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As Filed With the Securities and Exchange Commission on May 11, 1998
Registration No. 333-_____
SECURITIES AND EXCHANGE COMMISSION
Washington. D.C. 20549
---------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NEOTHERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 93-0979187
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
157 Technology Drive, Irvine, California 92618
(949) 788-6700
(Address, including zip code, and telephone number,
including area code of registrant's principal executive offices)
Alvin J. Glasky, Ph.D., President and Chief Executive Officer
157 Technology Drive
Irvine, California 92618
(949) 788-6700
(Name, address, including zip code, and telephone number,
including area code of agent for service)
Copies to:
C. Craig Carlson, Esq.
Robert E. Rich, Esq.
Stradling Yocca Carlson & Rauth, a Professional Corporation
660 Newport Center Drive, Suite 1600, Newport Beach, California 92660
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this registration statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier registration statement for the
same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed Proposed
maximum maximum Amount of
Title of securities Amount to be offering price aggregate registration
to be registered registered(1) per share offering price fee
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<S> <C> <C> <C> <C>
Common Stock, par value 705,000 $9.03125(2) $6,367,031.25 $1,878.27
$.001 per share
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Common Stock, par value 25,000 $11.61875(3) $ 290,468.75 $ 85.69
$.001 per share, issuable
upon exercise of a Warrant
- ----------------------------------------------------------------------------------------------------
TOTALS: 730,000 $ 6,657,500 $1,963.96
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</TABLE>
(1) In the event of a stock split, stock dividend, or similar transaction
involving the Company's Common Stock, in order to prevent dilution, the
number of shares registered shall automatically be increased to cover the
additional shares in accordance with Rule 416(a) under the Securities Act.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act, on the basis of the average of the
high and low reported sale prices of the Registrant's Common Stock on May
6, 1998, as reported on the Nasdaq National Market.
(3) The exercise price of the Warrant, used for the purpose of calculating the
amount of the registration fee in accordance with Rule 457(g) under the
Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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PROSPECTUS
NEOTHERAPEUTICS, INC.
730,000 SHARES OF COMMON STOCK
This Prospectus may be used only in connection with the resale, from
time to time, of up to 730,000 shares (the "Shares") of Common Stock, par value
$.001 per share (the "Common Stock") of NeoTherapeutics, Inc., a Delaware
corporation (the "Company"), as follows: (i) 700,000 shares of Common Stock (the
"Equity Line Shares"), which may be issued pursuant to a Private Equity Line of
Credit Agreement dated March 27, 1998 (the "Equity Line Agreement") between the
Company and one of the selling stockholders named herein (the "Equity Line
Stockholder"), (ii) 5,000 shares of Common Stock, which have been issued to one
of the selling stockholders named herein (the "Placement Stockholder," and
together with the Equity Line Stockholder, the "Selling Stockholders") for
advisory services rendered in connection with the negotiation of the Equity Line
Agreement and (iii) 25,000 shares of Common Stock, which are issuable upon
exercise of a currently outstanding warrant (the "Warrant") issued to the Equity
Line Stockholder. The Shares may be sold from time to time for the account of
the Selling Stockholders. The Company will not receive any proceeds from the
sale of the Shares by the Selling Stockholders. The expenses incurred in
registering the Shares, including legal and accounting fees, will be paid by the
Company, except for commissions, transfer taxes and certain other expenses
associated with the sale of the Shares, which will be paid by the Selling
Stockholders.
The Equity Line Shares are to be issued by the Company to the Equity
Line Stockholder pursuant to the terms of the Equity Line Agreement. The price
at which the Equity Line Shares will be issued by the Company to the Equity Line
Stockholder shall be 88% of the Market Price (as defined in the Equity Line
Agreement) on the date the Company issues shares under the Equity Line
Agreement. The Company has agreed to indemnify the Equity Line Stockholder
against certain liabilities, including liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act").
The Selling Stockholders may offer, pursuant to this Prospectus, the
Shares to purchasers from time to time in transactions in the Nasdaq National
Market, in negotiated transactions, or otherwise, or by a combination of these
methods, at fixed prices that may be changed, at market prices prevailing at the
time of the sale, at prices related to such market prices or at negotiated
prices. The Selling Stockholders may effect these transactions by selling the
Shares to or through broker-dealers, who may receive compensation in the form of
discounts or commissions from the Selling Stockholders or from the purchasers of
the Shares for whom the broker-dealers may act as an agent or to whom they may
sell as a principal, or both. The Selling Stockholders and such brokers-dealers
may be deemed to be "underwriters" within the meaning of the Securities Act, in
connection with such sales. See "Plan of Distribution."
The Common Stock is listed for quotation on the Nasdaq National Market
under the symbol "NEOT." On May __, 1998, the closing sales price of the Common
Stock was $__.__.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS COMMENCING ON PAGE 4.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This date of this Prospectus is _____________, 1998.
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Available Information.......................................................................2
Incorporation of Certain Documents by Reference.............................................2
Prospectus Supplements......................................................................3
The Company.................................................................................3
Risk Factors................................................................................4
Use of Proceeds.............................................................................8
Selling Stockholders....................................................................... 8
Plan of Distribution........................................................................9
Description of Securities...................................................................9
Legal Matters..............................................................................10
Experts....................................................................................10
Limitation on Liability and Disclosure of Commission Position on
Indemnification For Securities Act Liabilities........................................11
</TABLE>
No person is authorized to give any information or to make any
representations, other than those contained or incorporated by reference in this
Prospectus, in connection with the offering described herein, and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company or the Selling Stockholders or any underwriters,
brokers or agents. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, nor shall there be any sale of these securities
by any person in any jurisdiction in which it is unlawful for such person to
make such offer, solicitation or sale. Neither the delivery of this Prospectus
nor any sale made hereunder shall under any circumstances create an implication
that the information contained herein is correct as of any time subsequent to
the date hereof.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") as a "small
business issuer" as defined under Regulation S-B promulgated under the
Securities Act. In accordance with the Exchange Act, the Company files reports,
proxy statements and other information with the Commission. Such reports, proxy
statements and other information may be inspected and copied at, and copies of
such materials can be obtained at prescribed rates from, the Public Reference
Branch of the Commission located at 450 Fifth Street, N.W., Washington, D.C. and
at the Commission's Pacific Regional Office located at 5670 Wilshire Boulevard,
11th Floor, Los Angeles, California, the Commission's Northeast Regional Office
located at 7 World Trade Center Suite 1300, New York, New York and at the
Commission's Midwest Regional Office located at Citicorp Center, 500 W. Madison
Street Suite 1400, Chicago, Illinois. In addition, the Company has filed the
registration statement and other filings pursuant to the Exchange Act with the
Commission through its Electronic Data Gathering, Analysis and Retrieval
("EDGAR") system, and such filings are publicly available through the
Commission's site on the World Wide Web on the Internet, located at
http://www.sec.gov.
This Prospectus does not contain all of the information set forth in
the registration statement of which this Prospectus is a part and which the
Company has filed with the Commission. For further information with respect to
the Company and the securities offered hereby, reference is made to the
registration statement, including the exhibits filed as a part thereof, copies
of which can be inspected at, or obtained at prescribed rates from, the Public
Reference Section of the Commission at the address set forth above. Additional
updating information with respect to the Company may be provided in the future
by means of appendices or supplements to this Prospectus.
The Company's Common Stock is quoted on the Nasdaq National Market
(symbol: NEOT). Reports and other information concerning the Company may be
inspected at the National Association of Securities Dealers, Inc. at 1735 K
Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company with the
Commission under the Exchange Act and are incorporated by reference herein:
a. The Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1997.
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b. The Company's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1998.
c. The Company's Current Report on Form 8-K filed April 2, 1998.
d. The Company's Current Report on Form 8-K filed April 23, 1998.
e. The definitive Proxy Statement of the Company filed pursuant to
Section 14 of the Exchange Act in connection with the 1998 Annual
Meeting of Stockholders of the Company.
f. The description of the Company's Common Stock contained in the
Registration of Securities of Certain Successor Issuers filed
pursuant to Section 12(g) of the Exchange Act on Form 8-B on June
27, 1997, including any amendment or reports filed for the
purpose of updating such description.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the filing of a post-effective amendment which indicates that all
securities offered have been sold or which deregisters all securities then
remaining unsold, shall be deemed to be incorporated by reference in this
Prospectus and to be part hereof from the date of filing such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein,
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide, without charge, to each person to whom a copy
of this Prospectus is delivered, upon written or oral request of such person, a
copy of any and all of the information that has been or may be incorporated by
reference herein (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference into such documents). Such requests
should be directed to NeoTherapeutics, Inc., Attention: Chief Financial Officer,
157 Technology Drive, Irvine, California 92618, telephone number (949) 788-6700.
PROSPECTUS SUPPLEMENTS
The Equity Line Stockholder may purchase from the Company up to $15
million of Common Stock in tranches pursuant to the Equity Line Agreement. The
timing of purchases and the amount of Common Stock sold to the Equity Line
Stockholder will be determined by the Company, subject to certain restrictions
set forth in the Equity Line Agreement. Upon each purchase of shares, the
Company will supplement this Prospectus to reflect the amount of shares to be
resold by the Equity Line Stockholder.
THE COMPANY
The Company is a development stage biopharmaceutical company engaged in
the discovery and development of novel therapeutic drugs intended to treat
neurodegenerative diseases and conditions, such as memory deficits associated
with Alzheimer's disease and aging, stroke, spinal cord injuries and Parkinson's
disease. The Company's initial product candidate, AIT-082, and its other
compounds under development are based on the Company's patented technology. This
technology uses small synthetic molecules to create non-toxic compounds,
intended to be administered orally or by injection, that are capable of passing
through the blood-brain barrier to rapidly act upon specific target cells in
selected locations in the central nervous system, including the brain. Animal
and laboratory tests have shown that the Company's AIT-082 compound appears to
selectively increase the production of certain neurotrophins, a type of large
protein, in the brain and spinal cord. These neurotrophins regulate nerve cell
growth and function. The Company's technology has been developed to capitalize
on the beneficial effects of these proteins, which have been widely acknowledged
to be closely involved in the early formation and differentiation of the central
nervous system. The Company believes that AIT-082 could have prophylactic,
therapeutic and regenerative effects.
The Company was incorporated in Colorado in December 1987 and
reincorporated in Delaware in June 1997. The Company's wholly-owned subsidiary,
Advanced Immunotherapeutics, Inc. ("AIT"), was incorporated as a California
corporation in June 1987. In April 1997, the Company established NeoTherapeutics
GmbH ("NEOT GmbH"), a wholly owned subsidiary in Switzerland. Unless the context
otherwise requires, all references to the "Company" and "NeoTherapeutics" refer
to NeoTherapeutics, Inc., a Delaware corporation, AIT and NEOT GmbH, as
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a consolidated entity. The Company's executive offices are located at 157
Technology Drive, Irvine, CA 92618, and its telephone number is (949) 788-6700.
RISK FACTORS
The purchase of the shares of Common Stock offered hereby involves a
high degree of risk. In addition to the other information set forth elsewhere in
this Prospectus, the factors listed below relating to the Company and this
offering should be considered when evaluating an investment in the Common Stock
offered hereby.
This Prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1993 and Section 21E of the Securities
Exchange Act of 1934. In light of the important factors that can materially
affect results, including those set forth below, the inclusion of
forward-looking information herein should not be regarded as a representation by
the Company or any other person that the objectives or plans for the Company
will be achieved. Assumptions relating to budgeting, research, and other
management decisions are subjective in many respects and thus susceptible to
interpretations and periodic revisions based on actual experience and business
developments, the impact of which may cause the Company to alter its research,
capital expenditure or other budgets, which may in turn affect the Company's
business, financial position, results of operations and cash flows. The reader
is therefore cautioned not to place undue reliance on forward-looking statements
contained herein, which speak as of the date of this Prospectus. Factors that
might cause such a difference include, but are not limited to, the following:
HISTORY OF OPERATING LOSSES: FUTURE PROFITABILITY UNCERTAIN
The Company is a development stage biopharmaceutical company. From its
inception in 1987 through March 31, 1998, the Company incurred cumulative losses
of approximately $14.7 million, substantially all of which consisted of research
and development and general and administrative expenses. The Company has not
generated any revenues from product sales to date, and there can by no assurance
that revenues from product sales will ever be achieved. Moreover, even if the
Company eventually generates revenues from product sales, the Company
nevertheless expects to incur significant operating losses over the next several
years. The Company's ability to achieve profitable operations in the future will
depend in large part on completing development of its products, obtaining
regulatory approvals for such products and bringing these products to market.
The likelihood of the long-term success of the Company must be considered in
light of the expenses, difficulties and delays frequently encountered in the
development and commercialization of new pharmaceutical products, competitive
factors in the marketplace as well as the burdensome regulatory environment in
which the Company operates. There can be no assurance that the Company will ever
achieve significant revenues or profitable operations.
TECHNOLOGICAL UNCERTAINTY; EARLY STAGE OF PRODUCT DEVELOPMENT; NO ASSURANCE OF
REGULATORY APPROVALS
The Company's proposed products are in the early stage of development
and will require significant further research, development, clinical testing and
regulatory clearances. The Company has no products available for sale and does
not expect to have any products resulting from its research efforts commercially
available for at least several years. The Company's proposed products are
subject to the risks of failure inherent in the development of products based on
innovative technologies. These risks include the possibilities that some or all
of the proposed products could be found to be ineffective or toxic, or otherwise
fail to receive necessary regulatory clearances, that the proposed products,
although effective, will be uneconomical to manufacture or market, that third
parties may now or in the future hold proprietary rights that preclude the
Company from marketing them, or that third parties will market a superior or
equivalent product. Accordingly, the Company is unable to predict whether its
research and development activities will result in any commercially viable
products or applications. Furthermore, due to the extended testing and
regulatory review process required before marketing clearance can be obtained,
the Company does not expect to be able to commercialize any therapeutic drug for
at least several years, either directly or through any potential corporate
partners or licensees. There can be no assurance that the Company's proposed
products will prove to be safe or effective in humans or will receive regulatory
approval that are required for commercial sale. The Company's primary area of
therapeutic focus, disorders of the central nervous system (CNS), is not
thoroughly understood and there can be no assurance that the products the
Company is seeking to develop will prove to be safe and effective in treating
CNS disorders or any other diseases.
NEED FOR ADDITIONAL FUNDING; UNCERTAINTY OF ACCESS TO CAPITAL
The Company will require substantial funds for further development of
its potential products and to commercialize any products that may be developed.
The Company's capital requirements depend on numerous factors, including the
progress of its research and development programs, the progress of pre-clinical
and clinical testing, the
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time and cost involved in obtaining regulatory approvals, the cost of filing,
prosecuting, defending and enforcing patent claims and other intellectual
property rights, competing technological and market developments and the ability
of the Company to establish collaborative arrangements. The Company believes
that its existing capital resources, including capital which may be raised
through sales of Common Stock under the Equity Line Agreement, will be
sufficient to satisfy its current and projected funding requirements for the
next 12 months. The Company anticipates that after the next 12 months, it may
require substantial additional capital. Moreover, if the Company experiences
unanticipated cash requirements during the next 12 months, the Company could
require additional capital to fund its operations, continue research and
development programs as well as to continue the pre-clinical and clinical
testing of its potential products and to commercialize any products that may be
developed. The Company may seek such additional funding through public or
private financing or collaborative or other arrangements with third parties.
There can be no assurance that additional funds will be available on acceptable
terms, if at all. The Company may receive additional funds upon the exercise
from time to time of its Common Stock Purchase Warrants and other outstanding
warrants and stock options, but there can be no assurance that any such warrants
or stock options will be exercised or that the amounts received will be
sufficient for the Company's purposes. If additional funds are raised by issuing
equity securities, further substantial dilution to existing shareholders may
result. If adequate funds are not available, the Company may be required to
delay, scale back or eliminate one or more of its development programs, or to
obtain funds by entering into arrangements with collaborative partners or others
that may require the Company to relinquish rights to certain of its products or
technologies that the Company would not otherwise relinquish.
DEPENDENCE ON THIRD PARTIES FOR CLINICAL TESTING, MANUFACTURING AND MARKETING
The Company does not have the resources and, except with respect to its
AIT-082 compound, does not presently intend to conduct later-stage human
clinical trials itself or to manufacture any of its proposed products for
commercial sale. The Company therefore presently intends to seek larger
pharmaceutical company partners to conduct such activities for most or all of
its proposed products. In connection with its efforts to secure corporate
partners, the Company will seek to retain certain co-marketing rights to certain
of its proposed products, so that it may promote such products to selected
medical specialists while its corporate partner promotes these products to the
general medical market. There can be no assurance that the Company will be able
to enter into any such partnering arrangements on this or any other basis. In
addition, there can be no assurance that either the Company or its prospective
corporate partners can successfully introduce its proposed products, that they
will achieve acceptance by patients, health care providers and insurance
companies, or that they can be manufactured and marketed at prices that would
permit the Company to operate profitably.
LACK OF OPERATING EXPERIENCE
To date, the Company has engaged exclusively in the development of
pharmaceutical technology and products. Although members of the Company's
management have substantial experience in pharmaceutical company operations, the
Company has no experience in manufacturing or procuring products in commercial
quantities or marketing pharmaceutical products and has only limited experience
in negotiating, setting up and maintaining strategic relationships, conducting
clinical trials and other later-stage phases of the regulatory approval process.
There can be no assurance that the Company will successfully engage in any of
these activities with respect to AIT-082 or any other products which it may
choose to distribute. In the event the Company decides to establish a
commercial-scale manufacturing facility for AIT-082, the Company will require
substantial additional funds and personnel and will be required to comply with
extensive regulations applicable to such a facility. There can be no assurance
that the Company will be able to develop adequate manufacturing or marketing
capabilities either on its own or through third parties.
NEED TO COMPLY WITH GOVERNMENTAL REGULATION AND TO OBTAIN PRODUCT APPROVALS
The testing, manufacturing, labeling, distribution, marketing and
advertising of products such as the Company's proposed products and its ongoing
research and development activities are subject to extensive regulation by
governmental regulatory authorities in the United States and other countries.
The U.S. FDA and comparable agencies in foreign countries impose substantial
requirements on the introduction of new pharmaceutical products through lengthy
and detailed clinical testing procedures, sampling activities and other costly
and time consuming compliance procedures. The Company's proprietary compounds
require substantial clinical trials and FDA review as new drugs. The Company
cannot predict with certainty when it might submit many of its proprietary
products currently under development for regulatory review. Once the Company
submits its potential products for review, there can be no assurance that FDA or
other regulatory approvals for any pharmaceutical products developed by the
Company will be granted on a timely basis or at all. A delay in obtaining or
failure to obtain such approvals would have a material adverse effect on the
Company's business and results of operations. Failure to comply with regulatory
requirements could subject the Company to regulatory or judicial enforcement
actions, including, but not limited to, product recalls or seizures,
injunctions, civil penalties, criminal prosecution, refusals to approve new
products and withdrawal of
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existing approvals, as well as potentially enhanced product liability exposure.
Sales of the Company's products outside the United States will be subject to
regulatory requirements governing clinical trials and marketing approval. These
requirements vary widely from country to country and could delay introduction of
the Company's products in those countries.
DEPENDENCE ON KEY PERSONNEL
The Company's success is dependent on its key management and scientific
personnel, the loss of whose services could significantly delay the achievement
of the Company's planned development objectives. Although the Company has
obtained key man life insurance on Dr. Alvin Glasky in the face amount of $2
million, there can be no assurance that the proceeds of such policy will be
sufficient to compensate the Company for any disruptions resulting from the loss
of Dr. Glasky's services. Achievement of the Company's business objectives will
require substantial additional expertise in such areas as finance, manufacturing
and marketing, among others. Competition for qualified personnel among
pharmaceutical companies is intense, and the loss of key personnel, or the
inability to attract and retain the additional, highly skilled personnel
required for the expansion of the Company's activities, could have a material
adverse effect on the Company's business and results of operations.
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
The Company actively pursues a policy of seeking patent protection for
its proprietary products and technologies. The Company owns two United States
patents and currently has two United States patent applications on file. In
addition, numerous foreign patents corresponding to the Company's first patent
have been granted and corresponding patent applications with respect to the
Company's second United States patent and pending United States patent
applications have been filed in a number of foreign jurisdictions. However,
there can be no assurance that the Company's patents will provide it with
significant protection against competitors. Litigation could be necessary to
protect the Company's patents, and there can be no assurance that the Company
will have the financial or personnel resources necessary to pursue such
litigation or otherwise to protect its patent rights. In addition to pursuing
patent protection in appropriate cases, the Company also relies on trade secret
protection for its unpatented proprietary technology. However, trade secrets are
difficult to protect. There can be no assurance that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to the Company's trade secrets, that such
trade secrets will not be disclosed or that the Company can effectively protect
its rights to unpatented trade secrets. The Company pursues a policy of having
its employees and consultants execute proprietary information agreements upon
commencement of employment or consulting relationships with the Company, which
agreements provide that all confidential information developed or made known to
the individual during the course of the relationship shall be kept confidential
except in specified circumstances. There can be no assurance, however, that
these agreements will provide meaningful protection for the Company's trade
secrets or other proprietary information.
Furthermore, there can be no assurance that claims against the Company
will not be raised in the future based on patents held by others or that, if
raised, such claims will not be successful. Such claims, if brought, could seek
damages as well as an injunction prohibiting clinical testing, manufacturing and
marketing of the affected product. If any such actions are successful, in
addition to any potential liability for damages, the Company could be required
to obtain a license in order to continue to manufacture or market the affected
product. There can be no assurance that the Company would prevail in any such
action or that any license required under any such patent would be made
available under acceptable terms, if at all. There has been, and the Company
believes that there will continue to be, significant litigation in the
pharmaceutical industry regarding patent and other intellectual property rights.
If the Company becomes involved in any litigation, it could consume a
substantial portion of the Company's financial and personnel resources
regardless of the outcome of such litigation.
COMPETITION
Competition in the area of pharmaceutical products is intense. There
are many companies, both public and private, including well-known pharmaceutical
companies, that are engaged in the development of products for certain of the
applications being pursued by the Company. Most of these companies have
substantially greater financial, research and development, manufacturing and
marketing experience and resources than the Company and represent substantial
long-term competition for the Company. In addition, there are numerous other
companies that are also in the process of developing products for the treatment
of diseases and disorders for which the Company is developing products. Such
companies may succeed in developing pharmaceutical products that are more
effective or less costly than any products that may be developed by the Company.
Factors affecting competition in the pharmaceutical industry vary
depending on the extent to which the competitor is able to achieve a competitive
advantage based on proprietary technology. If the Company is able to establish
and
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maintain a significant proprietary position with respect to its products,
competition will likely depend primarily on the effectiveness of the product and
the number, gravity and severity of its unwanted side effects as compared to
alternative products.
The industry in which the Company competes is characterized by
extensive research and development efforts and rapid technological progress.
Although the Company believes that its proprietary position may give it a
competitive advantage with respect to its proposed drugs, new developments are
expected to continue and there can be no assurance that discoveries by others
will not render the Company's potential products noncompetitive. The Company's
competitive position also depends on its ability to attract and retain qualified
scientific and other personnel, develop effective proprietary products,
implement development and marketing plans, obtain patent protection and secure
adequate capital resources. There can be no assurance that the Company will be
able to successfully attract or retain such personnel.
SHARES ELIGIBLE FOR FUTURE SALE
As of May 4, 1998, the Company had 5,474,307 shares of Common Stock
outstanding. An additional 3,997,973 shares of Common Stock are issuable upon
the exercise of outstanding options and warrants (including 25,000 shares
issuable upon exercise of the Warrant). Substantially all of such shares subject
to outstanding options and warrants will, when issued upon exercise thereof, be
available for immediate resale in the public market pursuant to currently
effective registration statements under the Securities Act or pursuant to Rule
701 promulgated thereunder. In addition, the Equity Line Agreement provides that
the Company will issue at least $1 million (up to a maximum of $15 million) of
Common Stock during its term, which commences on the date of this Prospectus and
continues until either (i) the Company sells $15 million of Common Stock to the
Equity Line Investor, (ii) the Company fails to meet certain obligations under
the Equity Line Agreement, or (iii) 30 months from the date of this Prospectus.
The shares of stock which the Company may sell to the Equity Line Investor under
the Equity Line Agreement will be available for immediate resale in the public
market pursuant to this Prospectus. Such resales, or the prospect of such
resales, may have an adverse effect on the market price of the Common Stock.
RISK OF PRODUCT LIABILITY
Although the Company currently carries product liability insurance,
there can be no assurance that the amounts of such coverage will be sufficient
to protect the Company, nor that there can be any assurance that the Company
will be able to obtain or maintain additional insurance on acceptable terms for
its clinical and commercial activities or that such additional insurance would
be sufficient to cover any potential product liability claim or recall. Failure
to maintain sufficient coverage could have a material adverse effect on the
Company's business and results of operations.
USE OF HAZARDOUS MATERIALS
The Company's research and development efforts involve the use of
hazardous materials. The Company is subject to federal, state and local laws and
regulations governing the storage, use and disposal of such materials and
certain waste products. Although the Company believes that its safety procedures
for handling and disposing of such materials comply with the standards
prescribed by federal, state and local regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of an accident, the Company could be held liable for any damages that
result and any such liability could exceed the resources of the Company. The
Company may incur substantial costs to comply with environmental regulations if
the Company develops its own commercial manufacturing facility.
POSSIBLE VOLATILITY OF STOCK PRICE
The stock market from time to time experiences significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely affect the
market price of the Common Stock. In addition, the market price of the Common
Stock is likely to be highly volatile. Factors such as fluctuations in the
Company's results of operations, timing and announcements of technological
innovations or new products by the Company or its competitors, FDA and foreign
regulatory actions, developments with respect to patents and proprietary rights,
public concern as to the safety of products developed by the Company or others,
changes in health care policy in the United States and in foreign countries,
changes in stock market analyst recommendations regarding the Company, the
pharmaceutical industry generally and general market conditions each may have a
significant adverse effect on the market price of the Common Stock. In addition,
it is likely that during at least some future quarterly periods, the Company's
results of operations will fail to meet the expectations of stock market
analysts and investors and, in such event, the market price of the Common Stock
could be materially and adversely affected.
7
<PAGE> 10
CONTROL BY DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers beneficially own in the
aggregate approximately 26.9% of the Company's outstanding common stock. These
stockholders, if acting together, would be able to control substantially all
matters requiring approval by the stockholders of the Company, including the
election of directors and the approval of mergers or other business combination
transactions. Such concentration of ownership could discourage or prevent a
change of control of the Company.
EFFECT OF CERTAIN CHARTER AND BYLAWS PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and
Bylaws may have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, control of
the Company. Such provisions could limit the price that certain investors might
be willing to pay in the future for shares of common stock. These provisions may
make it more difficult for shareholders to take certain corporate actions and
could have the effect of delaying or preventing a change in control of the
Company.
USE OF PROCEEDS
The proceeds from the sale of the Shares will belong to the Selling
Stockholders. The Company will not receive any proceeds from such sales.
SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock by the Selling Stockholders as of May
__, 1998. Upon the completion of the offering and assuming the sale by the
Selling Stockholders of all of the shares of Common Stock available for resale
under this Prospectus, the Selling Stockholders will not own more than 1% of the
outstanding Common Stock of the Company.
<TABLE>
<CAPTION>
Shares Owned Shares Being Shares Owned
Before Offering Offered After Offering
------------------- ------------ ----------------
Name Number Percent Number Percent
---- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Kingsbridge Capital Limited (1) * (1) 0 *
Trinity Capital Advisors, Inc. 5,000 * 5,000 0 *
----- ------- ----- ------ -------
TOTAL: (1) (1) 0 *
</TABLE>
- ----------------
* Represents less than 1%
(1) This information will be modified with a Prospectus Supplement to reflect
the number of shares of Common Stock acquired by Kingsbridge Capital Limited
pursuant to the Equity Line Agreement.
Neither of the Selling Stockholders has had any material relationship
with the Company or any of its affiliates within the past three years other than
as a result of the ownership of Common Stock or as a result of the negotiation
and the execution of the Equity Line Agreement.
The shares offered hereby by Kingsbridge Capital Limited are to be
acquired pursuant to the Equity Line Agreement between the Company and
Kingsbridge Capital Limited or upon exercise of the Warrant. Under the Equity
Line Agreement, the Company agreed to register the Shares for resale by the
Selling Stockholders to permit the resale from time to time in the market or in
privately-negotiated transactions. The Company will prepare and file such
amendments and supplements to the registration statement as may be necessary in
accordance with the rules and regulations of the Securities Act to keep it
effective for a period of approximately 30 months.
The Company has agreed to bear certain expenses (other than broker
discounts and commissions, if any) in connection with the registration
statement.
8
<PAGE> 11
PLAN OF DISTRIBUTION
The Company has been advised by the Selling Stockholders that the
Selling Stockholders may sell the Shares from time to time in transactions on
the Nasdaq National Market, in negotiated transactions, or otherwise, or by a
combination of these methods, at fixed prices which may be changed, at market
prices at the time of sale, at prices related to market prices or at negotiated
prices. The Selling Stockholders may effect these transactions by selling the
Shares to or through broker-dealers, who may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholders or the
purchasers of the Shares for whom the broker-dealer may act as an agent or to
whom they may sell the Shares as a principal, or both. The compensation to a
particular broker-dealer may be in excess of customary commissions.
The Selling Stockholders and broker-dealers who act in connection with
the sale of the Shares may be deemed to be "underwriters" within the meaning of
the Securities Act, and any commissions received by such broker-dealers and
profits on any resale of the Shares as a principal may be deemed to be
underwriting discounts and commissions under the Securities Act.
Any broker-dealer participating in such transactions as agent may
receive commissions from the Selling Stockholders (and, if they act as agent for
the purchaser of such Shares, from such purchaser). Broker-dealers may agree
with the Selling Stockholders to sell a specified number of Shares at a
stipulated price per share, and, to the extent such a broker-dealer is unable to
do so acting as agent for the Selling Stockholders, to purchase as principal any
unsold Shares at the price required to fulfill the broker-dealer commitment to
the Selling Stockholders. Broker-dealers who acquire Shares as principal may
thereafter resell such Shares from time to time in transactions (which may
involve crosses and block transactions and which may involve sales to and
through other broker-dealers, including transactions of the nature described
above) in the over-the-counter market, in negotiated transactions or otherwise
at market prices prevailing at the time of sale or at negotiated prices, and in
connection with such resales may pay to or receive from the purchasers of such
Shares commissions computed as described above. To the extent required under the
Securities Act, a supplemental prospectus will be filed, disclosing (a) the name
of any such broker-dealers; (b) the number of Shares involved; (c) the price at
which such Shares are to be sold; (d) the commissions paid or discounts or
concessions allowed to such broker-dealers, where applicable; (e) that such
broker-dealers did not conduct any investigation to verify the information set
out or incorporated by reference in this Prospectus, as supplemented; and (f)
other facts material to the transaction.
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of the Shares may not simultaneously engage in
market making activities with respect to such securities for a period beginning
when such person becomes a distribution participant and ending upon such
person's completion of participation in a distribution, including stabilization
activities in the Common Stock to effect syndicate covering transactions, to
impose penalty bids or to effect passive market making bids. In addition and
without limiting the foregoing, in connection with transactions in the Shares,
the Selling Stockholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including, without
limitation, Rule 10b-5 and, insofar as the Selling Stockholders are distribution
participants, Regulation M and Rules 100, 101, 102, 103, 104 and 105 thereof.
All of the foregoing may affect the marketability of the Shares.
The Selling Stockholders will pay all commissions and certain other
expenses associated with the sale of the Shares. The Shares offered hereby are
being registered pursuant to contractual obligations of the Company, and the
Company has paid the expenses of the preparation of this Prospectus. The Company
has also agreed to indemnify the Equity Line Stockholder with respect to the
Equity Line Shares offered hereby against certain liabilities, including,
without limitation, certain liabilities under the Securities Act, or, if such
indemnity is unavailable, to contribute toward amounts required to be paid in
respect of such liabilities.
Trinity Capital Advisors, Inc. acted as a finder with respect to the
negotiation and execution of the Equity Line Agreement. Trinity Capital
Advisors, Inc. and the Company have not had any material relationship prior to
the engagement of Trinity Capital Advisors, Inc. by the Company in connection
with the Equity Line Agreement.
DESCRIPTION OF SECURITIES
As of the date of this Prospectus, the authorized capital stock of the
Company consists of 25 million shares of Common Stock, par value $.001 per
share, and 5 million shares of Preferred Stock, par value $.001 per share.
9
<PAGE> 12
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Stockholders do not have rights to
cumulate their votes in the election of directors under the Company's
Certificate of Incorporation, or the provisions of the Delaware General
Corporation Law and the Company's management does not presently intend to extend
cumulative voting rights to stockholders. However, under Section 2115 of the
California Corporations Code, specific provisions of the California General
Corporation Law, including mandatory cumulative voting rights of stockholders,
are made applicable to "pseudo-California" corporations incorporated under laws
of other states which meet certain tests. The tests are (i) that the average of
specified property, payroll and sales factors (generally relating to the extent
of activities in California) exceed 50% on a consolidated basis during the
corporation's latest full income year, and (ii) that more than one-half of the
corporation's outstanding voting securities are held of record by persons having
addresses in California. The Company will likely meet such tests as of the end
of its current fiscal year.
Subject to preferences that may be applicable to the holders of
outstanding shares of Preferred Stock, if any, the holders of Common Stock are
entitled to receive such lawful dividends as may be declared by the Board of
Directors. In the event of liquidation, dissolution or winding up of the
Company, and subject to the rights of the holders of outstanding shares of
Preferred Stock, if any, the holders of shares of Common Stock shall be entitled
to receive pro rata all of the remaining assets of the Company available for
distribution to its stockholders. There are no redemption or sinking fund
provisions applicable to the Common Stock. All outstanding shares of Common
Stock are fully paid and nonassessable, and shares of Common Stock to be issued
pursuant to this offering shall be fully paid and nonassessable.
WARRANT
The Warrant will entitle the holder to purchase 25,000 shares of Common
Stock at a price of $11.61875 per share. The Warrant is exercisable at any time
beginning on September 24, 1998 and ending on September 24, 2001. The shares of
Common Stock underlying the Warrant, when issued upon exercise of the Warrant in
whole or in part, will be fully paid and nonassessable, and the Company will pay
any transfer tax incurred as a result of the issuance of Common Stock to the
holder upon its exercise.
The Warrant contains provisions that protect the holder against
dilution by adjustment of the exercise price. Such adjustments will occur in the
event, among others, of a merger, stock split or reverse stock split, stock
dividend or recapitalization. The Company is not required to issue fractional
shares upon the exercise of the Warrant. The holder of the Warrant will not
possess any rights as a stockholder of the Company until such holder exercises
the Warrant.
The Warrant may be exercised upon surrender on or before the expiration
date of the Warrant at the offices of the Company, with an exercise form
completed and executed as indicated, accompanied by payment of the exercise
price for the number of shares with respect to which the Warrant is being
exercised. The exercise price is payable either (i) by check or bank draft
payable to the order of the Company or by wire transfer to an account designated
by the Company or (ii) by a "cashless exercise," in which that number of shares
of Common Stock underlying the Warrant having a fair market value equal to the
aggregate exercise price are cancelled as payment of the exercise price.
For the life of the Warrant, the holder thereof has the opportunity to
profit from a rise in the market price of the Common Stock without assuming the
risk of ownership of the shares of Common Stock issuable upon the exercise of
the Warrant. The Warrant holder may be expected to exercise the Warrant at a
time when the Company would, in all likelihood, be able to obtain any needed
capital by an offering of Common Stock on terms more favorable than those
provided for by the Warrant. Furthermore, the terms on which the Company could
obtain additional capital during the life of the Warrant may be adversely
affected.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered
hereby will be passed upon for the Company by Stradling Yocca Carlson & Rauth, a
Professional Corporation, Newport Beach, California.
EXPERTS
The audited consolidated financial statements of the Company
incorporated by reference in this registration statement have been audited by
Arthur Andersen LLP, independent public accounts, as indicated in their report
with
10
<PAGE> 13
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports. Reference is made to said report which
states that the Company is in the development stage, as described in Note 1 to
the consolidated financial statements.
LIMITATION ON LIABILITY AND DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
The by-laws of the Company provide for indemnification of the Company's
directors and officers to the fullest extent permitted by law. Insofar as
indemnification for liabilities under the Securities Act may be permitted to
directors, officers or controlling persons of the Company pursuant to the
Company's Certificate of Incorporation, as amended, by-laws and the Delaware
General Corporation Law (the "DGCL"), the Company has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in such Act and is therefore unenforceable.
11
<PAGE> 14
================================================================================
730,000 SHARES OF COMMON STOCK
NEOTHERAPEUTICS, INC.
----------
PROSPECTUS
----------
___________, 1998
================================================================================
<PAGE> 15
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following sets forth the costs and expenses, all of which shall be
borne by the Registrant, in connection with the offering of the securities
pursuant to this registration statement:
<TABLE>
<S> <C>
Registration Fee................................................. $ 1,964
Accounting Fees and Expenses..................................... $ 5,000*
Legal Fees and Expenses.......................................... $ 20,000*
Miscellaneous.................................................... $ 2,036*
Total..................................................... $ 29,000*
</TABLE>
- --------------
* Estimated
Item 15. Indemnification of Directors and Officers.
The by-laws of the Registrant provide for indemnification of the
Registrant's directors and officers to the fullest extent permitted by law.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers or controlling persons of the Registrant
pursuant to the Registrant's Certificate of Incorporation, by-laws and the
Delaware General Corporation Law (the "DGCL"), the Registrant has been informed
that in the opinion of the Commission such indemnification is against public
policy as expressed in such Act and is therefore unenforceable.
Section 102(b)(7) of the DGCL provides that a certificate of
incorporation may include a provision which eliminates or limits the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL,
relating to prohibited dividends or distributions or the repurchase or
redemption of stock or (iv) for any transaction from which the director derives
an improper personal benefit. The Registrant's Certificate of Incorporation
includes such a provision. As a result of this provision, the Registrant and its
stockholders may be unable to obtain monetary damages from a director for breach
of his or her duty of care.
Item 16. Exhibits.
4.1 Private Equity Line of Credit Agreement between Registrant and
Kingsbridge Capital Limited dated as of March 27, 1998.
4.2 Registration Rights Agreement between Registrant and Kingsbridge
Capital Limited dated as of March 27, 1998.
4.3 Warrant to Purchase up to 25,000 shares of Common Stock of
Registrant, issued to Kingsbridge Capital Limited as of March 27,
1998.
5 Opinion of Stradling, Yocca, Carlson & Rauth, a Professional
Corporation.
23.1 Consent of Stradling, Yocca, Carlson & Rauth, a Professional
Corporation (included in Exhibit 5).
23.2 Consent of Arthur Andersen LLP.
24 Power of Attorney (included on the signature page to the
registration statement - see page II-3).
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(iii) Include any additional or changed material
information on the plan of distribution.
II-1
<PAGE> 16
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at
that time to be deemed the initial bona fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the
foregoing provisions, or otherwise, the small business issuer has been
advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
small business issuer of expenses incurred or paid by a director,
officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the small business issuer will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such issue.
II-2
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Irvine, State of California, on the 11th day of May,
1998.
NEOTHERAPEUTICS, INC.
By: /s/ Alvin J. Glasky, Ph.D.
-------------------------------------
Alvin J. Glasky, Ph.D.
President and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of NeoTherapeutics, Inc., do
hereby constitute and appoint Alvin J. Glasky, Ph.D. and Samuel Gulko or either
of them, our true and lawful attorneys-in-fact and agents, each with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this registration
statement, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite are necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that each of said
attorney-in-fact and agents, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Alvin J. Glasky, Ph.D. Chief Executive Officer, May 11, 1998
- --------------------------------- President and Director
Alvin J. Glasky, Ph.D. (Principal executive officer)
/s/ Samuel Gulko Chief Financial Officer May 11, 1998
- --------------------------------- (principal financial and
Samuel Gulko accounting officer)
/s/ Mark J. Glasky Director May 11, 1998
- ---------------------------------
Mark J. Glasky
/s/ Frank M. Meeks Director May 11, 1998
- ---------------------------------
Frank M. Meeks
/s/ Paul H. Silverman, Ph.D., D.Sc. Director May 11, 1998
- ----------------------------------
Paul H. Silverman, Ph.D., D.Sc.
/s/Carol O'Cleireacain, Ph.D. Director May 11, 1998
- ----------------------------------
Carol O'Cleireacain, Ph.D.
</TABLE>
II-3
<PAGE> 18
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
4.1 Private Equity Line of Credit Agreement between Registrant and
Kingsbridge Capital Limited dated as of March 27, 1998.
4.2 Registration Rights Agreement between Registrant and Kingsbridge
Capital Limited dated as of March 27, 1998.
4.3 Warrant to Purchase up to 25,000 shares of Common Stock of
Registrant, issued to Kingsbridge Capital Limited as of March 27,
1998.
5 Opinion of Stradling, Yocca, Carlson & Rauth, a Professional
Corporation
23.1 Consent of Stradling, Yocca, Carlson & Rauth, a Professional
Corporation (Included in Exhibit 5).
23.2 Consent of Arthur Andersen, LLP.
24 Power of Attorney (included on the signature page to the
registration statement - see page II-3).
II-4
<PAGE> 1
EXHIBIT 4.1
PRIVATE EQUITY LINE OF CREDIT AGREEMENT
BY AND BETWEEN
KINGSBRIDGE CAPITAL LIMITED
AND
NEOTHERAPEUTICS, INC.
DATED AS OF MARCH 27, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Page
ARTICLE I
Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 "Adjustment Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 "Average Daily Trading Volume" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3 "Bid Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.4 "Blackout Shares" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.5 "Capital Shares" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.6 "Closing" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.7 "Closing Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.8 "Commitment Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.9 "Common Stock" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.10 "Common Stock Equivalents" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.11 "Condition Satisfaction Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.12 "Damages" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.13 "Discount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.14 "Effective Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.15 "Escrow Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.16 "Exchange Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.17 "Floor Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.18 "Initial Registerable Securities" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.19 "Initial Registration Statement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.20 "Investment Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.21 "Legend" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.22 "Market Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.23 "Maximum Commitment Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.24 "Minimum Commitment Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.25 "Material Adverse Effect" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.26 "Maximum Put Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.27 "Minimum Put Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.28 "NASD" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.29 "NASDAQ" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.30 "Outstanding" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.31 "Person" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.32 "Preferred Stock" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.33 "Principal Market" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.34 "Purchase Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.35 "Put" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.36 "Put Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.37 "Put Notice" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
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Section 1.38 "Put Shares" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.39 "Registrable Securities" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.40 "Registration Rights Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.41 "Registration Statement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.42 "Regulation D" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.43 "SEC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.44 "Section 4(2)" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.45 "Securities Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.46 "SEC Documents" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.47 "Standby Letter of Credit" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.48 "Subscription Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.49 "Trading Cushion" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 1.50 "Trading Day" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 1.51 "Underwriter" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 1.52 "Valuation Event" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 1.53 "Valuation Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 1.54 "Warrant" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 1.55 "Warrant Shares" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE II
Purchase and Sale of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.1 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.2 Mechanics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.3 Closings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.4 Special Circumstances; Adjustment Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.5 Termination of Investment Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.6 The Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.7 Blackout Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.8 Liquidated Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.9 Standby Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE III
Representations and Warranties of Investor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.1 Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.2 Sophisticated Investor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.3 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.4 Not an Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
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Section 3.5 Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.6 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.7 Disclosure; Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.8 Manner of Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE IV
Representations and Warranties of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.1 Organization of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.4 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.5 SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.6 Exemption from Registration; Valid Issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.7 No General Solicitation or Advertising in Regard to this Transaction . . . . . . . . . . . . . . . . 14
Section 4.8 Corporate Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.9 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.10 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.11 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.12 No Undisclosed Events or Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.13 No Integrated Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.14 Litigation and Other Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.15 No Misleading or Untrue Communication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.16 Material Non-Public Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE V
Covenants of the Investor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 5.1 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 6.1 Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 6.2 Reservation of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 6.3 Listing of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 6.4 Exchange Act Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.5 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.6 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.7 Additional SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.8 Notice of Certain Events Affecting Registration;
Suspension of Right to Make a Put . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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Section 6.9 Expectations Regarding Put Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 6.10 Consolidation; Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 6.11 Issuance of Put Shares, Warrant Shares and Blackout Shares . . . . . . . . . . . . . . . . . . . . 18
Section 6.12 Legal Opinion on Subscription Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VII
Conditions to Delivery of Put Notices and Conditions to Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 7.1 Conditions Precedent to the Obligation of the
Company to Issue and Sell Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 7.2 Conditions Precedent to the Right of the
Company to Deliver a Put Notice and the Obligation
of the Investor to Purchase Put Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 7.3 Due Diligence Review; Non-Disclosure of
Non-Public Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VIII
Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 8.1 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 8.2 No Other Legend or Stock Transfer Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 8.3 Investor's Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE IX
Choice of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 9.1 Choice of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE X
Assignment; Entire Agreement, Amendment; Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 10.1 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 10.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 10.3 Entire Agreement, Amendment; No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE XI
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Notices; Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 11.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 11.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 11.3 Method of Asserting Indemnification Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE XII
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 12.1 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 12.2 Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 12.3 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 12.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 12.5 Survival; Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 12.6 Title and Subtitles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 12.7 Reporting Entity for the Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
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EXHIBIT 4.1
PRIVATE EQUITY LINE OF CREDIT AGREEMENT
BY AND BETWEEN
KINGSBRIDGE CAPITAL LIMITED
AND
NEOTHERAPEUTICS, INC.
DATED AS OF MARCH 27, 1998
This PRIVATE EQUITY LINE OF CREDIT AGREEMENT is entered into as of the
27th day of March, 1998 (this "Agreement"), by and between Kingsbridge Capital
Limited (the "Investor"), an entity organized and existing under the laws of
the British Virgin Islands, and Neotherapeutics, Inc., a corporation organized
and existing under the laws of the State of Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
from time to time as provided herein, and the Investor shall purchase, up to
$15,000,000 of the Common Stock (as defined below); and
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of the
United States Securities Act of 1933, as amended and the rules and regulations
promulgated thereunder (the "Securities Act"), and/or upon such other exemption
from the registration requirements of the Securities Act as may be available
with respect to any or all of the investments in Common Stock to be made
hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section I.1 "Adjustment Period" shall have the meaning set forth
in Section 2.4(b).
Section I.2 "Average Daily Trading Volume" shall mean, with
respect to any date, the average of the daily trading volumes for the Common
Stock on the Principal Market for twenty-six (26) of the thirty (30)
consecutive Trading Days immediately preceding such date, after removing the
Trading Days with the two (2) highest trading volumes and the Trading Days with
the two (2) lowest trading volumes.
Section I.3 "Bid Price" shall mean the closing bid price (as
reported by NASDAQ) of the Common Stock on the Principal Market.
<PAGE> 8
Section I.4 "Blackout Shares" shall have the meaning assigned to
them in Section 2.7.
Section I.5 "Capital Shares" shall mean the Common Stock and any
shares of any other class of common stock whether now or hereafter authorized,
having the right to participate in the distribution of dividends (as and when
declared) and assets (upon liquidation of the Company).
Section I.6 "Closing" shall mean one of the closings of a
purchase and sale of the Common Stock pursuant to Section 2.1.
Section I.7 "Closing Date" shall mean, with respect to a Closing,
the third Trading Day following the Put Date related to such Closing, provided
all conditions to such Closing have been satisfied on or before such Trading
Day.
Section I.8 "Commitment Period" shall mean the period commencing
on the earlier to occur of (i) the Effective Date or (ii) such earlier date as
the Company and the Investor may mutually agree in writing, and expiring on the
earlier to occur of (x) the date on which the Investor shall have purchased Put
Shares pursuant to this Agreement for an aggregate Purchase Price of the
Maximum Commitment Amount, (y) the date this Agreement is terminated pursuant
to Section 2.5, or (z) the date occurring thirty (30) months from the date of
commencement of the Commitment Period.
Section I.9 "Common Stock" shall mean the Company's common stock,
$0.001 par value per share.
Section I.10 "Common Stock Equivalents" shall mean any securities
that are convertible into or exchangeable for Common Stock or any warrants,
options or other rights to subscribe for or purchase Common Stock or any such
convertible or exchangeable securities.
Section I.11 "Condition Satisfaction Date" shall have the meaning
set forth in Section 7.2 of this Agreement.
Section I.12 "Damages" shall mean any loss, claim, damage,
liability, costs and expenses (including, without limitation, reasonable
attorneys' fees and disbursements and costs and expenses of expert witnesses
and investigation).
Section I.13 "Discount" shall mean twelve percent (12%).
Section I.14 "Effective Date" shall mean the date on which the SEC
first declares effective a Registration Statement registering resale of the
Registrable Securities as set forth in Section 7.2(a).
Section I.15 "Escrow Agreement" shall mean the escrow agreement in
the form of Exhibit A entered into pursuant to Section 7.2(p) hereof.
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<PAGE> 9
Section I.16 "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended and the rules and regulations promulgated thereunder.
Section I.17 "Floor Price" shall mean three dollars ($3.00) per
share.
Section I.18 "Initial Registerable Securities" shall have the
meaning set forth in the Registration Rights Agreement.
Section I.19 "Initial Registration Statement" shall have the
meaning set forth in the Registration Rights Agreement.
Section I.20 "Investment Amount" shall mean the dollar amount
(within the range specified in Section 2.2) to be invested by the Investor to
purchase Put Shares with respect to any Put Date as notified by the Company to
the Investor in accordance with Section 2.2 hereof.
Section I.21 "Legend" shall have the meaning specified in
Section 8.1.
Section I.22 "Market Price" on any given date shall mean the
average of the lowest intra-day prices of the Common Stock over the Valuation
Period. "Lowest intra-day price" shall mean the lowest trade price of the
Common Stock (as reported by NASDAQ) during any Trading Day.
Section I.23 "Maximum Commitment Amount" shall mean $15,000,000.
Section I.24 "Minimum Commitment Amount" shall mean $1,000,000.
Section I.25 "Material Adverse Effect" shall mean any effect on
the business, operations, properties, prospects, or financial condition of the
Company that is material and adverse to the Company or to the Company and such
other entities controlling or controlled by the Company, taken as a whole,
and/or any condition, circumstance, or situation that would prohibit or
otherwise interfere with the ability of the Company to enter into and perform
its obligations under any of (a) this Agreement, (b) the Registration Rights
Agreement, and (c) the Warrant.
Section I.26 "Maximum Put Amount" shall mean with respect to any
Put, an amount determined in accordance with the table set forth on Annex A
hereto.
Section I.27 "Minimum Put Amount" shall mean $250,000.
Section I.28 "NASD" shall mean the National Association of
Securities Dealers, Inc.
Section I.29 "NASDAQ" shall mean Nasdaq Stock Market, Inc.
Section I.30 "Outstanding" when used with reference to Common
Shares or Capital
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<PAGE> 10
Shares (collectively the "Shares"), shall mean, at any date as of which the
number of such Shares is to be determined, all issued and outstanding Shares,
and shall include all such Shares issuable in respect of outstanding scrip or
any certificates representing fractional interests in such Shares; provided,
however, that "Outstanding" shall not refer to any such Shares then directly or
indirectly owned or held by or for the account of the Company.
Section I.31 "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section I.32 "Preferred Stock" shall mean the Company's preferred
stock, par value $.001 per share.]
Section I.33 "Principal Market" shall mean the Nasdaq National
Market, the Nasdaq Small-Cap Market, the American Stock Exchange or the New
York Stock Exchange, whichever is at the time the principal trading exchange or
market for the Common Stock.
Section I.34 "Purchase Price" shall mean, with respect to a Put,
the Market Price on the applicable Put Date (or such other date on which the
Purchase Price is calculated in accordance with the terms and conditions of
this Agreement) less the product of the Discount and the Market Price;
provided, however, that in no event shall the Purchase Price be less than the
Floor Price; provided, further, that during the Adjustment Period the Purchase
Price shall be adjusted as set forth in Section 2.4.
Section I.35 "Put" shall mean each occasion the Company elects to
exercise its right to tender a Put Notice requiring the Investor to purchase a
discretionary amount of the Company's Common Stock, subject to the terms and
conditions of this Agreement.
Section I.36 "Put Date" shall mean the Trading Day during the
Commitment Period that a Put Notice to sell Common Stock to the Investor is
deemed delivered pursuant to Section 2.2(b) hereof.
Section I.37 "Put Notice" shall mean a written notice to the
Investor setting forth the Investment Amount that the Company intends to
require the Investor to purchase pursuant to the terms of this Agreement.
Section I.38 "Put Shares" shall mean all shares of Common Stock
issued or issuable pursuant to a Put that has been exercised or may be
exercised in accordance with the terms and conditions of this Agreement.
Section I.39 "Registrable Securities" shall mean the (i) Put
Shares, (ii) the Warrant Shares, (iii) the Blackout Shares and (iv) any
securities issued or issuable with respect to any of the foregoing by way of
exchange, stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization or
otherwise. As to any particular Registrable Securities, once issued such
securities shall cease to
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be Registrable Securities when (w) a Registration Statement has been declared
effective by the SEC and all Registrable Securities have been disposed of
pursuant to a Registration Statement, (x) all Registrable Securities have been
sold under circumstances under which all of the applicable conditions of Rule
144 (or any similar provision then in force) under the Securities Act ("Rule
144") are met, (y) such time as all Registrable Securities have been otherwise
transferred to holders who may trade such shares without restriction under the
Securities Act, and the Company has delivered a new certificate or other
evidence of ownership for such securities not bearing a restrictive legend or
(z) in the opinion of counsel to the Company, which counsel shall be reasonably
acceptable to the Investor, all Registrable Securities may be sold without
registration or the need for an exemption from any registration requirements
and without any time, volume or manner limitations pursuant to Rule 144(k) (or
any similar provision then in effect) under the Securities Act.
Section I.40 "Registration Rights Agreement" shall mean the
registration rights agreement in the form of Exhibit B hereto.
Section I.41 "Registration Statement" shall mean a registration
statement on Form S-3 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC for which the Company then qualifies and which counsel for the Company
shall deem appropriate and which form shall be available for the resale of the
Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement, the Registration Rights Agreement, and the
Warrant and in accordance with the intended method of distribution of such
securities), for the registration of the resale by the Investor of the
Registrable Securities under the Securities Act.
Section I.42 "Regulation D" shall have the meaning set forth in
the recitals of this Agreement.
Section I.43 "SEC" shall mean the Securities and Exchange
Commission.
Section I.44 "Section 4(2)" shall have the meaning set forth in
the recitals of this Agreement.
Section I.45 "Securities Act" shall have the meaning set forth in
the recitals of this Agreement.
Section I.46 "SEC Documents" shall mean the Company's latest Form
10-KSB as of the time in question, all Forms 10-QSB and 8-K filed thereafter,
and the Proxy Statement for its latest fiscal year as of the time in question
until such time the Company no longer has an obligation to maintain the
effectiveness of a Registration Statement as set forth in the Registration
Rights Agreement.
Section I.47 "Standby Letter of Credit" shall have the meaning set
forth in Section 2.9.
Section I.48 "Subscription Date" shall mean the date on which this
Agreement is
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executed and delivered by the parties hereto.
Section I.49 "Trading Cushion" shall mean the mandatory fifteen
(15) Trading Days between Put Dates.
Section I.50 "Trading Day" shall mean any day during which the
Principal Market shall be open for business.
Section I.51 "Underwriter" shall mean any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Investor pursuant to a Registration Statement.
Section I.52 "Valuation Event" shall mean an event in which the
Company at any time during a Valuation Period takes any of the following
actions:
(a) subdivides or combines its Common Stock;
(b) pays a dividend in its Capital Stock or makes any
other distribution of its Capital Shares, except for dividends
paid with respect to the Preferred Stock;
(c) issues any additional Capital Shares ("Additional
Capital Shares"), otherwise than as provided in the foregoing
Subsections (a) and (b) above, at a price per share less, or
for other consideration lower, than the Bid Price in effect
immediately prior to such issuance, or without consideration;
(d) issues any warrants, options or other rights to
subscribe for or purchase any Additional Capital Shares and
the price per share for which Additional Capital Shares may at
any time thereafter be issuable pursuant to such warrants,
options or other rights shall be less than the Bid Price in
effect immediately prior to such issuance;
(e) issues any securities convertible into or
exchangeable for Capital Shares and the consideration per
share for which Additional Capital Shares may at any time
thereafter be issuable pursuant to the terms of such
convertible or exchangeable securities shall be less than the
Bid Price in effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidences of
indebtedness to the holders of its Capital Shares as a
dividend in liquidation or by way of return of capital or
other than as a dividend payable out of earnings or surplus
legally available for dividends under applicable law or any
distribution to such holders made in respect of the sale of
all or substantially all of the Company's assets (other than
under the circumstances provided for in the foregoing
subsections (a) through (e); or
(g) takes any action affecting the number of Outstanding
Capital Shares, other than an action described in any of the
foregoing Subsections (a) through (f) hereof,
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inclusive, which in the opinion of the Company's Board of
Directors, determined in good faith, would have a materially
adverse effect upon the rights of the Investor at the time of
a Put or exercise of the Warrant.
Section I.53 "Valuation Period" shall mean the period of five (5)
Trading Days during which the Purchase Price of the Common Stock is valued,
which period shall be with respect to the Purchase Price on any Put Date, the
two (2) Trading Day preceding and the two (2) Trading Days following the
Trading Day on which the applicable Put Notice is deemed to be delivered, as
well as the Trading Day on which such notice is deemed to be delivered;
provided, however, that if a Valuation Event occurs during any Valuation
Period, a new Valuation Period shall begin on the Trading Day immediately after
the occurrence of such Valuation Event and end on the fifth Trading Day
thereafter.
Section I.54 "Warrant" shall mean the Warrant in the form of
Exhibit C hereto issued pursuant to Section 2.6 of this Agreement.
Section I.55 "Warrant Shares" shall mean all shares of Common
Stock issued or issuable pursuant to exercise of the Warrant.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section II.1 Investments.
(a) Puts. Upon the terms and conditions set forth herein
(including, without limitation, the provisions of Article VII
hereof), on any Put Date the Company may exercise a Put by the
delivery of a Put Notice. The number of Put Shares that the
Investor shall receive pursuant to such Put shall be
determined by dividing the Investment Amount specified in the
Put Notice by the Purchase Price with respect to such Put
Date.
(b) Minimum Amount of Puts. The Company shall, in
accordance with Section 2.2(a), issue and sell Put Shares to
the Investor and the Investor shall purchase Put Shares from
the Company totaling (in aggregate Purchase Prices) at least
the Minimum Commitment Amount. If the Company for any reason
fails to issue and deliver such Put Shares during the
Commitment Period, on the first Trading Day after the
expiration of the Commitment Period, the Company shall wire to
Investor a sum in immediately available funds equal to the
product of (X) the Minimum Commitment Amount minus the
aggregate Investment Amounts of the Put Shares delivered to
the Investor hereunder and (Y) the Discount.
(c) Maximum Amount of Puts. Unless the Company obtains
the requisite approval of its shareholders in accordance with
the corporate laws of Delaware and the applicable rules of the
Principal Market, no more than 19.9% of the
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Outstanding shares of Common Stock, which is equal to
1,089,387 shares, may be issued and sold pursuant to Puts.
Section II.2 Mechanics.
(a) Put Notice. At any time during the Commitment
Period, the Company may deliver a Put Notice to the Investor,
subject to the conditions set forth in Section 7.2; provided,
however, the Investment Amount for each Put as designated by
the Company in the applicable Put Notice shall be neither less
than the Minimum Put Amount nor more than the Maximum Put
Amount.
(b) Date of Delivery of Put Notice. A Put Notice shall
be deemed delivered on (i) the Trading Day it is received by
facsimile or otherwise by the Investor if such notice is
received prior to 12:00 noon New York time, or (ii) the
immediately succeeding Trading Day if it is received by
facsimile or otherwise after 12:00 noon New York time on a
Trading Day or at any time on a day which is not a Trading
Day. No Put Notice may be deemed delivered, on a day that is
not a Trading Day.
Section II.3 Closings. On each Closing Date for a Put, (i) the
Company shall deliver into escrow one or more certificates, at the Investor's
option, representing the Put Shares to be purchased by the Investor pursuant to
Section 2.1 herein, registered in the name of the Investor and (ii) the
Investor shall deliver into escrow the Investment Amount specified in the Put
Notice by wire transfer of immediately available funds to an account designated
by the Company on or before the Closing Date. In addition, on or prior to such
Closing Date, each of the Company and the Investor shall deliver to the other
all documents, instruments and writings required to be delivered or reasonably
requested by either of them pursuant to this Agreement in order to implement
and effect the transactions contemplated herein. Payment of the Investment
Amount to the Company or the Company's draw on the Standby Letter of Credit (as
defined in Section 2.9) and delivery of such certificate(s) to the Investor
shall occur out of escrow in accordance with the Escrow Agreement; provided,
however, that to the extent the Company has not paid the fees, expenses and
disbursements of the Investor's counsel in accordance with Section 12.1, the
amount of such fees, expenses and disbursements shall be paid in immediately
available funds, at the direction of the Investor, to Investor's counsel with
no reduction in the number of Put Shares issuable to the Investor on such
Closing Date.
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Section II.4 Special Circumstances; Adjustment Period.
(a) Adjustment Period Notice. In the event that the
Company shall in good faith anticipate executing an agreement
of acquisition, merger or consolidation within ninety (90)
days after giving the Investor Adjustment Period Notice (as
defined below), the Company may, at its sole discretion, give
the Investor at least twenty-one (21) days' irrevocable
advance notice, in the form of Exhibit D hereto ("Adjustment
Period Notice"), that the Company shall initiate an Adjustment
Period (as defined below). The Company shall not give such
Adjustment Period Notice if it constitutes the disclosure of
material non-public information to the Investor.
(b) During the Adjustment Period:
1. the Purchase Price shall be eighty three
percent (83%) of the Market Price on the applicable
Put Date;
2. the duration of the Trading Cushion shall be
shortened to ten (10) Trading Days until the
expiration of five (5) consecutive weeks after the
date on which the Adjustment Period Notice was given
(the "Adjustment Period"); and
3. the Company may not deliver a Put Notice such
that the number of Put Shares to be purchased by the
Investor upon the applicable Closing, when aggregated
with all other shares of Common Stock then owned by
the Investor beneficially or deemed beneficially
owned by the Investor, would result in the Investor
owning more than 4.9% of all of such Common Stock as
would be outstanding on such Closing Date, as
determined in accordance with Section 13(d) of the
Exchange Act and the regulations promulgated
thereunder. For purposes of this Section 2.4(c), in
the event that the amount of Common Stock outstanding
as determined in accordance with Section 13(d) of the
Exchange Act is greater on a Closing Date than on the
date upon which the Put Notice associated with such
Closing Date is given, the amount of Common Stock
outstanding on such Closing Date shall govern for
purposes of determining whether the Investor, when
aggregating all purchases of Common Stock made
pursuant to this Agreement and, if any, Warrant
Shares, would own more than 4.9% of the Common Stock
following such Closing Date.
Section II.5 Termination of Investment Obligation. The obligation
of the Investor to purchase shares of Common Stock shall terminate permanently
(including with respect to a Closing Date that has not yet occurred) in the
event that (i) there shall occur any stop order or suspension of the
effectiveness of any Registration Statement for an aggregate of thirty (30)
Trading Days during the Commitment Period, for any reason other than deferrals
or suspension during a Blackout Period in accordance with the Registration
Rights Agreement, as a result of
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corporate developments subsequent to the Subscription Date that would require
such Registration Statement to be amended to reflect such event in order to
maintain its compliance with the disclosure requirements of the Securities Act
or (ii) the Company shall at any time fail to comply with the requirements of
Section 6.3, 6.4, 6.5 or 6.6.
Section II.6 The Warrant. On the Subscription Date, the Company
shall issue the Warrant to the Investor. The Warrant shall be delivered by the
Company to the Investor upon execution of this Agreement by the parties hereto.
The Warrant Shares shall be registered for resale pursuant to the Registration
Rights Agreement.
Section II.7 Blackout Shares. In the event that, (a) within five
Trading Days following any Closing Date, the Company gives a Blackout Notice to
the Investor of a Blackout Period in accordance with the Registration Rights
Agreement, and (b) the Bid Price on the Trading Day immediately preceding such
Blackout Period ("Old Bid Price") is greater than the Bid Price on the first
Trading Day following such Blackout Period that the Investor may sell its
Registrable Securities pursuant to an effective Registration Statement ("New
Bid Price"), then the Company shall issue to the Investor the number of
additional shares of Registrable Securities (the "Blackout Shares") equal to
the difference between (X) the product of the number of Registrable Securities
held by Investor immediately prior to the Blackout Period multiplied by the Old
Bid Price, divided by the New Bid Price, and (Y) the number of Registrable
Securities held by Investor immediately prior to the Blackout Period.
Section II.8 Liquidated Damages. The parties hereto acknowledge
and agree that the sum payable under Section 2.1(b) and the requirement to
issue Blackout Shares under Section 2.7 above shall give rise to liquidated
damages and not penalties. The parties further acknowledge that (a) the amount
of loss or damages likely to be incurred is incapable or is difficult to
precisely estimate, (b) the amounts specified in such Sections bear a
reasonable proportion and are not plainly or grossly disproportionate to the
probable loss likely to be incurred by the Investor in connection with the
failure by the Company to make Puts with aggregate Purchase Prices totalling at
least the Minimum Commitment Amount or in connection with a Blackout Period
under the Registration Rights Agreement, and (c) the parties are sophisticated
business parties and have been represented by sophisticated and able legal and
financial counsel and negotiated this Agreement at arm's length.
Section II.9 Standby Letter of Credit. On or before July 31,
1998, the Investor shall obtain from a reputable financial institution,
reasonably acceptable to the Company (it being agreed that a Merrill Lynch
company will be acceptable to the Company), a standby letter of credit, bank
guarantee or similar contingent financial instrument or arrangement, in favor
of the Company and in the amount of $1,000,000 (the "Standby Letter of
Credit"); provided, however, that the Investor shall have no such obligation to
obtain the Standby Letter of Credit if on or prior to July 31, 1998 the Company
shall have exercised its Put rights pursuant to Section 2.1 above and the
Investor shall have paid an aggregate of Investment Amounts equal to or greater
than $1,000,000. The Standby Letter of Credit, if any, will enable the Company
to make a draw thereon in the event that in connection with a Closing: (i) the
Company has duly exercised its Put right pursuant to Section 2.1 above; (ii)
there is mutual agreement between the Company and the
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Investor that all of the conditions set forth in Section 7.2 hereof have been
satisfied; (iii) the Company has placed the Put Shares into escrow in
accordance with Section 2.3 and (iv) the Investor has not paid the Investment
Amount into escrow in accordance with Section 2.3 hereof. Any dispute relating
to the satisfaction of the conditions set forth in Section 7.2 hereof shall be
resolved in accordance with the terms of Section 11.3(c) hereof. The Standby
Letter of Credit may not be used for, and shall on the face of any and all
documentation representing the Standby Letter of Credit expressly prohibit any
use thereof for, any purpose other than for payment of the Investment Amount,
including, without limitation, as collateral for any present or future
indebtedness or other obligation of the Company. In the event that the Standby
Letter of Credit is obtained pursuant to this Section 2.9, then the Company
shall pay the fees of the financial institution issuing the Standby Letter of
Credit up to $5,000 per annum. The Standby Letter of Credit shall have a term
equal to the lesser of (i) ninety (90) days from the initial issuance thereof
and (ii) such Closing Date that is the Closing Date on which the Investor shall
have paid an aggregate of Investment Amounts for Put Shares equal to or greater
than $1,000,000.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
The Investor represents and warrants to the Company that:
Section III.1 Intent. The Investor is entering into this Agreement
for its own account and the Investor has no present arrangement (whether or not
legally binding) at any time to sell the Common Stock to or through any person
or entity; provided, however, that by making the representations herein, the
Investor does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
Section III.2 Sophisticated Investor. The Investor is a
sophisticated investor (as described in Rule 506(b)(2)(ii) of Regulation D) and
an accredited investor (as defined in Rule 501 of Regulation D), and Investor
has such experience in business and financial matters that it is capable of
evaluating the merits and risks of an investment in Common Stock. The Investor
acknowledges that an investment in the Common Stock is speculative and involves
a high degree of risk.
Section III.3 Authority. This Agreement has been duly authorized
and validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section III.4 Not an Affiliate. The Investor is not an officer,
director or "affiliate" (as that term is defined in Rule 405 of the Securities
Act) of the Company.
Section III.5 Organization and Standing. Investor is duly
organized, validly existing,
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and in good standing under the laws of the British Virgin Islands.
Section III.6 Absence of Conflicts. The execution and delivery of
this Agreement and any other document or instrument contemplated hereby, and
the consummation of the transactions contemplated thereby, and compliance with
the requirements thereof, will not (a) violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Investor, or, to
the Investor's knowledge, (b) violate any provision of any indenture,
instrument or agreement to which Investor is a party or is subject, or by which
Investor or any of its assets is bound, (c) conflict with or constitute a
material default thereunder, (d) result in the creation or imposition of any
lien pursuant to the terms of any such indenture, instrument or agreement, or
constitute a breach of any fiduciary duty owed by Investor to any third party,
or (e) require the approval of any third-party (that has not been obtained)
pursuant to any material contract to which Investor is subject or to which any
of its assets, operations or management may be subject.
Section III.7 Disclosure; Access to Information. Investor has
received all documents, records, books and other information pertaining to
Investor's investment in the Company that have been requested by Investor. The
Investor has reviewed or received copies of the SEC Documents.
Section III.8 Manner of Sale. At no time was Investor presented
with or solicited by or through any leaflet, public promotional meeting,
television advertisement or any other form of general solicitation or
advertising.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor that:
Section IV.1 Organization of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted. Except for Neotherapeutics GmbH, a wholly owned Swiss subsidiary
and as set forth in the SEC Documents, the Company does not own more than fifty
percent (50%) of the outstanding capital stock of or control any other business
entity. The Company is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary,
other than those in which the failure so to qualify would not have a Material
Adverse Effect.
Section IV.2 Authority. (i) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Registration Rights Agreement, and the Warrant and to issue
the Put Shares, the Warrant, the Warrant Shares and the Blackout Shares; (ii)
the execution and delivery of this Agreement and the Registration Rights
Agreement, and the execution, issuance and delivery of the Warrant, by the
Company and the consummation by it of the transactions contemplated hereby and
thereby have been duly
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authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required; and (iii) each of this Agreement and the Registration Rights
Agreement has been duly executed and delivered, and the Warrant has been duly
executed, issued and delivered, by the Company and constitute 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, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
Section IV.3 Capitalization. As of March 16, 1998, the authorized
capital stock of the Company consisted of 25,000,000 shares of Common Stock, of
which 5,474,307 shares were issued and outstanding, and 5,000,000 shares of
Preferred stock, of which none were issued and outstanding. Except for (i)
options to purchase not more than 452,300 shares of Common Stock with purchase
prices between $.025 and $12.88 per share; (ii) warrants to purchase not more
than 2,704,000 shares of Common Stock with a purchase price of $11.40 per share
and (iii) warrants to purchase not more than 246,000 Units at $9.12 per unit,
with each "Unit" representing one (1) share of Common Stock and one (1) warrant
to purchase one (1) share of Common Stock at a purchase price of $11.40 per
share, there are no options, warrants, or rights to subscribe to, securities,
rights or obligations convertible into or exchangeable for or giving any right
to subscribe for any shares of capital stock of the Company. All of the
outstanding shares of Common Stock of the Company have been duly and validly
authorized and issued and are fully paid and nonassessable.
Section IV.4 Common Stock. The Company has registered its Common
Stock pursuant to Section 12(b) or 12(g) of the Exchange Act and is in full
compliance with all reporting requirements of the Exchange Act, and the Company
has maintained all requirements for the continued listing or quotation of its
Common Stock, and such Common Stock is currently listed or quoted on the
Principal Market. As of the date hereof, the Principal Market is the Nasdaq
National Market.
Section IV.5 SEC Documents. The Company has delivered or made
available to the Investor true and complete copies of the SEC Documents
(including, without limitation, proxy information and solicitation materials).
The Company has not provided to the Investor any information that, according to
applicable law, rule or regulation, should have been disclosed publicly prior
to the date hereof by the Company, but which has not been so disclosed. As of
their respective dates, the SEC Documents complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as the case
may be, and other federal, state and local laws, rules and regulations
applicable to such SEC Documents, and none of the SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents comply as to form and substance in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent
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basis during the periods involved (except (i) as may be otherwise indicated in
such financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present in all material respects
the financial position of the Company as of the dates thereof and the results
of operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments).
Section IV.6 Exemption from Registration; Valid Issuances. The
sale and issuance of the Warrant, the Warrant Shares, the Put Shares and any
Blackout Shares in accordance with the terms and on the bases of the
representations and warranties set forth in this Agreement, may and shall be
properly issued pursuant to Rule 4(2), Regulation D and/or any applicable state
law. When issued and paid for as herein provided, the Put Shares, the Warrant
Shares and any Blackout Shares shall be duly and validly issued, fully paid,
and nonassessable. Neither the sales of the Put Shares, the Warrant, the
Warrant Shares or any Blackout Shares pursuant to, nor the Company's
performance of its obligations under, this Agreement, the Registration Rights
Agreement, or the Warrant shall (i) result in the creation or imposition of any
liens, charges, claims or other encumbrances upon the Put Shares, the Warrant
Shares, any Blackout Shares or any of the assets of the Company, or (ii)
entitle the holders of Outstanding Capital Shares to preemptive or other rights
to subscribe to or acquire the Capital Shares or other securities of the
Company. The Put Shares, the Warrant Shares and any Blackout Shares shall not
subject the Investor to personal liability by reason of the ownership thereof.
Section IV.7 No General Solicitation or Advertising in Regard to
this Transaction. Neither the Company nor any of its affiliates nor any
distributor or any person acting on its or their behalf (i) has conducted or
will conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D) or general advertising with respect to any of the Put Shares, the
Warrant, the Warrant Shares or any Blackout Shares, or (ii) made any offers or
sales of any security or solicited any offers to buy any security under any
circumstances that would require registration of the Common Stock under the
Securities Act.
Section IV.8 Corporate Documents. The Company has furnished or
made available to the Investor true and correct copies of the Company's
Certificate of Incorporation, as amended and in effect on the date hereof (the
"Certificate"), and the Company's By-Laws, as amended and in effect on the date
hereof (the "By-Laws").
Section IV.9 No Conflicts. The execution, delivery and
performance of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby, including without limitation
the issuance of the Put Shares, the Warrant, the Warrant Shares and the
Blackout Shares do not and will not (i) result in a violation of the
Certificate or By-Laws or (ii) conflict with, or constitute a material default
(or an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture, instrument or any "lock-up"
or similar provision of any underwriting or similar agreement to which the
Company is a party, or (iii) result in a violation of any federal, state, local
or foreign law, rule, regulation, order, judgment or decree (including federal
and state securities laws and regulations) applicable to the
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Company or by which any property or asset of the Company is bound or affected
(except for such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect) nor is the Company otherwise in violation of,
conflict with or in default under any of the foregoing; provided, however, that
for purposes of the Company's representations and warranties as to violations
of foreign law, rule or regulation referenced in clause (iii), such
representations and warranties are made only to the best of the Company's
knowledge insofar as the execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby are or may be affected by the status of the Investor under
or pursuant to any such foreign law, rule or regulation. The business of the
Company is not being conducted in violation of any law, ordinance or regulation
of any governmental entity, except for possible violations that either singly
or in the aggregate do not and will not have a Material Adverse Effect. The
Company is not required under federal, state or local law, rule or regulation
to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or issue and
sell the Common Stock or the Warrant in accordance with the terms hereof (other
than any SEC, NASD or state securities filings that may be required to be made
by the Company subsequent to any Closing, any registration statement that may
be filed pursuant hereto, and any shareholder approval required by the rules
applicable to companies whose common stock trades on the Nasdaq Small Cap
Market); provided that, for purposes of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investor herein.
Section IV.10 No Material Adverse Change. Since December 31, 1996,
no event has occurred that would have a Material Adverse Effect on the Company,
except as disclosed in the SEC Documents.
Section IV.11 No Undisclosed Liabilities. The Company has no
liabilities or obligations that are material, individually or in the aggregate,
and that are not disclosed in the SEC Documents or otherwise publicly
announced, other than those incurred in the ordinary course of the Company's
businesses since December 31, 1996 and which, individually or in the aggregate,
do not or would not have a Material Adverse Effect on the Company.
Section IV.12 No Undisclosed Events or Circumstances. Since
December 31, 1996, no event or circumstance has occurred or exists with respect
to the or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which
has not been so publicly announced or disclosed in the SEC Documents.
Section IV.13 No Integrated Offering. Neither the Company, nor any
of its affiliates, nor any person acting on its or their behalf has, directly
or indirectly, made any offers or sales of any security or solicited any offers
to buy any security, other than pursuant to this Agreement, under circumstances
that would require registration of the Common Stock under the Securities Act.
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Section IV.14 Litigation and Other Proceedings. Except as may be
set forth in the SEC Documents, there are no lawsuits or proceedings pending or
to the best knowledge of the Company threatened, against the Company, nor has
the Company received any written or oral notice of any such action, suit,
proceeding or investigation, which might have a Material Adverse Effect. Except
as set forth in the SEC Documents, no judgment, order, writ, injunction or
decree or award has been issued by or, so far as is known by the Company,
requested of any court, arbitrator or governmental agency which might result in
a Material Adverse Effect.
Section IV.15 No Misleading or Untrue Communication. The Company,
any Person representing the Company, and, to the knowledge of the Company, any
other Person selling or offering to sell the Put Shares, the Warrant, the
Warrant Shares or the Blackout Shares in connection with the transactions
contemplated by this Agreement, have not made, at any time, any oral
communication in connection with the offer or sale of the same which contained
any untrue statement of a material fact or omitted to state any material fact
necessary in order to make the statements, in the light of the circumstances
under which they were made, not misleading.
Section IV.16 Material Non-Public Information. The Company is not
in possession of, nor has the Company or its agents disclosed to the Investor,
any material non-public information that (i) if disclosed, would, or could
reasonably be expected to have, an effect on the price of the Common Stock or
(ii) according to applicable law, rule or regulation, should have been
disclosed publicly by the Company prior to the date hereof but which has not
been so disclosed.
ARTICLE V
COVENANTS OF THE INVESTOR
Section V.1 Compliance with Law. The Investor's trading
activities with respect to shares of the Company's Common Stock will be in
compliance with all applicable state and federal securities laws, rules and
regulations and the rules and regulations of the Principal Market on which the
Company's Common Stock is listed.
Section V.2 Limitation on Short Sales. The Investor and its
Affiliates shall not engage in short sales of the Company's Common Stock;
provided, however, that the Investor may enter into any short sale or other
hedging or similar arrangement it deems appropriate with respect to Put Shares
after it receives a Put Notice with respect to such Put Shares so long as such
sales or arrangements do not involve more than the number of such Put Shares
(determined as of the date of such Put Notice).
ARTICLE VI
COVENANTS OF THE COMPANY
Section VI.1 Registration Rights. The Company shall cause the
Registration Rights Agreement to remain in full force and effect and the
Company shall comply in all respects with the terms thereof.
Section VI.2 Reservation of Common Stock. As of the date hereof,
the Company has
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available and the Company shall reserve and keep available at all times, free
of preemptive rights, shares of Common Stock for the purpose of enabling the
Company to satisfy any obligation to issue the Put Shares, the Warrant Shares
and the Blackout Shares; such amount of shares of Common Stock to be reserved
shall be calculated based upon the minimum Purchase Price for the Put Shares
under the terms and conditions of this Agreement and the Exercise Price of the
Warrant and a good faith estimate by the Company in consultation with the
Investor of the number of Blackout Shares that will need to be issued. The
number of shares so reserved from time to time, as theretofore increased or
reduced as hereinafter provided, may be reduced by the number of shares
actually delivered hereunder.
Section VI.3 Listing of Common Stock. The Company shall maintain
the listing of the Common Stock on a Principal Market, and as soon as
practicable (but in any event prior to the commencement of the Commitment
Period) will cause the Put Shares, the Warrant Shares and any Blackout Shares
to be listed on the Principal Market. The Company further shall, if the
Company applies to have the Common Stock traded on any other Principal Market,
include in such application the Put Shares, the Warrant Shares and any Blackout
Shares, and shall take such other action as is necessary or desirable in the
opinion of the Investor to cause the Common Stock to be listed on such other
Principal Market as promptly as possible. The Company shall take use its
reasonable best efforts to continue the listing and trading of its Common Stock
on the Principal Market (including, without limitation, maintaining sufficient
net tangible assets) and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the NASD
and the Principal Market.
Section VI.4 Exchange Act Registration. The Company shall (i)
cause its Common Stock to continue to be registered under Section 12(g) or
12(b) of the Exchange Act, will comply in all respects with its reporting and
filing obligations under said Act, and will not take any action or file any
document (whether or not permitted by said Act or the rules thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under said Act.
Section VI.5 Legends. The certificates evidencing the Put Shares,
the Warrant Shares and the Blackout Shares shall be free of legends, except as
provided for in Article VIII.
Section VI.6 Corporate Existence. The Company shall take all
steps necessary to preserve and continue the corporate existence of the
Company.
Section VI.7 Additional SEC Documents. The Company shall deliver
to the Investor, as and when the originals thereof are submitted to the SEC for
filing, copies of all SEC Documents so furnished or submitted to the SEC.
Section VI.8 Notice of Certain Events Affecting Registration;
Suspension of Right to Make a Put. The Company shall immediately notify the
Investor upon the occurrence of any of the following events in respect of a
registration statement or related prospectus in respect of an offering of
Registrable Securities: (i) receipt of any request for additional information
by the SEC or any other federal or state governmental authority during the
period of effectiveness of the
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registration statement for amendments or supplements to the registration
statement or related prospectus; (ii) the issuance by the SEC or any other
federal or state governmental authority of any stop order suspending the
effectiveness of any Registration Statement or the initiation of any
proceedings for that purpose; (iii) receipt of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in such Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the registration statement, related prospectus or documents so that,
in the case of a Registration Statement, it will not contain 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, and
that in the case of the related prospectus, it will not contain 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, in the light of the
circumstances under which they were made, not misleading; and (v) the Company's
reasonable determination that a post-effective amendment to the registration
statement would be appropriate, and the Company shall promptly make available
to the Investor any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Investor any Put Notice during the
continuation of any of the foregoing events.
Section VI.9 Expectations Regarding Put Notices. Within ten (10)
days after the commencement of each calendar quarter occurring subsequent to
the commencement of the Commitment Period, the Company undertakes to notify the
Investor as to its reasonable expectations as to the dollar amount it intends
to raise during such calendar quarter, if any, through the issuance of Put
Notices. Such notification shall constitute only the Company's good faith
estimate with respect to such calendar quarter and shall in no way obligate the
Company to raise such amount during such calendar quarter or otherwise limit
its ability to deliver Put Notices during such calendar quarter. The failure by
the Company to comply with this provision can be cured by the Company's
notifying the Investor at any time as to its reasonable expectations with
respect to the current calendar quarter.
Section VI.10 Consolidation; Merger. The Company shall not, at any
time after the date hereof, effect any merger or consolidation of the Company
with or into, or a transfer of all or substantially all of the assets of the
Company to, another entity unless the resulting successor or acquiring entity
(if not the Company) assumes by written instrument the obligation to deliver to
the Investor such shares of stock and/or securities as the Investor is entitled
to receive pursuant to this Agreement and the Warrant.
Section VI.11 Issuance of Put Shares, Warrant Shares and Blackout
Shares. The sale of the Put Shares, the issuance of the Warrant Shares
pursuant to exercise of the Warrant and the issuance of any Blackout Shares
shall be made in accordance with the provisions and requirements of Regulation
D and any applicable state law. Issuance of the Warrant Shares pursuant to
exercise of the Warrant through a cashless exercise shall be made in accordance
with the provisions and requirements of Section 3(a)(9) under the Securities
Act and any applicable state law.
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Section VI.12 Legal Opinion on Subscription Date. The Company's
independent counsel shall deliver to the Investor upon execution of this
Agreement an opinion in the form of Exhibit E, except for paragraph 7 thereof.
ARTICLE VII
CONDITIONS TO DELIVERY OF
PUT NOTICES AND CONDITIONS TO CLOSING
Section VII.1 Conditions Precedent to the Obligation of the Company
to Issue and Sell Common Stock. The obligation hereunder of the Company to
issue and sell the Put Shares to the Investor incident to each Closing is
subject to the satisfaction, at or before each such Closing, of each of the
conditions set forth below.
(a) Accuracy of the Investor's Representation and
Warranties. The representations and warranties of the
Investor shall be true and correct in all material respects as
of the date of this Agreement and as of the date of each such
Closing as though made at each such time.
(b) Performance by the Investor. The Investor shall have
performed, satisfied and complied in all respects with all
covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the
Investor at or prior to such Closing.
Section VII.2 Conditions Precedent to the Right of the Company to
Deliver a Put Notice and the Obligation of the Investor to Purchase Put Shares.
The right of the Company to deliver a Put Notice and the obligation of the
Investor hereunder to acquire and pay for the Put Shares incident to a Closing
is subject to the satisfaction, on (i) the date of delivery of such Put Notice
and (ii) the applicable Closing Date (each a "Condition Satisfaction Date"), of
each of the following conditions:
(a) Registration of Registrable Securities with the SEC.
As set forth in the Registration Rights Agreement, the Company
shall have filed with the SEC the Initial Registration
Statement with respect to the resale of the Initial
Registrable Securities by the Investor that shall have been
declared effective by the SEC prior to the first Put Date, but
in no event later than ninety (90) days after Subscription
Date. For the purposes of any Put Notice with respect
Registerable Securities other than the Initial Registerable
Securities the Company shall have filed with the SEC a
Registration Statement with respect to the resale of such
Registrable Securities by the Investor that shall have been
declared effective by the SEC prior to the Put Date therefor.
(b) Effective Registration Statement. As set forth in
the Registration Rights Agreement, a Registration Statement
shall have previously become effective for the resale by the
Investor of the Registerable Securities subject to such Put
Notice
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and such Registration Statement shall remain effective on each
Condition Satisfaction Date and (i) neither the Company nor
the Investor shall have received notice that the SEC has
issued or intends to issue a stop order with respect to such
Registration Statement or that the SEC otherwise has suspended
or withdrawn the effectiveness of such Registration Statement,
either temporarily or permanently, or intends or has
threatened to do so (unless the SEC's concerns have been
addressed and the Investor is reasonably satisfied that the
SEC no longer is considering or intends to take such action),
and (ii) no other suspension of the use or withdrawal of the
effectiveness of such Registration Statement or related
prospectus shall exist.
(c) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company
shall be true and correct as of each Condition Satisfaction
Date as though made at each such time (except for
representations and warranties specifically made as of a
particular date) with respect to all periods, and as to all
events and circumstances occurring or existing to and
including each Condition Satisfaction Date, except for any
conditions which have temporarily caused any representations
or warranties herein to be incorrect and which have been
corrected with no continuing impairment to the Company or the
Investor.
(d) Performance by the Company. The Company shall have
performed, satisfied and complied in all respects with all
covenants, agreements and conditions required by this
Agreement, the Registration Rights Agreement and the Warrant
to be performed, satisfied or complied with by the Company at
or prior to each Condition Satisfaction Date.
(e) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or adopted by any court or
governmental authority of competent jurisdiction that
prohibits or directly and adversely affects any of the
transactions contemplated by this Agreement, and no proceeding
shall have been commenced that may have the effect of
prohibiting or adversely affecting any of the transactions
contemplated by this Agreement.
(f) Adverse Changes. Since the date of filing of the
Company's most recent SEC Document, no event that had or is
reasonably likely to have a Material Adverse Effect has
occurred.
(g) No Suspension of Trading In or Delisting of Common
Stock. The trading of the Common Stock shall not have been
suspended by the SEC, the Principal Market or the NASD and the
Common Stock shall have been approved for listing or quotation
on and shall not have been delisted from the Principal Market.
The issuance of shares of Common Stock with respect to the
applicable Closing, if any, shall not violate the shareholder
approval requirements of the Principal
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Market.
(h) Legal Opinion. The Company shall have caused to be
delivered to the Investor, within five (5) Trading Days of the
effective date of the Initial Registration Statement and each
subsequent Registration Statement, an opinion of the Company's
independent counsel in the form of Exhibit E hereto, addressed
to the Investor.
(i) Due Diligence. No dispute between the Company and
the Investor shall exist pursuant to Section 7.3 as to the
adequacy of the disclosure contained in any Registration
Statement.
(j) Ten Percent Limitation. On each Closing Date, the
number of Put Shares then to be purchased by the Investor
shall not exceed the number of such shares that, when
aggregated with all other shares of Registerable Securities
then owned by the Investor beneficially or deemed beneficially
owned by the Investor, would result in the Investor owning no
more than 9.9% of all of such Common Stock as would be
outstanding on such Closing Date, as determined in accordance
with Section 16 of the Exchange Act and the regulations
promulgated thereunder. For purposes of this Section 7.2(j),
in the event that the amount of Common Stock outstanding as
determined in accordance with Section 16 of the Exchange Act
and the regulations promulgated thereunder is greater on a
Closing Date than on the date upon which the Put Notice
associated with such Closing Date is given, the amount of
Common Stock outstanding on such Closing Date shall govern for
purposes of determining whether the Investor, when aggregating
all purchases of Common Stock made pursuant to this Agreement
and, if any, Warrant Shares and Blackout Shares, would own
more than 9.9% of the Common Stock following such Closing
Date.
(k) Minimum Bid Price. The Bid Price equals or exceeds
the Floor Price from the Trading Day immediately preceding the
date on which such Notice is deemed delivered until the
Trading Day immediately preceding the Closing Date (as
adjusted for stock splits, stock dividends, reverse stock
splits, and similar events).
(l) Minimum Average Daily Trading Volume. The Average
Daily Trading Volume for the Common Stock with respect to the
applicable Put Date and Closing Date equals or exceeds ten
thousand (10,000) shares per Trading Day.
(m) No Knowledge. The Company shall have no knowledge of
any event more likely than not to have the effect of causing
such Registration Statement to be suspended or otherwise
ineffective (which event is more likely than not to occur
within the fifteen Trading Days following the Trading Day on
which such Notice is deemed delivered).
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(n) Trading Cushion. The Trading Cushion shall have
elapsed since the immediately preceding Put Date.
(o) Shareholder Vote. The issuance of shares of Common
Stock with respect to the applicable Closing, if any, shall
not violate the shareholder approval requirements of the
Principal Market.
(p) Escrow Agreement. The parties hereto shall have
entered into the Escrow Agreement.
(q) Other. On each Condition Satisfaction Date, the
Investor shall have received and been reasonably satisfied
with such other certificates and documents as shall have been
reasonably requested by the Investor in order for the Investor
to confirm the Company's satisfaction of the conditions set
forth in this Section 7.2., including, without limitation, a
certificate in substantially the form and substance of Exhibit
F hereto, executed in either case by an executive officer of
the Company and to the effect that all the conditions to such
Closing shall have been satisfied as at the date of each such
certificate.
Section VII.3 Due Diligence Review; Non-Disclosure of Non-Public
Information.
(a) The Company shall make available for inspection and
review by the Investor, advisors to and representatives of the
Investor (who may or may not be affiliated with the Investor
and who are reasonably acceptable to the Company), any
Underwriter, any Registration Statement or amendment or
supplement thereto or any blue sky, NASD or other filing, all
financial and other records, all SEC Documents and other
filings with the SEC, and all other corporate documents and
properties of the Company as may be reasonably necessary for
the purpose of such review, and cause the Company's officers,
directors and employees to supply all such information
reasonably requested by the Investor or any such
representative, advisor or Underwriter in connection with such
Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made
or submitted by any of them), prior to and from time to time
after the filing and effectiveness of such Registration
Statement for the sole purpose of enabling the Investor and
such representatives, advisors and Underwriters and their
respective accountants and attorneys to conduct initial and
ongoing due diligence with respect to the Company and the
accuracy of such Registration Statement.
(b) Each of the Company, its officers, directors,
employees and agents shall in no event disclose non-public
information to the Investor, advisors to or representatives of
the Investor (including, without limitation, in connection
with the giving of the Adjustment Period Notice pursuant to
Section 2.4) unless prior to disclosure of such information
the Company identifies such information as being non-public
information and provides the Investor, such advisors and
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representatives with the opportunity to accept or refuse to
accept such non-public information for review. The Company
may, as a condition to disclosing any non-public information
hereunder, require the Investor's advisors and representatives
to enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investor.
(c) Nothing herein shall require the Company to disclose
non-public information to the Investor or its advisors or
representatives, and the Company represents that it does not
disseminate non-public information to any investors who
purchase stock in the Company in a public offering, to money
managers or to securities analysts; provided, however, that
notwithstanding anything herein to the contrary, the Company
shall, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and any
Underwriters of any event or the existence of any circumstance
(without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting
non-public information (whether or not requested of the
Company specifically or generally during the course of due
diligence by such persons or entities), which, if not
disclosed in the prospectus included in a Registration
Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated
therein in order to make the statements, therein, in light of
the circumstances in which they were made, not misleading.
Nothing contained in this Section 7.3 shall be construed to
mean that such persons or entities other than the Investor
(without the written consent of the Investor prior to
disclosure of such information) may not obtain non-public
information in the course of conducting due diligence in
accordance with the terms and conditions of this Agreement and
nothing herein shall prevent any such persons or entities from
notifying the Company of their opinion that based on such due
diligence by such persons or entities, that any Registration
Statement contains an untrue statement of a material fact or
omits a material fact required to be stated in such
Registration Statement or necessary to make the statements
contained therein, in light of the circumstances in which they
were made, not misleading.
ARTICLE VIII
LEGENDS
Section VIII.1 Legends. Each of the Warrant and, unless otherwise
provided below, each certificate representing Registrable Securities will bear
the following legend (the "Legend"):
THE SECURITIES EVIDENCED_BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN
RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER
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THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A
TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
THE HOLDER OF THIS CERTIFICATE IS THE BENEFICIARY OF CERTAIN
OBLIGATIONS OF THE COMPANY SET FORTH IN A PRIVATE EQUITY LINE OF
CREDIT AGREEMENT BETWEEN NEOTHERAPEUTICS, INC. AND KINGSBRIDGE CAPITAL
LIMITED DATED AS OF MARCH 27, 1998. A COPY OF THE PORTION OF THE
AFORESAID AGREEMENT EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM
THE COMPANY'S EXECUTIVE OFFICES.
As soon as practicable after the execution and delivery hereof, the
Company is issuing to the transfer agent for its Common Stock (and to any
substitute or replacement transfer agent for its Common Stock upon the
Company's appointment of any such substitute or replacement transfer agent)
instructions in substantially the form of Exhibit G hereto. Such instructions
shall be irrevocable by the Company from and after the date thereof or from and
after the issuance thereof to any such substitute or replacement transfer
agent, as the case may be, except as otherwise expressly provided in the
Registration Rights Agreement. It is the intent and purpose of such
instructions, as provided therein, to require the transfer agent for the Common
Stock from time to time upon transfer of Registrable Securities by the Investor
to issue certificates evidencing such Registrable Securities free of the Legend
during the following periods and under the following circumstances and without
consultation by the transfer agent with the Company or its counsel and without
the need for any further advice or instruction or documentation to the transfer
agent by or from the Company or its counsel or the Investor. At any time after
the Effective Date, upon surrender of one or more certificates evidencing
Common Stock that bear the Legend, to the extent accompanied by a notice
requesting the issuance of new certificates free of the Legend to replace those
surrendered; provided that (i) a Registration Statement shall then be effective
and (ii) if reasonably requested by the transfer agent the Investor confirms to
the transfer agent that the Investor has complied with the prospectus delivery
requirement.
Section VIII.2 No Other Legend or Stock Transfer Restrictions. No
legend other than the one specified in Section 8.1 has been or shall be placed
on the share certificates representing the Common Stock and no instructions or
"stop transfers orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Article VIII.
Section VIII.3 Investor's Compliance. Nothing in this Article VIII
shall affect in any way the Investor' s obligations under any agreement to
comply with all applicable securities laws upon resale of the Common Stock.
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ARTICLE IX
CHOICE OF LAW
Section IX.1 Choice of Law. This Agreement shall be construed
under the laws of the State of New York.
ARTICLE X
ASSIGNMENT; ENTIRE AGREEMENT, AMENDMENT; TERMINATION
Section X.1 Assignment. Neither this Agreement nor any rights of
the Investor or the Company hereunder may be assigned by either party to any
other person. Notwithstanding the foregoing, (a) the provisions of this
Agreement shall inure to the benefit of, and be enforceable by, any transferee
of any of the Common Stock purchased or acquired by the Investor hereunder with
respect to the Common Stock held by such person, and (b) the Investor's
interest in this Agreement may be assigned at any time, in whole or in part, to
any other person or entity (including any affiliate of the Investor) upon the
prior written consent of the Company, which consent shall not to be
unreasonably withheld.
Section X.2 Termination. This Agreement shall terminate thirty
(30) months after the commencement of the Commitment Period; provided, however,
that the provisions of Articles VI, VIII, IX, X, and XI, and of Section 7.3,
shall survive the termination of this Agreement.
Section X.3 Entire Agreement, Amendment; No Waiver. This
Agreement, the Registration Rights Agreement and the Warrant constitute the
full and entire understanding and agreement between the parties with regard to
the subjects hereof and thereof, and no party shall be liable or bound to any
other party in any manner by any warranties, representations or covenants
except as specifically set forth in this Agreement or therein. Except as
expressly provided in this Agreement, neither this Agreement nor any term
hereof may be amended, waived, discharged or terminated other than by a written
instrument signed by both parties hereto. The failure of the either party to
insist on strict compliance with this Agreement, or to exercise any right or
remedy under this Agreement, shall not constitute a waiver of any rights
provided under this Agreement, nor estop the parties from thereafter demanding
full and complete compliance nor prevent the parties from exercising such a
right or remedy in the future.
ARTICLE XI
NOTICES; INDEMNIFICATION
Section XI.1 Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile,
addressed as set forth below or to such other address as such party shall have
specified most recently by written notice given in accordance herewith. Any
notice or other communication
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required or permitted to be given hereunder shall be deemed effective (a) upon
hand delivery or delivery by facsimile, with accurate confirmation generated by
the transmitting facsimile machine, at the address or number designated below
(if delivered on a business day during normal business hours where such notice
is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second business day following the date
of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:
If to the Company:
Neotherapeutics, Inc,
157 Technology Drive
Attention: Alvin J. Glasky
Irvine, California 92618
Telephone: (714) 788-6700
Facsimile: (714) 788-6706
with a copy (which shall not constitute notice) to:
Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660
Attention: Craig Carlson
Telephone: (714) 725-4000
Facsimile: (714) 725-4100
if to the Investor:
Adam Gurney
Kingsbridge Capital Limited
Main Street
Kilcullen, County Kildare
Republic of Ireland
Telephone: 011-353-45-481-811
Facsimile: 011-353-45-482-003
with a copy (which shall not constitute notice) to:
Rogers & Wells LLP
200 Park Avenue, 52nd Floor
New York, NY 10166
Attention: Sara Hanks, Esq.
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Telephone: (212) 878-8000
Facsimile: (212) 878-8375
Either party hereto may from time to time change its address or
facsimile number for notices under this Section 11.1 by giving at least ten
(10) days' prior written notice of such changed address or facsimile number to
the other party hereto.
Section XI.2 Indemnification. The Company agrees to indemnify and
hold harmless the Investor, its partners, affiliates, officers, directors,
employees, and duly authorized agents, and each Person or entity, if any, who
controls the Investor within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, together with the Controlling Persons (as
defined in the Registration Rights Agreement) from and against any Damages,
joint or several, and any action in respect thereof to which the Investor, its
partners, affiliates, officers, directors, employees, and duly authorized
agents, and any such Controlling Person becomes subject to, resulting from,
arising out of or relating to any misrepresentation, breach of warranty or
nonfulfillment of or failure to perform any covenant or agreement on the part
of Company contained in this Agreement, as such Damages are incurred, except to
the extent such Damages result primarily from the Investor's failure to perform
any covenant or agreement contained in this Agreement or the Investor's
negligence, recklessness or bad faith in performing its obligations under this
Agreement.
Section XI.3 Method of Asserting Indemnification Claims. All
claims for indemnification by any Indemnified Party (as defined below) under
Section 11.2 shall be asserted and resolved as follows:
(a) In the event any claim or demand in respect of which
any person claiming indemnification under any provision of
Section 11.2 (an "Indemnified Party") might seek indemnity
under Section 11.2 is asserted against or sought to be
collected from such Indemnified Party by a person other than
the Company, the Investor or any affiliate of the Company or
(a "Third Party Claim"), the Indemnified Party shall deliver a
written notification, enclosing a copy of all papers served,
if any, and specifying the nature of and basis for such Third
Party Claim and for the Indemnified Party's claim for
indemnification that is being asserted under any provision of
Section 12.2 against any person (the "Indemnifying Party"),
together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith,
of such Third Party Claim (a "Claim Notice") with reasonable
promptness to the Indemnifying Party. If the Indemnified
Party fails to provide the Claim Notice with reasonable
promptness after the Indemnified Party receives notice of such
Third Party Claim, the Indemnifying Party shall not be
obligated to indemnify the Indemnified Party with respect to
such Third Party Claim to the extent that the Indemnifying
Party's ability to defend has been irreparably prejudiced by
such failure of the Indemnified Party. The Indemnifying Party
shall notify the Indemnified Party as soon as practicable
within the period ending thirty (30) calendar days following
receipt by the Indemnifying Party of either a Claim
27
<PAGE> 34
Notice or an Indemnity Notice (as defined below) (the "Dispute
Period") whether the Indemnifying Party disputes its liability
or the amount of its liability to the Indemnified Party under
Section 11.2 and whether the Indemnifying Party desires, at
its sole cost and expense, to defend the Indemnified Party
against such Third Party Claim.
i) If the Indemnifying Party notifies the
Indemnified Party within the Dispute Period that the
Indemnifying Party desires to defend the Indemnified
Party with respect to the Third Party Claim pursuant
to this Section 11.3(a), then the Indemnifying Party
shall have the right to defend, with counsel
reasonably satisfactory to the Indemnified Party, at
the sole cost and expense of the Indemnifying Party,
such Third Party Claim by all appropriate
proceedings, which proceedings shall be vigorously
and diligently prosecuted by the Indemnifying Party
to a final conclusion or will be settled at the
discretion of the Indemnifying Party (but only with
the consent of the Indemnified Party in the case of
any settlement that provides for any relief other
than the payment of monetary damages or that provides
for the payment of monetary damages as to which the
Indemnified Party shall not be indemnified in full
pursuant to Section 11.2). The Indemnifying Party
shall have full control of such defense and
proceedings, including any compromise or settlement
thereof; provided, however, that the Indemnified
Party may, at the sole cost and expense of the
Indemnified Party, at any time prior to the
Indemnifying Party's delivery of the notice referred
to in the first sentence of this clause (i), file any
motion, answer or other pleadings or take any other
action that the Indemnified Party reasonably believes
to be necessary or appropriate to protect its
interests; and provided further, that if requested by
the Indemnifying Party, the Indemnified Party will,
at the sole cost and expense of the Indemnifying
Party, provide reasonable cooperation to the
Indemnifying Party in contesting any Third Party
Claim that the Indemnifying Party elects to contest.
The Indemnified Party may participate in, but not
control, any defense or settlement of any Third Party
Claim controlled by the Indemnifying Party pursuant
to this clause (i), and except as provided in the
preceding sentence, the Indemnified Party shall bear
its own costs and expenses with respect to such
participation. Notwithstanding the foregoing, the
Indemnified Party may take over the control of the
defense or settlement of a Third Party Claim at any
time if it irrevocably waives its right to indemnity
under Section 11.2 with respect to such Third Party
Claim.
ii) If the Indemnifying Party fails to notify the
Indemnified Party within the Dispute Period that the
Indemnifying Party desires to defend the Third Party
Claim pursuant to Section 11.3(a), or if the
Indemnifying Party gives such notice but fails to
prosecute vigorously and diligently or settle the
Third Party Claim, or if the Indemnifying Party fails
to give
28
<PAGE> 35
any notice whatsoever within the Dispute Period, then
the Indemnified Party shall have the right to defend,
at the sole cost and expense of the Indemnifying
Party, the Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted by
the Indemnified Party in a reasonable manner and in
good faith or will be settled at the discretion of
the Indemnified Party (with the consent of the
Indemnifying Party, which consent will not be
unreasonably withheld). The Indemnified Party will
have full control of such defense and proceedings,
including any compromise or settlement thereof;
provided, however, that if requested by the
Indemnified Party, the Indemnifying Party will, at
the sole cost and expense of the Indemnifying Party,
provide reasonable cooperation to the Indemnified
Party and its counsel in contesting any Third Party
Claim which the Indemnified Party is contesting.
Notwithstanding the foregoing provisions of this
clause (ii), if the Indemnifying Party has notified
the Indemnified Party within the Dispute Period that
the Indemnifying Party disputes its liability or the
amount of its liability hereunder to the Indemnified
Party with respect to such Third Party Claim and if
such dispute is resolved in favor of the Indemnifying
Party in the manner provided in clause (iii) below,
the Indemnifying Party will not be required to bear
the costs and expenses of the Indemnified Party's
defense pursuant to this clause (ii) or of the
Indemnifying Party's participation therein at the
Indemnified Party's request, and the Indemnified
Party shall reimburse the Indemnifying Party in full
for all reasonable costs and expenses incurred by the
Indemnifying Party in connection with such
litigation. The Indemnifying Party may participate
in, but not control, any defense or settlement
controlled by the Indemnified Party pursuant to this
clause (ii), and the Indemnifying Party shall bear
its own costs and expenses with respect to such
participation.
iii) If the Indemnifying Party notifies the
Indemnified Party that it does not dispute its
liability or the amount of its liability to the
Indemnified Party with respect to the Third Party
Claim under Section 11.2 or fails to notify the
Indemnified Party within the Dispute Period whether
the Indemnifying Party disputes its liability or the
amount of its liability to the Indemnified Party with
respect to such Third Party Claim, the Loss in the
amount specified in the Claim Notice shall be
conclusively deemed a liability of the Indemnifying
Party under Section 11.2 and the Indemnifying Party
shall pay the amount of such Loss to the Indemnified
Party on demand. If the Indemnifying Party has
timely disputed its liability or the amount of its
liability with respect to such claim, the
Indemnifying Party and the Indemnified Party shall
proceed in good faith to negotiate a resolution of
such dispute, and if not resolved through
negotiations within the Resolution Period, such
dispute shall be resolved by arbitration in
accordance with paragraph (c) of this Section
29
<PAGE> 36
11.3.
(b) In the event any Indemnified Party should have a
claim under Section 11.2 against the Indemnifying Party that
does not involve a Third Party Claim, the Indemnified Party
shall deliver a written notification of a claim for indemnity
under Section 11.2 specifying the nature of and basis for such
claim, together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith,
of such claim (an "Indemnity Notice") with reasonable
promptness to the Indemnifying Party. The failure by any
Indemnified Party to give the Indemnity Notice shall not
impair such party's rights hereunder except to the extent that
the Indemnifying Party demonstrates that it has been
irreparably prejudiced thereby. If the Indemnifying Party
notifies the Indemnified Party that it does not dispute the
claim or the amount of the claim described in such Indemnity
Notice or fails to notify the Indemnified Party within the
Dispute Period whether the Indemnifying Party disputes the
claim or the amount of the claim described in such Indemnity
Notice, the Loss in the amount specified in the Indemnity
Notice will be conclusively deemed a liability of the
Indemnifying Party under Section 11.2 and the Indemnifying
Party shall pay the amount of such Loss to the Indemnified
Party on demand. If the Indemnifying Party has timely
disputed its liability or the amount of its liability with
respect to such claim, the Indemnifying Party and the
Indemnified Party shall proceed in good faith to negotiate a
resolution of such dispute, and if not resolved through
negotiations within the Resolution Period, such dispute shall
be resolved by arbitration in accordance with paragraph (c) of
this Section 11.3.
(c) Any dispute under this Agreement or the Warrant shall
be submitted to arbitration (including, without limitation,
pursuant to this Section 11.3) and shall be finally and
conclusively determined by the decision of a board of
arbitration consisting of three (3) members (the "Board of
Arbitration") selected as hereinafter provided. Each of the
Indemnified Party and the Indemnifying Party shall select one
(1) member and the third member shall be selected by mutual
agreement of the other members, or if the other members fail
to reach agreement on a third member within twenty (20) days
after their selection, such third member shall thereafter be
selected by the American Arbitration Association upon
application made to it for such purpose by the Indemnified
Party. The Board of Arbitration shall meet on consecutive
business days in New York County, New York or such other place
as a majority of the members of the Board of Arbitration
determines more appropriate, and shall reach and render a
decision in writing (concurred in by a majority of the members
of the Board of Arbitration) with respect to the amount, if
any, which the Indemnifying Party is required to pay to the
Indemnified Party in respect of a claim filed by the
Indemnified Party. In connection with rendering its
decisions, the Board of Arbitration shall adopt and follow
such rules and procedures as a majority of the members of the
Board of Arbitration deems necessary or
30
<PAGE> 37
appropriate. To the extent practical, decisions of the Board
of Arbitration shall be rendered no more than thirty (30)
calendar days following commencement of proceedings with
respect thereto. The Board of Arbitration shall cause its
written decision to be delivered to the Indemnified Party and
the Indemnifying Party. Any decision made by the Board of
Arbitration (either prior to or after the expiration of such
thirty (30) calendar day period) shall be final, binding and
conclusive on the Indemnified Party and the Indemnifying Party
and entitled to be enforced to the fullest extent permitted by
law and entered in any court of competent jurisdiction. Each
party to any arbitration shall bear its own expense in
relation thereto, including but not limited to such party's
attorneys' fees, if any, and the expenses and fees of the
Board of Arbitration shall be divided between the Indemnifying
Party and the Indemnified Party in the same proportion as the
portion of the related claim determined by the Board of
Arbitration to be payable to the Indemnified Party bears to
the portion of such claim determined not to be so payable.
ARTICLE XII
MISCELLANEOUS
Section XII.1 Fees and Expenses. Each of the Company and the
Investor agrees to pay its own expenses incident to the performance of its
obligations hereunder, except that the Company shall pay the fees, expenses and
disbursements of the Investor's counsel in an amount not to exceed $25,000.
Section XII.2 Brokerage. Each of the parties hereto represents
that it has had no dealings in connection with this transaction with any finder
or broker who will demand payment of any fee or commission from the other
party. The Company on the one hand, and the Investor, on the other hand, agree
to indemnify the other against and hold the other harmless from any and all
liabilities to any persons claiming brokerage commissions or finder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section XII.3 Counterparts. This Agreement may be executed in
multiple counterparts, each of which may be executed by less than all of the
parties and shall be deemed to be an original instrument which shall be
enforceable against the parties actually executing such counterparts and all of
which together shall constitute one and the same instrument.
Section XII.4 Entire Agreement. This Agreement, the Annex and
Exhibits hereto, the Warrant, the Registration Rights Agreement and the Escrow
Agreement set forth the entire agreement and understanding of the parties
relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the
parties, both oral and written relating to the subject matter hereof. The
terms and conditions of all Exhibits to this Agreement are incorporated herein
by this reference and shall constitute part of this Agreement as if fully set
forth herein.
31
<PAGE> 38
Section XII.5 Survival; Severability. The representations,
warranties, covenants and agreements of the parties hereto shall survive each
Closing hereunder. In the event that any provision of this Agreement becomes or
is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it
materially changes the economic benefit of this Agreement to any party.
Section XII.6 Title and Subtitles. The titles and subtitles used in
this Agreement are used for the convenience of reference and are not to be
considered in construing or interpreting this Agreement.
Section XII.7 Reporting Entity for the Common Stock. The reporting
entity relied upon for the determination of the trading price or trading volume
of the Common Stock on any given Trading Day for the purposes of this Agreement
shall be NASDAQ or any successor thereto. The written mutual consent of the
Investor and the Company shall be required to employ any other reporting
entity.
32
<PAGE> 39
IN WITNESS WHEREOF, the parties hereto have caused this Private Equity
Line of Credit Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
KINGSBRIDGE CAPITAL LIMITED
NEOTHERAPEUTICS, INC.
By: /s/Valentine O'Donoghue
-----------------------------
Valentine O'Donoghue
Director
By: /s/Alvin J. Glasky
-----------------------------
Alvin J. Glasky
President
<PAGE> 40
ANNEX A
MAXIMUM PUT AMOUNT
The Maximum Put Amount with respect to a Put shall be determined based
upon the Average Daily Trading Volume of shares of Common Stock with respect to
the relevant Put Date and the Market Price as of such Put Date of shares of
Common Stock on such Put Date as follows:
<TABLE>
<CAPTION>
==================================================================================================================
Average Daily Trading Volume
------------------------------------------------------------------------------
Market Price ($ per share) 10,000-25,000 25,001-50,000 50,001-75,000 75,001-Above
-------------------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
3.00-6.00 $500,000 $750,000 $1,000,000 $1,250,000
-------------------------- ------------- ------------- ------------- ------------
6.00-8.00 $750,000 $1,000,000 $1,250,000 $1,500,000
-------------------------- ------------- ------------- ------------- ------------
8.00-10.00 $1,000,000 $1,250,000 $1,500,000 $1,750,000
-------------------------- ------------- ------------- ------------- ------------
10.00-12.00 $1,250,000 $1,500,000 $1,750,000 $1,750,000
-------------------------- ------------- ------------- ------------- ------------
12.00-14.00 $1,500,000 $1,750,000 $1,750,000 $2,000,000
-------------------------- ------------- ------------- ------------- ------------
14.00-Above $1,750,000 $1,750,000 $2,000,000 $2,000,000
==================================================================================================================
</TABLE>
<PAGE> 41
EXHIBIT A
[FORM OF ESCROW AGREEMENT]
<PAGE> 42
EXHIBIT B
[FORM OF REGISTRATION RIGHTS AGREEMENT]
3
<PAGE> 43
EXHIBIT C
[FORM OF WARRANT]
<PAGE> 44
EXHIBIT D
ADJUSTMENT PERIOD NOTICE
Notice is hereby granted that the Board of Directors of
Neotherapeutics, Inc. (the "Company") anticipates executing a merger or
acquisition agreement within ninety (90) days of the date hereof.
The following five-week period is hereby designated as an Adjustment
Period pursuant to Section 2.4 of the Private Equity Line of Credit Agreement,
dated [DATE] by and between the Company and Kingsbridge Capital Limited.
Beginning: ______________________
(no sooner that twenty-one (21) days from the date this notice is deemed to be
delivered)
Expiring: _______________________
The undersigned has executed this Certificate this ____ day of
________, 199_.
____________________________________
Name
Title
5
<PAGE> 45
EXHIBIT E
FORM OF OPINION OF THE COMPANY'S INDEPENDENT COUNSEL
[Date]
Kingsbridge Capital Limited
Main Street
Kilcullen, County Kildare
Republic of Ireland
Re: Private Equity Line of Credit Agreement Between Kingsbridge Capital
Limited and [ISSUER]
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section [6.12] [7.2(h)]
of the Private Equity Line of Credit Agreement by and between Kingsbridge
Capital Limited, a British Virgin Islands entity (the "Investor") and [ISSUER]
(the "Company"), dated [DATE] (the "Line of Credit Agreement"), which provides
for the issuance and sale by the Company of up to ____ shares of Common Stock
of the Company (the "Put Shares"), certain additional shares upon the
occurrence of certain events as set forth in Section 2.7 thereof (the "Blackout
Shares"), and a warrant to purchase ____ shares of Common Stock of the Company
(the "Warrant", and the shares of Common Stock issued or issuable pursuant to
exercise of the Warrant, the "Warrant Shares"). All terms used herein have the
meanings defined for them in the Line of Credit Agreement unless otherwise
defined herein.
We have acted as counsel for the Company in connection with the
negotiation of the Line of Credit Agreement, the Warrant, the Registration
Rights Agreement between the Investor and the Company, dated [DATE] (the
"Registration Rights Agreement"), and the Escrow Agreement between the
Investor, the Company and [ESCROW AGENT], dated [DATE] (the "Escrow Agreement",
and together with the Line of Credit Agreement and the Registration Rights
Agreement, the "Agreements"). As counsel, we have made such legal and factual
examinations and inquires as we have deemed advisable or necessary for the
purpose of rendering this opinion. In addition, we have examined, among other
things, originals or copies of such corporate records of the Company,
certificates of public officials and such other documents and questions of law
that we consider necessary or advisable for the purpose of rendering this
opinion. In such examination we have assumed the genuineness of all signatures
on original documents, the authenticity and completeness of all documents
submitted to us as originals, the conformity to original documents of all
copies submitted to us as copies thereof, the legal capacity of natural
persons, and the due execution and delivery of all documents (except as to due
execution and delivery by the Company) where due execution and delivery are a
prerequisite to the effectiveness thereof.
<PAGE> 46
Kingsbridge Capital Limited Page 2
[DATE]
As used in this opinion, the expression "to our knowledge" refers to
the current actual knowledge of the attorneys of this firm who have worked on
matters for the Company solely in connection with the Agreements and the
Warrant and the transactions contemplated thereby.
For purposes of this opinion, we have assumed that you have all
requisite power and authority, and have taken any and all necessary corporate
action, to execute and deliver the Agreements, and we are assuming that the
representations and warranties made by the Investor in the Agreements and
pursuant thereto are true and correct.
The opinions hereinafter expressed are subject to the following
qualifications:
[QUALIFICATIONS TO BE NEGOTIATED]
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of [STATE] and has all
requisite power and authority (corporate and other) to carry on its business
and to own, lease and operate its properties and assets as described in the
Company's SEC Documents. To our knowledge, the Company does not own more than
fifty percent (50%) of the outstanding capital stock of or control any other
business entity. The Company is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the Company
owns or leases property, other than those in which the failure so to qualify
would not have a Material Adverse Effect.
2. The Company has the requisite corporate power and authority to
enter into and perform its obligations under the Agreements and the Warrant and
to issue the Put Shares, the Warrant, the Warrant Shares and the Blackout
Shares. The execution and delivery of the Agreements, and the execution,
issuance and delivery of the Warrant, by the Company and the consummation by it
of the transactions contemplated thereby have been duly authorized by all
necessary corporate action and no further consent or authorization of the
Company or its Board of Directors or stockholders is required. Each of the
Agreements has been duly executed and delivered, and the Warrant has been duly
executed, issued and delivered, by the Company and each of the Agreements and
the Warrant constitutes 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, or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application.
3. The execution, delivery and performance of the Agreements and
the Warrant by the Company and the consummation by the Company of the
transactions contemplated thereby, including without limitation the issuance of
the Put Shares, the Warrant, the Warrant Shares and the Blackout Shares, do not
and will not (i) result in a violation of the Company's Articles or By-
<PAGE> 47
Kingsbridge Capital Limited Page 3
[DATE]
Laws; (ii) to our knowledge, conflict with, or constitute a material default
(or an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture, instrument or any "lock-up"
or similar provision of any underwriting or similar agreement to which the
Company is a party, except for such conflicts, defaults, terminations,
amendments, accelerations and cancellations as would not, individually or in
the aggregate, have a Material Adverse Effect; or (iii) result in a violation
of any federal or state law, rule or regulation applicable to the Company or by
which any property or asset of the Company is bound or affected, except for
such violations as would not, individually or in the aggregate, have a Material
Adverse Effect. To our knowledge, the Company is not in violation of any terms
of its Articles or Bylaws.
4. The issuance of the Put Shares, the Warrant and the Blackout
Shares in accordance with the Line of Credit Agreement, and the issuance of the
Warrant Shares in accordance with the Warrant, will be exempt from registration
under the Securities Act of 1933 and will be in compliance with [STATE] state
securities laws. When so issued, the Put Shares, the Blackout Shares and the
Warrant Shares will be duly and validly issued, fully paid and nonassessable,
and free of any liens, encumbrances and preemptive or similar rights contained
in the Company's Articles of Incorporation (the "Articles") or Bylaws or, to
our knowledge, in any agreement to which the Company is party.
5. To our knowledge, except as disclosed in the SEC Documents,
there are no claims, actions, suits, proceedings or investigations that are
pending against the Company or its properties, or against any officer or
director of the Company in his or her capacity as such, nor has the Company
received any written threat of any such claims, actions, suits, proceedings, or
investigations which are required to be and have not been disclosed in the SEC
Documents.
6. To our knowledge, there are no outstanding options, warrants,
calls or commitments of any character whatsoever relating to, or securities,
rights or obligations convertible into or exchangeable for, or giving any right
to subscribe for or acquire any shares of Common Stock or contracts,
commitments, understanding, or arrangements by which the Company is or may
become bound to issue additional shares of Common Stock, or securities or
rights convertible or exchangeable into shares of Common Stock, except as
described in the SEC Documents.
[7. Nothing has come to our attention that has caused us to
believe that the Registration Statement and the Prospectus at the time the
Registration Statement became effective and as of the date of the filing with
the Commission of the Company's most recent Annual Report on Form 10-K or
Quarterly Report on Form 10-Q incorporated by reference into such Registration
Statement contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; however, we express no opinion
<PAGE> 48
Kingsbridge Capital Limited Page 4
[DATE]
with respect to the financial statements and the notes thereto and the
schedules and other financial and statistical data derived therefrom included
in the Registration Statement or the Prospectus.] [For Opinion pursuant to
Section 7.2(h).]
This opinion is furnished to the Purchaser solely for its benefit in
connection with the transactions described above and may not be relied upon by
any other person or for any other purpose without our prior written consent.
Very truly yours,
<PAGE> 49
EXHIBIT F
COMPLIANCE CERTIFICATE
The undersigned, __________, hereby certifies, with respect to shares
of common stock of the _____________ (the "Company") issuable in connection
with the Put Notice, dated _____________ (the "Notice"), delivered pursuant to
Article II of the Private Equity Line of Credit Agreement, dated [DATE], by and
between the Company and Kingsbridge Capital Limited (the "Agreement"), as
follows:
1. The undersigned is the duly elected Chairman and Chief
Executive Officer of the Company.
2. The representations and warranties of the Company set forth in
Article V of the Agreement are true and correct in all material respects as
though made on and as of the date hereof.
3. The Company has performed in all material respects all
covenants and agreements to be performed by the Company on or prior to the
Closing Date related to the Notice and has complied in all material respects
with all obligations and conditions contained in Article VII of the Agreement.
The undersigned has executed this Certificate this ____ day of
________, 199_.
____________________________________
Name
Title
<PAGE> 50
EXHIBIT G
INSTRUCTIONS TO TRANSFER AGENT
_______________, 1998
[Name, address and phone and facsimile number of Transfer Agent]
Dear Sirs:
Reference is made to the Private Equity Line of Credit Agreement (the
"Agreement"), dated as of [DATE] between Kingsbridge Capital Limited (the
"Investor") and ___________ (the "Company"). Pursuant to the Agreement,
subject to the terms and conditions set forth in the Agreement the Investor has
agreed to purchase from the Company and the Company has agreed to sell to the
Investor from time to time during the term of the Agreement shares of Common
Stock of the Company, $____ par value per share (the "Common Stock"). As a
condition to the effectiveness of the Agreement, the Company has agreed to
issue to you, as the transfer agent for the Common Stock (the "Transfer
Agent"), these instructions relating to the Common Stock to be issued to the
Investor (or a permitted assignee) pursuant to the Agreement. All terms used
herein and not otherwise defined shall have the meaning set forth in the
Agreement.
1. ISSUANCE OF COMMON STOCK WITHOUT THE LEGEND
Pursuant to the Agreement, the Company is required to prepare and file
with the Commission, and maintain the effectiveness of, a registration
statement or registration statements registering the resale of the Common Stock
to be acquired by the Investor under the Agreement. The Company will advise
the Transfer Agent in writing of the effectiveness of any such registration
statement promptly upon its being declared effective. The Transfer Agent shall
be entitled to rely on such advice and shall assume that the effectiveness of
such registration statement remains in effect unless the Transfer Agent is
otherwise advised in writing by the Company and shall not be required to
independently confirm the continued effectiveness of such registration
statement. In the circumstances set forth in the following two paragraphs, the
Transfer Agent shall deliver to the Investor certificates representing Common
Stock not bearing the Legend without requiring further advice or instruction or
additional documentation from the Company or its counsel or the Investor or its
counsel or any other party (other than as described in such paragraphs).
At any time after the effective date of the applicable registration
statement (provided that the Company has not informed the Transfer Agent in
writing that such registration statement is not effective) upon any surrender
of one or more certificates evidencing Common Stock which bear the Legend, to
the extent accompanied by a notice requesting the issuance of new certificates
<PAGE> 51
Kingsbridge Capital Limited Page 2
[DATE]
free of the Legend to replace those surrendered, the Transfer Agent shall
deliver to the Investor the certificates representing the Common Stock not
bearing the Legend, in such names and denominations as the Investor shall
request, provided that, in connection with such event, if so requested by the
Transfer Agent, the Investor (or its permitted assignee) shall confirm in
writing to the Transfer Agent that (i) the Investor confirms to the Transfer
Agent that it has sold, pledged or otherwise transferred or agreed to sell,
pledge or otherwise transfer such Common Stock in a bona fide transaction to a
designated transferee that is not an affiliate of the Company; and (ii) the
Investor confirms to the transfer agent that the Investor has complied with the
prospectus delivery requirements under the Securities Act of 1933, as amended.
Any advice, notice or instructions to the Transfer Agent required or
permitted to be given hereunder may be transmitted via facsimile to the
Transfer Agent's facsimile number of (___)-___-____.
2. MECHANICS OF DELIVERY OF CERTIFICATES REPRESENTING COMMON
STOCK
In connection with any Closing pursuant to which the Investor acquires
Common Stock under the Agreement, the Transfer Agent shall deliver certificates
representing Common Stock (with or without the Legend, as appropriate) as
promptly as practicable, but in no event later than three business days, after
such Closing.
3. FEES OF TRANSFER AGENT; INDEMNIFICATION
The Company agrees to pay the Transfer Agent for all fees incurred in
connection with these Irrevocable Instructions. The Company agrees to indemnify
the Transfer Agent and its officers, employees and agents, against any losses,
claims, damages or liabilities, joint or several, to which it or they become
subject based upon the performance by the Transfer Agent of its duties in
accordance with the Irrevocable Instructions.
<PAGE> 52
4. THIRD PARTY BENEFICIARY
The Company and the Transfer Agent acknowledge and agree that the
Investor is an express third party beneficiary of these Irrevocable
Instructions and shall be entitled to rely upon, and enforce, the provisions
hereof.
______________________
By:____________________________________
Name
Title
AGREED:
[NAME OF TRANSFER AGENT]
By:__________________________
Name:
Title:
<PAGE> 1
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of March
27, 1998, is made and entered into by and between NEOTHERAPEUTICS, INC., a
Delaware corporation (the "Company"), and KINGSBRIDGE CAPITAL LIMITED (the
"Investor").
WHEREAS, the Company and the Investor have entered into that certain
Private Equity Line of Credit Agreement, dated as of the date hereof (the
"Investment Agreement"), pursuant to which the Company will issue, from time to
time, to the Investor up to $15,000,000 worth of shares of Common Stock, par
value $.001 per share, of the Company (the "Common Stock");
WHEREAS, pursuant to the terms of, and in partial consideration for, the
Investor entering into the Investment Agreement, the Company has issued to the
Investor a warrant dated as of the date hereof, exercisable from time to time
within three (3) years following the six-month anniversary of the date of
issuance (the "Warrant") for the purchase of an aggregate of up to 25,000 shares
of Common Stock at a price specified in such Warrant;
WHEREAS, pursuant to the terms of, and in partial consideration for, the
Investor's agreement to enter into the Investment Agreement, the Company has
agreed to provide the Investor with certain registration rights with respect to
the Registrable Securities;
NOW, THEREFORE, in consideration of the premises, the representations,
warranties, covenants and agreements contained herein, in the Warrant, and in
the Investment Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, intending to be legally
bound hereby, the parties hereto agree as follows (capitalized terms used herein
and not defined herein shall have the respective meanings ascribed to them in
the Investment Agreement):
ARTICLE I
REGISTRATION RIGHTS
Section I.1. FORM S-3 REGISTRATION STATEMENTS.
(a) Filing of Form S-3 Registration Statement. Subject to the
terms and conditions of this Agreement, the Company shall file with the SEC
within forty-five (45) days following the Subscription Date a registration
statement on Form S-3 under the Securities Act (the "Initial Registration
Statement") for the registration for the resale by the Investor of at least
seven hundred thousand (700,000) Registrable Securities (the "Initial
Registerable Securities"). Thereafter, if the Company desires to issue and sell
to the Investor any Registerable Securities in addition to the Initial
Registerable Securities, the Company shall first file with the SEC a
registration statement on Form S-3 under the Securities Act (the Initial
Registration Statement and any subsequent registration statement, each, a
"Registration Statement").
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(b) Effectiveness of the Initial Registration Statement. The
Company shall use its best efforts to have the Initial Registration Statement
declared effective by the SEC by no later than ninety (90) days after
Subscription Date and to insure that the Initial Registration Statement and any
subsequent Registration Statement remains in effect throughout the term of this
Agreement as set forth in Section 4.2, subject to the terms and conditions of
this Agreement.
(c) Failure to Obtain Effectiveness of the Initial Registration
Statement. In the event the Company fails for any reason to obtain the
effectiveness of the Initial Registration Statement within the time period set
forth in Section 1.1(b), the Company shall pay to the Investor, within three (3)
Trading Days of the date by which such Registration Statement was required to
have been declared effective, $10,000 in immediately available funds into an
account designated by the Investor; provided, however, that such amount shall
not be payable with respect to the postponement of the effectiveness of a
Registration Statement (or use of the underlying prospectus) pursuant to Section
1.1(e). Such payment shall be made by wire transfer of immediately available
funds to an account designated by the Investor.
(d) Failure to Maintain Effectiveness of a Registration
Statement. In the event the Company fails to maintain the effectiveness of any
Registration Statement (or the underlying prospectus) throughout the period set
forth in Section 4.2, other than temporary suspensions as set forth in Section
1.1(e), and the Investor holds any Registrable Securities at any time during the
period of such ineffectiveness (an "Ineffective Period"), the Company shall pay
to the Investor in immediately available funds into an account designated by the
Investor an amount equal to one percent (1%) of the aggregate Purchase Price of
all of the Registrable Securities then held by the Investor for the each of the
seven-calendar-day periods (or portion thereof) of such Ineffective Period. Such
amounts shall not be payable with respect to suspensions of the effectiveness of
a Registration Statement (or use of the underlying prospectus), in accordance
with Section 1.1(e). Such payments shall be made on the first Trading Day after
the earliest to occur of (i) the expiration of the Commitment Period, (ii) the
expiration of an Ineffective Period, (iii) the expiration of the first
twenty-eight calendar days of an Ineffective Period and (iv) the expiration of
each additional twenty-eight calendar-day period during an Ineffective Period.
(e) Deferral or Suspension During a Blackout Period. Sections 1.1
(c) and (d) notwithstanding, if the Company shall furnish to the Investor notice
signed by the Chairman and Chief Executive Officer of the Company stating that
the Board of Directors of the Company has, by duly authorized resolution,
determined in good faith that it would be seriously detrimental to the Company
and its shareholders for the Initial Registration Statement to be filed (or for
any Registration Statement to remain in effect) and it is therefore essential to
defer the filing of such Initial Registration Statement (or temporarily suspend
the effectiveness of any Registration Statement or use of the related
prospectus) (a "Blackout Notice"), the Company shall have the right (i)
immediately to defer such filing for a period of not more than thirty (30) days
beyond the date by which such Initial Registration Statement was otherwise
required hereunder to be filed or (ii) suspend the effectiveness of any
Registration Statement for a period of not more than thirty (30) (any such
deferral or suspension period of up to thirty days, a "Blackout Period"). The
Investor acknowledges that it would be seriously detrimental to the Company and
its shareholders for such
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Initial Registration Statement to be filed (or for any Registration Statement to
remain in effect) during a Blackout Period and therefore essential to defer such
filing (or suspend such effectiveness) during such Blackout Period and agrees to
cease any disposition of Registrable Securities during such Blackout Period. The
Company may not utilize any of its rights under this Section 1.1(e) to defer the
filing of a Registration Statement (or suspend its effectiveness) more than
twice in any twelve (12) month period. Following such deferral or suspension,
the Investor shall be entitled to such additional number of shares of Common
Stock as set forth in Section 2.7 of the Investment Agreement.
(f) Liquidated Damages. The Company and the Investor hereto
acknowledge and agree that the sums payable under subsections 1(c) or 1(d) above
shall constitute liquidated damages and not penalties. The parties further
acknowledge that (i) the amount of loss or damages likely to be incurred is
incapable or is difficult to precisely estimate, (ii) the amounts specified in
such subsections bear a reasonable proportion and are not plainly or grossly
disproportionate to the probable loss likely to be incurred in connection with
any failure by the Company to obtain or maintain the effectiveness of a
Registration Statement, (iii) one of the reasons for the Company and the
Investor reaching an agreement as to such amounts was the uncertainty and cost
of litigation regarding the question of actual damages, and (iv) the Company and
the Investor are sophisticated business parties and have been represented by
sophisticated and able legal and financial counsel and negotiated this Agreement
at arm's length.
ARTICLE II
REGISTRATION PROCEDURES
Section II.1. FILINGS; INFORMATION. The Company will effect the registration and
sale of the Registrable Securities in accordance with the intended methods of
disposition thereof. Without limiting the foregoing, the Company in each such
case will do the following as expeditiously as possible, but in no event later
than the deadline, if any, prescribed therefor in this Agreement:
(a) The Company shall (i) prepare and file with the SEC a
Registration Statement on Form S-3 (if use of such form is then available to the
Company pursuant to the rules of the SEC and, if not, on such other form
promulgated by the SEC for which the Company then qualifies, that counsel for
the Company shall deem appropriate and which form shall be available for the
sale of the Registrable Securities to be registered thereunder in accordance
with the provisions of this Agreement and in accordance with the intended method
of distribution of such Registrable Securities); (ii) use reasonable best
efforts to cause such filed Registration Statement to become and remain
effective (pursuant to Rule 415 under the Securities Act or otherwise); (iii)
prepare and file with the SEC such amendments and supplements to such
Registration Statement and the prospectus used in connection therewith as may be
necessary to keep such Registration Statement effective for the time period
prescribed by Section 1.1(b); and (iv) comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
Registration Statement during such period in accordance with the intended
methods of disposition by the Investor set forth in such Registration Statement.
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(b) The Company shall file all necessary amendments to any
Registration Statement in order to effectuate the purpose of this Agreement, the
Investment Agreement, and the Warrant.
(c) If so requested by the managing underwriters, if any, or the
holders of a majority in aggregate principal amount of the Registrable
Securities being sold in connection with the filing of a Registration Statement
under the Securities Act for the offering on a continuous or delayed basis in
the future of all of the Registrable Securities (a "Shelf Registration"), the
Company shall (i) promptly incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters, if any,
and such holders agree should be included therein, and (ii) make all required
filings of such prospectus supplement or post-effective amendment as soon as
practicable after the Company has received notification of the matters to be
incorporated in such prospectus supplement or post-effective amendment;
provided, however, that the Company shall not be required to take any action
pursuant to this Section 2.1(c)(ii) that would, in the opinion of counsel for
the Company, violate applicable law.
(d) In connection with the filing of a Shelf Registration, the
Company shall enter into such agreements and take all such other reasonable
actions in connection therewith (including those reasonably requested by the
managing underwriters, if any, or the holders of a majority in aggregate
principal amount of the Registrable Securities being sold) in order to expedite
or facilitate the disposition of such Registrable Securities, and in such
connection, whether or not an underwriting agreement is entered into and whether
or not the registration is an underwritten registration, the Company shall (i)
make such representations and warranties to the holders of such Registrable
Securities and the underwriters, if any, with respect to the business of the
Company (including with respect to businesses or assets acquired or to be
acquired by the Company), and any Registration Statement, prospectus and
documents, if any, incorporated or deemed to be incorporated by reference
therein, in each case, in form, substance and scope as are customarily made by
issuers to underwriters in underwritten offerings, and confirm such
representations and warranties if and when requested; (ii) if an underwriting
agreement is entered into, it shall contain indemnification provision and
procedures no less favorable to the selling holders of such Registrable
Securities and the underwriters, if any, than those set forth herein (or such
other provisions and procedures acceptable to the holders of a majority in
aggregate principal amount of Registrable Securities covered by such
Registration Statement and the managing underwriters, if any); and (iii) deliver
such documents and certificates as may be reasonably requested by the holders of
a majority in aggregate principal amount of the Registrable Securities being
sold, their counsel and the managing underwriters, if any, to evidence the
continued validity of their representations and warranties made pursuant to
clause (i) above and to evidence compliance with any customary conditions
contained in the underwriting agreement or other agreement entered into by the
Company.
(e) Five (5) Trading Days prior to filing any Registration
Statement or prospectus, or any amendment or supplement thereto (excluding
amendments deemed to result from the filing of documents incorporated by
reference therein), the Company shall deliver to the Investor and one firm of
counsel representing the Investor, in accordance with the notice provisions of
Section 4.8, copies of such Registration Statement as proposed to be filed,
together with exhibits
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thereto, which documents will be subject to review by the Investor and such
counsel, and thereafter deliver to the Investor and such counsel, in accordance
with the notice provisions of Section 4.8, such number of copies of the
Registration Statement, each amendment and supplement thereto (in each case
including all exhibits thereto), the prospectus included in such Registration
Statement (including each preliminary prospectus) and such other documents or
information as the Investor or counsel may reasonably request in order to
facilitate the disposition of the Registrable Securities.
(f) The Company shall deliver, in accordance with the notice
provisions of Section 4.8, to each seller of Registrable Securities covered by a
Registration Statement such number of conformed copies of such Registration
Statement and of each amendment and supplement thereto (in each case including
all exhibits and documents incorporated by reference), such number of copies of
the prospectus contained in any Registration Statement (including each
preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 promulgated under the Securities Act relating to such
seller's Registrable Securities, and such other documents, as such seller may
reasonably request to facilitate the disposition of its Registrable Securities.
(g) After the filing of a Registration Statement, the Company
shall promptly notify the Investor of any stop order issued or threatened by the
SEC in connection therewith and take all reasonable actions required to prevent
the entry of such stop order or to remove it if entered.
(h) The Company shall use its reasonable best efforts to (i)
register or qualify the Registrable Securities under such other securities or
blue sky laws of such jurisdictions in the United States as the Investor may
reasonably (in light of its intended plan of distribution) request, and (ii)
cause the Registrable Securities to be registered with or approved by such other
governmental agencies or authorities in the United States as may be necessary by
virtue of the business and operations of the Company and do any and all other
acts and things that may be reasonably necessary or advisable to enable the
Investor to consummate the disposition of the Registrable Securities; provided,
however, that the Company will not be required to qualify generally to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this paragraph (h), subject itself to taxation in any such jurisdiction,
or consent or subject itself to general service of process in any such
jurisdiction.
(i) The Company shall immediately notify the Investor upon the
occurrence of any of the following events in respect of a Registration Statement
or related prospectus in respect of an offering of Registrable Securities: (i)
receipt of any request by the SEC or any other federal or state governmental
authority for additional information, amendments or supplements to such
Registration Statement or related prospectus; (ii) the issuance by the SEC or
any other federal or state governmental authority of any stop order suspending
the effectiveness of such Registration Statement or the initiation of any
proceedings for that purpose; (iii) receipt of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in such Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
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changes in such Registration Statement, related prospectus or documents so that,
in the case of such Registration Statement, it will not contain 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, and
that in the case of the related prospectus, it will not contain 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, in the light of the
circumstances under which they were made, not misleading; and (v) the Company's
reasonable determination that a post-effective amendment to such Registration
Statement would be appropriate, and the Company will promptly make available to
the Investor any such supplement or amendment to the related prospectus.
(j) The Company shall enter into customary agreements and take
such other actions as are reasonably required in order to expedite or facilitate
the disposition of such Registrable Securities (whereupon the Investor may, at
its option, require that any or all of the representations, warranties and
covenants of the Company also be made to and for the benefit of the Investor).
(k) The Company shall make available to the Investor (and will
deliver to Investor's counsel), subject to restrictions imposed by the United
States federal government or any agency or instrumentality thereof, copies of
all correspondence between the SEC and the Company, its counsel or its auditors
and will also make available for inspection by the Investor and any attorney,
accountant or other professional retained by the Investor (collectively, the
"Inspectors"), all financial and other records, pertinent corporate documents
and properties of the Company (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers and employees to supply all
information reasonably requested by any Inspectors in connection with a
Registration Statement. Records that the Company determines, in good faith, to
be confidential and that it notifies the Inspectors are confidential shall not
be disclosed by the Inspectors unless (i) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement or (ii) the disclosure or release of such Records is requested or
required pursuant to oral questions, interrogatories, requests for information
or documents or a subpoena or other order from a court of competent jurisdiction
or other process; provided, however, that prior to any disclosure or release
pursuant to clause (ii), the Inspectors shall provide the Company with prompt
notice of any such request or requirement so that the Company may seek an
appropriate protective order or waive such Inspectors' obligation not to
disclose such Records; and, provided, further, that if failing the entry of a
protective order or the waiver by the Company permitting the disclosure or
release of such Records, the Inspectors, upon advice of counsel, are compelled
to disclose such Records, the Inspectors may disclose that portion of the
Records that counsel has advised the Inspectors that the Inspectors are
compelled to disclose. The Investor agrees that information obtained by it
solely as a result of such inspections (not including any information obtained
from a third party who, insofar as is known to the Investor after reasonable
inquiry, is not prohibited from providing such information by a contractual,
legal or fiduciary obligation to the Company) shall be deemed confidential and
shall not be used by it as the basis for any market transactions in the
securities of the Company or its affiliates unless and until such information is
made generally available to the public. The Investor further agrees that it
will, upon learning that disclosure of such Records is sought in a court of
competent jurisdiction, give notice to the Company and allow the Company, at its
expense, to
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undertake appropriate action to prevent disclosure of the Records deemed
confidential.
(l) The Company shall deliver, in accordance with the notice
provisions of Section 4.8, to the Investor a signed counterpart, addressed to
the Investor, of (1) an opinion or opinions of counsel to the Company, and (2)
to the extent required by law or reasonably necessary to effect a sale of
Registrable Securities in accordance with prevailing business practices at the
time of any sale of Registrable Securities pursuant to a Registration Statement,
a comfort letter or comfort letters from the Company's independent public
accountants, each in customary form and covering such matters of the type
customarily covered by opinions or comfort letters, as the case may be, as the
Investor therefor reasonably requests.
(m) The Company shall otherwise comply with all applicable rules
and regulations of the SEC, including, without limitation, compliance with
applicable reporting requirements under the Exchange Act.
(n) The Company shall appoint a transfer agent and registrar for
all of the Registrable Securities covered by such Registration Statement not
later than the effective date of such Registration Statement.
(o) The Company may require the Investor to promptly furnish in
writing to the Company such information as may be legally required in connection
with such registration including, without limitation, all such information as
may be requested by the SEC or the National Association of Securities Dealers.
The Investor agrees to provide such information requested in connection with
such registration within ten (10) business days after receiving such written
request and the Company shall not be responsible for any delays in obtaining or
maintaining the effectiveness of any Registration Statement caused by the
Investor's failure to timely provide such information.
Section II.2. REGISTRATION EXPENSES. In connection with each Registration
Statement, the Company shall pay all registration expenses incurred in
connection with the registration thereunder (the "Registration Expenses"),
including, without limitation: (i) all registration, filing, securities exchange
listing and fees required by the National Association of Securities Dealers,
(ii) all registration, filing, qualification and other fees and expenses of
compliance with securities or blue sky laws (including reasonable fees and
disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities), (iii) all word processing, duplicating, printing,
messenger and delivery expenses, (iv) the Company's internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), (v) the fees and expenses
incurred in connection with the listing of the Registrable Securities, (vi)
reasonable fees and disbursements of counsel for the Company and customary fees
and expenses for independent certified public accountants retained by the
Company (including the expenses of any special audits or comfort letters or
costs associated with the delivery by independent certified public accountants
of such special audit(s) or comfort letter(s) requested pursuant to Section
2.1(l) hereof), (vii) the fees and expenses of any special experts retained by
the Company in connection with such registration, (viii) all reasonable fees and
expenses of one firm of counsel for the Investor retained as the Investor's
counsel with respect to such Registration
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Statement up to an amount of $5,000, unless a greater amount is required due the
nature of the review performed by Investor's counsel (an estimate of such
greater fees and expenses of such firm of counsel to be provided to the Company
prior to the undertaking of such counsel's review), (ix) premiums and other
costs of policies of insurance against liabilities arising out of any public
offering of the Registrable Securities being registered, and (x) any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities, but excluding underwriting fees, discounts, transfer taxes or
commissions, if any, attributable to the sale of Registrable Securities, which
shall be payable by each holder of Registrable Securities pro rata on the basis
of the number of Registrable Securities of each such holder that are included in
a registration under this Agreement.
ARTICLE III
INDEMNIFICATION AND CONTRIBUTION
Section III.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify
and hold harmless the Investor, its partners, Affiliates, officers, directors,
employees and duly authorized agents, and each Person or entity, if any, who
controls the Investor within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, together with the partners, Affiliates,
officers, directors, employees and duly authorized agents of such controlling
Person or entity (collectively, the " Controlling Persons"), from and against
any loss, claim, damage, liability, costs and expenses (including, without
limitation, reasonable attorneys' fees and disbursements and costs and expenses
of investigating and defending any such claim) (collectively, "Damages"), joint
or several, and any action or proceeding in respect thereof to which the
Investor, its partners, affiliates, officers, directors, employees and duly
authorized agents, and any Controlling Person, may become subject under the
Securities Act or otherwise, as incurred, insofar as such Damages (or actions or
proceedings in respect thereof) arise out of, or are based upon, any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement, preliminary prospectus or prospectus relating to the
Registrable Securities or arises out of, or are based upon, 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, except insofar as
any such untrue statement, alleged untrue statement, omission or alleged
omission is made in reliance upon and in conformity with written information
furnished to the Company by the Investor specifically stating that it is for use
in the preparation of any such Registration Statement, preliminary prospectus or
prospectus, and shall reimburse the Investor, its partners, affiliates,
officers, directors, employees and duly authorized agents, and each such
Controlling Person, for any legal and other expenses reasonably incurred by the
Investor, its partners, affiliates, officers, directors, employees and duly
authorized agents, or any such Controlling Person, as incurred, in investigating
or defending or preparing to defend against any such Damages or actions or
proceedings; provided, however, that the Company shall not be liable to the
Investor to the extent that any such Damages arise out of or are based upon an
untrue statement or omission made in any preliminary prospectus if (i) the
Investor failed to send or deliver a copy of the final prospectus delivered by
the Company to the Investor with or prior to the delivery of written
confirmation of the sale by the Investor to the Person asserting the claim from
which such Damages arise, and (ii) the final prospectus would have corrected
such untrue statement or alleged untrue statement or such omission or alleged
omission.
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Section III.2. CONDUCT OF INDEMNIFICATION PROCEEDINGS. Promptly after receipt by
any person or entity in respect of which indemnity may be sought pursuant to
Section 3.1 (an "Indemnified Party") of notice of any claim or the commencement
of any action, the Indemnified Party shall, if a claim in respect thereof is to
be made against the person or entity against whom such indemnity may be sought
(the "Indemnifying Party"), notify the Indemnifying Party in writing of the
claim or the commencement of such action. In the event an Indemnified Party
shall fail to give such notice as provided in this Section 3.2 and the
Indemnifying Party to whom notice was not given was unaware of the proceeding to
which such notice would have related and was materially prejudiced by the
failure to give such notice, the indemnification provided for in Section 3.1
shall be reduced to the extent of any actual prejudice resulting from such
failure to so notify the Indemnifying Party; provided, however, that the failure
to notify the Indemnifying Party shall not relieve the Indemnifying Party from
any liability that it may have to an Indemnified Party otherwise than under
Section 3.1. If any such claim or action shall be brought against an Indemnified
Party, and it shall notify the Indemnifying Party thereof, the Indemnifying
Party shall be entitled to participate therein, and, to the extent that it
wishes, jointly with any other similarly notified Indemnifying Party, to assume
the defense thereof with counsel reasonably satisfactory to the Indemnified
Party. After notice from the Indemnifying Party to the Indemnified Party of its
election to assume the defense of such claim or action, the Indemnifying Party
shall 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; provided, however, that
the Indemnified Party shall have the right to employ separate counsel to
represent the Indemnified Party and its Controlling Persons who may be subject
to liability arising out of any claim in respect of which indemnity may be
sought by the Indemnified Party against the Indemnifying Party, but the fees and
expenses of such counsel shall be for the account of such Indemnified Party,
unless (i) the Indemnifying Party and the Indemnified Party shall have mutually
agreed to the retention of such counsel or (ii) in the reasonable judgment of
the Company and such Indemnified Party, representation of both parties by the
same counsel would be inappropriate due to actual or potential conflicts of
interest between them, it being understood, however, that the Indemnifying Party
shall not, in connection with any one such claim or action or separate but
substantially similar or related claims or actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
fees and expenses of more than one separate firm of attorneys (together with
appropriate local counsel) at any time for all Indemnified Parties, or for fees
and expenses that are not reasonable. No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of any
claim or pending or threatened proceeding in respect of which the Indemnified
Party is or could have been a party and indemnity could have been sought
hereunder by such Indemnified Party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability arising out
of such claim or proceeding. Whether or not the defense of any claim or action
is assumed by the Indemnifying Party, such Indemnifying Party will not be
subject to any liability for any settlement made without its consent, which
consent will not be unreasonably withheld.
Section III.3. OTHER INDEMNIFICATION. Indemnification similar to that specified
in the preceding paragraphs of this Article 3 (with appropriate modifications)
shall be given by the Company with respect to any required registration or other
qualification of securities under any federal or state law or regulation of any
governmental authority other than the Securities Act. The
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provisions of this Article III shall be in addition to any other rights to
indemnification, contribution or other remedies which an Indemnified Party may
have pursuant to law, equity, contract or otherwise.
Section III.4. CONTRIBUTION. If the indemnification and reimbursement
obligations provided for in any section of this Article III is unavailable or
insufficient to hold harmless the Indemnified Parties in respect of any Damages
referred to herein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Damages as between the Company on the one
hand and the Investor on the other, in such proportion as is appropriate to
reflect the relative fault of the Company and of the Investor in connection with
such statements or omissions, as well as other equitable considerations. The
relative fault of the Company on the one hand and of the Investor on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by such party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company and the Investor agree that it would not be just and equitable if
contribution pursuant to this Section 3.4 were determined by pro rata allocation
or by any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Party as a result of the Damages referred to
in the immediately preceding paragraph shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses reasonably incurred
by such Indemnified Party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 3.4, the
Investor shall in no event be required to contribute any amount in excess of the
amount by which the total price at which the Registrable Securities of the
Investor were sold to the public (less underwriting discounts and commissions)
exceeds the amount of any damages which the Investor has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
ARTICLE IV
MISCELLANEOUS
Section IV.1. NO OUTSTANDING REGISTRATION RIGHTS. The Company represents and
warrants to the Investor that there is not in effect on the date hereof any
agreement by the Company pursuant to which any holders of securities of the
Company have a right to cause the Company to register or qualify such securities
under the Securities Act or any securities or blue sky laws of any jurisdiction,
except for the Company's obligation to register for resale the shares underlying
warrants issued to the underwriters of the Company's public offering effected in
September of 1996.
Section IV.2. TERM. The registration rights provided to the holders of
Registrable Securities hereunder shall terminate at such time as all Registrable
Securities have been issued and have
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ceased to be Registrable Securities. Notwithstanding the foregoing, paragraphs
(c) and (d) of Section 1.1, Article III, Section 4.8, and Section 4.9 shall
survive the termination of this Agreement.
Section IV.3. RULE 144. The Company will file in a timely manner, information,
documents and reports in compliance with the Securities Act and the Exchange Act
and will, at its expense, promptly take such further action as holders of
Registrable Securities may reasonably request to enable such holders of
Registrable Securities to sell Registrable Securities without registration under
the Securities Act within the limitation of the exemptions provided by (a) Rule
144 under the Securities Act ("Rul 144"), as such Rule may be amended from time
to time, or (b) any similar rule or regulation hereafter adopted by the SEC. If
at any time the Company is not required to file such reports, it will, at its
expense, forthwith upon the written request of any holder of Registrable
Securities , make available adequate current public information with respect to
the Company within the meaning of paragraph (c)(2) of Rule 144 or such other
information as necessary to permit sales pursuant to Rule 144. Upon the request
of the Investor, the Company will deliver to the Investor a written statement,
signed by the Company's principal financial officer, as to whether it has
complied with such requirements.
Section IV.4. CERTIFICATE. The Company will, at its expense, forthwith upon the
request of any holder of Registrable Securities, deliver to such holder a
certificate, signed by the Company's principal financial officer, stating (a)
the Company's name, address and telephone number (including area code), (b) the
Company's Internal Revenue Service identification number, (c) the Company's
Commission file number, (d) the number of shares of each class of Stock
outstanding as shown by the most recent report or statement published by the
Company, and (e) whether the Company has filed the reports required to be filed
under the Exchange Act for a period of at least ninety (90) days prior to the
date of such certificate and in addition has filed the most recent annual report
required to be filed thereunder.
Section IV.5. AMENDMENT AND MODIFICATION. Any provision of this Agreement may be
waived, provided that such waiver is set forth in a writing executed by both
parties to this Agreement. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the Company has obtained the written consent of the holders of a majority
of the then outstanding Registrable Securities. Notwithstanding the foregoing,
the waiver of any provision hereof with respect to a matter that relates
exclusively to the rights of holders of Registrable Securities whose securities
are being sold pursuant to a Registration Statement and does not directly or
indirectly affect the rights of other holders of Registrable Securities may be
given by holders of at least a majority of the Registrable Securities being sold
by such holders; provided that the provisions of this sentence may not be
amended, modified or supplemented except in accordance with the provisions of
the immediately preceding sentence. No course of dealing between or among any
Person having any interest in this Agreement will be deemed effective to modify,
amend or discharge any part of this Agreement or any rights or obligations of
any person under or by reason of this Agreement.
Section IV.6. SUCCESSORS AND ASSIGNS; ENTIRE AGREEMENT. This Agreement and
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all of the provisions hereof shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns. The Investor may
assign its rights under this Agreement to any subsequent holder the Registrable
Securities, provided that the Company shall have the right to require any holder
of Registrable Securities to execute a counterpart of this Agreement as a
condition to such holder's claim to any rights hereunder. This Agreement,
together with the Investment Agreement and the Warrant(s) 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.
Section IV.7. SEPARABILITY. In the event that any provision of this Agreement or
the application of any provision hereof is declared to be illegal, invalid or
otherwise unenforceable by a court of competent jurisdiction, the remainder of
this Agreement shall not be affected except to the extent necessary to delete
such illegal, invalid or unenforceable provision unless that provision held
invalid shall substantially impair the benefits of the remaining portions of
this Agreement.
Section IV.8. NOTICES. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and
shall be (i) deposited in the mail, registered or certified, return receipt
requested, postage prepaid, (ii) delivered by reputable air courier service with
charges prepaid, or (iii) transmitted by hand delivery, telegram or facsimile,
addressed as set forth below or to such other address as such party shall have
specified most recently by written notice. Any notice or other communication
required or permitted to be given hereunder shall be deemed effective (a) upon
hand delivery or delivery by facsimile, with accurate confirmation generated by
the transmitting facsimile machine, at the address or number designated below
(if delivered on a business day during normal business hours where such notice
is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second business day following the date
of mailing by express courier service, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be:
If to the Company:
Neotherapeutics, Inc,
157 Technology Drive
Attention: Alvin J. Glasky
Irvine, California 92618
Telephone: (714) 788-6700
Facsimile: (714) 788-6706
with a copy (which shall not constitute notice) to:
Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive, Suite 1600
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Newport Beach, California 92660
Attention: Craig Carlson
Telephone: (714) 725-4000
Facsimile: (714) 725-4100
if to the Investor:
Adam Gurney
Kingsbridge Capital Limited
Main Street
Kilcullen, County Kildare
Republic of Ireland
Telephone: 011-353-45-481-811
Facsimile: 011-353-45-482-003
with a copy (which communication shall not constitute notice) to:
Rogers & Wells LLP
200 Park Avenue, 52nd Floor
New York, NY 10166
Attention: Sara Hanks, Esq.
Telephone: (212) 878-8000
Facsimile: (212) 878-8375
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 4.8 by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
Section IV.9. GOVERNING LAW. This Agreement shall be construed under the laws of
the State of New York, without giving effect to provisions regarding conflicts
of law or choice of law.
Section IV.10. HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not constitute a part of this Agreement, nor shall they
affect their meaning, construction or effect.
Section IV.11. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original instrument and all
of which together shall constitute one and the same instrument.
Section IV.12. FURTHER ASSURANCES. Each party shall cooperate and take such
action as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Agreement and the transactions contemplated
hereby.
Section IV.13. ABSENCE OF PRESUMPTION. This Agreement shall be construed without
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regard to any presumption or rule requiring construction or interpretation
against the party drafting or causing any instrument to be drafted.
Section IV.14. REMEDIES. In the event of a breach or a threatened breach by any
party to this Agreement of its obligations under this Agreement, any party
injured or to be injured by such breach will be entitled to specific performance
of its rights under this Agreement or to injunctive relief, in addition to being
entitled to exercise all rights provided in this Agreement and granted by law.
The parties agree that the provisions of this Agreement shall be specifically
enforceable, it being agreed by the parties that the remedy at law, including
monetary damages, for breach of any such provision will be inadequate
compensation for any loss and that any defense or objection in any action for
specific performance or injunctive relief that a remedy at law would be adequate
is waived.
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IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be executed by the undersigned, thereunto duly authorized,
as of the date first set forth above.
NEOTHERAPEUTICS, INC.
By: /s/Alvin J. Glasky
---------------------------------
Alvin J. Glasky
President
KINGSBRIDGE CAPITAL LIMITED
By: /s/Valentine O'Donoghue
---------------------------------
Valentine O'Donoghue
Director
<PAGE> 1
EXHIBIT 4.3
WARRANT
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED
OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION WHICH IS EXEMPT FROM, OR
NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS CERTIFICATE IS THE
BENEFICIARY OF CERTAIN OBLIGATIONS OF THE COMPANY SET FORTH IN A PRIVATE EQUITY
LINE OF CREDIT AGREEMENT, DATED AS OF MARCH 27, 1998, BETWEEN NEOTHERAPEUTICS,
INC. AND KINGSBRIDGE CAPITAL LIMITED. A COPY OF THE PORTION OF THE AFORESAID
AGREEMENT EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM THE COMPANY'S
EXECUTIVE OFFICES.
MARCH 27, 1998
Warrant to Purchase up to 25,000 Shares of Common Stock of Neotherapeutics, Inc.
Neotherapeutics, Inc., a Delaware corporation (the "Company"), hereby agrees
that Kingsbridge Capital Limited (the "Investor") or any other Warrant Holder is
entitled, on the terms and conditions set forth below, to purchase from the
Company at any time during the Exercise Period up to 25,000 fully paid and
nonassessable shares of Common Stock, par value $.001 per share, of the Company
(the "Common Stock"), as the same may be adjusted from time to time pursuant to
Section 6 hereof, at the Exercise Price (hereinafter defined), as the same may
be adjusted pursuant to Section 6 hereof. The resale of the shares of Common
Stock or other securities issuable upon exercise or exchange of this Warrant is
subject to the provisions of the Registration Rights Agreement (as defined
below).
Section 1. Definitions.
"Agreement" shall mean the Private Equity Line of Credit
Agreement, dated the date hereof, between the Company and the Investor.
"Capital Shares" shall mean the Common Stock and any shares of
any other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.
<PAGE> 2
"Date of Exercise" shall mean the date that the advance copy of
the Exercise Form is sent by facsimile to the Company, provided that the
original Warrant and Exercise Form are received by the Company within reasonable
time thereafter. If the Warrant Holder has not sent advance notice by facsimile,
the Date of Exercise shall be the date the original Exercise Form is received by
the Company.
"Exercise Period" shall mean that period beginning on the 181st
day after the Subscription Date and continuing until the expiration of the
three-year period thereafter; provided that such period shall be extended one
day for each day after such 181st day after the Subscription Date, that a
Registration Statement is not effective during the period such Registration
Statement is required to be effective pursuant to the Registration Rights
Agreement.
"Exercise Price" as of the date hereof shall mean one hundred
thirty percent (130%) of the average of the lowest intra-day prices of the
Common Stock over the five (5) days preceding the Subscription Date and shall
hereafter be subject to the adjustments provided for in Section 6 of this
Warrant. "Lowest intra-day price" shall mean the lowest trade price per share of
the Common Stock (as reported by NASDAQ) during any Trading Day.
"Per Share Warrant Value" shall mean the difference resulting
from subtracting the Exercise Price from the Bid Price of one share of Common
Stock on the Trading Day next preceding the Date of Exercise.
"Registration Rights Agreement" shall mean the registration
rights agreement, dated the date hereof between the Company and the Investor.
"Subscription Date" shall mean the date on which the Agreement is
executed and delivered by the parties hereto.
"Warrant Holder" shall mean the Investor or any assignee or
transferee of all or any portion of this Warrant; and
other capitalized terms used but not defined herein shall have
their respective meanings set forth in the Agreement.
Section 2. Exercise; Cashless Exercise.
(a) Method of Exercise. Subject to the provisions of
paragraph (e) below, this Warrant may be exercised in whole or in part (but not
as to a fractional share of Common Stock), at any time and from time to time
during the Exercise Period, by the Warrant Holder by (i) surrender of this
Warrant, with the form of exercise attached hereto as Exhibit A duly executed by
the Warrant Holder (the "Exercise Notice"), to the Company at the address set
forth in Section 13 hereof, accompanied by payment of the Purchase Price
multiplied by the number of
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<PAGE> 3
shares of Common Stock for which this Warrant is being exercised (the "Exercise
Price") or (ii) telecopying an executed and completed Exercise Notice to the
Company and delivering to the Company within three business days thereafter the
original Exercise Notice, this Warrant and the Exercise Price. Each date on
which an Exercise Notice is received by the Company in accordance with clause
(i) and each date on which the Exercise Notice is telecopied to the Company in
accordance with clause (ii) above shall be deemed an "Exercise Date".
(b) Payment of Exercise Price. Subject to paragraph (c)
below, payment of the Exercise Price shall be made by check or bank draft
payable to the order of the Company or by wire transfer to an account designated
by the Company. If the amount of the payment received by the Company is less
than the Exercise Price, the Warrant Holder will be notified of the deficiency
and shall make payment in that amount within five (5) business days. In the
event the payment exceeds the Exercise Price, the Company will refund the excess
to the Warrant Holder within three (3) business days of receipt.
(c) Cashless Exercise. As an alternative to payment of the
Exercise Price in accordance with paragraph (b) above, the Warrant Holder may
elect to effect a cashless exercise by so indicating on the Exercise Notice and
including a calculation of the number of shares of Common Stock to be issued
upon such exercise in accordance with the terms hereof (a "Cashless Exercise").
In the event of a Cashless Exercise, the Warrant Holder shall surrender this
Warrant for that number of shares of Common Stock determined by (i) multiplying
the number of Warrant Shares for which this Warrant is being exercised by the
Per Share Warrant Value and (ii) dividing the product by the Bid Price of one
share of the Common Stock on the Trading Day next preceding the Date of
Exercise.
(d) Replacement Warrant. In the event that the Warrant is
not exercised in full, the number of Warrant Shares shall be reduced by the
number of such Warrant Shares for which this Warrant is exercised, and the
Company, at its expense, shall forthwith issue and deliver to or upon the order
of the Warrant Holder a new Warrant of like tenor in the name of the Warrant
Holder or as the Warrant Holder may request, reflecting such adjusted number of
Warrant Shares.
(e) Cancellation by the Company. If: (i) the Company shall
have delivered a Put Notice to the Investor; (ii) the Company shall have
delivered into escrow one or more certificates representing the Put Shares to be
purchased by the Investor in respect of such Put Notice and (iii) the Investor
and the Company mutually agree that the Company has satisfied all of the
conditions set forth in Section 7.2 of the Agreement, and the Investor shall not
have delivered the Investment Amount into escrow within five (5) days of the
Closing Date in respect of such Put Notice, then the Company may, by written
notice to the Investor, cancel this Warrant and terminate any and all of the
Investor's rights hereunder. Upon receipt of such written notice, the Investor
shall, at the sole discretion of the Company, either (x) return this Warrant to
the Company by overnight courier service or (y) destroy this Warrant. Any
dispute relating to the satisfaction of the conditions set forth in Section 7.2
of the Agreement shall be resolved in
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accordance with the terms of Section 11.3(c) of the Agreement.
Section 3. Ten Percent Limitation. The Warrant Holder may not
exercise this Warrant such that the number of Warrant Shares to be received
pursuant to such exercise aggregated with all other shares of Common Stock then
owned by the Warrant Holder beneficially or deemed beneficially owned by the
Warrant Holder would result in the Warrant Holder owning more than 9.9% of all
of such Common Stock as would be outstanding on such Closing Date, as determined
in accordance with Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder. As of any date prior to the Date of Exercise, the
aggregate number of shares of Common Stock into which this Warrant is
exercisable, together with all other shares of Common Stock then beneficially
owned (as such term is defined in Rule 16a-1 under the Exchange Act) by such
Warrant Holder and its affiliates, shall not exceed 9.9% of the total
outstanding shares of Common Stock as of such date.
Section 4. Delivery of Stock Certificates.
(a) Subject to the terms and conditions of this Warrant, as soon
as practicable after the exercise of this Warrant in full or in part, and in any
event within three (3) Trading Days thereafter, the Company at its expense
(including, without limitation, the payment by it of any applicable issue taxes)
will cause to be issued in the name of and delivered to the Warrant Holder, or
as the Warrant Holder may lawfully direct, a certificate or certificates for the
number of validly issued, fully paid and non-assessable Warrant Shares to which
the Warrant Holder shall be entitled on such exercise, together with any other
stock or other securities or property (including cash, where applicable) to
which the Warrant Holder is entitled upon such exercise in accordance with the
provisions hereof.
(b) This Warrant may not be exercised as to fractional shares of
Common Stock. In the event that the exercise of this Warrant, in full or in
part, would result in the issuance of any fractional share of Common Stock, then
in such event the Warrant Holder shall receive in cash an amount equal to the
Bid Price of such fractional share within three (3) Trading Days.
Section 5. Representations, Warranties and Covenants of the
Company.
(a) The Company shall take all necessary action and proceedings
as may be required and permitted by applicable law, rule and regulation for the
legal and valid issuance of this Warrant and the Warrant Shares to the Warrant
Holder.
(b) From the date hereof through the last date on which this
Warrant is exercisable, the Company shall take all steps reasonably necessary
and within its control to insure that the Common Stock remains listed or quoted
on the Principal Market.
(c) The Warrant Shares, when issued in accordance with the terms
hereof,
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<PAGE> 5
will be duly authorized and, when paid for or issued in accordance with the
terms hereof, shall be validly issued, fully paid and non-assessable.
(d) The Company has authorized and reserved for issuance to the
Warrant Holder the requisite number of shares of Common Stock to be issued
pursuant to this Warrant. The Company shall at all times reserve and keep
available, solely for issuance and delivery as Warrant Shares hereunder, such
shares of Common Stock as shall from time to time be issuable as Warrant Shares.
Section 6. Adjustment of the Exercise Price. The Exercise Price
and, accordingly, the number of Warrant Shares issuable upon exercise of the
Warrant, shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(a) Reclassification, Consolidation, Merger or Mandatory Share
Exchange. If the Company, at any time while this Warrant is unexpired and not
exercised in full, (i) reclassifies or changes its Outstanding Capital Shares
(other than a change in par value, or from par value to no par value per share,
or from no par value per share to par value or as a result of a subdivision or
combination of outstanding securities issuable upon exercise of the Warrant) or
(ii) consolidates, merges or effects a mandatory share exchange with or into
another corporation (other than a merger or mandatory share exchange with
another corporation in which the Company is a continuing corporation and that
does not result in any reclassification or change, other than a change in par
value, or from par value to no par value per share, or from no par value per
share to par value, or as a result of a subdivision or combination of
Outstanding Capital Shares issuable upon exercise of the Warrant) at any time
while this Warrant is unexpired and not exercised in full, then in any such
event the Company, or such successor or purchasing corporation, as the case may
be, shall, without payment of any additional consideration therefore, amend this
Warrant or issue a new Warrant providing that the Warrant Holder shall have
rights not less favorable to the holder than those then applicable to this
Warrant and to receive upon exercise under such amendment of this Warrant or new
Warrant, in lieu of each share of Common Stock theretofore issuable upon
exercise of the Warrant hereunder, the kind and amount of shares of stock, other
securities, money or property receivable upon such reclassification, change,
consolidation, merger, mandatory share exchange, sale or transfer by the holder
of one share of Common Stock issuable upon exercise of the Warrant had the
Warrant been exercised immediately prior to such reclassification, change,
consolidation, merger, mandatory share exchange or sale or transfer. Such
amended Warrant shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
6.1. The provisions of this subsection (a) shall similarly apply to successive
reclassifications, changes, consolidations, mergers, mandatory share exchanges
and sales and transfers.
(b) Subdivision or Combination of Shares. If the Company, at any
time while this Warrant is unexpired and not exercised in full, shall subdivide
its Common Stock, the Exercise Price shall be proportionately reduced as of the
effective date of such subdivision, or, if the Company shall take a record of
holders of its Common Stock for the purpose of so
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subdividing, as of such record date, whichever is earlier. If the Company, at
any time while this Warrant is unexpired and not exercised in full, shall
combine its Common Stock, the Exercise Price shall be proportionately increased
as of the effective date of such combination, or, if the Company shall take a
record of holders of its Common Stock for the purpose of so combining, as of
such record date, whichever is earlier.
(c) Stock Dividends. If the Company, at any while this Warrant is
unexpired and not exercised in full, shall pay a dividend in its Capital Shares,
or make any other distribution of its Capital Shares, then the Exercise Price
shall be adjusted, as of the date the Company shall take a record of the holders
of its Capital Shares for the purpose of receiving such dividend or other
distribution (or if no such record is taken, as at the date of such payment or
other distribution), to that price determined by multiplying the Exercise Price
in effect immediately prior to such payment or other distribution by a fraction:
1. the numerator of which shall be the total number of
Outstanding Capital Shares immediately prior to such dividend or distribution,
and
2. the denominator of which shall be the total number of
Outstanding Capital Shares immediately after such dividend or distribution. The
provisions of this subsection (c) shall not apply under any of the circumstances
for which an adjustment is provided in subsections (a) or (b).
(d) Issuance of Additional Capital Shares. If the Company, at any time
while this Warrant is unexpired and not exercised in full, shall issue any
additional Capital Shares ("Additional Capital Shares"), otherwise than as
provided in the foregoing subsections (a) through (c) above, at a price per
share less, or for other consideration lower, than the Bid Price in effect
immediately prior to such issuance, or without consideration, then upon such
issuance the Exercise Price shall be reduced to that price determined by
multiplying the Exercise Price in effect immediately prior to such event by a
fraction:
1. the numerator of which shall be the number of Outstanding
Capital Shares immediately prior to the issuance of the Additional Capital
Shares plus the number of Capital Shares that the aggregate consideration for
the total number of such Additional Capital Shares so issued would purchase at
the then effective Bid Price, and
2. the denominator of which shall be the number of Outstanding
Capital Shares immediately after the issuance of the Additional Capital Shares.
The provisions of this subsection (d) shall not apply under any of the
circumstances for which an adjustment is provided in subsections (a), (b) or
(c). The provisions of this subsection (d) shall not apply to the issuance of
any Additional Capital Shares that are issued pursuant to the exercise of any
warrants, options or other subscription or purchase rights or pursuant to the
exercise of any conversion or exchange rights in any convertible or exchangeable
securities, or to any shares issued pursuant to the Agreement.
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(e) Issuance of Warrants, Options or Other Rights. If the
Company, at any time while this Warrant is unexpired and not exercised in full,
shall issue any warrants, options or other rights to subscribe for or purchase
any Additional Capital Shares and the price per share for which Additional
Capital Shares may at any time thereafter be issuable pursuant to such warrants,
options or other rights shall be less than the Bid Price in effect immediately
prior to such issuance, then, upon the issuance of such warrants, options or
other rights, the Exercise Price shall be adjusted as provided in subsection (d)
hereof on the basis that:
1. the maximum number of Additional Capital Shares issuable on
the date of determination (subject to adjustment on the date(s) of exercise)
pursuant to all such warrants, options or other rights shall be deemed to have
been issued as of the date of actual issuance of such warrants, options or other
rights, and
2. the aggregate consideration for such maximum number of
Additional Capital Shares issuable pursuant to such warrants, options or other
rights, shall be deemed to be the consideration received by the Company for the
issuance of such warrants, options, or other rights plus the minimum
consideration to be received by the Company for the issuance of Additional
Capital Shares pursuant to such warrants, options, or other rights.
(f) Issuance of Convertible or Exchangeable Securities. If the
Company, at any time while this Warrant is unexpired and not exercised in full,
shall issue any securities convertible into or exchangeable for Capital Shares
and the consideration per share for which Additional Capital Shares may at any
time thereafter be issuable pursuant to the terms of such convertible or
exchangeable securities shall be less than the Bid Price in effect immediately
prior to such issuance, then, upon the issuance of such convertible or
exchangeable securities, the Exercise Price shall be adjusted as provided in
subsection (d) hereof on the basis that:
1. the maximum number of Additional Capital Shares necessary on
the date of determination (subject to adjustment on the date(s) of conversion or
exchange) to effect the conversion or exchange of all such convertible or
exchangeable securities shall be deemed to have been issued as of the date of
issuance of such convertible or exchangeable securities, and
2. the aggregate consideration for such maximum number of
Additional Capital Shares shall be deemed to be the consideration received by
the Company for the issuance of such convertible or exchangeable securities plus
the minimum consideration received by the Company for the issuance of such
Additional Capital Shares pursuant to the terms of such convertible or
exchangeable securities.
No adjustment of the Exercise Price shall be made under this
subsection (f) upon the issuance of any convertible or exchangeable securities
that are issued pursuant to the exercise of any warrants, options or other
subscription or purchase rights therefor, if the issuance of such warrants,
options or other rights was subject to subsection (e) hereof.
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(g) Adjustment of Number of Shares. Upon each adjustment of the
Exercise Price pursuant to any provisions of this Section 6.1, the number of
Warrant Shares issuable hereunder at the option of the Warrant Holder shall be
calculated, to the nearest one hundredth of a whole share, multiplying the
number of Warrant Shares issuable prior to an adjustment by a fraction:
1. the numerator of which shall be the Exercise Price before any
adjustment pursuant to this Section 6.1; and
2. the denominator of which shall be the Exercise Price after
such adjustment.
(h) Liquidating Dividends, Etc. If the Company, at any while this
Warrant is unexpired and not exercised in full, makes a distribution of its
assets or evidences of indebtedness to the holders of its Capital Shares as a
dividend in liquidation or by way of return of capital or other than as a
dividend payable out of earnings or surplus legally available for dividends
under applicable law or any distribution to such holders made in respect of the
sale of all or substantially all of the Company's assets (other than under the
circumstances provided for in the foregoing subsections (a) through (g)) while
an exercise is pending, then the Warrant Holder shall be entitled to receive
upon such exercise of the Warrant in addition to the Warrant Shares receivable
in connection therewith, and without payment of any consideration other than the
Exercise Price, an amount in cash equal to the value of such distribution per
Capital Share multiplied by the number of Warrant Shares that, on the record
date for such distribution, are issuable upon such exercise of the Warrant (with
no further adjustment being made following any event which causes a subsequent
adjustment in the number of Warrant Shares issuable), and an appropriate
provision therefor shall be made a part of any such distribution. The value of a
distribution that is paid in other than cash shall be determined in good faith
by the Board of Directors of the Company.
(i) Other Provisions Applicable to Adjustments Under this
Section. The following provisions will be applicable to the making of
adjustments in a Exercise Price hereinabove provided in this Section 6.1:
1. Computation of Consideration. To the extent that any
Additional Capital Shares or any convertible or exchangeable securities or any
warrants, options or other rights to subscribe for or purchase any Additional
Capital Shares or any convertible or exchangeable securities shall be issued for
a cash consideration, the consideration received by the Company therefor shall
be deemed to be the amount of the cash received by the Company therefor, or, if
such Additional Capital Shares or convertible or exchangeable securities are
offered by the Company for subscription, the subscription price, or, if such
Additional Capital Shares or convertible or exchangeable securities are sold to
or through underwriters or dealers for public offering without a subscription
offering, the initial public offering price, in any such case
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excluding any amounts paid or incurred by the Company for and in the
underwriting of, or otherwise in connection with the issue thereof. To the
extent that such issuance shall be for a consideration other than cash, then,
the amount of such consideration shall be deemed to be the fair value of such
consideration at the time of such issuance as determined in good faith by the
Company's Board of Directors. The consideration for any Additional Capital
Shares issuable pursuant to any warrants, options or other rights to subscribe
for or purchase the same shall be the consideration received by the Company for
issuing such warrants, options or other rights, plus the additional
consideration payable to the Company upon the exercise of such warrants, options
or other rights. The consideration for any Additional Capital Shares issuable
pursuant to the terms of any convertible or exchangeable securities shall be the
consideration paid or payable to the Company in respect of the subscription for
or purchase of such convertible or exchangeable securities, plus the additional
consideration, if any, payable to the Company upon the exercise of the right of
conversion or exchange in such convertible or exchangeable securities. In case
of the issuance at any time of any Additional Capital Shares or convertible or
exchangeable securities in payment or satisfaction of any dividend upon any
class of stock preferred as to dividends in a fixed amount, the Company shall be
deemed to have received for such Additional Capital Shares or convertible or
exchangeable securities a consideration equal to the amount of such dividend so
paid or satisfied.
2. Readjustment of Exercise Price. Upon the expiration of the
right to convert or exchange any convertible or exchangeable securities, or upon
the expiration of any rights, options or warrants, the issuance of which
convertible or exchangeable securities, rights, options or warrants effected an
adjustment in Exercise Price, if any such convertible or exchangeable securities
shall not have been converted or exchanged, or if any such rights, options or
warrants shall not have been exercised, the number of Capital Shares deemed to
be issued and Outstanding by reason of the fact that they were issuable upon
conversion or exchange of any such convertible or exchangeable securities or
upon exercise of any such rights, options, or warrants shall no longer be
computed as set forth above, and such Exercise Price shall forthwith be
readjusted and thereafter be the price that it would have been (but reflecting
any other adjustments in the Exercise Price made pursuant to the provisions of
this Section 6.1 after the issuance of such convertible or exchangeable
securities, rights, options or warrants) had the adjustment of the Exercise
Price made upon the issuance or sale of such convertible or exchangeable
securities or issuance of rights, options or warrants been made on the basis of
the issuance only of the number of Additional Capital Shares actually issued
upon conversion or exchange of such convertible or exchangeable securities, or
upon the exercise of such rights, options or warrants, and thereupon only the
number of Additional Capital Shares actually so issued, if any, shall be deemed
to have been issued and only the consideration actually received by the Company
(computed as set forth in sub-subsection (1. hereof) shall be deemed to have
been received by the Company. If the purchase price provided for in any rights,
options or warrants, or the additional consideration (if any) payable upon the
conversion or exchange of any convertible or exchangeable securities, or the
rate at which any convertible or exchangeable securities are convertible into or
exchangeable for Capital Shares changes at any time (other than under or by
reason of provisions designed to protect against dilution), the Exercise Price
in effect
9
<PAGE> 10
at the time of the change shall be adjusted to the Exercise Price that would
have been in effect at such time had such rights, options, warrants or
convertible or exchangeable securities still outstanding provided for such
changed purchase price, additional consideration or conversion rate, as the case
may be, at the time initially granted, issued or sold.
3. Other Action Affecting Capital Shares. In case after the date
hereof the Company shall take any action affecting the number of Outstanding
Capital Shares, other than an action described in any of the foregoing
subsections (a) through (h) hereof, inclusive, which in the opinion of the
Company's Board of Directors would have a materially adverse effect upon the
rights of the Warrant Holder at the time of exercise of the Warrant, the
Exercise Price shall be adjusted in such manner and at such time as the Board or
Directors on the advice of the Company's independent public accountants may in
good faith determine to be equitable in the circumstances.
(j) In the event the Company shall, at a time while the Warrant
is unexpired and outstanding, take any action which pursuant to subsections (a)
through (h) of this Section 6.1 may result in an adjustment of the Exercise
Price, the Company shall give to the Warrant Holder at its last address known to
the Company written notice of such action ten (10) days in advance of its
effective date in order to afford to the Warrant Holder an opportunity to
exercise the Warrant prior to such action becoming effective.
Section 6.1 Notice of Adjustments. Whenever the Exercise Price or
number of Warrant Shares shall be adjusted pursuant to Section 6.1 hereof, the
Company shall promptly make a certificate signed by its President or a Vice
President and by its Treasurer or Assistant Treasurer or its Secretary or
Assistant Secretary, setting forth in reasonable detail the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Company's
Board of Directors made any determination hereunder), and the Exercise Price and
number of Warrant Shares purchasable at that Exercise Price after giving effect
to such adjustment, and shall promptly cause copies of such certificate to be
mailed (by first class and postage prepaid) to the Holder of the Warrant. In the
event the Company shall, at a time while the Warrant is unexpired and not
exercised in full, take any action that pursuant to subsections (a) through (g)
of Section 6.1 may result in an adjustment of the Exercise Price, the Company
shall give to the Holder of the Warrant at its last address known to the Company
written notice of such action ten (10) days in advance of its effective date in
order to afford to the Holder of the Warrant an opportunity to exercise the
Warrant prior to such action becoming effective.
Section 7. No Impairment. The Company will not, by amendment of
its Articles of Incorporation or By-Laws or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the Warrant
Holder against
10
<PAGE> 11
impairment. Without limiting the generality of the foregoing, the Company (a)
will not increase the par value of any Warrant Shares above the amount payable
therefor on such exercise, and (b) will take all such action as may be
reasonably necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares on the exercise of
this Warrant.
Section 8. Rights As Stockholder. Prior to exercise of this
Warrant, the Warrant Holder shall not be entitled to any rights as a stockholder
of the Company with respect to the Warrant Shares, including (without
limitation) the right to vote such shares, receive dividends or other
distributions thereon or be notified of stockholder meetings. However, in the
event of any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend (other than a cash dividend) or other distribution, any
right to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right, the
Company shall mail to each Warrant Holder, at least ten (10) days prior to the
date specified therein, a notice specifying the date on which any such record is
to be taken for the purpose of such dividend, distribution or right, and the
amount and character of such dividend, distribution or right.
Section 9. Replacement of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of the Warrant and, in the case of any such loss, theft or
destruction of the Warrant, upon delivery of an indemnity agreement or security
reasonably satisfactory in form and amount to the Company or, in the case of any
such mutilation, on surrender and cancellation of such Warrant, the Company at
its expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
Section 10. Choice of Law. This Agreement shall be construed
under the laws of the State of New York.
Section 11. Entire Agreement; Amendments. This Warrant, the
Registration Rights Agreement, and the Agreement contain the entire
understanding of the parties with respect to the matters covered hereby and
thereby. No provision of this Warrant may be waived or amended other than by a
written instrument signed by the party against whom enforcement of any such
amendment or waiver is sought.
Section 12. Restricted Securities.
(a) Registration or Exemption Required. This Warrant has been
issued in a transaction exempt from the registration requirements of the
Securities Act in reliance upon the provisions of Section 4(2) promulgated by
the SEC under the Securities Act. This Warrant and the Warrant Shares issuable
upon exercise of this Warrant may not be resold except pursuant to an effective
registration statement or an exemption to the registration requirements of the
Securities Act and applicable state laws.
11
<PAGE> 12
(b) Legend. Any replacement Warrants issued pursuant to Section 2
hereof and any Warrant Shares issued upon exercise hereof, shall bear the
following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND
HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE
DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION
WHICH IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE
HOLDER OF THIS CERTIFICATE IS THE BENEFICIARY OF CERTAIN
OBLIGATIONS OF THE COMPANY SET FORTH IN A PRIVATE EQUITY LINE OF
CREDIT AGREEMENT, DATED AS OF MARCH 27, 1998, BETWEEN
NEOTHERAPEUTICS, INC. AND KINGSBRIDGE CAPITAL LIMITED. A COPY OF
THE PORTION OF THE AFORESAID AGREEMENT EVIDENCING SUCH
OBLIGATIONS MAY BE OBTAINED FROM THE COMPANY'S EXECUTIVE
OFFICES."
Removal of such legend shall be in accordance with the legend removal provisions
in the Agreement.
(c) No Other Legend or Stock Transfer Restrictions. No legend
other than the one specified in Section 12(b) has been or shall be placed on the
share certificates representing the Warrant Shares and no instructions or "stop
transfer orders," so called, "stock transfer restrictions" or other restrictions
have been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in this Section 12.
(d) Assignment. Assuming the conditions of Section 12(a) above
regarding registration or exemption have been satisfied, the Warrant Holder may
sell, transfer, assign, pledge or otherwise dispose of this Warrant, in whole or
in part. The Warrant Holder shall deliver a written notice to Company,
substantially in the form of the Assignment attached hereto as Exhibit B,
indicating the person or persons to whom the Warrant shall be assigned and the
respective number of warrants to be assigned to each assignee. The Company shall
effect the assignment within ten (10) days, and shall deliver to the assignee(s)
designated by the Warrant Holder a Warrant or Warrants of like tenor and terms
for the appropriate number of shares.
12
<PAGE> 13
(e) Investor's Compliance. Nothing in this Section 12 shall
affect in any way the Investor' s obligations under any agreement to comply with
all applicable securities laws upon resale of the Common Stock.
Section 13. Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile (with accurate confirmation generated by the transmitting facsimile
machine) at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be:
If to the Company:
Neotherapeutics, Inc,
157 Technology Drive
Attention: Alvin J. Glasky
Irvine, California 92618
Telephone: (714) 788-6700
Facsimile: (714) 788-6706
with a copy (which shall not constitute notice) to:
Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660
Attention: Craig Carlson
Telephone: (714) 725-4000
Facsimile: (714) 725-4100
if to the Investor:
13
<PAGE> 14
Adam Gurney
Kingsbridge Capital Limited
Main Street
Kilcullen, County Kildare
Republic of Ireland
Telephone: 011-353-45-481-811
Facsimile: 011-353-45-482-003
with a copy (which shall not constitute notice) to:
Rogers & Wells LLP
200 Park Avenue, 52nd Floor
New York, NY 10166
Attention: Sara Hanks, Esq.
Telephone: (212) 878-8000
Facsimile: (212) 878-8375
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 13 by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
Section 14. Miscellaneous. This Warrant and any term hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms hereof.
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision.
14
<PAGE> 15
IN WITNESS WHEREOF, this Warrant was duly executed by the
undersigned, thereunto duly authorized, as of the date first set forth above.
NEOTHERAPEUTICS, INC.
By: /s/ Alvin J. Glasky
--------------------------------
Alvin J. Glasky
President
Attested:
By: /s/Samuel Gulko
--------------------------------
Name: Samuel Gulko
Title: Assistant Secretary
<PAGE> 16
EXHIBIT A TO THE WARRANT
EXERCISE FORM
NEOTHERAPEUTICS, INC.
The undersigned hereby irrevocably exercises the right to purchase
__________________ shares of Common Stock of Neotherapeutics, Inc., a Delaware
corporation, evidenced by the attached Warrant, and herewith makes payment of
the Exercise Price with respect to such shares in full in the form of [cash or
check in the amount of $________], [______] Warrant Shares, which represent the
amount of Warrant Shares as provided in the attached Warrant to be canceled in
connection with such exercise], all in accordance with the conditions and
provisions of said Warrant.
The undersigned requests that stock certificates for such Warrant Shares
be issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to this Warrant in the name of the registered Holder and delivered to
the undersigned at the address set forth below.
Dated:_______________________________________
_____________________________________________
Signature of Registered Holder
Name of Registered Holder (Print)
_____________________________________________
Address
<PAGE> 17
NOTICE
The signature to the foregoing Exercise Form must correspond to the name
as written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
A-ii
<PAGE> 18
EXHIBIT B TO THE WARRANT
ASSIGNMENT
(To be executed by the registered Warrant Holder desiring to transfer the
Warrant)
FOR VALUED RECEIVED, the undersigned Warrant Holder of the attached
Warrant hereby sells, assigns and transfers unto the persons below named the
right to purchase ______________ shares of the Common Stock of Neotherapeutics,
Inc. evidenced by the attached Warrant and does hereby irrevocably constitute
and appoint ______________________ attorney to transfer the said Warrant on the
books of the Company, with full power of substitution in the premises.
Dated:
______________________________
Signature
<PAGE> 19
Fill in for new Registration of Warrant:
_________________________________________
Name
_________________________________________
Address
_________________________________________
Please print name and address of assignee
(including zip code number)
B-ii
<PAGE> 20
NOTICE
The signature to the foregoing Assignment must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
B-iii
<PAGE> 1
EXHIBIT 5
STRADLING YOCCA CARLSON & RAUTH
A PROFESSIONAL CORPORATION
ATTORNEYS AT LAW
660 NEWPORT CENTER DRIVE, SUITE 1600
NEWPORT BEACH, CALIFORNIA 92660
TELEPHONE (949) 725-4000
FAX (949) 725-4100
May 11, 1998
NeoTherapeutics, Inc.
157 Technology Drive
Irvine, California 92618
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
At your request, we have examined the form of Registration Statement on
Form S-3 (the "Registration Statement"), being filed by NeoTherapeutics, Inc., a
Delaware corporation (the "Company"), with the Securities and Exchange
Commission in connection with the registration under the Securities Act of 1933
for resale of an aggregate of up to 730,000 shares (the "Shares") of Common
Stock, par value $.001 per share, of the Company (the "Common Stock"), as
follows: (i) 700,000 shares of Common Stock (the "Equity Line Shares"), which
may be issued pursuant to a Private Equity Line of Credit Agreement dated March
27, 1998 (the "Equity Line Agreement") between the Company and one of the
selling stockholders named in the Registration Statement (the "Equity Line
Stockholder"), (ii) 5,000 shares of Common Stock, which have been issued to one
of the selling stockholders named in the Registration Statement (the "Placement
Stockholder," and together with the Equity Line Stockholder, the "Selling
Stockholders") for advisory services rendered in connection with the negotiation
of the Equity Line Agreement and (iii) 25,000 shares of Common Stock, which are
issuable upon exercise of a currently outstanding warrant (the "Warrant") issued
to the Equity Line Stockholder. The Shares may be sold from time to time for the
account of the Selling Stockholders.
We have examined the proceedings heretofore taken and are familiar with
the additional proceedings proposed to be taken by the Company in connection
with the authorization, issuance and sale of the securities referred to above.
Based on the foregoing, and assuming that the full consideration for
each Equity Line Share and for each share issuable upon exercise of the Warrant
is received by the Company in accordance with the terms of the Equity Line
Agreement and the Warrant, respectively, it is our opinion that the Shares
covered by the Registration Statement will be validly issued and outstanding,
fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the use of our name under the caption "Legal Matters" in the
Prospectus which is part of the Registration Statement.
Very truly yours,
STRADLING YOCCA CARLSON & RAUTH
<PAGE> 1
EXHIBIT 23.2
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement on Form S-3 of our report dated March
27, 1998 included in NeoTherapeutics, Inc.'s Form 10-KSB for the year ended
December 31, 1997 and to all references to our Firm included in this
registration statement.
ARTHUR ANDERSEN LLP
Orange County, California
May 11, 1998
