SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 2)*
Procept, Inc.
(Name of Issuer)
Common Stock, par value $.01 per share
(Title of Class of Securities)
742 683 10 5
(CUSIP Number)
Paramount Capital Asset Management, Inc.
c/o Lindsay A. Rosenwald, M.D.
787 Seventh Avenue
New York, NY 10019
(212) 554-4300
with a copy to:
Michael S. Weiss, Esq. Monica C. Lord, Esq.
Paramount Capital Asset Kramer, Levin, Naftalis & Frankel
Management, Inc. 919 Third Avenue
787 Seventh Avenue New York, NY 10022
New York, NY 10019 (212) 715-9100
(212) 554-4372
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
April 9, 1998
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following:
[_]
Note: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d- 1(a) for other parties to whom copies are to be
sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
Page 1 of 11 pages
<PAGE>
CUSIP No. 742 683 10 5 13 D Page 2 of 11 Pages
- --------------------------------------------------------------------------------
1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Paramount Capital Asset Management, Inc.
- --------------------------------------------------------------------------------
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [ ]
- --------------------------------------------------------------------------------
3) SEC USE ONLY
- --------------------------------------------------------------------------------
4) SOURCE OF FUNDS*
00 (see Item 3 below)
- --------------------------------------------------------------------------------
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) OR 2(e)
[_]
- --------------------------------------------------------------------------------
6) CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
7) SOLE VOTING POWER
None
NUMBER -------------------------------------------------
OF 8) SHARED VOTING POWER
SHARES 26,892,059**
BENEFICIALLY -------------------------------------------------
OWNED BY 9) SOLE DISPOSITIVE POWER
EACH None
REPORTING -------------------------------------------------
PERSON 10) SHARED DISPOSITIVE POWER
WITH 26,892,059**
- --------------------------------------------------------------------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
26,892,059**
- --------------------------------------------------------------------------------
12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (9) EXCLUDES CERTAIN
SHARES [ ]
- --------------------------------------------------------------------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (9)
69.9%
- --------------------------------------------------------------------------------
14) TYPE OF REPORTING PERSON
CO
- --------------------------------------------------------------------------------
** Consists of (i) 13,416,800 shares of Common Stock which are presently
votable, and (ii) 13,475,259 shares of Common Stock issuable upon exercise of
warrants, which, accordingly, are not presently votable.
<PAGE>
CUSIP No. 742 683 10 5 13 D Page 3 of 11 Pages
- --------------------------------------------------------------------------------
1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Aries Domestic Fund, L.P.
- --------------------------------------------------------------------------------
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [ ]
- --------------------------------------------------------------------------------
3) SEC USE ONLY
- --------------------------------------------------------------------------------
4) SOURCE OF FUNDS*
00 (see Item 3 below)
- --------------------------------------------------------------------------------
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) OR 2(e)
[_]
- --------------------------------------------------------------------------------
6) CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
7) SOLE VOTING POWER
None
NUMBER -------------------------------------------------
OF 8) SHARED VOTING POWER
SHARES 9,209,298**
BENEFICIALLY -------------------------------------------------
OWNED BY 9) SOLE DISPOSITIVE POWER
EACH None
REPORTING -------------------------------------------------
PERSON 10) SHARED DISPOSITIVE POWER
WITH 9,209,298**
- --------------------------------------------------------------------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
9,209,298**
- --------------------------------------------------------------------------------
12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (9) EXCLUDES CERTAIN
SHARES [ ]
- --------------------------------------------------------------------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (9)
23.9%
- --------------------------------------------------------------------------------
14) TYPE OF REPORTING PERSON
PN
- --------------------------------------------------------------------------------
** Consists of (i) 4,595,880 shares of Common Stock which are presently votable,
and (ii) 4,613,418 shares of Common Stock issuable upon exercise of warrants,
which, accordingly, are not presently votable.
<PAGE>
CUSIP No. 742 683 10 5 13 D Page 4 of 11 Pages
- --------------------------------------------------------------------------------
1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
The Aries Trust
- --------------------------------------------------------------------------------
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [ ]
- --------------------------------------------------------------------------------
3) SEC USE ONLY
- --------------------------------------------------------------------------------
4) SOURCE OF FUNDS*
00 (see Item 3 below)
- --------------------------------------------------------------------------------
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) OR 2(e)
[_]
- --------------------------------------------------------------------------------
6) CITIZENSHIP OR PLACE OF ORGANIZATION
Cayman Islands
- --------------------------------------------------------------------------------
7) SOLE VOTING POWER
None
NUMBER -------------------------------------------------
OF 8) SHARED VOTING POWER
SHARES 17,682,761**
BENEFICIALLY -------------------------------------------------
OWNED BY 9) SOLE DISPOSITIVE POWER
EACH None
REPORTING -------------------------------------------------
PERSON 10) SHARED DISPOSITIVE POWER
WITH 17,682,761**
- --------------------------------------------------------------------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
17,682,761**
- --------------------------------------------------------------------------------
12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (9) EXCLUDES CERTAIN
SHARES [ ]
- --------------------------------------------------------------------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (9)
46.0%
- --------------------------------------------------------------------------------
14) TYPE OF REPORTING PERSON
OO (see Item 2)
- --------------------------------------------------------------------------------
** Consists of (i) 8,820,920 shares of Common Stock which are presently votable,
and (ii) 8,861,841 shares of Common Stock issuable upon exercise of warrants,
which, accordingly, are not presently votable.
<PAGE>
CUSIP No. 742 683 10 5 13 D Page 5 of 11 Pages
- --------------------------------------------------------------------------------
1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Lindsay A. Rosenwald, M.D.
- --------------------------------------------------------------------------------
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [ ]
- --------------------------------------------------------------------------------
3) SEC USE ONLY
- --------------------------------------------------------------------------------
4) SOURCE OF FUNDS*
00 (see Item 3 below)
- --------------------------------------------------------------------------------
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) OR 2(e)
[_]
- --------------------------------------------------------------------------------
6) CITIZENSHIP OR PLACE OF ORGANIZATION
United States
- --------------------------------------------------------------------------------
7) SOLE VOTING POWER
None
NUMBER -------------------------------------------------
OF 8) SHARED VOTING POWER
SHARES 26,892,059**
BENEFICIALLY -------------------------------------------------
OWNED BY 9) SOLE DISPOSITIVE POWER
EACH None
REPORTING -------------------------------------------------
PERSON 10) SHARED DISPOSITIVE POWER
WITH 26,892,059**
- --------------------------------------------------------------------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
26,892,059**
- --------------------------------------------------------------------------------
12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (9) EXCLUDES CERTAIN
SHARES [ ]
- --------------------------------------------------------------------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (9)
69.9%
- --------------------------------------------------------------------------------
14) TYPE OF REPORTING PERSON
IN
- --------------------------------------------------------------------------------
** Consists of (i) 13,416,800 shares of Common Stock which are presently
votable, and (ii) 13,475,259 shares of Common Stock issuable upon exercise of
warrants, which, accordingly, are not presently votable.
<PAGE>
SCHEDULE 13D
This Amendment No. 2 (the "Amendment") amends and supplements the
following Items of the Reporting Persons' Statement on Schedule 13D, dated July
10, 1997, as amended (the "Schedule").
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
The disclosure under Item 3 of the Schedule is incorporated herein by
reference. All amounts reported in this Amendment have been adjusted and all
amounts previously reported should be adjusted, as necessary, to reflect the
one-for-seven reverse split of the Common Stock of the Issuer which became
effective October 14, 1997. In addition, the information contained in Item 3 to
the Schedule is hereby amended and supplemented by adding the following:
The A Notes, Class A Warrants, Class B Warrants and Purchased Common
acquired by Aries Domestic and Aries Trust converted into, or were exchanged
for, 30,060 shares of Series A Preferred Stock and warrants (the "New Warrants")
to purchase 3,283,132 shares of Common Stock, at various times prior to November
14, 1997.
Pursuant to Subscription Agreements dated as of April 9, 1998, the form
of which is attached hereto as Exhibit O (each, a "Subscription Agreement"),
Aries Domestic used $717,750 of its general funds to purchase 1,650,000 shares
of Common Stock of the Issuer and Class C Warrants for the purchase of 1,650,000
shares of Common Stock of the Issuer at an exercise price of $.50 per share, and
the Aries Trust used $1,457,250 of its general funds to purchase 3,350,000
shares of Common Stock of the Issuer and Class C Warrants for the purchase of
3,350,000 shares of Common Stock of the Issuer at an exercise price of $0.50 per
share (subject to certain antidilution adjustments).
On April 9, 1998, pursuant to a Letter Agreement dated January 13, 1998
between the Issuer, Aries Domestic and Aries Trust (the "Letter Agreement"),
Aries Domestic and Aries Trust exchanged (the "Exchange") their shares of Series
A Preferred Stock and New Warrants for an aggregate of 8,416,800 shares of
Common Stock (the "Exchange Common Stock") and Class C Warrants for the purchase
of an aggregate of 8,416,800 shares of Common Stock at an initial exercise price
of $.50 per share (subject to certain antidilution adjustments).
The Aries Trust and Aries Domestic are entitled to receive additional
shares of Common Stock of the Issuer upon the occurrence of certain events
described in Article VI of the Subscription Agreement in respect of the
13,416,800 shares of Common Stock referred to in the preceding two paragraphs
(such rights to receive additional Common Stock, the "Article VI Rights").
page 6 of 11 pages
<PAGE>
ITEM 4. PURPOSE OF TRANSACTION.
The information contained in Item 4 to the Schedule is hereby amended
and restated to read in its entirety as follows:
The Reporting Persons acquired securities of the Issuer as an
Investment in the Issuer. Except as indicated in this Schedule 13D, the
Reporting Persons currently have no plans or proposals that relate to or would
result in any of the matters described in subparagraphs (a) through (j) of Item
4 of Schedule 13D. Pursuant to Section 7.19 of the Purchase Agreement, the
Reporting Persons have the right to appoint a majority of the members of the
Board of Directors of the Issuer. In connection with the transactions (the
"Transactions") contemplated by the Purchase Agreement and the Letter of Intent
between the Issuer, Paramount Capital, Inc., Aries Trust and Aries Domestic (the
"Letter of Intent"), Mr. Michael S. Weiss joined the Issuer's Board of Directors
pursuant to the Purchase Agreement and the Letter of Intent and has been elected
by the Board of Directors of the Issuer to serve as the Chairman of the Issuer's
Board of Directors. On December 22, 1997, Mr. Weiss recommended that Mark
Rogers, a consultant to Paramount Capital, and Elliott Vernon be elected to the
Issuer's Board of Directors, and they were so elected. On February 9, 1998,
Stanley C. Erck resigned as the Issuer's Chief Executive Officer and from the
Issuer's Board, Mr. Weiss recommended that John F. Dee be appointed President
and Chief Executive Officer of the Issuer and be elected to join the Issuer's
Board and Mr. Dee was so appointed and elected. Pursuant to Section 7.31 of the
Purchase Agreement, the Issuer has covenanted to keep available sufficient
authorized but unissued shares of Common Stock to fulfill its obligations under
the Purchase Agreement, and it appears the Issuer will need to take such actions
as are necessary in order to comply with this covenant. The Reporting Persons
may from time to time acquire, or dispose of, Common Stock and/or other
securities of the Issuer if and when they deem it appropriate. The Reporting
Persons may formulate other purposes, plans or proposals relating to any of such
securities of the Issuer to the extent deemed advisable in light of market
conditions, investment policies and other factors.
ITEM 5. INTEREST IN SECURITIES OF ISSUER.
All amounts reported in this Amendment have been adjusted and all
amounts previously reported should be adjusted, as necessary, to reflect the
one-for-seven reverse split of the Common Stock of the Issuer which became
effective October 14, 1997.
The information contained in Item 5 to the Schedule is hereby amended
and supplemented to read in its entirety as follows:
(a) As of April 9, 1998, Dr. Rosenwald and Paramount
Capital, through acquisition of the shares by Aries
Trust and Aries Domestic, may be deemed beneficially
to own 26,892,059 shares or 69.9% of the Issuer's
Common Stock, and Aries Domestic and Aries Trust may
be deemed to beneficially own the following number of
shares of Common Stock:
Aries Domestic 9,209,298/1/
Aries Trust 17,682,761/2/
- --------
/1/ Includes warrants to purchase 17,538 shares of Common Stock at an exercise
price of $17.50 per share, acquired in May 1996.
/2/ Includes warrants to purchase 40,921 shares of Common Stock at an exercise
price of $17.50 per share, acquired in May 1996.
page 7 of 11 pages
<PAGE>
Each Reporting Person disclaims beneficial ownership
of all the Common Stock other than the respective
Purchased Common, if any, actually held by such
Reporting Person.
(b) Dr. Rosenwald and Paramount Capital share the power
to vote or to direct the vote, to dispose or to
direct the disposition of those shares beneficially
owned by each of Aries Domestic and Aries Trust.
(c) Other than the exchange of Series A Preferred Stock
and New Warrants for Common Stock and Class C
Warrants, pursuant to the Letter Agreement and the
purchases of Common Stock and Class C Warrants
purchased pursuant to the Subscription Agreements,
the Reporting Persons have not engaged in any
transactions in the Common Stock of the Issuer in the
past 60 days. See Item 3.
(d) & (e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER.
The disclosure under Item 6 of the Schedule is incorporated herein by
reference. All amounts reported in this Amendment have been adjusted and all
amounts previously reported should be adjusted, as necessary, to reflect the
one-for-seven reverse split of the Common Stock of the Issuer which became
effective October 14, 1997.
In addition, the information contained in Item 6 to the Schedule is
hereby amended and supplemented by adding the following:
The Issuer, Aries Trust and Aries Domestic entered into the Letter
Agreement described in Item 3, pursuant to which Aries Trust and Aries Domestic
exchanged their Series A Preferred Stock and New Warrants for a number of Units
of Common Stock and Class C Warrants having an aggregate price in the Private
Placement equal to $140 per share of Series A Preferred Stock so exchanged.
Thus, pursuant to the Letter Agreement, Aries Domestic and Aries Trust exchanged
their Series A Preferred Stock and New Warrants for an aggregate of 8,416,800
shares of Common Stock and Class C Warrants for the purchase of 8,416,800 shares
of Common Stock at an exercise price of $.50 per share.
The Article VI Rights, contained in the Subscription Agreements
referred to in Item 3 provide for additional issuances of Common Stock (x) upon
the occurrence of dilution events, such as issuances of Common Stock (or
securities convertible into, or exercisable for, Common Stock) at a price per
share less than the then-current market price or the then-effective Dilution
Value (as defined in the Subscription Agreement; initially $0.50), to compensate
for such dilution and (y) if the market price of the Common Stock on the date
that is 12 months after April 9, 1998 (such date, the "Reset Date") is less than
140% of the then-applicable
page 8 of 11 pages
<PAGE>
Dilution Value, to the extent provided in Section 6.2 of the Subscription
Agreement. The Article VI Rights also provide for additional issuances of Common
Stock on each six month anniversary of the Reset Date. Furthermore, the Article
VI Rights include a right to "put" the Common Stock to which they relate to the
Issuer for 140% of the Dilution Value. The Subscription Agreement, however,
contains a covenant on the part of each holder of Article VI Rights only to
exercise such "put" under certain circumstances.
Pursuant to a Placement Agency Agreement dated as of October 26, 1997,
attached hereto as Exhibit P, Paramount Capital, Inc. (the "Placement Agent"),
an NASD member broker dealer and an affiliate of Aries Domestic and Aries Trust
has acted as placement agent for the Issuer, and will receive certain fees for
such services including options (the "Placement Options") to purchase up to
1,920,000 shares of Common Stock of the issuer and an equal number of Class C
Warrants. The Placement Options are exerciseable at an initial exercise price
equal to the product of $0.55 multiplied by the number of shares of Common Stock
so purchased (subject to certain antidilution adjustments). As of June 30, 1997,
the Issuer and the Placement Agent entered into a twenty-four (24) month
engagement agreement (the "Financial Advisory Agreement"), attached hereto as
Exhibit Q, pursuant to which the Placement Agent is entitled to receive a cash
retainer and standard success fees in addition to options (the "Advisory
Options") upon the occurrence of certain events. In connection with the Private
Placement and pursuant to the Financial Advisory Agreement, the Placement Agent
is entitled to receive Advisory Options to purchase up to 2,880,000 shares of
Common Stock of the Issuer and an equal number of Class C Warrants. The Advisory
Options are exerciseable at an initial exercise price equal to the product of
$0.55 multiplied by the number of shares of Common Stock so purchased (subject
to certain antidilution adjustments). Upon exercise of the Placement Options
and/or Advisory Options, the exercising holder shall have Article VI Rights with
respect to the shares of Common Stock issued upon such exercise. The Placement
Options and Advisory Options will become exercisable on October 9, 1998.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
The information contained in Item 7 to the Schedule is hereby amended
and supplemented to read in its entirety as follows:
Exhibit A: Agreement of Joint Filing of Schedule 13D dated as of July 9,
1997.
Exhibit B: List of executive officers and directors of Paramount
Capital and information called for by Items 2-6 of this
statement relating to said officers and directors.
Exhibit C: List of executive officers and directors of Aries Domestic
and information called for by Items 2-6 of this statement
relating to said officers and directors.
Exhibit D: List of executive officers and directors of Aries Trust and
information called for by Items 2-6 of this statement relating
to said officers and directors.
Exhibit E: Securities Purchase Agreement dated as of June 30, 1997.
page 9 of 11 pages
<PAGE>
Exhibit F: Senior Convertible Note for $70,000 issued to Aries
Domestic dated June 30, 1997.
Exhibit G: Senior Convertible Note for $130,000 issued to Aries Trust
dated June 30, 1997.
Exhibit H: Class A Warrant for the Purchase of 959,944 shares of
Common Stock issued to Aries Domestic dated June 30, 1997.
Exhibit I: Class A Warrant for the Purchase of 1,782,752 shares of
Common Stock issued to Aries Trust dated June 30, 1997.
Exhibit J: Class B Warrant for the Purchase of 2,660,746 shares of
Common Stock issued to Aries Domestic dated June, 1997.
Exhibit K: Class B Warrant for the Purchase of 4,941,386 shares of
Common Stock issued to Aries Trust dated June 30, 1997.
Exhibit L: Letter of Intent dated June 29, 1997.
Exhibit M: Certificate of Designation for Series A Convertible Preferred
Stock of Procept, Inc.
Exhibit N: Letter Agreement dated January 13, 1998.
Exhibit O: Form of Subscription Agreement.
Exhibit P: Placement Agency Agreement, dated October 26, 1997.
Exhibit Q: Financial Advisory Agreement, dated June 30, 1997.
Exhibit R: Form of Unit Purchase Option for the Purchase of Units
Consisting of Shares of Common Stock and Warrants.
page 10 of 11 pages
<PAGE>
SIGNATURES
After reasonable inquiry and to the best knowledge and belief of the
undersigned, the undersigned certify that the information set forth in this
statement is true, complete and correct.
PARAMOUNT CAPITAL ASSET MANAGEMENT, INC.
Dated: April 20, 1997
New York, NY By: /s/ Lindsay A. Rosenwald, M.D.
-----------------------------------------
Lindsay A. Rosenwald, M.D.
President
ARIES DOMESTIC FUND, L.P.
By: Paramount Capital Asset Management, Inc.
General Partner
Dated: April 20, 1997
New York, NY By: /s/ Lindsay A. Rosenwald, M.D.
-----------------------------------------
Lindsay A. Rosenwald, M.D.
President
THE ARIES TRUST
By: Paramount Capital Asset Management, Inc.
Investment Manager
Dated: April 20, 1997
New York, NY By: /s/ Lindsay A. Rosenwald, M.D.
-----------------------------------------
Lindsay A. Rosenwald, M.D.
President
Dated: April 20, 1997
New York, NY By: /s/ Lindsay A. Rosenwald, M.D.
-----------------------------------------
Lindsay A. Rosenwald, M.D.
President
page 11 of 11 pages
<PAGE>
EXHIBIT 0
FORM OF
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT (this "Agreement") made as of the date
set forth on the signature page hereof between Procept, Inc. a Delaware
Corporation (the "Company") and the undersigned (the "Subscriber").
W I T N E S S E T H:
WHEREAS, the Company has retained Paramount Capital, Inc. (the
"Placement Agent") as Placement Agent, on a "best efforts" basis, in a private
placement offering (the "Offering") of Units (the "Units") of the Company;
WHEREAS, the Company desires to issue a minimum of ten (10)
Units (the "Minimum Offering") and a maximum of sixty (60) Units (the "Maximum
Offering"), with an option in favor of the Placement Agent to offer up to an
additional sixty (60) Units to cover over-allotments, each Unit consisting of
(A) a number (the "Offering Quantity") of shares of common stock (rounded to the
nearest whole share, with one-half (.5) of one share being rounded upward) of
the Company, par value $.01 per share (the "Common Stock"), determined by
dividing one hundred thousand dollars ($100,000) by the lesser of (a) $0.50 and
(b) seventy-five percent (75%) of the Trading Price (as defined below) of the
Common Stock immediately preceding (i) the Initial Closing Date (as defined
below), (ii) any Interim Closing Date (as defined below), or (iii) the Final
Closing Date (as defined below) of this Offering, whichever is lowest (the
lesser of (a) and (b) being the "Offering Price") and (B) warrants (the "Class C
Warrants") to purchase at any time prior to the fifth anniversary of the Final
Closing Date, a number of shares of Common Stock, per share equal to the product
of (x) the Offering Quantity multiplied by (y) 1.0, (the Common Stock to be
issued pursuant to this Agreement and the Placement Agency Agreement (as defined
below), including the Common Stock issuable upon exercise of the Placement
Options and the Advisory Options, the Common Stock issuable as a Reset Issuance,
Semi-Annual Issuance, Dilution Issuance or Qualified Offering Issuance (each as
defined in Article VI below) and, together with the Class C Warrants and the
Common Stock issuable upon exercise of the Class C Warrants being collectively
referred to herein as the "Subscription Common" or the "Securities");
WHEREAS, the Subscriber desires to purchase that number of
Units set forth on the signature page hereof on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and the
mutual representations and covenants hereinafter set forth, the parties hereto
do hereby agree as follows:
1
<PAGE>
I. SUBSCRIPTION FOR UNITS AND REPRESENTATIONS BY SUBSCRIBER
1.1 Subject to the terms and conditions hereinafter set forth,
the Subscriber hereby subscribes for and shall purchase from the Company such
number of Units or fractions thereof and the Company shall sell such Units to
the Subscriber as is set forth upon the signature page hereof at a price equal
to one hundred thousand dollars ($100,000) per Unit (the "Initial Offering
Price"). The purchase price is payable by personal or business check, wire
transfer of immediately available funds or money order made payable to "Fleet
National Bank, Escrow Agent, F/B/O Procept, Inc." contemporaneously with the
execution and delivery of this Agreement by the Subscriber. The certificates
representing the Securities underlying the Units will be delivered by the
Company at each closing of the Offering (each, a "Closing") to which such
certificates relate as set forth in Article III hereof. The Subscriber
understands, however, that this purchase of Units is contingent upon the Company
making sales of a minimum of twenty-five (25) Units prior to the termination
date of the Offering.
1.2 The Subscriber recognizes that the purchase of Units
involves a high degree of risk including, but not limited to, the following: (i)
the Company remains a development stage business with limited operating history
and requires substantial funds in addition to the proceeds of the Offering; (ii)
an investment in the Company is highly speculative, and only investors who can
afford the loss of their entire investment should consider investing in the
Company and the Units; (iii) the Subscriber may not be able to liquidate his
investment; (iv) transferability of the Securities is extremely limited; (v) in
the event of a disposition of the Securities, the Subscriber could sustain the
loss of his entire investment and (vi) the Company has not paid any dividends
since inception and does not anticipate the payment of dividends in the
foreseeable future. Such risks are more fully set forth in the Term Sheet (as
defined below) furnished by the Company to the Subscriber.
1.3 The Subscriber represents that the Subscriber is an
"accredited investor" as such term is defined in Rule 501 of Regulation D
promulgated under the Securities Act of 1933, as amended (the "Act"), as
indicated by the Subscriber's responses to the questions contained in Article
VIII hereof, and that the Subscriber is able to bear the economic risk of an
investment in the Units.
1.4 The Subscriber hereby acknowledges and represents that (i)
the Subscriber has prior investment experience, including investment in
securities that are non-listed, unregistered and are not traded on the Nasdaq
National or SmallCap Market, nor on the National Association of Securities
Dealers, Inc.'s (the "NASD") automated quotation system, or the Subscriber has
employed, at its own expense, and relied upon the services of an investment
advisor, attorney and/or accountant to read all of the documents furnished or
made available by the Company to the Subscriber and to evaluate the investment,
tax and legal merits and the consequences and risks of such a transaction on the
Subscriber's behalf and that such person has such knowledge and experience in
financial and business matters is capable of evaluating the merits and risks of
the prospective investment and satisfies the conditions set out in Rule 501(h)
under the Act; (ii) the
2
<PAGE>
Subscriber recognizes the highly speculative nature of this investment; and
(iii) the Subscriber is able to bear the economic risk which the Subscriber
hereby assumes.
1.5 The Subscriber hereby acknowledges receipt and careful
review of (a) the Confidential Term Sheet dated November 14, 1997 as
supplemented and amended, and the attachments and exhibits thereto, all of which
constitute an integral part thereof (the "Term Sheet") and (b) this Agreement
and all attachments to it, and hereby represents that the Subscriber has been
furnished by the Company during the course of this transaction with all
information regarding the Company which the Subscriber has requested or desired
to know, has been afforded the opportunity to ask questions of, and to receive
answers from, duly authorized officers or other representatives of the Company
concerning the terms and conditions of the Offering and the affairs of the
Company and has received any additional information which the Subscriber has
requested.
1.6 (a) The Subscriber has relied solely upon the information
provided by the Company in the Term Sheet and in this Agreement in making the
decision to invest in the Units. To the extent necessary, the Subscriber has
retained, at the sole expense of the Subscriber, and relied upon appropriate
professional advice regarding the investment, tax and legal merits and
consequences of this Agreement and its purchase of the Units hereunder. The
Subscriber acknowledges and agrees that (i) the Company has prepared the Term
Sheet and that no other person, including, without limitation, the Placement
Agent, has supplied any information for inclusion in the Term Sheet other than
information furnished in writing to the Company by the Placement Agent
specifically for inclusion in the Term Sheet relating to the Placement Agent,
(ii) the Placement Agent has no responsibility for the accuracy or completeness
of the Term Sheet and (iii) the Subscriber has not relied upon the independent
investigation or verification, if any, which may have been undertaken by the
Placement Agent.
(b) The Subscriber represents that (i) the Subscriber was
contacted regarding the sale of the Units by the Placement Agent (or an
authorized agent or representative thereof) with whom the Subscriber had a prior
substantial pre-existing relationship and (ii) no Units were offered or sold to
it by means of any form of general solicitation or general advertising, and in
connection therewith the Subscriber did not (A) receive or review any
advertisement, article, notice or other communication published in a newspaper
or magazine or similar media or broadcast over television or radio whether
closed circuit, or generally available; or (B) attend any seminar meeting or
industry investor conference whose attendees were invited by any general
solicitation or general advertising.
1.7 The Subscriber hereby represents that the Subscriber
either by reason of the Subscriber's business or financial experience, or the
business or financial experience of the Subscriber's professional advisors (who
are unaffiliated with and who are not compensated by the Company or any
affiliate or selling agent of the Company, including the Placement Agent,
directly or indirectly), has the capacity to protect the Subscriber's own
interests in connection with the transaction contemplated hereby.
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1.8 The Subscriber hereby acknowledges that the Offering has
not been reviewed by the United States Securities and Exchange Commission (the
"SEC" or the "Commission") or any state regulatory authority, since the Offering
is intended to be exempt from the registration requirements of Section 5 of the
Act pursuant to Regulation D promulgated under the Act. The Subscriber shall not
sell or otherwise transfer the Securities unless they are registered under the
Act or unless an exemption from such registration is available.
1.9 The Subscriber understands that the Securities comprising
the Units have not been registered under the Act by reason of a claimed
exemption under the provisions of the Act which depends, in part, upon the
Subscriber's investment intention. In this connection, the Subscriber hereby
represents that the Subscriber is purchasing the Securities comprising the Units
for the Subscriber's own account for investment and not with a view toward the
resale or distribution to others. The Subscriber, if an entity, was not formed
for the purpose of purchasing the Securities.
1.10 The Subscriber understands that there is no public market
for the Units or the Securities underlying the Units (other than the Common
Stock) and that no market may develop for any such securities. The Subscriber
understands that even if a public market develops for such securities, and
although there currently is a public market for the Common Stock, reliance upon
Rule 144 under the Act, as amended, for resales requires, among other
conditions, a one-year holding period prior to the resale (in limited amounts)
of securities acquired in a non-public offering without having to satisfy the
registration requirements under the Act. The Subscriber understands and hereby
acknowledges that the Company is under no obligation to register any of the
Units or any of the Securities comprising the Units under the Act or any state
securities or "blue sky" laws other than as set forth in Article V. The
Subscriber shall hold the Company and its directors, officers, employees,
controlling persons and agents (including the Placement Agent and its officers,
directors, employees, counsel, controlling persons and agents) and their
respective heirs, representatives, successors and assigns harmless from, and
shall indemnify them against, all liabilities, costs and expenses incurred by
them as a result of (i) any misrepresentation made by the Subscriber contained
in this Agreement (including the Confidential Investor Questionnaire contained
in Article VIII herein), (ii) any sale or distribution by the Subscriber in
violation of the Act or any applicable state securities or "blue sky" laws or
(iii) any untrue statement of a material fact made by the Subscriber and
contained herein or omission to state herein a material fact necessary in order
to make the statements contained herein, in light of the circumstances under
which they were made, not misleading.
1.11 The Subscriber consents to the placement of a legend on
any certificate or other document evidencing the Securities that such Securities
have not been registered under the Act or any state securities or "blue sky"
laws and setting forth or referring to the restrictions on transfer ability and
sale thereof contained in this Agreement. The Subscriber is aware that the
Company will make a notation in its appropriate records with respect to the
restrictions on the transferability of such Securities.
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1.12 The Subscriber understands that the Company will review
this Agreement and is hereby given authority by the Subscriber to call
Subscriber's bank or place of employment or otherwise review the financial
standing of the Subscriber; and it is further agreed that the Company (with the
consent of the Placement Agent) and the Placement Agent, at its sole discretion,
reserves the unrestricted right, without further documentation or agreement on
the part of the Subscriber, to reject or limit any subscription, to accept
subscriptions for fractional Units and to close the Offering to the Subscriber
at any time.
1.13 The Subscriber hereby represents that the address of the
Subscriber furnished by Subscriber on the signature page hereof is the
Subscriber's principal residence if Subscriber is an individual or its principal
business address if it is a corporation or other entity.
1.14 The Subscriber represents that the Subscriber has full
power and authority (corporate, statutory and otherwise) to execute and deliver
this Agreement and to purchase the Units and the Securities. This Agreement
constitutes the legal, valid and binding obligation of the Subscriber,
enforceable against the Subscriber in accordance with its terms.
1.15 If the Subscriber is a corporation, partnership, limited
liability company, trust, employee benefit plan, individual retirement account,
Keogh Plan, or other entity, then (a) it is authorized and qualified to become
an investor in the Company and the person signing this Agreement on behalf of
such entity has been duly authorized by such entity to do so, and (b) it is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization.
1.16 The Subscriber acknowledges that if he or she is a
registered representative of an NASD member firm, he or she must give such firm
the notice required by the NASD's Rules of Fair Practice, receipt of which must
be acknowledged by such firm in Section 8.4 below.
1.17 The Subscriber acknowledges that at such time, if ever,
as the Securities are registered, sales of the Securities will be subject to
state securities laws, including those of the State of New Jersey which require
any securities sold in New Jersey to be sold through a registered broker-dealer
or in reliance upon an exemption from registration.
1.18 Subject to the proviso below, from the date hereof and
continuing for a period of nine (9) months (the "Lock-Up Period") from the
effective date of the Registration Statement (as defined in Section 5.2 hereof)
(the "Effective Date"), the Subscriber shall not, without the prior written
consent of the Placement Agent, offer, pledge, sell, contract to sell, grant any
option for the sale of, or otherwise dispose of, directly or indirectly, 75% of
the Registrable Securities (as defined in Section 5.1) purchased or acquired by
the Subscriber; provided, however, that, following each three month period after
the Effective Date, an amount of Registrable Securities equal to 25% of the
number of Registrable Securities purchased or acquired by the Subscriber shall
become exempt from the lock-up provisions contained in this sentence. For the
sake of clarity, 25% of the Registrable
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Securities will not be subject to any lock-up. In addition, during the period
from the date that the Subscriber was first contacted with respect to the
potential purchase of Securities through the last date upon which Subscriber
holds any Securities or Registrable Securities, the Subscriber shall not,
directly or indirectly through related parties, affiliates or otherwise sell
"short" or "short against the box" (as those terms are generally understood) or
otherwise engage in any "hedging" transaction with respect to any equity
security of the Company; provided, however, that it shall not be a violation of
this Section 1.18, if the Subscriber places a sell order for Registrable
Securities underlying the Class C Warrants prior to the exercise thereof or at
the time the exercise is requested, relies on the Company to deliver such
Registrable Securities in accordance with Section 5.4(h) and completes the sale
of such Registrable Securities before the Company delivers the Registrable
Securities to the Subscriber.
1.19 The Subscriber represents and warrants that it has not
engaged, consented to nor authorized any broker, finder or intermediary to act
on its behalf, directly or indirectly, as a broker, finder or intermediary in
connection with the transactions contemplated by this Agreement. The Subscriber
shall indemnify and hold harmless the Company from and against all fees,
commissions or other payments owing to any such person or firm acting on behalf
of such Subscriber hereunder.
1.20 The Subscriber acknowledges that (a) the Company has
engaged, consented to and authorized the Placement Agent in connection with the
transactions contemplated by this Agreement, (b) the Company shall pay the
Placement Agent a commission and reimburse the Placement Agent's expenses in
accordance with the Placement Agency Agreement, and the Company shall indemnify
and hold harmless the Subscriber from and against all fees, commissions or other
payments owing by the Company to the Placement Agent or any other person or firm
acting on behalf of the Company hereunder and (c) registered representatives of
the Placement Agent and/or its designees (including, without limitation,
registered representatives of the Placement Agent and/or its designees who
participate in the Offering and sale of the securities sold in the Offering)
will be paid a portion of the commissions paid to the Placement Agent including
a portion of the Placement Options (as defined in Section 5.1(c) below).
1.21 The Subscriber, whose name appears on the signature line
below, shall be the beneficial owner of the Securities for which such Subscriber
subscribes.
II. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
Except as set forth on the Schedule of Exceptions attached hereto as
Exhibit A, the Company hereby represents, warrants and covenants to the
Subscriber that:
2.1 Organization, Good Standing and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has full corporate power and lawful authority
to conduct its business as described in
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the Term Sheet. The Company is duly qualified to do business as a foreign
corporation and is in good standing in Massachusetts and in each jurisdiction in
which the nature of the business conducted, or as proposed to be conducted in
the Term Sheet, by it or the properties owned, leased or operated by it, makes
such qualification or licensing necessary and where the failure to be so
qualified or licensed would have a material adverse effect upon the business,
prospects and financial condition of the Company. The Company is duly qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction in which the laws require the Company to be so qualified and/or
authorized to do business.
2.2 Capitalization and Voting Rights. The authorized, issued
and outstanding capital stock of the Company is as set forth in the Term Sheet
under the heading "Equity Capitalization"; all issued and outstanding shares of
capital stock of the Company are validly issued, fully paid and nonassessable.
The Securities comprising the Units have been duly and validly authorized and,
when issued and paid for pursuant to this Agreement, will be validly issued,
fully paid and nonassessable. Except as set forth in the Term Sheet, there are
no outstanding options, warrants, agreements, convertible securities, preemptive
rights or other rights to subscribe for or to purchase any shares of capital
stock of the Company. Except as set forth in the Term Sheet, in this Agreement
and as otherwise required by law, there are no restrictions upon the voting or
transfer of the Securities pursuant to the Company's Certificate of
Incorporation, as amended (the "Certificate of Incorporation"), By-laws or other
governing documents or any agreement or other instruments to which the Company
is a party or by which the Company is bound.
2.3 Authorization; Enforceability. The Company has all
corporate right, power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. All corporate action on the
part of the Company, its directors and stockholders necessary for the
authorization, execution, delivery and performance of this Agreement by the
Company, the authorization, sale, issuance and delivery of the Subscription
Common and Class C Warrants contemplated hereby and the Common Stock underlying
such Class C Warrants and the performance of the Company's obligations hereunder
has been taken. This Agreement has been duly executed and delivered by the
Company and constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to laws of
general application relating to bankruptcy, insolvency and the relief of debtors
and rules of law governing specific performance, injunctive relief or other
equitable remedies, and to limitations of public policy. Upon the issuance and
delivery of the Subscription Common and Class C Warrants, as contemplated by
this Agreement, such securities will be duly and validly authorized and issued,
fully paid and nonassessable. Upon the issuance and delivery of the Common Stock
underlying the Class C Warrants, and upon compliance by the Subscriber with the
terms hereof, the Common Stock will be duly authorized, validly issued, fully
paid and nonassessable. The issuance and sale of the Securities contemplated
hereby will not give rise to any preemptive rights or rights of first refusal on
behalf of any person.
2.4 No Conflict; Governmental Consents.
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(a) The execution and delivery by the Company of this
Agreement and the consummation of the transactions contemplated hereby will not
result in the violation of any law, statute, rule, regulation, order, writ,
injunction, judgment or decree of any court or governmental authority to or by
which the Company is bound, or of any provision of the Certificate of
Incorporation or By-laws of the Company, and will not conflict with, or result
in a breach or violation of, any of the terms or provisions of, or constitute
(with due notice or lapse of time or both) a default under, any lease, loan
agreement, mortgage, security agreement, trust indenture or other agreement or
instrument to which the Company is a party or by which it is bound or to which
any of its properties or assets is subject, nor result in the creation or
imposition of any lien upon any of the properties or assets of the Company.
(b) No consent, approval, authorization or other order of any
governmental authority or other third-party is required to be obtained by the
Company in connection with the authorization, execution and delivery of this
Agreement or with the authorization, issuance and sale of the Units or the
Securities comprising the Units, except such filings as may be required to be
made with the Commission, the NASD and the National Association of Securities
Dealers Automated Quotation System ("Nasdaq") and with any state or foreign blue
sky or securities regulatory authority.
2.5 Licenses. Except as set forth in the Term Sheet, the
Company has all licenses, permits and other governmental authorizations
currently required for the conduct of its business or ownership of properties
and is in all material respects complying therewith.
2.6 Litigation. Except as set forth in the Term Sheet, the
Company knows of no pending or threatened legal or governmental proceedings
against the Company which could materially adversely affect the business,
property, financial condition, operations or prospects of the Company.
2.7 Accuracy of Reports. All material reports required to be
filed by the Company within the three years prior to the date of this Agreement
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), have
been duly filed with the SEC, complied at the time of filing in all material
respects with the requirements of their respective forms and, except to the
extent updated or superseded by the Term Sheet or any subsequently filed report,
to the best of the Company's knowledge, were complete and correct in all
material respects as of the dates at which the information was furnished, and
contained (as of such dates) no untrue statement of a material fact or omitted
to state a material fact necessary in order to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading.
2.8 Term Sheet; Disclosure. No information set forth in the
Term Sheet contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained therein, in
light of the circumstances under which they were made, not misleading.
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2.9 Investment Company. The Company is not an "investment
company" within the meaning of such term under the Investment Company Act of
1940, as amended, and the rules and regulations of the Commission thereunder.
2.10 Listing. The Company shall promptly file an Application
for Listing of Additional Shares with the Nasdaq National Market (the "Nasdaq")
and hereby represents and warrants to the Placement Agent and the Subscriber
that it will take any other necessary action in accordance with the rules of the
Nasdaq to enable the (a) Subscription Common (including the Common Stock
issuable upon exercise of the Class C Warrants) and (b) the Class C Warrants to
trade on the Nasdaq.
2.11 Reservation of Shares; Transfer Taxes, Etc. The Company
shall at all times reserve and keep available, out of its authorized and
unissued shares of Common Stock, solely for the purpose of effecting any
exercises of Class C Warrants, and any Reset Issuance (as defined below),
Semi-Annual Issuance (as defined below), Qualified Offering Issuance (as defined
below) and Dilution Issuance (as defined below and, together with Reset
Issuances, Qualified Offering Issuances and Semi-Annual Issuances, referred to
herein as "Article VI Issuances"), such number of shares of its Common Stock
free of preemptive rights as shall be sufficient to effect such exercises and
Article VI Issuances from time to time required or reasonably anticipated. The
Company shall use its best efforts from time to time, in accordance with the
laws of the State of Delaware to increase the authorized number of shares of
Common Stock if at any time the number of shares of authorized, unissued and
unreserved Common Stock shall not be sufficient to permit any required or
reasonably anticipated exercises of Class C Warrants or Article VI Issuances. In
the event, and to the extent, that the company does not have sufficient
authorized but unissued shares of Common Stock to effect any exercise of Class C
Warrants or any Article VI Issuance (collectively a "Common Issuance Event"),
the Company shall pay the Subscriber cash in an amount per share of Common Stock
that would have been issued to such Subscriber pursuant to such Common Issuance
Event but for the lack of sufficient authorized but unissued Common Stock equal
to the greater of (i) 1.40 times the Dilution Value (as defined below) (or, in
the case of shares of Common Stock issuable upon exercise of the Class C
Warrants, 1.40 times the exercise price) and (ii) the Market Price, in either
case determined as of the date of the event giving rise to such Common Issuance
Event.
The Company shall pay any and all issue or other taxes that may be
payable in respect of any Article VI Issuance.
III. TERMS OF SUBSCRIPTION
3.1 The Company shall issue a minimum of ten (10) Units and a
maximum of sixty (60) Units. The Placement Agent, at its sole option, may offer
and sell up to an additional sixty (60) Units to cover over-allotments. The
offering period (the "Offering Period") shall begin on November 14, 1997. Upon
receipt of the Minimum Offering amount, the Placement Agent may conduct a
closing (the date of which being the "Initial Closing Date") and may conduct
subsequent
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Closings on an interim basis until the Maximum Offering and any over-allotment
amount has been reached or the Termination Date (as defined below) has been
reached (the "Final Closing Date"). The Offering Period shall terminate at 11:59
p.m. New York City time on March 13, 1998, subject to an extension, at the sole
option of the Placement Agent, for an additional sixty (60) days (the
"Termination Date"). The Units will be offered on a "best efforts" basis. The
purchase price is payable by personal or business check, wire transfer of
immediately available funds or money order made payable to "Fleet National Bank,
Escrow Agent, F/B/O Procept, Inc."
3.2 Placement of the Units will be made by the Placement
Agent, who will receive certain compensation as described in the Term Sheet and
the Placement Agency Agreement.
3.3 Pending the sale of the Units, all funds paid hereunder
shall be deposited by the Company in escrow with Fleet National Bank, having a
branch at 345 Park Avenue, New York, New York 10022. If the Company shall not
have obtained subscriptions (including this subscription) for purchases of the
minimum ten (10) Units on or before the Termination Date, then this subscription
shall be void and all funds paid hereunder by the Subscriber shall be promptly
returned to the Subscriber, with interest, subject to paragraph 3.5 hereof.
3.4 The Subscriber hereby authorizes and directs the Company
to deliver the Securities to be issued to the Subscriber pursuant to this
Agreement directly to the Subscriber's account maintained by the Placement
Agent, if any, or, if no such account exists, to the residential or business
address indicated on the signature page hereto.
3.5 The Subscriber hereby authorizes and directs the Company
to return any funds for unaccepted subscriptions to the same account from which
the funds were drawn, including any customer account maintained with the
Placement Agent.
IV. CONDITIONS TO OBLIGATIONS OF THE SUBSCRIBER
4.1 The Subscriber's obligation to purchase the Units at any
Closing is subject to the fulfillment on or prior to each Closing of the
following conditions, which conditions may be waived at the option of the
Subscriber to the extent permitted by law:
(a) Representations and Warranties Correct. The
representations and warranties made by the Company in Article II hereof shall be
true and correct in all material respects when made, and shall be true and
correct in all material respects on each Closing with the same force and effect
as if they had been made on and as of such Closing.
(b) Covenants. All covenants, agreements and
conditions contained in this Agreement to be performed by the Company on or
prior to such purchase shall have been performed or complied with in all
material respects.
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(c) No Legal Order Pending. There shall not then be
in effect any legal or other order enjoining or restraining the transactions
contemplated by this Agreement.
(d) No Law Prohibiting or Restricting Such Sale.
There shall not be in effect any law, rule or regulation prohibiting or
restricting such sale or requiring any consent or approval of any person which
shall not have been obtained to issue the Securities (except as otherwise
provided in this Agreement).
(e) Minimum Subscriptions. The Company shall have
received binding subscriptions for at least twenty-five (25) Units.
(f) Legal Opinion. On each Closing, if requested by
the Placement Agent, at each Closing, counsel to the Company shall have
delivered to the Placement Agent, for the benefit of the Placement Agent and the
Subscriber, a legal opinion concerning legal matters relating to this Agreement
and the Term Sheet as the Placement Agent may require.
(g) Comfort Letter. On each Closing, if requested by
the Placement Agent, the Company's auditors, Coopers & Lybrand, LLP, shall have
delivered to the Placement Agent for the benefit of the Placement Agent and the
Subscriber, a comfort letter to such effect as the Placement Agent may require.
V. REGISTRATION RIGHTS
5.1 As used in this Agreement, the following terms shall have
the following meanings:
(a) "Affiliate" shall mean, with respect to any
Person (as defined below), any other Person controlling, controlled by, or under
direct or indirect common control with, such Person (for the purposes of this
definition "control," when used with respect to any specified Person, shall mean
the power to direct the management and policies of such person, directly or
indirectly, whether through ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" shall have meanings
correlative to the foregoing).
(b) "Business Day" shall mean a day Monday through
Friday on which banks are generally open for business in New York.
(c) "Holders" shall mean the Subscriber and any
person holding Registrable Securities (including the Registrable Securities
underlying the placement options (the "Placement Options") and the advisory
options (the "Advisory Options") to be granted to the Placement Agent and/or its
designees pursuant to the Placement Agency Agreement between the Company and the
Placement Agent dated October 26, 1997 (the "Placement Agency Agreement")),
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or any person to whom the rights under Article V have been transferred in
accordance with Section 5.9 hereof.
(d) "Person" shall mean any person, individual,
corporation, limited liability company, partnership, trust or other
nongovernmental entity or any governmental agency, court, authority or other
body (whether foreign, federal, state, local or otherwise).
(e) The terms "register," "registered" and
"registration" refer to the registration effected by preparing and filing a
registration statement in compliance with the Act, and the declaration or
ordering of the effectiveness of such registration statement.
(f) "Registrable Securities" shall mean (i) the
Subscription Common (including the Subscription Common underlying the Placement
Options and Advisory Options), (ii) the shares of Common Stock issuable upon the
exercise of the Class C Warrants (including the shares of Common Stock issuable
upon exercise of the Class C Warrants underlying the Placement Options and the
Advisory Options), (iii) the Class C Warrants (including the Class C Warrants
issuable upon exercise of the Placement and Advisory Options), (iv) a number of
shares of Common Stock issuable upon issuances pursuant to Article VI with
respect any Reset Issuance (as defined below) and the first two (2) Semi-Annual
Issuances (as defined below) and (v) any shares of Common Stock issued as (or
issuable upon the conversion of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to or in replacement of
the Securities; provided, however, that securities shall only be treated as
Registrable Securities if and only for so long as they (A) have not been
disposed of pursuant to a registration statement declared effective by the
Commission, (B) have not been sold in a transaction exempt from the registration
and prospectus delivery requirements of the Act so that all transfer
restrictions and restrictive legends with respect thereto are removed upon the
consummation of such sale or (C) are held by a Holder or a permitted transferee
pursuant to Section 5.9.
(g) "Registration Expenses" shall mean all expenses
incurred by the Company in complying with Section 5.2 hereof, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and expenses of counsel for the Company, blue sky fees and
expenses and the expense of any special audits incident to, or required by, any
such registration (but excluding the fees of legal counsel for any Holder).
(h) "Registration Statement" shall have the meaning
ascribed to such term in Section 5.2.
(i) "Registration Period" shall have the meaning
ascribed to such term in Section 5.4.
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(j) "Selling Expenses" shall mean all underwriting
discounts and selling commissions applicable to the sale of Registrable
Securities and all fees and expenses of legal counsel for any Holder.
5.2 No later than thirty (30) days after the Final Closing
Date (the "Filing Date"), the Company shall file a "shelf" registration
statement on the appropriate form (the "Registration Statement") with the
Commission and use its best efforts to effect the registration, qualifications
or compliances (including, without limitation, the execution of any required
undertaking to file post-effective amendments, appropriate qualifications or
exemptions under applicable blue sky or other state securities laws and
appropriate compliance with applicable securities laws, requirements or
regulations) of the Registrable Securities prior to the date which is 75 days
after the Final Closing Date. Notwithstanding the foregoing, the Company shall
not be obligated to enter into any underwriting agreement for the sale of any of
the Registrable Securities.
5.3 All Registration Expenses incurred in connection with any
registration, qualification, exemption or compliance pursuant to Section 5.2
shall be borne by the Company. All Selling Expenses relating to the sale of
securities registered by or on behalf of Holders shall be borne by such Holders
pro rata on the basis of the number of securities so registered; provided that
if a Holder uses its own legal counsel in addition to one counsel for all of the
Holders of securities registered on behalf of the Holders, such Holder shall
bear the cost of such counsel.
5.4 In the case of the registration, qualification, exemption
or compliance effected by the Company pursuant to this Agreement, the Company
shall, upon reasonable request, inform each Holder as to the status of such
registration, qualification, exemption and compliance. At its expense the
Company shall:
(a) use its best efforts to keep such registration,
and any qualification, exemption or compliance under state securities laws which
the Company determines to obtain, continuously effective until the Holders have
completed the distribution described in the registration statement relating
thereto. The period of time during which the Company is required hereunder to
keep the Registration Statement effective is referred to herein as "the
Registration Period." Notwithstanding the foregoing, at the Company's election,
the Company may cease to keep such registration, qualification, exemption or
compliance effective with respect to any Registrable Securities, and the
registration rights of a Holder shall expire, at such time as the Holder (who is
not an affiliate of the Company) may sell under Rule 144 under the Act (or other
exemption from registration acceptable to the Company) in a three-month period
all Registrable Securities then held by such Holder, but this sentence shall not
relieve the Company of any obligation to comply with this Article V as to any
Subscription Common thereafter issued; and
(b) advise the Holders:
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(i) when the Registration Statement or any
amendment thereto has been filed with the Commission and when the Registration
Statement or any post-effective amendment thereto has become effective;
(ii) of any request by the Commission for
amendments or supplements to the Registration Statement or the prospectus
included therein or for additional information;
(iii) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for such purpose;
(iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Securities included therein for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose; and
(v) of the happening of any event that
requires the making of any changes in the Registration Statement or the
prospectus so that, as of such date, the statements therein are not misleading
and do not omit to state a material fact required to be stated therein or
necessary to make the statements therein (in the case of the prospectus, in the
light of the circumstances under which they were made) not misleading;
(c) make every reasonable effort to obtain the
withdrawal of any order suspending the effectiveness of any Registration
Statement at the earliest possible time;
(d) furnish to each Holder, without charge, at least
one copy of such Registration Statement and any post-effective amendment
thereto, including financial statements and schedules, and, if the Holder so
requests in writing, all exhibits (including those incorporated by reference) in
the form filed with the Commission;
(e) during the Registration Period, deliver to each
Holder, without charge, as many copies of the prospectus included in such
Registration Statement and any amendment or supplement thereto as such Holder
may reasonably request; and the Company consents to the use, consistent with the
provisions hereof, of the prospectus and any amendment or supplement thereto by
each of the selling Holders of Registrable Securities in connection with the
offering and sale of the Registrable Securities covered by the prospectus and
any amendment or supplement thereto. In addition, upon the reasonable request of
the Holder and subject in all cases to confidentiality protections reasonably
acceptable to the Company, the Company will meet with a Holder or a
representative thereof at the Company's headquarters to discuss all information
relevant for disclosure in the Registration Statement covering the Registrable
Securities, and will otherwise cooperate with any Holder conducting an
investigation for the purpose of reducing or eliminating
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such Holder's exposure to liability under the Act, including the reasonable
production of information at the Company's headquarters;
(f) during the Registration Period, deliver to each
Holder, without charge, (i) as soon as practicable (but in the case of the
annual report of the Company to its stockholders, within 120 days after the end
of each fiscal year of the Company) one copy of: (A) its annual report to its
stockholders, if any (which annual report shall contain financial statements
audited in accordance with generally accepted accounting principles in the
United States of America by a firm of certified public accountants of recognized
standing); (B) if not included in substance in its annual report to
stockholders, its annual report on Form 10-K (or similar form); (C) each of its
quarterly reports to its stockholders, if any, and, if not included in substance
in its quarterly reports to stockholders, its quarterly report on Form 10-Q (or
similar form), and (D) a copy of the full Registration Statement (the foregoing,
in each case, excluding exhibits); and (ii) upon reasonable request, all
exhibits excluded by the parenthetical to the immediately preceding clause (D),
and all other information that is generally available to the public;
(g) prior to any public offering of Registrable
Securities pursuant to any Registration Statement, register or qualify or obtain
an exemption for offer and sale under the securities or blue sky laws of such
jurisdictions as any such Holders reasonably request in writing, provided that
the Company shall not for any such purpose be required to qualify generally to
transact business as a foreign corporation in any jurisdiction where it is not
so qualified or to consent to general service of process in any such
jurisdiction, and do any and all other acts or things reasonably necessary or
advisable to enable the offer and sale in such jurisdictions of the Registrable
Securities covered by such Registration Statement;
(h) cooperate with the Holders to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be sold pursuant to any Registration Statement free of any
restrictive legends to the extent not required at such time and in such
denominations and registered in such names as Holders may request at least three
(3) business days prior to sales of Registrable Securities pursuant to such
Registration Statement;
(i) upon the occurrence of any event contemplated by
Section 5.4(b)(v) above, the Company shall promptly prepare a post-effective
amendment to the Registration Statement or a supplement to the related
prospectus, or file any other required document so that, as thereafter delivered
to purchasers of the Registrable Securities included therein, the prospectus
will not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and
(j) use its best efforts to comply with all
applicable rules and regulations of the Commission, and will make generally
available to the Holders not later than 45 days (or 90 days if the fiscal
quarter is the fourth fiscal quarter) after the end of its fiscal quarter in
which the
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first anniversary date of the effective date of the Registration Statement
occurs, an earnings statement satisfying the provisions of Section 11(a) of the
Act.
5.5 The Holders shall have no right to take any action to
restrain, enjoin or otherwise delay any registration pursuant to Section 5.2
hereof as a result of any controversy that may arise with respect to the
interpretation or implementation of this Agreement.
5.6 (a) To the extent permitted by law, the Company shall
indemnify each Holder, each underwriter of the Registrable Securities and each
person controlling such Holder within the meaning of Section 15 of the Act, with
respect to which any registration, qualification or compliance has been effected
pursuant to this Agreement, against all claims, losses, damages and liabilities
(or action in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened (subject to Section 5.6(c)
below), arising out of or based on (i) any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus or offering circular, or any amendment or supplement thereof,
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
light of the circumstances in which they were made, or (ii) any violation or
alleged violation by the Company of the Act, the Exchange Act, or any rule or
regulation promulgated under the Act, or the Exchange Act, and shall reimburse
each Holder, each underwriter of the Registrable Securities and each person
controlling such Holder, for legal and other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action as incurred; provided that the Company shall not be liable
in any such case to the extent that any untrue statement or omission or
allegation thereof is made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Holder and stated
to be specifically for use in preparation of such registration statement,
prospectus or offering circular; provided that the Company shall not be liable
in any such case where the claim, loss, damage or liability arises out of or is
related to the failure of the Holder to comply with the covenants and agreements
contained in this Agreement respecting sales of Registrable Securities, and
except that the foregoing indemnity agreement is subject to the condition that,
insofar as it relates to any such untrue statement or alleged untrue statement
or omission or alleged omission made in the preliminary prospectus but
eliminated or remedied in the amended prospectus on file with the Commission at
the time the registration statement becomes effective or in the amended
prospectus filed with the Commission pursuant to Rule 424(b) of the Act or in
the prospectus subject to completion and term sheet under Rule 434 of the Act,
which together meet the requirements of Section 10(a) of the Act (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit of any
such Holder, any such underwriter or any such controlling person, if a copy of
the Final Prospectus furnished by the Company to the Holder for delivery was not
furnished to the person or entity asserting the loss, liability, claim or damage
at or prior to the time such furnishing is required by the Act and the Final
Prospectus would have cured the defect giving rise to such loss, liability,
claim or damage.
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(b) Each Holder will severally, if Registrable
Securities held by such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers, each underwriter of the Registrable
Securities and each person who controls the Company within the meaning of
Section 15 of the Act, against all claims, losses, damages and liabilities (or
actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened (subject to Section 5.6(c)
below), arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus or offering circular, or any amendment or supplement thereof,
incident to any such registration, qualification or compliance or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
light of the circumstances in which they were made, and will reimburse the
Company, such directors and officers, each underwriter of the Registrable
Securities and each person controlling the Company for reasonable legal and any
other expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability or action as incurred, in each case to
the extent, but only to the extent, that such untrue statement or omission or
allegation thereof is made in reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of the Holder and stated to
be specifically for use in preparation of such registration statement,
prospectus or offering circular; provided that the indemnity shall not apply to
the extent that such claim, loss, damage or liability results from the fact that
a current copy of the prospectus or offering circular was not made available to
the Holder and such current copy of the prospectus or offering circular would
have cured the defect giving rise to such loss, claim, damage or liability.
Notwithstanding the foregoing, in no event shall a Holder be liable for any such
claims, losses, damages or liabilities in excess of the proceeds received by
such Holder in the offering, except in the event of fraud by such Holder.
(c) Each party entitled to indemnification under this
Section 5.6 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such Indemnified Party's expense, and provided further that the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Agreement, unless
such failure is materially prejudicial to the Indemnifying Party in defending
such claim or litigation. An Indemnifying Party shall not be liable for any
settlement of an action or claim effected without its written consent (which
consent will not be unreasonably withheld).
(d) If the indemnification provided for in this
Section 5.6 is held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss,
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liability, claim, damage or expense referred to therein, then the Indemnifying
Party, in lieu of indemnifying such Indemnified Party thereunder, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such loss, liability, claim, damage or expense in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party on the one
hand and of the Indemnified Party on the other in connection with the statements
or omissions which resulted in such loss, liability, claim, damage or expense as
well as any other relevant equitable considerations. The relative fault of the
Indemnifying Party and of the Indemnified Party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified Party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
5.7 (a) Upon receipt of any notice from the Company of the
happening of any event requiring the preparation of a supplement or amendment to
a prospectus relating to Registrable Securities so that, as thereafter delivered
to the Holders, such prospectus will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, each Holder shall
forthwith discontinue disposition of Registrable Securities pursuant to the
registration statement contemplated by Section 5.2 until its receipt of copies
of the supplemented or amended prospectus from the Company and, if so directed
by the Company, each Holder shall deliver to the Company all copies, other than
permanent file copies then in such Holder's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
(b) Each Holder shall suspend, upon request of the
Company, any disposition of Registrable Securities pursuant to the Registration
Statement and prospectus contemplated by Section 5.2 during (i) any period not
to exceed two 30-day periods within any one 12-month period the Company requires
in connection with a primary underwritten offering of equity securities and (ii)
any period, not to exceed one 45-day period per circumstance or development,
when the Company determines in good faith that offers and sales pursuant thereto
should not be made by reason of the presence of material undisclosed
circumstances or developments with respect to which the disclosure that would be
required in such a prospectus is premature, would have an adverse effect on the
Company or is otherwise inadvisable.
(c) As a condition to the inclusion of its
Registrable Securities, each Holder shall furnish to the Company such
information regarding such Holder, the Securities of the Company owned
beneficially or of record by such holder and the distribution proposed by such
Holder as the Company may request in writing or as shall be required in
connection with any registration, qualification or compliance referred to in
this Article V.
(d) Each Holder hereby covenants with the Company (i)
not to make any sale of the Registrable Securities without effectively causing
the prospectus delivery requirements under the Act to be satisfied, and (ii) if
such Registrable Securities are to be sold by any method or
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in any transaction other than on a national securities exchange, the Nasdaq
National Market, Nasdaq SmallCap Market or in the over-the-counter market, in
privately negotiated transactions, or in a combination of such methods, to
notify the Company at least five (5) business days prior to the date on which
the Holder first offers to sell any such Registrable Securities.
(e) Each Holder acknowledges and agrees that the
Registrable Securities sold pursuant to the Registration Statement described in
this Section are not transferable on the books of the Company unless the stock
certificate submitted to the transfer agent evidencing such Registrable
Securities is accompanied by a certificate reasonably satisfactory to the
Company to the effect that (i) the Registrable Securities have been sold in
accordance with such Registration Statement and (ii) the requirement of
delivering a current prospectus has been satisfied.
(f) Each Holder shall not take any action with
respect to any distribution deemed to be made pursuant to such registration
statement, which would constitute a violation of Regulation M under the Exchange
Act or any other applicable rule, regulation or law.
(g) At the end of the period during which the Company
is obligated to keep the Registration Statement current and effective as
described above, the Holders of Registrable Securities included in the
Registration Statement shall discontinue sales of shares pursuant to such
Registration Statement upon receipt of notice from the Company of its intention
to remove from registration the shares covered by such Registration Statement
which remain unsold, and such Holders shall notify the Company of the number of
shares registered which remain unsold immediately upon receipt of such notice
from the Company.
5.8 With a view to making available to the Holders the
benefits of certain rules and regulations of the Commission which at any time
permit the sale of the Registrable Securities to the public without
registration, the Company shall use its reasonable best efforts:
(a) to make and keep public information available, as
those terms are understood and defined in Rule 144 under the Act, at all times;
(b) to file with the Commission in a timely manner
all reports and other documents required of the Company under the Exchange Act;
and
(c) so long as a Holder owns any unregistered
Registrable Securities, to furnish to such Holder upon any reasonable request a
written statement by the Company as to its compliance with Rule 144 under the
Act, and of the Exchange Act, a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents of the Company as
such Holder may reasonably request in availing itself of any rule or regulation
of the Commission allowing a Holder to sell any such securities without
registration.
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5.9 The rights to cause the Company to register Registrable
Securities granted to the Holders by the Company under Section 5.1 may be
assigned in full by a Holder in connection with a transfer by such Holder of its
Registrable Securities, provided that (i) such transfer shall otherwise be
effected in accordance with applicable securities laws and Section 6.9; (ii)
such Holder gives prior written notice to the Company; and (iii) such transferee
agrees to comply with the terms and provisions of this Agreement, and such
transfer is otherwise in compliance with this Agreement. Except as specifically
permitted by this Section 5.9, the rights of a Holder with respect to
Registrable Securities as set out herein shall not be transferable to any other
Person, and any attempted transfer shall cause all rights of such Holder therein
to be forfeited.
5.10 With the written consent of the Company and the Holders
holding at least a majority of the Registrable Securities that are then
outstanding, any provision of this Article V may be waived (either generally or
in a particular instance, either retroactively or prospectively and either for a
specified period of time or indefinitely) or amended. Upon the effectuation of
each such waiver or amendment, the Company shall promptly give written notice
thereof to the Holders, if any, who have not previously received notice thereof
or consented thereto in writing.
VI. ADDITIONAL CONTRACTUAL RIGHTS
6.1 Definitions. As used in this Agreement, the following
terms shall have the following meanings, unless the context otherwise requires:
(a) "Article VI Rights" shall mean the rights to
receive all Reset Issuances, Semi-Annual Issuances, Dilution Issuances and
Qualified Offering Issuances and the right to exercise the Liquidation Put and
the Exchange Right, as provided herein.
(b) "Change of Shares" shall mean any event that
necessitates an adjustment to the Dilution Value (as defined below) pursuant to
Section 6.7 below.
(c) The "Closing Bid Price" of any security, for any
trading day (as defined below), shall be the reported per share closing bid
price, regular way, of such security on the relevant Stock Market (as defined
below) on such trading day or, if there were no transactions on such trading
day, the average of the reported closing bid and asked prices, regular way, of
such security on the relevant Stock Market on such trading day.
(d) "Dilution Event" shall mean any event that
necessitates an adjustment to the Dilution Value (as defined below) pursuant to
Section 6.6 below.
(e) The "Dilution Value" initially shall be the
lesser of (i) $0.50 and (ii) seventy-five percent (75%) of the Trading Price (as
defined below) immediately preceding (A) the Initial Closing Date, (B) any
interim closing date or (C) the Final Closing Date, whichever is lowest. The
Dilution Value is subject to adjustment pursuant to Sections 6.2, 6.6, 6.7 and
6.15.
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(f) "Fair Market Value" of any asset (including any
security) means the fair market value thereof as mutually determined by the
Company and the Placement Agent. If the Company and the Placement Agent are
unable to reach agreement on any valuation matter, such valuation shall be
submitted to and determined by a nationally recognized independent investment
bank selected by the Board of Directors of the Company and the Placement Agent
(or, if such selection cannot be agreed upon promptly, or in any event within
ten days, then such valuation shall be made by a nationally recognized
independent investment banking firm selected by the American Arbitration
Association in New York City in accordance with its rules), the costs of which
valuation shall be paid for by the Company.
(g) The "Issuance Base Amount" for the Subscriber, at
any time, means the sum of (i) the product of the Offering Quantity multiplied
by the number of Units the Subscriber has subscribed for, (ii) the number of
shares of any Reset Issuances (as defined below) made to such Subscriber
occurring before such time, (iii) the number of shares of any Semi-Annual
Issuances (as defined below) made to such Subscriber occurring before such time,
(iv) the number of shares of any Dilution Issuances (as defined below) made to
such Subscriber occurring before such time and (v) the number of shares of any
Qualified Offering Issuances (as defined below) made to such subscriber ocucring
before such time (with appropriate adjustments for any Change of Shares and
subject to reduction pursuant to Section 6.10). For any transferee Rights
Holder, the Issuance Base Amount, at any time, shall be the number of shares of
Common Stock related to such Article VI Rights as were transferred to such
Rights Holder plus the number of shares of any Reset Issuance, SemiAnnual
Issuance, Dilution Issuance and Qualified Offering Issuance made to such Rights
Holder occurring subsequent to such transfer but before such time. The Issuance
Base Amount shall include Dilution Issuances which would have been required but
for the operation of Paragraph 6.6(b)(i).
(h) "Liquidation Event" shall mean any (i)
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, (ii) sale or other disposition of all or substantially all of the
assets of the Company or (iii) any consolidation, merger, combination,
reorganization or other transaction in which the Company is not the surviving
entity or shares of Common Stock constituting more than fifty percent (50%) of
the voting power of the Company are exchanged for or changed into stock or
securities of another entity, cash and/or any other property (clause (iii) of
this Subsection being referred to as a "Merger Transaction"). Notwithstanding
the above, any consolidation, merger, combination, reorganization or other
transaction in which the Company is not the surviving entity but the
stockholders of the Company immediately prior to such transaction own in excess
of 50% of the voting power of the corporation surviving such transaction and own
such interest in substantially the same proportions as prior to such
transaction, shall not be considered a Liquidation Event or a Merger
Transaction, provided that the surviving corporation has made appropriate
provisions acceptable to the Placement Agent to ensure that the Article VI
Rights survive any such transaction.
(i) "Market Price" per share of Common Stock shall
mean the average Closing Bid Price (adjusted, where appropriate, for any Change
of Shares) for twenty (20)
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consecutive trading days, ending with the trading day immediately prior to the
date as of which the Market Price is being determined; provided, however, that
if the prices referred to in the definition of Closing Bid Price cannot be
determined on any trading day, "Market Price" shall mean the Fair Market Value.
(j) The "Post-Dilution Common Quantity" means the
quotient of the Pre- Dilution Common Value (as defined below) divided by the
Dilution Value immediately following the relevant Dilution Event, Reset Event or
Qualified Offering Adjustment Event (as defined below).
(k) The "Pre-Dilution Common Value" means the product
of the Issuance Base Amount multiplied by the Dilution Value immediately
preceding the relevant Dilution Event, Reset Event or Qualified Offering
Adjustment Event (as defined below).
(l) "Rights Holder" shall mean the Subscriber or any
Person who succeeds to such Subscriber's Article VI Rights pursuant to Section
6.9.
(m) The "Stock Market" shall mean, with respect to
any security, the principal national securities exchange on which such security
is listed or admitted to trading or, if such security is not listed or admitted
to trading on any national securities exchange, shall mean The Nasdaq National
Market System or The Nasdaq SmallCap Market (collectively, "Nasdaq") or, if such
security is not quoted on Nasdaq, shall mean the OTC Bulletin Board or, if such
security is not quoted on the OTC Bulletin Board, shall mean the
over-the-counter market as furnished by any NASD member firm selected from time
to time by the Company for that purpose.
(n) A "trading day" shall mean a day on which the
Stock Market is open for the transaction of business.
(o) "Trading Price" shall mean the lower of (i) the
average Closing Bid Price of the Common Stock for the thirty (30) consecutive
trading days immediately preceding the date as of which the Trading Price is
being determined (with appropriate adjustments for any Change of Shares) and
(ii) the average Closing Bid Price of the Common Stock for five (5) consecutive
trading days immediately preceding the date as of which the Trading Price is
being determined (with appropriate adjustments for any Change of Shares).
(p) The "Transfer Agent"shall mean American Stock
Transfer & Trust Company or the duly appointed successor thereto serving as the
transfer agent for the Common Stock.
6.2 Reset. (a) The Dilution Value in effect immediately prior
to the date that is 12 months after the Final Closing Date (the "Reset Date")
shall be adjusted and reset effective as of the Reset Date if the Market Price
of the Common Stock as of the Reset Date (the "12-Month Trading Price") is less
than 140% of the then applicable Dilution Value (a "Reset Event"). Upon the
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occurrence of a Reset Event, the Dilution Value shall be reduced to be equal to
the greater of (A) the 12-Month Trading Price divided by 1.40, and (B) 25% of
the then applicable Dilution Value.
(b) Within fifteen (15) days of the Reset Date, the
Company shall prepare a certificate signed by the Chief Executive Officer or
President, and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, of the Company setting forth the Dilution Value as of the
Reset Date, showing in reasonable detail the facts upon which such Dilution
Value is based, and such certificate shall forthwith be filed with the Transfer
Agent. A notice stating that the Dilution Value has been adjusted pursuant to
this paragraph, or that no adjustment is necessary, and setting forth the
Dilution Value in effect as of the Reset Date shall be mailed as promptly as
practicable after the Reset Date by the Company to all Rights Holders at their
last addresses as they shall appear in the Transfer Agent's record books.
6.3 Reset Issuance. If there is any change in the Dilution
Value as a result of Subsection 6.2(a), then, on such date, the Company shall
issue to the Rights Holder a number of shares of Common Stock (the "Reset
Issuance") equal to the difference between the Post-Dilution Common Quantity
minus the Issuance Base Amount.
6.4 Semi-Annual Issuances. On each six month anniversary of
the Reset Date (or the next succeeding business day), the Company shall issue
(each a "Semi-Annual Issuance") to the Rights Holder a number of shares of
Common Stock equal to 5% of the Issuance Base Amount on the applicable six month
anniversary date.
6.5 Dilution Issuances. Upon the occurrence of any Dilution
Event, the Company shall issue (each a "Dilution Issuance") to the Rights Holder
a number of shares of Common Stock equal to the difference of the Post-Dilution
Common Quantity minus the Issuance Base Amount.
6.6 Anti-Dilution Adjustments.
(a) Except as otherwise provided in Subsection
6.6(c), in the event the Company shall, at any time or from time to time after
the date hereof, sell or issue any shares of Common Stock for a consideration
per share less than either (i) the Dilution Value in effect on the date of such
sale or issuance or (ii) the Market Price of the Common Stock as of the date of
the sale or issuance (any such sale or issuance a "Dilutive Issuance"), then,
and thereafter upon each further Dilutive Issuance, the Dilution Value in effect
immediately prior to such Dilutive Issuance shall be changed to a price (rounded
to the nearest cent) determined by multiplying the Dilution Value in effect
immediately prior thereto by a fraction, the numerator of which shall be the sum
of the number of shares of Common Stock outstanding immediately prior to the
Dilutive Issuance and the number of shares of Common Stock which the aggregate
consideration received (determined as provided in Paragraph 6.6(b)(v) below) for
the issuance of such additional shares would purchase at the greater of (x) the
Dilution Value in effect on the date of such issuance or (y) the Market Price of
the Common Stock as of such date, and the denominator of which shall be the
number of shares of
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Common Stock outstanding immediately after the Dilutive Issuance. Such
adjustment shall be made successively whenever such an issuance is made.
(b) For purposes of Subsection 6.6(a), the following
Paragraphs (i) to (v) shall also be applicable:
(i) No adjustment of the Dilution Value
shall be made unless such adjustment would require a decrease of at least $.01;
provided that any adjustments which by reason of this Paragraph 6.6(b)(i) are
not required to be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment which, together with
adjustments so carried forward, shall require a decrease of at least $.01 in the
Dilution Value then in effect hereunder.
(ii) In case of (A) the sale or other
issuance by the Company (including as a component of a unit) of any rights or
warrants to subscribe for or purchase, or any options for the purchase of,
Common Stock or any securities convertible into or exchangeable for Common Stock
(such securities convertible, exercisable or exchangeable into Common Stock
being herein called "Convertible Securities"), or (B) the issuance by the
Company, without the receipt by the Company of any consideration therefor, of
any rights or warrants to subscribe for or purchase, or any options for the
purchase of, Common Stock or Convertible Securities, whether or not such rights,
warrants or options, or the right to convert or exchange such Convertible
Securities, are immediately exercisable, and the consideration per share for
which Common Stock is issuable upon the exercise of such rights, warrants or
options or upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the minimum aggregate consideration, as set forth in
the instrument relating thereto, without regard to any antidilution or similar
provisions contained therein for a subsequent adjustment of such amount, payable
to the Company upon the exercise of such rights, warrants or options, plus the
consideration received by the Company for the issuance or sale of such rights,
warrants or options, plus, in the case of such Convertible Securities, the
minimum aggregate amount, as set forth in the instrument relating thereto,
without regard to any antidilution or similar provisions contained therein for a
subsequent adjustment of such amount, of additional consideration, if any, other
than such Convertible Securities, payable upon the conversion or exchange
thereof, by (y) the total maximum number, as set forth in the instrument
relating thereto, without regard to any antidilution or similar provisions
contained therein for a subsequent adjustment of such amount, of shares of
Common Stock issuable upon the exercise of such rights, warrants or options or
upon the conversion or exchange of such Convertible Securities issuable upon the
exercise of such rights, warrants or options) is less than either the Dilution
Value or the Market Price of the Common Stock as of the date of the issuance or
sale of such rights, warrants or options, then such total maximum number of
shares of Common Stock issuable upon the exercise of such rights, warrants or
options or upon the conversion or exchange of such Convertible Securities (as of
the date of the issuance or sale of such rights, warrants or options) shall be
deemed to be "Common Stock" for purposes of Subsection 6.6(a) and shall be
deemed to have been sold for an amount equal
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to such consideration per share and shall cause an adjustment to be made in
accordance with Subsection 6.6(a).
(iii) In case of the sale or other issuance
by the Company of any Convertible Securities, whether or not the right of
conversion or exchange thereunder is immediately exercisable, and the price per
share for which Common Stock is issuable upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the total amount of
consideration received by the Company for the sale of such Convertible
Securities, plus the minimum aggregate amount, as set forth in the instrument
relating thereto, without regard to any antidilution or similar provisions
contained therein for a subsequent adjustment of such amount, of additional
consideration, if any, other than such Convertible Securities, payable upon the
conversion or exchange thereof, by (y) the total maximum number, as set forth in
the instrument relating thereto without regard to any antidilution or similar
provisions contained therein for a subsequent adjustment of such amount, of
shares of Common Stock issuable upon the conversion or exchange of such
Convertible Securities) is less than either the Dilution Value or the Market
Price of the Common Stock as of the date of the sale or other issuance of such
Convertible Securities, then such total maximum number of shares of Common Stock
issuable upon the conversion or exchange of such Convertible Securities (as of
the date of the sale of such Convertible Securities) shall be deemed to be
"Common Stock" for purposes of Subsection 6.6(a) and shall be deemed to have
been sold for an amount equal to such consideration per share and shall cause an
adjustment to be made in accordance with Subsection 6.6(a).
(iv) In case the Company shall modify the
rights of conversion, exchange or exercise of any of the securities referred to
in Paragraphs (ii) or (iii) of this Subsection 6.6(b) or any other securities of
the Company convertible, exchangeable or exercisable for shares of Common Stock,
for any reason other than an event that would require adjustment to prevent
dilution, so that the consideration per share received by the Company after such
modification is less than either the Dilution Value or the Market Price of the
Common Stock as of the date prior to such modification, then such securities, to
the extent not theretofore exercised, converted or exchanged, shall be deemed to
have expired or terminated immediately prior to the date of such modification
and the Company shall be deemed for purposes of calculating any adjustments
pursuant to this Section 6.6 to have issued such new securities upon such new
terms on the date of modification. Such adjustment shall become effective as of
the date upon which such modification shall take effect. On the expiration or
cancellation of any such right, warrant or option or the termination or
cancellation of any such right to convert or exchange any such Convertible
Securities, the Dilution Value then in effect hereunder shall forthwith be
readjusted to such Dilution Value as would have obtained (A) had the adjustments
made upon the issuance or sale of such rights, warrants, options or Convertible
Securities been made upon the basis of the issuance of only the number of shares
of Common Stock theretofore actually delivered (and the total consideration
received therefor) upon the exercise of such rights, warrants or options or upon
the conversion or exchange of such Convertible Securities and (B) had
adjustments been made on the basis of the Dilution Value as adjusted under
clause (A) of this sentence for all transactions (which would have affected such
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adjusted Dilution Value) made after the issuance or sale of such rights,
warrants, options or Convertible Securities.
(v) In case of the sale of any shares of
Common Stock, any Convertible Securities, any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, the consideration received by the Company therefor shall be deemed
to be the gross sales price therefor without deducting therefrom any expense
paid or incurred by the Company or any underwriting discounts or commissions or
concessions paid or allowed by the Company in connection therewith. In the event
that any securities shall be issued in connection with any other securities of
the Company, together comprising one integral transaction in which no specific
consideration is allocated among the securities, then each of such securities
shall be deemed to have been issued for such consideration as the Board of
Directors of the Company determines in good faith; provided, however that if the
Placement Agent disagrees with such determination, the Company shall retain, at
its own expense, an independent investment banking firm acceptable to the
Placement Agent for the purpose of obtaining an appraisal.
(c) Notwithstanding any other provision hereof, no
adjustment to the Dilution Value will be made:
(i) upon the exercise of any of the options
outstanding on the date hereof under the Company's existing stock option plans;
or
(ii) upon the issuance or exercise of
options which may hereafter be granted with the approval of the Board of
Directors, or exercised, under any employee benefit plan of the Company to
officers, directors, consultants or employees, but only with respect to such
options as are exercisable at prices no lower than the Closing Bid Price (or, if
the prices referenced in the definition of Closing Bid Price cannot be
determined, the Fair Market Value) of the Common Stock as of the date of grant
thereof; or
(iii) upon issuance or exercise of the
Placement Options or the Advisory Options, upon the conversion the New Warrants
(as defined in Exhibits B and C to the Securities Purchase Agreement dated as of
June 30, 1997), upon the issuance or exercise of the Subscription Common or the
Class C Warrants to be issued (i) on or prior to the Final Closing Date or (ii)
pursuant to the exercise of the Placement and Advisory Options, or upon the
issuance, conversion or the exercise of any Series A Preferred Stock or New
Warrants or Class C Warrants approved in writing by the Placement Agent; or
(iv) upon the issuance or sale of Common
Stock or Convertible Securities pursuant to the exercise of any rights, options
or warrants to receive, subscribe for or purchase, or any options for the
purchase of, Common Stock or Convertible Securities, whether or not such rights,
warrants or options were outstanding on the Final Closing Date or were
thereafter
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issued or sold, provided that an adjustment was either made or not required to
be made in accordance with Subsection 6.6(a) in connection with the issuance or
sale of such securities or any modification of the terms thereof; or
(v) upon the issuance or sale of Common
Stock upon conversion or exchange of any Convertible Securities, provided that
any adjustments required to be made upon the issuance or sale of such
Convertible Securities or any modification of the terms thereof were so made,
and whether or not such Convertible Securities were outstanding on the Final
Closing Date or were thereafter issued or sold; or
(vi) upon the issuance of stock that may
hereafter be purchased or sold with the approval of the Board of Directors,
under the 1993 Employee Stock Purchase Plan of the Company to officers,
directors, consultants or employees, but only with respect to such shares as are
purchased and/or sold in accordance with the current plan and at the prices no
lower than eighty-five percent (85%) of the Closing Bid Price (or, if the prices
referenced in the definition of Closing Bid Price cannot be determined, 85% of
the Fair Market Value) of the Common Stock as of the date of purchase and/or
sale thereof;
Paragraph 6.6(b)(iv) shall nevertheless apply to any
modification of the rights of conversion, exchange or exercise of any of the
securities referred to in this Subsection 6.6(c), except that Paragraph
6.6(b)(iv) shall not apply to any modification of the rights of conversion,
exchange or exercise of the securities excepted by Paragraph (iii) of this
Subsection 6.6(c) that are required by the original terms of those respective
instruments.
(d) As used in this Section 6.6, the term "Common
Stock" shall mean and include the Company's Common Stock authorized on the date
of the first original issue of the Units and shall also include any capital
stock of any class of the Company thereafter authorized which shall not be
limited to a fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends and in the distribution of assets upon the
voluntary liquidation, dissolution or winding up of the Company.
(e) The Company from time to time may decrease the
Dilution Value by any amount for any period of time if the period is at least 20
days and if the decrease is irrevocable during the period. Whenever the Dilution
Value is so decreased, the Company shall mail to the Rights Holders a notice of
the decrease at least 15 days before the date the decreased Dilution Value takes
effect, and such notice shall state the decreased Dilution Value and the period
it will be in effect.
The Company may make such decreases in the Dilution
Value, in addition to those required or allowed by this Article VI, as shall be
determined by it, as evidenced by a resolution of the Board of Directors, to be
advisable in order to avoid or diminish any income tax to holders of Common
Stock resulting from any dividend or distribution of stock or issuance of
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rights or warrants to purchase or subscribe for stock or from any event treated
as such for income tax purposes.
6.7 Change of Shares Adjustments. In the event the Company
shall, at any time or from time to time after the date hereof (i) issue any
shares of Common Stock as a stock dividend to the holders of Common Stock or
(ii) subdivide or combine the outstanding shares of Common Stock into a greater
or lesser number of shares (any such issuance, subdivision or combination being
herein called a "Change of Shares"), then the Dilution Value shall be changed to
a price (rounded to the nearest cent) determined by multiplying the Dilution
Value in effect immediately prior to such Change of Shares by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to the Change of Shares and the denominator of which shall be
the number of shares of Common Stock outstanding immediately following the
Change of Shares.
6.8 Liquidation Put. (a) The Rights Holder may require the
Company to repurchase with cash any number (not to exceed such Rights Holder's
Issuance Base Amount) of shares of Common Stock then owned by such Rights Holder
for 140% of the aggregate Dilution Value of such shares; provided, however, in
the event of a Merger Transaction, any repurchase pursuant to this Section 6.8
may be paid in cash, property (valued as provided in Subsection 6.8 (d)) and/or
securities (valued as provided in Subsection 6.8 (d)) of the entity surviving
such Merger Transaction. Notwithstanding the foregoing, the Company shall have
no obligation to repurchase Common Stock owned by the Rights Holders, if and to
the extent that the Company is not permitted to do so under the terms of the
Series A Preferred Stock.
(b) The Rights Holder covenants not to exercise the
Liquidation Put unless a Liquidation Event has occurred.
(c) The Rights Holder's Article VI Rights shall be
terminated to the pro rata extent of any exercise of such Rights Holder's
Liquidation Put.
(d) Any securities or other property to be delivered
to the Rights Holder pursuant to this Section 6.8 shall be valued as follows:
(i) Securities not subject to an investment
letter or other similar restriction on free marketability:
(A) If actively traded on the Stock
Market, the value shall be deemed to
be the Market Price of such
securities as of the third day prior
to the date of valuation.
(B) If not actively traded on the Stock
Market, the value shall be the Fair
Market Value of such securities.
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(ii) For securities for which there is an
active public market but which are subject to an investment letter or other
restrictions on free marketability, the value shall be the Fair Market Value
thereof, determined by discounting appropriately the Market Price thereof.
(iii) For all other securities, the value
shall be the Fair Market Value thereof.
6.9 Transfer of Rights Under This Article VI. The Rights
Holder's Article VI Rights are not transferable unless the transferee will be
both the record and beneficial owner of the related Common Stock and executes
and delivers to the Company a counterpart to this Agreement agreeing to be bound
by the obligations of the Subscriber hereunder. Any such transferee must provide
his or her name and address, which name and address must be that of the
beneficial owner, to the Company. Any transfer of Common Stock and related
Article VI Rights must be performed in accordance with applicable securities
laws and regulations, and the transferor must provide the Company with an
opinion of counsel, satisfactory to the Company, to that effect. Furthermore, no
transfer of Article VI Rights may be made relating to fewer shares of Common
Stock than the quotient of $25,000 divided by the Dilution Value. ANY PURPORTED
TRANSFER OF ARTICLE VI RIGHTS NOT IN COMPLIANCE WITH THIS SECTION 6.9 SHALL BE
NULL AND VOID AND THE RIGHTS HOLDER SHALL FORFEIT ALL ARTICLE VI RIGHTS RELATED
TO SUCH TRANSFERRED COMMON STOCK. Upon, and to the extent of, any transfer of
Common Stock without the related Article VI Rights, such related Article VI
Rights shall terminate.
6.10 Adjustments to Issuance Base Amount. Upon the termination
of any of the Rights Holder's Article VI Rights, such Rights Holder's Issuance
Base Amount shall be proportionally reduced.
6.11 Notices.
(a) After each adjustment of the Dilution Value
pursuant to Sections 6.2, 6.6, 6.7 and 6.15 the Company will promptly prepare a
certificate signed by the Chief Executive Officer or President, and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary,
of the Company setting forth: (i) the Dilution Value as so adjusted and (ii) a
brief statement of the facts accounting for such adjustment. The Company will
promptly file such certificate with the Transfer Agent and cause a brief summary
thereof to be sent by ordinary first class mail to each Rights Holder at his or
her last address as it shall appear on the Transfer Agent's record books. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity of such adjustment. The affidavit of an officer of the
Transfer Agent or the Secretary or an Assistant Secretary of the Company that
such notice has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts therein stated. The Transfer Agent may rely on the
information in the certificate as true and correct and has no duty nor
obligation independently to verify the amounts or calculations therein set
forth.
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(b) After any adjustment in the Issuance Base Amount
resulting from (i) any Reset Issuances, Semi-Annual Issuances, Dilution
Issuances or Qualified Offering Issuance (ii) any Change in Shares or (iii) any
termination of Article VI Rights, the Company will promptly prepare a
certificate signed by the Chief Executive Officer or President, and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary,
of the Company setting forth: (x) the Issuance Base Amount immediately preceding
and succeeding such adjustment and (y) a brief statement of the facts accounting
for such adjustment. The Company will promptly file such certificate with the
Transfer Agent and cause a brief summary thereof to be sent by ordinary first
class mail to each Rights Holder at his or her last address as it shall appear
on the Transfer Agent's record books. No failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity of such
adjustment. The affidavit of an officer of the Transfer Agent or the Secretary
or an Assistant Secretary of the Company that such notice has been mailed shall,
in the absence of fraud, be prima facie evidence of the facts therein stated.
The Transfer Agent may rely on the information in the certificate as true and
correct and has no duty nor obligation independently to verify the amounts or
calculations therein set forth.
6.12 Treasury Stock. Any Reset Issuance, Semi-Annual Issuance
and Dilution Issuance shall be made with duly authorized, fully-paid and
non-assessable shares of Common Stock, in accordance with Delaware Law, and
shall be drawn from the treasury stock of the Company to the extent available.
The Company shall promptly furnish to the Placement Agent, upon request, an
opinion of counsel reasonably satisfactory to the Placement Agent that the
requirements of this Section 6.12 have been met as to any issuance referred to
herein. The Company shall not otherwise sell, issue, cancel or otherwise impair
any of its treasury stock without the Placement Agent's prior written consent.
6.13 Mandatory Termination of Article VI Rights. At any time
on or after the Reset Date, the Company may cause the Rights Holder's Article VI
Rights to be terminated if the Market Price of the Common Stock shall have
exceeded 300% of the then applicable Dilution Value as of the third business day
prior to the date of notice of termination. No greater than 60 nor fewer than 20
days prior to the date of any such mandatory termination, notice by first class
mail, postage prepaid, shall be given to the Rights Holders, addressed to such
Rights Holders at their last addresses as they shall appear in the Transfer
Agent's record books. Each such notice shall specify the date fixed for
termination. Any notice which is mailed as herein provided shall be conclusively
presumed to have been duly given by the Company on the date deposited in the
mail, whether or not the Rights Holder receives such notice; and failure
properly to give such notice by mail, or any defect in such notice, to any
Rights Holders shall not affect the validity of the proceedings for the
termination of any other Rights Holders' Article VI Rights.
6.14 With the written consent of the Company and the Rights
Holders holding at least a majority of the issued and outstanding Common Stock
subject to Article VI Rights, any provision of this Article VI may be waived
(either generally or in a particular instance, either retroactively or
prospectively and either for a specified period of time or indefinitely) or
amended.
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Upon the effectuation of each such waiver or amendment, the Company shall
promptly give written notice thereof to the Rights Holders, if any, who have not
previously received notice thereof or consented thereto in writing.
6.15 Optional Exchange/Reset. (a) Upon the receipt of
requisite approvals, if any, from the stockholders of the Company, the shares of
Common Stock acquired hereunder may be exchanged (the "Exchange Right"), at the
option of each Rights Holder, upon the completion of a Qualified Offering (as
defined below) into Qualified Offering Securities (as defined below). Upon
exchange of their shares of Common Stock, up to the Issuance Base Amount, the
exchanging Rights Holders shall receive an amount of Qualified Offering
Securities equal to the quotient of (i) the Issuance Base Amount being exchanged
multiplied by the Dilution Value at the time of the Qualified Offering, divided
by (ii) the Qualified Offering Securities Price (as defined below) multiplied by
.75 (the "Exchange Price"); provided, however, that in the event that the
Exchange Price divided by the Underlying Common Stock Amount (as defined below)
is less than the greater of (a) 50% of the Offering Price and (b) 50% of the
average closing bid price of the Common Stock for the twenty trading days
immediately preceding the date of such exchange (the "Floor Price"), then the
Exchange Price shall equal the Floor Price multiplied by the Underlying Common
Stock Amount.
As used herein the following terms shall have the following meanings:
(i) "Underlying Common Stock Amount" shall equal the number of shares of
Common Stock and Common Stock underlying Convertible Securities
included as part of each Qualified Offering Security but shall not
include Common Stock underlying warrants or options to purchase Common
Stock or to purchase a Convertible Security, whether or not such
warrant or option contains a right to exercise such warrant or option
by the delivery of shares deemed purchased thereunder, including,
without limitation, by a cashless exercise.
(ii) "Qualified Offering Security" and "Qualified Offering Securities" shall
mean the security or securities (whether they are Common Stock,
Convertible Securities, units of Common Stock and/or Convertible
Securities (as defined below) and warrants or other similar rights)
issued or sold in the Qualified Offering (including any contractual
rights granted to investors in connection with the Qualified Offering).
(iii) "Qualified Offering" shall mean the sale or series of sales of equity
securities of the Company next occurring after the Final Closing Date
of this Offering, including, without limitation, Common Stock,
warrants, units of Common Stock and warrants, other securities
exchangeable, convertible or exercisable for Common Stock, alone or in
units, whether in a public offering or private placement, raising gross
proceeds in excess of $2,500,000; excluding, however, at the Company's
option, a firm commitment underwritten public offering.
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(iv) "Qualified Offering Securities Price" shall mean the selling price to
investors for each Qualified Offering Security.
(v) "Convertible Security" and "Convertible Securities" shall mean any
security convertible into or exchangeable for a share or shares of
Common Stock without the payment of any additional consideration in
such conversion or exchange other than the delivery of such security,
but shall not include a warrant or option to purchase Common Stock or
to purchase a Convertible Security, whether or not such warrant or
option contains a right to exercise such warrant or option by the
delivery of shares deemed purchased thereunder, including, without
limitation, by a cashless exercise.
(b) Upon and to the extent of any exchange into Qualified
Offering securities as set forth in Section 6.15(a) above, the Article VI Rights
related to the exchanged Common Stock shall terminate.
(c) Upon the receipt of requisite approvals, if any, from the
stockholders of the Company, holders who elect not to exchange their Common
Stock upon a Qualified Offering for Qualified Offering Securities, shall have
the Dilution Value with respect to their Article VI Rights adjusted (a
"Qualified Offering Adjustment Event") to equal the Exchange Price and shall
receive an additional number of shares (the "Qualified Offering Issuance") of
Common Stock equal to the difference between (i) the quotient of (a) the
Issuance Base Amount multiplied by the Dilution Value in effect prior to the
date of adjustment divided by (b) the (x) Exchange Price divided by (y) the
Underlying Common Stock Amount, and (ii) the Issuance Base Amount prior to the
date of adjustment; provided, however, that no adjustment shall be made if it
would result in an increase in the Dilution Value. Holders receiving Qualified
Offering Issuance shall have Article VI Rights with respect to such shares.
VII. MISCELLANEOUS
7.1 Any notice or other communication given hereunder shall be
deemed sufficient if in writing and sent by registered or certified mail, return
receipt requested, or delivered by hand against written receipt therefor,
addressed to Procept, Inc., 840 Memorial Drive, Cambridge, Massachusetts 02139,
Attn: Stanley C. Erck, and to the Subscriber at the Subscriber's address indi
cated on the signature page of this Agreement and to any Rights Holders at his
or her last address as it shall appear in the Transfer Agent's record books.
Notices shall be deemed to have been given or delivered on the date of mailing,
except notices of change of address, which shall be deemed to have been given or
delivered when received.
7.2 Except as provided in Section 5.10 above, this Agreement
shall not be changed, modified or amended except by a writing signed by the
parties to be charged, and this Agreement may not be discharged except by
performance in accordance with its terms or by a writing signed by the party to
be charged.
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7.3 Subject to the provisions of Sections 1.6, 5.9, 6.9 and
7.12, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and to their respective heirs, legal representatives, successors
and assigns. In addition, the Placement Agent is intended to be and shall be
third-party beneficiary of the provisions hereof. This Agreement sets forth the
entire agreement and understanding between the parties as to the subject matter
hereof and merges and supersedes all prior discussions, agreements and
understandings of any and every nature among them.
7.4 Upon the execution and delivery of this Agreement by the
Subscriber, this Agreement shall become a binding obligation of the Subscriber
with respect to the purchase of Units as herein provided, subject, however, to
the right hereby reserved by the Company to enter into the same agreements with
other subscribers and to add and/or delete other persons as subscribers.
7.5 NOTWITHSTANDING THE PLACE WHERE THIS AGREEMENT MAY BE
EXECUTED BY ANY OF THE PARTIES HERETO, THE PARTIES EXPRESSLY AGREE THAT ALL THE
TERMS AND PROVISIONS HEREOF SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED
BY, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS
OF LAW. IN THE EVENT THAT A JUDICIAL PROCEEDING IS NECESSARY, THE EXCLUSIVE FORA
FOR RESOLVING DISPUTES ARISING OUT OF, OR RELATING TO, THIS AGREEMENT ARE EITHER
THE SUPREME COURT OF THE STATE OF NEW YORK IN AND FOR THE COUNTY OF NEW YORK OR
THE FEDERAL COURTS FOR SUCH STATE AND COUNTY, AND ALL RELATED APPELLATE COURTS,
THE PARTIES HEREBY IRREVOCABLY CONSENT TO THE JURISDICTION OF SUCH COURTS AND
AGREE TO SAID VENUE.
7.6 In order to discourage frivolous claims, unless a claimant
in any proceeding arising out of this Agreement succeeds in establishing his
claim and recovering a judgment against another party (regardless of whether
such claimant succeeds against one of the other parties to the action), then the
other party shall be entitled to recover from such claimant all of its/their
reasonable legal costs and expenses relating to such proceeding and/or incurred
in preparation therefor.
7.7 The holding of any provision of this Agreement to be
invalid or unenforceable by a court of competent jurisdiction shall not affect
any other provision of this Agreement, which shall remain in full force and
effect. If any provision of this Agreement shall be declared by a court of
competent jurisdiction to be invalid, illegal or incapable of being enforced in
whole or in part, such provision shall be interpreted so as to remain
enforceable to the maximum extent permissible consistent with applicable law and
the remaining conditions and provisions or portions thereof shall nevertheless
remain in full force and effect and enforceable to the extent they are valid,
legal and en forceable, and no provisions shall be deemed dependent upon any
other covenant or provision unless so expressed herein.
7.8 A waiver by either party of a breach of any provision of
this Agreement shall not operate, or be construed, as a waiver of any subsequent
breach by that same party.
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7.9 The parties shall execute and deliver all such further
documents, agreements and instruments and shall take such other and further
action as may be necessary or appropriate to carry out the purposes and intent
of this Agreement.
7.10 This Agreement may be executed in two or more
counterparts each of which shall be deemed an original, but all of which shall
together constitute one and the same instrument.
7.11 (a) The Subscriber shall not issue any public statement
with respect to the Subscriber's investment or proposed investment in the
Company or the terms of any agreement or covenant between them and the Company
without the Company's prior written consent, except such disclosures as may be
required under applicable law or under any applicable order, rule or regulation.
(b) The Company shall not disclose the names,
addresses or any other information about the Subscriber, except as required by
law; provided, that the Company may use the name (but not the address) of the
Subscriber in the Registration Statement.
7.12 Nothing in this Agreement shall create or be deemed to
create any rights in any person or entity not a party to this Agreement, except
(a) for the holders of Registrable Securities, and (b) for the Placement Agent
pursuant to Section 1.6(a) and where otherwise explicitly noted, including,
without limitation, the provisions of Article V and Section 7.3 and (c) for any
Rights Holders to whom Article VI Rights were transferred pursuant to 6.9.
7.13 The Company acknowledges and agrees that irreparable
damage would occur in the event that any of the provisions of Article V and
Article VI of this Agreement were not performed in accordance with its specific
terms or were otherwise breached and that such damage would not be compensable
in money damages and that it would be extremely difficult or impracticable to
measure the resultant damages. Accordingly, the Subscriber shall be entitled to
an injunction or injunctions with respect to the provisions of this Agreement
and to enforce specifically the terms and provisions hereof, in addition to any
other remedy to which it may be entitled at law or in equity, and the Company
expressly waives any defense that a remedy in damages would be adequate and
expressly waives any requirement in an action for specific performance for the
posting of a bond by the Subscriber bringing such action.
7.14 For Missouri Residents Only: the Units are not registered
under the laws of the state of Missouri and may only be disposed of through a
licensed broker-dealer. It is a felony to sell securities in violation of the
Missouri Securities Act.
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VIII. CONFIDENTIAL INVESTOR QUESTIONNAIRE
8.1 The Subscriber represents and warrants that he, she or it
comes within one cate gory marked below, and that for any category marked, he,
she or it has truthfully set forth, where applicable, the factual basis or
reason the Subscriber comes within that category. ALL INFORMATION IN RESPONSE TO
THIS SECTION WILL BE KEPT STRICTLY CONFIDEN TIAL. The undersigned agrees to
furnish any additional information which the Company deems neces sary in order
to verify the answers set forth below.
Category A The undersigned is an individual (not a
partnership, corporation, etc.) whose individual net
worth, or joint net worth with his or her spouse,
presently exceeds $1,000,000.
Explanation. In calculating net worth you may include
equity in personal property and real estate,
including your principal residence, cash, short-term
investments, stock and securities. Equity in personal
property and real estate should be based on the fair
market value of such property less debt secured by
such property.
Category B The undersigned is an individual (not a partnership,
corporation, etc.) who had an individual income in
excess of $200,000 in each of the two most recent
years, or joint income with his or her spouse in
excess of $300,000 in each of those years (in each
case including foreign income, tax exempt income and
full amount of capital gains and losses but excluding
any income of other family members and any unrealized
capital appreciation) and has a reasonable expec
tation of reaching the same income level in the
current year.
Category C The undersigned is a director or executive officer
of the Company which is issuing and selling the
Units.
Category D The undersigned is a bank; a savings and loan
association; insurance company; registered investment
company; registered business development company;
licensed small business investment company ("SBIC");
or employee benefit plan within the meaning of Title
1 of ERISA and (a) the investment decision is made by
a plan fiduciary which is either a bank, savings and
loan association, insurance company or registered
investment advisor, or (b) the plan has total assets
in excess of $5,000,000 or is a self directed plan
with investment decisions made solely by persons that
are accredited investors.
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(describe entity)
Category E The undersigned is a private business development
company as defined in section 202(a)(22) of the
Investment Advisors Act of 1940.
(describe entity)
Category F The undersigned is either a corporation,
partnership, Massachusetts business trust, or
non-profit organization within the meaning of Section
501(c)(3) of the Internal Revenue Code, in each case
not formed for the specific purpose of acquiring the
Units and with total assets in excess of $5,000,000.
(describe entity)
Category G The undersigned is a trust with total assets in
excess of $5,000,000, not formed for the specific
purpose of acquiring the Units, where the purchase is
directed by a "sophisticated person" as defined in
Regulation 506(b)(2)(ii) under the Act.
Category H The undersigned is an entity (other than a trust)
all the equity owners of which are "accredited
investors" within one or more of the above
categories. If relying upon this Category alone, each
equity owner must complete a sepa rate copy of this
Agreement.
(describe entity)
Category I The undersigned is not within any of the categories
above and is therefore not an accredited investor.
The undersigned agrees that the undersigned will notify the Company at any time
on or prior to the Final Closing Date in the event that the representations and
warranties in this Agreement shall cease to be true, accurate and complete.
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8.2 SUITABILITY (please answer each question)
(a) For an individual Subscriber, please describe your current employment,
including the company by which you are employed and its principal business:
(b) For an individual Subscriber, please describe any college or graduate
degrees held by you:
(c) For all Subscribers, please list types of prior investments:
(d) For all Subscribers, please state whether you have you participated in other
private placements before:
YES_______ NO_______
(e) If your answer to question (d) above was "YES", please indicate frequency of
such prior participation in private placements of:
Public Private Public or Private
Companies Companies Biotechnology Companies
Frequently
Occasionally
Never
(f) For individual Subscribers, do you expect your current level of income to
significantly decrease in the foreseeable future:
YES_______ NO_______
(g) For trust, corporate, partnership and other institutional Subscribers, do
you expect your total assets to significantly decrease in the foreseeable
future:
37
<PAGE>
YES_______ NO_______
(h) For all Subscribers, do you have any other investments or contingent
liabilities which you reasonably anticipate could cause you to need sudden cash
requirements in excess of cash readily available to you:
YES_______ NO_______
(i) For all Subscribers, are you familiar with the risk aspects and the
non-liquidity of investments such as the securities for which you seek to
subscribe?
YES_______ NO_______
(j) For all Subscribers, do you understand that there is no guarantee of
financial return on this investment and that you run the risk of losing your
entire investment?
YES_______ NO_______
8.3 MANNER IN WHICH TITLE IS TO BE HELD. (circle one)
(a) Individual Ownership
(b) Community Property
(c) Joint Tenant with Right of
Survivorship (both parties
must sign)
(d) Partnership*
(e) Tenants in Common
(f) Company*
(g) Trust*
(h) Other
*If Units are being subscribed for by an entity, the attached
Certificate of Signatory must also be completed.
38
<PAGE>
8.4 NASD AFFILIATION.
Are you affiliated or associated with an NASD member firm (please check one):
Yes _________ No __________
If Yes, please describe:
*If Subscriber is a Registered Representative with an NASD member firm, have the
following acknowledgment signed by the appropriate party:
The undersigned NASD member firm acknowledges receipt of the notice required by
Article 3, Sections 28(a) and (b) of the Rules of Fair Practice.
- ---------------------------------
Name of NASD Member Firm
By:
------------------------------
Authorized Officer
Date:
----------------------------
8.5 The undersigned is informed of the significance to the
Company of the forego ing representations and answers contained in the
Confidential Investor Questionnaire contained in this Section 7 and such answers
have been provided under the assumption that the Company will rely on them.
39
<PAGE>
[SIGNATURE PAGE]
NUMBER OF UNITS X $100,000 = (THE "PURCHASE PRICE")
------------- ---------------
Signature Signature (if purchasing jointly)
Name Typed or Printed Name Typed or Printed
Entity Name Entity Name
Address Address
City, State and Zip Code City, State and Zip Code
Telephone-Business Telephone--Business
Telephone-Residence Telephone--Residence
Facsimile-Business Facsimile--Business
Facsimile-Residence Facsimile--Residence
Tax ID # or Social Security # Tax ID # or Social Security #
Name in which securities should be issued:
CHECK THE BOX MARKED YES IF YOU WOULD LIKE THE SECURITIES
TO BE DELIVERED TO YOUR ACCOUNT WITH PARAMOUNT CAPITAL, INC. YES ___ NO ___
(IF YOU CHECK "NO", SECURITIES WILL BE DELIVERED TO YOU AT THE ADDRESS PROVIDED
ABOVE)
Dated: , 1998
This Subscription Agreement is agreed to and accepted as of
___________________________ , 1998.
PROCEPT, INC.
By:
----------------------------
Name:
Title:
40
<PAGE>
CERTIFICATE OF SIGNATORY
(To be completed if Units are
being subscribed for by an entity)
I,___________________________________, am the_______________________________
of
_____________________________________________ (the "Entity").
I certify that I am empowered and duly authorized by the Entity to
execute and carry out the terms of the Subscription Agreement and to purchase
and hold the Units, and certify further that the Subscription Agreement has been
duly and validly executed on behalf of the Entity and constitutes a legal and
binding obligation of the Entity.
IN WITNESS WHEREOF, I have set my hand this________day of
_________________, 1998.
---------------------------------------
(Signature)
41
<PAGE>
EXHIBIT P
PROCEPT, INC.
PLACEMENT AGENCY AGREEMENT
October 26, 1997
Paramount Capital, Inc.
787 Seventh Avenue
New York, New York 10019
Dear Sirs:
Procept, Inc., a Delaware corporation (the "Company"), hereby
confirms its agreement to retain Paramount Capital, Inc. (the "Placement Agent")
on an exclusive basis to introduce the Company to, and to procure subscriptions
from,"accredited investors" as that term is defined in Regulation D under the
Securities Act of 1933, as amended (the "Act") as prospective purchasers
("Purchasers") of a minimum (the "Minimum Offering") of twenty-five (25) Units
(the "Units") and a maximum (the "Maximum Offering") of one hundred (100) Units,
with an option in favor of the Placement Agent to offer up to an additional one
hundred fifty (150) Units to cover over-allotments at a purchase price of
$100,000 per Unit, with each "Unit" consisting of (a) a number of shares of
Common Stock (rounded to the nearest whole share, with one-half (0.5) of one
share being rounded upward) (the "Offering Quantity") of the Company, par value
$.01 per share (the "Common Stock"), determined by dividing one hundred thousand
dollars ($100,000) by the lesser of (A) $2.00 and (B) fifty percent (50%) of the
Trading Price (as defined in the Subscription Agreement (as defined below)) of
the Common Stock on the Nasdaq National Market immediately preceding (i) the
Initial Closing Date (as defined below), (ii) any Interim Closing Date (as
defined below), or (iii) the Final Closing Date (as defined below) of this
Offering, whichever is lowest (the "Offering Price") and (b) warrants (the
"Class C Warrants") to purchase at any time prior to the fifth anniversary of
the Final Closing Date, a number of shares of Common Stock equal to (x) the
Offering Quantity multiplied by (y) 0.5 (rounded to the nearest whole share,
with one-half (00.5) of one share being rounded upward). The Units shall have
the terms set forth in the Term Sheet (as defined below).
The sale to such Purchasers (the "Offering") will be made
through a private
<PAGE>
Paramount Capital, Inc.
Page 2
placement by the Placement Agent (or its designated selected dealers) on a "best
efforts" basis pursuant to the Confidential Term Sheet dated November 14, 1997,
and all supplements, amendments and exhibits thereto and documents incorporated
therein by reference, all of which constitute an integral part thereof (the
"Term Sheet"), separate subscription agreements between the Company and each
purchaser of Units in the Offering (collectively "Purchasers") and related
documents (the "Subscription Agreements") in accordance with Section 4(2) of the
Act and Regulation D promulgated thereunder.
The Term Sheet and the exhibits attached thereto, the
Subscription Agreements, the exhibits to the Subscription Agreements, the
Warrant Agreement to be entered into by and between the Company, American Stock
Transfer and Trust Company, as warrant agent, and the Placement Agent (the
"Warrant Agreement"), the Escrow Agreement (the "Escrow Agreement") among the
Company, the Placement Agent and Fleet Bank, N.A. (the "Escrow Agent"), the
Financial Advisory Agreement (as defined in Section 5(k) below), the Placement
Options (as defined in Section 4(d) below), the Advisory Options (as defined in
Section 5(k) below ) and this Placement Agency Agreement are collectively
referred to herein as the "Offering Documents."
The Company, at its sole cost, shall prepare and deliver to
the Placement Agent a reasonable number of copies of the Offering Documents in
form and substance satisfactory to the Placement Agent.
Each prospective investor subscribing to purchase Units shall
be required to deliver, among other things, a Subscription Agreement, which
shall include a Confidential Investor Questionnaire ("Questionnaire"). The
Company shall make available to each prospective purchaser at a reasonable time
prior to the purchase of the Units the opportunity to ask questions of, and to
receive answers from, the Company concerning the terms and conditions of the
Offering and the opportunity to obtain additional information necessary to
verify the accuracy of the documents delivered in connection with the purchase
of the Units to the extent it possesses such information or can acquire it
without unreasonable effort or expense. After the investors shall have had an
opportunity to review the Offering Documents, and have had the opportunity to
address all inquiries to the Company, separate Subscription Agreements shall be
completed by each prospective investor. The Company, with the consent of the
Placement Agent, and the Placement Agent, in its sole discretion, shall have the
right to reject subscriptions in whole or in part. The Company shall evidence
its acceptance of a subscription by countersigning a copy of the applicable
Subscription Agreement and returning the same to the Placement Agent.
Capitalized terms used in this Agreement, unless otherwise
defined herein or
<PAGE>
Paramount Capital, Inc.
Page 3
unless the context otherwise indicates, shall have the same meanings provided in
the Offering Documents.
1. Appointment of Placement Agent.
(a) The Placement Agent is hereby appointed exclusive
placement agent of the Company (subject to the Placement Agent's right to have
Selected Dealers, as defined in Section 1(c) hereof, participate in the
Offering) during the Offering Period herein specified for the purposes of
assisting the Company in finding qualified subscribers pursuant to the Offering
described in the Offering Documents. The Placement Agent shall not be deemed an
agent of the Company for any other purpose. The "Offering Period" shall commence
on the day the Offering Documents are first made available to the Placement
Agent by the Company for delivery in connection with the offering for the sale
of the Units (the "Commencement Date"). Upon receipt of the Minimum Offering
amount, the Placement Agent may conduct a closing (the "Initial Closing Date")
and may conduct subsequent closings on an interim basis until the Maximum
Offering amount (and any over-allotment amount) has been reached or the Offering
is terminated (the "Final Closing Date"). Each such closing may be referred to
herein as a "Closing". If not terminated earlier pursuant to this Agreement, the
Offering Period shall terminate at 11:59 p.m. New York City Time on January, [ ]
1998, subject to an extension, at the option of the Placement Agent, for an
additional sixty (60) days (the "Termination Date"), accordingly, the Offering
Period shall terminate on the Final Closing Date or the Termination Date, as the
case may be. If subscriptions for the Minimum Offering amount of 25 Units are
not received prior to the end of the Offering Period, the Offering will be
terminated and all funds received from Subscribers will be returned, without
interest and without any deduction.
(b) Subject to the performance by the Company of all
of its obligations to be performed under this Agreement and to the completeness
and accuracy of all representations and warranties of the Company contained in
this Agreement, the Placement Agent hereby accepts such agency and agrees to use
its best efforts to assist the Company in finding qualified subscribers pursuant
to the Offering described in the Offering Documents. It is understood that the
Placement Agent has no commitment to sell the Units. The Placement Agent's
agency hereunder is not terminable by the Company prior to the Termination Date
except as set forth in Section 8(g).
(c) The Placement Agent may engage other persons,
selected by it in its sole discretion, who are members of the National
Association of Securities Dealers, Inc., ("NASD") or who are located outside the
United States and that have executed a Selected Dealers Agreement (each such
person being hereinafter referred to as a "Selected Dealer") and the Placement
Agent may allow such persons such part of the compensation and payment of
<PAGE>
Paramount Capital, Inc.
Page 4
expenses payable to the Placement Agent hereunder as the Placement Agent shall
determine; provided, however, that any such compensation shall be received
pursuant to Section 4(d) hereof.
(d) Subscriptions for Units shall be evidenced by the
execution by qualified subscribers of a Subscription Agreement. No Subscription
Agreement shall be effective unless and until it is accepted by the Company.
Until a closing is held, all subscription funds received shall be held in escrow
as described in the Escrow Agreement. The Placement Agent shall not have any
independent obligation to verify the accuracy or completeness of any information
contained in any Subscription Agreement or the authenticity, sufficiency, or
validity of any check delivered by any prospective investor in payment for
Units, nor shall the Placement Agent incur any liability with respect to any
such check.
2. Representations and Warranties of the Company. The Company
represents and warrants to the Placement Agent and each Selected Dealer, if any,
as follows:
(a) Securities Law Compliance. The Offering
Documents, as of their respective dates do, and as of the date of the Term Sheet
and each Closing, shall describe the material aspects of an investment in the
Company and conform in all respects with the requirements of Section 4(2) of the
Act and Regulation D promulgated thereunder and with the requirements of all
other published rules and regulations of the Securities and Exchange Commission
(the "Commission") currently in effect relating to "private offerings" to
"accredited investors"(as that term is defined in Regulation D under the Act).
The Offering Documents shall not, as of the date of the Term Sheet and each
Closing, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that no representation is made with respect to information relating to the
Placement Agent which is provided in writing by the Placement Agent to the
Company specifically for inclusion in the Offering Documents. If at any time
prior to the completion of the Offering or other termination of this Agreement
any event shall occur as a result of which it might become necessary to amend or
supplement the Offering Documents so that they do not include any untrue
statement of any material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances then
existing, not misleading, the Company will promptly notify the Placement Agent
and will supply the Placement Agent (or the prospective Purchasers designated by
the Placement Agent) with amendments or supplements correcting such statement or
omission. The Company shall also provide the Placement Agent for delivery to all
offerees and Purchasers and their representatives, if any, any information,
documents and instruments which the Placement Agent and the Company's counsel
reasonably deem necessary to comply
<PAGE>
Paramount Capital, Inc.
Page 5
with applicable state and federal law.
The Company acknowledges that the Placement Agent (i) has not
supplied any information for inclusion in the Offering Documents other than
information relating to the Placement Agent furnished in writing to the Company
by the Placement Agent specifically for inclusion in the Offering Documents;
(ii) has no obligation independently to verify any of the information in the
Offering Documents; and (iii) has no responsibility for the accuracy or
completeness of the Offering Documents, except for the information, relating to
the Placement Agent, furnished in writing by the Placement Agent to the Company
specifically for inclusion in the Offering Documents.
(b) Organization. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, is duly qualified or licensed to do business as a foreign
corporation and is in good standing in Massachusetts and in each jurisdiction in
which the nature of the business conducted, or as proposed to be conducted in
the Term Sheet, by it or the properties owned, leased or operated by it, makes
such qualification or licensing necessary and where the failure to be so
qualified or licensed would have a material adverse effect upon the business,
prospects and financial condition of the Company and has all requisite corporate
power and authority to own and lease its respective properties, to carry on its
respective business as currently conducted and as proposed to be conducted, to
execute and deliver this Agreement and to carry out the transactions
contemplated by this Agreement, as appropriate and is duly licensed or qualified
to do business as a foreign corporation in each jurisdiction in which the
conduct of its business or ownership or leasing of its properties requires it to
be so qualified, except where the failure to be so qualified would not have a
material adverse effect on the business, financial condition or prospects of the
Company.
(c) Capitalization. The authorized, issued and
outstanding capital stock of the Company prior to the consummation of the
transactions contemplated hereby is as set forth in the Term Sheet. All issued
and outstanding shares of the Company are validly issued, fully paid and
nonassessable and have not been issued in violation of the preemptive rights of
any stockholder of the Company. The Common Stock, when issued, will have the
rights, preferences and privileges substantially as set forth in the
Subscription Agreements. All prior sales of securities of the Company were
either registered under the Act and applicable state securities laws or exempt
from such registration, and no security holder has any rescission rights with
respect thereto. Except as set forth in the Term Sheet, there are no outstanding
options, warrants, agreements, convertible securities, preemptive rights or
other rights to subscribe for or to purchase any shares of capital stock of the
Company. Except as set forth in the Term Sheet and as otherwise required by law,
there are no restrictions on the voting or transfer of any
<PAGE>
Paramount Capital, Inc.
Page 6
shares of the Company's capital stock pursuant to the Company's Certificate of
Incorporation, By-laws or other governing documents or any agreement or other
instruments to which the Company is a party or by which the Company is bound.
(d) Warrants, Preemptive Rights, Etc. Except as set
forth in or contemplated by the Term Sheet, there are not, nor will there be
immediately after any Closing (as hereinafter defined), any outstanding
warrants, options, agreements, convertible securities, rights of first refusal,
rights of first offer, preemptive rights or other rights to subscribe for or to
purchase or other commitments pursuant to which the Company is, or may become,
obligated to issue any shares of its capital stock or other securities of the
Company and this Offering will not cause any anti-dilution adjustments to such
securities or commitments except as reflected in the Term Sheet.
(e) Subsidiaries and Investments. Other than as
disclosed in the Term Sheet and 225,000 shares of common stock of VacTex, Inc.,
a Delaware corporation, the Company does not own, directly or indirectly,
capital stock or other equity ownership or proprietary interests in any other
corporation, association, trust, partnership, joint venture or other entity.
(f) Financial Statements. The financial information
contained in the Offering Documents is accurate in all material respects. The
Company's financial statements have been prepared in conformity with generally
accepted accounting principles consistently applied and show all material
liabilities, absolute or contingent, of the Company required to be recorded
thereon and present fairly the financial position and results of operations of
the Company as of the dates and for the periods indicated, subject in the case
of unaudited interim financial statements, to normal year-end adjustments.
(g) Absence of Changes. Since the date of the Term
Sheet, except as has been or will be reflected in the Term Sheet prior to each
Closing, the Company has not incurred any liabilities or obligations, direct or
contingent, other than those that were incurred in the ordinary course of
business, nor has the Company entered into any transaction that is material to
the business of the Company, and there has not been any change in the capital
stock of, or any incurrence of long-term debt by, the Company, or any issuance
of options, warrants or other rights to purchase the capital stock of the
Company, or any adverse change or any development involving a prospective
adverse change in the condition (financial or otherwise), net worth, results of
operations, business, key personnel or properties which would be material to the
business, prospects or financial condition of the Company, and the Company has
not become a party to, and neither the business nor the property of the Company
has become the subject of, any material litigation whether or not in the
ordinary course of business.
<PAGE>
Paramount Capital, Inc.
Page 7
(h) Title. The Company has good and marketable title
to all tangible properties and assets owned by it, free and clear of all liens,
charges, encumbrances or restrictions, except such as are not materially
significant or important in relation to the Company's business. Except as has
been or will be reflected in the Term Sheet prior to each Closing, all of the
material leases and subleases under which the Company is the lessor or sublessor
of properties or assets or under which the Company holds properties or assets as
lessee or sublessee are in full force and effect, and the Company is not in
default in any material respect with respect to any of the terms or provisions
of any of such leases or subleases, and no material claim has been asserted by
anyone adverse to rights of the Company as lessor, sublessor, lessee or
sublessee under any of the leases or subleases mentioned above, or affecting or
questioning the right of the Company to continued possession of the leased or
subleased premises or assets under any such lease or sublease. The Company owns
or leases all such tangible properties as are necessary to its operations as now
conducted and proposed to be conducted and except to the extent described in the
Term Sheet, the Company presently does not anticipate the need for any capital
expenditures.
(i) Proprietary Rights. Except as has been or will be
reflected in the Term Sheet prior to each Closing, the Company owns or possesses
adequate and enforceable rights to use all patents, patent applications,
trademarks, service marks, trade names, corporate names, copyrights, trade
secrets, processes, mask works, licenses, inventions, formulations, technology
and know-how and other intangible property used or proposed to be used in the
conduct of its business as described in or contemplated by the Term Sheet (the
"Proprietary Rights"). Except as has been or will be reflected in the Term Sheet
prior to each Closing, the Company or the entities from whom the Company has
acquired rights, has taken all necessary action to protect all of the Company's
Proprietary Rights. Except as set forth in the Term Sheet, the Company has not
received any notice of, and there are not any facts known to the Company that
indicate the existence of (i) any infringement or misappropriation by any third
party of any of the Proprietary Rights or (ii) any claim by a third party
contesting the validity of any of the Proprietary Rights; the Company has not
received any notice of any infringement, misappropriation or violation by the
Company or any of its employees of any Proprietary Rights of third parties, and,
to the best of the Company's knowledge, the Company nor any of its employees has
infringed, misappropriated or otherwise violated any Proprietary Rights of any
third parties; and, to the best of the Company's knowledge, no infringement,
illicit copying, misappropriation or violation of any intellectual property
rights of any third party has occurred or will occur with respect to any
products currently being sold by the Company or with respect to any products
currently under development by the Company or with respect to the conduct of the
Company's business as currently contemplated. Except as described in the Term
Sheet, the Company is not aware that any of its employees are obligated under
any contract (including
<PAGE>
Paramount Capital, Inc.
Page 8
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with the use of the employee's best efforts to promote the
interests of the Company or that would conflict with the Company's business as
currently conducted or as proposed to be conducted. To the best of the Company's
knowledge, neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's business by the employees of the Company, nor the
conduct of the Company's business, as currently conducted or as proposed to be
conducted, will conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any such employee is now obligated.
(j) Litigation. Except as set forth in the Term
Sheet, there is no material action, suit, claim or proceeding at law or in
equity, or to the Company's knowledge, investigation or customer complaint, by
or before any arbitrator, governmental instrumentality or other agency now
pending or, to the knowledge of the Company, threatened against the Company (or
basis therefor known to the Company which the Company believes will result in
the foregoing) the adverse outcome of which would materially adversely affect
the Company's business, prospects or financial condition. The Company is not
subject to any judgment, order, writ, injunction or decree of any Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign which would materially adversely
affect the Company's business, prospects or financial condition.
(k) Non-Defaults, Non-Contravention. The Company is
not in violation of or default under, nor will the execution and delivery of
this Agreement or any of the Offering Documents, or consummation of the
transactions contemplated herein or therein result in a violation of or
constitute a default in the performance or observance of any obligation (i)
under its Certificate of Incorporation, its By-laws, or any indenture, mortgage,
material purchase order or other agreement or instrument to which the Company is
a party or by which it or its property is bound or affected or (ii) with respect
to any material order, writ, injunction or decree of any court of any Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, and there is no existing
condition, event or act which constitutes, nor which after notice, the lapse of
time or both, could constitute, a default under any of the foregoing, which in
either case would have a material adverse effect on the business, prospects or
financial condition of the Company.
(l) Taxes. The Company has filed all Federal, state,
local and foreign tax returns required to be filed by it and all such returns
are true and correct in all material respects. The Company has paid all taxes
pursuant to such returns or pursuant to any assessments received by it or which
it is obligated to withhold from amounts owing to any
<PAGE>
Paramount Capital, Inc.
Page 9
employee, creditor or third party. The Company has properly accrued all taxes
required to be accrued. The tax returns of the Company have never been audited
by any state, local or Federal authorities. The Company has not waived any
statute of limitations with respect to taxes or agreed to any extension of time
with respect to any tax assessment or deficiency.
(m) Compliance With Laws, Licenses, Etc. The Company
has not received notice of any violation of, or non-compliance with, any
Federal, state, local or foreign, laws, ordinances, regulations and orders
applicable to its business, the violation of, or noncompliance with which, would
have a materially adverse effect on the business, financial condition, prospects
or operations of the Company. The Company has all governmental licenses and
permits and other governmental certificates, authorizations and permits and
approvals (collectively, "Licenses") required by every Federal, state and local
government or regulatory body for the operation of its business as currently
conducted and the use of its properties, except where the failure to be licensed
would not have a material adverse effect on the business of the Company. The
Company's Licenses are in full force and effect and no violations are or have
been recorded in respect of any License and no proceeding is pending or, to the
best knowledge of the Company, threatened to revoke or limit any thereof.
(n) Authorization of Documents and Units. Each of the
Offering Documents, has been, or prior to any Closing will be, duly and validly
authorized, executed and delivered by the Company and the execution, delivery
and performance by the Company of the Offering Documents has been duly
authorized by all requisite corporate action by the Company and when delivered,
constitute or will constitute (assuming that such agreements are countersigned,
if necessary) the legal, valid and binding obligations of the Company,
enforceable in accordance with their respective terms, subject to the
availability and enforceability of equitable remedies and to applicable
bankruptcy and other laws relating to the rights of creditors generally and
except as the enforcement of the rights to indemnification and contribution
hereunder and under any other Offering Documents may be limited by federal or
state securities laws or public policy. The Company has full corporate power and
lawful authority to authorize, issue and sell the Units to be sold to the
Purchasers and the securities underlying the Units (as defined below). No
consent is required by the Company or from any third party (other than the SEC,
but only insofar as such consent relates to the Company's obligation to register
the Registrable Securities (as defined below)) to perform any of its obligations
under this Agreement or any of the Offering Documents. Any increase to the
number of authorized shares of Common Stock will require, among other things,
the approval of the holders of a majority of the outstanding Common Stock of the
Company.
(o) Exemption from Registration. Assuming (i) the
accuracy of the
<PAGE>
Paramount Capital, Inc.
Page 10
information provided by the respective Purchasers in the Subscription
Agreements, and (ii) the timely filing of a Form D by the Company, the offer and
sale of the Units and the granting of the Placement Options and the Advisory
Options (as defined below) pursuant to the terms of this Agreement are exempt
from the registration requirements of the Act and the rules and regulations
promulgated thereunder (the "Regulations"). The Company is not disqualified from
the exemption under Regulation D by virtue of the disqualification contained in
Rule 507 promulgated thereunder. There exists no fact or set of facts known to
the Company or its counsel that might cause the Offering to be integrated with
any other offering of the Company's securities which would cause this offering
to lose its exemption under Regulation D.
(p) Registration Rights. Except as set forth in the
Term Sheet or Section 5 of the Subscription Agreement, no person has any right
to cause the Company to effect the registration under the Act of any securities
of the Company.
(q) Brokers. Neither the Company nor any of its
officers, directors, employees or stockholders has employed any broker or finder
in connection with the transactions contemplated by this Agreement other than
the Placement Agent.
(r) Title to Units. When certificates representing
the Common Stock and Class C Warrants shall have been duly delivered to the
Purchasers and payment shall have been made for the Units, the several
Purchasers shall have good and valid title to the Common Stock and the Class C
Warrants and, upon exercise of such Class C Warrants, will have good and valid
title to the Common Stock issuable upon such exercise (the "Conversion Shares"),
in each case, free and clear of all liens, encumbrances and claims and adverse
claims, whatsoever (except as arising from applicable Federal and state
securities laws), and the Company shall have paid all taxes, if any, in respect
of the original issuance thereof. When certificates representing the Placement
Options and Advisory Options shall have been duly delivered to the Placement
Agent, the Placement Agent or its designees shall have good and valid title to
the Placement Options and Advisory Options, upon exercise of such Placement
Options and/or Advisory Options, will have good and valid title to the Common
Stock and Class C Warrants issuable upon such exercise, and upon exercise of
such Class C Warrants issuable upon exercise of such Placement Options and/or
Advisory Options, will have good and valid title to the Common Stock into which
such Class C Warrants are converted, in each case, free and clear of all liens,
encumbrances and adverse claims, whatsoever (except as arising from applicable
Federal and state securities laws), and the Company shall have paid all taxes,
if any, in respect of the original issuance thereof. When certificates
representing the Common Stock issuable pursuant to Article VI of the
Subscription Agreement (the "Article VI Issuances") shall have been duly
delivered to the Purchasers, the several Purchasers shall have good and valid
title to the
<PAGE>
Paramount Capital, Inc.
Page 11
Common Stock constituting such Article VI Issuances free and clear of all liens,
encumbrances and claims and adverse claims, whatsoever (except as arising from
applicable Federal and state securities laws), such Common Stock shall be duly
authorized, validly issued, fully paid and non-assessable, and the Company shall
have paid all taxes, if any, in respect of the original issuances thereof.
(s) Non-Affiliated Directors. The Company's Board of
Directors has not less than two (2) directors who are independent from, and
unaffiliated with, management of the Company.
(t) Accuracy of Reports. All material reports
required to be filed by the Company within the two years prior to the date of
this Agreement under the Securities and Exchange Act of 1934 as amended (the
"Exchange Act"), have been duly filed with the SEC, complied at the time of
filing in all material respects with the requirements of their respective forms
and, except to the extent updated or superseded by the Term Sheet or any
subsequently filed report, were complete and correct in all material respects as
of the dates at which the information was furnished, and contained (as of such
dates) no untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements contained therein, in light of
the circumstances under which they were made, not misleading.
(u) Reservation of Shares; Transfer Taxes, Etc. The
Company shall at all times reserve and keep available, out of its authorized and
unissued shares of Common Stock, solely for the purpose of effecting any
exercises of Class C Warrants, and any Reset Issuance (as defined in the
Subscription Agreement), Semi-Annual Issuance (as defined in the Subscription
Agreement) and Dilution Issuance (as defined below and, together with Reset
Issuances and Semi-Annual Issuances, referred to herein as "Article VI
Issuances"), such number of shares of its Common Stock free of preemptive rights
as shall be sufficient to effect such exercises and Article VI Issuances from
time to time required or reasonably anticipated. The Company shall use its best
efforts from time to time, in accordance with the laws of the State of Delaware
to increase the authorized number of shares of Common Stock if at any time the
number of shares of authorized, unissued and unreserved Common Stock shall not
be sufficient to permit any required or reasonably anticipated exercises of
Class C Warrants or Article VI Issuances. In the event, and to the extent, that
the company does not have sufficient authorized but unissued shares of Common
Stock to effect any exercise of Class C Warrants or any Article VI Issuance
(collectively a "Common Issuance Event"), the Company shall pay the Subscriber
cash.
3. Representations and Warranties of the Placement Agent. The
Placement
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Paramount Capital, Inc.
Page 12
Agent represents and warrants as follows:
(a) The Placement Agent is duly organized and validly
existing and in good standing as a corporation under the laws of the State of
New York with full and adequate power and authority to enter into and perform
this Agreement.
(b) In offering the Units, the Placement Agent shall
deliver (or direct the Company to deliver) to each prospective purchaser, prior
to the Company's acceptance of any subscription from such prospective purchaser,
the appropriate Offering Documents. The Placement Agent will not engage in a
general solicitation or employ general advertising in connection with the
Offering.
(c) The Placement Agent shall use its reasonable
efforts to conduct the Offering in material compliance with applicable federal
and state securities laws so as to preserve the exemption provided in Section
4(2) of the Act and any applicable rules or regulations promulgated thereunder
or under such state securities laws. The Placement Agent shall use reasonable
efforts to make offers only to persons who the Placement Agent has reasonable
grounds to believe are "accredited investors" (as defined in Regulation D under
the Act). The final acceptance of any subscription shall be made only after the
Company has reviewed the Subscription Agreement and agreed to such final
acceptance and determination as to the status of such subscriber which such
acceptance and determination shall remain solely the responsibility of the
Company.
(d) The Placement Agent is, and at each closing shall
be, (i) a securities broker-dealer registered with the Commission and any
jurisdiction where broker-dealer registration is required in order for the
Company to sell the Units in such jurisdiction and (ii) a member in good
standing of the NASD.
4. Closing; Placement and Fees.
(a) Closing. Provided that the Placement Agent has
received subscriptions for the Minimum Offering amount, the Placement Agent may
conduct, in its sole discretion, closings (the date of each a "Closing Date") at
the offices of the Placement Agent, 787 Seventh Avenue, New York, New York,
until the Final Closing Date. On each Closing Date, payment for the Units issued
and sold by the Company shall be made to the Company in immediately available
funds against delivery of certificates evidencing the Common Stock and Class C
Warrants comprising such Units.
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Paramount Capital, Inc.
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(b) Conditions to Placement Agent's Obligations. The
obligations of the Placement Agent hereunder are subject to the accuracy of the
representations and warranties of the Company herein contained as of the date
hereof and as of each Closing Date, to the performance by the Company of its
obligations hereunder and to the following additional conditions:
(i) Due Qualification or Exemption. (A)
The Offering contemplated by this Agreement shall become qualified or be exempt
from qualification under the securities laws of the several states pursuant to
paragraph 4(c) below not later than the Closing Date, subject to any filings to
be made thereafter, and (B) at the Closing Date, no stop order suspending the
sale of the Units shall have been issued, and no proceeding for that purpose
shall have been initiated or threatened;
(ii) No Material Misstatements. Neither
the Blue Sky qualification materials, the Offering Documents, nor the Term
Sheet, nor any supplement thereto, will contain an untrue statement of a fact
which in the opinion of the Placement Agent is material, or omit to state a
fact, which in the opinion of the Placement Agent is material and is required to
be stated therein, or is, in the opinion of the Placement Agent, necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading;
(iii) Compliance with Agreements. The
Company shall have complied with all agreements and satisfied all conditions on
its part to be performed or satisfied hereunder and under the Subscription
Agreements at or prior to each Closing;
(iv) Corporate Action. The Company shall
have taken all corporate action necessary to permit the valid execution,
delivery and performance of the Offering Documents by the Company, including,
without limitation, obtaining the approval of the Company's board of directors
for the execution and delivery of the Offering Documents and the performance by
the Company of its obligations hereunder and the offering contemplated hereby;
(v) Opinion of Counsel to the Company. The
Placement Agent shall receive the opinion of counsel to the Company (stating
that each of the Purchasers may rely thereon as though addressed directly to
such Purchaser), dated as of each Closing Date, substantially to the effect
that:
(A) the Company is duly
incorporated, validly existing
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Paramount Capital, Inc.
Page 14
and in corporate good standing under the laws of the State of Delaware, has all
requisite corporate power and lawful authority necessary to own or hold its
properties and conduct its business as described in the Term Sheet and is duly
qualified or licensed to do business as a foreign corporation and is in good
standing in Massachusetts and in each jurisdiction in which the nature of the
business conducted, or as proposed to be conducted in the Term Sheet, by it or
the properties owned, leased or operated by it, makes such qualification or
licensing necessary and where the failure to be so qualified or licensed would
have a material adverse effect upon the business, prospects and financial
condition of the Company. To such counsel's knowledge except with respect to
VacTex, Inc., the Company does not own, directly or indirectly, any capital
stock or other equity ownership or proprietary interests in any other
corporation, association, trust, partnership, joint venture or other entity;
(B) the execution, delivery and
performance of each of the Offering Documents to which the Company is a
signatory, and the issuance of (I) the Units, the Common Stock and Class C
Warrants included in the Units and the Placement and Advisory Options, (II) the
Common Stock and Class C Warrants issuable upon exercise of the Placement and
Advisory Options and (III) the shares of Common Stock issuable upon exercise of
the Class C Warrants (the "Exercise Shares") (including the Exercise Shares
underlying the Class C Warrants issuable upon exercise of the Placement and
Advisory Options), have been duly authorized by all necessary corporate action
on the part of the Company; provided, however, that shareholder consent is
required for any increase in authorized shares. Each of the Offering Documents
to which the Company is a signatory has been duly executed and delivered by the
Company and constitutes a legal, valid and binding obligation of the Company
enforceable in accordance with its terms, subject to such limitations on
enforceability as such counsel shall specify in the opinion and that shall be
acceptable to the Placement Agent;
(C) the authorized, issued and
outstanding capital stock of the Company as of the date set forth therein
(before giving effect to the transactions contemplated by this Agreement) is as
set forth in the Term Sheet. To such counsel's knowledge, there are no
outstanding warrants, options, agreements, convertible securities, preemptive
rights or other commitments pursuant to which the Company is, or may become,
obligated to issue any shares of its capital stock or other securities of the
Company other than as set forth in the Term Sheet. To such counsel's knowledge,
all of the issued shares of capital stock of the Company have been duly and
validly authorized and issued, are fully paid and nonassessable and have not
been issued in violation of the preemptive rights of any security holder;
(D) assuming (x) the accuracy of
the information
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Paramount Capital, Inc.
Page 15
provided by the Subscribers in the Subscription Documents and (y) the timely
filing with the Securities and Exchange Commission and any applicable state
securities authorities of a Form D and amendments thereto containing accurate
and complete information, the issuance and sale of the Units is exempt from
registration under the Act and Rule 506 of Regulation D promulgated thereunder
and is not subject to integration with any other offering of the Company's
securities which will undermine the exempt status of the Offering;
(E) neither the execution and
delivery of the Offering Documents nor compliance with the terms hereof or
thereof, nor the consummation of the transactions herein or therein
contemplated, has, conflicts with, results in a breach of, or constitutes a
default under the Certificate of Incorporation (provided that such counsel may
note that the Company may not issue shares in excess of the authorized capital
stock) or By-laws of the Company, or any material contract, instrument or
document known to such counsel after due inquiry to which the Company is a
party, or by which it or any of its properties is bound (provided such counsel
need express no opinion with respect to the satisfaction of the stockholder
approval requirement under the Company's existing agreement with Nasdaq) or, to
the best knowledge of such counsel, violate any applicable order or decree of
any governmental agency or court having jurisdiction over the Company or any of
its properties or business;
(F) except as disclosed in the Term
Sheet, to such counsel's best knowledge and without conducting a search of court
documents, there are no claims, actions, suits, investigations or proceedings
before or by any arbitrator, court, governmental authority or instrumentality
pending or threatened against the Company which could, if adversely determined,
materially and adversely affect the business, properties or financial condition
of the Company, the transactions or other acts contemplated by the Offering
Documents or the validity or enforceability of the Offering Documents. Except as
disclosed in the Term Sheet, to such counsel's knowledge, the Company is not a
party or subject to the provisions of any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality that names the
Company;
(G) upon the issuance of the Units,
the Common Stock (including the Common Stock issuable pursuant to any Article VI
Issuances) and Class C Warrants (including the shares of Common Stock and the
Class C Warrants issuable upon exercise of the Placement and Advisory Options),
the Placement and Advisory Options and the Exercise Shares (including the
Exercise Shares underlying the Class C Warrants issuable upon exercise of
Placement and Advisory Options), each of the Purchasers or the Placement Agent
and its designees, as the case may be, shall acquire such securities, free and
clear of all pledges, liens, claims, encumbrances, preemptive rights, rights of
first offer or right of first refusal and
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Paramount Capital, Inc.
Page 16
restrictions known to such counsel after due inquiry, except for the transfer
restrictions set forth in the Subscription Agreements and any action taken to
encumber such securities by the holders thereof;
(H) the Common Stock included in
the Units, when issued in accordance with the terms of the Subscription
Agreement for the consideration expressed therein will have been duly
authorized, fully paid, validly issued and non-assessable. The Class C Warrants,
the Placement Options and the Advisory Options, when issued in accordance with
the terms of this Agreement and/or the Subscription Agreement, as applicable,
for the consideration expressed therein, will have been validly issued and will
constitute legal, valid and binding obligations of the Company enforceable
against the Company in accordance with their respective terms, subject to such
limitations on enforceability as such counsel shall specify in the opinion and
that shall be acceptable to the Placement Agent. The Common Stock (x)
constituting Article VI Issuances and (y) issuable upon exercise of the Class C
Warrants and the Placement and Advisory Options (including the shares of Common
Stock issuable upon exercise of the Class C Warrants underlying the Placement
and Advisory Options) (the securities referred to in clauses (x) and (y) above
collectively the "Additional Shares"), when issued in accordance with the terms
thereof for the consideration expressed therein, will have been duly authorized,
validly issued, fully paid, and non-assessable. The Additional Shares have been
duly authorized by all necessary corporate action on the part of the Company
and, to the extent such shares are available and as such shares become, from
time to time available, shall be reserved for issuance by the Board of
Directors.
(I) the Company's Restated
Certificate of Incorporation provides that the Company shall, to the fullest
extent permitted by Section 145 of the General Corporation Law of the State of
Delaware, as amended from time to time, indemnify each person who was or is a
party or is 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 the fact that he is or was, or has agreed to become
a director of the Company. The Company's Restated Certificate of Incorporation
also provides that no director shall be personally liable to the Company or its
stockholders for monetary damages for any breach of a fiduciary duty by such
director as a director, to the fullest extent permitted by the Delaware General
Corporation Law, as from time to time amended.
Such counsel shall state, in
opining on any matter stated to be subject to the knowledge of such counsel,
that such knowledge shall include the actual knowledge of such counsel who have
given substantive attention to the Company's affairs in connection with the
Offering and that such counsel has made due inquiry, including, but not
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Paramount Capital, Inc.
Page 17
limited to, appropriate inquiries of officers of the Company with respect to the
subject matter of such opinion and has reviewed all documents the existence of
which is disclosed by such inquiries or of which such counsel is otherwise aware
of as a result of its representation of the Company.
In addition, such counsel shall
state that in the course of the preparation of the Offering Documents, which
involved, among other things, discussions and inquiries concerning the various
legal matters and the review of certain corporate records, documents and
proceedings, counsel participated in conferences with certain officers and other
representatives of the Company and the Placement Agent during which the contents
of the Offering Documents and related matters were discussed. Such counsel shall
advise the Placement Agent in the form of an opinion of counsel that such
counsel has no reason to believe that, as of the date of such opinion, the Term
Sheet including any document incorporated by reference therein contained any
untrue statement of a material fact relating to the Company or omitted to state
a material fact relating to the Company required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made.
(vi) Opinion of Patent Counsel. The
Placement Agent shall receive (unless waived in writing by the Placement Agent)
the opinion of patent counsel to the Company (which such counsel shall be
satisfactory to the Placement Agent), dated the Closing Date in the form and
substance satisfactory to counsel for the Placement Agent.
(vii) Comfort Letter. The Company shall
cause Coopers & Lybrand, L.L.P., the Company's independent public accountants,
to address and deliver to the Company and the Placement Agent a letter or
letters (which letters are frequently referred to as "Comfort Letters") dated as
of each Closing Date and the effective date of the registration statement
required to be filed in connection with the Subscription Agreements.
(viii) Officer's Certificate. The Placement
Agent shall receive an Officer's Certificate substantially in the form of
Exhibit A hereto and a Secretary's Certificate substantially in the form of
Exhibit B hereto, signed by the appropriate parties and dated as of each Closing
Date. These certificates shall state, among other things, that the
representations and warranties contained in Section 2 hereof are true and
accurate in all material respects at such Closing Date with the same effect as
though expressly made at such Closing Date.
(ix) Escrow Agreement. The Placement Agent
shall receive a copy of a duly executed Escrow Agreement with Fleet Bank, N.A.
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Paramount Capital, Inc.
Page 18
(x) Transmittal Letters. The Placement Agent
shall receive copies of all letters from the Company to the investors
transmitting the Common Stock and Class C Warrants and shall receive a letter
from the Company confirming transmittal of the securities to the investors.
(c) Blue Sky. A summary blue sky survey, at the sole
cost of the Company (including, without limitation, the legal fees and
disbursements in connection therewith), shall be prepared by counsel to the
Placement Agent stating the extent to which and the conditions upon which offers
and sales of the Units may be made in certain jurisdictions. It is understood
that such survey may be based on or rely upon (i) the representations of each
Subscriber set forth in the Subscription Agreement delivered by such Subscriber,
(ii) the representations, warranties and agreements of the Company set forth in
Section 2 of this Agreement, (iii) the representations and warranties of the
Placement Agent, and (iv) the representations of the Company set forth in the
certificate to be delivered at each Closing pursuant to paragraph (viii) of
Section 4(b).
(d) Placement Fees and Expenses. (i) Simultaneously
with payment for and delivery of the Units at each Closing as provided in
paragraph 4(a) above, the Company shall at such Closing pay to the Placement
Agent (i) a commission (the "Cash Commission") equal to nine percent (9%) of the
aggregate purchase price of the Units sold and (ii) a non-accountable expense
allowance (the "Expense Allowance") equal to four percent (4%) of the aggregate
purchase price of the Units sold. The Company shall also pay all expenses in
connection with the qualification of the Units under the securities or Blue Sky
laws of the states which the Placement Agent shall designate. In addition, the
Company shall pay to the Placement Agent a commission of five percent (5%) upon
the exercise of the Class C Warrants. In addition, upon each Closing of the sale
of the Units being offered, the Company will sell to the Placement Agent and/or
its designees, for $.001 per option, options (the "Placement Options") to
acquire a number of newly issued Units equal to ten percent (10%) of the number
of Units issued in the Offering, exercisable for a period of five (5) years
commencing six (6) months after the Final Closing Date at an exercise price
equal to one hundred ten percent (110%) of the initial offering price of the
Units. The Company agrees with the Placement Agent and its successors and
assigns that the securities underlying the Placement Options will not be subject
to redemption by the Company nor will they be callable or mandatorily
convertible by the Company. The Placement Options cannot be transferred, sold,
assigned or hypothecated for six months except that they may be assigned in
whole or in part during such period to any NASD member participating in the
Offering or any officer or employee of the Placement Agent or any such NASD
member. The Placement Options will contain a cashless exercise feature, a
provision for payment of the exercise price by promissory note, antidilution
provisions and the
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Paramount Capital, Inc.
Page 19
right to have the Common Stock issuable upon exercise of the Placement Options
included on the Shelf Registration Statement.
(ii) The Cash Commission, Expense Allowance,
and Placement Options and Advisory Options as set forth in this Agreement shall
be paid to the Placement Agent with respect to any investment by any investors
introduced to the Company by the Placement Agent ("Covered Investors") in the
event that any such Covered Investor purchases securities from the Company
during the twelve (12) months following the Final Closing Date of the Offering.
(e) No Adverse Changes. There shall not have
occurred, at any time prior to the Closing (i) any domestic or international
event, act or occurrence which has materially disrupted, or in the Placement
Agent's determination will in the immediate future materially disrupt, the
securities markets of the United States; (ii) a general suspension of, or a
general limitation on prices for, trading in securities on the New York Stock
Exchange, the American Stock Exchange, the NASDAQ National Market, the NASDAQ
SmallCap Market, or in the over-the-counter market; (iii) any outbreak of major
hostilities or other national or international calamity; (iv) any banking
moratorium declared by a state or federal authority; (v) any moratorium declared
in foreign exchange trading by major international banks or other persons; (vi)
any material interruption in the mail service or other means of communication
within the United States; (vii) any material adverse change in the business,
properties, assets, results of operations, financial condition or prospects of
the Company; or (viii) any change in the market for securities in general or in
political, financial, or economic conditions which, in the Placement Agent's
reasonable judgment, makes it inadvisable to proceed with the offering, sale,
and delivery of the Units.
5. Covenants of the Company.
(a) Use of Proceeds. The net proceeds of the Offering
will be used by the Company substantially as set forth in the Term Sheet. The
Company shall not use any of the proceeds from this Offering to repurchase,
redeem or otherwise acquire any shares of capital stock of the Company or repay
any indebtedness of the Company including but not limited to any indebtedness to
current executive officers or principal stockholders of the Company, but
excluding accounts payable to non-affiliates incurred in the ordinary course of
business, without the prior written consent of the Placement Agent.
(b) Expenses of Offering. The Company shall be
responsible for and shall bear all expenses incurred in connection with the
proposed Offering, including but not
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Paramount Capital, Inc.
Page 20
limited to, the costs of preparing and duplicating the Term Sheet and all
exhibits thereto; the costs of preparing, printing and filing with the
Securities and Exchange Commission (the "SEC") the Shelf Registration Statement
and amendments, post-effective amendments and supplements thereto; preparing,
duplicating and delivering exhibits thereto and copies of the preliminary, final
and supplemental prospectus; preparing, duplicating and delivering (including by
facsimile) all selling documents, including but not limited to the Term Sheet,
the Placement Agency Agreement, Subscription Agreements, Warrant agreements,
blue sky memorandum and stock and warrant certificates; blue sky fees, filing
fees and legal fees and disbursements of the Placement Agent's counsel in
connection with blue sky matters; fees and disbursements of the transfer and
warrant agent; the cost of a total of two sets of bound closing volumes for the
Placement Agent and its counsel; and the cost of three tombstone advertisements,
at least one of which shall appear in a national business newspaper and one of
which shall appear in a major New York newspaper (or, at the option of the
Placement Agent, forty (40) lucite deal mementos) (collectively, the "Company
Expenses"). The Company agrees to use a printer designated by the Placement
Agent and which is reasonably acceptable to the Company. The Company shall pay
to the Placement Agent a non-accountable expense allowance equal to 4% of the
total proceeds of the Offering (the "Expense Allowance"), of which twenty
thousand dollars ($20,000) shall be due and payable upon the date the Term Sheet
is completed, to cover the cost of the Placement Agent's mailing, telephone,
telecopy, travel to due diligence meetings and other similar expenses including
legal fees of the Placement Agent's counsel (other than legal fees in connection
with blue sky matters as to which fees the Company shall be responsible and any
items designated above as Company Expenses). Such prepaid expense allowances
shall be non-refundable. If the proposed financing is not completed because the
Company prevents it or because of a breach by the Company of any covenants,
representations or warranties contained herein, then the Company shall pay to
the Placement Agent a fee of one hundred thousand dollars ($100,000) against
which the $20,000, if previously paid, shall be credited (in addition to the
Company Expenses for which the Company shall in all events remain liable).
(c) Notification. The Company shall notify the
Placement Agent immediately, and in writing, (A) when any event shall have
occurred during the period commencing on the date hereof and ending on the Final
Closing Date as a result of which the Offering Documents would include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances under which they were made and (B) of the receipt
of any notification with respect to the modification, rescission, withdrawal or
suspension of the qualification or registration of the Units, or of any
exemption from such registration or qualification, in any jurisdiction. The
Company will use its best efforts to prevent the issuance of any such
modification, rescission, withdrawal or suspension and, if any such
modification,
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Paramount Capital, Inc.
Page 21
rescission, withdrawal or suspension is issued and the Placement Agent so
requests, to obtain the lifting thereof as promptly as possible.
(d) Blue Sky. The Company will use its best efforts
to qualify the Units for offering and sale under exemptions from qualification
or registration requirements under the securities or "blue sky" laws of such
jurisdictions as the Placement Agent may reasonably request; provided however,
that the Company will not be obligated to qualify as a dealer in securities in
any jurisdiction in which it is not so qualified. The Company will not
consummate any sale of Units in any jurisdiction in which it is not so qualified
or in any manner in which such sale may not be lawfully made.
(e) Registration Statement Filing. The Company will,
as soon as practicable, but not later than thirty (30) days after the Final
Closing Date, (i) file a shelf registration statement (the "Shelf Registration
Statement") with respect to the resale of (A) the Common Stock underlying the
Units (including the Units issuable upon exercise of the Placement Options and
Advisory Options, (B) the Class C Warrants (including the Class C Warrants
underlying the Placement and Advisory Options, (C) the Exercise Shares
(including the Exercise Shares underlying the Class C Warrants issuable upon
exercise of Placement Options and the Advisory Options) and (D) the shares of
Common Stock constituting any Article VI Issuances (together the "Registrable
Capital Stock") with the SEC and use its best efforts to have such Shelf
Registration Statement declared effective by the SEC prior to the date that is
seventy-five (75) days after the Final Closing Date (subject to penalties for
failure to effect such registration in the time frames required) and (b) cause
such Shelf Registration Statement to remain effective until such date as the
holders of the securities (including the securities issued or then required to
be issued by the Company pursuant to any Article VI Issuances, whether pursuant
to Reset Issuances (as defined in the Subscription Agreement), Semi-Annual
Issuances (as defined in the Subscription Agreements) or Dilution Issuances (as
defined in the Subscription Agreement) have completed the distribution described
in the Shelf Registration Statement or at such time that such shares are no
longer, by reason of Rule 144(k) under the Act, required to be registered for
the sale thereof by such holders who are not affiliates of the Company. In the
event that the Shelf Registration Statement is not declared effective within the
75 day period described above, the Company shall declare and pay, for no
additional consideration, to the Purchasers additional Units, equal to .25% of
the Units, then held by such Purchaser for each whole month in which the Shelf
Registration Statement remains ineffective. If requested by the Placement Agent,
and in accordance with applicable securities laws, the Shelf Registration
Statement shall cover the direct sale of such Registerable Capital Stock to the
holders of such securities. The Registerable Capital Stock will be subject to a
staggered "lock-up" as may be deemed advisable by the Placement Agent.
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Paramount Capital, Inc.
Page 22
(f) Form D Filing. The Company shall file five (5)
copies of a Notice of Sales of Securities on Form D with the Commission no later
than fifteen (15) days after the first Closing Date. The Company shall file
promptly such amendments to such Notices on Form D as shall become necessary and
shall also comply with any filing requirement imposed by the laws of any state
or jurisdiction in which offers and sales are made. The Company shall furnish
the Placement Agent with copies of all such filings.
(g) Press Releases, Etc. Except as otherwise required
by applicable law or the rules of a regulatory body, the Company shall not,
during the period commencing on the date hereof and ending thirty (30) days
after the Final Closing Date, issue any press release or other communication,
make any written or oral statement to any media organization or publication or
hold any press conference, presentation or seminar, or engage in any other
publicity with respect to the Company, its financial condition, results of
operations, business, properties, assets, or liabilities, or the Offering,
without the prior written consent of the Placement Agent. Upon the request of
the Placement Agent, the Company shall make a Rule 135c (under the Act )
announcement with respect to the commencement of the Offering.
(h) Public Documents. Following the Final Closing
Date of the Offering, the Company will furnish to the Placement Agent: (i) as
soon as practicable (but in the case of the annual report of the Company to its
stockholders, within one hundred twenty (120) days after the end of each fiscal
year of the Company) one copy of: (A) its annual report to its stockholders
(which annual report shall contain financial statements audited in accordance
with generally accepted accounting principles in the United States of America by
a firm of certified public accountants of recognized standing), (B) if not
included in substance in its annual report to stockholders, its annual report on
Form 10-K, (C) each of its quarterly reports to its stockholders, if any, and if
not included in substance in its quarterly reports to stockholders, its
quarterly report on Form 10-Q, (D) each of its current reports on Form 8-K, and
(E) a copy of the full Shelf Registration Statement, (the foregoing, in each
case, excluding exhibits); and (ii) upon reasonable request, all exhibits
excluded by the parenthetical to the immediately preceding clause 5(h)(i)(E) and
any other information that is generally available to the public. In addition,
the Company upon reasonable request will meet with the Placement Agent or its
representatives to discuss all information relevant for disclosure in any Shelf
Registration Statement covering shares purchased by Purchasers from the Company
and offered by them for resale and will cooperate in any reasonable
investigation undertaken by the Placement Agent for the purpose of confirming
the accuracy of the Shelf Registration Statement, including the production of
information at the Company's offices. (i) Restrictions on Securities. During the
thirty-six (36) months
<PAGE>
Paramount Capital, Inc.
Page 23
following June 30, 1997, the Company shall not, without the prior written
consent of the Placement Agent, offer or sell any of its securities in reliance
on Regulation S of the Act. During the twenty-four (24) month period following
October 1, 1997, the Placement Agent shall have the right of first refusal to
act as placement agent for the offering of any securities of the Company issued
for fund raising purposes. During the thirty-six (36) month period following
June 30, 1997 the Company will not extend the expiration date or decrease the
exercise price of any options, warrants, convertible securities or other similar
security purchase rights without the prior written consent of the Placement
Agent.
(j) Listing. The Company will take all action
necessary promptly to file an Application for Listing of Additional Shares with
the New York Stock Exchange, the American Stock Exchange, the NASDAQ National
Market, the NASDAQ SmallCap Market, or the OTC Electronic Bulletin Board and/or
take any other necessary action to enable the (i) Common Stock (including the
Common Stock issuable (A) upon exercise of the Class C Warrants, (B) upon
exercise of the Placement and Advisory Options (including the shares of Common
Stock issuable upon exercise of the Class C Warrants underlying the Placement
Options and (C) pursuant to any Article VI Issuances) and (ii) the Class C
Warrants to trade on such market.
(k) Financial Advisory Agreement. Upon the Final
Closing Date, the Company and the Placement Agent will enter into an advisory
agreement (the "Financial Advisory Agreement") whereby the Placement Agent will
act as the Company's non-exclusive financial advisor. Such engagement will
provide that the Placement Agent receive (i) a monthly retainer of four thousand
($4,000) Dollars (minimum engagement of 24 months and $20,000 of which shall be
payable upon the execution of the Financial Advisory Agreement), (ii)
out-of-pocket expenses and (iii) standard cash and equity success fees in the
event the Placement Agent assists the Company in connection with certain
financing and strategic transactions. In addition, upon the execution of the
Financial Advisory Agreement, the Company will sell to the Placement Agent
and/or its designees, for $.001 per option, options (the "Advisory Options") to
acquire a number of newly issued Units equal to fifteen percent (15%) of the
Units issued in the Offering, exercisable for a period of five (5) years
commencing six (6) months after the Final Closing Date at an exercise price
equal to 110% of the initial offering price of the Units. The Company has agreed
to register certain of the securities underlying the Advisory Options for resale
under the Act on the Registration Statement. The securities underlying the
Advisory Options will not be subject to mandatory conversion or redemption by
the Company nor will they be callable by the Company. The Advisory Options will
contain a cashless exercise feature, a provision for payment of the exercise
price by promissory note, and antidilution provisions. (l) Company Insiders.
Officers, directors or principal stockholders of
<PAGE>
Paramount Capital, Inc.
Page 24
the Company may invest in the Offering. Any such investments will be included in
calculating whether the 25 Units have been sold in the Minimum Offering, whether
the 100 Units have been sold in the Maximum Offering, and whether the 150 Units
have been sold pursuant to the over-allotment option.
(m) Placement Agent Insiders. Certain affiliates of
the Placement Agent may purchase Units in the Offering. Affiliates of the
Placement Agent will invest net of cash commissions and expenses. Accordingly,
the Placement Agent will not receive a commission on the Units purchased by its
affiliates and the Company will receive net proceeds equivalent to the net
proceeds received from the purchase of Units by persons not affiliated with the
Placement Agent. The aggregate offering price of any such investments will be
included in calculating whether the 25 Units have been sold in the Minimum
Offering, whether the 100 Units have been sold in the Maximum Offering, and
whether the 150 Units have been sold pursuant to the over-allotment option.
(n) Subscription Checks. All subscription checks and
funds shall be promptly and directly delivered without offset or deduction to
the bank account at the Escrow Agent described in the Escrow Agreement.
(o) No Offerings. Pending completion or termination
of the Offering in accordance with the terms of this Agreement, the Company
agrees that it will not enter into an agreement (whether binding or not) with
any other person or entity relating to a possible public or private offering or
placement of its securities (other than in connection with a corporate
partnership, strategic alliance or government funding).
(p) Lock-Up Agreement. If requested by the Placement
Agent, the Company will obtain from its directors, executive officers and
beneficial owners of five percent (5%) or more of the Company's outstanding
common stock, an agreement that, for a period of twenty-four (24) months from
the Final Closing Date, they will not sell, assign or transfer any of their
shares of the Company's securities without the Placement Agent's prior written
consent.
(q) No Statements. The Company shall not use the name
of the Placement Agent or any officer, director, employee or shareholder thereof
without the express written consent of the Placement Agent. In the event the
Placement Agent has refused to give consent and the Company has been advised
upon in a written opinion of counsel that any such disclosure is required as a
matter of law, the Company may make such disclosure (to the extent that such
opinion states that it is required) without the Placement Agent's consent.
<PAGE>
Paramount Capital, Inc.
Page 25
(r) Company Advisors. The Company covenants and
represents that it shall immediately notify its independent accountants and
patent, regulatory and outside corporate counsel of the pendency of the Offering
and that comfort letters and legal opinions will be required prior to any
closing. The Company agrees and represents that it will provide (i) preliminary
drafts of the Term Sheet to such firms for their review and comment and (ii)
final drafts of the Term Sheet to such firms immediately upon its completion.
(s) Directors and Observers.
(i) For a period of five (5) years after
June 30, 1997, the Placement Agent shall be entitled to designate a number of
directors that would constitute a majority of the Board of Directors for
nomination as voting directors ("Directors") of the Company. In no event shall
the Board of Directors exceed seven (7) members without the Placement Agent's
consent. If necessary, the Directors of the Company will elect each such person
to the Board of Directors of the Company (A) on the Initial Closing Date, by
causing an existing Director of the Company to resign and (B) thereafter, by
creating a new position on the Board of Directors promptly following such
person's nomination by the Placement Agent. The Board of Directors of the
Company shall nominate each such person for election in connection with any
stockholder vote for Directors, and the Company will use its best efforts to
ensure that the stockholders of the Company agree to vote all their securities
in favor of each such person's election. The Company agrees to vote all voting
securities for which the Company holds proxies granting it voting discretion, or
which the Company is otherwise entitled to vote, in favor of, and to use its
best efforts in all respect to cause, the election of each such individual
proposed by the Placement Agent. In the event that a vacancy is created on the
Board of Directors at any time by the death, disability, resignation or removal
(with or without cause) of any such individual proposed and nominated by the
Placement Agent pursuant to this Agreement, the Company shall, and shall use its
best efforts to ensure that the stockholders of the Company, vote all its or
their voting securities to elect each individual proposed by the Placement Agent
and nominated for election by the Placement Agent to fill such vacancy and serve
as a voting Director.
(ii) At the Placement Agent's option, in
addition to or in lieu of proposing for nomination and election the majority of
the Directors of the Company to be proposed by the Placement Agent as set forth
in Section 5(s)(i), the Placement Agent may, until such time as no Article VI
Rights (as defined in the Subscription Agreement) remain outstanding, designate
a nonvoting observer or observers who shall be entitled to attend all meetings
of the Board of Directors and any of its committees and who shall be (A)
provided reasonable prior notice of all meetings of the Board of Directors and
any of its committees, (B)
<PAGE>
Paramount Capital, Inc.
Page 26
provided reasonable prior notice of any action that the Board of Directors or
any of its committees may take by written consent, (C) promptly delivered copies
of all minutes and other records of action by, and all written information
furnished to, the Board of Directors or any of its committees, and (D) promptly
furnished any other information requested by such observer or observers which a
member of the Board of Directors would be entitled to request to discharge his
or her duties. Such observers shall be entitled to the same rights to
reimbursement for the expense of attendance at meetings as any outside Director.
(iii) If the Placement Agent gives notice to
the Company that the Placement Agent desires to remove a Director proposed by
the Placement Agent pursuant to this Agreement, the Company shall, and shall use
its best effort to ensure that the stockholders of the Company shall, vote all
of its or their voting securities in favor of removing such Director if a vote
of holders of such securities shall be required to remove the Director, and the
Company agrees to take any action necessary to facilitate such removal.
(iv) Each Director nominated by the
Placement Agent shall be entitled to the same type of compensation, and an
amount of compensation at least equal to the highest amount, payable to any
other Director for serving in such capacity. As used in this paragraph 5(s)(iv),
"compensation" shall include Director and Officer insurance coverage among other
things. The Company shall cover the Directors nominated by the Placement Agent
with Director and Officer insurance that is at least as favorable to such
persons as the most favorable (from the prospective of the insured) Director and
Officer insurance benefiting any other member of the Board of Directors or
management of the Company.
(v) Not later than three (3) business days
after the Initial Closing Date, the Company shall have (A) caused the
appointment of the initial Directors nominated by the Placement Agent to its
Board of Directors in accordance with the provisions of this Section 5(s), to
the extent such individuals have been identified in writing to the Company by
such time, and (B) taken such action as shall be necessary to cause the Board of
Directors to be composed of, and limited to, five members. The Company will use
its best efforts to ensure continuing compliance with the terms of Clause (B) of
the preceding sentence until such time as no Article VI Rights remain
outstanding.
(vi) The Placement Agent's rights under this
Section 5(s) shall be exercisable only to the extent that the corresponding
rights contained in Section 7.19 of the Securities Purchase Agreement dated as
of June 30, 1997 have not been previously exercised by The Aries Trust, a Cayman
Islands Trust (the "Trust") or Aries Domestic Fund, L.P. (the "Partnership").
<PAGE>
Paramount Capital, Inc.
Page 27
(t) Board of Directors.
(i) The Company shall promptly reimburse
each Director or observer of the Company designated by the Trust, the
Partnership or the Placement Agent who is not an employee of the Company for all
of his reasonable expenses incurred in attending each meeting of the Board of
Directors of the Company or any committee thereof.
(ii) The Company shall at all times maintain
provisions in its By-laws and/or Certificate of Incorporation indemnifying all
directors against liability and absolving all directors from liability to the
Company and its stockholders to the maximum extent permitted under the laws of
the State of Delaware.
(iii) The By-laws of the Company shall
always contain provisions consistent with the provisions of this Section 5(t)
except to the extent this Section 5(t) deals with the possible observers.
(u) Placement Agent Approval Rights.
(i) Until such time as the Placement Agent,
Partnership and the Trust, and each of their respective affiliates, in the
aggregate, own less than five percent (5%) of the Total Voting Shares (as
defined below) of the Company's capital stock (taking into account shares
issuable upon conversion or exercise of shares held by them), the Company shall
not do any of the following without prior written consent of the Placement Agent
to the extent such consent right is not exercised by the Partnership or the
Trust: (A) incur any indebtedness outside the ordinary course of business, (B)
incorporate, acquire, dissolve or dispose of any subsidiaries (C) enter into any
transactions with affiliates of the Company nor (D) increase any executive
compensation or bonuses, whether in the form of cash, stock, stock equivalents
or otherwise (except for bonuses guaranteed in an employment contract). The
"Total Voting Shares" shall mean all outstanding shares of any class or classes
(however designated) of capital stock entitled to vote generally in the election
of members of the Board of Directors.
(ii) In addition to the approval rights set
forth in 5(u)(i) above, so long as at least fifty percent (50%) of the shares of
Common Stock included in the Units (including those issuable upon exercise of
the Placement and Advisory Options) remain outstanding and subject to Article VI
Rights, the Company will not, without the prior written consent of the Placement
Agent: (A) issue or increase the authorized amount or alter any of the terms, of
any securities of the Company senior to, or on parity with, the Common Stock
(other than Common Stock to be issued pursuant to Article VI Issuances relating
to Common Stock
<PAGE>
Paramount Capital, Inc.
Page 28
(including the shares of Common Stock underlying the Units issuable upon
exercise of the Placement Options and Advisory Options) issued in this Offering)
with respect to voting, liquidation or dividends (except for class voting rights
required law), (B) alter any of the Company's charter documents or take any
action so as to adversely effect the relative rights, preferences,
qualifications, limitations or restrictions of the Common Stock or of the
Article VI Rights (as defined in the Subscription Agreement), (C) enter into any
transactions with affiliates of the Company or (D) incorporate or acquire any
subsidiaries.
(v) Disposal of Assets. Pending completion or
termination of the Offering, the Company will not dispose of any assets of the
Company (including, without limitation, creating, suffering to exist or
permitting the imposition of any liens) other than in the ordinary course
consistent with past practice.
(w) Consultants, Etc. The Placement Agent may, at its
option, select and appoint a public relations firm and consultants to assist the
Company in its affairs, the cost of which shall be borne by the Company.
(x) Reports. The Company shall provide the Placement
Agent with (i) written business and financial updates on a monthly basis and
(ii) detailed written quarterly reports ("Quarterly Reports") containing
quarterly updates as to product development, financial matters, clinical trials,
corporate partnering matters, and any other material events or business
activities. The Quarterly Reports shall contain sections (i) detailing the
Company's objectives and milestones for the upcoming quarter and (ii) comparing
the Company's performance in the previous quarter with the milestones and
objectives set forth for such quarter in the previous Quarterly Report.
6. Indemnification.
(a) The Company agrees to indemnify and hold harmless
the Placement Agent and each Selected Dealer, if any, and their respective
partners, affiliates, shareholders, directors, officers, agents, advisors,
representatives, employees, counsel and controlling persons within the meaning
of the Act (a "Paramount Indemnified Party") against any and all losses,
liabilities, claims, damages and expenses whatsoever (and all actions in respect
thereof), and to reimburse the such Paramount Indemnified Party for legal fees
and related expenses as incurred (including, but not limited to the costs of
giving testimony or furnishing documents in response to a subpoena or otherwise,
the costs of investigating, preparing, pursuing or defending any such action or
claim whether or not pending or threatened and whether or not the Placement
Agent or any Paramount Indemnified Party is a party thereto), in so far as such
<PAGE>
Paramount Capital, Inc.
Page 29
losses, liabilities, claims, damages or expenses arise out of, relate to, are
incurred in connection with or are in any way a result of (i) the engagement of
the Placement Agent pursuant to this Agreement and in connection with the
transactions contemplated by this Agreement and the other Offering Documents
(the "Engagement"), including any modifications or future additions to such
Engagement and related activities prior to the date hereof, (ii) any act by the
Placement Agent or any Paramount Indemnified Party taken in connection with the
Engagement, (iii) a breach of any representation, warranty, covenant, or
agreement of the Company contained in this Agreement, (iv) the employment by the
Company of any device, scheme or artifice to defraud, or the engaging by the
Company in any act, practice or course of business which operates or would
operate as a fraud or deceit, or any conspiracy with respect thereto, in
connection with the sale of the Units, or (v) any untrue statement or alleged
untrue statement of a material fact contained in the Offering Documents or the
omission or alleged omission therefrom of a material fact necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading, provided, however, that the Company will not be liable in
any such case if and to the extent that any such loss, claim, damage, liability
or expense arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished by any such Paramount Indemnified Party in writing specifically for
use in the Offering Documents;
(b) The Company agrees to indemnify and hold harmless
a Paramount Indemnified Party to the same extent as the foregoing indemnity, and
subject to the limitations set forth therein, against any and all loss,
liability, claim, damage and expense whatsoever directly arising out of the
exercise by any person of any right under the Act or the Exchange Act or the
securities or Blue Sky laws of any state on account of violations of the
representations, warranties or agreements set forth in Section 2 hereof.
(c) The Placement Agent agrees to indemnify and hold
harmless the Company, the Company's directors, officers, employees, counsel,
advisors, representatives and agents and controlling persons within the meaning
of the Act (a "Company Indemnified Party") and each and all of them, to the same
extent as set forth in Section 6(a)(v) of the foregoing indemnity from the
Company to the Placement Agent, but only with reference to information, relating
to the Placement Agent, furnished in writing to the Company by the Placement
Agent specifically for inclusion in the Offering Documents and only to the
extent that any losses, claims, damages, and liabilities in respect of which
indemnification is claimed are finally judicially determined to have resulted
primarily and directly from the bad faith or gross negligence of the Placement
Agent.
(d) Promptly after receipt by a person entitled to
indemnification
<PAGE>
Paramount Capital, Inc.
Page 30
pursuant to subsection (a), (b), or (c) (an "indemnified party") of this Section
of notice of the commencement of any action, the indemnified party will, if a
claim in respect thereof is to be made against a person granting indemnification
(an "indemnifying party") under this Section, notify in writing the indemnifying
party of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have to
the indemnified party otherwise than under this Section. In case any such action
is brought against an indemnified party, and it notifies the indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, subject to
the provisions herein stated, with counsel reasonably satisfactory to the
indemnified party, and after notice from the indemnifying party to the
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to the indemnified party for any legal or
other expenses subsequently incurred by the indemnified party in connection with
the defense thereof other than reasonable costs of investigation incurred at the
request of the indemnifying party. The indemnified party shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall not be at the expense
of the indemnifying party if the indemnifying party has assumed the defense of
the action with counsel reasonably satisfactory to the indemnified party;
provided that the fees and expenses of such counsel shall be at the expense of
the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party or (ii) the named
parties to any such action (including any impleaded parties) include both the
indemnified party or parties and the indemnifying party and, in the opinion of
counsel of the indemnified party, a conflict of interest exists between such
parties in which case the indemnifying party shall not have the right to assume
the defense of such action on behalf of the indemnified party or parties, it
being understood, however, that the indemnifying party shall not, in connection
with any one such action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for the indemnified party or parties. No settlement,
compromise, consent to entry of judgment or other termination of any action
(collectively, "Terminations") in respect of which a Paramount Indemnified Party
may seek indemnification hereunder (whether or not any Paramount Indemnified
Party is a party thereto) shall be made without the prior written consent of the
Paramount Indemnified Party, which such consent may be withheld at the sole
discretion of such Paramount Indemnified Party, provided, however, that the
foregoing requirement of prior written consent for Terminations shall not apply
to the Placement Agent who may agree to such Terminations without the prior
written consent of any Paramount Indemnified Party.
(e) Notwithstanding any of the provisions of this
Agreement, the
<PAGE>
Paramount Capital, Inc.
Page 31
aggregate indemnification or contribution of the Placement Agent for or on
account of any losses, claims, damages, liabilities or actions under this
Section 6, Section 7 or any other applicable section of this Agreement, shall
not exceed the Cash Commissions actually paid to the Placement Agent. The
respective indemnity and contribution agreements by the Company and the
Placement Agent contained in subsections (a), (b), (c) and (d) of this Section 6
and Section 7, and the covenants, representations and warranties of the Company
and the Placement Agent set forth in Sections 1, 2, 3, 4 and 5 shall remain
operative and in full force and effect regardless of (i) any investigation made
by the Placement Agent, on the Placement Agent's behalf or by or on behalf of
any person who controls the Placement Agent, the Company or any controlling
person of the Company or any director or officer of the Company, (ii) acceptance
of any of the Units and payment therefor or (iii) any termination of this
Agreement, and shall survive the delivery of the Units, and any successor of the
Placement Agent or of the Company or of any person who controls the Placement
Agent or the Company, as the case may be, shall be entitled to the benefit of
such respective indemnity and contribution agreements. The respective indemnity
and contribution agreements by the Company and the Placement Agent contained in
subsections (a), (b) and (c) of this Section 6 and Section 7 shall be in
addition to any liability which the Company and the Placement Agent may
otherwise have.
7. Contribution.
(a) To provide for just and equitable contribution,
if (i) an indemnified party makes a claim for indemnification pursuant to
Section 6 but it is found in a final judicial determination, by a court of
competent jurisdiction, not subject to further appeal, that such indemnification
may not be enforced in such case, even though this Agreement expressly provides
for indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Act, the Exchange Act, or otherwise, then the
Company (including for this purpose any contribution made by or on behalf of any
officer, director, employee or agent for the Company, or any controlling person
of the Company), on the one hand, and the Placement Agent and any Selected
Dealers (including for this purpose any contribution by or on behalf of an
indemnified party), on the other hand, shall contribute to the losses,
liabilities, claims, damages, and expenses whatsoever to which any of them may
be subject, in such proportions as are appropriate to reflect the relative
benefits received by the Company, on the one hand, and the Placement Agent and
the Selected Dealers, on the other hand; provided, however, that if applicable
law does not permit such allocation, then other relevant equitable
considerations such as the relative fault of the Company and the Placement Agent
and the Selected Dealers in connection with the facts which resulted in such
losses, liabilities, claims, damages, and expenses shall also be considered. In
no case shall the Placement Agent or a Selected Dealer be responsible for a
portion of the contribution obligation
<PAGE>
Paramount Capital, Inc.
Page 32
in excess of the compensation received by it pursuant to Section 4 hereof or the
Selected Dealer Agreement, as the case may be. No person guilty of a fraudulent
misrepresentation shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. For purposes of this Section 7,
each person, if any, who controls the Placement Agent or a Selected Dealer
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act
and each officer, director, stockholder, employee and agent of the Placement
Agent or a Selected Dealer, shall have the same rights to contribution as the
Placement Agent or the Selected Dealer, and each person, if any who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act and each officer, director, employee and agent of the Company,
shall have the same rights to contribution as the Company, subject in each case
to the provisions of this Section 7. Anything in this Section 7 to the contrary
notwithstanding, no party shall be liable for contribution with respect to the
settlement of any claim or action effected without its written consent. This
Section 7 is intended to supersede any right to contribution under the Act, the
Exchange Act, or otherwise.
8. Miscellaneous.
(a) Survival. Any termination of the Offering without
any Closing shall be without obligation on the part of any party except that the
provisions regarding fees and expenses contained in Section 5(b), the
indemnification provided in Section 6 hereof and the contribution provided in
Section 7 hereof shall survive any termination and shall survive any Closing.
(b) Representations, Warranties and Covenants to
Survive Delivery. Except as provided in Section 8(a), the respective
representations, warranties, indemnities, agreements, covenants and other
statements of the Company and the Placement Agent as of the date hereof shall
survive execution of this Agreement and delivery of the Units and the
termination of this Agreement.
(c) No Other Beneficiaries. This Agreement is
intended for the sole and exclusive benefit of the parties hereto and their
respective successors and controlling persons, and no other person, firm or
corporation shall have any third-party beneficiary or other rights hereunder.
(d) Governing Law. This Agreement shall be governed
by and construed in accordance with the law of the State of New York without
regard to conflict of law provisions.
<PAGE>
Paramount Capital, Inc.
Page 33
(e) Counterparts. This Agreement may be signed in
counterparts with the same effect as if both parties had signed one and the same
instrument.
(f) Notices. Any communications specifically required
hereunder to be in writing, if sent to the Placement Agent, will be mailed,
delivered and confirmed to it at Paramount Capital, Inc., 787 Seventh Avenue,
48th Floor, New York, New York, 10019, Att: Michael S. Weiss and if sent to the
Company, will be mailed, delivered or telegraphed and confirmed to it at
Procept, Inc., 840 Memorial Drive, Cambridge, Massachusetts 02139, Attn: Chief
Executive Officer.
(g) Termination. Subject to the general survival
provisions contained in Sections 8(a) and 8(b) and, in the event of a
termination by the Company, provided that the Company pays the one hundred
thousand ($100,000) termination fee and expenses set forth in Section 5(b), this
Agreement may be terminated by either party prior to the end of the Offering
Period upon written notice to the other party.
(h) Entire Agreement. This Agreement constitutes the
entire agreement of the parties with respect to the matters herein referred and
supersedes all prior agreements and understandings, written and oral, between
the parties with respect to the subject matter hereof. Neither this Agreement
nor any term hereof may be changed, waived or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver or termination is sought.
(i) Nothing contained herein or otherwise shall
create a partnership or joint venture between the Placement Agent and the
Company.
(j) The headings and captions of the various
subdivisions of this Agreement are for convenience or reference only and shall
in no way modify or affect the meaning or construction of any of the terms or
provisions hereof.
<PAGE>
Paramount Capital, Inc.
Page 34
If you find the foregoing is in accordance with our
understanding, kindly sign and return to us a counterpart hereof, whereupon this
instrument along with all counterparts will become a binding agreement between
us.
Very truly yours,
PROCEPT, INC.
By:
-------------------------------
Name:
Title:
Agreed to by:
PARAMOUNT CAPITAL, INC.
By:------------------------------
Name: Lindsay A. Rosenwald, M.D.
Title: Chairman
<PAGE>
Paramount Capital, Inc.
Page 35
EXHIBIT A
PROCEPT, INC.
OFFICER'S CERTIFICATE
January 23, 1998
I, Stanley C. Erck, certify that I am the President of
Procept, Inc., a Delaware corporation (the "Company"), and that, as such, I am
authorized to execute this certificate on behalf of the Company. All capitalized
terms used herein but not otherwise defined herein shall the meanings ascribed
to such terms in the Placement Agency Agreement (as defined below). Reference is
made herein to the closing held on January 23, 1998 (the "Closing Date"). I do
hereby certify that I have carefully examined all of the Offering Documents (as
defined in the Placement Agency Agreement dated as of October 26, 1997 between
the Company and Paramount Capital, Inc. (the "Placement Agency Agreement")), and
do hereby further certify that:
1. All of the representations and warranties of the Company
contained in the subscription agreements (the "Subscription Agreements") between
the Company and the purchasers (the "Purchasers") of the Units of the Company
contemplated by the Company's Confidential Term Sheet, dated November 14, 1997
(as supplemented, the "Term Sheet") are true and correct in all material
respects on the Closing Date with the same force and effect as if made on and as
of the Closing Date, and the Company has performed all covenants and agreements
and has satisfied all conditions in the Subscription Agreements to be performed
or satisfied on its part before the Closing Date in all material respects.
2. The Term Sheet does not contain any untrue statement of a
material fact or omit to state any fact required to be stated in order to make
the statements therein not misleading as of the Closing Date. Since the date of
the Term Sheet, no event has occurred concerning which information is required
to be contained in an amended or supplemented Term Sheet concerning which such
information is not contained therein.
3. All of the representations and warranties of the Company
contained in the Placement Agency Agreement are true and correct in all material
respects on the Closing Date, and the Company has performed all covenants and
agreements and has satisfied all conditions contained in the Placement Agency
Agreement to be performed and satisfied on its
<PAGE>
Paramount Capital, Inc.
Page 36
part at or prior to the Closing Date in all material respects.
4. All of the representations and warranties of the Company
contained each of the other Offering Documents are true and correct in all
material respects on the Closing Date, and the Company has performed all
covenants and agreements and has satisfied all conditions contained in such
Offering Documents to be performed and satisfied on its part at or prior to the
Closing Date in all material respects.
5. Since the date of the most recent financial statements and
the information included in the Term Sheet, there has been no material adverse
change in the condition (financial or other), earnings, business, properties or
prospects of the Company taken as a whole, whether or not arising from
transactions in the ordinary course of business, nor has there occurred any
material event required to be set forth in the Term Sheet, including, without
limitation, in accordance with Section 2(g) of the Placement Agency Agreement.
6. There is no litigation pending or threatened by or against
the Company, except as disclosed in the Term Sheet.
7. The Company shall promptly take all action necessary to
list (i) the Common Stock underlying the Units, (ii) the Common Stock issuable
upon exercise of the Class C Warrants underlying the Units, (iii) the Class C
Warrants (including the Class C Warrants underlying the Placement and Advisory
Options), (iv) the Common Stock constituting any Article VI Issuances relating
to Common Stock underlying the Units (including for each of (i), (ii), (iii) and
(iv) above, the Units issuable upon exercise of the Placement and Advisory
Options) on the Nasdaq National Market in accordance with the rules of the
Nasdaq National Market.
8. Since January 1, 1997, the Company has not offered to sell
to or solicited any offers to buy from any person shares of capital stock of the
Company, except in connection with the Offering contemplated by the Term Sheet.
This Certificate is made for the benefit of and may be relied
upon by, the Placement Agent, Kramer, Levin, Naftalis & Frankel, as counsel to
the Placement Agent, and each of the Purchasers.
IN WITNESS WHEREOF, I have executed this certificate on this
23rd day of January, 1998.
<PAGE>
Paramount Capital, Inc.
Page 37
-------------------------------------
Name: Stanley C. Erck
Title: President
EXHIBIT B
<PAGE>
PROCEPT, INC.
SECRETARY'S CERTIFICATE
January 23, 1998
I, Lynette C. Fallon, certify that I am the duly elected,
qualified and acting Secretary of Procept, Inc., a Delaware corporation (the
"Company"), and as such, I am duly authorized to execute this Certificate on
behalf of the Company, and that I am familiar with the facts certified below.
All capitalized terms used herein but not otherwise defined herein shall the
meanings ascribed to such terms in the Placement Agency Agreement dated as of
October 26, 1997 between the Company and Paramount Capital, Inc. (the "Placement
Agency Agreement"). Reference is made herein to the closing held on January 23,
1998 (the "Closing Date"). In connection with the offering and sale of up to 60
units (the "Units"), each consisting of (a) the number of shares (rounded to the
nearest whole share with 0.5 of one share being rounded upward) (the "Offering
Quantity") of Common Stock of the Company, par value $.01 per share, (the
"Common Stock") determined by dividing 100,000 by the lesser of (i) $0.50 and
(ii) 75% of the Trading Price (as defined below) as of (x) the initial closing
date (the "Initial Closing Date", (y) any interim closing date (each an "Interim
Closing Date") or (z) the final closing date (the "Final Closing Date") of this
offering whichever is lowest (the "Offering Price"), and (b) warrants (the
"Class C Warrants") to purchase, at an exercise price per share equal to the
Offering Price, at any time prior to the fifth anniversary of the Final Closing
Date (as defined herein) a number of shares of Common Stock equal to the
Offering Quantity, for which Paramount Capital, Inc. ("Paramount") has acted as
placement agent, I do hereby further certify as follows:
1. Attached hereto as Attachment A is a true, correct and
complete copy of the Company's Certificate of Incorporation, as amended, which
is in full force and effect, no amendment to such certificate has been approved
by the Board of Directors or stockholders of the Company or filed with the
Delaware Secretary of State since October 26, 1997. As of the Closing Date, the
Company is duly incorporated and in good standing in its state of incorporation
and has paid all fees and taxes due and payable by it on or prior to the Closing
<PAGE>
Paramount Capital, Inc.
Page 38
Date necessary for the maintenance or continuation of its corporate existence.
As of the Closing Date, except as disclosed in the Term Sheet, there are no
proceedings or actions contemplated by the Company, relating to the merger,
liquidation, consolidation, or sale of all or substantially all of the assets or
business of the Company or which would otherwise threaten or impair the
Company's corporate existence.
2. Attached hereto as Attachment B is a true, correct and
complete copy of the By-laws of the Company, as in full force and effect on the
Closing Date and at all times from October 26, 1997 through the Closing Date.
3. As of the Closing Date, each of the Offering Documents is
in the form authorized by the board of directors of the Company pursuant to the
resolutions set forth in Attachment C.
4. Attached hereto as Attachment C is a true, correct and
complete copy of resolutions duly adopted at meetings of the Company's board of
directors duly called and held on January 13, 1998, which resolutions authorize
the issuance and sale of the Units and the Placement Options and Advisory
Options in accordance with the requirements of Delaware law, the Certificate and
By-laws of the Company, are the only resolutions in effect adopted by the board
of directors of the Company or any committee thereof with respect to the
offering and sale of the units and the transactions relating thereto, and which
have not been revoked, modified and amended or rescinded and are in full force
and effect on the Closing Date.
5. Attached hereto as Attachment D are true, correct and
complete copies of specimens of the certificates representing the Common Stock
and Class C Warrants heretofore approved and adopted by the board of directors
of the Company. Each of the certificates representing Common Stock and Class C
Warrants delivered on the Closing Date to each of the Purchasers pursuant to the
Subscription Agreements has been executed by the genuine or facsimile signature
of officers of the Company who have been duly elected or appointed, qualified
and acting as such officers on the date such certificates were executed and
delivered, all in accordance with the Certificate and By-laws of the Company and
the requirements of applicable law.
6. Attached hereto as Attachment E is a true, correct and
complete copy of the form of Placement and Advisory Options heretofore approved
and adopted by the Board of Directors of the Company. Each of the Placement and
Advisory Options delivered on the date hereof to each of the holders pursuant to
the Placement Agency Agreement has been executed by the genuine or facsimile
signature of officers of the Company who have been duly
<PAGE>
Paramount Capital, Inc.
Page 39
elected or appointed, qualified and acting as such officers on the date such
certificates were executed and delivered, all in accordance with the Certificate
and By-laws of the Company and the requirements of applicable law.
7. The minute books and records of the Company, relating to
all proceedings of the stockholders, the Board of Directors of the Company and
the Compensation Committee, the Audit Committee and the Nominating Committee of
such Board have been made available to Kramer, Levin, Naftalis & Frankel,
counsel to Paramount, and, in such form, are the original minute books and
records of the Company. There have been no material changes, alterations or
additions in such minutes or records since their examination by Kramer, Levin,
Naftalis & Frankel on behalf of Paramount.
8. Each person who, as an officer or director of the Company,
signed any of the Offering Documents or any other document in connection with
the offering and sale of the Units, the Placement and the Advisory Options and
the closing relating thereto was duly elected or appointed, qualified and acting
as such officer or director at the respective times of the signing and delivery
thereof and was duly authorized to sign such document on behalf of the Company,
and the signature of each such person appearing on each such document is the
genuine signature of such officer, director or person duly appointed for the
purpose of executing such documents under valid powers of attorney, and each
individual who signed such signature pages, personally or by an
attorney-in-fact, was then duly elected, qualified and acting as an officer or
director of the Company as stated therein.
9. The following persons are, and have been at all times since
October 26, 1997, duly qualified and acting officers of the Company, duly
elected or appointed to the offices set forth opposite their respective names,
and the signature opposite the name of each such officer is his or her, or a
facsimile of his or her, authentic signature, and the seal affixed hereto is the
duly adopted seal of the Company:
Name Office Signature
Stanley C. Erck President, Chief Executive Officer
And Treasurer
<PAGE>
Paramount Capital, Inc.
Page 40
This certificate is made for the benefit of, and may be relied
upon by, Paramount, Kramer, Levin, Naftalis & Frankel, as counsel to Paramount,
and each of the Purchasers.
IN WITNESS WHEREOF, I have hereunto set forth my hand this
23rd day of January, 1998.
[SEAL]
-------------------------------------
Name:
Title: Secretary
I, Stanley C. Erck, President of the Company, do hereby
certify that Lynette C. Fallon whose genuine signature appears above, is, and
has been at all times since October 26, 1997, the duly elected or appointed,
qualified and acting Secretary of the Company.
IN WITNESS WHEREOF, I have hereunto set forth my hand this
23rd day of January, 1998.
-------------------------------------
Name: Stanley C. Erck
Title: President
<PAGE>
EXHIBIT Q
As of June 30, 1997
Procept, Inc.
840 Memorial Drive
Cambridge, MA 02139
Dear Sirs:
1. This is to confirm our understanding that Paramount
Capital, Inc. and its affiliates and designees ("Paramount") have been engaged
as a non-exclusive financial advisor of Procept, Inc. (the "Company") for a
period of twenty-four (24) months commencing on the date hereof (as extended
pursuant to Paragraph 12 hereto, or by mutual agreement of the parties hereto,
the "Term"). Capitalized terms not defined herein shall have the meaning
ascribed to such terms in the Letter of Intent (as defined below).
2. The Company will pay Paramount a non-refundable retainer
fee for Paramount's services hereunder in an amount equal to four thousand
dollars ($4,000) per month, minimum engagement of twenty-four (24) months, with
the first $20,000 of the retainer fee payable upon the Final Closing Date.
The Company also agrees to pay in cash all reasonable
out-of-pocket expenses incurred by Paramount in providing services requested by
Procept hereunder, including fees and disbursements of Paramount's counsel, such
expenses to be paid within ten (10) days of submission of a bill or bills by
Paramount from time to time.
3. Upon the Closing of each Investment (as defined below)
during the Term or during the twelve-month period following the expiration or
earlier termination of the Term, the Company shall pay to Paramount a fee in an
amount equal to nine percent (9%) of the aggregate dollar value of such
Investment and shall issue to Paramount warrants to purchase an amount of
securities equal to ten percent (10%) of the securities sold as part of such
Investment at an exercise price equal to one-hundred-ten percent (110%) of the
price of such securities, exercisable until five (5) years from the date of
issuance of such warrants. For the purposes of this Agreement, an Investment
shall mean any purchase of securities of the Company by an investor who is first
introduced to the Company by or through Paramount and that is made during the
Term or during the twelve-month period following the expiration of the Term. No
compensation shall be due to Paramount pursuant to this paragraph 3 for an
Investment with respect to which Paramount is entitled to compensation pursuant
to paragraph 4 of this Agreement or a Placement Agency Agreement (the "Placement
Agency Agreement") to be entered into by and between Paramount and the Company
as described in the Letter of Intent dated June 30, 1997 between Paramount and
the Company (the "Letter of Intent") and provided further that if the terms of
both the Placement Agency Agreement and this Agreement would be applicable to
any particular Investment, the terms of the Placement Agency Agreement shall
govern and Paramount shall be entitled to the compensation set forth therein.
4. Upon completion of the Series B Offering or the closing of
a Qualified
<PAGE>
Offering, the Company will sell to Paramount and/or its designees, for $.001 per
warrant share, warrants (the "Advisory Warrants") to purchase Units equal to
fifteen percent (15%) of the Units sold in the Series B Offering or of the
securities sold in the Qualified Offering, which Advisory Warrants shall be
exercisable for a period of five (5) years commencing six (6) months after the
Series B Final Closing Date or the final closing date of a Qualified Offering,
at an exercise price equal to 110% of the initial offering price of the Series B
Units or of the initial offering price of the securities sold in the Qualified
Offering. The securities underlying the Advisory Warrants will not be subject to
mandatory conversion or redemption by the Company nor will they be callable by
the Company. The Advisory Warrants will contain a cashless exercise feature,
antidilution provisions and the right to have the securities underlying the
Advisory Warrants included on the Shelf Registration Statement.
5. (a) Should the Company enter into an agreement with a party
first introduced to the Company by or through Paramount during or prior to the
Term pursuant to which the Company consummates a sale, merger, consolidation,
tender offer, business combination or similar transaction involving a majority
of the business assets or stock of the Company (a "Sale") during the Term, or
during the twelve-month period following the expiration of such Term, then the
Company shall pay to Paramount: (i) a cash fee equal to eight percent (8%) of
the aggregate consideration paid to the Company by the acquiror, such fee to be
payable in cash simultaneously with the closing of such Sale; and (ii) a warrant
(a "Warrant") to purchase a number of shares of Common Stock of the surviving
entity equal to the product of (x) the quotient of the aggregate amount of the
aggregate consideration received by the Company or the aggregate amount of
equity received by the Company's shareholders as a result of the Sale divided by
the lesser of (i) the per share value attributed to the Common Stock in the
Sale, if any (determined by dividing the aggregate consideration received by the
Company by the number of shares received by the Company as a result of the
Sale), and (ii) the per share fair market value of the Common Stock at the time
of the closing of the Sale, and (y) eight percent (8%). Each Warrant shall be
exercisable for at least five (5) years from the date of its respective issuance
at an exercise price that is 110% of the fair market value of the Common Stock
at the time each such Warrant is granted.
(b) Should the Company enter into an agreement with a
party first introduced to the Company by or through Paramount during or prior to
the Term pursuant to which the Company consummates a transaction wherein the
Company acquires all or substantially all of the business assets or stock of
another entity in which the Company is the surviving entity (an "Acquisition")
during the Term, or during the twelve-month period following the expiration of
such Term, then the Company shall pay Paramount: (i) a fee equal to eight
percent (8%) of the aggregate consideration paid by the Company to the entity
acquired, such fee to be payable in cash simultaneously with the closing of such
Acquisition; and (ii) a warrant (a "Warrant") to purchase a number of shares of
Common Stock of the Company equal to the product of (x) the quotient of the
aggregate amount of the aggregate consideration received by the Company as a
result of the Acquisition divided by the lesser of (i) the per share value
attributed to the Common Stock in the Acquisition, if any (determined by
dividing the aggregate consideration received by the Company by the number of
shares received by the Company as a result of the Acquisition), and (ii) the per
share fair market value of the Common Stock at the time of the closing of the
Acquisition, and (y) eight percent (8%). Each Warrant shall be exercisable for
at least five (5) years from the date of its respective issuance at an exercise
price that is 110% of the fair market value of the Common Stock at the time each
such Warrant is granted.
(c) For purposes of calculating Paramount's fee under
this Paragraph 5, the aggregate consideration paid with respect to the business,
assets or stock of the Company shall be equal to the total of all cash,
securities and/or other assets paid for such business, assets or stock by the
acquiror. Aggregate consideration shall also include: (i)
<PAGE>
any commercial bank or similar indebtedness of the Company which is repaid or
for which the responsibility to pay is assumed by the acquiror in connection
with such transaction; (ii) the greater of the stated value or the liquidation
value of preferred stock of the Company that is assumed or acquired by the
acquiror and that is not converted into common stock upon the consummation of
such transaction; (iii) future payments for which the acquiror is obligated
absolutely ("Acquiror Future Payments"); and (iv) future payments for which the
acquiror is obligated upon the attainment of milestones or financial results
("Acquiror Contingent Payments"). The fee to be paid to Paramount as a result of
Acquiror Future Payments shall be paid upon the date of closing of such
Acquisition and shall be valued at the present value of the Acquiror Future
Payments. The fee to be paid to Paramount as a result of Acquiror Contingent
Payments shall be paid upon the receipt of such payments by the Company. In the
event that a Sale of the Company or an Acquisition by the Company is consummated
through a multiple-step transaction wherein the acquiror is not obligated either
absolutely or upon the attainment of milestones or financial results to make
future payments to further increase the acquiror's ownership in the Company (the
"Multiple-Step Payments"), the Company agrees to pay Paramount a fee on such
Multiple-Step Payments which shall be calculated pursuant to this Paragraph 5.
Such fee shall be paid to Paramount upon receipt by the Company of such
Multiple-Step Payments and shall be in addition to the fee paid to Paramount in
the first step of such transaction.
6. Should the Company enter into an agreement with an investor
first introduced to the Company by or through Paramount during or prior to the
Term pursuant to which the Company consummates a Strategic Alliance(s) (as
defined below), or during the twelve-month period following the expiration of
such Term, then the Company shall pay Paramount: (a) a cash fee equal to eight
percent (8%) of the present value of the Aggregate Consideration (as defined
below) to be received by the Company, its shareholders or employees in each such
transaction; and (b) a warrant (a "Warrant") to purchase a number of shares of
Common Stock of the Company equal to the product of (x) the quotient of the
amount of the Aggregate Consideration received by the Company divided by the
lesser of (i) the per share value attributed to the Common Stock in the
Strategic Alliance, if any (determined by dividing the aggregate consideration
received by the Company by the number of shares received by the Company as a
result of the Strategic Alliance), and (ii) the per share fair market value of
the Common Stock at the time of the closing of the Strategic Alliance, and (y)
eight percent (8%). Each Warrant shall be exercisable for at least five (5)
years from the date of its respective issuance at an exercise price that is 110%
of the fair market value of the Common Stock at the time each such Warrant is
granted. Such fee shall be paid to Paramount in cash simultaneously with the
closing of each such transaction. For the purpose of calculating Paramount's fee
under this Paragraph 6, Aggregate Consideration shall include, but not be
limited to: (i) all payments made at the closing of such transaction for equity
securities, equity security rights or similar rights; (ii) technology access
fees or similar up-front payments, (iii) other future payments, including
without limitation, licensing fees, lump sum payments, royalties and deferred
technology access fees, to be made to the Company or its employees for which the
Strategic Alliance partner(s) or other counter-parties (each a "Partner") is
obligated either absolutely ("Strategic Future Payments") or upon the attainment
of milestones or on a percentage or royalty basis ("Strategic Contingent
Payments"); (iv) funding provided, arranged or introduced by the Partner
(through reimbursement or otherwise) relative to research and development,
testing, clinical trials and related expenditures, whether such work is
performed, subcontracted or managed by the Company or the Partner; and (v) the
repayment or assumption by the Partner of obligations of the Company, including
indebtedness for money borrowed or amounts owed by the Company to inventors or
owners of technology. It is further understood that Aggregate Consideration
shall not be reduced by the amount of the fee due to Paramount hereunder. Any
portion of the Aggregate Consideration constituting Strategic Future Payments
shall be paid at closing and shall be valued at the present value of the
Strategic Future Payments.
<PAGE>
The fee to be paid to Paramount as a result of Strategic Contingent Payments
shall be paid upon the receipt of such payments and shall be in addition to any
fees paid at closing. A "Strategic Alliance" may include, but is not limited to:
(i) any joint venture, partnership, license or other contract for the research,
development, manufacturing, marketing, distribution, sale or other activity
relating to the Company's present and/or future products; (ii) the purchase of,
or commitment to purchase from the Company, less than a majority of the
business, assets or stock of the Company by a Partner(s); (iii) the sale of any
of the Company's assets or any rights in respect to its products and /or
technology; and (iv) a commitment to provide funding for all or part of the
Company's research and development activities, whether such work is performed or
managed by the Company or the Partner.
For purposes of calculating the present value of any Strategic
Future Payments, Strategic Contingent Payments, Acquiror Future Payments or
Acquiror Contingent Payments, the Company and Paramount agree to discount all
such payments by a discount factor equal to fifteen percent (15%) per annum,
and, where necessary, to use the projections which have been provided to
prospective Partners in the course of the transaction to quantify these
Strategic Future Payments, Strategic Contingent Payments, Acquiror Future
Payments or Acquiror Contingent Payments. For the purposes of calculating
Paramount's fee, securities constituting part of Aggregate Consideration which
are traded on a national or recognized foreign securities exchange or the Nasdaq
National Market System shall be valued at the last closing bid price thereof on
the last trading date immediately preceeding the date of the consummation or
closing of any such transaction. Such securities that are traded
over-the-counter shall be valued at the mean between the latest bid and asked
prices on the last trading date immediately preceeding the consummation or
closing of any such transaction.
7. Should Paramount introduce the Company to a potential
product, process, intellectual property or technology which is subsequently
licensed or otherwise acquired by the Company, the Company and Paramount shall
negotiate in good faith a fee for such introduction provided that in no event
shall such fee be less than: (a) $200,000 in cash; and (b) an equity payment in
an amount to be agreed upon between the parties, but in no event less than eight
percent (8%) of the total outstanding shares of common stock of the Company, on
a fully diluted basis.
8. In the event that the Company, its directors or management
initiate any discussions with a third party in furtherance of any Sale,
Acquisition, Investment or Strategic Alliance or receive any meaningful inquiry
or are aware of the interest of any third party concerning a Sale, Acquisition,
Investment or Strategic Alliance which is the subject of this Agreement, they
shall promptly inform Paramount of the party and its interest.
9. Unless required by legal proceeding, any financial advice
rendered by Paramount pursuant to this Agreement (and the existence of this
Agreement) shall not be disclosed publicly in any manner without Paramount's
prior written approval and shall be treated by the Company as confidential
information. The Company shall provide Paramount with all financial and other
information requested by Paramount for the purposes of rendering its services
pursuant to this Agreement.
10. All non-public information given to Paramount by the
Company shall be treated by Paramount as confidential information and shall not
be used by Paramount except in rendering its services pursuant to this
Agreement. Paramount may rely, without independent verification, on the accuracy
and completeness of any information furnished to Paramount by the Company,
subject to its obligations under the securities laws.
11. In the event that Paramount becomes involved in any
capacity in any
<PAGE>
action, proceeding, investigation or inquiry in connection with any matter
referred to in this Agreement or arising out of the matters contemplated by this
Agreement, the Company shall reimburse Paramount for its legal and other
expenses (including the cost of any investigation and preparation) as they are
incurred by Paramount in connection therewith. The Company also agrees to
indemnify each of Paramount, the directors, officers, employees and agents
thereof (the "Indemnitees"), pay on demand and protect, defend, save and hold
each Indemnitee harmless from and against any and all liabilities, damages,
losses, settlements, claims, actions, suits, penalties, fines, costs or expenses
(including, without limitation, attorneys' fees) (any of the foregoing, a
"Claim") incurred by or asserted against any Indemnitee of whatever kind or
nature, arising from, in connection with or occurring as a result of this
Agreement or the matters contemplated by this Agreement. The foregoing agreement
shall be in addition to any rights that any Indemnitee may have at common law or
otherwise.
12. The Term of this Agreement shall be twenty-four (24)
months commencing on the date hereof. Thereafter, this Agreement shall continue
on a month to month basis until terminated by either party upon not less than
sixty (60) days notice with the monthly retainer fee payable on the first day of
each month (the "Extended Term"); provided, however, regardless of any
termination, the rights to compensation contained in Paragraphs 3, 4 and 5 and
to indemnity and reimbursement contained in Paragraph 11 shall survive. In
addition to any retainer fees, Paramount shall be entitled to the reimbursement
of reasonable expenses incurred by Paramount as a result of services rendered
prior to the date of the termination.
13. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to principles
of conflicts of law. The parties hereto irrevocably consent to the jurisdiction
of the courts of the State of New York and of any federal court located in such
State in connection with any action or proceeding arising out of or relating to
this Agreement, any document or instrument delivered pursuant to, in connection
with or simultaneously with this Agreement, or a breach of this Agreement or any
such document or instrument. In any such action or proceeding, each party hereto
waives personal service of any summons, complaint or other process and agrees
that service thereof may be made in accordance with this Section 13. Within
thirty (30) days after such service, or such other time as may be mutually
agreed upon in writing by the attorneys for the parties to such action or
proceeding, the party so served shall appear or answer such summons, complaint
or other process.
14. This Agreement shall be binding upon Paramount and the
Company and the successors and assigns of Paramount. The Company shall not
assign or sell all or substantially all of the Company's business and/or assets
without first requiring in writing that such assignee or successor is bound by
the provisions of this Agreement.
15. (a) Paramount shall not have any obligation to the Company
not to (i) engage in the same or similar activities or lines of business as the
Company or develop or market any products, services or technologies that does or
may in the future compete, directly or indirectly, with those of the Company,
(ii) invest or own any interest publicly or privately in, or develop a business
relationship with, any corporation, partnership or other person or entity
engaged in the same or similar activities or lines or business as, or otherwise
in competition with, the Company or (iii) do business with any client,
collaborator, licensor, consultant, vendor or customer of the Company. Paramount
and any of its officers, directors, employees or former employees and affiliates
shall not have any obligation, or be liable, to the Company solely on account of
the conduct described in the preceding sentence. In the event that Paramount
and/or any officer, director, employee or former employee or affiliate thereof
acquires knowledge of a potential transaction, agreement, arrangement or
<PAGE>
other matter which may be a corporate opportunity for both Paramount and the
Company, neither Paramount nor any of its officers, directors, employees or
former employees or affiliates shall have any duty to communicate or offer such
corporate opportunity to the Company and neither Paramount nor any of its
officers, directors, employees or former employees or affiliates shall be liable
to the Company for breach of any fiduciary duty, as a stockholder or otherwise,
solely by reason of the fact that Paramount or any of its officers, directors,
employees or former employees or affiliates pursue or acquire such corporate
opportunity for Paramount, direct such corporate opportunity to another person
or entity or communicate or fail to communicate such corporate opportunity or
entity to the Company.
(b) The provisions of this Section 15 shall be enforceable to
the fullest extent permitted by law.
<PAGE>
Please confirm that the foregoing is in accordance with your
understanding by signing and returning to us the enclosed duplicate of this
letter.
Sincerely yours,
PARAMOUNT CAPITAL, INC.
By:
---------------------------------
Name: Lindsay A. Rosenwald, M.D.
Title: Chairman
Confirmed as of the date hereof:
PROCEPT, INC.
By:
- ------------------------
Name: John F. Dee
Title: President and CEO
<PAGE>
EXHIBIT R
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND NEITHER SUCH SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF NOR
THE SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE SECURITIES LAW. SUCH SECURITIES
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS
SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT.
PROCEPT, INC.
FORM OF
UNIT PURCHASE OPTION FOR THE PURCHASE OF UNITS CONSISTING OF
SHARES OF COMMON STOCK AND WARRANTS
NO. __ _____ OPTION UNITS
FOR VALUE RECEIVED, Procept, Inc., a Delaware corporation
(the "COMPANY"), hereby certifies that _______________________, or its assigns,
is entitled to purchase from the Company, at any time or from time to time
commencing on OCTOBER 9, 1998 and prior to 5:00 P.M., New York City time, on
OCTOBER 9, 2003, up to ______ Units, each Unit consisting of (a) the number of
shares (rounded to the nearest whole share with 0.5 of one share being rounded
upward) (the "Offering Quantity") of Common Stock of the Company, par value $.01
per share, (the "Common Stock") determined by dividing 100,000 by the lesser of
(i) $0.50 and (ii) 75% of the Trading Price (as defined in the Subscription
Agreement as hereinafter defined) as of (x) the initial closing date (the
"Initial Closing Date", (y) any interim closing date (each an "Interim Closing
Date") or (z) the final closing date (the "Final Closing Date") of the Offering
(as defined below) whichever is lowest (the "Offering Price"), and (b) warrants
(the "Class C Warrants") to purchase, at an exercise price per share equal to
the Offering Price, at any time prior to the fifth anniversary of the Final
Closing Date (as defined herein) a number of shares of Common Stock equal to the
Offering Quantity, for an aggregate Unit purchase price of _____________
(computed on the basis of $110,000 per Unit). (Hereinafter, (i) said Units are
referred to as the "UNITS", (ii) said Class C Warrants are referred to as the
"WARRANTS", (iii) the Common Stock included in the Units and purchasable upon
exercise of the Warrants, is referred to as the "COMMON STOCK", (iv) the shares
of the Common Stock purchasable hereunder or under any other Option (as
hereinafter defined) (or the shares of any capital stock purchasable hereunder
or under any other Option in lieu of Common Stock) are referred to as the
"COMMON SHARES", (v) the shares of Common Stock purchasable upon exercise of the
Warrants hereunder or under any other Option (as hereinafter defined) are
referred to as the "WARRANT SHARES", (vi) the aggregate purchase price payable
for the Units hereunder is referred to as the "AGGREGATE OPTION PRICE", (vii)
the price payable (initially $110,000 per Unit, subject to adjustment) for each
of the Units, hereunder is referred to as the "PER UNIT PRICE", (viii) this
Option, all similar Options issued on the date hereof and all warrants hereafter
issued in exchange or substitution for this Option or such similar Options are
referred to as the "OPTIONS" and (ix) the holder of this Option is referred to
as the "HOLDER" and the holder of this Option and all other Options are referred
to as the "HOLDERS" and Holders of more than fifty percent (50%) of the
outstanding Options are
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referred to as the "MAJORITY OF THE HOLDERS." The Aggregate Option Price is not
subject to adjustment. The Per Unit Price is subject to adjustment as
hereinafter provided; in the event of any such adjustment, the number of Common
Shares or Warrant Shares, as the case may be, deliverable upon exercise of this
Option shall be adjusted in accordance with paragraph 3(i) below.
This Option, together with options of like tenor,
constituting in the aggregate Options to purchase ______ Units, was originally
issued pursuant to an agency agreement between the Company and Paramount
Capital, Inc., as placement agent (THE "PLACEMENT AGENT") in connection with a
private placement (THE "OFFERING") of ______ Units (THE "OFFERING UNITS"), each
Offering Unit consisting of Common Stock (THE "OFFERING COMMON") and Class C
Warrants (THE "OFFERING WARRANTS") for which the Placement Agent acted as
Placement Agent.
1. EXERCISE OF OPTION.
(a) This Option may be exercised, in whole at any time or
in part from time to time, commencing on OCTOBER 9, 1998 and prior to 5:00 P.M.,
New York City time, on OCTOBER 9, 2003 by the Holder:
(i) by the surrender of this Option (with the subscription
form at the end hereof duly executed) at the address set forth in
Subsection 10(a) hereof, together with proper payment of the
Aggregate Option Price, or the proportionate part thereof if this
Option is exercised in part, with payment for the number of Units
made by certified or official bank check payable to the order of
the Company; or
(ii) by the surrender of this Option (with the cashless
exercise form at the end hereof duly executed) (A "CASHLESS
EXERCISE") at the address set forth in Subsec tion 10(a) hereof.
The exchange of the Option shall take place on the date specified
in the Cashless Exercise Form or, if later, the date the Cashless
Exercise Form is surrendered to the Company (THE "EXCHANGE DATE").
Such presentation and surrender shall be deemed a waiver of the
Holder's obligation to pay the Aggregate Option Price, or the
proportionate part thereof if this Option is exercised in part. In
the event of a Cashless Exercise this Option shall represent the
right to subscribe for and acquire the number of Units (rounded to
the next highest integer) equal to (x) the number of Units
specified by the Holder in its Cashless Exercise Form (THE "TOTAL
NUMBER") (such number not to exceed the maximum number of Units
subject to this Option, as may be adjusted from time to time) less
(y) the number of Units equal to the quotient obtained by dividing
(A) the product of the Total Number and the existing Per Unit
Price by (B) the Market Price Per Unit. "MARKET PRICE PER UNIT"
shall mean first, if there is a trading market as indicated in
Subsection (A) below for the Units, such Market Price Per Unit and
if there is no such trading market in the Units, then Market Price
Per Unit shall equal the sum of the aggregate Market Price of all
shares of Common Stock (on per share basis, the "MARKET PRICE PER
SHARE OF COMMON STOCK") and Warrants (on a per warrant basis, the
"MARKET PRICE PER WARRANT") which comprise a Unit, with the
meanings indicated in Subsections (B) through (G) below:
(A) If the Units are listed on a national
securities exchange or listed or admitted to unlisted
trading privileges on such exchange or listed for trading
on the Nasdaq National Market or the Nasdaq Smallcap
Market, the Market Price Per Unit shall be the last
reported sale price (or if no last sale, the last
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quoted ask price) of the Units on such exchange or
market for the trading day immediately preceding the
Exchange Date; or
(B) If the Common Stock or Warrants, as the case
may be, are listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange
or listed for trading on the Nasdaq National Market or the
Nasdaq Smallcap Market, the Market Price Per Share of
Common Stock, or Market Price Per Warrant, respectively,
shall be the last reported sale price (or if no last sale,
the last quoted ask price) of the Common Stock or
Warrants, respectively, on such exchange or market for the
trading day immediately preceding the Exchange Date; or
(C) If the Common Stock or Warrants, as the case
may be, are not so listed or admitted to unlisted trading
privileges, the Market Price Per Share of Common Stock, or
Market Price Per Warrant, respectively, shall be the last
reported sale price (or if no last sale, the last quoted
ask price) of the Common Stock or Warrants in the
over-the-counter market as reported by the National
Quotation Bureau or similar organization or in the Pink
Sheets for the trading day immediately preceding the
Exchange Date; or
(D) If the Common Stock is not so listed or
admitted to unlisted trading privileges and the sale price
is (or if no last sale, the last quoted ask price) not so
reported, the Market Price Per Share of Common Stock shall
be the fair market value as determined by agreement
between the Board of Directors of the Company and a
Majority of the Holders; or
(E) If neither clause (B) nor (C) applies to the
Warrants, then the Market Price Per Warrant shall be an
amount equal to the difference between (i) the Market
Price Per Share of Common Stock which may be received upon
the exercise of the Warrants, as determined in paragraphs
(B), (C) and (D) above, and (ii) the per share exercise
price of the Warrants then in effect.
(F) If the Company and the Majority of the
Holders are unable to reach agreement on any valuation
matter, such valuation shall be submitted to and
determined by a nationally recognized independent
investment bank selected by the Board of Directors of the
Company and the Majority of the Holders (or, if such
selection cannot be agreed upon promptly, or in any event
within ten days, then such valuation shall be made by a
nationally recognized independent investment banking firm
selected by the American Arbitration Association in New
York City in accordance with its rules), the costs of
which valuation shall be paid for by the Company.
(iii) by the surrender of this Option (with the
subscription (promissory note) form at the end hereof duly
executed) at the address set forth in Subsection 10(a) hereof,
together with the presentation of a promissory note made payable
to the Company, duly executed and in the form at the end hereof.
Such promissory note shall be secured by the securities underlying
this Option, which shall be held in safe-keeping by the Company as
collateral for such indebtedness.
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(b) If this Option is exercised in part, the Holder is
entitled to receive a new Option covering the Units, which have not been
exercised and setting forth the proportionate part of the Aggregate Option Price
applicable to such Units. Upon surrender of this Option, the Company will (i)
issue a certificate or certificates in the name of the Holder for the largest
number of whole shares of the Common Stock and Warrants to which the Holder
shall be entitled and, if this Option is exercised in whole, in lieu of any
fractional shares of the Common Stock or Warrants to which the Holder shall be
entitled, pay to the Holder cash in an amount equal to the fair value of such
fractional shares (determined in such reasonable manner as the Board of
Directors of the Company shall determine), and (ii) deliver the other securities
and properties receivable upon the exercise of this Option, or the proportionate
part thereof if this Option is exercised in part, pursuant to the provisions of
this Option; provided, however that if this Option is exercised pursuant to
paragraph 1(a)(iii), the Company will issue but shall not deliver such shares
until such time as the promissory note and all accrued interest thereon shall
have been paid in full, and will hold such shares in safekeeping.
(c) This Option shall be exercisable only for Units
consisting of Warrants and Common Shares at the then applicable Per Unit Price
(including any adjustment pursuant to Section 3 below).
2. RESERVATION OF WARRANT SHARES AND COMMON SHARES;
LISTING. The Company agrees that, prior to the expiration of this Option, the
Company will at all times (a) have authorized and in reserve, and will keep
available, solely for issuance and delivery upon the exercise of this Option,
the Units, the Warrants and the Common Shares underlying such Units and other
securities and properties as from time to time shall be receivable upon the
exercise of this Option, free and clear of all restrictions on sale or transfer,
other than under Federal or state securities laws, and free and clear of all
preemptive rights and rights of first refusal and (b) have authorized and in
reserve, and will keep available, solely for issuance or delivery upon exercise
of the Warrants, the shares of Common Stock, the Warrant Shares and the Common
Shares and other securities and properties as from time to time shall be
receivable upon such exercise, free and clear of all restrictions on sale or
transfer, other than under Federal or state securities laws, and free and clear
of all preemptive rights and rights of first refusal; and (c) if the Company is
listed or hereafter lists its Common Stock on any national securities exchange,
the Nasdaq National Market or the Nasdaq Smallcap Market, use its best efforts
to keep the Common Shares authorized for listing on such exchange upon notice of
issuance.
3. PROTECTION AGAINST DILUTION.
(a) The anti-dilution provisions of the Warrant Agreement
shall protect the Holder from dilution of the purchase rights represented by the
Warrants (it being understood for this purpose that the Holder shall be deemed
to own the Warrants commencing on October 9, 1998). In addition, the following
anti-dilution provisions shall protect the Holder from dilution resulting from
the issuance of Common Stock and other securities:
(i) If the Company shall issue or distribute to the
holders of shares of Common Stock evidence of its indebtedness,
any other securities of the Company or any cash, property or other
assets (excluding a subdivision, combination or reclassification,
or dividend or distribution payable in shares of Common Stock,
referred to in Subsection 3(a)(ii), and also excluding cash
dividends or cash distributions paid out of net profits legally
available therefor in the full amount thereof
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(any such non-excluded event being herein called a "COMMON STOCK
SPECIAL DIVIDEND")), the Per Unit Price shall be adjusted by
multiplying the Per Unit Price then in effect by a fraction, (A)
the numerator of which shall be (x) the then current Market Price
Per Share of Common Stock in effect on the record date of such
issuance or distribution less (y) the fair market value (as
determined in good faith by the Company's Board of Directors) of
the evidence of indebtedness, cash, securities or property, or
other assets issued or distributed in such Common Stock Special
Dividend applicable to one share of Common Stock and (B) the
denominator of which shall be the then current Market Price Per
Share of Common Stock in effect on the record date of such
issuance or distribution. An adjustment made pursuant to this
Subsection 3(b)(i) shall become effective immediately after the
record date of any such Common Stock Special Dividend.
(ii) If the Company shall (A) pay a dividend or make a
distribution on its capital stock in shares of Common Stock, (B)
subdivide its outstanding shares of Common Stock into a greater
number of shares, (C) combine its outstanding shares of Common
Stock into a smaller number of shares or (D) issue by
reclassification of its Common Stock any shares of capital stock
of the Company, the Per Unit Price shall be adjusted by
multiplying the Per Unit Price by a fraction, the numerator of
which shall be the number of Common Shares which this Option was
exercisable for prior to such action and the denominator of which
shall be the number of Common Shares which a Holder would have
owned immediately following such action had such Option been
exercised immediately prior to the record or effective date
therefor. An adjustment made pursuant to this Subsection 3(a)(ii)
shall become effective immediately after the record date in the
case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision,
combination or reclassification.
(iii) Except as provided in Subsections 3(a)(i) and 3(e),
in case the Company shall issue or sell any Common Stock, any
securities convertible into Common Stock, any rights, options or
warrants to purchase Common Stock or any securities convertible
into Common Stock, in each case for a price per share or entitling
the holders thereof to purchase Common Stock at a price per share
(determined by dividing (A) the total amount, if any, received or
receivable by the Company in consideration of the issuance or sale
of such securities plus the total consideration, if any, payable
to the Company upon exercise or conversion thereof (the "COMMON
STOCK TOTAL CONSIDERATION") by (B) the number of additional shares
of Common Stock issued, sold or issuable upon exercise or
conversion of such securities) which is less than either (i) the
then current Market Price Per Share of Common Stock in effect on
the date of such issuance or sale or (ii) the Per Unit Price
divided by the number of shares of Common Stock that each Unit is
then exercisable for, the Per Unit Price shall be adjusted as of
the date of such issuance or sale by multiplying the Per Unit
Price then in effect by a fraction, the numerator of which shall
be (x) the sum of (1) the number of shares of Common Stock
outstanding on the record date of such issuance or sale plus (2)
the Total Consideration divided by (I) the then current Market
Price of the Common Stock or (II) the quotient of the Per Unit
Price divided by the number of shares of Common Stock that each
Unit is then exercisable for, whichever is greater, and the
denominator of which shall be (y) the number of shares of Common
Stock outstanding on the record
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<PAGE>
date of such issuance or sale plus the maximum number of
additional shares of Common Stock issued, sold or issuable upon
exercise or conversion of such securities.
(iv) In accordance with Section 6 of this Unit Purchase Option,
notwithstanding the anti-dilution provisions set forth in
Subsections 3(a)(i)-(iii), if an event set forth in Subsections
3(a)(i)-(iii) (a "TRIGGER EVENT") shall occur, and provided that
the anti-dilution provisions of the Common Stock, as set forth in
Article VI of the Subscription Agreement, shall apply to such
Trigger Event, then any adjustments as a result of the Trigger
Event shall occur as follows: (A) first, the anti-dilution
provisions, as set forth in Article VI shall apply; and (B)
second, the anti-dilution provisions set forth in Subsections
3(a)(i)-(iii) shall apply only to the extent that the application
of such provisions shall result in the Holder receiving additional
shares of capital stock of the Company, having the Per Option Unit
Price reduced or otherwise further improve the economic position
of the Holder.
(b) No adjustment in the Per Unit Price shall be required unless
such adjustment would require an increase or decrease of at least $0.05 per
Unit; provided, however, that any adjustments which by reason of this Section
3(b) are not required to be made shall be carried forward and taken into account
in any subsequent adjustment; provided, further, however, that adjustments shall
be required and made in accordance with the provisions of this Section 3 (other
than this Subsection 3(b)) not later than such time as may be required in order
to preserve the tax-free nature of a distribution to the Holder of this Option.
All calculations under this Section 3 shall be made to the nearest cent or to
the nearest 1/100th of a share, as the case may be. Anything in this Section 3
to the contrary notwithstanding, the Company shall be entitled to make such
reductions in the Per Unit Price, in addition to those required by this Section
3, as it in its discretion shall deem to be advisable in order that any stock
dividend, subdivision of shares or distribution of rights to purchase stock or
securities convertible or exchangeable for stock hereafter made by the Company
to its stockholders shall not be taxable.
(c) Whenever the Per Unit Price is adjusted as provided in this
Section 3 and upon any modification of the rights of a Holder of Options in
accordance with this Section 3, the Company shall promptly prepare a brief
statement of the facts requiring such adjustment or modification and the manner
of computing the same and cause copies of such certificate to be mailed to the
Holders of the Options. The Company may, but shall not be obligated to unless
requested by the Holders of more than fifty percent (50%) of the outstanding
Options, obtain, at its expense, a certificate of a firm of independent public
accountants of recognized standing selected by the Board of Directors (who may
be the regular auditors of the Company) setting forth the Per Unit Price and the
number of Warrants, Warrant Shares or Common Shares, as the case may be, after
such adjustment or the effect of such modification, a brief statement of the
facts requiring such adjustment or modification and the manner of computing the
same and cause copies of such certificate to be mailed to the Holders of the
Options.
(d) If the Board of Directors of the Company shall declare any
dividend or other distribution with respect to the Common Stock other than a
cash distribution out of earned surplus, the Company shall mail notice thereof
to the Holders of the Options not less than 10 days prior to the record date
fixed for determining stockholders entitled to participate in such dividend or
other distribution.
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<PAGE>
(e) No adjustment in the Per Unit Price shall be required in the
case of the issuance by the Company of Common Stock (i) pursuant to the exercise
of any Option or (ii) pursuant to (A) the exercise of any stock options or
warrants currently outstanding or (B) securities issued after the date hereof
pursuant to any Company benefit plan; provided, however, that with respect to
Subsection 3(e)(ii), the issuance of such securities were approved by the Board
of Directors of the Company (or a committee thereof) and were issued at a price
no less than the Market Price of the securities on the date of issuance.
(f) In case of any capital reorganization or reclassification, or
any consolidation or merger to which the Company is a party other than a merger
or consolidation in which the Company is the continuing corporation, or in case
of any sale or conveyance to another entity of the property of the Company as an
entirety or substantially as a entirety, or in the case of any statutory
exchange of securities with another corporation (including any exchange effected
in connection with a merger of a third corporation into the Company), the Holder
of this Option shall have the right thereafter to receive on the exercise of
this Option the kind and amount of securities, cash or other property which the
Holder would have owned or have been entitled to receive immediately after such
reorganization, reclassification, consolidation, merger, statutory exchange,
sale or conveyance had this Option been exercised immediately prior to the
effective date of such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance and in any such case, if necessary,
appropriate adjustment shall be made in the application of the provisions set
forth in this Section 3 with respect to the rights and interests thereafter of
the Holder of this Option to the end that the provisions set forth in this
Section 3 shall thereafter corres pondingly be made applicable, as nearly as may
reasonably be, in relation to any shares of stock or other securities or
property thereafter deliverable on the exercise of this Option. The above
provisions of this Subsection 3(f) shall similarly apply to successive
reorganizations, reclassifica tions, consolidations, mergers, statutory
exchanges, sales or conveyances. The Company shall require the issuer of any
shares of stock or other securities or property thereafter deliverable on the
exercise of this Option to be responsible for all of the agreements and
obligations of the Company hereunder. Notice of any such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
and of said provisions so proposed to be made, shall be mailed to the Holders of
the Options not less than 30 days prior to such event. A sale of all or
substantially all of the assets of the Company for a consideration consisting
primarily of securities shall be deemed a consolidation or merger for the
foregoing purposes.
(g) If, as a result of an adjustment made pursuant to this Section
3, the Holder of any Option thereafter surrendered for exercise shall become
entitled to receive shares of two or more classes of capital stock or shares of
Common Stock and other capital stock of the Company, the Board of Directors
(whose determination shall be conclusive and shall be described in a written
notice to the Holder of any Option promptly after such adjustment) shall
determine the allocation of the adjusted Per Unit Price between or among shares
or such classes of capital stock or shares of Common Stock and other capital
stock.
(h) Upon the expiration of any rights, options, warrants or
conversion privileges, if such shall not have been exercised, the number of
Units purchasable upon exercise of this Option, to the extent this Option has
not then been exercised, shall, upon such expiration, be readjusted and shall
thereafter be such as they would have been had they been originally adjusted (or
had the original adjustment not been required, as the case may be) on the basis
of (i) the fact that Common Stock, if any, actually issued or sold upon the
exercise of such rights, options, warrants or conversion privileges, and (ii)
the fact that such shares of Common Stock, if any, were
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issued or sold for the consideration actually received by the Company upon such
exercise plus the consideration, if any, actually received by the Company for
the issuance, sale or grant of all such rights, options, warrants or conversion
privileges whether or not exercised; provided, however, that no such
readjustment shall have the effect of decreasing the number of Units purchasable
upon exercise of this Option by an amount in excess of the amount of the
adjustment initially made in respect of the issuance, sale or grant of such
rights, options, warrants or conversion privileges.
(i) Whenever the Per Unit Price payable upon exercise of each
Option is adjusted pursuant to this Section 3, (i) the number of shares of
Common Stock included in a Unit shall simultaneously be adjusted by multiplying
the number of shares of Common Stock included in a Unit immediately prior to
such adjustment by the Per Unit Price in effect immediately prior to such
adjustment and dividing the product so obtained by the Per Unit Price, as
adjusted and (ii) the number of shares of Common Stock or other securities
issuable upon exercise of the Warrants included in the Units and the exercise
price payable for each of the Warrant Shares (initially $0.50 per Warrant Share,
subject to adjustment) pursuant to the Warrant terms shall be adjusted in
accordance with the terms of the Warrant Agreement applicable to holders of such
Warrants.
(k) In case the Company shall modify the rights of conversion,
exchange or exercise of any of the securities referred to in Section 3(a)(iii)
or any other securities of the Company convertible, exchangeable or exercisable
for shares of Common Stock, for any reason other than an event that would
require adjustment to prevent dilution, so that the consideration per share
received by the Company after such modification is less than either (x) the Per
Unit Price divided by the number of shares of Common Stock that each Unit is
then exercisable for or (y) the Market Price per Share of Common Stock as of the
date prior to such modification, then such securities, to the extent not
theretofore exercised, converted or exchanged, shall be deemed to have expired
or terminated immediately prior to the date of such modification and the Company
shall be deemed, for purposes of calculating any adjustments pursuant to this
Section 3, to have issued such new securities upon such new terms on the date of
modification. Such adjustment shall become effective as of the date upon which
such modification shall take effect.
4. FULLY PAID STOCK; TAXES. The Company agrees that the
shares of the Common Stock represented by each and every certificate for Common
Shares delivered on the exercise of this Option and the shares of Common Stock
delivered upon the exercise of the Warrants, shall at the time of such delivery,
be validly issued and outstanding, fully paid and nonassessable, and not subject
to preemptive rights or rights of first refusal, and the Company will take all
such actions as may be necessary to assure that the par value or stated value,
if any, per share of the Common Stock is at all times equal to or less than the
then Per Unit Price. The Company further covenants and agrees that it will pay,
when due and payable, any and all Federal and state stamp, original issue or
similar taxes which may be payable in respect of the issue of any Warrant Share,
Common Share or any certificate thereof to the extent required because of the
issuance by the Company of such security.
5. REGISTRATION UNDER SECURITIES ACT OF 1933.
(a) The Holder shall, with respect to the Common Shares
only, have the right
to participate in the registration rights granted to holders of Registrable
Securities pursuant to Section 5 of the subscription agreements (the
"Subscription Agreements") between such holders and the Company that were
entered into at the time of the initial sale of the Units. By acceptance
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of this Option, the Holder agrees to comply with the provisions in Section 5 of
the Subscription Agreement to same extent as if it were a party thereto.
(b) Until all Common Shares and Warrant Shares have been
sold under a
Registration Statement or pursuant to Rule 144 under the Act, the Company shall
use its reasonable best efforts to file with the Securities and Exchange
Commission all current reports and the information as may be necessary to enable
the Holder to effect sales of its shares in reliance upon Rule 144 promulgated
under the Act.
6. ARTICLE VI RIGHTS. Upon exercise of this Option, the
Holder shall be entitled to the contractual rights set forth in Article VI of
the Subscription Agreement to the same extent as if such Units had been
purchased in the Offering, it being understood and agreed that the Holder shall
receive additional shares of Common Stock upon the exercise of this Option which
would have been issued to the Holder pursuant to Article VI of the Subscription
Agreement as if the Holder had held the shares of Common Stock hereunder since
the Final Closing Date.
7. INVESTMENT INTENT; LIMITED TRANSFERABILITY.
(a) The Holder represents, by accepting this Option, that
it understands that this Option and any securities obtainable upon exercise of
this Option have not been registered for sale under Federal or state securities
laws and are being offered and sold to the Holder pursuant to one or more
exemptions from the registration requirements of such securities laws. In the
absence of an effective registration of such securities or an exemption
therefrom, any certificates for such securities shall bear the legend set forth
on the first page hereof. The Holder understands that it must bear the economic
risk of its investment in this Option and any securities obtainable upon
exercise of this Option for an indefinite period of time, as this Option and
such securities have not been registered under Federal or state securities laws
and therefore cannot be sold unless subsequently registered under such laws,
unless an exemption from such registration is available.
(b) The Holder, by his acceptance of its Option,
represents to the Company that it is acquiring this Option and will acquire any
securities obtainable upon exercise of this Option for its own account for
investment and not with a view to, or for sale in connection with, any
distribution thereof in violation of the Act. The Holder agrees that this Option
and any such securities will not be sold or otherwise transferred unless (i) a
registration statement with respect to such transfer is effective under the Act
and any applicable state securities laws or (ii) such sale or transfer is made
pursuant to one or more exemptions from the Act.
(c) This Option may not be sold, transferred, assigned or
hypothecated for six months from the date hereof except (i) to any firm or
corporation that succeeds to all or substantially all of the business of
Paramount Capital, Inc., (ii) to any of the officers, employees, associates or
affiliated companies of Paramount Capital, Inc., or of any such successor firm,
(iii) to any NASD member participating in the Offering or any officer or
employee of any such NASD member or (iv) in the case of an individual, pursuant
to such individual's last will and testament or the laws of descent and
distribution, and is so transferable only upon the books of the Company which it
shall cause to be maintained for such purpose. The Company may treat the
registered Holder of this Option as he or it appears on the Company's books at
any time as the Holder for all purposes. The Company shall permit any Holder of
an Option or its duly authorized attorney, upon written request during ordinary
business hours, to inspect and copy or make extracts from its books showing the
registered holders of Options. All Options issued upon the transfer or
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assignment of this Option will be dated the same date as this Option, and all
rights of the holder thereof shall be identical to those of the Holder.
8. LOSS, ETC., OF OPTION. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Option, and of indemnity reasonably satisfactory to the Company, if lost,
stolen or destroyed, and upon surrender and cancellation of this Option, if
mutilated, the Company shall execute and deliver to the Holder a new Option of
like date, tenor and denomination.
9. OPTION HOLDER NOT STOCKHOLDER. This Option does not
confer upon the Holder any right to vote or to consent to or receive notice as a
stockholder of the Company, as such, in respect of any matters whatsoever, or
any other rights or liabilities as a stockholder, prior to the exercise hereof;
this Option does, however, confer certain rights and require certain notices to
Holders as set forth herein.
10. COMMUNICATION. No notice or other communication under
this Option shall be effective unless, but any notice or other communication
shall be effective and shall be deemed to have been given if, the same is in
writing and is mailed by first-class mail, postage prepaid, addressed to:
(a) the Company at Procept, Inc., 840 Memorial Drive,
Boston, MA 02139, Attn: President or such other address as the
Company has designated in writing to the Holder, or
(b) the Holder at c/o Paramount Capital, Inc., 787
Seventh Avenue, New York, NY 10019 or other such address as the
Holder has designated in writing to the Company.
11. HEADINGS. The headings of this Option have been
inserted as a matter of convenience and shall not affect the construction
hereof.
12. APPLICABLE LAW. This Option shall be governed by and
construed in accordance with the law of the State of New York without giving
effect to the principles of conflicts of law thereof.
13. AMENDMENT, WAIVER, ETC. Except as expressly provided
herein, neither this Option nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by the party
against whom enforcement of any such amendment, waiver, discharge or termination
is sought; provided, however, that any provisions hereof may be amended, waived,
discharged or terminated upon the written consent of the Company and the then
current Majority of the Holders of the Options only.
-10-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Option to
be signed by its President and attested by its Secretary this __th day of April,
1998.
Procept, Inc.
By:
----------------------------
Name:
Title:
ATTEST:
- ---------------------------
Secretary
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<PAGE>
SUBSCRIPTION
The undersigned, __________________________, pursuant to
the provisions of the foregoing Option, hereby agrees to subscribe for and
purchase ________________ Units of Procept, Inc., each Unit consisting of Common
Stock, $.001 par value, and Class C Warrants to purchase ___________ share(s) of
Common Stock, covered by said Option, and makes payment therefor in full at the
price per share provided by said Option. The undersigned hereby confirms the
representations and warranties made by it in the Option.
Dated: Signature:
----------------- ---------------------------------
Address:
-----------------------------------
SUBSCRIPTION
(promissory note)
The undersigned, __________________________, pursuant to
the provisions of the foregoing Option, hereby agrees to subscribe for and
purchase ________________ shares of the Common Stock, par value $.001, and Class
C Warrants to purchase ______________ share(s) of Common Stock of Procept, Inc.
covered by said Option, and makes payment therefor in full at the price per
share provided by said Option by delivery of the attached Promissory Note. The
undersigned hereby confirms the representations and warranties made by it in the
Option and in the attached Promissory Note.
Dated: Signature:
----------------- ---------------------------------
Address:
-----------------------------------
CASHLESS EXERCISE
The undersigned _______________________, pursuant to the
provisions of the foregoing Option, hereby elects to exchange its Option for
__________ Units, each Unit consisting of Common Stock, $.001 par value, and
Class C Warrants to purchase __________ share(s) of Common Stock, pursuant to
the cashless exercise provisions of the Option. The undersigned hereby confirms
the representations and warranties made by it in the Option.
Dated: Signature:
----------------- ---------------------------------
Address:
-----------------------------------
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<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED ______________________ hereby sells,
assigns and transfers unto ____________________________ the foregoing Option and
all rights evidenced thereby, and does irrevocably constitute and appoint
_____________________, attorney, to transfer said Option on the books of
Procept, Inc.
Dated: Signature:
----------------- ---------------------------------
Address:
-----------------------------------
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED ___________________________ hereby
assigns and transfers unto ____________________________ the right to purchase
________ Units of Procept Inc., each Unit consisting of Common Stock, $.001 par
value, and Class C Warrants to purchase ______________ share(s) of Common Stock,
covered by the foregoing Option, and a proportionate part of said Option and the
rights evidenced thereby, and does irrevocably constitute and appoint
____________________, attorney, to transfer that part of said Option on the
books of Procept, Inc.
Dated: Signature:
----------------- ---------------------------------
Address:
-----------------------------------
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<PAGE>
[FORM]
PROMISSORY NOTE
$[ ] NEW YORK, NEW YORK
[ ]
[UNITHOLDER] ("Borrower"), for value received, hereby
promises to pay to the order of [COMPANY NAME] (together with any such
subsequent holder of this Note, the "Holder" or the "Company") the sum of [ ]($
), or such lesser amount as shall then equal the outstanding principal amount
hereof. Such amount shall be due and payable on October 7, 2003 (the "Maturity
Date"), together with interest thereon at a rate per annum equal to the prime
rate as stated by Citibank, N.A. as of the date hereof, (the "Interest Rate"),
and which shall be calculated on the basis of a 360-day year for actual days
elapsed, on the terms and conditions set forth hereinafter. Payment for all
amounts due hereunder shall be made by certified check or wire transfer to the
Holder at c/o [ ] Attn: [President], or other such address as the Holder may
designate by notice to Borrower. If this Promissory Note is prepaid in whole or
in part by the tendering of shares pursuant to Paragraph 2 below, the repayment
date shall be the date on which the Borrower delivers a notice to the Company in
accordance with Paragraph 4 irrevocably stating the Borrower's intention to
repay the Promissory Note by tendering such shares. The Borrower is delivering
this Promissory Note as payment of the exercise price for the purchase of the
shares of Common Stock (the "Stock") underlying the Unit dated [ ] (the "Unit").
The Promissory Note shall be secured by the Stock which the Holder shall hold in
safe-keeping as collateral for the indebtedness represented by this Promissory
Note.
1. Prepayment; Repayment. The Borrower may at any time
prepay in whole or in part the principal sum, plus accrued interest to date of
payment, of this Note, without penalty or premium. All sums paid hereon shall be
applied first to accrued, unpaid interest on this Note and the balance, if any,
to the reduction of the principal hereof. This Note shall not be due and payable
until the Maturity Date. On the Maturity Date, the entire principal amount of,
and all accrued interest on, this Note shall automatically become immediately
due and payable without presentment, demand, protest or other formalities of any
kind, all of which are hereby expressly waived by the Company.
2. Prepayment or Repayment by Tendering of Shares. Any
prepayment or repayment may be made by instructing the Company to withhold that
number of shares of Common Stock and/or Warrants currently held by the Company
as collateral for this Promissory Note in accordance with Paragraph 1(a)(iii) of
the Unit Purchase Option and having a value, based upon the Market Price
(assuming the Exchange Date referenced therein is the date such instruction is
received by the Company) (as determined in the Unit Purchase Option) of the
Common Stock, equal to the outstanding principal sum plus accrued interest. The
Company will deliver the balance of the securities not withheld pursuant to the
immediately preceding sentence of this Paragraph 2 to the Borrower at the
address set forth in Paragraph 4 below within five (5) days of the date of such
prepayment or repayment, as the case may be.
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<PAGE>
3. Events of Default. If any events specified in this
Paragraph 3 shall occur and continue uncured for a period of 90 days following
notice from the lender such event has occurred(herein individually referred to
as an "Event of Default"), the Holder of the Note may, so long as such condition
exists, declare the entire principal and unpaid accrued interest hereon
immediately due and payable, by notice in writing to Borrower:
3.1. Failure to pay the principal and unpaid
accrued interest of the Note when due and payable; or
3.2. The institution by Borrower of proceedings
to be adjudicated as bankrupt or insolvent, or the consent by Borrower to
institution of bankruptcy or insolvency proceedings against Borrower or the
filing by Borrower of a petition or answer or consent seeking reorganization or
release under the federal Bankruptcy Act, or any other applicable federal or
state law, or the consent by Borrower to the filing of any such petition or the
appointment of a receiver, liquidator, assignee, trustee or other similar
official for all or any substantial part of its property, of the taking of any
action by Borrower in furtherance of any such action; or
3.3. If, within sixty (60) days after the
commencement of an action against Borrower (and service of process in connection
therewith on Borrower) seeking any bankruptcy, insolvency, reorganization,
liquidation or similar relief under any present or future statute, law of
regulation, such action shall not have been resolved in favor of Borrower of all
orders or proceedings thereunder affecting the property of Borrower stayed, or
if the stay of any such order or proceeding shall thereafter be set aside, or
if, within sixty (60) days after the appointment without the consent or
acquiescence of Borrower of any trustee or receiver for all or any substantial
part of the property of Borrower, such appointment shall not have been vacated.
4. Notices. Any notice required, desired or permitted to
be given hereunder shall be in writing and shall be delivered personally, sent
certified or registered United States mail, return receipt requested or sent by
overnight courier service addressed to:
If to the Holder:
c/o [company name]
[address]
Attn: President
If to Borrower:
[name and address]
Such notices shall be deemed given (i) if delivered personally, upon delivery,
(ii) if mailed as aforesaid, two (2) business days after deposit in the United
States mail and (iii) if sent by overnight courier service one (1) business day
after deposit with the courier service. Any party may change its address by
notice to the other party given in accordance with this section.
-15-
<PAGE>
IN WITNESS WHEREOF, the Borrower has caused this Note to
be issued this [ ] day of [ ] [ ].
BORROWER:
Name:
Address:
---------------------------
-16-
