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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 2, 1999
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Aastrom Biosciences, Inc.
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(Exact name of registrant as specified in charter)
Michigan 0-22025 94-3096597
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
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24 Frank Lloyd Wright Drive, P.O. Box 376, Ann Arbor Michigan 94-3096597
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Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (734) 930-5555
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Not Applicable
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(Former name or former address, if changed since last report)
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Item 5. Other Events.
On May 27, 1999 the Registrant sold to one investor for an aggregate
purchase price of $3 million: (i) 3,000 shares of its newly created 1999 Series
III Convertible Preferred Stock (the "Series III Preferred"), (ii) a warrant to
purchase 150,000 shares of the common stock of the Registrant at an exercise
price of $2.275, and (iii) a warrant to purchase 150,000 shares of the common
stock of the Registrant at an exercise price equal to 130% of an average market
price of the Registrants common stock on November 15, 1999, with such date
subject to acceleration based upon certain events. The shares of Series III
Preferred are convertible, at the option of the holder, into shares of the
Registrant's Common Stock at the lower of (i) $2.34, or (ii) a price based on
the market price of the Registrant's Common Stock prior to conversion. With
limited exceptions, the shares of Series III Preferred are not convertible into
Common Stock until November 23, 1999 and, subject to extension under certain
circumstances, will automatically convert into Common Stock on May 27, 2002,
unless sooner converted. In general, the Registrant may require the holders to
convert the Series III Preferred if the average closing bid price of the
Registrant's Common Stock exceeds $4.68 for specified periods after May 27,
2000, or upon certain other events.
The foregoing description of the Series III Preferred financing is
qualified in its entirety by the Securities Purchase Agreement, dated May 27,
1998, and the other agreements and instruments executed in connection therewith,
copies of which are attached as exhibits to this Current Report on Form 8-K.
Item 7. Exhibits.
(a) Financial statements of business acquired.
Not applicable.
(b) Pro forma financial information.
Not applicable.
(c) Exhibits.
Exhibit
No. Description
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3.1 Certificate of Designation for 1999 Series III
Preferred Stock
4.1 Securities Purchase Agreement, dated May 27, 1999,
by and between the Registrant and RGC International
Investors, LDC ("RGC")
4.2 Registration Rights Agreement dated May 27, 1999,
by and between the Registrant and RGC.
4.3 Stock Purchase Warrants of the Registrant, dated
May 27, 1999
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Aastrom Biosciences, Inc.
By: /s/ Todd E. Simpson
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Vice President, Finance and Administration
Date: June 2, 1999 and Chief Financial Officer (Principal
Financial and Accounting Officer)
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EXHIBIT INDEX
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Exhibit
No. Description
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3.1 Certificate of Designation for 1999 Series III
Preferred Stock
4.1 Securities Purchase Agreement, dated May 27, 1999, by
and between the Registrant and RGC International
Investors, LDC ("RGC")
4.2 Registration Rights Agreement dated May 27, 1999, by
and between the Registrant and RGC.
4.3 Stock Purchase Warrants of the Registrant, dated May
27, 1999
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EXHIBIT 3.1
CERTIFICATE OF
DESIGNATIONS, PREFERENCES, AND RIGHTS
of
1999 SERIES III CONVERTIBLE PREFERRED STOCK
of
AASTROM BIOSCIENCES, INC.
(Pursuant to Section 450.1302 of the
Michigan Business Corporation Act)
Aastrom Biosciences, Inc., a corporation organized and existing under
the Michigan Business Corporation Act (the "Corporation"), hereby certifies that
the following resolutions were adopted by the Board of Directors of the
Corporation on April 29, 1999 pursuant to authority of the Board of Directors as
required by Section 450.1302 of the Michigan Business Corporation Act:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (the "Board of Directors" or the "Board")
in accordance with the provisions of its Articles of Incorporation, the Board of
Directors hereby authorizes a series of the Corporation's previously authorized
Preferred Stock, no par value, (the "Preferred Stock"), and hereby states the
designation and number of shares, and fixes the relative rights, preferences,
privileges, powers and restrictions thereof as follows:
1999 Series III Convertible Preferred Stock:
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I. Designation and Amount
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The designation of this series, which consists of 3,000 shares of
Preferred Stock, is 1999 Series III Convertible Preferred Stock (the "1999
Series III Preferred Stock") and the stated value shall be One Thousand Dollars
($1,000) per share (the "Stated Value").
II. Certain Definitions
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For purposes of this Certificate of Designation, the following terms shall
have the following meanings:
A. "Applicable Percentage" means 94%; provided, however, that for
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conversions taking place prior to November 30, 1999, the Applicable
Percentage shall mean 100% if the Market Price is less than $2.00.
B. "Applicable Premium" means, with respect to a share or shares of 1999
Series III Preferred Stock, an amount equal to five and one half
percent (5.5%) per annum of the Stated Value of such share or shares;
provided, however, that if the Corporation has elected to increase the
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Applicable Premium pursuant to Section 2(c)(2) of the Registration
Rights Agreement, the Applicable Premium shall mean fifteen percent
(15%) per annum of the Stated Value of such share or shares for the
periods specified in the Registration Rights Agreement.
C. "Bloomberg" means Bloomberg Financial Markets or an equivalent
reliable reporting service mutually acceptable to and hereafter
designated by the holders of a majority in interest of the shares of
1999 Series III Preferred Stock and the Corporation.
D. "Closing Bid Price" means, for any security as of any date, the
closing bid price on Nasdaq as reported by Bloomberg or, if Nasdaq is
not the principal trading market for such security, the closing bid
price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by
Bloomberg, or if the foregoing do not apply, the closing bid price of
such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no
closing bid price of such security in the over-the-counter market on
the electronic bulletin board for such security or in any of the
foregoing manners, the average of the bid prices of any market makers
for such security that are listed in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated
for such security on such date in the manner provided above, the
Closing Bid Price shall be the fair market value as mutually
determined by the Corporation and the holders of a majority in
interest of shares of 1999 Series III Preferred Stock being converted
for which the calculation
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of the Closing Bid Price is required in order to determine the
Conversion Price of such 1999 Series III Preferred Stock.
E. "Closing Price" as of any date, means the last sale price of the
Common Stock on Nasdaq as reported or, if Nasdaq is not the principal
trading market for such security, the last sale price of such security
on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the last sale price of such security in the
over-the-counter market on the electronic bulletin board for such
security as reported by Bloomberg, or, if no last sale price of such
security or in the over-the-counter market on the electronic bulletin
board for such security in any of the foregoing manners the average of
the bid prices of any market makers for such security that are listed
in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Price cannot be calculated for such security on such date in
the manner provided above, the Closing Price shall be the fair market
value as mutually determined by the Corporation and the holders of a
majority in interest of shares of 1999 Series III Preferred Stock
being converted for which the calculation of the Closing Price is
required in order to determine the Conversion Price of such 1999
Series III Preferred Stock.
F. "Common Stock" means the Corporation's common stock, no par value.
G. "Fixed Conversion Price" means 130% times the average of the Closing
Bid Prices during the five consecutive (5) Trading Day period ending
one (1) Trading Day prior to the Issue Date.
H. "Issue Date" means the date of issuance of the 1999 Series III
Preferred Stock.
I. "Market Price" means the average of the Closing Bid Prices during the
Market Price Days.
J. "Market Price Days" means any five (5) consecutive Trading Days
designated by the converting holder at the time of conversion, from
among the days comprising the Pricing Period, as such designation is
set forth in the Notice of Conversion (as defined in Article VIII.E).
K. "Merger Redemption Percentage" means 120% for any Change in Control
Transaction (as defined in Article V.B) occurring prior to January 31,
2000 and 125% thereafter.
L. "Nasdaq" means the Nasdaq National Market.
M. "Person" means any individual, corporation, limited liability company,
partnership, association, trust or other entity or organization.
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N. "Pricing Period" means the twenty (20) consecutive Trading Day period
ending one (1) Trading Day prior to the Conversion Date (as defined in
Article VIII.E).
O. "Purchase Agreement" means that certain Securities Purchase Agreement
dated as of the Issue Date, by and between the Corporation and the
signatories thereto.
P. "Redemption Market Price" means the Closing Price of the Common Stock
on the Conversion Date (as defined in Article VIII.F(d)).
Q. "Redemption Threshold" means $1.50.
R. "Registration Rights Agreement" means that certain Registration Rights
Agreements dated as of the Issue Date, by and among the Corporation
and the signatories thereto.
S. "Trading Day" means any day on which the Common Stock is traded for
any period on Nasdaq, or on the principal securities exchange or other
securities market on which the Common Stock is then being traded.
T. "Variable Conversion Price" means the Applicable Percentage multiplied
by the Market Price.
III. Rank
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The 1999 Series III Preferred Stock shall rank (i) prior to the Common
Stock; (ii) prior to any class or series of capital stock of the Corporation
hereafter created (unless, with the consent of the holders of 1999 Series III
Preferred Stock obtained in accordance with Article XI hereof, such class or
series of capital stock specifically, by its terms, ranks senior to or pari
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passu with the 1999 Series III Preferred Stock) (collectively, with the Common
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Stock, "Junior Securities"); (iii) pari passu with (A) any class or series of
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the Corporation's preferred stock existing as of the date hereof and (B) any
class or series of capital stock of the Corporation hereafter created
specifically ranking, by its terms, on parity with the 1999 Series III Preferred
Stock (collectively, "Pari Passu Securities"); and (iv) junior to any class or
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series of capital stock of the Corporation hereafter created (with the consent
of the holders of 1999 Series III Preferred Stock obtained in accordance with
Article XI hereof) specifically ranking, by its terms, senior to the 1999 Series
III Preferred Stock ("Senior Securities"), in each case as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary.
IV. Dividends
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The 1999 Series III Preferred Stock shall not bear any dividends. In
no event, so long as any 1999 Series III Preferred Stock shall remain
outstanding, shall any dividend whatsoever
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be declared or paid upon, nor shall any distribution be made upon (excluding any
distribution received in connection with a Change in Control Transaction (as
defined below)), any Junior Securities, nor shall any shares of Junior
Securities be purchased or redeemed by the Corporation nor shall any moneys be
paid to or made available for a sinking fund for the purchase or redemption of
any Junior Securities (other than a distribution of Junior Securities), without,
in each such case, the written consent of the holders of a majority of the
outstanding shares of 1999 Series III Preferred Stock, voting together as a
class.
V. Liquidation Preference
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A. If the Corporation shall commence a voluntary case under the
Federal bankruptcy laws or any other applicable Federal or State bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or state bankruptcy, insolvency or similar law
resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of thirty (30) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"Liquidation Event"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation (other than Senior Securities and, subject
to the following sentence, Pari Passu Securities) upon liquidation, dissolution
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or winding up unless prior thereto, the holders of shares of 1999 Series III
Preferred Stock, subject to Article VIII, shall have received the Liquidation
Preference (as defined in Article V.C) with respect to each share. If upon the
occurrence of a Liquidation Event, the assets and funds available for
distribution among the holders of the 1999 Series III Preferred Stock and
holders of Pari Passu Securities shall be insufficient to permit the payment to
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such holders of the preferential amounts payable thereon, then the entire assets
and funds of the Corporation legally available for distribution to the 1999
Series III Preferred Stock and the Pari Passu Securities shall be distributed
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ratably among such shares in proportion to the ratio that the Liquidation
Preference payable on each such share bears to the aggregate liquidation
preference payable on all such shares.
B. Subject to Article VII.B below, so long as on the date the Change
in Control Redemption Notice (as defined below) is delivered and at all times
thereafter up to the consummation of the Change in Control Transaction (as
defined below) (i) all of the shares of Common Stock issuable upon conversion of
all outstanding shares of 1999 Series III Preferred Stock are then (x)
authorized and reserved for issuance, (y) registered for re-sale under the 1933
Act by the holders of the 1999 Series III Preferred Stock (or may otherwise be
resold publicly without restriction) and (z) eligible to be traded
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on Nasdaq, the New York Stock Exchange (the "NYSE"), the American Stock Exchange
(the "AMEX") or Nasdaq SmallCap Market (the "Nasdaq SmallCap"), (ii) there is
not then a continuing Redemption Event or 19.99% Redemption Event, (iii) the
Corporation provides the holders of 1999 Series III Preferred Stock at least
twenty (20) Trading Days written notice prior to the consummation of the Change
in Control Transaction (as defined below) (which notice may not be provided at
any time when there is material non-public information regarding the Corporation
that has not been publicly announced or prior to the public announcement of such
Change in Control Transaction) (the "Change in Control Redemption Notice") and
(iv) the Corporation is required, as a condition to such Change in Control
Transaction (as defined below), to redeem or convert the 1999 Series III
Preferred Stock, at the option of the Corporation, the sale, conveyance or
disposition of all or substantially all of the assets of the Corporation, the
effectuation by the Corporation of a transaction or series of related
transactions in which more than 50% of the voting power of the Corporation is
disposed of, or the consolidation, merger or other business combination of the
Corporation with or into any other Person or Persons when the Corporation is not
the survivor (other than a merger or other business combination solely for the
purposes of reincorporating to a new jurisdiction)(each, a "Change in Control
Transaction") shall either: (i) be deemed to be a liquidation, dissolution or
winding up of the Corporation pursuant to which the Corporation shall be
required to distribute upon consummation of and as a condition to such
transaction an amount equal to the Merger Redemption Percentage times the
Liquidation Preference with respect to each outstanding share of 1999 Series III
Preferred Stock in accordance with and subject to the terms of this Article V or
(ii) be treated pursuant to Article VIII.C(b) hereof. For purposes of the
Michigan Business Corporation Act (the "MCBA") and Article XI(a) of this
Certificate, any such Change in Control Transaction shall be deemed to alter or
change the powers, preferences, or special rights of the holders of shares of
1999 Series III Preferred Stock so as to affect such holders adversely.
C. For purposes hereof, the "Liquidation Preference" with respect to
a share of the 1999 Series III Preferred Stock shall mean an amount equal to the
sum of (i) the Stated Value thereof plus (ii) the Applicable Premium for the
period beginning on the Issue Date and ending on the date of final distribution
to the holder thereof (prorated for any portion of such period). The liquidation
preference with respect to any Pari Passu Securities shall be as set forth in
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the Certificate of Designation filed in respect thereof.
VI. Redemption
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A. If any of the following events (each, a "Redemption Event") shall
occur:
(i) The Corporation fails to issue shares of Common Stock to the
holders of 1999 Series III Preferred Stock upon exercise by the holders of their
conversion rights in accordance with the terms of this Certificate of
Designation (for a period of at least sixty (60) days if such failure is solely
as a result of the circumstances governed by the second paragraph of Article
VIII.F below and the Corporation is using all commercially reasonable efforts to
authorize a sufficient number of shares of Common Stock as soon as practicable),
fails to transfer or to cause its transfer agent to transfer (electronically or
in certificated form) any certificate for shares of
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Common Stock issued to the holders upon conversion of the 1999 Series III
Preferred Stock as and when required by this Certificate of Designation or the
Registration Rights Agreement, fails to remove any restrictive legend (or to
withdraw any stop transfer instructions in respect thereof) on any certificate
or any shares of Common Stock issued to the holders of 1999 Series III Preferred
Stock upon conversion of the 1999 Series III Preferred Stock as and when
required by this Certificate of Designation, the Purchase Agreement or the
Registration Rights Agreement, or fails to fulfill its obligations pursuant to
Sections 4(c), 4(e), 4(h), 4(i), 4(j) or 5 of the Purchase Agreement (or makes
any announcement, statement or threat that it does not intend to honor the
obligations described in this paragraph) and any such failure shall continue
uncured (or any announcement, statement or threat not to honor its obligations
shall not be rescinded in writing) for ten (10) business days after the
Corporation shall have been notified thereof in writing by any holder of 1999
Series III Preferred Stock;
(ii) The Corporation fails to obtain effectiveness with the
Securities and Exchange Commission (the "SEC"), prior to one hundred eighty
(180) days from the Issue Date, of the Registration Statement required to be
filed pursuant to Section 2(a) of the Registration Rights Agreement, or fails to
obtain effectiveness of any additional Registration Statement (required to be
filed pursuant to Section 3(b) of the Registration Rights Agreement) within one
hundred twenty (120) days after the Registration Trigger Date (as defined in the
Registration Rights Agreement) or any such Registration Statement lapses in
effect after its initial effectiveness and during the Registration Period (as
defined in the Registration Rights Agreement) or sales of all Registrable
Securities (as defined in the Registration Rights Agreement, the "Registrable
Securities") otherwise cannot be made thereunder (whether by reason of the
Corporation's failure to amend or supplement the prospectus included therein in
accordance with the Registration Rights Agreement, the Corporation's failure to
file and obtain effectiveness with the SEC of any additional Registration
Statement required pursuant to Section 3(b) of the Registration Rights Agreement
or otherwise) for more than thirty (30) consecutive days or more than sixty (60)
days in any twelve (12) month period after such Registration Statement becomes
effective;
(iii) the Corporation shall make an assignment for the benefit of
creditors, or apply for or consent to the appointment of a receiver or trustee
for it or for all or substantially all of its property or business; or such a
receiver or trustee shall otherwise be appointed;
(iv) Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Corporation or
any subsidiary of the Corporation; provided, however, that in the case of any
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involuntary bankruptcy, such involuntary bankruptcy shall continue undischarged
or undismissed for a period of thirty (30) days; or
(v) The Corporation shall fail to maintain the listing of the Common
Stock on Nasdaq, the Nasdaq SmallCap, the NYSE or the AMEX,
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then, upon the occurrence and during the continuation of any Redemption Event
specified in subparagraphs (i), (ii) or (v) at the option of the holders of at
least 50% of the then outstanding shares of 1999 Series III Preferred Stock
exercisable by delivery of written notice (the "Redemption Notice") to the
Corporation of such Redemption Event, or upon the occurrence of any Redemption
Event specified in subparagraphs (iii) or (iv), the then outstanding shares of
1999 Series III Preferred Stock shall become immediately redeemable and the
Corporation shall purchase each holder's outstanding shares of 1999 Series III
Preferred Stock for an amount equal to the greater of (1) 117.5% multiplied by
the sum of (a) the aggregate Stated Value of the shares to be redeemed plus (b)
the Applicable Premium for the period beginning on the Issue Date and ending on
the date of payment of the Redemption Amount (the "Redemption Date") plus (c)
all Conversion Default Payments (as defined in Article VIII.E below), Delivery
Default Payments (as defined in Article VIII.D below) and any other amounts owed
to such holder pursuant to Section 2(c) of the Registration Rights Agreement, or
(2) the parity value of the shares to be redeemed, where "parity value" means
the product of (a) the highest number of shares of Common Stock issuable upon
conversion of such shares of 1999 Series III Preferred Stock in accordance with
Article VIII below (without giving any effect to any limitations on conversions
of shares contained herein, and treating the Trading Day immediately preceding
the Redemption Date as the "Conversion Date" (as defined in Article VIII.B(a))
for purposes of determining the lowest applicable Conversion Price), unless the
Redemption Event arises as a result of a breach in respect of a specific
Conversion Date, in which case such Conversion Date shall be the Conversion
Date), multiplied by (b) the Closing Price for the Common Stock on such
"Conversion Date" (the greater of such amounts being referred to as the
"Redemption Amount").
In the case of a Redemption Event, if the Corporation fails to pay the
Redemption Amount for each share within five (5) business days of written notice
that such amount is due and payable, then (assuming there are sufficient
authorized shares) in addition to all other available remedies, each holder of
1999 Series III Preferred Stock shall have the right at any time, so long as the
Redemption Event continues, to require the Corporation, upon written notice, to
immediately issue (in accordance with and subject to the terms of Article VIII
below), in lieu of the Redemption Amount, with respect to each outstanding share
of 1999 Series III Preferred Stock held by such holder, the number of shares of
Common Stock of the Corporation equal to the Redemption Amount divided by the
Conversion Price then in effect.
B. If the 1999 Series III Preferred Stock held by any holder ceases
to be convertible by any holder as a result of the limitations described in
Article VIII.A(c) below (a "19.99% Redemption Event"), and the Corporation has
not prior to, or within thirty (30) days of, the date that such 19.99%
Redemption Event arises, (i) obtained the Stockholder Approval (as defined in
Article VIII.A(c)) or (ii) eliminated any prohibitions under applicable law on
the rules or regulations of any stock exchange, interdealer quotation system or
other self-regulatory organization with jurisdiction over the Corporation or any
of its securities on the Corporation's ability to issue shares of Common Stock
in excess of the Maximum Share Amount (as defined in Article VIII.A(c)), then
the Corporation shall be obligated to redeem immediately all of the then
outstanding 1999 Series III Preferred Stock, in accordance with this Article
VI.B. An irrevocable redemption notice
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(the "19.99% Redemption Notice") shall be delivered promptly to the holders of
1999 Series III Preferred Stock at their registered address appearing on the
records of the Corporation and shall state (1) that 19.99% of the Outstanding
Common Amount (as defined in Article VIII.A) has been issued upon exercise of
the 1999 Series III Preferred Stock, (2) that the Corporation is obligated to
redeem all of the outstanding 1999 Series III Preferred Stock and (3) the
Redemption Date, which shall be a date within five (5) business days of the
earlier of (i) the date of the 19.99% Redemption Notice or (ii) the date on
which the holders of the 1999 Series III Preferred Stock notify the Corporation
of the occurrence of a 19.99% Redemption Event. On Redemption Date, the
Corporation shall make payment of the Redemption Amount (as defined in Article
VI.A above) in cash.
C. Notwithstanding anything to the contrary contained in this
Article VI, so long as on the date the Optional Redemption Notice (as defined
below) is delivered and at all times thereafter up to the Optional Redemption
Date (as defined below) (i) no Redemption Event or 19.99% Redemption Event shall
have occurred and be continuing, (ii) the Registration Statement required to be
filed and be effective pursuant to the Registration Rights Agreement is then in
effect and has been in effect and sales of all of the Registrable Securities can
be made thereunder for at least twenty (20) days prior to the Optional
Redemption Date (as defined below) and (iii) the Corporation has a sufficient
number of authorized shares of Common Stock reserved for issuance upon full
conversion of the 1999 Series III Preferred Stock), then at any time after the
date which is ninety (90) days following the date the Registration Statement is
declared effective by the SEC (subject to extension for each Trading Day
following effectiveness that sales of all Registrable Securities cannot be made
pursuant to the Registration Statement (whether by reason of the Corporation's
failure to properly supplement or amend the prospectus included therein in
accordance with the terms of the Registration Rights Agreement or otherwise,
including during an Allowed Delay (as defined in Section 3(f) of the
Registration Rights Agreement))), the Corporation shall have the right, on any
Trading Day on which the average of the Closing Bid Prices of the Common Stock
for the five (5) consecutive Trading Days immediately preceding such date is
below the Redemption Threshold, to deliver written notice to the holders of 1999
Series III Preferred Stock (which notice may not be delivered to the holders of
the 1999 Series III Preferred Stock until the Corporation is permitted to redeem
the 1999 Series III Preferred Stock pursuant to this Article VI.C) of its
intention to redeem all of the outstanding shares of 1999 Series III Preferred
Stock in accordance with this Article VI. A notice (the "Optional Redemption
Notice") of any redemption hereunder (an "Optional Redemption") shall be
delivered to the holders of 1999 Series III Preferred Stock at their registered
addresses appearing on the books and records of the Corporation and shall state
(1) that the Corporation is exercising its right to redeem all of the
outstanding shares of 1999 Series III Preferred Stock issued on the Issue Date
and (2) the date of redemption (the "Optional Redemption Date"), which date
shall be fifteen (15) Trading Days after the date of delivery of the Optional
Redemption Notice. On the Optional Redemption Date, the Corporation shall make
payment of the Optional Redemption Amount (as defined below) to or upon the
order of the holders as specified by the holders in writing to the Corporation
at least one (1) business day prior to the Optional Redemption Date. If the
Corporation exercises its right to redeem the 1999 Series III Preferred Stock,
the Corporation shall make payment to the holders of an amount in cash per share
(the "Optional Redemption Amount") equal to the sum of (i) 117.5% multiplied by
the Stated Value thereof plus
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(ii) the Applicable Premium for the period beginning on the Issue Date and
ending on the Optional Redemption Date plus (iii) all Conversion Default
Payments (as defined in Article VIII.E below), Delivery Default Payments (as
defined in Article VII.D below) and any other amounts owed to such holder
pursuant to Section 2(c) of the Registration Rights Agreement, for each share of
1999 Series III Preferred Stock then held. Notwithstanding notice of an Optional
Redemption, the holders shall at all times prior to the Optional Redemption Date
maintain the right to convert all or any shares of 1999 Series III Preferred
Stock in accordance with Article VIII and any shares of 1999 Series III
Preferred Stock so converted after receipt of an Optional Redemption Notice and
prior to the Optional Redemption Date set forth in such notice and payment of
the aggregate Optional Redemption Amount shall be deducted from the shares of
1999 Series III Preferred Stock which are otherwise subject to redemption
pursuant to such notice. If the Corporation delivers an Optional Redemption
Notice and fails to pay the Optional Redemption Amount due to the holders of the
1999 Series III Preferred Stock within three (3) business days following the
Optional Redemption Date, the Corporation should forever forfeit its right to
redeem the 1999 Series III Preferred Stock pursuant to this Article VI.C.
D. Notwithstanding anything to the contrary contained in this
Article VI and subject to the terms of this Article VI.D, if the Closing Price
of the Common Stock is below the Redemption Threshold on any day a Notice of
Conversion (as defined in Article VIII) is given, the Corporation shall have the
option, in lieu of issuing shares of Common Stock to the holders of 1999 Series
III Preferred Stock upon conversion in accordance with the terms of Article VIII
below, to redeem all of the shares of 1999 Series III Preferred Stock submitted
for conversion for an amount in cash equal to the number of shares of Common
Stock that would have otherwise been issued upon conversion of the 1999 Series
III Preferred Stock at the applicable Conversion Price (as defined in Article
VIII) multiplied by the Redemption Market Price. If the Closing Price of the
Common Stock is below the Redemption Threshold, the Corporation shall promptly
notify the holders of 1999 Series III Preferred Stock as to whether the
Corporation will issue shares of Common Stock or deliver cash in redemption in
respect of 1999 Series III Preferred Stock submitted for conversion pursuant to
Article VIII. The Corporation will be bound by such notice for a period of
twenty (20) Trading Days (the "Term") from the date of such notice, after which
the Corporation may elect to renew such notice. A failure to issue or renew
within two (2) business days after the expiration of any Term shall be deemed to
be an election to issue Common Stock upon conversion of the 1999 Series III
Preferred Stock during the subsequent Term. Any redemption amounts payable
hereunder shall be paid to the converting holders within two (2) Trading Days of
the Conversion Date.
VII. Conversion by the Corporation
-----------------------------
A. So long as (i) all of the shares of Common Stock issuable upon
conversion of all outstanding shares of 1999 Series III Preferred Stock are then
(x) authorized and reserved for issuance, (y) registered for re-sale under the
1933 Act by the holders of the 1999 Series III Preferred Stock (or may otherwise
be resold publicly without restriction) and (z) eligible to be traded on Nasdaq,
the NYSE, the AMEX or Nasdaq SmallCap and (ii) there is not then a continuing
Redemption Event or 19.99% Redemption Event, then, at any time after the one (1)
year anniversary of the date the
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<PAGE>
Registration Statement is declared effective by the SEC (subject to extension
for each Trading Day following effectiveness that sales of all of the
Registrable Securities cannot be made pursuant to the Registration Statement
(whether by reason of the Corporation's failure to properly supplement or amend
the prospectus included therein in accordance with the terms of the Registration
Rights Agreement or otherwise, including during any Allowed Delay (as defined in
the Registration Rights Agreement))), the Corporation shall have the right, on
any Trading Day on which the average of the Closing Bid Prices of the Common
Stock for the five (5) consecutive Trading Days immediately preceding such date
is greater than 200% of the Fixed Conversion Price, to deliver written notice to
the holders of 1999 Series III Preferred Stock (which notice may not be sent to
the holders of the 1999 Series III Preferred Stock until the Corporation is
permitted to convert the 1999 Series III Preferred Stock pursuant to this
Article VII.A) of its intention to convert all of the outstanding shares of 1999
Series III Preferred Stock into shares of Common Stock in accordance with this
Article VII.A and Article VIII; provided, however, that the holders of 1999
-------- -------
Series III Preferred Stock shall not be required to convert their shares of 1999
Series III Preferred Stock in accordance with this Article VII.A unless the
Closing Bid Price of the Common Stock on the Trading Day immediately preceding
the Corporation Conversion Date (as defined below) is at least equal to 200% of
the Fixed Conversion Price. Any conversion hereunder (a "Corporation
Conversion") shall be as of the fifteenth (15th) Trading Day (the "Corporation
Conversion Date") following the date on which the Corporation Conversion Notice
is delivered to the holders of 1999 Series III Preferred Stock at their
registered addresses appearing on the books and records of the Corporation,
which notice shall contain substantially the same information as the Notice of
Conversion described in Article VIII.E. The Corporation Conversion Date shall be
the "Conversion Date" for purposes of determining the Conversion Price and the
time within which certificates representing the Common Stock must be delivered
to the holder upon a Corporation Conversion. Notwithstanding notice of a
Corporation Conversion Notice, the holders shall at all times prior to the
Corporation Conversion Date maintain the right to convert all or any shares of
1999 Series III Preferred Stock in accordance with Article VIII.
B. If, in the event of a Change in Control Transaction (as defined
in Article V.B above), the consideration per share to be received by the holders
of the Common Stock of the Corporation in such Change in Control Transaction is
equal to at least 115% of the Fixed Conversion Price, then, at the option of the
Corporation, simultaneously with the consummation of the Change in Control
Transaction, each share of 1999 Series III Preferred Stock issued and
outstanding at that time automatically shall be converted into shares of Common
Stock on such date at the then effective Conversion Price in accordance with,
and subject to, the provisions of this Article VII.B and Article VIII hereof
(the "Change in Control Conversion"). The date on which the Change in Control
Transaction is consummated shall be the "Conversion Date" for purposes of
determining the Conversion Price and the time within which certificates
representing the Common Stock must be delivered to the holder upon a Change in
Control Conversion
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<PAGE>
VIII. Conversion at the Option of the Holder
--------------------------------------
A. (a) Subject to the conversion schedule set forth in Article
VIII.A(b) below, each holder of shares of 1999 Series III Preferred Stock may,
at its option at any time and from time to time, upon surrender of the
certificates therefor, convert any or all of its shares of 1999 Series III
Preferred Stock into Common Stock as set forth below (an "Optional Conversion").
Each share of 1999 Series III Preferred Stock shall be convertible into such
number of fully paid and nonassessable shares of Common Stock as such Common
Stock exists on the Issue Date, or any other shares of capital stock or
securities of the Corporation into which such Common Stock is thereafter charged
or reclassified, as is determined by dividing (1) the sum of (a) the Stated
Value thereof plus (b) the Applicable Premium for the period beginning on the
Issue Date and ending on and including the Conversion Date (as defined in
Article VIII.B, below), by (2) the then effective Conversion Price (as defined
below); provided, however, that in no event (other than pursuant to the
-------- -------
Automatic Conversion (as defined in Article IX)) shall a holder of shares of
1999 Series III Preferred Stock be entitled to convert any such shares in excess
of that number of shares upon conversion of which the sum of (x) the number of
shares of Common Stock beneficially owned by the holder and its affiliates
(other than shares of Common Stock which may be deemed beneficially owned
through the ownership of the unconverted portion of the shares of 1999 Series
III Preferred Stock or the unexercised or unconverted portion of any other
securities of the Corporation (including without limitation, the warrants issued
by the Corporation pursuant to the Purchase Agreement) subject to a limitation
on conversion or exercise analogous to the limitation contained herein) and (y)
the number of shares of Common Stock issuable upon the conversion of the shares
of 1999 Series III Preferred Stock with respect to which the determination of
this proviso is being made, would result in beneficial ownership by a holder and
such holder's affiliates of more than 4.9% of the outstanding shares of Common
Stock. For purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder,
except as otherwise provided in clause (x) of such proviso.
(b) Each holder of shares of 1999 Series III Preferred Stock may
convert only up to that percentage of the aggregate Stated Value of all shares
of 1999 Series III Preferred Stock received by such holder on the Issue Date
specified below during the time period set forth opposite such percentage.
Percentage Time Period
---------- -----------
0.0% 0-180 days following the Issue Date
33.3% 181-210 days following the Issue Date
66.6% 211-240 days following the Issue Date
100.0% 241 days following the Issue Date
;provided, however, that the restrictions on conversion set forth above shall
-------- -------
not apply to conversions taking place on any Conversion Date (i) on which the
Common Stock trades on Nasdaq or the
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<PAGE>
principal trading market on which the Common Stock is then listed as reported by
Bloomberg at a price greater than or equal to (a) 117% of the Market Price in
effect on such Conversion Date or (b) the Fixed Conversion Price or (ii)
occurring on or after the date the Corporation makes a public announcement that
it intends to merge or consolidate with any other corporation or sell or
transfer substantially all of the assets of the Corporation or (iii) occurring
on or after the date any person, group or entity (including the Corporation)
publicly announces a tender offer to purchase 50% or more of the Corporation's
Common Stock or otherwise publicly announces an intention to replace a majority
of the Corporation's Board of Directors by waging a proxy battle or otherwise or
(iv) occurring on or after the date on which there is a material adverse change
in the business, operation, assets, financial condition or prospects of the
Corporation or its subsidiaries, taken as a whole, or (v) occurring on or after
the occurrence of a Redemption Event or on or after the delivery by the Company
of an Optional Redemption Notice.
(c) Unless (i) permitted by the applicable rules and regulations
of the principal securities market on which the Common Stock is listed or traded
or (ii) the Corporation has obtained approval of the issuance of the Common
Stock upon conversion of the 1999 Series III Preferred Stock in accordance with
applicable law and the rules and regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Corporation or any of its securities (the "Stockholder Approval"), in no
event shall the total number of shares of Common Stock issued upon conversion of
the 1999 Series III Preferred Stock (including any shares of capital stock or
rights to acquire shares of capital stock issued by the Corporation which are
aggregated or integrated with the Common Stock issued or issuable upon
conversion of the 1999 Series III Preferred Stock for purposes of any such rule
or regulation) exceed the maximum number of shares of Common Stock that the
Corporation can so issue pursuant to any rule of the principal United States
securities market on which the Common Stock trades (including Rule 4460(i) of
the Nasdaq Stock Market or any successor rule)(the "Maximum Share Amount")
which, as of the Issue Date, shall be 3,384,340 (19.99% of the total shares of
Common Stock outstanding on the Issue Date), subject to equitable adjustments
from time to time for stock splits, stock dividends, combinations, capital
reorganizations and similar events relating to the Common Stock occurring after
the Issue Date. With respect to each holder of 1999 Series III Preferred Stock,
the Maximum Share Amount shall refer to such holder's pro rata share thereof
--- ----
determined in accordance with Article XII below. In the event that the sum of
(x) the aggregate number of shares of Common Stock actually issued upon
conversion of the outstanding 1999 Series III Preferred Stock plus (y) the
----
aggregate number of shares of Common Stock that remain issuable upon conversion
of the 1999 Series III Preferred Stock at the then effective Conversion Price,
represents at least one hundred percent (100%) of the Maximum Share Amount (the
"Triggering Event"), the Corporation will use its best efforts to seek and
obtain Stockholder Approval (or obtain such other relief as will allow
conversions hereunder in excess of the Maximum Share Amount) as soon as
practicable following the Triggering Event.
B. The "Conversion Price" shall be the lesser of (i) the Variable
Conversion Price and (ii) the Fixed Conversion Price, subject to adjustments
pursuant to the provisions of Article VIII.C below.
C. The Conversion Price shall be subject to adjustment from time to
time as follows:
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<PAGE>
(a) Adjustment to Conversion Price Due to Stock Split, Stock
--------------------------------------------------------
Dividend, Etc. If at any time when 1999 Series III Preferred Stock is issued and
- -------------
outstanding, the number of outstanding shares of Common Stock is increased or
decreased by a stock split, stock dividend, combination, reclassification,
rights offering below the Trading Price (as defined in Article VIII.D) to all
holders of Common Stock or other similar event, which event shall have taken
place during the reference period for determination of the Conversion Price for
any Optional Conversion or Automatic Conversion of the 1999 Series III Preferred
Stock, then the Conversion Price shall be calculated giving appropriate effect
to the stock split, stock dividend, combination, reclassification or other
similar event. In such event, the Corporation shall notify the Transfer Agent of
such change on or before the effective date thereof.
(b) Adjustment Due to Merger, Consolidation, Etc. If, at any
---------------------------------------------
time when 1999 Series III Preferred Stock is issued and outstanding and prior to
the conversion of all 1999 Series III Preferred Stock, there shall be any
merger, consolidation, exchange of shares, recapitalization, reorganization, or
other similar event, as a result of which shares of Common Stock of the
Corporation shall be changed into the same or a different number of shares of
another class or classes of stock or securities of the Corporation or another
entity, or in case of any sale or conveyance of all or substantially all of the
assets of the Corporation other than in connection with a plan of complete
liquidation of the Corporation, then the holders of 1999 Series III Preferred
Stock shall thereafter have the right to receive upon conversion of the 1999
Series III Preferred Stock, upon the basis and upon the terms and conditions
specified herein and in lieu of the shares of Common Stock immediately
theretofore issuable upon conversion, such stock, securities or assets which the
holders of 1999 Series III Preferred Stock would have been entitled to receive
in such transaction had the 1999 Series III Preferred Stock been converted in
full immediately prior to such transaction (without regard to any limitations on
conversion contained herein) and in any such case appropriate provisions shall
be made with respect to the rights and interests of the holders of 1999 Series
III Preferred Stock to the end that the provisions hereof (including, without
limitation, provisions for adjustment of the Conversion Price and of the number
of shares of Common Stock issuable upon conversion of the 1999 Series III
Preferred Stock) shall thereafter be applicable, as nearly as may be practicable
in relation to any securities or assets thereafter deliverable upon the
conversion of 1999 Series III Preferred Stock. The Corporation shall not effect
any transaction described in this subsection (b) unless (a) it first gives, to
the extent practical, thirty (30) days' prior written notice (but in any event
at least fifteen (15) business days prior written notice) of such merger,
consolidation, exchange of shares, recapitalization, reorganization or other
similar event or sale of assets (during which time the holders of 1999 Series
III Preferred Stock shall be entitled to convert the 1999 Series III Preferred
Stock) and (b) the resulting successor or acquiring entity (if not the
Corporation) and, if an entity different from the successor or acquiring entity,
the entity whose capital stock or assets the holders of Common Stock of the
Corporation are entitled to receive as a result of such merger, consolidation,
exchange of shares, recapitalization, reorganization or other similar event or
sale of assets, assumes by written instrument the obligations of this
Certificate of Designation including this subsection (b). The above provisions
shall similarly apply to successive consolidations, mergers, sales, transfers or
share exchanges.
-14-
<PAGE>
(c) [Reserved.]
--------
(d) Adjustment Due to Distribution. Subject to Article IV, if
------------------------------
the Corporation shall declare or make any distribution of its assets (or rights
to acquire its assets) to holders of Common Stock as a dividend, stock
repurchase, by way of return of capital or otherwise (including any dividend or
distribution to the Corporation's shareholders in cash or shares (or rights to
acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a
"Distribution"), then the holders of 1999 Series III Preferred Stock shall be
entitled, upon any conversion of shares of 1999 Series III Preferred Stock after
the date of record for determining shareholders entitled to such Distribution,
to receive the amount of such assets which would have been payable to the holder
with respect to the shares of Common Stock issuable upon such conversion had
such holder been the holder of such shares of Common Stock on the record date
for the determination of shareholders entitled to such Distribution.
(e) Purchase Rights. Subject to Article IV, if at any time
---------------
when any 1999 Series III Preferred Stock is issued and outstanding, the
Corporation issues any convertible securities or rights to purchase stock,
warrants, securities or other property (the "Purchase Rights") pro rata to the
record holders of any class of Common Stock, then the holders of 1999 Series III
Preferred Stock will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Common Stock acquirable
upon complete conversion of the 1999 Series III Preferred Stock (without regard
to any limitations on conversion contained herein) immediately before the date
on which a record is taken for the grant, issuance or sale of such Purchase
Rights, or, if no such record is taken, the date as of which the record holders
of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.
(f) Adjustment for Restricted Periods. In the event that (1)
---------------------------------
the Corporation fails to obtain effectiveness with the SEC of any Registration
Statement (as defined in the Registration Rights Agreement) required to be filed
pursuant to the Registration Rights Agreement on or prior to the date on which
such Registration Statement is required to become effective pursuant to the
terms of the Registration Rights Agreement, or (2) any such Registration
Statement after its initial effectiveness and during the Registration Period (as
defined in the Registration Rights Agreement) lapses in effect, or sales of all
of the Registrable Securities otherwise cannot be made thereunder (whether by
reason of the Corporation's failure or inability to amend or supplement the
prospectus (the "Prospectus") included therein in accordance with the
Registration Rights Agreement or otherwise (including, without limitation,
during an Allowed Delay (as defined in Section 3(f) of the Registration Rights
Agreement))), then, at the election of each holder of 1999 Series III Preferred
Stock, the Pricing Period shall be comprised of, (i) in the case of an event
described in clause (1), the twenty (20) Trading Days preceding the 120th day
following the Issue Date plus all Trading Days through and including the third
(3rd) Trading Day following the date of effectiveness of the Registration
Statement; and (ii) in the case of an event described in clause (2), the twenty
(20) Trading Days preceding the date on which the holder of the 1999 Series III
Preferred Stock is first notified that sales may not be made under the
Prospectus, plus all Trading Days through
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<PAGE>
and including the third (3rd) Trading Day following the date on which the Holder
is first notified that such sales may again be made under the Prospectus. If a
holder of 1999 Series III Preferred Stock determines that sales may not be made
pursuant to the Prospectus (whether by reason of the Corporation's failure or
inability to amend or supplement the Prospectus or otherwise) it shall so notify
the Corporation in writing and, unless the Corporation provides such holder with
a written opinion of the Corporation's counsel to the contrary, such
determination shall be binding for purposes of this paragraph.
(g) Notice of Adjustments. Upon the occurrence of each
---------------------
adjustment or readjustment of the Conversion Price pursuant to this Article
VIII.C, the Corporation, at its expense, shall promptly compute such adjustment
or readjustment and prepare and furnish to each holder of 1999 Series III
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
1999 Series III Preferred Stock, furnish to such holder a like certificate
setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at
the time in effect and (iii) the number of shares of Common Stock and the
amount, if any, of other securities or property which at the time would be
received upon conversion of a share of 1999 Series III Preferred Stock.
D. For purposes of Article VIII.C(a) above, "Trading Price," which
shall be measured as of the record date in respect of the rights offering means
(i) the average of the last reported sale prices for the shares of Common Stock
on Nasdaq as reported by Bloomberg, as applicable, for the five (5) Trading Days
immediately preceding such date, or (ii) if Nasdaq is not the principal trading
market for the shares of Common Stock, the average of the last reported sale
prices on the principal trading market for the Common Stock during the same
period as reported by Bloomberg, or (iii) if market value cannot be calculated
as of such date on any of the foregoing bases, the Trading Price shall be the
fair market value as reasonably determined in good faith by (a) the Board of
Directors of the Corporation or, (b) at the option of a majority-in-interest of
the holders of the outstanding 1999 Series III Preferred Stock by an independent
investment bank of nationally recognized standing in the valuation of businesses
similar to the business of the Corporation.
E. In order to convert 1999 Series III Preferred Stock into full
shares of Common Stock, a holder of 1999 Series III Preferred Stock shall: (i)
submit a copy of the fully executed notice of conversion in the form attached as
Exhibit D to the Purchase Agreement ("Notice of Conversion") to the Corporation
- ---------
by facsimile dispatched prior to Midnight, New York City time (the "Conversion
Notice Deadline") on the date specified therein as the Conversion Date (or by
other means resulting in, or reasonably expected to result in, notice to the
Corporation on the Conversion Date) to the office of the Corporation or its
designated Transfer Agent for the 1999 Series III Preferred Stock, which notice
shall specify the number of shares of 1999 Series III Preferred Stock to be
converted, the applicable Conversion Price, the Market Price Days and a
calculation of the number of shares of Common Stock issuable upon such
conversion (together with a copy of the first page of each certificate to be
converted) on the Notice of Conversion; and (ii) surrender the original
certificates representing the 1999 Series III Preferred Stock being converted
-16-
<PAGE>
(the "Preferred Stock Certificates"), duly endorsed, along with a copy of the
Notice of Conversion to the office of the Corporation or the Transfer Agent for
the 1999 Series III Preferred Stock as soon as practicable thereafter. The
Corporation shall not be obligated to issue certificates evidencing the shares
of Common Stock issuable upon such conversion, unless either the Preferred Stock
Certificates are delivered to the Corporation or its Transfer Agent as provided
above, or the holder notifies the Corporation or its Transfer Agent that such
certificates have been lost, stolen or destroyed (subject to the requirements of
subparagraph (a) below). In the case of a dispute as to the calculation of the
Conversion Price, the Corporation shall promptly issue such number of shares of
Common Stock that are not disputed in accordance with subparagraph (b) below.
The Corporation shall submit the disputed calculations to its outside accountant
via facsimile within two (2) business days of receipt of the Notice of
Conversion. The accountant shall audit the calculations and notify the
Corporation and the holder of the results no later than 48 hours from the time
it receives the disputed calculations. The accountant's calculation shall be
deemed conclusive absent manifest error.
(a) Lost or Stolen Certificates. Upon receipt by the
----------------------------
Corporation of evidence of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing shares of 1999 Series III Preferred
Stock, and (in the case of loss, theft or destruction) of indemnity reasonably
satisfactory to the Corporation, and upon surrender and cancellation of the
Preferred Stock Certificate(s), if mutilated, the Corporation shall execute and
deliver new Preferred Stock Certificate(s) of like tenor and date.
(b) Delivery of Common Stock Upon Conversion. Upon the
-----------------------------------------
surrender of certificates as described above together with a Notice of
Conversion, the Corporation shall issue and, within two (2) business days after
such surrender (or, in the case of lost, stolen or destroyed certificates, after
provision of agreement and indemnification pursuant to subparagraph (a) above)
(the "Delivery Period"), deliver (or cause its Transfer Agent to so issue and
deliver) in accordance with the terms hereof and the Purchase Agreement
(including, without limitation, in accordance with the requirements of Section
2(g) of the Purchase Agreement) to or upon the order of the holder (i) that
number of shares of Common Stock for the portion of the shares of 1999 Series
III Preferred Stock converted as shall be determined in accordance herewith and
(ii) a certificate representing the balance of the shares of 1999 Series III
Preferred Stock not converted, if any. In addition to any other remedies
available to the holder, including actual damages and/or equitable relief, the
Corporation shall pay to a holder $2,000 per day in cash for each day beyond a
two (2) business day grace period following the Delivery Period that the
Corporation fails to deliver Common Stock (a "Delivery Default") issuable upon
surrender of shares of 1999 Series III Preferred Stock with a Notice of
Conversion until such time as the Corporation has delivered all such Common
Stock (the "Delivery Default Payments"). Such Delivery Default Payments shall be
paid to such holder by the fifth day of the month following the month in which
it has accrued or, at the option of the holder (by written notice to the
Corporation by the first day of the month following the month in which it has
accrued), shall be convertible into Common Stock in accordance with the terms of
this Article VIII.
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<PAGE>
In lieu of delivering physical certificates representing the Common
Stock issuable upon conversion, provided the Corporation's Transfer Agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer ("FAST") program, upon request of the holder and its compliance with
the provisions contained in Article VIII.A and in this Article VIII.E, the
Corporation shall use its best efforts to cause its Transfer Agent to
electronically transmit the Common Stock issuable upon conversion to the holder
by crediting the account of holder's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission ("DWAC") system. The time periods for delivery and
penalties described in the immediately preceding paragraph shall apply to the
electronic transmittals described herein.
(c) No Fractional Shares. If any conversion of 1999 Series III
---------------------
Preferred Stock would result in a fractional share of Common Stock or the right
to acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon Conversion of
the 1999 Series III Preferred Stock shall be the next higher number of shares.
(d) Conversion Date. The "Conversion Date" shall be the date
----------------
specified in the Notice of Conversion, provided that the Notice of Conversion is
submitted by facsimile (or by other means resulting in, or reasonably expected
to result in, notice) to the Corporation or its Transfer Agent before Midnight,
New York City time, on the date so specified, otherwise the Conversion Date
shall be the first business day after the date so specified on which the Notice
of Conversion is actually received by the Corporation or its Transfer Agent.
The person or persons entitled to receive the shares of Common Stock issuable
upon conversion shall be treated for all purposes as the record holder or
holders of such securities as of the Conversion Date and all rights with respect
to the shares of 1999 Series III Preferred Stock surrendered shall forthwith
terminate except the right to receive the shares of Common Stock or other
securities or property issuable on such conversion and except that the holders
preferential rights as a holder of 1999 Series III Preferred Stock shall survive
to the extent the Corporation fails to deliver such securities.
F. A number of shares of the authorized but unissued Common Stock
sufficient to provide for the conversion of the 1999 Series III Preferred Stock
outstanding (based on the lesser of the Variable Conversion Price and the Fixed
Conversion Price) shall at all times be reserved by the Corporation, free from
preemptive rights, for such conversion or exercise. As of the date of issuance
of the 1999 Series III Preferred Stock, 3,555,556 authorized and unissued shares
of Common Stock have been duly reserved for issuance upon conversion of the 1999
Series III Preferred Stock (the "Reserved Amount"). The Reserved Amount shall
be increased from time to time in accordance with the Company's obligations
pursuant to Section 4(h) of the Purchase Agreement. In addition, if the
Corporation shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into which
each share of the 1999 Series III Preferred Stock shall be convertible, the
Corporation shall at the same time also make proper provision so that thereafter
there shall be a sufficient number of shares of Common Stock authorized and
reserved, free from preemptive rights, for conversion of the outstanding 1999
Series III Preferred Stock.
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<PAGE>
If at any time a holder of shares of 1999 Series III Preferred Stock
submits a Notice of Conversion, and the Corporation does not have sufficient
authorized but unissued shares of Common Stock available to effect such
conversion in accordance with the provisions of this Article VIII (a "Conversion
Default"), subject to Article XII, the Corporation shall issue to the holder all
of the shares of Common Stock which are available to effect such conversion.
The number of shares of 1999 Series III Preferred Stock included in the Notice
of Conversion which exceeds the amount which is then convertible into available
shares of Common Stock (the "Excess Amount") shall, notwithstanding anything to
the contrary contained herein, not be convertible into Common Stock in
accordance with the terms hereof until (and at the holder's option at any time
after) the date additional shares of Common Stock are authorized by the
Corporation to permit such conversion, at which time the Conversion Price in
respect thereof shall be the lesser of (i) the Conversion Price on the
Conversion Default Date (as defined below) and (ii) the Conversion Price on the
Conversion Date elected by the holder in respect thereof. The Corporation shall
use its best efforts to effect an increase in the authorized number of shares of
Common Stock as soon as possible following (i) such time that a holder of 1999
Series III Preferred Stock notifies the Corporation or that the Corporation
otherwise becomes aware that there are or likely will be insufficient authorized
and unissued shares to allow full conversion thereof and (ii) a Conversion
Default. In addition, the Corporation shall either (i) pay to the holder
payments ("Conversion Default Payments") for a Conversion Default in the amount
of (a) (N/365), multiplied by (b) the sum of the Stated Value plus the
Applicable Premium per share of 1999 Series III Preferred Stock held by such
holder through the Authorization Date (as defined below), multiplied by (c) the
Excess Amount on the day the holder submits a Notice of Conversion giving rise
to a Conversion Default (the "Conversion Default Date"), multiplied by (d) .24,
where N = the number of days from the Conversion Default Date to the date (the
"Authorization Date") that the Corporation authorizes a sufficient number of
shares of Common Stock to effect conversion of the full number of shares of 1999
Series III Preferred Stock or (ii) provided no similar adjustment has been made
pursuant to Section 2(c)(1) of the Registration Rights Agreement, increase the
Applicable Premium to an amount equal to fifteen percent (15%) of the Stated
Value through the Authorization Date; provided, however, that if the Conversion
-------- -------
Default continues for more than sixty (60) days, each holder of the 1999 Series
III Preferred Stock shall have the option to cause the Corporation to either pay
the Conversion Default Payments pursuant to clause (i) of this sentence or
increase the Applicable Premium pursuant to clause (ii) of this sentence. The
Corporation shall send notice to the holder of the authorization of additional
shares of Common Stock, the Authorization Date and the amount of holder's
accrued Conversion Default Payments. The accrued Conversion Default Payment for
each calendar month shall be paid in cash or shall be convertible into Common
Stock at the applicable Conversion Price, at the holder's option, as follows:
(a) In the event the holder elects to take such payment in cash,
cash payment shall be made to holder by the fifth day of the month following the
month in which it has accrued; and
(b) In the event the holder elects to take such payment in
Common Stock, the holder may convert such payment amount into Common Stock at
the Conversion Price (as in effect at the time of Conversion) at any time after
the fifth day of the month following the month in
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<PAGE>
which it has accrued in accordance with the terms of this Article VIII (so long
as there is then a sufficient number of authorized shares of Common Stock).
The holder's election shall be made in writing to the Corporation at
any time prior to 9:00 p.m, New York City Time, on the third (3rd) day of the
month following the month in which Conversion Default payments have accrued. If
no election is made, the holder shall be deemed to have elected to receive cash.
Nothing herein shall limit the holder's right to pursue actual damages (to the
extent in excess of the Conversion Default Payments) for the Corporation's
failure to maintain a sufficient number of authorized shares of Common Stock,
and each holder shall have the right to pursue all remedies available at law or
in equity (including a decree of specific performance and/or injunctive relief).
Nothing herein shall limit the holder's right to pursue actual damages
(to the extent in excess of the Conversion Default Payments) for the
Corporation's failure to maintain a sufficient number of authorized shares of
Common Stock, and each holder shall have the right to pursue all remedies
available at law or in equity (including a decree of specific performance and/or
injunctive relief).
G. Upon the occurrence of each adjustment or readjustment of the
Conversion Price pursuant to this Article VIII, the Corporation, at its expense,
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each holder of 1999 Series III Preferred
Stock a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of 1999
Series III Preferred Stock, furnish or cause to be furnished to such holder a
like certificate setting forth (i) such adjustment or readjustment, (ii) the
Conversion Price at the time in effect and (iii) the number of shares of Common
Stock and the amount, if any, of other securities or property which at the time
would be received upon conversion of a share of 1999 Series III Preferred Stock.
H. Upon submission of a Notice of Conversion by a holder of 1999
Series III Preferred Stock, (i) the shares covered thereby (other than the
shares, if any, which cannot be issued because their issuance would exceed such
holder's allocated portion of the Reserved Amount or Maximum Share Amount) shall
be deemed converted into shares of Common Stock and (ii) the holder's rights as
a holder of such converted shares of 1999 Series III Preferred Stock shall cease
and terminate, excepting only the right to receive certificates for such shares
of Common Stock and to any remedies provided herein or otherwise available at
law or in equity to such holder because of a failure by the Corporation to
comply with the terms of this Certificate of Designation. Notwithstanding the
foregoing, if a holder has not received certificates for all shares of Common
Stock prior to the tenth (10th) business day after the expiration of the
Delivery Period with respect to a conversion of shares of 1999 Series III
Preferred Stock for any reason, then (unless the holder otherwise elects to
retain its status as a holder of Common Stock by so notifying the Corporation)
the holder shall regain the rights of a holder of such shares of 1999 Series III
Preferred Stock with respect to such unconverted shares of 1999 Series III
Preferred Stock and the Corporation shall, as soon as practicable, return such
unconverted shares of 1999 Series III Preferred Stock to the holder
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<PAGE>
or, if such shares of 1999 Series III Preferred Stock have not been surrendered,
adjust its records to reflect that such shares of 1999 Series III Preferred
Stock have not been converted. In all cases, the holder shall retain all of its
rights and remedies (including, without limitation, (i) the right to receive
Delivery Default Payments pursuant to Article VII.E to the extent required
thereby for such Delivery Default and any subsequent Delivery Default and (ii)
the right to have the Conversion Price with respect to subsequent conversions
determined in accordance with Article VIII.E.) for the Corporation's failure to
convert the 1999 Series III Preferred Stock.
IX. Automatic Conversion
--------------------
Subject to the limitations on conversion set forth in Article
VIII.A(c) and so long as (i) all of the shares of Common Stock issuable upon
conversion of all outstanding shares of 1999 Series III Preferred Stock are then
(x) authorized and reserved for issuance, (y) registered for re-sale under the
1933 Act by the holders of the 1999 Series III Preferred Stock (or may otherwise
be resold publicly without restriction) and (z) eligible to be traded on Nasdaq,
the NYSE, the AMEX or Nasdaq SmallCap and (ii) there is not then a continuing
Redemption Event or 19.99% Redemption Event, each share of 1999 Series III
Preferred Stock issued and outstanding on the date which is three (3) years from
the Issue Date (the "Automatic Conversion Date"), subject to any adjustment
pursuant to this Article, automatically shall be converted into shares of Common
Stock on such date at the then effective Conversion Price in accordance with,
and subject to, the provisions of Article VIII hereof (the "Automatic
Conversion"). The Automatic Conversion Date shall be delayed by one (1) Trading
Day each for each Trading Day occurring prior thereto and prior to the full
conversion of the 1999 Series III Preferred Stock that (i) any Registration
Statement required to be filed and to be effective pursuant to the Registration
Rights Agreement is not effective or sales of all of the Registrable Securities
otherwise cannot be made pursuant to the Registration Statement during the
Registration Period (whether by reason of the Company's failure to properly
supplement or amend the prospectus included therein in accordance with the terms
of the Registration Rights Agreement or otherwise, including any Allowed Delays
(as defined in Section 3(f) of the Registration Rights Agreement)), (ii) any
Redemption Event (as defined in Article VI.A) or 19.99% Redemption Event (as
defined in Article VI.B.) exists, without regard to whether any cure periods
shall have run or (iii) that the Corporation is in breach of its obligations
pursuant to Section 4(h) of the Purchase Agreement. The Automatic Conversion
Date shall be the "Conversion Date" for purposes of determining the Conversion
Price and the time within which certificates representing the Common Stock must
be delivered to the holder.
X. Voting Rights
-------------
The holders of the 1999 Series III Preferred Stock have no voting
power whatsoever, except as otherwise provided by the MBCA, in this Article X,
and in Article XI below.
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<PAGE>
Notwithstanding the above, the Corporation shall provide each holder
of 1999 Series III Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed sale, lease or conveyance
of all or substantially all of the assets of the Corporation, or any proposed
liquidation, dissolution or winding up of the Corporation, the Corporation shall
mail a notice to each holder, at least ten (10) days prior to the record date
specified therein (or thirty (30) days prior to the consummation of the
transaction or event, whichever is earlier), of the date on which any such
record is to be taken for the purpose of such dividend, distribution, right or
other event, and a brief statement regarding the amount and character of such
dividend, distribution, right or other event to the extent known at such time.
To the extent that under the MBCA the vote of the holders of the 1999
Series III Preferred Stock, voting separately as a class or series as
applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the holders of at least a majority of the shares
of the 1999 Series III Preferred Stock represented at a duly held meeting at
which a quorum is present or by written consent of a majority of the shares of
1999 Series III Preferred Stock (except as otherwise may be required under the
MCBA) shall constitute the approval of such action by the class. To the extent
that under the MCBA holders of the 1999 Series III Preferred Stock are entitled
to vote on a matter with holders of Common Stock, voting together as one class,
each share of 1999 Series III Preferred Stock shall be entitled to a number of
votes equal to the number of shares of Common Stock into which it is then
convertible using the record date for the taking of such vote of shareholders as
the date as of which the Conversion Price is calculated. Holders of the 1999
Series III Preferred Stock shall be entitled to notice of all shareholder
meetings or written consents (and copies of proxy materials and other
information sent to shareholders) with respect to which they would be entitled
to vote, which notice would be provided pursuant to the Corporation's bylaws and
the MBCA.
XI. Protective Provisions
---------------------
So long as shares of 1999 Series III Preferred Stock are outstanding,
the Corporation shall not, without first obtaining the approval (by vote or
written consent, as provided by the MBCA) of the holders of at least a majority
of the then outstanding shares of 1999 Series III Preferred Stock:
(a) alter or change the rights, preferences or privileges of the
1999 Series III Preferred Stock or any capital stock of the Corporation so as to
affect adversely the 1999 Series III Preferred Stock;
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<PAGE>
(b) create any new class or series of capital stock having a
preference over the 1999 Series III Preferred Stock as to distribution of assets
upon liquidation, dissolution or winding up of the Corporation (as previously
defined in Article III hereof, "Senior Securities");
(c) increase the authorized number of shares of 1999 Series III
Preferred Stock;
(d) issue any Senior Securities;
(e) increase the par value of the Common Stock; or
(f) do any act or thing not authorized or contemplated by this
Certificate of Designation which would result in taxation of the holders of
shares of the 1999 Series III Preferred Stock under Section 305 of the Internal
Revenue Code of 1986, as amended (or any comparable provision of the Internal
Revenue Code as hereafter from time to time amended).
In the event holders of at least a majority of the then outstanding
shares of 1999 Series III Preferred Stock agree to allow the Corporation to
alter or change the rights, preferences or privileges of the shares of 1999
Series III Preferred Stock, pursuant to subsection (a) above, so as to affect
the 1999 Series III Preferred Stock, then the Corporation will deliver notice of
such approved change to the holders of the 1999 Series III Preferred Stock that
did not agree to such alteration or change (the "Dissenting Holders") and
Dissenting Holders shall have the right for a period of thirty (30) days to
convert pursuant to the terms of this Certificate of Designation as they exist
prior to such alteration or change or continue to hold their shares of 1999
Series III Preferred Stock.
XII. Pro Rata Allocations
--------------------
The Maximum Share Amount and the Reserved Amount (including any
increases thereto) shall be allocated by the Corporation pro rata among the
holders of 1999 Series III Preferred Stock based on the number of shares of 1999
Series III Preferred Stock issued to each holder. Each increase to the Maximum
Share Amount and the Reserved Amount shall be allocated pro rata among the
holders of 1999 Series III Preferred Stock based on the number of shares of 1999
Series III Preferred Stock held by each holder at the time of the increase in
the Maximum Share Amount or Reserved Amount. In the event a holder shall sell
or otherwise transfer any of such holder's shares of 1999 Series III Preferred
Stock, each transferee shall be allocated a pro rata portion of such
transferor's Maximum Share Amount and Reserved Amount. Any portion of the
Maximum Share Amount or Reserved Amount which remains allocated to any person or
entity which does not hold any 1999 Series III Preferred Stock shall be
allocated to the remaining holders of shares of 1999 Series III Preferred Stock,
pro rata based on the number of shares of 1999 Series III Preferred Stock then
held by such holders.
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<PAGE>
IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation this 26th day of May, 1999.
AASTROM BIOSCIENCES, INC.
By:_________________________________________
R. Douglas Armstrong
President & Chief Executive Officer
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<PAGE>
EXHIBIT E
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the 1999 Series III Preferred Stock)
The undersigned hereby irrevocably elects to convert ______ shares of 1999
Series III Preferred Stock, represented by stock certificate No(s). __________
(the "Preferred Stock Certificates") into shares of common stock ("Common
Stock") of Aastrom Biosciences, Inc., a Michigan corporation (the "Corporation")
according to the conditions of the Certificate of Designation of 1999 Series III
Preferred Stock, as of the date written below. If securities are to be issued
in the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering herewith such
certificates. No fee will be charged to the Holder for any conversion, except
for transfer taxes, if any. A copy of each Preferred Stock Certificate is
attached hereto (or evidence of loss, theft or destruction thereof).
The Corporation shall electronically transmit the Common Stock issuable
pursuant to this Notice of Conversion to the account of the undersigned or its
nominee with DTC through its Deposit Withdrawal Agent Commission system ("DWAC
----
Transfer").
- --------
Name of DTC Prime Broker:_______________________________________
Account Number:_________________________________________________
[_] In lieu of receiving shares of Common Stock issuable pursuant to this
Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Corporation issue a certificate or certificates for the
number of shares of Common Stock set forth above (which numbers are based
on the Holder's calculation attached hereto) in the name(s) specified
immediately below or, if additional space is necessary, on an attachment
hereto:
Name:___________________________________
Address:________________________________
________________________________
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
1999 Series III Preferred Stock shall be made pursuant to registration of the
securities under the Securities Act of 1933, as amended (the "Act"), or pursuant
to an exemption from registration under the Act.
Date of Conversion:__________________________
Applicable Conversion Price:_________________
Market Price Days:___________________________
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<PAGE>
Number of Shares of
Common Stock to be Issued: _____________________
Signature:______________________________________
Name:___________________________________________
Address:________________________________________
________________________________________
*The Corporation is not required to issue shares of Common Stock until the
original 1999 Series III Preferred Stock Certificate(s) (or evidence of loss,
theft or destruction thereof) to be converted are received by the Corporation or
its Transfer Agent. The Corporation shall issue and deliver shares of Common
Stock to an overnight courier or by electronic transmission not later than two
(2) business days following receipt of the original Preferred Stock
Certificate(s) to be converted, and shall make payments pursuant to the
Certificate of Designation for the number of business days such issuance and
delivery is late.
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<PAGE>
EXHIBIT 4.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of May 27, 1999,
by and among Aastrom Biosciences, Inc., a Michigan corporation, with
headquarters located at 24 Frank Lloyd Wright Drive, Ann Arbor, Michigan 48106
("Company"), and each of the purchasers set forth on the signature pages hereto
(the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
under Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act");
B. The Company has authorized a new series of preferred stock, designated
as the 1999 Series III Convertible Preferred Stock (the ASeries III Preferred
Stock"), having the rights, preferences and privileges set forth in the
Certificate of Designations, Rights and Preferences attached hereto as Exhibit
"A" (the "Certificate of Designation");
C. The Preferred Stock is convertible into shares of common stock, no par
value, of the Company (the "Common Stock"), upon the terms and subject to the
limitations and conditions set forth in the Certificate of Designation and
pursuant to the notice of conversion attached hereto as Exhibit "E";
D. The Company has authorized the issuance to the Buyers of two Warrants,
in the form attached hereto as Exhibits "B-1" and "B-2", to purchase an
aggregate of Three Hundred Thousand (300,000) shares of Common Stock (the
"Warrants");
E. The Buyers desire to purchase and the Company desires to issue and
sell, upon the terms and conditions set forth in this Agreement, an aggregate of
Three Thousand (3,000) shares of Series III Preferred Stock (such shares,
together with any Series III Preferred Stock issued in replacement thereof or as
a dividend thereon or otherwise with respect thereto in accordance with the
terms thereof, being hereinafter collectively referred to as the "Preferred
Shares") and (ii) Warrants to purchase Three Hundred Thousand (300,000) shares
of Common Stock, for an aggregate purchase price of Three Million Dollars
($3,000,000).
F. Each Buyer wishes to purchase, upon the terms and conditions stated in
this Agreement, the number of Preferred Shares and number of Warrants as is set
forth immediately below its name on the signature pages hereto;
<PAGE>
G. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as Exhibit "C" (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to provide certain registration rights
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws; and
NOW THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
--------------------------------------------------
a. Purchase of Preferred Shares and Warrants. The Company shall
-----------------------------------------
issue and sell to each Buyer and each Buyer severally agrees to purchase from
the Company such number of Preferred Shares and number of Warrants as is set
forth immediately below such Buyer's name on the signature pages hereto.
b. Form of Payment. On the Closing Date (as defined below),
---------------
(i) each Buyer shall pay the purchase price for the Preferred Shares and the
Warrants to be issued and sold to it at the Closing (as defined below) (the
"Purchase Price") by wire transfer of immediately available funds to the
Company, in accordance with the Company's written wiring instructions, against
delivery of duly executed certificates representing such number of Preferred
Shares and Warrants which such Buyer is purchasing and (ii) the Company shall
deliver such certificates duly executed on behalf of the Company, to the Buyer,
against delivery of such Purchase Price.
c. Closing Date. Subject to the satisfaction (or waiver) of
------------
the conditions thereto set forth in Section 6 and Section 7 below, the date and
time of the issuance and sale of the Preferred Shares and Warrants pursuant to
this Agreement (the "Closing Date") shall be 12:00 noon Eastern Standard Time on
May 27, 1999 or such other mutually agreed upon time. The closing of the
transaction contemplated by this Agreement (the "Closing") shall occur on the
Closing Date at the offices of Morgan, Lewis & Bockius LLP, 1701 Market Street,
Philadelphia, Pennsylvania 19103, or at such other location as may be agreed to
be the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally
--------------------------------------
(and not jointly) represents and warrants to the Company solely as to such Buyer
that:
a. Investment Purpose. As of the date hereof, the Buyer is
------------------
purchasing the Preferred Shares and the shares of Common Stock issuable upon
conversion of or otherwise pursuant to the Preferred Shares (including, without
limitation, such additional shares of Common Stock as are issuable as a result
of the events described in Articles VI, VIII.D(b) or VIII.E of the Certificate
of Designation and Section 2(c) of the Registration Rights Agreement) (such
shares of Common Stock being referred to herein as the "Conversion Shares") and
the Warrants and the shares of Common Stock issuable upon exercise of or
otherwise pursuant to the Warrants (the
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<PAGE>
"Warrant Shares" and, collectively with the Preferred Shares, Warrants and
Conversion Shares, the "Securities") for its own account and not with a present
view towards the public sale or distribution thereof, except pursuant to sales
registered or exempted from registration under the 1933 Act; provided, however,
-------- -------
that by making the representations herein, the Buyer does not agree to hold any
of the Securities for any minimum or other specific term and reserves the right
to dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. The Buyer is an "accredited
--------------------------
investor" as that term is defined in Rule 501(a) of Regulation D (an "Accredited
Investor").
c. Reliance on Exemptions. The Buyer understands that the
----------------------
Securities are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.
d. Information. The Buyer and its advisors, if any, have been
-----------
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by the Buyer or its advisors. The Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company. Neither such inquiries nor any other due diligence investigation
conducted by Buyer or any of its advisors or representatives shall modify, amend
or affect Buyer's right to rely on the Company's representations and warranties
contained in Section 3 below. The Buyer has reviewed the risk factors discussed
in the Company's SEC Documents (as defined below) and understands that its
investment in the Securities involves a significant degree of risk.
e. Governmental Review. The Buyer understands that no United
-------------------
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Re-sale. The Buyer understands that (i)
-------------------
except as provided in the Registration Rights Agreement, the sale or re-sale of
the Securities has not been and is not being registered under the 1933 Act or
any applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the 1933 Act, (b) the Buyer shall have delivered to the Company
an opinion of counsel (which opinion shall be reasonably acceptable to the
Company) to the effect that the Securities to be sold or transferred may be sold
or transferred pursuant to an exemption from such registration, (c) so long as
the Buyer otherwise complies with applicable securities laws, the Securities are
sold or transferred to an "affiliate"(as defined in Rule 144 promulgated under
the 1933 Act (or a successor rule) ("Rule 144")) or (d) the Securities are sold
pursuant to Rule 144; (ii) any
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<PAGE>
sale of such Securities made in reliance on Rule 144 may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any re-sale of such Securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder (in each case, other than pursuant to the Registration Rights
Agreement). Notwithstanding the foregoing or anything else contained herein to
the contrary, the Securities may be pledged as collateral in connection with a
bona fide margin account or other lending arrangement. Except for transfers by a
- ---- ----
Buyer (i) to its "affiliates" (as defined in Rule 144) or (ii) to the holders of
interests in a Buyer upon a liquidation of a Buyer's assets in accordance with
its governing documents, the Preferred Shares may be transferred by a Buyer only
with the prior written consent of the Company, which consent will not be
unreasonably withheld.
g. Legends. The Buyer understands that the Preferred Shares
-------
and the Warrants and, until such time as the Conversion Shares and Warrant
Shares have been registered under the 1933 Act as contemplated by the
Registration Rights Agreement or otherwise may be sold pursuant to Rule 144
without any restriction as to the number of securities as of a particular date
that can then be immediately sold, the Conversion Shares and Warrant Shares, may
bear a restrictive legend in substantially the following form (and a stop-
transfer order may be placed against transfer of the certificates for such
Securities):
"The securities represented by this certificate have not
been registered under the Securities Act of 1933, as
amended. The securities may not be sold, transferred or
assigned in the absence of an effective registration
statement for the securities under said Act, or an opinion
of counsel, in form, substance and scope reasonably
acceptable to the Company, that registration is not required
under said Act or unless sold pursuant to Rule 144 under
said Act."
The legend set forth above shall be removed and the Company shall
issue a certificate without such legend to the holder of any Security upon which
it is stamped, if, unless otherwise required by applicable state securities
laws, (a) such Security is registered for sale under an effective registration
statement filed under the 1933 Act or otherwise may be sold pursuant to Rule 144
without any restriction as to the number of securities as of a particular date
that can then be immediately sold, or (b) such holder provides the Company with
an opinion of counsel, in form, substance and scope reasonably acceptable to the
Company, to the effect that a public sale or transfer of such Security may be
made without registration under the 1933 Act and such sale or transfer is
effected or (c) such holder provides the Company with reasonable assurances that
such Security can be sold pursuant to Rule 144. The Buyer agrees to sell all
Securities, including those represented by a certificate(s) from which the
legend has been removed, in compliance with applicable
-4-
<PAGE>
requirements for delivery of a prospectus, and the plan of distribution
described therein, contained in an effective registration statement, if any.
h. Authorization; Enforcement. This Agreement and the
--------------------------
Registration Rights Agreement have been duly and validly authorized. This
Agreement has been duly executed and delivered on behalf of the Buyer, and this
Agreement constitutes, and upon execution and delivery of the Registration
Rights Agreement, such agreement will constitute, valid and binding agreements
of the Buyer enforceable in accordance with their terms.
i. Residency. The Buyer is a resident of the jurisdiction set
---------
forth immediately below such Buyer's name on the signature pages hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
---------------------------------------------
represents and warrants to each Buyer that:
a. Organization and Qualification. The Company is a
------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction in which it is incorporated, with full power and authority
(corporate and other) to own, lease, use and operate its properties and to carry
on its business as and where now owned, leased, used, operated and conducted.
The Company has no Subsidiaries (as defined below). The Company is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which its ownership or use of property or the nature of
the business conducted by it makes such qualification necessary except where the
failure to be so qualified or in good standing would not have a Material Adverse
Effect. "Material Adverse Effect" means any material adverse effect on (i) the
Securities, (ii) the business, operations, assets, financial condition or
prospects of the Company and its Subsidiaries, if any, taken as a whole, or
(iii) on the transactions contemplated hereby or by the agreements or
instruments to be entered into in connection herewith. "Subsidiaries" means any
corporation or other organization, whether incorporated or unincorporated, in
which the Company owns, directly or indirectly, any equity or other ownership
interest.
b. Authorization; Enforcement. (i) The Company has all
--------------------------
requisite corporate power and authority to file and perform its obligations
under the Certificate of Designation and to enter into and perform this
Agreement, the Registration Rights Agreement and the Warrants and to consummate
the transactions contemplated hereby and thereby and to issue the Securities, in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
this Agreement, the Registration Rights Agreement and the Warrants by the
Company and the consummation by it of the transactions contemplated hereby and
thereby (including without limitation, the issuance of the Preferred Shares and
Warrants and the issuance and reservation for issuance of the Conversion Shares
and the Warrant Shares issuable upon conversion or exercise thereof) have been
duly authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board of Directors, or its shareholders is
required, (iii) this Agreement has been duly
-5-
<PAGE>
executed and delivered by the Company, and (iv) this Agreement constitutes, and
upon execution and delivery by the Company of the Registration Rights Agreement
and the Warrants and upon execution and filing of the Certificate of
Designation, each of such agreements and instruments will constitute, a legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms.
c. Capitalization. As of the date hereof, the authorized
--------------
capital stock of the Company consists of (i) 40,000,000 shares of Common Stock
of which 16,930,167 shares are issued and outstanding, 1,568,476 shares are
reserved for issuance pursuant to the Company's stock option plans, 2,545,293
shares are reserved for issuance pursuant to securities (other than the
Preferred Shares and the Warrants) exercisable for, or convertible into or
exchangeable for shares of Common Stock and 4,155,556 (2x currently required)
shares are reserved for issuance upon conversion of the Preferred Shares and
exercise of the Warrants (subject to adjustment pursuant to the Company's
covenant set forth in Section 4(h) below); and (ii) 5,000,000 shares of
preferred stock, 4,000 of which shares are issued and outstanding, 5,000 of
which are designated as 1998 Series I Convertible Preferred Stock of which 4,000
are issued and outstanding and 3,000 of which are designated as the Preferred
Stock. All of such outstanding shares of capital stock are, or upon issuance
will be, duly authorized, validly issued, fully paid and nonassessable. Except
as disclosed on Schedule 3(c), no shares of capital stock of the Company are
subject to preemptive rights or any other similar rights of the stockholders of
the Company or any liens or encumbrances imposed through the actions or failure
to act of the Company. Except as disclosed in Schedule 3(c), as of the effective
date of this Agreement, (i) there are no outstanding options, warrants, scrip,
rights to subscribe for, puts, calls, rights of first refusal, agreements,
understandings, claims or other commitments or rights of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for any shares of capital stock of the Company, or arrangements by which the
Company is or may become bound to issue additional shares of capital stock of
the Company, (ii) there are no agreements or arrangements under which the
Company is obligated to register the sale of any of its or their securities
under the 1933 Act (except the Registration Rights Agreement and the
Registration Rights Agreement dated July 2, 1998 by and among the Company and
the Buyers) and (iii) there are no anti-dilution or price adjustment provisions
contained in any security issued by the Company (or in any agreement providing
rights to security holders) that will be triggered by the issuance of the
Preferred Shares, the Warrants, the Conversion Shares or the Warrant Shares. The
Company has furnished to the Buyer true and correct copies of the Company's
Certificate of Incorporation as in effect on the date hereof ("Certificate of
Incorporation"), the Company's By-laws, as in effect on the date hereof (the
"By-laws"), and the terms of all securities convertible into or exercisable for
Common Stock of the Company and the material rights of the holders thereof in
respect thereto. The Company shall provide the Buyer with a written update of
this representation signed by the Company's Chief Executive or Chief Financial
Officer on behalf of the Company as of the Closing Date.
d. Issuance of Shares. The Preferred Shares are duly
------------------
authorized and, upon issuance in accordance with the terms of this Agreement
will be validly issued, fully paid and
-6-
<PAGE>
non-assessable, and free from all taxes, liens, claims and encumbrances with
respect to the issue thereof and shall not be subject to preemptive rights or
other similar rights of stockholders of the Company and will not impose personal
liability upon the holder thereof. The Conversion Shares and Warrant Shares are
duly authorized and reserved for issuance, and, upon conversion of the Preferred
Shares and exercise of the Warrants in accordance with the terms thereof, will
be validly issued, fully paid and non-assessable, and free from all taxes,
liens, claims and encumbrances and will not be subject to preemptive rights or
other similar rights of stockholders of the Company and will not impose personal
liability upon the holder thereof.
e. Acknowledgment of Dilution. The Company understands and
--------------------------
acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Conversion Shares or Warrant Shares upon conversion or exercise
of the Preferred Shares or the Warrants. The Company further acknowledges that
its obligation to issue Conversion Shares and Warrant Shares in accordance with
this Agreement, the Certificate of Designation and the Warrants is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.
f. Series of Preferred Stock. The terms, designations, powers,
-------------------------
preferences and relative, participating and optional or special rights, and the
qualifications, limitations and restrictions of each series of preferred stock
of the Company (other than the Preferred Stock) are as stated in the Certificate
of Incorporation and the previous certificates of designation, filed on or prior
to the date hereof, and the Bylaws. The terms, designations, powers,
preferences and relative, participating and optional or special rights, and the
qualifications, limitations and restrictions of the Preferred Stock are as
stated in the Certificate of Designations.
g. No Conflicts. The execution, delivery and performance of
------------
this Agreement, the Registration Rights Agreement and the Warrants by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the filing of the Certificate
of Designation and the issuance and reservation for issuance of the Conversion
Shares and the Warrant Shares) will not (i) conflict with or result in a
violation of any provision of the Certificate of Incorporation or By-laws or
(ii) violate or conflict with, or result in a breach of any provision of, or
constitute a default (or an event which with notice or lapse of time or both
could become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture, patent,
patent license or instrument to which the Company is a party, or (iii) result in
a violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations and regulations of any self-
regulatory organizations to which the Company or its securities are subject)
applicable to the Company or by which any property or asset of the Company is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). The Company
is not in violation of its Certificate of Incorporation, By-laws or other
organizational documents and the Company is not in default (and no event has
occurred which with notice or lapse of time or both
-7-
<PAGE>
could put the Company in default) under, and the Company has not taken any
action or failed to take any action that would give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company is a party or by which any property
or assets of the Company is bound or affected, except for possible defaults as
would not, individually or in the aggregate, have a Material Adverse Effect. The
businesses of the Company is not being conducted, and shall not be conducted so
long as a Buyer owns any of the Securities, in violation of any law, ordinance
or regulation of any governmental entity, which violations individually or in
the aggregate would have a Material Adverse Effect. Except (i) as specifically
contemplated by this Agreement and the Registration Rights Agreement, (ii) as
required under the 1933 Act and any applicable state securities laws, (iii) for
filings with Nasdaq (as defined below) and (iv) for filings with the Secretary
of State of the State of Michigan, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court, governmental agency, regulatory agency, or self regulatory organization
or stock market or third party in order for it to execute, deliver or perform
any of its obligations under this Agreement, the Registration Rights Agreement
in accordance with the terms hereof or thereof or to issue and sell the
Preferred Shares and Warrants in accordance with the terms hereof and to issue
the Conversion Shares upon conversion of or otherwise pursuant to the Preferred
Shares and the Warrant Shares upon exercise of or otherwise pursuant to the
Warrants. Except as disclosed in Schedule 3(g), all consents, authorizations,
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on or prior to
the date hereof. The Company is not in violation of the listing requirements of
the Nasdaq National Market ("Nasdaq") applicable to continued listings and does
not reasonably anticipate that the Common Stock will be delisted by Nasdaq in
the foreseeable future. Except for anticipated losses as described in the SEC
Documents (as defined below), the Company is unaware of any facts or
circumstances which might give rise to any of the foregoing.
h. SEC Documents; Financial Statements. Since February 6,
-----------------------------------
1997, the Company has timely filed all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Exchange Act of 1934, as amended (the "1934 Act")
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents (other than
exhibits to such documents) incorporated by reference therein, being hereinafter
referred to herein as the "SEC Documents"). The Company has delivered or made
available to each Buyer true and complete copies of the SEC Documents, except
for such exhibits and incorporated documents. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. None of the statements made in any such SEC
Documents is, or has been, required to be amended or updated under applicable
law (except for such statements as have been amended or updated in subsequent
filings prior to the date hereof). As of their respective dates, the
-8-
<PAGE>
financial statements of the Company included in the SEC Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with United States generally
accepted accounting principles, consistently applied, during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto, or (ii) in the case of unaudited interim statements, to
the extent they may not include footnotes or may be condensed or summary
statements) and fairly present in all material respects the consolidated
financial position of the Company and its consolidated Subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). Except as set forth in the financial
statements of the Company included in the SEC Documents, the Company has no
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to June 30, 1998 and (ii) obligations
under contracts and commitments incurred in the ordinary course of business and
not required under generally accepted accounting principles to be reflected in
such financial statements, which, individually or in the aggregate, are not
material to the financial condition or operating results of the Company.
i. Absence of Certain Changes. Except for operating losses
--------------------------
incurred in the normal course of business and except as disclosed under the
heading "Certain Business Considerations" in Item 2 of the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999, since June 30, 1998,
there has been no material adverse change and no material adverse development in
the assets, liabilities, business, properties, operations, financial condition,
results of operations or prospects of the Company.
j. Absence of Litigation. There is no action, suit, claim,
---------------------
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company, threatened against or affecting the Company, or its
officers or directors in their capacity as such, that could have a Material
Adverse Effect. Schedule 3(j) contains a complete list and summary description
of any pending or, to the Company's knowledge, threatened proceeding against or
affecting the Company, without regard to whether it would have a Material
Adverse Effect. Except as set forth on Schedule 3(j), the Company is unaware of
any facts or circumstances which might give rise to any of the foregoing.
k. Patents, Copyrights, etc. The Company and each of its
------------------------
Subsidiaries owns or possesses the requisite licenses or rights to use all
patents, patent applications, patent rights, inventions, know-how, trade
secrets, trademarks, trademark applications, service marks, service names, trade
names and copyrights ("Intellectual Property") necessary to enable it to conduct
its business as now operated (and, except as set forth in Schedule 3(k) hereof,
to the best of the Company's knowledge, as presently contemplated to be operated
in the future); there is no claim or action by any person pertaining to, or
proceeding pending, or to the Company's knowledge threatened which challenges
the right of the Company or of a Subsidiary with respect to any Intellectual
Property necessary to enable it to conduct its business as now operated (and,
except as
-9-
<PAGE>
set forth in Schedule 3(k) hereof, to the best of the Company's knowledge, as
presently contemplated to be operated in the future); to the best of the
Company's knowledge, the Company's or its Subsidiaries' current and intended
products, services and processes do not infringe on any Intellectual Property or
other rights held by any person; and the Company is unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company and
each of its Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of their Intellectual Property.
l. No Materially Adverse Contracts, Etc. The Company is not
------------------------------------
subject to any charter, corporate or other legal restriction, or any judgment,
decree, order, rule or regulation which in the judgment of the Company's
officers has or is expected in the future to have a Material Adverse Effect.
Except as set forth on Schedule 3(l), the Company is not a party to any contract
or agreement which in the judgment of the Company's officers has or is expected
to have a Material Adverse Effect.
m. Tax Status. Except as set forth on Schedule 3(m), the
----------
Company has made or filed all federal, state and foreign income and all other
tax returns, reports and declarations required by any jurisdiction to which it
is subject (unless and only to the extent that the Company has set aside on its
books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provisions reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim. The Company has not executed a
waiver with respect to the statute of limitations relating to the assessment or
collection of any foreign, federal, state or local tax. Except as set forth on
Schedule 3(m), none of the Company's tax returns is presently being audited by
any taxing authority.
n. Certain Transactions. Except as set forth on Schedule 3(n)
--------------------
and except for arm's length transactions pursuant to which the Company makes
payments in the ordinary course of business upon terms no less favorable than
the Company could obtain from third parties and other than the grant of stock
options disclosed on Schedule 3(c), none of the officers, directors, or
employees of the Company is presently a party to any transaction with the
Company (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
-10-
<PAGE>
o. Disclosure. All information relating to or concerning the
----------
Company set forth in this Agreement and provided to the Buyers pursuant to
Section 2(d) hereof and otherwise in connection with the transactions
contemplated hereby is true and correct in all material respects and the Company
has not omitted to state any material fact necessary in order to make the
statements made herein or therein, in light of the circumstances under which
they were made, not misleading. Other than the transactions contemplated by this
Agreement, no event or circumstance has occurred or exists with respect to the
Company or its business, properties, prospects, operations or financial
conditions, which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so publicly
announced or disclosed (assuming for this purpose that the Company's reports
filed under the 1934 Act are being incorporated into an effective registration
statement filed by the Company under the 1933 Act).
p. Acknowledgment Regarding Buyers' Purchase of Securities. The
-------------------------------------------------------
Company acknowledges and agrees that the Buyers are acting solely in the
capacity of arm's length purchasers with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no
Buyer is acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement and the transactions
contemplated hereby and that any statement made by any Buyer or any of their
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation and is merely
incidental to the Buyers' purchase of the Securities and has not been relied
upon by the Company, its officers or directors in any way. The Company further
represents to each Buyer that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation of the Company and
its representatives.
q. No Integrated Offering. Neither the Company, nor any of its
----------------------
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would require registration under the
1933 Act of the issuance of the Securities to the Buyers. The issuance of the
Securities to the Buyers will not be integrated with any other issuance of the
Company's securities (past, current or future) for purposes of any stockholder
approval provisions applicable to the Company or its securities.
r. No Brokers. The Company has taken no action which would
----------
give rise to any claim by any person for brokerage commissions, finder's fees or
similar payments relating to this Agreement or the transactions contemplated
hereby, except for dealings with The Shemano Group, Inc., whose commissions and
fees will be paid for by the Company.
s. Permits; Compliance. The Company is in possession of all
-------------------
franchises, grants, authorizations, licenses, permits, easements, variances,
exemptions, consents, certificates, approvals and orders necessary to own, lease
and operate its properties and to carry on its business as it is now being
conducted (collectively, the "Company Permits"), except where the failure to
possess such Company Permit would not have a Material Adverse Effect, and there
is no
-11-
<PAGE>
action pending or, to the knowledge of the Company, threatened regarding
suspension or cancellation of any of the Company Permits. The Company is not in
conflict with, or in default or violation of, any of the Company Permits, except
for any such conflicts, defaults or violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.
Since June 30, 1998, the Company has not received any notification with respect
to possible conflicts, defaults or violations of applicable laws, except for
notices relating to possible conflicts, defaults or violations, which conflicts,
defaults or violations would not have a Material Adverse Effect.
t. Environmental Matters.
---------------------
(i) Except as set forth in Schedule 3(t), there are,
to the Company's knowledge, with respect to the Company or any predecessor of
the Company, no past or present violations of Environmental Laws (as defined
below), releases of any material into the environment, actions, activities,
circumstances, conditions, events, incidents, or contractual obligations which
may give rise to any common law environmental liability or any liability under
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
or similar federal, state, local or foreign laws and the Company has not
received any notice with respect to any of the foregoing, nor is any action
pending or, to the Company's knowledge, threatened in connection with any of the
foregoing. The term "Environmental Laws" means all federal, state, local or
foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants contaminants, or toxic or hazardous substances or wastes
(collectively, "Hazardous Materials") into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or
disposed of in compliance with applicable law, no Hazardous Materials are
contained on or about any real property currently owned, leased or used by the
Company, and no Hazardous Materials were released on or about any real property
previously owned, leased or used by the Company during the period the property
was owned, leased or used by the Company, except in the normal course of the
Company's business.
(iii) To the Company's knowledge, there are no
underground storage tanks on or under any real property owned, leased or used by
the Company that are not in compliance with applicable law.
-12-
<PAGE>
u. Title to Property. The Company has good and marketable
-----------------
title in fee simple to all real property and good and marketable title to all
personal property owned by it which is material to the business of the Company,
in each case free and clear of all liens, encumbrances and defects except such
as are described in Schedule 3(u) or such as would not have a Material Adverse
Effect. Any real property and facilities held under lease by the Company is held
by it under valid, subsisting and enforceable leases with such exceptions as
would not have a Material Adverse Effect.
v. Insurance. The Company is insured by insurers of recognized
---------
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses
in which the Company is engaged. The Company has no reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a Material
Adverse Effect.
w. Internal Accounting Controls. The Company maintains a
----------------------------
system of internal accounting controls sufficient, in the judgment of the
Company's board of directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
x. Foreign Corrupt Practices. Neither the Company, nor any
-------------------------
director, officer, agent, employee or other person acting on behalf of the
Company has, in the course of his actions for, or on behalf of, the Company,
used any corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expenses relating to political activity; made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; violated or is in violation of any provision of
the U.S. Foreign Corrupt Practices Act of 1977; or made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
y. Solvency. The Company (both before and after giving effect
--------
to the transactions contemplated by this Agreement) is solvent (i.e., its assets
----
have a fair market value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured) and
currently subject to Schedule 3(y), the Company has no information that would
lead it to reasonably conclude that the Company would not have, nor does it
intend to take any action that would impair, its ability to pay its debts from
time to time incurred in connection therewith as such debts mature. The Company
did not receive a qualified opinion from its auditors with respect to its most
recent fiscal year end and the Company expects to receive a non-qualified
opinion from its auditors in respect of its current fiscal year.
-13-
<PAGE>
4. COVENANTS.
---------
a. Best Efforts. The parties shall use their best efforts to
------------
satisfy timely each of the conditions described in Section 6 and 7 of this
Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form
---------------------
D with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Buyers at the
applicable closing pursuant to this Agreement under applicable securities or
"blue sky" laws of the states of the United States (or to obtain an exemption
from such qualification), and shall provide evidence of any such action so taken
to each Buyer on or prior to the Closing Date.
c. Reporting Status; Eligibility to Use Form S-3. The Company's
---------------------------------------------
Common Stock is registered under Section 12(g) of the 1934 Act. So long as any
Buyer beneficially owns any of the Securities, the Company shall timely file all
reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would permit such termination. The Company currently meets, and will take all
necessary action to continue to meet, the "registrant eligibility" requirements
set forth in the general instructions to Form S-3.
d. Use of Proceeds. The Company shall use the proceeds from
---------------
the sale of the Preferred Shares in the manner set forth in Schedule 4(d)
attached hereto and made a part hereof and shall not, directly or indirectly,
use such proceeds for any loan to or investment in any other corporation,
partnership, enterprise or other person (except in connection with its currently
existing direct or indirect Subsidiaries).
e. Additional Equity Capital; Right To Purchase. Subject to
--------------------------------------------
the exceptions described below, the Company will not, without the prior written
consent of RGC International Investors, LDC ("RGC"), register (other than
pursuant to the Registration Rights Agreement) any equity financing (including
debt financing with an equity component) or otherwise allow any public resales
of equity interests in the Company's securities, issued after May 27, 1999,
pursuant to Rule 144 or otherwise during the period (the "Lock-up Period")
beginning on the Closing Date and ending one hundred eighty (180) days from the
date the Registration Statement (as defined in the Registration Rights
Agreement) is declared effective (plus any trading days after the Registration
Statement is declared effective and prior to such 180th day during which sales
cannot be made thereunder). In addition, subject to the exceptions described
below, the Company will not conduct any equity financing (including debt
financing with an equity component) ("Future Offerings") during the period
beginning on the Closing Date and ending one hundred eighty (180) days after the
end of the Lock-up Period (the "First Refusal Period"), unless it shall have
first delivered to RGC, at least fifteen (15) business days prior to the closing
of such Future Offering,
-14-
<PAGE>
written notice describing the proposed Future Offering, including the terms and
conditions thereof and proposed definitive documentation to be entered into in
connection therewith, and providing each Buyer an option during the ten (10) day
period following delivery of such notice to purchase at least the percentage
equal to (a) the number of outstanding shares of Preferred Stock at the time of
the notice multiplied by 1,000, divided by (b) the Company's then current market
capitalization, of the securities being offered in the Future Offering on the
same terms as contemplated by such Future Offering (the limitations referred to
in this sentence and the preceding sentence are collectively referred to as the
"Capital Raising Limitations"). In the event the terms and conditions of a
proposed Future Offering are amended in any material respect after delivery of
the notice to RGC concerning the proposed Future Offering, the Company shall
deliver a new notice to RGC describing the amended terms and conditions of the
proposed Future Offering and RGC thereafter shall have an option during the ten
(10) day period following delivery of such new notice to purchase at least the
percentage equal to (a) the number of outstanding shares of Preferred Stock at
the time of the notice multiplied by 1,000, divided by (b) the Company's then
current market capitalization, of the securities being offered on the same terms
as contemplated by such proposed Future Offering, as amended. The foregoing
sentence shall apply to successive amendments to the terms and conditions of any
proposed Future Offering during the First Refusal Period. The Capital Raising
Limitations shall not apply to any transaction involving (i) issuances of
securities in a firm commitment underwritten public offering (excluding a
continuous offering pursuant to Rule 415 under the 1933 Act), (ii) issuances of
securities as consideration for a merger, consolidation or purchase of assets,
or in connection with any strategic partnership or joint venture (the primary
purpose of which is not to raise equity capital), or in connection with the
disposition or acquisition of a business, product or license by the Company or
(iii) the offering of securities issuable upon conversion of the Series I
Preferred Stock pursuant to the registration statement declared effective by the
SEC on October 13, 1998 (Registration No. 333-60125). The Capital Raising
Limitations also shall not apply to the issuance of securities upon exercise or
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof or to the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option or stock purchase plan previously in effect or approved by a majority of
the Company's disinterested directors.
f. Expenses. The Company shall reimburse Rose Glen Capital
--------
Management, L.P. ("Rose Glen") for all expenses incurred by it in connection
with the negotiation, preparation, execution, delivery and performance of this
Agreement and the other agreements to be executed in connection herewith,
including, without limitation, attorneys' and consultants' fees and expenses.
The Company's obligation to reimburse Rose Glen's expenses under this Section
4(f) and the Registration Rights Agreement shall be limited to an aggregate of
Twenty-Five Thousand Dollars ($25,000) of which Five Thousand Dollars ($5,000)
was advanced previously.
g. Financial Information. The Company agrees to send the
---------------------
following reports to each Buyer until such Buyer transfers, assigns, or sells
all of the Securities: (i) within one (1) day after release, copies of all press
releases issued by the Company or any of its Subsidiaries;
-15-
<PAGE>
and (ii) contemporaneously with the making available or giving to the
stockholders of the Company, copies of any notices or other information the
Company makes available or gives to such stockholders.
h. Reservation of Shares. The Company shall at all times have
---------------------
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion and exercise of the
outstanding Preferred Shares and Warrants and issuance of the Conversion Shares
and Warrant Shares in connection therewith (based on the lesser of the Variable
Conversion Price in effect from time to time and the Fixed Conversion Price
(each as defined in the Certificate of Designation) and the Exercise Price of
the Warrants in effect from time to time). The Company shall not reduce the
number of shares of Common Stock reserved for issuance upon conversion of
Preferred Shares and exercise of the Warrants without the consent of each Buyer.
The Company shall use its best efforts at all times to maintain the number of
shares of Common Stock so reserved for issuance at no less than two (2) times
the number that is then actually issuable upon full conversion of the Preferred
Shares and exercise of the Warrants (based on the lesser of the Variable
Conversion Price in effect from time to time and the Fixed Conversion Price
(each as defined in the Certificate of Designation) and the Exercise Price of
the Warrants in effect from time to time). If at any time the number of shares
of Common Stock authorized and reserved for issuance is below the number of
Conversion Shares and Warrant Shares issued and issuable upon conversion of the
Preferred Shares and exercise of the Warrants (based on the lesser of the
Variable Conversion Price in effect from time to time and the Fixed Conversion
Price (each as defined in the Certificate of Designation) and the Exercise Price
of the Warrants in effect from time to time), the Company will promptly take all
corporate action necessary to authorize and reserve a sufficient number of
shares, including, without limitation, calling a special meeting of shareholders
to authorize additional shares to meet the Company's obligations under this
Section 4(h), in the case of an insufficient number of authorized shares, and
using its best efforts to obtain shareholder approval of an increase in such
authorized number of shares.
i. Listing. The Company shall promptly secure the listing of
-------
the Conversion Shares and Warrant Shares upon each national securities exchange
or automated quotation system, if any, upon which shares of Common Stock are
then listed (subject to official notice of issuance) and shall maintain, so long
as any other shares of Common Stock shall be so listed, such listing of all
Conversion Shares and Warrant Shares from time to time issuable upon conversion
of the Preferred Shares or exercise of the Warrants. The Company will obtain and
maintain the listing and trading of its Common Stock on Nasdaq, the Nasdaq
SmallCap Market ("Nasdaq SmallCap"), the New York Stock Exchange ("NYSE"), or
the American Stock Exchange ("AMEX") and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the National Association of Securities Dealers ("NASD") and such exchanges, as
applicable. The Company shall promptly provide to each Buyer copies of any
notices it receives from Nasdaq and any other exchanges or quotation systems on
which the Common Stock is then listed regarding the continued eligibility of the
Common Stock for listing on such exchanges and quotation systems.
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<PAGE>
j. Corporate Existence. Subject to the Company's right to
-------------------
exercise the right described in Article IV.B(i) of the Certificate of
Designations, so long as a Buyer beneficially owns any Preferred Shares or
Warrants, the Company shall maintain its corporate existence and shall not sell
all or substantially all of the Company's assets, except in the event of a
merger or consolidation or sale of all or substantially all of the Company's
assets, where the surviving or successor entity (and, if an entity different
from the surviving or successor entity, the entity whose securities into which
the Preferred Shares shall become convertible and the Warrants exercisable) in
such transaction (i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith and (ii) if the
consideration to be received for such transaction is equity securities, is a
publicly traded corporation whose Common Stock is listed for trading on Nasdaq,
Nasdaq SmallCap, NYSE or AMEX.
k. No Integration. The Company shall not make any offers or
--------------
sales of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
1933 Act or cause the offering of Securities to be integrated with any other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.
l. Trading Restrictions. Each Buyer covenants and agrees that,
--------------------
during any Pricing Period (as defined in the Certificate of Designations) during
which a Conversion Price (as defined in the Certificate of Designations) is
computed, if a Buyer (or others acting on its behalf) engages in short sale
transactions or other hedging activities which involve, among other things,
sales of shares of Common Stock, such Buyer will place its sale orders for
Common Stock in the course of such activities so as not to complete or effect
any such sale on any Trading Day (as defined in the Certificate of Designation)
during such period at a price which is lower than the lowest sale effected on
such day by persons other than the Buyers (or others acting on their behalf).
m. Conversion Limitations. Each Buyer covenants and agrees
----------------------
that, subject to the exceptions described below, such Buyer may convert only up
to that percentage of such Buyer's shares of 1998 Series I Convertible Preferred
Stock of the Company (the "Series I Preferred Stock") outstanding on the Closing
Date as is specified below during the time period set forth opposite such
percentage.
Percentage Time Period
---------- -----------
50% 0-90 days following the Closing Date
75% 91-120 days following the Closing Date
100% 121 days following the Closing Date
The restrictions on conversion set forth above shall not apply to conversions
taking place on any Conversion Date (as defined in the Certificate of
Designations, Preferences and Rights of 1998 Series I Convertible Preferred
Stock of the Company (the "Series I Certificate of Designation")) (i) on which
the Common Stock trades on Nasdaq or the principal trading market on which the
Common Stock is then listed as reported by Bloomberg (as defined in the Series I
Certificate of
-17-
<PAGE>
Designation) at a price greater than or equal to (a) 117% of the Market Price
(as defined in the Series I Certificate of Designation) in effect on such
Conversion Date (as defined in the Series I Certificate of Designation) or (b)
the Fixed Conversion Price (as defined in the Series I Certificate of
Designation) or (ii) occurring on or after the date the Company makes a public
announcement that it intends to merge or consolidate with any other corporation
or sell or transfer substantially all of the assets of the Company or (iii)
occurring on or after the date any person, group or entity (including the
Company) publicly announces a tender offer to purchase 50% or more of the
Company's Common Stock or otherwise publicly announces an intention to replace a
majority of the Company's Board of Directors by waging a proxy battle or
otherwise or (iv) occurring on or after the date on which there is a material
adverse change in the business, operation, assets, financial condition or
prospects of the Company or its subsidiaries, taken as a whole, or (v) occurring
on or after the occurrence of a Redemption Event (as defined in the Series I
Certificate of Designation) or on or after the delivery by the Company of an
Optional Redemption Notice (as defined in the Series I Certificate of
Designation).
5 TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
---------------------------
instructions to its transfer agent to issue certificates, registered in the name
of each Buyer or its nominee, for the Conversion Shares and Warrant Shares in
such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Preferred Shares or exercise of the Warrants in accordance
with the terms thereof (the "Irrevocable Transfer Agent Instructions"). Prior
to registration of the Conversion Shares and Warrant Shares under the 1933 Act
or the date on which the Conversion Shares or Warrant Shares may be sold
pursuant to Rule 144 without any restriction as to the number of securities as
of a particular date that can then be immediately sold, all such certificates
shall bear the restrictive legend specified in Section 2(g) of this Agreement.
The Company warrants that no instruction other than the Irrevocable Transfer
Agent Instructions referred to in this Section 5, and stop transfer instructions
to give effect to Section 2(f) hereof (in the case of the Conversion Shares and
Warrant Shares, prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares or Warrant
Shares may be sold pursuant to Rule 144 without any restriction as to the number
of securities as of a particular date that can then be immediately sold), will
be given by the Company to its transfer agent and that the Conversion Shares and
Warrant Shares shall otherwise be freely transferable on the books and records
of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section shall affect in any way
the Buyer's obligations and agreement set forth in Section 2(g) hereof to comply
with all applicable prospectus delivery requirements, if any, upon resale of the
Conversion Shares and Warrant Shares and to comply with the plan of distribution
portion of the prospectus contained in the Registration Statement (as defined in
the Registration Rights Agreement). If a Buyer provides the Company with (i) an
opinion of counsel, reasonably satisfactory to the Company in form, substance
and scope, to the effect that a public sale or transfer of such Securities may
be made without registration under the 1933 Act and such sale or transfer is
effective or (ii) the Buyer provides reasonable assurances that the securities
can be sold pursuant to Rule 144, the Company shall permit the transfer, and, in
the case of the Conversion Shares and Warrant Shares, promptly instruct its
transfer agent to issue one or more certificates, free from any restrictive
legend, in such name and in such denominations as specified by such Buyer.
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<PAGE>
6 CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of
----------------------------------------------
the Company hereunder to issue and sell the Preferred Shares and Warrants to a
Buyer at the Closing, is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion:
a. The applicable Buyer shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to the Company.
b. The applicable Buyer shall have delivered the Purchase Price
in accordance with Section 1(b) above.
c. The Certificate of Designation shall have been accepted for
filing with the Secretary of State of the State of Michigan.
d. The representations and warranties of the applicable Buyer
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date), and the applicable Buyer
shall have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the applicable Buyer at or prior to the Closing
Date.
e. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
7 CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation
-------------------------------------------------
of each Buyer hereunder to purchase the Preferred Shares and Warrants at the
Closing is subject to the satisfaction, at or before the Closing Date, of each
of the following conditions, provided that these conditions are for such Buyer's
sole benefit and may be waived by such Buyer at any time in its sole discretion:
a. The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Buyer.
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<PAGE>
b. The Company shall have delivered to such Buyer duly executed
certificates (in such denominations as the Buyer shall request) representing the
Preferred Shares and Warrants in accordance with Section 1(b) above.
c. The Certificate of Designation shall have been accepted for
filing with the Secretary of State of the State of Michigan, and a copy thereof
certified by such Secretary of State shall have been delivered to such Buyer.
d. The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to a majority-in-interest of the Buyers, shall have been
delivered to and acknowledged in writing by the Company's Transfer Agent.
e. The representations and warranties of the Company shall be
true and correct in all material respects as of the date when made and as of the
Closing Date as though made at such time (except for representations and
warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date, and in each case subject
to the schedules referred to in such representations and warranties provided by
the Company as of the Closing Date) and the Company shall have performed,
satisfied and complied in all material respects with the covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing Date. The Buyer shall have
received a certificate or certificates, executed on behalf of the Company by the
chief executive officer of the Company, dated as of the Closing Date, to the
foregoing effect and as to such other matters as may be reasonably requested by
such Buyer including, but not limited to, those matters described in Section
3(c) above, and certificates with respect to the Company's Certificate of
Incorporation, By-laws and Board of Directors' resolutions relating to the
transactions contemplated hereby.
f. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
g. Trading in the Common Stock on Nasdaq shall not have been
suspended by the SEC or Nasdaq.
h. The Buyer shall have received opinions of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as Exhibit "D-1"
and Exhibit "D-2" attached hereto.
i. The Company shall have obtained waivers of any preemptive
rights and pari passu limitations in respect of the sale of the Preferred Shares
and Warrants to be issued at the Closing from the holders of shares of any other
existing series of the Company's preferred stock.
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<PAGE>
8 GOVERNING LAW; MISCELLANEOUS.
----------------------------
a. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Michigan applicable to
agreements made and to be performed in the State of Michigan (without regard to
principles of conflict of laws). Both parties irrevocably consent to the
jurisdiction of the United States federal courts and the state courts located in
Delaware with respect to any suit or proceeding based on or arising under this
Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby and irrevocably agree that all
claims in respect of such suit or proceeding may be determined in such courts.
Both parties irrevocably waive the defense of an inconvenient forum to the
maintenance of such suit or proceeding. Both parties further agree that service
of process upon a party mailed by first class mail shall be deemed in every
respect effective service of process upon the party in any such suit or
proceeding. Nothing herein shall affect either party's right to serve process in
any other manner permitted by law. Both parties agree that a final non-
appealable judgment in any such suit or proceeding shall be conclusive and may
be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
b. Counterparts; Signatures by Facsimile. This Agreement may
-------------------------------------
be executed in two or more counterparts, all of which shall be considered one
and the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party. This Agreement, once
executed by a party, may be delivered to the other party hereto by facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
c. Headings. The headings of this Agreement are for
--------
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement shall be
------------
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shallinvalid not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the
----------------------------
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.
f. Notices. Any notices required or permitted to be given
-------
under the terms of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile
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<PAGE>
and shall be effective five days after being placed in the mail, if mailed by
regular United States mail, or upon receipt, if delivered personally or by
courier (including a recognized overnight delivery service) or by facsimile, in
each case addressed to a party. The addresses for such communications shall be:
If to the Company:
Aastrom Biosciences, Inc.
24 Frank Lloyd Wright Drive
P.O. Box 376
Ann Arbor, Michigan 48106
Attention: R. Douglas Armstrong
President & Chief Executive Officer
Facsimile: (734) 930-5546
With copy to:
Gray Cary Ware & Freidenrich LLP
4365 Executive Drive, Suite 1600
San Diego, CA 92121-2189
Attention: Douglas J. Rein, Esquire
Facsimile: (619) 677-1477
If to a Buyer: To the address set forth immediately below such
Buyer's name on the signature pages hereto.
Each party shall provide notice to the other party of any change in
address.
g. Successors and Assigns. This Agreement shall be binding
----------------------
upon and inure to the benefit of the parties and their successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its
rights hereunder to any person that purchases Securities in a private
transaction from a Buyer or to any of its "affiliates," as that term is defined
under the 1934 Act, without the consent of the Company.
h. Third Party Beneficiaries. This Agreement is intended for
-------------------------
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
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<PAGE>
i. Survival. The representations and warranties of the
--------
Company and the agreements and covenants set forth in Sections 3, 4, 5 and 8
shall survive the Closing hereunder notwithstanding any due diligence
investigation conducted by or on behalf of the Buyers.
j. Publicity. The Company and each of the Buyers shall have
---------
the right to review a reasonable period of time before issuance of any press
releases, SEC, Nasdaq or NASD filings, or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
-------- -------
Company shall be entitled, without the prior approval of each of the Buyers, to
make any press release or SEC, Nasdaq or NASD filings with respect to such
transactions as is required by applicable law and regulations (although each of
the Buyers shall be consulted by the Company in connection with any such press
release prior to its release and shall be provided with a copy thereof and be
given an opportunity to comment thereon).
k. Further Assurances. Each party shall do and perform, or
------------------
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. No Strict Construction. The language used in this
----------------------
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
m. Remedies. The Company acknowledges that a breach by it of
--------
its obligations hereunder will cause irreparable harm to each Buyer, by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Agreement will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this
Agreement, that each Buyer shall be entitled, in addition to all other available
remedies in law or in equity, to an injunction or injunctions to prevent or cure
any breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions of this Agreement, without the necessity of showing
economic loss and without any bond or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused
this Agreement to be duly executed as of the date first above written.
AASTROM BIOSCIENCES, INC.
By:_______________________________________________
R. Douglas Armstrong, Ph.D.
President & Chief Executive Officer
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P., Investment Manager
By: RGC General Partner Corp., as General Partner
By:_______________________________________________
Gary S. Kaminsky
Managing Director
RESIDENCE: Cayman Islands
ADDRESS:
c/o Rose Glen Capital Management, L.P.
3 Bala Plaza East, Suite 200
251 St. Asaphs Road
Bala Cynwyd, PA 19004
Facsimile: (610) 617-0570
Telephone: (610) 617-5900
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Preferred Shares: 3,000
Number of Warrants 300,000
Aggregate Purchase Price: $3,000,000
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<PAGE>
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of May 27, 1999,
by and among Aastrom Biosciences, Inc., a Michigan corporation, with its
headquarters located at 24 Frank Lloyd Wright Drive, Ann Arbor, Michigan 48106
(the "Company"), and each of the undersigned (together with their respective
affiliates and any assignee or transferee of all of their respective rights
hereunder, the "Initial Investors").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among the
parties hereto of even date herewith (the "Securities Purchase Agreement"), the
Company has agreed, upon the terms and subject to the conditions contained
therein, to issue and sell to the Initial Investors (i) shares of its 1999
Series III Convertible Preferred Stock (the "Preferred Stock") that are
convertible into shares of the Company's common stock, no par value (the "Common
Stock"), upon the terms and subject to the limitations and conditions set forth
in the Certificate of Designations, Rights, Preferences, Privileges and
Restrictions with respect to the Preferred Stock (the "Certificate of
Designation") and (ii) warrants (the "Warrants") to acquire 300,000 shares of
Common Stock, upon the terms and subject to the limitations and conditions set
forth in the Warrants dated May 27, 1999; and
B. To induce the Initial Investors to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 Act"), and applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each of the
Initial Investors hereby agree as follows:
<PAGE>
1. DEFINITIONS.
-----------
a. As used in this Agreement, the following terms shall have the
following meanings:
(i) "Investors" means the Initial Investors and any transferee
or assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(ii) "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange Commission
(the "SEC").
(iii) "Registrable Securities" means the Conversion Shares
issued or issuable upon conversion of or otherwise pursuant to the Preferred
Shares (including any shares issued pursuant to Articles VI, VIII.E(b) and
VIII.F of the Certificate of Designation and Section 2(c) herein) and the
Warrant Shares issued or issuable upon exercise of or otherwise pursuant to the
Warrants, and any shares of capital stock issued or issuable as a dividend on or
in exchange for or otherwise with respect to any of the foregoing.
(iv) "Registration Statement(s)" means a registration
statement(s) of the Company under the 1933 Act.
b. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Securities Purchase
Agreement.
2. REGISTRATION.
------------
a. Mandatory Registration. The Company shall prepare, and, on or
----------------------
prior to the date which is twenty (20) business days after the date of the
Closing under the Securities Purchase Agreement (the "Closing Date"), file with
the SEC a Registration Statement on Form S-3 (or, if Form S-3 is not then
available, on such form of Registration Statement as is then available to effect
a registration of the Registrable Securities, subject to the consent of the
Initial Investors, which consent will not be unreasonably withheld) covering the
resale of the Registrable Securities, which Registration Statement, to the
extent allowable under the 1933 Act and the rules and regulations promulgated
thereunder (including Rule 416), shall state that such Registration Statement
also covers such indeterminate number of additional shares of Common Stock as
may become issuable upon conversion of the Preferred Shares to prevent dilution
resulting from stock splits, stock dividends or similar transactions. The
number of shares of Common Stock initially included in such Registration
Statement shall be no less than two (2) times the sum of the aggregate number of
-2-
<PAGE>
Conversion Shares that are then issuable upon conversion of or otherwise
pursuant to the Preferred Shares (based on the lesser of the Variable Conversion
Price and Fixed Conversion Price (each as defined in the Certificate of
Designation)) and the Warrant Shares that are then issuable upon exercise of or
otherwise pursuant to the Warrants, without regard to any limitation on the
Investor's ability to convert the Preferred Shares or exercise the Warrants.
The Company acknowledges that the number of shares initially included in the
Registration Statement represents a good faith estimate of the maximum number of
shares issuable upon conversion of the Preferred Shares and exercise of the
Warrants.
b. Underwritten Offering. If any offering pursuant to a
---------------------
Registration Statement pursuant to Section 2(a) hereof involves an underwritten
offering, the Investors who hold a majority in interest of the Registrable
Securities subject to such underwritten offering, with the consent of a
majority-in-interest of the Initial Investors, shall have the right to select
one legal counsel and an investment banker or bankers and manager or managers to
administer the offering, which investment banker or bankers or manager or
managers shall be reasonably satisfactory to the Company.
c. Payments by the Company. The Company shall use its best efforts
-----------------------
to obtain effectiveness of the Registration Statement as soon as practicable.
If (i) the Registration Statement covering the Registrable Securities required
to be filed by the Company pursuant to Section 2(a) hereof is not declared
effective by the SEC within one hundred twenty (120) days after the Closing Date
or if, after the Registration Statement has been declared effective by the SEC,
sales of all of the Registrable Securities cannot be made pursuant to the
Registration Statement, or (ii) the Common Stock is not listed or included for
quotation on the Nasdaq National Market ("Nasdaq"), the Nasdaq SmallCap Market
("Nasdaq SmallCap"), the New York Stock Exchange (the "NYSE") or the American
Stock Exchange (the "AMEX") after being so listed or included for quotation,
then the Company will make payments to the Investors in such amounts and at such
times as shall be determined pursuant to this Section 2(c) as partial relief for
the damages to the Investors by reason of any such delay in or reduction of
their ability to sell the Registrable Securities (which remedy shall not be
exclusive of any other remedies available at law or in equity). Without
limiting the generality of the preceding sentence, the Company shall, at its
election, by providing the Investors with written notice of such election within
two (2) business days following the first day of any such delay in or reduction
of their ability to sell the Registrable Securities, either:
(1) pay to each holder of the Preferred Shares or Registerable
Securities an amount equal to the stated value of the Preferred Shares then
outstanding (and, in the case of holders of Registrable Securities, the
stated value of Preferred Shares from which such Registrable Securities
were converted) ("Aggregate Share Price") multiplied by two hundredths
(.02) times the sum of: (i) the number of months (prorated for partial
months) after the end of such 120-day period and prior to the date the
Registration Statement required to be filed pursuant to Section 2(a) is
declared effective by the SEC; provided, however, that there shall be
-------- -------
excluded from such period any delays which are solely attributable to
changes required by the Investors in the Registration Statement with
respect to information relating to the Investors, including, without
limitation, changes to the plan of distribution, or to the
-3-
<PAGE>
failure of the Investors to conduct their review of the Registration
Statement pursuant to Section 3(h) below in a reasonably prompt manner;
(ii) the number of months (prorated for partial months) during the
Registration Period (as defined below) that sales of all of the Registrable
Securities cannot be made pursuant to the Registration Statement after the
Registration Statement has been declared effective (including, without
limitation, when sales cannot be made by reason of the Company's failure to
properly supplement or amend the prospectus included therein in accordance
with the terms of this Agreement (including Section 3(b) hereof or
otherwise), but excluding any days during an Allowed Delay (as defined in
Section 3(f)); and (iii) the number of months (prorated for partial months)
that the Common Stock is not listed or included for quotation on the
Nasdaq, Nasdaq SmallCap, NYSE or AMEX or that trading thereon is halted
after the Registration Statement has been declared effective. (For example,
if the Registration Statement becomes effective one (1) month after the end
of such 120-day period, the Company would pay $20,000 for each $1,000,000
of Aggregate Share Price. If thereafter, sales could not be made pursuant
to the Registration Statement for an additional period of one (1) month,
the Company would pay an additional $20,000 for each $1,000,000 of
Aggregate Share Price.) Such amounts shall be paid in cash within five (5)
days after the end of each period that gives rise to such obligation,
provided that, if any such period extends for more than thirty (30) days,
interim payments shall be made for each such thirty (30) day period; or
(2) increase the "Applicable Premium" (as defined in Article
II.B of the Certificate of Designation) to an amount equal to fifteen
percent (15%) per annum of the Stated Value (as defined in the Certificate
of Designation) for: (i) the period beginning on the end of such 120-day
period and ending on the date the Registration Statement is declared
effective by the SEC; provided, however, that there shall be excluded from
such period any delays which are solely attributable to changes required by
the Investors in the Registration Statement with respect to information
relating to the Investors, including, without limitation, changes to the
plan of distribution, or to the failure of the Investors to conduct their
review of the Registration Statement pursuant to Section 3(h) below in a
reasonably prompt manner; (ii) each period during the Registration Period
in which sales of all of the Registrable Securities cannot be made pursuant
to the Registration Statement after the Registration Statement has been
declared effective (including, without limitation, when sales cannot be
made by reason of the Company's failure to properly supplement or amend the
prospectus included therein in accordance with the terms of this Agreement
(including Section 3(b) or otherwise), but excluding any days during an
Allowed Delay (as defined in Section 3(f)); and (iii) each period during
which the Common Stock is not listed or included for quotation on the
Nasdaq, Nasdaq SmallCap, NYSE or AMEX or that trading thereon is halted
after the Registration Statement has been declared effective.
d. Piggy-Back Registrations. Subject to the last sentence of this
------------------------
Section 2(d), if at any time prior to the expiration of the Registration Period
(as hereinafter defined) the Company shall determine to file with the SEC a
Registration Statement relating to an offering for its own account or the
account of others under the 1933 Act of any of its equity securities (other than
on
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<PAGE>
Form S-4 or Form S-8 or their then equivalents relating to equity securities
to be issued solely in connection with any acquisition of any entity or business
or equity securities issuable in connection with stock option or other employee
benefit plans), the Company shall send to each Investor who is entitled to
registration rights under this Section 2(d) written notice of such determination
and, if within fifteen (15) days after the effective date of such notice, such
Investor shall so request in writing, the Company shall include in such
Registration Statement all or any part of the Registrable Securities such
Investor requests to be registered, except that if, in connection with any
underwritten public offering for the account of the Company the managing
underwriter(s) thereof shall impose a limitation on the number of shares of
Common Stock which may be included in the Registration Statement because, in
such underwriter(s)' judgment, marketing or other factors dictate such
limitation is necessary to facilitate public distribution, then the Company
shall be obligated to include in such Registration Statement only such limited
portion of the Registrable Securities with respect to which such Investor has
requested inclusion hereunder as the underwriter shall permit. Any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking to
include Registrable Securities in proportion to the number of Registrable
Securities sought to be included by such Investors; provided, however, that the
-------- -------
Company shall not exclude any Registrable Securities unless the Company has
first excluded all outstanding securities, the holders of which are not entitled
to inclusion of such securities in such Registration Statement or are not
entitled to pro rata inclusion with the Registrable Securities; and provided,
--------
further, however, that, after giving effect to the immediately preceding
- ------- -------
proviso, any exclusion of Registrable Securities shall be made pro rata with
holders of other securities having the right to include such securities in the
Registration Statement other than holders of securities entitled to inclusion of
their securities in such Registration Statement by reason of demand registration
rights. No right to registration of Registrable Securities under this Section
2(d) shall be construed to limit any registration required under Section 2(a)
hereof. If an offering in connection with which an Investor is entitled to
registration under this Section 2(d) is an underwritten offering, then each
Investor whose Registrable Securities are included in such Registration
Statement shall, unless otherwise agreed by the Company, offer and sell such
Registrable Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement, on the same terms
and conditions as other shares of Common Stock included in such underwritten
offering. Notwithstanding anything to the contrary set forth herein, the
registration rights of the Investors pursuant to this Section 2(d) shall only be
available in the event the Company fails to timely file, obtain effectiveness or
maintain effectiveness of any Registration Statement to be filed pursuant to
Section 2(a) in accordance with the terms of this Agreement.
e. Eligibility for Form S-3. The Company represents and warrants
------------------------
that it meets the registrant eligibility and transaction requirements for the
use of Form S-3 for registration of the sale by the Initial Investors and any
other Investors of the Registrable Securities and the Company shall file all
reports required to be filed by the Company with the SEC in a timely manner so
as to maintain such eligibility for the use of Form S-3.
-5-
<PAGE>
3. OBLIGATIONS OF THE COMPANY.
--------------------------
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall prepare promptly, and file with the SEC not
later than twenty (20) business days after the Closing Date, a Registration
Statement with respect to the number of Registrable Securities provided in
Section 2(a), and thereafter use its best efforts to cause such Registration
Statement relating to Registrable Securities to become effective as soon as
possible after such filing (but in no event later than one hundred twenty (120)
days after the Closing Date), and keep the Registration Statement effective
pursuant to Rule 415 at all times until such date as is the earlier of (i) the
date on which all of the Registrable Securities have been sold and (ii) the date
on which the Registrable Securities (in the opinion of counsel to the Company,
reasonably satisfactory in form and substance to the Initial Investors) may be
immediately sold to the public without registration or restriction (including
without limitation as to volume by each holder thereof) (the "Registration
Period"), which Registration Statement (including any amendments or supplements
thereto and prospectuses contained therein) shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein, or necessary to make the statements therein not misleading.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the Registration
Statements and the prospectus used in connection with the Registration
Statements as may be necessary to keep the Registration Statements effective at
all times during the Registration Period, and, during such period, comply with
the provisions of the 1933 Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statements
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statements. In the event that on any
Trading Day (as defined in the Certificate of Designation) (such Trading Day
being a "Registration Trigger Date") the number of shares available under a
Registration Statement filed pursuant to this Agreement is insufficient to cover
all of the Registrable Securities issued or issuable upon conversion of the
Preferred Shares (based on the lesser of the Variable Conversion Price and the
Fixed Conversion Price (in each case as defined in the Certificate of
Designation) then in effect) and exercise of the Warrants, in each case without
giving effect to any limitations on the Investors' ability to convert the
Preferred Shares or exercise the Warrants, the Company shall amend the
Registration Statement, or file a new Registration Statement (on the short form
available therefore, if applicable), or both, so as to cover two hundred percent
(200%) of all of the Registrable Securities so issued or issuable (without
giving effect to any limitations on conversion or exercise contained in the
Certificate of Designation or the Warrants, as applicable) as of the
Registration Trigger Date, in each case, as soon as practicable, but in any
event within twenty (20) business days after the necessity therefor arises
(based on the market price of the Common Stock and other relevant factors on
which the Company reasonably elects to rely). The Company shall use its best
efforts to cause such amendment and/or new Registration Statement to become
effective as soon as practicable
-6-
<PAGE>
following the filing thereof but in any event within one hundred twenty (120)
days. The provisions of Section 2(c) above shall be applicable with respect to
the Company's obligations under this Section 3(b).
c. The Company shall furnish to each Investor whose Registrable
Securities are included in a Registration Statement and its legal counsel (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of each Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statement referred
to in Section 2(a), each letter written by or on behalf of the Company to the
SEC or the staff of the SEC, and each item of correspondence from the SEC or the
staff of the SEC, in each case relating to such Registration Statement (other
than any portion of any thereof which contains information for which the Company
has sought confidential treatment), and (ii) such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor. The Company will immediately notify each Investor by
facsimile of the effectiveness of each Registration Statement or any post-
effective amendment. The Company will promptly respond to any and all comments
received from the SEC, with a view towards causing each Registration Statement
or any amendment thereto to be declared effective by the SEC as soon as
practicable and shall file an acceleration request as soon as practicable
following the resolution or clearance of all SEC comments or, if applicable,
following notification by the SEC that any such Registration Statement or any
amendment thereto will not be subject to review.
d. The Company shall use reasonable efforts, to the extent required,
to (i) register and qualify the Registrable Securities covered by the
Registration Statements under such other securities or "blue sky" laws of such
jurisdictions in the United States as the Investors who hold a majority in
interest of the Registrable Securities being offered reasonably request, (ii)
prepare and file in those jurisdictions such amendments (including post-
effective amendments) and supplements to such registrations and qualifications
as may be necessary to maintain the effectiveness thereof during the
Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
- -------- -------
therewith or as a condition thereto to (a) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (b) subject itself to general taxation in any such jurisdiction,
(c) file a general consent to service of process in any such jurisdiction, (d)
provide any undertakings that cause the Company undue expense or burden, or (e)
make any change in its charter or bylaws, which in each case the Board of
Directors of the Company determines to be contrary to the best interests of the
Company and its stockholders.
e. In the event Investors who hold a majority-in-interest of the
Registrable Securities being offered in the offering (with the approval of a
majority-in-interest of the Initial Investors) select underwriters for the
offering, the Company shall enter into and perform its
-7-
<PAGE>
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the underwriters of such offering.
f. As promptly as practicable after becoming aware of such event,
the Company shall notify each Investor of the happening of any event, of which
the Company has knowledge, as a result of which the prospectus included in any
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its best
efforts promptly to prepare a supplement or amendment to any Registration
Statement to correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to each Investor as such Investor may
reasonably request; provided that, for not more than twenty (20) consecutive
trading days (or a total of not more than forty (40) trading days in any twelve
(12) month period), the Company may delay the disclosure of material non-public
information concerning the Company (as well as prospectus or Registration
Statement updating) the disclosure of which at the time is not, in the good
faith opinion of the Company, in the best interests of the Company (an "Allowed
Delay"); provided, further, that the Company shall promptly (i) notify the
Investors in writing of the existence of (but in no event, without the prior
written consent of an Investor, shall the Company disclose to such Investor any
of the facts or circumstances regarding) material non-public information giving
rise to an Allowed Delay and (ii) advise the Investors in writing to cease all
sales under such Registration Statement until the end of the Allowed Delay. Upon
expiration of the Allowed Delay, the Company shall again be bound by the first
sentence of this Section 3(f) with respect to the information giving rise
thereto.
g. The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of any Registration
Statement, and, if such an order is issued, to obtain the withdrawal of such
order at the earliest possible moment and to notify each Investor who holds
Registrable Securities being sold (or, in the event of an underwritten offering,
the managing underwriters) of the issuance of such order and the resolution
thereof.
h. The Company shall permit a single firm of counsel designated by
the Initial Investors to review such Registration Statement and all amendments
and supplements thereto (as well as all requests for acceleration of
effectiveness thereof) a reasonable period of time prior to their filing with
the SEC, and not file any document in a form to which such counsel reasonably
objects and will not request acceleration of such Registration Statement without
prior notice to such counsel. The sections of such Registration Statement
covering information with respect to the Investors, the Investor's beneficial
ownership of securities of the Company or the Investors intended method of
disposition of Registrable Securities shall conform to the information provided
to the Company by each of the Investors.
i. The Company shall make generally available to its security
holders as soon as practicable, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the 1933 Act) covering
-8-
<PAGE>
a twelve-month period beginning not later than the first day of the Company's
fiscal quarter next following the effective date of the Registration Statement.
j. At the request of any Investor, the Company shall furnish, on the
date that Registrable Securities are delivered to an underwriter, if any, for
sale in connection with any Registration Statement (i) an opinion, dated as of
such date, from counsel representing the Company for purposes of such
Registration Statement, in form, scope and substance as is customarily given in
an underwritten public offering, addressed to the underwriters, if any, and the
Investors and (ii) a letter, dated such date, from the Company's independent
certified public accountants in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and the Investors.
k. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to a
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Initial Investors, (iv) one firm of attorneys
and one firm of accountants or other agents retained by all other Investors, and
(v) one firm of attorneys retained by all such underwriters (collectively, the
"Inspectors") all pertinent financial and other records, and pertinent corporate
documents and properties of the Company (collectively, the "Records"), as shall
be reasonably deemed necessary by each Inspector to enable each Inspector to
exercise its due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; provided, however, that
-------- -------
each Inspector shall hold in confidence and shall not make any disclosure
(except to an Investor) of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (b) the release of such Records is ordered pursuant to a subpoena or
other order from a court or government body of competent jurisdiction, or (c)
the information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement. The
Company shall not be required to disclose any confidential information in such
Records to any Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
3(k). Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein (or in any other confidentiality agreement between
the Company and any Investor) shall be deemed to limit the Investor's ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.
l. The Company shall hold in confidence and not make any disclosure
of information concerning an Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such
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<PAGE>
information is necessary to avoid or correct a misstatement or omission in any
Registration Statement, (iii) the release of such information is ordered
pursuant to a subpoena or other order from a court or governmental body of
competent jurisdiction, or (iv) such information has been made generally
available to the public other than by disclosure in violation of this or any
other agreement. The Company agrees that it shall, upon learning that disclosure
of such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to such Investor prior to making such disclosure, and allow the Investor,
at its expense, to undertake appropriate action to prevent disclosure of, or to
obtain a protective order for, such information.
m. The Company shall (i) cause all the Registrable Securities
covered by the Registration Statement to be listed on each national securities
exchange on which securities of the same class or series issued by the Company
are then listed, if any, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (ii) to the extent the securities
of the same class or series are not then listed on a national securities
exchange, secure the designation and quotation, of all the Registrable
Securities covered by the Registration Statement on the Nasdaq or, if not
eligible for the Nasdaq, on the Nasdaq SmallCap and, without limiting the
generality of the foregoing, to arrange for at least two market makers to
register with the National Association of Securities Dealers, Inc. ("NASD") as
such with respect to such Registrable Securities.
n. The Company shall provide a transfer agent and registrar, which
may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to such Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may reasonably request, and, within three
(3) business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver, to the transfer agent
for the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an instruction in the
form attached hereto as Exhibit 1 and an opinion of such counsel in the form
attached hereto as Exhibit 2 .
p. At the request of the holders of a majority-in-interest of the
Registrable Securities, the Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary in order to change the plan of
distribution set forth in such Registration Statement.
-10-
<PAGE>
q. From and after the date of this Agreement, the Company shall not,
and shall not agree to, allow the holders of any securities of the Company to
include any of their securities in any Registration Statement under Section 2(a)
hereof or any amendment or supplement thereto under Section 3(b) hereof without
the consent of the holders of a majority-in-interest of the Registrable
Securities. In addition, the Company shall not offer any securities for its own
account or the account of others in any Registration Statement under Section
2(a) hereof or any amendment or supplement thereto under Section 3(b) hereof
without the consent of the holders of a majority-in-interest of the Registrable
Securities.
r. The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable Securities
following their transfer pursuant to the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
----------------------------
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least three
(3) business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor.
b. Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statements hereunder, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement.
c. In the event Investors holding a majority-in-interest of the
Registrable Securities being registered (with the approval of the Initial
Investors) determine to engage the services of an underwriter, each Investor
agrees to enter into and perform such Investor's obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities, unless such Investor has notified the Company in writing
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<PAGE>
of such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.
d. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(f) or
3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements in
usual and customary form entered into by the Company, (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions and any expenses in excess of those
payable by the Company pursuant to Section 5 below.
f. The underwriters in connection with any firm commitment public
offering of the Company's common stock resulting in gross proceeds of at least
$20,000,000 led by at least one of the underwriters listed on Schedule 4(f)
attached hereto and made a part hereof, shall have the right to require that the
Investors enter into an agreement restricting the Investors from selling Common
Stock pursuant to the Registration Statement held by such Investors in any
public sale for a period not to exceed ninety (90) days following the closing of
such underwriting, if they deem this to be reasonably necessary to effect such
underwritten public offering; provided that all executive officers and directors
shall have also agreed to identical (or more restrictive) restrictions. The
Investors shall be subject to no more than one such restriction during the
Registration Period.
5. EXPENSES OF REGISTRATION.
------------------------
All reasonable expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Sections 2 and 3, including, without limitation, all registration, listing and
qualification fees, printers and accounting fees, the fees and disbursements of
counsel for the Company, and subject to Section 4(f) of the Purchase Agreement,
the reasonable fees and disbursements of one counsel selected by the Initial
Investors pursuant to Sections 2(b) and 3(h) hereof shall be borne by the
Company.
6. INDEMNIFICATION.
---------------
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<PAGE>
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify, hold
harmless and defend (i) each Investor who holds such Registrable Securities,
(ii) the directors, officers, partners, employees, agents and each person who
controls any Investor within the meaning of the 1933 Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), if any, (iii) any underwriter
(as defined in the 1933 Act) for the Investors, and (iv) the directors,
officers, partners, employees and each person who controls any such underwriter
within the meaning of the 1933 Act or the 1934 Act, if any (each, an
"Indemnified Person"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "Claims") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading; (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading; or
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities (the matters in the foregoing clauses (i) through (iii)
being, collectively, "Violations"). Subject to the restrictions set forth in
Section 6(c) with respect to the number of legal counsel, the Company shall
reimburse the Indemnified Person, promptly as such expenses are incurred and are
due and payable, for any reasonable legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by any Indemnified Person
or underwriter for such Indemnified Person expressly for use in connection with
the preparation of such Registration Statement or any such amendment thereof or
supplement thereto; (ii) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld; and (iii) with
respect to any preliminary prospectus, shall not inure to the benefit of any
Indemnified Person if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, such corrected prospectus was
timely made available by the Company pursuant to Section 3(c) hereof, and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a Violation and such Indemnified
Person, notwithstanding such advice, used it. Such indemnity shall remain in
full force
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<PAGE>
and effect regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, each person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act, any
underwriter and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person who
controls such stockholder or underwriter within the meaning of the 1933 Act or
the 1934 Act (collectively and together with an Indemnified Person, an
"Indemnified Party"), against any Claim to which any of them may become subject,
under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim arises out
of or is based upon any Violation by such Investor, in each case to the extent
(and only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and subject to
Section 6(c) such Investor will reimburse any legal or other expenses (promptly
as such expenses are incurred and are due and payable) reasonably incurred by
them in connection with investigating or defending any such Claim; provided,
however, that the indeminty agreement contained in this Section
6(b) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such Investor, which
consent shall not be unreasonably withheld; provided, further, however, that the
-------- ------- -------
Investor shall be liable under Agreement (including this Section 6(b) and
Section 7) for only that amount as does not exceed the net proceeds to such
Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
c. Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under this
Section 6, deliver to the indemnifying party a written notice of the
commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be; provided,
--------
however, that an Indemnified Person or Indemnified Party shall
- -------
have the right to retain its own counsel with the fees and expenses to be paid
by the indemnifying party, if, in the reasonable opinion of counsel retained by
the indemnifying party, the representation by such counsel of the
-14-
<PAGE>
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The indemnifying party shall pay for only one
separate legal counsel for the Indemnified Persons or the Indemnified Parties,
as applicable, and such legal counsel shall be selected by Investors holding a
majority-in-interest of the Registrable Securities included in the Registration
Statement to which the Claim relates (with the approval of a majority-in-
interest of the Initial Investors), if the Investors are entitled to
indemnification hereunder, or the Company, if the Company is entitled to
indemnification hereunder, as applicable. The failure to deliver written notice
to the indemnifying party within a reasonable time of the commencement of any
such action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. CONTRIBUTION.
------------
To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Section
6 to the fullest extent permitted by law; provided, however, that (i) no
-------- -------
contribution shall be made under circumstances where the maker would not have
been liable for indemnification under the fault standards set forth in Section
6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of such fraudulent misrepresentation, and (iii) contribution (together
with any indemnification or other obligations under this Agreement) by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
--------------------------
With a view to making available to the Investors the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of the
SEC that may at any time permit the investors to sell securities of the Company
to the public without registration ("Rule 144"), the Company agrees to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
-15-
<PAGE>
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
---------------------------------
The rights under this Agreement shall be automatically assignable by the
Investors to any transferee of all or any portion of Registrable Securities if:
(i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement, and (vi) such transferee shall be an "accredited investor" as that
term defined in Rule 501 of Regulation D promulgated under the 1933 Act.
10. AMENDMENT OF REGISTRATION RIGHTS.
--------------------------------
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with written consent of the Company, each of the Initial
Investors (to the extent such Initial Investor still owns Registrable
Securities) and Investors who hold a majority interest of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
-------------
-16-
<PAGE>
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices required or permitted to be given under the terms
hereof shall be sent by certified or registered mail (return receipt requested)
or delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile and shall be effective five days after being placed in
the mail, if mailed by regular United States mail, or upon receipt, if delivered
personally or by courier (including a recognized overnight delivery service) or
by facsimile, in each case addressed to a party. The addresses for such
communications shall be:
If to the Company:
Aastrom Biosciences, Inc.
24 Frank Lloyd Wright Drive
P.O. Box 376
Ann Arbor, Michigan 48106
Attention: R. Douglas Armstrong
President & Chief Executive Officer
Facsimile: 734-930-5546
With copy to:
Gray Cary Ware & Freidenrich LLP
4365 Executive Drive, Suite 1600
San Diego, CA 92121-2189
Attention: Douglas J. Rein
Facsimile: 619-677-1477
If to an Investor: to the address set forth immediately below such Investor's
name on the signature pages to the Securities Purchase Agreement.
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
d. This Agreement shall be governed by and construed in accordance
with the laws of the State of Michigan applicable to agreements made and to be
performed in the State of Michigan (without regard to principles of conflict of
laws). Both parties irrevocably consent to the jurisdiction of the United
States federal courts and the state courts located in Delaware with respect to
any suit or proceeding based on or arising under this Agreement, the agreements
entered into in connection
-17-
<PAGE>
herewith or the transactions contemplated hereby or thereby and irrevocably
agree that all claims in respect of such suit or proceeding may be determined in
such courts. Both parties irrevocably waive the defense of an inconvenient forum
to the maintenance of such suit or proceeding. Both parties further agree that
service of process upon a party mailed by first class mail shall be deemed in
every respect effective service of process upon the party in any such suit or
proceeding. Nothing herein shall affect either party's right to serve process in
any other manner permitted by law. Both parties agree that a final non-
appealable judgment in any such suit or proceeding shall be conclusive and may
be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
e. This Agreement and the Securities Purchase Agreement (including
all schedules and exhibits thereto) constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and thereof. There are
no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein and therein. This Agreement and the Securities
Purchase Agreement supersede all prior agreements and understandings among the
parties hereto with respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. Except as otherwise provided herein, all consents and other
determinations to be made by the Investors pursuant to this Agreement shall be
made by Investors holding a majority of the Registrable Securities, determined
as if the all of the Preferred Shares then outstanding have been converted into
for Registrable Securities.
k. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.
-18-
<PAGE>
l. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to each Investor by vitiating the intent
and purpose of the transactions contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for breach of its obligations hereunder will
be inadequate and agrees, in the event of a breach or threatened breach by the
Company of any of the provisions hereunder, that each Investor shall be
entitled, in addition to all other available remedies in law or in equity, to an
injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof, without
the necessity of showing economic loss and without any bond or other security
being required.
m. In the event that any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any
provision hereof which may prove invalid or unenforceable under any law shall
not affect the validity or enforceability of any other provision hereof.
n. The initial number of Registrable Securities included on any
Registration Statement and each increase to the number of Registrable Securities
included thereon shall be allocated pro rata among the Investors based on the
number of Registrable Securities held by each Investor at the time of such
establishment or increase, as the case may be. In the event an Investor shall
sell or otherwise transfer any of such holder's Registrable Securities, each
transferee shall be allocated a pro rata portion of the number of Registrable
Securities included on a Registration Statement for such transferor. Any shares
of Common Stock included on a Registration Statement and which remain allocated
to any person or entity which does not hold any Registrable Securities shall be
allocated to the remaining Investors, pro rata based on the number of shares of
Registrable Securities then held by such Investors. For the avoidance of doubt,
the number of Registrable Securities held by an Investor shall be determined as
if all Preferred Shares and Warrants then outstanding and held by an Investor
were converted into or exercised for Registrable Securities.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-19-
<PAGE>
IN WITNESS WHEREOF, the Company and the undersigned Initial Investors
have caused this Agreement to be duly executed as of the date first above
written.
AASTROM BIOSCIENCES, INC.
By:________________________________________________
R. Douglas Armstrong, Ph.D.
President & Chief Executive Officer
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P., Investment Manager
By: RGC General Partner Corp., as General Partner
By:________________________________________________
Gary S. Kaminsky
Managing Director
-20-
<PAGE>
EXHIBIT 4.3
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. EXCEPT
AS OTHERWISE SET FORTH HEREIN OR IN A SECURITIES PURCHASE AGREEMENT DATED
AS OF MAY 27, 1999, NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER SAID ACT OR, AN OPINION OF COUNSEL, IN
FORM, SUBSTANCE AND SCOPE, CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE
TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS
SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
Right to
Purchase
150,000
Shares of
Common
Stock, no
par value
per share
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, RGC International Investors, LDC
or its registered assigns, is entitled to purchase from Aastrom Biosciences,
Inc., a Michigan corporation (the "Company"), at any time or from time to time
during the period specified in Paragraph 2 hereof, One Hundred Fifty Thousand
(150,000) fully paid and nonassessable shares of the Company's Common Stock, no
par value per share (the "Common Stock"), at an exercise price of 130% of the
average of the Closing Bid Prices (as defined in the Company=s Certificate of
Designation, Preferences and Rights of 1999 Series III Convertible Preferred
Stock (the "Certificate of Designation")) of the Common Stock during the five
(5) Trading Days (as defined in the Certificate of Designation, a "Trading Day")
ending on the earlier of (i) November 15, 1999 and (ii) the last Trading Day of
the month preceding any month (including November 1999) during which a Qualified
Merger Transaction (as defined below) is first publicly announced per share (the
"Exercise Price"). The term "Warrant Shares," as used herein, refers to the
shares of Common Stock purchasable hereunder. The Warrant Shares and the
Exercise Price are subject to adjustment as provided in Paragraph 4 hereof. The
term Warrants means this Warrant and the other warrants issued pursuant to that
certain Securities Purchase Agreement, dated May 27, 1999, by and among the
Company and the Buyers listed on the execution page thereof (the "Securities
Purchase Agreement").
This Warrant is subject to the following terms, provisions, and conditions:
<PAGE>
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
----------------------------------------------------------------
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement or (ii) if the resale of the Warrant
Shares by the holder is not then registered pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), delivery to the Company of a written notice of an election to
effect a "Cashless Exercise" (as defined in Section 11(c) below) for the Warrant
Shares specified in the Exercise Agreement. The Warrant Shares so purchased
shall be deemed to be issued to the holder hereof or such holder's designee, as
the record owner of such shares, as of the close of business on the date on
which this Warrant shall have been surrendered, the completed Exercise Agreement
shall have been delivered, and payment shall have been made for such shares (or
an election to effect a Cashless Exercise has been made) as set forth above.
Certificates for the Warrant Shares so purchased, representing the aggregate
number of shares specified in the Exercise Agreement, shall be delivered to the
holder hereof within a reasonable time, not exceeding two (2) business days,
after this Warrant shall have been so exercised. The certificates so delivered
shall be in such denominations as may be requested by the holder hereof and
shall be registered in the name of such holder or such other name as shall be
designated by such holder. If this Warrant shall have been exercised only in
part, then, unless this Warrant has expired, the Company shall, at its expense,
at the time of delivery of such certificates, deliver to the holder a new
Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised.
Notwithstanding anything in this Warrant to the contrary, in no event
shall the Holder of this Warrant be entitled to exercise a number of Warrants
(or portions thereof) in excess of the number of Warrants (or portions thereof)
upon exercise of which the sum of (i) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unexercised Warrants and the unexercised or unconverted portion of any other
securities of the Company (including shares of [1999 Series III] Preferred Stock
(as defined in the Securities Purchase Agreement)) subject to a limitation on
conversion or exercise analogous to the limitation contained herein) and (ii)
the number of shares of Common Stock issuable upon exercise of the Warrants (or
portions thereof) with respect to which the determination described herein is
being made, would result in beneficial ownership by the Holder and its
affiliates of more than 4.9% of the outstanding shares of Common Stock. For
purposes of the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 13D-G thereunder, except as otherwise provided
in clause (i) hereof.
2. Period of Exercise. This Warrant is exercisable at any time or from
------------------
time to time on or after the date on which this Warrant is issued and delivered
pursuant to the terms of the Securities
-2-
<PAGE>
Purchase Agreement (the "Issued Date") and before 5:00 p.m., New York City time
on the fifth (5th) anniversary of the Issue Date (the "Exercise Period").
3. Certain Agreements of the Company. The Company hereby covenants and
---------------------------------
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon issuance
-----------------------
in accordance with the terms of this Warrant, be validly issued, fully paid, and
nonassessable and free from all taxes, liens, and charges with respect to the
issue thereof.
(b) Reservation of Shares. During the Exercise Period, the Company
---------------------
shall at all times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
(c) Listing. The Company shall promptly secure the listing of the
-------
shares of Common Stock issuable upon exercise of the Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation system, as
the case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by amendment of
--------------------------
its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, and (ii)
will take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
(e) Successors and Assigns. This Warrant will be binding upon any
----------------------
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all the Company's assets.
-3-
<PAGE>
4. Antidilution Provisions. During the Exercise Period, the Exercise
-----------------------
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Paragraph 4.
In the event that any adjustment of the Exercise Price as required herein
results in a fraction of a cent, such Exercise Price shall be rounded up to the
nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon Issuance of
------------------------------------------------------------------
Common Stock. Except as otherwise provided in Paragraphs 4(c) and 4(e) hereof,
- ------------
if and whenever on or after the Issue Date of this Warrant, the Company issues
or sells, or in accordance with Paragraph 4(b) hereof is deemed to have issued
or sold, any shares of Common Stock for no consideration or for a consideration
per share (before deduction of reasonable expenses or commissions or
underwriting discounts or allowances in connection therewith) less than the
Exercise Price in effect on the date of issuance (or deemed issuance) of such
Common Stock (a "Dilutive Issuance"), then immediately upon the Dilutive
Issuance, the Exercise Price will be reduced to a price determined by
multiplying the Exercise Price in effect immediately prior to the Dilutive
Issuance by a fraction, (i) the numerator of which is an amount equal to the sum
of (x) the number of shares of Common Stock actually outstanding immediately
prior to the Dilutive Issuance, plus (y) the quotient of the aggregate
consideration, calculated as set forth in Paragraph 4(b) hereof, received by the
Company upon such Dilutive Issuance divided by the Exercise Price in effect
immediately prior to the Dilutive Issuance, and (ii) the denominator of which is
the total number of shares of Common Stock Deemed Outstanding (as defined below)
immediately after the Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
------------------------------------------
determining the adjusted Exercise Price under Paragraph 4(a) hereof, the
following will be applicable:
(i) Issuance of Rights or Options. If the Company in any
-----------------------------
manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or other
securities convertible into or exchangeable for Common Stock ("Convertible
Securities") (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "Options") and the price
per share for which Common Stock is issuable upon the exercise of such Options
is less than the Exercise Price in effect on the date of issuance or grant of
such Options, then the maximum total number of shares of Common Stock issuable
upon the exercise of all such Options will, as of the date of the issuance or
grant of such Options, be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. For purposes of the preceding
sentence, the "price per share for which Common Stock is issuable upon the
exercise of such Options" is determined by dividing (i) the total amount, if
any, received or receivable by the Company as consideration for the issuance or
granting of all such Options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise of all such
Options, plus, in the case of Convertible Securities issuable upon the exercise
of such Options, the minimum aggregate amount of additional consideration
payable upon the conversion or exchange thereof at the time such Convertible
-4-
<PAGE>
Securities first become convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise of all such Options
(assuming full conversion of Convertible Securities, if applicable). No further
adjustment to the Exercise Price will be made upon the actual issuance of such
Common Stock upon the exercise of such Options or upon the conversion or
exchange of Convertible Securities issuable upon exercise of such Options.
(ii) Issuance of Convertible Securities. If the Company in any
----------------------------------
manner issues or sells any Convertible Securities, whether or not immediately
convertible (other than where the same are issuable upon the exercise of
Options) and the price per share for which Common Stock is issuable upon such
conversion or exchange is less than the Exercise Price in effect on the date of
issuance of such Convertible Securities, then the maximum total number of shares
of Common Stock issuable upon the conversion or exchange of all such Convertible
Securities will, as of the date of the issuance of such Convertible Securities,
be deemed to be outstanding and to have been issued and sold by the Company for
such price per share. For the purposes of the preceding sentence, the "price per
share for which Common Stock is issuable upon such conversion or exchange" is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the conversion or exchange thereof at the time
such Convertible Securities first become convertible or exchangeable, by (ii)
the maximum total number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities. No further adjustment to the
Exercise Price will be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
(iii) Change in Option Price or Conversion Rate. If there is a
-----------------------------------------
change at any time in (i) the amount of additional consideration payable to the
Company upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the conversion or exchange of
any Convertible Securities; or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock (other than
under or by reason of provisions designed to protect against dilution), the
Exercise Price in effect at the time of such change will be readjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
--------------------------------------------------------
Securities. If, in any case, the total number of shares of Common Stock
- ----------
issuable upon exercise of any Option or upon conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
Option or to convert or exchange such Convertible Securities shall have expired
or terminated, the Exercise Price then in effect will be readjusted to the
Exercise Price which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination (other than in respect of
the actual number of shares of Common Stock issued upon exercise or conversion
thereof), never been issued.
-5-
<PAGE>
(v) Calculation of Consideration Received. If any Common
-------------------------------------
Stock, Options or Convertible Securities are issued, granted or sold for cash,
the consideration received therefor for purposes of this Warrant will be the
amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or sale.
In case any Common Stock, Options or Convertible Securities are issued or sold
for a consideration part or all of which shall be other than cash, the amount of
the consideration other than cash received by the Company will be the fair value
of such consideration, except where such consideration consists of securities,
in which case the amount of consideration received by the Company will be the
Market Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with any acquisition,
merger or consolidation in which the Company is the surviving corporation, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined in good faith by the Board of Directors of the Company.
(vi) Exceptions to Adjustment of Exercise Price. No adjustment
------------------------------------------
to the Exercise Price will be made (i) upon the exercise of any warrants,
options or convertible securities granted, issued and outstanding on the date of
issuance of this Warrant; (ii) upon the grant or exercise of any stock or
options which may hereafter be granted or exercised under any employee benefit
plan of the Company now existing or to be implemented in the future, so long as
the issuance of such stock or options is approved by a majority of the
independent members of the Board of Directors of the Company or a majority of
the members of a committee of independent directors established for such
purpose; (iii) upon the exercise of the Warrants or (iv) upon the issuance of
Common Stock in a firm commitment underwritten public offering led by at least
one of the underwriters listed on Schedule 4(f) of the Registration Rights
Agreement (as defined below).
(c) Subdivision or Combination of Common Stock. If the Company at
------------------------------------------
any time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company at
any time combines (by reverse stock split, recapitalization, reorganization,
reclassification or otherwise) the shares of Common Stock acquirable hereunder
into a smaller number of shares, then, after the date of record for effecting
such combination, the Exercise Price in effect immediately prior to such
combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of the
------------------------------
Exercise Price pursuant to the provisions of this Paragraph 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable
-6-
<PAGE>
upon exercise of this Warrant immediately prior to such adjustment and dividing
the product so obtained by the adjusted Exercise Price.
(e) Consolidation, Merger or Sale.
-----------------------------
(i) In case of any consolidation of the Company with, or
merger of the Company into any other corporation, or in case of any sale or
conveyance of all or substantially all of the assets of the Company other than
in connection with a plan of complete liquidation of the Company, then as a
condition of such consolidation, merger or sale or conveyance, adequate
provision will be made whereby the holder of this Warrant will have the right to
acquire and receive upon exercise of this Warrant in lieu of the shares of
Common Stock immediately theretofore acquirable upon the exercise of this
Warrant, such shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for the number of shares of Common Stock
immediately theretofore acquirable and receivable upon exercise of this Warrant
had such consolidation, merger or sale or conveyance not taken place. In any
such case, the Company will make appropriate provision to insure that the
provisions of this Paragraph 4 hereof will thereafter be applicable as nearly as
may be in relation to any shares of stock or securities thereafter deliverable
upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to the consummation
thereof, the successor corporation (if other than the Company) (the "Surviving
Entity") assumes by written instrument the obligations under this Paragraph 4
and the obligations to deliver to the holder of this Warrant such shares of
stock, securities or assets as, in accordance with the foregoing provisions, the
holder may be entitled to acquire.
(ii) In the event of a Qualified Merger Transaction (as defined
below) and notwithstanding anything to the contrary contained in this Section
4(e), so long as on the date the Optional Redemption Notice (as defined below)
is delivered and at all times thereafter up to the Optional Redemption Date (as
defined below) (a) the Registration Statement (as defined in the Registration
Rights Agreement, dated as of May 27, 1999, by and among the Company and the
other signatories thereto (the "Registration Rights Agreement"), the
"Registration Statement") required to be filed and be effective pursuant to the
Registration Rights Agreement is then in effect and has been in effect and sales
of all of the Registrable Securities (as defined in the Registration Rights
Agreement) can be made thereunder, (b) the Company has a sufficient number of
authorized shares of Common Stock reserved for issuance upon full exercise of
this Warrant and (c) the shares of Common Stock issuable upon exercise of this
Warrant are traded on Nasdaq (as defined below), the New York Stock Exchange or
the American Stock Exchange, then the Company shall have the right, exercisable
on not less than twenty (20) Trading Days written notice prior to the
consummation of the Qualified Merger Transaction to the holder of this Warrant
(which notice may not be sent to the holder of this Warrant until the Company is
permitted to redeem this Warrant pursuant to this Section 4(e)(ii) or at any
time when there is material non-public information regarding the Company that
has not been publicly announced or prior to the public announcement of such
Qualified Merger Transaction), to redeem this Warrant simultaneously with the
consummation of the Qualified Merger Transaction in accordance with this Section
4(e)(ii). A notice (the "Optional Redemption Notice")
-7-
<PAGE>
of any redemption hereunder (an "Optional Redemption") shall be delivered to the
holder of this Warrant at its registered address appearing on the books and
records of the Company and shall state (1) that the Company is exercising its
right to redeem this Warrant and (2) the date of redemption, which date and time
shall be the effective date of the Qualified Merger Transaction (the "Optional
Redemption Date"). On the Optional Redemption Date, the Company shall make
payment of the Optional Redemption Amount (as defined below) to or upon the
order of the holder of this Warrant as specified by the holder in writing to the
Company at least one (1) business day prior to the Optional Redemption Date. If
the Company exercises its right to redeem this Warrant in accordance with this
Section 4(e)(ii), the Company shall make payment to the holder of this Warrant
of an amount in cash (the "Optional Redemption Amount") equal to 90% of the
Black-Scholes Amount (as defined herein) multiplied by the number of shares of
Common Stock for which this Warrant was exercisable (without regard to any
limitations on exercise herein contained) on the date immediately preceding the
date of such Qualified Merger Transaction. The Company may, at its option, pay
the Optional Redemption Amount in a number of shares of common stock of the
Surviving Entity (the "Survivor Common Stock") equal to the Optional Redemption
Amount divided by 95% of the lowest average of the Closing Bid Prices (as
defined in the Certificate of Designation) for any five (5) Trading Days (which
need not be consecutive) during the fifteen (15) Trading Day period ending one
Trading Day prior to the Optional Redemption Date; provided that such shares of
--------
Survivor Common Stock paid to the holder of this Warrant pursuant to this
sentence (i) are traded on Nasdaq (as defined below), the New York Stock
Exchange or the American Stock Exchange and (ii) may be immediately re-sold by
the holder of this Warrant to the public without registration or restriction.
Notwithstanding anything to the contrary contained herein, if the price paid per
share of Common Stock in the Qualified Merger Transaction is greater than or
equal to 130% of the Exercise Price, the Company shall not be permitted to
redeem this Warrant pursuant to this Section 4(e)(ii) and this Warrant shall be
exercised simultaneously with the consummation of the Qualified Merger
Transaction in accordance with the terms of Section 1. Notwithstanding the
delivery of an Optional Redemption Notice, the holder of this Warrant shall at
all times prior to the Optional Redemption Date maintain the right to exercise
all or any portion of this Warrant in accordance with the terms of Section 1 and
any portion so exercised after receipt of an Optional Redemption Notice and
prior to the Optional Redemption Date set forth in such notice and payment of
the aggregate Optional Redemption Amount shall be deducted from the portion of
this Warrant which is otherwise subject to redemption pursuant to such notice.
If the Company delivers an Optional Redemption Notice and fails to pay the
Optional Redemption Amount due to the holder of this Warrant on the Optional
Redemption Date, the Company (or any successor thereto including the Surviving
Entity) shall forever forfeit its right to redeem this Warrant pursuant to this
Section 4(e)(ii).
The "Black-Scholes Amount" shall be an amount determined by calculating the
"Black-Scholes" value of an option to purchase one share of Common Stock on the
applicable page on the Bloomberg (as defined below) online page, using the
following variable values: (i) the current market price of the Common Stock
equal to the closing trade price on the last Trading Day prior to the date the
Optional Redemption Notice is received by the holder of this Warrant; (ii)
volatility of the Common Stock equal to the volatility of the Common Stock
during the one hundred (100) Trading Day period ending on Trading Day prior to
the date the Optional Redemption Notice is received by the holder
-8-
<PAGE>
of this Warrant; (iii) a risk free rate equal to the interest rate on the United
States treasury bill or treasury note with a 90-day maturity on the Trading Day
prior to the date the Optional Redemption Notice is received by the holder of
this Warrant; and (iv) an exercise price equal to the Exercise Price on the date
the Optional Redemption Notice is received by the holder of this Warrant. In the
event such calculation function is no longer available utilizing the Bloomberg
(as defined below) online page, the holder of this Warrant shall calculate such
amount in its sole discretion using the closest available alternative mechanism
and variable values to those available utilizing the Bloomberg (as defined
below) online page for such calculation function.
(iii) "Qualified Merger Transaction" shall mean a consolidation
of the Company with, or merger of the Company into any other corporation, or the
sale or conveyance of all or substantially all of the assets of the Company
other than in connection with a plan of complete liquidation of the Company
where the Company is not the surviving entity and in which the Company is
required as a condition of such transaction to redeem or force the exercise of
the Warrants.
(f) Distribution of Assets. In case the Company shall declare or make
----------------------
any distribution of its assets (including cash) to holders of Common Stock as a
partial liquidating dividend, by way of return of capital or otherwise, then,
after the date of record for determining stockholders entitled to such
distribution, but prior to the date of distribution, the holder of this Warrant
shall be entitled upon exercise of this Warrant for the purchase of any or all
of the shares of Common Stock subject hereto, to receive the amount of such
assets which would have been payable to the holder had such holder been the
holder of such shares of Common Stock on the record date for the determination
of stockholders entitled to such distribution.
(g) Notice of Adjustment. Upon the occurrence of any event which
--------------------
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of the
------------------------------------
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) No Fractional Shares. No fractional shares of Common Stock are
--------------------
to be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Market Price of a share of Common
Stock on the date of such exercise.
-9-
<PAGE>
(j) Other Notices. In case at any time:
-------------
(i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution
(including dividends or distributions payable in cash out of retained earnings)
to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the holders
of the Common Stock any additional shares of stock of any class or other rights;
(iii) there shall be any capital reorganization of the Company, or
reclassification of the Common Stock, or consolidation or merger of the Company
with or into, or sale of all or substantially all its assets to, another
corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the
date on which the holders of Common Stock shall be entitled to receive such
dividend, distribution, or subscription rights or to exchange their Common Stock
for stock or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall
not affect the validity of the proceedings referred to in clauses (i), (ii),
(iii) and (iv) above.
(k) Certain Events. If any event occurs of the type contemplated by
--------------
the adjustment provisions of this Paragraph 4 but not expressly provided for by
such provisions, the Company will give notice of such event as provided in
Paragraph 4(g) hereof, and the Company's Board of Directors will make an
appropriate adjustment in the Exercise Price and the number of shares of Common
Stock acquirable upon exercise of this Warrant so that the rights of the Holder
shall be neither enhanced nor diminished by such event.
(l) Certain Definitions.
-------------------
-10-
<PAGE>
(i) "Common Stock Deemed Outstanding" shall mean the number of
-------------------------------
shares of Common Stock actually outstanding (not including shares of Common
Stock held in the treasury of the Company), plus (x) pursuant to Paragraph
4(b)(i) hereof, the maximum total number of shares of Common Stock issuable upon
the exercise of Options, as of the date of such issuance or grant of such
Options, if any, and (y) pursuant to Paragraph 4(b)(ii) hereof, the maximum
total number of shares of Common Stock issuable upon conversion or exchange of
Convertible Securities, as of the date of issuance of such Convertible
Securities, if any.
(ii) "Market Price," as of any date, (i) means the average of the
------------
last reported sale prices for the shares of Common Stock on the Nasdaq National
Market ("Nasdaq") for the five (5) trading days immediately preceding such date
as reported by Bloomberg Financial Markets or an equivalent reliable reporting
service mutually acceptable to and hereafter designated by the holder of this
Warrant and the Company ("Bloomberg"), or (ii) if Nasdaq is not the principal
trading market for the shares of Common Stock, the average of the last reported
sale prices on the principal trading market for the Common Stock during the same
period as reported by Bloomberg, or (iii) if market value cannot be calculated
as of such date on any of the foregoing bases, the Market Price shall be the
fair market value as reasonably determined in good faith by (a) the Board of
Directors of the Corporation or, at the option of a majority-in-interest of the
holders of the outstanding Warrants by (b) an independent investment bank of
nationally recognized standing in the valuation of businesses similar to the
business of the corporation. The manner of determining the Market Price of the
Common Stock set forth in the foregoing definition shall apply with respect to
any other security in respect of which a determination as to market value must
be made hereunder.
(iii) "Common Stock," for purposes of this Paragraph 4, includes the
------------
Common Stock, no par value per share, and any additional class of stock of the
Company having no preference as to dividends or distributions on liquidation,
provided that the shares purchasable pursuant to this Warrant shall include only
shares of Common Stock, no par value per share, in respect of which this Warrant
is exercisable, or shares resulting from any subdivision or combination of such
Common Stock, or in the case of any reorganization, reclassification,
consolidation, merger, or sale of the character referred to in Paragraph 4(e)
hereof, the stock or other securities or property provided for in such
Paragraph.
5. Issue Tax. The issuance of certificates for Warrant Shares upon the
---------
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
6. No Rights or Liabilities as a Shareholder. This Warrant shall not
-----------------------------------------
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
-11-
<PAGE>
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
7. Transfer, Exchange, and Replacement of Warrant.
----------------------------------------------
(a) Restriction on Transfer. This Warrant and the rights granted to
-----------------------
the holder hereof are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the form attached
hereto, at the office or agency of the Company referred to in Paragraph 7(e)
below, provided, however, that any transfer or assignment shall be subject to
the conditions set forth in Paragraph 7(f) hereof and to the applicable
provisions of the Securities Purchase Agreement. Until due presentment for
registration of transfer on the books of the Company, the Company may treat the
registered holder hereof as the owner and holder hereof for all purposes, and
the Company shall not be affected by any notice to the contrary.
Notwithstanding anything to the contrary contained herein, the registration
rights described in Paragraph 8 are assignable only in accordance with the
provisions of that certain Registration Rights Agreement.
(b) Warrant Exchangeable for Different Denominations. This Warrant is
------------------------------------------------
exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Paragraph 7(e) below, for new Warrants of
like tenor representing in the aggregate the right to purchase the number of
shares of Common Stock which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by the holder hereof at the time of such surrender.
(c) Replacement of Warrant. Upon receipt of evidence reasonably
----------------------
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender of this
---------------------------------
Warrant in connection with any transfer, exchange, or replacement as provided in
this Paragraph 7, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the Holder or
transferees) and charges payable in connection with the preparation, execution,
and delivery of Warrants pursuant to this Paragraph 7.
(e) Register. The Company shall maintain, at its principal executive
--------
offices (or such other office or agency of the Company as it may designate by
notice to the holder hereof), a register for this Warrant, in which the Company
shall record the name and address of the person in whose name this Warrant has
been issued, as well as the name and address of each transferee and each prior
owner of this Warrant.
-12-
<PAGE>
(f) Exercise or Transfer Without Registration. If, at the time of the
-----------------------------------------
surrender of this Warrant in connection with any exercise, transfer, or exchange
of this Warrant, this Warrant (or, in the case of any exercise, the Warrant
Shares issuable hereunder), shall not be registered under the Securities Act and
under applicable state securities or blue sky laws, the Company may require, as
a condition of allowing such exercise, transfer, or exchange, (i) that the
holder or transferee of this Warrant, as the case may be, furnish to the Company
a written opinion of counsel, which opinion and counsel are acceptable to the
Company, to the effect that such exercise, transfer, or exchange may be made
without registration under said Act and under applicable state securities or
blue sky laws, (ii) that the holder or transferee execute and deliver to the
Company an investment letter in form and substance acceptable to the Company and
(iii) that the transferee be an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act; provided that no such opinion, letter or
status as an "accredited investor" shall be required in connection with a
transfer pursuant to Rule 144 under the Securities Act. The first holder of
this Warrant, by taking and holding the same, represents to the Company that
such holder is acquiring this Warrant for investment and not with a view to the
distribution thereof.
8. Registration Rights. The initial holder of this Warrant (and certain
-------------------
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in Section 2 of the Registration
Rights Agreement.
9. Notices. All notices, requests, and other communications required or
-------
permitted to be given or delivered hereunder to the holder of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail or by recognized overnight mail courier, postage prepaid and
addressed, to such holder at the address shown for such holder on the books of
the Company, or at such other address as shall have been furnished to the
Company by notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered hereunder to the
Company shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to the office of the Company at 24 Frank Lloyd Wright
Drive, P.O. Box 376, Ann Arbor, Michigan 48106, Attention: Chief Executive
Officer, or at such other address as shall have been furnished to the holder of
this Warrant by notice from the Company. Any such notice, request, or other
communication may be sent by facsimile, but shall in such case be subsequently
confirmed by a writing personally delivered or sent by certified or registered
mail or by recognized overnight mail courier as provided above. All notices,
requests, and other communications shall be deemed to have been given either at
the time of the receipt thereof by the person entitled to receive such notice at
the address of such person for purposes of this Paragraph 9, or, if mailed by
registered or certified mail or with a recognized overnight mail courier upon
deposit with the United States Post Office or such overnight mail courier, if
postage is prepaid and the mailing is properly addressed, as the case may be.
10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED IN THE STATE OF
-13-
<PAGE>
MICHIGAN (WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS). BOTH PARTIES
IRREVOCABLY CONSENT TO THE JURISDICTION OF THE UNITED STATES FEDERAL COURTS AND
THE STATE COURTS LOCATED IN DELAWARE WITH RESPECT TO ANY SUIT OR PROCEEDING
BASED ON OR ARISING UNDER THIS AGREEMENT, THE AGREEMENTS ENTERED INTO IN
CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY AND
IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH SUIT OR PROCEEDING MAY BE
DETERMINED IN SUCH COURTS. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES
FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL
SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN
ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A
FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE
AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY
OTHER LAWFUL MANNER.
11. Miscellaneous.
-------------
(a) Amendments. This Warrant and any provision hereof may only be
----------
amended by an instrument in writing signed by the Company and the holder hereof.
(b) Descriptive Headings. The descriptive headings of the several
--------------------
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.
(c) Cashless Exercise. Notwithstanding anything to the contrary
-----------------
contained in this Warrant, if the resale of the Warrant Shares by the holder is
not then registered pursuant to an effective registration statement under the
Securities Act, this Warrant may be exercised by presentation and surrender of
this Warrant to the Company at its principal executive offices with a written
notice of the holder's intention to effect a cashless exercise, including a
calculation of the number of shares of Common Stock to be issued upon such
exercise in accordance with the terms hereof (a "Cashless Exercise"). In the
event of a Cashless Exercise, in lieu of paying the Exercise Price in cash, the
holder shall surrender this Warrant for that number of shares of Common Stock
determined by multiplying the number of Warrant Shares to which it would
otherwise be entitled by a fraction, the numerator of which shall be the
difference between the then current Market Price per share of the Common Stock
and the Exercise Price, and the denominator of which shall be the then current
Market Price per share of Common Stock.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-14-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
AASTROM BIOSCIENCES, INC.
By: ___________________________________
R. Douglas Armstrong, Ph.D.
President & Chief Executive Officer
Dated as of May 27, 1999
-15-
<PAGE>
FORM OF EXERCISE AGREEMENT
Dated: ________ __,____
To: Aastrom Biosciences, Inc.
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of, or, if the resale of such Common Stock by the undersigned is not
currently registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended, by surrender of securities issued by the
Company (including a portion of the Warrant) having a market value (in the case
of a portion of this Warrant, determined in accordance with Section 11(c) of the
Warrant) equal to $_________. Please issue a certificate or certificates for
such shares of Common Stock in the name of and pay any cash for any fractional
share to:
Name: _____________________________________
Signature: ________________________________
Address: ________________________________
________________________________
Note: The above signature should correspond
exactly with the name on the face of the
within Warrant.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
The above signatory represents and warrants that all offers and sales by
the above signatory of the securities issuable to the above signatory upon
exercise of this Warrant shall be made pursuant to registration of the
securities under the Securities Act of 1933, as amended (the "Act"), or pursuant
to an exemption from registration under the Act.
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
Name of Assignee Address No of Shares
- ---------------- ------- ------------
, and hereby irrevocably constitutes and appoints ______________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Dated: ________ __, ____
In the presence of:
_________________________
Name: ____________________________________
Signature: _______________________________
Title of Signing Officer or Agent (if any):
_________________________________
Address: _________________________________
_________________________________
Note: The above signature should correspond
exactly with the name on the face of the
within Warrant.
<PAGE>
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. EXCEPT
AS OTHERWISE SET FORTH HEREIN OR IN A SECURITIES PURCHASE AGREEMENT DATED
AS OF MAY 27, 1999, NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER SAID ACT OR, AN OPINION OF COUNSEL, IN
FORM, SUBSTANCE AND SCOPE, CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE
TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS
SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
Right to
Purchase
150,000
Shares of
Common
Stock, no
par value
per share
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, RGC International Investors, LDC
or its registered assigns, is entitled to purchase from Aastrom Biosciences,
Inc., a Michigan corporation (the "Company"), at any time or from time to time
during the period specified in Paragraph 2 hereof, One Hundred Fifty Thousand
(150,000) fully paid and nonassessable shares of the Company's Common Stock, no
par value per share (the "Common Stock"), at an exercise price of $2.275 per
share (the "Exercise Price"). The term "Warrant Shares," as used herein, refers
to the shares of Common Stock purchasable hereunder. The Warrant Shares and the
Exercise Price are subject to adjustment as
<PAGE>
provided in Paragraph 4 hereof. The term Warrants means this Warrant and the
other warrants issued pursuant to that certain Securities Purchase Agreement,
dated May 27, 1999, by and among the Company and the Buyers listed on the
execution page thereof (the "Securities Purchase Agreement").
This Warrant is subject to the following terms, provisions, and conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
----------------------------------------------------------------
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement or (ii) if the resale of the Warrant
Shares by the holder is not then registered pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), delivery to the Company of a written notice of an election to
effect a "Cashless Exercise" (as defined in Section 11(c) below) for the Warrant
Shares specified in the Exercise Agreement. The Warrant Shares so purchased
shall be deemed to be issued to the holder hereof or such holder's designee, as
the record owner of such shares, as of the close of business on the date on
which this Warrant shall have been surrendered, the completed Exercise Agreement
shall have been delivered, and payment shall have been made for such shares (or
an election to effect a Cashless Exercise has been made) as set forth above.
Certificates for the Warrant Shares so purchased, representing the aggregate
number of shares specified in the Exercise Agreement, shall be delivered to the
holder hereof within a reasonable time, not exceeding two (2) business days,
after this Warrant shall have been so exercised. The certificates so delivered
shall be in such denominations as may be requested by the holder hereof and
shall be registered in the name of such holder or such other name as shall be
designated by such holder. If this Warrant shall have been exercised only in
part, then, unless this Warrant has expired, the Company shall, at its expense,
at the time of delivery of such certificates, deliver to the holder a new
Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised.
Notwithstanding anything in this Warrant to the contrary, in no event
shall the Holder of this Warrant be entitled to exercise a number of Warrants
(or portions thereof) in excess of the number of Warrants (or portions thereof)
upon exercise of which the sum of (i) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unexercised Warrants and the unexercised or unconverted portion of any other
securities of the Company (including shares of [1999 Series III] Preferred Stock
(as defined in the Securities Purchase Agreement)) subject to a limitation on
conversion or exercise analogous to the limitation contained herein) and (ii)
the number of shares of Common Stock issuable upon exercise of the Warrants (or
portions thereof) with respect to which the determination described herein is
being made, would
-2-
<PAGE>
result in beneficial ownership by the Holder and its affiliates of more than
4.9% of the outstanding shares of Common Stock. For purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13D-G thereunder, except as otherwise provided in clause (i) hereof.
2. Period of Exercise. This Warrant is exercisable at any time or from
------------------
time to time on or after the date on which this Warrant is issued and delivered
pursuant to the terms of the Securities Purchase Agreement (the "Issued Date")
and before 5:00 p.m., New York City time on the fifth (5th) anniversary of the
Issue Date (the "Exercise Period").
3. Certain Agreements of the Company. The Company hereby covenants and
---------------------------------
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon issuance
-----------------------
in accordance with the terms of this Warrant, be validly issued, fully paid, and
nonassessable and free from all taxes, liens, and charges with respect to the
issue thereof.
(b) Reservation of Shares. During the Exercise Period, the Company
---------------------
shall at all times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
(c) Listing. The Company shall promptly secure the listing of the
-------
shares of Common Stock issuable upon exercise of the Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation system, as
the case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by amendment of
--------------------------
its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, and (ii)
will take all such actions as
-3-
<PAGE>
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant.
(e) Successors and Assigns. This Warrant will be binding upon any
----------------------
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all the Company's assets.
4. Antidilution Provisions. During the Exercise Period, the Exercise
-----------------------
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Paragraph 4.
In the event that any adjustment of the Exercise Price as required herein
results in a fraction of a cent, such Exercise Price shall be rounded up to the
nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon Issuance of
------------------------------------------------------------------
Common Stock. Except as otherwise provided in Paragraphs 4(c) and 4(e) hereof,
- ------------
if and whenever on or after the Issue Date of this Warrant, the Company issues
or sells, or in accordance with Paragraph 4(b) hereof is deemed to have issued
or sold, any shares of Common Stock for no consideration or for a consideration
per share (before deduction of reasonable expenses or commissions or
underwriting discounts or allowances in connection therewith) less than the
Exercise Price in effect on the date of issuance (or deemed issuance) of such
Common Stock (a "Dilutive Issuance"), then immediately upon the Dilutive
Issuance, the Exercise Price will be reduced to a price determined by
multiplying the Exercise Price in effect immediately prior to the Dilutive
Issuance by a fraction, (i) the numerator of which is an amount equal to the sum
of (x) the number of shares of Common Stock actually outstanding immediately
prior to the Dilutive Issuance, plus (y) the quotient of the aggregate
consideration, calculated as set forth in Paragraph 4(b) hereof, received by the
Company upon such Dilutive Issuance divided by the Exercise Price in effect
immediately prior to the Dilutive Issuance, and (ii) the denominator of which is
the total number of shares of Common Stock Deemed Outstanding (as defined below)
immediately after the Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
------------------------------------------
determining the adjusted Exercise Price under Paragraph 4(a) hereof, the
following will be applicable:
(i) Issuance of Rights or Options. If the Company in any manner
-----------------------------
issues or grants any warrants, rights or options, whether or not immediately
exercisable, to subscribe for or to purchase Common Stock or other securities
convertible into or exchangeable for Common Stock ("Convertible Securities")
(such warrants, rights and options to purchase Common Stock or Convertible
Securities are hereinafter referred to as "Options") and the price per share for
which Common Stock is issuable upon the exercise of such Options is less than
the Exercise Price in effect on the date of issuance or grant of such Options,
then the maximum total number of shares of Common Stock issuable upon the
exercise of all such Options will, as of the date of the issuance or grant of
such Options, be deemed to be outstanding and to have been issued and sold by
the
-4-
<PAGE>
Company for such price per share. For purposes of the preceding sentence,
the "price per share for which Common Stock is issuable upon the exercise of
such Options" is determined by dividing (i) the total amount, if any, received
or receivable by the Company as consideration for the issuance or granting of
all such Options, plus the minimum aggregate amount of additional consideration,
if any, payable to the Company upon the exercise of all such Options, plus, in
the case of Convertible Securities issuable upon the exercise of such Options,
the minimum aggregate amount of additional consideration payable upon the
conversion or exchange thereof at the time such Convertible Securities first
become convertible or exchangeable, by (ii) the maximum total number of shares
of Common Stock issuable upon the exercise of all such Options (assuming full
conversion of Convertible Securities, if applicable). No further adjustment to
the Exercise Price will be made upon the actual issuance of such Common Stock
upon the exercise of such Options or upon the conversion or exchange of
Convertible Securities issuable upon exercise of such Options.
(ii) Issuance of Convertible Securities. If the Company in any
----------------------------------
manner issues or sells any Convertible Securities, whether or not immediately
convertible (other than where the same are issuable upon the exercise of
Options) and the price per share for which Common Stock is issuable upon such
conversion or exchange is less than the Exercise Price in effect on the date of
issuance of such Convertible Securities, then the maximum total number of shares
of Common Stock issuable upon the conversion or exchange of all such Convertible
Securities will, as of the date of the issuance of such Convertible Securities,
be deemed to be outstanding and to have been issued and sold by the Company for
such price per share. For the purposes of the preceding sentence, the "price per
share for which Common Stock is issuable upon such conversion or exchange" is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the conversion or exchange thereof at the time
such Convertible Securities first become convertible or exchangeable, by (ii)
the maximum total number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities. No further adjustment to the
Exercise Price will be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
(iii) Change in Option Price or Conversion Rate. If there is a
-----------------------------------------
change at any time in (i) the amount of additional consideration payable to the
Company upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the conversion or exchange of
any Convertible Securities; or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock (other than
under or by reason of provisions designed to protect against dilution), the
Exercise Price in effect at the time of such change will be readjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
--------------------------------------------------------
Securities. If, in any case, the total number of shares of Common Stock
- ----------
issuable upon exercise of
-5-
<PAGE>
any Option or upon conversion or exchange of any Convertible Securities is not,
in fact, issued and the rights to exercise such Option or to convert or exchange
such Convertible Securities shall have expired or terminated, the Exercise Price
then in effect will be readjusted to the Exercise Price which would have been in
effect at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately prior to such
expiration or termination (other than in respect of the actual number of shares
of Common Stock issued upon exercise or conversion thereof), never been issued.
(v) Calculation of Consideration Received. If any Common Stock,
-------------------------------------
Options or Convertible Securities are issued, granted or sold for cash, the
consideration received therefor for purposes of this Warrant will be the amount
received by the Company therefor, before deduction of reasonable commissions,
underwriting discounts or allowances or other reasonable expenses paid or
incurred by the Company in connection with such issuance, grant or sale. In
case any Common Stock, Options or Convertible Securities are issued or sold for
a consideration part or all of which shall be other than cash, the amount of the
consideration other than cash received by the Company will be the fair value of
such consideration, except where such consideration consists of securities, in
which case the amount of consideration received by the Company will be the
Market Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with any acquisition,
merger or consolidation in which the Company is the surviving corporation, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined in good faith by the Board of Directors of the Company.
(vi) Exceptions to Adjustment of Exercise Price. No adjustment to
------------------------------------------
the Exercise Price will be made (i) upon the exercise of any warrants, options
or convertible securities granted, issued and outstanding on the date of
issuance of this Warrant; (ii) upon the grant or exercise of any stock or
options which may hereafter be granted or exercised under any employee benefit
plan of the Company now existing or to be implemented in the future, so long as
the issuance of such stock or options is approved by a majority of the
independent members of the Board of Directors of the Company or a majority of
the members of a committee of independent directors established for such
purpose; (iii) upon the exercise of the Warrants or (iv) upon the issuance of
Common Stock in a firm commitment underwritten public offering led by at least
one of the underwriters listed on Schedule 4(f) of the Registration Rights
Agreement (as defined below).
(c) Subdivision or Combination of Common Stock. If the Company at any
-----------------------------------------
time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company at
any time combines (by reverse stock split, recapitalization, reorganization,
reclassification or otherwise) the shares of Common Stock acquirable hereunder
into a smaller number of shares, then, after the date of record
-6-
<PAGE>
for effecting such combination, the Exercise Price in effect immediately prior
to such combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of the
------------------------------
Exercise Price pursuant to the provisions of this Paragraph 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(e) Consolidation, Merger or Sale.
-----------------------------
(i) In case of any consolidation of the Company with, or
merger of the Company into any other corporation, or in case of any sale or
conveyance of all or substantially all of the assets of the Company other than
in connection with a plan of complete liquidation of the Company, then as a
condition of such consolidation, merger or sale or conveyance, adequate
provision will be made whereby the holder o f this Warrant will have the right
to acquire and receive upon exercise of this Warrant in lieu of the shares of
Common Stock immediately theretofore acquirable upon the exercise of this
Warrant, such shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for the number of shares of Common Stock
immediately theretofore acquirable and receivable upon exercise of this Warrant
had such consolidation, merger or sale or conveyance not taken place. In any
such case, the Company will make appropriate provision to insure that the
provisions of this Paragraph 4 hereof will thereafter be applicable as nearly as
may be in relation to any shares of stock or securities thereafter deliverable
upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to the consummation
thereof, the successor corporation (if other than the Company) (the "Surviving
Entity") assumes by written instrument the obligations under this Paragraph 4
and the obligations to deliver to the holder of this Warrant such shares of
stock, securities or assets as, in accordance with the foregoing provisions, the
holder may be entitled to acquire.
(ii) In the event of a Qualified Merger Transaction (as defined
below) and notwithstanding anything to the contrary contained in this Section
4(e), so long as on the date the Optional Redemption Notice (as defined below)
is delivered and at all times thereafter up to the Optional Redemption Date (as
defined below) (a) the Registration Statement (as defined in the Registration
Rights Agreement, dated as of May 27, 1999, by and among the Company and the
other signatories thereto (the "Registration Rights Agreement"), the
"Registration Statement") required to be filed and be effective pursuant to the
Registration Rights Agreement is then in effect and has been in effect and sales
of all of the Registrable Securities (as defined in the Registration Rights
Agreement) can be made thereunder, (b) the Company has a sufficient number of
authorized shares of Common Stock reserved for issuance upon full exercise of
this Warrant and (c) the shares of Common Stock issuable upon exercise of this
Warrant are traded on Nasdaq (as defined below), the New York Stock Exchange or
the American Stock Exchange, then the Company shall have the right,
-7-
<PAGE>
exercisable on not less than twenty (20) Trading Days written notice prior to
the consummation of the Qualified Merger Transaction to the holder of this
Warrant (which notice may not be sent to the holder of this Warrant until the
Company is permitted to redeem this Warrant pursuant to this Section 4(e)(ii) or
at any time when there is material non-public information regarding the Company
that has not been publicly announced or prior to the public announcement of such
Qualified Merger Transaction), to redeem this Warrant simultaneously with the
consummation of the Qualified Merger Transaction in accordance with this Section
4(e)(ii). A notice (the "Optional Redemption Notice") of any redemption
hereunder (an "Optional Redemption") shall be delivered to the holder of this
Warrant at its registered address appearing on the books and records of the
Company and shall state (1) that the Company is exercising its right to redeem
this Warrant and (2) the date of redemption, which date and time shall be the
effective date of the Qualified Merger Transaction (the "Optional Redemption
Date"). On the Optional Redemption Date, the Company shall make payment of the
Optional Redemption Amount (as defined below) to or upon the order of the holder
of this Warrant as specified by the holder in writing to the Company at least
one (1) business day prior to the Optional Redemption Date. If the Company
exercises its right to redeem this Warrant in accordance with this Section
4(e)(ii), the Company shall make payment to the holder of this Warrant of an
amount in cash (the "Optional Redemption Amount") equal to 90% of the Black-
Scholes Amount (as defined herein) multiplied by the number of shares of Common
Stock for which this Warrant was exercisable (without regard to any limitations
on exercise herein contained) on the date immediately preceding the date of such
Qualified Merger Transaction. The Company may, at its option, pay the Optional
Redemption Amount in a number of shares of common stock of the Surviving Entity
(the "Survivor Common Stock") equal to the Optional Redemption Amount divided by
95% of the lowest average of the Closing Bid Prices (as defined in the
Certificate of Designation) for any five (5) Trading Days (which need not be
consecutive) during the fifteen (15) Trading Day period ending one Trading Day
prior to the Optional Redemption Date; provided that such shares of Survivor
--------
Common Stock paid to the holder of this Warrant pursuant to this sentence (i)
are traded on Nasdaq (as defined below), the New York Stock Exchange or the
American Stock Exchange and (ii) may be immediately re-sold by the holder of
this Warrant to the public without registration or restriction. Notwithstanding
anything to the contrary contained herein, if the price paid per share of Common
Stock in the Qualified Merger Transaction is greater than or equal to 130% of
the Exercise Price, the Company shall not be permitted to redeem this Warrant
pursuant to this Section 4(e)(ii) and this Warrant shall be exercised
simultaneously with the consummation of the Qualified Merger Transaction in
accordance with the terms of Section 1. Notwithstanding the delivery of an
Optional Redemption Notice, the holder of this Warrant shall at all times prior
to the Optional Redemption Date maintain the right to exercise all or any
portion of this Warrant in accordance with the terms of Section 1 and any
portion so exercised after receipt of an Optional Redemption Notice and prior to
the Optional Redemption Date set forth in such notice and payment of the
aggregate Optional Redemption Amount shall be deducted from the portion of this
Warrant which is otherwise subject to redemption pursuant to such notice. If
the Company delivers an Optional Redemption Notice and fails to pay the Optional
Redemption Amount due to the holder of this Warrant on the Optional Redemption
Date, the Company (or any successor thereto including the Surviving Entity)
shall forever forfeit its right to redeem this Warrant pursuant to this Section
4(e)(ii).
-8-
<PAGE>
The "Black-Scholes Amount" shall be an amount determined by calculating the
"Black-Scholes" value of an option to purchase one share of Common Stock on the
applicable page on the Bloomberg (as defined below) online page, using the
following variable values: (i) the current market price of the Common Stock
equal to the closing trade price on the last Trading Day prior to the date the
Optional Redemption Notice is received by the holder of this Warrant; (ii)
volatility of the Common Stock equal to the volatility of the Common Stock
during the one hundred (100) Trading Day period ending on Trading Day prior to
the date the Optional Redemption Notice is received by the holder of this
Warrant; (iii) a risk free rate equal to the interest rate on the United States
treasury bill or treasury note with a 90-day maturity on the Trading Day prior
to the date the Optional Redemption Notice is received by the holder of this
Warrant; and (iv) an exercise price equal to the Exercise Price on the date the
Optional Redemption Notice is received by the holder of this Warrant. In the
event such calculation function is no longer available utilizing the Bloomberg
(as defined below) online page, the holder of this Warrant shall calculate such
amount in its sole discretion using the closest available alternative mechanism
and variable values to those available utilizing the Bloomberg (as defined
below) online page for such calculation function.
(iii) "Qualified Merger Transaction" shall mean a consolidation of
the Company with, or merger of the Company into any other corporation, or the
sale or conveyance of all or substantially all of the assets of the Company
other than in connection with a plan of complete liquidation of the Company
where the Company is not the surviving entity and in which the Company is
required as a condition of such transaction to redeem or force the exercise of
the Warrants.
(f) Distribution of Assets. In case the Company shall declare or
----------------------
make any distribution of its assets (including cash) to holders of Common Stock
as a partial liquidating dividend, by way of return of capital or otherwise,
then, after the date of record for determining stockholders entitled to such
distribution, but prior to the date of distribution, the holder of this Warrant
shall be entitled upon exercise of this Warrant for the purchase of any or all
of the shares of Common Stock subject hereto, to receive the amount of such
assets which would have been payable to the holder had such holder been the
holder of such shares of Common Stock on the record date for the determination
of stockholders entitled to such distribution.
(g) Notice of Adjustment. Upon the occurrence of any event which
--------------------
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of the
------------------------------------
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward
-9-
<PAGE>
and shall be made at the time and together with the next subsequent adjustment
which, together with any adjustments so carried forward, shall amount to not
less than 1% of such Exercise Price.
(i) No Fractional Shares. No fractional shares of Common Stock are to
--------------------
be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Market Price of a share of Common
Stock on the date of such exercise.
(j) Other Notices. In case at any time:
-------------
(i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution
(including dividends or distributions payable in cash out of retained earnings)
to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the Company, or
reclassification of the Common Stock, or consolidation or merger of the Company
with or into, or sale of all or substantially all its assets to, another
corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the
date on which the holders of Common Stock shall be entitled to receive such
dividend, distribution, or subscription rights or to exchange their Common Stock
for stock or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall
not affect the validity of the proceedings referred to in clauses (i), (ii),
(iii) and (iv) above.
(k) Certain Events. If any event occurs of the type contemplated by
--------------
the adjustment provisions of this Paragraph 4 but not expressly provided for by
such provisions, the Company will give notice of such event as provided in
Paragraph 4(g) hereof, and the Company's
-10-
<PAGE>
Board of Directors will make an appropriate adjustment in the Exercise Price and
the number of shares of Common Stock acquirable upon exercise of this Warrant so
that the rights of the Holder shall be neither enhanced nor diminished by such
event.
(l) Certain Definitions.
-------------------
(i) "Common Stock Deemed Outstanding" shall mean the number of
-------------------------------
shares of Common Stock actually outstanding (not including shares of Common
Stock held in the treasury of the Company), plus (x) pursuant to Paragraph
4(b)(i) hereof, the maximum total number of shares of Common Stock issuable upon
the exercise of Options, as of the date of such issuance or grant of such
Options, if any, and (y) pursuant to Paragraph 4(b)(ii) hereof, the maximum
total number of shares of Common Stock issuable upon conversion or exchange of
Convertible Securities, as of the date of issuance of such Convertible
Securities, if any.
(ii) "Market Price," as of any date, (i) means the average of
-------------
the last reported sale prices for the shares of Common Stock on the Nasdaq
National Market ("Nasdaq") for the five (5) trading days immediately preceding
such date as reported by Bloomberg Financial Markets or an equivalent reliable
reporting service mutually acceptable to and hereafter designated by the holder
of this Warrant and the Company ("Bloomberg"), or (ii) if Nasdaq is not the
principal trading market for the shares of Common Stock, the average of the last
reported sale prices on the principal trading market for the Common Stock during
the same period as reported by Bloomberg, or (iii) if market value cannot be
calculated as of such date on any of the foregoing bases, the Market Price shall
be the fair market value as reasonably determined in good faith by (a) the Board
of Directors of the Corporation or, at the option of a majority-in-interest of
the holders of the outstanding Warrants by (b) an independent investment bank of
nationally recognized standing in the valuation of businesses similar to the
business of the corporation. The manner of determining the Market Price of the
Common Stock set forth in the foregoing definition shall apply with respect to
any other security in respect of which a determination as to market value must
be made hereunder.
(iii) "Common Stock," for purposes of this Paragraph 4, includes
------------
the Common Stock, no par value per share, and any additional class of stock of
the Company having no preference as to dividends or distributions on
liquidation, provided that the shares purchasable pursuant to this Warrant shall
include only shares of Common Stock, no par value per share, in respect of which
this Warrant is exercisable, or shares resulting from any subdivision or
combination of such Common Stock, or in the case of any reorganization,
reclassification, consolidation, merger, or sale of the character referred to in
Paragraph 4(e) hereof, the stock or other securities or property provided for in
such Paragraph.
5. Issue Tax. The issuance of certificates for Warrant Shares upon the
---------
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
-11-
<PAGE>
6. No Rights or Liabilities as a Shareholder. This Warrant shall not
-----------------------------------------
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
7. Transfer, Exchange, and Replacement of Warrant.
----------------------------------------------
(a) Restriction on Transfer. This Warrant and the rights granted to
-----------------------
the holder hereof are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the form attached
hereto, at the office or agency of the Company referred to in Paragraph 7(e)
below, provided, however, that any transfer or assignment shall be subject to
the conditions set forth in Paragraph 7(f) hereof and to the applicable
provisions of the Securities Purchase Agreement. Until due presentment for
registration of transfer on the books of the Company, the Company may treat the
registered holder hereof as the owner and holder hereof for all purposes, and
the Company shall not be affected by any notice to the contrary.
Notwithstanding anything to the contrary contained herein, the registration
rights described in Paragraph 8 are assignable only in accordance with the
provisions of that certain Registration Rights Agreement.
(b) Warrant Exchangeable for Different Denominations. This Warrant is
------------------------------------------------
exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Paragraph 7(e) below, for new Warrants of
like tenor representing in the aggregate the right to purchase the number of
shares of Common Stock which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by the holder hereof at the time of such surrender.
(c) Replacement of Warrant. Upon receipt of evidence reasonably
----------------------
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender of this
---------------------------------
Warrant in connection with any transfer, exchange, or replacement as provided in
this Paragraph 7, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the Holder or
transferees) and charges payable in connection with the preparation, execution,
and delivery of Warrants pursuant to this Paragraph 7.
(e) Register. The Company shall maintain, at its principal executive
--------
offices (or such other office or agency of the Company as it may designate by
notice to the holder hereof), a
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<PAGE>
register for this Warrant, in which the Company shall record the name and
address of the person in whose name this Warrant has been issued, as well as the
name and address of each transferee and each prior owner of this Warrant.
(f) Exercise or Transfer Without Registration. If, at the time of
-----------------------------------------
the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such exercise, transfer, or exchange, (i)
that the holder or transferee of this Warrant, as the case may be, furnish to
the Company a written opinion of counsel, which opinion and counsel are
acceptable to the Company, to the effect that such exercise, transfer, or
exchange may be made without registration under said Act and under applicable
state securities or blue sky laws, (ii) that the holder or transferee execute
and deliver to the Company an investment letter in form and substance acceptable
to the Company and (iii) that the transferee be an "accredited investor" as
defined in Rule 501(a) promulgated under the Securities Act; provided that no
such opinion, letter or status as an "accredited investor" shall be required in
connection with a transfer pursuant to Rule 144 under the Securities Act. The
first holder of this Warrant, by taking and holding the same, represents to the
Company that such holder is acquiring this Warrant for investment and not with a
view to the distribution thereof.
8. Registration Rights. The initial holder of this Warrant (and certain
-------------------
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in Section 2 of the Registration
Rights Agreement.
9. Notices. All notices, requests, and other communications required or
-------
permitted to be given or delivered hereunder to the holder of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail or by recognized overnight mail courier, postage prepaid and
addressed, to such holder at the address shown for such holder on the books of
the Company, or at such other address as shall have been furnished to the
Company by notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered hereunder to the
Company shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to the office of the Company at 24 Frank Lloyd Wright
Drive, P.O. Box 376, Ann Arbor, Michigan 48106, Attention: Chief Executive
Officer, or at such other address as shall have been furnished to the holder of
this Warrant by notice from the Company. Any such notice, request, or other
communication may be sent by facsimile, but shall in such case be subsequently
confirmed by a writing personally delivered or sent by certified or registered
mail or by recognized overnight mail courier as provided above. All notices,
requests, and other communications shall be deemed to have been given either at
the time of the receipt thereof by the person entitled to receive such notice at
the address of such person for purposes of this Paragraph 9, or, if mailed by
registered or certified mail or with a recognized overnight mail courier upon
deposit with the United States Post Office or such overnight mail courier, if
postage is prepaid and the mailing is properly addressed, as the case may be.
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<PAGE>
10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
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ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED IN THE STATE OF MICHIGAN (WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS). BOTH PARTIES IRREVOCABLY CONSENT TO THE JURISDICTION OF THE
UNITED STATES FEDERAL COURTS AND THE STATE COURTS LOCATED IN DELAWARE WITH
RESPECT TO ANY SUIT OR PROCEEDING BASED ON OR ARISING UNDER THIS AGREEMENT, THE
AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY AND IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH SUIT
OR PROCEEDING MAY BE DETERMINED IN SUCH COURTS. BOTH PARTIES IRREVOCABLY WAIVE
THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR
PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY
MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF
PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL
AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW. BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT
OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER.
11. Miscellaneous.
-------------
(a) Amendments. This Warrant and any provision hereof may only be
----------
amended by an instrument in writing signed by the Company and the holder hereof.
(b) Descriptive Headings. The descriptive headings of the several
--------------------
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.
(c) Cashless Exercise. Notwithstanding anything to the contrary
-----------------
contained in this Warrant, if the resale of the Warrant Shares by the holder is
not then registered pursuant to an effective registration statement under the
Securities Act, this Warrant may be exercised by presentation and surrender of
this Warrant to the Company at its principal executive offices with a written
notice of the holder=s intention to effect a cashless exercise, including a
calculation of the number of shares of Common Stock to be issued upon such
exercise in accordance with the terms hereof (a "Cashless Exercise"). In the
event of a Cashless Exercise, in lieu of paying the Exercise Price in cash, the
holder shall surrender this Warrant for that number of shares of Common Stock
determined by multiplying the number of Warrant Shares to which it would
otherwise be entitled by a fraction, the numerator of which shall be the
difference between the then current Market Price per share of the Common Stock
and the Exercise Price, and the denominator of which shall be the then current
Market Price per share of Common Stock.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
AASTROM BIOSCIENCES, INC.
By: _____________________________
R. Douglas Armstrong, Ph.D.
President & Chief Executive Officer
Dated as of May 27, 1999
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<PAGE>
FORM OF EXERCISE AGREEMENT
Dated: ______ __,____
To: Aastrom Biosciences, Inc.
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of, or, if the resale of such Common Stock by the undersigned is not
currently registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended, by surrender of securities issued by the
Company (including a portion of the Warrant) having a market value (in the case
of a portion of this Warrant, determined in accordance with Section 11(c) of the
Warrant) equal to $_________. Please issue a certificate or certificates for
such shares of Common Stock in the name of and pay any cash for any fractional
share to:
Name: _____________________________________
Signature: ________________________________
Address: ________________________________
________________________________
Note: The above signature should correspond
exactly with the name on the face of the
within Warrant.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
The above signatory represents and warrants that all offers and sales by
the above signatory of the securities issuable to the above signatory upon
exercise of this Warrant shall be made pursuant to registration of the
securities under the Securities Act of 1933, as amended (the "Act"), or pursuant
to an exemption from registration under the Act.
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
Name of Assignee Address No of Shares
- ---------------- ------- ------------
, and hereby irrevocably constitutes and appoints ______________________________
________________________ as agent and attorney-in-fact to transfer said Warrant
on the books of the within-named corporation, with full power of substitution in
the premises.
Dated: ________ __, ____
In the presence of:
_________________________
Name: ____________________________________
Signature:_________________________________
Title of Signing Officer or Agent (if any):
__________________________________
Address: __________________________________
__________________________________
Note: The above signature should correspond
exactly with the name on the face of the
within Warrant.
