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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 18, 1998
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Enamelon, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 0-21595 13-3669775
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(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Ident. No.)
15 Kimball Avenue, Yonkers, New York 10704
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(Address of Principal Executive Offices) (Zip Code)
(914) 237-1308
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Registrant's telephone number, including area code
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Item 5. Other Events.
On December 18, 1998, the Registrant sold 500 shares of its Series B
Convertible Preferred Stock, $.01 par value, to three purchasers for an
aggregate purchase price of $5,000,000. Each share of Series B Convertible
Preferred Stock has a stated value of $10,000, plus an accrual amount equal to
6% per annum, payable on conversion in cash or the Registrant's Common Stock,
$.001 par value, at the Registrant's option. After February 28, 1999, holders
of the Series B Convertible Preferred Stock can convert it into Common Stock
at the lower of (i) the average of the five lowest closing sale prices in the
40 trading days immediately preceding the conversion or (ii) 120% of the
average of the closing prices of the last five trading days of February 1999.
The Company can require holders of the Series B Convertible Preferred Stock to
convert it into Common Stock at any time between March 1, 1999 and August 28,
1999 if the closing price of the Registrant's Common Stock on the Nasdaq
National Market exceeds 200% of the maximum conversion price for 20
consecutive trading days. After August 28, 1999, the Registrant can require
holders of the Series B Convertible Preferred Stock to convert it into Common
Stock if the closing price of the Registrant's Common Stock exceeds 150% of
the maximum conversion price for 20 consecutive trading days. Holders of the
Series B Convertible Preferred Stock will be required to convert it on
December 17, 2001, if they have not converted prior to that time.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits.
3.1 Certificate of Designations, Preferences and Rights of
Series B Convertible Preferred Stock of the Registrant.
10.1 Securities Purchase Agreement, dated as of December
17, 1998, by and among the Registrant, HFTP Investments
LLC, Fisher Capital Ltd., and Wingate Capital Ltd.
10.2 Omitted Schedules and Exhibits to Securities Purchase
Agreement.
10.3 Registration Rights Agreement, dated as of December
17, 1998, by and among the Registrant, HFTP Investments
LLC, Fisher Capital Ltd., and Wingate Capital Ltd.
99.1 Press Release.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENAMELON, INC.
(Registrant)
Date: December 18, 1998 By: /s/Dr. Steven R. Fox
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Dr. Steven R. Fox
Chief Executive Officer
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EXHIBIT INDEX
Exhibit No. Description
3.1 Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Stock of the Registrant.
10.1 Securities Purchase Agreement, dated as of December 17, 1998, by and
among the Registrant, HFTP Investments LLC, Fisher Capital Ltd., and
Wingate Capital Ltd.
10.2 Omitted Schedules and Exhibits to Securities Purchase Agreement.
10.3 Registration Rights Agreement, dated as of December 17, 1998, by and
among the Registrant and HFTP Investments LLC, Fisher Capital Ltd.,
and Wingate Capital Ltd.
99.1 Press Release.
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CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES B CONVERTIBLE PREFERRED STOCK
OF
ENAMELON, INC.
Enamelon, Inc. (the "Company"), a corporation organized and existing
under the General Corporation Law of the State of Delaware, does hereby
certify that, pursuant to authority conferred upon the Board of Directors of
the Company by the Certificate of Incorporation, as amended, of the Company,
and pursuant to Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors of the Company at a meeting duly held,
adopted resolutions (i) authorizing a series of the Company's previously
authorized preferred stock, par value $0.01 per share, and (ii) providing for
the designations, preferences and relative, participating, optional or other
rights, and the qualifications, limitations or restrictions thereof, of Five
Hundred (500) shares of Series B Convertible Preferred Stock of the Company,
as follows:
RESOLVED, that the Company is authorized to issue 500 shares
of Series B Convertible Preferred Stock (the "Preferred Shares"), par
value $0.01 per share, which shall have the following powers,
designations, preferences and other special rights:
(1) Dividends. The Preferred Shares shall not bear any dividends.
(2) Holder's Conversion of Preferred Shares. A holder of Preferred
Shares shall have the right, at such holder's option, to convert the Preferred
Shares into shares of the Company's common stock, $0.001 par value per share
(the "Common Stock"), on the following terms and conditions:
(a) Conversion Right. Subject to the provisions of Section 2(l), at
any time or times on or after the Issuance Date (as defined below), any holder
of Preferred Shares shall be entitled to convert any whole number of Preferred
Shares into fully paid and nonassessable shares (rounded to the nearest whole
share in accordance with Section 2(j)) of Common Stock, at the Conversion Rate
(as defined below); provided, however, that in no event shall any holder be
entitled to convert Preferred Shares in excess of that number of Preferred
Shares which, upon giving effect to such conversion, would cause the aggregate
number of shares of Common Stock beneficially owned by the holder and its
affiliates to exceed 4.99% of the outstanding shares of the Common Stock
following such conversion. For purposes of the foregoing proviso, the
aggregate number of shares of Common Stock beneficially owned by the holder
and its affiliates shall include the number of shares of Common Stock issuable
upon conversion of the Preferred Shares with respect to which the
determination of such proviso is being made, but shall exclude the number of
shares of Common Stock which would be issuable upon (i) conversion of the
remaining, nonconverted Preferred Shares
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beneficially owned by the holder and its affiliates and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities
of the Company (including, without limitation, any warrants or convertible
preferred stock) subject to a limitation on conversion or exercise analogous
to the limitation contained herein beneficially owned by the holder and its
affiliates. Except as set forth in the preceding sentence, for purposes of
this Section 2(a), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes
of this Section, in determining the number of outstanding shares Common Stock
a holder may rely on the number of outstanding shares of Common Stock as
reflected in (1) the Company's most recent Form 10-Q or Form 10-K, as the case
may be, (2) a more recent public announcement by the Company or (3) any other
notice by the Company or its transfer agent setting forth the number of shares
of Common Stock outstanding. For any reason at any time, upon the written or
oral request of any a holder, the Company shall immediately confirm orally and
in writing to any such holder the number of shares Common Stock then
outstanding. In any case, the number of outstanding shares Common Stock shall
be determined after giving effect to conversions of Preferred Shares by such
holder since the date as of which such number of outstanding shares of Common
Stock was reported. Sections 2(l) and (m) and Section 13 set forth additional
limitations on the Company's obligation to issue shares of Common Stock upon
conversion of the Preferred Shares.
(b) Conversion Rate and Other Definitions. The number of shares of
Common Stock issuable upon conversion of each of the Preferred Shares pursuant
to Sections (2)(a) and 2(i) shall be determined according to the following
formula (the "Conversion Rate"):
Conversion Amount
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Conversion Price
For purposes of this Certificate of Designations, the following terms
shall have the following meanings:
(i) "Additional Amount" means the result of the following
formula: (0.06)(N/365)($10,000).
(ii) "Base Price" means with respect to any Preferred Shares
as of any date of determination (A) prior to February 28, 1999, the Initial
Base Price and (B) on or after February 28, 1999, the February Base Price,
subject to adjustment as provided herein.
(iii) "Closing Bid Price" means, for any security as of any
date, the last closing bid price for such security on the Principal Market as
reported by Bloomberg Financial Markets ("Bloomberg"), or, if the Principal
Market is not the principal securities exchange or trading market for such
security, the last closing bid price of such security on the principal
securities exchange or trading market where such security is listed or traded
as reported by Bloomberg, or if the foregoing do not apply, the last closing
bid price of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing
bid price is reported for such security by Bloomberg, the last closing trade
price of such security as reported by Bloomberg, or, if no last closing trade
price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security as reported in the "pink sheets"
by the
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National Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated
for such security on such date on any of the foregoing bases, the Closing Bid
Price of such security on such date shall be the fair market value as mutually
determined by the Company and the holders of two-thirds (2/3) of the Preferred
Shares then outstanding. If the Company and the holders of Preferred Shares
are unable to agree upon the fair market value of the Common Stock, then such
dispute shall be resolved pursuant to Section 2(h)(iii). (All such
determinations to be appropriately adjusted for any stock dividend, stock,
split or other similar transaction during such period).
(iv) "Closing Sale Price" means, for any security as of any
date, the last closing trade price for such security on the Principal Market
as reported by Bloomberg, or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last closing
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 last closing trade 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 closing trade price is reported for
such security by Bloomberg, the last closing bid price of such security as
reported by Bloomberg, or, if no last closing bid price is reported for such
security by Bloomberg, the average of the bid prices of any market makers for
such security as reported in the "pink sheets" by the National Quotation
Bureau, Inc. If the Closing Sale Price cannot be calculated for such security
on such date on any of the foregoing bases, the Closing Sale Price of such
security on such date shall be the fair market value as mutually determined by
the Company and the holders of two-thirds (2/3) of the Preferred Shares. If
the Company and the holders of Preferred Shares are unable to agree upon the
fair market value of the Common Stock, then such dispute shall be resolved
pursuant to Section 2(h)(iii). (All such determinations to be appropriately
adjusted for any stock dividend, stock, split or other similar transaction
during such period);
(v) "Conversion Amount" means the sum of (A) the Additional
Amount, provided that the Company has not elected to pay the Additional Amount
in cash as permitted by Section 2(c), and (B) $10,000.
(vi) "Conversion Percentage" means 100%, subject to
adjustment as provided herein.
(vii) "Conversion Price" means, as of any Conversion Date
(as defined below) or other date of determination, the lesser of (X) the
Variable Conversion Price and (Y) the Base Price, each in effect as of such
date and subject to adjustment as provided herein.
(iv) "February Base Price" means 120% of the arithmetic
average of the Closing Sale Prices of the Common Stock for the five (5)
trading days immediately preceding February 28, 1999, subject to adjustment as
provided herein.
(viii) "Initial Base Price" means, with respect to any
Preferred Shares, 120% of the price which shall be computed as the arithmetic
average of the five (5) lowest Closing Sale Prices of the Common Stock during
the forty (40) consecutive trading days immediately preceding the Issuance
Date.
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(ix) "Issuance Date" means the first date on which any
Preferred Shares are issued by the Company.
(x) "N" means the number of days from, but excluding, the
Issuance Date through and including (1) the Conversion Date for the Preferred
Shares for which conversion is being elected, or (2) such other date of
determination, as the case may be.
(xi) "Principal Market" means the Nasdaq National Market.
(xii) "Registration Rights Agreement" means that certain
registration rights agreement between the Company and the initial holders of
the Preferred Shares concerning the registration of the resale of the shares
of Common Stock issuable upon conversion of the Preferred Shares.
(xiii) "Securities Purchase Agreement" means that certain
securities purchase agreement between the Company and the initial holders of
the Preferred Shares concerning the purchase of Preferred Shares.
(xiv) "Variable Conversion Price" means, as of any date of
determination, the amount obtained by multiplying the Conversion Percentage in
effect as of such date by the price which shall be computed as the arithmetic
average of the five lowest Closing Sale Prices of the Common Stock during the
40 consecutive trading days immediately preceding such date of determination.
(c) Company's Option to Pay Additional Amount in Cash. Upon
conversion pursuant to Sections 2(a) or 2(i), the Company shall have the right
to elect to pay the Additional Amount in cash, in lieu of conversion to Common
Stock. If the Company elects to pay the Additional Amount in cash, such amount
shall be paid by check or wire transfer, at the option of the Company,
simultaneously with the delivery to the holder of the certificates
representing the Common Stock issuable upon conversion in accordance with
Section 2(h). In order to exercise its right to pay any Additional Amount in
cash, the Company must advise each holder of Preferred Shares in writing (the
"Cash Dividend Notice") that the Additional Amount shall be paid in cash until
such time as the Company shall terminate the Cash Dividend Notice by providing
at least five business days prior written notice of such termination (the
"Termination Notice"). The Cash Dividend Notice shall set forth the effective
date of the Cash Dividend Notice, which date shall be at least five business
days after the date the Cash Dividend Notice is deemed to have been delivered
pursuant to Section 19. The Termination Notice shall be effective on the fifth
business day after the date the Termination Notice is deemed to have been
delivered pursuant to Section 19 unless a later date shall be specified in the
Termination Notice.
(d) Effect of Failure to Obtain and Maintain Effectiveness of
Registration Statement. If the registration statement (the "Registration
Statement") covering the resale of the required number of shares of Common
Stock issuable upon conversion or exercise of the Preferred Shares and
required to be filed by the Company pursuant to the Registration Rights
Agreement is not (i) filed by the Scheduled Filing Date (as defined in the
Registration Rights Agreement), (ii) declared effective by the Securities and
Exchange Commission ("SEC") on or before the Scheduled Effective
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Date (as defined in the Registration Agreement), except where the failure to
meet such deadline is the result solely of actions by the holders of
Registrable Securities (as defined in the Registration Rights Agreement) or
(iii) if after the Registration Statement has been declared effective by the
SEC, sales of all such shares of Common Stock cannot be made pursuant to the
Registration Statement (whether because of a failure to keep the Registration
Statement effective, to disclose such information as is necessary for sales to
be made pursuant to the Registration Statement, to register sufficient shares
of Common Stock or otherwise), then, as partial relief for the damages to any
holder by reason of any such delay in or reduction of its ability to sell the
underlying shares of Common Stock (which remedy shall not be exclusive of any
other remedies available at law or in equity), the Conversion Percentage and
the Base Price shall be adjusted as follows:
(I) Conversion Percentage. The Conversion Percentage
shall be reduced as follows:
(A) The Conversion Percentage in effect at such
time shall be reduced by a number of percentage points equal to the sum of (x)
2 and (y) the product of (i) .067 and (ii) the number of days after the
Scheduled Filing Date that the relevant Registration Statement is not filed
with the SEC, (which number of days shall not include days for which the sole
reason that the relevant Registration Statement was not filed was because of
actions by holders of Registrable Securities) (the "Registration Statement
Filing Default Days"); and
(B) The Conversion Percentage in effect at such
time shall be reduced by a number of percentage points equal to the product of
(x) .067 and (y) the sum of (i) the number of days after the Scheduled
Effective Date that the relevant Registration Statement is not declared
effective by the SEC, and (ii) the number of days (excluding days during an
Allowable Grace Period (as defined in the Registration Rights Agreement)) that
sales cannot be made pursuant to the Registration Statement in accordance with
the Registration Statement after the Registration Statement has been declared
effective (which number of days shall not include days for which the sole
reason that sales cannot be made is because of actions by holders of
Registrable Securities) (such number of days, being collectively referred to
as the "Registration Statement Default Days"); provided, however, that if
Registration Statement is not declared effective by the date which is 30 days
after the Scheduled Effective Date, the Conversion Percentage shall be reduced
by an additional 2 percentage points; and
(II) Base Price. The Base Price shall be reduced as
follows:
(A) The Base Price in effect at such time shall
be reduced by an amount equal to the sum of (x) the product of .02 and the
Initial Base Price in effect as of the Issuance Date and (y) the product of
(I) the Initial Base Price and (II) .00067 multiplied by the Registration
Statement Filing Default Days; and
(B) The Base Price in effect at such time shall
be reduced by an amount equal to the product of (x) the Initial Base Price and
(y) .00067 multiplied by the Registration Statement Default Days; provided,
however, that if the Registration Statement is not declared effective by the
date which is 30 days after the Scheduled Effective Date, the Base Price shall
be reduced by an additional amount equal to the product of .02 and the Initial
Base Price.
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(e) Adjustment to Conversion Price - Dilution and Other Events. In
order to prevent dilution of the rights granted under this Certificate of
Designations, the Conversion Price will be subject to adjustment from time to
time as provided in this Section 2(e).
(i) Adjustment of Base Price upon Issuance of Common Stock.
If the Company issues or sells, or is deemed to have issued or sold, any
shares of Common Stock (other than Conversion Shares (as defined in the
Securities Purchase Agreement) and shares of Common Stock deemed to have been
issued by the Company in connection with Approved Issuances (as defined
below)) for a consideration per share less than the Base Price (an
"Offering"), as in effect immediately prior to such time (the "Applicable
Price"), then immediately after such issue or sale, the Base Price shall be
reduced to an amount equal to the product of (x) the Base Price in effect
immediately prior to such issue or sale and (y) the quotient determined by
dividing (1) the sum of (I) the product of the Applicable Price and the number
of shares of Common Stock Deemed Outstanding (as defined below) immediately
prior to such issue or sale, and (II) the consideration, if any, received by
the Company upon such issue or sale by (2) the product of (I) the Applicable
Price and (II) the number of shares of Common Stock Deemed Outstanding
immediately after such issuance or sale. For purposes of determining the
adjusted Base Price under this Section 2(e)(i), the following shall be
applicable:
(A) Issuance of Options. If the Company in any manner
grants any rights or options to subscribe for or to purchase Common Stock
(other than in connection with an Approved Issuance or upon conversion of the
Preferred Shares) or any stock or other securities convertible into or
exchangeable for Common Stock (such rights or options being herein called
"Options" and such convertible or exchangeable stock or securities being
herein called "Convertible Securities") and the price per share for which
Common Stock is issuable upon the exercise of such Options or upon conversion
or exchange of such Convertible Securities is less than the Applicable Price,
then the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the total maximum
amount of such Convertible Securities issuable upon the exercise of such
Options shall be deemed to be outstanding and to have been issued and sold by
the Company for such price per share. For purposes of this Section 2(e)(i)(A),
the "price per share for which Common Stock is issuable upon exercise of such
Options or upon conversion or exchange of such Convertible Securities" is
determined by dividing (I) the total amount, if any, received or receivable by
the Company as consideration for the granting of such Options, plus the
minimum aggregate amount of additional consideration payable to the Company
upon the exercise of all such Options, plus in the case of such Options which
relate to Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the issuance or sale of
such Convertible Securities and the conversion or exchange thereof, by (II)
the total maximum number of shares of Common Stock issuable upon exercise of
such Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options. No adjustment of the
Base Price shall be made upon the actual issuance of such Common Stock or of
such Convertible Securities upon the exercise of such Options or upon the
actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities. Notwithstanding the foregoing, no adjustment shall be
made pursuant to this Section 2(e)(i)(A) to the extent that such adjustment is
based solely on the fact that the Convertible Securities issuable upon
exercise of such Option are convertible into or exchangeable for Common Stock
at a price which varies with the market price of the Common Stock.
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(B) Issuance of Convertible Securities. If the Company
in any manner issues or sells any Convertible Securities and the price per
share for which Common Stock is issuable upon such conversion or exchange is
less than the Applicable Price, then the maximum number of shares of Common
Stock issuable upon conversion or exchange of such Convertible Securities
shall be deemed to be outstanding and to have been issued and sold by the
Company for such price per share. For the purposes of this Section 2(e)(i)(B),
the "price per share for which Common Stock is issuable upon such conversion
or exchange" is determined by dividing (I) the total amount received or
receivable by the Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof, by (II) the total maximum number of shares of Common Stock issuable
upon the conversion or exchange of all such Convertible Securities. No
adjustment of the Base Price shall be made upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible Securities, and
if any such issue or sale of such Convertible Securities is made upon exercise
of any Options for which adjustment of the Base Price had been or are to be
made pursuant to other provisions of this Section 2(e)(i), no further
adjustment of the Base Price shall be made by reason of such issue or sale.
Notwithstanding the foregoing, no adjustment shall be made pursuant to this
Section 2(e)(i)(B) to the extent that such adjustment is based solely on the
fact that such Convertible Securities are convertible into or exchangeable for
Common Stock at a price which varies with the market price of the Common
Stock.
(C) Change in Option Price or Rate of Conversion. If
the purchase price provided for in any Options, the additional consideration,
if any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible
into or exchangeable for Common Stock change at any time, the Base Price in
effect at the time of such change shall be readjusted to the Base Price which
would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or changed conversion rate, as the case may be, at
the time initially granted, issued or sold; provided that no adjustment shall
be made if such adjustment would result in an increase of the Base Price then
in effect.
(D) Certain Definitions. For purposes of determining
the adjusted Base Price under this Section 2(e)(i), the following terms have
meanings set forth below:
(I) "Approved Issuances" shall mean (i) the
issuance of Common Stock in a firm commitment, underwritten public offering
with commissions, underwriting discounts and allowances not in excess of 10.0%
of the gross proceeds, (ii) the issuance of securities upon exercise or
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof, (iii) the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option plan, restricted stock plan, stock purchase plan or other plan or
written compensation contract for the benefit of the Company's employees,
directors or consultants or (iv) the issuance of Common Stock pursuant to the
agreements set forth on Schedule 4(g) of the Securities Purchase Agreement.
(II) "Common Stock Deemed Outstanding"
means, at any given time, the number of shares of Common Stock actually
outstanding at such time, plus the number of
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shares of Common Stock deemed to be outstanding pursuant to Sections
2(e)(i)(A) and 2(e)(i)(B) hereof regardless of whether the Options or
Convertible Securities are actually exercisable at such time, but excluding
any shares of Common Stock issuable upon conversion of the Preferred Shares.
(E) Effect on Base Price of Certain Events. For
purposes of determining the adjusted Base Price under this Section 2(e)(i),
the following shall be applicable:
(I) Calculation of Consideration Received. If
any Common Stock, Options or Convertible Securities are issued or sold or deemed
to have been issued or sold for cash, the consideration received therefor will
be deemed to be the amount received by the Company therefor, before deduction
of reasonable commissions, underwriting discounts or allowances or other
reasonable expenses paid or incurred by the Company in connection with such
issuance or sale. In case any Common Stock, Options or Convertible Securities
are issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company will be the fair value
of such consideration, except where such consideration consists of securities,
in which case the amount of consideration received by the Company will be the
arithmetic average of the Closing Bid Prices of such security for the five
consecutive trading days immediately preceding the date of receipt. In case
any Common Stock, Options or Convertible Securities are issued to the owners
of the non-surviving entity in connection with any merger in which the Company
is the surviving entity the amount of consideration therefor will be deemed to
be the fair value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined jointly by the
Company and the holders of two-thirds (2/3) of the Preferred Shares then
outstanding. If such parties are unable to reach agreement within ten (10)
days after the occurrence of an event requiring valuation (the "Valuation
Event"), the fair value of such consideration will be determined within
forty-eight (48) hours of the tenth (10th) day following the Valuation Event
by an independent, reputable appraiser selected by the Company. The
determination of such appraiser shall be deemed binding upon all parties
absent manifest error.
(II) Integrated Transactions. In case any Option is
issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $0.01.
(III) Treasury Shares. The number of shares of
Common Stock outstanding at any given time does not include shares owned or
held by or for the account of the Company, and the disposition of any shares
so owned or held will be considered an issue or sale of Common Stock.
(IV) Record Date. If the Company takes a record
of the holders of Common Stock for the purpose of entitling them (1) to
receive a dividend or other distribution payable in Common Stock, Options or
in Convertible Securities or (2) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date will be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of such dividend or the making of
such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
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(ii) Adjustment of Base Price upon Subdivision or
Combination of Common Stock. If the Company at any time subdivides (by any
stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Base Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company at any time combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding
shares of Common Stock into a smaller number of shares, the Base Price in
effect immediately prior to such combination will be proportionately
increased.
(iii) Adjustment of Variable Conversion Price upon Issuance
of Convertible Securities. If the Company in any manner issues or sells
Convertible Securities that are convertible into Common Stock at a price which
varies with the market price of the Common Stock (the formulation for such
variable price being herein referred to as, the "Variable Price") and such
Variable Price is not calculated using the same formula used to calculate the
Variable Conversion Price in effect immediately prior to the time of such
issue or sale, the Company shall provide written notice thereof via facsimile
and overnight courier to each holder of the Preferred Shares ("Variable
Notice") on the date of issuance of such Convertible Securities. If the
holders of Preferred Shares representing at least two-thirds (2/3) of the
Preferred Shares then outstanding provide written notice via facsimile and
overnight courier (the "Variable Price Election Notice") to the Company within
five (5) business days of receiving a Variable Notice that such holders desire
to replace the Variable Conversion Price then in effect with the Variable
Price described in such Variable Notice, then from and after the date of the
Company's receipt of the Variable Price Election Notice, the Variable
Conversion Price will automatically be replaced with the
variable Price (together with such modifications to this Certificate of
Designations as may be required to give full effect to the substitution of the
Variable Price for the Variable Conversion Price). A holder's delivery of a
Variable Price Election Notice shall serve as the consent required to amend
this Certificate of Designation pursuant to Section 14 below. In the event
that a holder delivers a Conversion Notice at any time after the Company's
issuance of Convertible Securities with a Variable Price but before such
holder's receipt of the Company's Variable Notice, then such holder shall have
the option by written notice to the Company to rescind such Conversion Notice
or to have the Conversion Price be equal to such Variable Price for the
conversion effected by such Conversion Notice.
(iv) Reorganization, Reclassification, Consolidation, Merger
or Sale. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's
assets to another Person (as defined below) or other transaction which is
effected in such a way that holders of Common Stock are entitled to receive
(either directly or upon subsequent liquidation) stock, securities or assets
with respect to or in exchange for Common Stock is referred to herein as an
"Organic Change." Prior to the consummation of any Organic Change, the Company
will make appropriate provision (in form and substance reasonably satisfactory
to the holders of two-thirds (2/3) of the Preferred Shares then outstanding)
to insure that each of the holders of the Preferred Shares will thereafter
have the right to acquire and receive in lieu of or in addition to (as the
case may be) the shares of Common Stock otherwise acquirable and receivable
upon the conversion of such holder's Preferred Shares, such shares of stock,
securities or assets as would have been issued or payable in such Organic
Change with respect to or in exchange for the number of shares of Common Stock
which would have been acquirable and receivable had all of such holder's
Preferred Shares been converted into shares of Common Stock immediately prior
to such Organic Change (without taking into account any limitations or
restrictions on the timing or amount of
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conversions). In any such case, the Company will make appropriate provision
(in form and substance reasonably satisfactory to the holders of two-thirds
(2/3) of the Preferred Shares then outstanding) with respect to such holders'
rights and interests to insure that the provisions of this Section 2(e) and
Section 2(f) will thereafter be applicable to the Preferred Shares (including,
in the case of any such consolidation, merger or sale in which the successor
entity or purchasing entity is other than the Company, an immediate adjustment
of the Base Price in accordance with Section 2(e)(i) using the value for the
Common Stock reflected by the terms of such consolidation, merger or sale, if
the value so reflected is less than the Base Price in effect immediately prior
to such consolidation, merger or sale). The Company will not effect any such
consolidation, merger or sale, unless prior to the consummation thereof, the
successor entity (if other than the Company) resulting from consolidation or
merger or the entity purchasing such assets assumes, by written instrument (in
form and substance reasonably satisfactory to the holders of two-thirds (2/3)
of the Preferred Shares then outstanding), the obligation to deliver to each
holder of Preferred Shares such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
acquire. "Person" shall mean an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
(v) Certain Events. If any event occurs of the type
contemplated by the provisions of this Section 2(e) but not expressly provided
for by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity
features), then the Company's Board of Directors will make an appropriate
adjustment in the Conversion Price so as to protect the rights of the holders
of the Preferred Shares; provided, however, that no such adjustment will
increase the Conversion Price as otherwise determined pursuant to this Section
2(e).
(vi) Notices.
(A) As soon as practicable, but in no event later
than three (3) business days, after any adjustment of the Conversion Price,
the Company will give written notice thereof to each holder of the Preferred
Shares, setting forth in reasonable detail and certifying the calculation of
such adjustment.
(B) The Company will give written notice to each
holder of the Preferred Shares at least ten (10) days prior to the date on
which the Company closes its books or takes a record (I) with respect to any
dividend or distribution upon the Common Stock, (II) with respect to any pro
rata subscription offer to holders of Common Stock or (III) for determining
rights to vote with respect to any Organic Change, dissolution or liquidation
and in no event shall any notice pursuant to this Section 2(e)(vi)(B) be
provided to such holder prior to such information being made known to the
public.
(C) The Company will also give written notice to
each holder of Preferred Shares at least ten (10) days prior to the date on
which any Organic Change, dissolution or liquidation will take place and in no
event shall any notice pursuant to this Section 2(d)(vi)(C) be provided to
such holder prior to such information being made known to the public.
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<PAGE>
(f) Purchase Rights. In addition to any adjustments of the Conversion
Price pursuant to Section 2(e), if at any time after the Issuance Date the
Company grants, issues or sells any Options, Convertible Securities or rights
to purchase stock, warrants, securities or other property pro rata to the
record holders of any class of Common Stock (the "Purchase Rights"), then the
holders of the Preferred Shares will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which such
holder could have acquired if such holder had held the number of shares of
Common Stock acquirable upon complete conversion of the outstanding Preferred
Shares (without taking into account any limitations or restrictions on the
timing or amount of conversions) immediately before the date on which a record
is taken for the grant, issuance or sale of such Purchase Rights, or, if no
such record is taken, the date as of which the record holders of the Common
Stock are to be determined for the grant, issue or sale of such Purchase
Rights.
(g) Fixing of Conversion Price - Major Corporate Event Announcement.
Notwithstanding anything contained in Section 2(c) above, in the event (i) the
Company makes a public announcement that it intends to consolidate or merge
with or into another Person or engage in a business combination involving the
issuance or exchange of 30% or more of the Company's outstanding Common Stock
(ii) the Company makes a public announcement that it intends to sell or
transfer substantially all of the Company's assets, or (iii) any person, group
or entity (including the Company) publicly announces a purchase, tender or
exchange offer for 30% or more of the Company's outstanding Common Stock (the
transactions described in clauses (i), (ii) and (iii) above are hereinafter
referred to as "Major Corporate Events" and the date of the announcement
referred to in clause (i), (ii) or (iii) is hereinafter referred to as the
"Announcement Date"), then the Base Price shall, effective upon the
Announcement Date and continuing through the Adjusted Conversion Price
Termination Date (as defined below), be equal to the Conversion Price which
would have been applicable for a conversion by the holder pursuant to Section
2(a) occurring on the Announcement Date. From and after the Adjusted
Conversion Price Termination Date, the Conversion Price shall be determined as
set forth in Section 2(a). For purposes hereof, "Adjusted Conversion Price
Termination Date" shall mean, with respect to any proposed Major Corporate
Event for which a public announcement as contemplated by this Section 2(g) has
been made, the date upon which the Company or the person, group or entity (in
the case of clause (iii) above) publicly announces the consummation,
termination or abandonment of the proposed Major Corporate Event which was the
subject of the previous public announcement.
(h) Mechanics of Conversion. Subject to the Company's inability to
fully satisfy its obligations under a Conversion Notice (as defined below) as
provided for in Section 4:
(i) Holder's Delivery Requirements. To convert Preferred
Shares into full shares of Common Stock on any date (the "Conversion Date"),
the holder thereof shall (A) transmit by facsimile (or otherwise deliver), for
receipt on or prior to 9:00 p.m., Eastern Time on such date, a copy of a fully
executed notice of conversion in the form attached hereto as Exhibit I (the
"Conversion Notice"), to the Company and (B) surrender to a common carrier for
delivery to the Company, as soon as reasonably practicable following such
date, the original certificate(s) representing the Preferred Shares being
converted (or an indemnification undertaking with respect to such shares
reasonably satisfactory to the Company in the case of their loss, theft or
destruction) (the "Preferred Stock Certificate(s)").
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<PAGE>
(ii) Company's Response. Upon receipt by the Company of a
facsimile copy of a Conversion Notice, the Company shall as soon as
practicable, but in any event no later than the next business day, send, via
facsimile, a confirmation of receipt of such Conversion Notice to such holder.
Upon receipt by the Company of the Preferred Stock Certificate(s) to be
converted pursuant to a Conversion Notice, the Company shall, on the next
business day following the date of receipt, (I) issue and surrender to a
common carrier for overnight delivery to the address specified in the
Conversion Notice, a certificate, registered in the name of the holder or its
designee, for the number of shares of Common Stock to which the holder shall
be entitled, or (II) if the Company's transfer agent is a participant in the
electronic book transfer program, credit such aggregate number of shares of
Common Stock to which the holder shall be entitled to the holder's or its
designee's balance account with The Depository Trust Company. If the number of
Preferred Shares represented by the Preferred Stock Certificate(s) submitted
for conversion is greater than the number of Preferred Shares being converted,
then the Company or Transfer Agent, as the case may be, shall, as soon as
practicable and in no event later than three business days after receipt of
the Preferred Stock Certificate(s) and at its own expense, issue and deliver
to the holder a new Preferred Stock Certificate representing the number of
Preferred Shares not converted.
(iii) Dispute Resolution. In the case of a dispute as to the
determination of the Closing Sale Price or Closing Bid Price of any security
or the arithmetic calculation of the Conversion Rate, the Company shall
promptly issue to the holder the number of shares of Common Stock that is not
disputed and shall submit the disputed determinations or arithmetic
calculations to the holder via facsimile within one (1) business day of
receipt of such holder's Conversion Notice. If such holder and the Company are
unable to agree upon the determination of such Closing Sale Price or Closing
Bid Price, as the case may be, or arithmetic calculation of the Conversion
Rate within one (1) business day of such disputed determination or arithmetic
calculation being submitted to the holder, then the Company shall within one
(1) business day following such date of delivery submit via facsimile (A) the
disputed determination of the Closing Sale Price or Closing Bid Price, as the
case may be, to an independent, reputable investment bank or (B) the disputed
arithmetic calculation of the Conversion Rate to its independent, outside
accountant. The Company shall cause the investment bank or the accountant, as
the case may be, to perform the determinations or calculations and notify the
Company and the holder of the results no later than forty-eight (48) hours
from the time it receives the disputed determinations or calculations. Such
investment bank's or accountant's determination or calculation, as the case
may be, shall be binding upon all parties absent manifest error.
(iv) Record Holder. The person or persons entitled to
receive the shares of Common Stock issuable upon a conversion of Preferred
Shares shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on the Conversion Date.
(v) Company's Failure to Timely Convert. If after the
Company's receipt of the Preferred Stock Certificates to be converted the
Company shall fail (I) within three (3) business days to issue a certificate
for the number of shares of Common Stock to which a holder is entitled or if
the Company's transfer agent is a participant in the electronic book transfer
program, to credit the holder's balance account with The Depository Trust
Company for such number of shares of Common Stock to which the holder is
entitled upon such holder's conversion of Preferred Shares or (II) within
seven (7) business days to issue a new Preferred Stock Certificate
representing the number of
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Preferred Shares to which such holder is entitled pursuant to Section
2(h)(ii), in addition to all other available remedies which such holder may
pursue hereunder and under the Securities Purchase Agreement (including
indemnification pursuant to Section 8 thereof), the Company shall pay
additional damages to such holder on each date after the third or seventh
business day, as applicable, that such conversion or delivery of such
Preferred Stock Certificates, as the case may be, is not timely effected in an
amount equal to 0.5% of the product of (A) the sum of the number of shares of
Common Stock not issued to the holder on a timely basis pursuant to Section
2(h)(ii) and to which such holder is entitled and, in the event the Company
has failed to deliver a Preferred Stock Certificate to the holder on a timely
basis pursuant to Section 2(h)(ii), the number of shares of Common Stock
issuable upon conversion of the Preferred Shares represented by such Preferred
Stock Certificate, as of the last possible date which the Company could have
issued such Preferred Stock Certificate to such holder without violating
Section 2(h)(ii) and (B) the Closing Bid Price of the Common Stock on the last
possible date which the Company could have issued such Common Stock and the
Preferred Stock Certificate, as the case may be, to such holder without
violating Section 2(h)(ii).
(i) Mandatory Conversion at Maturity. If any Preferred Shares remain
outstanding on the Maturity Date (as defined below), then all such Preferred
Shares shall be converted as of such date in accordance with this Section 2 as
if the holders of such Preferred Shares had given the Conversion Notice on the
Maturity Date; provided, however, that if a Triggering Event (other than a
Triggering Event resulting from Section 3(d)(vi) due to the Company's breach
of a representation or warranty set forth in Section 3 of the Securities
Purchase Agreement) has occurred and is continuing on the Maturity Date or any
event that with the passage of time would constitute a Triggering Event
(assuming it was not cured and other than a Triggering Event resulting from
Section 3(d)(vi) due to the Company's breach of a representation or warranty
set forth in Section 3 of the Securities Purchase Agreement) exists on the
Maturity Date, then the Company shall, within five business days following the
Maturity Date (unless otherwise notified in writing by the holder of its
request to have the Preferred Shares converted into Common Stock), pay to each
holder of Preferred Shares then outstanding, in immediately available funds,
an amount equal to the Triggering Event Redemption Price (as defined below) as
of the Maturity Date. All holders of Preferred Shares shall thereupon
surrender all Preferred Stock Certificates, duly endorsed for cancellation, to
the Company, provided that the Company has complied with its obligations under
this Section 2(i). "Maturity Date" means the date which is three years after
the Issuance Date, subject to extension pursuant to Section 3(u) of the
Registration Rights Agreement, which extension shall be equal to one day for
each day in any Allowable Grace Period (as defined in the Registration Rights
Agreement).
(j) Fractional Shares. The Company shall not issue any fraction of a
share of Common Stock upon any conversion. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one
Preferred Share by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of a fraction
of a share of Common Stock. If, after the aforementioned aggregation, the
issuance would result in the issuance of a fraction of a share of Common
Stock, the Company shall round such fraction of a share of Common Stock up or
down to the nearest whole share.
(k) Taxes. The Company shall pay any and all taxes that may be
payable with respect to the issuance and delivery of Common Stock upon the
conversion of Preferred Shares; provided,
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however, that each holder shall be responsible for any and all of such
holder's income taxes with respect to the Securities.
(l) Conversion Restrictions. The right of a holder of Preferred
Shares to convert Preferred Shares pursuant to this Section 2 shall be limited
as set forth below. Without the prior written consent of the Company, a holder
of Preferred Shares shall not be entitled to convert any Preferred Shares
prior to February 28, 1999. Notwithstanding the foregoing, the conversion
restrictions set forth in this Section 2(l) shall not apply (v) if there shall
have occurred an Offering, (w) on and after any date on which the Common Stock
is not listed on the Principal Market, or has been suspended from trading
(excluding suspensions of not more than one day resulting from business
announcements), or any such delisting or suspension is threatened or
pending, (x) if there shall have occurred an event constituting a Major
Transaction (as defined in Section 3(c)) or the public announcement of a
pending Major Transaction, (y) if there shall have occurred a Triggering Event
(as defined in Section 3(d)) or (z) since the Issuance Date there shall have
occurred any change, event, result or happening involving, directly or
indirectly, the Company or any of its Subsidiaries (as defined in the
Securities Purchase Agreement) resulting in a material adverse effect on the
business, financial condition or results of operations or, insofar as can
reasonably be foreseen, prospects of the Company and its Subsidiaries, taken
as a whole (collectively, the "Conversion Restriction Exceptions").
(m) Limitations on Conversion. The Company shall not effect any
conversion of any Preferred Shares and no holder of Preferred Shares shall
have the right to convert any Preferred Shares to the extent that after giving
effect to such conversion such holder (together with such holder's affiliates)
(A) would beneficially own in excess of 10.00% of the outstanding shares of
the Common Stock following such conversion and (B) would have acquired,
through conversion of Preferred Shares or otherwise, a number of shares of
Common Stock which, when added to the number of shares of Common Stock
beneficially owned at the beginning of the 60-day period ending on and
including such Conversion Date, which is in excess of 10.00% of the
outstanding shares of the Common Stock following such conversion during the
60-day period ending on and including such Conversion Date. For purposes of
the foregoing sentence, the number of shares of Common Stock beneficially
owned by a holder and its affiliates or acquired by a holder and its
affiliates, as the case may be, shall include the number of shares of Common
Stock issuable upon conversion of the Preferred Shares with respect to which
the determination of such sentence is being made, but shall exclude the number
of shares of Common Stock which would be issuable upon conversion of the
remaining, nonconverted Preferred Shares beneficially owned by such holder and
its affiliates. Except as set forth in the preceding sentence, for purposes of
this Section 2(m), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended.
Notwithstanding anything to the contrary contained herein, each conversion
notice shall constitute a representation by the holder submitting such
conversion notice that, after giving effect to such conversion notice, (A) the
holder will not beneficially own (as determined in accordance with this
Section 2(m)) and (B) the holder will not have acquired, through conversion of
Preferred Shares or otherwise, a number of shares of Common Stock which, when
added to the number of shares of Common Stock beneficially owned at the
beginning of the 60-day period ending on and including such Conversion Date,
that is in excess of 10.00% of the outstanding shares of Common Stock. For
purposes of this Section, in determining the number of outstanding shares
Common Stock a holder may rely on the number of outstanding shares of Common
Stock as reflected in (1)
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the Company's most recent Form 10-Q or Form 10-K, as the case may be, (2) a
more recent public announcement by the Company or (3) any other notice by the
Company or its transfer agent setting forth the number of shares of Common
Stock outstanding. For any reason at any time, upon the written or oral
request of any a holder, the Company shall immediately confirm orally and in
writing to any such holder the number of shares Common Stock then outstanding.
In any case, the number of outstanding shares Common Stock shall be determined
after giving effect to conversions of Preferred Shares by such holder since
the date as of which such number of outstanding shares of Common Stock was
reported.
(3) Redemption at Option of Holders.
(a) Redemption Option Upon Major Transaction. In addition to all
other rights of the holders of Preferred Shares contained herein, simultaneous
with or after the occurrence of a Major Transaction (as defined below), each
holder of Preferred Shares shall have the right, at such holder's option, to
require the Company to redeem all or a portion of such holder's Preferred
Shares at a price per Preferred Share equal to the greater of (i) the sum of:
(A) $12,500 and (B) an amount equal to the product of (.06) (N/365) ($10,000),
and (ii) the product of (A) the Conversion Rate on the date the Notice of
Redemption at Option of Buyer Upon Major Transaction (as defined in Section
3(e)) is given and (B) the Closing Bid Price of the Common Stock on the date
of the public announcement of such Major Transaction or the next date on which
the exchange or market on which the Common Stock is traded is open if such
public announcement is made (X) after 12:00 p.m., Central Time, on such date
or (Y) on a date on which the exchange or market on which the Common Stock is
traded is closed ("Major Transaction Redemption Price").
(b) Redemption Option Upon Triggering Event. In addition to all other
rights of the holders of Preferred Shares contained herein, simultaneous with
or after the occurrence of a Triggering Event (as defined below), each holder
of Preferred Shares shall have the right, at such holder's option, to require
the Company to redeem all or a portion of such holder's Preferred Shares at a
price per Preferred Share equal to the greater of (i) the sum of: (A) $12,500
and (B) an amount equal to the product of (.06) (N/365) ($10,000) and (ii) the
product of (A) the Conversion Rate on the date of such holder's delivery of a
Notice of Redemption at Option of Holder Upon Triggering Event (as defined
below) and (B) the greater of (I) the Closing Bid Price of the Common Stock on
the trading day immediately preceding such Triggering Event or (II) the
Closing Bid Price of the Common Stock on the date of the holder's delivery to
the Company of a Notice of Redemption at Option of Holder Upon Triggering
Event or, if such date of delivery is not a trading day, the next date on
which the exchange or market on which the Common Stock is traded is open
("Triggering Event Redemption Price" and, collectively with "Major Transaction
Redemption Price," the "Redemption Price").
(c) "Major Transaction". A "Major Transaction" shall be deemed to
have occurred at such time as any of the following events:
(i) the consolidation, merger or other business combination
of the Company with or into another Person (other than (A) a consolidation,
merger or other business combination in which holders of the Company's voting
power immediately prior to the transaction continue after the transaction to
hold, directly or indirectly, the voting power of the surviving entity or
entities
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<PAGE>
necessary to elect a majority of the members of the board of directors (or
their equivalent if other than a corporation) of such entity or entities, or
(B) pursuant to a migratory merger effected solely for the purpose of changing
the jurisdiction of incorporation of the Company);
(ii) the sale or transfer, in one or more transactions, of
50% or more of the Company's assets, other than sales of inventory in the
ordinary course of business; or
(iii) a purchase, tender or exchange offer made to and
accepted by the holders of 50% or more of the outstanding shares of Common
Stock.
(d) "Triggering Event". A "Triggering Event" shall be deemed to have
occurred at such time as any of the following events:
(i) the failure of the Registration Statement (as defined
in the Registration Rights Agreement) to be declared effective by the SEC on
or prior to the date that is 150 days after the Issuance Date;
(ii) while the Registration Statement is required to be
maintained effective pursuant to the terms of the Registration Rights
Agreement, the effectiveness of the Registration Statement lapses for any
reason (including, without limitation, the issuance of a stop order) or is
unavailable to the holder of the Preferred Shares for sale of the Registrable
Securities (as defined in the Registration Rights Agreement) in accordance
with the terms of the Registration Rights Agreement, and such lapse or
unavailability continues for a period of at least ten consecutive trading days
or for an aggregate of at least fifteen trading days in any 365 day period
(excluding days during an Allowable Grace Period);
(iii) the suspension or halting from trading or failure of
the Common Stock to be listed on the Principal Market for a period of five
consecutive days or for an aggregate of at least ten days in any 365 day
period;
(iv) the Company's notice to any holder of Preferred Shares,
including by way of public announcement, at any time, of its intention not to
comply with proper requests for conversion of any Preferred Shares into shares
of Common Stock, including due to any of the reasons set forth in Section
4(a), or the Company's failure to deliver Conversion Shares within ten days of
the applicable Conversion Date;
(v) upon the Company's receipt of a Conversion Notice, the
Company shall not be obligated to issue the Conversion Shares due to the
provisions of Section 13; or
(vi) any representation or warranty by the Company was not
true and correct at the time made (including the Issuance Date) or the Company
breaches any covenant or other term or condition of the Securities Purchase
Agreement, the Registration Rights Agreement, this Certificate of
Designations, the Irrevocable Transfer Agent Instructions (as defined in the
Securities Purchase Agreement), or any other agreement, document, certificate
or other instrument delivered in connection with the transactions contemplated
thereby or hereby, except (i) to the extent that such breach would not have a
Material Adverse Effect (as defined in Section 3(a) of the Securities
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<PAGE>
Purchase Agreement), and (ii) in the case of a breach of a covenant which is
curable, such breach does not continue for a period of at least ten days after
notice by any holder of Preferred Shares.
(e) Mechanics of Redemption at Option of Holder Upon Major
Transaction. No sooner than 15 days nor later than 10 days prior to the
consummation of a Major Transaction, but not prior to the public announcement
of such Major Transaction, the Company shall deliver written notice thereof
via facsimile and overnight courier (a "Notice of Major Transaction") to each
holder of Preferred Shares. At any time after receipt of a Notice of Major
Transaction (or, in the event a Notice of Major Transaction is not delivered
at least 10 days prior to a Major Transaction, at any time on or after the
date which is 10 days prior to a Major Transaction), any holder of the
Preferred Shares then outstanding may require the Company to redeem all or a
portion of the holder's Preferred Shares, which redemption shall be effective
concurrent with the consummation of the Major Transaction, then outstanding by
delivering written notice thereof via facsimile and overnight courier (a
"Notice of Redemption at Option of Holder Upon Major Transaction") to the
Company, which Notice of Redemption at Option of Holder Upon Major Transaction
shall indicate (i) the number of Preferred Shares that such holder is
submitting for redemption and (ii) the applicable Major Transaction Redemption
Price, as calculated pursuant to Section 3(a).
(f) Mechanics of Redemption at Option of Holder Upon Triggering
Event. Within one business day after the occurrence of a Triggering Event, the
Company shall deliver written notice thereof via facsimile and overnight
courier (a "Notice of Triggering Event") to each holder of Preferred Shares.
At any time after the earlier of a holder's receipt of a Notice of Triggering
Event and such holder becoming aware of a Triggering Event, any holder of the
Preferred Shares then outstanding may require the Company to redeem all or a
portion of the holder's Preferred Shares then outstanding by delivering
written notice thereof via facsimile and overnight courier (a "Notice of
Redemption at Option of Holder Upon Triggering Event") to the Company, which
Notice of Redemption at Option of Holder Upon Triggering Event shall indicate
the number of Preferred Shares that such holder is submitting for redemption.
(g) Payment of Redemption Price. Upon the Company's receipt of a
Notice(s) of Redemption at Option of Holder Upon Triggering Event or a
Notice(s) of Redemption at Option of Holder Upon Major Transaction from any
holder of Preferred Shares, the Company shall within one (1) business day
notify each holder of Preferred Shares by facsimile of the Company's receipt
of such Notice(s) of Redemption at Option of Holder Upon Triggering Event or
Notice(s) of Redemption at Option of Holder Upon Major Transaction and each
holder which has sent such a notice shall promptly submit to the Company such
holder's Preferred Stock Certificates which such holder has elected to have
redeemed. The Company shall pay the applicable Triggering Event Redemption
Price, in the case of a redemption pursuant to Section 3(f), to such holder in
cash by check or wire transfer, at the option of the Company, within five
business days after the Company's receipt of a Notice of Redemption at Option
of Holder Upon Triggering Event and, in the case of a redemption pursuant to
Section 3(e), the Company shall deliver the applicable Major Transaction
Redemption Price concurrent with the consummation of the Major Transaction;
provided that in either or both cases, as applicable, the redeeming holder's
Preferred Stock Certificates shall have been so delivered to the Company; and
provided further that if the Company is unable to redeem all of the Preferred
Shares to be redeemed, the Company shall redeem an amount from each holder of
Preferred Shares being redeemed equal to such holder's pro rata amount (based
on the number of Preferred Shares
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held by such holder relative to the number of Preferred Shares outstanding) of
all Preferred Shares being redeemed. If the Company shall fail to redeem all
of the Preferred Shares submitted for redemption in addition to any remedy
such holder of Preferred Shares may have under this Certificate of
Designations, the Securities Purchase Agreement and the Registration Rights
Agreement, (i) the applicable Redemption Price payable in respect of such
unredeemed Preferred Shares shall bear interest at the rate of 2.0% per month
(prorated for partial months) until paid in full and (ii) the Base Price shall
be adjusted to the lowest Closing Bid Price of the Common Stock between the
date of the Notice of Redemption at Option of Holder Upon Triggering Event or
Notice(s) of Redemption at Option of Holder Upon Major Transaction and the
date when the Redemption Price is paid in full. Until the Company pays such
unpaid applicable Redemption Price in full to a holder of Preferred Shares
submitted for redemption, such holder shall have the option (the "Void
Optional Redemption Option") to, in lieu of redemption, require the Company to
promptly return to such holder(s) any or all of the Preferred Shares that were
submitted for redemption by such holder(s) under this Section 3 and for which
the applicable Redemption Price has not been paid, by sending written notice
thereof to the Company via facsimile (the "Void Optional Redemption Notice").
Upon the Company's receipt of such Void Optional Redemption Notice(s) prior to
payment of the full applicable Redemption Price to such holder: (i) the
Notice(s) of Redemption at Option of Holder Upon Triggering Event or the
Notice(s) of Redemption at Option of Holder Upon Major Transaction, as the
case may be, shall be null and void with respect to those Preferred Shares
submitted for redemption and for which the applicable Redemption Price has not
been paid; (ii) the Company shall immediately return any Preferred Shares
submitted to the Company by each holder for redemption under this Section 3(g)
and for which the applicable Redemption Price has not been paid; and (iii) if
the redemption was caused by a Triggering Event involving the Company's
inability to issue Conversion Shares because of the Exchange Cap (as defined
in Section 13) (an "Exchange Cap Triggering Event"), the holders of at least
two-thirds (2/3) of the Preferred Shares then outstanding, including Preferred
Shares submitted for redemption pursuant to this Section 3 with respect to
which the applicable Redemption Price has not been paid, may direct the
Company to immediately delist the Common Stock from the exchange or automated
quotation system on which the Common Stock is traded and have the Common
Stock, at such holders' option, traded in the electronic bulletin board or the
"pink sheets", provided, however, that if (A) there is scheduled to occur,
within thirty (30) days of the date on which the Exchange Cap Triggering Event
occurred, a meeting of the Company's stockholders at which meeting the
stockholder shall be requested to approve the issuance of the Conversion
Shares in excess of the Exchange Cap and for which a definitive proxy
statement has been filed with the SEC, (B) there has not already occurred
prior to the date of such Exchange Cap Triggering Event a meeting of the
Company's stockholders at which the Company's stockholders were asked to vote
on a proposal to approve the issuance of the Conversion Shares in excess of
the Exchange Cap and at which the Company's stockholders did not approve such
proposal and (C) the Company is, or will be with the passing of such 30 day
period referred to in (A) above, in compliance with Section 4(j) of the
Securities Purchase Agreement, then the Investors' right in this Section 3(g)
to direct the Company to delist the Common Stock (y) shall be suspended until
the earlier of (I) the first (1st) business day following the date on which
the meeting of the Company's stockholders is scheduled to occur, regardless of
any adjournment thereof and (II) the date on which such meeting of the
Company's stockholders is canceled, terminated, postponed or otherwise delayed
or (z) will be terminated if the Stockholders approve the issuance of the
Conversion Shares. Notwithstanding the foregoing, in the event of a dispute as
to the determination of the Closing Bid Price of the Common Stock or the
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arithmetic calculation of the Redemption Price, such dispute shall be resolved
pursuant to Section 2(h)(iii) hereof with the term "Redemption Price" being
substituted for the term "Conversion Rate". A holder's delivery of a Void
Optional Redemption Notice and exercise of its rights following such notice
shall not affect the Company's obligations to make any payments which have
accrued prior to the date of such notice, except for the applicable Redemption
Price relating to such Void Optional Redemption Notice which Redemption Price
thereafter shall no longer be due and payable. Payments provided for in this
Section 3 shall have priority over payments to other holders of the Company's
capital stock of a class that is junior to the Preferred Shares in connection
with a Major Transaction.
(4) Inability to Fully Convert.
(a) Holder's Option if Company Cannot Fully Convert. If, upon the
Company's receipt of a Conversion Notice or on the Maturity Date, the Company
cannot issue shares of Common Stock registered for resale under the
Registration Statement (or which are exempt from the registration requirements
under the 1933 Act pursuant to Rule 144(k) under the 1933 Act) for any reason,
including, without limitation, because the Company (x) does not have a
sufficient number of shares of Common Stock authorized and available, (y) is
otherwise prohibited by applicable law or by the rules or regulations of any
stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Company or its Securities, including
without limitation the Exchange Cap, from issuing all of the Common Stock
which is to be issued to a holder of Preferred Shares pursuant to a Conversion
Notice or (z) fails to have a sufficient number of shares of Common Stock
registered for resale under the Registration Statement, then the Company shall
issue as many shares of Common Stock as it is able to issue in accordance with
such holder's Conversion Notice and pursuant to Section 2(h) and, with respect
to the unconverted Preferred Shares, the holder, solely at such holder's
option, can elect to:
(i) require the Company to redeem from such holder those
Preferred Shares for which the Company is unable to issue Common Stock in
accordance with such holder's Conversion Notice ("Mandatory Redemption") at a
price per Preferred Share (the "Mandatory Redemption Price") equal to the
Triggering Event Redemption Price as of such Conversion Date;
(ii) if the Company's inability to fully convert Preferred
Shares is pursuant to Section 4(a)(z), require the Company to issue restricted
shares of Common Stock in accordance with such holder's Conversion Notice and
pursuant to Section 2(h);
(iii) void its Conversion Notice and retain or have
returned, as the case may be, the nonconverted Preferred Shares that were to
be converted pursuant to such holder's Conversion Notice (provided that a
holder's voiding its Conversion Notice shall not affect the Company's
obligations to make any payments which have accrued prior to the date of such
notice); or
(iv) if the Company's inability to fully convert Preferred
Shares is pursuant to Section 4(a)(y), require the Company to issue shares of
Common Stock in accordance with such holder's Conversion Notice and pursuant
to Section 2(h) at a Conversion Price equal to the average of the Closing Bid
Prices of the Common Stock for the five consecutive trading days preceding
such
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holder's Notice in Response to Inability to Convert (as defined below) or
such other market price that satisfies the applicable exchange or trading
market.
(b) Mechanics of Fulfilling Holder's Election. The Company shall
within one (1) business day send via facsimile to a holder of Preferred
Shares, upon receipt of a facsimile copy of a Conversion Notice from such
holder which cannot be fully satisfied as described in Section 4(a), a notice
of the Company's inability to fully satisfy such holder's Conversion Notice
(the "Inability to Fully Convert Notice"). Such Inability to Fully Convert
Notice shall indicate (i) the reason why the Company is unable to fully
satisfy such holder's Conversion Notice, (ii) the number of Preferred Shares
which cannot be converted and (iii) the applicable Mandatory Redemption Price.
Such holder shall notify the Company of its election pursuant to Section 4(a)
above by delivering written notice via facsimile to the Company ("Notice in
Response to Inability to Convert").
(c) Payment of Mandatory Redemption Price. If such holder shall elect
to have its shares redeemed pursuant to Section 4(a)(i), the Company shall pay
the Mandatory Redemption Price in cash by wire transfer to such holder within
five (5) days of the Company's receipt of the holder's Notice in Response to
Inability to Convert together with applicable wire transfer instructions. If
the Company shall fail to pay the applicable Mandatory Redemption Price to
such holder within five (5) days of the Company's receipt of the Notice in
Response to Inability to Convert (other than pursuant to a dispute as to the
determination of the arithmetic calculation of the Redemption Price), in
addition to any remedy such holder of Preferred Shares may have under any
Certificate of Designations, the Securities Purchase Agreement and the
Registration Rights Agreement, such unpaid amount shall bear interest at the
rate of 2.0% per month (prorated for partial months) until paid in full. Until
the full Mandatory Redemption Price is paid in full to such holder, such
holder may void the Mandatory Redemption with respect to those Preferred
Shares for which the full Mandatory Redemption Price has not been paid and
receive back such Preferred Shares. Notwithstanding the foregoing, if the
Company fails to pay the applicable Mandatory Redemption Price within such
five (5) days time period due to a dispute as to the determination of the
Mandatory Redemption Price, such dispute shall be resolved pursuant to Section
2(h)(iii) with the term "Mandatory Redemption Price" being substituted for the
term "Conversion Rate".
(d) Pro-rata Conversion and Redemption. In the event the Company
receives a Conversion Notice, Notice of Redemption at Option of Holder Upon
Major Transaction or Notice of Redemption at Option of Holder Upon Triggering
Event from more than one holder of Preferred Shares on the same day and the
Company can convert and/or redeem some, but not all, of the Preferred Shares
pursuant to this Section 4, the Company shall convert and/or redeem from each
holder of Preferred Shares electing to have Preferred Shares converted and
redeemed at such time an amount equal to such holder's pro-rata amount (based
on the number of Preferred Shares held by such holder relative to the number
of Preferred Shares outstanding) of all Preferred Shares being converted and
redeemed at such time.
(5) Conversion at the Company's Election. At a time on or after (i)
February 28, 1999 (the "Measurement Date Election") or (ii) 180 days after
February 28, 1999 (the "PostMeasurement Date Election"), the Company shall
have a one-time right, exercisable in its sole discretion, to require that any
or all of the outstanding Preferred Shares be converted (collectively, the
"Conversion at Company's Election") at the Conversion Rate and otherwise in
compliance
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with Section 2; provided that the Conditions to Conversion at the Company's
Election (as set forth below) are satisfied. The Company shall exercise its
right to Conversion at Company's Election by providing each holder of
Preferred Shares written notice ("Notice of Conversion at Company's Election")
at least 20 days prior to the date selected by the Company for conversion
("Company's Election Conversion Date"). If the Company elects to require
conversion of some, but not all, of the Preferred Shares, the Company shall
convert a pro rata amount from each holder of Preferred Shares (based on the
number of Preferred Shares held by such holder relative to the number of
Preferred Shares outstanding on the date of the Company's delivery of the
Notice of Conversion at Company's Election). The Notice of Conversion at
Company's Election shall indicate (w) whether such conversion is pursuant to
the Measurement Date Election or the Post- Measurement Date Election, (x) the
number of Preferred Shares the Company has selected for conversion, (y) the
Company's Election Conversion Date, which date shall not be less than 20 or
more than 40 days after each holder's receipt of such notice, and (z) each
holder's pro rata share of outstanding Preferred Shares. All Preferred Shares
selected for conversion in accordance with the provisions of this Section 5
shall be converted as of the Company's Election Conversion Date in accordance
with Section 2 as if the holders of such Preferred Shares selected by the
Company to be converted had given the Conversion Notice on the Company's
Election Conversion Date. All holders of Preferred Shares shall thereupon and
within four business days after the Company's Election Conversion Date
surrender all Preferred Stock Certificates selected for conversion, duly
endorsed for cancellation, to the Company.
"Conditions to Conversion at the Company's Election" means the
following conditions: (i) on each day during the period beginning 20 trading
days prior to the Notice of Conversion at the Company's Election and ending on
and including the Company's Election Conversion Date, the Registration
Statement shall be effective and available for the sale of no less than 150%
of the sum of (A) the number of Conversion Shares then issuable upon the
conversion of all outstanding Preferred Shares (without regard to any
limitations on conversion herein or elsewhere), including the Conversion
Shares to be issued pursuant to this Conversion at the Company's Election and
(B) the number of Conversion Shares that are then held by the holders of the
Preferred Shares, (ii) on each day during the period beginning 20 trading days
prior to the date of the Company's Notice of Conversion at Company's Election
and ending on and including the Company's Election Conversion Date, the Common
Stock is designated for quotation on the Principal Market and is not suspended
from trading; (iii) on each day during the period beginning 20 trading days
prior to the Notice of Conversion at the Company's Election and ending on and
including the Company's Election Conversion Date, the Closing Bid Price of the
Common Stock is at least (A) 200% of the Base Price of the applicable
Preferred Shares being converted with respect to the Measurement Date Election
or (B) 150% of the Base Price of the applicable Preferred Shares being
converted with respect to the Post-Measurement Date Election; (iv) a
Conversion at Company's Election previously shall not have occurred; (v) if
the Company was required to seek stockholder approval pursuant to Section 4(j)
of the Securities Purchase Agreement, the Company's stockholders shall have
approved the issuance of the Securities (as defined in the Securities Purchase
Agreement) on or prior to the date of the Company's Notice of Conversion at
Company's Election; (vi) during the period beginning on the Issuance Date and
ending on and including the Company's Election Conversion Date, the Company
shall have delivered Conversion Shares upon conversion of the Preferred Shares
to the Buyers within ten (10) business days of the applicable Conversion Date;
(vii) during the period beginning on and including the date which is 20
trading days immediately preceding the date of the Company's Notice
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of Conversion at the Company's Election and ending on and including the
Company's Election Conversion Date, the Company shall have delivered
Conversion Shares upon conversion of the Preferred Shares to the Buyers on a
timely basis as set forth in Section 2(h)(ii) of this Certificate of
Designations; (viii) neither a Triggering Event nor any event that with the
passage of time would constitute a Triggering Event (assuming it was not
cured) shall have occurred; and (ix) the Company otherwise has satisfied its
obligations and is not in default under this Certificate of Designations, the
Securities Purchase Agreement and the Registration Rights Agreement.
Notwithstanding the above, any holder of Preferred Shares may convert such
shares (including Preferred Shares selected for conversion) into Common Stock
pursuant to Section 2(a) on or prior to the Company's Election Conversion
Date.
(6) Company's Right to Redeem in Lieu of Conversion. Subject to the
terms and conditions of this Section 6, at any time after the Issuance Date,
and so long as the Company has provided appropriate notice as described below,
the Company may elect to redeem Preferred Shares submitted for conversion in
lieu of converting such Preferred Shares, provided that the Closing Bid Price
for the Common Stock on the Conversion Date is less than or equal to a price
(the "Redemption in Lieu of Conversion Trigger Price") equal to 90% of the
Base Price then in effect (appropriately adjusted for any stock split, stock
dividend, combination or other similar transaction) (a "Company Redemption in
Lieu of Conversion").
(a) Redemption Price of Company Redemption in Lieu of Conversion. The
"Redemption Price of Company Redemption in Lieu of Conversion" shall be an
amount per Preferred Share equal to 105% of an amount per Preferred Share
equal to the sum of (i) $10,000 and (ii) an amount equal to the product of
(.06) (N/365) ($10,000).
(b) Mechanics of Company Redemption in Lieu of Conversion. The
Company shall exercise its right to redeem by delivering written notice by
facsimile and overnight courier ("Notice of Company Redemption in Lieu of
Conversion") to each holder of the Preferred Shares. Such Notice of Company
Redemption in Lieu of Conversion shall indicate (A) the maximum, if any,
aggregate number of Preferred Shares which the Company will redeem for Company
Redemption in Lieu of Conversion and (B) confirm the time period during which
the Company may effect Company Redemption in Lieu of Conversion, which period
shall begin on and include the date which is five business days after the date
of receipt by all of the holders of the Notice of Redemption in Lieu of
Conversion and shall end on and include the date which is 30 calendar days
after the fifth business day following the date of receipt by all of the
holders of the Notice of Redemption in Lieu of Conversion (the "Redemption in
Lieu of Conversion Period"). If the Company elects to limit the number of
Preferred Shares which it will redeem during the Redemption in Lieu of
Conversion Period, the Company shall allocate for redemption from each holder
of Preferred Shares a number of Preferred Shares equal to such holder's
pro-rata amount (based on the number of Preferred Shares held by such holder
on the date of the Notice of Company Redemption in Lieu of Conversion relative
to the total number of Preferred Shares outstanding on such date). The Company
may terminate a Redemption in Lieu of Conversion Period at any time with
respect to Preferred Shares which have not been submitted for conversion
by delivering written notice of such termination to each holder of Preferred
Shares by facsimile and overnight courier at least three business days prior
to the effective date of such termination. Notwithstanding anything to the
contrary in this Section 6, the Company shall convert Preferred Shares
pursuant to Section 2 if such Preferred Shares are
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submitted for conversion (i) before the beginning, or after the termination,
of the Redemption in Lieu of Conversion Period, (ii) for a Conversion Price
greater than or equal to the Redemption in Lieu of Conversion Trigger Price or
(iii) are in excess of such holder's pro rata allocation of the maximum number
of Preferred Shares the Company indicated that it would redeem in its Notice
of Company Redemption in Lieu of Conversion.
(c) Payment of Redemption Price. The Company shall pay the applicable
Redemption Price of Company Redemption in Lieu of Conversion to the holder of
the Preferred Shares being redeemed in cash by wire transfer within five
business days after the applicable Conversion Date on which such Preferred
Shares are submitted for conversion. If the Company shall fail to pay the
applicable Redemption Price of Company Redemption in Lieu of Conversion to
such holder on a timely basis as described in this Section 6(c), in addition
to any remedy such holder of Preferred Shares may have under this Certificate
of Designations and the Securities Purchase Agreement, (i) such unpaid amount
shall bear interest at the rate of 2.0% per month until paid in full and (ii)
the Base Price shall be adjusted to the lowest Closing Bid Price of the Common
Stock between the applicable Conversion Date and the date on which the
Redemption Price of Company Redemption in Lieu of Conversion is paid in full.
Until the Company pays such unpaid applicable Redemption Price of Company
Redemption in Lieu of Conversion in full to each holder, each holder of
Preferred Shares submitted for redemption pursuant to this Section 6 and for
which the applicable Redemption Price of Company Redemption in Lieu of
Conversion has not been paid, shall have the option, in lieu of redemption,
(A) to require the Company to promptly return to each holder all of the
Preferred Shares that were submitted for redemption by such holder under this
Section 6 and for which the applicable Redemption Price of Company Redemption
in Lieu of Conversion has not been paid or (B) to convert those Preferred
Shares for which the applicable Redemption Price of the Company Redemption in
Lieu of Conversion has not been paid at a Conversion Price equal to the lesser
of (I) the Conversion Price applicable to such conversion on the date on which
such Preferred Shares were originally presented for conversion and (II) the
Conversion Price which would have been in effect if such Preferred Shares were
presented for conversion on the business day immediately following the last
day on which the Company could have effected a timely Company Redemption in
Lieu of Conversion, by sending written notice thereof to the Company via
facsimile (the "Void Company Redemption Notice"). Upon the Company's receipt
of such Void Company Redemption Notice(s), requesting the return of the
Preferred Shares, prior to payment of the full applicable redemption price to
each holder, (i) the Company's Redemption in Lieu of Conversion shall be null
and void with respect to those Preferred Shares submitted for redemption and
for which the applicable redemption price has not been paid and with respect
to any Preferred Shares submitted in the future for conversion in the same
Redemption in Lieu of Conversion Period, (ii) the Company shall immediately
return any Preferred Shares submitted to the Company by each holder for
redemption under this Section 6 and for which the applicable Redemption Price
of Company Redemption in Lieu of Conversion has not been paid and (iii) the
Base Price of such returned Preferred Shares shall be adjusted to the lesser
of (I) the Conversion Price applicable to such conversion on the date on which
such Preferred Shares were originally presented for conversion and (II) the
lowest Conversion Price which would have been in effect if such Preferred
Shares were presented for conversion on any business day during the period
beginning on the business day immediately following the last day on which the
Company could have effected a timely Company Redemption in Lieu of Conversion
and ending on the date of the Company's receipt of the applicable Void Company
Redemption Notice. Notwithstanding the foregoing, if the Company fails to pay
the applicable Redemption Price of
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Company Redemption in Lieu of Conversion to a holder within the time period
described in this Section 6(d) due to a dispute as to the arithmetic
calculation of the Redemption Price of Company Redemption in Lieu of
Conversion, such dispute shall be resolved pursuant to Section 2(h)(iii) above
with the term "Redemption Price of Company Redemption in Lieu of Conversion"
being substituted for the term "Conversion Rate." If the Company fails to
timely effect a Company Redemption in Lieu of Conversion in accordance with
this Section 6, the Company shall not be allowed to submit another Notice of
Company Redemption in Lieu of Conversion without the prior written consent of
the holders of at least two-thirds (2/3) of the Preferred Shares then
outstanding.
(d) Company Must Have Immediately Available Funds or Credit
Facilities. The Company shall not be entitled to send any Notice of Company
Redemption in Lieu of Conversion pursuant to Section 6(a) and begin the
redemption procedure under this Section 6, unless it has:
(i) the full amount of the Redemption Price of Company
Redemption in Lieu of Conversion in cash, available in a demand or other
immediately available account in a bank or similar financial institution;
(ii) credit facilities, with a bank or similar financial
institutions that are immediately available and unrestricted for use in
redeeming the Preferred Shares, in the full amount of the Redemption Price of
Company Redemption in Lieu of Conversion;
(iii) a written agreement with a standby underwriter or
qualified buyer ready, willing and able to purchase from the Company a
sufficient number of shares of stock to provide proceeds necessary to redeem
any Preferred Share that has not been converted prior to a Company Redemption
in Lieu of Conversion; or
(iv) a combination of the items set forth in the preceding
clauses (i), (ii) and (iii), aggregating the full amount of the Redemption
Price of Company Redemption in Lieu of Conversion.
(7) Reissuance of Certificates. In the event of a conversion or
redemption pursuant to this Certificate of Designations of less than all of
the Preferred Shares represented by a particular Preferred Stock Certificate,
the Company shall promptly cause to be issued and delivered to the holder of
such Preferred Shares a preferred stock certificate representing the remaining
Preferred Shares which have not been so converted or redeemed.
(8) Reservation of Shares. The Company shall, so long as any of the
Preferred Shares are outstanding, reserve and keep available out of its
authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Preferred Shares,
such number of shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all of the Preferred Shares then outstanding
(without regard to any limitations on conversions); provided that the number
of shares of Common Stock so reserved shall at no time be less than 200% of
the number of shares of Common Stock for which the Preferred Shares are at any
time convertible. The initial number of shares of Common Stock reserved for
conversions of the Preferred Shares and each increase in the number of shares
so reserved shall be allocated pro rata among the holders of the Preferred
Shares based on the number of Preferred Shares held by each holder at the time
of issuance of the
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Preferred Shares or increase in the number of reserved shares, as the case may
be. In the event a holder shall sell or otherwise transfer any of such
holder's Preferred Shares, each transferee shall be allocated a pro rata
portion of the number of reserved shares of Common Stock reserved for such
transferor. Any shares of Common Stock reserved and which remain allocated to
any person or entity which does not hold any Preferred Shares or have the
right to acquire any Preferred Shares shall be allocated to the remaining
holders of Preferred Shares, pro rata based on the number of Preferred Shares
then held by such holders.
(9) Voting Rights. Holders of Preferred Shares shall have no voting
rights, except as required by law, including but not limited to the General
Corporation Law of the State of Delaware, and as expressly provided in this
Certificate of Designations.
(10) Liquidation, Dissolution, Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Company, the holders of the Preferred Shares shall be entitled to receive in
cash out of the assets of the Company, whether from capital or from earnings
available for distribution to its stockholders (the "Preferred Funds"), before
any amount shall be paid to the holders of any of the capital stock of the
Company of any class junior in rank to the Preferred Shares in respect of the
preferences as to the distributions and payments on the liquidation,
dissolution and winding up of the Company, an amount per Preferred Share equal
to the sum of (i) $10,000 and (ii) an amount equal to the product of (.06)
(N/365) ($10,000); provided that, if the Preferred Funds are insufficient to
pay the full amount due to the holders of Preferred Shares and holders of
shares of other classes or series of preferred stock of the Company that are
of equal rank with the Preferred Shares as to payments of Preferred Funds (the
"Pari Passu Shares"), then each holder of Preferred Shares and Pari Passu
Shares shall receive a percentage of the Preferred Funds equal to the full
amount of Preferred Funds payable to such holder as a liquidation preference,
in accordance with their respective Certificate of Designations, Preferences
and Rights, as a percentage of the full amount of Preferred Funds payable to
all holders of Preferred Shares and Pari Passu Shares. The purchase or
redemption by the Company of stock of any class, in any manner permitted by
law, shall not, for the purposes hereof, be regarded as a liquidation,
dissolution or winding up of the Company. Neither the consolidation or merger
of the Company with or into any other Person, nor the sale or transfer by the
Company of less than substantially all of its assets, shall, for the purposes
hereof, be deemed to be a liquidation, dissolution or winding up of the
Company. No holder of Preferred Shares shall be entitled to receive any
amounts with respect thereto upon any liquidation, dissolution or winding up
of the Company other than the amounts provided for herein; provided that a
holder of Preferred Shares shall be entitled to all amounts previously accrued
with respect to amounts owed hereunder.
(11) Preferred Rank; Participation.
(a) All shares of Common Stock shall be of junior in rank to
the Preferred Shares, in respect to the preferences as to distributions and
payments upon the liquidation, dissolution and winding up of the Company. The
rights of the shares of Common Stock shall be subject to the preferences and
relative rights of the Preferred Shares. Without the prior express written
consent of the holders of not less than two-thirds (2/3) of the then
outstanding Preferred Shares, the Company shall not hereafter authorize or
issue additional or other capital stock that is of senior or equal rank to the
Preferred Shares in respect of the preferences as to distributions and
payments upon
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the liquidation, dissolution and winding up of the Company. Without the prior
express written consent of the holders of not less than two-thirds (2/3) of
the then outstanding Preferred Shares, the Company shall not hereafter
authorize or make any amendment to the Company's Certificate of Incorporation
or bylaws, or file any resolution of the board of directors of the Company
with the Delaware Secretary of State containing any provisions, which would
adversely affect or otherwise impair the rights or relative priority of the
holders of the Preferred Shares relative to the holders of the Common Stock or
the holders of any other class of capital stock. In the event of the merger or
consolidation of the Company with or into another corporation pursuant to
which the Preferred Shares remain outstanding or the rights to acquire
Preferred Shares under the Securities Purchase Agreement shall not have been
terminated, the Preferred Shares shall maintain their relative powers,
designations and preferences provided for herein and no merger shall result
inconsistent therewith.
(b) Subject to the rights of the holders, if any, of the
Pari Passu Shares, the holders of the Preferred Shares shall, as holders of
Preferred Stock, be entitled to such dividends paid and distributions made to
the holders of Common Stock to the same extent as if such holders of Preferred
Shares had converted the Preferred Shares into Common Stock (without regard to
any limitations on conversion herein or elsewhere) and had held such shares of
Common Stock on the record date for such dividends and distributions. Payments
under the preceding sentence shall be made concurrently with the dividend or
distribution to the holders of Common Stock.
(12) Restriction on Redemption and Cash Dividends with respect to
Other Capital Stock. Until all of the Preferred Shares have been converted or
redeemed as provided herein, the Company shall not, directly or indirectly,
redeem, or declare or pay any cash dividend or distribution on, its capital
stock without the prior express written consent of the holders of not less
than two-thirds (2/3) of the then outstanding Preferred Shares.
(13) Limitation on Number of Conversion Shares. Notwithstanding any
other provision herein, the Company shall not be obligated to issue any shares
of Common Stock upon conversion of the Preferred Shares if the issuance of
such shares of Common Stock would exceed 2,046,932 (the "Exchange Cap")
without breaching the Company's obligations under the rules or regulations of
the Nasdaq National Market, except that such limitation shall not apply in the
event that the Company (i) obtains the approval of its stockholders as
required by applicable rules and regulations of the Nasdaq National Market for
issuances of Common Stock in excess of the Exchange Cap, (ii) obtains a
written opinion from outside counsel to the Company that such approval is not
required, which opinion shall be reasonably satisfactory to the holders of
two-thirds (2/3) of the Preferred Shares then outstanding or (iii) the
required number of holders of the Preferred Shares have exercised their rights
pursuant to Section 3(g) of this Certificate of Designations to have the
Company remove the Common Stock from quotation on the Nasdaq National Market.
Until such approval or written opinion is obtained or such action has been
taken by the required number of holders, no purchaser of Preferred Shares
pursuant to the Securities Purchase Agreement (the "Buyers") shall be issued,
upon conversion of Preferred Shares, shares of Common Stock in an amount
greater than the product of (x) the Exchange Cap amount multiplied by (y) a
fraction, the numerator of which is the number of Preferred Shares issued to
such Buyer pursuant to the Securities Purchase Agreement and the denominator
of which is the aggregate amount of all the Preferred Shares issued to the
Buyers pursuant to the Securities Purchase Agreement (the "Cap Allocation
Amount"). In the event that any Buyer shall sell or otherwise transfer any of
such Buyer's Preferred
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Shares, the transferee shall be allocated a pro rata portion of such Buyer's
Cap Allocation Amount. In the event that any holder of Preferred Shares shall
convert all of such holder's Preferred Shares into a number of shares of
Common Stock which, in the aggregate, is less than such holder's Cap
Allocation Amount, then the difference between such holder's Cap Allocation
Amount and the number of shares of Common Stock actually issued to such holder
shall be allocated to the respective Cap Allocation Amounts of the remaining
holders of Preferred Shares on a pro rata basis in proportion to the number of
Preferred Shares then held by each such holder.
(14) Vote to Change the Terms of or Issue Preferred Shares. The
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of not less than two-thirds (2/3) of
the then outstanding Preferred Shares shall be required for (a) any change to
this Certificate of Designations or the Company's Certificate of Incorporation
which would amend, alter, change or repeal any of the powers, designations,
preferences and rights of the Preferred Shares, or (b) any issuance of
Preferred Shares other than pursuant to the Securities Purchase Agreement.
(15) Lost or Stolen Certificates. Upon receipt by the Company of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing the Preferred
Shares, and, in the case of loss, theft or destruction, of an indemnification
undertaking by the holder to the Company in a form reasonably acceptable to
the Company and, in the case of mutilation, upon surrender and cancellation of
the Preferred Stock Certificate(s), the Company shall execute and deliver new
preferred stock certificate(s) of like tenor and date; provided, however, the
Company shall not be obligated to re-issue preferred stock certificates if the
holder contemporaneously requests the Company to convert such Preferred Shares
into Common Stock.
(16) Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this Certificate of Designations
shall be cumulative and in addition to all other remedies available under this
Certificate of Designations, at law or in equity (including a decree of
specific performance and/or other injunctive relief), no remedy contained
herein shall be deemed a waiver of compliance with the provisions giving rise
to such remedy and nothing herein shall limit a holder's right to pursue
actual damages for any failure by the Company to comply with the terms of this
Certificate of Designations. Amounts set forth or provided for herein with
respect to payments, conversion and the like (and the computation thereof)
shall be the amounts to be received by the holder thereof and shall not,
except as expressly provided herein, be subject to any other obligation of the
Company (or the performance thereof). The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the holders
of the Preferred Shares and that the remedy at law for any such breach may be
inadequate. The Company therefore agrees that, in the event of any such breach
or threatened breach, the holders of the Preferred Shares shall be entitled,
in addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.
(17) Construction. This Certificate of Designations shall be deemed
to be jointly drafted by the Company and the initial holders of the Preferred
Shares and shall not be construed against any person as the drafter hereof.
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(18) Failure or Indulgence Not Waiver. No failure or delay on the
part of a holder of Preferred Shares in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof (except to the extent
that such power, right or privilege must, in accordance with the terms of this
Certificate of Designations, be exercised within a specified period of time
and such period of time has lapsed without such power, right or privilege
being exercised), nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege.
(19) Notices. Any notice required to be delivered pursuant to the
terms of this Certificate of Designations shall be delivered, unless otherwise
provided in this Certificate of Designations, in accordance with the terms,
and subject to the notice provisions of, the Securities Purchase Agreement.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by Dr. Steven R. Fox, its Chairman and Chief
Executive Officer, as of the 16th day of December, 1998.
ENAMELON, INC.
By: /s/Dr. Steven R. Fox
-------------------------------
Dr. Steven R. Fox
Chairman and Chief Executive Officer
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EXHIBIT I
ENAMELON, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights
of Series B Convertible Preferred Stock (the "Certificate of Designations").
In accordance with and pursuant to the Certificate of Designations, the
undersigned hereby elects to convert the number of shares of Series B
Convertible Preferred Stock, par value $0.01 per share (the "Preferred
Shares"), of Enamelon, Inc., a Delaware corporation (the "Company"), indicated
below into shares of Common Stock, par value $0.001 per share (the "Common
Stock"), of the Company, by tendering the stock certificate(s) representing
the Preferred Shares specified below as of the date specified below.
Date of Conversion:
-------------------------------------------------
Number of Preferred Shares
to be converted: -----------------------------------------------------
Stock certificate no(s). of
Preferred Shares to be converted:
-------------------------------------
Please confirm the following information:
Conversion Price:
-----------------------------------------
Number of shares of Common
Stock to be issued:
-----------------------------------------
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:
-----------------------------------------
-----------------------------------------
Facsimile Number:
-----------------------------------------
Authorization:
-------------------------------------------------
By:
--------------------------------------
Title:
-----------------------------------
Dated:
-------------------------------------------------
Applicable only if the Transfer Agent is a participant in the electronic book
entry transfer program:
Account Number:
(if electronic book
entry transfer):
--------------------------------------------------
Transaction Code Number
(if electronic book
entry transfer):
--------------------------------------------------
THIS NOTICE MUST BE DELIVERED TO COMPANY AND TRANSFER AGENT
<PAGE>
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of December
17, 1998, by and among Enamelon, Inc., a Delaware corporation, with
headquarters located at 15 Kimball Avenue, Yonkers, New York 10704 (the
"Company"), and the investors listed on the Schedule of Buyers attached hereto
(individually, a "Buyer" and collectively, the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D ("Regulation D") as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 Act");
B. The Company has authorized the following new series of its
preferred stock, par value $0.001 per share: the Company's Series B
Convertible Preferred Stock (the "Preferred Shares"), which shall be
convertible into shares of the Company's Common Stock, par value $0.001 per
share (the "Common Stock") (as converted, the "Conversion Shares"), in
accordance with the terms of the Company's Certificate of Designations,
Preferences and Rights of the Series B Preferred Stock, substantially in the
form attached hereto as Exhibit A (the "Certificate of Designations");
C. The Buyers wish to purchase, upon the terms and conditions stated
in this Agreement, an aggregate of 500 of the Preferred Shares in the
respective amounts set forth opposite each Buyer's name on the Schedule of
Buyers on the Closing Date (as defined below); and
D. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration
Rights Agreement substantially in the form attached hereto as Exhibit B (the
"Registration Rights Agreement") pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
a. Purchase of Preferred Shares. Subject to satisfaction (or
waiver) of the conditions set forth in Sections 6 and 7 below, the Company
shall issue and sell to each Buyer and each Buyer severally agrees to purchase
from the Company the respective number of Preferred Shares set forth opposite
such Buyer's name on the Schedule of Buyers, (as defined below) (the
"Closing"). The purchase price (the "Purchase Price") of each Preferred Share
at the Closing shall be $10,000.
b. The Closing Date. The date and time of the Closing (the
"Closing Date") shall be 10:00 a.m. Central Time, within three (3) business
days following the date hereof, subject to notification of satisfaction (or
waiver) of the conditions to the Closing set forth in Sections 6 and 7 below
(or such later date as is mutually agreed to by the Company and the Buyers).
The Closing
<PAGE>
shall occur on the Closing Date at the offices of Katten Muchin & Zavis, 525
West Monroe Street, Suite 1600, Chicago, Illinois 60661-3693 or such other
place as the parties shall agree.
c. Form of Payment. On the Closing Date, (i) each Buyer
shall pay the Purchase Price to the Company for the Preferred Shares to be
issued and sold to such Buyer at the Closing, by wire transfer of immediately
available funds in accordance with the Company's written wire instructions,
and (ii) the Company shall deliver to each Buyer, stock certificates (in the
denominations as such Buyer shall request) (the "Stock Certificates")
representing such number of the Preferred Shares which such Buyer is then
purchasing (as indicated opposite such Buyer's name on the Schedule of
Buyers). Such Stock Certificates shall bear the restrictive legends required
pursuant to Section 2(g).
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only
itself that:
a. Investment Purpose. Such Buyer (i) is acquiring the
Preferred Shares and (ii) upon conversion of the Preferred Shares, will
acquire the Conversion Shares then issuable (the Preferred Shares and the
Conversion Shares collectively are referred to herein as the "Securities"),
for its own account for investment only and not with a view towards, or for
resale in connection with, the public sale or distribution thereof, except
pursuant to sales registered or exempted under the 1933 Act; provided,
however, that by making the representations herein, such Buyer does not agree
to hold any of the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in accordance with
or pursuant to a registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a)(3), (5) or (6) of Regulation
D.
c. Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state
securities laws and that the Company is relying in part upon the truth and
accuracy of, and such Buyer's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of such Buyer set
forth herein in order to determine the availability of such exemptions and the
eligibility of such Buyer to acquire such securities.
d. Information. Such Buyer and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities which have been requested by such Buyer. Such Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company. Neither such inquiries nor any other due diligence investigations
conducted by such Buyer or its advisors, if any, or its representatives shall
modify, amend or affect such Buyer's right to rely on the Company's
representations and warranties contained in Section 3 below. Such Buyer
understands that its investment in the Securities involves a high degree of
risk. Such Buyer has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to
its acquisition of the Securities.
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<PAGE>
e. No Governmental Review. Such Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the
Securities or the fairness or suitability of the investment in the Securities
nor have such authorities passed upon or endorsed the merits of the offering
of the Securities.
f. Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not
been and are not being registered under the 1933 Act or any state securities
laws, and may not be offered for sale, sold, assigned or transferred unless
(A) subsequently registered thereunder, (B) such Buyer shall have delivered to
the Company an opinion of counsel, in a generally acceptable form to the
Company, to the effect that such Securities to be sold, assigned or
transferred may be sold, assigned or transferred pursuant to an exemption from
such registration, or (C) such Buyer provides the Company with assurance
reasonably acceptable to the Company that such Securities can be sold,
assigned or transferred pursuant to Rule 144 promulgated under the 1933 Act
(or a successor rule thereto) ("Rule 144"); (ii) any sale of the Securities
made in reliance on Rule 144 may be made only in accordance with the terms of
Rule 144 and further, if Rule 144 is not applicable, any resale of the
Securities under circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined
in the 1933 Act) may require compliance with some other exemption under the
1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither
the Company nor any other person is under any obligation to register such
Securities under the 1933 Act or any state securities laws or to comply with
the terms and conditions of any exemption thereunder.
g. Legends. Such Buyer understands that the certificates or
other instruments representing the Preferred Shares and, until such time as
the sale of the Conversion Shares have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement, the stock certificates
representing the Conversion Shares, except as set forth below, shall bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT
TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it
is stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for sale under the 1933 Act, (ii) in connection with
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<PAGE>
a sale transaction, such holder provides the Company with an opinion of
counsel, in a generally acceptable form, to the effect that a public sale,
assignment or transfer of such Securities may be made without registration
under the 1933 Act, or (iii) such holder provides the Company with reasonable
assurances that such Securities can be sold pursuant to Rule 144 without any
restriction as to the number of securities acquired as of a particular date
that can then be immediately sold.
h. Authorization; Enforcement. This Agreement has been duly
and validly authorized, executed and delivered on behalf of such Buyer and is
a valid and binding agreement of such Buyer enforceable against such Buyer in
accordance with its terms, subject as to enforceability to general principles
of equity and to applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors' rights and remedies.
i. Residency. Such Buyer is a resident of that state or
country specified on the Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers
that:
a. Organization and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns capital stock or holds an equity or
similar interest) (a complete list of which is set forth in Schedule 3(a)) are
corporations duly organized and validly existing in good standing under the
laws of the jurisdiction in which they are incorporated, and have the
requisite corporate power and authority to own their properties and to carry
on their business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified as a foreign corporation to do business and is
in good standing in every jurisdiction in which its ownership of property or
the nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in good
standing would not have a Material Adverse Effect. As used in this Agreement,
"Material Adverse Effect" means any material adverse effect on the business,
properties, assets, operations, results of operations or financial condition
of the Company and its Subsidiaries, if any, taken as a whole, or on the
transactions contemplated hereby or by the agreements and instruments to be
entered into in connection herewith, or on the authority or ability of the
Company to perform its obligations under the Transaction Documents (as defined
below) or the Certificate of Designations.
b. Authorization; Enforcement; Compliance with Other
Instruments. (i) The Company has the requisite corporate power and authority
to enter into and perform this Agreement, the Registration Rights Agreement,
the Irrevocable Transfer Agent Instructions and each of the other agreements
entered into by the parties hereto in connection with the transactions
contemplated by this Agreement (collectively, the "Transaction Documents"),
and to issue the Securities in accordance with the terms hereof and thereof,
(ii) the execution and delivery of the Transaction Documents and the
Certificate of Designations by the Company and the consummation by it of the
transactions contemplated hereby and thereby, including without limitation the
issuance of the Preferred Shares and the reservation for issuance and the
issuance of the Conversion Shares issuable upon conversion thereof, have been
duly authorized by the Company's Board of Directors and no
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<PAGE>
further consent or authorization is required by the Company, its Board of
Directors or its stockholders, except for, if required by the Principal Market
(as defined below), approval by its stockholders prior to the issuance of a
number of shares of Common Stock equal to or in excess of 20% of the number of
shares of common Stock outstanding immediately prior to the Closing Date;
(iii) the Transaction Documents have been duly executed and delivered by the
Company, (iv) the Transaction Documents constitute the valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally,
the enforcement of creditors' rights and remedies, and (v) the Certificate of
Designations has been filed with the Secretary of State of the State of
Delaware and is in full force and effect, enforceable against the Company in
accordance with its terms. The "Principal Market" shall mean the Nasdaq
National Market.
c. Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of (i) 30,000,000 shares of Common
Stock, of which as of the date hereof, 10,239,780 shares were issued and
outstanding, 2,112,250 shares are issuable and reserved for issuance pursuant
to the Company's stock option plans, 2,000,000 shares are issuable and
reserved for issuance pursuant to conversions of the Preferred Shares and
784,071 shares are reserved for issuance for any and all other purposes and
(ii) 5,000,000 shares of preferred stock, which as of the date hereof, no
shares were issued and outstanding. All of such outstanding shares have been,
or upon issuance will be, validly issued and are fully paid and nonassessable.
Except as disclosed in Schedule 3(c), (i) no shares of the Company's capital
stock are subject to preemptive rights or any other similar rights or any
liens or encumbrances suffered or permitted by the Company, (ii) there are no
outstanding debt securities, (iii) there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares
of capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital
stock of the Company or any of its Subsidiaries or options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its Subsidiaries, (iv) there are no agreements
or arrangements under which the Company or any of its Subsidiaries is
obligated to register the sale of any of their securities under the 1933 Act
(except the Registration Rights Agreement), (v) there are no outstanding
securities of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries, (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in this Agreement, and (vii) the Company does not
have any stock appreciation rights or "phantom stock" plans or agreements or
any similar plan or agreement. The Company has furnished to the Buyers true
and correct copies of the Company's Articles of Incorporation, as amended and
as in effect on the date hereof (the "Articles of Incorporation"), and the
Company's By-laws, as in effect on the date hereof (the "By-laws"), and the
terms of all securities convertible into or exercisable for Common Stock and
the material rights of the holders thereof in respect thereto.
-5-
<PAGE>
d. Issuance of Securities. The Preferred Shares are duly
authorized and, upon issuance in accordance with the terms hereof, shall be
(i) validly issued, fully paid and non-assessable, (ii) free from all taxes,
liens and charges with respect to the issue thereof and (iii) entitled to the
rights and preferences set forth in the Certificate of Designations. Two
million shares of Common Stock have been duly authorized and reserved for
issuance upon conversion of the Preferred Shares. Upon conversion in
accordance with the Certificate of Designations, the Conversion Shares will be
validly issued, fully paid and nonassessable and free from all taxes, liens
and charges with respect to the issue thereof, with the holders being entitled
to all rights accorded to a holder of Common Stock. Based in part upon the
representations of the Buyers set forth in Section 2, the issuance by the
Company of the Securities is exempt from registration under the 1933 Act.
e. No Conflicts. Except as disclosed in Schedule 3(e), the
execution, delivery and performance of the Transaction Documents by the
Company, the performance by the Company of its obligations under the
Certificate of Designations and the consummation by the Company of the
transactions contemplated hereby and thereby will not (i) result in a
violation of the Articles of Incorporation, any Certificate of Designations,
Preferences and Rights of any outstanding series of preferred stock of the
Company or the By-laws or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture or other instrument to
which the Company or any of its Subsidiaries 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 and the rules and
regulations of the Principal Market) applicable to the Company or any of its
Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected. Except as disclosed in Schedule 3(e),
neither the Company nor its Subsidiaries is in violation of any term of or in
default under the Articles of Incorporation, any Certificate of Designations,
Preferences and Rights of any outstanding series of preferred stock or the
By-laws or their organizational charter or by-laws, respectively, or any
contract, agreement, mortgage, indebtedness, indenture, instrument, judgment,
decree or order or any statute, rule or regulation applicable to the Company
or its Subsidiaries, except for possible conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations that would not
individually or in the aggregate have a Material Adverse Effect. The business
of the Company and its Subsidiaries is not being conducted in violation of any
law, ordinance, regulation of any governmental entity having authority or
jurisdiction over the Company, except for possible violations the sanctions
for which either individually or in the aggregate would not have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and as
required under the 1933 Act, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with,
any court or governmental agency or any regulatory or self regulatory agency
in order for it to execute, deliver or perform any of its obligations under or
contemplated by the Transaction Documents or to perform its obligations under
the Certificate of Designations, in each case in accordance with the terms
hereof or thereof. Except as disclosed in Schedule 3(e), all consents,
authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof. The Company is not in violation of
the listing requirements of the Principal Market as in effect on the date
hereof and is not aware of any facts which would reasonably lead to delisting
of the Common Stock by the Principal Market in the foreseeable future.
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<PAGE>
f. SEC Documents; Financial Statements. Since December 31,
1997, the Company has filed all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"1934 Act") (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as
the "SEC Documents"). The Company has delivered to the Buyers or their
respective representatives true and complete copies of the SEC Documents. As
of their respective dates, the SEC Documents complied in all material respects
with the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Documents have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates
thereof and the results of its operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyers which is not included in the SEC Documents, including, without
limitation, information referred to in Section 2(d) of this Agreement,
contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements therein, in the light
of the circumstance under which they are or were made, not misleading.
g. Absence of Certain Changes. Except as disclosed in
Schedule 3(g) or in the SEC Documents filed at least five (5) days prior to
the date hereof and available on EDGAR, since December 31, 1997, there has
been no material adverse change and no material adverse development in the
business, properties, operations, financial condition or results of operations
of the Company or its Subsidiaries. The Company has not taken any steps, and
does not currently expect to take any steps, to seek protection pursuant to
any bankruptcy law nor does the Company or its Subsidiaries have any knowledge
or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings.
h. Absence of Litigation. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company, the Common Stock or any of the Company's Subsidiaries
or any of the Company's or the Company's Subsidiaries' officers or directors
in their capacities as such, except as set forth in Schedule 3(h).
i. Acknowledgment Regarding Buyers' Purchase of Preferred
Shares. The Company acknowledges and agrees that each of the Buyers is acting
solely in the capacity of arm's-length purchaser with respect to the
Transaction Documents and the transactions contemplated thereby. The Company
further acknowledges that no Buyer is acting as a financial advisor or
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<PAGE>
fiduciary of the Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated thereby and any advice
given by any of the Buyers or any of their respective representatives or
agents in connection with the Transaction Documents and the transactions
contemplated thereby is merely incidental to such Buyer's purchase of the
Securities. The Company further represents to each Buyer that the Company's
decision to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives.
j. No Undisclosed Events, Liabilities, Developments or
Circumstances. No event, liability, development or circumstance has occurred
or exists with respect to the Company or its Subsidiaries or their respective
business, properties, operations or financial condition, that would be
required to be disclosed by the Company under applicable securities laws on a
registration statement filed with the SEC relating to an issuance and sale by
the Company of its Common Stock and which has not been publicly announced.
k. No General Solicitation. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has engaged in
any form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
l. No Integrated Offering. The Company has not, directly or
indirectly, made any offers or sales of any security or solicited any offers
to buy any security, under circumstances that would require registration of
any of the Securities under the 1933 Act or cause this offering of Securities
to be integrated with prior offerings by the Company for purposes of the 1933
Act or any applicable stockholder approval provisions, including, without
limitation, under the rules and regulations of the Principal Market, nor will
the Company or any of its Subsidiaries take any action or steps that would
require registration of the Securities under the 1933 Act or cause the
offering of the Securities to be integrated with other offerings.
m. Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of
the Company or any of its Subsidiaries, is any such dispute threatened.
Neither the Company nor any of its Subsidiaries is a party to a collective
bargaining agreement, and the Company and its Subsidiaries believe that
relations with their employees are good. No executive officer (as defined in
Rule 501(f) of the 1933 Act) has notified the Company that such officer
intends to leave the Company or otherwise terminate such officer's employment
with the Company.
n. Intellectual Property Rights. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service mark registrations, service names,
patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights necessary to conduct
their respective businesses as now conducted. Except as set forth on Schedule
3(n), none of the Company's trademarks, trade names, service marks, service
mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, government authorizations, trade secrets or
other intellectual property rights necessary to conduct its business as now or
as proposed to be conducted have expired or terminated, or are expected to
expire or terminate within two years from the date of this
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Agreement. The Company and its Subsidiaries do not have any knowledge of any
infringement by the Company or its Subsidiaries of trademark, trade name
rights, patents, patent rights, copyrights, inventions, licenses, service
names, service marks, service mark registrations, trade secret or other
similar rights of others, or of any such development of similar or identical
trade secrets or technical information by others and, except as set forth on
Schedule 3(n), there is no claim, action or proceeding being made or brought
against, or to the Company's knowledge, being threatened against, the Company
or its Subsidiaries regarding trademark, trade name, patents, patent rights,
invention, copyright, license, service names, service marks, service mark
registrations, trade secret or other infringement; and the Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise
to any of the foregoing. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their intellectual properties.
o. Environmental Laws. The Company and its Subsidiaries (i)
are in compliance with any and all applicable foreign, federal, state and
local laws and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants ("Environmental Laws"), (ii) have received all permits,
licenses or other approvals required of them under applicable Environmental
Laws to conduct their respective businesses and (iii) are in compliance with
all terms and conditions of any such permit, license or approval where, in
each of the three foregoing cases, the failure to so comply would have,
individually or in the aggregate, a Material Adverse Effect.
p. Title. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(p) or such
as do not materially affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the Company or
any of its Subsidiaries. Any real property and facilities held under lease by
the Company or any of its Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property
and buildings by the Company and its Subsidiaries.
q. Insurance. Neither the Company nor any such Subsidiary
has been refused any insurance coverage sought or applied for and neither the
Company nor any such Subsidiary has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the earnings,
business or operations of the Company and its Subsidiaries, taken as a whole.
r. Regulatory Permits. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, except where the failure to possess such items would
not have, individually or in the aggregate, a Material Adverse Effect and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
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s. No Materially Adverse Contracts, Etc. Neither the Company
nor any of its Subsidiaries is 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 a Material Adverse Effect. Neither
the Company nor any of its Subsidiaries is a party to any contract or
agreement which in the reasonable judgment of the Company's officers has or is
expected to have a Material Adverse Effect.
t. Tax Status. Except as set forth on Schedule 3(t), the
Company and each of its Subsidiaries has made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and
has paid all taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith, and has set aside on
its books provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
u. Certain Transactions. Except as set forth on Schedule
3(u) and in the SEC Documents filed at least ten days prior to the date hereof
and except for arm's-length transactions pursuant to which the Company makes
payments in the ordinary course of business upon terms no less favorable than
the Company could obtain from third parties and other than the grant of stock
options disclosed on Schedule 3(c), none of the officers or directors 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 or
director or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any officer or director has a substantial
interest or is an officer, director, trustee or partner.
v. Dilutive Effect. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Preferred
Shares will increase in certain circumstances. The Company further
acknowledges that, subject to such limitations as are expressly set forth in
the Transaction Documents, its obligation to issue Conversion Shares upon
conversion of the Preferred Shares in accordance with this Agreement and the
Certificate of Designations is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of
other stockholders of the Company.
w. Transactions With Affiliates. Except as set forth on
Schedule 3(w) and in the SEC Documents filed at least ten days prior to the
date hereof 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
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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.
x. Application of Takeover Protections. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under the laws of the state of its
incorporation which is or could become applicable to the Buyers as a result of
the transactions contemplated by this Agreement, including, without
limitation, the Company's issuance of the Securities and the Buyer's ownership
of the Securities.
y. No Other Agreements. The Company has not, directly or
indirectly, made any agreements with any Buyers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents
except as set forth in the Transaction Documents.
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts timely
to satisfy each of the conditions to be satisfied by it as provided in
Sections 6 and 7 of this Agreement.
b. Form D. The Company agrees to file a Form D with respect
to the Preferred Shares as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall take such
action as reasonably necessary to qualify the Preferred Shares for, or obtain
exemption for the Preferred Shares for, sale to the Buyers at the Closing
pursuant to this Agreement under applicable securities or "Blue Sky" laws of
the states of the United States, and shall provide evidence of any such action
so taken to the Buyers on or prior to the Closing Date. The Company shall make
all filings and reports relating the offer and sale of the Securities required
under the applicable securities or "Blue Sky" laws of the states of the United
States following the Closing Date.
c. Reporting Status. Until the earlier of (i) the date which
is one year after the date as of which the Investors (as that term is defined
in the Registration Rights Agreement) may sell all of the Conversion Shares
without restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or
successor thereto), or (ii) the date on which (A) the Investors shall have
sold all the Conversion Shares and (B) none of the Preferred Shares is
outstanding (the "Registration Period"), the Company shall file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the Company
shall not terminate its status as an issuer required to file reports under the
1934 Act even if the 1934 Act or the rules and regulations thereunder would
otherwise permit such termination.
d. Use of Proceeds. The Company will use the proceeds from
the sale of the Preferred Shares for substantially the same purposes and in
substantially the same amounts as indicated in Schedule 4(d).
e. Financial Information. The Company agrees to send the
following to each Investor (as that term is defined in the Registration Rights
Agreement) during the Registration
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Period: (i) within five (5) days after the filing thereof with the SEC, a copy
of its Annual Reports on Form 10-KSB, its Quarterly Reports on Form 10-QSB,
any Current Reports on Form 8-K and any registration statements or amendments
(other than on Form S-8) filed pursuant to the 1933 Act; (ii) on the same day
as the release thereof, facsimile copies of all press releases issued by the
Company or any of its Subsidiaries and (iii) copies of any notices and other
information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to
the stockholders.
f. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 200% of the number of shares of Common Stock needed to
provide for the issuance of the Conversion Shares.
g. Lock-Up Period. Subject to the exceptions described
below, the Company agrees that during the period beginning on the date hereof
and ending on and including February 28, 1999 (the "Lock-Up Period"), neither
the Company nor its subsidiaries will, without the prior written consent of a
majority of the Preferred Shares then outstanding, contract with any party for
any equity financing (including any debt financing with an equity component)
or issue any equity securities of the Company or any Subsidiary or securities
convertible or exchangeable into or for equity securities of the Company or
any Subsidiary (including debt securities with an equity component) in any
form (the limitations referred to in this sentence are collectively referred
to as the "Capital Raising Limitation"). The Capital Raising Limitation shall
not apply to (i) a loan from a commercial bank which does not have any equity
feature, (ii) any transaction involving the Company's issuances of securities
(A) as consideration in a merger or consolidation, (B) in connection with any
strategic partnership or joint venture (the primary purpose of which is not to
raise equity capital), or (C) as consideration for the acquisition of a
business, product or license or other assets by the Company, (iii) the
issuance of Common Stock in a firm commitment, underwritten public offering
with commissions, underwriting discounts and allowances not in excess of 10.0%
of the gross proceeds, (iv) the issuance of securities upon exercise or
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof, (v) the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option plan, restricted stock plan or stock purchase plan for the benefit of
the Company's employees, consultants or directors or (vi) those transactions
described on Schedule 4(g).
h. Listing. The Company shall promptly secure the listing of
all of the Registrable Securities (as defined in the Registration Rights
Agreement) upon each national securities exchange and automated quotation
system (including the Principal Market), 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 Registrable Securities from time to time issuable under the
terms of the Transaction Documents and the Certificate of Designations. The
Company shall maintain the Common Stock's authorization for quotation on the
Principal Market. Neither the Company nor any of its Subsidiaries shall take
any action which would be reasonably expected to result in the delisting or
suspension of the Common Stock on the Principal Market. The Company shall
promptly provide to each Buyer copies of any notices it receives from the
Principal Market regarding the continued eligibility of the Common Stock for
listing on such Principal Market. The Company shall pay all fees and expenses
in connection with satisfying its obligations under this Section 4(h).
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i. Expenses. Subject to Section 9(l) below, following the
Closing, the Company shall reimburse the Buyers for the Buyers' reasonable
expenses (including attorneys' fees and expenses) in connection with
negotiating and preparing the Transaction Documents and consummating the
transactions contemplated thereby up to an aggregate of $50,000.
j. Proxy Statement. The Company shall provide each
stockholder entitled to vote at the next meeting of stockholders of the
Company, which shall be not later than June 30, 1999 (the "Stockholder Meeting
Deadline"), a proxy statement, which has been previously reviewed by the
Buyers and a counsel of their choice, soliciting each such stockholder's
affirmative vote at such stockholder meeting for approval of the Company's
issuance of all of the Conversion Shares in excess of the Exchange Cap (as
defined in the Certificate of Designations) as described in this Agreement,
and the Company shall use its best efforts to solicit its stockholders'
approval of such issuance of the Securities and cause the Board of Directors
of the Company to recommend to the stockholders that they approve such
proposal. If the Company fails to hold a meeting of its stockholders by the
Stockholder Meeting Deadline (unless such failure is the result solely of the
actions of the Buyers), then, as partial relief (which remedy shall
not be exclusive of any other remedies available at law or in equity), the
Company shall pay to each holder of Preferred Shares an amount in cash per
Preferred Share equal to the product of (i) $10,000 multiplied by (ii) .025
multiplied by (iii) the quotient of (x) the number of days after the
Stockholder Meeting Deadline that a meeting of the Company's stockholders is
not held, divided by (y) 30. The Company shall make the payments referred to
in the immediately preceding sentence within five days of the earlier of (I)
the holding of the meeting of the Company's stockholders, the failure of which
resulted in the requirement to make such payments and (II) the last day of
each 30-day period beginning on the day after the Stockholder Meeting
Deadline. In the event the Company fails to make such payments in a timely
manner, such payments shall bear interest at the rate of 2.5% per month (pro
rated for partial months) until paid in full.
k. Transactions With Affiliates. So long as (i) any
Preferred Shares are outstanding or (ii) any Buyer owns Conversion Shares with
a market value equal to or greater than $500,000, the Company shall not, and
shall cause each of its Subsidiaries not to, enter into, amend, modify or
supplement, or permit any Subsidiary to enter into, amend, modify or
supplement, any agreement, transaction, commitment or arrangement with any of
its or any Subsidiary's officers, directors, person who were officers or
directors at any time during the previous two years, stockholders who
beneficially own 5% or more of the Common Stock, or affiliates or with any
individual related by blood, marriage or adoption to any such individual or
with any entity in which any such entity or individual owns a 5% or more
beneficial interest (each a "Related Party"), except for (a) customary
employment arrangements and benefit programs on reasonable terms, (b) any
agreement, transaction, commitment or arrangement on an arm's-length basis on
terms no less favorable than terms which would have been obtainable from a
person other than such Related Party, or (c) any agreement, transaction,
commitment or arrangement which is approved by a majority of the disinterested
directors of the Company. For purposes hereof, any director who is also an
officer of the Company or any Subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "Affiliate" for purposes of this Agreement means,
with respect to any person or entity, another person or entity that, directly
or indirectly, (i) has a 5% or more equity interest in that person or entity,
(ii) has 5% or more common ownership with that person or entity, (iii)
controls that person or entity, or (iv) shares common
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control with that person or entity. "Control" or "controls" for purposes
hereof means that a person or entity has the power, direct or indirect, to
conduct or govern the policies of another person or entity.
l. Filing of Form 8-K. On or before the second (2nd)
business day following the Closing Date, the Company shall file a Form 8-K
with the SEC attaching the Transaction Documents and otherwise in the form
required by the 1934 Act.
m. Hedging Activity. From February 10, 1999, through and
including February 28, 1999, each Buyer agrees not to engage in, and shall
prohibit any of its respective Affiliates from engaging in, any "short sale"
(as such term is defined in Rule 3b-3 of the 1934 Act) or other similar
hedging transaction, involving the Common Stock; provided, however, that a
sale which would otherwise be deemed to be a short sale shall not be
prohibited by this Agreement so long as the selling Buyer submits on the date
of such sale a Conversion Notice (as defined in the Certificate of
Designations) entitling such Buyer to receive a number of shares of Common
Stock at least equal to the number of shares so sold. For so long as a Buyer
holds any Securities, such Buyer will comply with the provisions of Section 9
of the 1934 Act and the rules and regulations promulgated thereunder with
respect to transactions involving the Securities.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its
transfer agent, and any subsequent transfer agent, to issue certificates,
registered in the name of each Buyer or its respective nominee(s), for the
Conversion Shares in such amounts as specified from time to time by each Buyer
to the Company upon conversion of the Preferred Shares (the "Irrevocable
Transfer Agent Instructions"). Prior to registration of the Conversion Shares
under the 1933 Act, all such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions 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, prior to registration of
the Conversion Shares under the 1933 Act) will be given by the Company to its
transfer agent and that the Securities shall otherwise be freely transferable
on the books and records of the Company as and to the extent provided in this
Agreement and the Registration Rights Agreement. Nothing in this Section 5
shall affect in any way each Buyer's obligations and agreements set forth in
Section 2(g) to comply with all applicable prospectus delivery requirements,
if any, upon resale of the Securities. If a Buyer provides the Company with an
opinion of counsel, in generally acceptable form, that registration of a
resale by such Buyer of any of such Securities is not required under the 1933
Act, the Company shall permit the transfer, and, in the case of the Conversion
Shares, promptly instruct its transfer agent to issue one or more certificates
in such name and in such denominations as specified by such Buyer and, if such
opinion provides that such legends can be removed, without any restrictive
legends. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Buyers by vitiating the intent
and purpose of the 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 5, that the
Buyers shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate issuance and
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transfer, without the necessity of showing economic loss and without any bond
or other security being required. Each of the Buyers acknowledge that the
Company's transfer agent is not a participant in the electronic book entry
transfer program and that such Buyer may not instruct the transfer agent to
make electronic book entry transfers unless the Company gives the Buyers
notice that its transfer agent is a participant in that program.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell
the Preferred Shares to each Buyer 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 the Company's sole benefit
and may be waived by the Company at any time in its sole discretion by
providing each Buyer with prior written notice thereof:
a. Such Buyer shall have executed each of the Transaction
Documents and delivered the same to the Company.
b. The Certificate of Designations shall have been filed
with the Secretary of State of the State of Delaware.
c. Such Buyer shall have delivered to the Company the
Purchase Price for the Preferred Shares being purchased by such Buyer
at the Closing by wire transfer of immediately available funds
pursuant to the wire instructions provided by the Company.
d. The representations and warranties of such Buyer shall be
true and correct 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 such Buyer shall
have performed, satisfied and complied with the covenants, agreements
and conditions required by the Transaction Documents to be performed,
satisfied or complied with by such Buyer at or prior to the Closing
Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the
Preferred Shares 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 each Buyer's sole benefit and may be waived by such Buyer
at any time in its sole discretion:
a. The Company shall have executed each of the Transaction
Documents, and delivered the same to such Buyer.
b. The Certificate of Designations shall have been filed
with the Secretary of State of the State of Delaware, and copies
thereof certified by such Secretary of State shall have been
delivered to such Buyer.
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c. The Common Stock shall be authorized for quotation on the
Principal Market, trading in the Common Stock shall not have been
suspended by the Principal Market or the SEC, at any time beginning
on the date hereof and through and including the Closing Date and the
Company shall not have been notified of any pending or threatened
proceeding or other action to delist or suspend the Common Stock.
d. The representations and warranties of the Company shall
be true and correct 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 Company shall
have performed, satisfied and complied with the covenants, agreements
and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to the Closing
Date. Such Buyer shall have received a certificate, 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, without limitation,
an update as of the Closing Date regarding the representation
contained in Section 3(c) above.
e. Such Buyer shall have received the opinion of the
Company's counsel dated as of the Closing Date, in form, scope and
substance reasonably satisfactory to such Buyer and in substantially
the form of Exhibit C attached hereto.
f. The Company shall have executed and delivered to such
Buyer the Stock Certificates (in such denominations as such Buyer
shall request) representing the Preferred Shares being purchased by
such Buyer at the Closing.
g. The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b)(ii) above and in a form
reasonably acceptable to such Buyer (the "Resolutions").
h. As of the Closing Date, the Company shall have reserved
out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Preferred Shares, a number
of shares of Common Stock equal to at least 200% of the number of
Conversion Shares issuable upon conversion of the Preferred Shares
outstanding on the Closing Date (after giving effect to the Preferred
Shares to be issued on the Closing Date and assuming all such
Preferred Shares were fully convertible or exercisable on such date
regardless of any limitation on the timing or amount of such
conversions or exercises).
i. The Irrevocable Transfer Agent Instructions, in the form
of Exhibit D attached hereto, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
j. The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the
Company and each Subsidiary in such corporation's state of
incorporation issued by the Secretary of State of such state of
incorporation as of a date within ten days of the Closing Date.
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k. The Company shall have delivered to such Buyer a
certified copy of its Articles of Incorporation as certified by the
Secretary of State of the State of Delaware within ten days of the
Closing Date.
l. The Company shall have delivered to such Buyer a
secretary's certificate, dated as the Closing Date, as to (i) the
resolutions described in Section 7(g), (ii) the Articles of
Incorporation and (iii) the Bylaws, each as in effect at the Closing.
m. The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by this Agreement
as such Buyer or its counsel may reasonably request.
8. INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the
Transaction Documents and the Certificate of Designations, the Company shall
defend, protect, indemnify and hold harmless each Buyer and each other holder
of the Securities and all of their stockholders, officers, directors,
employees and direct or indirect investors and any of the foregoing person's
agents or other representatives (including, without limitation, those retained
in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any
such Indemnitee is a party to the action for which indemnification hereunder
is sought), and including reasonable attorneys' fees and disbursements (the
"Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
the Certificate of Designations or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents
or the Certificate of Designations or any other certificate, instrument or
document contemplated hereby or thereby, or (c) any cause of action, suit or
claim brought or made against such Indemnitee and arising out of or resulting
from the execution, delivery, performance or enforcement of the Transaction
Documents or the Certificate of Designations or any other certificate,
instrument or document contemplated hereby or thereby, (d) any transaction
financed or to be financed in whole or in part, directly or indirectly, with
the proceeds of the issuance of the Securities or (e) the status of such Buyer
or holder of the Securities as an investor in the Company. To the extent that
the foregoing undertaking by the Company may be unenforceable for any reason,
the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. The corporate laws of the State of
Delaware shall govern all issues concerning the relative rights of the Company
and its stockholders. All other questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed
by the internal laws of the State of New York, without giving effect to any
choice of law or conflict of law provision or rule (whether of the State of
New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York. Each
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party hereby irrevocably submits to the non-exclusive jurisdiction of the
state and federal courts sitting the City of New York, borough of Manhattan,
for the adjudication of any dispute hereunder or in connection herewith or
with any transaction contemplated hereby or discussed herein, and hereby
irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement
in that jurisdiction or the validity or enforceability of any provision of
this Agreement in any other jurisdiction.
b. Counterparts. This Agreement may be executed in two or
more identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by
each party and delivered to the other parties; provided that a facsimile
signature shall be considered due execution and shall be binding upon the
signatory thereto with the same force and effect as if the signature were an
original, not a facsimile signature.
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes
all other prior oral or written agreements between the Buyers, the Company,
their affiliates and persons acting on their behalf with respect to the
matters discussed herein, and this Agreement and the instruments referenced
herein contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor any Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision
of this Agreement may be amended other than by an instrument in writing signed
by the Company and the holders of at least two-thirds (2/3) of the Preferred
Shares then outstanding, and no provision hereof may be waived other than by
an instrument in writing signed by the party against whom enforcement is
sought. No such amendment shall be effective to the extent that it applies to
less than all of the holders of the Preferred Shares then outstanding. No
consideration shall be offered or paid to any person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents or
the Certificate of Designations unless the same consideration also is offered
to all of the parties to the Transaction Documents or holders of Preferred
Shares, as the case may be.
-18-
<PAGE>
f. Notices. Any notices consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i)
upon receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile (provided confirmation of transmission is mechanically generated and
kept on file by the sending party); (iii) one (1) day after deposit with a
nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile
numbers for such communications shall be:
If to the Company:
Enamelon, Inc.
7 Cedarbrook Drive
Cranbury, New Jersey 08512
Telephone: 609-395-6900
Facsimile: 609-395-7137
Attention: Chief Financial Officer
With a copy to:
Snow Becker Krauss P.C.
605 Third Avenue
New York, New York 10158-1643
Telephone: 212-687-3860
Facsimile: 212-949-7052
Attention: Eric Honick, Esq.
If to the Transfer Agent:
North American Transfer Company
147 West Merrick Road
Freeport, New York 11520
Telephone: 516-379-8501
Facsimile:516-379-8525
Attention: Mildred Rostolder
If to a Buyer, to its address and facsimile number on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the
Schedule of Buyers.
Each party shall provide five (5) days' prior written notice to the
other party of any change in address or facsimile number.
g. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors
and assigns, including any purchasers of the Preferred Shares. Except as in
compliance with Section 3 of the Certificate of Designations, the Company
shall not assign this Agreement or any rights or obligations hereunder without
the prior written consent of the holders of two-thirds (2/3) of the Preferred
Shares then outstanding including
-19-
<PAGE>
by merger or consolidation. Any Buyer may assign this Agreement, any of its
rights and obligations under this Agreement and/or any of the Securities to
affiliates and associates of such Buyer, to any other Buyer and to any other
Buyer's affiliates and associates without the consent of the Company, and to
others, with the consent of the Company, which consent shall no be
unreasonably withheld; provided, however, that any such assignment shall not
release such Buyer from its obligations hereunder unless such obligations are
assumed by such assignee and the Company has consented to such assignment and
assumption. Notwithstanding anything to the contrary contained in the
Transaction Documents, Buyer shall be entitled to pledge the Securities in
connection with a bona fide margin account.
h. No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
i. Survival. Unless this Agreement is terminated under
Section 9(l), the representations and warranties of the Company and the Buyers
contained in Sections 2 and 3, the agreements and covenants set forth in
Sections 4, 5 and 9, and the indemnification provisions set forth in Section
8, shall survive each of the Closings. Each Buyer shall be responsible only
for its own representations, warranties, agreements and covenants hereunder.
j. Publicity. The Company and each Buyer shall have the
right to approve before issuance any press releases or any other public
statements with respect to the transactions contemplated hereby; provided,
however, that the Company shall be entitled, without the prior approval of any
Buyer, to make any press release or other public disclosure with respect to
such transactions as is required by applicable law and regulations (although
each Buyer shall be consulted by the Company in connection with any such press
release or other public disclosure prior to its release and shall be provided
with a copy thereof).
k. Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.
l. Termination. In the event that the Closing shall not have
occurred with respect to a Buyer on or before three (3) business days from the
date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching party's
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching
party at the close of business on such date without liability of any party to
any other party; provided, however, that if this Agreement is terminated
pursuant to this Section 9(l), the Company shall remain obligated to reimburse
the non-breaching Buyers for the expenses described in Section 4(i) above.
m. Placement Agent. Each of the Company and the Buyers, on
their own behalf, acknowledges that it has not engaged a placement agent in
connection with the sale of the Preferred Shares. The Company shall be
responsible for the payment of any placement agent's fees or broker's
-20-
<PAGE>
commissions relating to or arising out of the purchase of the Securities by
the Buyers other than placement agent's fees or broker's commissions relating
to or arising solely and directly from the actions of the Buyers. The Company
shall pay, and hold each Buyer harmless against, any liability, loss or
expense (including, without limitation, attorneys' fees and out-of-pocket
expenses) arising in connection with any such claim.
n. No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied
against any party.
o. Remedies. Each Buyer and each holder of Preferred Shares
or Conversion Shares shall have all rights and remedies set forth in this
Agreement and the Certificate of Designations and all rights and remedies
which such holders have been granted at any time under any other agreement or
contract and all of the rights which such holders have under any law. Any
person or entity having any rights under any provision of this Agreement shall
be entitled to enforce such rights specifically (without posting a bond or
other security), to recover damages by reason of any breach of any provision
of this Agreement and to exercise all other rights granted by law.
p. Payment Set Aside. To the extent that the Company makes a
payment or payments to the Buyers hereunder or pursuant to the Certificate of
Designations or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement
or exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a
trustee, receiver or any other person or entity under any law (including,
without limitation, any bankruptcy law, state or federal law, common law or
equitable cause of action), then to the extent of any such restoration the
obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
* * * * * *
-21-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Securities Purchase
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYERS:
ENAMELON, INC. HFTP INVESTMENTS LLC
By: Promethean Investment Group
L.L.C.
Its: Investment Manager
By: /s/ Dr. Steven R. Fox By: /s/ James F. O'Brien, Jr.
---------------------------------- -----------------------------------
Name: Dr. Steven Fox Name: James F. O'Brien, Jr.
Its: Chief Executive Officer Its: President
FISHER CAPITAL LTD.
By: /s/ Charles Winkler
-----------------------------------
Name: Charles Winkler
Its: An Authorized Signatory
WINGATE CAPITAL LTD.
By: /s/ Charles Winkler
-----------------------------------
Name: Charles Winkler
Its: An Authorized Signatory
-22-
<PAGE>
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
Number of
Investor Address Preferred Investor's Representatives' Address
Investor Name and Facsimile Number Shares and Facsimile Number
- ------------------------- ---------------------------------------- --------- ------------------------------------
<S> <C> <C> <C>
HFTP Investments LLC c/o Promethean Investment Group, L.L.C. 250 Promethean Investment Group, L.L.C.
40 West 57th Street, Suite 1520 40 West 57th Street, Suite 1520
New York, New York 10019 New York, New York 10019
Attn: James F. O'Brien, Jr. Attn: James F. O'Brien, Jr.
Facsimile: 212-698-0505 Facsimile: 212-698-0505
Residence: New York Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Facsimile: 312-902-1061
Fisher Capital Ltd. c/o Citadel Investment Group, L.L.C. 163 Citadel Investment Group, L.L.C.
225 West Washington Street 225 West Washington Street
Chicago, Illinois 60606 Chicago, Illinois 60606
Attention: Daniel Hopkins Attention: Daniel Hopkins
Facsimile: 312-338-0780 Facsimile: 312-338-0780
Residence: Cayman Islands
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Facsimile: 312-902-1061
Wingate Capital Ltd. c/o Citadel Investment Group, L.L.C. 87 Citadel Investment Group, L.L.C.
225 West Washington Street 225 West Washington Street
Chicago, Illinois 60606 Chicago, Illinois 60606
Attention: Daniel Hopkins Attention: Daniel Hopkins
Facsimile: 312-338-0780 Facsimile: 312-338-0780
Residence: Cayman Islands
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Facsimile: 312-902-1061
</TABLE>
<PAGE>
Exhibit 10.2
OMITTED SCHEDULES AND EXHIBITS TO SECURITIES PURCHASE AGREEMENT
Registrant will furnish to the Securities and Exchange Commission a copy of
any of the following Schedules or Exhibits on request:
List of Schedules
SCHEDULE OF BUYERS
SCHEDULE 3(a) Subsidiaries
SCHEDULE 3(c) Capitalization
SCHEDULE 3(e) Conflicts
SCHEDULE 3(g) Material Changes
SCHEDULE 3(h) Litigation
SCHEDULE 3(n) Intellectual Property
SCHEDULE 3(p) Liens
SCHEDULE 3(t) Tax Status
SCHEDULE 3(u) Certain Transactions
SCHEDULE 4(d) Use of Proceeds
SCHEDULE 4(g) Capital Raising Limitations
List of Exhibits
EXHIBIT A Form of Certificate of Designations
EXHIBIT B Form of Registration Rights Agreement
EXHIBIT C Form of Company Counsel Opinion
EXHIBIT D Form of Irrevocable Transfer Agent Instructions
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
December 17, 1998, by and among Enamelon, Inc., a Delaware corporation, with
headquarters located at 15 Kimball Avenue, Yonkers, New York 10704 (the
"Company"), and the undersigned buyers (each, a "Buyer" and collectively, the
"Buyers").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "Securities Purchase
Agreement"), the Company has agreed, upon the terms and subject to the
conditions of the Securities Purchase Agreement, to issue and sell to the
Buyers shares of the Company's Series B Convertible Preferred Stock (the
"Preferred Shares"), which will be convertible into shares of the Company's
common stock, $0.001 par value per share (the "Common Stock") (as converted,
the "Conversion Shares") in accordance with the terms of the Company's
Certificate of Designations, Preferences and Rights of the Series A Preferred
Stock (the "Certificate of Designations");
B. To induce the Buyers to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 Act"), and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Buyers hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have
the following meanings:
a. "Investor" means a Buyer, any transferee or assignee
thereof to whom a Buyer assigns its rights under this Agreement and who agrees
to become bound by the provisions of this Agreement in accordance with Section
9 and any transferee or assignee thereof to whom a transferee or assignee
assigns its rights under this Agreement and who agrees to become bound by the
provisions of this Agreement in accordance with Section 9.
b. "Person" means a corporation, a limited liability
company, an association, a partnership, an organization, a business, an
individual, a governmental or political subdivision thereof or a governmental
agency.
c. "Register," "registered," and "registration" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 under the 1933 Act or any successor rule providing for offering
securities on a continuous basis ("Rule 415"), and the declaration or ordering
of effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").
<PAGE>
d. "Registrable Securities" means (i) the Conversion Shares
issued or issuable upon conversion of the Preferred Shares, respectively, and
(ii) any shares of capital stock issued or issuable with respect to either the
Conversion Shares or the Preferred Shares as a result of any stock split,
stock dividend, recapitalization, exchange or similar event or otherwise,
without regard to any limitation on conversions of Preferred Shares.
e. "Registration Statement" means a registration statement
or registration statements of the Company filed under the 1933 Act.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and,
as soon as practicable, but in no event later than 30 days after the Closing
Date (as defined in the Securities Purchase Agreement) (the "Scheduled Filing
Date"), file with the SEC a Registration Statement or Registration Statements
(as is necessary) on Form S-3 covering only the resale of all of the
Registrable Securities issuable pursuant to the Preferred Shares. In the event
that Form S-3 is unavailable for such a registration, the Company shall use
such other form as is available for such a registration, subject to the
provisions of Section 2(e). The initial Registration Statement prepared
pursuant hereto shall register for resale at least that number of shares of
Common Stock equal to the product of (x) 2.0 and (y) the number of Registrable
Securities as of the date immediately preceding the date the Registration
Statement is initially filed with the SEC, subject to adjustment as provided
in Section 3(b). The Company shall use its best efforts to have the
Registration Statement declared effective by the SEC as soon as practicable,
but in no event later than 105 days after the Initial Closing Date (the
"Scheduled Effective Date"). Notwithstanding the foregoing, the Company may
also register on the Registration Statement the resale of up to an additional
50,000 shares of Common Stock which the Company is obligated to register as a
result of "piggy back" registrations rights which are in effect as of the date
hereof.
b. Piggy-Back Registrations. If at any time prior to the
expiration of the Registration Period (as hereinafter defined) the Company
proposes to file with the SEC a Registration Statement relating to an offering
for its own account or the account of others under the 1933 Act of any of its
securities (other than on Form S-4 or Form S-8 (or their equivalents at such
time) relating to securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans) the Company
shall promptly send to each Investor written notice of the Company's intention
to file a Registration Statement and of such Investor's rights under this
Section 2(b) and, if within twenty (20) days after receipt of such notice,
such Investor shall so request in writing, the Company shall include in such
Registration Statement all or any part of the Registrable Securities such
Investor requests to be registered, subject to the priorities set forth in
this Section 2(b) below. No right to registration of Registrable Securities
under this Section 2(b) shall be construed to limit any registration required
under Section 2(a). The obligations of the Company under this Section 2(b) may
be waived by Investors holding a majority of the Registrable Securities. If an
offering in connection with which an Investor is entitled to registration
under this Section 2(b) is an underwritten offering, then each Investor whose
Registrable Securities are included in such Registration Statement shall,
unless otherwise agreed to by the Company, offer and sell such
2
<PAGE>
Registrable Securities in an underwritten offering using the same underwriter
or underwriters and, subject to the provisions of this Agreement, on the same
terms and conditions as other shares of Common Stock included in such
underwritten offering. If a registration pursuant to this Section 2(b) is to
be an underwritten public offering and the managing underwriter(s) advise the
Company in writing, that in their reasonable good faith opinion, marketing or
other factors dictate that a limitation on the number of shares of Common
Stock which may be included in the Registration Statement is necessary to
facilitate and not adversely affect the proposed offering, then the Company
shall include in such registration: (1) first, all securities the Company
proposes to sell for its own account, (2) second, up to the full number of
securities proposed to be registered for the account of the holders of
securities entitled to inclusion of their securities in the Registration
Statement by reason of demand registration rights, and (3) third, the
securities requested to be registered by the Investors and other holders of
securities entitled to participate in the registration, as of the date hereof,
drawn from them pro rata based on the number each has requested to be included
in such registration.
c. Allocation of Registrable Securities. The initial number
of Registrable Securities included in any Registration Statement and each
increase in the number of Registrable Securities included therein shall be
allocated pro rata among the Investors based on the number of Registrable
Securities held by each Investor at the time the Registration Statement
covering such initial number of Registrable Securities or increase thereof is
declared effective by the SEC. In the event that an Investor sells or
otherwise transfers any of such Person's Registrable Securities, each
transferee shall be allocated a pro rata portion of the then remaining number
of Registrable Securities included in such Registration Statement for such
transferor. Any shares of Common Stock included in a Registration Statement
and which remain allocated to any Person which ceases to hold any Registrable
Securities shall be allocated to the remaining Investors, pro rata based on
the number of Registrable Securities then held by such Investors.
d. Legal Counsel. Subject to Section 5 hereof, the Buyers
holding a majority of the Registrable Securities shall have the right to
select one legal counsel to review and oversee any offering pursuant to this
Section 2 ("Legal Counsel"), which shall be Katten Muchin & Zavis or such
other counsel as thereafter designated by the holders of a majority of
Registrable Securities. The Company shall reasonably cooperate with Legal
Counsel in performing the Company's obligations under this Agreement.
e. Ineligibility for Form S-3. In the event that Form S-3 is
not available for any registration of Registrable Securities hereunder, the
Company shall (i) register the sale of the Registrable Securities on another
appropriate form and (ii) undertake to register the Registrable Securities on
Form S-3 as soon as such form is available, provided that the Company shall
maintain the effectiveness of the Registration Statement then in effect until
such time as a Registration Statement on Form S-3 covering the Registrable
Securities has been declared effective by the SEC.
f. Intentionally Omitted.
g. Sufficient Number of Shares Registered. In the event the
number of shares available under a Registration Statement filed pursuant to
Section 2(a) is insufficient to cover all of the Registrable Securities which
such Registration Statement is required to cover or an Investor's
3
<PAGE>
allocated portion of the Registrable Securities pursuant to Section 2(c), the
Company shall amend the Registration Statement, or file a new Registration
Statement (on the short form available therefor, if applicable), or both, so
as to cover at least 200% of such Registrable Securities (based on the market
price of the Common Stock), in each case, as soon as practicable, but in any
event not later than fifteen (15) days after the necessity therefor arises.
The Company shall use it best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as practicable following
the filing thereof. For purposes of the foregoing provision, the number of
shares available under a Registration Statement shall be deemed "insufficient
to cover all of the Registrable Securities" if at any time the number of
Registrable Securities issued or issuable upon conversion of the Preferred
Shares covered by such Registration Statement is greater than the quotient
determined by dividing (i) the number of shares of Common Stock available for
resale under such Registration Statement by (ii) 1.5. For purposes of the
calculation set forth in the foregoing sentence, any restrictions on the
convertibility of the Preferred Shares shall be disregarded and such
calculation shall assume that the Preferred Shares are then convertible and
exercisable, respectively, into shares of Common Stock at the then prevailing
Conversion Rate (as defined in the Company's Certificates of Designations).
3. RELATED OBLIGATIONS.
Whenever an Investor has requested that any Registrable Securities be
registered pursuant to Section 2(b) or at such time as the Company is
obligated to file a Registration Statement with the SEC pursuant to Section
2(a) or 2(g), the Company will use its best efforts to effect the registration
of the Registrable Securities in accordance with the intended method of
disposition thereof and, pursuant thereto, the Company shall have the
following obligations:
a. The Company shall promptly prepare and file with the SEC
a Registration Statement with respect to the Registrable Securities (on or
prior to the thirtieth (30th) day after the Closing Date) for the registration
of Registrable Securities pursuant to Section 2(a) and use its best efforts to
cause such Registration Statements relating to the Registrable Securities to
become effective as soon as possible after such filing (but, in no event later
than 105 days after the Closing Date), and keep such Registration Statement
effective pursuant to Rule 415 at all times until the earlier of (i) the date
as of which the Investors may sell all of the Registrable Securities covered
by such Registration Statement without restriction pursuant to Rule 144(k)
promulgated under the 1933 Act (or successor thereto) or (ii) the date on
which (A) the Investors shall have sold all the Registrable Securities covered
by such Registration Statement and (B) none of the Preferred Shares is
outstanding (the "Registration Period"), which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading. The term "best efforts" shall mean, among other things, that the
Company shall submit to the SEC, within three business days after the Company
learns that no review of a particular Registration Statement will be made by
the staff of the SEC or that the staff has no further comments on the
Registration Statement, as the case may be, a request for acceleration of
effectiveness of such Registration Statement to a time and date not later than
48 hours after the submission of such request.
-4-
<PAGE>
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement. In the case of amendments and supplements to a Registration
Statement which are required to be filed pursuant to this Agreement (including
pursuant to this Section 3(b)) by reason of the Company filing a report on
Form 10-K, Form 10-Q or Form 8-K or any analogous report under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), the Company shall file such
amendments or supplements with the SEC on the same day on which the 1934 Act
report is filed which created the requirement for the Company to amend or
supplement the Registration Statement.
c. The Company shall (a) permit Legal Counsel to review and
comment upon (i) the Registration Statement at least seven (7) days prior to
its filing with the SEC and (ii) all other Registration Statements and all
amendments and supplements to all Registration Statements within a reasonable
number of days prior to the their filing with the SEC and (b) not file any
document in a form to which Legal Counsel reasonably objects. The Company
shall not submit a request for acceleration of the effectiveness of a
Registration Statement or any amendment or supplement thereto without the
prior approval of Legal Counsel, which approval shall not be unreasonably
withheld. The Company shall furnish to Legal Counsel, without charge, (i) any
correspondence from the SEC or the staff of the SEC to the Company or its
representatives relating to any Registration Statement, (ii) promptly after
the same is prepared and filed with the SEC, one copy of any Registration
Statement and any amendment(s) thereto, including financial statements and
schedules, all documents incorporated therein by reference and all exhibits
and (iii) upon the effectiveness of any Registration Statement, one copy of
the prospectus included in such Registration Statement and all amendments and
supplements thereto.
d. The Company shall furnish to each Investor whose
Registrable Securities are included in any Registration Statement, without
charge, (i) promptly after the same is prepared and filed with the SEC, at
least one copy of such Registration Statement and any amendment(s) thereto,
including financial statements and schedules, all documents incorporated
therein by reference, all exhibits and each preliminary prospectus, (ii) upon
the effectiveness of any Registration Statement, ten (10) copies of the
prospectus included in such Registration Statement and all amendments and
supplements thereto (or such other number of copies as such Investor may
reasonably request) and (iii) such other documents, including copies of any
preliminary or final prospectus, as such Investor may reasonably request from
time to time in order to facilitate the disposition of the Registrable
Securities owned by such Investor.
e. The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by a Registration Statement
under such other securities or "blue sky" laws of such jurisdictions in the
United States as Legal Counsel or any Investor reasonably requests, (ii)
prepare and file in those jurisdictions, such amendments (including
post-effective amendments)
5
<PAGE>
and supplements to such registrations and qualifications as may be necessary
to maintain the effectiveness thereof during the Registration Period, (iii)
take such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
Legal Counsel and each Investor who holds Registrable Securities of the
receipt by the Company of any notification with respect to the suspension of
the registration or qualification of any of the Registrable Securities for
sale under the securities or "blue sky" laws of any jurisdiction in the United
States or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.
f. In the event Investors who hold a majority of the
Registrable Securities being offered in the offering select underwriters 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; provided, however, that the Company shall have
the right to consent to the selection of such underwriter, which consent shall
not be unreasonably withheld.
g. As promptly as practicable after becoming aware of such
event, the Company shall notify Legal Counsel and each Investor in writing of
the happening of any event as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and promptly prepare
a supplement or amendment to such Registration Statement to correct such
untrue statement or omission, and deliver ten (10) copies of such supplement
or amendment to Legal Counsel and each Investor (or such other number of
copies as Legal Counsel or such Investor may reasonably request). The Company
shall also promptly notify Legal Counsel and each Investor in writing (i) when
a prospectus or any prospectus supplement or post-effective amendment has been
filed, and when a Registration Statement or any post-effective amendment has
become effective (notification of such effectiveness shall be delivered to
Legal Counsel and each Investor by facsimile on the same day of such
effectiveness and by overnight mail), (ii) of any request by the SEC for
amendments or supplements to a Registration Statement or related prospectus or
related information, and (iii) of the Company's reasonable determination that
a post-effective amendment to a Registration Statement would be appropriate.
h. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify Legal Counsel and each Investor who
holds Registrable Securities being sold (and, in the event of an underwritten
offering, the managing underwriters) of the issuance of such order and the
resolution thereof or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.
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i. At the request of any Investor, the Company shall furnish
to such Investor, on the date of the effectiveness of the Registration
Statement and thereafter from time to time on such dates as an Investor may
reasonably request (i) if required by an underwriter, 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, and (ii) an opinion, dated as of such date, of counsel
representing the Company for purposes of such Registration Statement, in form,
scope and substance as is customarily given in an underwritten public
offering, addressed to the underwriters and the Investors.
j. The Company shall make available for inspection by (i)
any Investor, (ii) Legal Counsel, (iii) any underwriter participating in any
disposition pursuant to a Registration Statement, (iv) one firm of accountants
or other agents retained by the Investors and (v) one firm of attorneys
retained by such underwriters (collectively, the "Inspectors") all pertinent
financial and other records, and pertinent corporate documents and properties
of the Company (collectively, the "Records"), as shall be reasonably deemed
necessary by each Inspector, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably
request; provided, however, that each Inspector shall hold in strict
confidence and shall not make any disclosure (except to an Investor) or use of
any Record or other information which the Company determines in good faith to
be confidential, and of which determination the Inspectors are so notified,
unless (a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement or is otherwise
required under the 1933 Act, (b) the release of such Records is ordered
pursuant to a final, non-appealable subpoena or order from a court or
government body of competent jurisdiction, or (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 of which the Inspector
has knowledge. Each Investor agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or governmental 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.
k. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company
unless (i) disclosure of such information is necessary to comply with federal
or state securities laws, (ii) the disclosure of such information is necessary
to avoid or correct a misstatement or omission in any Registration Statement,
(iii) the release of such information is ordered pursuant to a subpoena or
other final, non-appealable order from a court or governmental body of
competent jurisdiction, or (iv) such information has been made generally
available to the public other than by disclosure in violation of this
Agreement or any other agreement. The Company agrees that it shall, upon
learning that disclosure of such information concerning an Investor is sought
in or by a court or governmental body of competent jurisdiction or through
other means, give prompt written notice to such Investor and allow such
Investor, at the Investor's expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, such information.
l. The Company shall use its best efforts either to (i)
cause all the Registrable Securities covered by a Registration Statement to be
listed on each securities exchange on which
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securities of the same class or series issued by the Company are then listed,
if any, if the listing of such Registrable Securities is then permitted under
the rules of such exchange, (ii) secure the designation and quotation of all
the Registrable Securities covered by the Registration Statement on the Nasdaq
National Market, or (iii) secure the inclusion for quotation on the
over-the-counter market on the electronic bulletin board for such Registrable
Securities and, without limiting the generality of the foregoing, to arrange
for at least two market makers to register with the National Association of
Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities. The Company shall pay all fees and expenses in connection with
satisfying its obligation under this Section 3(l).
m. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, any
managing underwriter or underwriters, to facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts, as the case
may be, as the managing underwriter or underwriters, if any, or, if there is
no managing underwriter or underwriters, the Investors may reasonably request
and registered in such names as the managing underwriter or underwriters, if
any, or the Investors may request.
n. The Company shall provide a transfer agent and registrar
of all such Registrable Securities not later than the effective date of such
Registration Statement.
o. If requested by the managing underwriters or an Investor,
the Company shall (i) immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters and the
Investors agree should be included therein relating to the sale and
distribution of Registrable Securities, including, without limitation,
information with respect to the number of Registrable Securities being sold to
such underwriters, the purchase price being paid therefor by such underwriters
and any other terms of the underwritten (or best efforts underwritten)
offering of the Registrable Securities to be sold in such offering; (ii) make
all required filings of such prospectus supplement or post-effective amendment
as soon as notified of the matters to be incorporated in such prospectus
supplement or post-effective amendment; and (iii) supplement or make
amendments to any Registration Statement if requested by an Investor or any
underwriter of such Registrable Securities.
p. The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to consummate the disposition of such Registrable
Securities.
q. The Company shall make generally available to its
security holders as soon as practical, but not later than 90 days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the 1933 Act) covering a twelve-month
period beginning not later than the first day of the Company's fiscal quarter
next following the effective date of the Registration Statement.
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r. The Company shall otherwise use its best efforts to
comply with all applicable rules and regulations of the SEC in connection with
any registration hereunder.
s. Within two (2) business days after a Registration
Statement which covers applicable Registrable Securities is ordered effective
by the SEC, the Company shall deliver, and shall cause legal counsel for the
Company to deliver, to the transfer agent for such Registrable Securities
(with copies to the Investors whose Registrable Securities are included in
such Registration Statement) confirmation that such Registration Statement has
been declared effective by the SEC in the form attached hereto as Exhibit A.
t. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of
Registrable Securities pursuant to a Registration Statement.
u. Notwithstanding anything to the contrary in Section 3(g),
at any time after the Registration Statement has been declared effective, the
Company may delay the disclosure of material, non-public information
concerning the Company the disclosure of which at the time is not, in the good
faith opinion of the Board of Directors of the Company and its counsel, in the
best interest of the Company and, in the opinion of counsel to the Company,
otherwise required (a "Grace Period"); provided, that the Company shall
promptly (i) notify the Investors in writing of the existence of material,
non-public information giving rise to a Grace Period and the date on which the
Grace Period will begin, and (ii) notify the Investors in writing of the date
on which the Grace Period ends; and, provided further, that during any
consecutive 365 day period, there shall be only one Grace Period, such Grace
Period not to exceed 20 days (an "Allowable Grace Period"). For purposes of
determining the length of a Grace Period above, the Grace Period shall begin
on and include the date the Investors receive the notice referred to in clause
(i) above and shall end on and include the date the Investors receive the
notice referred to in clause (i) above and shall end on and include the date
the Investors receive the notice referred to in clause (ii) above. The
provisions of Section 2(d) of the Certificate of Designations shall not be
applicable during the period of any Allowable Grace Period. Upon expiration of
the Allowable Grace Period, the Company shall again be bound by the first
sentence of Section 3(g) with respect to the information giving rise thereto.
In the event of any Grace Period, the Maturity Date (as defined in the
Certificate of Designations) shall be delayed one day for each day in the
Grace Period as provided in Section 2(i) of the Certificate of Designations.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) business days prior to the first
anticipated filing date of a Registration Statement, the Company shall notify
each Investor in writing of the information the Company requires from each
such Investor if such Investor elects to have any of such Investor's
Registrable Securities included in such Registration Statement. It shall be a
condition precedent to the obligations of the Company to complete the
registration pursuant to this Agreement with respect to the Registrable
Securities of a particular Investor that such Investor shall furnish to the
Company such information regarding itself, the Registrable Securities held by
it and the intended method of disposition of the Registrable Securities held
by it as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with
such registration as the Company may reasonably request.
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<PAGE>
b. Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of any
Registration Statement hereunder, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such
Investor's Registrable Securities from such Registration Statement.
c. In the event any Investor elects to participate in an
underwritten public offering pursuant to Section 2(b), each such Investor
agrees to enter into and perform such Investor's obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities.
d. Each Investor agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described in
Section 3(h) or the first sentence of Section 3(g), such Investor will
immediately discontinue disposition of Registrable Securities pursuant to any
Registration Statement(s) covering such Registrable Securities until such
Investor's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 3(h) or the first sentence of 3(g).
e. No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements
approved by the Investors entitled hereunder to approve such arrangements,
(ii) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements, and (iii) agrees to pay its
pro rata share of all underwriting discounts and commissions.
f. Each Investor agrees not to take any action to cause such
Investor to become a registered broker dealer as defined under the 1934 Act or
to effect any change to such Investor's status that would preclude the Company
from using Form S-3 for the Registration Statement.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than expenses incurred
pursuant to Section 3(j)(iv) and (v) and underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation,
all registration, listing and qualifications fees, printers and accounting
fees, and fees and disbursements of counsel for the Company and reasonable
fees and disbursements of Legal Counsel, shall be paid by the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
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a. To the fullest extent permitted by law, the Company will,
and hereby does, indemnify, hold harmless and defend each Investor who holds
such Registrable Securities, the directors, officers, partners, employees,
agents, representatives of, and each Person, if any, who controls any Investor
within the meaning of the 1933 Act or the 1934 Act, and any underwriter (as
defined in the 1933 Act) for the Investors, and the directors and officers of,
and each Person, if any, who controls, any such underwriter within the meaning
of the 1933 Act or the 1934 Act (each, an "Indemnified Person"), against any
losses, claims, damages, liabilities, judgments, fines, penalties, charges,
costs, attorneys' fees, amounts paid in settlement or expenses, joint or
several, (collectively, "Claims") incurred in investigating, preparing or
defending any action, claim, suit, inquiry, proceeding, investigation or
appeal taken from the foregoing by or before any court or governmental,
administrative or other regulatory agency or body or the SEC, whether pending
or threatened, whether or not an indemnified party is or may be a party
thereto ("Indemnified Damages"), to which any of them may become subject
insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or any post-effective amendment thereto or in any filing made in
connection with the qualification of the offering under the securities or
other "blue sky" laws of any jurisdiction in which Registrable Securities are
offered ("Blue Sky Filing"), or the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus if used
prior to the effective date of such Registration Statement, or contained in
the final prospectus (as amended or supplemented, if the Company files any
amendment thereof or supplement thereto with the SEC) or the omission or
alleged omission to state therein any material fact necessary to make the
statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement or (iv) any material violation
of this Agreement (the matters in the foregoing clauses (i) through (iv)
being, collectively, "Violations"). The Company shall reimburse the Investors
and each such underwriter or controlling person, promptly as such expenses are
incurred and are due and payable, for any legal fees or other reasonable
expenses incurred by them in connection with investigating or defending any
such Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a): (i) shall not apply
to a Claim by an Indemnified Person arising out of or based upon a Violation
which occurs in reliance upon and in conformity with information furnished in
writing to the Company by such Indemnified Person or underwriter for such
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto, if
such prospectus was timely made available by the Company pursuant to Section
3(d); (ii) with respect to any preliminary prospectus, shall not inure to the
benefit of any such person from whom the person asserting any such Claim
purchased the Registrable Securities that are the subject thereof (or to the
benefit of any person controlling such person) if the untrue statement or
omission of material fact contained in the preliminary prospectus was
corrected in the prospectus, as then amended or supplemented, if such
prospectus was timely made available by the Company pursuant to Section 3(d),
and the Indemnified Person was promptly advised in writing not to use the
incorrect prospectus prior to the use giving rise to a violation and such
Indemnified Person, notwithstanding such advice, used it; (iii) shall not be
available to the extent such Claim is based on a failure of the Investor to
deliver or to cause to be
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<PAGE>
delivered the prospectus made available by the Company, if such prospectus was
timely made available by the Company pursuant to Section 3(d); and (iv) shall
not apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of the Company, which consent shall
not be unreasonably withheld. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Indemnified
Person and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the
same manner as is set forth in Section 6(a), the Company, each of its
directors, each of its officers who signs the Registration Statement, each
Person, if any, who controls the Company within the meaning of the 1933 Act or
the 1934 Act (collectively and together with an Indemnified Person, an
"Indemnified Party"), against any Claim or Indemnified Damages to which any of
them may become subject, under the 1933 Act, the 1934 Act or otherwise,
insofar as such Claim or Indemnified Damages arise out of or are based upon
any Violation, in each case to the extent, and only to the extent, that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in connection with
such Registration Statement; and, subject to Section 6(d), such Investor will
reimburse any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such Claim; provided, however,
that the indemnity agreement contained in this Section 6(b) and the agreement
with respect to contribution contained in Section 7 shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the
prior written consent of such Investor, which consent shall not be
unreasonably withheld; provided, further, however, that the Investor shall be
liable under this Section 6(b) for only that amount of a Claim or Indemnified
Damages as does not exceed the net proceeds to such Investor as a result of
the sale of Registrable Securities pursuant to such Registration Statement.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Indemnified Party and shall survive
the transfer of the Registrable Securities by the Investors pursuant to
Section 9. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(b) with respect to any
preliminary prospectus shall not inure to the benefit of any Indemnified Party
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus and
such prospectus was provided to Investors as required, as then amended or
supplemented.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as
provided above, with respect to information such persons so furnished in
writing expressly for inclusion in the Registration Statement.
d. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding)
involving a Claim, such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under
this Section 6, deliver to the indemnifying party a written notice of the
commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
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<PAGE>
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. The Company shall pay reasonable fees for only one separate legal
counsel for the Investors, and such legal counsel shall be selected by the
Investors holding a majority in interest of the Registrable Securities
included in the Registration Statement to which the Claim relates. The
Indemnified Party or Indemnified Person shall cooperate fully with the
indemnifying party in connection with any negotiation or defense of any such
action or claim by the indemnifying party and shall furnish to the
indemnifying party all information reasonably available to the Indemnified
Party or Indemnified Person which relates to such action or claim. The
indemnifying party shall keep the Indemnified Party or Indemnified Person
fully apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. No indemnifying party shall be liable for
any settlement of any action, claim or proceeding effected without its written
consent, provided, however, that the indemnifying party shall not unreasonably
withhold, delay or condition its consent. No indemnifying party shall, without
the consent of the Indemnified Party or Indemnified Person, consent to entry
of any judgment or enter into any settlement or other compromise which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party or Indemnified Person of a release from
all liability in respect to such claim or litigation. Following
indemnification as provided for hereunder, the indemnifying party shall be
subrogated to all rights of the Indemnified Party or Indemnified Person with
respect to all third parties, firms or corporations relating to the matter for
which indemnification has been made. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of any
such action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action.
e. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified
Damages are incurred.
f. The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified Party
or Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party
is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise
be liable under Section 6 to the fullest extent permitted by law; provided,
however, that: (i) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall
be entitled to
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<PAGE>
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of
Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the
benefits of Rule 144 promulgated under the 1933 Act or any other similar rule
or regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration ("Rule 144"),
during the period set forth in Section 4(c) of the Securities Purchase
Agreement, the Company agrees to:
a. make and keep public information available, as those terms
are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and
other documents required of the Company under the 1933 Act and the 1934 Act so
long as the Company remains subject to such requirements (it being understood
that nothing herein shall limit the Company's obligations under Section 4(c)
of the Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically
assignable by the Investors to any transferee of all or any portion of
Registrable Securities if: (i) the Investor agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company within 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) immediately following such
transfer or assignment the further disposition of such securities by the
transferee or assignee is restricted under the 1933 Act and applicable state
securities laws; (iv) at or before the time the Company receives the written
notice contemplated by clause (ii) of this sentence the transferee or assignee
agrees in writing with the Company to be bound by all of the provisions
contained herein; and (v) such transfer shall have been made in accordance
with the applicable requirements of the Securities Purchase Agreement.
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10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the
observance thereof may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of
the Company and Investors who then hold two-thirds (2/3) of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section
10 shall be binding upon each Investor and the Company. No such amendment
shall be effective to the extent that it applies to less than all of the
holders of the Registrable Securities. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of any of this Agreement unless the same consideration also is
offered to all of the parties to this Agreement.
11. MISCELLANEOUS.
a. A Person is deemed to be a holder of Registrable
Securities whenever such Person owns or is deemed to own of record such
Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more Persons with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile
numbers for such communications shall be:
If to the Company:
Enamelon, Inc.
7 Cedar Brook Drive
Cranbury, New Jersey 08512
Telephone: 609-395-6900
Facsimile: 609-395-7137
Attention: Chief Financial Officer
With a copy to:
Snow Becker Krauss P.C.
605 Third Avenue
New York, New York 10158-1643
Telephone: 212-687-3860
Facsimile: 212-949-7052
Attention: Eric Honick, Esq.
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If to a Buyer, to its address and facsimile number on the Schedule of Buyers
attached hereto, with copies to such Buyer's representatives as set forth on
the Schedule of Buyers or to such other address and/or facsimile number and/or
to the attention of such other person as the recipient party has specified by
written notice given to each other party five days prior to the effectiveness
of such change. Written confirmation of receipt (A) given by the recipient of
such notice, consent, waiver or other communication, (B) mechanically
generated by the sender's facsimile machine containing the time, date,
recipient facsimile number and an image of such transmission or (C) provided
by a courier or overnight courier service shall be rebuttable evidence of
personal service, overnight or courier delivery or transmission by facsimile
in accordance with clause (i), (ii) or (iii) above, respectively.
c. Failure of any party to exercise any right or remedy
under this Agreement or otherwise, or delay by a party in exercising such
right or remedy, shall not operate as a waiver thereof.
d. The corporate laws of The State of Delaware shall govern
all issues concerning the relative rights of the Company and its stockholders.
All other questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by the internal laws of the
State of New York, without giving effect to any choice of law
or conflict of law provision or rule (whether of the State of New York or any
other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the state and federal courts
sitting the City of New York, for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. Each party hereby irrevocably waives personal service
of process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
e. This Agreement, the Securities Purchase Agreement and the
Certificate of Designations constitute the entire agreement among the parties
hereto with respect to the subject matter hereof and thereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein and therein. This Agreement, the Securities Purchase
Agreement and the Certificate of Designations supersede all prior agreements
and understandings among the parties hereto with respect to the subject matter
hereof and thereof.
16
<PAGE>
f. Subject to the requirements of Section 9, this Agreement
shall inure to the benefit of and be binding upon the permitted successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in identical counterparts,
each of which shall be deemed an original but all of which shall constitute
one and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this
Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish
the purposes of this Agreement and the consummation of the transactions
contemplated hereby.
j. All consents and other determinations to be made by the
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by Investors holding a majority of the Registrable
Securities, determined as if all of the Preferred Shares then outstanding have
been converted into or exercised for Registrable Securities without regard to
any limitation on conversions of the Preferred Shares.
k. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent and no rules
of strict construction will be applied against any party.
l. This Agreement is intended for the benefit of the parties
hereto and their respective permitted successors and assigns, and is not for
the benefit of, nor may any provision hereof be enforced by, any other Person.
* * * * * *
17
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYERS:
ENAMELON, INC. HFTP INVESTMENTS LLC
By: Promethean Investment Group L.L.C.
Its: Investment Manager
By: /s/ Dr. Steven R. Fox By: /s/ James F. O'Brien, Jr.
-------------------------------- -------------------------------------
Name: Dr. Steven Fox Name: James F. O'Brien, Jr.
Its: Chief Executive Officer Its: President
FISHER CAPITAL LTD.
By: /s/ Charles Winkler
------------------------------
Name: Charles Winkler
Its: An Authorized Signatory
WINGATE CAPITAL LTD.
By: /s/ Charles Winkler
------------------------------
Name: Charles Winkler
Its: An Authorized Signatory
<PAGE>
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
Investor Address Investor's Representatives' Address
Investor Name and Facsimile Number and Facsimile Number
- ---------------------- ---------------------------------------- -----------------------------------
<S> <C> <C>
HFTP INVESTMENTS c/o Promethean Investment Group, L.L.C. Promethean Investment Group, L.L.C.
LLC 40 West 57th Street, Suite 1520 40 West 57th Street, Suite 1520
New York, New York 10019 New York, New York 10019
Attn: James F. O'Brien, Jr. Attn: James F. O'Brien, Jr.
Facsimile: 212-698-0505 Facsimile: 212-698-0505
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Facsimile: 312-902-1061
Fisher Capital Ltd. c/o Citadel Investment Group, L.L.C. Citadel Investment Group, L.L.C.
225 West Washington Street 225 West Washington Street
Chicago, Illinois 60606 Chicago, Illinois 60606
Attn: Daniel Hopkins Attn: Daniel Hopkins
Facsimile: 312-338-0780 Facsimile: 312-338-0780
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Facsimile: 312-902-1061
Wingate Capital Ltd. c/o Citadel Investment Group, L.L.C. Citadel Investment Group, L.L.C.
225 West Washington Street 225 West Washington Street
Chicago, Illinois 60606 Chicago, Illinois 60606
Attn: Daniel Hopkins Attn: Daniel Hopkins
Facsimile: 312-338-0780 Facsimile: 312-338-0780
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Facsimile: 312-902-1061
</TABLE>
19
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
_____________
_____________
Attn:________
Re: Enamelon, Inc.
Ladies and Gentlemen:
We are counsel to Enamelon, Inc., a Delaware corporation (the
"Company"), which has entered into that certain Securities Purchase Agreement
(the "Purchase Agreement") by and among the Company and the buyers named
therein (collectively, the "Holders") pursuant to which the Company issued to
the Holders shares of its Series B Preferred Stock, $0.01 par value per share,
(the "Preferred Shares") each convertible into shares of the Company's common
stock, $0.001 par value per share (the "Common Stock"). Pursuant to the
Purchase Agreement, the Company also has entered into a Registration Rights
Agreement with the Holders (the "Registration Rights Agreement") pursuant to
which the Company agreed, among other things, to register the Registrable
Securities (as defined in the Registration Rights Agreement), including the
shares of Common Stock issuable upon conversion of the Preferred Shares, under
the Securities Act of 1933, as amended (the "1933 Act"). In connection with
the Company's obligations under the Registration Rights Agreement, on
____________ ___, 1999, the Company filed a Registration Statement on Form S-3
(File No. 333-_____________) (the "Registration Statement") with the
Securities and Exchange Commission (the "SEC") relating to the Registrable
Securities which names each of the Holders as a selling stockholder
thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER
TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no
knowledge, after telephonic inquiry of a member of the SEC's staff, that any
stop order suspending its effectiveness has been issued or that any
proceedings for that purpose are pending before, or threatened by, the SEC and
the Registrable Securities are available for resale under the 1933 Act
pursuant to the Registration Statement.
Very truly yours,
[ISSUER'S COUNSEL]
By:
-----------------------------
cc: [LIST NAMES OF HOLDERS]
<PAGE>
ENAMELON, INC ANNOUNCES ISSUANCE of 6% SERIES B CONVERTIBLE
PREFERRED STOCK
Yonkers, New York, Dec. 21, 1998 - Enamelon, Inc. (Nasdaq: ENML), which is
using its proprietary "remineralization" technology to develop
over-the-counter oral care products to rebuild and renew tooth enamel to help
stop cavities before they begin, today announced that is has completed the
private placement of 500 shares of Series B Convertible Preferred Stock to two
institutional investors and received proceeds of $5,000,000. Each share of
Series B Convertible Preferred Stock has a stated value of $10,000, plus an
accrual amount equal to 6% per annum. After February 28, 1999, the investors
may convert the Preferred Stock into common stock at the lower of a fixed
price determined by reference to the market price of the common stock prior to
that date or a variable price determined at the time of conversion.
Promethean Investment Group, L.L.C., a New York based fund management group,
advised the investors and participated in the transaction. The Company has the
right to require the investors to convert under certain circumstances and, at
certain prices, the Company may elect to redeem any preferred shares that are
presented for conversion. Investors are also required to convert their
Preferred Stock after three years.
"This private placement provides Enamelon with greater financial flexibility
to invest in the Company's marketing efforts aimed at increasing consumer
awareness of our revolutionary product," said Dr. Steven R. Fox, Chairman of
the Board and Chief Executive Officer.
Enamelon, Inc. is focused on developing and marketing over-the-counter oral
care products based on proprietary formulations and technologies. The
Company's remineralization technologies include those which are designed to
provide the active ingredient fluoride in a formulation containing soluble
calcium and phosphate to advance the fight against tooth decay. The Company's
principal offices are located in Yonkers, N.Y., and its laboratory facilities
have recently relocated to Cranbury, N.J.
The release contains forward-looking information including statements that
involve risks and uncertainties. Factors that could cause actual events to
differ materially from these forward-looking statements include, but are not
limited to, the following: acceptance of the Company's products by consumers;
the Company's ability to procure additional financing, as necessary to
maintain its operations until it becomes profitable; and changes in government
regulations ad they apply to the Company's products. These and other risks are
described in the Company's filings with the Securities and Exchange
Commission, including the Company's Form S-1 registration statements, Annual
Report on Form 10-KSB for the year ended December 31, 1997 and 1998 Quarterly
Reports on Form 10-QSB.
NOTE: Further information on Enamelon is available through our website on the
World Wide Web at http://www.enamelon.com
To receive additional information on Enamelon, Inc., via fax, at no charge, dial
1-800-PRO-INFO and enter code ENML.
CONTACT: AT THE COMPANY:
Edwin Diaz
Vice President-Finance
& Chief Financial Officer
609/395-6900
or
INVESTOR RELATIONS CONTACT:
John Nesbett/Mary Ellen Adipietro
Lippert/Heilshorn & Associates
212/838-3777
