in it, and enforcing its rights in foreign
courts rather than in United States courts.
Limited Availability of Net Operating Loss Carry Forwards -- For Federal
income tax purposes, net operating loss and tax credit carryforwards as of
December 31, 1996 are approximately $1,929,000 and $260,000, respectively.
These carryforwards will expire beginning in 2003 through 2010 . The Tax
Reform Act of 1986 provided for a limitation on the use of net operating
loss and tax credit carryforwards following certain ownership changes. The
Company believes that its proposed private placement, together with certain
prior issuance's of Common Stock, is likely to severely restrict the
Company's ability to utilize its net operating losses and tax credits.
Additionally, because U.S. tax laws limit the time during which net
operating loss and tax credit carryforwards may be applied against
future taxable income tax liabilities, the Company may not be able to fully
utilize its net operating loss and tax credits for federal income tax
purposes.
<PAGE>
Potential Volatility of Price; Low Trading Volume -- The market price of the
Common Stock, like that of many other development-stage public
pharmaceutical or biotechnology companies, has been highly volatile and may
be in the future. Factors such as announcements of technological
innovations or new commercial products by the Company or its competitors,
disclosure of results of preclinical and clinical testing, adverse
reactions to products, governmental regulation and approvals, developments
in patent or other proprietary rights, public or regulatory agency concerns
as to the safety of products developed by the Company and general market
conditions may have a significant effect on the market price of the Common
Stock and its other equity securities. In addition, in general, the Common
Stock has been thinly traded on the Bulletin Board, which may affect the
ability of the Company's stockholders to sell shares of the Common Stock in
the public market. There can be no assurance that a more active
trading market will develop in the future.
Certain Interlocking Relationships; Potential Conflicts of Interest. Steve H.
Kanzer, C.P.A., Esq., a director of the Company, is a Senior Managing
Director of the Placement Agent. Paramount Capital Asset Management, Inc.
("PCAM") is the investment manager and general partner of The Aries Fund and
the Aries Domestic Fund, L.P., respectively. Lindsay A. Rosenwald, M.D.,
the President and sole stockholder of PCAM, is also the President and sole
stockholder of the Placement Agent. Dr. Rosenwald is also President and
sole stockholder of Paramount Capital Investment LLC, a New York-based
merchant banking and venture capital firm specializing in biotechnology
companies ("PCI"). In the regular course of its business, PCI identifies,
evaluates and pursues investment opportunities in biomedical and
pharmaceutical products, technologies and companies. Generally, Delaware
corporate law requires that any transactions between the Company and any
of its affiliates be on terms that, when taken as a whole, are substantially
as favorable to the Company as those then reasonably obtainable from a person
who is not an affiliate in an arms-length transaction. Nevertheless, neither
such affiliates nor PCI is obligated pursuant to any agreement or
understanding with the Company to make any additional products or
technologies available to the Company, nor can there be any assurance, and
the Company does not expect and purchasers of the securities offered hereby
should not expect, that any biomedical or pharmaceutical product or
technology identified by such affiliates or PCI in the future will be made
available to the Company. In addition, certain of the current officers and
directors of the Company or certain of any officers or directors of the
company hereafter appointed may from time to time serve as officers or
directors of other biopharmaceutical or biotechnology companies. There can
be no assurance that such other companies will not have interests in conflict
with those of the Company.
Concentration of Ownership and Control. The Company's directors, executive
officers and principal stockholders and certain of their affiliates have the
ability to influence the election of the Company's directors and most other
stockholder actions. In particular, pursuant to the Placement Agency
Agreement, so long as 50% of the Placement Shares remain outstanding and
subject contractual rights described in the Subscription Agreement between
the Company and each signatory thereto (the "Subscription Agreements"), the
Company may not do any of the following without the Placement Agent's prior
approval: (i) issue or increase the authorized amount or alter the terms of
any securities of the Company senior to, or on parity with, the Placement
Shares with respect to voting, liquidation or dividends, (ii) alter the
Company's charter documents in any manner that would adversely affect the
relative rights, preferences, qualifications, limitations or restrictions of
the Placement Shares or of certain contractual rights described in the
Subscription Agreements, (iii) incur indebtedness in excess of $1,000,000,
(iv) incorporate or acquire any subsidiaries and (v) enter any transactions
with affiliates of the Company. In addition, the Company's Board of
Directors cannot exceed seven persons without the prior written consent of
the Placement Agent. These arrangements may discourage or prevent any
proposed takeover of the Company, including transactions in which stockholders
might otherwise receive a premium for their shares over the then current
market prices. Such stockholders may influence corporate actions, including
influencing elections of directors and significant corporate events. See also,
"--Certain Interlocking Relationships; Potential Conflicts of Interest."
