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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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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 8, 1998
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COCENSYS, INC.
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(Exact Name of Registrant as Specified in Charter)
DELAWARE 0-20954 33-0538836
- -------- ------- ----------
(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
201 TECHNOLOGY DRIVE, IRVINE, CALIFORNIA 92618
- ---------------------------------------- -----
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (949) 753-6100
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ITEM 5. OTHER EVENTS.
On June 8, 1998 (the "Closing Date"), CoCensys, Inc. (the "Company") issued
8,000 shares of Series E Convertible Preferred Stock with a stated value of
$1,000 per share (the "Preferred Stock") for an aggregate of $8 million in a
private placement pursuant to Regulation D of the Securities Act of 1933, as
amended. The following summary of certain terms of the Preferred Stock does not
purport to be a complete description of the terms of the Preferred Stock and is
qualified in its entirety by reference to the Securities Purchase Agreement
(Exhibit 4.1) and Certificate of Powers, Designation, Preferences, Rights and
Limitations of Series E Convertible Preferred Stock (Exhibit 4.2), among other
exhibits, filed with and incorporated by reference in this Current Report on
Form 8-K.
Each share of Preferred Stock is convertible into the number of shares of the
Company's common stock (the "Common Stock") equal to (a) the stated value
($1,000) plus any accrued and unpaid dividends on the date of conversion divided
by (b) the "Conversion Price," which equals the lesser of (i) the average of the
three lowest trading prices during the fifteen trading day period ending one
trading day prior to the conversion, multiplied by 100% (until October 8, 1998)
or 90% (after October 8, 1998), or (ii) $3.93.
The Preferred Stock accrues a 7.5% dividend until converted, subject to
reduction in dividend rate to (i) 5.5%, if the Common Stock trades at or above
$4.05 per share for ten consecutive trading days, (ii) 3.5%, if the Common Stock
trades at or above $4.95 per share for ten consecutive trading days and (iii)
1.5%, if the Common Stock trades at or above $6.00 per share for ten consecutive
trading days, in each case so long as the price threshold is met. Dividends are
payable quarterly in cash or, at the election of the Company, by adding the
amount of the dividend to the conversion value of the Preferred Stock.
The holders of the Preferred Stock are subject to limits on the number of shares
they can convert at any one time. Until October 8, 1998, if the Common Stock
trades below $4.00 per share for ten consecutive trading days, the holders of
Preferred Stock thereafter may only convert into a number of shares of Common
Stock less than or equal to the greater of 15% of the current or prior month's
trading volume; however, the foregoing restrictions no longer apply on the
earlier of (i) October 8, 1998 or (ii) if the Common Stock again trades above
$4.00 per share for ten consecutive trading days. In addition, the Company can
restrict the holders from converting any Preferred Stock on the trading day
following any trading day that the closing price for the Common Stock is less
than $2.00 per share so long as the Common Stock is trading at less than $2.00
prior to 12:00 noon of such following trading day, but limited to no more than
40 trading days in any 12 month period. If the closing price for the Common
Stock is less than $2.00 per share for 20 consecutive trading days, the right to
restrict conversions will be forever waived unless the Company agrees to adjust
the exercise price on one-half of the warrants issued in the transaction (as
described below) to the low trading price during such 20 trading day period.
Subject to the foregoing restrictions, the Preferred Stock may be converted into
Common Stock at any time at the election of the holder, and automatically
converts on June 8, 2001 if not converted earlier.
Page 2 of 99
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In connection with sale of the Preferred Stock, the Company granted to the
investors five-year warrants to purchase an aggregate of 350,000 shares of
Common Stock at $4.50 per share (the "Initial Warrants"). In addition, if the
holders have converted less than 35% of the Preferred Stock on November 8, 1998,
the holders will receive additional warrants to purchase an aggregate of 100,000
shares at 125% of the closing price of the Common Stock on the last trading day
prior to November 8, 1998 (the "Additional Warrants" and, collectively with the
Initial Warrants, the "Warrants").
The Company has agreed to file a registration statement with the Commission on
Form S-3 within 30 days following the Closing Date to register the resale of the
shares of Common Stock issuable upon conversion of the Preferred Stock and
exercise of the Warrants, and to list such shares on the Nasdaq National Market
(under the Company's symbol, COCN). During the period beginning 90 days after
the Commission declares the registration statement effective, and ending 360
days after that declaration, the Company is obligated to sell, and the investors
are obligated to purchase, an additional $2 million in Preferred Stock subject
to, among other things, the closing price for the Common Stock being greater
than $3.75 per share for 10 consecutive trading days.
If at any time the number of shares issued on conversion of Preferred Stock
equals 19.99% of the number of shares of Common Stock outstanding as of the
Closing Date, and if the Company is then prevented from issuing additional
shares of Common Stock on conversion of the Preferred Stock without obtaining
the approval of the Company's stockholders in accordance with Nasdaq
requirements, then the Company is required to redeem the Preferred Stock at 110%
of the value of Common Stock into which the Preferred Stock is then convertible.
The Company may also redeem the Preferred Stock in connection with an
acquisition, merger or other change of control, and may be required to redeem
the Preferred Stock at the election of the holder under certain events of
default, in each case at the greater of 130% of par (including accrued
dividends) or 100% of the value of Common Stock into which the Preferred Stock
is then convertible.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Not applicable.
(b) Not applicable.
(c) EXHIBITS. The following exhibits are attached to this Current Report
on Form 8-K:
<TABLE>
<CAPTION>
Sequential
Exhibit Description Page Start
------- ----------- ----------
<S> <C> <C>
4.1 Securities Purchase Agreement dated June 8, 1998,
among the Company and the purchasers set forth
therein. 5
4.2 Certificate of Powers, Designation, Preferences,
Rights and Limitations of Series E Convertible
Preferred Stock. 31
4.3 Form of Stock Purchase Warrant (Initial Warrants). 55
Page 3 of 99
<PAGE>
<CAPTION>
Sequential
Exhibit Description Page Start
------- ----------- ----------
<S> <C> <C>
4.4 Registration Rights Agreement dated June 8, 1998,
among the Company and the purchasers set forth
therein. 67
4.5 Form of Stock Purchase Warrant (Additional Warrants). 86
99.1 Press Release entitled "CoCensys, Inc. Raises
$8 Million Through the Issuance of Preferred Stock,"
dated June 9, 1998. 98
</TABLE>
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.
COCENSYS, INC.
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(Registrant)
Date: June 17, 1998 By: /s/ Peter E. Jansen
-----------------------------------
Peter E. Jansen, Vice President and
Chief Financial Officer
Page 4 of 99
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EXHIBIT 4.1
EXECUTION COPY
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of June 8, 1998,
by and among CoCensys, Inc., a Delaware corporation, with headquarters located
at 201 Technology Drive, Irvine, California 92618 ("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 Series E Convertible Preferred Stock (the "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, $.001
par value per share, of the Company (the "COMMON STOCK"), upon the terms and
subject to the limitations and conditions set forth in the Certificate of
Designation;
D. The Company has authorized the issuance to the Buyers of warrants, in
the form attached hereto as EXHIBIT "B", to purchase Three Hundred Fifty
Thousand (350,000) shares of Common Stock (the "INITIAL 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, (i) an
aggregate of Ten Thousand (10,000) shares of Preferred Stock, and (ii) Initial
Warrants to purchase Three Hundred Fifty Thousand (350,000) shares of Common
Stock, for an aggregate purchase price of Ten Million Dollars ($10,000,000).
F. Each Buyer wishes to purchase, upon the terms and conditions stated in
this Agreement, the number of shares of Preferred Stock and number of Warrants
as is set forth immediately below its name on the signature pages hereto;
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
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H. Upon the satisfaction of certain conditions described herein, the
Buyers shall be entitled to receive from the Company on the date which is one
hundred fifty (150) days from each Closing Date (as defined below), warrants to
purchase an aggregate of an additional One Hundred Thousand (100,000) shares of
Common Stock, in the form attached hereto as EXHIBIT "E" (the "ADDITIONAL
WARRANTS" and, collectively with the Initial Warrants, the "WARRANTS").
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 shares of Series E Preferred Stock
(collectively, together with any Preferred Stock issued in replacement thereof
or as a dividend thereon or otherwise with respect thereto in accordance with
the terms thereof, the "PREFERRED SHARES") and number of Warrants for the
aggregate purchase price with respect to the First Closing (as defined below)
and the Second Closing (as defined below) (each, a "PURCHASE PRICE" and
collectively, the "PURCHASES PRICES") as is set forth immediately below such
Buyer's name on the signature pages hereto. The issuance, sale and purchase of
the Preferred Shares and Warrants shall take place at two (2) closings, the
first of which is hereinafter referred to as the "First Closing" and the second
of which is referred to as the "SECOND CLOSING." The aggregate number of
Preferred Shares to be issued at the First Closing is Eight Thousand (8,000) and
the aggregate number of Initial Warrants to be issued at the First Closing is
Three Hundred Fifty Thousand (350,000) for an aggregate purchase price of Eight
Million Dollars ($8,000,000) and the aggregate number of Preferred Shares to be
issued at the Second Closing is Two Thousand (2,000) for an aggregate purchase
price of Two Million Dollars ($2,000,000). Subject to the satisfaction (or
waiver) of the conditions thereto set forth in Section 6 and Section 7 below,
(i) at the First Closing, the Company shall issue and sell to each Buyer and
each Buyer shall purchase from the Company the number of Preferred Shares and
Initial Warrants which such Buyer is purchasing hereunder and as set forth below
such Buyer's name on the signature pages hereto for a price equal to eighty
percent (80%) of the aggregate of the Purchase Prices and (ii) at the Second
Closing, the Company shall issue and sell to each Buyer and each Buyer shall
purchase from the Company the aggregate number of Preferred Shares which such
Buyer is purchasing hereunder and as set forth below such Buyer's name on the
signature pages hereto for a price equal to twenty percent (20%) of the
aggregate of the Purchase Prices.
b. FORM OF PAYMENT. On each Closing Date (as defined below),
(i) each Buyer shall pay the Purchase Price for the Preferred Shares and the
Initial Warrants to be issued and sold to it at the applicable Closing (as
defined below) 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
Initial Warrants which such Buyer is purchasing and (ii) the Company shall
deliver such certificates and Initial Warrants duly executed on behalf of the
Company, to the Buyer, against delivery of such Purchase Price.
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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 the Initial Warrants
pursuant to this Agreement (the "CLOSING DATE") shall be (i) in the case of the
First Closing, 12:00 noon Eastern Standard Time on June 8, 1998 and (ii) in the
case of Second Closing, 12:00 noon Eastern Standard Time as soon as practicable
(but no less than two (2) days) following the satisfaction (or waiver) of the
conditions to such closing set forth in Section 7(b) below or, in each case,
such other mutually agreed upon time. Each Closing shall occur on each Closing
Date at the offices of the Company, 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 thereof (including any additional shares, if any, as are issuable as
a result of the events described in Article V, Article VI.D(b) or Article VI.E
of the Certificate of Designation) (the "CONVERSION SHARES") and the Warrants
and the shares of Common Stock issuable upon exercise thereof (the "WARRANT
SHARES" and, collectively with the Preferred Shares, Warrants and Conversion
Shares the "SECURITIES") for its own account for investment only 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 representation 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.
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
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Company's representations and warranties contained in Section 3 below. The
Buyer 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 RESALE. The Buyer understands that (i) except
as provided in the Registration Rights Agreement, the Securities have not been
and are not being registered under the 1933 Act or any applicable state
securities laws, and may not be transferred unless (a) subsequently included in
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) sold or transferred to on "affiliate" (as defined in Rule
144 promulgated under the 1933 Act (or a successor rule) ("RULE 144")) so long
as the Buyer otherwise complies with applicable securities laws or (d) sold
pursuant to Rule 144; (ii) any 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 resale 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 and
Warrants 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, 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 have been acquired for investment
and 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."
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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 (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 under the 1933 Act (or a
successor rule thereto) without any restriction as to the number of Securities
acquired as of a particular date that can then be immediately sold. 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 prospectus
delivery requirements, if any.
h. AUTHORIZATION; ENFORCEMENT. This Agreement and the
Registration Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of the Buyer and are 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 currently has no Subsidiaries (as defined below). SCHEDULE 3(a)
sets forth a list of all Subsidiaries of the Company which have existed since
December 31, 1996. 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 the business, operations, assets, financial
condition or prospects of the Company taken as a whole, or 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 and in which such
ownership interest entitles the Company to elect a majority of the Board of
Directors or similar governing body.
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
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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 the Warrants and the issuance and reservation for
issuance of the Conversion Shares and 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 of the Company's stockholders other than
approvals, if required, of the Company's stockholders in accordance with the
rules of Nasdaq (as defined below), (iii) this Agreement has been duly executed
and delivered and the Certificate of Designation has been duly filed by the
Company, and (iv) each of this Agreement and the Certificate of Designation
constitutes, and upon execution and delivery by the Company of the Registration
Rights Agreement and the Warrants, each of such 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) 75,000,000 shares of Common Stock
of which 24,594,700 shares are issued and outstanding, 5,987,583 shares are
reserved for issuance pursuant to the Company's stock plans, 5,145,086 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 7,000,000 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, 200,000 of which shares are issued
and outstanding not including the Preferred Shares. All of such outstanding
shares of capital stock are, or upon issuance will be, duly authorized, validly
issued, fully paid and nonassessable. 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 any of its
Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its Subsidiaries, (ii) there are no agreements or arrangements under
which the Company or any of its Subsidiaries is obligated to register the sale
of any of its or their securities under the 1933 Act (except the Registration
Rights Agreement) 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 Warrant Shares.
The Company has furnished to the Buyer true and correct copies of the Company's
Certificate of Incorporation, as amended, 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 excluding those securities issued pursuant to
the Company's stock plans. The Company shall provide the
6
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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, Conversion Shares
and Warrant Shares are duly authorized and, upon issuance in accordance with the
terms of this Agreement (including the issuance of the Conversion Shares upon
conversion of the Preferred Shares in accordance with the Certificate of
Designation and the Warrant Shares upon 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 and charges with respect to the issue thereof and
shall not be subject to preemptive rights or other similar rights of
stockholders of the Company. The Company understands and acknowledges the
potentially dilutive effect to the Common Stock upon the issuance of the
Conversion Shares and Warrant Shares upon conversion or exercise of the
Preferred Shares or Warrants. The Company further acknowledges that its
obligation to issue Conversion Shares and Warrant Shares upon conversion of the
Preferred Shares or exercise of the Warrants 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.
e. 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, 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 Designation.
f. 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 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 or instrument to which
the Company is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) 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 could put the Company or any
of its Subsidiaries in default) under, and neither the Company nor any of its
Subsidiaries has taken any action or failed to take any action that would give
to others any rights of termination, amendment,
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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. To the knowledge of the Company,
the business 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. Except as specifically
contemplated by this Agreement and as required under the 1933 Act and any
applicable state securities laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or any regulatory or self regulatory agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement, the Registration Rights Agreement or the Warrants in accordance with
the terms hereof or thereof. Except as disclosed in SCHEDULE 3(f), 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") and does not
reasonably anticipate that the Common Stock will be delisted by the Nasdaq in
the foreseeable future. The Company is unaware of any facts or circumstances
which might give rise to any of the foregoing.
g. SEC DOCUMENTS; FINANCIAL STATEMENTS. Since December 31,
1996, 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) incorporated by reference therein, being hereinafter referred to
herein as the "SEC DOCUMENTS"). The Company has delivered 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. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have
been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may 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 material liabilities, contingent or otherwise,
other than (i) liabilities incurred in the ordinary course of business
subsequent to December 31, 1997 and (ii) obligations under contracts and
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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.
h. ABSENCE OF CERTAIN CHANGES. Since December 31, 1997, there
has been no adverse change and no adverse development in the assets,
liabilities, business, properties, operations, financial condition, results of
operations or prospects of the Company which could reasonably be expected to
have a Material Adverse Effect.
i. ABSENCE OF LITIGATION. To the Company's knowledge, 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 or any of its Subsidiaries,
threatened against or affecting the Company or any of its Subsidiaries, or their
officers or directors in their capacity as such, that could have a Material
Adverse Effect. The Company is unaware of any facts or circumstances which
reasonably be expected to give rise to any of the foregoing. SCHEDULE 3(i)
contains a complete list and summary description of any known pending or
threatened proceeding against or affecting the Company or any of its
Subsidiaries, without regard to whether it would have a Material Adverse Effect.
j. PATENTS, COPYRIGHTS, ETC. To the Company's knowledge, the
Company owns or possesses the requisite licenses or rights to use all patents,
patent rights, inventions, know-how, trade secrets, trademarks, 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(j) hereof, to the best of the Company's knowledge, as presently
contemplated to be operated in the future); to the Company's knowledge, there is
no claim or action by any person pertaining to, or proceeding pending or
threatened which challenges the right of the Company with respect to any
Intellectual Property necessary to enable it to conduct its business as now
operated (and, except as set forth in SCHEDULE 3(j) 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 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 has
taken reasonable security measures to protect the secrecy, confidentiality and
value of their Intellectual Property.
k. 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.
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.
l. TAX STATUS. Except as set forth on SCHEDULE 3(l), the
Company and each of its Subsidiaries has made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the
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extent that the Company and each of its Subsidiaries has set aside on its books
provisions reasonably adequate for the payment of all unpaid and unreported
taxes) and has paid all taxes and other governmental assessments and charges
that are material in amount, shown or determined to be due on such returns,
reports and declarations, except those being contested in good faith and has set
aside on its books provisions reasonably adequate for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or
declarations apply. To the Company's knowledge, 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.
m. CERTAIN TRANSACTIONS. Except as set forth on SCHEDULE 3(m)
and in the SEC Documents and except for arm's length transactions pursuant to
which the Company or any of its Subsidiaries makes payments in the ordinary
course of business upon terms no less favorable than the Company or any of its
Subsidiaries could obtain from third parties and other than the grant of stock
options disclosed on SCHEDULE 3(c), none of the officers, directors, or
employees of the Company is presently a party to any transaction with the
Company or any of its Subsidiaries (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
n. 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. No event or circumstance has occurred or exists
with respect to the Company or any of its Subsidiaries or its or their 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 purposes 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).
o. 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 any advice given by any Buyer or any of their respective
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is merely incidental to the Buyers' purchase of the
Securities. 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.
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p. 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 in 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.
q. 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 AFO Capital Advisors, LLC, whose commissions
and fees will be paid for by the Buyer.
r. 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 for any such which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect, and to the Company's knowledge, there is no action
pending or 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 December 31, 1997, 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.
s. ENVIRONMENTAL MATTERS.
(i) Except as set forth in SCHEDULE 3(s), there are, to the
Company's knowledge, with respect to the Company or any of its Subsidiaries 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
neither the Company nor any of its Subsidiaries has 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,
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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 or any of its Subsidiaries, and no Hazardous Materials were released on
or about any real property previously owned, leased or used by the Company or
any of its Subsidiaries during the period the property was owned, leased or used
by the Company or any of its Subsidiaries, except in the normal course of the
Company's or any of its Subsidiaries' 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 or any of its Subsidiaries that are not in compliance with
applicable law.
t. TITLE TO PROPERTY. The Company has good and marketable
title in fee simple to all real property, if any, and good and marketable title
to all personal property owned by them which is material to the business of the
Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in SCHEDULE 3(t) or such
as would not have a Material Adverse Effect. Any real property, personal
property and facilities held under lease by the Company and its Subsidiaries are
held by them under valid, subsisting and enforceable leases with such exceptions
as would not have a Material Adverse Effect.
u. 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.
v. FOREIGN CORRUPT PRACTICES. To its knowledge, neither the
Company, nor any of its Subsidiaries, nor any director, officer, agent, employee
or other person acting on behalf of the Company or any Subsidiary 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.
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.
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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 and the Warrants for working capital and
general corporate purposes.
e. RIGHT OF FIRST REFUSAL. Subject to the exceptions described
below, the Company will not conduct any equity financing (including debt with an
equity component) ("FUTURE OFFERINGS") during the period beginning on the
Closing Date and ending one year from the Closing Date, unless it shall have
first delivered to each Buyer, at least fifteen (15) business days prior to the
anticipated closing of such Future Offering, written notice describing the
proposed Future Offering, including the terms and conditions thereof and
definitive term sheet or letter of intent 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 its pro rata share (based on the
ratio that the number of Preferred Shares purchased by it hereunder bears to the
aggregate number of Preferred Shares purchased hereunder) of the securities
being offered in the Future Offering on the same terms as contemplated by such
Future Offering and provide notice of its intent to purchase any portion of any
other Buyer's pro rata share should any Buyer elect not to purchase its pro rata
share (the limitations referred to in this sentence are collectively referred to
as the "CAPITAL RAISING LIMITATIONS"). In the event that any Buyer elects not
to purchase its pro rata share of the securities being offered in the Future
Offering, the remaining Buyers shall have the option to purchase such Buyer's
pro rata share. In the event the terms and conditions of a proposed Future
Offering are amended in any material respect after delivery of the notice to the
Buyers concerning the proposed Future Offering, the Company shall deliver a new
notice to each Buyer describing the amended terms and conditions of the proposed
Future Offering and each Buyer thereafter shall have an option during the ten
(10) day period following delivery of such new notice to purchase its pro rata
share 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. The Capital Raising Limitations shall not apply to any transaction
involving (i) issuances of securities in a firm commitment underwritten public
offering (excluding
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a continuous offering pursuant to Rule 415 under the 1933 Act) or (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.
The Capital Raising Limitations also shall not apply to (i) 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 plan approved by a majority of the Company's
disinterested directors, (ii) the issuance of securities in connection with
equipment financing, (iii) the issuance of securities in connection with any
commercial bank financing or (iv) the issuance of securities in connection with
a real property lease.
f. EXPENSES. The Company shall reimburse Rose Glen Capital
Management, L.P. ("RGC") for all expenses incurred by the Buyers 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 in
each case, against invoices therefor. The Company's aggregate obligation to
reimburse RGC for all expenses incurred by the Buyers under this Section 4(f)
and pursuant to the Registration Rights Agreement shall be limited to Thirty
Thousand Dollars ($30,000).
g. FINANCIAL INFORMATION. The Company agrees to send the
following reports to each Buyer until such Buyer transfers, assigns, converts,
exercises or sells all of the Preferred Shares and Warrants: (i) within ten (10)
days after the filing with the SEC, a copy of its Annual Report on Form 10-K,
its Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K; (ii)
within two (2) business days after release, copies of all press releases issued
by the Company or any of its Subsidiaries; and (iii) 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 or exercise of the
outstanding Preferred Shares and Warrants and issuance of the Conversion Shares
and Warrant Shares in connection therewith (based on the Conversion Price of the
Preferred Shares or 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, which consent shall not be unreasonably
withheld. 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
then outstanding Preferred Shares and exercise of the then outstanding Warrants
(based on the Conversion Price of the Preferred Shares or 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
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Shares and exercise of the Warrants (based on the Conversion Price of the
Preferred Shares or Exercise price of the Warrants then in effect), 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.
j. CORPORATE EXISTENCE. 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,
unless the Company redeems the Preferred Shares immediately prior to the
consummation of any such transaction in accordance with Article IV.B of the
Certificate of Designation or except in the event of a merger or consolidation
or sale of all or substantially all of the Company's assets, where the surviving
or successor entity in such transaction (i) assumes the Company's obligations
hereunder and under the agreements and instruments entered into in connection
herewith and (ii) is a publicly traded corporation whose Common Stock is listed
for trading on Nasdaq, Nasdaq SmallCap, NYSE or AMEX.
k. NO INTEGRATION. 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) which requires stockholder approval under
the rules of Nasdaq. The Company will not conduct any future offering that will
be integrated with the issuance of the Securities solely for purposes of
Rule 4460(i) of the Nasdaq Stock Market.
l. 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 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
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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 does not anticipate or know of any basis upon which its auditors might
issue a qualified opinion in respect of its current fiscal year.
m. TRADING RESTRICTIONS. Each Buyer covenants and agrees that,
during any Pricing Period (as defined in the Certificate of Designation) during
which a Conversion Price (as defined in the Certificate of Designation) 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 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). In order to insure compliance with the
provisions hereof, so long as the Buyer holds any Preferred Shares, upon request
of the Company, each Buyer shall deliver a compliance certificate, signed by an
executive officer thereof, certifying that the limitations set forth in this
Section 4(m) have not been breached.
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, 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),
will be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration Rights Agreement.
Nothing in this Section 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 Securities. If a
Buyer provides the Company with an opinion of counsel, reasonably satisfactory
to the Company in form, substance and scope, that registration of a resale by
such Buyer of any of the Securities is not required under the 1933 Act, 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 in such name and in such denominations as specified by such Buyer.
The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Buyers, by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section, that the Buyers shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach and requiring immediae transfer, without the necessity of showing
economic loss and without any bond or other security being required.
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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
the Buyers at each of the First Closing and Second Closing, as applicable, is
subject to the satisfaction, at or before the Closing Date in respect of such
closing, 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. With respect to the First Closing and Second Closing:
(i) Each Buyer shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to the Company.
(ii) Each Buyer shall have delivered the Purchase Price
in accordance with Section 1(b) above.
(iii) The Certificate of Designation shall have been
accepted for filing with the Secretary of State of the State of Delaware.
(iv) The representations and warranties of each 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), 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.
(v) 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.
b. With respect to the First Closing:
(i) The aggregate amount of the Purchase Prices received
by the Company from all Buyers shall be Eight Million Dollars ($8,000,000) and,
in the event that subscriptions for less than $8,000,000 are received by the
Company for the purchase of the Preferred Shares and Warrants to be received at
the First Closing, the Company will return to the Initial Investors who have
wired funds to the Company all of the funds received.
c. With respect to the Second Closing:
(i) During the period beginning ninety (90) days after
the Registration Statement (as defined in the Registration Rights Agreement) is
declared effective by
17
<PAGE>
the SEC and ending three hundred sixty (360) days after the Registration
Statement is declared effective by the SEC, the closing price of the Common
Stock on the Nasdaq Stock Market or the principal securities exchange or
quotation system on which the Common Stock is traded is greater than $3.75 for
ten (10) consecutive Trading days (as defined in the Certificate of Designation)
during such period.
(ii) The number of shares of Common Stock issued or
issuable upon conversion or exercise of the Preferred Shares and Warrants issued
or to be issued at both the First Closing and the Second Closing shall not
exceed 4,912,082 unless the Company has received stockholder approval for such
issuance.
(iii) The aggregate amount of the Purchase Prices received
by the Company from all Buyers shall be Two Million Dollars ($2,000,000) and, in
the event that subscriptions for less than $2,000,000 are received by the
Company for the purchase of the Preferred Shares to be received at the Second
Closing, the Company will return to the Initial Investors who have wired funds
to the Company all of the funds received.
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. With respect to the First Closing and the Second Closing:
(i) The Company shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to the Buyer.
(ii) 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.
(iii) The Certificate of Designation shall have been
accepted for filing with the Secretary of Sate of the State of Delaware, and a
copy thereof certified by such Secretary of State shall have been delivered to
such Buyer.
(iv) 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.
(v) 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) and the Company shall have
performed, satisfied and complied in all material respects with the
18
<PAGE>
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 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 certificates with respect to the Company's
Certificate of Incorporation, By-laws and Board of Directors' resolutions
relating to the transactions contemplated hereby.
(vi) 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.
(vii) The Conversion Shares and the Warrant Shares shall
have been authorized for quotation on Nasdaq and trading in the Common Stock on
Nasdaq shall not have been suspended by the SEC or Nasdaq.
(viii) The Buyer shall have received an opinion 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" attached hereto.
(ix) The Buyer shall have received an officer's
certificate described in Section 3(c) above, dated as of the Closing Date.
b. With respect to the Second Closing:
(i) During the period beginning ninety (90) days after
the Registration Statement (as defined in the Registration Rights Agreement) is
declared effective by the SEC and ending three hundred sixty (360) days after
the Registration Statement is declared effective by the SEC, the closing price
of the Common Stock on the Nasdaq Stock Market or the principal securities
exchange or quotation system on which the Common Stock is traded is greater than
$3.75 for ten (10) consecutive Trading Days (as defined in the Certificate of
Designation) during such period.
(ii) The number of shares of Common Stock issued or
issuable upon conversion or exercise of the Preferred Shares and Warrants issued
or to be issued at both the First Closing and the Second Closing shall not
exceed 4,912,082 unless the Company has received stockholder approval for such
issuance.
(iii) The registration statement(s) filed by the Company
pursuant to Section 2(a) of the Registration Rights Agreement covering the
resale of the Registerable Securities (as defined in the Registration Rights
Agreement) underlying the Preferred Shares and Warrants issued or issuable at
the First Closing and the Second Closing and shall be effective and no stop
order shall have been issued in respect thereof.
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<PAGE>
(iv) Since the Closing Date in respect of the First
Closing, 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 cover) Company or
any of its Subsidiaries.
(v) At least ninety (90) days shall have elapsed since
the date the Registration Statement was declared effective by the SEC and no
more than three hundred sixty (360) days shall have elapsed since the date the
Registration Statement was declared effective by the SEC.
8. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Delaware without regard
to the principles of conflict of laws. The parties hereto hereby submit to the
exclusive jurisdiction of the United States Federal Courts located in Delaware
with respect to any dispute arising under this Agreement, the agreements entered
into in connection herewith or the transactions contemplated hereby or thereby.
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 shall 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
certified or registered U.S. mail, or upon receipt, if delivered by any other
means, including personal delivery, 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:
CoCensys, Inc.
201 Technology Drive
Irvine, CA 92618
Attention: Chief Executive Officer
Facsimile: (949) 753-6161
With copy to:
CoCensys, Inc.
201 Technology Drive
Irvine, CA 92618
Attention: General Counsel
Facsimile: (949) 753-6161
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 and assumes Buyer's obligation hereunder 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.
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 but only
with respect to, and expressly limited to those
21
<PAGE>
portions of such releases relating 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. ADDITIONAL WARRANTS. On November 8, 1998, so long as 65% of
the number of Preferred Shares a Buyer received on the Closing Date with respect
to the First Closing are outstanding, such Buyer shall receive its pro rata
portion (based on the ratio that the number of Preferred Shares purchased by it
hereunder bears to the aggregate number of Preferred Shares purchased hereunder)
of 100,000 Additional Warrants, in the form attached hereto as EXHIBIT "E." The
issuance of the Additional Warrants has been duly authorized by the Company and
a number of shares sufficient to satisfy the exercise thereof has been duly
reserved.
m. 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
22
<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.
COCENSYS, INC.
By: /s/
-----------------------------------
F. Richard Nichol, Ph.D.
President and Chief Executive Officer
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
23
<PAGE>
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P., Investment Manager
By: RGC General Partner Corp., as General Partner
By: /s/
-----------------------------------
Wayne D. Bloch
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:
<TABLE>
<CAPTION>
FIRST CLOSING
<S> <C>
Number of Shares of Preferred Stock: 5,000
Number of Initial Warrants: 218,750
Number of Additional Warrants: 62,500
Aggregate Purchase Price: $5,000,000
SECOND CLOSING
Number of Shares of Preferred Stock: 1,250
Aggregate Purchase Price: $1,250,000
</TABLE>
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
24
<PAGE>
THEMIS PARTNERS L.P.
By: Promethean Investment Group L.L.C.
Its: General Partner
By: /s/
-----------------------------------
E. Kurt Kim
Duly Authorized Signatory
RESIDENCE: Delaware
ADDRESS:
c/o Promethean Investment Group, L.L.C.
40 West 57th Street, Suite 1520
New York, NY 10019
Attention: James F. O'Brien, Jr.
E. Kurt Kim
Facsimile: (212) 698-0505
Telephone: (212) 698-0588
AGGREGATE SUBSCRIPTION AMOUNT:
<TABLE>
<CAPTION>
<S> <C>
FIRST CLOSING
Number of Shares of Preferred Stock: 1,200
Number of Initial Warrants: 52,500
Number of Additional Warrants: 15,000
Aggregate Purchase Price: $1,200,000
SECOND CLOSING
Number of Shares of Preferred Stock: 300
Aggregate Purchase Price: $300,000
</TABLE>
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
25
<PAGE>
HERACLES FUND
By: Promethean Investment Group L.L.C.
Its: Investment Advisor
By: /s/
-----------------------------------
E. Kurt Kim
Duly Authorized Signatory
RESIDENCE: CAYMAN ISLANDS
ADDRESS:
c/o Promethean Investment Group, L.L.C.
40 West 57th Street, Suite 1520
New York, NY 10019
Attention: James F. O'Brien, Jr.
E. Kurt Kim
Facsimile: (212) 698-0505
Telephone: (212) 698-0588
AGGREGATE SUBSCRIPTION AMOUNT:
<TABLE>
<CAPTION>
FIRST CLOSING
<S> <C>
Number of Shares of Preferred Stock: 1,800
Number of Initial Warrants: 78,750
Number of Additional Warrants: 22,500
Aggregate Purchase Price: $1,800,000
SECOND CLOSING
Number of Shares of Preferred Stock: 450
Aggregate Purchase Price: $450,000
</TABLE>
26
<PAGE>
EXHIBIT 4.2
EXHIBIT A
TO
SECURITIES
PURCHASE
AGREEMENT
CERTIFICATE OF POWERS,
DESIGNATION, PREFERENCES, RIGHTS AND LIMITATIONS
OF
SERIES E CONVERTIBLE PREFERRED STOCK
OF
COCENSYS, INC.
(Pursuant to Section 151 of the
General Corporation Law
of the State of Delaware)
CoCensys, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), hereby certifies
that the following resolutions were adopted by the Board of Directors of the
Corporation on April 20, 1998 pursuant to authority of the Board of Directors as
required by Section 151(g) of the General Corporation Law of the State of
Delaware:
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 Amended and Restated Certificate of
Incorporation, the Board of Directors hereby authorizes and creates a series of
the Corporation's previously authorized Preferred Stock, par value $.001 per
share (the "Preferred Stock"), and hereby states the designation and number of
shares, and fixes the relative rights, preferences, privileges, powers and
restrictions thereof (in addition to the provisions set forth in the Amended and
Restated Certificate of Incorporation of the Corporation, which are applicable
to the Preferred Stock of all classes and series), as follows:
Series E Convertible Preferred Stock:
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<PAGE>
I. DESIGNATION AND AMOUNT
Ten thousand (10,000) shares of Preferred Stock, $.001 par value are
designated "Series E Convertible Preferred Stock" (the "Series E Preferred
Stock") with the rights, preferences, privileges and restrictions specified in
this Certificate of Powers, Designation, Preferences, Rights and Limitations
(this "Certificate of Designation"). The stated value of the Series E Preferred
Stock shall be One Thousand Dollars ($1,000) per share (the "Stated Value").
Subject to the provisions hereof, if the Second Closing (as defined in the
Securities Purchase Agreement date as of June 8, 1998, by and between the
Corporation and the other signatories thereto (the "Purchase Agreement")) does
not occur, such number of shares of Preferred Stock designated Series E
Preferred Stock may be decreased to eight thousand (8,000) by resolution of the
Board of Directors.
II. RANK
The Series E Preferred Stock shall rank (i) prior to the Corporation's
common stock, par value $.001 per share (the "Common Stock"); (ii) prior to the
Corporation's Series A Junior Participating Preferred Stock (the " Series A
Preferred Stock"); (iii) prior to any class or series of capital stock of the
Corporation hereafter created (unless, with the consent of the holders of Series
E Preferred Stock obtained in accordance with Article IX hereof, such class or
series of capital stock specifically, by its terms, ranks senior to or PARI
PASSU with the Series E Preferred Stock) (collectively, with the Common Stock
and the Series A Preferred Stock, "Junior Securities"); (iv) PARI PASSU with the
Corporations' Series C Convertible Preferred Stock (the "Series C Preferred
Stock") and Series D Convertible Preferred Stock (the "Series D Preferred
Stock"); (v) PARI PASSU with any class or series of capital stock of the
Corporation hereafter created (with the consent of the holders of Series E
Preferred Stock obtained in accordance with Article IX hereof, unless the
average Closing Bid Price (as defined below) for the ten (10) Trading Days (as
defined below) ended one (1) Trading Day prior to the date on which the Board of
Directors approves the issuance of such class or series of capital stock is
above $4.00, in which case such consent will not be required) specifically
ranking, by its terms, on parity with the Series E Preferred Stock
(collectively, with the Series C Preferred Stock and Series D Preferred Stock,
"PARI PASSU Securities"); and (vi) junior to any class or series of capital
stock of the Corporation hereafter created (with the consent of the holders of
Series E Preferred Stock obtained in accordance with Article IX hereof)
specifically ranking, by its terms, senior to the Series E Preferred Stock
("Senior Securities"), in each case both as to the payment of dividends and as
to distribution of assets upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary.
III. DIVIDENDS
A. PAYMENT OF DIVIDENDS. The Series E Preferred Stock shall be
entitled to cumulative dividends at the Applicable Dividend Rate (as defined
below) from the date of issuance of the Series E Preferred Stock (the "Issue
Date"), payable quarterly on March 31, June 30, September 30 and December 31
(except that if any such date is a Saturday, Sunday or legal holiday, then such
dividend shall be payable on the next succeeding day that is not a Saturday,
Sunday or
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<PAGE>
legal holiday) (each, a "Dividend Payment Date") to the holders of record of the
Series E Preferred Stock. Dividends shall accrue daily without interest from
the Issue Date whether or not such dividends are declared by the Board of
Directors and actually paid to the holders of Series E Preferred Stock as they
appear on the stock books of the Corporation on such record dates, not more than
twenty (20) nor less than ten (10) days preceding the Dividend Payment Dates for
such dividends, as shall be fixed by the Board. Accrued and unpaid dividends
shall be payable to each holder of Series E Preferred Stock in cash, in whole
but not in part, on the applicable Dividend Payment Date or, subject to the
limitations of Article VI.A(c) and Article VI.E, at the sole option of the
Corporation, shall be added to the Conversion Amount (as defined in Article
VI.A) in accordance with Article VI.A; PROVIDED, HOWEVER, if the Corporation
fails to timely pay all accrued and unpaid dividends in cash on the applicable
Dividend Payment Date, the unpaid amount shall be automatically added to the
Conversion Amount effective on the day following the applicable Dividend Payment
Date.
B. DIVIDENDS ON JUNIOR SECURITIES. In no event, so long as any
Series E Preferred Stock shall remain outstanding, shall any dividend whatsoever
be declared or paid upon, nor shall any distribution be made upon, any Junior
Securities, nor shall any shares of Junior Securities be purchased or redeemed
by the Corporation (other than the Series A Preferred Stock in accordance with
Section 23 of the Rights Agreement dated May 15, 1995 between the Corporation
and American Stock Transfer & Trust Company) 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 Series E Preferred Stock, voting together as a class.
C. APPLICABLE DIVIDEND RATE. The "Applicable Dividend Rate" shall
mean 7.5%; PROVIDED, HOWEVER that if the Closing Price (as defined below) of the
Common Stock is greater than or equal to (i) $4.05 for ten (10) consecutive
Trading Days (as defined below), the Applicable Dividend Rate shall mean 5.5%,
(ii) if the Closing Price of the Common Stock is greater than or equal to $4.95
for ten (10) consecutive Trading Days, the Applicable Dividend Rate shall mean
3.5% and (iii) if the Closing Price is greater than or equal to $6.00 for ten
(10) consecutive Trading Days, the Applicable Dividend Rate shall mean 1.5%, in
each case from and after the Trading Day on which, but only so long as, such
price threshold is met. Dividends shall accrue at the then Applicable Dividend
Rate until such time as the condition thereto is no longer met (i.e., the price
drops below the applicable threshold for ten (10) consecutive Trading Days) or
at such time as a new Applicable Dividend Rate becomes effective, at which time
dividends will begin to accrue at the new Applicable Dividend Rate.
D. LIQUIDATION EVENTS. Any reference to "distribution" contained
in this Article IV shall not be deemed to include distributions made in
connection with any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary.
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<PAGE>
IV. LIQUIDATION PREFERENCE
A. LIQUIDATION EVENTS. In the event of any liquidation,
dissolution or winding up of the Corporation, either voluntary or involuntary
(each such event being considered a "Liquidation Event"), the holders of the
Series E Preferred Stock shall be entitled to receive, prior and in preference
to any distribution of any of the assets or surplus funds of the Corporation to
the holders of Junior Securities, the Liquidation Preference (as defined below)
per share of Series E Preferred Stock and no more; provided, however, that such
rights shall accrue to the holders of Series E Preferred Stock only in the event
that the Corporation's payments with respect to the liquidation preference of
the holders of any Senior Securities are fully met. After the liquidation
preferences of any Senior Securities are fully met, the entire assets of the
Corporation available for distribution shall be distributed ratably among the
holders of the Series E Preferred Stock and Pari Passu Securities in proportion
to the respective preferential amounts to which each is entitled (but only to
the extent of such preferential amounts). If upon the occurrence of a
Liquidation Event, the assets and funds available for distribution among the
holders of the Series E Preferred Stock and holders of PARI PASSU Securities
shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amounts payable thereon, then the entire assets and funds
of the Corporation legally available for distribution to the Series E Preferred
Stock and the PARI PASSU Securities shall be distributed 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. After payment in full of the Liquidation Preference on the shares
of Series E Preferred Stock and the liquidation preference on the PARI PASSU
Securities, the holders of such shares shall not be entitled to any further
participation in any distribution of assets by the Corporation.
B. EVENTS DEEMED LIQUIDATION EVENTS. At the option of any holder
of Series E Preferred Stock, 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 (as defined below) or Persons when the Corporation is not
the survivor (a "Change of 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 such
transaction an amount equal to 125% of the Liquidation Preference with respect
to each outstanding share of Series E Preferred Stock in accordance with and
subject to the terms of this Article IV or (ii) be treated pursuant to Article
VI.C(b) hereof; PROVIDED, HOWEVER, that the Corporation shall have the option,
on at least fifteen (15) days prior written notice to the holders of the Series
E Preferred Stock (during which time the holders of the Series E Preferred Stock
shall maintain the right to convert any or all of the Series E Preferred Stock
in accordance with Article VI), to redeem the Series E Preferred Stock
immediately prior to the consummation of any Change in Control Transaction at
the Mandatory Redemption Amount (as defined below); and PROVIDED, FURTHER,
HOWEVER, that where the Corporation undertakes such an event and plans to
account for such event as a "pooling of interests" in accordance with generally
accepted accounting principles, (a) no such distribution pursuant to clause (i)
above will be available and such event will be treated pursuant to clause (ii)
above where the value of the distribution that would have been received pursuant
to clause (i) above would be less than the value of the Common Stock that would
be received upon conversion of the Series E
-4-
<PAGE>
Preferred Stock in accordance with Article VI below treating the Trading Day (as
defined below) immediately preceding the date of such distribution as the
"Conversion Date" (as defined in Article VI.D(d)) and (b) no such distribution
pursuant to clause (ii) above will be available and such event will be treated
pursuant to clause (i) above where the value of the distribution that would have
been received pursuant to clause (i) above would be more than the value of the
Common Stock that would be received upon conversion of the Series E Preferred
Stock in accordance with Article VI below treating the Trading Day (as defined
below) immediately preceding the date of such distribution as the "Conversion
Date" (as defined in Article VI.D(d)). "Person" shall mean any individual,
corporation, limited liability company, partnership, association, trust or other
entity or organization.
C. LIQUIDATION PREFERENCE. For purposes hereof, the "Liquidation
Preference" with respect to a share of the Series E Preferred Stock shall mean
an amount equal to the sum of (i) the Stated Value thereof plus (ii) all accrued
and unpaid dividends 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 the Certificate of Designation filed in
respect thereof.
V. REDEMPTION
A. MANDATORY REDEMPTION. If any of the following events (each, a
"Mandatory Redemption Event") shall occur:
(i) The Corporation fails to issue shares of Common Stock to
the holders of Series E 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
VI.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 Common Stock issued to the
holders upon conversion of the Series E Preferred Stock as and when required by
this Certificate of Designation or the Registration Rights Agreement, dated as
of June 8, 1998, by and among the Corporation and the other signatories thereto
(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 Series E
Preferred Stock upon conversion of the Series E 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 of the foregoing failures 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;
(ii) The Corporation fails to obtain effectiveness with the
Securities and Exchange Commission (the "SEC") of the Registration Statement (as
defined in the Registration
-5-
<PAGE>
Rights Agreement) prior to December 8, 1998 or such Registration Statement
lapses in effect (or sales 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 or
otherwise) for more than forty-five (45) consecutive Trading Days (as defined
below) or more than ninety (90) Trading Days in any twelve (12) month period or
more than one hundred twenty (120) Trading Days during the Registration Period
(as defined in the Registration Rights Agreement) 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
involuntary bankruptcy, such involuntary bankruptcy shall continue undischarged
or undismissed for a period of sixty (60) days;
(v) The Corporation shall fail to maintain the listing of the
Common Stock on the Nasdaq National Market ("Nasdaq"), the Nasdaq SmallCap
Market, the New York Stock Exchange or the American Stock Exchange, then, upon
the occurrence and during the continuation of any Mandatory Redemption Event
specified in subparagraphs (i), (ii) or (v) at the option of each holder of the
then outstanding shares of Series E Preferred Stock by written notice (the
"Mandatory Redemption Notice") to the Corporation of such Mandatory Redemption
Event, or upon the occurrence of any Mandatory Redemption Event specified in
subparagraphs (iii) or (iv), the Corporation shall purchase such holder's shares
of Series E Preferred Stock for an amount per share equal to the greater of (1)
130% multiplied by the sum of (a) the Stated Value of the shares to be redeemed
plus (b) all accrued and unpaid dividends for the period beginning on the Issue
Date and ending on the date of payment of the Mandatory Redemption Amount (the
"Mandatory Redemption Date"), and (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 in accordance
with Article VI below (without giving any effect to any limitations on
conversions of shares set forth in Article VI.A(b) below, and treating the
Trading Day (as defined in Article VI.B) immediately preceding the Mandatory
Redemption Date as the "Conversion Date" (as defined in Article VI.B(a)) for
purposes of determining the lowest applicable Conversion Price), unless the
Mandatory 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 (as defined in Article
VI.A(b)) for the Common Stock on such "Conversion Date" (the greater of such
amounts being referred to as the "Mandatory Redemption Amount"). If there is a
Mandatory Redemption Event specified in subparagraph (ii) and the holders of the
Series E Preferred Stock do not elect to send a Mandatory Redemption Notice to
the Corporation, then (i) the Automatic Conversion Date (as defined in Article
VII) shall be extended for a period equal to 1.5 times the total number of days
the Registration Statement lapsed in effect (or sales could not 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 or otherwise) and
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(ii) the Applicable Percentage shall be reduced by 1% for each month in excess
of the Allowed Delay (as defined in Section 3(f) of the Registration Rights
Agreement) that the holders of Series E Preferred Stock are not permitted to
sell the Common Stock pursuant to the Registration Statement in accordance with
Section 2(c) of the Registration Rights Agreement.
In the case of a Mandatory Redemption Event, if the Corporation fails
to pay the Mandatory 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 Series E Preferred Stock shall have the right at any time, so
long as the Mandatory Redemption Event continues, to require the Corporation,
upon written notice, to immediately issue (in accordance with and subject to the
terms of Article VI below), in lieu of the Mandatory Redemption Amount, with
respect to each outstanding share of Series E Preferred Stock held by such
holder, the number of shares of Common Stock of the Corporation equal to the
Mandatory Redemption Amount divided by the average Closing Price of the Common
Stock for the two (2) Trading Days prior to the date the holder provides notice
to the Corporation of its election to receive Common Stock in lieu of the
Mandatory Redemption Amount in accordance with this paragraph.
B. 19.99% REDEMPTION. If the Series E Preferred Stock ceases to
be convertible as a result of the limitations described in Article VI.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 approval of the issuance of the additional shares of Common Stock by
the requisite vote of the holders of the then-outstanding Common Stock (not
including any shares of Common Stock held by present or former holders of Series
E Preferred Stock that were issued upon conversion of Series E Preferred Stock)
or (ii) received other permission pursuant to Nasdaq Rule 4460(i) allowing the
Corporation to resume issuances of shares of Common Stock upon conversion of
Series E Preferred Stock, then the Corporation shall be obligated to redeem
immediately all of the then outstanding Series E Preferred Stock, in accordance
with this Article V.B. An irrevocable redemption notice (the "Redemption
Notice") shall be delivered promptly to the holders of Series E 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 VI.A) has been issued upon exercise of the Series E Preferred Stock, (2)
that the Corporation is obligated to redeem all of the outstanding Series E
Preferred Stock and (3) the Mandatory Redemption Date, which shall be a date
within five (5) business days of the earlier of (i) the date of the Redemption
Notice or (ii) the date on which the holders of the Series A Preferred Stock
notify the Corporation of the occurrence of a 19.99% Redemption Event. On the
Mandatory Redemption Date, the Corporation shall make payment in cash of an
amount equal to 110% times the product of (a) the number of shares of Common
Stock issuable upon conversion of the shares of Series E Preferred Stock being
redeemed pursuant to this Article V.B and as determined in accordance with
Article VI below (without giving any effect to any limitations on conversions of
shares set forth in Article VI.A(b) below, and treating the Trading Day (as
defined in Article VI.B) immediately preceding the Mandatory Redemption Date as
the "Conversion Date" (as defined in Article VI.B(a)) multiplied by (b) the
Closing Price (as defined in Article VI.A(b)) of the Common Stock on such
Conversion Date.
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VI. CONVERSION AT THE OPTION OF THE HOLDER
A. OPTIONAL CONVERSION
(a) CONVERSION AMOUNT. Subject to the conversion restrictions
set forth in Article VI.A(b) below, each holder of shares of Series E 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 Series E
Preferred Stock into Common Stock as follows (an "Optional Conversion"). A
minimum of (10) shares of Series E Preferred Stock shall be surrendered for each
Optional Conversion (or such lesser amount if a holder of Series E Preferred
Stock owns less than ten (10) shares of Series E Preferred Stock). Each share
of Series E Preferred Stock shall be convertible into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing (1) the
Conversion Amount (as defined below), by (2) the then effective Conversion Price
(as defined below); PROVIDED, HOWEVER, that, unless the holder delivers a waiver
in accordance with the immediately following sentence, in no event (other than
pursuant to the Automatic Conversion (as defined herein)) shall a holder of
shares of Series E 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 Series E
Preferred Stock) and (y) the number of shares of Common Stock issuable upon the
conversion of the shares of Series E 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, (i) 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 and (ii) a holder may waive the limitations set forth
therein by written notice to the Corporation upon not less than sixty-one (61)
days prior written notice (with such waiver taking effect only upon the
expiration of such sixty-one (61) day notice period). The "Conversion Amount"
means the sum of (a) the Stated Value of the shares of Series E Preferred Stock
issued for conversion plus (b) the Unpaid Dividend Amount where the "Unpaid
Dividend Amount" means the Applicable Dividend Rate TIMES the Stated Value of
the shares of Series E Preferred Stock issued for conversion times N/365 where N
equals the number of days since the later of (x) the Issue Date or (y) the last
Dividend Payment Date on which the Corporation paid the then accrued and unpaid
dividends in cash; PROVIDED, HOWEVER that the Corporation shall have the option
to pay the Unpaid Dividend Amount in cash, in whole but not in part, by wire
transfer to the account of the holder of Series E Preferred Stock issued for
conversion simultaneously with the delivery of the shares of Common Stock issued
upon such conversion, in which event the Conversion Amount shall equal the
Stated Value of the shares of Series E Preferred Stock issued for conversion.
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(b) CONVERSION RESTRICTIONS.
(i) CONVERSION RESTRICTION PERIOD. For the period
beginning on the Issue Date and ending on October 8, 1998, (the "Conversion
Restriction Period"), if the Common Stock trades on Nasdaq or the principal
trading market on which the Common Stock is then listed is less than $4.00 per
share for ten (10) consecutive Trading Days, the holders of Series E Preferred
Stock thereafter during the reminder of the Conversion Restriction Period shall
only be permitted to convert, in the aggregate, into a number of shares of
Common Stock that is less than or equal to the greater of (a) 15% of the trading
volume for the calendar month in which conversions are taking place or (b) 15%
of the trading volume for the calendar month prior to the calendar month in
which the conversions are taking place (such lesser amount is hereinafter
referred to as the "Conversion Restriction Amount"). Notwithstanding the
preceding sentence, if the Common Stock thereafter trades on Nasdaq or the
principal trading market on which the Common Stock is then listed above $4.00
per share for ten (10) consecutive Trading Days during the Conversion
Restriction Period, the conversion limitations set forth in the preceding
sentence shall forever cease to be applicable. The Conversion Restriction
Amount (i) shall be allocated pro rata in accordance with Article X below and
(ii) shall not include shares issued upon conversions taking place prior to the
trigger date of the restriction.
(ii) ADJUSTMENT PERIOD. By written notice to the
holders delivered by 4:30 p.m. on any Trading Day, the Corporation shall be
permitted to suspend the right to convert shares of Series E Preferred Stock on
the next Trading Day after any Trading Day that the Closing Price of the Common
Stock on Nasdaq or the principal trading market on which the Common Stock is
then listed is less than $2.00 per share unless on such next Trading Day, the
Common Stock trades on Nasdaq or the principal trading market on which the
Common Stock is then listed above $2.00 prior to 12:00 noon on such Trading Day.
If the Closing Price of the Common Stock remains below $2.00 per share for
twenty (20) consecutive Trading Days (the "Adjustment Period"), whether or not
the Corporation has restricted conversions for some or all of such days, the
Corporation shall either: (i) forever waive the foregoing right to restrict
conversions and allow the holders of the Series E Preferred Stock to convert
their shares of Series E Preferred Stock; (ii) purchase each holder's shares of
Series E Preferred Stock for an amount (the "Optional Redemption Amount") per
share equal to 125% multiplied by the sum of (a) the Stated Value of the shares
to be redeemed plus (b) all accrued and unpaid dividends for the period
beginning on the Issue Date and ending on the date of payment of the Optional
Redemption Amount; or (iii) adjust the exercise price of one-half of the
warrants issued pursuant to the Securities Purchase Agreement (the "Warrants")
that have not been exercised prior to the last day of the Adjustment Period to
the lowest trading price during the Adjustment Period. In the event that the
Corporation elects to adjust the exercise price of the Warrants pursuant to
clause (iii) of the preceding sentence, (x) the holders of Series E Preferred
Stock thereafter shall not be permitted to convert shares of Series E Preferred
Stock thereafter on any Trading Day that the Common Stock trades below the
average Closing Price of the Common Stock during the Adjustment Period (the "New
Floor") and (y) if after such election, the Common Stock trades below the New
Floor for twenty (20) consecutive Trading Days (the "Second Adjustment Period"),
the Corporation shall either (i) adjust the Exercise Price of the remaining half
of the Warrants to the lowest trading price of the Common Stock during the
Second Adjustment Period or (ii) select either of the options set forth in
clauses (i) and (ii) of the second sentence of this paragraph. In the event
that the
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Corporation elects to adjust the exercise price of the Warrants pursuant to
clause (i) of the preceding sentence, the holders of Series E Preferred Stock
thereafter shall not be permitted to convert shares of Series E Preferred Stock
on any Trading Day in which the Common Stock trades below the average Closing
Price of the Common Stock during the Second Adjustment Period; PROVIDED,
HOWEVER, that this prohibition shall terminate when the number of Trading Days
during which it applies, together with the number of Trading Days during which
conversions have otherwise been restricted under this Article VI.A(b)(ii) equals
forty (40) Trading Days in any twelve (12) month period. "Closing Price," as of
any date, means the last sale price of the Common Stock on the Nasdaq as
reported by 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 Series E Preferred Stock and the
Corporation ("Bloomberg") 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 is available 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 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 Series E
Preferred Stock being converted for which the calculation of the Closing Price
is required in order to determine the Conversion Price of such Series E
Preferred Stock.
(iii) INAPPLICABILITY OF CONVERSION RESTRICTIONS. The
restrictions on conversion set forth in this Article VI.A(b) shall not apply to
conversions taking place on any Conversion Date (i) 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 (ii) 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 (iii) occurring on or after
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.
(c) NASDAQ LIMITATIONS ON CONVERSION. So long as the Common
Stock is listed for trading on Nasdaq or an exchange or quotation system with a
rule substantially similar to Rule 4460(i) then, notwithstanding anything to the
contrary contained herein if, at any time, the aggregate number of shares of
Common Stock then issued upon conversion of the Series E 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 Series E Preferred Stock
for purposes of such rule) equals 19.99% of the "Outstanding Common Amount" (as
hereinafter defined), the Series E Preferred Stock shall, from that time
forward, cease to be convertible into Common Stock in accordance with the terms
of this Article VI and Article VII below, unless the Corporation (i) has
obtained approval of the issuance
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of the Common Stock upon conversion of the Series E Preferred Stock by a
majority of the total votes cast on such proposal, in person or by proxy, by the
holders of the then-outstanding Common Stock (not including any shares of Common
Stock held by present or former holders of Series E Preferred Stock that were
issued upon conversion of Series E Preferred Stock) (the "Stockholder
Approval"), or (ii) shall have otherwise obtained permission to allow such
issuances from Nasdaq in accordance with Nasdaq Rule 4460(i). If the
Corporation's Common Stock is not then listed on Nasdaq or an exchange or
quotation system that has a rule substantially similar to Rule 4460(i) then the
limitations set forth herein shall be inapplicable and of no force and effect.
For purposes of this paragraph, "Outstanding Common Amount" means (i) the number
of shares of the Common Stock outstanding on the date of issuance of the Series
E Preferred Stock pursuant to the Purchase Agreement plus (ii) any additional
shares of Common Stock issued thereafter in respect of such shares pursuant to a
stock dividend, stock split or similar event. The maximum number of shares of
Common Stock issuable as a result of the 19.99% limitation set forth herein is
hereinafter referred to as the "Maximum Share Amount." With respect to each
holder of Series E Preferred Stock, the Maximum Share Amount shall refer to such
holder's PRO RATA share thereof determined in accordance with Article X below.
In the event that Corporation obtains Stockholder Approval or the approval of
Nasdaq, by reason of the inapplicability of the rules of Nasdaq or otherwise and
concludes that it is able to increase the number of shares to be issued above
the Maximum Share Amount (such increased number being the "New Maximum Share
Amount"), the references to Maximum Share Amount, above, shall be deemed to be,
instead, references to the greater New Maximum Share Amount. In the event that
Stockholder Approval is obtained but there are insufficient reserved or
authorized shares or a registration statement covering the additional shares of
Common Stock which constitute the New Maximum Share Amount is not effective
prior to the Maximum Share Amount being issued (if such registration statement
is necessary to allow for the public resale of such securities), the Maximum
Share Amount shall remain unchanged; PROVIDED, HOWEVER, that the holders of the
Series E Preferred Stock may grant an extension of the redemption required
pursuant to Article V.B to allow the Corporation to obtain a sufficient reserved
or authorized amount of shares or of the effective date of such registration
statement. In the event that (a) the aggregate number of shares of Common Stock
actually issued upon conversion of the Series E Preferred Stock represents at
least twenty percent (20%) of the Maximum Share Amount and (b) the sum of (x)
the aggregate number of shares of Common Stock actually issued upon conversion
of the outstanding Series E Preferred Stock PLUS (y) the aggregate number of
shares of Common Stock that remain issuable upon conversion of Series E
Preferred Stock, 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 and before the Mandatory Redemption
Date.
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B. CONVERSION PRICE.
(a) CALCULATION OF CONVERSION PRICE. Subject to subparagraph
(b) below, the "Conversion Price" shall be the lesser of the Market Price (as
defined herein) and the Fixed Conversion Price (as defined herein), subject to
adjustments pursuant to the provisions of Article VI.C below. "Market Price"
shall mean the Applicable Percentage (as defined below) times the average of the
three (3) Lowest Trading Prices (as defined below) during the fifteen (15)
Trading Day period ending one (1) Trading Day prior to the date (the "Conversion
Date") the Notice of Conversion (as defined in Article VI.E) is sent by a holder
to the Corporation via facsimile (the "Pricing Period"). "Fixed Conversion
Price" shall mean $3.93. "Lowest Trading Price" means, for any security as of
any date, the low trade price on Nasdaq as reported by Bloomberg or, if Nasdaq
is not the principal trading market for such security, the low trade 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 low trade price of such security can be determined in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no trade price of such security is available 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 lowest bid prices of any
market makers for such security that are listed in the "pink sheets" by the
National Quotation Bureau, Inc. If the Lowest Trading Price cannot be
calculated for such security on such date in the manner provided above, the
Lowest Trade Price shall be the low range of the fair market value as mutually
determined by the Corporation and the holders of a majority in interest of
shares of Series E Preferred Stock being converted for which the calculation of
the Lowest Trade Price is required in order to determine the Conversion Price of
such Series E Preferred Stock. "Applicable Percentage" shall mean 100% from the
Issue Date until October 8, 1998 and 90% thereafter, subject to adjustment
pursuant to Section 2(c) of the Registration Rights Agreement. "Trading Day"
shall mean 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.
(b) Notwithstanding anything contained in subparagraph (a) of
this Paragraph B to the contrary, in the event the Corporation (i) makes a
public announcement that it intends to consolidate or merge with any other
corporation (other than a merger in which the Corporation is the surviving or
continuing corporation and its capital stock is unchanged) or sell or transfer
all or substantially all of the assets of the Corporation or (ii) 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 (the date of the announcement
referred to in clause (i) or (ii) is hereinafter referred to as the
"Announcement Date"), then the Conversion Price shall, effective upon the
Announcement Date and continuing through the Adjusted Conversion Price
Termination Date (as defined below), be equal to the lower of (x) the Conversion
Price which would have been applicable for an Optional Conversion occurring on
the Announcement Date and (y) the Conversion Price that would otherwise be in
effect. From and after the Adjusted Conversion Price Termination Date, the
Conversion Price shall be determined as set forth in subparagraph (a) of this
Article VI.B. For purposes hereof, "Adjusted Conversion Price Termination Date"
shall mean, with respect to any proposed transaction, tender offer or removal of
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the majority of the Board of Directors which a public announcement as
contemplated by this subparagraph (b) has been made, the date upon which the
Corporation (in the case of clause (i) above) or the person, group or entity (in
the case of clause (ii) above) consummates or publicly announces the termination
or abandonment of the proposed transaction or tender offer which caused this
subparagraph (b) to become operative.
C. ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price shall be
subject to adjustment from time to time as follows:
(a) ADJUSTMENT TO CONVERSION PRICE DUE TO STOCK SPLIT, STOCK
DIVIDEND, ETC. If at any time when Series E 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 Adjustment Trading Price (as defined below) 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 Series E 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 its Transfer Agent of such
change on or before the effective date thereof. "Adjustment 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 Adjustment 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 Series E Preferred Stock
by an independent investment bank of nationally recognized standing in the
valuation of businesses similar to the business of the Corporation.
(b) ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, at any
time when Series E Preferred Stock is issued and outstanding and prior to the
conversion of all Series E 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 Series E Preferred Stock shall thereafter have
the right to receive upon conversion of the Series E Preferred Stock, upon the
bases 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 Series E Preferred Stock would
have been entitled to receive in such transaction had the Series E Preferred
Stock been converted in full (without regard to any limitations on conversion
contained herein) immediately prior to such transaction, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the holders of Series E Preferred Stock to the end that the
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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 Series E 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 Series E Preferred Stock. The Corporation
shall not effect any transaction described in this subsection (b) unless (a) it
first gives, to the extent practical, twenty (20) days' prior written notice
(but in any event at least ten (10) 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 Series E
Preferred Stock shall be entitled to convert the Series E Preferred Stock) and
(b) the resulting successor or acquiring entity (if not the Corporation) assumes
by written instrument the obligations of this subsection (b). The above
provisions shall similarly apply to successive consolidations, mergers, sales,
transfers or share exchanges.
(c) OTHER SECURITIES OFFERINGS. If, at any time after the
Issue Date and prior to June 8, 1999, the Corporation sells Common Stock or
securities convertible into, or exchangeable for, Common Stock, other than (i) a
sale pursuant to a bona fide firm commitment underwritten public offering of
Common Stock by the Corporation (not including a continuous offering pursuant to
Rule 415 under the Securities Act of 1933, as amended), (ii) a sale as
consideration for a merger, consolidation or purchase of assets, (iii) a sale in
connection with any strategic partnership or joint venture (the primary purpose
of which is not to raise equity capital) or (iv) a sale to Sanderling Ventures
and its affiliates, Domain Associates and its affiliates, Innocal, Abingworth
Bioventures and its affiliates, Rothchild Asset Management, Dimensional Fund
Advisors, Inc.or New York Life Insurance (collectively, the "Other Common
Stock"), then, if the effective or maximum sales price of the Common Stock with
respect to such transaction (including the effective or maximum conversion, or
exchange price) ("Other Price") is less than the effective Conversion Price of
the Series E Preferred Stock at such time, the Corporation shall adjust the
Conversion Price applicable to the Series E Preferred Stock not yet converted in
form and substance reasonably satisfactory to the holders of Series E Preferred
Stock so that the Conversion Price applicable to the Series E Preferred Stock
shall not, in any event, be greater, after giving effect to all other
adjustments contained herein, than the Other Price.
(d) ADJUSTMENT DUE TO DISTRIBUTION. Subject to Article III,
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 stockholders 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 Series E Preferred Stock shall be entitled,
upon any conversion of shares of Series E Preferred Stock after the date of
record for determining stockholders 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 stockholders entitled to such Distribution.
(e) PURCHASE RIGHTS. Subject to Article III, if at any time
when any Series E 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
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record holders of any class of Common Stock, then the holders of Series E
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 Series E 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 Securities and Exchange
Commission of the Registration Statement (as defined in the Registration Rights
Agreement) on or prior to ninety (90) days following the Issue Date, or (2) such
Registration Statement lapses in effect, or sales 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, after such Registration
Statement becomes effective (including, without limitation, during an Allowed
Delay (as defined in Section 3(f) of the Registration Rights Agreement) or a
Permitted Offering Delay (as defined in Section 3(g) of the Registration Rights
Agreement)), then the Pricing Period shall be comprised of, (i) in the case of
an event described in clause (1), the fifteen (15) Trading Days preceding the
90th day following the Issue Date plus all Trading Days through and including
the third Trading Day following the date of effectiveness of the Registration
Statement; and (ii) in the case of an event described in clause (2), the fifteen
(15) Trading Days preceding the date on which the holder of the Series E
Preferred Stock is first notified that sales may not be made under the
Prospectus, plus all Trading Days through and including the third 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 Series E 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
VI.C, the Corporation, at its expense, shall promptly compute such adjustment or
readjustment and prepare and furnish to each holder of Series E 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 Series
E 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 Series E Preferred Stock.
D. MECHANICS OF CONVERSION. In order to convert Series E
Preferred Stock into full shares of Common Stock, a holder of Series E Preferred
Stock shall: (i) submit a copy of the fully executed notice of conversion in the
form attached hereto as Exhibit A ("Notice of Conversion") to the Corporation by
facsimile dispatched on the Conversion Date (or by other means
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resulting in, or reasonably expected to result in, notice to the Corporation on
the Conversion Date) at the office of the Corporation or its designated Transfer
Agent for the Series E Preferred Stock that the holder elects to convert the
same, which notice shall specify the number of shares of Series E Preferred
Stock to be converted, the applicable Conversion Price 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) prior to Midnight,
New York City time (the "Conversion Notice Deadline") on the date of conversion
specified on the Notice of Conversion; and (ii) surrender the original
certificates representing the Series E Preferred Stock being converted (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
Series E 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 Series E 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) to or upon the order of the holder (i) that number of shares of Common
Stock for the portion of the shares of Series E Preferred Stock converted as
shall be determined in accordance herewith and (ii) a certificate representing
the balance of the shares of Series E 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 $1,000 per day in
cash for each day beyond a two (2) day grace period following the Delivery
Period that the Corporation fails to deliver Common Stock (a "Conversion
Default") issuable upon surrender of shares of Series E Preferred Stock with a
Notice of Conversion until such time as the Corporation has delivered all such
Common Stock (the "Conversion Default Payments"). Such cash amount 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),
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shall be convertible into Common Stock in accordance with the terms of this
Article VI. 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 VI. and in this Article VI.E, the
Corporation shall use commercially reasonable 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. No fractional share shall be issued
upon the conversion of any share or shares of Series E Preferred Stock. All
shares of Common Stock (including fractions thereof) issuable upon conversion of
Series E Preferred Stock as of a Conversion Date to a holder of Series E
Preferred Stock shall be aggregated for purposes of determining whether the
conversion would result in the issuance of any fractional share to such holder
of Series E Preferred Stock. If, after the aforementioned aggregation, the
conversion would result in the issuance of a fraction of a share of Common Stock
to such holder of Series E Preferred Stock, the Corporation shall, in lieu of
issuing any fractional share, pay such holder otherwise entitled to such
fraction a sum in cash equal to the Closing Price of the Common Stock on the
Conversion Date, multiplied by such fraction.
(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 Conversion Date. 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 Series E 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 Series
E Preferred Stock shall survive to the extent the Corporation fails to deliver
such securities.
E. RESERVATION OF SHARES. A number of shares of the authorized
but unissued Common Stock sufficient to provide for the conversion of the Series
E Preferred Stock outstanding at the then current 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 Series E Preferred
Stock, 6,550,000 authorized and unissued shares of Common Stock have been duly
reserved for issuance upon conversion of the Series E Preferred Stock (the
"Reserved Amount"). The Reserved Amount shall be increased from time to time in
accordance with the Corporation'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 Series E Preferred Stock
shall be convertible at the then current Conversion Price, 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
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and reserved, free from preemptive rights, for conversion of the outstanding
Series E Preferred Stock.
If at any time a holder of shares of Series E 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 VI (a "Conversion Default"), the
Corporation shall issue to the holder (or holders, if more than one holder
submits a Notice of Conversion in respect of the same Conversion Date, pro rata
based on the ratio that the number of shares of Series E Preferred Stock then
held by each such holder bears to the aggregate number of such shares held by
such holders) all of the shares of Common Stock which are available to effect
such conversion. The number of shares of Series E 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 a Conversion Default. In addition,
the Corporation shall 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 Premium Amount per share of Series E Preferred
Stock 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 (i) 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
Series E Preferred Stock. 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 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 which it has accrued in
accordance with the terms of this Article VI (so long as there is then a
sufficient number of authorized shares).
Nothing herein shall limit the holder's right to pursue actual damages
for the Corporation's failure to maintain a sufficient number of authorized
shares of Common Stock, and
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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).
F. NOTICE OF CONVERSION PRICE ADJUSTMENTS. Upon the occurrence of
each adjustment or readjustment of the Conversion Price pursuant to this Article
VI, 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 Series E 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 Series E 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
Series E Preferred Stock.
G. STATUS AS STOCKHOLDERS. Upon submission of a Notice of
Conversion by a holder of Series E 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)
shall be deemed converted into shares of Common Stock and (ii) the holder's
rights as a holder of such converted shares of Series E 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
Series E 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
Series E Preferred Stock with respect to such unconverted shares of Series E
Preferred Stock and the Corporation shall, as soon as practicable, return such
unconverted shares of Series E Preferred Stock to the holder or, if such shares
of Series E Preferred Stock have not been surrendered, adjust its records to
reflect that such shares of Series E Preferred Stock have not been converted.
In all cases, the holder shall retain all of its rights and remedies (including,
without limitation, the right to receive Conversion Default Payments pursuant to
Article IV.D to the extent required thereby for such Conversion Default and any
subsequent Conversion Default).
VII. AUTOMATIC CONVERSION
So long as the Registration Statement is effective and there is not
then a continuing Mandatory Redemption Event, each share of Series E Preferred
Stock issued and outstanding on June 8, 2001 (the "Automatic Conversion Date"),
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 VI 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 Series E
Preferred Stock that (i) sales cannot be made pursuant to the Registration
Statement (whether by reason of the Corporation's failure to properly supplement
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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) and any Permitted
Offering Delays as defined in Section 3(g) of the Registration Rights
Agreement)), (ii) any Mandatory Redemption Event (as defined in Article V.A)
exists, without regard to whether any cure periods shall have run or (iii)
pursuant to Article V.A with respect to a Mandatory Redemption Event described
in Article V.A(ii). 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.
VIII. VOTING RIGHTS
A. GENERALLY. Except as set forth herein, or as otherwise
provided by the Delaware General Corporation Law ("DGCL"), the holders of the
Series E Preferred Stock shall have no voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.
B. NOTICE OF MEETINGS. Notwithstanding the above, the Corporation
shall provide each holder of Series E Preferred Stock with prior notification of
any meeting of the stockholders (and copies of proxy materials and other
information sent to stockholders at the time such materials are provided to the
stockholders of the Corporation entitled to vote). In the event of any taking
by the Corporation of a record of its stockholders for the purpose of
determining stockholders 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 stockholders 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 twenty (20)
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.
C. VOTE REQUIRED. To the extent that under the DGCL the vote of
the holders of the Series E 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 Series E 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 Series E Preferred Stock (except as otherwise may be required
under the DGCL) shall constitute the approval of such action by the class. To
the extent that under the DGCL holders of the Series E Preferred Stock are
entitled to vote on a matter with holders of Common Stock, voting together as
one class, each share of Series E 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 stockholders as
the date as of which the Conversion Price is calculated. Holders of the Series
E
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Preferred Stock shall be entitled to notice of all shareholder meetings or
written consents (and copies of proxy materials and other information sent to
stockholders at the time such materials are provided to the stockholders of the
Corporation entitled to vote) with respect to which they would be entitled to
vote, which notice would be provided pursuant to the Corporation's bylaws and
the DGCL.
IX. PROTECTIVE PROVISIONS
So long as shares of Series E Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the DGCL) of the holders of at least a majority of the
then outstanding shares of Series E Preferred Stock:
(a) alter or change the rights, preferences or privileges of
the Series E Preferred Stock or any Senior Securities so as to affect adversely
the rights, preferences and privileges of the Series E Preferred Stock;
PROVIDED, HOWEVER, that any increase in the authorized preferred stock of the
Corporation (other than an increase in the authorized number of shares of Series
E Preferred Stock) or the creation and issuance of any Junior Securities or any
PARI PASSU Securities as permitted pursuant to the terms hereof shall not be
deemed to affect adversely the right, preferences and privileges of the Series E
Preferred Stock.
(b) create any new class or series of Senior Securities;
(c) create any new class or series of PARI PASSU Securities,
unless the average Closing bid Price for the ten (10) Trading Days ending one
(1) Trading Day prior to the date on which the Board of Directors approve the
issuance of such class or series of capital stock is above $4.00, in which case
such consent will not be required;
(d) increase the authorized number of shares of Series E
Preferred Stock; or
(e) 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 Series E 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 Series E Preferred Stock agree to allow the Corporation to alter or
change the rights, preferences or privileges of the shares of Series E Preferred
Stock, pursuant to subsection (a) above, so as to affect the Series E Preferred
Stock, then the Corporation will deliver notice of such approved change to the
holders of the Series E 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 Series E Preferred Stock.
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X. 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 Series E Preferred Stock based on the number of shares of Series E
Preferred Stock then held by each holder relative to the total aggregate number
of shares of Series E Preferred Stock then outstanding.
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IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation this 8th day of June, 1998.
COCENSYS, INC.
By: /s/
-----------------------------------------
F. Richard Nichol, Ph.D.
President and Chief Executive Officer
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EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series E Preferred Stock)
The undersigned hereby irrevocably elects to convert ____ shares of
Series E Preferred Stock, represented by stock certificate No(s). __________
(the "Preferred Stock Certificates") into shares of common stock ("Common
Stock") of CoCensys, Inc. (the "Corporation") according to the conditions of the
Certificate of Designation of Series E 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 undersigned represents and warrants that all offers and sales by
the undersigned of the securities issuable to the undersigned upon conversion of
the Series E 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:_____________________________
Three Lowest Trade Prices:______________________
Applicable Conversion Price:____________________
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 Series E 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 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.
<PAGE>
EXHIBIT 4.3
EXHIBIT B
TO
SECURITIES
PURCHASE
AGREEMENT
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 JUNE 8, 1998, NEITHER THIS WARRANT NOR ANY OF
SUCH SHARES MAY BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED, OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER SUCH ACT OR
AN OPINION OF COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT
OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT. ANY SUCH SALE,
ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH APPLICABLE STATE
SECURITIES LAWS.
Right to
Purchase
_______
Shares of
Common Stock, par value
$.001 per share
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, _________________________ or its
registered assigns, is entitled to purchase from CoCensys, Inc., a Delaware
corporation (the "Company"), at any time or from time to time during the period
specified in Paragraph 2 hereof, _____________________ (_______) fully paid and
nonassessable shares of the Company's Common Stock, par value $.001 per share
(the "Common Stock"), at an exercise price of $______ [150% of the closing price
on the day prior to the Closing Date] 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 June 8, 1998, by and among the Company and the Buyers
listed on the execution page thereof (the "Securities Purchase Agreement").
1
<PAGE>
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) 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 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 three (3) 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 unconverted shares of Series E Preferred Stock (as
defined in the Securities Purchase Agreement) 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, (a) 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
and (b) the holder of this Warrant may waive the limitations set forth therein
by written notice to the Company upon not less than sixty-one (61) days prior
notice (with such waiver taking effect only upon the expiration of such 61-day
notice period).
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 and before 5:00 p.m.,
New York City time on the fifth (5) anniversary of the date of issuance (the
"Exercise Period").
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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.
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.
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(a) 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.
(b) 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.
(c) CONSOLIDATION, MERGER OR SALE. 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) 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.
(d) 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.
(e) 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
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<PAGE>
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.
(f) 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.
(g) 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.
(h) 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.
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<PAGE>
(i) 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.
(j) CERTAIN DEFINITIONS.
(i) "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, L.P. ("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.
(ii) "COMMON STOCK," for purposes of this Paragraph 4, includes
the Common Stock, par value $.001 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, par value $.001 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
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.
6
<PAGE>
(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, dated as of June 8,
1998, by and among the Company and the other signatories thereto (the
"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.
(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 of 1933, as amended (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
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<PAGE>
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 201 Technology Drive,
Irvine, California 92618 Attention: Chief Executive Officer, with a copy to the
same address, attention General Counsel, 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 three (3) days after deposit with the United
States Post Office or one (1) day following deposit with 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 AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE WITHOUT
REGARD TO THE BODY OF LAW CONTROLLING CONFLICTS OF LAW.
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.
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(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, 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.
(d) CALL RIGHTS. To the extent that this Warrant is integrated with
the Series E Preferred Stock for purposes of Nasdaq Rule 4460(i) and this
Warrant may not be exercised as a result of a 19.99% Redemption Event (as
defined in the Certificate of Designation for the Series E Preferred Stock (the
"Certificate of Designation")), the Company shall redeem this Warrant in
accordance with the procedures set forth in Article V.B. of the Certificate of
Designation and at a payment equal to 110% times the product of (a) the number
of shares of Common Stock the holder of this Warrant would have received upon a
Cashless Exercise multiplied by (b) the Closing Price (as defined in the
Certificate of Designation) of the Common Stock on the Mandatory Redemption Date
(as defined in the Certificate of Designation.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
COCENSYS, INC.
By:
-------------------------------------
F. Richard Nichol, Ph.D
President and Chief Executive Officer
Dated as of June 8, 1998
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FORM OF EXERCISE AGREEMENT
Dated: , .
-------- ----
To: CoCensys, 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 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.
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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.
Any assignees listed above are "accredited investors" as that term is
defined in Rule 501(a) of Regulation D as promulgated by the United States
Securities and Exchange Commission under the Securities Act of 1933, as amended.
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.
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EXHIBIT 4.4
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of June 8, 1998,
by and among CoCensys, Inc, a Delaware corporation, with its headquarters
located at 201 Technology Drive, Irvine, California 92618 (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 Series E
Convertible Preferred Stock (the "PREFERRED STOCK") that are convertible into
shares (the "CONVERSION SHARES") of the Company's common stock, par value $.001
per share (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 "INITIAL WARRANTS") to
acquire 350,000 shares of Common Stock (the "INITIAL WARRANT SHARES"), upon the
terms and conditions and subject to the limitations and conditions set forth in
the Initial Warrants; and
B. Under certain circumstances described in the Securities Purchase
Agreement, the Company is obligated to issue additional warrants (the
"ADDITIONAL WARRANTS" and, collectively with the Initial Warrants, the
"WARRANTS") to the Initial Investors to acquire 100,000 shares of Common Stock
(the "ADDITIONAL WARRANT SHARES" and, collectively with the Initial Warrant
Shares, the "WARRANT SHARES").
C. 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
(including any shares issued pursuant to Articles V, VI.D(b) and VI.E of the
Certificate of Designation) and Warrant Shares issued or issuable 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" means a registration statement 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 thirty (30) 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 underlying the Preferred Stock and Warrants
issued or issuable pursuant to the Securities Purchase Agreement, which
Registration Statement, to the extent allowable under the 1933 Act and the Rules
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 Stock and exercise
of the Warrants (i) to prevent dilution resulting from stock splits, stock
dividends or similar transactions or (ii) by reason of changes in the Conversion
Price of the Preferred Stock in accordance with the terms thereof or the
exercise price of the Warrants in accordance with the terms thereof. The number
of shares of Common Stock initially included in such Registration Statement
shall be no less than one and one half (1 1/2) times the sum
- 2 -
<PAGE>
of the number of Conversion Shares and Warrant Shares that are then issuable
upon conversion of the Preferred Stock and the exercise of the Warrants, without
regard to any limitation on the Investor's ability to convert the Preferred
Stock 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 Stock 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, at the
Investors' sole expense, 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. REDUCTION IN CONVERSION PRICE. The Company shall use its best
efforts to obtain effectiveness of the Registration Statement as soon as
practicable. If (i) the Registration Statement(s) 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 ninety (90) days after the Closing
Date or if, after the Registration Statement has been declared effective by the
SEC, sales 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 adjustments described in
this Section 2(c) shall be effected 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). The then Applicable Percentage (as
defined in the Certificate of Designation) shall be automatically decreased
forever, notwithstanding any termination of this Agreement, for all shares of
Preferred Stock then outstanding by the aggregate percentage obtained by
multiplying the Percentage Reduction (as defined below) by the sum of: (i) the
number of months (prorated for partial months) after the end of such 90-day
period and prior to the earlier of (a) the date the Registration Statement is
declared effective by the SEC or (b) the Registration Period expires, 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) the number of months
(prorated for partial months) that sales 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, but excluding any days
during an Allowed Delay (as defined in Section 3(f)) or a Permitted Offering
Delay (as defined in Section 3(g)) until the Registration Period expires; and
(iii) the number of months (prorated for partial
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months) that the Common Stock is not listed or included for quotation on Nasdaq,
Nasdaq SmallCap, NYSE or AMEX or that trading thereon is halted after the
Registration Statement has been declared effective until the Registration
Period expires. The term "PERCENTAGE REDUCTION" means one half percent (0.5%)
with respect to the first thirty (30) days of any calculation under clause (i)
of the sentence in which the term is used, and one percent (1%) for any other
purpose. (For example, if the Registration Statement becomes effective one (1)
month after the end of such 90-day period, the Applicable Percentage would
equal 99.5% (100% - 0.5%). If thereafter, sales could not be made pursuant to
the Registration Statement for an additional period of one (1) month, the
Applicable Percentage would equal 88.5% (90% - 1.5%). (Note that in accordance
with the Certificate of Designation, the Applicable Percentage reduces from 100%
to 90% on the 121st day following the Issue Date (as defined in the Certificate
of Designation) without regard to any reduction pursuant to this Section 2(c)).
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 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 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 and other than pursuant to agreements entered into prior to the date of
this Agreement which prohibit the inclusion of the Investors on such
Registration Statement), 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
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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 the 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.
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 thirty (30) 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, 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) two (2) years from the
Closing Date (as defined in the Securities Purchase Agreement) (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
Statement and the prospectus used in connection with the Registration Statement
as may be necessary to keep the Registration Statement effective at all times
during the Registration Period, and, during such period, comply with the
provisions of the 1933 Act with respect to the disposition of all Registrable
Securities of the Company covered by the Registration Statement 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 Statement. In the event 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 Stock and
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exercise of the Warrants, the Company shall amend the Registration Statement, or
file a new Registration Statement (on the short form available therefor, if
applicable), or both, so as to cover all of the Registrable Securities, 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 following
the filing thereof. The provisions of Section 2(c) above shall be applicable
with respect to such obligation, with the ninety (90) days running from the day
after the date on which the Company reasonably first determines (or reasonably
should have determined) the need therefor.
c. The Company shall furnish to each Investor whose Registrable
Securities are included in the 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 the Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and 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 the 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 any Registration
Statement or any amendment thereto to be declared effective by the SEC as soon
as practicable and shall promptly 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 the Registration Statement or
any amendment thereto will not be subject to review.
d. The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by the Registration Statement 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
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cause the Company undue expense or burden, or (e) make any change in its charter
or bylaws, which in each case 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 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 the
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 to the prospectus or amendment to the
Registration Statement or, if on the advice of counsel to the Company it is
sufficient to correct such untrue statement or omission by filing a Current
Report on Form 8-K, file a Current Report on Form 8-K to correct such untrue
statement or omission, and deliver such number of copies of such supplement,
amendment or report to each Investor as such Investor may reasonably request;
provided that, for not more than thirty (30) consecutive trading days (or a
total of not more than seventy-five (75) trading days in any twelve (12) month
period or ninety (90) trading days during the Registration Period), the Company
may delay the disclosure of material non-public information concerning the
Company (as well as any update supplement or amendment of such prospectus or
Registration Statement) the disclosure of which at the time is not, in the good
faith opinion of the Company, 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 the Registration Statement until the end of the Allowed Delay. With
respect to each Investor, a delay or suspension of such Investor's ability to
sell Registrable Securities under the Registration Statement, including
reasonable time but no more than twenty (20) days to file and ninety (90) days
to effect an amendment to the Registration Statement or supplement to the
prospectus, resulting solely from either (a) a change in the information
included in the prospectus relating solely to such Investor, (b) such Investor's
failure to timely provide required information concerning such Investor upon
first becoming an Investor as a transferee of the Preferred Shares or Warrants
or (c) a request pursuant to Section 3(p) hereof, shall be deemed an 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.
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<PAGE>
g. The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a 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.
Notwithstanding anything contained herein to the contrary and in addition to any
Allowed Delay, so long as the Company gives the Investors written notice ten
(10) days prior to the first day of a Permitted Offering Delay (as defined
herein), the Company shall be permitted to suspend the Investors' ability to
sell the Common Stock pursuant to the Registration Statement for not more than
sixty (60) days during a Permitted Public Offering (as defined below) (a
"PERMITTED OFFERING DELAY"). A "PERMITTED PUBLIC OFFERING" shall mean an
underwritten public offering (excluding a continuous offering pursuant to Rule
415 under the 1933 Act) resulting in gross proceeds to the Company of
$20,000,000 led by at least one of the underwriters listed on SCHEDULE 3(g)
attached hereto and made a part hereof. The Permitted Offering Delay shall
begin on the date of effectiveness of the registration statement related to the
Permitted Public Offering.
h. The Company shall permit a single firm of counsel designated by
the Initial Investors to review the Registration Statement and all amendments
and supplements thereto (as well as all requests for acceleration or
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
and timely objects and will not request acceleration of the Registration
Statement without prior notice to such counsel. The sections of the
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 practical, 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 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 the Registration Statement or, if such securities are
not being sold by an underwriter, on the date of effectiveness thereof (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.
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<PAGE>
k. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to the
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 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
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same class or series issued by the Company are then listed, if any, if the
listing of such Registrable Securities is then permitted under the rules of such
exchange, or (ii) secure the designation and quotation, of all the Registrable
Securities covered by the Registration Statement on Nasdaq or, if not eligible
for Nasdaq on the Nasdaq SmallCap and, without limiting the generality of the
foregoing, use its best efforts 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 the 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 request, and, within three (3)
business days after a Registration Statement which includes Registrable
Securities is declared 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.
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 (other
than pursuant to agreements in effect as of the date 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
pursuant to the Registration Statement.
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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
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from 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
of such Investor's election to exclude all of such Investor's Registrable
Securities from the 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. No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements in usual and
customary form entered into by the Company, (ii) completes
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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.
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 Securities 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.
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
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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 the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c) hereof; (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; (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 (iv)
shall not apply to any Claim solely arising from an Investor's failure to
satisfy its prospectus delivery obligations under the 1933 Act, if any, if such
prospectus was timely made available by the Company pursuant to Section 3(c)
hereof. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section
9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees 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
any Indemnified Party entitled to indemnification under this Section 6(b) in
connection with investigating or defending any such Claim; PROVIDED, HOWEVER,
that the indemnity 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 this 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
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<PAGE>
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
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. In such event, 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
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<PAGE>
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;
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.
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
and upon the occurrence of all of the following: (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 certifies to the Company
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<PAGE>
that it is 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. TERM AND SURVIVAL.
Sections 2, 3, and 4 of this Agreement shall terminate upon the expiration
of the Registration Period; PROVIDED, HOWEVER, that any reduction to the
Applicable Percentage pursuant to Section 2(c) shall survive the expiration of
the Registration Period. All other provisions of this Agreement shall survive
the expiration of the Registration Period.
12. MISCELLANEOUS.
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 U.S. 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:
CoCensys, Inc.
201 Technology Drive
Irvine, California 92618
Attention: Chief Executive Officer
Facsimile: (949) 753-6161
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<PAGE>
With copy to:
CoCensys, Inc.
201 Technology Drive
Irvine, California 92618
Attention: General Counsel
Facsimile: (949) 753-6161
If to an Investor: to the address set forth immediately below such Investor's
name on the signature pages to the Securities Purchase Agreement or, in the case
of an Investor who is not an Initial Investor, to the address provided by such
Investor pursuant to Section 9 hereof.
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 enforced, governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such State. 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. The parties hereto hereby submit to the exclusive
jurisdiction of the United States Federal Courts located in Delaware with
respect to any dispute arising under this Agreement or the transactions
contemplated hereby.
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
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<PAGE>
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 shares of Preferred Stock 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<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.
COCENSYS, INC.
By: /s/
-----------------------------------------------
F. Richard Nichol, Ph.D.
President and 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: /s/
-----------------------------------------------
Wayne D. Bloch
Managing Director
THEMIS PARTNERS L.P.
By: Promethean Investment Group L.L.C.
Its: General Partner
By: /s/
-----------------------------------------------
E. Kurt Kim
Duly Authorized Signatory
HERACLES FUND
By: Promethean Investment Group L.L.C.
Its: Investment Advisor
By: /s/
-----------------------------------------------
E. Kurt Kim
Duly Authorized Signatory
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<PAGE>
EXHIBIT 4.5
EXHIBIT E
TO
SECURITIES
PURCHASE
AGREEMENT
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 JUNE __, 1998, NEITHER
THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD, OFFERED FOR
SALE, ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF REGISTRATION UNDER SUCH ACT OR AN OPINION OF COUNSEL
THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD
PURSUANT TO RULE 144 UNDER SUCH ACT. ANY SUCH SALE, ASSIGNMENT
OR TRANSFER MUST ALSO COMPLY WITH APPLICABLE STATE SECURITIES
LAWS.
Right to
Purchase
_______
Shares of
Common Stock,
par value $.001
per share
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, _________________________ or its
registered assigns, is entitled to purchase from CoCensys, Inc., a Delaware
corporation (the "Company"), at any time or from time to time during the period
specified in Paragraph 2 hereof, _____________________ (_______) fully paid and
nonassessable shares of the Company's Common Stock, par value $.001 per share
(the "Common Stock"), at an exercise price of $______ [125% of the closing price
on the day prior to the day which is one hundred fifty (150) days from the
Closing Date] 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 June __,
1
<PAGE>
1998, 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) 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 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 three (3) 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 unconverted shares of Series E Preferred Stock (as
defined in the Securities Purchase Agreement) 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, (a) 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
and (b) the holder of this Warrant may waive the limitations set forth therein
by written notice to the Company upon not less than sixty-one (61) days prior
notice (with such waiver taking effect only upon the expiration of such 61-day
notice period).
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 and before 5:00 p.m., New York City time on the fifth (5)
anniversary of the date of issuance (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.
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.
3
<PAGE>
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) 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.
(b) 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.
(c) CONSOLIDATION, MERGER OR SALE. 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) 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.
(d) 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.
4
<PAGE>
(e) 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.
(f) 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.
(g) 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.
(h) 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
5
<PAGE>
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.
(i) 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.
(j) CERTAIN DEFINITIONS.
(i) "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, L.P. ("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.
(ii) "COMMON STOCK," for purposes of this Paragraph 4, includes
the Common Stock, par value $.001 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, par value $.001 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
6
<PAGE>
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, dated as of June ___,
1998, by and among the Company and the other signatories thereto (the
"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.
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<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 of 1933, as amended (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 201 Technology Drive,
Irvine, California 92618 Attention: Chief Executive Officer, with a copy to the
same address, attention General Counsel, 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 three (3) days after deposit with the United
States Post Office or one (1) day following deposit with 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 AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE WITHOUT
REGARD TO THE BODY OF LAW CONTROLLING CONFLICTS OF LAW.
8
<PAGE>
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, 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.
(d) CALL RIGHTS. To the extent that this Warrant is integrated with
the Series E Preferred Stock for purposes of Nasdaq Rule 4460(i) and this
Warrant may not be exercised as a result of a 19.99% Redemption Event (as
defined in the Certificate of Designation for the Series E Preferred Stock (the
"Certificate of Designation")), the Company shall redeem this Warrant in
accordance with the procedures set forth in Article V.B. of the Certificate of
Designation and at a payment equal to 110% times the product of (a) the number
of shares of Common Stock the holder of this Warrant would have received upon a
Cashless Exercise multiplied by (b) the Closing Price (as defined in the
Certificate of Designation) of the Common Stock on the Mandatory Redemption Date
(as defined in the Certificate of Designation.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
COCENSYS, INC.
By:
-------------------------------------
Name:
------------------------------
Title:
-----------------------------
Dated as of December ___, 1998
10
<PAGE>
FORM OF EXERCISE AGREEMENT
Dated: , .
-------- ----
To: CoCensys, 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 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.
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<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.
Any assignees listed above are "accredited investors" as that term is
defined in Rule 501(a) of Regulation D as promulgated by the United States
Securities and Exchange Commission under the Securities Act of 1933, as
amended.
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.
12
<PAGE>
EXHIBIT 99.1
Contact: F. Richard Nichol, Ph.D. Marcia Kean or
President & Chief Executive Officer Lucy Morrison
COCENSYS, INC. FEINSTEIN KEAN PARTNERS
617/577-8110
Peter E. Jansen
Vice President, Chief Financial Officer
COCENSYS, INC.
714/753-6100
COCENSYS, INC. RAISES $8 MILLION THROUGH THE ISSUANCE OF
PREFERRED STOCK
FUNDING TO ADVANCE CLINICAL DEVELOPMENT OF GANAXOLONE
IRVINE, CA - June 9, 1998 - CoCensys, Inc. (NASDAQ: COCN) today announced that
it has raised $8 million through the private placement of a new series of
convertible preferred stock. Under terms of the private placement, the Company
may sell an additional $2 million of this series of preferred stock later this
year or early next year, subject to the fulfillment of certain conditions.
"In line with our strategy of intense focus on the rapid development of our lead
compound, CoCensys will use a significant portion of these funds to advance
clinical trials of ganaxolone for the prevention and treatment of migraine,"
said F. Richard Nichol, Ph.D., President and Chief Executive Officer of
CoCensys. "We are looking forward to the commencement of a Phase II clinical
trial this summer to further evaluate the efficacy of ganaxolone in tablet form
in migraine patients."
"In addition to funding the Phase II clinical trial, a portion of these funds
will be used to conclude the preclinical studies of a novel sodium channel
blocker that CoCensys is developing to treat severe neuropathic pain," said
Peter Jansen, Vice President and Chief Financial Officer.
The convertible preferred stock carries a 7.5% per annum dividend until
converted, subject to reductions in the dividend rate if and when the trading
price of the Company's common stock increases to certain levels. The shares of
the preferred stock are convertible at the holder's option, but no later than
three years from issuance date. The conversion price is based, in part, on the
CoCensys common stock price at the time of conversion, subject to a maximum of
$3.93 per share.
- more -
<PAGE>
COCENSYS, INC. RAISES $8 MILLION THROUGH THE ISSUANCE OF PREFERRED STOCK
June 9, 1998
Page Two
The Company retained the right to temporarily suspend the holder's conversion
rights, offer certain financial incentives not to convert for a period of time,
or redeem the preferred stock at a premium if the common stock price decreases
to a pre-determined level.
The terms of the private placement include the issuance of warrants to purchase
350,000 shares of common stock at $ 4.50 per share, and, in addition, in order
to encourage the investors to retain the preferred stock for a longer period of
time before conversion, the Company will issue warrants to purchase an
additional 100,000 shares of common stock if the investors hold a certain amount
of preferred stock for at least five months following purchase.
CoCensys is a biopharmaceutical company that discovers and develops products to
treat neurological and psychiatric disorders. The Company's product development
programs focus on novel small molecule compounds for the treatment of migraine,
epilepsy, anxiety, insomnia, stroke, Parkinson's, neurodegenerative diseases and
neuropathic pain. More information about the Company is available on its web
site: http://www.cocensys.com.
This press release includes forward looking statements that involve a high
degree of technological, regulatory and competitive risks and uncertainties
inherent to early stage biopharmaceutical companies. Actual results may differ
due to a number of factors, including the fact that preclinical testing and
clinical trial results are not necessarily predictive of whether future testing
and trials will replicate or confirm these results or whether a therapeutic
agent will succeed in subsequent clinical trials or be approved by the FDA or
other regulatory agency as a drug, as well as those factors that are more fully
discussed in the Company's most recent Form 10-K and Form 10-Q.
