- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-27578
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SUNPHARM CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware F593097048
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4651 Salisbury Road, Suite 205
Jacksonville, Florida 32256
(Address of principal executive offices)
Issuer's telephone number: (904) 296-3320
------------------------------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
Number of shares of the issuer's Common Stock
outstanding as of November 14, 1996:3,363,096
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and notes disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to these rules and regulations. However, the Company
believes that the disclosures made herein are adequate, and accordingly, the
Company believes the information presented is not misleading. These financial
statements should be read in conjunction with the financial statements for the
year ended December 31, 1995 included in the Company's 1995 Form 10-KSB filed
pursuant to Section 15(d) of the Securities Exchange Act of 1934.
2
<PAGE>
SUNPHARM CORPORATION
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
Pro Forma
September 30,
December 31, September 30, 1996 (unaudited)
1995 1996 (unaudited) (See Note 3)
---------------- ---------------- ----------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 331,069 $1,435,544 $3,224,994
Investments............................................. 1,290,464 -- --
Prepaid expenses and other current assets............... 159,857 24,708 24,708
------- ------
Total current assets................................ 1,781,390 1,460,252 3,249,702
--------- --------- ---------
Receivable from stockholder................................... 13,114 11,843 11,843
Other assets.................................................. 14,237 12,436 12,436
------ ------ ------
$ 1,808,741 $1,484,531 $3,273,981
=========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
Current Liabilities:
Accounts payable........................................ $360,722 $522,567 $522,567
Accrued liabilities..................................... 177,483 386,507 571,507
Accrued legal fees...................................... 300,000 30,000 30,000
Notes payable........................................... 87,834 10,027 10,027
------ ------ ------
Total current liabilities............................ 926,039 949,101 1,134,101
======= ======= =========
Commitments and contingencies
Stockholders' equity:
Undesignated series preferred stock,
$.001 par value, 2,500,000 shares authorized,
none issued and outstanding............................. -- -- --
Commonstock, $.0001 par value 25,000,000 shares
authorized, 2,884,535, 3,339,683 (unaudited)
and 3,665,037 (pro forma) issued and outstanding,
respectively............................................ 288 334 365
Additional paid-in capital.................................... 9,642,434 11,134,068 12,738,487
Deficit accumulated during development stage.................. (8,760,020) (10,598,972) (10,598,972)
---------- ----------- -----------
Total stockholders' equity ......................... 882,702 535,430 2,139,880
------- ------- ---------
$ 1,808,741 $1,484,531 $3,273,981
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
SUNPHARM CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
September 30,
-------------
1995 1996
---- ----
<S> <C> <C>
Interest Income................................ $ 40,476 $ 21,609
------- -------
Expenses:
Research and development................... 374,103 313,379
General and administrative................. 433,718 365,971
Royalty.................................... -- --
------- -------
Total expenses..................... 807,821 679,350
------- -------
Net loss....................................... $ (767,345) $ (657,741)
============== =============
Net loss per share............................. $ (0.27) $ (0.20)
============== =============
Shares used in computing loss per share........ $ 2,884,535 $ 3,231,655
============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
SUNPHARM CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Period
from Inception
For the Nine Months Ended (May 3, 1990)
September 30, Through
------------- September 30,
1995 1996 1996
---- ---- ----
<S> <C> <C> <C>
Sponsored research/sublicensing revenues................ $ __ $ 500,000 $ 2,385,000
Interest income......................................... 133,461 47,385 210,042
------- ------ -------
Total revenues..................... 133,461 547,385 2,595,042
------- ------- ---------
Expenses:
Research and development............................ 1,214,422 1,012,770 6,681,002
General and administrative.......................... 2,038,769 1,373,567 6,303,012
Royalty............................................. -- -- 210,000
--------- --------- ----------
Total expenses.............................. 3,253,191 2,386,337 13,194,014
--------- --------- ----------
Net loss................................................ $ (3,119,730) $ (1,838,952) $ (10,598,972)
============== ============ =============
Net loss per share...................................... $ ( 1.11) $ (0.61)
============== ============
Shares used in computing loss per share................. $ 2,814,869 $ 3,003,094
============== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
SUNPHARM CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Period
from Inception
(May 3, 1990)
For the Nine Months Ended Through
September 30, September 30 ,
1995 1996 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................ $(3,119,730) $ (1,838,952) $(10,598,972)
Adjustments to reconcile net loss to net
cash used in operating activities -
Depreciation and amortization................... 2,579 1,800 71,706
Expenses related to issuance
of stock for services......................... -- -- 43,750
Compensation expense related to options
and warrants issued........................ 50,000 -- 865,246
Offering costs incurred in connection with
10% Convertible Secured Notes................. 775,000 -- 775,000
Write-off of patents............................. -- -- 70,120
(Increase) decrease in receivable from
stockholder............................ (657) 1,271 (11,843)
(Increase) decrease in prepaid expenses
and other assets............................. 51,993 135,562 (36,232)
Increase (decrease) in accounts payable......... (819,477) 161,849 522,567
Increase (decrease) in accrued liabilities...... (335,735) 209,024 386,507
-------
Increase in accrued legal fees................... -- (270,000) 30,000
-------- -------- ------
Total adjustments............................. (276,297) 239,506 2,716,821
-------- ------- ---------
Net cash used in operating activities.................. (3,396,027) (1,599,446) (7,882,151)
---------- ---------- ----------
Cash flows from investing activities:
Purchase of short-term investments................ (2,316,837) -- (3,324,062)
Sale of short-term investments.................... -- 1,290,464 3,324,062
Purchases of office equipment..................... (2,876) (416) (17,614)
Payment of patent costs........................... -- -- (67,424)
------- ------- -------
Net cash (used in) provided by investing
activities............................... (2,319,713) 1,290,048 (85,038)
---------- --------- -------
Cash flows from financing activities:
Payments of notes payable......................... (1,582,459) (77,807) (89,973)
Decrease in deferred offering costs............... -- -- (597,348)
Issuance of Series A redeemable
convertible preferred stock................... -- -- 513,525
Issuance of Series B redeemable
convertible preferred stock................... -- -- 450,000
Issuance of common stock.......................... 7,634,849 1,491,680 9,126,529
Proceeds from payable to stockholders............. 25,000 -- 542,500
Repayment of payable to stockholders.............. (200,000) -- (542,500)
-------- -------- --------
Net cash provided by
financing activities.................... 5,877,390 1,413,873 9,402,733
--------- --------- ---------
Net change in cash..................................... 161,650 1,104,475 1,435,544
Cash at beginning of period............................ -- 331,069 --
-------- -------- ---------
Cash at end of period.................................. $ 161,650 $1,435,544 $1,435,544
=========== ========== ==========
Supplemental information:
Cash paid for interest............................ $ 13,514 $ 2,962 $ 164,871
Deferred compensation for stock $ 94,000 -- --
appreciation rights........................
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
SUNPHARM CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
The balance sheet at September 30, 1996 and the related statements of
operations for the three month and nine month periods ended September 30, 1996
and 1995 and the period from inception (May 3, 1990) through September 30, 1996
and statements of cash flows for the nine month periods ended September 30, 1996
and 1995 and the period from inception (May 3, 1990) through September 30, 1996
are unaudited. These interim financial statements should be read in conjunction
with the December 31, 1995 financial statements and related notes. The unaudited
interim financial statements reflect all adjustments which are, in the opinion
of management, necessary for a fair statement of results for the interim periods
presented and all such adjustments are of a normal recurring nature. Interim
results are not necessarily indicative of results for a full year.
NET LOSS PER SHARE
Net loss per share is computed based on the weighted average shares of
common stock outstanding for the period.
PATENT COSTS
The Company reimburses the University of Florida Research Foundation, Inc.
(UFRI), for direct expenses relating to the Company's patents. Patent costs
consist of legal fees and other direct costs incurred in obtaining patents.
These costs are charged to research and development expense or general and
administrative expense when incurred.
RESEARCH AND DEVELOPMENT
Sponsored research revenue is recognized as revenue when the payments are
earned or received and the research has been performed. Research and development
expenses are charged to operations when incurred. Research and development
expenses include, among other things, consulting fees and cost reimbursements to
UFRI.
PRO FORMA BALANCE SHEET
The unaudited pro forma balance sheet at September 30, 1996 gives effect to
the private placement and the exercise and issuance of warrants described in
Note 2 and the adjustments described in Note 3. The pro forma information should
be read together with the Financial Statements including the Notes thereto.
2. STATUS OF FINANCINGS
In April 1996, the Company received notice from The Nasdaq Stock Market
("Nasdaq") that the Company's total assets and capital and surplus as of
December 31, 1995, did not meet the minimum requirements for continued listing
on the Nasdaq Small Cap Market and that the Company's Common Stock, Warrants and
Units were subject to delisting. Nasdaq requested that the Company provide a
specific plan demonstrating how the Company will achieve ongoing compliance with
Nasdaq's minimum requirements of $2,000,000 of total assets and $1,000,000 of
capital and surplus. The Company provided a plan to Nasdaq
7
<PAGE>
SUNPHARM CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
(Unaudited)
which contemplated cash inflows to the Company through the private placement of
equity and other sources in an amount sufficient to bring the Company into
compliance by June 15, 1996, the date established by Nasdaq for final
determination. On June 17, 1996, the Company filed a Current Report on Form 8-K
which established that the Company had met the minimum requirements on such date
for continued listing on Nasdaq, as a result of the following events:
(i) the receipt in escrow of $370,480 of proceeds in connection with the
offering of Common Stock and warrants in the private placement; (ii) the
exercise of outstanding warrants from certain current warrantholders and the
issuance of additional warrants to such individuals, in an amount equal to
$468,301; (iii) payment of $500,000 from Warner-Lambert as a progress payment on
the Phase I clinical trials of DENSPM for cancer; and (iv) the settlement of a
lawsuit with Dean L. Rider, M.D. ("Rider Settlement") pursuant to which the
Company issued to Rider 50,000 shares of Common Stock. After the filing of the
Current Report on Form 8-K, the Company received additional proceeds and
conducted an initial closing on July 19, 1996, in which the Company received an
aggregate of $623,605 of proceeds (including the amount previously held in
escrow). Since the initial closing, the Company has received an additional
$2,092,190 of proceeds ($1,789,450 of which was received subsequent to September
30, 1996) from the private placement and $24,535 of proceeds from the exercise
of warrants. Based on all of the above, there can be no assurance that the
Company will be successful in maintaining its continued listing on the Nasdaq
Small Cap Market. In the event that the Company's securities are delisted, the
market value of such securities may be adversely affected.
3. PRO FORMA BALANCE SHEET
The pro forma Balance Sheet as of September 30, 1996, reflects the receipt
of private placement proceeds of $1,789,450 and assumes the issuance of
securities by the Company in exchange therefor. Such proceeds were received by
the Company during October and November 1996. Additionally, the pro forma
balance sheet reflects the $185,000 of fees incurred in connection with the
private placement.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. The Quarterly Report on Form 10-QSB contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Actual results could differ
materially from those projected in the forward-looking statements as a result of
a number of important factors. For a discussion of important factors that could
affect the Company's results, please refer to the discussions below, and to the
discussions in the Company's 1995 Annual Report on Form 10-KSB under the caption
"Item 1. Business - Risk Factors."
OVERVIEW
Since its inception in May 1990, SunPharm has devoted substantially all of
its efforts and resources to research and development conducted on its own
behalf and through collaborations with clinical institutions. The Company's drug
development strategy emphasizes conducting most of its research and clinical
activities at the University of Florida. Consequently, the Company believes that
its research and development expenditures have been lower than other comparable
development stage pharmaceutical companies. The Company has incurred cumulative
net losses of $10,598,972 from its inception through September 30, 1996. The
Company expects to incur additional significant operating losses for at least
the next several years principally as a result of its continuing anticipated
research and development and clinical trial expenditures.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1995 and 1996
The Company's research and development expenses decreased $61,000 from
$374,000 in the three months ended September 30, 1995 to $313,000 in the
comparable 1996 period. These expenses consisted of expenditures for research
and development conducted by Dr. Bergeron at the University of Florida, the cost
of human clinical trials and costs related to other tests and studies performed
in connection with the Company's pharmaceutical compounds. Although research and
development expenses decreased from period to period, the Company expects its
research and development expenses to increase during the remainder of 1996 and
1997, reflecting anticipated increased expenses related to ongoing research,
preclinical studies and Phase I and Phase II human clinical trials.
General and administrative expenses decreased from $434,000 in the three
months ended September 30, 1995 to $366,000 in the comparable 1996 period. The
decrease in the three months ended September 30, 1996 is attributable to a
reduction in legal and administrative expenses.
Nine Months Ended September 30, 1995 and 1996
The Company recorded licensing revenues of $500,000 from Warner-Lambert
during the nine months ended September 30, 1996.
The Company's research and development expenses decreased $201,000 from
$1,214,000 in the nine months ended September 30, 1995 to $1,013,000 in the
comparable 1996 period. This decrease results from the toxicology studies
performed in 1995.
General and administrative expenses decreased from $2,039,000 in the nine
months ended September 30, 1995 to $1,374,000 in the comparable 1996 period. The
decrease is primarily attributable to issuance costs of $775,000 ($600,000 of
which were non-cash costs) incurred in connection with the issuance in 1994 of
the 10% Convertible Secured Notes, which were expensed in 1995 upon the
repayment of such notes and
9
<PAGE>
other costs incurred in the 1995 period which related to the Company's initial
public offering, offset by the costs associated with the Rider Settlement in the
1996 period.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations primarily
through collaborative research and sublicense agreements with its strategic
alliance partners and the issuance of debt and equity securities. Through
December 31, 1995 the Company had received $1,885,000 of cumulative sponsored
research and sublicensing revenues, approximately $1,000,000 in consideration of
the private placement of equity securities, and $1,697,500 in consideration of
the placement of debt securities. On January 12, 1995, the Company completed an
initial public offering (the "Offering") of 1,100,000 units ("Unit") at $7.00
per Unit. Each Unit consists of one share of the Company's Common Stock and one
Redeemable Common Stock Purchase Warrant ("Warrant"), which entitles the holder
to purchase one share of Common Stock at $8.75 per share. Additionally, on
February 16, 1995, the Representative exercised an option to purchase an
additional 165,000 Units at $7.00 per Unit. Proceeds from the Offering were
approximately $7,200,000 of cash, net of underwriting costs and other Offering
costs of $1,655,000. Of such net proceeds, approximately $1,793,000 was used to
repay the outstanding indebtedness (including accrued interest and certain fees)
of the Company. On July 12, 1996, the Company received a $500,000 payment from
Warner-Lambert in connection with the Phase I DENSPM human clinical trials. Such
payment was accrued as licensing revenues for the period ended June 30, 1996.
During the nine month period ended September 30, 1996, the net cash used in
operating activities was $1,600,000. During the comparable 1995 period, cash
used by operating activities was $3,396,000. The decrease in cash used in
operations is primarily attributable to the payment in the 1995 period of
$700,000 of accounts payable and $210,000 of royalties both of which were
delayed until the completion of the Company's initial public offering. At
September 30, 1996, the Company had cash and cash equivalents of $1,436,000. The
Company had net working capital of $511,000 at September 30, 1996. The Company
will require substantial funds for research and development performed by the
University of Florida and to perform preclinical testing and clinical trials of
its potential products.
In April 1996, the Company received notice from The Nasdaq Stock Market
("Nasdaq") that the Company's total assets and capital and surplus as of
December 31, 1995, did not meet the minimum requirements for continued listing
on the Nasdaq Small Cap Market and that the Company's Common Stock, Warrants and
Units were subject to delisting. Nasdaq requested that the Company provide a
specific plan demonstrating how the Company will achieve ongoing compliance with
Nasdaq's minimum requirements of $2,000,000 of total assets and $1,000,000 of
capital and surplus. The Company provided a plan to Nasdaq which contemplated
cash inflows to the Company through the private placement of equity and other
sources in an amount sufficient to bring the Company into compliance by June 15,
1996, the date established by Nasdaq for final determination. On June 17, 1996,
the Company filed a Current Report on Form 8-K which established that the
Company had met the minimum requirements on such date for continued listing on
Nasdaq, as a result of the following events:
(i) the receipt in escrow of $370,480 of proceeds in connection with the
offering of Common Stock and warrants in the private placement; (ii) the
exercise of outstanding warrants from current warrantholders and the issuance of
additional warrants to such individuals, in an amount equal to $468,301; (iii)
payment of $500,000 from Warner-Lambert as a progress payment on the Phase I
clinical trials of DENSPM for cancer; and (iv) the settlement of a lawsuit with
Dean L. Rider, M.D. ("Rider Settlement") pursuant to which the Company issued to
Rider 50,000 shares of Common Stock. After the filing of the Current Report on
Form 8-K, the Company received additional proceeds and conducted an initial
closing on July 19, 1996, in which the Company received an aggregate of $623,605
of proceeds (including the amount previously held in
10
<PAGE>
escrow). Since the initial closing, the Company has received an additional
$2,092,190 of proceeds of which $1,789,400 was received subsequent to September
30, 1996, from the private placement and $24,535 of proceeds from the exercise
of warrants. Based on all of the above, there can be no assurance that the
Company will be successful in maintaining its continued listing on the Nasdaq
Small Cap Market. In the event that the Company's securities are delisted, the
market value of such securities may be adversely affected.
On a pro forma basis, the Company had $3,274,000 of total assets,
$2,140,000 of equity, $3,225,000 of cash and $2,116,000 of working capital at
September 30, 1996 (see Pro Forma Balance Sheet and Note 3 to unaudited interim
financial statements).
The Company will require significant levels of additional capital, which it
intends to raise through additional equity or debt financing, additional
arrangements with corporate partners or from other sources. No assurance can be
given that the Company can obtain financing to fund its development activities
on acceptable terms or at all. If adequate funds are not available from
operations or additional sources of financing, the Company's business will be
materially and adversely affected.
The Company has incurred losses since inception and, therefore, has not
been subject to federal income taxes. As of December 31, 1995, the Company had
net operating loss ("NOL") and tax credit carryforwards for income tax purposes
of approximately $6,458,000 and $260,000, respectively, which may be available
to reduce future taxable income and future tax liabilities. These carryforwards
begin to expire in 2008. The Tax Reform Act of 1986 provides for an annual
limitation on the use of NOL and credit carryforwards (following certain
ownership changes) that could significantly limit the Company's ability to
utilize these carryforwards. The Company has made no determination concerning
whether there has been such a cumulative change in ownership. It is possible
that such a change in ownership occurred following the completion of the
Offering and exercise of the Representative's over-allotment option or as a
result of the Company's 1996 private placement. Accordingly, the Company's
ability to utilize the aforementioned carryforwards to reduce future taxable
income and tax liabilities may be limited. Additionally, because United States
tax laws limit the time during which these carryforwards may be applied against
future taxes, the Company may not be able to take full advantage of these
attributes for federal income tax purposes.
11
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Number Exhibit
- ------ -------
4.1 Form of Stock Purchase Warrant relating to Redeemable Common Stock
Purchase Warrants.
4.2 Subscription Agreement relating to May 1996 Offering of Units
consisting of one share of Common Stock and one Warrant.
11.1 Statement of computation of net loss per share
27. Financial Data Schedule
(b) Reports on Form 8-K.
None
12
<PAGE>
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, thereunto duly authorized.
SUNPHARM CORPORATION
Date: November 14, 1996 By: /s/ Stefan Borg
------------------------------
President and Chief Executive Officer
(Principal Executive, Financial and
Accounting Officer)
13
EXHIBIT 4.1
SUNPHARM CORPORATION
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS. UNLESS THEY ARE SOLD PURSUANT
TO RULE 144 PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION UNDER SAID
ACT, THEY MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN ABSENCE OF SUCH
REGISTRATION AND QUALIFICATION WITHOUT AN OPINION OF COUNSEL FOR THE HOLDER,
WHICH OPINION AND COUNSEL SHALL BE REASONABLY SATISFACTORY TO THE COMPANY, THAT
SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED.
Form of
Stock Purchase Warrant
----------------------
This Stock Purchase Warrant (this "Warrant"), issued this ____ day of
_________, 1996, by SunPharm Corporation, a Delaware corporation (the
"Company"), to _____________________ (the "Holder"), whose address is
________________________________________________________.
W I T N E S S E T H:
1. Issuance of Warrant; Term. For and in consideration of the
sum of $10.00 and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company hereby grants to
Holder, subject to the provisions hereinafter set forth, the right to purchase
______ shares of Common Stock $.0001 par value per share, of the Company (the
"Common Stock"). The shares of Common Stock issuable upon exercise of this
Warrant are hereinafter referred to as the "Shares." This Warrant shall be
exercisable at any time on or before 5:00 p.m. (New York City time) on May ___,
2000, subject to the terms of Section 4.
2. Exercise Price. The exercise price per share for which all
or any of the Shares may be purchased pursuant to the terms of this Warrant
shall be $5.50 after the execution of this Warrant until the first anniversary
hereof, $6.50 after the first anniversary hereof until the second anniversary
hereof and $7.50 for the remainder of the term (hereinafter referred to as the
"Exercise Price").
3. Exercise.
(a) This Warrant may be exercised by Holder in whole or in
part, upon delivery of written notice of intent to the Company at the address of
the Company set forth below its signature below or such other address as the
Company shall designate in written notice to Holder, together with this Warrant
and payment (in the manner described in Section 3(b) below) for the aggregate
Exercise Price of the Shares so purchased. Upon exercise of this Warrant as
aforesaid, the Company shall as promptly as practicable execute and deliver to
Holder a certificate or certificates for the total number of whole Shares for
which this Warrant is being exercised in such names and
-1-
<PAGE>
number of whole Shares for which this Warrant is being executed in such names
and denominations as are requested by Holder. If this Warrant shall be exercised
with respect to less than all of the shares, Holder shall be entitled to receive
a new Warrant covering the number of Shares in respect of which this Warrant
shall not have been exercised, which new Warrant shall in all other respects be
identical to this Warrant.
(b) Payment for the Shares to be purchased upon exercise of
this Warrant may be made by the delivery of a certified or cashier's check
payable to the Company for the aggregate Exercise Price of the Shares to be
purchased.
4. Call Feature.
(a) In the event that the closing bid price of the Company's
Common Stock on the Nasdaq Small Cap Market equals or exceeds, for a period of
twenty consecutive trading days after the expiration of the first anniversary
date of this Warrant, $8.50 per share until the day preceding the second
anniversary of the date of this Warrant, $9.50 per share from the second
anniversary of the date of this Warrant until the day preceding the third
anniversary of the date of this Warrant, and $10.50 per share thereafter, the
Company may call this Warrant, in whole or in part, at a price of $.01 per share
of Common Stock subject to the Warrant (the "Call Price"), ending within five
(5) days from the date notice of call is given pursuant to Section 4(b) hereof.
(b) Notice of any proposed call for this Warrant shall be
given by the Company by mailing a copy of such notice by first class mail,
postage prepaid, not less than 30 nor more than 90 calendar days prior to the
date fixed for the call (the "Call Date") to the Holder of Record of the Warrant
at his address appearing on the books of the Company. On the Call Date, the
Company shall pay the Holder of this Warrant the Call Price applicable to the
number of shares subject to such notice of call at which time this Warrant shall
terminate and Holder shall have no further rights hereunder, except to the
extent that the Holder has previously exercised this Warrant pursuant to Section
4(c) below.
(c) In the event that notice of call has been given pursuant
hereto, the Holder of this Warrant may, pursuant to the provisions of Section 3
hereof, elect to exercise the Warrant for which notice of call has been given at
any time on or prior to the tenth calendar day immediately preceding the Call
Date.
(d) Under no circumstances shall the Company be able to
exercise its rights under this Section 4 unless it has an effective registration
statement on file with the Securities and Exchange Commission with respect to
the shares of Common Stock which may be acquired upon exercise hereof.
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5. Covenants and Conditions. The above provisions are subject to the
following:
(a) Neither this Warrant nor the Shares have been registered under the
Securities Act of 1933, as amended (the "Act"), or any state securities laws
("Blue Sky Laws"). This Warrant and the Shares have been acquired for investment
purposes and not with a view to distribution or resale and the Shares may not be
made subject to a security interest, pledged, hypothecated, sold or otherwise
transferred without an effective registration statement therefor under the Act
and such applicable Blue Sky Laws or an opinion of counsel (which opinion and
counsel rendering same shall be reasonably acceptable to the Company) that
registration is not required under the Act and under any applicable Blue Sky
Laws. The certificates representing the Shares shall bear substantially the
following legend:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN
ACQUIRED FOR THE PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY NOT BE
OFFERED, SOLD OR TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER
THE ACT OR SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME
EFFECTIVE WITH REGARD THERETO, OR (II) IN THE OPINION OF COUNSEL (WHICH
OPINION AND COUNSEL SHALL BE REASONABLY SATISFACTORY TO THE COMPANY)
REGISTRATION UNDER THE ACT OR SUCH APPLICABLE STATE SECURITIES LAWS
SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (III) IN THE
OPINION OF COUNSEL (WHICH OPINION AND COUNSEL SHALL BE REASONABLY
SATISFACTORY TO THE COMPANY) REGISTRATION UNDER THE LAW OR SUCH
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED OFFER, SALE OR TRANSFER.
Other legends as required by applicable federal and state laws may be placed on
such certificates. Holder and the Company agree to execute such documents and
instruments as counsel for the Company reasonably deems necessary to effect
compliance of the issuance of this Warrant and any Shares issued upon exercise
hereof with applicable federal and state securities laws.
(b) The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment therefor,
be legally and validly issued and outstanding, fully paid and nonassessable.
6. Warrant Holder not Stockholder. This Warrant does not confer upon
Holder any right whatsoever as a stockholder of the Company.
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<PAGE>
7. Certain Adjustments.
7.1 Capital Reorganizations, Mergers, Consolidations or Sale
of Assets. If at any time there shall be a capital reorganization (other than a
combination or subdivision of Common Stock otherwise provided for herein), a
share exchange (subject to and duly approved by the stockholders of the Company)
or a merger or consolidation of the Company with or into another corporation, or
the sale of the Company's properties and assets as, or substantially as, an
entirety to any other person, then, as a part of such reorganization, share
exchange, merger, consolidation or sale, lawful provision shall be made so that
Holder shall thereafter be entitled to receive upon exercise of this Warrant,
during the period specified in this Warrant and upon payment of the Exercise
Price, the number of shares of stock or other securities or property of the
Company or the successor corporation resulting from such reorganization, share
exchange, merger, consolidation or sale, to which Holder would have been
entitled under the provisions of the agreement in such reorganization, share
exchange, merger, consolidation or sale if this Warrant had been exercised
immediately before that reorganization, share exchange, merger, consolidation or
sale. In any such case, appropriate adjustment (as determined in good faith by
the Company's Board of Directors) shall be made in the application of the
provisions of this Warrant with respect to the rights and interests of Holder
after the reorganization, share exchange, merger, consolidation or sale to the
end that the provisions of this Warrant (including adjustment of the Exercise
Price then in effect and the number of the Shares) shall be applicable after
that event, as near as reasonably may be, in relation to any shares or other
property deliverable after that event upon exercise of this Warrant.
7.2 Splits and Subdivisions. In the event the Company should
at any time or from time to time fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of the holders of Common Stock entitled to receive a dividend or
other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as the "Common Stock Equivalents") without payment of any
consideration by such holder for the additional shares of Common Stock or Common
Stock Equivalents, then, as of such record date (or the date of such
distribution, split or subdivision if no record date is fixed), the Exercise
Price shall be appropriately decreased and the number of the Shares shall be
appropriately increased in proportion to such increase of outstanding shares.
7.3 Combination of Shares. If the number of shares of Common
Stock outstanding at any time after the date hereof is decreased by a
combination or reverse stock split of the outstanding shares of Common Stock ,
the Exercise Price shall be appropriately increased and the number of the Shares
shall be appropriately decreased in proportion to such decrease in outstanding
shares.
7.4 Adjustments for Other Distributions. In the event the
Company shall declare a distribution payable in securities of other persons,
evidences of indebtedness issued by the Company or other persons, assets
(excluding cash dividends) or options or rights not referred to in Section 7.2,
then, in each such case for the purpose of this Section 7.4, upon exercise of
this Warrant,
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<PAGE>
Holder shall be entitled to a proportionate share of any such distribution as
though Holder was the holder of the number of shares of Common Stock of the
Company into which this Warrant may be exercised as of the record date fixed for
the determination of the holders of Common Stock of the Company entitled to
receive such distribution.
7.5 Certificate as to Adjustments. In the case of each
adjustment or readjustment of the Exercise Price pursuant to this Section 7, the
Company will promptly compute such adjustment or readjustment in accordance with
the terms hereof and cause a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based to be delivered to Holder. The Company will, upon the
written request at any time of Holder, furnish or cause to be furnished to
Holder a certificate setting forth:
(a) Such adjustment and readjustments;
(b) The Exercise Price at the time in effect; and
(c) The number of Shares and the amount, if any, of other
property at the time receivable upon the exercise of the Warrant.
7.6 Notices of Record Date, etc. In the event of:
(a) Any taking by the Company of a record of the holders of
any class of securities of the Company for the purpose of determining the
holders thereof who are entitled to receive any dividends or other distribution,
or any right to subscribe for, purchase or otherwise acquire any shares of stock
of any class or any other securities or property, or to receive any other right;
or
(b) Any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
transfer of all or substantially all of the assets of the Company to any other
person or any consolidation, share exchange or merger involving the Company; or
(c) Any voluntary or involuntary dissolution, liquidation or
winding up of the Company, the Company will mail to Holder at least 20 days
prior to the earliest date specified therein, a notice specifying:
(i) The date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and the amount
and character of such dividend, distribution or right; and
(ii) The date on which any such reorganization,
reclassification, transfer, consolidation, share exchange, merger,
dissolution, liquidation or winding up is expected to become effective
and the record date for determining stockholders entitled to vote
thereon.
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8. Reservation of Common Stock. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the exercise of this Warrant,
such number of its shares of Common Stock as shall from time to time be
sufficient to effect the exercise of this Warrant, and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the exercise of the entire Warrant, in addition to such other remedies as
shall be available to the holder of this Warrant, the Company will use its
reasonable efforts to take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes.
9. Split-Up, Combination, Exchange and Transfer of Warrants.
Subject to and limited by the provisions of Section 5(a) hereof, this Warrant
may be split up, combined or exchanged for another Warrant or Warrants
containing the same terms and entitling the Holder to purchase a like aggregate
number of Shares. If the Holder desires to split up, combine or exchange this
Warrant, he or it shall make such request in writing delivered to the Company
and shall surrender to the Company this Warrant and any other Warrants to be so
split up, combined or exchanged. Upon any such surrender for a split-up,
combination or exchange, the Company shall execute and deliver to the person
entitled thereto a Warrant or Warrants, as the case may be, as so requested. The
Company shall not be required to effect any split-up, combination or exchange
which will result in the issuance of a Warrant entitling the Warrantholder to
purchase upon exercise a fraction of a share of Common Stock or a fractional
Warrant. The Company may require such Holder to pay a sum sufficient to cover
any tax or governmental charge that may be imposed in connection with any
split-up, combination or exchange of Warrants.
10. Successors and Assigns. All the covenants and provisions
of this Warrant shall bind and inure to the benefit of successors and assigns of
the Company and the Holder.
11. Governing Law. This Warrant shall be governed by and
construed in accordance with the laws of the State of Florida, except for the
conflicts of laws principles thereof.
IN WITNESS WHEREOF, the Company has caused this Stock
Purchase Warrant to be executed and delivered by its duly authorized officer as
of the date first above written.
SUNPHARM CORPORATION
By:
-----------------------------
Stefan Borg, President
Address: 4651 Salisbury Road, Suite 205
Jacksonville, Florida 32256
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EXHIBIT 4.2
SUBSCRIPTION AGREEMENT
- --------------------------------------------------------------------------------
SUNPHARM CORPORATION
- --------------------------------------------------------------------------------
UP TO 550,000 UNITS
(EACH CONSISTING OF ONE SHARE OF
COMMON STOCK AND ONE WARRANT TO PURCHASE
ONE SHARE OF COMMON STOCK)
- --------------------------------------------------------------------------------
To: SunPharm Corporation
This Subscription Agreement (this "Agreement") is made between SunPharm
Corporation, a Delaware corporation (the "Company"), and the undersigned
prospective purchaser who is subscribing hereby for Units (the "Units"), each
consisting of one share of the Company's Common Stock ("Common Stock" or
"Shares") and a warrant to purchase one share of the Company's Common Stock
("Warrant"). The purchase price per Unit (the "Purchase Price") is $5.50. This
subscription is submitted to you in accordance with and subject to the terms and
conditions described in this Subscription Agreement and the Confidential Private
Placement Memorandum dated May 15, 1996 (as it may be supplemented or updated
from time to time, the "Memorandum"), relating to the offering (the "Offering")
of up to 550,000 Units (which may be expanded by an additional 363,636 Units at
the discretion of the Company).
In consideration of the Company's agreement to sell Units to the
undersigned upon the terms and conditions summarized in the Memorandum, the
undersigned agrees and represents as follows:
A. SUBSCRIPTION.
(1) The undersigned hereby irrevocably subscribes for and agrees to
purchase the number of Units indicated on the signature page hereto at a
purchase price of $5.50 per Unit. The undersigned encloses herewith a check
payable to "SunPharm Corporation Escrow Account" in the full amount of the
purchase price of the Shares for which the undersigned is subscribing (the
"Payment").
(2) The undersigned understands that all payments by check as provided
in Paragraph (1) above shall be delivered to the Company and, thereafter, such
payment will be deposited as soon as practicable for the undersigned's benefit
in a non-interest bearing escrow account established at SunTrust. The payment
(or, in the case of rejection of a portion of the undersigned's subscription,
the part of the payment relating to such rejected portion) will be returned
promptly, without interest, if the undersigned's subscription is rejected in
whole or in part. The Company expects to hold an
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<PAGE>
initial closing of the Offering (the "Initial Closing") at any time after
subscriptions for the minimum number of Units identified in the Memorandum
hereby have been accepted and the other terms specified therein have been met,
before the final closing (the "Final Closing") on the final closing date (the
"Final Closing Date"). The Company may hold additional interim closings after
the Initial Closing. Any such interim closings together with the Initial Closing
are each hereinafter referred to as an "Interim Closing" and shall occur on one
or more dates each hereinafter referred to as an "Interim Closing Date." Upon
receipt by the Company of the requisite payment for all Units to be purchased by
the subscribers whose subscriptions are accepted (each, a "Purchaser" and,
collectively, the "Purchasers") at the Interim Closing and at the Final Closing,
the Shares and Warrants included in the Units so purchased will be issued in the
name of each such Purchaser, and the name of such Purchaser will be registered
on the books of the Company as the record owner of such Shares and Warrants. The
Company will issue to each Purchaser the stock certificates and warrant
certificates representing the Shares and Warrants purchased. The Shares and
Warrants may not be transferred prior to the Final Closing.
(3) The undersigned hereby acknowledges receipt of a copy of the
Memorandum, and hereby agrees to be bound thereby upon the (i) execution and
delivery to the Company of the signature page to this Subscription Agreement,
and (ii) acceptance on the Initial Closing Date, an Interim Closing Date or the
Final Closing Date, as the case may be, by the Company of the undersigned's
subscription (the "Subscription").
(4) The undersigned agrees that the Company may, in its sole and
absolute discretion, reduce the undersigned's subscription to any amount of
Units that in the aggregate does not exceed the amount of Units hereby applied
for without any prior notice to or further consent by the undersigned. The
undersigned hereby irrevocably constitutes and appoints the Company and each
officer of the Company, each of the foregoing acting singly, in each case with
full power of substitution, the true and lawful agent and attorney-in-fact of
the undersigned, with full power and authority in the undersigned's name, place
and stead, to amend this Subscription Agreement and the Questionnaire, including
in each case the undersigned's signature page thereto, to effect any of the
foregoing provisions of this Paragraph (4).
B. REPRESENTATIONS AND WARRANTIES.
The Company hereby represents and warrants as follows:
(1) Organization and Good Standing The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has the requisite corporate power and authority to own and
operate its properties and assets and to carry on its business as currently
conducted. The Company is qualified to do business in the State of Florida. The
Company is not qualified to do business as a foreign corporation in any other
jurisdiction and such qualification is not now required, except to the extent
that the failure to so qualify would not have a material adverse effect on the
Company's business as currently conducted.
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<PAGE>
(2) Corporate Power and Authorization. The Company has the corporate
power and authority to execute and deliver this Agreement, to issue and sell the
Shares and Warrants hereunder, to issue and deliver the Common Stock issuable
upon exercise of the Warrants, and to perform its obligations under the terms of
this Agreement. All corporate action on the part of the Company, its directors
and stockholders necessary for the authorization, execution, delivery and
performance by the Company of this Agreement and the authorization, sale,
issuance and delivery of the Shares and Warrants (and the Common Stock issuable
upon exercise of the Warrants) has been taken or will be taken prior to the
Initial Closing, Interim Closing or Final Closing, as the case may be. This
Agreement constitutes the valid and binding obligation of the Company,
enforceable in accordance with its terms, except as the enforceability thereof
may be limited by bankruptcy, insolvency or other laws relating to or affecting
creditors' rights generally and by general equitable principles. The Shares have
been duly authorized and, when issued in compliance with the provisions of this
Agreement, will be validly issued, fully paid and nonassessable; the Common
Stock issuable upon exercise of the Warrants has been duly and validly
authorized and reserved for issuance and, when issued in compliance with the
provisions of this Agreement and the Warrants, will be validly issued, fully
paid and nonassessable; and the Shares, Warrants and such Common Stock, when
issued and delivered, will be free of any liens or encumbrances created by the
Company; provided, however, that the Shares and the Warrants (and the Common
Stock issuable upon exercise thereof) may be subject to restrictions on transfer
under state or federal securities laws as set forth herein.
(3) Capitalization. The authorized capital stock of the Company
consists of 27,500,000 shares, divided into 25,000,000 shares of Common Stock,
par value $0.0001 per share ("Common Stock"), of which 2,884,535 shares are
issued and outstanding, and 2,500,000 shares of Preferred Stock, par value
$0.001 per share ("Preferred Stock"), none of which will be issued or
outstanding prior to the Initial Closing. All of the outstanding shares of
Common Stock have been duly authorized and validly issued and are fully paid and
nonassessable. The Company has reserved up to 275,000 shares of Common Stock for
issuance upon exercise of the Warrants and up to 2,870,151 shares of Common
Stock for issuance upon exercise of outstanding options and warrants other than
the Warrants. Except for the foregoing, as of the Initial Closing Date, and
other than as described in the Company's SEC Reports (as hereinafter defined)
and the Memorandum, there are no options, warrants or other rights outstanding
to purchase or acquire, or any securities convertible into, nor has the Company
agreed to issue or reissue, other than pursuant to this Agreement (and the
corresponding agreements of other subscribers in the offering), any of the
Company's authorized and unissued capital stock. Except as described in the
Company's SEC Reports, there are no agreements or understandings that affect or
relate to the voting or giving of written consent with respect to any of the
Company's outstanding securities. Except as described in the Company's SEC
Reports, there are no preemptive rights with respect to the issuance or sale of
the Company's capital stock and there are no restrictions on the transfer of the
Company's capital stock other than those arising from federal and state
securities laws.
(4) SEC Reports; Financial Statements. The Company has filed with the
Securities and Exchange Commission (the "Commission") all forms, reports and
documents required to be filed by it pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations promulgated
by the Commission thereunder, all of which, when filed, complied in all material
respects with all applicable requirements of the Exchange Act. The Memorandum
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<PAGE>
includes true and complete copies (not including exhibits) of its (i) Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995 as filed with
the Commission, (ii) Quarterly Report on Form 10-QSB for the quarter ended March
31, 1996 as filed with the Commission, and (iii) proxy statements relating to
all meetings of its stockholders (whether annual or special) since December 31,
1995 and prior to the date hereof (collectively, the "Company's SEC Reports").
As of their respective dates, the Company's SEC Reports (not including any
exhibits and schedules thereto and documents incorporated by reference therein)
did not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The audited financial statements and unaudited interim financial
statements of the Company included in the Company's SEC Reports or incorporated
by reference therein were prepared in accordance with generally accepted
accounting principles ("GAAP") (subject, in the case of such unaudited financial
statements, to the absence of complete footnotes) applied on a consistent basis
(except as indicated therein or in the notes thereto) and fairly present in all
material respects the financial position of the Company at the dates thereof and
the results of its operations and cash flows for the periods then ended (subject
in the case of the unaudited interim financial statements, to normal year-end
audit adjustments).
(5) Absence of Certain Developments. Since March 31, 1996, there has
been no change in the assets, liabilities, condition (financial or otherwise),
operating results, business or prospects of the Company from that reflected in
the Company's SEC Reports, except changes in the ordinary course of business
that have not been, individually or in the aggregate, materially adverse to the
assets, properties, condition (financial or otherwise), operating results,
business or prospects of the Company. Since March 31, 1996, the Company has not
(i) directly or indirectly declared or paid any dividend or ordered or made any
other distribution on account of any shares of any class of the capital stock of
the Company, (ii) directly or indirectly redeemed, purchased or otherwise
acquired any such shares or agreed to do so or set aside any sum or property for
any such purpose, (iii) made any capital expenditures exceeding $100,000, or
(iv) incurred any indebtedness exceeding $100,000.
(6) Compliance with Other Instruments. The Company is not in violation
or default of any provision of its Certificate of Incorporation or By-Laws or of
any material mortgage, indenture, contract, agreement, instrument, judgment or
decree to which the Company is a party or by which it is bound. The execution,
delivery and performance by the Company of this Agreement and the consummation
of the transactions contemplated hereby will not result in any violation of or
conflict with the Company's Certificate of Incorporation or By-Laws, and will
not result in any violation of or conflict with, or constitute a default under,
any material mortgage, indenture, contract, agreement, instrument, judgment or
decree to which the Company is a party or by which it is bound or in the
creation of any material mortgage, pledge, lien, encumbrance or charge upon any
of the properties or assets of the Company.
(7) Registration Rights. Except as set forth in the Memorandum or the
Company's SEC Reports and this Agreement, the Company is not under any
contractual obligation to register under the Securities Act any of its currently
outstanding securities or any of its securities which may hereafter be issued.
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<PAGE>
(8) Governmental Consent. No consent, approval or authorization of or
registration, qualification, designation, declaration or filing with any
governmental authority on the part of the Company is required in connection with
the valid execution, delivery and performance of this Agreement, the offer, sale
or issuance of the Shares and the Warrants (and the issuance of the Common Stock
issuable upon exercise of the Warrants), or the consummation of any other
transaction contemplated hereby except for filings that may be required to
comply with applicable federal and state securities laws.
(9) Offering. Subject to the accuracy of the representations of the
Purchasers in their respective Subscription Agreements and Questionnaires, the
offer, sale and issuance of the Shares and the Warrants as contemplated by this
Agreement, and the issuance of the Common Stock to be issued upon exercise of
the Warrants, will constitute transactions exempt from the registration
requirements of Section 5 of the Securities Act.
(10) Subsidiaries. The Company has no subsidiaries and does not
otherwise own or control, directly or indirectly, any equity interest in any
corporation, association, partnership or business entity, nor has the Company
made any commitment or subscribed for the purchase of any such equity interest.
(11) Absence of Undisclosed Liabilities. The Company does not have any
liability or obligation, absolute or contingent, that is not reflected in the
financial statements included in the Company's SEC Reports, other than
obligations and liabilities which taken individually or in the aggregate would
not have a material adverse effect on the Company's assets, liabilities,
condition (financial or otherwise), operating results, business or prospects.
(12) Taxes. The Company has filed all tax returns and reports required
by law to be filed, and has paid all taxes, assessments and other governmental
charges that are due and payable, except for those matters reasonably being
contested by the Company and those matters which, individually and in the
aggregate, would not have a material adverse effect on the Company's assets,
liabilities, condition (financial or otherwise), operating results, business or
prospects. The charges, accruals and reserves on the books of the Company in
respect of taxes are considered adequate by the Company, and the Company knows
of no assessment for additional taxes or any basis therefor.
(13) Title to Properties; Liens and Encumbrances. The Company has good
title to all of its properties and assets, both real and personal, tangible and
intangible, reflected on the balance sheet included in the financial statements
included in the Company's SEC Reports or acquired after the date thereof (except
inventory or other personal property disposed of in the ordinary course of
business subsequent to the date thereof), and such properties and assets are not
subject to any mortgage, pledge, lien, security interest, encumbrance or charge
other than (i) liens for current taxes not yet due and payable, (ii) liens and
encumbrances that do not materially detract from the value of the property
subject thereto or materially impair the operations of the Company, or (iii)
liens securing obligations reflected in such financial statements. With respect
to properties or assets it leases, the Company is in compliance with such leases
(except for such defaults or breaches that would not have a material adverse
affect on the Company) and holds valid leasehold interests free
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<PAGE>
of any liens, claims or encumbrances except for those described in subsections
(i) through (iii) hereof.
(14) Litigation, etc. Except as described in the Company's SEC Reports,
there are no actions, suits, proceedings or investigations (i) pending or, to
the Company's knowledge, threatened against the Company or which otherwise
involve the Company's business or operations, or (ii) to the Company's
knowledge, pending or threatened against any of its officers, directors or
principal stockholders in their capacities as officers, directors or
stockholders.
(15) Employees. To the Company's knowledge, no employee of the Company
is in violation of any term of any employment contract or any other contract or
agreement between such employee and the Company. None of the employees of the
Company is represented by any labor union, and there is no strike or other labor
dispute pending or, to the knowledge of the Company, threatened, with respect to
the Company.
(16) Compliance With Law. The Company is conducting its business and
operations in material compliance with all governmental rules and regulations
applicable thereto, including without limitation those relating to occupational
safety, environmental, health and employment practices, and is not in violation
or default in any material respect under any statute, law, ordinance, rule,
regulation, judgment, order, decree, concession, grant, franchise, license or
other governmental authorization or approval applicable to it or any of its
properties.
(17) Permits. The Company has all permits, licenses, orders and
approvals of any federal, state, local or foreign governmental or regulatory
body (collectively, the "Permits") that are material to or necessary in the
conduct of its business as now conducted; all such Permits are in full force and
effect; no violations have been recorded in respect of any such Permits; and no
proceeding is pending or, to the knowledge of the Company, threatened to revoke
or limit any such Permits.
(18) Offering. Subject to the accuracy of the representations of the
Purchasers in their respective Subscription Agreements, the offer, sale and
issuance of the Shares and the Warrants as contemplated by this Agreement, and
the issuance of the Common Stock to be issued upon exercise of the Warrants,
will constitute transactions exempt from the registration requirements of
Section 5 of the Securities Act.
(19) Brokers or Finders. The Company has not retained any investment
banker, broker or finder in connection with the transactions contemplated by
this Agreement, and there are no brokerage commissions, finder's fees or similar
items of compensation payable in connection therewith based on any arrangement
or agreement made by or on behalf of the Company except as disclosed in the
Memorandum.
(20) Memorandum. The Memorandum was prepared in good faith by the
Company and does not contain any untrue statement of a material fact or omit a
material fact necessary to make the statements therein not misleading.
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(21) Intellectual Property. The Company owns or possesses the
requisite licenses or rights to use all trademarks, service marks, service
names, trade names, patents and patent applications, copyrights and other rights
(collectively the "Intangibles") described as owned by the Company in the SEC
Reports. There is no claim, action or proceeding by any person pending or, to
the Company's knowledge, threatened which pertains to or challenges the
exclusive right of the Company with respect to any Intangibles used in the
conduct of the Company's business except as described in the SEC Reports. To the
Company's knowledge, the Company's current products, services and processes do
not infringe on any Intangibles held by any third party. Except as set forth in
the SEC Reports, the Company is not under any obligation to pay royalties or
fees of any kind whatsoever to any third party with respect to technology it has
developed, uses, employs or intends to use or employ.
(22) Material Contracts. All contracts, agreements (including license
agreements and any other agreements relative to the Company's technology),
leases or other commitments, written or oral, absolute or contingent, to which
the Company is a party are filed or incorporated by reference as exhibits to the
Company's SEC Reports other than (i) contracts entered into in the ordinary
course of business, requiring the expenditure by the Company or the payment to
the Company of no more than $100,000; and (ii) contracts terminable by the
Company on no more than 30 days' notice without material cost or liability to
the Company.
(23) Interested Party Transactions. Except as described in the
Company's SEC Reports, no employee, stockholder, officer or director of the
Company is indebted (or committed to make loans or extend or guarantee credit)
to the Company nor is the Company indebted (or committed to make loans or extend
or guarantee credit) to any of them. The Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation. Except
as required to be disclosed in the Company's SEC Reports, no stockholder,
officer, director or employee of the Company, nor any "affiliate" or "associate"
of such persons (as such terms are defined in the rules and regulations
promulgated under the Exchange Act), is now a party to any transaction with the
Company required to be disclosed therein under the Exchange Act or the rules and
regulations promulgated thereunder, including without limitation, any contract,
agreement or other arrangement providing for the employment of, furnishing of
services by, rental of real or personal property from, or otherwise requiring
payments to, any such person or entity.
(24) Books and Records. The minute books of the Company reflect, in all
material respects, all meetings and other corporate actions of the stockholders
and Board of Directors (and any committees thereof) of the Company.
(25) ERISA. Except as disclosed in the Company's SEC Reports, the
Company does not maintain any "Plan" subject to the Employment Retirement Income
Security Act of 1974, as amended ("ERISA").
The undersigned hereby represents and warrants to, and agrees with, the
Company as follows:
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(1) The undersigned has been furnished with and has
carefully read the Memorandum (including the Attachments thereto) and
this Agreement and is familiar with and understands the terms of the
Offering. The undersigned has carefully considered and has, to the
extent the undersigned believes such discussion necessary, discussed
with the undersigned's professional legal, tax, accounting and
financial advisors the suitability of an investment in the Shares and
Warrants for the undersigned's particular tax and financial situation
and has determined that the Shares and Warrants being subscribed for
by the undersigned are a suitable investment for the undersigned.
(2) The undersigned acknowledges that (i) the undersigned
has had the right to request copies of any documents, records, and
books pertaining to this investment and (ii) any such documents,
records and books which the undersigned requested have been made
available for inspection by the undersigned, the undersigned's
attorney, accountant or adviser(s).
(3) The undersigned and/or the undersigned's adviser(s)
has/have had a reasonable opportunity to ask questions of and receive
answers from a person or persons acting on behalf of the Company
concerning the Offering and all such questions have been answered to
the full satisfaction of the undersigned.
(4) The undersigned is not subscribing for Units as a result
of or subsequent to any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or
meeting.
(5) If the undersigned is a natural person, the undersigned
has reached the age of majority in the state in which the undersigned
resides, has adequate means of providing for the undersigned's current
financial needs and contingencies, is able to bear the substantial
economic risks of an investment in the Shares and Warrants for an
indefinite period of time, has no need for liquidity in such
investment and, at the present time, could afford a complete loss of
such investment.
(6) The undersigned or the undersigned's purchaser
representative, as the case may be, has such knowledge and experience
in financial, tax and business matters so as to enable the undersigned
to utilize the information made available to the undersigned in
connection with the Offering to evaluate the merits and risks of an
investment in the Shares and Warrants and to make an informed
investment decision with respect thereto.
(7) The undersigned will not sell or otherwise transfer the
Shares or Warrants without registration under the Securities Act of
1933, as amended (the "Securities Act") or applicable state securities
laws or an exemption therefrom. None of the Units, the Shares and the
Warrants have been registered under the Securities Act or under the
securities laws of certain states. The undersigned represents that the
undersigned is purchasing the Shares and Warrants for the
undersigned's own account, for investment and not with a view to
resale or distribution except in compliance with the Securities Act.
The undersigned has not offered
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or sold the Shares or Warrants being acquired nor does the undersigned
have any present intention of selling, distributing or otherwise
disposing of such Shares or Warrants either currently or after the
passage of a fixed or determinable period of time or upon the
occurrence or non-occurrence of any predetermined event or
circumstance in violation of the Securities Act. The undersigned is
aware that there is currently no market for the Units, Shares or
Warrants. The undersigned is aware that an exemption from the
registration requirements of the Securities Act pursuant to Rule 144
promulgated thereunder is not presently available; and, except as
provided in Section D below, the Company has no obligation to register
the Units, Shares or Warrants subscribed for hereunder or to make
available an exemption from the registration requirements pursuant to
such Rule 144 or any successor rule for resale of the Units, Shares or
Warrants.
(8) The undersigned recognizes that investment in the Shares
and Warrants involves substantial risks, including loss of the entire
amount of such investment. Further, the undersigned has carefully read
and considered the matters set forth under the caption "Risk Factors"
in the Memorandum, and has taken full cognizance of and understands
all of the risks related to the purchase of the Shares and Warrants.
(9) The undersigned acknowledges that the certificates
representing the Shares and Warrants (and the Common Stock issuable
upon exercise of the Warrants) shall be stamped or otherwise imprinted
with a legend substantially in the following form:
"The securities represented hereby have not been
registered under the Securities Act of 1933, as amended, or
any state securities laws and neither the securities nor any
interest therein may be offered, sold, transferred, pledged or
otherwise disposed of except pursuant to an effective
registration statement under such act or such laws or an
exemption from registration under such act and such laws,
which, in the opinion of counsel for the holder, which counsel
and opinion are reasonably satisfactory to counsel for this
corporation, is available."
(10) The undersigned is an "accredited investor" as that
term is defined in Rule 501(a) of Regulation D promulgated pursuant to
the Securities Act and is a "sophisticated person" within the meaning
of Rule 506(B)(2)(ii) of Regulation D. The information provided by the
undersigned in the Questionnaire is complete and accurate, and the
undersigned agrees to notify the Company in writing immediately upon
the occurrence of any material change in any of such information
before the acceptance of the undersigned's subscription.
(11) If this Subscription Agreement is executed and
delivered on behalf of a partnership, corporation, trust or estate:
(i) such partnership, corporation, trust or estate has the full legal
right and power and all authority and approval required (a) to execute
and deliver, or authorize execution and delivery of, this Subscription
Agreement and all other instruments executed and delivered by or on
behalf of such partnership, corporation, trust or estate in connection
with the purchase of its Shares and Warrants, (b) to delegate
authority
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<PAGE>
pursuant to a power of attorney and (c) to purchase and hold such
Shares and Warrants; (ii) the signature of the party signing on behalf
of such partnership, corporation, trust or estate is binding upon such
partnership, corporation, trust or estate; and (iii) such partnership,
corporation or trust has not been formed for the specific purpose of
acquiring such Shares or Warrants, unless each beneficial owner of
such entity is qualified as an accredited investor within the meaning
of Rule 501 (a) of Regulation D promulgated under the Securities Act
and has submitted information substantiating such individual
qualification.
(12) If the undersigned is a retirement plan or is investing
on behalf of a retirement plan, the undersigned acknowledges that
investment in the Shares and Warrants poses additional risks including
the inability to use losses generated by an investment in the Shares
and Warrants to offset taxable income.
(13) The undersigned shall indemnify and hold harmless the
Company and each officer, director or control person of any such
entity, who is or may be a party or is or may be threatened to be made
a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative,
by reason of or arising from any actual or alleged misrepresentation
or misstatement of facts or omission to represent or state facts made
or alleged to have been made by the undersigned to the Company, (or
any agent or representative of the Company) or omitted or alleged to
have been omitted by the undersigned, concerning the undersigned or
the undersigned's authority to invest or financial position in
connection with the Offering, including, without limitation, any such
misrepresentation, misstatement or omission contained in the
Questionnaire or any other document submitted by the undersigned,
against losses, liabilities and expenses for which the Company, or any
officer, director or control person of the Company has not otherwise
been reimbursed (including attorneys' fees, judgments, fines and
amounts paid in settlement) actually and reasonably incurred by the
Company, or such officer, director or control person in connection
with such action, suit or proceeding.
C. UNDERSTANDINGS.
The undersigned understands, acknowledges and agrees with the Company
as follows:
(1) This Subscription may be rejected, in whole or in part,
by the Company in the Company's sole and absolute discretion, at any
time before the Final Closing Date, notwithstanding prior receipt by
the undersigned of notice of acceptance of the undersigned's
Subscription.
(2) Except as set forth in Section C(1) above, the
undersigned hereby acknowledges and agrees that the subscription
hereunder is irrevocable by the undersigned, that, except as required
by law, the undersigned is not entitled to cancel, terminate or revoke
this Agreement or any agreements of the undersigned hereunder and that
this Agreement and such other agreements shall survive the death or
disability of the undersigned and shall be binding upon and inure to
the benefit of the parties and their heirs, executors, administrators,
successors, legal representatives and permitted assigns. If the
undersigned is more than one
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<PAGE>
person, the obligations of the undersigned hereunder shall be joint
and several and the agreements, representations, warranties and
acknowledgments herein contained shall be deemed to be made by and be
binding upon each such person and his/her heirs, executors,
administrators, successors, legal representatives and permitted
assigns.
(3) No federal or state agency has made any finding or
determination as to the accuracy or adequacy of the Memorandum or as
to the fairness of the terms of this offering for investment nor any
recommendation or endorsement of the Units.
(4) The Offering is intended to be exempt from registration
under the Securities Act by virtue of Section 4(2) of the Securities
Act and the provisions of Regulation D thereunder, which is in part
dependent upon the truth, completeness and accuracy of the statements
made by the undersigned herein and in the Questionnaire.
(5) There is no public or other market for the Units, Shares
or Warrants and no such public or other market may ever develop. There
can be no assurance that the undersigned will be able to sell or
dispose of the Shares or Warrants. It is understood that in order not
to jeopardize the Offering's exempt status under Section 4(2) of the
Securities Act and Regulation D, any transferee may, at a minimum, be
required to fulfill the investor suitability requirements thereunder.
(6) Some NASD members may receive compensation in connection
with the Offering but are not guaranteeing or assuming responsibility
for the operation or possible liability of the Company, including,
without limitation, compliance by the Company with the agreements
entered into in connection with the Offering, and will not supervise
or participate in the operation or management of the Company.
(7) The undersigned acknowledges that certain of the
information contained in the Memorandum is confidential and non-public
and agrees that all such information shall be kept in confidence by
the undersigned and neither used by the undersigned for the
undersigned's personal benefit (other than in connection with this
subscription) nor disclosed to any third party for any reason;
provided, however, that this obligation shall not apply to any such
information that (i) is part of the public knowledge or literature and
readily accessible at the date hereof, (ii) becomes part of the public
knowledge or literature and readily accessible by publication (except
as a result of a breach of this provision) or (iii) is received from
third parties (except third parties who disclose such information in
violation of any confidentiality agreements or obligations, including,
without limitation, any Subscription Agreement entered into with the
Company). The undersigned acknowledges that the foregoing restrictions
on the undersigned's use and disclosure of any such confidential,
non-public information contained in the Memorandum restricts the
undersigned from trading in the Company's securities to the extent
such trading is based on such confidential, non-public information.
(8) The representations, warranties and agreements of the
undersigned contained herein and in any other writing delivered in
connection with the transactions contemplated
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<PAGE>
hereby shall be true and correct in all respects on and as of the date
of the sale of the Units as if made on and as of such date and shall
survive the execution and delivery of this Agreement and the purchase
of the Units.
(9) Insofar as indemnification for liabilities under the
Securities Act may be permitted to directors, officers or controlling
persons of the Company, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in such Act and is therefore
unenforceable to such extent.
(10) IN MAKING AN INVESTMENT DECISION PURCHASERS MUST RELY ON
THEIR OWN EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING,
INCLUDING THE MERITS AND RISKS INVOLVED. THE SECURITIES OFFERED HEREBY
HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION
OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE
NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THE MEMORANDUM
OR THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
(11) THE SECURITIES OFFERED HEREBY MAY NOT BE TRANSFERRED,
RESOLD OR OTHERWISE DISPOSED OF EXCEPT AS PERMITTED UNDER THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. PURCHASERS SHOULD BE AWARE THAT
THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT
FOR AN INDEFINITE PERIOD OF TIME.
(12) For Residents of Arkansas:
THE SECURITIES OFFERED HEREBY ARE OFFERED PURSUANT TO A CLAIM
OF EXEMPTION UNDER SECTION 23-42-504(a)(14) OF THE ARKANSAS SECURITIES
ACT AND SECTION 4(2) Of THE SECURITIES ACT OF 1933. A REGISTRATION
STATEMENT RELATING TO THESE SECURITIES HAS NOT BEEN FILED WITH THE
ARKANSAS SECURITIES DEPARTMENT OR WITH THE SECURITIES AND EXCHANGE
COMMISSION. NEITHER THE DEPARTMENT NOR THE COMMISSION HAS PASSED UPON
THE VALUE OF THE SECURITIES OFFERED HEREBY, MADE ANY RECOMMENDATIONS AS
TO THEIR PURCHASE, APPROVED OR DISAPPROVED THE OFFERING, OR PASSED UPON
THE ADEQUACY OR ACCURACY OF THIS MEMORANDUM. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
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<PAGE>
(13) For Residents of California:
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS
SUBSCRIPTION AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SHARES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF
SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR
25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES
TO THIS SUBSCRIPTION AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH
QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
(14) For Residents of Connecticut:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER SECTION 36-
485 OF THE CONNECTICUT UNIFORM SECURITIES ACT AND THEREFORE CANNOT BE
RESOLD UNLESS THEY ARE REGISTERED UNDER SUCH ACT OR UNLESS AN
EXEMPTION FROM REGISTRATION IS AVAILABLE. THE SECURITIES OFFERED
HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE BANKING
COMMISSIONER OF THE STATE OF CONNECTICUT. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
(15) For Residents of Florida:
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE FLORIDA SECURITIES ACT (THE "FLORIDA ACT") AND WILL BE OFFERED AND
SOLD PURSUANT TO AN EXEMPTION UNDER SECTION 517.061 OF THE FLORIDA
ACT. ALL FLORIDA RESIDENTS SHALL HAVE THE PRIVILEGE OF VOIDING THE
PURCHASE OF ANY OF THE SECURITIES WITHIN THREE DAYS AFTER THE FIRST
TENDER OF CONSIDERATION IS MADE BY SUCH PURCHASER TO THE COMPANIES, AN
AGENT OF THE COMPANIES, OR AN ESCROW AGENT OR WITHIN THREE DAYS AFTER
THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO SUCH PURCHASER,
WHICHEVER OCCURS LATER.
(16) For Residents of Georgia:
THE UNDERSIGNED ACKNOWLEDGES AND UNDERSTANDS (I) THAT THE
SECURITIES SUBSCRIBED FOR HEREBY WILL BE ISSUED OR SOLD IN RELIANCE ON
PARAGRAPH 13 OF CODE SECTION 10-5-9 OF THE GEORGIA SECURITIES ACT OF
1973, AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH
IS EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND (II) THAT
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<PAGE>
THE CERTIFICATES REPRESENTING THE SECURITIES SUBSCRIBED FOR HEREBY
WILL CONTAIN A LEGEND TO SUCH EFFECT.
(17) For Residents of Missouri:
THE UNDERSIGNED ACKNOWLEDGES AND UNDERSTANDS (I) THAT THE
SECURITIES SUBSCRIBED FOR HEREBY ARE NOT REGISTERED UNDER THE MISSOURI
UNIFORM SECURITIES ACT AND MAY BE DISPOSED OF ONLY THROUGH A LICENSED
BROKER-DEALER AND (II) THAT IT IS A FELONY TO SELL SECURITIES IN
VIOLATION OF THE MISSOURI SECURITIES ACT.
(18) For Residents of New York:
THIS PRIVATE OFFERING MEMORANDUM HAS NOT BEEN REVIEWED BY
THE ATTORNEY GENERAL PRIOR TO ITS ISSUANCE AND USE. THE ATTORNEY
GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
(19) For Residents of Pennsylvania:
EACH PENNSYLVANIA RESIDENT WHO SUBSCRIBES FOR THE SECURITIES
BEING OFFERED HEREBY AGREES NOT TO SELL THESE SECURITIES FOR A PERIOD
OF TWELVE MONTHS AFTER THE DATE OF PURCHASE. UNDER PROVISION OF THE
PENNSYLVANIA SECURITIES ACT OF 1972, EACH PENNSYLVANIA RESIDENT SHALL
HAVE THE RIGHT TO WITHDRAW HIS OR HER ACCEPTANCE WITHOUT INCURRING ANY
LIABILITY TO THE ISSUER WITHIN TWO BUSINESS DAYS FROM THE DATE OF
RECEIPT BY THE COMPANY OF THIS SUBSCRIPTION AGREEMENT. TO ACCOMPLISH
THIS WITHDRAWAL A SUBSCRIBER NEED ONLY SEND A LETTER OR TELEGRAM TO
THE ISSUER AT THE ADDRESS SET FORTH IN THE TEXT HEREOF, INDICATING HIS
OR HER INTENTION TO WITHDRAW. SUCH LETTER OR TELEGRAM SHOULD BE SENT
AND POSTMARKED PRIOR TO THE END OF THE AFOREMENTIONED SECOND BUSINESS
DAY. IT IS PRUDENT TO SEND SUCH LETTER BY CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, TO ENSURE THAT IT IS RECEIVED AND ALSO TO EVIDENCE
THE TIME WHEN IT WAS MAILED. IF THE REQUEST IS MADE ORALLY (IN PERSON
OR BY TELEPHONE, TO THE ISSUER AT THE NUMBER LISTED IN THE TEXT
HEREOF), A WRITTEN CONFIRMATION THAT THE REQUEST HAS BEEN RECEIVED
SHOULD BE REQUESTED.
D. REGISTRATION RIGHTS.
(1) Registration of Common Shares. After the expiration of one year
from the Final Closing Date, the Company shall use its reasonable best efforts
to prepare for filing with the
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Commission, and cause to be declared effective, a "shelf" registration statement
(the "Shelf Registration") pursuant to Rule 415 under the Securities Act
providing for the sale by the Purchasers of the shares of Common Stock included
in the Units and issuable upon exercise of the Warrants (the "Underlying Common
Shares"). The registration statement for the Shelf Registration shall be
prepared and filed as soon as practicable after the expiration of one-year from
the Final Closing Date. The Company shall use its reasonable best efforts to
cause the registration statement to be declared effective as soon as practicable
after it has been filed with the Commission. The Company agrees to use its
reasonable best efforts to keep such Shelf Registration continuously effective
for a period ending on the earliest of (a) the fifth anniversary of the
effective date of such Shelf Registration, (b) the date on which all such
Underlying Common Shares covered thereby have been sold thereunder, or (c) the
date upon which all such Underlying Common Shares are freely transferable
without restriction under the Securities Act. For the purpose of this Agreement,
"reasonable best efforts" shall mean the best efforts of the Company consistent
with sound and reasonable business practices and judgment.
(2) Registration Procedures. In connection with the Company's
obligations with respect to the Shelf Registration, the Company shall use its
reasonable best efforts to effect the registration in furtherance of the sale of
the Underlying Common Shares by the holders thereof in accordance with the
intended method or methods of distribution thereof described in the Shelf
Registration. In connection therewith, the Company shall, as promptly as may be
practicable:
(a) prepare and file with the Commission a registration
statement with respect to the Underlying Common Shares on any form for
which the Company then qualifies or which counsel for the Company shall
deem appropriate and which form shall be available for the disposition
of the Underlying Common Shares in accordance with the intended method
or methods of disposition thereof;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for the applicable period specified in Paragraph
(1) above;
(c) furnish to each Purchaser which is selling Underlying
Common Shares a copy of such registration statement, each amendment and
supplement thereto (in each case including all exhibits thereto but
excluding all documents incorporated by reference therein unless
specifically so requested by such Purchaser) and such reasonable number
of copies of the prospectus included in such registration statement
(including each preliminary prospectus) as such Purchaser may
reasonably request;
(d) use reasonable best efforts to register or qualify the
Underlying Common Shares under such other securities laws or blue sky
laws of such jurisdictions as the Purchasers shall reasonably request,
and take any and all such actions as may be reasonably necessary or
advisable to enable the Purchasers to consummate the disposition in
such jurisdictions of such Underlying Common Shares;
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<PAGE>
(e) notify each Purchaser, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act
within the period that the Company is required to keep the registration
statement effective, of the happening of any event as a result of which
the prospectus included in such registration statement (as then in
effect) contains an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading;
(f) advise each Purchaser, promptly after receiving notice
thereof, of any stop order issued or threatened by the Commission and
use its reasonable best efforts to take all actions required to prevent
the entry of such stop order, or to remove it if entered;
(g) use its reasonable best efforts to cause all Underlying
Common Shares including in such registration statement to be listed, by
the date of the first sale of Underlying Common Shares pursuant to such
registration statement, on each securities exchange on which the Common
Stock of the Company is then listed or proposed to be listed;
(h) furnish to each Purchaser on the effective date of such
registration statement a signed counterpart, addressed to the
Purchasers, of (i) an opinion of counsel representing the Company and
reasonably satisfactory to such Purchasers that the registration
statement (including each amendment or supplement thereto and
prospectus included therein) complies as to form in all material
respects with the requirements of the Securities Act and the applicable
rules and regulations thereunder, and (ii) a "comfort" letter from the
independent public accountants retained by the Company, stating that
they are independent public accountants within the meaning of the
Securities Act and that, in the opinion of such accountants, the
financial statements of the Company included or incorporated by
reference in the registration statement or the prospectus, or any
amendment or supplement thereof, comply as to form in all material
respects with the applicable accounting requirements of the Securities
Act and the published rules and regulations thereunder, and covering
such other financial matters of the type customarily covered by such
letters;
(i) otherwise use its reasonable best efforts to comply with
the provisions of the Securities Act with respect to the disposition of
all of the Underlying Common Shares covered by such registration
statement in accordance with the intended methods of disposition by the
Purchasers thereof set forth in such registration statement and to make
generally available to its security holders, as soon as reasonably
practicable, an earnings statement satisfying the provisions of Section
11(a) of the Securities Act and Rule 158 thereunder.
(3) Expenses. All expenses incident to the Company's performance of or
compliance with the provisions of this Section D (including, without limitation,
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, fees and expenses incurred in connection with the
listing of the Underlying Common Shares to be registered on each securities
exchange on which similar securities issued by the Company are then listed,
printing expenses, fees and disbursements of counsel for the Company, reasonable
fees and disbursements of one counsel for the Purchasers and fees and
disbursements of all independent certified public accountants and
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<PAGE>
other persons retained by the Company) will be borne by the Company.
Notwithstanding the foregoing, the Purchasers shall pay any and all underwriting
fees, discounts or commissions attributable to the sale of Underlying Common
Shares.
(4) Indemnification.
(a) Upon the registration of Underlying Common Shares pursuant
to Section D(1) of this Agreement, and in consideration of the
agreements of the Purchasers contained herein, the Company shall, and
it hereby agrees to, indemnify and hold harmless, to the extent
permitted by law, each of the Purchasers which holds Underlying Common
Shares to be included in such registration, its officers and directors,
each underwriter of such Underlying Common Shares, if any, and each
person who controls such person (within the meaning of the Securities
Act) against all losses, claims, damages, liabilities and expenses
(including reasonable attorneys' fees and expenses) to which such
Purchaser, its officers, directors, each underwriter, or such
controlling persons may become subject, insofar as such losses, claims,
damages, liabilities and expenses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue
statement of material fact contained in any such registration
statement, any prospectus or preliminary prospectus contained therein
or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will
reimburse each such Purchaser, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss,
claim, damage, liability or action; except (i) insofar as the same
arise out of or are based upon an untrue statement or omission or
alleged omission so made based upon information furnished by such
Purchaser, underwriter or controlling person in writing specifically
for use in such registration statement or prospectus or (ii) insofar as
the same are caused by such Purchaser's or such underwriter's failure
to deliver a copy of such registration statement or prospectus or any
amendments or supplements thereto after the Company has furnished such
Purchaser or such underwriter with a sufficient number of copies of the
same; and provided, however, that the foregoing indemnity and
reimbursement obligation shall not be applicable to the extent that any
such loss, claim, damage, liability or action arises out of or is based
on any untrue statement or omission made in: (i) a preliminary
prospectus, which untrue statement or omission is corrected in the
final prospectus and such final prospectus is made available to such
Purchaser in accordance with the requirements of Rule 424 under the
Securities Act; or (ii) any prospectus, which untrue statement or
omission is corrected in a prospectus supplement or amended prospectus
and such prospectus supplement or amended prospectus is made available
to such Purchaser prior to the sale of Underlying Common Shares which
gave rise to such loss, claim, damage, liability or expense.
(b) In connection with any registration statement under which
Underlying Common Shares are registered under the Securities Act and
pursuant to which a Purchaser offers and sells Underlying Common
Shares, each such Purchaser shall, and it hereby agrees to, indemnify
and hold harmless, to the extent permitted by law, each of the Company,
its officers and directors, and each person who controls the Company
(within the meaning of
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the Securities Act) and, if the offering is an underwritten offering,
the underwriters, against all losses, claims, damages, liabilities and
expenses (including reasonable attorneys' fees and expenses) to which
the Company, its officers and directors, underwriters, or controlling
persons may become subject, insofar as such losses, claims, damages,
liabilities and expenses (or actions in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of
material fact contained in any such registration statement, any
prospectus or preliminary prospectus contained therein or any
amendment or supplement thereto, or any omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading and will
reimburse the Company and each such officer, director, underwriter and
controlling person for any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss,
claim, damage, liability or action, insofar as (i) the same arise out
of or are based upon any untrue statement or omission or alleged
omission so made based upon information furnished by such Purchaser,
or an underwriter or controlling person of such Purchaser, in writing
specifically for use in such registration statement or prospectus or
(ii) the same are caused by such Purchaser's or such underwriter's
failure to deliver a copy of such registration statement or prospectus
or any amendments or supplements thereto after the Company has
furnished such Purchaser or such underwriter with a sufficient number
of copies of the same and provided, further, that the liability of
each Purchaser under this Paragraph 4(b) shall be limited to the
proportion of any such loss, claim, damage, liability or expense which
is equal to the proportion that the public offering price of
Underlying Common Shares sold by such Purchaser under such
registration statement bears to the total public offering price of all
securities sold thereunder, but not to exceed the amount of the
proceeds received by such Purchaser from the sale of the Underlying
Common Shares covered by such registration statement.
(c) Any person entitled to indemnification hereunder will
(i) give prompt notice to the indemnifying party of any claim with
respect to which it seeks indemnification (but the failure to give
such notice will not affect the right to indemnification hereunder,
unless the indemnifying party is materially prejudiced by such
failure) and (ii) unless in such indemnified party's reasonable
judgment a conflict of interest may exist between such indemnified and
indemnifying parties with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel
selected by the indemnifying party and reasonably satisfactory to the
indemnified party. If such defense is not assumed by the indemnifying
party or if the indemnifying party is not permitted to assume such
defense then (x) the indemnified party shall select counsel, which
counsel must be reasonably satisfactory to the indemnifying party and
(y) the indemnifying party will not be subject to any liability for
any settlement made without its consent (which consent will not be
unreasonably withheld). No indemnifying party will consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to
such indemnified party of a release from all liability in respect of
such claim or litigation. An indemnifying party who is not entitled
to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for
all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonably judgment of any indemnified party
a conflict of interest may exist
-18-
<PAGE>
between such indemnified party and any other of such indemnified
parties with respect to such claim, in which case the indemnifying
party shall be obligated to pay the fees and expenses of one
additional counsel, who must be reasonably satisfactory to the
indemnifying party.
(d) Each party hereto agrees that, if for any reason the
indemnification provisions contemplated by Paragraph 4(a) or Paragraph
4(b) are unavailable or are insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages,
liabilities or expenses (or actions in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or expenses (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative
fault of the indemnifying party and the indemnified party as well as
any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by such indemnifying
party or indemnified party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not
be just and equitable if contribution pursuant to this Paragraph 4(d)
were determined by pro rata allocation (even if the Purchasers or any
underwriters or all of them were treated as one entity for such
purpose) or by any other method of allocation which does not take into
account the equitable considerations referred to in this Paragraph
4(d). No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) The indemnification and contribution obligations and each
other provision set forth in this Paragraph 4 shall remain in full
force and effect regardless of any investigation made by or on behalf
of the Company, any Purchaser, any officer or employee of the Company
or such Purchaser, any underwriter, any officer or employee of such
underwriter, or any controlling person of any of the foregoing and
shall survive the transfer and registration of Underlying common Shares
by such Purchaser.
(5) Rule 144 Reporting. With a view to making available to Purchasers
the benefits of Rule 144 promulgated by the Commission under the Securities Act,
the Company agrees to use its reasonable best efforts to:
(a) make and keep adequate current public information with
respect to the Company available, as those terms are used in Rule 144
under the Securities Act, at all times after the Final Closing Date;
(b) file with the Commission in a timely manner all reports
and other documents required of the Company under the Exchange Act;
and
-19-
<PAGE>
(c) furnish to Purchasers promptly upon request a written
statement by the Company as to its compliance with the reporting
requirements of Rule 144 and the Exchange Act, a copy of the most
recent annual or quarterly report of the Company, and such other
reports and documents of the Company as any Purchaser may reasonably
request in order to permit such Purchaser to avail itself of any rule
or regulation of the Commission allowing such Purchaser to sell its
Underlying Common Shares without registration.
(6) Holders of Underlying Common Shares. For purposes of this Section
D, holders of the Warrants shall be deemed to be holders of the Underlying
Common Shares issuable upon exercise thereof.
(7) Amendments and Waivers. Any provision of this Section D may be
amended or waived if, but only if, in the case of an amendment, such amendment
is in writing and is signed by the Company and the Purchasers who are the
holders of a majority of the Underlying Common Shares or, in the case of a
waiver, such waiver is in writing and is signed by the party to be charged with
having granted such waiver. No failure or delay by the Company or any Purchaser
in exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
E. MISCELLANEOUS.
(1) All pronouns and any variations thereof used herein shall be deemed
to refer to the masculine, feminine, impersonal, singular or plural, as the
identity of the person or persons may require.
(2) Except as set forth in Section A(4) and D(7) herein, neither this
Agreement nor any provision hereof shall be waived, modified, changed,
discharged, terminated, revoked or canceled except by an instrument in writing
signed by the party effecting the same against whom any change, discharge or
termination is sought.
(3) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
or sent by registered mail, return receipt requested, addressed: (i) if to the
Company, to SunPharm Corporation, 4651 Salisbury Road, Suite 205, Jacksonville,
Florida 32256, Attention: Stefan Borg (ii) if to the undersigned, to the address
for correspondence set forth in the Questionnaire, or at such other address as
may have been specified by written notice given in accordance with this
Paragraph (3).
(4) Failure of the Company to exercise any right or remedy under this
Agreement or any other agreement between the Company and the undersigned, or
otherwise, or delay by the Company in exercising such right or remedy, will not
operate as a waiver thereof. No waiver by the Company will be effective unless
and until it is in writing and signed by the Company.
(5) This Agreement shall be enforced, governed and construed in all
respects in accordance with the laws of the State of Florida, as such laws are
applied by Florida courts to
-20-
<PAGE>
agreements entered into and to be performed in Florida by and between residents
of Florida, and shall be binding upon the undersigned, the undersigned's heirs,
estate, legal representatives, successors and assigns and shall inure to the
benefit of the Company, its successors and assigns. If any provision of this
Subscription Agreement is invalid or unenforceable under any applicable statute
or rule of law, then such provision shall be deemed inoperative to the extent
that it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any provision hereof that may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision hereof.
(6) This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and may be amended only by a
writing executed by both parties hereto.
(7) Each party hereto has had the opportunity to review this Agreement
with its separate legal counsel.
F. SIGNATURE.
The signature of this Agreement is contained as part of the applicable
subscription package, entitled "Signature Page".
-21-
<PAGE>
SUNPHARM CORPORATION
SIGNATURE PAGE
The undersigned hereby subscribes for the number of Units set forth
below.
1. Dated: , 1996
------------------------
2. Number of Units subscribed for :
------------------------
3. Aggregate purchase price for number of Units subscribed for,
at $5.50 per Unit:
$
------------------
- ------------------------------ ------------------------------
Signature of Subscriber Taxpayer Identification or
(and title, if applicable) Social Security Number
- ------------------------------ ------------------------------
Signature of Joint Purchaser Taxpayer Identification or
(if any) Social Security Number
- ------------------------------ ------------------------------
Name and Residence Address Mailing Address, if different
(Post Office Address Not Acceptable): from Residence Address:
- ------------------------------ ------------------------------
Name (please print as name will Name (please print)
appear on certificate)
- ------------------------------ ------------------------------
Number and Street Number and Street
- ------------------------------ ------------------------------
City State Zip Code City State Zip Code
EXHIBIT 11.1
SUNPHARM CORPORATION
CALCULATION OF LOSS PER SHARE
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
Weighted Average Shares Outstanding:
<TABLE>
<CAPTION>
Total Shares # Days Outstanding
------------ ------------------
<S> <C> <C> <C> <C> <C>
2,934,535 x 19 = 55,756,165
3,270,619 x 26 = 85,036,094
3,313,503 x 17 = 56,329,551
3,339,683 x 30 = 100,190,490
---- -----------
92 297,312,300/ 92 = 3,231,655
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Net Loss (657,740) = $(0.20) Per Share
---------
Weighted Average Shares 3,231,655
</TABLE>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995
Weighted Average Shares Outstanding:
<TABLE>
<CAPTION>
Total Shares # Days Outstanding
------------ ------------------
<S> <C> <C> <C> <C>
2,884,535 x 92 = 265,377,220/ 92 = 2,884,535
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Net Loss (767,345) = $(0. 27) Per Share
---------
Weighted Average Shares 2,884,535
</TABLE>
<PAGE>
SUNPHARM CORPORATION
CALCULATION OF LOSS PER SHARE
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
Weighted Average Shares Outstanding:
<TABLE>
<CAPTION>
Total Shares # Days Outstanding
------------ ------------------
<S> <C> <C> <C> <C>
2,884,535 x 171 = 493,255,485
2,934,535 x 30 = 88,036,050
3,270,619 x 26 = 85,036,094
3,313,503 x 17 = 56,329,551
3,339,683 x 30 = 100,190,490
-- -----------
274 = 822,847,670/ 274 = 3,003,094
Net Loss (1,838,955) = $(0.61) Per Share
---------
Weighted Average Shares 3,003,094
</TABLE>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
Weighted Average Shares Outstanding:
<TABLE>
Total Shares # Days Outstanding
------------ ------------------
<S> <C> <C> <C> <C>
1,780,847 x 12 = 21,370,164
2,719,535 x 35 = 95,183,725
2,892,325 x 226 = 651,904,910
--------- --- -----------
273 768,458,799/ 273 = 2,814,867
Net Loss (3,119,730) = $(1.11) Per Share
---------
Weighted Average Shares 2,814,867
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR THE PERIOD ENEDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<CIK> 0000884888
<NAME> SunPharm Corporation
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> Sep-30-1996
<EXCHANGE-RATE> 1.000
<CASH> 1,435,544
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,484,531
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,484,531
<CURRENT-LIABILITIES> 949,101
<BONDS> 0
0
0
<COMMON> 334
<OTHER-SE> 535,096
<TOTAL-LIABILITY-AND-EQUITY> 1,484,531
<SALES> 0
<TOTAL-REVENUES> 547,385
<CGS> 0
<TOTAL-COSTS> 2,386,337
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,838,952)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,838,952)
<EPS-PRIMARY> (.61)
<EPS-DILUTED> (.61)
</TABLE>
