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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) November 9, 1998
COMMISSION FILE NUMBER: 0-21696
ARIAD PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 22-3106987
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
26 LANDSDOWNE STREET, CAMBRIDGE, MASSACHUSETTS 02139
(Address of principal executive offices)(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 494-0400
Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report: Not Applicable
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ITEM 5. OTHER EVENTS
On November 12, 1998, ARIAD Pharmaceuticals, Inc. (the "Company")
announced that it had completed a private placement of 5,000 shares of
Series C Convertible Preferred Stock ("Series C Stock") to a group of
institutional investors (the "Investors") and received proceeds of
approximately $5,000,000. Promethean Investment Group, L.L.C., a New
York based fund management group, advised the investors in the
transaction.
Each share of Series C Stock has a stated value of $1,000, plus an
accrual amount equal to 5% per annum, and is convertible into common
stock of the Company beginning on a date approximately three months
after the initial closing, subject to acceleration in certain
instances (the "Convertibility Date") at a conversion price equal to
the lower of a variable conversion price (the "Variable Price") or a
maximum conversion price (the "Maximum Price"). Subject to certain
adjustments, the Variable Price for any given conversion will be based
on the average of the four lowest closing bid prices for the common
stock during the 22 trading days preceding the date of conversion.
Subject to certain adjustments, the Maximum Price for all conversions
will be 120% of the Variable Price at a date to be selected by the
Company on or prior to the Convertibility Date.
Under the Securities Purchase Agreement, dated as of November 9, 1998,
between the Company and the Investors (the "Purchase Agreement"),
subject to certain conditions and limitations, the Company will be
required to sell and the Investors will be required to purchase an
additional aggregate of up to 5,000 shares of Series C Stock no later
than the Convertibility Date. Also under the Purchase Agreement, the
Investors will have the right, commencing approximately seven months
after the Convertibility Date, to purchase one additional share of
Series C Stock for each share then held by such Investor and each
share that had been converted prior to such time at the Maximum Price,
if any, up to an aggregate of 10,000 shares of Series C Stock. The
Purchase Agreement further provides that, during a six-month period
commencing approximately seven months after the Convertibility Date
and subject to certain conditions, the Company will have the right to
require the Investors to purchase up to an aggregate of 5,000
additional shares of Series C Stock. Under certain circumstances and
at certain prices, the Company may elect to redeem any shares of
Series C Stock that are presented for conversion.
The offer and sale of the Series C Stock was made pursuant to
Regulation D of the Securities Act of 1933, as amended (the "Act"),
and was therefore exempt from registration under the Act. The Company
has agreed to register for resale the shares of common stock issuable
upon conversion of the Series C Stock.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Not applicable.
(b) Not applicable.
(c) Exhibits.
Exhibit
Number Description
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4.1 Securities Purchase Agreement, dated November 9,
1998, by and between the Company and the Buyers named
therein.
4.2 Registration Rights Agreement, dated November 9,
1998, by and between the Company and the Buyers named
therein.
4.3 Certificate of Designations, Preferences and Rights
of Series C Convertible Preferred Stock of ARIAD
Pharmaceuticals, Inc. filed with the Office of the
Secretary of State of the State of Delaware on
November 9, 1998.
99.1 Press Release dated November 12, 1998.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ARIAD Pharmaceuticals, Inc.
Date: November 12, 1998 By: /s/ Jay R. LaMarche
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Executive Vice President and
Chief Financial Officer
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EXHIBIT INDEX
Exhibit
Number Description
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4.1 Securities Purchase Agreement, dated November 9, 1998, by and
between the Company and the Buyers named therein.
4.2 Registration Rights Agreement, dated November 9, 1998, by and
between the Company and the Buyers named therein.
4.3 Certificate of Designations, Preferences and Rights of Series C
Convertible Preferred Stock of ARIAD Pharmaceuticals, Inc. filed
with the Office of the Secretary of State of the State of Delaware
on November 9, 1998.
99.1 Press Release dated November 12, 1998.
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EXHIBIT 4.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of November
9, 1998, by and among ARIAD Pharmaceuticals, Inc., a Delaware corporation, with
headquarters located at 26 Landsdowne Street, Cambridge, Massachusetts 02139
(the "COMPANY"), and the investors listed on the Schedule of Buyers attached
hereto (individually, a "BUYER" and collectively, the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D ("REGULATION D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 ACT");
B. The Company has authorized the following new series of its
Preferred Stock, par value $.01 per share: the Company's Series C Convertible
Preferred Stock (the "PREFERRED STOCK"), which shall be convertible into shares
of the Company's Common Stock, par value $.001 per share (the "COMMON STOCK")
(as converted, the "CONVERSION SHARES"), in accordance with the terms of the
Company's Certificate of Designations, Preferences and Rights of the Preferred
Shares, substantially in the form attached hereto as EXHIBIT A (the "CERTIFICATE
OF DESIGNATIONS");
C. The Buyers wish to purchase, upon the terms and conditions
stated in this Agreement, initially an aggregate of 5,000 shares of Preferred
Stock (the "INITIAL PREFERRED SHARES") in the respective amounts set forth
opposite each Buyer's name on the Schedule of Buyers;
D. Subject to the terms and conditions set forth in this
Agreement, the Buyers will be required to buy and the Company will be required
to sell an aggregate of up to an additional 5,000 shares of Preferred Stock (pro
rata based on the number of Initial Preferred Shares each Buyer purchased in
relation to the total number of Initial Preferred Shares (with respect to each
Buyer, the "PRO RATA PORTION")) (the "MANDATORY PREFERRED SHARES");
E. Subject to the terms and conditions set forth in this
Agreement, each Buyer may have the right to purchase a number of additional
shares of Preferred Stock equal to up to the sum of (i) the number of Initial
Preferred Shares held by such Buyer on the date which is 300 days after the
Initial Closing Date (as defined in Section 1(b)), (ii) the number of Initial
Preferred Shares converted by such Buyer at a Conversion Price (as defined in
the Certificate of Designations) equal to the Fixed Conversion Price (as defined
in the Certificate of Designations) of the Initial Preferred Shares prior to the
date which is 300 days after the Initial Closing Date, (iii) the number of
Mandatory Preferred Shares held by such Buyer on the date which is 300 days
after the Initial Closing Date and (iv) the number of Mandatory Preferred Shares
converted by
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such Buyer at a Conversion Price equal to the Fixed Conversion Price of the
Mandatory Preferred Shares prior to the date which is 300 days after the Initial
Closing Date (collectively, the "ADDITIONAL PREFERRED SHARES"). In addition, the
Company may have the right to cause the Buyers to purchase up to an aggregate of
an additional 5,000 shares of Preferred Stock (pro rata based on the number of
Initial Preferred Shares each Buyer purchased in relation to the total number of
Initial Preferred Shares) (the "PUT PREFERRED SHARES") (the Initial Preferred
Shares, the Mandatory Preferred Shares, the Additional Preferred Shares and the
Put Preferred Shares collectively are referred to in this Agreement as the
"PREFERRED SHARES");
F. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the form attached hereto as EXHIBIT B (the
"REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
a. PURCHASE OF PREFERRED SHARES. Subject to satisfaction
(or waiver) of the conditions set forth in Sections 6(a) and 7(a) below, the
Company shall issue and sell to the Buyers and the Buyers severally shall
purchase from the Company an aggregate of 5,000 Initial Preferred Shares, in the
respective amounts set forth opposite each Buyer's name on the Schedule of
Buyers (the "INITIAL CLOSING"). Subject to the satisfaction (or waiver) of the
conditions set forth in Sections 1(c), 6(b) and 7(b) below, the Buyers shall buy
and the Company shall sell an aggregate of up to 5,000 Mandatory Preferred
Shares, each Buyer to purchase its Pro Rata Portion of that number of Mandatory
Preferred Shares equal to the difference of (i) that number of Preferred Shares
having an aggregate Purchase Price (as defined below) equal to the product of
(A) 0.10, multiplied by (B) the number of shares of Common Stock outstanding on
the Mandatory Closing Date (as defined below), multiplied by (C) the average of
the Closing Bid Prices (as defined in the Certificate of Designations) on the
five consecutive trading days immediately preceding the Mandatory Closing Date,
minus (ii) the number of Initial Preferred Shares purchased at the Initial
Closing (the "MANDATORY CLOSING"). Notwithstanding the foregoing, in no event
shall the aggregate number of Mandatory Preferred Shares that the Buyers are
required to purchase exceed 5,000 Mandatory Preferred Shares. Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 1(d), 6(c) and
7(c) below, at the option of each Buyer, the Company shall issue and sell to
each such Buyer and each such Buyer shall purchase from the Company at multiple
closings, if applicable, an aggregate of up to that number of Additional
Preferred Shares equal to the sum of (i) the number of Initial Preferred Shares
held by such Buyer on the date which is 300 days after the Initial Closing Date,
(ii) the number of Initial Preferred Shares converted by such Buyer prior to the
date which is 300 days after the Initial Closing Date at a Conversion Price
equal to the Fixed Conversion Price of the Initial Preferred Shares, (iii) the
number of Mandatory Preferred Shares held by such Buyer on the date which is 300
days after the Initial Closing Date and (iv) the number of Mandatory Preferred
Shares
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converted by such Buyer prior to the date which is 300 days after the Initial
Closing Date at a Conversion Price equal to the Fixed Conversion Price of the
Mandatory Preferred Shares (the "ADDITIONAL CLOSINGS"). Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 1(e), 1(f),
6(d) and 7(d) below, the Company may require that each Buyer purchase that
number of Put Preferred Shares equal to such Buyer's pro rata portion of up to
5,000 shares of Preferred Stock (based on the number of Initial Preferred Shares
each Buyer purchased in relation to the total number of Initial Preferred Shares
purchased by the Buyers) (the "PUT CLOSING") (the Initial Closing, the Mandatory
Closing, the Additional Closings and the Put Closing collectively are referred
to in this Agreement as the "CLOSINGS"). The purchase price (the "PURCHASE
PRICE") of each Preferred Share at each of the Closings shall be $1,000.
b. THE INITIAL CLOSING DATE. The date and time of the
Initial Closing (the "INITIAL CLOSING DATE") shall be 10:00 a.m. Central Time,
within three (3) business days following the date hereof, subject to
satisfaction (or waiver) of the conditions to the Initial Closing set forth in
Sections 6(a) and 7(a) below (or such later date as is mutually agreed to by the
Company and the Buyers). The Initial Closing shall occur on the Initial Closing
Date at the offices of Katten Muchin & Zavis, 525 West Monroe Street, Suite
1600, Chicago, Illinois 60661-3693 or by transmission by facsimile and overnight
courier.
c. THE MANDATORY CLOSING DATE. The date and time of the
Mandatory Closing (the "MANDATORY CLOSING DATE") shall be 10:00 a.m. Central
Time, on the third business day following the date of the receipt by each Buyer
of the Mandatory Share Notice (as defined below), subject to satisfaction (or
waiver) of the conditions to the Mandatory Closing set forth in Sections 6(b)
and 7(b) and the conditions set forth in this Section 1(c) (or such later date
as is mutually agreed to by the Company and the Buyers). The Company shall
deliver written notice (the "MANDATORY SHARE NOTICE") to each Buyer on a date
(the "MANDATORY SHARE NOTICE DATE") as soon as practicable, but in no event
later than the third business day, following the earliest of (i) the Fixed
Conversion Price Trigger Date (as defined in the Certificate of Designations),
provided that the Company has previously provided written notice to each Buyer
that the Registration Statement (as defined in the Registration Rights
Agreement) registering the Registrable Securities (as defined in the
Registration Rights Agreement) has been declared effective in accordance with
the terms of the Registration Rights Agreement and (ii) the date on which the
Company receives written notice from the Buyers which purchased a majority of
the Initial Preferred Shares issued at the Initial Closing that such Buyers
elect to have the Mandatory Closing occur. Notwithstanding the foregoing, no
Buyer shall be required to purchase the Mandatory Preferred Shares unless each
of the following conditions is satisfied: (i) the Registration Statement shall
have been declared effective and shall remain effective at all times during the
period beginning on the Mandatory Share Notice Date and ending on and including
the Mandatory Closing Date; (ii) during the period beginning on the date of this
Agreement and ending on and including the Mandatory Closing Date, there shall
not have occurred either (A) the consummation of a Major Business Event (as
defined below) or a public announcement of a pending Major Business Event which
has not been abandoned or terminated or (B) a Triggering Event (as defined in
Section 3(d) of the Certificate of Designations); (iii) at all times during the
period beginning on the date of this Agreement and ending on and including the
Mandatory
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Closing Date, the Common Stock shall have been designated for quotation on the
Nasdaq National Market, The New York Stock Exchange, Inc. ("NYSE") or The
American Stock Exchange, Inc. ("AMEX") and shall not have been suspended from
trading on such exchanges (excluding suspensions of not more than one day
resulting from business announcements by the Company), nor shall delisting or
suspension by such exchange have been threatened either (A) in writing by such
exchange or (B) by falling below the minimum listing maintenance requirements of
such exchange; (iv) during the period beginning on the Initial Closing Date and
ending on and including the Mandatory Closing Date, the Company shall have
delivered Conversion Shares upon conversion of the Preferred Shares on a timely
basis as set forth in Section 2(f)(ii) of the Certificate of Designations and
otherwise shall have been in compliance with and shall not have breached any
provision of the Transaction Documents (as defined below) and the Certificate of
Designations; and (vii) the Company shall not have previously delivered a
Mandatory Share Notice. The Mandatory Closing shall occur on the Mandatory
Closing Date at the offices of Katten Muchin & Zavis, 525 West Monroe Street,
Suite 1600, Chicago, Illinois 60661-3693 or by transmission by facsimile and
overnight courier. For purposes of Sections 1(c) and 1(e) "MAJOR BUSINESS EVENT"
means (x) consolidation, merger or other business combination of the Company
with another entity (other than (A) a consolidation, merger or other business
combination in which the holders of the Company's voting power immediately prior
to the transaction continue after the transaction to hold, directly or
indirectly, the voting power of the surviving entity or entities necessary to
elect a majority of the members of the board of directors (or their equivalent
if other than a corporation) of such entity or entities, or (B) pursuant to a
migratory merger effected solely for the purpose of changing the Company's
jurisdiction of incorporation), (y) the sale or transfer of all or substantially
all of the Company's assets or (z) a purchase, tender or exchange offer made to
and accepted by the holders of more than 50% of the outstanding shares of Common
Stock.
d. THE ADDITIONAL CLOSING DATE. The date and time of
each of the Additional Closings (the "ADDITIONAL CLOSING DATES") shall be 10:00
a.m. Central Time, on the fifth business day after such Buyer's delivery to the
Company of an Additional Share Notice (as defined below), subject to
satisfaction (or waiver) of the conditions to the Additional Closing set forth
in Sections 6(c) and 7(c) and the conditions set forth in this paragraph (or
such later date as is mutually agreed to by the Company and such Buyer). During
the period beginning on and including the date which is 300 days after the
Initial Closing Date and ending on and including the date which is five years
after the Initial Closing Date (the "ADDITIONAL NOTICE PERIOD"), but subject to
the requirements of Sections 6(c) and 7(c), HFTP Investment LLC, or its
assignees, may purchase on no more than two (2) occasions and each of Brown
Simpson Strategy Growth Fund, Ltd. and Brown Simpson Strategy Growth Fund, L.P.,
or their respective assignees, may purchase on no more than one (1) occasion
Additional Preferred Shares by delivering written notice to the Company (an
"ADDITIONAL SHARE NOTICE") on any date during the Additional Notice Period (an
"ADDITIONAL SHARE NOTICE DATE"). Each Additional Share Notice shall set forth
(i) the number of Additional Preferred Shares to be purchased by such Buyer at
such Additional Closing and (ii) the aggregate Purchase Price for such
Additional Preferred Shares. Notwithstanding the foregoing, no Buyer shall be
entitled to deliver an Additional Share Notice unless (x) on the date of the
delivery of the Additional Share Notice the Market Price (as defined
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in the Certificate of Designations) of the Common Stock is greater than the
Fixed Conversion Price of the Initial Preferred Shares on the Additional Share
Notice Date and (y) such Buyer has purchased Additional Preferred Shares at not
more than one previous Additional Closing. Each Additional Closing shall occur
on the Additional Closing Date at the offices of Katten Muchin & Zavis, 525 West
Monroe Street, Suite 1600, Chicago, Illinois 60661-3693 or by transmission by
facsimile and overnight courier.
e. THE PUT CLOSING DATE. The date and time of the Put
Closing (the "PUT CLOSING DATE") shall be 10:00 a.m. Central Time, on the date
specified in the Company's Put Share Notice (as defined below), subject to
satisfaction (or waiver) of the conditions to the Put Closing set forth in
Sections 6(d) and 7(d) and the conditions set forth in this Section 1(e) and
Section 1(f) (or such later date as is mutually agreed to by the Company and the
Buyers). During the period beginning on and including the date which is 300 days
after the Initial Closing Date and ending on the date which is 480 days after
the Initial Closing Date (the "PUT NOTICE PERIOD"), but subject to the
requirements of Sections 6(d) and 7(d) and satisfaction of the Put Notice
Conditions (as defined in Section 1(f) below), the Company on only one occasion
may require each Buyer to purchase Put Preferred Shares by delivering written
notice to each of the Buyers (a "PUT SHARE NOTICE") on a date during the Put
Notice Period at least 30 days but not more than 45 days (the "PUT SHARE NOTICE
DATE") prior to the Put Closing Date set forth in the Company's Put Share Notice
which Put Closing Date shall not be later than the last day of the Put Notice
Period, which, if not a business day, shall be the next business day following
such last day of the Put Notice Period. The Company's Put Share Notice shall set
forth (i) each Buyer's pro rata portion (based on the number of Initial
Preferred Shares each Buyer purchased in relation to the total number of Initial
Preferred Shares purchased by the Buyers) of the aggregate number of Put
Preferred Shares, which aggregate number shall not exceed 5,000 shares of
Preferred Stock, which the Company is requiring each Buyer to purchase at the
Put Closing, (ii) the aggregate Purchase Price for each such Buyer's Put
Preferred Shares and (iii) the date selected by the Company for the Put Closing
Date. The Put Closing shall occur on the Put Closing Date at the offices of
Katten Muchin & Zavis, 525 West Monroe Street, Suite 1600, Chicago, Illinois
60661-3693 or by transmission by facsimile and overnight courier. The Initial
Closing Date, the Mandatory Closing Date, the Additional Closing Dates and the
Put Closing Date collectively are referred to in this Agreement as the "CLOSING
DATES."
f. THE PUT NOTICE CONDITIONS. Notwithstanding anything
in this Agreement to the contrary, the Company shall not be entitled to deliver
a Put Share Notice and require the Buyers to purchase the Put Preferred Shares
unless, in addition to the satisfaction of the requirements of Sections 6(d) and
7(d), all of the following conditions (the "PUT NOTICE CONDITIONS") are
satisfied: (i) the Company's stockholders shall have approved the issuance of
the Securities (as defined below) on or prior to the Put Share Notice Date; (ii)
the Initial Registration Statement shall have been declared effective by the
Securities and Exchange Commission (the "SEC") and available for sale of all the
Registrable Securities in accordance with the terms of the Registration Rights
Agreement at all times during the 60 days immediately preceding the Put Closing
Date; (iii) at all times during the period beginning on the date of this
Agreement and ending on and including the Put Closing Date, the Common Stock
shall have
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been designated for quotation on the Nasdaq National Market, NYSE or AMEX and
shall not have been suspended from trading on such exchange nor shall delisting
or suspension by such exchange have been threatened either (A) in writing by
such exchange or (B) by falling below the minimum listing maintenance
requirements of such exchange; (iv) during the period beginning on the Initial
Closing Date and ending on and including the Put Closing Date, there shall not
have occurred either (A) the consummation of a Major Business Event or a public
announcement of a pending Major Business Event which has not been abandoned or
terminated or (B) a Triggering Event; (v) the average of the Closing Bid Prices
of the Common Stock on the trading days during the 30 days immediately preceding
the Put Closing Date is not less than the Fixed Conversion Price of the Initial
Preferred Shares on the Initial Closing Date; (vi) the Market Price of the
Common Stock on the Put Closing Date is not less than 90% of the Market Price of
the Common Stock on the Put Notice Date; (vii) the sum of (A) the Company's cash
and cash equivalents, plus (B) the proceeds to the Company from the sale of the
Put Preferred Shares at the Put Closing, plus (C) irrevocable payments due to
the Company within 90 days after the Put Closing Date pursuant to any
collaborations, is greater than the mathematical absolute value of the Company's
cash flows from operations during the 12 completed calendar months immediately
preceding the Put Closing Date, each as set forth on a schedule prepared by the
Company and certified by the Company's Chief Financial Officer and delivered to
each Buyer on the Put Closing Date; (viii) during the period beginning on the
Initial Closing Date and ending on and including the Put Closing Date, the
Company shall have delivered Conversion Shares upon conversion of the Preferred
Shares on a timely basis as set forth in Section 2(f)(ii) of the Certificate of
Designations and otherwise shall have been in compliance with and shall not have
breached any provision of the Transaction Documents (as defined below) and the
Certificate of Designations; and (ix) there previously shall not have occurred a
Put Share Closing.
g. FORM OF PAYMENT. On each of the Closing Dates, (i)
each Buyer shall pay the Purchase Price to the Company for the Preferred Shares
to be issued and sold to such Buyer at the respective Closing, by wire transfer
of immediately available funds in accordance with the Company's written wire
instructions, and (ii) the Company shall deliver to each Buyer, stock
certificates (in the denominations as such Buyer shall request) (the "STOCK
CERTIFICATES") representing such number of the Preferred Shares which such Buyer
is then purchasing (which, for the Initial Closing, shall be as indicated
opposite such Buyer's name on the Schedule of Buyers), duly executed on behalf
of the Company and registered in the name of such Buyer or its designee.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself
that:
a. INVESTMENT PURPOSE. Such Buyer (i) is acquiring the
Preferred Shares and (ii) upon conversion of the Preferred Shares, will acquire
the Conversion Shares then issuable (the Preferred Shares and the Conversion
Shares collectively are referred to herein as the "SECURITIES"), for its own
account for investment only and not with a view towards, or for resale in
connection with, the public sale or distribution thereof, except pursuant to
sales registered or
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exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer does not agree to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.
b. ACCREDITED INVESTOR STATUS. Such Buyer is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D
promulgated under the 1933 Act.
c. RELIANCE ON EXEMPTIONS. Such Buyer understands that
the Securities are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying in part upon the truth and
accuracy of, and such Buyer's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Buyer set forth herein in
order to determine the availability of such exemptions and the eligibility of
such Buyer to acquire the Securities.
d. INFORMATION. Such Buyer and its advisors, if any,
have been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities which have been requested by such Buyer. Such Buyer and its advisors,
if any, have been afforded the opportunity to ask questions of the Company,
including the Company's management. Neither such inquiries nor any other due
diligence investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer's right to rely on the
Company's representations and warranties contained in Sections 3 and 9(m) below.
Such Buyer understands that its investment in the Securities involves a high
degree of risk. Such Buyer has sought such accounting, legal and tax advice as
it has considered necessary to make an informed investment decision with respect
to its acquisition of the Securities.
e. NO GOVERNMENTAL REVIEW. Such Buyer understands that
no United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Securities
or the fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. TRANSFER OR RESALE. Such Buyer understands that
except as provided in the Registration Rights Agreement: (i) the Securities have
not been and are not being registered under the 1933 Act or any state securities
laws, and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a form reasonably acceptable to the Company,
to the effect that the Securities to be sold, assigned or transferred may be
sold, assigned or transferred pursuant to an exemption from such registration,
or (C) such Buyer provides the Company with reasonable assurance that such
Securities can be sold, assigned or transferred pursuant to Rule 144 promulgated
under the 1933 Act (or a successor rule thereto)("RULE 144"); (ii) any sale of
the Securities made in reliance on Rule 144 may be made only in accordance with
the terms of
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Rule 144 and further, if Rule 144 is not applicable, any resale of the
Securities under circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in
the 1933 Act) may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (iii) neither the
Company nor any other person is under any obligation to register such Securities
under the 1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder. Notwithstanding the foregoing, the
Securities may be pledged in connection with a bona fide margin account.
g. LEGENDS. Such Buyer understands that the certificates
or other instruments representing the Preferred Shares and, until such time as
the sale of the Conversion Shares have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement, the stock certificates
representing the Conversion Shares, except as set forth below, shall bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A FORM
REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES
LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for sale under the 1933 Act, (ii) in connection with a
sale transaction, such holder provides the Company with an opinion of counsel,
in a form reasonably acceptable to the Company, to the effect that a public
sale, assignment or transfer of such Securities may be made without registration
under the 1933 Act, or (iii) such holder provides the Company with reasonable
assurances that such Securities can be sold without restriction pursuant to Rule
144(k). Each Buyer acknowledges, covenants and agrees to sell the Securities
represented by a certificate(s) only pursuant to (i) a registration statement
effective under the 1933 Act, or (ii) advice of counsel that such sale is exempt
from registration required by Section 5 of the 1933 Act.
h. AUTHORIZATION; ENFORCEMENT. Each Buyer has the
requisite power and
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<PAGE> 9
authority to enter into and perform its obligations under this Agreement and the
Registration Rights Agreement. This Agreement and the Registration Rights
Agreement have been duly and validly authorized, executed and delivered on
behalf of such Buyer and constitute valid and binding agreements of such Buyer
enforceable in accordance with their terms, subject as to enforceability to
general principles of equity and to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors' rights and
remedies.
i. RESIDENCY. Such Buyer is a resident of that country
or jurisdiction specified in the Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers
that:
a. ORGANIZATION AND QUALIFICATION. The Company and its
"SUBSIDIARIES" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns the majority of such entity's capital
stock or holds an equivalent equity or similar interest) (a complete list of all
Subsidiaries and any other entity of which the Company, directly or indirectly,
owns capital stock or holds an equivalent equity or similar interest is set
forth in SCHEDULE 3(a)) are corporations duly organized and validly existing in
good standing under the laws of the jurisdiction in which they are incorporated,
and have the requisite corporate power and authorization to own their properties
and to carry on their business as now being conducted. Each of the Company and
its Subsidiaries is duly qualified as a foreign corporation to do business and
is in good standing in every jurisdiction in which its ownership of property or
the nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in good standing
would not have a Material Adverse Effect. As used in this Agreement, "MATERIAL
ADVERSE EFFECT" means any material adverse effect on the business, properties,
assets, operations, results of operations or financial condition or, insofar as
can reasonably be foreseen, prospects of the Company and its Subsidiaries, if
any, taken as a whole, or on the transactions contemplated hereby or by the
agreements and instruments to be entered into in connection herewith, or on the
authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined below) or the Certificate of Designations.
b. AUTHORIZATION; ENFORCEMENT; COMPLIANCE WITH OTHER
INSTRUMENTS. (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 Irrevocable Transfer Agent Instructions (as defined in
Section 5) (collectively, the "TRANSACTION DOCUMENTS"), and to issue the
Securities in accordance with the terms hereof and thereof; (ii) the execution
and delivery of the Transaction Documents and the Certificate of Designations by
the Company and the consummation by it of the transactions contemplated hereby
and thereby (including without limitation the issuance of the Preferred Shares
and the reservation for issuance and the issuance of the Conversion Shares
issuable upon conversion thereof), have been duly
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<PAGE> 10
authorized by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors or its
stockholders, except for, if required by The Nasdaq Stock Market, Inc. (or such
other national exchange upon which the Common Stock is listed), approval by its
stockholders prior to the issuance of a number of shares of Common Stock equal
to or in excess of 20% of the number of shares of Common Stock outstanding
immediately prior to the Initial Closing Date; (iii) the Transaction Documents
have been duly executed and delivered by the Company; (iv) the Transaction
Documents constitute the valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors' rights and
remedies; and (v) prior to the Initial Closing Date, the Certificate of
Designations will have been filed with the Secretary of State of the State of
Delaware and, on each Closing Date, will be in full force and effect, without
any amendment or modification thereto from the form of Certificate of
Designations in effect on the Initial Closing Date, enforceable against the
Company in accordance with its terms.
c. CAPITALIZATION. As of the date hereof, the authorized
capital stock of the Company consists of (i) 60,000,000 shares of Common Stock,
of which as of November 2, 1998, 21,927,504 shares were issued and outstanding,
6,529,915 shares were issuable and reserved for issuance pursuant to the
Company's stock option and purchase plans, 5,000,000 shares were issuable and
reserved for issuance upon conversion of the Company's Series B Convertible
Preferred Stock, and 2,125,225 were issuable and reserved for issuance pursuant
to securities (other than the Preferred Shares) exercisable or exchangeable for,
or convertible into, shares of Common Stock and (ii) 10,000,000 shares of the
preferred stock, par value $.01 per share, and of which, as of the date hereof,
500,000 shares have been designated Series A Preferred Stock, of which none are
issued and outstanding, and 5,000,000 shares have been designated Series B
Convertible Preferred Stock, of which 2,526,316 are issued and outstanding. All
of such outstanding shares of capital stock have been, or upon issuance will be,
validly issued and are fully paid and nonassessable. Except as disclosed in
SCHEDULE 3(c), (i) no shares of the Company's capital stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company, (ii) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries, (iii) there are no outstanding debt
securities, (iv) there are no agreements or arrangements under which the Company
or any of its Subsidiaries is obligated to register the sale of any of their
securities under the 1933 Act (except the Registration Rights Agreement), (v)
there are no outstanding securities of the Company or any of its Subsidiaries
which contain any redemption or similar provisions, and (except to the extent
arising out of current negotiations between the Company and Hoechst Marion
Roussel, Inc. and in which case only with respect to securities that currently
are not
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<PAGE> 11
outstanding) there are no contracts, commitments, understandings or arrangements
by which the Company or any of its Subsidiaries is or may become bound to redeem
a security of the Company or any of its Subsidiaries, (vi) there are no
securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the Securities as described in this
Agreement; and (vii) the Company does not have any stock appreciation rights or
"phantom stock" plans or agreements or any similar plan or agreement. The
Company has furnished to the Buyers true and correct copies of the Company's
Certificate of Incorporation, as amended and as in effect on the date hereof
(the "CERTIFICATE OF INCORPORATION"), and the Company's By-laws, as in effect on
the date hereof (the "BY-LAWS"), and the terms of all securities convertible
into or exercisable for Common Stock and the material rights of the holders
thereof in respect thereto.
d. ISSUANCE OF SECURITIES. The Preferred Shares are duly
authorized and, upon issuance in accordance with the terms hereof, shall be (i)
validly issued, fully paid and non-assessable, (ii) free from all taxes, liens
and charges with respect to the issue thereof and (iii) entitled to the rights
and preferences set forth in the Certificate of Designations. As of the date
hereof, 20,000,000 shares of Common Stock (subject to adjustment pursuant to the
Company's covenant set forth in Section 4(f) below) have been duly authorized
and reserved for issuance upon conversion of the Preferred Shares. Upon
conversion in accordance with the Certificate of Designations, the Conversion
Shares will be validly issued, fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issue thereof, with the holders
being entitled to all rights accorded to a holder of Common Stock. The issuance
by the Company of the Securities is exempt from registration under the 1933 Act.
e. NO CONFLICTS. Except as disclosed in SCHEDULE 3(e),
the execution, delivery and performance of the Transaction Documents by the
Company, the performance by the Company of its obligations under the Certificate
of Designations and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the reservation
for issuance and issuance of the Conversion Shares) will not (i) result in a
violation of the Certificate of Incorporation, any Certificate of Designations,
Preferences and Rights of any outstanding series of preferred stock, par value
$.01 per share, of the Company or the By-laws, (ii) conflict with, or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its Subsidiaries is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations and the rules and regulations
of the principal market or exchange on which the Common Stock is traded or
listed) applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or
affected. Except as disclosed in SCHEDULE 3(e), neither the Company nor its
Subsidiaries is in violation of any term of or in default under (x) the
Certificate of Incorporation, any Certificate of Designation, Preferences and
Rights of any outstanding series of preferred stock, par value $.01 per share,
or the By-laws or their organizational charter or by-laws, respectively, or (y)
any material contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or
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<PAGE> 12
regulation applicable to the Company or its Subsidiaries. The business of the
Company and its Subsidiaries is not being conducted, and shall not be conducted,
in violation of any law, ordinance, regulation of any governmental entity,
except where such violations have not resulted or would not result, individually
or in the aggregate, in a Material Adverse Effect. Except as specifically
contemplated by this Agreement and as required under the 1933 Act, the Company
is not required to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency or any regulatory
or self-regulatory agency in order for it to execute, deliver or perform any of
its obligations under or contemplated by the Transaction Documents or the
Certificate of Designations in accordance with the terms hereof or thereof.
Except as disclosed in SCHEDULE 3(e), all consents, authorizations, orders,
filings and registrations which the Company is required to obtain pursuant to
the preceding sentence have been obtained or effected on or prior to the date
hereof. The Company and its Subsidiaries have no knowledge of any facts or
circumstances which might give rise to any of the foregoing. The Company is not
in violation of the listing requirements of the Nasdaq National Market as in
effect on the date hereof and on each of the Closing Dates and is not aware of
any facts which would reasonably lead to delisting or suspension of the Common
Stock by the Nasdaq National Market in the foreseeable future.
f. SEC DOCUMENTS; FINANCIAL STATEMENTS. Since December
31, 1996, the Company has filed all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"1934 ACT") (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
"SEC DOCUMENTS"). The Company has delivered to each Buyer or its respective
representatives true and complete copies of the SEC Documents. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude 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 its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyers which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement, contains any untrue statement of
a material fact or omits to state any material fact necessary in order to
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<PAGE> 13
make the statements therein, in the light of the circumstance under which they
are or were made, not misleading. Neither the Company nor any of its
Subsidiaries or any of their officers, directors, employees or agents have
provided the Buyers with any material, nonpublic information.
g. ABSENCE OF CERTAIN CHANGES. Except as disclosed in
SCHEDULE 3(g) or the SEC Documents filed on EDGAR at least five business days
prior to the date hereof, since December 31, 1997 there has been no material
adverse change and no material adverse development in the business, properties,
operations, financial condition, liabilities or results of operations or,
insofar as can reasonably be foreseen, prospects of the Company or its
Subsidiaries. The Company has not taken any steps, and does not currently expect
to take any steps, to seek protection pursuant to any bankruptcy law nor does
the Company or any of its Subsidiaries have any knowledge or reason to believe
that its creditors intend to initiate involuntary bankruptcy proceedings.
h. ABSENCE OF LITIGATION. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company, the Common Stock or any of the Company's Subsidiaries or
any of the Company's or the Company's Subsidiaries' officers or directors in
their capacities as such, except as expressly set forth in SCHEDULE 3(h).
i. ACKNOWLEDGMENT REGARDING BUYERS' PURCHASE OF
PREFERRED SHARES. The Company acknowledges and agrees that each of the Buyers is
acting solely in the capacity of arm's length purchaser with respect to the
Transaction Documents, the Certificate of Designations and the transactions
contemplated thereby. The Company further acknowledges that each Buyer is not
acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to the Transaction Documents, the Certificate of
Designations and the transactions contemplated thereby and any advice given by
any of the Buyers or any of their respective representatives or agents in
connection with the Transaction Documents, the Certificate of Designations and
the transactions contemplated thereby is merely incidental to such Buyer's
purchase of the Securities. The Company further represents to each Buyer that
the Company's decision to enter into the Transaction Documents has been based
solely on the independent evaluation by the Company and its representatives.
j. NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR
CIRCUMSTANCES. No event, liability, development or circumstance has occurred or
exists, or is contemplated to occur, with respect to the Company or its
Subsidiaries or their respective business, properties, operations or financial
condition or, insofar as can reasonably be foreseen, prospects, that would be
required to be disclosed by the Company under applicable securities laws on a
registration statement (including by way of incorporation by reference) filed
with the SEC, on the date this representation is made or deemed to be made,
relating to an issuance and sale by the Company of its Common Stock and which
has not been publicly disclosed.
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<PAGE> 14
k. NO GENERAL SOLICITATION. Neither the Company, nor any
of its affiliates, nor any person acting on its or their behalf, has engaged in
any form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
l. 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, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of The Nasdaq Stock Market, Inc., nor will the
Company or any of its Subsidiaries take any action or steps that would require
registration of the Securities under the 1933 Act or cause the offering of the
Securities to be integrated with other offerings.
m. EMPLOYEE RELATIONS. Neither the Company nor any of
its Subsidiaries is involved in any union labor dispute nor, to the knowledge of
the Company or any of its Subsidiaries, is any such dispute threatened. Neither
the Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that relations with
their employees are good. Except as set forth on SCHEDULE 3(m), no executive
officer (as defined in Rule 501(f) of the 1933 Act) has notified the Company
that such officer intends to leave the Company or otherwise terminate such
officer's employment with the Company.
n. INTELLECTUAL PROPERTY RIGHTS. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names and service marks, whether or not registered, and all patents,
patent applications, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and intellectual property rights needed to
continue conducting their respective businesses as now conducted except where
the failure to own or possess such rights would not, individually or in the
aggregate, have a Material Adverse Effect. Except as set forth on SCHEDULE 3(n),
none of the Company's trademarks, trade names and service marks, whether or not
registered, and all patents, patent applications, copyrights, inventions,
licenses, approvals, government authorizations, trade secrets or other
intellectual property rights have expired or terminated, or are expected to
expire or terminate within two years from the date of this Agreement, except
where such expiration or termination would not result, individually or in the
aggregate, in a Material Adverse Effect. The Company and its Subsidiaries do not
have any knowledge of any infringement by the Company or its Subsidiaries of
trademarks, trade names or service marks, whether or not registered, or patents,
patent applications, copyrights, inventions, licenses, trade secrets or other
intellectual property rights of others and, except as set forth on SCHEDULE
3(n), there is no claim, action or proceeding which has been made or brought
against, or to the Company's knowledge, is being made, brought or threatened
against, the Company or its Subsidiaries regarding the infringement of
trademarks, trade names or service marks, whether or not registered, or patents,
patent applications, inventions, copyrights, licenses, trade secret or other
intellectual property rights and the Company and its Subsidiaries are
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<PAGE> 15
unaware of any facts or circumstances which might give rise to any of the
foregoing, except where any of the foregoing would not have a Material Adverse
Effect. The Company and its Subsidiaries have taken reasonable security measures
to protect the secrecy, confidentiality and value of all of their intellectual
properties.
o. ENVIRONMENTAL LAWS. The Company and its Subsidiaries
(i) are in compliance with any and all applicable foreign, federal, state and
local laws and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses
or other approvals required of them under applicable Environmental Laws to
conduct their respective businesses and (iii) are in compliance with all terms
and conditions of any such permit, license or approval, except where such
noncompliance or failure to receive such permits, licenses or other approvals
would not result in a Material Adverse Effect.
p. TITLE. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, except to the extent that the failure to
have good and marketable title would not have a Material Adverse Effect, in each
case free and clear of all liens, encumbrances and defects except such as are
described in SCHEDULE 3(p) or such as do not materially affect the value of such
property and do not interfere with the use made and proposed to be made of such
property by the Company or any of its Subsidiaries. Any real property and
facilities held under lease by the Company or any of its Subsidiaries are held
by them under valid, subsisting and enforceable leases with such exceptions as
are not material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company and its Subsidiaries.
q. INSURANCE. The Company and each of its Subsidiaries
are insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such subsidiary has been
refused any insurance coverage bought or applied for and neither the Company nor
any such Subsidiaries has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially and adversely affect the
condition, financial or otherwise, or the earnings, business or operations of
the Company and its Subsidiaries, taken as a whole.
r. REGULATORY PERMITS. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
s. INTERNAL ACCOUNTING CONTROLS. The Company and each of
its Subsidiaries
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maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
t. TAX STATUS. Except as set forth on SCHEDULE 3(t), the
Company and each of its Subsidiaries has made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
u. DILUTIVE EFFECT. The Company understands and
acknowledges that the number of Conversion Shares issuable upon conversion of
the Preferred Shares will increase in certain circumstances. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Preferred Shares in accordance with this Agreement and the Certificate of
Designations is absolute and unconditional regardless of the dilutive effect
that such issuance may have on the ownership interests of other stockholders of
the Company.
v. NO OTHER AGREEMENTS. As of the date hereof and as of
the Initial Closing Date, the Company has not, directly or indirectly, made any
agreements with any Buyers relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth in
the Transaction Documents.
w. CERTAIN TRANSACTIONS. Except as set forth on SCHEDULE
3(w) and except for arm's length transactions pursuant to which the Company
makes payments in the ordinary course of business upon terms no less favorable
than the Company could obtain from third parties and other than the grant of
stock options disclosed on SCHEDULE 3(c), none of the officers, directors, or
employees of the Company is presently a party to any transaction with the
Company or any of its Subsidiaries (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
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x. APPLICATION OF TAKEOVER PROTECTIONS. The Company and
its board of directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation or the laws of
the state of its incorporation which is or could become applicable to the Buyers
as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company's issuance of the Securities and the Buyer's
ownership of the Securities.
y. RIGHTS AGREEMENT. The Company specifically
represents, warrants and agrees that, in accordance with Section 1(c)(i) of the
Rights Agreement between the Company and State Street Bank and Trust Company
dated as of December 15, 1994 (the "Rights Plan"), none of the Buyers is
intended to be or will be deemed to be the Beneficial Owner of or to have
Beneficially Owned (each as defined in the Rights Plan) any of the Conversion
Shares regardless of the number of Conversion Shares into which a Buyer can or
will be able to convert Preferred Shares held by such Buyer because of the
acquisition of the Securities (including the Conversion Shares) pursuant to this
Agreement. Furthermore, the Buyers shall not, under any circumstances, as a
result of the issuance of the Securities hereunder trigger a "TRIGGERING EVENT"
within the meaning of the Rights Plan; provided, however, that only Securities
(including the Conversion Shares) acquired pursuant to this Agreement shall be
deemed excluded from the number of shares of Common Stock deemed Beneficially
Owned by each Buyer.
z. FOREIGN CORRUPT PRACTICES. Neither the Company, nor
any of its Subsidiaries, nor any director, officer, agent, employee or other
person acting on behalf of the Company or any of its Subsidiaries has, in the
course of its actions for, or on behalf of, the Company, used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended; or made any unlawful bribe,
rebate, payoff, influence payment, kickback or other unlawful payment to any
foreign or domestic government official or employee.
4. COVENANTS.
a. BEST EFFORTS. Each party shall use its best efforts
timely to satisfy each of the conditions to be satisfied by it as provided in
Sections 6 and 7 of this Agreement.
b. FORM D. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before each of the Closing Dates, take such action as the Company shall
reasonably determine is necessary to qualify the Securities for, or obtain
exemption for the Securities for, sale to the Buyers at each of the Closings
pursuant to this Agreement under applicable securities or "Blue Sky" laws of the
State of New York and such other reasonable number of states of the United
States identified by the Buyers, and shall provide evidence of any such action
so taken to the Buyers on or prior to such Closing Dates. The
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<PAGE> 18
Company shall make all filings and reports relating to the offer and sale of the
Securities required under applicable securities or "Blue Sky" laws of such
states of the United States following the Initial Closing Date.
c. REPORTING STATUS. Until the earlier of (i) the date
which is one year after the date as of which the Investors (as that term is
defined in the Registration Rights Agreement) may sell all of the Conversion
Shares without restriction pursuant to Rule 144(k) promulgated under the 1933
Act (or successor thereto), or (ii) the date on which (A) the Investors shall
have sold all the Conversion Shares and (B) none of the Preferred Shares is
outstanding (the "REGISTRATION PERIOD"), the Company shall file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the Company
shall not terminate its status as an issuer required to file reports under the
1934 Act even if the 1934 Act or the rules and regulations thereunder would
otherwise permit such termination.
d. USE OF PROCEEDS. The Company will use the net
proceeds from the sale of the Preferred Shares for substantially the same
purposes and in substantially the same amounts as indicated in SCHEDULE 4(d).
e. FINANCIAL INFORMATION. The Company agrees to send the
following to each Investor (as defined in the Registration Rights Agreement)
during the Registration Period: (i) within three (3) business days after the
filing thereof with the SEC, a copy of its Annual Reports on Form 10-K, its
Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and any
registration statements or amendments (other than on Form S-8) filed pursuant to
the 1933 Act; (ii) on the same day as the release thereof, facsimile copies of
all press releases issued by the Company or any of its Subsidiaries and (iii)
copies of any notices and other information made available or given to the
stockholders of the Company generally, contemporaneously with the making
available or giving thereof to the stockholders.
f. RESERVATION OF SHARES. The Company shall take all
action necessary to at all times have authorized, and reserved for the purpose
of issuance, no less than 200% of the number of shares of Common Stock needed to
provide for the issuance of the Conversion Shares (without regard to any
limitations on conversions).
g. RIGHT OF FIRST REFUSAL. Subject to the exceptions
described below, the Company shall not contract with any party for any equity
financing (including any debt financing with an equity component) or issue any
equity securities of the Company or securities convertible or exchangeable into
or for equity securities of the Company (including debt securities with an
equity component) in any form ("FUTURE OFFERINGS") during the period beginning
on the Initial Closing Date and ending on and including the date which is 365
days after the Initial Closing Date, unless it shall have first delivered to
each Buyer or a designee appointed by such Buyer written notice (the "FUTURE
OFFERING NOTICE") describing the proposed Future Offering, including the terms
and conditions thereof, and providing each Buyer an option to purchase up to its
Aggregate Percentage (as defined below), as of the date of delivery of the
Future Offering Notice on the same terms and conditions set forth in the Future
Offering Notice
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(the limitations referred to in this sentence are collectively referred to as
the "CAPITAL RAISING LIMITATION"). For purposes of this Section 4(g), "AGGREGATE
PERCENTAGE" at any time with respect to any Buyer shall mean the percentage
obtained by dividing (i) the number of Preferred Shares purchased by such Buyer
at the Initial Closing by (ii) the aggregate number of Preferred Shares
purchased by all the Buyers at the Initial Closing. A Buyer can exercise its
option to participate in a Future Offering by delivering written notice thereof
to participate to the Company within seven (7) business days of receipt of a
Future Offering Notice, which notice shall state the quantity of securities
being offered in the Future Offering that such Buyer will purchase, up to its
Aggregate Percentage, and that number of securities it is willing to purchase in
excess of its Aggregate Percentage. In the event that one or more Buyers fail to
elect to purchase up to each such Buyer's Aggregate Percentage then each Buyer
which has indicated that it is willing to purchase a number of securities in
excess of its Aggregate Percentage shall be entitled to purchase its pro rata
portion (determined in the same manner as described in the preceding sentence)
of the securities in the Future Offering which one or more Buyers have not
elected to purchase. In the event the Buyers fail to elect to fully participate
in the Future Offering within the periods described in this Section 4(g), the
Company shall have 45 days thereafter to sell the securities of the Future
Offering for which such Buyer's rights were not exercised, upon the same terms
and conditions (including the amount thereof) specified in the Future Offering
Notice. In the event the Company has not sold such securities of the Future
Offering within such 45-day period, the Company shall not thereafter issue or
sell such securities without first offering such securities to the Buyers in the
manner provided in this Section 4(g). The Capital Raising Limitation shall not
apply to (i) any transaction involving the Company's issuances of securities (A)
as consideration in a merger or consolidation, (B) in connection with any
strategic partnership or joint venture, the primary purpose of which is not to
raise equity capital (including in connection with agreements between the
Company and Hoechst Marion Roussel as of the date hereof and any amendments
thereto), or (C) as consideration for the acquisition of all or any portion of
another entities' business, assets, products or licenses by the Company, (ii)
the issuance of Common Stock in a firm commitment underwritten public offering,
(iii) the issuance of securities upon exercise or conversion of the Company's
options, warrants or other convertible securities outstanding as of the date
hereof, (iv) the grant of additional options or warrants, or the issuance of
additional securities, under any Company stock option or restricted stock plan
for the benefit of the Company's employees, directors or consultants or (v) the
private placement, conducted by a nationally recognized investment banking firm,
consisting solely of Common Stock at a price per share of not less than $2.50
(subject to equitable adjustments for stock splits, stock dividends,
combinations or other similar transactions) which price is not subject to any
adjustment and which private placement provides the Company with net proceeds
from such issuance of not less than $8,000,000, provided that, with respect to
such private placement, the Buyers are given the opportunity to participate in
such offering to the extent necessary to maintain their proportionate holdings
of Common Stock (on an as converted basis, without regard to any limitations on
conversions of the Preferred Shares). The Buyers shall not be required to
participate or exercise their right of first refusal with respect to a
particular Future Offering in order to exercise their right of first refusal
with respect to later Future Offerings.
h. LISTING. The Company shall promptly secure in
accordance with the
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applicable rules and regulations the listing of all of the Registrable
Securities upon each national securities exchange and automated quotation system
(including the Nasdaq National Market), upon which shares of Common Stock are
then listed (subject to official notice of issuance) and shall maintain, so long
as any other shares of Common Stock shall be so listed, such listing of all
Registrable Securities from time to time issuable under the terms of the
Transaction Documents and the Certificate of Designations. The Company shall
maintain the Common Stock's authorization for listing on the Nasdaq National
Market, NYSE or AMEX. Neither the Company nor any of its Subsidiaries shall take
any action which may result in the delisting or suspension of the Common Stock
on the Nasdaq National Market, NYSE or AMEX (other than to switch listings from
the Nasdaq National Market, AMEX or NYSE). The Company shall promptly provide to
each Buyer copies of any notices it receives from the Nasdaq Stock Market, Inc.,
NYSE or AMEX regarding the continued eligibility of the Common Stock for listing
on such automated quotation system or securities exchange. The Company shall pay
all fees and expenses in connection with satisfying its obligations under this
Section 4(h).
i. EXPENSES. Subject to Section 9(l) below and the
receipt of reasonable supporting documentation, following the Initial Closing,
the Company shall reimburse the Buyers for the Buyers' expenses (including
reasonable attorneys' fees and expenses) in connection with negotiating and
preparing the Transaction Documents and consummating the transactions
contemplated thereby up to an aggregate for all Buyers of $50,000.
j. FILING OF FORM 8-K. On or before (i) the first (1st)
business day following each of the Closing Dates and a Mandatory Share Notice
Date which is the result of the occurrence of the Fixed Conversion Price Trigger
Date and (ii) the second (2nd) business day following each Additional Share
Notice Date and a Mandatory Share Notice Date which is the result of a Mandatory
Share Notice prompted by written notice from the requisite Buyers pursuant to
Section 1(c), the Company shall file a Form 8-K with the SEC describing the
terms of the transaction contemplated by the Transaction Documents and
consummated at such Closing, in each case in the form required by the 1934 Act;
provided, however, that the Company shall not be required to file a Form 8-K
(pursuant to this Section 4(j)) with respect to any Additional Share Notice Date
which relates to the purchase of less than 100 Preferred Shares.
k. SHAREHOLDER APPROVAL/PROXY STATEMENT. If (i) on any
date after the Initial Closing Date the sum of (A) the number of Conversion
Shares issued and (B) the number of Conversion Shares issuable as of such date
pursuant to the conversion of all outstanding Preferred Shares (without regard
to any limitations on conversions), exceeds 19.99% of the number of shares of
Common Stock outstanding immediately prior to the Initial Closing or (ii) on
February 26, 1999 the sum of (A) the number of Conversion Shares issued and (B)
the number of Conversion Shares issuable as of such date pursuant to the
conversion of all outstanding Preferred Shares (without regard to any
limitations on conversions), exceeds 7.5% of the number of shares of Common
Stock outstanding immediately prior to the Initial Closing (the earlier of such
dates being referred to herein as the "PROXY STATEMENT TRIGGER DATE"), the
Company shall provide each stockholder entitled to vote at the next meeting of
stockholders of the Company, which meeting shall not be later than (x) in the
case of a Proxy Statement Trigger
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Date described in clause (i) above, 75 days after the Proxy Statement Trigger
Date or (y) in the case of a Proxy Statement Trigger Date described in clause
(ii) above, June 15, 1999 (in either case, the "STOCKHOLDER MEETING DEADLINE"),
a proxy statement, which has been previously reviewed by the Buyers and a
counsel of their choice, soliciting each such stockholder's affirmative vote at
such stockholder meeting for approval of the Company's issuance of all of the
Securities as described in this Agreement, and the Company shall use its best
efforts to solicit its stockholders' approval of such issuance of the Securities
and cause the Board of Directors of the Company to recommend to the stockholders
that they approve such proposal. If the Company fails to hold a meeting of its
stockholders by the Stockholder Meeting Deadline, then, as partial relief (which
remedy shall not be exclusive of any other remedies available at law or in
equity), the Company shall pay to each holder of Preferred Shares an amount in
cash per Preferred Share equal to the product of (i) $1,000; multiplied by (ii)
.025; multiplied by (iii) the quotient of (x) the number of days after the
Stockholder Meeting Deadline that a meeting of the Company's stockholders is not
held, divided by (y) 30. The Company shall make the payments referred to in the
immediately preceding sentence within five days of the earlier of (I) the
holding of the meeting of the Company's stockholders, the failure of which
resulted in the requirement to make such payments, and (II) the last day of each
30-day period beginning on the Stockholder Meeting Deadline. In the event the
Company fails to make such payments in a timely manner, such payments shall bear
interest at the rate of 2.0% per month (pro rated for partial months) until paid
in full.
l. TRANSACTIONS WITH AFFILIATES. So long as any
Preferred Shares are outstanding the Company shall not, and shall cause each of
its Subsidiaries not to, enter into, amend, modify or supplement, or permit any
subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any subsidiary's
officers, directors, person who were officers or directors at any time during
the previous two years, stockholders who beneficially own 5% or more of the
Common Stock, or affiliates or with any individual related by blood, marriage or
adoption to any such individual or with any entity in which any such entity or
individual owns a 5% or more beneficial interest (each a "RELATED PARTY"),
except for (a) customary employment arrangements and benefit programs on
reasonable terms, (b) any agreement, transaction, commitment or arrangement on
an arms-length basis on terms no less favorable than terms which would have been
obtainable from a person other than such Related Party, or (c) any agreement,
transaction, commitment or arrangement which is approved by a majority of the
disinterested directors of the Company. For purposes hereof, any director who is
also an officer of the Company or any subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "AFFILIATE" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a 5% or more equity interest in that person or entity, (ii) has 5% or
more common ownership with that person or entity, (iii) controls that person or
entity, or (iv) shares common control with that person or entity. "CONTROL" or
"CONTROLS" for purposes of this Section 4(l) means that a person or entity has
the power, direct or indirect, to conduct or govern the policies of another
person or entity.
m. CORPORATE EXISTENCE. So long as a Buyer beneficially
owns any Preferred
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Shares, the Company shall maintain its corporate existence and shall not sell
all or substantially all of the Company's assets, except in the event of a
merger or consolidation or sale of all or substantially all of the Company's
assets, where the surviving or successor entity in such transaction (i) assumes
the Company's obligations hereunder and under the agreements and instruments
entered into in connection herewith and (ii) is a publicly traded corporation
whose common stock is listed for trading on the Nasdaq National Market, NYSE or
AMEX.
n. UNDERWRITING LOCK-UP AGREEMENT. At any time during
the period beginning on the Initial Closing Date and ending on the date which is
two years after the Initial Closing Date, while at least 2,500 Preferred Shares
remain outstanding the Company may require that all, but not less than all, of
the holders of the Preferred Shares enter into a "lock-up" agreement with the
underwriters of a public offering of the Common Stock pursuant to which the
holders would agree not to sell or transfer any Conversion Shares issued with
respect to Preferred Shares converted on Conversion Dates (as defined in the
Certificate of Designations) during the period beginning on the date designated
by the Company, which date shall be not less than 10 business days after the
holders' receipt of such notice, and ending on the date which is up to 60 days
after the beginning of the lock-up period as designated by the Company (the
"UNDERWRITING LOCK-UP PERIOD"). The Company shall exercise this right by
delivering written notice (the "LOCK-UP REQUEST NOTICE") of such request to all
of the holders of the Preferred Shares then outstanding at least 10 business
days prior to the date on which the Underwriting Lock-Up Period will begin, but
in no event prior to the filing of the registration statement for such proposed
offering. The Lock-Up Request Notice shall state (i) that the underwriters of
such offering have requested that the holders of the Preferred Shares enter into
a "lock-up" agreement, (ii) the date on which the Underwriting Lock-Up Period
will begin, and (iii) the name of the managing underwriters of the proposed
offering. Notwithstanding the foregoing, the Company shall not be entitled to
require the holders to enter into a "lock-up" agreement unless (A) the
Underwriting Lock-Up Period is not more than 60 days, (B) the Underwriting
Lock-Up Period shall terminate immediately upon (I) the termination or
abandonment or indefinite delay of the underwritten offering, (II) the
announcement of a pending or consummated Major Transaction or (III) the
occurrence of a Triggering Event, (C) all officers and directors of the Company
enter into substantially similar "lock-up" agreements, (D) such underwritten
public offering is completed at a price per share to the public of not less than
$6.00 per share (subject to adjustment as a result of any stock split, stock
dividend, recapitalization, reverse stock split, consolidation, exchange or
similar event) and generates aggregate gross proceeds to the Company of at least
$15,000,000, (E) there has been no other Underwriting Lock-Up Period during the
365-day period immediately preceding the first day of the Underwriting Lock-Up
Period being requested, (F) during the period beginning on and including the
date which is 20 business days prior to the filing of the registration statement
for the proposed offering and ending on and including the first day of the
Underwriting Lock-Up Period, the Registration Statement has been effective and
available for sale of all of the Registrable Securities, there has been no Grace
Period (as defined in the Registration Rights Agreement) and there has been no
stop order or other regulatory prohibition on trading of the Common Stock, (G)
the offering shall be underwritten by one or more of the underwriters included
on Schedule 4(n) and (H) on the date of the Company's delivery of the Lock-Up
Request Notice there are at least 2,500 Preferred Shares outstanding. In
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the event the Company requires an Underwriting Lock-Up Period, the Maturity Date
(as defined in the Certificate of Designations) shall be extended two (2) days
for each day in the Underwriting Lock-Up Period as provided in Section 2(g) of
the Certificate of Designations. If the Company delivers a Lock-Up Request
Notice and the underwritten public offering is not consummated within 90 days of
the first day of the Underwritten Lock-Up Period, then the Company may not
require another Underwritten Lock-Up Period pursuant to this Section 4(n).
o. CONVERSION PRICE RESET. The Company agrees that it
will only give notice of a Fixed Conversion Price Trigger Date (as defined in
the Certificate of Designations) on not more than one occasion.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its
transfer agent, and any subsequent transfer agent, to issue certificates,
registered in the name of each Buyer or its respective nominee(s), for the
Conversion Shares in such amounts as specified from time to time by each Buyer
to the Company upon conversion of the Preferred Shares (the "IRREVOCABLE
TRANSFER AGENT INSTRUCTIONS"). Prior to registration of the Conversion Shares
under the 1933 Act, all such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions, and stop
transfer instructions permitted by the Irrevocable Transfer Agent Instructions
to give effect to Section 2(f) hereof (in the case of the Conversion Shares,
prior to registration of the Conversion Shares under the 1933 Act) will be given
by the Company to its transfer agent and that the Securities shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section 5 shall affect in any way each Buyer's obligations and agreements
set forth in Section 2(g) to comply with all applicable prospectus delivery
requirements, if any, upon resale of the Securities. If a Buyer provides the
Company with an opinion of counsel, in a form reasonably acceptable to the
Company, that registration of a resale by such Buyer of any of such Securities
is not required under the 1933 Act, the Company shall permit the transfer, and,
in the case of the Conversion Shares, promptly instruct its transfer agent to
issue one or more certificates in such name and in such denominations as
specified by such Buyer and, if appropriate given the basis for registration of
such resale not being required, without any restrictive legends. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyers by vitiating the intent and purpose of the
transactions contemplated by this Section 5. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 5 will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Section 5, that the Buyers shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
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a. INITIAL CLOSING DATE. The obligation of the Company
hereunder to issue and sell the Initial Preferred Shares to each Buyer at the
Initial Closing is subject to the satisfaction, at or before the Initial Closing
Date, of each of the following conditions, provided that these conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion by providing each Buyer with prior written notice thereof:
(i) Such Buyer shall have executed each of this Agreement
and the Registration Rights Agreement and delivered the same to the
Company.
(ii) The Certificate of Designations shall have been filed
with the Secretary of State of the State of Delaware.
(iii) Such Buyer shall have delivered to the Company the
Purchase Price for the Preferred Shares being purchased by such Buyer
at the Initial Closing by wire transfer of immediately available funds
pursuant to the wire instructions provided by the Company.
(iv) The representations and warranties of such Buyer
shall be true and correct as of the date when made and as of the
Initial Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and
such Buyer shall have performed, satisfied and complied with the
covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by such Buyer at
or prior to the Initial Closing Date. The Company shall have received a
certificate, executed on behalf of such Buyer, dated as of the Initial
Closing Date, to the foregoing effect.
b. MANDATORY CLOSING DATES. The obligation of the
Company hereunder to issue and sell the Mandatory Preferred Shares to each Buyer
at the Mandatory Closings is subject to the satisfaction, at or before the
Mandatory Closing Date, of each of the following conditions, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion by providing each Buyer with prior written
notice thereof:
(i) Such Buyer shall have delivered to the Company the
Purchase Price for the Mandatory Preferred Shares being purchased by
such Buyer at the Mandatory Closing by wire transfer of immediately
available funds pursuant to the wire instructions provided by the
Company.
(ii) The representations and warranties of such Buyer
shall be true and correct in all material respects as of the date when
made and as of the Mandatory Closing Date as though made at that time
(except for representations and warranties that speak as of a specific
date), and such Buyer shall have performed, satisfied and complied in
all material respects with the covenants, agreements and conditions
required by the
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Transaction Documents to be performed, satisfied or complied with by
such Buyer at or prior to the Mandatory Closing Date. The Company shall
have received a certificate, executed on behalf of such Buyer, dated as
of the Mandatory Closing Date, to the foregoing effect.
c. ADDITIONAL CLOSING DATES. The obligation of the
Company hereunder to issue and sell the Additional Preferred Shares to each
Buyer at each of the Additional Closings is subject to the satisfaction, at or
before the respective Additional Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion by providing
each Buyer with prior written notice thereof:
(i) Such Buyer shall have complied with the requirements
of Section 1(d) and the other conditions of Section 1(d) shall have
been satisfied.
(ii) Such Buyer shall have delivered to the Company the
Purchase Price for the Additional Preferred Shares being purchased by
such Buyer at the Additional Closing by wire transfer of immediately
available funds pursuant to the wire instructions provided by the
Company.
(iii) The representations and warranties of such Buyer
shall be true and correct in all material respects as of the date when
made and as of the Additional Closing Date as though made at that time
(except for representations and warranties that speak as of a specific
date), and such Buyer shall have performed, satisfied and complied with
the covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by such Buyer at
or prior to the Additional Closing Date. The Company shall have
received a certificate, executed on behalf of such Buyer, dated as of
such Additional Closing Date, to the foregoing effect.
d. PUT CLOSING DATE. The obligation of the Company
hereunder to issue and sell the Put Preferred Shares to each Buyer at the Put
Closing is subject to the satisfaction, at or before the Put Closing Date, of
each of the following conditions, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion by providing each Buyer with prior written notice thereof:
(i) Such Buyer shall have delivered to the Company the
Purchase Price for the Put Preferred Shares being purchased by such
Buyer at the Put Closing by wire transfer of immediately available
funds pursuant to the wire instructions provided by the Company.
(ii) The representations and warranties of such Buyer
shall be true and correct in all material respects as of the date when
made and as of the Put Closing Date as though made at that time (except
for representations and warranties that speak as of a specific date),
and such Buyer shall have performed, satisfied and complied with the
covenants,
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agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by such Buyer at or prior to the
Put Closing Date. The Company shall have received a certificate,
executed on behalf of such Buyer, dated as of the Put Closing Date, to
the foregoing effect.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
a. INITIAL CLOSING DATE. The obligation of each Buyer
hereunder to purchase the Initial Preferred Shares at the Initial Closing is
subject to the satisfaction, at or before the Initial Closing Date, of each of
the following conditions, provided that these conditions are for each Buyer's
sole benefit and may be waived by such Buyer at any time in its sole discretion
by providing the Company with prior written notice thereof:
(i) The Company shall have executed each of the
Transaction Documents, and delivered the same to such Buyer.
(ii) The Certificate of Designations shall have been filed
with the Secretary of State of the State of Delaware, and a copy of the
Certificate of Designations that has been certified by such Secretary
of State shall have been delivered to such Buyer.
(iii) The Common Stock shall be authorized for quotation on
the Nasdaq National Market, NYSE or AMEX, trading in the Common Stock
issuable upon conversion of the Initial Preferred Shares shall not have
been suspended by the SEC, The Nasdaq Stock Market, Inc., NYSE or AMEX
during the 10 trading days prior to and including the Initial Closing
Date and notification for listing of all of the Conversion Shares
issuable upon conversion of the Initial Preferred Shares to be sold at
the Initial Closing shall have been delivered to the Nasdaq National
Market, NYSE or AMEX.
(iv) The representations and warranties of the Company
shall be true and correct as of the date when made and as of the
Initial Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and
the Company shall have performed, satisfied and complied with the
covenants, agreements and conditions required by the Transaction
Documents or the Certificate of Designations to be performed, satisfied
or complied with by the Company at or prior to the Initial Closing
Date. Such Buyer shall have received a certificate, executed by the
Chief Financial Officer of the Company, dated as of the Initial Closing
Date, to the foregoing effect.
(v) Such Buyer shall have received the opinion of Mintz,
Levin, Cohn, Ferris, Glovsky and Popeo, P.C. dated as of the Initial
Closing Date in substantially the form of EXHIBIT C attached hereto
(the "MINTZ LEVIN OPINION").
(vi) The Company shall have executed and delivered to such
Buyer the Stock Certificates (in such denominations as such Buyer shall
request) for the Initial Preferred
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Shares being purchased by such Buyer at the Initial Closing.
(vii) The Board of Directors of the Company shall have
adopted resolutions consistent with Section 3(b)(ii) above and in a
form reasonably acceptable to such Buyer (the "RESOLUTIONS").
(viii) As of the Initial Closing Date, the Company shall
have reserved out of its authorized and unissued Common Stock, solely
for the purpose of effecting the conversion of the Preferred Shares, at
least 20,000,000 shares of Common Stock.
(ix) The Irrevocable Transfer Agent Instructions, in the
form of EXHIBIT D attached hereto, shall have been delivered to and
acknowledged in writing by the Company's transfer agent with a copy
forwarded to the Buyers.
(x) The Company shall have delivered to such Buyer a copy
of a certificate evidencing the incorporation and good standing of the
Company and each subsidiary in such corporation's state of
incorporation issued by the Secretary of State of such state of
incorporation as of a date within ten days of the Initial Closing Date.
(xi) The Company shall have delivered to such Buyer a
secretary's certificate or an assistant secretary's certificate (so
long as the assistant secretary is duly authorized to deliver such
certificate) certifying as to (a) the Resolutions, (b) the Certificate
of Incorporation and (c) Bylaws, each as in effect at the Initial
Closing.
(xii) The Company shall have delivered to such Buyer a copy
of its Certificate of Incorporation as certified by the Secretary of
State of the State of Delaware within ten days of the Initial Closing
Date.
(xiii) The Company shall have delivered to such Buyer a
letter from the Company's transfer agent certifying the number of
shares of Common Stock outstanding as of a date within five days of the
Initial Closing Date.
(xiv) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by the
Transaction Documents as such Buyer or its counsel may reasonably
request.
b. MANDATORY CLOSING DATES. The obligation of each Buyer
hereunder to purchase the Mandatory Preferred Shares at the Mandatory Closings
is subject to the satisfaction, at or before the Mandatory Closing Date, of each
of the following conditions, provided that these conditions are for each Buyer's
sole benefit and may be waived by such Buyer at any time in its sole discretion
by providing the Company with prior written notice thereof:
(i) The Company shall have complied with the requirements
of Section 1(c) as of the Mandatory Closing Date.
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(ii) The Certificate of Designations shall be in full
force and effect and shall not have been amended since the Initial
Closing Date, and a copy of the Certificate of Designations that has
been certified by the Secretary of State of the State of Delaware shall
have been delivered to such Buyer.
(iii) The Common Stock shall be authorized for quotation on
the Nasdaq National Market, NYSE or AMEX, trading in the Common Stock
issuable upon conversion of the Additional Preferred Shares shall not
be suspended by the SEC, The Nasdaq Stock Market, Inc., NYSE or AMEX on
the Mandatory Closing Date and notification for listing of all of the
Conversion Shares issuable upon conversion of the Mandatory Preferred
Shares to be sold at such Mandatory Closing shall have been delivered
to the Nasdaq National Market, NYSE or AMEX.
(iv) The representations and warranties of the Company
shall be true and correct as of the date when made and as of the
Mandatory Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and
the Company shall have performed, satisfied and complied with the
covenants, agreements and conditions required by the Transaction
Documents or the Certificate of Designations to be performed, satisfied
or complied with by the Company at or prior to the Mandatory Closing
Date. Such Buyer shall have received a certificate, executed by the
Chief Financial Officer of the Company, dated as of the Mandatory
Closing Date, to the foregoing effect and an update as of such
Mandatory Closing Date regarding the representation contained in
Section 3(c).
(v) Such Buyer shall have received the Mintz Levin
Opinion, dated as of such Mandatory Closing Date.
(vi) The Company shall have executed and delivered to such
Buyer the Stock Certificates (in such denominations as such Buyer shall
request) for the Mandatory Preferred Shares being purchased by such
Buyer at such Mandatory Closing.
(vii) The Board of Directors of the Company shall not have
amended the Resolutions.
(viii) As of such Mandatory Closing Date, the Company shall
have reserved out of its authorized and unissued Common Stock, solely
for the purpose of effecting the conversion of the Preferred Shares, a
number of shares of Common Stock equal to at least 200% of the number
of shares of Common Stock which would be issuable upon conversion in
full of the then outstanding Preferred Shares, including for such
purposes any Preferred Shares to be issued at such Mandatory Closing.
(ix) The Irrevocable Transfer Agent Instructions, in the
form of EXHIBIT D attached hereto, shall have been delivered to and
acknowledged in writing by the
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Company's transfer agent and shall be in effect as of the Mandatory
Closing Date.
(x) The Company shall have delivered to such Buyer a copy
of a certificate evidencing the incorporation and good standing of the
Company and each subsidiary in such corporation's state of
incorporation issued by the Secretary of State of such state of
incorporation as of a date within ten days of such Mandatory Closing
Date.
(xi) The Company shall have delivered to such Buyer a
secretary's certificate or an assistant secretary's certificate (so
long as the assistant secretary is duly authorized to deliver such
certificate) certifying as to (a) the Resolutions, (b) the Certificate
of Incorporation and (c) Bylaws, each as in effect at the Mandatory
Closing.
(xii) The Company shall have delivered to such Buyer a copy
of its Certificate of Incorporation as certified by the Secretary of
State of the State of Delaware within ten days of the Mandatory Closing
Date.
(xiii) The Company shall have delivered to such Buyer a
letter from the Company's transfer agent certifying the number of
shares of Common Stock outstanding as of a date within five days of the
Mandatory Closing Date.
(xiv) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by this
Agreement as such Buyer or its counsel may reasonably request.
c. ADDITIONAL CLOSING DATES. The obligation of each
Buyer hereunder to purchase the Additional Preferred Shares at each of the
Additional Closings is subject to the satisfaction, at or before the Additional
Closing Dates, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion by providing the Company with prior written
consent thereof:
(i) The Certificate of Designations shall be in full
force and effect and shall not have been amended since the Initial
Closing Date, and a copy of the Certificate of Designations that has
been certified by the Secretary of State of the State of Delaware shall
have been delivered to such Buyer.
(ii) The Common Stock shall be authorized for quotation on
the Nasdaq National Market, NYSE or AMEX, trading in the Common Stock
issuable upon conversion of the Additional Preferred Shares shall not
have been suspended by the SEC, The Nasdaq Stock Market, Inc., NYSE or
AMEX during the 10 trading days prior to and including the applicable
Additional Closing Date and notification for listing of all of the
Conversion Shares issuable upon conversion of the Additional Preferred
Shares to be sold at such Additional Closing shall have been delivered
to the Nasdaq National Market, NYSE or AMEX.
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(iii) The representations and warranties of the Company
shall be true and correct as of the date when made and as of the
respective Additional Closing Date as though made at that time (except
for representations and warranties that speak as of a specific date)
and the Company shall have performed, satisfied and complied with the
covenants, agreements and conditions required by the Transaction
Documents or the Certificate of Designations to be performed, satisfied
or complied with by the Company at or prior to the respective
Additional Closing Date. Such Buyer shall have received a certificate,
executed by the Chief Financial Officer of the Company, dated as of
such Additional Closing Date, to the foregoing effect and an update as
of such Additional Closing Date regarding the representation contained
in Section 3(c).
(iv) Such Buyer shall have received the Mintz Levin
Opinion, dated as of such Additional Closing Date.
(v) The Company shall have executed and delivered to such
Buyer the Stock Certificates (in such denominations as such Buyer shall
request) for the Additional Preferred Shares being purchased by such
Buyer at such Additional Closing.
(vi) The Board of Directors of the Company shall not have
amended the Resolutions.
(vii) As of such Additional Closing Date, the Company shall
have reserved out of its authorized and unissued Common Stock, solely
for the purpose of effecting the conversion of the Preferred Shares, a
number of shares of Common Stock equal to at least 200% of the number
of shares of Common Stock which would be issuable upon conversion in
full of the then outstanding Preferred Shares, including for such
purposes any Preferred Shares to be issued at such Additional Closing.
(viii) The Irrevocable Transfer Agent Instructions, in the
form of EXHIBIT D attached hereto, shall have been delivered to and
acknowledged in writing by the Company's transfer agent and shall be in
effect as of such Additional Closing Date.
(ix) The Company shall have delivered to such Buyer a copy
of a certificate evidencing the incorporation and good standing of the
Company and each subsidiary in such corporation's state of
incorporation issued by the Secretary of State of such state of
incorporation as of a date within ten days of such Additional Closing
Date.
(x) The Company shall have delivered to such Buyer a
secretary's certificate or an assistant secretary's certificate (so
long as the assistant secretary is duly authorized to deliver such
certificate) certifying as to (a) the Resolutions, (b) the Certificate
of Incorporation and (c) Bylaws, each as in effect at the Additional
Closing.
(xi) During the period beginning on the Additional Share
Notice Date and
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ending on and including the respective Additional Closing Date, the
Company shall have delivered Conversion Shares upon conversion of the
Preferred Shares on a timely basis as set forth in Section 2(f)(ii) of
the Certificate of Designations.
(xii) The Company shall have delivered to such Buyer a copy
of its Certificate of Incorporation as certified by the Secretary of
State of the State of Delaware within ten days of the Additional
Closing Date.
(xiii) The Company shall have delivered to such Buyer a
letter from the Company's transfer agent certifying the number of
shares of Common Stock outstanding as of a date within five days of the
Additional Closing Date.
(xiv) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by this
Agreement as such Buyer or its counsel may reasonably request.
d. PUT CLOSING DATE. The obligation of each Buyer
hereunder to purchase the Put Preferred Shares at the Put Closing is subject to
the satisfaction, at or before the Put Closing Date, of each of the following
conditions, provided that these conditions are for each Buyer's sole benefit and
may be waived by such Buyer at any time in its sole discretion by providing the
Company with prior written notice thereof:
(i) The Company shall have complied with the requirements
of Section 1(e) and all of the Put Notice Conditions set forth in
Section 1(f) shall have been satisfied as of the Put Closing Date.
(ii) The Certificate of Designations shall be in full
force and effect and shall not have been amended since the Initial
Closing Date, and a copy of the Certificate of Designations that has
been certified by the Secretary of State of the State of Delaware shall
have been delivered to such Buyer.
(iii) The Common Stock shall be authorized for quotation on
the Nasdaq National Market, NYSE or AMEX, trading in the Common Stock
issuable upon conversion of the Put Preferred Shares shall not be
suspended by the SEC, The Nasdaq Stock Market, Inc., NYSE or AMEX on
the Put Closing Date and notification for listing of all of the
Conversion Shares issuable upon conversion of the Put Preferred Shares
to be sold at the Put Closing shall have been delivered to the Nasdaq
National Market, NYSE or AMEX.
(iv) The representations and warranties of the Company
shall be true and correct as of the date when made and as of the Put
Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date) and the Company shall
have performed, satisfied and complied with the covenants, agreements
and conditions required by the Transaction Documents or the Certificate
of Designations
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<PAGE> 32
to be performed, satisfied or complied with by the Company at or prior
to the Put Closing Date. Such Buyer shall have received a certificate,
executed by the Chief Financial Officer of the Company, dated as of the
Put Closing Date, to the foregoing effect and an update as of such Put
Closing Date regarding the representation contained in Section 3(c).
(v) Such Buyer shall have received the Mintz Levin
Opinion, dated as of the Put Closing Date.
(vi) The Company shall have executed and delivered to such
Buyer the Stock Certificates (in such denominations as such Buyer shall
request) for the Put Preferred Shares being purchased by such Buyer at
the Put Closing.
(vii) The Board of Directors of the Company shall not have
amended the Resolutions.
(viii) As of the Put Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the Preferred Shares, a
number of shares of Common Stock equal to at least 200% of the number
of shares of Common Stock which would be issuable upon conversion of
the then outstanding Preferred Shares, including for such purposes any
Preferred Shares to be issued at such Put Closing.
(ix) The Irrevocable Transfer Agent Instructions, in the
form of EXHIBIT D attached hereto, shall have been delivered to and
acknowledged in writing by the Company's transfer agent and shall be in
effect as of the Put Closing Date.
(x) The Company shall have delivered to such Buyer a copy
of a certificate evidencing the incorporation and good standing of the
Company and each subsidiary in such corporation's state of
incorporation issued by the Secretary of State of such state of
incorporation as of a date within ten days of the Put Closing Date.
(xi) The Company shall have delivered to such Buyer a
secretary's certificate or an assistant secretary's certificate (so
long as the assistant secretary is duly authorized to deliver such
certificate) certifying as to (a) the resolutions, (b) the Certificate
of Incorporation and (c) Bylaws, each as in effect at the Put Closing.
(xii) The Company shall have delivered to such Buyer a copy
of its Certificate of Incorporation as certified by the Secretary of
State of the State of Delaware within ten days of the Put Closing Date.
(xiii) The Company shall have delivered to such Buyer a
letter from the Company's transfer agent certifying the number of
shares of Common Stock outstanding as of a date within five days of the
Put Closing Date.
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<PAGE> 33
(xiv) The Company shall have delivered to such Buyer a
schedule, certified by the Company's Chief Financial Officer,
confirming satisfaction of the condition set forth in clause (vii) of
Section 1(f).
(xv) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by this
Agreement as such Buyer or its counsel may reasonably request.
8. INDEMNIFICATION. Except to the extent that matters which could
be covered by this Section 8 are covered by Section 6 of the Registration Rights
Agreement, in consideration of each Buyer's execution and delivery of the
Transaction Documents and acquiring the Securities thereunder and in addition to
all of the Company's other obligations under the Transaction Documents and the
Certificate of Designations, the Company shall defend, protect, indemnify and
hold harmless each Buyer and each other holder of the Preferred Shares and all
of their stockholders, officers, directors, employees and direct or indirect
investors and any of the foregoing person's agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "INDEMNITEES")
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"), incurred by
any Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents, the Certificate of Designations or any
other certificate, instrument or document contemplated hereby or thereby, (b)
any breach of any covenant, agreement or obligation of the Company contained in
the Transaction Documents, the Certificate of Designations or any other
certificate, instrument or document contemplated hereby or thereby, or (c) any
cause of action, suit or claim brought or made, other than by the Company,
against such Indemnitee and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or the
Certificate of Designations, (ii) any transaction financed or to be financed in
whole or in part, directly or indirectly, with the proceeds of the issuance of
the Securities or (iii) solely the status of such Buyer or holder of the
Securities as an investor in the Company. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities which is permissible under applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW; JURISDICTION; JURY TRIAL. The
corporate laws of the State of Delaware shall govern all issues concerning the
relative rights of the Company and its stockholders. All other questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the
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<PAGE> 34
State of New York or any other jurisdictions) that would cause the application
of the laws of any jurisdictions other than the State of New York. Each party
hereby irrevocably submits to the non-exclusive jurisdiction of the state and
federal courts sitting the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT
OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
b. COUNTERPARTS. This Agreement may be executed in two
or more identical counterparts, all of which shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to each other party; provided that a facsimile
signature shall be considered due execution and shall be binding upon the
signatory thereto with the same force and effect as if the signature were an
original, not a facsimile signature.
c. HEADINGS. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. SEVERABILITY. If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. ENTIRE AGREEMENT; AMENDMENTS. This Agreement
supersedes all other prior oral or written agreements between the Buyers, the
Company, their affiliates and persons acting on their behalf with respect to the
matters discussed herein, and this Agreement and the Exhibits, Schedules and
other instruments referenced herein contain the entire understanding of the
parties with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor any Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be amended other than by an
instrument in writing signed by the Company and the holders of at least a
majority of the Preferred Shares then outstanding, and no provision hereof may
be waived other than by an instrument in writing signed by the party against
whom enforcement of such waiver is sought. No such amendment shall be effective
to the extent that it applies to less than
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<PAGE> 35
all of the holders of the Preferred Shares then outstanding. No consideration
shall be offered or paid to any person to amend or consent to a waiver or
modification of any provision of any of the Transaction Documents or the
Certificate of Designations unless the same consideration also is offered to all
of the parties to the Transaction Documents or holders of Preferred Shares, as
the case may be.
f. NOTICES. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one business day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to the Company:
ARIAD Pharmaceuticals, Inc.
26 Landsdowne Street
Cambridge, Massachusetts 02139
Telephone: 617-494-0400
Facsimile: 617-225-2860
Attention: Jay R. LaMarche
With a copy to:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
Telephone: 617-542-6000
Facsimile: 617-542-2241
Attention: Jonathan L. Kravetz, Esq.
If to the Transfer Agent:
Boston EquiServe
150 Royall Street
Canton, Massachusetts 02021
Telephone: 781-575-3010
Facsimile: 781-828-8813
Attention: Patricia Foster
If to a Buyer, to its address and facsimile number on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the Schedule
of Buyers.
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<PAGE> 36
Each party shall provide five (5) days' prior written notice to the
other party of any change in address or facsimile number.
g. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns, including any purchasers of the Preferred Shares. The
Company shall not assign this Agreement or any rights or obligations hereunder,
other than (i) pursuant to a merger, consolidation or reorganization provided
that the Company has satisfied its obligations under Sections 2(d)(iv), 3(a),
(3(e) and 3(g) of the Certificate of Designation or (ii) without the prior
written consent of the holders of a majority of the Preferred Shares then
outstanding, which consent shall not be unreasonably withheld. A Buyer and any
Permitted Assignees (as defined below) may assign some or all of its rights
hereunder to (i) without the consent of the Company, any person or entity who,
immediately prior to such assignment, is (A) an affiliate of such Buyer, (B) a
holder of Preferred Shares or of rights to acquire Preferred Shares pursuant to
this Securities Purchase Agreement or (C) an entity or fund which has the same
principal investment adviser as the Buyer or any other holder of Preferred
Shares or rights to purchase Preferred Shares pursuant to this Securities
Purchase Agreement (each such person or entity described in the immediately
preceding clause (A), (B) and (C) is referred to as a "PERMITTED ASSIGNEE") and
(ii) with the prior written consent of the Company, which consent shall not be
unreasonably withheld, to any person or entity; provided, however, that any such
assignment shall not release such Buyer from its obligations hereunder unless
such obligations are assumed by such assignee and the Company has consented to
such assignment and assumption, which consent shall not be unreasonably
withheld. Notwithstanding anything to the contrary contained in the Transaction
Documents or the Certificate of Designations, each Buyer shall be entitled to
pledge the securities in connection with a bona fide margin account.
h. NO THIRD PARTY BENEFICIARIES. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
i. SURVIVAL. Unless this Agreement is terminated under
Section 9(l), the representations and warranties of the Company and the Buyers
contained in Sections 2 and 3, the agreements and covenants set forth in
Sections 4, 5 and 9, and the indemnification provisions set forth in Section 8,
shall survive each of the Closings regardless of any investigation made by or on
behalf of the such Buyer or by or on behalf of the Company, except that, in the
case of representations and warranties such survival shall be limited to the
period of six years following the Closing Date on which they were made or deemed
to be made (other than with respect to any claim by a third party against the
party to this Agreement who seeks to assert a claim based on such
representations and warranties). Each Buyer shall be responsible only to its own
representations, warranties, agreements and covenants hereunder.
j. PUBLICITY. The Company and a designated
representative of the Buyers shall have the right to approve before issuance any
press releases or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be entitled,
without prior approval of any Buyer, to make any press release or other public
disclosure with respect to such transactions as the Company, upon the advice of
counsel,
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<PAGE> 37
determines is required by applicable law and regulations (although the
representative of the Buyers shall be consulted by the Company in connection
with any such press release or other public disclosure prior to its release and
shall be provided with a copy thereof).
k. FURTHER ASSURANCES. Each party shall do and perform,
or cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. TERMINATION. In the event that the Initial Closing
shall not have occurred with respect to a Buyer on or before three (3) business
days from the date hereof due to the Company's or such Buyer's failure to
satisfy the conditions set forth in Sections 6 and 7 above (and the nonbreaching
party's failure to waive such unsatisfied condition(s)), the nonbreaching party
shall have the option to terminate this Agreement with respect to such breaching
party at the close of business on such date without liability of any party to
any other party; provided, however, that if this Agreement is terminated
pursuant to this Section 9(l), the Company shall remain obligated to reimburse
the non-breaching Buyers for the expenses described in Section 4(i) above.
m. PLACEMENT AGENT. The Company and each Buyer each
acknowledge that it has not engaged any placement agent in connection with the
sale of the Preferred Shares. The Company and each Buyer shall be responsible
for the payment of any placement agent's fees or broker's commissions incurred
by or on its behalf relating to or arising out of the transactions contemplated
hereby. The Company, on the one hand, and the Buyers, on the other hand, shall
pay, and hold each other party to this Agreement harmless against, any
liability, loss or expense (including, without limitation, reasonable attorneys'
fees and out of pocket expenses) arising in connection with any such claim.
n. NO STRICT CONSTRUCTION. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
o. REMEDIES. The Company, each Buyer and each holder of
Preferred Shares or registration rights with respect to the Conversion Shares
shall have all rights and remedies set forth in the Transaction Documents and
the Certificate of Designations and all rights and remedies which such parties
have been granted at any time under any other agreement or contract relating to
the subject matter hereof and all of the rights which such parties have under
any law. Any person or entity having any rights under any provision of this
Agreement shall be entitled to enforce such rights specifically (without posting
a bond or other security), to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights granted by law.
p. PAYMENT SET ASIDE. To the extent that the Company
makes a payment or
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<PAGE> 38
payments to the Buyers hereunder or pursuant to the Certificate of Designations
or the Buyers enforce or exercise their rights hereunder or thereunder, and such
payment or payments or the proceeds of such enforcement or exercise or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside, recovered from, disgorged by or are required to be refunded, repaid
or otherwise restored to the Company, a trustee, receiver or any other Person
under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of any
such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
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<PAGE> 39
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY: BUYERS:
ARIAD PHARMACEUTICALS, INC. HFTP INVESTMENT LLC
By: Promethean Investment Group L.L.C.
Its: Investment Manager
By: /s/ Jay R. Lamarche By: /s/ James F. O'Brien, Jr.
----------------------------- ----------------------------------
Name: Jay R. LaMarche Name: James F. O'Brien, Jr.
Its: Executive Vice President Its: President
BROWN SIMPSON STRATEGIC
GROWTH FUND, LTD.
By: /s/ Mitchell D. Kaye
----------------------------------
Name: Mitchell D. Kaye
Its: Member
BROWN SIMPSON STRATEGIC
GROWTH FUND, L.P.
By: /s/ Mitchell D. Kaye
----------------------------------
Name: Mitchell D. Kaye
Its: Member
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<PAGE> 1
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of November 9,
1998, by and among ARIAD Pharmaceuticals, Inc., a Delaware corporation, with
headquarters located at 26 Landsdowne Street, Cambridge, Massachusetts 02139
(the "COMPANY"), and the undersigned buyers (each, a "BUYER" and collectively,
the "BUYERS").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among the
parties hereto of even date herewith (the "SECURITIES PURCHASE AGREEMENT"), the
Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to (i) issue and sell to the Buyers 5,000 shares
of the Company's Series C Convertible Preferred Stock (the "INITIAL PREFERRED
SHARES"), which will be convertible into shares (as converted, the "INITIAL
CONVERSION SHARES") of the Company's common stock, par value $.001 per share
(the "COMMON STOCK"), in accordance with the terms of the Company's Certificate
of Designations, Preferences and Rights of the Series C Convertible Preferred
Stock (the "CERTIFICATE OF DESIGNATIONS"), and (ii) issue and sell to the Buyers
up to 5,000 additional shares of the Company's Series C Convertible Preferred
Stock (the "MANDATORY PREFERRED SHARES"), which will be convertible into Common
Stock (as converted, the "MANDATORY CONVERSION SHARES") in accordance with the
Certificate of Designations;
B. In connection with the Securities Purchase Agreement, the Company may
have the right, upon the terms and subject to the conditions of the Securities
Purchase Agreement, to issue and sell to the Buyers up to 5,000 additional
shares of the Company's Series C Convertible Preferred Stock (the "PUT PREFERRED
SHARES"), which will be convertible into Common Stock (as converted, the "PUT
CONVERSION SHARES") in accordance with the Certificate of Designations;
C. In connection with the Securities Purchase Agreement, the Buyers may
have the right, upon the terms and subject to the conditions of the Securities
Purchase Agreement, to require the Company to issue and sell additional shares
of the Company's Series C Convertible Preferred Stock (the "ADDITIONAL PREFERRED
SHARES"), which will be convertible into Common Stock (as converted, the
"ADDITIONAL CONVERSION SHARES") in accordance with the Certificate of
Designations (the Initial Preferred Shares, the Mandatory Preferred Shares, the
Put Preferred Shares and the Additional Preferred Shares collectively are
referred to as the "PREFERRED SHARES" and the Initial Conversion Shares, the
Mandatory Conversion Shares, the Put Conversion Shares and the Additional
Conversion Shares collectively are referred to as the "CONVERSION SHARES");
D. To induce the Buyers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as
<PAGE> 2
amended, and the rules and regulations thereunder, or any similar successor
statute (collectively, the "1933 ACT"), and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Buyers hereby
agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
a. "INVESTOR" means a Buyer, any transferee or assignee thereof to
whom a Buyer assigns its rights under this Agreement and who agrees to become
bound by the provisions of this Agreement in accordance with Section 9 and any
transferee or assignee thereof to whom a transferee or assignee assigns its
rights under this Agreement and who agrees to become bound by the provisions of
this Agreement in accordance with Section 9.
b. "PERSON" means a corporation, a limited liability company, an
association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
c. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 under the 1933 Act or any successor rule providing for offering
securities on a continuous or delayed basis ("RULE 415"), and the declaration or
ordering of effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").
d. "REGISTRABLE SECURITIES" means the Conversion Shares issued or
issuable upon conversion of the Preferred Shares and any shares of capital stock
issued or issuable with respect to the Conversion Shares or the Preferred Shares
as a result of any stock split, stock dividend, recapitalization, exchange or
similar event or otherwise, without regard to any limitations on conversions of
Preferred Shares; provided, however, that Registrable Securities shall not
include Conversion Shares and any shares of capital stock issued or issuable
with respect to the Conversion Shares which are sold pursuant to an effective
Registration Statement or under Rule 144.
e. "INITIAL REGISTRATION STATEMENT" means a registration statement
or registration statements of the Company filed under the 1933 Act covering
Registrable Securities relating to the Initial Preferred Shares.
f. "SECOND REGISTRATION STATEMENT" means a registration statement or
registration statements of the Company filed under the 1933 Act covering
Registrable Securities
2
<PAGE> 3
relating to the Mandatory Preferred Shares.
g. "PUT REGISTRATION STATEMENT" means a registration statement or
registration statements of the Company filed under the 1933 Act covering
Registrable Securities relating to the Put Preferred Shares.
h. "ADDITIONAL REGISTRATION STATEMENT" means a registration
statement or registration statements of the Company filed under the 1933 Act
covering Registrable Securities relating to the Additional Preferred Shares.
i. "REGISTRATION STATEMENT" means the Initial Registration
Statement, the Second Registration Statement, the Put Registration Statement and
the Additional Registration Statement.
m. "FILING DEADLINE" means the Initial Filing Deadline, the Second
Filing Deadline, the Put Filing Deadline or the Additional Filing Deadline, as
applicable.
o. "EFFECTIVENESS DEADLINE" means the Initial Effectiveness
Deadline, the Second Effectiveness Deadline, the Put Effectiveness Deadline or
the Additional Effectiveness Deadline, as applicable.
2. REGISTRATION.
a. MANDATORY REGISTRATION.
(i) INITIAL MANDATORY REGISTRATION. The Company shall prepare,
and, as soon as practicable but in no event later than 45 days after the Initial
Closing Date (as defined in the Securities Purchase Agreement) (the "INITIAL
FILING DEADLINE"), file with the SEC an Initial Registration Statement or
Initial Registration Statements (as necessary) on Form S-3 covering the resale
of all of the Registrable Securities relating to the Initial Preferred Shares
(the "INITIAL REGISTRABLE SECURITIES"). In the event that Form S-3 is
unavailable for such a registration, the Company shall use such other form as is
available for such a registration, subject to the provisions of Section 2(e).
Any initial Registration Statement prepared pursuant hereto shall register for
resale at least that number of shares of Common Stock equal to the product of
(x) 2.0 (provided, however, if despite the Company's best efforts the SEC will
not allow the registration of a number of Initial Registrable Securities based
on the multiple "2.0" set forth in this clause (x), then the Company shall
register a number of Initial Registrable Securities which as a result of the
Company's best efforts is based on the next highest multiple permitted by the
SEC, which multiple will in no event be less than "1.5") and (y) the number of
Initial Registrable Securities as of the date immediately preceding the date the
Registration Statement is initially filed with the SEC, subject to adjustment as
provided in Section 3(b). The Company shall use its best efforts to have the
Initial Registration Statement declared effective by the SEC as soon as
practicable, but in no event later than 120 days after the Initial Closing Date
(the "INITIAL EFFECTIVENESS DEADLINE").
3
<PAGE> 4
(ii) SECOND MANDATORY REGISTRATION. The Company shall prepare,
and, as soon as practicable but in no event later than 15 days after the
Mandatory Closing Date (as defined in the Securities Purchase Agreement) (the
"SECOND FILING DEADLINE"), file with the SEC a Second Registration Statement or
Second Registration Statements (as necessary) on Form S-3 covering the resale of
all of the Registrable Securities relating to the Mandatory Preferred Shares
(the "SECOND REGISTRABLE SECURITIES"). In the event that Form S-3 is unavailable
for such a registration, the Company shall use such other form as is available
for such a registration, subject to the provisions of Section 2(e). Any initial
Registration Statement prepared pursuant hereto shall register for resale at
least that number of shares of Common Stock equal to the product of (x) 2.0
(provided, however, if despite the Company's best efforts the SEC will not allow
the registration of a number of Second Registrable Securities based on the
multiple "2.0" set forth in this clause (x), then the Company shall register a
number of Second Registrable Securities which as a result of the Company's best
efforts is based on the next highest multiple permitted by the SEC, which
multiple will in no event be less than "1.5") and (y) the number of Second
Registrable Securities as of the date immediately preceding the date the
Registration Statement is initially filed with the SEC, subject to adjustment as
provided in Section 3(b). The Company shall use its best efforts to have the
Second Registration Statement declared effective by the SEC as soon as
practicable, but in no event later than 75 days after the Mandatory Closing Date
(the "SECOND EFFECTIVENESS DEADLINE").
(iii) PUT MANDATORY REGISTRATION. The Company shall prepare,
and, as soon as practicable but in no event later than 15 days after the Put
Closing Date (as defined in the Securities Purchase Agreement) (the "PUT FILING
DEADLINE"), file with the SEC a Put Registration Statement or Put Registration
Statements (as necessary) on Form S-3 covering the resale of all of the
Registrable Securities relating to the Put Preferred Shares (the "PUT
REGISTRABLE SECURITIES"). In the event that Form S-3 is unavailable for such a
registration, the Company shall use such other form as is available for such a
registration, subject to the provisions of Section 2(e). Any initial
Registration Statement prepared pursuant hereto shall register for resale at
least that number of shares of Common Stock equal to the product of (x) 2.0
(provided, however, if despite the Company's best efforts the SEC will not allow
the registration of a number of Put Registrable Securities based on the multiple
"2.0" set forth in this clause (x), then the Company shall register a number of
Put Registrable Securities which as a result of the Company's best efforts is
based on the next highest multiple permitted by the SEC, which multiple will in
no event be less than "1.5") and (y) the number of Put Registrable Securities as
of the date immediately preceding the date the Registration Statement is
initially filed with the SEC, subject to adjustment as provided in Section 3(b).
The Company shall use its best efforts to have the Put Registration Statement
declared effective by the SEC as soon as practicable, but in no event later than
75 days after the Put Closing Date (the "PUT EFFECTIVENESS DEADLINE").
(iv) ADDITIONAL MANDATORY REGISTRATION. The Company shall
prepare, and, as soon as practicable but in no event later than 45 days after
each Additional Closing Date (as defined in the Securities Purchase Agreement)
(the "ADDITIONAL FILING DEADLINE"), file with the SEC an Additional Registration
Statement or Additional Registration Statements (as
4
<PAGE> 5
necessary) on Form S-3 covering the resale of all of the Registrable Securities
relating to the Additional Preferred Shares which were issued on such Additional
Closing Date (collectively, the "ADDITIONAL REGISTRABLE SECURITIES"). In the
event that Form S-3 is unavailable for such a registration, the Company shall
use such other form as is available for such a registration, subject to the
provisions of Section 2(e). Any initial Registration Statement prepared pursuant
hereto shall register for resale at least that number of shares of Common Stock
equal to the product of (x) 2.0 (provided, however, if despite the Company's
best efforts the SEC will not allow the registration of a number of Additional
Registrable Securities based on the multiple "2.0" set forth in this clause (x),
then the Company shall register a number of Additional Registrable Securities
which as a result of the Company's best efforts is based on the next highest
multiple permitted by the SEC, which multiple will in no event be less than
"1.5") and (y) the number of Additional Registrable Securities, related to such
Additional Closing Date, as of the date immediately preceding the date the
Registration Statement is initially filed with the SEC, subject to adjustment as
provided in Section 3(b). The Company shall use its best efforts to have such
Additional Registration Statement declared effective by the SEC as soon as
practicable, but in no event later than 120 days after such Additional Closing
Date (the "THIRD EFFECTIVENESS DEADLINE").
b. PIGGY-BACK REGISTRATIONS. If at any time prior to the date on
which the Registration Period (as hereinafter defined) with respect to all
Registration Statements shall have expired and no Preferred Shares or
Registrable Securities remain outstanding, the number of shares of Common Stock
available for sale under the Registration Statements is insufficient to cover
all of the Registrable Securities and the Company proposes to file with the SEC
a Registration Statement relating to an offering for its own account or the
account of others under the 1933 Act of any of its securities (other than on
Form S-4 or Form S-8 (or their equivalents at such time) relating to securities
to be issued solely in connection with any acquisition of any entity or business
or equity securities issuable in connection with stock option or other employee
benefit plans), the Company shall promptly send to each Investor written notice
of the Company's intention to file a Registration Statement and of such
Investor's rights under this Section 2(b) and, if within seven (7) business days
after receipt of such notice, such Investor shall so request in writing, the
Company shall include in such Registration Statement all or any part of the
Registrable Securities such Investor requests to be registered, subject to the
priorities set forth below in this Section 2(b). No right to registration of
Registrable Securities under this Section 2(b) shall be construed to limit any
registration required under Section 2(a). The obligations of the Company under
this Section 2(b) may be waived by Investors holding a majority of the
Registrable Securities. If an offering in connection with which an Investor is
entitled to registration under this Section 2(b) is an underwritten offering,
then each Investor whose Registrable Securities are included in such
Registration Statement shall, unless otherwise agreed to by the Company, offer
and sell such Registrable Securities in an underwritten offering using the same
underwriter or underwriters and, subject to the provisions of this Agreement, on
the same terms and conditions as other shares of Common Stock included in such
underwritten offering. If a registration pursuant to this Section 2(b) is to be
an underwritten public offering and the managing underwriter(s) advise the
Company in writing, that in their reasonable good faith opinion, marketing or
other factors dictate that a limitation on the number of shares of
5
<PAGE> 6
Common Stock which may be included in the Registration Statement is advisable to
facilitate and not adversely affect the proposed offering, then the Company
shall include in such registration: (1) first, all securities the Company
proposes to sell for its own account, (2) second, up to the full number of
securities proposed to be registered for the account of the holders of
securities entitled to inclusion of their securities in the Registration
Statement by reason of demand registration rights, and (3) third, the securities
requested to be registered by the Investors and other holders of securities
entitled to participate in the registration, as of the date hereof, drawn from
them pro rata based on the number each has requested to be included in such
registration.
c. ALLOCATION OF REGISTRABLE SECURITIES. The initial number of
Registrable Securities included in any Registration Statement and each increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held by
each Investor at the time the Registration Statement covering such initial
number of Registrable Securities or increase thereof is declared effective by
the SEC. In the event that an Investor sells or otherwise transfers any of such
Person's Registrable Securities, each transferee shall be allocated a pro rata
portion of the then remaining number of Registrable Securities included in such
Registration Statement for such transferor. Any shares of Common Stock included
in a Registration Statement and which remain allocated to any Person which
ceases to hold any Registrable Securities shall be allocated to the remaining
Investors, pro rata based on the number of Registrable Securities then held by
such Investors.
d. LEGAL COUNSEL. Subject to Section 5 hereof, the Buyers holding a
majority of the Registrable Securities shall have the right to select one legal
counsel to review and oversee any offering pursuant to this Section 2 ("LEGAL
COUNSEL"), which shall be Katten Muchin & Zavis or such other counsel as
thereafter designated by the holders of a majority of Registrable Securities.
The Company shall reasonably cooperate with Legal Counsel in performing the
Company's obligations under this Agreement.
e. INELIGIBILITY FOR FORM S-3. In the event that Form S-3 is not
available for any registration of Registrable Securities hereunder, the Company
shall (i) register the sale of the Registrable Securities on another appropriate
form reasonably acceptable to the holders of a majority of the Registrable
Securities and (ii) undertake to register the Registrable Securities on Form S-3
as soon as such form is available, provided that the Company shall maintain the
effectiveness of the Registration Statement then in effect until such time as a
Registration Statement on Form S-3 covering the Registrable Securities has been
declared effective by the SEC.
f. EFFECT OF FAILURE TO OBTAIN AND MAINTAIN EFFECTIVENESS OF
REGISTRATION STATEMENT. If (i) the Registration Statement covering all the
applicable Registrable Securities and required to be filed by the Company
pursuant to this Agreement is not (A) filed with the SEC on or before the
applicable Filing Deadline or (B) declared effective by the SEC on or before the
applicable Effectiveness Deadline or (ii) on any day after the Registration
Statement has been declared effective by the SEC, other than days during an
Allowable Grace Period (as defined in
6
<PAGE> 7
Section 3(u)), sales of all the Registrable Securities required to be
included on a Registration Statement cannot be made pursuant to the respective
Registration Statement (including, without limitation, because of a failure to
keep the Registration Statement effective, to disclose such information as is
necessary for sales to be made pursuant to the Registration Statement, to
register sufficient shares of Common Stock), then, as partial relief for the
damages to any holder by reason of any such delay in or reduction of its ability
to sell the underlying shares of Common Stock (which remedy shall not be
exclusive of any other remedies available at law or in equity), the Company
shall pay to each holder of Registrable Securities an amount in cash per
Registrable Security held equal to the product of (i) $1,000 multiplied by (ii)
the sum of (A) .02, if the Registration Statement is not filed by the Scheduled
Filing Date, plus (B) .02, if the Registration Statement is not declared
effective by the Scheduled Effective Date, plus (C) the product of (I) .0005
multiplied by (II) the sum of (x) the number of days after the Scheduled Filing
Date that such Registration Statement is not filed with the SEC, plus (y) the
number of days after the Scheduled Effective Date that the Registration
Statement is not declared effective by the SEC, plus (z) the number of days
(other than days during an Allowable Grace Period (as defined in Section 3(u))
that sales cannot be made pursuant to the Registration Statement after the
Registration Statement has been declared effective by the SEC. The payments to
which a holder shall be entitled pursuant to this Section 2(f) are referred to
herein as "REGISTRATION DELAY PAYMENTS." Registration Delay Payments shall be
paid on the earlier of (I) the last day of the calendar month during which such
Registration Delay Payments are incurred and (II) the third business day after
the event or failure giving rise to the Registration Delayed Payments is cured.
In the event the Company fails to make Registration Delay Payments in a timely
manner, such Registration Delay Payments shall bear interest at the rate of 2.0%
per month (prorated for partial months) until paid in full. If the Company fails
to pay the Registration Delay Payments, including any interest thereon, within
15 business days of the date such Registration Delay Payments are due, then the
holder entitled to such payments shall have the right at any time, so long as
the Company continues to fail to make such payments, to require the Company,
upon written notice, to immediately issue, in lieu of the Registration Delay
Payments, including any interest thereon, the number of shares of Common Stock
equal to the quotient of (X) the sum of the Registration Delay Payments and all
interest accrued thereon divided by (Y) the lowest Conversion Price in effect
during the period beginning on and including the date such written notice is
delivered to the Company and ending on and including the business day
immediately preceding the date such shares of Common Stock are received by the
holder entitled thereto.
g. SUFFICIENT NUMBER OF SHARES REGISTERED. In the event the number
of shares available under a Registration Statement filed pursuant to Section
2(a) is insufficient to cover all of the Registrable Securities which such
Registration Statement is required to cover or an Investor's allocated portion
of the Registrable Securities pursuant to Section 2(c), the Company shall amend
the Registration Statement, or file a new Registration Statement (on the short
form available therefor, if applicable), or both, so as to cover at least 200%
of such Registrable Securities (based on the market price of the Common Stock on
the trading day immediately preceding the date of filing of such amendment or
new Registration Statement), in each case, as soon as practicable, but in any
event not later than fifteen (15) days after the necessity therefor arises. The
Company shall use it best efforts to cause such amendment and/or
7
<PAGE> 8
new Registration Statement to become effective as soon as practicable following
the filing thereof. For purposes of the foregoing provision, the number of
shares available under a Registration Statement shall be deemed "insufficient to
cover all of the Registrable Securities" if at any time the number of
Registrable Securities issued or issuable upon conversion of the Preferred
Shares covered by such Registration Statement is greater than the quotient
determined by dividing (i) the number of shares of Common Stock available for
resale under such Registration Statement by (ii) 1.5. For purposes of the
calculation set forth in the foregoing sentence, any restrictions on the
convertibility of the Preferred Shares shall be disregarded and such calculation
shall assume that the Preferred Shares are then convertible into shares of
Common Stock at the then prevailing Conversion Rate (as defined in the Company's
Certificate of Designations).
3. RELATED OBLIGATIONS.
Whenever an Investor has requested that any Registrable Securities be
registered pursuant to Section 2(b) or at such time as the Company is obligated
to file a Registration Statement with the SEC pursuant to Sections 2(a) or 2(g),
the Company will use its best efforts to effect the registration of the
Registrable Securities in accordance with the intended method of disposition
thereof and, pursuant thereto, the Company shall have the following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (on or prior
to the Filing Deadline) and use its best efforts to cause such Registration
Statement relating to the Registrable Securities to become effective as soon as
possible after such filing (but in no event later than the Effectiveness
Deadline). The Company shall keep each Registration Statement effective pursuant
to Rule 415 at all times until the earlier of (i) the date as of which the
Investors may sell all of the Registrable Securities covered by such
Registration Statement without restriction pursuant to Rule 144(k) promulgated
under the 1933 Act (or successor thereto) or (ii) the date on which the
Investors shall have sold all the Registrable Securities covered by such
Registration Statement (the "REGISTRATION PERIOD"), which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading. The term "best efforts" shall mean, among other things, that the
Company shall submit to the SEC, within three business days after the Company
learns that no review of a particular Registration Statement will be made by the
staff of the SEC or that the staff has no further comments on the Registration
Statement, as the case may be, a request for acceleration of effectiveness of
such Registration Statement to a time and date not later than 48 hours after the
submission of such request; provided, however, that if the Company determines,
in good faith, that, despite learning that the SEC has no further comments on
the Registration Statement, an amendment to the Registration Statement is
necessary, such amendment shall be filed prior to the third business day
referred to above and when thereafter the Company again learns that no review of
a particular Registration Statement will be made by the staff of the SEC or that
the staff has no further comments on the Registration Statement, as the case may
be, the Company
8
<PAGE> 9
will again be required, within three business days, to make a request for
acceleration of effectiveness of such Registration Statement to a time and date
not later than 48 hours after the submission of such request.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with such Registration
Statement, which prospectus is to be filed pursuant to Rule 424 promulgated
under the 1933 Act, as may be necessary to keep such Registration Statement
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities of the Company covered by such Registration Statement
until such time as all of such Registrable Securities shall have been disposed
of in accordance with the intended methods of disposition by the seller or
sellers thereof as set forth in such Registration Statement. In the case of
amendments and supplements to a Registration Statement which are required to be
filed pursuant to this Agreement (including pursuant to this Section 3(b)) by
reason of the Company filing a report on Form 10-K, Form 10-Q or Form 8-K or any
analogous report under the Securities Exchange Act of 1934, as amended (the
"1934 ACT"), the Company shall have incorporated such report by reference into
the Registration Statement, if applicable, or shall file such amendments or
supplements with the SEC on the same day on which the 1934 Act report is filed
which created the requirement for the Company to amend or supplement the
Registration Statement.
c. The Company shall (a) permit Legal Counsel to review and comment
upon (i) the Initial Registration Statement and the Additional Registration
Statement at least seven (7) days prior to its filing with the SEC and (ii) all
other Registration Statements and all amendments and supplements to all
Registration Statements (except for Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K and any similar or
successor reports) within a reasonable number of days prior to the their filing
with the SEC and (b) not file any document in a form to which Legal Counsel
reasonably objects. The Company shall not submit a request for acceleration of
the effectiveness of a Registration Statement or any amendment or supplement
thereto without the prior approval of Legal Counsel, which consent shall not be
unreasonably withheld. The Company shall furnish to Legal Counsel, without
charge, (i) any correspondence from the SEC or the staff of the SEC to the
Company or its representatives relating to any Registration Statement, (ii)
promptly after the same is prepared and filed with the SEC, one copy of any
Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference and
all exhibits and (iii) upon the effectiveness of any Registration Statement, one
copy of the prospectus included in such Registration Statement and all
amendments and supplements thereto.
d. The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement, without charge, (i)
promptly after the same is prepared and filed with the SEC, at least one copy of
such Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference prior
to the date of the Registration Statement and requested by such
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<PAGE> 10
Investor, all exhibits and each preliminary prospectus, (ii) upon the
effectiveness of any Registration Statement, ten (10) copies of the prospectus
included in such Registration Statement and all amendments and supplements
thereto (or such other number of copies as such Investor may reasonably request)
and (iii) such other documents, including copies of any preliminary or final
prospectus, as such Investor may reasonably request from time to time in order
to facilitate the disposition of the Registrable Securities owned by such
Investor.
e. The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by a Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as Legal Counsel or any Investor reasonably requests, (ii) prepare and
file in those jurisdictions, such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the Registration Period,
(iii) take such other actions as may be necessary to maintain such registrations
and qualifications in effect at all times during the Registration Period, and
(iv) take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
Legal Counsel and each Investor who holds Registrable Securities of the receipt
by the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or "blue sky" laws of any jurisdiction in the United States
or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.
f. In the event Investors who hold a majority of the Registrable
Securities being offered in the offering select underwriters (which shall be
reasonably acceptable to the Company) for the offering, the Company shall enter
into and perform its obligations under a mutually acceptable underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the underwriters of such
offering.
g. As promptly as practicable after becoming aware of such event or
development, the Company shall notify Legal Counsel and each Investor in writing
of the happening of any event as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and promptly prepare a supplement or
amendment to such Registration Statement to correct such untrue statement or
omission, and deliver ten (10) copies of such supplement or amendment to Legal
Counsel and each Investor (or such other number of copies as Legal Counsel or
such Investor may reasonably request). The Company shall also promptly notify
Legal Counsel and each Investor in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and when a
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<PAGE> 11
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to Legal Counsel and each
Investor by facsimile on the same day of such effectiveness and by overnight
mail), (ii) of any request by the SEC for amendments or supplements to a
Registration Statement or related prospectus or related information, and (iii)
of the Company's reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate.
h. Subject to Section 3(u), the Company shall use its best efforts
to prevent the issuance of any stop order or other suspension of effectiveness
of a Registration Statement, or the suspension of the qualification of any of
the Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify Legal Counsel and each Investor who
holds Registrable Securities being sold (and, in the event of an underwritten
offering, the managing underwriters) of the issuance of such order and the
resolution thereof or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.
i. At the request of any Investor, the Company shall furnish to such
Investor, on the date of the effectiveness of the Registration Statement and
thereafter from time to time on such dates as an Investor may request (i) a
letter, dated such date, from the Company's independent certified public
accountants in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
and (ii) an opinion, dated as of such date, of counsel representing the Company
for purposes of such Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, addressed to the
Investors; provided, however, that subject to the receipt of reasonable
supporting documentation, such Investor shall reimburse the Company for the
reasonable fees and expenses of counsel and/or of accountants actually incurred
pursuant to this Section 3(i).
j. The Company shall make available for inspection by (i) any
Investor, (ii) Legal Counsel, (iii) any underwriter participating in any
disposition pursuant to a Registration Statement, (iv) one firm of accountants
or other agents retained by the Investors, and (v) one firm of attorneys
retained by such underwriters (collectively, the "INSPECTORS") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "RECORDS"), as shall be reasonably deemed
necessary by each Inspector, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request;
provided, however, that each Inspector shall agree in writing, and each Investor
hereby agrees, to hold in strict confidence and shall not make any disclosure
(except to an Investor) or use of any Record or other information which the
Company determines in good faith to be confidential, and of which determination
the Inspectors are so notified, unless (a) the release of such Records is
ordered pursuant to a final, non-appealable subpoena or order from a court or
government body of competent jurisdiction or (b) the information in such Records
has been made generally available to the public other than by disclosure in
violation of this or any other agreement of which the Inspector has knowledge.
Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental
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<PAGE> 12
body of competent jurisdiction or through other means, give prompt written
notice to the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, the Records deemed confidential.
k. The Company shall hold in confidence and not make any disclosure
of information concerning an Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
l. The Company shall use its best efforts either to (i) cause all
the Registrable Securities covered by a Registration Statement to be listed on
each securities exchange on which securities of the same class or series issued
by the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) secure
designation and quotation of all the Registrable Securities covered by the
Registration Statement on the Nasdaq National Market or, if, despite the
Company's best efforts to satisfy the preceding clause (i) or (ii), the Company
is unsuccessful in satisfying the preceding clause (i) or (ii), to secure the
inclusion for quotation on The Nasdaq SmallCap Market for such Registrable
Securities and, without limiting the generality of the foregoing, to arrange for
at least two market makers to register with the National Association of
Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities. The Company shall pay all fees and expenses in connection with
satisfying its obligation under this Section 3(l).
m. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, any managing
underwriter or underwriters, to facilitate the timely preparation and delivery
of certificates (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts, as the case may
be, as the managing underwriter or underwriters, if any, or, if there is no
managing underwriter or underwriters, the Investors may reasonably request and
registered in such names as the managing underwriter or underwriters, if any, or
the Investors may request. Nothing in this Agreement shall affect in any way
each Investor's obligation to comply with all applicable prospectus delivery
requirements, if any, upon resale of the Securities.
n. The Company shall provide a transfer agent and registrar of all
such Registrable Securities not later than the effective date of such
Registration Statement.
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<PAGE> 13
o. If requested by the managing underwriters or an Investor, the
Company shall (i) as soon as practicable incorporate in a prospectus supplement
or post-effective amendment such information as the managing underwriters or the
Investors agree should be included therein relating to the sale and distribution
of Registrable Securities, including, without limitation, information with
respect to the number of Registrable Securities being sold to such underwriters,
the purchase price being paid therefor by such underwriters and any other terms
of the underwritten (or best efforts underwritten) offering of the Registrable
Securities to be sold in such offering; (ii) as soon as practicable make all
required filings of such prospectus supplement or post-effective amendment after
being notified of the matters to be incorporated in such prospectus supplement
or post-effective amendment; and (iii) supplement or make amendments to any
Registration Statement if reasonably requested by an Investor or any underwriter
of such Registrable Securities.
p. The Company shall use its best efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to consummate the disposition of such Registrable Securities;
provided, however, the Company shall not be required to register the Registrable
Securities with any governmental agencies or authorities outside the United
States of America.
q. The Company shall make generally available to its security
holders as soon as practical, but not later than 90 days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the 1933 Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
r. The Company shall otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC in connection with any
registration hereunder.
s. Within two (2) business days after a Registration Statement which
covers applicable Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel for the Company to deliver,
to the transfer agent for such Registrable Securities (with copies to the
Investors whose Registrable Securities are included in such Registration
Statement) confirmation that such Registration Statement has been declared
effective by the SEC in the form attached hereto as EXHIBIT A.
t. The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable Securities
pursuant to a Registration Statement.
u. Notwithstanding anything to the contrary in Section 3(g), at any
time after the applicable Registration Statement has been declared effective by
the SEC, the Company may delay the disclosure of material non-public information
concerning the Company the disclosure of which at the time is not, in the good
faith opinion of the Board of Directors of the Company
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<PAGE> 14
and its counsel, in the best interest of the Company and, in the opinion of
counsel to the Company, otherwise required (a "GRACE PERIOD"); provided, that
the Company shall promptly (i) notify the Investors in writing of the existence
of material non-public information giving rise to a Grace Period (provided that
in each notice the Company will not disclose the content of such material
non-public information to the Investors) and the date on which the Grace Period
will begin, and (ii) notify the Investors in writing of the date on which the
Grace Period ends; and, provided further, that all Grace Periods shall not
exceed an aggregate of 30 days in any consecutive 365 day period and during any
consecutive 365 day period, there shall be an aggregate of not more than two
Grace Periods (an "ALLOWABLE GRACE PERIOD"). For purposes of determining the
length of a Grace Period above, the Grace Period shall begin on and include the
date the holders receive the notice referred to in clause (i) and shall end on
and include the later of the date the holders receive the notice referred to in
clause (ii) and the date referred to in such notice. The provisions of Sections
2(f) and 3(h) hereof shall not be applicable during the period of any Allowable
Grace Period. Upon expiration of the Grace Period, the Company shall again be
bound by the first sentence of Section 3(g) with respect to the information
giving rise thereto unless such material non-public information is no longer
applicable. In the event there is a Grace Period, the Maturity Date (as defined
in the Certificate of Designations) shall be delayed by one and one-half (12)
days for each day in the Grace Period as provided in Section 2(g) of the
Certificate of Designations.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) days (or three (3) business days in the case
of a Second Registration Statement or Additional Registration Statement) prior
to the first anticipated filing date of the Registration Statement, the Company
shall notify each Investor in writing of the information the Company requires
from each such Investor if such Investor elects to have any of such Investor's
Registrable Securities included in such Registration Statement. It shall be a
condition precedent to the obligations of the Company to complete the
registration pursuant to this Agreement with respect to the Registrable
Securities of a particular Investor that such Investor shall furnish to the
Company such information regarding itself, the Registrable Securities held by it
and the intended method of disposition of the Registrable Securities held by it
as shall be reasonably required to effect the registration of such Registrable
Securities and shall execute such documents in connection with such registration
as the Company may reasonably request. If on the day before the Company is
required to file a Registration Statement the Company has not received the
information requested (in accordance with this Section 4(a)) from an Investor (a
"NON-RESPONSIVE INVESTOR"), then the Company may file the Registration Statement
without including Registrable Securities of such Non-Responsive Investor but the
Company shall not be relieved of its obligation to file a Registration Statement
for any Investor which shall provide the requested information. Upon a
Non-Responsive Investor providing the Company with the requested information,
the Company shall either (i) if such information is provided prior to the
Company requesting acceleration of effectiveness of the Registration Statement
in which such Non-Responsive Investor's Registrable Securities would have been
included but for such Investor's lack of response, file an amendment to the
Registration Statement to include such Investor's Registrable Securities or (ii)
otherwise, file a new
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<PAGE> 15
Registration Statement covering the Registrable Securities as provided by this
Registration Rights Agreement as if (for the purposes of filing, effectiveness
and associated Registration Delay Payments) the date on which such
Non-Responsive Investor supplied the requested information was the issuance date
of the relevant Preferred Shares. No Registration Delay Payments relating to the
filing and effectiveness of a Registration Statement shall accrue to any
Non-Responsive Investor until such time as the information is supplied to the
Company and the Company fails with the provisions of this Section 4(a). If the
Company has to file an additional Registration Statement to register the
Registrable Securities of a Non-Responsive Investor due solely to such
Investor's failure to provide information reasonably requested by the Company,
such Investor shall pay the reasonable out-of-pocket expenses actually incurred
by the Company in connection with such Registration Statement other than filing
fees.
b. Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of any Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.
c. In the event any Investor elects to participate in an
underwritten public offering pursuant to Section 2, each such Investor agrees to
enter into and perform such Investor's obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing underwriter of
such offering and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of the Registrable Securities.
d. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(h), the
first sentence of 3(g) or 3(u), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3(h) or the
first sentence of 3(g) or receipt of notice that no supplement or amendment is
required.
e. No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements approved by
the Investors entitled hereunder to approve such arrangements, (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions.
f. Each Investor agrees not to take any action to cause such
Investor to become a registered broker dealer as defined under the 1934 Act or
to effect any change to such Investor's status that would preclude the Company
from using Form S-3 for the Registration Statement.
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<PAGE> 16
g. Each Investor agrees to comply with the applicable provisions, if
any, of Regulation M promulgated under the 1933 Act with respect to its sale of
Registrable Securities under the applicable Registration Statement.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees
shall be paid by the Company. In addition, subject to the receipt of reasonable
supporting documentation, the Company shall reimburse the Investors for the
reasonable fees and disbursements of Legal Counsel in connection with
registrations, filings or qualifications pursuant to Sections 2 and 3 of this
Agreement, provided that the Company shall only reimburse that amount, if any,
equal to the difference between (i) $50,000 minus (ii) the amount of
reimbursement paid to the Buyers under Section 4(i) of the Securities Purchase
Agreement. Subject to Section 8 of the Securities Purchase Agreement and
Sections 6 and 7 of this Agreement, the Company shall not be required to pay, or
otherwise be responsible for, the fees and disbursements of Legal Counsel in
connection with registrations, filings or qualifications pursuant to Sections 2
and 3 of this Agreement in excess of the foregoing, all of which excess shall be
paid by the Investors, and in no event shall the Company be required to
reimburse the Investors more than $50,000 in the aggregate pursuant to Section
4(i) of the Securities Purchase Agreement and this Section 5.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor who has or had
Registrable Securities covered by a Registration Statement, the directors,
officers, partners, employees, agents, representatives of, and each Person, if
any, who controls any Investor within the meaning of the 1933 Act or the
Securities Exchange Act of 1934, as amended (the "1934 ACT"), and any
underwriter (as defined in the 1933 Act) for the Investors, and the directors
and officers of, and each Person, if any, who controls, any such underwriter
within the meaning of the 1933 Act or the 1934 Act (each, an "INDEMNIFIED
PERSON"), against any losses, claims, damages, liabilities, judgments, fines,
penalties, charges, costs, reasonable attorneys' fees, amounts paid in
settlement or expenses, joint or several, (collectively, "CLAIMS") incurred in
investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an indemnified party is or
may be a party thereto ("INDEMNIFIED DAMAGES"), to which any of them may become
subject insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof)
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<PAGE> 17
arise out of or are based upon: (i) any untrue statement or alleged untrue
statement of a material fact in such Registration Statement or any
post-effective amendment thereto or in any filing made in connection with the
qualification of the offering under the securities or other "blue sky" laws of
any jurisdiction in which Registrable Securities are offered ("BLUE SKY
FILING"), or the omission or alleged omission to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
(ii) any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus if used prior to the effective date of
such Registration Statement, or contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading,
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities pursuant to such Registration Statement or (iv) any
material violation of this Agreement (the matters in the foregoing clauses (i)
through (iv) being, collectively, "VIOLATIONS"). The Company shall reimburse the
Investors and each such underwriter or controlling person, promptly as such
expenses are incurred and are due and payable, for any reasonable legal fees or
other reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim by an Indemnified Person arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by such Indemnified Person or underwriter
for such Indemnified Person expressly for use in connection with the preparation
of the Registration Statement or any such amendment thereof or supplement
thereto, if such prospectus was timely made available by the Company pursuant to
Section 3(d); (ii) with respect to any preliminary prospectus, shall not inure
to the benefit of any such person from whom the person asserting any such Claim
purchased the Registrable Securities that are the subject thereof (or to the
benefit of any person controlling such person) if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
in the prospectus, as then amended or supplemented, if such prospectus was
timely made available by the Company pursuant to Section 3(d), and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a violation and such Indemnified
Person, notwithstanding such advice, used it; (iii) shall not be available to
the extent such Claim is based on a failure of the Investor to deliver or to
cause to be delivered the prospectus made available by the Company, if such
prospectus was timely made available by the Company pursuant to Section 3(d);
and (iv) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and
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<PAGE> 18
defend, to the same extent and in the same manner as is set forth in Section
6(a), the Company, each of its directors, each of its officers who signs the
Registration Statement, each Person, if any, who controls the Company within the
meaning of the 1933 Act or the 1934 Act, each of its employees, agents and
representatives and in the event that an underwritten offering in compliance
with Section 3(f) hereof or pursuant to an underwritten offering for which the
Investors exercise their rights pursuant to Section 2(b) hereof, the
underwriters (each an "INDEMNIFIED PARTY"), against any Claim or Indemnified
Damages to which any of them may become subject, under the 1933 Act, the 1934
Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or
are based upon any Violation, in each case to the extent, and only to the
extent, that such Violation occurs in reliance upon and in conformity with
written information furnished to the Company by such Investor expressly for use
in connection with such Registration Statement; and, subject to Section 6(d),
such Investor will reimburse any reasonable legal or other expenses reasonably
incurred by them in connection with investigating or defending any such Claim;
provided, however, that the indemnity agreement contained in this Section 6(b)
and the agreement with respect to contribution contained in Section 7 shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of such Investor, which consent shall not be
unreasonably withheld; provided, further, however, that the Investor shall be
liable under this Section 6(b) for only that amount of a Claim or Indemnified
Damages as does not exceed the net proceeds to such Investor as a result of the
sale of Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the prospectus, as then amended or
supplemented.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing
expressly for inclusion in the Registration Statement.
d. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim,
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one counsel for such
Indemnified Persons or Indemnified
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Parties to be paid by the indemnifying party, if, in the reasonable opinion of
counsel retained by the indemnifying party, the representation by such counsel
of the Indemnified Person or Indemnified Party and the indemnifying party would
be inappropriate due to actual or potential conflicting interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. In the case of Indemnified Persons, legal counsel
referred to in the immediately preceding sentence shall be selected by (i) HFTP
Investment L.L.C. ("HFTP"), if HFTP or an affiliate of HFTP is one of such
Indemnified Persons or (ii) the Investors holding a majority in interest of the
Registrable Securities included in the Registration Statement to which the Claim
relates, if HFTP or one of its affiliates is not one of such Indemnified
Persons. The Indemnified Party or Indemnified Person shall cooperate fully with
the indemnifying party in connection with any negotiation or defense of any such
action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the Indemnified Party or
Indemnified Person which relates to such action or claim. The indemnifying party
shall keep the Indemnified Party or Indemnified Person fully apprised at all
times as to the status of the defense or any settlement negotiations with
respect thereto. No indemnifying party shall be liable for any settlement of any
action, claim or proceeding effected without its prior written consent,
provided, however, that the indemnifying party shall not unreasonably withhold,
delay or condition its consent. No indemnifying party shall, without the prior
written consent of the Indemnified Party or Indemnified Person, consent to entry
of any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party or Indemnified Person of a release from all liability
in respect to such claim or litigation. Following indemnification as provided
for hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.
e. The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Damages are incurred.
f. The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party or Indemnified
Person against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to
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<PAGE> 20
any amounts for which it would otherwise be liable under Section 6 to the
fullest extent permitted by law; provided, however, that: (i) no seller of
Registrable Securities guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any seller of Registrable Securities who was not guilty of fraudulent
misrepresentation; and (ii) contribution by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule
144 promulgated under the 1933 Act or any other similar rule or regulation of
the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by
the Investors to any transferee of all or any portion of Registrable Securities
if: (i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within
three (3) business days after such assignment; (ii) the Company is, within three
(3) business days after such transfer or assignment, furnished with written
notice of (a) the name and address of such transferee or assignee, and (b) the
securities with respect to which such registration rights are being transferred
or assigned; (iii) immediately following such transfer or assignment the further
disposition of such securities by the transferee or assignee is restricted under
the 1933 Act and applicable state securities laws; (iv) at or before the time
the Company receives the written notice contemplated by clause (ii) of this
sentence the transferee or assignee agrees in writing with the Company to be
bound by all of the provisions contained
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herein; and (v) such transfer shall have been made in accordance with the
applicable requirements of the Securities Purchase Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company,
the Investors who then hold a majority of the Registrable Securities and the
holders of the rights to acquire a majority of the Preferred Shares which the
Investors have a right to acquire under the Securities Purchase Agreement,
provided that if the right to acquire relates to the Put Preferred Shares (as
defined in the Securities Purchase Agreement) and the Company has irrevocably
waived its right to deliver a Put Share Notice (as defined in the Securities
Purchase Agreement) then the rights to acquire the Put Preferred Shares shall be
excluded for the purpose of the clause immediately preceding this proviso. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Registrable
Securities. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of this Agreement
unless the same consideration also is offered to all of the parties to this
Agreement.
11. MISCELLANEOUS.
a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable Securities.
b. Any notices, consents, waivers or other communications required
or permitted to be given under the terms of this Agreement must be in writing
and will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one business day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
ARIAD Pharmaceuticals, Inc.
26 Landsdowne Street
Cambridge, Massachusetts 02139
Telephone: 617-494-0400
Facsimile: 617-225-2860
21
<PAGE> 22
Attention: Jay R. LaMarche
With a copy to:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
Telephone: 617-542-6000
Facsimile: 617-542-2241
Attention: Jonathan L. Kravetz, Esq.
If to Legal Counsel:
Katten Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Telephone: 312-902-5200
Facsimile: 312-902-1061
Attention: Robert J. Brantman, Esq.
If to a Buyer, to its address and facsimile number on the Schedule of Buyers
attached hereto, with copies to such Buyer's representatives as set forth on the
Schedule of Buyers or to such other address and/or facsimile number and/or to
the attention of such other person as the recipient party has specified by
written notice given to each other party five days prior to the effectiveness of
such change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically generated by
the sender's facsimile machine containing the time, date, recipient facsimile
number and an image of such transmission or (C) provided by a courier or
overnight courier service shall be rebuttable evidence of personal service,
overnight or courier delivery or transmission by facsimile in accordance with
clause (i), (ii) or (iii) above, respectively.
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
d. The corporate laws of the State of Delaware shall govern all
issues concerning the relative rights of the Company and the Buyers as its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the state and federal courts
sitting the City of New York, for the adjudication of any dispute
22
<PAGE> 23
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION
OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
e. This Agreement, the Securities Purchase Agreement and the
Certificate of Designations constitute the entire agreement among the parties
hereto with respect to the subject matter hereof and thereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein and therein. This Agreement, the Securities Purchase
Agreement and the Certificate of Designations supersede all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto.
g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in identical counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. All consents and other determinations to be made by the Investors
23
<PAGE> 24
pursuant to this Agreement shall be made, unless otherwise specified in this
Agreement, by Investors holding a majority of the Registrable Securities,
determined as if all of the Preferred Shares then outstanding have been
converted into or exercised for Registrable Securities without regard to any
limitation on conversions of the Preferred Shares; provided, however, that for
the purpose of this Section 11(j) only, the term Registrable Securities shall
not include any securities which may be sold without restriction pursuant to
Rule 144(k) of the 1933 Act.
k. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent and no rules of
strict construction will be applied against any party.
l. This Agreement is intended for the benefit of the parties hereto
and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.
* * * * * *
24
<PAGE> 25
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYERS:
ARIAD PHARMACEUTICALS, INC. HFTP INVESTMENT L.L.C.
By: Promethean Investment Group L.L.C.
Its: Managing Member
By: /s/ Jay R. LaMarche By: /s/ James F. O'Brien, Jr.
-------------------------- -----------------------------------
Name: Jay R. LaMarche Name: James F. O'Brien, Jr.
Its: Executive Vice President Its: President
BROWN SIMPSON STRATEGIC
GROWTH FUND, LTD.
By: /s/ Mitchell D. Kaye
-----------------------------------
Name: Mitchell D. Kaye
Its: Member
BROWN SIMPSON STRATEGIC
GROWTH FUND, L.P.
By: /s/ Mitchell D. Kaye
-----------------------------------
Name: Mitchell D. Kaye
Its: Member
25
<PAGE> 26
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
INVESTOR ADDRESS INVESTOR'S REPRESENTATIVES' ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER AND FACSIMILE NUMBER
- ----------------------- --------------------------------------- --------------------------------------
<S> <C> <C>
HFTP Investment L.L.C. c/o Promethean Investment Group, L.L.C. Promethean Investment Group, L.L.C.
40 West 57th Street, Suite 1520 40 West 57th Street, Suite 1520
New York, New York 10019 New York, New York 10019
Attn: James F. O'Brien, Jr. Attn: James F. O'Brien, Jr.
Facsimile: 212-698-0505 Thomas Lumsden
Facsimile: 212-698-0505
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Facsimile: 312-902-1061
Brown Simpson Strategic 152 West 57th Street, 40th Floor Brown Simpson Asset Management, L.L.C.
Growth Fund, Ltd. New York, New York 10019 152 West 57th Street, 40th Floor
Attn: Mitchell Kaye New York, New York 10018
Facsimile: 212-247-1329 Attn: Mitchell Kaye
Residence: Cayman Islands Facsimile 212-247-1329
Akin Gump Strauss Hower & Feld, L.L.P.
590 Madison Avenue
New York, New York 10022
Attn: James Kaye
Facsimile: 212-872-1002
Brown Simpson Strategic 152 West 57th Street, 40th Floor Brown Simpson Asset Management, L.L.C.
Growth Fund, L.P. New York, New York 10019 152 West 57th Street, 40th Floor
Attn: Mitchell Kaye New York, New York 10018
Facsimile: 212-247-1329 Attn: Mitchell Kaye
Residence: New York Facsimile 212-247-1329
Akin Gump Strauss Hower & Feld, L.L.P.
590 Madison Avenue
New York, New York 10022
Attn: James Kaye
Facsimile: 212-872-1002
</TABLE>
26
<PAGE> 27
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
Boston EquiServe
150 Royall Street
Canton, Massachusetts 02021
ATTN: MS. PATRICIA FOSTER
Re: ARIAD PHARMACEUTICALS, INC.
Ladies and Gentlemen:
Reference is made to that certain Securities Purchase Agreement dated
November __, 1998 by and among ARIAD Pharmaceuticals, Inc., a Delaware
corporation (the "COMPANY"), and the buyers named therein (collectively, the
"HOLDERS") pursuant to which the Company is issuing to the Holders shares of its
Series C Convertible Preferred Stock, par value $.01 per share (the "PREFERRED
SHARES") that are convertible into shares of the Company's common stock, par
value $.001 per share (the "COMMON STOCK"). This letter shall serve as our
irrevocable authorization and direction to you (provided that you are the
transfer agent of the Company at such time) to issue shares of Common Stock upon
conversion of the Preferred Shares (the "CONVERSION SHARES") to or upon the
order of a Holder from time to time upon surrender to you of (i) a completed and
duly executed Conversion Notice in the form attached hereto as EXHIBIT I which
has been acknowledged by the Company as indicated by the signature of a duly
authorized officer of the Company thereon, and (ii) certificates representing
Preferred Shares being converted (or an indemnification undertaking with respect
to such share certificates in the case of their loss, theft or destruction). So
long as you have previously received (x) written confirmation from counsel to
the Company that a registration statement covering resales of the Conversion
Shares has been declared effective by the Securities and Exchange Commission
(the "SEC") under the Securities Act of 1933, as amended (the "1933 ACT"), and
(y) a copy of such registration statement, certificates representing the
Conversion Shares shall not bear any legend restricting transfer of the
Conversion Shares thereby and should not be subject to any stop-transfer
restriction. Provided, however, that if you have not previously received (i)
written confirmation from counsel to the Company that a registration statement
covering resales of the Conversion Shares has been declared effective by the SEC
under the 1933 Act, and (ii) a copy of such registration statement, then the
certificates for the Conversion Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN
27
<PAGE> 28
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT."
and, provided further, that the Company may from time to time notify you to
place stop-transfer restrictions on the certificates for the Conversion Shares
in the event a registration statement covering the Conversion Shares is subject
to amendment for events then current.
A form of written confirmation from counsel to the Company that a
registration statement covering resales of the Conversion Shares has been
declared effective by the SEC under the 1933 Act is attached hereto as EXHIBIT
II.
Please be advised that the Holders are relying upon this letter as an
inducement to enter into the Securities Purchase Agreement and, accordingly,
each Holder is a third party beneficiary to these instructions.
Please execute this letter in the space indicated to acknowledge your
agreement to act in accordance with these instructions. Should you have any
questions concerning this matter, please contact me at (617) 494-0400.
Very truly yours,
[ISSUER'S COUNSEL]
By: __________________________________
cc: [LIST NAMES OF HOLDERS]
28
<PAGE> 1
EXHIBIT 4.3
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES C CONVERTIBLE PREFERRED STOCK
OF
ARIAD PHARMACEUTICALS, INC.
ARIAD Pharmaceuticals, Inc. (the "COMPANY"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that, pursuant to authority conferred upon the Board of Directors of the
Company by the Certificate of Incorporation, as amended, of the Company, and
pursuant to Section 151 of the General Corporation Law of the State of Delaware,
the Board of Directors of the Company at a meeting duly held, adopted
resolutions (i) authorizing a series of the Company's previously authorized
preferred stock, par value $.01 per share, and (ii) providing for the
designations, preferences and relative, participating, optional or other rights,
and the qualifications, limitations or restrictions thereof, of Twenty Five
Thousand (25,000) shares of Series C Convertible Preferred Stock of the Company,
as follows:
RESOLVED, that the Company is authorized to issue 25,000 shares of
Series C Convertible Preferred Stock (the "PREFERRED SHARES"), par value
$.01 per share, which shall have the following powers, designations,
preferences and other special rights:
(1) DIVIDENDS. The Preferred Shares shall not bear any dividends.
(2) HOLDER'S CONVERSION OF PREFERRED SHARES. A holder of Preferred Shares
shall have the right, at such holder's option, to convert the Preferred Shares
into shares of the Company's common stock, $.001 par value per share (the
"COMMON STOCK"), on the following terms and conditions:
(a) CONVERSION RIGHT. Subject to the provisions of Section 2(j), at
any time or times on or after the Issuance Date (as defined below), any holder
of Preferred Shares shall be
<PAGE> 2
entitled to convert any whole number of Preferred Shares into fully paid and
nonassessable shares (rounded to the nearest whole share in accordance with
Section 2(h)) of Common Stock, at the Conversion Rate (as defined below);
provided, however, that in no event shall any holder be entitled to convert
Preferred Shares in excess of that number of Preferred Shares which, upon giving
effect to such conversion, would cause the aggregate number of shares of Common
Stock beneficially owned by the holder and its affiliates to exceed 4.99% of the
outstanding shares of the Common Stock following such conversion. For purposes
of the foregoing proviso, the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates shall include the number of
shares of Common Stock issuable upon conversion of the Preferred Shares with
respect to which the determination of such proviso is being made, but shall
exclude the number of shares of Common Stock which would be issuable upon (i)
conversion of the remaining, nonconverted Preferred Shares beneficially owned by
the holder and its affiliates and (ii) exercise or conversion of the unexercised
or unconverted portion of any other securities of the Company (including,
without limitation, any warrants or convertible preferred stock) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by the holder and its affiliates. Except as set forth
in the preceding sentence, for purposes of this Section 2(a), beneficial
ownership shall be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended. Section 13 sets forth additional limitations
on the Company's obligation to issue shares of Common Stock upon conversion of
the Preferred Shares.
(b) CONVERSION RATE AND OTHER DEFINITIONS. The number of shares of
Common Stock issuable upon conversion of each of the Preferred Shares pursuant
to Sections (2)(a) and 2(g) shall be determined according to the following
formula (the "CONVERSION RATE"):
Conversion Amount
-----------------
Conversion Price
For purposes of this Certificate of Designations, the following terms shall
have the following meanings:
(i) "CONVERSION PRICE" means, as of any Conversion Date (as
defined below) or other date of determination, the lower of the Fixed
Conversion Price (as defined below) and the Floating Conversion Price (as
defined below), each in effect as of such date and subject to adjustment as
provided herein.
(ii) "FIXED CONVERSION PRICE" means (A) with respect to any
Preferred Shares issued on the Initial Issuance Date (I) on any Conversion
Date prior to the Fixed Conversion Price Trigger Date, $5.00 and (II) on
any Conversion Date on and after the Fixed Conversion Price Trigger Date,
120% of the Market Price of the Common Stock on the Fixed Conversion Price
Trigger Date and (B) with respect to any Preferred Shares issued after the
Initial Issuance Date, 120% of the Market Price on the Issuance
-2-
<PAGE> 3
Date of the applicable Preferred Shares, each subject to adjustment as
provided herein.
(iii) "FLOATING CONVERSION PRICE" means, as of any date of
determination, the amount obtained by multiplying the Conversion Percentage
in effect as of such date by the Market Price as of such date, subject to
adjustment as provided herein.
(iv) "CONVERSION PERCENTAGE" means (A) with respect to any
Conversion Date prior to February 15, 1999, 100% and (B) with respect to
any Conversion Date on or after February 15, 1999 (I) if the Company
consummates one or more corporate collaborations or strategic partnerships
during the period beginning on October 18, 1998 and ending on and including
February 14, 1999 which provides the Company during such period with an
aggregate of more than $7,000,000 of revenue and/or net proceeds from
equity investments or the issuance of Qualified Subordinated Debt (as
defined below) (including, without limitation, amounts received by the
Company from Hoechst Marion Roussel ("HMR") pursuant to any agreement
entered into prior to the Initial Issuance Date and any amendments thereto)
(collectively, a "QUALIFYING FINANCING"), 100% and (II) if the Company
fails to consummate a Qualifying Financing during the period beginning on
the Initial Issuance Date and ending on and including February 14, 1999,
90%, each subject to adjustment as provided herein.
(v) "MARKET PRICE" means, with respect to any security for
any date of determination, the price which shall be computed as the
arithmetic average of the four lowest Closing Bid Prices for such security
during the 22 consecutive trading days immediately preceding such date.
(vi) "CONVERSION AMOUNT" means the sum of (A) the Additional
Amount (as defined below), provided that the Company has not elected to pay
the Additional Amount in cash as described in Section 2(c), and (B) $1,000.
(vii) "ADDITIONAL AMOUNT" means the result of the following
formula: (0.05)(N/365)($1,000).
(viii) "CLOSING BID PRICE" means, for any security as of any
date, the last closing bid price for such security on the Nasdaq National
Market as reported by Bloomberg Financial Markets ("BLOOMBERG"), or, if the
Nasdaq National Market is not the principal trading market for such
security, the last closing bid price of such security on the principal
securities exchange or trading market where such security is listed or
traded as reported by Bloomberg, or if the foregoing do not apply, the last
closing bid price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or,
if no closing bid price is reported for such security by Bloomberg, the
last closing trade price of such security as reported by Bloomberg, or, if
no last closing trade price is reported for such security by Bloomberg,
-3-
<PAGE> 4
the average of the bid prices of any market makers for such security as
reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Bid Price cannot be calculated for such security on such date on
any of the foregoing bases, the Closing Bid Price of such security on such
date shall be the fair market value as mutually determined by the Company
and the holders of a majority of the outstanding Preferred Shares including
for purposes of this determination any Preferred Shares with respect to
which the Closing Bid Price is being determined. If the Company and the
holders of Preferred Shares are unable to agree upon the fair market value
of the Common Stock, then such dispute shall be resolved pursuant to
Section 2(f)(iii) with the term "Closing Bid Price" being substituted for
the term "Market Price." (All such determinations to be appropriately
adjusted for any stock dividend, stock split or other similar transaction
during such period).
(ix) "N" means the number of days from, but excluding, the
Issuance Date through and including the Conversion Date for the Preferred
Shares for which conversion is being elected.
(x) "ISSUANCE DATE" means, with respect to each Preferred
Share, the date of issuance of the applicable Preferred Share.
(xi) "INITIAL ISSUANCE DATE" means the first date on which
any Preferred Shares are issued by the Company.
(xii) "FIXED CONVERSION PRICE TRIGGER DATE" means the earlier
of (A) February 15, 1999 and (B) the date of receipt by each holder of
Preferred Shares of written notice from the Company of the Company's
election to reset the Fixed Conversion Price prior to February 15, 1999.
(xiii) "SECURITIES PURCHASE AGREEMENT" means that certain
securities purchase agreement between the Company and the initial holders
of the Preferred Shares concerning the purchase of Preferred Shares.
(xiv) "REGISTRATION RIGHTS AGREEMENT" means that certain
registration rights agreement between the Company and the initial holders
of the Preferred Shares concerning the registration of the resale of the
shares of Common Stock issuable upon conversion of the Preferred Shares.
(xv) "QUALIFIED SUBORDINATED DEBT" means any debt issued by
the Company which has all of the following terms (A) such debt is issued to
a strategic partner of the Company, (B) such debt has a maturity date not
sooner than March 31, 2003, (C) such debt is convertible into Common Stock
at any time only at the Company's option without any conditions to the
Company's ability to exercise such option and only
-4-
<PAGE> 5
at a conversion price which is greater than the market price of the Common
Stock at such time of conversion, (D) such debt is redeemable by the holder
of such debt only upon the occurrence of an event which constitutes a Major
Transaction (as defined in Section 3(c)), (E) the maturity date of such
debt may not be accelerated at any time prior to March 31, 2003 and then
only if the joint venture in connection with which such debt was issued is
terminated, (F) such debt is not convertible at the option of the holder of
such debt and (G) the Company does not issue any warrants or other
securities to the holder of such debt in connection with the issuance of
such debt.
(c) COMPANY'S OPTION TO PAY ADDITIONAL AMOUNT IN CASH. Upon
conversion pursuant to Sections 2(a) or 2(g), the Company shall have the right
to elect to pay the Additional Amount in cash, in lieu of conversion to Common
Stock. If the Company elects to pay the Additional Amount in cash, such cash
shall be paid simultaneously with the delivery to the holder of the certificates
representing the Common Stock issuable upon conversion in accordance with
Section 2(f). In order to exercise its right to pay any Additional Amount in
cash, the Company must advise each holder of Preferred Shares in writing (the
"CASH DIVIDEND NOTICE") that the Additional Amount shall be paid in cash until
such time as the Company shall terminate the Cash Dividend Notice by providing
at least five business days prior written notice of such termination (the
"TERMINATION NOTICE"). The Cash Dividend Notice shall set forth the effective
date of the Cash Dividend Notice, which date shall be at least five business
days after the date the Cash Dividend Notice is deemed to have been delivered
pursuant to Section 19. The Termination Notice shall be effective on the fifth
business day after the date the Termination Notice is deemed to have been
delivered pursuant to Section 19 unless a later date shall be specified in the
Termination Notice.
(d) ADJUSTMENT TO CONVERSION PRICE - DILUTION AND OTHER EVENTS. In
order to prevent dilution of the rights granted under this Certificate of
Designations, the Conversion Price will be subject to adjustment from time to
time as provided in this Section 2(d).
(i) ADJUSTMENT OF FIXED CONVERSION PRICE UPON ISSUANCE OF
COMMON STOCK. If and whenever on or after the Issuance Date of the
Preferred Shares with respect to which this determination is being made,
the Company issues or sells, or is deemed to have issued or sold, any
shares of Common Stock (other than the Conversion Shares (as defined in the
Securities Purchase Agreement) and shares of Common Stock deemed to have
been issued by the Company in connection with an Approved Stock Plan (as
defined below)) for a consideration per share (as determined below) less
than the Fixed Conversion Price, in effect immediately prior to such
issuance or sale, of the Preferred Shares with respect to which this
determination is being made (the "APPLICABLE PRICE"), then immediately
after such issue or sale, (a) in the event such issuance or sale is of a
Convertible Security (as defined below) convertible at a Fixed Price (as
defined below), the Fixed Conversion Price (of the Preferred Shares with
respect to which this determination is being made) then in effect shall be
reduced to an amount equal to the
-5-
<PAGE> 6
consideration per share which the Company issued or sold, or was deemed to
have issued or sold, one share of Common Stock pursuant to such issuance or
sale or (b) in the event such issuance is other than as described in (a)
above, the Fixed Conversion Price (of the Preferred Shares with respect to
which this determination is being made) then in effect shall be reduced to
an amount equal to the product of (x) the Fixed Conversion Price (of the
Preferred Shares with respect to which this determination is being made) in
effect immediately prior to such issue or sale and (y) the quotient
determined by dividing (1) the sum of (I) the product of the Applicable
Price and the number of shares of Common Stock Deemed Outstanding (as
defined below) immediately prior to such issue or sale, and (II) the
consideration, if any, received by the Company upon such issue or sale, by
(2) the product of (I) the Applicable Price and (II) the number of shares
of Common Stock Deemed Outstanding (as defined below) immediately after
such issue or sale; provided, however, that the Fixed Conversion Price
shall not be reduced at any time that the amount of such reduction would be
an amount less than 2% of the Fixed Conversion Price immediately preceding
such reduction, but any such amount shall be carried forward and reduction
with respect thereto shall be made when such amount, together with any
amounts carried forward, shall aggregate 2% or more of the Fixed Conversion
Price immediately preceding the last such reduction. For purposes of
determining the adjusted Fixed Conversion Price (of the Preferred Shares
with respect to which this determination is being made) under this Section
2(d)(i), the following shall be applicable:
(A) ISSUANCE OF OPTIONS. If on or after the Issuance
Date of the Preferred Shares for which an adjustment is being determined
the Company in any manner grants any rights or options to subscribe for or
to purchase Common Stock (other than pursuant to an Approved Stock Plan or
upon conversion of the Preferred Shares) or any stock or other securities
convertible into or exchangeable for Common Stock (such rights or options
being herein called "OPTIONS" and such convertible or exchangeable stock or
securities being herein called "CONVERTIBLE SECURITIES") and the price per
share for which Common Stock is issuable upon the exercise of such Options
or upon conversion or exchange of such Convertible Securities is less than
the Applicable Price, then the total maximum number of shares of Common
Stock issuable upon the exercise of such Options or upon conversion or
exchange of the total maximum amount of such Convertible Securities
issuable upon the exercise of such Options shall be deemed to be
outstanding and to have been issued and sold by the Company for such price
per share. For purposes of this Section 2(d)(i)(A), the "price per share
for which Common Stock is issuable upon exercise of such Options or upon
conversion or exchange of such Convertible Securities" is determined by
dividing (I) the total amount, if any, received or receivable by the
Company as consideration for the granting of such Options, plus the minimum
aggregate amount of additional consideration payable to the Company upon
the exercise of all such Options, plus in the case of such Options which
relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the issuance
or sale of such Convertible Securities and the conversion
-6-
<PAGE> 7
or exchange thereof, by (II) the total maximum number of shares of Common
Stock issuable upon exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable upon the exercise of
such Options. No adjustment of the Fixed Conversion Price shall be made
upon the actual issuance of such Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual issuance of
such Common Stock upon conversion or exchange of such Convertible
Securities.
(B) ISSUANCE OF CONVERTIBLE SECURITIES. If on or after
the Issuance Date of the Preferred Shares for which an adjustment is being
determined the Company in any manner issues or sells any Convertible
Securities and the price per share for which Common Stock is issuable upon
conversion or exchange of such Convertible Securities is less than the
Applicable Price, then the maximum number of shares of Common Stock
issuable upon conversion or exchange of such Convertible Securities shall
be deemed to be outstanding and to have been issued and sold by the Company
for such price per share. For the purposes of this Section 2(d)(i)(B), the
"price per share for which Common Stock is issuable upon such conversion or
exchange" is determined by dividing (I) the total amount received or
receivable by the Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or
exchange thereof, by (II) the total maximum number of shares of Common
Stock issuable upon the conversion or exchange of all such Convertible
Securities. No adjustment of the Fixed Conversion Price shall be made upon
the actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of the
Fixed Conversion Price had been or are to be made pursuant to other
provisions of this Section 2(d)(i), no further adjustment of the Fixed
Conversion Price shall be made by reason of such issue or sale.
(C) CHANGE IN OPTION PRICE OR RATE OF CONVERSION. If
the purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion or exchange of
any Convertible Securities, or the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock changes at any time,
the Fixed Conversion Price (of the Preferred Shares with respect to which
this determination is being made) in effect at the time of such change
shall be readjusted to the Fixed Conversion Price which would have been in
effect at such time had such Options or Convertible Securities still
outstanding provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold; provided that no adjustment shall be
made if such adjustment would result in an increase of the Fixed Conversion
Price then in effect.
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(D) CERTAIN DEFINITIONS. For purposes of determining
the adjusted Fixed Conversion Price under this Section 2(d)(i), the
following terms have meanings set forth below:
(I) "APPROVED STOCK PLAN" shall mean any
contract, plan or agreement which has been approved by the Board of
Directors of the Company, pursuant to which the Company's securities may be
issued to any employee, officer, director, consultant or other service
provider.
(II) "COMMON STOCK DEEMED OUTSTANDING" means, at
any given time, the number of shares of Common Stock actually outstanding
at such time, plus the number of shares of Common Stock deemed to be
outstanding pursuant to Sections 2(d)(i)(A) and 2(d)(i)(B) hereof
regardless of whether the Options or Convertible Securities are actually
exercisable at such time, but excluding any shares of Common Stock issuable
upon conversion of the Preferred Shares.
(III) "FIXED PRICE" shall mean the conversion
price for a Convertible Security that is convertible into or exchangeable
or exercisable for Common Stock at a price which by its terms has the
possibility of not varying with the market price of the Common Stock.
(E) EFFECT ON FIXED CONVERSION PRICE OF CERTAIN
EVENTS. For purposes of determining the adjusted Fixed Conversion Price
under this Section 2(d)(i), the following shall be applicable:
(I) CALCULATION OF CONSIDERATION RECEIVED. If
any Common Stock, Options or Convertible Securities are issued or sold or
deemed to have been issued or sold for cash, the consideration received
therefor will be deemed to be the net amount received by the Company
therefor. In case any Common Stock, Options or Convertible Securities are
issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company will be the fair
value of such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by the
Company will be the arithmetic average of the Closing Bid Prices of such
security for the five (5) consecutive trading days immediately preceding
the date of receipt. In case any Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving entity the
amount of consideration therefor will be deemed to be the fair value of
such portion of the net assets and business of the non-surviving entity as
is attributable to such Common Stock, Options or Convertible Securities, as
the case may be. The fair value of any consideration other than cash or
securities will be determined jointly by the Company and the holders of a
majority of the Preferred Shares then outstanding. If such parties are
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<PAGE> 9
unable to reach agreement within ten (10) days after the occurrence of an
event requiring valuation (the "VALUATION EVENT"), the fair value of such
consideration will be determined within forty-eight (48) hours of the tenth
(10th) day following the Valuation Event by an independent, reputable
appraiser selected by the Company. The determination of such appraiser
shall be binding upon all parties absent manifest error.
(II) INTEGRATED TRANSACTIONS. In case any Option
is issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no
specific consideration is allocated to such Options by the parties thereto,
the Options will be deemed to have been issued for a consideration of $.01.
(III) TREASURY SHARES. The number of shares of
Common Stock outstanding at any given time does not include shares owned or
held by or for the account of the Company, and the disposition of any
shares so owned or held will be considered an issue or sale of Common
Stock.
(IV) RECORD DATE. If the Company takes a record
of the holders of Common Stock for the purpose of entitling them (1) to
receive a dividend or other distribution payable in Common Stock, Options
or in Convertible Securities or (2) to subscribe for or purchase Common
Stock, Options or Convertible Securities, then such record date will be
deemed to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such dividend or
the making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
(ii) ADJUSTMENT OF FIXED CONVERSION PRICE UPON SUBDIVISION OR
COMBINATION OF COMMON STOCK. If the Company at any time subdivides (by any
stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Fixed Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Company at any time
combines (by combination, reverse stock split or otherwise) one or more
classes of its outstanding shares of Common Stock into a smaller number of
shares, the Fixed Conversion Price in effect immediately prior to such
combination will be proportionately increased.
(iii) ADJUSTMENT OF FLOATING CONVERSION PRICE UPON ISSUANCE OF
CONVERTIBLE SECURITIES. If the Company in any manner issues or sells
Convertible Securities that are convertible into or exchangeable for Common
Stock at a price which varies with the market price of the Common Stock
(the formulation for such variable price being herein referred to as, the
"VARIABLE PRICE") and such Variable Price is not calculated using the same
formula used to calculate the Floating Conversion Price in
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<PAGE> 10
effect immediately prior to the time of such issue or sale, the Company
shall provide written notice thereof via facsimile and overnight courier to
each holder of the Preferred Shares ("VARIABLE NOTICE") within three (3)
business days of the date of issuance of such Convertible Securities. If
the holders of Preferred Shares representing at least a majority of the
Preferred Shares then outstanding provide written notice via facsimile and
overnight courier (the "VARIABLE PRICE ELECTION NOTICE") to the Company
within five (5) business days of receiving a Variable Notice that such
holders desire to replace the Floating Conversion Price then in effect with
the Variable Price described in such Variable Notice, then from and after
the date of the Company's receipt of the Variable Price Election Notice the
Floating Conversion Price will automatically be replaced with the Variable
Price (together with such modifications to this Certificate of Designations
as may be required to give full effect to the substitution of the Variable
Price for the Floating Conversion Price). A holder's delivery of a Variable
Price Election Notice shall serve as the consent required to amend this
Certificate of Designations pursuant to Section 14 below. In the event that
a holder delivers a Conversion Notice at any time after the Company's
issuance of Convertible Securities with a Variable Price but before such
holder's receipt of the Company's Variable Notice, then such holder shall
have the option by written notice to the Company to rescind such Conversion
Notice or to have the Conversion Price be equal to such Variable Price for
the conversion effected by such Conversion Notice.
(iv) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER
OR SALE. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's
assets to another Person (as defined below) or other transaction which is
effected in such a way that holders of Common Stock are entitled to receive
(either directly or upon subsequent liquidation) stock, securities or
assets with respect to or in exchange for Common Stock is referred to
herein as an "ORGANIC CHANGE." Prior to the consummation of any Organic
Change, the Company will make appropriate provision (in form and substance
reasonably satisfactory to the holders of a majority of the Preferred
Shares then outstanding) to insure that each of the holders of the
Preferred Shares will thereafter have the right to acquire and receive in
lieu of or in addition to (as the case may be) the shares of Common Stock
otherwise acquirable and receivable upon the conversion of such holder's
Preferred Shares, such shares of stock, securities or assets as would have
been issued or payable in such Organic Change with respect to or in
exchange for the number of shares of Common Stock which would have been
acquirable and receivable had all of such holder's Preferred Shares been
converted into shares of Common Stock immediately prior to such Organic
Change (without taking into account any limitations or restrictions on the
timing or amount of conversions). In any such case, the Company will make
appropriate provision (in form and substance reasonably satisfactory to the
holders of a majority of the Preferred Shares then outstanding) with
respect to such holders' rights and interests to insure that the provisions
of this Section 2(d) and Section 2(e) will thereafter be applicable to the
Preferred Shares
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<PAGE> 11
(including, in the case of any such consolidation, merger or sale in which
the successor entity or purchasing entity is other than the Company, an
immediate adjustment of the Fixed Conversion Price to the value for the
Common Stock reflected by the terms of such consolidation, merger or sale,
if the value so reflected is less than the Fixed Conversion Price in effect
immediately prior to such consolidation, merger or sale). The Company will
not effect any such consolidation, merger or sale, unless prior to the
consummation thereof, the successor entity (if other than the Company)
resulting from consolidation or merger or the entity purchasing such assets
assumes, by written instrument (in form and substance reasonably
satisfactory to the holders of a majority of the Preferred Shares then
outstanding), the obligation to deliver to each holder of Preferred Shares
such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire. "PERSON"
shall mean an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
(v) CERTAIN EVENTS. If any event occurs of the type
contemplated by the provisions of this Section 2(d) but not expressly
provided for by such provisions (including, without limitation, the
granting of stock appreciation rights, phantom stock rights or other rights
with equity features), then the Company's Board of Directors will make an
appropriate adjustment in the Conversion Price so as to protect the rights
of the holders of the Preferred Shares; provided, however, that no such
adjustment will increase the Conversion Price as otherwise determined
pursuant to this Section 2(d).
(vi) NOTICES.
(A) As soon as practicable, but in no event later than
three (3) business days, after any adjustment of the Conversion Price, the
Company will give written notice thereof to each holder of the Preferred
Shares, setting forth in reasonable detail and certifying the calculation
of such adjustment.
(B) The Company will give written notice to each
holder of the Preferred Shares at least ten (10) days prior to the date on
which the Company closes its books or takes a record (I) with respect to
any dividend or distribution upon the Common Stock, (II) with respect to
any pro rata subscription offer to holders of Common Stock or (III) for
determining rights to vote with respect to any Organic Change, dissolution
or liquidation and in no event shall any notice pursuant to this Section
2(d)(vi)(B) be provided to such holder prior to such information being made
known to the public.
(C) The Company will also give written notice to each
holder of Preferred Shares at least ten (10) days prior to the date on
which any Organic Change, dissolution or liquidation will take place and in
no event shall any notice pursuant to this Section 2(d)(vi)(C) be provided
to such holder prior to such information being made
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<PAGE> 12
known to the public.
(vii) ADJUSTMENT OF FIXED CONVERSION PRICE UPON AN
UNDERWRITING LOCK-UP PERIOD. If and whenever on or after the Issuance Date
of the Preferred Shares with respect to which this determination is being
made, the Company delivers a Lock-Up Request Notice (as defined in Section
4(n) of the Securities Purchase Agreement), then immediately following the
end of the Underwriting Lock-Up Period (as defined in Section 4(n) of the
Securities Purchase Agreement) the Fixed Conversion Price of the applicable
Preferred Share in effect immediately prior to such Underwriting Lock-Up
Period shall be adjusted to the lesser of (A) the Fixed Conversion Price of
such Preferred Share immediately prior to such Underwriting Lock-Up Period
and (B) the offering price to the public of the Common Stock offered in the
underwritten public offering with respect to which the Lock-Up Request was
delivered.
(e) PURCHASE RIGHTS. In addition to any adjustments of the
Conversion Price pursuant to Section 2(d), if at any time after the Issuance
Date the Company grants, issues or sells any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property pro rata to the
record holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the
holders of the Preferred Shares will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which such
holder could have acquired if such holder had held the number of shares of
Common Stock acquirable upon complete conversion of the outstanding Preferred
Shares (without taking into account any limitations or restrictions on the
timing or amount of conversions) immediately before the date on which a record
is taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of the Common Stock are
to be determined for the grant, issue or sale of such Purchase Rights.
(f) MECHANICS OF CONVERSION. Subject to the Company's inability to
fully satisfy its obligations under a Conversion Notice (as defined below) as
provided for in Section 4:
(i) HOLDER'S DELIVERY REQUIREMENTS. To convert Preferred
Shares into full shares of Common Stock on any date (the "CONVERSION
DATE"), the holder thereof shall (A) transmit by facsimile (or otherwise
deliver), for receipt on or prior to 9:00 p.m., Eastern Time on such date,
a copy of a fully executed notice of conversion in the form attached hereto
as Exhibit I (the "CONVERSION NOTICE"), to the Company and (B) surrender to
a common carrier for delivery to the Company, as soon as reasonably
practicable following such date, the original certificate(s) representing
the Preferred Shares being converted (or an indemnification undertaking
with respect to such shares reasonably satisfactory to the Company in the
case of their loss, theft or destruction) (the "PREFERRED STOCK
CERTIFICATE(S)").
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<PAGE> 13
(ii) COMPANY'S RESPONSE. Upon receipt by the Company of a
facsimile copy of a Conversion Notice, the Company shall as soon as
practicable, but in any event no later than the next business day, send,
via facsimile, a confirmation of receipt of such Conversion Notice to such
holder. Upon receipt by the Company or the Transfer Agent of the Preferred
Stock Certificate(s) to be converted pursuant to a Conversion Notice, the
Company or the Transfer Agent (as applicable) shall, on the next business
day following the date of receipt, (I) issue and surrender to a common
carrier for overnight delivery to the address specified in the Conversion
Notice, a certificate, registered in the name of the holder or its
designee, for the number of shares of Common Stock to which the holder
shall be entitled, or (II) credit such aggregate number of shares of Common
Stock to which the holder shall be entitled to the holder's or its
designee's balance account with The Depository Trust Company. If the number
of Preferred Shares represented by the Preferred Stock Certificate(s)
submitted for conversion is greater than the number of Preferred Shares
being converted, then the Company or Transfer Agent, as the case may be,
shall, as soon as practicable and in no event later than three business
days after receipt of the Preferred Stock Certificate(s) and at its own
expense, issue and deliver to the holder a new Preferred Stock Certificate
representing the number of Preferred Shares not converted.
(iii) DISPUTE RESOLUTION. In the case of a dispute as to the
determination of the Market Price or the arithmetic calculation of the
Conversion Rate, the Company shall promptly issue to the holder the number
of shares of Common Stock that is not disputed and shall submit the
disputed determinations or arithmetic calculations to the holder via
facsimile within one (1) business day of receipt of such holder's
Conversion Notice. If such holder and the Company are unable to agree upon
the determination of the Market Price or arithmetic calculation of the
Conversion Rate within one (1) business day of such disputed determination
or arithmetic calculation being submitted to the holder, then the Company
shall within one (1) business day following such date of delivery submit
via facsimile (A) the disputed determination of the Market Price to an
independent, reputable investment bank or (B) the disputed arithmetic
calculation of the Conversion Rate to its independent, outside accountant.
The Company shall cause the investment bank or the accountant, as the case
may be, to perform the determinations or calculations and notify the
Company and the holder of the results no later than forty-eight (48) hours
from the time it receives the disputed determinations or calculations. Such
investment bank's or accountant's determination or calculation, as the case
may be, shall be binding upon all parties absent manifest error.
(iv) RECORD HOLDER. The person or persons entitled to receive
the shares of Common Stock issuable upon a conversion of Preferred Shares
shall be treated for all purposes as the record holder or holders of such
shares of Common Stock on the Conversion Date.
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<PAGE> 14
(v) COMPANY'S FAILURE TO TIMELY CONVERT. If after the
Company's receipt of the Preferred Stock Certificates to be converted the
Company shall fail (I) within three (3) business days to issue a
certificate for the number of shares of Common Stock to which a holder is
entitled or to credit the holder's balance account with The Depository
Trust Company for such number of shares of Common Stock to which the holder
is entitled upon such holder's conversion of Preferred Shares or (II)
within seven (7) business days to issue a new Preferred Stock Certificate
representing the number of Preferred Shares to which such holder is
entitled pursuant to Section 2(f)(ii), in addition to all other available
remedies which such holder may pursue hereunder and under the Securities
Purchase Agreement (including indemnification pursuant to Section 8
thereof), the Company shall pay additional damages to such holder on each
date after the third or seventh business day, as applicable, that such
conversion or delivery of such Preferred Stock Certificates, as the case
may be, is not timely effected in an amount equal to 0.5% of the product of
(A) the sum of the number of shares of Common Stock not issued to the
holder on a timely basis pursuant to Section 2(f)(ii) and to which such
holder is entitled and, in the event the Company has failed to deliver a
Preferred Stock Certificate to the holder on a timely basis pursuant to
Section 2(f)(ii), the number of shares of Common Stock issuable upon
conversion of the Preferred Shares represented by such Preferred Stock
Certificate, as of the last possible date which the Company could have
issued such Preferred Stock Certificate to such holder without violating
Section 2(f)(ii) and (B) the Closing Bid Price of the Common Stock on the
last possible date which the Company could have issued such Common Stock
and the Preferred Stock Certificate, as the case may be, to such holder
without violating Section 2(f)(ii).
(g) MANDATORY CONVERSION AT MATURITY. If any Preferred Shares
remain outstanding on the Maturity Date (as defined below), then all such
Preferred Shares shall be converted as of such date in accordance with this
Section 2 as if the holders of such Preferred Shares had given the Conversion
Notice on the Maturity Date; provided, however, that if a Triggering Event
(other than a Triggering Event resulting from Section 3(d)(vi) due to the
Company's breach of a representation or warranty set forth in Section 3 of the
Securities Purchase Agreement) has occurred and is continuing on the Maturity
Date or any event that with the passage of time would constitute a Triggering
Event (assuming it was not cured and other than a Triggering Event resulting
from Section 3(d)(vi) due to the Company's breach of a representation or
warranty set forth in Section 3 of the Securities Purchase Agreement) exists on
the Maturity Date, then the Company shall, within five business days following
the Maturity Date (unless otherwise notified in writing by the holder of its
request to have the Preferred Shares converted into Common Stock), pay to each
holder of Preferred Shares then outstanding, in immediately available funds, an
amount equal to the Triggering Event Redemption Price (as defined below) as of
the Maturity Date. All holders of Preferred Shares shall thereupon surrender all
Preferred Stock Certificates, duly endorsed for cancellation, to the Company or
the Transfer Agent, provided that the Company has complied with its obligations
under this Section 2(g). "MATURITY DATE" means the date which is five years
after the Initial Issuance Date for
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<PAGE> 15
such Preferred Shares, unless extended (i) pursuant to Section 3(u) of the
Registration Rights Agreement, which extension shall be equal to one and
one-half 1-1/2) times the aggregate number of days of all Grace Periods (as
defined in Section 3(u) of the Registration Rights Agreement) or (ii) pursuant
to Section 4(n) of the Securities Purchase Agreement, which extension shall be
equal to two (2) times the aggregate number of days of all Underwriting Lock-Up
Periods (as defined in Section 4(n) of the Securities Purchase Agreement).
(h) FRACTIONAL SHARES. The Company shall not issue any fraction of
a share of Common Stock upon any conversion. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one
Preferred Share by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of a fraction of
a share of Common Stock. If, after the aforementioned aggregation, the issuance
would result in the issuance of a fraction of a share of Common Stock, the
Company shall round such fraction of a share of Common Stock up or down to the
nearest whole share.
(i) TAXES. The Company shall pay any and all taxes that may be
payable with respect to the issuance and delivery of Common Stock upon the
conversion of Preferred Shares.
(j) CONVERSION RESTRICTIONS. The right of a holder of Preferred
Shares to convert Preferred Shares pursuant to this Section 2 shall be limited
as set forth below. Without the prior written consent of the Company, a holder
of Preferred Shares shall not be entitled to convert any Preferred Shares prior
to the Fixed Conversion Price Triggering Date. Notwithstanding the foregoing,
the conversion restrictions set forth in this Section 2(j) shall not apply (w)
on and after any date on which the Common Stock is not listed on the Nasdaq
National Market, The New York Stock Exchange, Inc. ("NYSE") or The American
Stock Exchange, Inc. ("AMEX") or has been suspended from trading (excluding
suspensions of not more than one day resulting from business announcements), or
any such delisting or suspension is threatened or pending, (x) if there shall
have occurred an event constituting a Major Transaction (as defined in Section
3(c)) or the public announcement of a pending Major Transaction, (y) there shall
have occurred a Triggering Event (as defined in Section 3(d)) or (z) since the
Initial Issuance Date there shall have occurred any change, event, result or
happening involving, directly or indirectly, the Company or any of its
Subsidiaries (as defined in the Securities Purchase Agreement) resulting in a
material adverse effect on the business, financial condition or results of
operations or, insofar as can reasonably be foreseen, prospects of the Company
and its Subsidiaries, taken as a whole.
(3) REDEMPTION AT OPTION OF HOLDERS.
(a) REDEMPTION OPTION UPON MAJOR TRANSACTION. In addition to all
other rights of the holders of Preferred Shares contained herein, simultaneous
with or after the occurrence of a Major Transaction (as defined below), each
holder of Preferred Shares shall have the right, at such holder's option, to
require the Company to redeem all or a portion of such
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<PAGE> 16
holder's Preferred Shares at a price per Preferred Share equal to the greater of
(i) 120% of the Liquidation Value (as defined in Section 10) and (ii) the
product of (A) the Conversion Rate on the date the Notice of Redemption at
Option of Buyer Upon Major Transaction (as defined in Section 3(e)) is given and
(B) the Closing Bid Price on the date of the public announcement of such Major
Transaction or the next date on which the exchange or market on which the Common
Stock is traded is open if such public announcement is made (X) after 12:00
p.m., Central Time, on such date or (Y) on a date on which the exchange or
market on which the Common Stock is traded is closed ("MAJOR TRANSACTION
REDEMPTION PRICE").
(b) REDEMPTION OPTION UPON TRIGGERING EVENT. In addition to all
other rights of the holders of Preferred Shares contained herein, simultaneous
with or after the occurrence of a Triggering Event (as defined below), each
holder of Preferred Shares shall have the right, at such holder's option, to
require the Company to redeem all or a portion of such holder's Preferred Shares
at a price per Preferred Share equal to the greater of (i) (X) with respect to a
Triggering Event described in Section 4(d)(i), if a Notice of Redemption at
Option of Holder Upon Triggering Event (as defined in Section 4(f)) delivered
prior to the date which is 270 days after the Initial Issuance Date, 115% of the
Liquidation Value and (Z) with respect to Triggering Events other than the
instance described in the immediately preceding clause (X), 120% of the
Liquidation Value and (ii) the product of (A) the Conversion Rate on the date of
such holder's delivery of a Notice of Redemption at Option of Holder Upon
Triggering Event (as defined below) and (B) the greater of (I) the Closing Bid
Price on the trading day immediately preceding such Triggering Event or (II) the
Closing Bid Price on the date of the holder's delivery to the Company of a
Notice of Redemption at Option of Holder Upon Triggering Event or, if such date
of delivery is not a trading day, the next date on which the exchange or market
on which the Common Stock is traded is open ("TRIGGERING EVENT REDEMPTION PRICE"
and, collectively with "MAJOR TRANSACTION REDEMPTION PRICE," the "REDEMPTION
PRICE").
(c) "MAJOR TRANSACTION". A "MAJOR TRANSACTION" shall be deemed to
have occurred at such time as any of the following events:
(i) the consolidation, merger or other business combination
of the Company with or into another Person (other than (A) a consolidation,
merger or other business combination in which holders of the Company's
voting power immediately prior to the transaction continue after the
transaction to hold, directly or indirectly, the voting power of the
surviving entity or entities necessary to elect a majority of the members
of the board of directors (or their equivalent if other than a corporation)
of such entity or entities, or (B) pursuant to a migratory merger effected
solely for the purpose of changing the jurisdiction of incorporation of the
Company);
(ii) the sale or transfer, in one or more transactions, of
all or substantially all of the Company's assets; or
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<PAGE> 17
(iii) a purchase, tender or exchange offer made to and
accepted by the holders of more than 50% of the outstanding shares of
Common Stock.
(d) "TRIGGERING EVENT". A "TRIGGERING EVENT" shall be deemed to
have occurred at such time as any of the following events:
(i) the failure of the Registration Statement (as defined in
the Registration Rights Agreement) to be declared effective by the SEC on
or prior to the date that is 180 days after the Issuance Date to which such
Registration Statement is related;
(ii) while the Registration Statement is required to be
maintained effective pursuant to the terms of the Registration Rights
Agreement, except for any Allowable Grace Periods (as defined in the
Registration Rights Agreement), the effectiveness of the Registration
Statement lapses for any reason (including, without limitation, the
issuance of a stop order) or is unavailable to the holder of the Preferred
Shares for sale of the Registrable Securities (as defined in the
Registration Rights Agreement) in accordance with the terms of the
Registration Rights Agreement, and such lapse or unavailability continues
for a period of at least ten consecutive trading days or for an aggregate
of at least fifteen trading days in any 365 day period;
(iii) the suspension or halting from trading or failure of the
Common Stock to be listed on the Nasdaq National Market, NYSE or AMEX for a
period of five consecutive days or for an aggregate of at least ten days in
any 365 day period;
(iv) the Company's notice to any holder of Preferred Shares,
including by way of public announcement, at any time, of its intention not
to comply with proper requests for conversion of any Preferred Shares into
shares of Common Stock, including due to any of the reasons set forth in
Section 4(a), or the Company's failure to deliver Conversion Shares within
ten days of the applicable Conversion Date;
(v) upon the Company's receipt of a Conversion Notice, the
Company shall not be obligated to issue the Conversion Shares due to the
provisions of Section 13; or
(vi) any representation or warranty by the Company was not
true and correct at the time made (including the Issuance Date) or the
Company breaches any covenant or other term or condition of the Securities
Purchase Agreement, the Registration Rights Agreement, this Certificate of
Designations, the Irrevocable Transfer Agent Instructions (as defined in
the Securities Purchase Agreement), or any other agreement, document,
certificate or other instrument delivered in connection with the
transactions contemplated thereby or hereby, except (i) to the extent that
such breach
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<PAGE> 18
would not have a Material Adverse Effect (as defined in Section 3(a) of the
Securities Purchase Agreement), and (ii) in the case of a breach of a
covenant which is curable, such breach does not continue for a period of at
least ten days.
(e) MECHANICS OF REDEMPTION AT OPTION OF HOLDER UPON MAJOR
TRANSACTION. No sooner than 15 days nor later than 10 days prior to the
consummation of a Major Transaction, but not prior to the public announcement of
such Major Transaction, the Company shall deliver written notice thereof via
facsimile and overnight courier (a "NOTICE OF MAJOR TRANSACTION") to each holder
of Preferred Shares. At any time after receipt of a Notice of Major Transaction
(or, in the event a Notice of Major Transaction is not delivered at least 10
days prior to a Major Transaction, at any time on or after the date which is 10
days prior to a Major Transaction), any holder of the Preferred Shares then
outstanding may require the Company to redeem all or a portion of the holder's
Preferred Shares, which redemption shall be effective concurrent with the
consummation of the Major Transaction, then outstanding by delivering written
notice thereof via facsimile and overnight courier (a "NOTICE OF REDEMPTION AT
OPTION OF HOLDER UPON MAJOR TRANSACTION") to the Company, which Notice of
Redemption at Option of Holder Upon Major Transaction shall indicate (i) the
number of Preferred Shares that such holder is submitting for redemption and
(ii) the applicable Major Transaction Redemption Price, as calculated pursuant
to Section 3(a).
(f) MECHANICS OF REDEMPTION AT OPTION OF HOLDER UPON TRIGGERING
EVENT. Within one business day after the occurrence of a Triggering Event, the
Company shall deliver written notice thereof via facsimile and overnight courier
(a "NOTICE OF TRIGGERING EVENT") to each holder of Preferred Shares. At any time
after the earlier of a holder's receipt of a Notice of Triggering Event and such
holder becoming aware of a Triggering Event, any holder of the Preferred Shares
then outstanding may require the Company to redeem all or a portion of the
holder's Preferred Shares then outstanding by delivering written notice thereof
via facsimile and overnight courier (a "NOTICE OF REDEMPTION AT OPTION OF HOLDER
UPON TRIGGERING EVENT") to the Company, which Notice of Redemption at Option of
Holder Upon Triggering Event shall indicate the number of Preferred Shares that
such holder is submitting for redemption.
(g) PAYMENT OF REDEMPTION PRICE. Upon the Company's receipt of a
Notice(s) of Redemption at Option of Holder Upon Triggering Event or a Notice(s)
of Redemption at Option of Holder Upon Major Transaction from any holder of
Preferred Shares, the Company shall within one (1) business day notify each
holder of Preferred Shares by facsimile of the Company's receipt of such
Notice(s) of Redemption at Option of Holder Upon Triggering Event or Notice(s)
of Redemption at Option of Holder Upon Major Transaction and each holder which
has sent such a notice shall promptly submit to the Company or its Transfer
Agent such holder's Preferred Stock Certificates which such holder has elected
to have redeemed. The Company shall deliver the applicable Triggering Event
Redemption Price, in the case of a redemption pursuant to Section 3(f), to such
holder within five business days after the Company's receipt of a Notice of
Redemption at Option of Holder Upon Triggering Event and, in the case of a
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redemption pursuant to Section 3(e), the Company shall deliver the applicable
Major Transaction Redemption Price concurrent with the consummation of the Major
Transaction; provided that in either or both cases, as applicable, the redeeming
holder's Preferred Stock Certificates shall have been so delivered to the
Company or the Transfer Agent; and provided further that if the Company is
unable to redeem all of the Preferred Shares to be redeemed, the Company shall
redeem an amount from each holder of Preferred Shares being redeemed equal to
such holder's pro rata amount (based on the number of Preferred Shares held by
such holder relative to the number of Preferred Shares outstanding) of all
Preferred Shares being redeemed. If the Company shall fail to redeem all of the
Preferred Shares submitted for redemption in addition to any remedy such holder
of Preferred Shares may have under this Certificate of Designations, the
Securities Purchase Agreement and the Registration Rights Agreement, the
applicable Redemption Price payable in respect of such unredeemed Preferred
Shares shall bear interest at the rate of 2.0% per month (prorated for partial
months) until paid in full. Until the Company pays such unpaid applicable
Redemption Price in full to a holder of Preferred Shares submitted for
redemption, such holder shall have the option (the "VOID OPTIONAL REDEMPTION
OPTION") to, in lieu of redemption, require the Company to promptly return to
such holder(s) any or all of the Preferred Shares that were submitted for
redemption by such holder(s) under this Section 3 and for which the applicable
Redemption Price has not been paid, by sending written notice thereof to the
Company via facsimile (the "VOID OPTIONAL REDEMPTION NOTICE"). Upon the
Company's receipt of such Void Optional Redemption Notice(s) prior to payment of
the full applicable Redemption Price to such holder: (i) the Notice(s) of
Redemption at Option of Holder Upon Triggering Event or the Notice(s) of
Redemption at Option of Holder Upon Major Transaction, as the case may be, shall
be null and void with respect to those Preferred Shares submitted for redemption
and for which the applicable Redemption Price has not been paid; (ii) the
Company shall immediately return any Preferred Shares submitted to the Company
by each holder for redemption under this Section 3(g) and for which the
applicable Redemption Price has not been paid; and (iii) if the redemption was
caused by a Triggering Event involving the Company's inability to issue
Conversion Shares because of the Exchange Cap (as defined in Section 13) (an
"EXCHANGE CAP TRIGGERING EVENT"), the holders of at least a majority of the
Preferred Shares then outstanding, including Preferred Shares submitted for
redemption pursuant to this Section 3 with respect to which the applicable
Redemption Price has not been paid, may direct the Company to immediately delist
the Common Stock from the exchange or automated quotation system on which the
Common Stock is traded and have the Common Stock, at such holders' option,
traded in the electronic bulletin board or the "pink sheets", provided, however,
that if (A) there is scheduled to occur, within thirty (30) days of the date on
which the Exchange Cap Triggering Event occurred, a meeting of the Company's
stockholders at which meeting the stockholder shall be requested to approve the
issuance of the Conversion Shares in excess of the Exchange Cap and for which a
definitive proxy statement has been filed with the SEC, (B) there has not
already occurred prior to the date of such Exchange Cap Triggering Event a
meeting of the Company's stockholders at which the Company's stockholders were
asked to vote on a proposal to approve the issuance of the Conversion Shares in
excess of the Exchange Cap and at which the Company's stockholders did not
approve such proposal and (C) the Company is, or
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<PAGE> 20
will be with the passing of such 30 day period referred to in (A) above, in
compliance with Section 4(k) of the Securities Purchase Agreement, then the
Investors' right in this Section 3(g) to direct the Company to delist the Common
Stock (y) shall be suspended until the earlier of (I) the first (1st) business
day following the date on which the meeting of the Company's stockholders is
scheduled to occur, regardless of any adjournment thereof and (II) the date on
which such meeting of the Company's stockholders is canceled, terminated,
postponed or otherwise delayed or (z) will be terminated if the Stockholders
approve the issuance of the Conversion Shares. Notwithstanding the foregoing, in
the event of a dispute as to the determination of the Closing Bid Price or the
arithmetic calculation of the Redemption Price, such dispute shall be resolved
pursuant to Section 2(f)(iii) above with the term "Closing Bid Price" being
substituted for the term "Market Price" and the term "Redemption Price" being
substituted for the term "Conversion Rate". A holder's delivery of a Void
Optional Redemption Notice and exercise of its rights following such notice
shall not effect the Company's obligations to make any payments which have
accrued prior to the date of such notice, except for the applicable Redemption
Price relating to such Void Optional Redemption Notice which Redemption Price
thereafter shall no longer be due and payable. Payments provided for in this
Section 3 shall have priority to payments to other holders of the Company's
capital stock of a class that is junior to the Preferred Shares in connection
with a Major Transaction.
(4) INABILITY TO FULLY CONVERT.
(a) HOLDER'S OPTION IF COMPANY CANNOT FULLY CONVERT. If, upon the
Company's receipt of a Conversion Notice or on the Maturity Date, the Company
cannot issue shares of Common Stock registered for resale under the Registration
Statement (or which are exempt from the registration requirements under the 1933
Act pursuant to Rule 144(k) under the 1933 Act) for any reason, including,
without limitation, because the Company (x) does not have a sufficient number of
shares of Common Stock authorized and available, (y) is otherwise prohibited by
applicable law or by the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Company or its Securities, including without limitation the Exchange Cap (as
defined below), from issuing all of the Common Stock which is to be issued to a
holder of Preferred Shares pursuant to a Conversion Notice or (z) fails to have
a sufficient number of shares of Common Stock registered for resale under the
Registration Statement, then the Company shall issue as many shares of Common
Stock as it is able to issue in accordance with such holder's Conversion Notice
and pursuant to Section 2(f) and, with respect to the unconverted Preferred
Shares, the holder, solely at such holder's option, can elect to:
(i) require the Company to redeem from such holder those
Preferred Shares for which the Company is unable to issue Common Stock in
accordance with such holder's Conversion Notice ("MANDATORY REDEMPTION") at
a price per Preferred Share (the "MANDATORY REDEMPTION PRICE") equal to the
Triggering Event Redemption Price as of such Conversion Date;
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<PAGE> 21
(ii) if the Company's inability to fully convert Preferred
Shares is pursuant to Section 4(a)(z), require the Company to issue
restricted shares of Common Stock in accordance with such holder's
Conversion Notice and pursuant to Section 2(f);
(iii) void its Conversion Notice and retain or have returned,
as the case may be, the nonconverted Preferred Shares that were to be
converted pursuant to such holder's Conversion Notice (provided that a
holder's voiding its Conversion Notice shall not effect the Company's
obligations to make any payments which have accrued prior to the date of
such notice); or
(iv) if the Company's inability to fully convert Preferred
Shares is pursuant to Section 4(a)(y), require the Company to issue shares
of Common Stock in accordance with such holder's Conversion Notice and
pursuant to Section 2(f) at a Conversion Price equal to the average of the
Closing Bid Prices of the Common Stock for the five consecutive trading
days preceding such holder's Notice in Response to Inability to Convert (as
defined below) or such other market price that satisfies the applicable
exchange or trading market.
(b) MECHANICS OF FULFILLING HOLDER'S ELECTION. The Company shall
within one (1) business day send via facsimile to a holder of Preferred Shares,
upon receipt of a facsimile copy of a Conversion Notice from such holder which
cannot be fully satisfied as described in Section 4(a), a notice of the
Company's inability to fully satisfy such holder's Conversion Notice (the
"INABILITY TO FULLY CONVERT NOTICE"). Such Inability to Fully Convert Notice
shall indicate (i) the reason why the Company is unable to fully satisfy such
holder's Conversion Notice, (ii) the number of Preferred Shares which cannot be
converted and (iii) the applicable Mandatory Redemption Price. Such holder shall
notify the Company of its election pursuant to Section 4(a) above by delivering
written notice via facsimile to the Company ("NOTICE IN RESPONSE TO INABILITY TO
CONVERT").
(c) PAYMENT OF MANDATORY REDEMPTION PRICE. If such holder shall
elect to have its shares redeemed pursuant to Section 4(a)(i), the Company shall
pay the Mandatory Redemption Price in cash by wire transfer to such holder
within five (5) days of the Company's receipt of the holder's Notice in Response
to Inability to Convert. If the Company shall fail to pay the applicable
Mandatory Redemption Price to such holder within five (5) days of the Company's
receipt of the Notice in Response to Inability to Convert (other than pursuant
to a dispute as to the determination of the arithmetic calculation of the
Redemption Price), in addition to any remedy such holder of Preferred Shares may
have under this Certificate of Designations, the Securities Purchase Agreement
and the Registration Rights Agreement, such unpaid amount shall bear interest at
the rate of 2.0% per month (prorated for partial months) until paid in full.
Until the full Mandatory Redemption Price is paid in full to such holder, such
holder may void the Mandatory Redemption with respect to those Preferred Shares
for which the full Mandatory
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<PAGE> 22
Redemption Price has not been paid and receive back such Preferred Shares.
Notwithstanding the foregoing, if the Company fails to pay the applicable
Mandatory Redemption Price within such five (5) days time period due to a
dispute as to the determination of the Mandatory Redemption Price, such dispute
shall be resolved pursuant to Section 2(f)(iii) with the term "MANDATORY
REDEMPTION PRICE" being substituted for the term "Conversion Rate".
(d) PRO-RATA CONVERSION AND REDEMPTION. In the event the Company
receives a Conversion Notice, Notice of Redemption at Option of Holder Upon
Major Transaction or Notice of Redemption at Option of Holder Upon Triggering
Event from more than one holder of Preferred Shares on the same day and the
Company can convert and/or redeem some, but not all, of the Preferred Shares
pursuant to this Section 4, the Company shall convert and/or redeem from each
holder of Preferred Shares electing to have Preferred Shares converted and
redeemed at such time an amount equal to such holder's pro-rata amount (based on
the number of Preferred Shares held by such holder relative to the number of
Preferred Shares outstanding) of all Preferred Shares being converted and
redeemed at such time.
(5) CONVERSION AT THE COMPANY'S ELECTION. At any time or times on or
after the date which is three years after the Issuance Date of the applicable
Preferred Shares, the Company shall have the right, in its sole discretion, to
require that any or all of the outstanding Preferred Shares be converted
("CONVERSION AT COMPANY'S ELECTION") at the Conversion Rate; provided that the
Conditions to Conversion at the Company's Election (as set forth below) are
satisfied. The Company shall exercise its right to Conversion at Company's
Election by providing each holder of Preferred Shares written notice ("NOTICE OF
CONVERSION AT COMPANY'S ELECTION") at least 30 days prior to the date selected
by the Company for conversion ("COMPANY'S ELECTION CONVERSION DATE"). If the
Company elects to require conversion of some, but not all, of the Preferred
Shares, the Company shall convert a pro rata amount from each holder of
Preferred Shares (based on the number of Preferred Shares held by such holder
relative to the number of Preferred Shares outstanding on the date of the
Company's delivery of the Notice of Conversion at Company's Election). The
Notice of Conversion at Company's Election shall indicate (x) the number of
Preferred Shares the Company has selected for conversion, (y) the Company's
Election Conversion Date, which date shall not be less than 30 or more than 40
days after each holder's receipt of such notice, and (z) each holder's pro rata
share of outstanding Preferred Shares. All Preferred Shares selected for
conversion in accordance with the provisions of this Section 5 shall be
converted as of the Company's Election Conversion Date in accordance with
Section 2 as if the holders of such Preferred Shares selected by the Company to
be converted had given the Conversion Notice on the Company's Election
Conversion Date. All holders of Preferred Shares shall thereupon and within two
business days after the Company's Election Conversion Date surrender all
Preferred Stock Certificates selected for conversion, duly endorsed for
cancellation, to the Transfer Agent. "CONDITIONS TO CONVERSION AT THE COMPANY'S
ELECTION" means the following conditions: (i) on each day during the period
beginning 20 days prior to the Notice of Conversion at the Company's Election
and ending on and including the Company's Election Conversion Date, the
Registration Statement shall be effective and available
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<PAGE> 23
for the sale of no less than 150% of the sum of (A) the number of Conversion
Shares then issuable upon the conversion of all outstanding Preferred Shares
(without regard to any limitations on conversion herein or elsewhere), including
the Conversion Shares to be issued pursuant to this Conversion at the Company's
Election and (B) the number of Conversion Shares that are then held by the
holders of the Preferred Shares, (ii) on each day during the period beginning 20
days prior to the date of the Company's Notice of Conversion at Company's
Election and ending on and including the Company's Election Conversion Date, the
Common Stock is designated for quotation on the Nasdaq National Market or listed
on NYSE or AMEX and is not suspended from trading; (iii) on each day during the
20 consecutive trading days immediately preceding the date of the Company's
Notice of Conversion at the Company's Election, the Closing Bid Price of the
Common Stock is at least 250% of the Fixed Conversion Price of the applicable
Preferred Shares being converted; (iv) on each day during the period beginning
on the date of the Notice of Conversion at the Company's Election and ending on
and including the Company's Election Conversion Date, the Closing Bid Price of
the Common Stock is at least 230% of the Fixed Conversion Price of the
applicable Preferred Shares being converted; (v) a Conversion at Company's
Election previously shall not have occurred; (vi) if the Company was required to
seek stockholder approval pursuant to Section 4(k) of the Securities Purchase
Agreement, the Company's stockholders shall have approved the issuance of the
Securities (as defined in the Securities Purchase Agreement) on or prior to the
date of the Company's Notice of Conversion at Company's Election; (vii) during
the period beginning 20 trading days prior to the date of the Company's Notice
of Conversion at Company's Election and ending on and including the Company's
Election Conversion Date, no holder of Preferred Shares shall have been subject
to a lock-up pursuant to the terms of Section 4(n) of the Securities Purchase
Agreement and there shall not have been any Grace Period under Section 3(u) of
the Registration Rights Agreement; (viii) during the period beginning on the
Initial Issuance Date and ending on and including the Company's Election
Conversion Date, the Company shall have delivered Conversion Shares upon
conversion of the Preferred Shares to the Buyers within ten (10) business days
of the applicable Conversion Date; (ix) during the period beginning on and
including the date which is 20 trading days immediately preceding the date of
the Company's Notice of Conversion at the Company's Election and ending on and
including the Company's Election Conversion Date, the Company shall have
delivered Conversion Shares upon conversion of the Preferred Shares to the
Buyers on a timely basis as set forth in Section 2(f)(ii) of this Certificate of
Designations; (x) neither a Triggering Event nor any event that with the passage
of time would constitute a Triggering Event (assuming it was not cured) shall
have occurred; and (xi) the Company otherwise has satisfied its obligations and
is not in default under this Certificate of Designations, the Securities
Purchase Agreement and the Registration Rights Agreement. Notwithstanding the
above, any holder of Preferred Shares may convert such shares (including
Preferred Shares selected for conversion) into Common Stock pursuant to Section
2(a) on or prior to the Company's Election Conversion Date.
(6) COMPANY'S RIGHT TO REDEEM IN LIEU OF CONVERSION. Subject to the terms
and conditions of this Section 6 below, at any time after the Issuance Date, and
so long as the
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<PAGE> 24
Company has provided appropriate notice as described below, the Company may
elect to redeem Preferred Shares submitted for conversion in lieu of converting
such Preferred Shares, provided that the Conversion Price for such Preferred
Shares on the Conversion Date is less than a price (the "REDEMPTION IN LIEU OF
CONVERSION TRIGGER PRICE") equal to 80% of the greater of (x) the Market Price
on the Initial Issuance Date and (y) the Market Price on the date of the
Mandatory Closing (as defined in the Securities Purchase Agreement), if any,
(appropriately adjusted for any stock split, stock dividend, combination or
other similar transaction) (a "COMPANY REDEMPTION IN LIEU OF CONVERSION").
(a) REDEMPTION PRICE OF COMPANY REDEMPTION IN LIEU OF CONVERSION.
The "REDEMPTION PRICE OF COMPANY REDEMPTION IN LIEU OF CONVERSION" shall be an
amount per Preferred Share equal to the product of (A) the Conversion Rate of
the Preferred Shares on the date such Preferred Shares are submitted for
conversion and (B) the Closing Bid Price of the Common Stock on the date the
applicable Preferred Shares are submitted for conversion.
(b) MECHANICS OF COMPANY REDEMPTION IN LIEU OF CONVERSION. The
Company shall exercise its right to redeem by delivering written notice by
facsimile and overnight courier ("NOTICE OF COMPANY REDEMPTION IN LIEU OF
CONVERSION") to (i) each holder of the Preferred Shares and (ii) the Transfer
Agent. Such Notice of Company Redemption in Lieu of Conversion shall indicate
(A) the maximum, if any, aggregate number of Preferred Shares which the Company
will redeem for Company Redemption in Lieu of Conversion and (B) confirm the
time period during which the Company may effect Company Redemption in Lieu of
Conversion, which period shall begin on and include the date which is five
business days after the date of receipt by all of the holders' of the Notice of
Redemption in Lieu of Conversion and shall end on and include the date which is
30 calendar days after the fifth business day following the date of receipt by
all of the holders of the Notice of Redemption in Lieu of Conversion (the
"REDEMPTION IN LIEU OF CONVERSION PERIOD"). If the Company elects to limit the
number of Preferred Shares which it will redeem during the Redemption in Lieu of
Conversion Period, the Company shall allocate for redemption from each holder of
Preferred Shares a number of Preferred Shares equal to such holder's pro-rata
amount (based on the number of Preferred Shares held by such holder on the date
of the Notice of Company Redemption in Lieu of Conversion relative to the total
number of Preferred Shares outstanding on such date). The Company may terminate
a Redemption in Lieu of Conversion Period at any time with respect to Preferred
Shares which have not been submitted for conversion by delivering written notice
of such termination to each holder of Preferred Shares by facsimile and
overnight courier at least three business days prior to the effective date of
such termination. Notwithstanding anything to the contrary in this Section 6,
the Company shall convert Preferred Shares pursuant to Section 2 if such
Preferred Shares are submitted for conversion (i) before the beginning, or after
the termination, of the Redemption in Lieu of Conversion Period, (ii) for a
Conversion Price greater than or equal to the Redemption in Lieu of Conversion
Trigger Price or (iii) are in excess of such holder's pro rata allocation of the
maximum number of Preferred Shares the Company indicated that it would redeem in
its Notice of Company Redemption in Lieu of Conversion.
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<PAGE> 25
(c) PAYMENT OF REDEMPTION PRICE. The Company shall pay the
applicable Redemption Price of Company Redemption in Lieu of Conversion to the
holder of the Preferred Shares being redeemed in cash by wire transfer within
five business days after the applicable Conversion Date on which such Preferred
Shares are submitted for conversion. If the Company shall fail to pay the
applicable Redemption Price of Company Redemption in Lieu of Conversion to such
holder on a timely basis as described in this Section 6(c), in addition to any
remedy such holder of Preferred Shares may have under this Certificate of
Designations and the Securities Purchase Agreement, such unpaid amount shall
bear interest at the rate of 2.0% per month until paid in full. Until the
Company pays such unpaid applicable Redemption Price of Company Redemption in
Lieu of Conversion full to each holder, each holder of Preferred Shares
submitted for redemption pursuant to this Section 6 and for which the applicable
Redemption Price of Company Redemption in Lieu of Conversion has not been paid,
shall have the option to, in lieu of redemption, (A) to require the Company to
promptly return to each holder all of the Preferred Shares that were submitted
for redemption by such holder under this Section 6 and for which the applicable
Redemption Price of Company Redemption in Lieu of Conversion has not been paid
or (B) to convert those Preferred Shares for which the applicable Redemption
Price of the Company Redemption in Lieu of Conversion has not been paid at a
Conversion Price equal to the lesser of (I) the Conversion Price applicable to
such conversion on the date on which such Preferred Shares were originally
presented for conversion and (II) the Conversion Price which would have been in
effect if such Preferred Shares were presented for conversion on the business
day immediately following the last day on which the Company could have effected
a timely Company Redemption in Lieu of Conversion, by sending written notice
thereof to the Company via facsimile (the "VOID COMPANY REDEMPTION NOTICE").
Upon the Company's receipt of such Void Company Redemption Notice(s), requesting
the return of the Preferred Shares, prior to payment of the full applicable
redemption price to each holder, (i) the Company's Redemption in Lieu of
Conversion shall be null and void with respect to those Preferred Shares
submitted for redemption and for which the applicable redemption price has not
been paid and with respect to any Preferred Shares submitted in the future for
conversion in the same Redemption in Lieu of Conversion Period, (ii) the Company
shall immediately return any Preferred Shares submitted to the Company by each
holder for redemption under this Section 6 and for which the applicable
Redemption Price of Company Redemption in Lieu of Conversion has not been paid
and (iii) the Fixed Conversion Price of such returned Preferred Shares shall be
adjusted to the lesser of (I) the Conversion Price applicable to such conversion
on the date on which such Preferred Shares were originally presented for
conversion and (II) the lowest Conversion Price which would have been in effect
if such Preferred Shares were presented for conversion on any business day
during the period beginning on the business day immediately following the last
day on which the Company could have effected a timely Company Redemption in Lieu
of Conversion and ending on the date of the Company's receipt of the applicable
Void Company Redemption Notice. Notwithstanding the foregoing, if the Company
fails to pay the applicable Redemption Price of Company Redemption in Lieu of
Conversion to a holder within the time period described in this Section 6(d) due
to a dispute as to the arithmetic calculation of the Redemption Price of Company
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<PAGE> 26
Redemption in Lieu of Conversion, such dispute shall be resolved pursuant to
Section 2(f)(iii) above with the term "Redemption Price of Company Redemption in
Lieu of Conversion" being substituted for the term "Conversion Rate." If the
Company fails to timely effect a Company Redemption in Lieu of Conversion in
accordance with this Section 6, the Company shall not be allowed to submit
another Notice of Company Redemption in Lieu of Conversion without the prior
written consent of the holders of at least a majority of the Preferred Shares
then outstanding.
(d) COMPANY MUST HAVE IMMEDIATELY AVAILABLE FUNDS OR CREDIT
FACILITIES. The Company shall not be entitled to send any Notice of Company
Redemption in Lieu of Conversion pursuant to Section 6(a) and begin the
redemption procedure under this Section 6, unless it has:
(i) the full amount of the Redemption Price of Company
Redemption in Lieu of Conversion in cash, available in a demand or other
immediately available account in a bank or similar financial institution;
(ii) credit facilities, with a bank or similar financial
institutions that are immediately available and unrestricted for use in
redeeming the Preferred Shares, in the full amount of the Redemption Price
of Company Redemption in Lieu of Conversion;
(iii) a written agreement with a standby underwriter or
qualified buyer ready, willing and able to purchase from the Company a
sufficient number of shares of stock to provide proceeds necessary to
redeem any Preferred Share that has not been converted prior to a Company
Redemption in Lieu of Conversion; or
(iv) a combination of the items set forth in the preceding
clauses (i), (ii) and (iii), aggregating the full amount of the Redemption
Price of Company Redemption in Lieu of Conversion.
(7) REISSUANCE OF CERTIFICATES. In the event of a conversion or
redemption pursuant to this Certificate of Designations of less than all of the
Preferred Shares represented by a particular Preferred Stock Certificate, the
Company shall promptly cause to be issued and delivered to the holder of such
Preferred Shares a preferred stock certificate representing the remaining
Preferred Shares which have not been so converted or redeemed.
(8) RESERVATION OF SHARES. The Company shall, so long as any of the
Preferred Shares are outstanding, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Preferred Shares, such number of shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all of the
Preferred Shares then outstanding (without regard to any limitations on
conversions); provided that the number of shares of Common Stock so reserved
shall at no time be less than 200% of the
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<PAGE> 27
number of shares of Common Stock for which the Preferred Shares are at any time
convertible. The initial number of shares of Common Stock reserved for
conversions of the Preferred Shares and each increase in the number of shares so
reserved shall be allocated pro rata among the holders of the Preferred Shares
based on the number of Preferred Shares held by each holder at the time of
issuance of the Preferred Shares or increase in the number of reserved shares,
as the case may be. In the event a holder shall sell or otherwise transfer any
of such holder's Preferred Shares, each transferee shall be allocated a pro rata
portion of the number of reserved shares of Common Stock reserved for such
transferor. Any shares of Common Stock reserved and which remain allocated to
any person or entity which does not hold any Preferred Shares or have the right
to acquire any Preferred Shares shall be allocated to the remaining holders of
Preferred Shares, pro rata based on the number of Preferred Shares then held by
such holders.
(9) VOTING RIGHTS. Holders of Preferred Shares shall have no voting
rights, except as required by law, including but not limited to the General
Corporation Law of the State of Delaware, and as expressly provided in this
Certificate of Designations.
(10) LIQUIDATION, DISSOLUTION, WINDING-UP. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the Company, the
holders of the Preferred Shares shall be entitled to receive in cash out of the
assets of the Company, whether from capital or from earnings available for
distribution to its stockholders (the "PREFERRED FUNDS"), before any amount
shall be paid to the holders of any of the capital stock of the Company of any
class junior in rank to the Preferred Shares in respect of the preferences as to
the distributions and payments on the liquidation, dissolution and winding up of
the Company, an amount per Preferred Share equal to the sum of (i) $1,000 and
(ii) an amount equal to the product of (.05) (N/365) ($1,000) (such sum being
referred to as the "LIQUIDATION VALUE"); provided that, if the Preferred Funds
are insufficient to pay the full amount due to the holders of Preferred Shares
and holders of shares of other classes or series of preferred stock of the
Company that are of equal rank with the Preferred Shares as to payments of
Preferred Funds (the "PARI PASSU SHARES"), then each holder of Preferred Shares
and Pari Passu Shares shall receive a percentage of the Preferred Funds equal to
the full amount of Preferred Funds payable to such holder as a liquidation
preference, in accordance with their respective Certificate of Designations,
Preferences and Rights, as a percentage of the full amount of Preferred Funds
payable to all holders of Preferred Shares and Pari Passu Shares. The purchase
or redemption by the Company of stock of any class, in any manner permitted by
law, shall not, for the purposes hereof, be regarded as a liquidation,
dissolution or winding up of the Company. Neither the consolidation or merger of
the Company with or into any other Person, nor the sale or transfer by the
Company of less than substantially all of its assets, shall, for the purposes
hereof, be deemed to be a liquidation, dissolution or winding up of the Company.
No holder of Preferred Shares shall be entitled to receive any amounts with
respect thereto upon any liquidation, dissolution or winding up of the Company
other than the amounts provided for herein; provided that a holder of Preferred
Shares shall be entitled to all amounts previously accrued with respect to
amounts owed hereunder.
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<PAGE> 28
(11) PREFERRED RANK; PARTICIPATION.
(a) All shares of Common Stock shall be junior in rank to the
Preferred Shares, and the Preferred Shares shall be pari passu in rank to (i)
the Company's Series B Preferred Stock and (ii) any shares of the Company's
preferred stock issued to HMR which shares of preferred stock, by their terms,
are not transferable or assignable for a period of at least one year from the
date of issuance of such shares of preferred stock, in respect to the
preferences as to distributions and payments upon the liquidation, dissolution
and winding up of the Company. The rights of the shares of Common Stock shall be
subject to the preferences and relative rights of the Preferred Shares. Without
the prior express written consent of the holders of not less than a majority of
the then outstanding Preferred Shares, the Company shall not hereafter authorize
or issue additional or other capital stock that is of senior or equal rank to
the Preferred Shares in respect of the preferences as to distributions and
payments upon the liquidation, dissolution and winding up of the Company
provided that shares of the Company's Series B Preferred Stock and any shares of
the Company's preferred stock issued to HMR in the manner described in clause
(ii) above shall not require the consent of the holders of the Preferred Shares
in order to rank pari passu to the Preferred Shares. Without the prior express
written consent of the holders of not less than a majority of the then
outstanding Preferred Shares, the Company shall not hereafter authorize or make
any amendment to the Company's Certificate of Incorporation or bylaws, or file
any resolution of the board of directors of the Company with the Delaware
Secretary of State containing any provisions, which would adversely affect or
otherwise impair the rights or relative priority of the holders of the Preferred
Shares relative to the holders of the Common Stock or the holders of any other
class of capital stock. In the event of the merger or consolidation of the
Company with or into another corporation pursuant to which the Preferred Shares
remain outstanding or the rights to acquire Preferred Shares under the
Securities Purchase Agreement shall not have been terminated, the Preferred
Shares shall maintain their relative powers, designations and preferences
provided for herein and no merger shall result inconsistent therewith.
(b) Subject to the rights of the holders, if any, of the Pari Passu
Shares, the holders of the Preferred Shares shall, as holders of Preferred
Stock, be entitled to such dividends paid and distributions made to the holders
of Common Stock to the same extent as if such holders of Preferred Shares had
converted the Preferred Shares into Common Stock (without regard to any
limitations on conversion herein or elsewhere) and had held such shares of
Common Stock on the record date for such dividends and distributions. Payments
under the preceding sentence shall be made concurrently with the dividend or
distribution to the holders of Common Stock.
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<PAGE> 29
(12) RESTRICTION ON REDEMPTION AND CASH DIVIDENDS WITH RESPECT TO OTHER
CAPITAL STOCK. Until all of the Preferred Shares have been converted or redeemed
as provided herein, the Company shall not, directly or indirectly, redeem, or
declare or pay any cash dividend or distribution on, its capital stock without
the prior express written consent of the holders of not less than a majority of
the then outstanding Preferred Shares.
(13) LIMITATION ON NUMBER OF CONVERSION SHARES. Notwithstanding any other
provision herein, the Company shall not be obligated to issue any shares of
Common Stock upon conversion of the Preferred Shares if the issuance of such
shares of Common Stock would exceed that number of shares of Common Stock which
the Company may issue upon Conversion of the Preferred Shares (the "EXCHANGE
CAP") without breaching the Company's obligations under the rules or regulations
of the Nasdaq National Market, except that such limitation shall not apply in
the event that the Company (i) obtains the approval of its stockholders as
required by applicable rules and regulations of the Nasdaq National Market for
issuances of Common Stock in excess of the Exchange Cap, (ii) obtains a written
opinion from outside counsel to the Company that such approval is not required,
which opinion shall be reasonably satisfactory to the holders of a majority of
the Preferred Shares then outstanding or (iii) the required number of holders of
the Preferred Shares have exercised their rights pursuant to Section 3(g) of
this Certificate of Designations to have the Company remove the Common Stock
from quotation on the Nasdaq National Market. Until such approval or written
opinion is obtained or such action has been taken by the required number of
holders, no purchaser of Preferred Shares pursuant to the Securities Purchase
Agreement (the "PURCHASERS") shall be issued, upon conversion of Preferred
Shares, shares of Common Stock in an amount greater than the product of (x) the
Exchange Cap amount multiplied by (y) a fraction, the numerator of which is the
number of Preferred Shares issued to such Purchaser pursuant to the Securities
Purchase Agreement and the denominator of which is the aggregate amount of all
the Preferred Shares issued to the Purchasers pursuant to the Securities
Purchase Agreement (the "CAP ALLOCATION AMOUNT"). In the event that any
Purchaser shall sell or otherwise transfer any of such Purchaser's Preferred
Shares, the transferee shall be allocated a pro rata portion of such Purchaser's
Cap Allocation Amount. In the event that any holder of Preferred Shares shall
convert all of such holder's Preferred Shares into a number of shares of Common
Stock which, in the aggregate, is less than such holder's Cap Allocation Amount,
then the difference between such holder's Cap Allocation Amount and the number
of shares of Common Stock actually issued to such holder shall be allocated to
the respective Cap Allocation Amounts of the remaining holders of Preferred
Shares on a pro rata basis in proportion to the number of Preferred Shares then
held by each such holder.
(14) VOTE TO CHANGE THE TERMS OF OR ISSUE PREFERRED SHARES. The
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of not less than a majority of the
then outstanding Preferred Shares and of the holders of the rights to acquire a
majority of the Preferred Shares which purchasers have the right to acquire
under the Securities Purchase Agreement, shall be required for (a) any change to
this Certificate of Designations or the Company's Certificate of Incorporation
which would amend, alter, change or
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<PAGE> 30
repeal any of the powers, designations, preferences and rights of the Preferred
Shares, or (b) any issuance of Preferred Shares other than pursuant to the
Securities Purchase Agreement.
(15) LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing the Preferred Shares, and, in the case
of loss, theft or destruction, of an indemnification undertaking by the holder
to the Company in a form reasonably acceptable to the Company and, in the case
of mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new preferred stock
certificate(s) of like tenor and date; provided, however, the Company shall not
be obligated to re-issue preferred stock certificates if the holder
contemporaneously requests the Company to convert such Preferred Shares into
Common Stock.
(16) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF. The remedies provided in this Certificate of Designations
shall be cumulative and in addition to all other remedies available under this
Certificate of Designations, at law or in equity (including a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit a holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Certificate of
Designations. The Company covenants to each holder of Preferred Shares that
there shall be no characterization concerning this instrument other than as
expressly provided herein. Amounts set forth or provided for herein with respect
to payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the holder thereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holders of the
Preferred Shares and that the remedy at law for any such breach may be
inadequate. The Company therefore agrees that, in the event of any such breach
or threatened breach, the holders of the Preferred Shares shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.
(17) SPECIFIC SHALL NOT LIMIT GENERAL; CONSTRUCTION. No specific provision
contained in this Certificate of Designations shall limit or modify any more
general provision contained herein. This Certificate of Designations shall be
deemed to be jointly drafted by the Company and the initial holders of the
Preferred Shares and shall not be construed against any person as the drafter
hereof.
(18) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
a holder of Preferred Shares in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof (except to the extent that such
power, right or privilege must, in accordance with the terms of this Certificate
of Designations, be exercised within a specified period of time and
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<PAGE> 31
such period of time has lapsed without such power, right or privilege being
exercised), nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right,
power or privilege.
(19) NOTICES. Any notice required to be delivered pursuant to the terms of
this Certificate of Designations shall be delivered, unless otherwise provided
in this Certificate of Designations, in accordance with the terms, and subject
to the notice provisions of, the Securities Purchase Agreement.
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<PAGE> 32
IN WITNESS WHEREOF, the Company has caused this Certificate of Designations
to be signed by Harvey J. Berger, M.D. its Chief Executive Officer, as of the
6th day of November, 1998.
ARIAD PHARMACEUTICALS, INC.
By: /s/ Harvey Berger
-------------------------
Name: Harvey J. Berger
Its: Chief Executive Officer
<PAGE> 33
EXHIBIT I
ARIAD PHARMACEUTICALS, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights of
Series C Convertible Preferred Stock (the "CERTIFICATE OF DESIGNATIONS"). In
accordance with and pursuant to the Certificate of Designations, the undersigned
hereby elects to convert the number of shares of Series [C] Convertible
Preferred Stock, par value $.01 per share (the "PREFERRED SHARES"), of ARIAD
Pharmaceuticals, Inc., a Delaware corporation (the "COMPANY"), indicated below
into shares of Common Stock, par value $.001 per share (the "COMMON STOCK"), of
the Company, by tendering the stock certificate(s) representing the Preferred
Shares specified below as of the date specified below.
Date of Conversion: __________________________________________
Number of Preferred Shares to be converted: ________
Stock certificate no(s). of Preferred Shares to be converted: ________
Please confirm the following information:
Conversion Price: __________________________________________
Number of shares of Common
Stock to be issued: __________________________________________
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to: __________________________________________
Facsimile Number: __________________________________________
Authorization:
By: ______________________________________
Title: ___________________________________
Dated: __________________________________________
Account Number: (if electronic
book entry transfer): __________________________________________
Transaction Code Number (if
electronic book entry transfer): __________________________________________
THIS NOTICE MUST BE DELIVERED TO COMPANY AND TRANSFER AGENT25
<PAGE> 1
EXHIBIT 99.1
[ARIAD LOGO]
NEWS RELEASE
- --------------------------------------------------------------------------------
FOR IMMEDIATE RELEASE CONTACT: Jay R. LaMarche
Chief Financial Officer
Charles C. Cabot III
Chief Operating Officer
(617) 494-0400
ARIAD COMPLETES $5 MILLION
PRIVATE PLACEMENT
CAMBRIDGE, MA, NOVEMBER 12, 1998 -- ARIAD Pharmaceuticals, Inc. (Nasdaq: "ARIA")
today announced that it has completed a private placement of 5,000 shares of
Series C Convertible Preferred Stock to a group of institutional investors and
received proceeds of approximately $5,000,000. Each share of Series C
Convertible Preferred Stock has a stated value of $1,000, plus an accrual amount
equal to 5% per annum, and is convertible into common stock of the Company
beginning approximately three months after the initial closing, at a conversion
price equal to the lower of a Variable Conversion Price or a Maximum Conversion
Price. The Variable Conversion Price for any given conversion will be based on
the average of the four lowest closing bid prices for the common stock during
the 22 trading days preceding the date of conversion. The Maximum Conversion
Price for all conversions will be 120% of the Variable Conversion Price at a
date to be selected by the Company within such three month period.
Under certain circumstances, the investors and the Company each have rights to
increase the amount of this investment and, at certain prices, the Company may
elect to redeem any preferred shares that are presented for conversion. ARIAD is
required to file a registration statement on Form S-3 with the Securities and
Exchange Commission in order to register the common stock underlying the Series
C Convertible Preferred Stock sold in the transaction. Promethean Investment
Group, L.L.C., a New York based fund management group, advised the investors in
the transaction.
Proceeds from the private placement will be used to fund the Company's drug
development activities, including preclinical studies and, if successful,
planned clinical trials, for working capital and for general corporate purposes.
<PAGE> 2
"We are pleased to welcome a prominent group of new institutional investors in
ARIAD", said Harvey J. Berger, M.D., chairman and chief executive officer. "This
private placement strengthens our financial position and provides additional
resources to advance the Company's regulated gene expression products toward
clinical development."
ARIAD Pharmaceuticals is engaged in the discovery and development of orally
administered therapeutics based on signal transduction technology. The Company
is developing small-molecule drugs that block intracellular signaling pathways
that play a critical role in major diseases including osteoporosis and
immune-related disorders. ARIAD is also developing ARGENT(TM), a proprietary
regulated gene expression technology for orally activE protein therapy.
Some of the matters discussed in this news release may be forward-looking
statements that involve risks and uncertainties. Risks and uncertainties
include, but are not limited to risks and uncertainties regarding the success of
the Company's preclinical studies, the ability of the Company to commence
clinical trials and the success of such clinical trials, as well as risks and
uncertainties relating to economic conditions, markets, products, services and
prices, and other factors discussed under the heading "Cautionary Statement
Regarding Forward-Looking Statements" in ARIAD's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 filed with the Securities and Exchange
Commission.
###
