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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment No. 1
To
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period
ended September 30,1999 Commission File Number 0-20991
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CAMBRIDGE HEART, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3679946
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1 OAK PARK DRIVE
BEDFORD, MASSACHUSETTS 01730
(Address of principal executive offices) (Zip Code)
781-271-1200
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Number of shares outstanding of each of the issuer's classes of common stock
as of November 10, 1999:
Class Number of Shares Outstanding
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Common Stock, par value $.001 per share 13,782,152
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CAMBRIDGE HEART, INC.
PART II - OTHER INFORMATION
ITEM 6 IS AMENDED IN ITS ENTIRETY AS SET FORTH BELOW.
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ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
a. The exhibits listed in the Exhibit Index filed as part of this report are
filed as part of or are included in this report.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CAMBRIDGE HEART, INC.
Date: November 30, 1999 By: /s/ Robert B. Palardy
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Robert B. Palardy
Vice President, Finance and
Administration and Chief
Financial Officer
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EXHIBIT INDEX
Exhibit Number Description
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10.1 Sales Agency Agreement between Registrant and Sunrise
Securities Corp. dated August 16, 1999
10.2 Form of Subscription Agreement entered into between
Registrant and each of the persons listed below, for the
number of shares of Registrant's common stock listed opposite
each name:
Cambridge Options 150,000
Jerry Heymann 14,286
Little Wing L.P. 225,700
Little Wing L.P. Too 82,860
Nathan A. Low 140,000
Amy Newmark 20,000
Rebel Investments & Co. 150,000
Matthew Rebold 25,000
Judy W. Stone, M.D. 8,500
Robert L. Swisher, Jr. 100,000
Tradewinds Fund Ltd. 120,000
Yale University 285,714
Richard B. Stone 30,000
Paul Scharfer 100,000
Cheryl Halpern 14,286
David S. Hannes 14,286
Norwest Bank North Dakota, N.A. 21,429
RLH Options, Inc. 14,286
11* Statement regarding Computation of Net Loss per Share
27* Financial Data Schedule
__________________
* Previously Filed
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CAMBRIDGE HEART, INC.
A minimum of 1,428,571 Shares and
a maximum of 2,142,857 Shares.
SALES AGENCY AGREEMENT
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Dated as of August 16, 1999
Sunrise Securities Corp.
135 E. 57th Street
New York, New York 10022
Dear Sirs:
Cambridge Heart, Inc., a Delaware corporation (the "Company"), proposes to
offer for sale in a private offering (the "Offering") pursuant to Rule 506 of
Regulation D ("Regulation D") under the Securities Act of 1933, as amended (the
"Act"), a minimum (the "Minimum Financing") of 1,428,571 shares of the Company's
common stock, $.001 par value per share (the "Common Stock") and a maximum (the
"Maximum Financing") of 2,142,857 shares of Common Stock (collectively, the
"Shares") at an purchase price of $3.50 per Share (the "Sales Price").
Investors in the Offering will also receive, a warrant in the form attached
hereto as Exhibit I (collectively, the "Investor Warrants" and together with the
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Shares, the "Securities"), to purchase a number of shares of Common Stock equal
to 20% of the number of Shares purchased by it (the "Investor Warrant Shares").
Each Investor Warrant will entitle the holder thereof, for a five-year period
commencing on the date of issuance thereof, to purchase Investor Warrant Shares
at an exercise price per Investor Warrant Share equal to $3.50. $.01 of the
Sales Price shall be allocated to each share of Common Stock issuable upon
exercise of an Investor Warrant (collectively, the "Investor Warrant Shares").
The investors in the Offering shall also be entitled to certain anti-dilution
provisions pursuant to Section 9 of the Subscription Agreement (as defined
herein). This Offering is being made solely to "accredited investors," as
defined in Regulation D. This is to confirm our agreement concerning Sunrise
Securities Corp. acting as our exclusive placement agent (the "Placement Agent")
in connection with the Offering.
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The Company prepared and delivered to the Placement Agent sets of a
confidential investor package containing, among other things, a term sheet (the
"Term Sheet"), copies of the Company's (i) Form 10-K for the fiscal year ended
December 31, 1998, (ii) 1998 Annual Report, (iii) quarterly report on Form 10-Q
for the quarter ended March 31, 1999 and (iv) quarterly report on Form 10-Q for
the quarter ended June 30, 1999, certain additional documents filed with the
Securities and Exchange Commission (the "Commission") and other documents and
material relating to, among other things, the Company, the Shares and the terms
of the sale of the Shares. The documents and material contained in such
confidential investor package, including all documents incorporated by reference
therein, are collectively referred to herein as the "Prospective Investor
Package" unless the documents and material contained in such confidential
investor package shall be supplemented or amended in accordance with this
Agreement, in which event the term "Prospective Investor Package" shall refer to
the documents and material contained in such confidential investor package as so
supplemented or amended from and after the time of delivery to the Placement
Agent of such supplement or amendment.
1. Appointment of Placement Agent.
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On the basis of the representations and warranties contained herein and on
the terms and conditions set forth herein, the Company hereby appoints you as
its placement agent and grants to you the exclusive right to offer, as its
agent, the Shares pursuant to the terms of this Agreement to prospective
investors ("Prospective Investors"). On the basis of such representations and
warranties, and on such conditions, you hereby accept such appointment and agree
to use your best efforts to secure subscriptions to purchase Shares pursuant to
the terms of this Agreement. The agency created hereby is not terminable by the
Company except upon termination of the Offering pursuant to the terms of this
Agreement or upon expiration of the Offering Period (as hereinafter defined) in
accordance with the terms of this Agreement.
2. Terms of the Offering.
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(a) Officers, directors and employees of the Company and the Placement
Agent may purchase Shares on the same terms and conditions as other prospective
investors (the "Affiliate Shares"). The Affiliate Shares shall be included in
determining whether either the Minimum Financing or the Maximum Financing have
been attained.
(b) The Offering shall commence on the date hereof and shall expire at 5:00
P.M., New York time, on October 15, 1999, unless extended by mutual agreement of
the Company and the Placement Agent. Such period, as the same may be so
extended, shall hereinafter be referred to as the "Offering Period."
(c) Each Prospective Investor who desires to purchase Securities shall be
required to deliver to the Placement Agent an executed copy of the subscription
agreement in the form included in the Prospective Investor Package (a
"Subscription Agreement") and payment in the amount necessary to purchase the
number of Securities such Prospective Investor desires to purchase. The
Placement Agent
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shall not have any obligation to independently verify the accuracy or
completeness of any information contained in any Subscription Agreement or the
authenticity, sufficiency or validity of any check or other form of payment
delivered by any Prospective Investor in payment for Securities.
(d) Pursuant to an Escrow Agreement among Sunrise Securities Corp., the
Company and the United States Trust Company of New York (the "Escrow Agent"), of
even date herewith (the "Escrow Agreement"), the Placement Agent will establish
a special account with the Escrow Agent entitled "Cambridge Heart, Inc. - Escrow
Account" (the "Special Account"). The Placement Agent shall deliver each check
or other form of payment received from a Prospective Investor to the Escrow
Agent for deposit in the Special Account and shall deliver the executed copy of
the Subscription Agreement received from each Prospective Investor to the
Company. The Company and the Placement Agent shall promptly notify one another
of the acceptance or rejection of any subscription. The Company shall not
unreasonably reject any subscription.
(e) If subscriptions to purchase a minimum of 1,428,571 Shares are not
received from Prospective Investors prior to the expiration of the Offering
Period and accepted by the Company, the Offering shall be canceled, all funds
received by the Escrow Agent on behalf of the Company shall be refunded in full
without any interest thereon, and this Agreement and the agency created hereby
shall be terminated without any further obligation on the part of either party,
except as provided in Section 10 hereof.
(f) You may engage other persons selected by you to assist you in the
Offering (each such person being hereinafter referred to as a "Selected Dealer")
and you may allow such persons such part of the compensation payable to you
hereunder as you shall determine. Each Selected Dealer shall be required to
agree in writing to comply with the provisions of, and to make the
representations, warranties and covenants contained in Sections 5(b) and 6(b)
hereof by executing a form of Selected Dealer Agreement. On or prior to the
Closing (as hereinafter defined), the Placement Agent shall deliver a copy of
each executed Selected Dealer Agreement to the Company. By executing this
Agreement, the Company hereby agrees to make, and is deemed to make, the
representations and warranties to, and covenants and agreements with, each
Selected Dealer (including an agreement to indemnify such Selected Dealer under
Section 9 hereof) who has executed the Selected Dealer Agreement as are
contained in this Agreement.
3. Closings.
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(a) Subject to the conditions set forth in Section 8 hereof, if
subscriptions to purchase at least 1,428,571 Shares have been received prior to
the expiration of the Offering Period and accepted by the Company, the initial
closing under this Agreement (the "Closing") shall be held at the offices of
Robinson Silverman Pearce Aronsohn & Berman LLP, 1290 Avenue of the Americas,
New York, New York 10104 ("RSPAB"), at 10:00 A.M., New York time, on the third
(3rd) business day following the date upon which the Placement Agent receives
notice from the Company that subscriptions to purchase at least 1,428,571 Shares
(including Affiliate Shares) have been so accepted or at such other place, time
or date
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as the Company and the Placement Agent shall agree upon. The Company shall
provide the notice required by the preceding sentence as promptly as
practicable. The date upon which the Closing is held shall hereinafter be
referred to as the "Closing Date."
(b) Subject to the conditions set forth in Section 8 hereof, if, subsequent
to the Closing Date and prior to the expiration of the Offering Period,
additional subscriptions to purchase Shares are received from Prospective
Investors, which subscriptions are accepted by the Company, one or more
additional closings under this Agreement (each, an "Additional Closing") shall
be held at the offices of RSPAB at 10:00 A.M., New York time, on the third (3rd)
business day following the date upon which the Placement Agent receives notice
from the Company that additional subscriptions have been so accepted, or at such
other place, time or date as the Company and the Placement Agent shall agree
upon. The Company shall notify the Placement Agent as promptly as practicable
whether any additional subscriptions so received have been accepted. The date
upon which any Additional Closing is held shall hereinafter be referred to as an
"Additional Closing Date." Notwithstanding anything contained herein to the
contrary, in no event shall the Company accept subscriptions to purchase in
excess of 2,142,857 Shares (including Affiliate Shares).
(c) At the Closing and each Additional Closing (if any), as the case may
be, the Company shall instruct the Escrow Agent to pay to the Placement Agent
from the funds deposited in the Special Account in payment for the Securities,
the amounts payable to the Placement Agent pursuant to Sections 4 and 7 of this
Agreement. Promptly after the Closing Date and each Additional Closing Date (if
any), as the case may be, the Company shall deliver to the purchasers of
Securities certificates representing the Securities purchased.
4. Compensation.
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(a) If subscriptions to purchase a minimum of 1,428,571 Shares (including
Affiliate Shares) have been received from Prospective Investors prior to the
expiration of the Offering Period and accepted by the Company, you or, at your
discretion, your Selected Dealers or your designees, shall be entitled, as
compensation for your services as Placement Agent under this Agreement, to an
amount equal to 7% of the gross proceeds received by the Company from the sale
of the Securities. Such compensation is payable by the Company on the Closing
Date and each Additional Closing Date (if any), as the case may be, with respect
to the Securities sold on such date and may be paid, at the Placement Agent's
option, in part or in whole, either in cash or in shares of Common Stock (such
shares of Common Stock, the "Commission Shares"), valued at the Sales Price less
7%, provided, that the Commission Shares shall not be included in the
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calculation of the Minimum Financing or the Maximum Financing. Any Commission
Shares issued pursuant to this paragraph shall be entitled to the identical
registration rights granted to Prospective Investors pursuant to Section 7 of
the Subscription Agreement, shall be included within the definition of
"Registrable Securities" under the Subscription Agreement and, for the purposes
hereof, the Placement Agent shall be included within the definition of "Holder"
under the Subscription Agreement.
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(b) If subscriptions to purchase a minimum of 1,428,571 Shares (including
Affiliate Shares) have been received from Prospective Investors prior to the
expiration of the Offering Period and accepted by the Company, the Company
shall, at each Closing and each Additional Closing Date (if applicable) issue
to you or, at your discretion, your Selected Dealers or your designees, in
addition to the amount set forth in Section 4(a) above, warrants (the
"Placement Agent Warrants" and together with the Investor Warrants, the
"Warrants") to purchase a number of shares of Common Stock equal to 7% of the
aggregate number of Shares issued in the Offering plus any Commission Shares
(the "Placement Agent Warrant Shares" and together with the Investor Warrant
Shares, the "Warrant Shares"). Each Placement Agent Warrant will entitle the
holder thereof, for a five-year period commencing on the date of issuance
thereof, to purchase Placement Agent Warrant Shares at an exercise price per
Warrant Share equal to $4.20. The Placement Agent Warrants shall be in the form
attached hereto as Exhibit I. The Placement Agent Warrant Shares issuable upon
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the exercise of the Placement Agent Warrants shall be entitled to the identical
registration rights granted to Prospective Investors pursuant to Section 7 of
the Subscription Agreement, shall be included within the definition of
"Registrable Securities" under the Subscription Agreement and, for the purposes
hereof, the Placement Agent shall be included within the definition of "Holder"
under the Subscription Agreement.
(c) Notwithstanding anything contained herein to the contrary, the
calculation of the number of Commission Shares and the Placement Agent Warrants
issuable shall include Securities with respect to which the Company unreasonably
rejected subscriptions.
(d) Notwithstanding anything herein to the contrary, if (i) the Offering is
terminated by the Company during the Offering Period, (ii) up to such
termination you have been actively pursuing the Offering and (iii) within 270
days after such termination, the Company completes the sale of Securities or any
of its other equity or debt securities (including securities convertible into
equity securities) for cash, other than in connection with the exercise of
existing options, units, warrants, strategic alliances or pursuant to a
transaction incident to a sale of the Company, then the Company shall pay to you
8.15% of the gross sales price of such securities it has sold and shall issue to
you, on the terms set forth in Section 4, warrants to purchase 10% of the
securities so sold at an exercise price equal to the sales price per share. Any
compensation pursuant to this Section 4(d) shall be in addition to any rights
available to you hereunder.
(e) Notwithstanding anything herein to the contrary, if (i) the Closing has
taken place and (ii) during the period between the termination of the Offering
and 270 days after such termination, the Company completes the sale of any of
its equity or debt securities (including securities convertible into equity
securities) for cash, other than in connection with the exercise of existing
options, units, warrants, strategic alliances or pursuant to a transaction
incident to a sale of the Company, then the Company shall pay to you 8.15% of
the gross sales price of such securities it has sold and shall issue to you, on
the terms set forth in Section 4, warrants to purchase 10% of the securities so
sold at an exercise price equal to the sales price per share. Any compensation
pursuant to this Section 4(e) shall be in addition to any rights available to
you hereunder.
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(f) Notwithstanding anything herein to the contrary, if, during the
Offering Period, the Company completes a sale of any of its equity or debt
securities (including securities convertible into equity securities) for cash,
other than as contemplated by this Agreement or in connection with the exercise
of existing options, units, warrants, strategic alliances or pursuant to a
transaction incident to a sale of the Company, then the Company shall pay to you
8.15% of the gross sales price of such securities it has sold and shall issue to
you, on the terms set forth in Section 4, warrants to purchase 10% of the
securities so sold at an exercise price equal to the sales price per share. Any
compensation pursuant to this Section 4(f) shall be in addition to any rights
available to you hereunder.
(g) Notwithstanding anything herein to the contrary, all amounts set forth
in this Agreement are subject to adjustment for mergers, recapitalizations,
stock dividends or any other action having a similar effect on the Common Stock.
5. Representations and Warranties.
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(a) Representations and Warranties of the Company. The Company represents
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and warrants to, and agrees with, the Placement Agent and the Selected Dealers
that:
(i) The Prospective Investor Package, at all times during the period
from the date hereof to and including the later of the Closing Date, the
expiration of the Offering Period, and the last Additional Closing Date (if
any), does not, and during such period will not, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, in light of the
circumstances under which they were made. The Placement Agent shall be entitled
to rely on such material notwithstanding any investigation it may have made.
Each contract, agreement, instrument, lease, license or other document described
in the Prospective Investor Package is accurately and completely described
therein in all material respects.
(ii) No document provided by the Company to Prospective Investors
pursuant to Section 6(a)(vii) hereof and no oral information provided by the
Company to Prospective Investors, contains or will contain any untrue statement
of a material fact or omits or will omit to state any material fact required to
be stated therein or necessary to make the statements therein not misleading.
Contracts to which the Company is a party provided by the Company to Prospective
Investors shall not contain any untrue statement of a material fact or to omit
to state any material fact if the contract so provided is a true, correct and
complete copy of such contract, as amended or modified through the date it is so
provided.
(iii) The Company is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Delaware, with full power
and authority, and all necessary consents, authorizations, approvals, orders,
licenses, certificates, and permits of and from, and declarations and filings
with (collectively, "Consents"), all federal, state, local, foreign, and other
governmental authorities and all courts and other tribunals, to own, lease,
license and use its properties and assets and to carry on its business in the
manner described in the Prospective Investor Package, except where the failure
to have
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obtained such Consents would not have a material adverse effect on the Company
and the Company has not received any notice of proceedings relating to the
revocation or modification of any such consent, authorization, approval, order,
license certificate, or permit which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding would result in a material adverse
change in the financial condition, results of operations, business, properties,
assets, liabilities or future prospects of the Company. The Company is duly
qualified to do business and is in good standing in every jurisdiction in which
its ownership, leasing, licensing or use of property and assets or the conduct
of its business makes such qualification necessary. The Company has no
subsidiaries.
(iv) The Company has, as of the date hereof, an authorized and
outstanding capitalization as set forth in the Prospective Investor Package.
Each outstanding share of capital stock of the Company is duly authorized,
validly issued, fully paid and nonassessable and has not been issued and is not
owned or held in violation of any preemptive rights set forth in its Certificate
of Incorporation or By-laws, or any agreement to which the Company is a party.
All of the issued and outstanding shares of capital stock of the Company have
been issued pursuant to either a current effective registration statement under
the Act or an exemption from the registration requirements of the Act and were
issued in accordance with all applicable Federal and state securities laws.
There is no commitment, plan or arrangement to issue, and no outstanding option,
warrant or other right calling for the issuance of, any share of capital stock
of the Company or any security or other instrument which by its terms is
convertible into, exercisable for or exchangeable for shares of capital stock of
the Company, except as may be described in the Prospective Investor Package.
There is outstanding no security or other instrument which by its terms is
convertible into or exchangeable for any class of shares of capital stock of the
Company, except as may be described in the Prospective Investor Package, which
description may be an aggregate description of such securities. Except as set
forth in the Prospective Investor Package, the Company is not a party to any
agreement to issue, nor has it issued, any warrants, options or rights or
preferred stock, notes or other evidence of indebtedness or other securities,
instruments or agreements upon the exercise or conversion of which or pursuant
to the terms of which additional shares of capital stock of the Company may
become issuable. As of the date hereof, no holder of any of the Company's
securities has preemptive rights or contractual rights of first refusal. The
capital stock of the Company conforms to the description thereof contained in
the Prospective Investor Package.
(v) The financial statements of the Company included in the
Prospective Investor Package (by incorporation by reference or otherwise) fairly
present in all material respects the financial position, the results of
operations, cash flows and the other information purported to be shown therein
at the respective dates and for the respective periods to which they apply.
Such financial statements have been prepared in accordance with United States
generally accepted accounting principles consistently applied throughout the
periods involved, are correct and complete and are in accordance with the books
and records of the Company. There has at no time been a material adverse change
in the financial condition, results of operations, business, properties, assets,
liabilities or future prospects of the Company from the latest information set
forth in the financial statements included in the Company's quarterly report on
Form 10-Q for the quarter ended June 30, 1999.
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(vi) There is no litigation, arbitration, governmental or other
proceeding (formal or informal) or claim or investigation pending before any
Federal, state, county, municipal or other governmental department, Commission,
National Association of Securities Dealers, Inc., agency or instrumentality,
domestic or foreign, whether legal or administrative or in arbitration or
mediation, or, to the knowledge of the Company, threatened with respect to the
Company or any of its operations, businesses, properties or assets, or such as
individually or in the aggregate do not now have and will not in the future have
a material adverse effect upon the operations, business, properties or assets of
the Company, taken as a whole. The Company is not in violation of, or in
default with respect to, any law, rule, regulation, order, judgment or decree,
or such as in the aggregate do not now have and will not in the future have a
material adverse effect upon the operations, business, properties, assets or
future prospects of the Company, taken as a whole.
(vii) Any real property and buildings held under lease by the Company
are held by it under valid, subsisting and enforceable leases with such
exceptions as in the aggregate are not material.
(viii) Neither the Company nor, to the knowledge of the Company, any
other party, is in violation or breach of or in default with respect to,
complying in any material respect with any contract, agreement, instrument,
lease, license, arrangement or understanding which is material to the Company,
as described in the Prospective Investor Package, and each such contract,
agreement, instrument, lease, license, arrangement and understanding is in full
force and effect and is the legal, valid and binding obligation of the parties
thereto enforceable as to them in accordance with its terms (subject to
applicable bankruptcy, insolvency and other laws affecting the enforceability of
creditors' rights generally and to general equitable principles). The Company
enjoys peaceful and undisturbed possession under all real property leases under
which it is operating. The Company is not in violation or breach of, or in
default with respect to, any term of its Certificate of Incorporation or its By-
laws.
(ix) There is no right under any patent, patent application,
trademark, trademark application, trade name, service mark, copyright, franchise
or other intangible property or asset (all of the foregoing being herein called
"Intangibles") necessary to the business of the Company as presently conducted
or as the Prospective Investor Package indicates it contemplates conducting to
which the Company does not own or have the right or license to use as necessary.
To the Company's knowledge, the Company has not infringed nor is infringing with
respect to Intangibles of others, and the Company has not received notice of
infringement with respect to asserted Intangibles of others. To the Company's
knowledge, there is no Intangible of others which has had or may in the future
have a material adverse effect on the financial condition, results of
operations, business, properties, assets, liabilities or future prospects of the
Company. The patents indicated on Schedule 5(a)(ix) attached hereto, are,
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except as otherwise indicated on such Schedule 5(a)(ix), registered in the name
of the Company and are valid, enforceable and there is no existing infringement
by another person of any of such patents.
(x) The Company has all requisite power and authority to execute,
deliver and perform this Agreement, the Subscription Agreements, the Escrow
Agreement and the Warrants (collectively, the
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"Operative Agreements") and to consummate the transactions contemplated by the
Operative Agreements. All necessary corporate proceedings of the Company have
been duly taken to authorize the execution, delivery and performance by the
Company of the Operative Agreements. This Agreement and the Escrow Agreement
have been duly authorized, executed, and delivered by the Company, are the
legal, valid and binding obligations of the Company and are enforceable as to
the Company in accordance with their terms (subject to applicable bankruptcy,
insolvency and other laws affecting the enforceability of creditors' rights
generally and to general equitable principles). The Subscription Agreements and
the Warrants have been duly authorized by the Company and, when executed and
delivered by the Company, will be the legal, valid and binding obligations of
the Company enforceable against it in accordance with their respective terms
(subject to applicable bankruptcy, insolvency and other laws affecting the
enforceability of creditors' rights generally and to general equitable
principles). No consent, authorization, approval, order, license, certificate or
permit of or from, or registration, qualification, declaration or filing with,
any federal, state, local, foreign or other governmental authority or any court
or other tribunal is required by the Company for the execution, delivery or
performance by the Company of the Operative Agreements or the consummation of
the transactions contemplated by the Operative Agreements, except (A) the filing
of a Notice of Sales of Securities on Form D pursuant to Regulation D, (B) such
consents, authorizations, approvals, registrations and qualifications as may be
required under securities or "blue sky" laws in connection with the issuance,
sale and delivery of the Shares, Commission Shares and Warrants pursuant to this
Agreement and the Warrant Shares issuable upon exercise of the Warrants and (C)
the filing of a registration statement and any necessary consents,
authorizations and approvals thereunder pursuant to the Subscription Agreements.
No consent of any party to any contract, agreement, instrument, lease, license,
arrangement or understanding to which the Company is a party or to which any of
their properties or assets are subject is required for the execution, delivery
or performance of the Operative Agreements or the consummation of the
transactions contemplated by the Operative Agreements, which has not been or
will not be obtained prior to the Closing or any Additional Closings. The
execution, delivery and performance of the Operative Agreements, and the
consummation of the transactions contemplated by the Operative Agreements, will
not violate, result in a breach of, conflict with or (with or without the giving
of notice or the passage of time or both) entitle any party to terminate, call a
default or receive any right under any such contract, agreement, instrument,
lease, license, arrangement or understanding (except for any such violation,
breach or conflict which has been properly waived thereunder), violate or result
in a breach of any term of the Company's Certificate of Incorporation or By-
laws, or violate, result in a breach of or conflict with any law, rule,
regulation (including, without limitation, any rule or regulation promulgated by
the Nasdaq Stock Market), order, judgment or decree binding on the Company or to
which any of its operations, businesses, properties or assets are subject.
(xi) The Shares, the Commission Shares, the Warrants and the Warrant
Shares conform to all statements relating thereto contained in the Prospective
Investor Package. The Shares and the Commission Shares have been duly reserved
and authorized and, when issued and delivered to the subscribers therefor or the
Placement Agent (as the case may be), pursuant to the terms of this Agreement
and the Subscription Agreements (as the case may be), and the Warrant Shares,
when issued and delivered pursuant to the terms of the Warrants, shall be duly
authorized, validly issued, fully paid and nonassessable
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and shall not have been issued in violation of any preemptive rights set forth
in the Company's Certificate of Incorporation or By-laws or any agreement to
which the Company is a party.
(xii) Subsequent to the dates as of which information is given in the
Prospective Investor Package, and except as may otherwise be properly described
in the Prospective Investor Package, (A) the Company had not, except in the
ordinary course of business, incurred any liability or obligation, primary or
contingent, for borrowed money, (B) there has not been any material change in
the capital stock, short-term debt or long-term debt of the Company, (C) the
Company had not entered into any transaction not in the ordinary course of
business, (D) the Company has not purchased any of its outstanding capital stock
nor declared or paid any dividend or distribution of any kind on its capital
stock, (E) the Company had not sustained any material loss or interference with
its businesses or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor dispute or any
legal or governmental proceeding or (F) there has not been any material adverse
change, or any development which the Company reasonably believes could result in
a prospective material adverse change, in the financial condition results of
operations, business, properties, assets, liabilities or future prospects of the
Company taken as a whole.
(xiii) Neither the Company nor, to the knowledge of the Company, any
of its affiliates has, directly or through any agent, sold, offered for sale or
solicited offers to buy, nor will any of the foregoing directly buy (other than
pursuant to the Offering) any security of the Company which is or could be
integrated with the sale of the Shares, the Commission Shares, the Warrants or
the Warrant Shares in a manner that would require the registration, pursuant to
the Act, of the Offering.
(xiv) Neither the Company nor, to the knowledge of the Company, any
of its affiliates has, directly or indirectly, taken any action designed to
cause or to result in, or that has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares or sold,
bid for, purchased, or paid anyone any compensation for soliciting purchases of,
the Shares.
(xv) The Company has good and marketable title to all real and
personal property owned by it, in each case free and clear of any security
interests, liens, encumbrances, equities, claims and other defects, except such
as do not materially and adversely affect the value of such property and do not
interfere with the use made or proposed to be made of such property by the
Company and any real property and buildings held under lease by the Company are
held under valid, subsisting and enforceable leases, with such exceptions as are
not material and do not interfere with the use made or proposed to be made of
such property and buildings by the Company.
(xvi) No labor dispute with the employees of the Company exists or is
threatened or, to the knowledge of the Company, imminent that could result in a
material adverse change in the financial condition, results of operations,
business, properties, assets, liabilities or future prospects of the Company
taken as a whole.
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(xvii) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which it is engaged; the Company has not been
refused any insurance coverage sought or applied for; and the Company has no
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
insurers of recognized financial responsibility as may be necessary to continue
its business at a cost that would not materially and adversely affect the
financial condition, results of operations, business, properties, assets,
liabilities or future prospects of the Company.
(xviii) The Company has filed all foreign, federal, state and local
tax returns that are required to be filed or has requested extensions thereof
(except in any case in which the failure so to file would not have a material
adverse affect on the Company); and has paid all taxes required to be paid by it
and any other assessment, fine or penalty levied against it to the extent that
any of the foregoing is due and payable. There are no pending or, to the
knowledge of the Company, threatened audits, investigations or claims for or
relating to any liability of the Company in respect of taxes.
(xix) To the Company's knowledge, the Company is not in violation of
any federal or state law or regulation relating to occupational safety and
health or to the storage, handling or transportation of hazardous or toxic
materials and the Company has received all permits, licenses or other approvals
required of it under applicable federal and state occupational safety and health
and environmental laws and regulations to conduct its business, and the Company
is in compliance with all terms and conditions of any such permit, license or
approval, except any such violation of law or regulation, failure to receive
required permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals which would not,
singly or in the aggregate, result in a material adverse change in the financial
condition, results of operations, business, properties, assets, liabilities or
future prospects of the Company.
(xx) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(xxi) The Company has timely filed all reports as required under the
Securities Exchange Act of 1934 (the "Exchange Act") and such reports, as of
their respective dates, did not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, all in light of the circumstances
under which they were made.
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(xxii) The Company has not, in the two years preceding the date
hereof, received notice (written or oral) from the Nasdaq National Market
("NASDAQ") or any other stock exchange, market or trading facility on which the
Common Stock is or has been listed (or on which it has been quoted) to the
effect that the Company is not in compliance with the listing or maintenance
requirements of such exchange or market. The Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in compliance
with all such maintenance requirements.
(xxiii) Except as provided in Section 4 of this Agreement, there are
no finder's fees or brokerage commissions payable with respect to the
transactions contemplated by this Agreement, and the Company agrees to indemnify
and hold harmless the Placement Agent from and against any and all cost, damage,
liability, judgment and expense (including reasonable fees and expenses of
counsel) arising out of or relating to claims for such fees or commissions.
(xxiv) Assuming the accuracy of the representations and warranties of
each Prospective Investor set forth in Sections 6(o) and (p) of the Subscription
Agreement, the offer, issuance and sale of the Securities to each Prospective
Investor as contemplated hereby are exempt from the registration requirements of
the Act. Neither the Company nor any person authorized to act on its behalf has
taken any action that could subject the offering, issuance or sale of the
Securities to the registration requirements of the Act.
(b) Representations and Warranties of the Placement Agent and Selected
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Dealers. The Placement Agent, and each Selected Dealer that the Placement Agent
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may from time to time appoint, by signing the Selected Dealer Agreement, hereby
represent and warrant to, and agree with, the Company and each other as to
themselves only as follows:
(i) Neither the Placement Agent nor any such Selected Dealer will
offer or sell any Securities to any investor which the Placement Agent or such
Selected Dealer did not have reasonable grounds to believe and did not believe,
was an "accredited investor."
(ii) Neither the Placement Agent nor any such Selected Dealer will
offer or sell any Securities by means of any form of general solicitation or
general advertising, including, without limitation, the following:
(A) any advertisement, article, notice or other communication
published in any newspaper, magazine or similar medium or broadcast over
television or radio; and
(B) any seminar or meeting whose attendees have been invited by
any general solicitation or general advertising.
(iii) The Placement Agent and each such Selected Dealer is a member
in good standing of the National Association of Securities Dealers, Inc. or a
registered representative thereof.
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(iv) The representations and warranties contained in the Certificate
of Selected Dealer attached to the form of Selected Dealer Agreement are true
and correct as to the Selected Dealer which executed such Certificate and are
true and correct as to the Placement Agent as if it had executed such a
certificate.
(v) Each of the Placement Agent and each Selected Dealer has all
requisite power and authority to execute, deliver and perform this Agreement and
to consummate the transactions contemplated hereby. All necessary corporate
proceedings of the Placement Agent and each Selected Dealer have been duly taken
to authorize the execution, delivery and performance by the Placement Agent and
each Selected Dealer of this Agreement. This Agreement has been duly
authorized, executed, and delivered by the Placement Agent and each Selected
Dealer and is the legal, valid and binding obligation of the Placement Agent and
each Selected Dealer in accordance with its terms (subject to applicable
bankruptcy, insolvency and other laws affecting the enforceability of creditors'
rights generally and to general equitable principles).
6. Covenants.
---------
(a) Covenants of the Company. The Company covenants to the Placement Agent
------------------------
and each Selected Dealer that it will:
(i) Notify you immediately, and confirm such notice promptly in
writing, (A) when any event shall have occurred during the period commencing on
the date hereof and ending on the later of the Closing Date, the expiration of
the Offering Period and the last Additional Closing Date (if any) as a result of
which the Prospective Investor Package would include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and (B) of the
receipt of any notification with respect to the modification, rescission,
withdrawal or suspension of the qualification or registration of the Shares, the
Commission Shares or the Warrant Shares or of an exemption from such
registration or qualification in any jurisdiction. The Company will use its
best efforts to prevent the issuance of any such modification, rescission,
withdrawal or suspension and, if any such modification, rescission, withdrawal
or suspension is issued and you so request, to obtain the lifting thereof as
promptly as possible.
(ii) Except in compliance with the immediately following sentence, not
supplement or amend the Prospective Investor Package unless you shall have
approved of such supplement or amendment in writing. If, at any time during the
period commencing on the date hereof and ending on the later of the Closing
Date, the expiration of the Offering Period or the last Additional Closing Date
(if any), any event shall have occurred as a result of which the Prospective
Investor Package contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, or if, in the opinion of counsel to the
Company or counsel to the Placement Agent, it is necessary at any time to
supplement or amend the Prospective Investor Package to comply with the Act,
Regulation D or any applicable securities or "blue sky" laws, the Company will
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<PAGE>
promptly prepare an appropriate supplement or amendment (in form and substance
satisfactory to you) which will correct such statement or omission or which will
effect such compliance.
(iii) Deliver without charge to the Placement Agent such sets of the
Prospective Investor Package and any supplement or amendment thereto as may
reasonably be requested by the Placement Agent.
(iv) During the Offering Period, not, directly or indirectly, solicit
any offer to buy from, or offer to sell to any person any Securities except
through the Placement Agent.
(v) Not solicit any offer to buy or offer to sell Securities by any
form of general solicitation or advertising, including, without limitation, any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar medium or broadcast over television or radio or
any seminar or meeting whose attendees have been invited by any general
solicitation or advertising.
(vi) Qualify or register the Shares, Commission Shares, Warrants and
Warrant Shares for offering and sale under, or establish an exemption from such
qualification or registration under, the securities or "blue sky" laws of such
jurisdictions as you may reasonably request. The Company will not consummate
any sale of Securities in any jurisdiction or in any manner in which such sale
may not be lawfully made.
(vii) At all times during the period commencing on the date hereof
and ending on the later of the Closing Date, the expiration of the Offering
Period and the last Additional Closing Date (if any), provide to each
Prospective Investor or its purchaser representative, if any, on request, such
information (in addition to that contained in the Prospective Investor Package)
concerning the Offering, the Company and any other relevant matters as it
possesses or can acquire without unreasonable effort or expense and extend to
each Prospective Investor or his purchaser representative, if any, the
opportunity to ask questions of, and receive answers from, the Company
concerning the terms and conditions of the Offering and the business of the
Company and to obtain any other additional information, to the extent it
possesses the same or can acquire it without unreasonable effort or expense, as
such Prospective Investor or purchaser representative may consider necessary in
making an informed investment decision or in order to verify the accuracy of the
information furnished to such Prospective Investor or purchaser representative,
as the case may be.
(viii) Before accepting any subscription to purchase Securities
from, or making any sale to, any Prospective Investor, have reasonable grounds
to believe and actually believe that (A) such Prospective Investor meets the
suitability requirements for investing in the Securities set forth in the
Subscription Agreement and (B) such Prospective Investor is an "accredited
investor."
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<PAGE>
(ix) Notify you promptly of the acceptance or rejection of any
subscription and the reason for such rejection. The Company shall not
unreasonably reject any subscription for Securities unless it pays the Placement
Agent its compensation pursuant to Section 4(c) with respect thereto. Any
subscription unreasonably rejected shall be deemed to have been accepted for
purposes of determining whether the Minimum Financing has been completed solely
for the purpose of determining whether the Placement Agent is entitled to its
compensation pursuant to Section 4 hereof and this subsection (ix).
(x) File five (5) copies of a Notice of Sales of Securities on Form D
with the Commission no later than 15 days after the first sale of the Shares.
The Company shall file promptly such amendments to such Notices on Form D as
shall become necessary and shall also comply with any filing requirement imposed
by the laws of any state or jurisdiction in which offers and sales are made.
The Company shall furnish you with copies of all such filings.
(xi) Place the following legend on all certificates representing the
Shares, the Commission Shares and the Warrants:
"The securities represented hereby have not been registered under
the Securities Act of 1933, as amended or any state securities laws
and neither the securities nor any interest therein may be offered,
sold, transferred, pledged or otherwise disposed of except pursuant to
an effective registration statement under such Act or such laws or an
exemption from registration under such Act and such laws which, in the
opinion of counsel for the holder, which counsel and opinion are
reasonably satisfactory to counsel for this corporation, is
available."
(xii) Not, directly or indirectly, engage in any act or activity
which may jeopardize the status of the offering and sale of the Securities as
exempt transactions under the Act or under the securities or "blue sky" laws of
any jurisdiction in which the Offering may be made. Without limiting the
generality of the foregoing, and notwithstanding anything contained herein to
the contrary, the Company shall not, during the six (6) months following
completion of the Offering, (A) directly or indirectly, engage in any offering
of securities which, if integrated with the Offering in the manner prescribed by
Rule 502(a) of Regulation D and applicable releases of the Commission, may
jeopardize the status of the Offering and sale of the Securities as exempt
transactions under Regulation D or (B) engage in any offering of securities,
without the opinion of counsel reasonably satisfactory to the Placement Agent,
to the effect that such offering would not result in integration with this
Offering, or if integration would so result, that such integration would not
jeopardize the status of this Offering as an exempt transaction under Regulation
D.
(xiii) Apply the net proceeds from the sale of the Securities for the
purposes set forth in the Prospective Investor Package in substantially the
manner indicated thereunder.
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<PAGE>
(xiv) During the period commencing on the date hereof and ending on
the expiration of the Offering Period, not issue any press release or other
communication or hold any press conference with respect to this Offering, the
Company, its financial condition, results of operations, business, properties,
assets, liabilities or future prospects or the Offering, without your prior
written consent.
(xv) For a period of 270 days following the termination of the
Offering, not, without your prior written consent (which consent shall not be
unreasonably withheld), (A) offer, issue, sell, contract to sell, grant any
option for the sale of or otherwise dispose of, directly or indirectly, any
shares of Common Stock (or any security or other instrument which by its terms
is convertible into, exercisable for, or exchangeable for shares of Common
Stock). Notwithstanding the foregoing, the Company will be able to sell,
transfer or dispose of (i) the securities issuable under this Agreement, (ii)
shares of Common Stock issuable upon the exercise of stock options under any
stock option plan of the Company, warrants and other commitments, each of which
are outstanding on the date hereof and which are described in the Prospective
Investor Package and (iii) options granted after the date hereof under existing
stock option plans, or (B) change any terms of the Company's outstanding stock
options or warrants.
(xvi) Comply in all respects with its obligations under the
Operative Agreements.
(xvii) Not, prior to the completion of the Offering, bid for,
purchase, attempt to induce others to purchase, or sell, directly or indirectly,
any Shares or any other securities of the Company of the same class and series
as the Shares in violation of the provisions of Regulation M under the Exchange
Act.
(xviii) Notwithstanding anything herein to the contrary, not, for a
period of eighteen (18) months from the date hereof, solicit any offer to buy
from or offer to sell (except in an underwritten public offering) to any person
introduced to the Company by you in connection with the Offering, who is not a
stockholder of the Company at the time of such solicitation, directly or
indirectly, any securities of the Company or of any other entity, or provide the
name of any such person to any other securities broker or dealer or selling
agent, except as otherwise required by law. In the event that the Company or
any of its officers, directors or affiliates, directly or indirectly, solicits
offers to buy from or offers to sell to any such person any such securities or
provides the name of any such person to any other securities broker or dealer or
selling agent, and such person purchases such securities or purchases securities
from any such other securities broker or dealer or selling agent within such
eighteen month period except in connection with an underwritten public offering,
the Company shall pay to the Placement Agent an amount equal to 10% of the
aggregate purchase price of the securities so purchased by such person.
(xix) (a) Not later than the second business day following the
Closing Date (and if applicable, each Additional Closing Date), prepare and file
with the NASDAQ (and such other national securities exchange or market or
trading or quotation facility on which the Common Stock is then listed) an
additional shares listing application covering a the Shares, the Commission
Shares (if any) and the Warrant Shares, (b) take all steps necessary to cause
such shares of Common Stock to be approved for listing on the NASDAQ (as well as
on any such other national securities exchange or market or trading or
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<PAGE>
quotation facility on which the Common Stock is then listed) as soon as possible
thereafter, and (c) provide to the Placement Agent evidence of such listing.
(xx) At all times as long as the Warrants may be exercised, to keep
reserved from the authorized and unissued Common Stock, such number of shares of
Common Stock as may be, from time to time, issuable upon exercise of the
Warrants.
(b) Covenants of the Placement Agent and Selected Dealers.
-----------------------------------------------------
(i) Neither the Placement Agent nor any Selected Dealer who signs
the Selected Dealer Agreement, will accept the subscription of any Prospective
Investor unless immediately before accepting such subscription the Placement
Agent or such Selected Dealer has reasonable grounds to believe that (A) such
Prospective Investor is an "accredited investor" and (B) all representations
made and information furnished by such Prospective Investor in the Subscription
Agreement and related documents are true and correct in all material respects.
The Placement Agent and Selected Dealers agree to notify the Company promptly if
the Placement Agent or a Selected Dealer, as applicable, shall, at any time
during the period after delivery of the documents furnished by such Prospective
Investor to the Company in connection with subscription for the Securities and
immediately before the sale of Securities to such Prospective Investor, no
longer reasonably believe one or more of the foregoing matters with respect to
such Prospective Investor.
(ii) Neither the Placement Agent nor any Selected Dealer will
solicit other than in the jurisdictions in which such solicitation may, upon the
advice of counsel to the Company, be made under applicable securities or "blue
sky" laws and in which the Placement Agent or such Selected Dealer, as the case
may be, is qualified so to act.
(iii) Neither the Placement Agent nor any Selected Dealer will sell
any Securities to any Prospective Investor unless a Prospective Investor Package
is furnished to such Prospective Investor within a reasonable time prior
thereto.
(iv) Upon written notice from the Company that the Prospective
Investor Package is to be supplemented or amended (which the Company will
promptly give upon becoming aware of any untrue statement of a material fact
required to be stated in the Prospective Investor Package or omission to state a
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading), the Placement Agent
and each Selected Dealer, if any, will immediately cease use of the Prospective
Investor Package until the Placement Agent and such Selected Dealers have
received such supplement or amendment and thereafter will make use of the
Prospective Investor Package only as so supplemented or amended, and the
Placement Agent and each Selected Dealer, if any, will deliver a copy of such
supplement to each Prospective Investor to whom a set of the Prospective
Investor Package had previously been delivered (and who had not returned such
set) and whose subscription had not been rejected.
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7. Payment of Expenses.
-------------------
(a) The Company hereby agrees to pay all reasonable fees, charges and
expenses of the Offering, including, without limitation, all reasonable fees,
charges, and expenses in connection with (i) the preparation, printing,
reproduction, filing, distribution and mailing of the Prospective Investor
Package, and all other documents relating to the offering, purchase, sale and
delivery of the Securities, and any supplements or amendments thereto, including
the fees and expenses of counsel to the Company, and the cost of all copies
thereof, (ii) the issuance, sale, transfer and delivery of the Shares, the
Commission Shares (if any) and the Warrants, including any transfer or other
taxes payable thereon and the fees of any Transfer Agent, Warrant Agent or
Registrar, (iii) the registration or qualification of the Shares, the Warrant
Shares, the Commission Shares (if any) Warrants or the securing of an exemption
therefrom under state or foreign "blue sky" or securities laws, including,
without limitation, filing fees payable in the jurisdictions in which such
registration or qualification or exemption therefrom is sought, the costs of
preparing preliminary, supplemental and final "Blue Sky Surveys" relating to the
offer and sale of the Shares, the Warrants and the Commission Shares (if any)
and the fees and disbursements of counsel actually incurred to the Placement
Agent in connection with such "blue sky" matters, (iv) the filing fees, if any,
payable to the Commission; and (v) the retention of the Escrow Agent, including
the fees and expenses of the Escrow Agent for serving as such and the fees and
expenses of its counsel.
(b) If subscriptions to purchase a minimum of 1,428,571 Shares (including
Affiliate Shares) have been received prior to the expiration of the Offering
Period and accepted by the Company, the Company shall pay to the Placement Agent
an expense allowance equal to 1.15% of the gross proceeds received by the
Company from the sale of the Securities. Such amounts (less amounts, if any,
previously paid to you in respect of such non-accountable expense allowance)
shall be paid by the Company out of the funds received from the sale of the
Securities.
(c) If subscriptions to purchase a minimum of 1,428,571 Shares (including
Affiliate Shares) have not been received prior to the expiration of the Offering
Period or if this Agreement is terminated by the Placement Agent pursuant to
Section 8 hereof prior to the issuance, sale and delivery of any Securities, the
Company shall reimburse the Placement Agent for its reasonable out-of-pocket
expenses hereunder (including, without limitation, the reasonable fees and
expenses of counsel) and pay any compensation due with respect to unreasonably
rejected subscriptions pursuant to the terms hereof.
8. Conditions of Placement Agent's Obligations. The obligations of the
-------------------------------------------
Placement Agent pursuant to this Agreement shall be subject, in its discretion,
to the continuing accuracy of the representations and warranties of the Company
contained herein and in each certificate and document contemplated under this
Agreement to be delivered to the Placement Agent, as of the date hereof and as
of the Closing Date (and, if applicable, each Additional Closing Date) to the
performance by the Company of its obligations hereunder, and to the following
conditions:
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(a) At the Closing and each Additional Closing, as the case may be, the
Placement Agent shall have received the opinion of Hale and Dorr LLP, counsel
for the Company, and the opinion of Fish & Richardson, PC, patent counsel for
the Company, dated the Closing Date or such Additional Closing Date, as the case
may be, addressed to the Placement Agent, in substantially the form of Exhibit
II-1 and Exhibit II-2 hereto, respective.
(b) At the Closing and each Additional Closing, as the case may be, the
Placement Agent shall have received a certificate of the chief executive officer
and of the chief financial officer of the Company, dated the Closing Date or
such Additional Closing Date, as the case may be, to the effect that, as of the
Closing Date or such Additional Closing Date, as the case may be, the
representations and warranties of the Company contained herein were and are
accurate, and that as of the Closing Date or such Additional Closing Date, as
the case may be, the obligations to be performed by the Company hereunder on or
prior thereto have been fully performed.
(d) All proceedings taken in connection with the issuance, sale and
delivery of the Securities, Warrants and Commission Shares (if any) shall be
reasonably satisfactory in form and substance to you and your counsel.
(e) There shall not have occurred, at any time prior to the Closing or, if
applicable, an Additional Closing, as the case may be, (i) any domestic or
international event, act or occurrence which has materially disrupted, or in
your reasonable opinion will in the immediate future materially disrupt, the
securities markets; (ii) a general suspension of, or a general limitation on
prices for, trading in securities on the New York Stock Exchange, Nasdaq
National Market or in the over-the-counter market; (iii) any outbreak of major
hostilities or other national or international calamity affecting securities
markets in the United States; (iv) any banking moratorium declared by a state or
federal authority; (v) any moratorium declared in foreign exchange trading by
major international banks or other persons; (vi) any material interruption in
the mail service or other means of communication within the United States; (vii)
any material adverse change in the business, properties, assets, results of
operations or financial condition of the Company; or (viii) any change in the
market for securities in general or in political, financial or economic
conditions which, in your reasonable business judgment, makes it inadvisable to
proceed with the offering, sale and delivery of the Shares.
Any certificate or other document signed by any officer of the Company on
behalf of the Company and delivered to you or to your counsel as required
hereunder shall be deemed a representation and warranty by the Company hereunder
as to the statements made therein. If any condition to your obligations
hereunder has not been fulfilled as and when required to be so fulfilled, you
may terminate this Agreement or, if you so elect, in writing waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment. In the event that you elect to terminate this Agreement, you shall
notify the Company of such election in writing. Upon such termination, neither
party shall have any further liability or obligation to the other except as
provided in Section 10 hereof.
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9. Indemnification and Contribution.
--------------------------------
(a) The Company agrees to indemnify and hold harmless the Placement Agent,
the Selected Dealers, their officers, directors, stockholders, employees,
agents, advisors, consultants and counsel, and each person, if any, who controls
the Placement Agent or a Selected Dealer within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange against any and all loss, liability, claim,
damage and expense whatsoever (which shall include, for all purposes of this
Section 9, including, without limitation, attorneys' fees and any and all
reasonable expenses whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever and any
and all amounts paid in settlement of any claim or litigation) as and when
incurred arising out of, based upon or in connection with (i) any untrue
statement or alleged untrue statement of a material fact contained in (A) the
Prospective Investor Package or in any document delivered or statement made
pursuant to Section 6(a)(vii), or (B) in any application or other document or
communication (in this Section 9 collectively called an "application") executed
by or on behalf of the Company or based upon written information furnished by or
on behalf of the Company filed in any jurisdiction in order to register or
qualify the Shares, the Warrants, the Warrant Shares and the Commission Shares
(if any) under the "blue sky" or securities laws thereof or in order to secure
an exemption from such registration or qualification or filed with the
Commission; or any omission or alleged omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, all in light of the circumstances in which made, unless such
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company as stated in Section 9(b) with respect to
the Placement Agent expressly for inclusion in the Prospective Investor Package
or in any application, as the case may be; or (ii) any breach of any
representation, warranty, covenant or agreement of the Company contained in this
Agreement or any other Operative Agreement. The foregoing agreement to
indemnify shall be in addition to any liability the Company may otherwise have,
including liabilities arising under this Agreement.
If any action is brought against the Placement Agent, a Selected Dealer or
any of their officers, directors, stockholders, employees, agents, advisors,
consultants and counsel, or any controlling persons of the Placement Agent or a
Selected Dealer (an "indemnified party"), in respect of which indemnity may be
sought against the Company pursuant to the foregoing paragraph, such indemnified
party or parties shall promptly notify the Company (the "indemnifying party") in
writing of the institution of such action (but the failure so to notify shall
not relieve the indemnifying party from any liability it may have other than
pursuant to this Section 9(a) unless such failure materially prejudices the
indemnifying party), and the indemnifying party shall promptly assume the
defense of such action, including the employment of one counsel (reasonably
satisfactory to such indemnified party or parties) and payment of expenses.
Such indemnified party shall have the right to employ its own counsel in any
such case, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless the employment of such counsel shall have been
authorized in writing by the indemnifying party in connection with the defense
of such action or the indemnifying party shall not have promptly employed
counsel reasonably satisfactory to such indemnified party or parties to have
charge of the defense of such action or such indemnified party or parties shall
have reasonably concluded that there may be one or more legal defenses available
to it or them or to other
-20-
<PAGE>
indemnified parties which are different from or additional to those available to
one or more of the indemnifying parties and it would be inappropriate for the
same counsel to represent both parties due to actual or potential differing
interests between them, in any of which events such fees and expenses shall be
borne by the indemnifying party and the indemnifying party shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties. Anything in this paragraph to the contrary notwithstanding, the
indemnifying party shall not be liable for any settlement of any such claim or
action effected without its written consent. The Company agrees promptly to
notify the Placement Agent of the commencement of any litigation or proceedings
against the Company or any of its officers or directors in connection with the
sale of the Shares, the Prospective Investor Package or any application.
(b) The Placement Agent agrees to indemnify and hold harmless the Company,
its officers, directors, employees, agents and counsel, and each other person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, to the same extent as the foregoing indemnity
from the Company to the Placement Agent in Section 9(a), but only with respect
to statements or omissions, if any, made in or omitted from the sections of the
Term Sheet relating to the compensation and payment of expenses of the Placement
Agent in the Offering, in reliance upon and in conformity with written
information furnished to the Company as stated in this Section 9(b), expressly
for inclusion in the Term Sheet, provided, that the extent of indemnification
--------
under this Section 9(b) shall not exceed the amount of the compensation paid by
the Company to the Placement Agent pursuant to Section 4(a) hereunder. If any
action shall be brought against the Company or any other person so indemnified
based on relevant sections of the Term Sheet and in respect of which indemnity
may be sought against the Placement Agent pursuant to this Section 9(b), the
Placement Agent shall have the rights and duties given to the indemnifying
party, and the Company and each other person so indemnified shall have the
rights and duties given to the indemnified parties, by the provisions of Section
9(a). The foregoing agreement to indemnify shall be in addition to any liability
the Placement Agent may otherwise have, including liabilities arising under this
Agreement.
(c) To provide for just and equitable contribution, if (i) an indemnified
party makes a claim for indemnification pursuant to Section 9(a) or 9(b) but it
is found in a final judicial determination, not subject to further appeal, that
such indemnification may not be enforced in such case, even though this
Agreement expressly provides for indemnification in such case, or (ii) any
indemnified or indemnifying party seeks contribution under the Act, the Exchange
Act, or otherwise, then the Company (including for this purpose any contribution
made by or on behalf of any officer, director, employee, agent or counsel of the
Company or any controlling person of the Company), on the one hand, and the
Placement Agent and the Selected Dealers (including for this purpose any
contribution by or on behalf of an indemnified party), on the other hand, shall
contribute to the losses, liabilities, claims, damages and expenses whatsoever
to which any of them may be subject, in such proportions as are appropriate to
reflect the relative benefits received by the Company, on the one hand, and the
Placement Agent and the Selected Dealers, on the other hand; provided, however,
that if applicable law does not permit such allocation, then other relevant
equitable considerations such as the relative fault of the Company and the
Placement Agent and the Selected Dealers in connection with the facts which
resulted in such losses, liabilities, claims, damages and expenses shall also
-21-
<PAGE>
be considered. The relative benefits received by the Company, on the one hand,
and the Placement Agent and the Selected Dealers, on the other hand, shall be
deemed to be in the same proportion as (x) the total proceeds from the Offering
(net of compensation payable to the Placement Agent pursuant to Section 4 hereof
but before deducting expenses) received by the Company, and (y) the compensation
received by the Placement Agent pursuant to Section 4 hereof or, in the case of
a Selected Dealer, the allowance paid to such Selected Dealer.
The relative fault, in the case of an untrue statement, alleged untrue
statement, omission or alleged omission, shall be determined by, among other
things, whether such statement, alleged statement, omission or alleged omission
relates to information supplied by the Company or by the Placement Agent and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement, alleged statement, omission or alleged
omission. The Company and the Placement Agent agree that it would be unjust and
inequitable if the respective obligations of the Company and the Placement Agent
and the Selected Dealers for contribution were determined by pro rata or per
capita allocation of the aggregate losses, liabilities, claims, damages and
expenses or by any other method of allocation that does not reflect the
equitable considerations referred to in this Section 9(c). In no case shall the
Placement Agent or a Selected Dealer be responsible for a portion of the
contribution obligation in excess of the compensation received by it pursuant to
Section 4 hereof or the Selected Dealer Agreement, as the case may be, less the
aggregate amount of any damages that such Placement Agent or Selected Dealer has
otherwise been required to pay in respect of the same or any substantially
similar claim. No person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. For purposes of
this Section 9(c), each person, if any, who controls the Placement Agent or a
Selected Dealer within the meaning of Section 15 of the Act or Section 20(a) of
the Exchange Act and each officer, director, stockholder, employee, agent and
counsel of the Placement Agent and the Selected Dealers shall have the same
rights to contribution as the Placement Agent or the Selected Dealer, and each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act and each officer, director, employee,
agent and counsel of the Company shall have the same rights to contribution as
the Company, subject in each case to the provisions of this Section 9(c).
Anything in this Section 9(c) to the contrary notwithstanding, no party shall be
liable for contribution with respect to the settlement of any claim or action
effected without its written consent. This Section 9(c) is intended to
supersede any right to contribution under the Act, the Exchange Act or
otherwise.
10. Representations and Agreements to Survive Delivery. All
--------------------------------------------------
representations, warranties, covenants and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants and
agreements at the Closing Date and, if applicable, each Additional Closing Date,
and such representations, warranties, covenants and agreements, including the
indemnity and contribution agreements contained in Section 9, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of the Placement Agent or any indemnified person, or by or on
behalf of the Company or any person or entity which is entitled to be
indemnified under Section 9(b), and shall survive termination of this Agreement
or the issuance, sale and delivery of the Securities. In addition,
-22-
<PAGE>
notwithstanding any election hereunder or any termination of this Agreement, and
whether or not the terms of this Agreement are otherwise carried out, the
provisions of Sections 4(d), 6(a)(xv), 6(a)(xviii), 7, 9, 10 and 12 shall
survive termination of this Agreement and shall not be affected in any way by
such election or termination or failure to carry out the terms of this Agreement
or any part thereof.
11. Notices. All communications hereunder, except as may be otherwise
-------
specifically provided herein, shall be in writing and, if sent to the Placement
Agent, shall be mailed, delivered or telexed or telegraphed and confirmed by
letter, to its address set forth above, with a copy to Kenneth L. Henderson,
Esq. and Alexandre T. Speaker, Esq. at Robinson Silverman Pearce Aronsohn &
Berman LLP, 1290 Avenue of the Americas, New York, New York 10104 or if sent to
the Company, shall be mailed, delivered or telexed or telegraphed and confirmed
by letter, to Cambridge Heart, Inc., 1 Oak Park Drive, Bedford, MA 01730,
attention: President, with a copy to Joseph Mullaney, Esq. at Hale and Dorr LLP,
60 State Street, Boston, MA 02109. All notices hereunder shall be effective
upon receipt by the party to which it is addressed.
12. Assignment. This Agreement shall not be assigned by any party hereto
----------
without the prior written consent of the other parties hereto.
13. Parties. This Agreement shall inure solely to the benefit of, and
-------
shall be binding upon, the Placement Agent and the Company and the persons and
entities referred to in Section 9 who are entitled to indemnification or
contribution and their respective successors, legal representatives and assigns
(which shall not include any purchaser, as such, of Securities), and no other
person shall have or be construed to have any legal or equitable right, remedy
or claim under or in respect of or by virtue of this Agreement or any provision
herein contained.
14. Construction. This Agreement shall be construed in accordance with
------------
the laws of the State of Delaware, without giving effect to conflict of laws.
Each party hereby consents to the exclusive jurisdiction of the Federal and
state courts situated in New York County, New York in connection with any action
arising out of or based upon this Agreement and the transactions contemplated by
this Agreement.
15. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall constitute an original and all of which, when taken together, shall
constitute one agreement.
16. Entire Agreement. This Agreement, including the Exhibits attached
----------------
hereto, constitutes the entire agreement between the parties hereto and
supersedes all previous negotiations, agreements and commitments with respect
thereto, and may only be amended by a written document, signed by duly
authorized officers or representatives of each of the parties hereto.
-23-
<PAGE>
17. Option to Terminate Agreement. The Placement Agent shall have the
-----------------------------
option to terminate this Agreement in the event that the Prospective Investor
Package is not satisfactory to the Placement Agent in its sole discretion.
-24-
<PAGE>
If the foregoing correctly sets forth the understanding between us, please
so indicate in the space provided below for that purpose and return the same to
our attention, whereupon this letter shall constitute a binding agreement
between us.
Very truly yours,
CAMBRIDGE HEART, INC.
By: /s/ J.M. Arnold
------------------------------
Name: J. Arnold
Title: President and Chief
Executive Officer
Accepted as of the date first above written.
New York, New York
SUNRISE SECURITIES CORP.
By: /s/ Preston Tsao
--------------------------
Name: Preston Tsao
Title: Managing Director
-25-
<PAGE>
Schedule 5(a)(ix)
-----------------
Principal Patents of the Company
<TABLE>
<CAPTION>
Patent Patent
Number Description Ownership Issue Date
- ------ ----------- --------- ----------
<S> <C> <C> <C>
US5935082 Assessing Cardiac Electrical Stability Cambridge Heart, Inc. August 10, 1999
US5713367 Measuring and Assessing Cardiac
Electrical Stability Cambridge Heart, Inc. February 3, 1998
US5570696 Method and Apparatus for Assessing
Myocardial Electrical Stability Cambridge Heart, Inc. November 5, 1996
US4802491 Method and Apparatus for Assessi Massachusetts Institute
Myocardial Electrical Stability of Technology (1) February 7, 1989
</TABLE>
(1) Licensed from Massachusetts Institute of Technology by Cambridge Heart,
Inc.
-26-
<PAGE>
Exhibit I
---------
Warrant No. ____
Warrant to Purchase______ Shares
COMMON STOCK PURCHASE WARRANT
To Purchase Shares of Common Stock (par value
$0.001 per share)
of
CAMBRIDGE HEART, INC.
(Delaware corporation)
Expires October __, 2004
-27-
<PAGE>
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
VOID AFTER 8:00 P.M. NEW YORK TIME, ON OCTOBER[ ], 2004
CAMBRIDGE HEART, INC.
Warrant to Purchase Shares of Common Stock
THIS CERTIFIES that, for good and valuable consideration received, [ ]
(the "Holder"), is entitled to subscribe for and purchase from CAMBRIDGE HEART,
------
INC., a Delaware corporation (the "Company"), upon the terms and conditions set
-------
forth herein, at any time or from time to time after October __, 1999, until
5:00 P.M. New York City time on October __, 2004 (the "Expiration Date"), all or
---------------
any portion of [ ] shares (the "Warrant Shares") of common stock of the Company,
--------------
par value $0.001 per share (the "Common Stock"), subject to adjustment as
provided herein, at a price of $[ ]/1/ per share, subject to adjustment as
provided herein (the "Exercise Price"). This Warrant shall not be redeemable by
--------------
the Company. This Warrant may be sold, transferred, assigned or hypothecated
at any time and the term the "Holder" as used herein shall include any
------
transferee to whom this Warrant has been transferred.
1. Registration of Warrant. The Company shall register this Warrant,
-----------------------
upon records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, and the Company shall not be affected by
notice to the contrary.
2. Registration of Transfers and Exchanges.
---------------------------------------
(a) The Company shall register the transfer of any portion of
this Warrant in the Warrant Register, upon surrender of this Warrant, with the
Form of Assignment attached hereto duly
_____________________
/1/$5.25 for the Investor Warrant
$4.20 for the Placement Agent Warrant
-28-
<PAGE>
completed and signed, to the Company at the office specified in or pursuant to
Section 3(b). Upon any such registration or transfer, a new warrant to purchase
Common Stock, in substantially the form of this Warrant (any such new warrant, a
"New Warrant"), evidencing the portion of this Warrant so transferred shall be
issued to the transferee and a New Warrant evidencing the remaining portion of
this Warrant not so transferred, if any, shall be issued to the transferring
Holder. The acceptance of the New Warrant by the transferee thereof shall be
deemed the acceptance of such transferee of all of the rights and obligations of
a holder of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by
the Holder to the office of the Company specified in or pursuant to Section 3(b)
for one or more New Warrants, evidencing in the aggregate the right to purchase
the number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of such exchange.
3. Duration and Exercise of Warrants.
---------------------------------
(a) This Warrant shall be exercisable by the registered Holder
on any business day before 8:00 P.M., New York City time, at any time and from
time to time on or after the date hereof to and including the Expiration Date.
At 8:00 P.M., New York City time on the Expiration Date, the portion of this
Warrant not exercised prior thereto shall be and become void and of no value.
Prior to the Expiration Date, the Company may not call or otherwise redeem this
Warrant without the prior written consent of the Holder.
(b) Subject to Sections 2(b), 9 and 10, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly completed
and signed, to the Company at its address for notice set forth in Section 14
and upon payment of the Exercise Price multiplied by the number of Warrant
Shares that the Holder intends to purchase hereunder, in the manner provided
hereunder, all as specified by the Holder in the Form of Election to Purchase,
the Company shall promptly (but in no event later than three (3) business days
after the Date of Exercise (as defined herein)) issue or cause to be issued and
cause to be delivered to or upon the written order of the Holder and in such
name or names as the Holder may designate, a certificate for the Warrant Shares
issuable upon such exercise. Any person so designated by the Holder to receive
Warrant Shares shall be deemed to have become holder of record of such Warrant
Shares as of the Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall
have received (i) this Warrant (or any New Warrant, as applicable), with the
Form of Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
(c) This Warrant shall be exercisable, either in its entirety
or, from time to time, for a portion of the number of Warrant Shares. If less
than all of the Warrant Shares which may be purchased under this Warrant are
exercised at any time, the Company shall issue or cause to be issued, at its
expense, a New Warrant evidencing the right to purchase the remaining number of
Warrant Shares for which no exercise has been evidenced by this Warrant.
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<PAGE>
4. Reservation of Shares. The Company covenants that it will at all
---------------------
times reserve and keep available out of the aggregate of its authorized but
unissued Common Stock, solely for the purpose of enabling it to issue Warrant
Shares upon exercise of this Warrant as herein provided, the number of Warrant
Shares which are then issuable and deliverable upon the exercise of this entire
Warrant, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holder (taking into account the adjustments and
restrictions of Section 5). The Company covenants that all Warrant Shares that
shall be so issuable and deliverable shall, upon issuance and the payment of the
applicable Exercise Price in accordance with the terms hereof, be duly and
validly authorized, issued and fully paid and nonassessable
5. Certain Exercise Price Adjustments. Subject to the provisions of
----------------------------------
this Section 5, the Exercise Price in effect from time to time shall be subject
to adjustment, as follows:
(a) In case the Company shall at any time after the date hereof
(i) declare a dividend or make a distribution on the outstanding shares of
Common Stock payable in shares of its capital stock or securities convertible
into or exchangeable for capital stock, (ii) subdivide the outstanding shares of
Common Stock into a smaller number of shares, (iii) combine the outstanding
shares of Common Stock into a larger number of shares, or (iv) issue any shares
by reclassification of the shares of Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value),
then, in each case, the Exercise Price in effect, and the number of Warrant
- ----
Shares issuable hereunder at the time of the record date for such dividend or at
the effective date of such subdivision, combination or reclassification, shall
be proportionately adjusted so that the Holder, after such time, shall be
entitled to receive upon exercise of this Warrant the aggregate number and kind
of shares which, if this Warrant had been exercised immediately prior to such
time, the Holder would have owned upon such exercise and immediately thereafter
been entitled to receive by virtue of such dividend, subdivision, combination or
reclassification. Any adjustment made pursuant to this Section shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision or
combination, and shall apply to successive subdivisions and combinations. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(b) In case the Company shall distribute to all holders of
shares of Common Stock (including any such distribution made to the stockholders
of the Company in connection with a consolidation or merger in which the Company
is the surviving or continuing corporation) evidences of its indebtedness, cash,
or assets (other than distributions and dividends payable as contemplated by
Section 5(a) above), or rights, options, or warrants to subscribe for or
purchase shares of Common Stock or securities convertible into or exchangeable
for shares of Common Stock, then, in each case, the Exercise Price shall be
adjusted by multiplying the Exercise Price in effect immediately prior to the
record date for the determination of stockholders entitled to receive such
distribution by a fraction, the numerator of which shall be the Current Market
Price (as determined pursuant to Section 5(e) hereof) per share of Common Stock
on such record date, less the fair market value (as determined in good faith by
the board of directors of the Company, whose determination shall be conclusive
absent manifest error) of the portion of the evidences of indebtedness or assets
so to be distributed, or of such rights, options, or warrants or
-30-
<PAGE>
convertible or exchangeable securities, or the amount of such cash, applicable
to one share, and the denominator of which shall be such Current Market Price
per share of Common Stock. Such adjustment shall become effective at the close
of business on such record date.
(c) Whenever there shall be an adjustment as provided in this
Section 5, the Company shall within 15 days thereafter cause written notice
thereof to be sent by registered mail, postage prepaid, to the Holder, at its
address as it shall appear in the Warrant Register, which notice shall be
accompanied by an officer's certificate setting forth the number of Warrant
Shares issuable hereunder and the exercise price thereof after such adjustment
and setting forth a brief statement of the facts requiring such adjustment and
the computation thereof, which officer's certificate shall be conclusive
evidence of the correctness of any such adjustment absent manifest error.
(d) The Company shall not be required to issue fractions of
shares of Common Stock or other shares of the Company upon the exercise of this
Warrant. If any fraction of a share would be issuable upon the exercise of this
Warrant (or specified portions thereof), the Company may issue a whole share in
lieu of such fraction or the Company may purchase such fraction for an amount in
cash equal to the same fraction of the Current Market Price of such shares of
Common Stock on the date of exercise of this Warrant.
(e) The Current Market Price per share of Common Stock on any
date shall be deemed to be the average of the daily closing prices for the five
(5) consecutive trading days immediately preceding the date in question. The
closing price for each day shall be the last reported sales price regular way
or, in case no such reported sale takes place on such day, the closing bid price
regular way, in either case on the principal national securities exchange on
which the Common Stock is listed or admitted to trading or, if the Common Stock
is not listed or admitted to trading on any national securities exchange, the
highest reported bid price for the Common Stock as furnished by the National
Association of Securities Dealers, Inc. through NASDAQ or a similar organization
if NASDAQ is no longer reporting such information. If on any such date the
Common Stock is not listed or admitted to trading on any national securities
exchange and is not quoted by NASDAQ or any similar organization, the fair value
of a share of Common Stock on such date, as determined in good faith by the
Board of Directors of the Company, whose determination shall be conclusive
absent manifest error, shall be used.
(f) No adjustment in the Exercise Price shall be required if
such adjustment is less than $0.01, provided, that any adjustments which by
--------
reason this Section 5 are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 5 shall be made to the nearest cent or to the nearest thousandth of a
share, as the case may be.
(g) Upon each adjustment of the Exercise Price as a result of
the calculations made in this Section 5, this Warrant shall thereafter evidence
the right to purchase, at the adjusted Exercise Price, that number of shares of
Common Stock (calculated to the nearest hundredth) obtained by dividing (i) the
product obtained by multiplying (A) the number of shares of Common Stock
purchasable upon exercise of this Warrant prior to adjustment of the Exercise
Price by (B) the Exercise Price in effect prior
-31-
<PAGE>
to adjustment of the Exercise Price by (ii) the Exercise Price in effect after
such adjustment of the Exercise Price.
6. Consolidations and Mergers. In case of any (1) merger or
--------------------------
consolidation of the Company with or into another person, or (2) sale by the
Company of more than one-half of the assets of the Company (on a book value
basis) in one or a series of related transactions, or (3) tender or other offer
or exchange (whether by the Company or another person) pursuant to which holders
of Common Stock are permitted to tender or exchange their shares for other
securities, stock, cash or property of the Company or another person; then the
Holder shall have the right thereafter to (A) exercise this Warrant for the
shares of stock and other securities, cash and property receivable upon or
deemed to be held by holders of Common Stock following such merger,
consolidation or sale, and the Holder shall be entitled upon such event or
series of related events to receive such amount of securities, cash and property
as the Common Stock for which this Warrant could have been exercised immediately
prior to such merger, consolidation or sales would have been entitled, (B) in
the case of a merger or consolidation, (x) require the surviving entity to issue
to the Holder a warrant entitling the Holder to acquire shares of such entity's
common stock, which warrant shall have terms identical (including with respect
to exercise) to the terms of this Warrant and shall be entitled to all of the
rights and privileges set forth herein and the agreements pursuant to which this
Warrant was issued (including, without limitation, as such rights relate to the
acquisition, transferability, registration and listing of such shares of stock
other securities issuable upon exercise thereof), or (C) in the event of an
exchange or tender offer or other transaction contemplated by clause (3) of this
Section, tender or exchange this Warrant for such securities, stock, cash and
other property receivable upon or deemed to be held by holders of Common Stock
that have tendered or exchanged their shares of Common Stock following such
tender or exchange, and the Holder shall be entitled upon such exchange or
tender to receive such amount of securities, cash and property as the shares of
Common Stock for which this Warrant could have been exercised immediately prior
to such tender or exchange would have been entitled as would have been issued.
In the case of clause (B), the exercise price applicable for the newly issued
warrant shall be based upon the amount of securities, cash and property that
each shares of Common Stock would receive in such transaction and the Exercise
Price immediately prior to the effectiveness or closing date for such
transaction. The terms of any such merger, sale, consolidation, tender or
exchange shall include such terms so as continue to give the Holder the right to
receive the securities, cash and property set forth in this Section upon any
conversion or redemption following such event. This provision shall similarly
apply to successive such events.
7. Notice of Certain Events. In case at any time any of the
------------------------
following occur:
(a) The Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a dividend
or distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on the
books of the Company; or
(b) The Company shall offer to all the holders of its
shares of Common Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital stock of the
Company, or any option, right or warrant to subscribe therefor; or
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<PAGE>
(c) The Company shall take any action to effect any reclassification
or change of outstanding shares of Common Stock or any consolidation, merger,
sale, lease or conveyance of property, described in Section 6; or
(d) The Company shall take any action to effect any liquidation,
dissolution or winding-up of the Company or a sale of all or substantially all
of its property, assets and business;
then, and in any one or more of such cases, the Company shall give written
- ----
notice thereof, by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Warrant Register, mailed at least
fifteen (15) days prior to (i) the date as of which the holders of record of
shares of Common Stock to be entitled to receive any such dividend,
distribution, rights, warrants or other securities are to be determined,
(ii) the date on which any such offer to holders of shares of Common Stock is
made, or (iii) the date on which any such reclassification, change of
outstanding shares of Common Stock, consolidation, merger, sale, lease,
conveyance of property, liquidation, dissolution or winding-up is expected to
become effective and the date as of which it is expected that holders of record
of shares of Common Stock shall be entitled to exchange their shares for
securities or other property, if any, deliverable upon such reclassification,
change of outstanding shares, consolidation, merger, sale, lease, conveyance of
property, liquidation, dissolution or winding-up. Nothing herein shall allow a
Holder to delay or prevent any of the foregoing actions.
8. Registration Rights. The Warrant Shares issuable upon the
-------------------
exercise of this Warrant shall be entitled to the identical registration rights
granted to investors in the Company's August 1999 Private Placement pursuant to
Section 7 of each of those certain Subscription Agreement, accepted by the
Company on the date hereof, between the Company and such investors (the
"Subscription Agreement"). The Warrant Shares shall be included within the
definition of "Registrable Securities" under the Subscription Agreement and the
Holder be included within the definition of "Holder" under the Subscription
Agreement.
9. Payment of Exercise Price. The Holder shall pay the Exercise
-------------------------
Price in one of the following manners:
(a) Cash Exercise. The Holder may deliver immediately
-------------
available funds; or
(b) Cashless Exercise. The Holder may surrender this Warrant
-----------------
to the Company together with a notice of cashless exercise, in which event the
Company shall issue to the Holder the number of Warrant Shares determined as
follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be issued
to the Holder.
Y = the number of Warrant Shares with respect to which
this Warrant is being exercised.
-33-
<PAGE>
A = the average of the closing sale prices of the Common
Stock for the five (5) trading days immediately prior to
(but not including) the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
10. Taxes. The issuance of any shares or other securities upon the
-----
exercise of this Warrant and the delivery of certificates or other instruments
representing such shares or other securities shall be made without charge to the
Holder for any tax or other charge in respect of such issuance. The Company
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of any certificate in a name
other than that of the Holder (except for any tax that is payable in respect of
any such transfer and any related exercise of this Warrant and that would be
payable pursuant to the first sentence of this Section 10 were such certificate
to be issued in the name of the Holder).
11. Legend. In the event that either a registration statement
------
covering the resale of the Warrant Shares and naming the Holder as a selling
stockholder thereunder is not then effective or the Warrant Shares are not
freely transferable without volume restrictions pursuant to Rule 144(k)
promulgated under the Act, the certificate or certificates evidencing the
Warrant Shares, shall bear the following legend:
"The securities represented hereby have not
been registered under the Securities Act of 1933,
as amended or any state securities laws and neither
the securities nor any interest therein may be
offered, sold, transferred, pledged or otherwise
disposed of except pursuant to an effective
registration statement under such Act or pursuant
to an available exemption from, or in a transaction
not subject to, the registration requirements of
the securities act and in accordance with
applicable state securities laws ."
12. Replacement of Warrants. Upon receipt of evidence satisfactory to
-----------------------
the Company of the loss, theft, destruction or mutilation of any Warrant (and
upon surrender of any Warrant if mutilated), and upon reimbursement of the
Company's reasonable incidental expenses and execution of a reasonable lost
security indemnification agreement, the Company shall execute and deliver to the
Holder thereof a new Warrant of like date, tenor and denomination.
13. No Rights as Stockholder. The Holder of any Warrant shall not
------------------------
have, solely on account of such status, any rights of a stockholder of the
Company, either at law or in equity, or to any
-34-
<PAGE>
notice of meetings of stockholders or of any other proceedings of the Company,
except as provided in this Warrant.
14. Notices. All notices, requests, consents and other
-------
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered, or mailed by registered or certified mail, return
receipt requested:
(a) If to the registered Holder of this Warrant, to the address
of such Holder as it shall appear in the Warrant Register; or
(b) If to the Company, to the address set forth on the first
page of this Warrant or to such other address as the Company may designate by
notice to the Holder.
15. Successors. All the covenants, agreements, representations and
----------
warranties contained in this Warrant shall bind the parties hereto and their
respective heirs, executors, administrators, distributees, successors and
assigns.
16. Headings. The Article and Section headings in this Warrant are
--------
inserted for purposes of convenience only and shall have no substantive effect.
17. Governing Law. This Warrant shall be construed in accordance
-------------
with the laws of the State of Delaware, without regard to principles of
conflicts of law.
18. Modification of Agreement. This Warrant shall not otherwise
-------------------------
be modified, supplemented or amended in any respect unless such modification,
supplement or amendment is in writing and signed by the Company and the Holder
of this Warrant and Holders of any portion of the Warrant subsequently assigned
or transferred in accordance with the terms of this Warrant.
19. Consent to Jurisdiction. The Company and the Holder irrevocably
-----------------------
consent to the non-exclusive jurisdiction of the courts of the State of New York
and of any federal court located in such State in connection with any action or
proceeding arising out of or relating to this Warrant, any document or
instrument delivered pursuant to, in connection with or simultaneously with this
Warrant, or a breach of this Warrant or any such document or instrument. In any
such action or proceeding, the Company waives personal service of any summons,
complaint or other process and agrees that service thereof may be made in
accordance with Section 14 hereof.
20. Warrant Agent. The Company shall serve as warrant agent under
-------------
this Warrant. Upon thirty (30) days' notice to the Holder, the Company may
appoint a new warrant agent. Any corporation into which the Company or any new
warrant agent may be merged or any corporation resulting from any consolidation
to which the Company or any new warrant agent shall be a party or any
corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business shall
be a successor warrant agent under this Warrant without any further act. Any
such
-35-
<PAGE>
successor warrant agent shall promptly cause notice of its succession as warrant
agent to be mailed (by first class mail, postage prepaid) to the Holder at the
Holder's last address as shown on the Warrant Register.
21. Miscellaneous.
-------------
(a) This Warrant shall be binding on and inure to the
benefit of the parties hereto and their respective successors and assigns. This
Warrant may be amended only in writing signed by the Company and the Holder and
their successors and assigns.
(b) Subject to Section 21(a), above, nothing in this
Warrant shall be construed to give to any person or corporation other than the
Company and the Holder any legal or equitable right, remedy or cause under this
Warrant. This Warrant shall inure to the sole and exclusive benefit of the
Company and the Holder.
(c) In case any one or more of the provisions of this
Warrant shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
-36-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of
the date set forth below by its duly authorized officer.
Dated: October [ ], 1999 CAMBRIDGE HEART, INC.
By:__________________________
Name:
Title:
-37-
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To Cambridge Heart, Inc.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of common stock, $.001 par value per share, of Cambridge Heart, Inc. (the
"Common Stock") and , if such Holder is not utilizing the cashless exercise
provisions set forth in this Warrant, encloses herewith $________ in cash,
certified or official bank check or checks, which sum represents the aggregate
Exercise Price (as defined in the Warrant) for the number of shares of Common
Stock to which this Form of Election to Purchase relates, together with any
applicable taxes payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
________________________________
________________________________________________________________________________
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is entitled
to purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to purchase
the shares of Common Stock not issuable pursuant to the exercise evidenced
hereby be issued in the name of and delivered to:
________________________________________________________________________________
(Please print name and address)
Dated: _______, _____ Name of Holder:
(Print) __________________________________
By:
Name:
Title:
(Signature must conform in all respects to name
of holder as specified on the face of the
Warrant)
-38-
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to
transfer the attached Warrant.)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto _________________, having an address at _________________________
_______________________, the attached Warrant to the extent of the right to
purchase ____________ shares of Common Stock, $0.001 par value per share, of
CAMBRIDGE HEART, INC. (the "Company"), together with all right, title, and
-------
interest therein, and does hereby irrevocably constitute and appoint
_________________ as attorney to transfer such Warrant on the books of the
Company, with full power of substitution.
Dated: _______________, _____
_______________________________
Print name of holder of Warrant
By:____________________________
Name:
Title:
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Warrant in every particular, without alteration
or enlargement or any change whatsoever.
<PAGE>
Exhibit II-1
------------
1. The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware with the requisite
corporate power and authority to own and use its properties and assets and to
carry on its business as, to our knowledge, it is currently conducted. The
Company is duly qualified to do business and is in good standing in the
Commonwealth of Massachusetts.
2. The issuance, sale and delivery of the Securities to be sold at
the Closing by the Company in accordance with the Subscription Agreements, and
the issuance and delivery of the Commission Shares and the shares of Common
Stock issuable upon exercise of the Warrants, as the case may be, have been duly
authorized and reserved for issuance by all necessary corporate action on the
part of the Company, and the Securities when so issued, sold and delivered
against payment therefor in accordance with the provisions of the Subscription
Agreements, and the Commission Shares, when issued in accordance with the terms
of the Agency Agreement, and the shares of Common Stock issuable upon exercise
of the Warrants, when issued and paid for in accordance with the terms of such
Warrants, as the case may be, will be duly and validly issued, fully paid and
non-assessable.
3. The Company has the requisite corporate power and authority to
enter into and to consummate the transactions contemplated by each of the
Operative Agreements and otherwise to carry out its obligations hereunder. The
execution, delivery and performance by the Company of the Operative Agreements
and the consummation by it of the transactions contemplated thereby, have been
duly authorized by all necessary corporate action on the part of the Company,
and the Operative Agreements have been duly executed and delivered by the
Company and constitute the valid and binding obligation of the Company,
enforceable against the Company in accordance with their respective terms.
4. Based in part on the representations of each of the Investors in
Section 6 of the respective Subscription Agreements, the offer, issuance and
sale of the Securities to be sold to the Investors at the Closing pursuant to
the Subscription Agreements are, and the issuance of the shares of Common Stock
issuable upon exercise of the Investor Warrants in accordance with the terms of
the Investor Warrants, as the case may be, will be, exempt from the registration
requirements of the Securities Act of 1933, as amended.
5. To our knowledge, there is no action, suit, claim, governmental
inquiry, proceeding or investigation pending against the Company, which might
result in any material adverse change in the assets, condition (financial or
otherwise) or business of the Company.
6. The Warrants have been duly authorized by the Company and, when
countersigned and delivered to and paid for by the Investors, will constitute
the valid and binding obligations and will constitute the valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms.
<PAGE>
7. The execution, delivery and performance of the Operative
Agreements by the Company and the consummation by the Company of the
transactions contemplated by such agreements will not conflict with or violate
any provision of its Charter or Bylaws and do not conflict with, violate, breach
or constitute a default under, or result in the imposition of any lien on the
Company's property pursuant to the agreements listed on Schedule I attached
----------
hereto.
<PAGE>
Exhibit II-2
------------
At your request, we are writing to address intellectual property issues relative
to Cambridge Heart, Inc. ("Cambridge Heart").
We are not aware of any patent or other intellectual property infringed by
Cambridge Heart. Nor are we aware that Cambridge Heart has received any notice
of infringement of the intellectual property of others.
Cambridge Heart has rights in, among others, the following U.S. Patents:
Patent Number Title
5,935,082 Assessing Cardiac Electrical Stability
5,713,367 Measuring and Assessing Cardiac Electrical Stability
5,570,696 Method and Apparatus for Assessing Myocardial Electrical
Stability
4,802,491 Method and Apparatus for Assessing Myocardial Electrical
Stability
The first three patents are owned by Cambridge Heart by virtue of assignments
from the inventors. These assignments have been recorded with the U.S. Patent &
Trademark Office. The fourth patent has been licensed to Cambridge Heart by the
Massachusetts Institute of Technology.
We believe that these patents were properly issued, are valid, and are
enforceable. We are not aware of any infringement of these patents.
These patents provide strong protection for techniques used in Cambridge Heart's
products. The claims of the '491 patent cover certain techniques for analyzing
cycle-to-cycle variability (e.g., alternans) in a physiologic waveform (e.g., an
ECG). The claims of the '696 and '367 patents cover techniques for detecting
alternans in conjunction with physiologic stress, such as exercise. The claims
of the '082 patent cover techniques for visually presenting an alternans measure
in association with a reference signal (e.g., the patient's heart rate) to
permit visual evaluation of whether the alternans measure is representative of
cardiac electrical stability.
At your request, we recently conducted a prior art search with respect to
patents related to T-wave alternans. This search revealed U.S. Patent No.
5,921,940, which issued to Georgetown University on July 13, 1999, and is titled
"Method and Apparatus for Using Physiologic Stress in Assessing Myocardial
Electrical Stability." We have advised Cambridge Heart that this patent is
invalid. Our conclusion that this patent is invalid forms the basis for our
conclusion that it is not infringed.
If you have any questions, or if we can be of any further assistance, please do
not hesitate to contact us.
With best regards,
John F. Hayden
<PAGE>
CAMBRIDGE HEART, INC.
---------------------
SUBSCRIPTION AGREEMENT
A minimum of 1,428,571 Shares (the "Minimum Offering") and
A maximum of 2,142,857 Shares (the "Maximum Offering")
To: Cambridge Heart, Inc.
1 Oak Park Drive
Bedford, MA 01730
Attn.: Jeffrey Arnold, President
Ladies and Gentlemen:
1. Subscription. Cambridge Heart, Inc., a Delaware corporation (the
------------
"Company"), is offering shares of its common stock, $.001 par value per share
(the "Common Stock") in a private placement (the "Offering"), solely to
"Accredited Investors" (as defined in Rule 501(a) of Regulation D promulgated
under the Securities Act of 1933, as amended (the "Act")), pursuant to the Term
Sheet, attached hereto as Exhibit A (the "Term Sheet"). Sunrise Securities
---------
Corp., a Delaware corporation ("Sunrise"), is acting as placement agent for the
Offering. The undersigned hereby subscribes to purchase in the Offering the
number of shares of Common Stock indicated on the signature page to this
Subscription Agreement (the "Shares") for a purchase price of $3.50 per Share
(the "Share Price"). The undersigned will also receive a warrant in the form
attached hereto as Exhibit B, to purchase a number of shares of Common Stock
---------
equal to 20% of the number of Shares purchased by it hereunder at an exercise
price equal to $3.50 per share of Common Stock (the "Investor Warrant" and
together with the Shares, the "Securities"). The cost of the Investor Warrant
shall be $0.10 per underlying share, which cost shall be an allocated cost
included in the $3.50 Share Price. The Offering shall, unless extended by
mutual consent of the Company and Sunrise, terminate on October 15, 1999 (the
"Termination Date"). Prior to the acceptance of this Subscription Agreement by
the Company and the occurrence of a Closing (as defined herein) in connection
therewith, the undersigned's execution of this Subscription Agreement will not
constitute an agreement between the undersigned and the Company.
2. Delivery of Funds. On the date hereof, payment of a sum equal to the
-----------------
product obtained by multiplying $3.50 by the number of Shares subscribed for
hereunder (the "Purchase Price") is being made by electronic wire transfer in
accordance with the following instructions:
<PAGE>
Bank Name: The Chase Manhattan Bank
ABA #: 021000021
Credit: United States Trust Co. of NY
Account #: 920-1-073195
Further Credit: Sunrise/Cambridge Heart, Inc.
Account # 09052700
Attention: James Logan
or by delivery of a bank check or certified check made payable to "Cambridge
Heart, Inc. - Escrow Account." All checks should be delivered together with an
executed copy of this Subscription Agreement, to Sunrise, as follows:
Sunrise Securities Corp.
135 East 57th Street
11th floor
New York, New York
Attention: Jaime Dondero
3. Closings. The initial closing of the Offering (the "Initial Closing")
--------
shall take place, on or prior to the Termination Date, at the offices of
Robinson Silverman Pearce Aronsohn & Berman LLP, 1290 Avenue of the Americas,
New York, New York 10104 ("RSPAB") on or about the third (3rd) business day
after Sunrise receives notice from the Company that the Company has accepted
subscriptions for a number of Shares equal to or greater than the Minimum
Offering (such date, the "Initial Closing Date"). Subsequent closings of the
Offering (each a "Subsequent Closing") shall take place, subsequent to the
Initial Closing Date and prior to the Termination Date, at the offices of RSPAB
on or about the third (3rd) business day after Sunrise receives notice from the
Company that the Company has accepted additional subscriptions for a number of
Shares up to the Maximum Offering (each such date, an "Additional Closing
Date"). The Initial Closing and any Additional Closing are sometimes
collectively referred to as a "Closing." The Initial Closing Date and any
Additional Closing Date are sometimes collectively referred to as a "Closing
Date."
Promptly after the Initial Closing Date (if this Subscription
Agreement is delivered and accepted after the Initial Closing Date, then after
the Subsequent Closing Date), the Company will deliver to the undersigned
certificates evidencing the Securities to be purchased by the undersigned,
registered in its name. As of the Initial Closing Date (if this Subscription
Agreement is delivered and accepted after the Initial Closing Date, then as of
the Subsequent Closing Date), the undersigned shall be entitled to vote all of
the Shares, to receive dividends, if any, and to obtain all of the rights
otherwise granted to the Company's stockholders. The name of each undersigned
shall be registered on the transfer books of the Company as the record owner of
the Securities purchased. If the Company has not received and accepted
subscriptions for a number of Shares equal to the Minimum Offering on or prior
to the Termination Date, no Securities
-2-
<PAGE>
will be sold pursuant to this Subscription Agreement and the Purchase Price paid
by the undersigned will be returned to the undersigned without interest promptly
after the Termination Date.
4. Representations and Warranties of the Company. To induce the
---------------------------------------------
undersigned to enter into this Agreement and to purchase the Securities, the
Company hereby represents and warrants to the undersigned the following:
(a) Organization, Standing, Etc. The Company is a corporation duly
----------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power and authority to own or lease its
properties and to carry on its business as it is now being conducted. The
Company has the requisite corporate power and authority to issue the Securities
and to perform its obligations under this Subscription Agreement.
(b) Valid Issuance. The Securities, when issued and delivered
--------------
against payment therefor pursuant to terms of this Subscription Agreement, will
be duly authorized, validly issued, fully paid and nonassessable. The shares of
Common Stock issuable upon exercise of the Investor Warrant (the "Investor
Warrant Shares" and together with the Shares, the "Underlying Shares"), when
issued upon exercise of the Investor Warrant, will be duly authorized, validly
issued, fully paid and nonassessable.
(c) Corporate Acts and Proceedings. This Subscription Agreement and
------------------------------
the Offering have been duly authorized by all necessary corporate action on
behalf the Company. This Subscription Agreement has been duly executed and
delivered by an authorized officer of the Company, is a valid and binding
agreement on the part of the Company and is enforceable against the Company in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors' rights generally. All corporate actions
necessary to effect the Offering and authorize, create, issue and deliver the
Securities have been taken by the Company.
(d) Compliance with Applicable Laws and Other Instruments. Neither
-----------------------------------------------------
the execution or delivery of, nor the performance of or compliance with this
Subscription Agreement, the issuance of the Securities nor the consummation of
the transactions contemplated hereby will, with or without the giving of notice
or passage of time, result in any material breach of, or constitute a material
default under, or result in the imposition of any material lien or encumbrance
upon any asset or property of the Company pursuant to, any material agreement or
other instrument to which the Company is a party or by which it or any of its
properties, assets or rights is bound or affected, and will not violate the
Company's Certificate of Incorporation or Bylaws.
(e) Securities Laws. Based in part upon the representations of the
---------------
undersigned in Section 6 hereof, no consent, authorization, approval, permit or
order of or filing with any governmental or regulatory authority is required
under current laws and regulations in connection with the execution and delivery
of this Agreement or the offer, issuance, sale or delivery of the Securities,
other than (i) the filing
-3-
<PAGE>
of a Form D pursuant to Regulation D under the Act with the Securities and
Exchange Commission (the "Commission"), (ii) the filing, if required, of any
notice with any state whose laws require such filing, (iii) the qualification
thereof, if required, under other applicable state laws, which qualification has
been or will be effected as a condition of the Offering and (iv) the listing of
the Underlying Shares on the Nasdaq National Market. Under the circumstances
contemplated by this Subscription Agreement, the offer, issuance, sale and
delivery of the Securities will not, under current laws and regulations, require
compliance with the prospectus delivery or registration requirements in the Act.
(f) Capital Stock. The authorized and issued capital stock of the
-------------
Company as of the Initial Closing Date is correctly set forth in the Term Sheet.
There are no outstanding subscriptions, options, warrants, calls, contracts,
demands, commitments, convertible securities or other agreements or arrangements
of any character or nature whatever, other than in connection with the Offering,
pursuant to which the Company is obligated to issue any securities of any kind
representing an ownership interest in the Company. Except as disclosed in the
SEC Filings (as defined herein) and the Term Sheet, neither the offer nor the
issuance or sale of the Securities constitutes an event under any anti-dilution
provisions of any securities issued (or issuable pursuant to outstanding rights,
warrants or options) by the Company or any agreements with respect to the
issuance of securities by the Company, which will either increase the number of
securities issuable pursuant to such provisions or decrease the consideration
per share to be received by the Company pursuant to such provisions. As of the
date hereof, except as disclosed in the SEC Filings, no holder of any securities
of the Company is entitled to any preemptive or similar rights to purchase any
securities of the Company in connection with the Offering.
(g) Investor Package. The Company has furnished to the undersigned
----------------
an investor package (the "Investor Package") consisting, among other things, of
the Company's (i) Form 10-K for the fiscal year ended December 31, 1998, (ii)
1998 Annual Report, (iii) quarterly report on Form 10-Q for the quarter ended
March 31, 1999 and (iv) quarterly report on Form 10-Q for the quarter ended June
30, 1999 (together with any and all other filings effectuated by the Company
with the Commission in 1999, collectively, the "SEC filings") and a copy of the
Term Sheet. The SEC Filings are also available to the undersigned through the
EDGAR Internet web site of the Commission. As of their respective filing dates,
the SEC Filings complied in all material respects with the applicable
requirements of the Exchange Act of 1934, as amended (the "Exchange Act"). The
Investor Package and the SEC Filings do not as of their respective dates contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
(h) Representations. The Company certifies that the representations
---------------
set forth herein concerning the Company are true, correct and complete as of the
date hereof, shall be true and accurate as of the date of the acceptance hereof
by the Company and shall survive thereafter (other than representations and
warranties which relate to a specific date, which representations and warranties
shall be true as of such date).
-4-
<PAGE>
5. Transfer Restrictions.
---------------------
(a) The undersigned realizes that the Underlying Shares are not
registered under the Act or any foreign or state securities laws. The
undersigned agrees that the Underlying Shares will not be sold, offered for
sale, pledged, hypothecated or otherwise transferred (collectively, "Transfer"),
except in compliance with the Act and applicable foreign and state securities
laws. The undersigned understands that he can only Transfer the Underlying
Shares pursuant to registration under the Act or pursuant to an exemption
therefrom. The undersigned understands that Transfer of the Underlying Shares
may require in certain jurisdictions specific approval by the appropriate
governmental agency or commission in such jurisdiction. The undersigned has
been advised that, except as set forth in Section 7 hereof, the Company has no
obligation, and does not intend, to cause the Underlying Shares to be registered
under the Act or the securities law of any other jurisdiction or to comply with
the requirements for any resale exemption under the Act, including but not
limited to, those provided by Rule 144 and Rule 144A promulgated under the Act,
or under the securities law of any other jurisdiction.
(b) To enable the Company to enforce the transfer restrictions
contained in Section 5(a) hereof, the undersigned hereby consents to the placing
of the following legend upon, and stop-transfer orders with the transfer agent
of the Common Stock with respect to, the Underlying Shares:
"The securities represented hereby have not been registered under
the Securities Act of 1933, as amended or any state securities laws
and neither the securities nor any interest therein may be offered,
sold, transferred, pledged or otherwise disposed of except pursuant to
an effective registration statement under such Act or pursuant to an
available exemption from, or in a transaction not subject to, the
registration requirements of the securities act and in accordance with
applicable state securities laws."
6. Representations and Warranties of the Undersigned. To induce the
-------------------------------------------------
Company to accept the undersigned's subscription, the undersigned hereby
represents and warrants to the Company that:
(a) the undersigned, if an individual, has reached the age of
majority in the jurisdiction in which he resides, is a bona fide resident of the
jurisdiction contained in the address set forth on the signature page of this
Subscription Agreement, is legally competent to execute this Subscription
Agreement, does not intend to change residence to another jurisdiction;
(b) the undersigned, if an entity, is duly authorized to execute this
Subscription Agreement and this Subscription Agreement, when executed and
delivered by the undersigned, will constitute a legal, valid and binding
obligation enforceable against the undersigned in accordance with its terms; and
the execution, delivery and performance of this Subscription Agreement and the
consummation
-5-
<PAGE>
of the transactions contemplated hereby have been duly authorized by all
requisite corporate or other necessary action on the part of the undersigned;
(c) the Securities subscribed for hereby are being acquired by the
undersigned for investment purposes only, for the account of the undersigned and
not with the view to any resale or distribution thereof except as permitted
under Section 7 hereof, and the undersigned is not participating, directly or
indirectly, in a distribution of such Securities and will not take, or cause to
be taken, any action that would cause the undersigned to be deemed an
"underwriter" of such Securities as defined in Section 2(11) of the Act;
(d) the undersigned has had access to all materials, books, records,
documents and information relating to the Company which the undersigned has
requested, including the SEC Filings and the Term Sheet and has been able to
verify the accuracy of the information contained therein;
(e) the undersigned acknowledges and understands that investment in
the Securities involves a high degree of risk, including, without limitation,
the risks set forth in the SEC Filings under the captions "Certain Factors That
May Affect Future Operating Results," "Factors Which May Affect Future Results"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations;"
(f) the undersigned acknowledges that the undersigned has been
offered an opportunity to ask questions of, and receive answers from, officers
of the Company concerning all material aspects of the Company and its business
and the Offering, and that any request for such information has been fully
complied with to the extent the Company possesses such information or can
acquire it without unreasonable effort or expense;
(g) the undersigned has such knowledge and experience in financial
and business matters that the undersigned is capable of evaluating the merits
and risks of an investment in the Company and can afford a complete loss of its
investment in the Company;
(h) the undersigned has, in connection with its decision to purchase
the Securities, relied solely upon the SEC Filings and the Term Sheet. The
undersigned has not relied upon any representations or other information
(whether oral or written) from the Company, Sunrise or any of their respective
agents other than as set forth herein and no oral or written representations
have been made or oral or written information furnished to the undersigned or
its advisors, if any, in connection with the offering of the Securities which
were in any way inconsistent with the SEC Filings and the Term Sheet;
(i) the undersigned represents and warrants to and covenants with the
Company that the undersigned has not engaged and will not engage in any sales of
the Underlying Shares, including a short sale covered by the Underlying Shares,
prior to the effectiveness of the Resale Registration Statement (as defined in
Section 7), except to the extent that any such short sale is fully covered by
shares of Common Stock of the Company other than the Underlying Shares;
-6-
<PAGE>
(j) the undersigned recognizes that neither the Commission nor any
federal, state or foreign governmental agency has passed upon or endorsed the
merits of the issuance of the Securities or made any finding or determination as
to the fairness of this Offering;
(k) if the undersigned is purchasing the Securities subscribed for
hereby in a representative or fiduciary capacity, the representations and
warranties contained herein shall be deemed to have been made on behalf of the
person or persons for whom such Securities are being purchased;
(l) the undersigned has not entered into any agreement to pay
commissions to any persons with respect to the purchase or sale of the
Securities;
(m) the undersigned acknowledges that, with respect to the sale of
the Securities by the Company to the undersigned, the Company will pay to
Sunrise (i) a commission of 7.0% of the Purchase Price paid by the undersigned,
at the option of Sunrise, in cash or shares of Common Stock valued at the Share
Price less 7% (such shares of Common Stock, the "Sunrise Shares"), (ii) an
expense allowance of 1.15% of the Purchase Price paid by the undersigned and
(iii) five-year warrants to purchase, at an exercise price equal to $4.20, that
number of shares of Common Stock equal to 7% of the number of Shares being
purchased by the undersigned hereunder including any Sunrise Shares (such shares
of Common Stock, the "Sunrise Warrant Shares" and together with the Investor
Warrant Shares, the "Warrant Shares");
(n) all information which the undersigned has provided to the Company
concerning its financial position is true, correct and complete as the date set
forth below, and if there should be any change in such information prior to the
undersigned's acceptance as a security holder of the Company, the undersigned
will immediately provide such information to the Company and will promptly send
confirmation of such information to the Company and Sunrise;
(o) the undersigned is not subscribing for the Securities as a result
of or subsequent to any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio or presented at any seminar or meeting to which the public
was invited;
(p) the undersigned is an "Accredited Investor" as that term is
defined in Rule 501(a) of Regulation D promulgated under the Act. Specifically
the undersigned is (check appropriate item(s)):
[_] (i) a bank as defined in Section 3(a)(2) of the Act, or a
savings and loan association or other institution as defined in Section
3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; a
broker or dealer registered pursuant to Section 15 of the Exchange Act; an
insurance company as defined in Section 2(13) of the Act; an investment company
registered under the Investment Company Act of 1940 or a business development
company as defined in Section 2(a)(48) of
-7-
<PAGE>
that Act; a Small Business Investment Company licensed by the U.S. Small
Business Administration under Section 301(c) of (d) of the Small Business
Investment Act of 1958; a plan established and maintained by a state, its
political subdivisions or any agency or instrumentality of a state or its
political subdivisions, for the benefit of its employees, if such plan has total
assets in excess of $5,000,000, an employee benefit plan within the meaning of
the Employment Retirement Income Security Act of 1974, if the investment
decision is made by a plan fiduciary, as defined in Section 3(21) of such Act,
which is either a bank, savings and loan association, insurance company, or
registered investment advisor, or if the employee benefit plan has total assets
in excess of $5,000,000, or if a self-directed plan, with investment decisions
made solely by persons that are Accredited Investors;
[_] (ii) a private business development company as defined in
Section 202(a)(22) of the investment Advisers Act of 1940;
[_] (iii) an organization described in Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended, corporation, Massachusetts or similar
business trust, or partnership, not formed for the specific purpose of acquiring
Shares, with total assets in excess of $5,000,000 ;
[_] (iv) a director or executive officer of the Company;
[_] (v) a natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of his or her purchase exceeds
$1,000,000;
[_] (vi) a natural person who had an individual income (not
including his or her spouse's income) in excess of $200,000 in 1997 and 1998 or
joint income with his or her spouse in excess of $300,000 in each of those years
and has a reasonable expectation of reaching such income level in 1999;
[_] (vii) a trust, with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring Shares, whose purchase is directed
by a sophisticated person as described in Rule 506(b)(2)(ii); or
[_] (viii) an entity in which all of the equity owners are Accredited
Investors. (If this alternative is checked, the undersigned must identify each
equity owner and provide statements signed by each demonstrating how each is
qualified as an Accredited Investor.)
-8-
<PAGE>
(q) the undersigned certifies that the representations set forth
herein concerning the undersigned are true, correct and complete as of the date
hereof, shall be true and accurate as of the date of the acceptance hereof by
the Company and shall survive thereafter.
(r) the undersigned understands that this subscription may be
accepted or rejected, in whole or in part, either by the Company or Sunrise in
consultation with the Company.
7. Registration of Shares under the Act.
------------------------------------
(a) By accepting this subscription, the Company agrees that it shall
(i) not later than 30 business days after the final Closing Date, file a
registration statement or amend an existing effective registration statement (in
either case, the "Resale Registration Statement") with the Commission to
register under the Act the resale by the undersigned, all other purchasers of
the Securities in the Offering and Sunrise, with respect to the Sunrise Warrant
Shares and the Sunrise Shares issued to it pursuant to Section 6(m)
(collectively, the "Holders"), of (A) the Shares, (B) the Warrant Shares and (C)
the Sunrise Shares (the items in (A)-(C) are sometimes collectively referred to
as the "Registrable Securities"), (ii) use its reasonable best efforts to cause
the Resale Registration Statement to become effective under the Act as promptly
as practicable, (iii) after the Resale Registration Statement is declared
effective under the Act, furnish the undersigned with such number of copies of
the final prospectus included in the Resale Registration Statement (the
"Prospectus") as the Holders may reasonably request to facilitate the resale of
Underlying Shares, and (iv) use its reasonable best efforts to cause such Resale
Registration Statement to remain effective and current until such time as the
undersigned becomes eligible to resell the Underlying Shares pursuant to Rule
144(k) promulgated under the Act.
(b) The Company will (i) prepare and file with the Commission such
amendments and Prospectus supplements, including post-effective amendments to
the Resale Registration Statement, as may be necessary or appropriate, and use
its reasonable best efforts to have such post-effective amendments declared
effective as promptly as practicable, (ii) cause the Prospectus to be
supplemented by any Prospectus supplement, and as so supplemented, to be filed
with the Commission, and (iii) promptly notify the Holders when a Prospectus and
any Prospectus supplement or post-effective amendment must be filed or has been
filed and, with respect to any post-effective amendment, when the same has
become effective.
(c) In connection with the Resale Registration Statement, the
undersigned shall furnish the Company such information relating to the
undersigned's ownership of Securities as the Company shall reasonably request.
(d) In connection with the Resale Registration Statement, the Company
shall cause the Underlying Shares to be registered or qualified for sale under
the securities or "blue sky" laws of such jurisdictions as the holders of at
least a majority of all such registered Underlying Shares and/or as Sunrise may
reasonably request, provided, that the Company shall not be required in
--------
connection therewith to qualify as a foreign corporation in any jurisdiction in
which it is not now so qualified other than as to matters
-9-
<PAGE>
and transactions related to the Prospectus, the Resale Registration Statement,
any preliminary prospectus or the offering or sale of the Underlying Shares, in
any jurisdiction in which it is not now so subject.
(e) The Company shall notify the Holders, at any time when a
prospectus relating to any such Registrable Securities covered by the Resale
Registration Statement is required to be delivered under the Act, of the
Company's becoming aware that the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing, and, subject to the provisions of Section 7(f) below, promptly
prepare and furnish to the Holders a reasonable number of copies of a prospectus
supplemented or amended so that, as thereafter delivered to the purchasers of
such Registrable Securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing.
(f) For a period not exceeding either (i) ten (10) consecutive
trading days in any twelve (12) month period or (ii) an aggregate of twenty
(20) trading days in any twelve (12) month period (each, a "Delay Period"), the
Company may delay the filing with the Commission, pursuant to Section 7(e)
hereof, of an amendment or supplement to a prospectus containing material non-
public information concerning the Company, the disclosure of which, at such
time, would, in the good faith opinion of the Board of Directors of the Company,
materially interfere with any material financing, corporate reorganization or
other material transaction involving the Company (a "Permitted Delay"),
provided, that, upon the occurrence of each Permitted Delay, the Company shall
- --------
promptly (a) notify each Holder in writing of the existence of (but in no event,
without the prior written consent of such Holder, shall the Company disclose to
such Holder any of the facts or circumstances regarding) material non-public
information giving rise to a Permitted Delay, (b) advise each Holder in writing
to cease all sales of Registrable Securities under the Resale Registration
Statement until the end of the Permitted Delay, and (c) take any and all actions
necessary to enable each Holder to resume sales of the Registrable Securities
under the Resale Registration Statement immediately upon the end of the
applicable Delay Period.
(g) The Company shall pay all Registration Expenses (as defined
below) incurred in connection with a registration of Registrable Securities,
whether or not such registration statement shall become effective, provided,
---------
that the Holders shall pay all commissions and transfer taxes, and its own
counsel and accounting fees, if any, relating to the sale or disposition of its
Registrable Securities pursuant to a registration statement. As used herein,
"Registration Expenses" means any and all reasonable and customary expenses
incident to performance of or compliance with the registration rights set forth
herein, including, without limitation, (i) all SEC and stock exchange filing
fees, (ii) all fees and expenses of complying with state securities or blue sky
laws, (iii) all printing, messenger and delivery expenses, and (iv) the fees and
disbursements of counsel for the Company and the Company's independent public
accountants.
-10-
<PAGE>
(h) The Company acknowledges that there is no adequate remedy at law
for failure by it to comply with the provisions of this Paragraph 6 and that
such failure would not be adequately compensable in damages, and therefore
agrees that its agreements contained in this Paragraph 6 may be specifically
enforced. In the event that the Company shall fail to file the Resale
Registration Statement when required pursuant to Paragraph 6(a) above or to keep
such Resale Registration Statement effective as provided in this Paragraph or
otherwise fails to comply with its obligations and agreements in this Paragraph
6, then, in addition to any other rights or remedies Sellers may have at law or
in equity, including without limitation, the right of rescission, the Company
shall indemnify and hold harmless the Holders from and against any and all
manner or loss which they may incur as a result of such failure. In addition,
the Company shall also reimburse the Holders for any and all reasonable legal
fees and expenses incurred by them in enforcing their rights pursuant to this
Paragraph 6, regardless of whether any litigation was commenced, provided, that
--------
the Company shall not be liable for the fees and expenses of more than one law
firm, which firm shall be designated by Sunrise and shall be reasonably
acceptable to the Company.
(i) In the event that the Company shall fail to cause the Resale
Registration Statement to be declared effective within 90 days after the final
Closing Date (the "Record Date"), the Company shall pay to the holders of the
Shares, as liquidated damages (and not as a penalty) therefor, on the Record
Date and each monthly anniversary thereof until the Resale Registration
Statement is declared effective, a cash payment equal to (i) 1% of the product
obtained by multiplying the Share Price and the Shares held by such holder for
each 30 days or part thereof that effectiveness is delayed beyond the Record
Date and up to and including the 150th day after the final Closing Date and (ii)
2% of the product obtained by multiplying the Share Price and the Shares held
by such holder for each 30 days or part thereof that effectiveness is delayed
beyond 150 days after the final Closing Date. If the Company fails to pay any
cash payment due hereunder in full pursuant to this Section, the Company will
pay interest thereon at a rate of 15% per annum or such lesser maximum amount
that is permitted to be paid by applicable law, accruing daily from the date due
until such amount, plus all such interest thereon, is paid in full.
(j) In the event that the Company shall fail to cause the Resale
Registration Statement to be declared effective on or prior to the Record Date,
the Company shall pay to the holders of the Sunrise Shares, as liquidated
damages (and not as a penalty) therefor, on the Record Date and each monthly
anniversary thereof until the Resale Registration Statement is declared
effective, a cash payment equal to (i) 1% of the product obtained by
multiplying 3.26 and the Sunrise Shares held by such holder for each 30 days or
part thereof that effectiveness is delayed beyond the Record Date and up to and
including the 150th day after the final Closing Date and (ii) 2% of the product
obtained by multiplying 3.26 and the Sunrise Shares held by such holder for
each 30 days or part thereof that effectiveness is delayed beyond 150 days after
the final Closing Date. If the Company fails to pay any cash payment due
hereunder in full pursuant to this Section, the Company will pay interest
thereon at a rate of 15% per annum or such lesser maximum amount that is
permitted to be paid by applicable law, accruing daily from the date due until
such amount, plus all such interest thereon, is paid in full.
8. Indemnification.
---------------
-11-
<PAGE>
(a) The undersigned understands the meaning and legal consequences of
the representations and warranties made by the undersigned in this Subscription
Agreement, and agrees to indemnify and hold harmless the Company and each of the
Company's directors, officers, stockholders, employees, counsel, agents,
successors and assignees from and against any and all loss, damage, liability or
expenses (including, without limitation, attorneys' fees), as and when incurred,
due to or arising out of (in such case in whole or in part) any breach of any
representation or warranty made by the undersigned set forth herein or in any
other agreement or other document furnished by the undersigned to any of the
foregoing in connection with the Offering, any failure by the undersigned to
fulfill any of its covenants or agreements set forth herein, or arising out of
the resale or distribution by the undersigned of the Underlying Shares or any
portion thereof in violation of the Act or any applicable foreign or state
securities or "blue sky" law.
(b) The Company understands the meaning and legal consequences of the
representations and warranties made by it in this Subscription Agreement, and
agrees to indemnify and hold harmless the undersigned and each of the
undersigned's directors, officers, stockholders, employees, counsel, agents,
successors and assigns from and against any and all loss, damage, liability or
expense (including, without imitation, attorneys' fees), as and when incurred,
due to or arising out of (in each case in whole or in part) any breach of any
representation or warranty made by the Company set forth herein, or any failure
by the Company to fulfill any of its covenants or agreements set forth herein.
(c) To the maximum extent permitted by law, the Company will
indemnify and hold harmless each Holder, the directors, if any, of such Holder,
the officers, if any, of such Holder, and each person, if any, who controls such
Holder within the meaning of the Act or the Exchange Act, against any losses,
claims, damages, expenses or liabilities to which any of them may become
subject, under the Act, the Exchange Act or otherwise, insofar as such losses,
claims, damages, expenses or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon any
of the following statements, omissions or violation (collectively, a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in the Resale Registration Statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein 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,
or (iii) any violation or alleged violation by the Company of the Act, the
Exchange Act, any state securities law or any rule or regulation promulgated
under the Act, the Exchange Act or any state securities law; and the Company
will reimburse the Holders and each such controlling person, promptly as such
expenses are incurred, for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding.
(d) To the maximum extent permitted by law, each Holder, severally
and not jointly, will indemnify and hold harmless, to the same extent and in the
same manner set forth in Section 8(c), the Company, each of its directors and
officers who have signed the Resale Registration Statement, and each person, if
any, who controls the Company within the meaning of the Act or the Exchange Act,
against any
-12-
<PAGE>
losses, claims, damages or liabilities to which any of them may become subject,
under the Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings, whether commenced or
threatened in respect thereof) 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 by such
Holder expressly for use in connection with the Resale Registration Statement;
and such Holder will reimburse such persons for any legal or other expenses
reasonably incurred by any of them in connection with investigating or defending
any such loss, claim, damage, liability or action.
(e) With respect to the indemnification set forth in Sections 7(c) or
(d) above, 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 said Sections 7(c) or (d) to the extent permitted by law; provided that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in said
Sections 7(c) or (d),(ii) no party guilty of fraudulent misrepresentation
(within the meaning of Section 11 of the Act) shall be entitled to contribution
from any party who was not guilty of such fraudulent misrepresentation, and
(iii) contribution from any Holder shall be limited in amount to the net amount
of proceeds received by such Holder from the sale of Shares under the Resale
Registration Statement.
9. Certain Adjustments. During the period from the date hereof until the
-------------------
earlier to occur of (i) one (1) year from the date the Resale Registration
Statement is declared effective and (ii) the date by which the Company will have
consummated, in one or more transactions, sales of shares of Common Stock (in
addition to all shares of Common Stock sold pursuant to the Offering), resulting
in net proceeds to the Company in amount equal to or in excess of $4,000,000, if
the Company shall, in any capital raising transaction, issue shares of Common
Stock or rights, warrants, options or other securities or debt that is
convertible into or exchangeable for shares of Common Stock ("Common Stock
Equivalents"), entitling any person or entity to acquire shares of Common Stock
at a price per share less than the Share Price (such lesser price, the "Discount
Price") (if the holder of the Common Stock or Common Stock Equivalent so issued
shall, at any time, whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices or otherwise, or
due to warrants, options or rights issued in connection with such issuance at a
price less than the Share Price, such issuance shall be deemed to have occurred
for less than such Share Price), then, within three (3) days of such issuance or
sale, the Company shall issue to the undersigned a number of shares of Common
Stock equal to the difference between (A) the quotient obtained by dividing (i)
the Purchase Price by (ii) the Discount Price and (B) the Shares. Any shares of
Common Stock issued pursuant to this Section shall be entitled to identical
registration rights granted by the Company pursuant to Section 7 hereof and
shall be included within the definition of "Registrable Securities."
10. Further Documents. The undersigned agrees that it will execute such
-----------------
other documents as may be necessary in connection with the transactions
contemplated hereby.
-13-
<PAGE>
11. Modification. Neither this Subscription Agreement nor any provisions
------------
hereof shall be waived, modified, discharged or terminated except by an
instrument in writing signed by the party against whom any such waiver,
modification, discharge or termination is sought.
12. Notices. Any notice or other communication required or permitted to
-------
be given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by Federal Express, Express Mail or similar
overnight delivery or courier service and delivered against receipt to the
party to whom it is to be given, (i) if to the Company, at the address set forth
on the first page hereof, with a copy to Joseph Mullaney, Esq. at Hale and Dorr
LLP, 60 State Street, Boston, MA 02109, (ii) if to the undersigned, at its
address set forth on the signature page hereto, or (iii) in either case, to such
other address as the party shall have furnished in writing in accordance with
the provisions of this Section 12. Notice to the estate of any party shall be
sufficient if addressed to the party as provided in Section 12. Any notice or
other communication given by certified mail shall be deemed given at the time of
certification thereof, except for a notice changing a party's address which
shall be deemed given at the time of receipt thereof. Any notice given by other
means permitted by this Section 12 shall be deemed given at the time of receipt
thereof.
13. Counterparts. This Subscription Agreement may be executed through the
------------
execution of separate signature pages or in any number of counterparts, and each
such counterpart shall, for all purposes, constitute one agreement binding on
all parties, notwithstanding that all parties are not signatories to the same
counterpart.
14. Entire Agreement. This Subscription Agreement contains the entire
----------------
agreement of the parties with respect to the subject matter hereof and there are
no representations, covenants or other agreements except as stated or referred
to herein.
15. Severability. Each provision of this Subscription Agreements is
------------
intended to be severable from every other provision, and the invalidity or
illegality of any portion hereof shall not affect the validity or legality of
the remainder hereof.
16. Assignability. This Subscription Agreement is not transferable or
-------------
assignable by the undersigned.
17. Applicable Law. This Subscription Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of Delaware, without giving
effect to conflict of laws.
18. Choice of Jurisdiction. Any action or proceeding arising directly,
----------------------
indirectly or otherwise, in connection with, out of or from this Subscription
Agreement, any breach hereof or any transaction covered hereby shall be resolved
within New York, New York. Accordingly, the parties consent and submit to the
jurisdiction of the United States federal and state courts located within New
York, New York.
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<PAGE>
19. Taxpayer Identification Number. The undersigned verifies under
------------------------------
penalties of perjury that any Taxpayer Identification Number or Social Security
Number shown on the signature page hereto is true, correct and complete.
20. Pronouns. Any personal pronoun shall be considered to mean the
--------
corresponding masculine, feminine or neuter personal pronoun, as the context
requires.
21. No Representations and Warranties by Sunrise. The undersigned and the
---------------------------------------------
Company agree and acknowledge that Sunrise is not making any representations or
warranties on behalf of any of the parties hereto.
-15-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement this __ day of ____________ 1999.
Amount of Shares Purchased: __________________
INDIVIDUAL SUBSCRIBER: ENTITY SUBSCRIBER:
______________________________________ ____________________________________
(Signature of Subscriber) (Print Name of Subscriber)
______________________________________ By:____________________________________
(Typed or Printed Name) Name:__________________________________
Title:_________________________________
______________________________________ _______________________________________
(Residence Address) (Address)
______________________________________ _______________________________________
(City, State and Zip Code) (City, State and Zip Code)
______________________________________ _______________________________________
(Telephone Number) (Telephone Number)
______________________________________ _______________________________________
(Telecopier Number) (Telecopier Number)
______________________________________ _______________________________________
(Tax I.D. or Social Security Number) (Tax I.D. or Social Security Number)
ACCEPTED:
CAMBRIDGE HEART, INC. For entities desiring that certificates
for Shares be delivered to an address
By:_______________________________ other than that set forth above, set
Name:_____________________________ for the delivery address:
Title:____________________________
Dated:____________________________ _______________________________________
(Address)
_______________________________________
(City, State and Zip Code)
-16-
<PAGE>
Exhibit A
---------
Cambridge Heart, Inc.
August 1999 Private Placement
Second Amended Term Sheet
October 5, 1999
Private placement This offering (the "Offering") is being made
exclusively to institutions and high-net worth
individuals that meet the definition of "Accredited
Investor" as set forth in Rule 501(a) of Regulation
D under the Securities Act of 1933, as amended (the
"Act").
Amount of financing $5,000,000 to $7,500,000.
-17-
<PAGE>
Securities offered 1,428,571 to 2,142,857 shares (the "Shares") of
common stock, $.001 par value (the "Common Stock"),
of Cambridge Heart, Inc. (the "Company").
Each investor will also receive, a warrant to
purchase, for a period of five years from the
issuance date thereof, a number of shares of Common
Stock equal to 20% of the number of Shares purchased
by it in the Offering at an exercise price equal to
$3.50 per share of Common Stock (collectively, the
"Investor Warrants"). The cost of the Investor
Warrant shall be $0.10 per underlying share, which
cost shall be an allocated cost included in the $3.50
Sales Price described below. The Investor Warrants
shall contain customary anti-dilution provisions.
During the period from the applicable closing until
the earlier to occur of (i) one (1) year from the
date the Registration Statement (as defined herein)
is declared effective and (ii) the date by which the
Company will have consummated, in one or more
transactions, sales of shares of Common Stock (in
addition to all shares of Common Stock sold pursuant
to the Offering), resulting in net proceeds to the
Company in amount equal to or in excess of
$4,000,000, if the Company shall, in any capital-
raising transaction, issue or sell securities at a
price less than the Sales Price (the "Discount
Price"), then the investors shall be entitled to a
number of receive additional shares of Common Stock
equal to the difference between (A) the quotient
obtained by dividing (i) the purchase price paid by
the investors by (ii) the Discount Price and (B) the
Shares sold in the Offering.
Price per Share $3.50 (the "Sales Price").
Pre-Offering - Shares of 11,866,258 shares of Common Stock.
Common Stock outstanding
Pre-Offering - Warrants 1,381,500 shares of Common Stock underlying stock
and Options outstanding options.
120,238 shares of Common Stock underlying warrants.
Escrow Prior to closing, funds shall remain in a non-
interest bearing escrow account at US Trust Company.
Risk factors Investment in the Shares involves a high degree of
risk including, but not limited to, those risks set
forth in the Company's Quarterly Report on Form 10-Q
for the quarterly
-18-
<PAGE>
period ended June 30, 1999. The Shares have not been
registered under the Act or any foreign or state
securities laws. The Shares may not be sold until
registered under the Act in accordance with the
registration rights described below or pursuant to an
exemption from registration. Accordingly, the Shares
will be restricted securities which an investor may
be required to hold for an indeterminable period of
time.
Placement agent Sunrise Securities Corp. ("Sunrise") is acting as
exclusive placement agent. Sunrise shall be paid a
commission of 7% of the gross sales price of the
Shares sold. Sunrise may elect to receive all or any
part of its commission in shares of Common Stock (the
"Commission Shares") valued at the Sales Price less
the 7% commission mentioned above (the "Sunrise
Price"). In addition, Sunrise shall be issued
warrants to purchase a number of shares of Common
Stock equal to 7% of the Shares sold inclusive of any
Commission Shares (the "Sunrise Warrants" and
together with the Investor Warrants, the "Warrants").
The term of the Sunrise Warrants is five years from
the issuance thereof and the exercise price per share
is $4.20. Employees of the Placement Agent who are
"Accredited Investors" may purchase Shares for their
own personal account on the same terms and conditions
as other investors in the Offering. Any such
purchases shall count towards the minimum and maximum
offerings, respectively.
Expenses Sunrise shall also receive an expense allowance of
1.15% of the gross sales price of the Shares sold to
cover expenses incurred by Sunrise in connection with
the Offering.
Registration rights The Company shall, at its expense, (i) not later than
30 business days after the final closing of the
Offering (the "Filing Deadline") file a registration
statement (the "Registration Statement") with the
Securities and Exchange Commission ("Commission") to
register under the Act the resale of the Shares and
shares of Common Stock underlying the Warrants and
Commission Shares, if any (collectively, "Registrable
Shares"), by the holders thereof, (ii) use its
reasonable best efforts to cause the Registration
Statement to become effective under the Act as
promptly as practicable after the filing thereof,
(iii) after the Registration Statement is declared
effective under the Act, furnish subscribers with
such number of copies of the prospectus included in
the Registration Statement as the holders may
reasonably request to facilitate the resale of the
Registrable Shares, and (iv) use its reasonable best
efforts to cause such
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<PAGE>
Registration Statement to remain effective, subject
to customary black-out periods, until such time as
the subscribers become eligible to resell the
Registrable Shares pursuant to Rule 144(k) under the
Act. In the event that the Company shall fail to
cause the Registration Statement to be declared
effective within 90 days after the final closing of
the Offering, the Company shall pay to the holders of
the Shares and Commission Shares, as compensation
therefor, a cash payment equal to (i) 1% of the
product obtained by multiplying (A) in the case of
the Shares, the Sales Price and the Shares held by
such holder, or (B) in the case of the Commission
Shares, the Sunrise Price and the Commission Shares
held by such holder, in both cases, for each 30 days
or part thereof that effectiveness is delayed beyond
90 days after the final closing of the Offering and
up to 150 days after the final closing of the
Offering and (ii) 2% of the product obtained by
multiplying (A) in the case of the Shares, the Sales
Price and the Shares held by such holder, or (B) in
the case of the Commission Shares, the Sunrise Price
and the Commission Shares held by such holder, in
both cases, for each 30 days or part thereof
effectiveness is delayed beyond 150 days after the
final closing of the Offering.
Lock-up For a period of 270 days following the final closing
of Offering, the Company shall not sell or offer to
sell any of its securities, except pursuant to the
Company's stock option plan, without the written
consent of Sunrise, which consent shall not be
unreasonably withheld. All of the Company's officers
and directors shall agree to not sell or transfer
their shares of Common Stock for a period of 180 days
following the final closing of the Offering, subject
to an earlier release for any former director who is
no longer an affiliate of the Company.
Rights of certain Pursuant to the terms of a previous sale of the
previous investors Company's securities to a group of investors led by
the Tail Wind Fund (the "Previous Investors"), upon a
consummation of the minimum Offering hereunder, the
Previous Investors shall be entitled to (i) receive
an aggregate of 512,221 shares of Common Stock, (ii)
a repricing of the exercise price of certain warrants
issued to the Previous Investors and (iii) the
extension for a period of six months of the term of
certain anti-dilution rights granted to the Previous
Investors.
Issues relating to a The Company recently discovered the existence of U.S.
Company Patent Patent No. 5,921,940 issued by the Patent and
Trademark Office on July 13, 1999 and assigned to
Georgetown University (the
-20-
<PAGE>
"940 Patent"). The 940 Patent includes claims which
are similar or identical to claims of the Company's
U.S. Patent No. 5,570,696. The Company has received
an opinion of its patent counsel, Fish & Richardson,
PC, that the 940 Patent is invalid and should not
have been issued by the Patent and Trademark Office.
Closings The first closing will occur following the completion
of financing for $5,000,000 and one or more closings
may occur on identical terms until the earlier of the
completion of financing for an aggregate of
$7,500,000 or the Termination Date. The Placement
Agent reserves the right to reject or reduce any
subscription for the purchase of Shares in order to
ensure compliance with the limitation on the issuance
of securities at a price below the market value of
the stock to 20% of the outstanding stock pursuant to
Rule 4460(i)(1) of the Nasdaq Stock Market.
Termination of Offering The Offering will terminate on October 15, 1999
unless extended by mutual agreement of the Company
and Sunrise (the "Termination Date"). On the
Termination Date, any funds remaining in escrow that
have not been closed upon shall be promptly returned
to subscribers, without interest thereon.
-21-
<PAGE>
Exhibit B
---------
Warrant No. ____
Warrant to Purchase ______ Shares
COMMON STOCK PURCHASE WARRANT
To Purchase Shares of Common Stock (par value $0.001 per share)
of
CAMBRIDGE HEART, INC.
(Delaware corporation)
Expires October __, 2004
-22-
<PAGE>
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
VOID AFTER 8:00 P.M. NEW YORK TIME, ON OCTOBER [ ], 2004
CAMBRIDGE HEART, INC.
Warrant to Purchase Shares of Common Stock
THIS CERTIFIES that, for good and valuable consideration received, [ ]
(the "Holder"), is entitled to subscribe for and purchase from CAMBRIDGE HEART,
------
INC., a Delaware corporation (the "Company"), upon the terms and conditions set
-------
forth herein, at any time or from time to time after October __, 1999, until
5:00 P.M. New York City time on October __, 2004 (the "Expiration Date"), all or
---------------
any portion of [ ] shares (the "Warrant Shares") of common stock of the Company,
--------------
par value $0.001 per share (the "Common Stock"), subject to adjustment as
provided herein, at a price of $3.50 per share, subject to adjustment as
provided herein (the "Exercise Price"). This Warrant shall not be redeemable by
--------------
the Company. This Warrant may be sold, transferred, assigned or hypothecated
at any time and the term the "Holder" as used herein shall include any
------
transferee to whom this Warrant has been transferred.
1. Registration of Warrant. The Company shall register this Warrant,
-----------------------
upon records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, and the Company shall not be affected by
notice to the contrary.
2. Registration of Transfers and Exchanges.
---------------------------------------
(a) The Company shall register the transfer of any portion of
this Warrant in the Warrant Register, upon surrender of this Warrant, with the
Form of Assignment attached hereto duly completed and signed, to the Company at
the office specified in or pursuant to Section 3(b). Upon any such registration
or transfer, a new warrant to purchase Common Stock, in substantially the form
of this Warrant (any such new warrant, a "New Warrant"), evidencing the portion
of this Warrant so transferred shall be issued to the transferee and a New
Warrant evidencing the remaining portion of this Warrant not so transferred, if
any, shall be issued to the transferring Holder. The acceptance of the New
Warrant by the transferee thereof shall be deemed the acceptance of such
transferee of all of the rights and obligations of a holder of a Warrant.
-23-
<PAGE>
(b) This Warrant is exchangeable, upon the surrender hereof by
the Holder to the office of the Company specified in or pursuant to Section 3(b)
for one or more New Warrants, evidencing in the aggregate the right to purchase
the number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of such exchange.
3. Duration and Exercise of Warrants.
---------------------------------
(a) This Warrant shall be exercisable by the registered Holder
on any business day before 8:00 P.M., New York City time, at any time and from
time to time on or after the date hereof to and including the Expiration Date.
At 8:00 P.M., New York City time on the Expiration Date, the portion of this
Warrant not exercised prior thereto shall be and become void and of no value.
Prior to the Expiration Date, the Company may not call or otherwise redeem this
Warrant without the prior written consent of the Holder.
(b) Subject to Sections 2(b), 9 and 10, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly completed
and signed, to the Company at its address for notice set forth in Section 14
and upon payment of the Exercise Price multiplied by the number of Warrant
Shares that the Holder intends to purchase hereunder, in the manner provided
hereunder, all as specified by the Holder in the Form of Election to Purchase,
the Company shall promptly (but in no event later than three (3) business days
after the Date of Exercise (as defined herein)) issue or cause to be issued and
cause to be delivered to or upon the written order of the Holder and in such
name or names as the Holder may designate, a certificate for the Warrant Shares
issuable upon such exercise. Any person so designated by the Holder to receive
Warrant Shares shall be deemed to have become holder of record of such Warrant
Shares as of the Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall
have received (i) this Warrant (or any New Warrant, as applicable), with the
Form of Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
(c) This Warrant shall be exercisable, either in its entirety
or, from time to time, for a portion of the number of Warrant Shares. If less
than all of the Warrant Shares which may be purchased under this Warrant are
exercised at any time, the Company shall issue or cause to be issued, at its
expense, a New Warrant evidencing the right to purchase the remaining number of
Warrant Shares for which no exercise has been evidenced by this Warrant.
4. Reservation of Shares. The Company covenants that it will at all
---------------------
times reserve and keep available out of the aggregate of its authorized but
unissued Common Stock, solely for the purpose of enabling it to issue Warrant
Shares upon exercise of this Warrant as herein provided, the number of Warrant
Shares which are then issuable and deliverable upon the exercise of this entire
Warrant, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holder (taking into account the adjustments and
restrictions of Section 5). The Company covenants that all Warrant Shares that
shall be so issuable and deliverable shall, upon issuance and the payment of the
applicable Exercise Price in accordance with the terms hereof, be duly and
validly authorized, issued and fully paid and nonassessable
5. Certain Exercise Price Adjustments. Subject to the provisions of
----------------------------------
this Section 5, the Exercise Price in effect from time to time shall be subject
to adjustment, as follows:
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<PAGE>
(a) In case the Company shall at any time after the date hereof
(i) declare a dividend or make a distribution on the outstanding shares of
Common Stock payable in shares of its capital stock or securities convertible
into or exchangeable for capital stock, (ii) subdivide the outstanding shares of
Common Stock into a smaller number of shares, (iii) combine the outstanding
shares of Common Stock into a larger number of shares, or (iv) issue any shares
by reclassification of the shares of Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value),
then, in each case, the Exercise Price in effect, and the number of Warrant
- ----
Shares issuable hereunder at the time of the record date for such dividend or at
the effective date of such subdivision, combination or reclassification, shall
be proportionately adjusted so that the Holder, after such time, shall be
entitled to receive upon exercise of this Warrant the aggregate number and kind
of shares which, if this Warrant had been exercised immediately prior to such
time, the Holder would have owned upon such exercise and immediately thereafter
been entitled to receive by virtue of such dividend, subdivision, combination or
reclassification. Any adjustment made pursuant to this Section shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision or
combination, and shall apply to successive subdivisions and combinations. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(b) In case the Company shall distribute to all holders of
shares of Common Stock (including any such distribution made to the stockholders
of the Company in connection with a consolidation or merger in which the Company
is the surviving or continuing corporation) evidences of its indebtedness, cash,
or assets (other than distributions and dividends payable as contemplated by
Section 5(a) above), or rights, options, or warrants to subscribe for or
purchase shares of Common Stock or securities convertible into or exchangeable
for shares of Common Stock, then, in each case, the Exercise Price shall be
adjusted by multiplying the Exercise Price in effect immediately prior to the
record date for the determination of stockholders entitled to receive such
distribution by a fraction, the numerator of which shall be the Current Market
Price (as determined pursuant to Section 5(e) hereof) per share of Common Stock
on such record date, less the fair market value (as determined in good faith by
the board of directors of the Company, whose determination shall be conclusive
absent manifest error) of the portion of the evidences of indebtedness or assets
so to be distributed, or of such rights, options, or warrants or convertible or
exchangeable securities, or the amount of such cash, applicable to one share,
and the denominator of which shall be such Current Market Price per share of
Common Stock. Such adjustment shall become effective at the close of business on
such record date.
(c) Whenever there shall be an adjustment as provided in this
Section 5, the Company shall within 15 days thereafter cause written notice
thereof to be sent by registered mail, postage prepaid, to the Holder, at its
address as it shall appear in the Warrant Register, which notice shall be
accompanied by an officer's certificate setting forth the number of Warrant
Shares issuable hereunder and the exercise price thereof after such adjustment
and setting forth a brief statement of the facts requiring such adjustment and
the computation thereof, which officer's certificate shall be conclusive
evidence of the correctness of any such adjustment absent manifest error.
(d) The Company shall not be required to issue fractions of
shares of Common Stock or other shares of the Company upon the exercise of this
Warrant. If any fraction of a share would be issuable upon the exercise of this
Warrant (or specified portions thereof), the Company may issue a whole share in
lieu of such fraction or the Company may purchase such fraction for an amount in
cash equal to the same fraction of the Current Market Price of such shares of
Common Stock on the date of exercise of this Warrant.
-25-
<PAGE>
(e) The Current Market Price per share of Common Stock on any
date shall be deemed to be the average of the daily closing prices for the five
(5) consecutive trading days immediately preceding the date in question. The
closing price for each day shall be the last reported sales price regular way
or, in case no such reported sale takes place on such day, the closing bid price
regular way, in either case on the principal national securities exchange on
which the Common Stock is listed or admitted to trading or, if the Common Stock
is not listed or admitted to trading on any national securities exchange, the
highest reported bid price for the Common Stock as furnished by the National
Association of Securities Dealers, Inc. through NASDAQ or a similar organization
if NASDAQ is no longer reporting such information. If on any such date the
Common Stock is not listed or admitted to trading on any national securities
exchange and is not quoted by NASDAQ or any similar organization, the fair value
of a share of Common Stock on such date, as determined in good faith by the
Board of Directors of the Company, whose determination shall be conclusive
absent manifest error, shall be used.
(f) No adjustment in the Exercise Price shall be required if
such adjustment is less than $0.01, provided, that any adjustments which by
--------
reason of this Section 5 are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section 5 shall be made to the nearest cent or to the nearest thousandth of a
share, as the case may be.
(g) Upon each adjustment of the Exercise Price as a result of
the calculations made in this Section 5, this Warrant shall thereafter evidence
the right to purchase, at the adjusted Exercise Price, that number of shares of
Common Stock (calculated to the nearest hundredth) obtained by dividing (i) the
product obtained by multiplying (A) the number of shares of Common Stock
purchasable upon exercise of this Warrant prior to adjustment of the Exercise
Price by (B) the Exercise Price in effect prior to adjustment of the Exercise
Price by (ii) the Exercise Price in effect after such adjustment of the Exercise
Price.
6. Consolidations and Mergers. In case of any (1) merger or
--------------------------
consolidation of the Company with or into another person, or (2) sale by the
Company of more than one-half of the assets of the Company (on a book value
basis) in one or a series of related transactions, or (3) tender or other offer
or exchange (whether by the Company or another person) pursuant to which holders
of Common Stock are permitted to tender or exchange their shares for other
securities, stock, cash or property of the Company or another person; then the
Holder shall have the right thereafter to (A) exercise this Warrant for the
shares of stock and other securities, cash and property receivable upon or
deemed to be held by holders of Common Stock following such merger,
consolidation or sale, and the Holder shall be entitled upon such event or
series of related events to receive such amount of securities, cash and property
as the Common Stock for which this Warrant could have been exercised immediately
prior to such merger, consolidation or sales would have been entitled, (B) in
the case of a merger or consolidation, (x) require the surviving entity to issue
to the Holder a warrant entitling the Holder to acquire shares of such entity's
common stock, which warrant shall have terms identical (including with respect
to exercise) to the terms of this Warrant and shall be entitled to all of the
rights and privileges set forth herein and the agreements pursuant to which this
Warrant was issued (including, without limitation, as such rights relate to the
acquisition, transferability, registration and listing of such shares of stock
other securities issuable upon exercise thereof), or (C) in the event of an
exchange or tender offer or other transaction contemplated by clause (3) of this
Section, tender or exchange this Warrant for such securities, stock, cash and
other property receivable upon or deemed to be held by holders of Common Stock
that have tendered or exchanged their shares of Common Stock following such
tender or exchange, and the Holder shall be entitled upon such exchange or
tender to receive such amount of securities, cash and property as the shares
-26-
<PAGE>
of Common Stock for which this Warrant could have been exercised immediately
prior to such tender or exchange would have been entitled as would have been
issued. In the case of clause (B), the exercise price applicable for the newly
issued warrant shall be based upon the amount of securities, cash and property
that each shares of Common Stock would receive in such transaction and the
Exercise Price immediately prior to the effectiveness or closing date for such
transaction. The terms of any such merger, sale, consolidation, tender or
exchange shall include such terms so as continue to give the Holder the right to
receive the securities, cash and property set forth in this Section upon any
conversion or redemption following such event. This provision shall similarly
apply to successive such events.
7. Notice of Certain Events. In case at any time any of the
------------------------
following occur:
(a) The Company shall take a record of the holders of its shares
of Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) The Company shall offer to all the holders of its shares of
Common Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
(c) The Company shall take any action to effect any
reclassification or change of outstanding shares of Common Stock or any
consolidation, merger, sale, lease or conveyance of property, described in
Section 6; or
(d) The Company shall take any action to effect any liquidation,
dissolution or winding-up of the Company or a sale of all or substantially all
of its property, assets and business;
then, and in any one or more of such cases, the Company shall give written
- ----
notice thereof, by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Warrant Register, mailed at least
fifteen (15) days prior to (i) the date as of which the holders of record of
shares of Common Stock to be entitled to receive any such dividend,
distribution, rights, warrants or other securities are to be determined, (ii)
the date on which any such offer to holders of shares of Common Stock is made,
or (iii) the date on which any such reclassification, change of outstanding
shares of Common Stock, consolidation, merger, sale, lease, conveyance of
property, liquidation, dissolution or winding-up is expected to become effective
and the date as of which it is expected that holders of record of shares of
Common Stock shall be entitled to exchange their shares for securities or other
property, if any, deliverable upon such reclassification, change of outstanding
shares, consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution or winding-up. Nothing herein shall allow a Holder to delay or
prevent any of the foregoing actions.
8. Registration Rights. The Warrant Shares issuable upon the
-------------------
exercise of this Warrant shall be entitled to the identical registration rights
granted to investors in the Company's August 1999 Private Placement pursuant to
Section 7 of each of those certain Subscription Agreement, accepted by the
Company on the date hereof, between the Company and such investors (the
"Subscription Agreement"). The Warrant Shares shall be included within the
definition of "Registrable Securities" under the Subscription Agreement and the
Holder be included within the definition of "Holder" under the Subscription
Agreement.
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<PAGE>
9. Payment of Exercise Price. The Holder shall pay the Exercise
-------------------------
Price in one of the following manners:
(a) Cash Exercise. The Holder may deliver immediately
-------------
available funds; or
(b) Cashless Exercise. The Holder may surrender this Warrant
-----------------
to the Company together with a notice of cashless exercise, in which event the
Company shall issue to the Holder the number of Warrant Shares determined as
follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be issued
to the Holder.
Y = the number of Warrant Shares with respect to which
this Warrant is being exercised.
A = the average of the closing sale prices of the Common
Stock for the five (5) trading days immediately prior to
(but not including) the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
10. Taxes. The issuance of any shares or other securities upon the
-----
exercise of this Warrant and the delivery of certificates or other instruments
representing such shares or other securities shall be made without charge to the
Holder for any tax or other charge in respect of such issuance. The Company
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of any certificate in a name
other than that of the Holder (except for any tax that is payable in respect of
any such transfer and any related exercise of this Warrant and that would be
payable pursuant to the first sentence of this Section 10 were such certificate
to be issued in the name of the Holder).
11. Legend. In the event that either a registration statement
------
covering the resale of the Warrant Shares and naming the Holder as a selling
stockholder thereunder is not then effective or the Warrant Shares are not
freely transferable without volume restrictions pursuant to Rule 144(k)
promulgated under the Act, the certificate or certificates evidencing the
Warrant Shares, shall bear the following legend:
"The securities represented hereby have not
been registered under the Securities Act of 1933,
as amended or any state securities laws and
neither the securities nor any interest therein
may be offered, sold, transferred, pledged or
otherwise disposed of except pursuant to an
effective registration statement under such Act or
pursuant to an available exemption from, or in a
transaction not subject to,
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<PAGE>
the registration requirements of the securities
act and in accordance with applicable state
securities laws."
12. Replacement of Warrants. Upon receipt of evidence satisfactory
-----------------------
to the Company of the loss, theft, destruction or mutilation of any Warrant (and
upon surrender of any Warrant if mutilated), and upon reimbursement of the
Company's reasonable incidental expenses and execution of a reasonable lost
security indemnification agreement, the Company shall execute and deliver to the
Holder thereof a new Warrant of like date, tenor and denomination.
13. No Rights as Stockholder. The Holder of any Warrant shall not
------------------------
have, solely on account of such status, any rights of a stockholder of the
Company, either at law or in equity, or to any notice of meetings of
stockholders or of any other proceedings of the Company, except as provided in
this Warrant.
14. Notices. All notices, requests, consents and other
-------
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered, or mailed by registered or certified mail, return
receipt requested:
(a) If to the registered Holder of this Warrant, to the address
of such Holder as it shall appear in the Warrant Register; or
(b) If to the Company, to the address set forth on the first
page of this Warrant or to such other address as the Company may designate by
notice to the Holder.
15. Successors. All the covenants, agreements, representations and
----------
warranties contained in this Warrant shall bind the parties hereto and their
respective heirs, executors, administrators, distributees, successors and
assigns.
16. Headings. The Article and Section headings in this Warrant are
--------
inserted for purposes of convenience only and shall have no substantive effect.
17. Governing Law. This Warrant shall be construed in accordance
-------------
with the laws of the State of Delaware, without regard to principles of
conflicts of law.
18. Modification of Agreement. This Warrant shall not otherwise be
-------------------------
modified, supplemented or amended in any respect unless such modification,
supplement or amendment is in writing and signed by the Company and the Holder
of this Warrant and Holders of any portion of the Warrant subsequently assigned
or transferred in accordance with the terms of this Warrant.
19. Consent to Jurisdiction. The Company and the Holder irrevocably
-----------------------
consent to the non-exclusive jurisdiction of the courts of the State of New York
and of any federal court located in such State in connection with any action or
proceeding arising out of or relating to this Warrant, any document or
instrument delivered pursuant to, in connection with or simultaneously with this
Warrant, or a breach of this Warrant or any such document or instrument. In any
such action or proceeding, the Company waives personal service of any summons,
complaint or other process and agrees that service thereof may be made in
accordance with Section 14 hereof.
-29-
<PAGE>
20. Warrant Agent. The Company shall serve as warrant agent under
-------------
this Warrant. Upon thirty (30) days' notice to the Holder, the Company may
appoint a new warrant agent. Any corporation into which the Company or any new
warrant agent may be merged or any corporation resulting from any consolidation
to which the Company or any new warrant agent shall be a party or any
corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business shall
be a successor warrant agent under this Warrant without any further act. Any
such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed (by first class mail, postage prepaid) to the Holder
at the Holder's last address as shown on the Warrant Register.
21. Miscellaneous.
-------------
(a) This Warrant shall be binding on and inure to the benefit of
the parties hereto and their respective successors and assigns. This Warrant may
be amended only in writing signed by the Company and the Holder and their
successors and assigns.
(b) Subject to Section 21(a), above, nothing in this Warrant
shall be construed to give to any person or corporation other than the Company
and the Holder any legal or equitable right, remedy or cause under this Warrant.
This Warrant shall inure to the sole and exclusive benefit of the Company and
the Holder.
(c) In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
-30-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of
the date set forth below by its duly authorized officer.
Dated: October [ ], 1999 CAMBRIDGE HEART, INC.
By:____________________________
Name:
Title:
-31-
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To Cambridge Heart, Inc.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of common stock, $.001 par value per share, of Cambridge Heart, Inc. (the
"Common Stock") and , if such Holder is not utilizing the cashless exercise
provisions set forth in this Warrant, encloses herewith $________ in cash,
certified or official bank check or checks, which sum represents the aggregate
Exercise Price (as defined in the Warrant) for the number of shares of Common
Stock to which this Form of Election to Purchase relates, together with any
applicable taxes payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
_________________________
________________________________________________________________________________
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is entitled
to purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to purchase
the shares of Common Stock not issuable pursuant to the exercise evidenced
hereby be issued in the name of and delivered to:
________________________________________________________________________________
(Please print name and address)
Dated: __________, ___ Name of Holder:
(Print)_________________________________
By:
Name:
Title:
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
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<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to
transfer the attached Warrant.)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto _________________, having an address at
___________________________ _______________________, the attached Warrant to the
extent of the right to purchase ____________ shares of Common Stock, $0.001 par
value per share, of CAMBRIDGE HEART, INC. (the "Company"), together with all
-------
right, title, and interest therein, and does hereby irrevocably constitute and
appoint _________________ as attorney to transfer such Warrant on the books of
the Company, with full power of substitution.
Dated: _______________, _____
_________________________________
Print name of holder of Warrant
By:__________________________________
Name:
Title:
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Warrant in every particular, without alteration
or enlargement or any change whatsoever.
