<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. ___)*
ASCENT PEDIATRICS, INC.
- -------------------------------------------------------------------------------
(Name of issuer)
COMMON STOCK, $0.00004 par value per share
- -------------------------------------------------------------------------------
(Title of class of securities)
04362X101
----------------------------------------------------------
(CUSIP number)
Robert M. Trevisani
Chief Financial Officer
Triumph Capital Group, Inc.
60 State Street, 21st Floor
Boston, MA 02109
(617) 557-6000
- -------------------------------------------------------------------------------
(Name, address and telephone number of person authorized to receive
notices and communications)
June 4, 1997
----------------------------------------
(Date of event which requires filing of this statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [_].
Note: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
(Continued on following pages)
(Page 1 of 117 Pages)
- --------------------------------
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 or otherwise subject to the liabilities of that section of the Act but
shall be subject to all other provisions of the Act (however, see the Notes).
<PAGE>
Page 2 of 117 Pages
SCHEDULE 13D
- ----------------------- ---------------------
CUSIP NO. 04362X101 PAGE 2 OF 117 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Triumph-Connecticut Limited Partnership
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
WC
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
5 ITEMS 2(d) or 2(e) [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
CONNECTICUT
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF 1,307,924
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
0
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING 1,307,924
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
0
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
1,307,924
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
16.5%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
PN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
Page 3 of 117 Pages
SCHEDULE 13D
- ----------------------- ---------------------
CUSIP NO. 04362X101 PAGE 3 OF 117 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S IDENTIFICATION NO. OF ABOVE PERSON
Triumph-Connecticut Capital Advisors, Limited Partnership
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
AF
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
5 ITEMS 2(d) or 2(e) [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
DELAWARE
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF 1,307,924
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
0
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING 1,307,924
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
0
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
1,307,924
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
16.5%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
PN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
Page 4 of 117 Pages
SCHEDULE 13D
- ----------------------- ---------------------
CUSIP NO. 04362X101 PAGE 4 OF 117 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Triumph Capital Group, Inc.
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
AF
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
5 ITEMS 2(d) or 2(e) [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
DELAWARE
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF 1,307,924
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
0
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING 1,307,924
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
0
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
1,307,924
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
16.5%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
CO
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
Page 5 of 117 Pages
SCHEDULE 13D
- ----------------------- ---------------------
CUSIP NO. 04362X101 PAGE 5 OF 117 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Frederick W. McCarthy
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
AF
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
5 ITEMS 2(d) or 2(e) [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
U.S.A.
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF 1,307,924
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
0
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING 1,307,924
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
0
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
1,307,924
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
16.5%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
IN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
Page 6 of 117 Pages
Item 1. Security and Issuer.
-------------------
The securities to which this statement relates are shares of Common
Stock, $0.00004 par value per share (the "Common Stock"), of Ascent Pediatrics,
Inc., a Delaware corporation ("Ascent" or the "Company"). The principal
executive office of Ascent is located at 187 Ballardvale Street, Wilmington,
Massachusetts 01887.
The reporting persons are filing this Schedule 13D because of their
acquisition of the Notes and Warrants (each as defined in Item 6).
Item 2. Identity and Background.
-----------------------
The following table provides certain information about each of the
reporting persons.
<TABLE>
<CAPTION>
Citizenship or State
of Incorporation/ Principal Occupation
Name and Address Organization or Employment
- ---------------- -------------------- --------------------
<S> <C> <C>
Triumph-Connecticut CT Investment Partnership
Limited Partnership
("Holder")
CityPlace I, 35th Floor
Hartford, CT 06103-3499
Triumph-Connecticut DE General Partner of Holder;
Capital Advisors, Investment Management
Limited Partnership
("Triumph Advisors")
CityPlace I, 35th Floor
Hartford, CT 06103-3499
Triumph Capital Group, Inc. DE General Partner of Triumph
("Triumph Capital") Advisors;
60 State Street Investments
21st Floor
Boston, MA 02109
Frederick W. McCarthy USA Managing General Partner of
c/o Triumph Capital Group, Inc. Triumph Advisors;Director and
60 State Street, 21st Floor President of Triumph Capital; Investment
Boston, MA 02109 Management/Investment
Banking
</TABLE>
During the last five years, none of the reporting persons has been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors).
None of the reporting persons has been during the last five years a
party to a civil proceeding of a judicial or an administrative body of competent
jurisdiction and, as a result of such proceeding, was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activity subject to, federal or state securities laws or finding
any violation with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration.
-------------------------------------------------
The funds for purchase of the Notes and the Warrants were provided out
of the working capital of Holder. All other parties filing pursuant hereto are
deemed to be directly or indirectly in control of Holder. Pursuant to the
Purchase Agreement (as defined in Item 6), Holder paid the Company an aggregate
of $5,768,000 from Holder's working capital for the Notes and the Warrants, and
received $5,714.29 from an employee of Triumph Capital in connection with the
sale of a portion of such Notes and Warrants (see Item 6). If the Warrants are
exercised by Holder, it is expected that the funds which will be used to pay the
exercise price will be provided from Holder's working capital or by Holder
surrendering Notes or by Holder surrendering Warrants.
<PAGE>
Page 7 of 117 Pages
Item 4. Purpose of Transaction.
----------------------
The Notes and the Warrants were acquired for investment purposes. The
reporting persons intend to review on a continuing basis their investment in the
Company and the Company's business, prospects and financial condition. Based on
such continuing review, alternative investment opportunities available to the
reporting persons and all other factors deemed relevant (including without
limitation the market for and price of the Common Stock, offers for shares of
the Common Stock, general economic conditions and other future developments),
the reporting persons may decide to exercise all or some of the Warrants,
convert all or part of the Notes, sell or seek the sale of all or part of the
Notes, Warrants or the Common Stock or increase their holdings of the Common
Stock.
Item 5. Interest in Securities of Issuer.
--------------------------------
(a) - (b)
<TABLE>
<CAPTION>
Number of
Shares Shared Shared Sole Sole
Beneficially Voting Investment Voting Investment
Name Owned Power Power Power Power Percent
- ---- ------------ ------ ---------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Holder 1,307,924 0 0 1,307,924 1,307,924 16.5%
Triumph Advisors 1,307,924 0 0 1,307,924 1,307,924 16.5%
Triumph Capital 1,307,924 0 0 1,307,924 1,307,924 16.5%
Frederick W. McCarthy 1,307,924 0 0 1,307,924 1,307,924 16.5%
</TABLE>
(c) Other than the transactions described herein, no transactions by
any of the reporting persons required to be reported by this Item have taken
place in the last 60 days.
(d) The Treasurer of the State of Connecticut, as trustee of the State
of Connecticut Retirement Plans and Trust Funds, as limited partner of Holder,
has the right to receive dividends from, or proceeds from the sale of, all or
some of the Warrants or Notes or all or some of the Common Stock of the Company
after exercise of the Warrants or conversion of the Notes. See Item 6.
Item 6. Contracts, Arrangements, Understandings or Relationships With Respect
---------------------------------------------------------------------
to Securities of the Issuer.
---------------------------
Pursuant to a Securities Purchase Agreement dated January 31, 1997 (the
"Purchase Agreement") between Ascent, Holder and certain other purchasers named
therein, on January 31, 1997 Holder acquired (a) convertible subordinated
secured notes in the principal amount of $1,685,714.29 (the "Initial Notes") and
(b) Series A Warrants to purchase 189,163 shares of Common Stock at an exercise
price of $.01 per share (the "Initial Series A Warrants"). Holder also agreed
to purchase additional Notes and Warrants at a later date subject to the
satisfaction of certain conditions precedent.
On April 29, 1997, Holder sold a portion of the Initial Notes in the
principal amount of $5,714.29 and a portion of the Initial Series A Warrants to
purchase 641 shares of Common Stock to an employee of Triumph Capital for
$5,714.29. In connection with such sale such employee also assumed a portion of
Holder's obligation to purchase additional Notes and Warrants at a later date.
Pursuant to the Purchase Agreement, on June 4, 1997 (immediately
following the Company's initial public offering) Holder acquired (a) additional
convertible subordinated secured notes in the principal amount of $4,200,000.00
(the "Subsequent Notes"), (b) additional Series A Warrants to purchase 282,784
shares of Common Stock at an exercise price of $.01 per share (the "Subsequent
Series A Warrants") and (c) Series B Warrants to purchase 183,285 shares of
Common Stock at an exercise price of $5.29 per share (the "Series B Warrants").
The Initial Notes and the Subsequent Notes are referred to herein as the
"Notes." The Initial Series A Warrants, the Subsequent Series A Warrants and the
Series B Warrants are referred to herein as the "Warrants."
Pursuant to the terms of the Notes and the Purchase Agreement, the
Notes will amortize in eight equal quarterly principal payments and require
quarterly interest payments on the unpaid principal balance, at a rate equal to
the lesser of 10% or 3.5% over the prime rate, with the first payment of
principal and interest due on December 2, 1997. The Notes mature on September 2,
1999. Until June 4, 1999, the Notes are convertible at the option of the holder
into such number of shares of Common Stock determined by dividing (i) the
aggregate principal amount of the Notes tendered for conversion by (ii) $9.00
(the initial public offering price). As of the date hereof, the Notes are
convertible into approximately 653,333 shares of Common Stock.
<PAGE>
Page 8 of 117 Pages
Pursuant to the terms of the Warrants, the exercise price and number of
shares of Common stock issuable upon the exercise of such Warrants are subject
to adjustment upon the occurrence of certain events, such as stock splits, stock
dividends, mergers, reclassifications and similar corporate events.
Pursuant to the Purchase Agreement, the Company granted Holder and its
permitted assigns registration rights which require the Company to cause certain
of the Company's securities held by Holder and its permitted assigns to be
registered under the Securities Act of 1933, as amended, so as to permit the
sale or other disposition by Holder and such permitted assigns of said
securities.
Triumph Advisors is a General Partner of Holder and holds a 3.0%
economic interest in Holder.
The Treasurer of the State of Connecticut, as trustee of the State of
Connecticut Retirement Plans and Trust Funds, is the limited partner of Holder,
and holds a 97.0% economic interest in Holder.
Triumph Capital is a general partner of Triumph Advisors.
Frederick W. McCarthy is the Managing General Partner of Triumph
Advisors and the Chairman of the Board of Directors and President of Triumph
Capital. Mr. McCarthy is a person controlling Triumph Advisors and Triumph
Capital.
Item 7. Material to be Filed as Exhibits.
--------------------------------
A. Agreement for Joint Filing on Page 10
Behalf of Each Reporting Person.
B. Securities Purchase Agreement dated Pages 11-98
January 31, 1997.
C. Waiver and Amendment dated March Pages 99-100
13, 1997.
D. Assignment, Assumption and Consent Pages 101-105
Agreement dated April 29, 1997.
E. Waiver, Consent and Amendment Pages 106-117
Agreement dated May 30, 1997.
<PAGE>
Page 9 of 117 Pages
Signature
- ---------
After reasonable inquiry and to the best of my knowledge and belief, we
certify that the information set forth in this statement is true, complete and
correct.
Date: June 10, 1997
Triumph-Connecticut Limited Partnership
by Triumph-Connecticut Capital Advisors, L.P.
Its General Partner
By: /s/ Frederick W. McCarthy
--------------------------------------
Frederick W. McCarthy
Its General Partner
Triumph-Connecticut Capital Advisors, L.P.
By: /s/ Frederick W. McCarthy
--------------------------------------
Frederick W. McCarthy
Its General Partner
Triumph Capital Group, Inc.
By: /s/ Frederick W. McCarthy
--------------------------------------
Frederick W. McCarthy
Its President
/s/ Frederick W. McCarthy
-----------------------------------------
Frederick W. McCarthy
<PAGE>
Page 10 of 117 Pages
EXHIBIT A
---------
AGREEMENT
Pursuant to Rule 13d-1(f) under the Securities Exchange Act of 1934, as
amended, each of the undersigned hereby agrees that this Statement on Schedule
13D (the "Schedule 13D") is filed on its behalf.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement as of June 10, 1997.
Triumph-Connecticut Limited Partnership
by Triumph-Connecticut Capital Advisors, L.P.
Its General Partner
By: /s/ Frederick W. McCarthy
---------------------------------------------
Frederick W. McCarthy
Its General Partner
Triumph-Connecticut Capital Advisors, L.P.
By: /s/ Frederick W. McCarthy
---------------------------------------------
Frederick W. McCarthy
Its General Partner
Triumph Capital Group, Inc.
By: /s/ Frederick W. McCarthy
---------------------------------------------
Frederick W. McCarthy
Its President
/s/ Frederick W. McCarthy
------------------------------------------------
Frederick W. McCarthy
<PAGE>
Page 11 of 117 Pages
EXHIBIT B
---------
==========================================================================
ASCENT PEDIATRICS, INC.
_________________________
SECURITIES PURCHASE AGREEMENT
_________________________
$7,000,000 SUBORDINATED SECURED NOTES
DUE JANUARY 31, 2002
AND
WARRANTS
TO PURCHASE COMMON STOCK
OF
ASCENT PEDIATRICS, INC.
Dated as of January 31, 1997
==========================================================================
<PAGE>
Page 12 of 117 Pages
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
1. PURCHASE AND SALE OF NOTES AND WARRANTS......................................... 1
1.1. Authorization of Issuance of Notes...................................... 1
1.2. Authorization of Issuance of Warrants................................... 1
1.3. Issuance and Sale of Notes and Warrants at the First Closing............ 2
1.4. Issuance and Sale of Notes and Warrants at the Second Closing........... 2
1.5. Allocation of Issue Price of Notes and Warrants......................... 2
1.6. Use of Proceeds......................................................... 2
2. CLOSINGS OF THE SALES OF NOTES AND WARRANTS..................................... 3
2.1. First Closing........................................................... 3
2.2. Second Closing.......................................................... 3
3. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES.............................. 4
3.1 Conditions Precedent to Purchasers' Obligations at Each Closing......... 4
3.2. Conditions Precedent to Company's Obligations at Each Closing........... 8
4. REPRESENTATIONS AND WARRANTIES, ETC............................................. 8
4.1. Organization and Qualification; Authority.............................. 8
4.2. Capitalization......................................................... 9
4.3. Subsidiaries........................................................... 9
4.4. Stockholder List and Agreements........................................ 9
4.5. Licenses............................................................... 9
4.6. Corporate and Governmental Authorization; Non-Contravention............ 9
4.7. Validity and Binding Effect............................................10
4.8. Litigation; Defaults...................................................10
4.9. Outstanding Debt.......................................................11
4.10. No Material Adverse Change.............................................11
4.11. Events Subsequent to September 30, 1996 Balance Sheet..................11
4.12. Employee Programs......................................................11
4.13. Private Offerings......................................................13
4.14. Broker's or Finder's Commissions.......................................14
4.15. Disclosure.............................................................14
4.16. Intentionally Deleted..................................................14
4.17. Federal Reserve Regulations and Other Matters..........................14
4.18. Books and Records......................................................15
4.19. Environmental Regulation, Etc..........................................15
4.20. Properties and Assets..................................................16
4.21. Insurance..............................................................16
</TABLE>
(i)
<PAGE>
Page 13 of 117 Pages
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
4.22. Employment Practices........................................... 17
4.23. Financial Statements........................................... 17
4.24. Intellectual Property.......................................... 17
4.25. Taxes.......................................................... 19
4.26. Transactions with Affiliates................................... 20
4.27. No Other Business.............................................. 20
4.28. Compliance with Laws........................................... 20
4.29. Investment Company Act......................................... 20
4.30. Public Utility Holding Company Act............................. 20
4.31. Material Contracts and Obligations............................. 20
4.32. FDA Approvals.................................................. 21
5. REPRESENTATIONS OF THE PURCHASERS....................................... 21
5.1. Purchase for Investment........................................ 21
5.2. Authorization; Non-Contravention; Validity and Binding Effect.. 22
5.3. Broker's or Finder's Commissions............................... 22
5.4. Source of Funds................................................ 22
6. TERMS OF THE NOTES; PAYMENTS AND REDEMPTION; REGISTRATION............... 23
6.1. Maturity; Principal Amount..................................... 23
6.2. Interest....................................................... 23
6.3. Default Interest and Late Charges.............................. 23
6.4. Payments on the Notes.......................................... 23
6.5. Optional Redemption............................................ 24
6.6. Change of Control.............................................. 24
6.7. Redemption Following a Qualified Public Offering............... 25
6.8. Right of Holders to Convert Notes into Common Stock............ 27
6.9. Security for and Priority of Notes............................. 28
6.10. Registration and Exchange of Notes............................. 29
7. CERTAIN PROVISIONS WITH RESPECT TO THE WARRANTS......................... 29
7.1. Special Repurchase Right of the Company........................ 29
7.2. Pre-emptive Rights of Holders of Warrants...................... 30
8. COVENANTS OF THE COMPANY................................................ 32
8.1. General Covenants of the Company............................... 32
8.2. Covenants of the Company Applicable to the Notes............... 35
8.3. Covenants of the Company Applicable to the Warrants............ 38
9. DEFAULTS AND REMEDIES................................................... 39
9.1. Events of Default............................................... 39
</TABLE>
(ii)
<PAGE>
Page 14 of 117 Pages
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
9.2. Remedies on Default, Etc....................................... 40
9.3. Waiver of Past Defaults........................................ 41
10. RESTRICTIONS ON TRANSFER............................................... 41
10.1. Restrictive Legends............................................. 41
10.2. Notice of Transfer; Opinions of Counsel......................... 42
11. SUBORDINATION........................................................... 43
11.1 Agreement to Subordinate....................................... 43
11.2 Liquidation; Dissolution; Bankruptcy........................... 43
11.3. Default on Senior Indebtedness................................. 44
11.4. Acceleration of Note Indebtedness.............................. 44
11.5. When Distributions Must be Paid Over........................... 45
11.6. Notice......................................................... 45
11.7. Subrogation.................................................... 46
11.8 Relative Rights................................................ 46
11.9. No Impairment of Subordination................................ 46
11.10 Representatives of Holders of Senior Indebtedness.............. 48
11.11 Payment........................................................ 48
11.12. Lien Subordination............................................. 48
12. REGISTRATION RIGHTS..................................................... 48
12.1. Required Registrations......................................... 48
12.2 Incidental Registration........................................ 51
12.3 Registration Procedures........................................ 52
12.4 Allocation of Expenses......................................... 54
12.5. Indemnification................................................ 55
12.6 Special Indemnification with Respect to Underwritten Offering.. 57
12.7 Information by Holder.......................................... 58
12.8 "Stand-Off" Agreement.......................................... 58
12.9. Limitations on Subsequent Registration Rights.................. 58
12.10. Rule 144 Requirements.......................................... 58
13. DEFINITIONS............................................................. 59
14. MISCELLANEOUS........................................................... 73
14.1. Indemnification; Expenses, Etc................................. 73
14.2. Survival of Representations and Warranties; Severability....... 75
14.3. Amendment and Waiver........................................... 75
14.4. Notices, Etc................................................... 75
14.5. Successors and Assigns......................................... 75
</TABLE>
(iii)
<PAGE>
Page 15 of 117 Pages
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
14.6. Descriptive Headings............................................ 76
14.7. Satisfaction Requirement........................................ 76
14.8. GOVERNING LAW................................................... 76
14.9. Service of Process.............................................. 76
14.10. Counterparts.................................................... 77
14.11. No Adverse Interpretation of Other Agreements................... 77
6.5. Optional Redemption............................................. 2
</TABLE>
SCHEDULES
---------
SCHEDULE 4.2 - Capitalization
SCHEDULE 4.4 - List of Stockholders and Voting Agreement
SCHEDULE 4.6 - Authorization
SCHEDULE 4.9 - Debt and Other Liabilities
SCHEDULE 4.10 - Material Developments
SCHEDULE 4.11 - Recent Events
SCHEDULE 4.12 - Employee Programs
SCHEDULE 4.19 - Environmental Matters
SCHEDULE 4.20 - Liens
SCHEDULE 4.21 - Insurance
SCHEDULE 4.22 - Employment Matters
SCHEDULE 4.24 - Intellectual Property
SCHEDULE 4.26 - Transactions with Affiliates
SCHEDULE 4.31 - Material Contracts and Obligations
SCHEDULE 4.32 - Status of FDA Approvals
(iv)
<PAGE>
Page 16 of 117 Pages
EXHIBITS
--------
EXHIBIT A -- Form of Subordinated Secured Note
EXHIBIT B-1 -- Form of Series A Warrant
EXHIBIT B-2 -- Form of Series B Warrant
EXHIBIT C -- Form of Opinion of Counsel to the Company
(v)
<PAGE>
Page 17 of 117 Pages
ASCENT PEDIATRICS, INC.
9 Linnell Circle
Billerica, Massachusetts 01821
SECURITIES PURCHASE AGREEMENT (the "Agreement") dated as of January 31,
1997 among Ascent Pediatrics, Inc. (formerly known as Ascent Pharmaceuticals,
Inc.), a Delaware corporation (the "Company"), Triumph-Connecticut Limited
Partnership, a Connecticut limited partnership (the "Principal Purchaser"), and
the other purchasers listed on the signature pages hereto (together with the
Principal Purchaser, the "Purchasers"). Unless otherwise defined, capitalized
terms used in this Agreement are defined in Section 13; references to a
"Schedule" or an "Exhibit" are, unless otherwise specified, to a Schedule or an
Exhibit attached to this Agreement; references to a "section", a "subsection", a
"paragraph" or a "clause" are, unless otherwise specified, to a section, a
subsection, a paragraph or a clause of this Agreement.
The Company in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, agrees with the Purchasers as
follows:
1. PURCHASE AND SALE OF NOTES AND WARRANTS.
---------------------------------------
1.1. Authorization of Issuance of Notes. The Company has duly
----------------------------------
authorized the issuance and sale of its Subordinated Secured Notes due January
31, 2002 (the "Notes", such term to include any such notes issued in
substitution therefor pursuant to the terms of this Agreement) in the aggregate
principal amount of $7,000,000, to be acquired by the Purchasers in accordance
with the terms of this Agreement. The Notes shall be substantially in the form
set out in Exhibit A hereto, with such changes thereto, if any, as may be
---------
approved by the Principal Purchaser and the Company.
1.2. Authorization of Issuance of Warrants. The Company has
-------------------------------------
duly authorized the issuance and sale of warrants (the "Warrants") to purchase
Common Stock of the Company to be acquired by the Purchasers in accordance with
the terms of this Agreement. The Warrants shall be comprised of two series:
Series A Warrants (the "Series A Warrants") to purchase in the aggregate 660,090
shares of Common Stock of the Company, subject to adjustment as provided in the
Warrants; and Series B Warrants (the "Series B Warrants") to purchase in the
aggregate 256,702 shares of Common Stock of the Company, subject to adjustment
as provided in the Warrants. The Series A Warrants shall be substantially in
the form set out in Exhibit B-1 hereto, with such changes thereto, if any, as
-----------
may be approved by the Principal Purchaser and the Company, and the Series B
Warrants shall be substantially in the form set out in Exhibit B-2 hereto, with
-----------
such changes thereto, if any, as may be approved by the Principal Purchaser and
the Company. The Series A Warrants and the Series B Warrants will be
substantially identical, except with respect to the dates of issuance thereof
and the exercise price therefor, as provided in this Agreement and the Warrants.
<PAGE>
Page 18 of 117 Pages
1.3. Issuance and Sale of Notes and Warrants at the First
----------------------------------------------------
Closing. At the First Closing, the Company shall issue and sell to the
- -------
Purchasers, and the Purchasers shall purchase from the Company, Notes in the
aggregate principal amount of $2,000,000 and Series A Warrants to purchase in
the aggregate 264,036 shares of Common Stock of the Company, subject to
adjustment as provided in the Warrants, at an aggregate purchase price (the
"Aggregate First Closing Purchase Price") of $2,000,000 payable in cash by wire
transfer of immediately available funds.
1.4. Issuance and Sale of Notes and Warrants at the Second
-----------------------------------------------------
Closing. At the Second Closing, the Company shall issue and sell to the
- -------
Purchasers, and the Purchasers shall purchase from the Company, Notes in the
aggregate principal amount of $5,000,000, Series A Warrants to purchase in the
aggregate 396,054 shares of Common Stock of the Company, subject to adjustment
as provided in the Warrants, and Series B Warrants to purchase in the aggregate
256,072 shares of Common Stock of the Company, subject to adjustment as provided
in the Warrants, at an aggregate purchase price (the "Aggregate Second Closing
Purchase Price") of $5,000,000 payable in cash by wire transfer of immediately
available funds.
1.5. Allocation of Issue Price of Notes and Warrants. The
-----------------------------------------------
Company and the Purchasers agree that for federal income tax purposes, including
for purposes of determining original issue discount and the issue price of the
Notes under sections 1271-1275 of the Code, as amended, and the Regulations
issued thereunder (including Treasury Regulations section 1.1273-2(g)(2)(i)),
the Closing Fee referenced in Subsection 3.1(q) shall be treated as a reduction
of the issue price of the Notes and Warrants, and the remainder of the Aggregate
First Closing Purchase Price, after giving effect to such reduction, shall be
allocated among the Notes and Warrants to be issued and sold at the First
Closing as follows: $561.50 shall be allocated to each $1,000 principal amount
of Notes; and $3.17 shall be allocated to each share of the Common Stock of the
Company issuable upon the exercise of the Series A Warrants. The Company and
the Purchasers agree that such allocation of the issue price shall be binding on
the Company for purposes of any determination by the Company of the issue price
of the Notes and the Warrants. The Company and the Purchasers further agree to
use their best efforts to reach agreements with respect to the allocation of the
Aggregate Second Closing Purchase Price among the Closing Fees (as defined
below) to be paid by the Company, and the Notes and Warrants to be issued and
sold by the Company, at the Second Closing at or prior to the Second Closing
Date.
1.6. Use of Proceeds. The proceeds of the Notes and Warrants
---------------
shall be used by the Company for working capital purposes and potential
acquisitions consistent with Section 8.2(e) hereof. No part of such proceeds
will be used to purchase or carry any margin stock or to extend credit to others
for the purpose of purchasing or carrying any margin stock. Neither the issuance
of the Notes or the Warrants nor the use of the proceeds thereof will
2
<PAGE>
Page 19 of 117 Pages
violate or be inconsistent with the provisions of Regulations G, T, U or X of
the Board of Governors of the Federal Reserve System.
2. CLOSINGS OF THE SALES OF NOTES AND WARRANTS.
-------------------------------------------
2.1. First Closing. The closing of the initial issuance and
-------------
sale of Notes and Series A Warrants pursuant to Subsection 1.3 hereof and
certain of the other transactions contemplated hereby (the "First Closing")
shall take place at the offices of Goodwin, Procter & Hoar LLP, Exchange Place,
Boston, Massachusetts, on January 31, 1997 or at such other place or on such
other date as the Principal Purchaser and the Company may agree upon (such date
on which the First Closing shall have actually occurred, the "First Closing
Date"). At the First Closing, the Company will deliver or cause to be delivered
to each Purchaser, a single Note in the principal amount specified opposite such
Purchaser's name on the signature page hereto, and a single Series A Warrant
certificate to purchase the number of shares of Common Stock specified opposite
such Purchaser's name on the signature page hereto (or such greater number of
Notes or Warrant certificates as such Purchaser may request upon four (4) days
prior notification), in each case dated the date of the First Closing and
registered in such Purchaser's name or (upon four (4) days prior notification)
that of its nominee, against payment of the purchase price therefor in the
amount specified opposite such Purchaser's name on the signature page hereto.
If at the First Closing the Company shall fail to tender to the Purchasers any
of the Notes or Series A Warrants to be purchased by the Purchasers as provided
in this Subsection 2.1, or if any of the conditions specified in Subsection 3.1
required to be satisfied at or prior to the First Closing shall not have been
satisfied or waived by the Principal Purchaser, the Purchasers shall, at their
election, be relieved of all further obligations under this Agreement, without
thereby waiving any other respective rights they may have by reason of such
failure or such non-fulfillment.
2.2. Second Closing. The second closing of the issuance and
--------------
sale of Notes, Series A Warrants and Series B Warrants pursuant to Subsection
1.4 hereof and certain of the other transactions contemplated hereby (the
"Second Closing") shall take place at the offices of Goodwin, Procter & Hoar
LLP, Exchange Place, Boston, Massachusetts, on such date as all of the
conditions specified in Subsection 3.1 required to be satisfied at or prior to
the Second Closing shall have been satisfied or waived by the Principal
Purchaser (such date on which the Second Closing shall have actually occurred,
the "Second Closing Date"). The Company shall provide the Purchasers with
thirty days prior written notice of the proposed Second Closing Date. At the
Second Closing, the Company will deliver or cause to be delivered to each
Purchaser, a single Note in the principal amount specified opposite such
Purchaser's name on the signature page hereto, a single Series A Warrant
certificate to purchase the number of shares of Common Stock specified opposite
such Purchaser's name on the signature page hereto, and a single Series B
Warrant certificate to purchase the number of shares of Common Stock specified
opposite such Purchaser's name on the signature page hereto (or such greater
number of Notes or Warrant certificates as such Purchaser may request upon four
(4) days
3
<PAGE>
Page 20 of 117 Pages
prior notification), in each case dated the date of the Second Closing and
registered in such Purchaser's name or (upon four (4) days prior notification)
that of its nominee, against payment of the purchase price therefor in the
amount specified opposite such Purchaser's name on the signature pages hereto.
If at the Second Closing the Company shall fail to tender to the Purchasers any
of the Notes, Series A Warrants or Series B Warrants to be purchased by the
Purchasers as provided in this Subsection 2.2, or if any of the conditions
specified in Subsection 3.1 required to be satisfied at or prior to the Second
Closing shall not have been satisfied or waived by the Principal Purchaser at or
prior to June 30, 1997 (or such later date as the Principal Purchaser, in its
sole discretion, shall consent to in writing), the Purchasers shall, at their
election, be relieved of all further obligations under this Agreement, without
thereby waiving any other respective rights they may have by reason of such
failure or such non-fulfillment. The Company acknowledges and agrees that the
Principal Purchaser shall have the absolute right, in its sole discretion, to
waive any or all of the conditions specified in Section 3.1 required to be
satisfied at or prior to the Second Closing, and, notwithstanding anything to
the contrary set forth herein or in any of the other Transaction Documents, the
Company hereby irrevocably agrees with the Purchasers, that upon the written
request of the Principal Purchaser, the Company shall issue and sell to the
Purchasers the Notes and Warrants to be issued and sold to the Purchasers
pursuant to this Section 2.2 on such proposed Second Closing Date as the
Principal Purchaser shall specify in such request (which proposed Second Closing
Date shall be not less than seven (7) Business Days prior to nor more than
thirty (30) Business Days after such request is delivered to the Company by the
Principal Purchaser). In the event any Purchaser (other than the Principal
Purchaser) shall decline (such Purchaser being hereinafter referred to as a
"Declining Purchaser") to purchase any of the Notes or Warrants to be issued and
sold to such Declining Purchaser at the Second Closing pursuant to the terms of
this Agreement, the Principal Purchaser shall purchase all of the Notes and
Warrants that were to have been issued and sold to such Declining Purchaser.
3. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES.
--------------------------------------------------
3.1 Conditions Precedent to Purchasers' Obligations at Each
-------------------------------------------------------
Closing. The Purchasers' obligations to purchase and pay for the Notes and
- -------
Warrants to be sold to the Purchasers at each Closing is subject to the
fulfillment to its satisfaction, prior to or at each Closing, of the following
conditions; provided that any or all of the following conditions may be waived,
in whole or in part, by the Principal Purchaser with respect to this Agreement
in its sole and absolute discretion:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in this Agreement and in the other
Transaction Documents shall be correct in all respects when made and at the time
of such Closing, after giving effect to the sale of the Notes and Warrants and
the other transactions contemplated to be consummated at or prior to such
Closing by this Agreement and the
4
<PAGE>
Page 21 of 117 Pages
other Transaction Documents, except that any representations and warranties that
relate to a particular date or period shall be true in all respects as of such
date or period.
(b) Performance; No Default. The Company shall have performed
-----------------------
and complied in all respects with all agreements and conditions contained in
this Agreement and the other Transaction Documents required to be performed or
complied with at or prior to such Closing, and at the time of such Closing,
after giving effect to the sale of the Notes and Warrants and the other
transactions contemplated to be consummated at such Closing by this Agreement
and the other Transaction Documents, no Default or Event of Default shall have
occurred and be continuing.
(c) Compliance Certificate. The Company shall have delivered
----------------------
to the Purchaser an Officer's Certificate, dated as of such Closing Date,
certifying that the conditions specified in paragraphs 3.1(a) and 3.1(b) have
been fulfilled.
(d) Good Standing Certificate. The Company shall have
-------------------------
delivered to the Purchaser good standing certificates from the Secretary of
State of Delaware and from the Secretary of State of The Commonwealth of
Massachusetts, evidencing the legal existence and corporate good standing of the
Company in the State of Delaware and the qualification and good standing of the
Company in The Commonwealth of Massachusetts.
(e) Secretary's Certificate. The Company shall have delivered
-----------------------
to the Purchasers a Certificate of the Secretary or Assistant Secretary of the
Company, in form and substance satisfactory to the Principal Purchaser and the
Principal Purchaser's Special Counsel, dated as of such Closing Date, (i)
certifying as true, complete and correct the Company's Certificate of
Incorporation and By-laws, each as amended through such Closing Date (the
"Charter Documents"), and resolutions relating to the transactions contemplated
hereby attached thereto, (ii) certifying as to the incumbency and specimen
signatures of officers who shall have executed instruments, agreements and other
documents in connection with the transactions contemplated hereby, (iii)
certifying as to the effect that certain agreements, instruments and other
documents are in the form approved in the resolutions referred to in clause (i)
above, and (iv) covering such other matters, and with such other attachments
thereto, as the Principal Purchaser and the Principal Purchaser's Special
Counsel may reasonably request.
(f) Opinion of Counsel. The Principal Purchaser shall have
------------------
received a favorable legal opinion from Hale and Dorr LLP, counsel to the
Company, addressed to all of the Purchasers and dated as of such Closing Date,
in the form set out in Exhibit C hereto.
---------
(g) Third Amended and Restated Voting Rights Agreement. The
--------------------------------------------------
Company and certain of its stockholders shall have entered into a Third Amended
and
5
<PAGE>
Page 22 of 117 Pages
Restated Voting Rights Agreement, in form and substance satisfactory to the
Principal Purchaser, providing for (i) the total number of members of the Board
of Directors of the Company to be fixed at nine (9) and (ii) at least one (1) of
the members of the Board of Directors of the Company to be selected by the
holders of a majority of the outstanding Warrants, and such Third Amended and
Restated Voting Rights Agreement shall remain in full force and effect as of
each Closing Date;
(h) Other Documents. As of each Closing Date:
---------------
(i) the Security Documents shall have been executed and
delivered by the Company and the Collateral Agent, shall be in full force and
effect and the Collateral Agent shall hold valid and enforceable perfected Liens
on substantially all of the properties and assets of the Company as security for
the ratable benefit of the holders of the Note Indebtedness; and
(ii) each of the other Transaction Documents and any other
instruments, certificates, agreements and other documents contemplated thereby
and in connection therewith shall have been executed and delivered by all
respective parties thereto and shall be in full force and effect.
(i) Legal Investment; Compliance with Securities Laws. At the time
-------------------------------------------------
of such Closing, the Purchasers' purchase of the Notes and Warrants shall be
permitted by the laws and regulations of the jurisdiction to which each
Purchaser is subject (including, without limitation, Section 5 of the Securities
Act or Regulation G, T, U, or X of the Board of Governors of the Federal Reserve
System), and credit controls (whether voluntary or mandatory) or similar
restraints applicable to the Purchasers, and shall not subject the Purchasers to
any tax, penalty, liability or other onerous condition under or pursuant to any
applicable law or governmental regulation, and shall not be enjoined
(temporarily or permanently) under, prohibited by or contrary to any injunction,
order or decree applicable to the Purchasers. The offering, issuance and sale of
the Notes and Warrants under this Agreement shall have complied with all
applicable requirements of federal and state securities laws and the Principal
Purchaser shall have received evidence, if any, of such compliance in form and
substance reasonably satisfactory to the Principal Purchaser.
(j) Waiver of Stockholder Rights. The holders of the Preferred
----------------------------
Stock, the Series D Common Warrants, the Series D Preferred Warrants, the Series
E Common Warrants, the Series F Common Warrants and, to the extent applicable,
any other Capital Stock of the Company, shall have irrevocably waived in writing
any rights (including, without limitation, rights of first refusal) which they
may have under the Company's Charter Documents or under any purchase agreements
or other instruments, agreements or documents with respect to the offer and
issuance of the Notes and Warrants hereunder.
6
<PAGE>
Page 23 of 117 Pages
(k) Proceedings and Documents. All corporate and other proceedings
-------------------------
contemplated by this Agreement, including, without limitation, the authorization
of the issuance of the Notes and the Warrants, and all other matters set forth
in the Transaction Documents and all of the other documents and instruments
incident thereto, shall be reasonably satisfactory to the Principal Purchaser
and the Principal Purchaser's Special Counsel.
(l) Series F Financing. The Company shall have received (i) cash
------------------
proceeds (including proceeds received contemporaneously with the purchase of the
Notes and Warrants at the First Closing) from the Series F Financing of not less
than $10,000,000 as of the First Closing Date, and (ii) cash proceeds from the
Series F Financing of not less than $12,000,000 as of the Second Closing Date.
(m) No Adverse U.S. Legislation, Action or Decision. No
-----------------------------------------------
legislation, order, rule, ruling or regulation shall have been enacted or made
by or on behalf of any governmental body, department or agency of the United
States, nor shall any decision of any court of competent jurisdiction within the
United States have been rendered which, in the Principal Purchaser's reasonable
judgment, could materially and adversely affect any of the Notes or the Warrants
or any part thereof as an investment. There shall be no action, suit,
investigation or proceeding pending or threatened, against or affecting the
Purchasers, any of their properties or rights, or any of their Affiliates,
associates, officers or directors, before any court, arbitrator or
administrative or governmental body which (i) seeks to restrain, enjoin, prevent
the consummation of or otherwise affect the transactions contemplated by this
Agreement and the other Transaction Documents, or (ii) questions the validity or
legality of any such transactions or seeks to recover damages or to obtain other
relief in connection with any such transactions, and there shall be no valid
basis for any such action, proceeding or investigation.
(n) Governmental and Third Party Permits, Consents, Etc. Except as
---------------------------------------------------
set forth on Schedule 4.4, the Company shall have duly applied for and obtained
------------
all approvals, orders, licenses, consents and other authorizations
(collectively, the "Approvals") from each federal, state and local government
and governmental agency, department or body, or pursuant to any agreement to
which the Company is a party or to which any of them or any of their assets is
subject, which may be required in connection with this Agreement, the other
Transaction Documents or any other agreements and documents contemplated thereby
and in connection therewith.
(o) Related Matters. The Company's Charter Documents shall not
---------------
have been modified or amended since the date of this Agreement.
(p) Payment of Closing Fees and Expenses. The Company shall have
------------------------------------
paid prior to or on the date of such Closing a closing fee (the "Closing Fee")
to
7
<PAGE>
Page 24 of 117 Pages
each Purchaser in an amount equal to two percent (2.0%) of the aggregate
purchase price required to be paid by such Purchaser for the Notes and
Warrants being purchased by such Purchaser at such Closing (which Closing
Fee, at the option of each Purchaser, may be applied against the purchase
price for the Notes and Warrants being purchased by such Purchaser at such
Closing), all reasonable fees, expenses and disbursements of the Purchasers
and the Principal Purchaser's Special Counsel, reflected in statements of
the Purchasers and such counsel rendered prior to or on the date of such
Closing; provided, however, the aggregate amount of such fees and expenses
(other than the Closing Fee) shall not exceed $90,000.
(q) Additional Conditions to Second Closing. Prior to the Second
---------------------------------------
Closing the Company shall have received the Primsol Solution Final FDA Approval.
3.2. Conditions Precedent to Company's Obligations at Each
-----------------------------------------------------
Closing. The Company's obligation to issue and sell the Notes and Warrants to
- -------
be sold by it to the Purchasers at each Closing is subject to the fulfillment to
its satisfaction, prior to or at each Closing, of the following conditions;
provided that any or all of the following conditions may be waived, in whole or
in part, by the Company with respect to this Agreement in its sole and absolute
discretion:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Purchasers contained in this Agreement and in the
other Transaction Documents shall be correct in all material respects
when made and at the time of such Closing, after giving effect to the
sale of the Notes and Warrants and the other transactions contemplated
to be consummated at or prior to such Closing by this Agreement and the
other Transaction Documents, except that any representations and
warranties that relate to a particular date or period shall be true in
all respects as of such date or period.
(b) Compliance With Securities Laws. The offering, issuance and
-------------------------------
sale of the Notes and Warrants under this Agreement shall have complied
with all applicable requirements of federal securities laws and the
Company shall have received evidence, if any, of such compliance in form
and substance satisfactory to the Company.
4. REPRESENTATIONS AND WARRANTIES, ETC. In order to induce the
-----------------------------------
Purchasers to purchase the Notes and Warrants, the Company represents and
warrants that:
4.1. Organization and Qualification; Authority. The Company is
-----------------------------------------
a corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, has full corporate power and authority to own and
lease its properties and carry on its business as presently conducted, is duly
qualified, registered or licensed as a foreign
8
<PAGE>
Page 25 of 117 Pages
corporation to do business and is in good standing in The Commonwealth of
Massachusetts and in each other jurisdiction in which the ownership or leasing
of its properties or the character of its present operations makes such
qualification, registration or licensing necessary, except where the failure so
to qualify or be in good standing would not have a Material Adverse Effect.
4.2. Capitalization. The authorized, issued and outstanding
--------------
Capital Stock of the Company, immediately prior to the First Closing Date, will
be as set forth on Schedule 4.2 hereto. Except as set forth on Schedule 4.2,
------------ ------------
immediately prior to the First Closing Date there will not be any outstanding
subscriptions, options, warrants, rights, convertible or exchangeable securities
or other agreements or commitments of any character obligating the Company to
issue any securities.
4.3. Subsidiaries. The Company has no Subsidiaries and does not
------------
(a) own of record or beneficially, directly or indirectly, any shares of Capital
Stock of any other corporation which is controlled by the Company or any
interest in any partnership, joint venture or other association or business
entity which is controlled by the Company or (b) otherwise control, directly or
indirectly, any other business entity.
4.4. Stockholder List and Agreements. Set forth on Schedule 4.4
------------------------------- ------------
hereto is a true and complete list of the holders of Capital Stock of the
Company, the Capital Stock owned by each such holder and the consideration paid
to the Company for such Capital Stock by each such holder as of the First
Closing Date. Except as set forth on Schedule 4.4, there are no agreements or
------------
understandings, written or oral, to which the Company is a party with respect to
the acquisition, disposition or voting of the Capital Stock of the Company.
4.5. Licenses. The Company holds all material licenses,
--------
franchises, permits, consents, registrations, certificates and other approvals
(including, without limitation, those relating to environmental matters, public
and worker health and safety, buildings, highways or zoning) (individually, a
"License" and collectively, "Licenses") required for the conduct of its business
as now being conducted, and is operating in substantial compliance therewith,
except where the failure to hold any such License or to operate in compliance
therewith would not have a Material Adverse Effect. Except as set forth on
Schedule 4.19, the Company is in substantial compliance with all laws,
- -------------
regulations, orders and decrees applicable to it, except in each case where the
failure so to comply would not have a Material Adverse Effect, or a material
adverse effect on the ability of the Company to perform on a timely basis any
obligation that it has or will have under any Transaction Document to which it
is a party.
4.6. Corporate and Governmental Authorization; Non-
---------------------------------------------
Contravention. Except as set forth on Schedule 4.6, the execution, delivery and
- ------------- ------------
performance by the Company of the Transaction Documents to which the Company is
a party and all other instruments or agreements to be executed in connection
herewith or therewith, and the issuance and sale to the Purchasers of the Notes
and Warrants pursuant to this Agreement, are within the Company's
9
<PAGE>
Page 26 of 117 Pages
corporate powers, having been duly authorized by all necessary corporate action
on the part of the Company; do not require any License, authorization, approval,
qualification or formal exemption from, or other action by or in respect of, or
filing of a declaration or registration with, any court, Governmental Authority,
agency or official or other Person (except such as have been obtained or as may
be required under the Securities Act or state securities or Blue Sky laws); do
not contravene or constitute a default under or violation of (i) any provision
of applicable law or regulation of any Governmental Authority, (ii) the Charter
Documents of the Company, (iii) any agreement (or require the consent of any
Person under any agreement that has not been obtained) to which the Company is a
party, or (iv) any judgment, injunction, order, decree or other instrument
binding upon the Company or any of its properties, except where such
contravention, default or violation would not have a Material Adverse Effect;
and do not and will not result in the creation or imposition of any Lien on any
asset of the Company except as contemplated hereby.
4.7. Validity and Binding Effect. Each of the Transaction
---------------------------
Documents to which the Company is a party has been duly executed and delivered
by the Company and is a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except for (a) the effect upon
the Transaction Documents of bankruptcy, insolvency, reorganization, moratorium
and other similar laws relating to or affecting the rights of creditors
generally and (b) limitations imposed by a court of competent jurisdiction under
general equitable principles upon the specific enforceability of any of the
remedies, covenants or other provisions of the Transaction Documents and upon
the availability of injunctive relief or other equitable remedies.
4.8. Litigation; Defaults. There is no action, suit, proceeding
--------------------
or investigation pending or, to the best of the Company's knowledge, threatened
against or affecting the Company or any of its properties before or by any court
or arbitrator or any governmental body, agency or official, which questions the
validity of the Agreement, or which might impair the ability of the Company to
perform fully on a timely basis any obligation which the Company has or will
have under this Agreement or any other Transaction Document to which the Company
is a party, or which (individually or in the aggregate) could reasonably be
expected to have a Material Adverse Effect. The Company is not in violation of,
or in default under (and there does not exist any event or condition which,
after notice or lapse of time or both, would constitute such a default under),
any term of its Charter Documents, or of any term of any agreement, instrument,
judgment, decree, order, statute, injunction, governmental regulation, rule or
ordinance (including without limitation, those relating to zoning, city planning
or similar matters) applicable to the Company or to which the Company is bound,
or to any properties of the Company, except in each case to the extent that such
violations or defaults, individually or in the aggregate, could not reasonably
affect the validity of any Transaction Document, have a Material Adverse Effect,
or impair the ability of the Company to perform fully on a timely basis any
material obligation which the Company has or will have under this Agreement or
any other Transaction Document to which the Company is a party.
10
<PAGE>
Page 27 of 117 Pages
4.9. Outstanding Debt. Except as set forth on Schedule 4.9
---------------- ------------
hereto, at and as of each Closing, neither the Company nor any of its
Subsidiaries will have outstanding any debt for borrowed money, or obligations
or liabilities evidenced by bonds, debentures, notes or other similar
instruments or under capital leases other than short-term debt and trade
payables incurred in the ordinary course of business; provided that after the
First Closing, the Company may incur Indebtedness to the extent permitted under
Section 8.2(b). Schedule 4.9 contains a complete and accurate list of all
------------
material guarantees, assumptions, purchase agreements and similar agreements and
arrangements whereby the Company is or may become directly or indirectly liable
or responsible for the indebtedness or other obligations of another Person,
except for negotiable instruments endorsed for collection or deposit in the
ordinary course of its business, identifying, with respect to each of the
respective parties, amounts and maturities.
4.10. No Material Adverse Change. Except as set forth on
--------------------------
Schedule 4.10, since December 31, 1995, there has been (i) no material adverse
- -------------
change in the financial condition, assets, business or results of operations of
the Company, (ii) no material obligation or liability (contingent or other)
incurred by the Company, other than obligations and liabilities incurred in the
ordinary course of business, and no mortgage, encumbrance or Lien placed on any
of the properties of the Company which remains in existence on the date hereof,
other than Permitted Liens and Liens described on Schedule 4.20 hereto, and
-------------
(iii) no acquisition or disposition of any material assets by the Company (or
any contract or arrangement therefor) otherwise than for fair value in the
ordinary course of business.
4.11. Events Subsequent to September 30, 1996 Balance Sheet.
-----------------------------------------------------
Except as set forth on Schedule 4.11 hereto, since September 30, 1996, the
-------------
Company has not (i) issued any stock, bond or other corporate security, (ii)
borrowed any amount or incurred or become subject to, or paid any obligation or
liability (absolute, accrued or contingent) other than current liabilities shown
on the Financial Statements and current liabilities incurred since the date of
the Financial Statements in the ordinary course of business, (iii) declared or
made any payment or distribution to stockholders or purchased or redeemed any
share of its capital stock or other security, (iv) sold, assigned, transferred
or granted any exclusive license with respect to any patent, trademark, trade
name, service mark, copyright, trade secret or other intangible asset, (v)
suffered any loss of property or waived any right of substantial value other
than in the ordinary course of business, (vi) made any material change in the
manner of business or operations of the Company, or (vii) entered into any
commitment (contingent or otherwise) to do any of the foregoing, if any of the
foregoing would have a Material Adverse Effect.
4.12. Employee Programs. Schedule 4.12 sets forth a list of
----------------- -------------
every Employee Program maintained by the Company or any Current Affiliate at any
time during the six-year period ending on the First Closing Date or with respect
to which a liability of the Company or an ERISA Affiliate exists. Each Employee
Program (other than a Multiemployer Plan) which has been maintained by the
Company during the six-year period ending on the First Closing Date and which
has been intended to qualify under Section 401(a) or Section 501(c)(9) of the
Code has received a favorable determination or approval letter from the IRS
regarding its
11
<PAGE>
Page 28 of 117 Pages
qualification under such section or the remedial amendment period under Section
401(b) of the Code has not yet expired with respect to such Employee Program
and, to the knowledge of the Company, nothing has occurred that would adversely
affect such qualification since the date of such letter or application for a
determination or approval letter has been timely made and to the knowledge of
the Company, no reason exists why a favorable determination or approval shall
not be granted. Except as set forth on Schedule 4.12, the Company does not know
-------------
of any failure of any party to comply with any laws applicable with respect to
the Employee Programs that have been maintained by the Company or any Current
Affiliate, except for failures which would not subject the Company to any
material liability, and no such failure will result from completion of the
transactions contemplated hereby. With respect to any Employee Program ever
maintained by the Company or an ERISA Affiliate, there has been no "prohibited
transaction," as defined in Section 406 of ERISA or Code Section 4975, or breach
of any duty under ERISA or other applicable law or any agreement which in any
such case could subject the Company to material liability either directly or
indirectly (including, without limitation, through any obligation of
indemnification or contribution) for any damages, penalties, or taxes, or any
other loss or expense. No litigation or governmental administrative proceeding
(or investigation) or other proceeding (other than those relating to routine
claims for benefits) is pending or threatened with respect to any such Employee
Program (other than a Multiemployer Plan).
The Company and its Current Affiliates have not incurred any liability
under Title IV of ERISA which has not been paid in full prior to the Closing.
Neither the Company nor any of its Current Affiliates is liable for any material
"accumulated funding deficiency" (whether or not waived) with respect to any
Employee Program ever maintained by the Company or any ERISA Affiliate and
subject to Code Section 412 or ERISA Section 302. With respect to any Employee
Program subject to Title IV of ERISA, there has been no (and the transactions
contemplated by this Agreement will not result in any) (i) "reportable event,"
within the meaning of ERISA Section 4043 or the regulations thereunder (for
which the notice requirement is not waived under 29 C.F.R. Part 2615) or (ii)
other event or condition which presents a material risk of plan termination or
any other event that may cause the Company or any Current Affiliate to incur
material liability or have a material Lien imposed on its assets under Title IV
of ERISA. All payments and/or contributions required to have been made by the
Company and its Current Affiliates (under the provisions of any agreements or
other governing documents or applicable law) with respect to all Employee
Programs subject to Title IV of ERISA ever maintained by the Company or any
ERISA Affiliate, for all periods prior to the Closing, have been timely made.
Except as described on Schedule 4.12, no Employee Program maintained by the
-------------
Company or an ERISA Affiliate and subject to Title IV of ERISA (other than a
Multiemployer Plan) has any "unfunded benefit liabilities" within the meaning of
ERISA Section 4001(a)(18), as of each Closing Date. With respect to
Multiemployer Plans maintained by the Company or any ERISA Affiliate, Schedule
--------
4.12 states the aggregate amount of withdrawal liability or other termination
- ----
liability that would be incurred by the Company or any ERISA Affiliate if there
were a withdrawal from any such plan as determined by the most recent withdrawal
liability calculation prepared by such plan.
12
<PAGE>
Page 29 of 117 Pages
Except as disclosed on Schedule 4.12, none of the Employee Programs which is a
-------------
welfare plan maintained by the Company or any ERISA Affiliate provides health
care or any other non-pension benefits to any employees after their employment
is terminated (other than as required by Part 6 of Subtitle B of Title I of
ERISA or comparable statutes or regulations) or has ever promised to provide
such post-termination benefits.
For purposes of this subsection:
(a) "Employee Program" means (A) any employee benefit plan within
----------------
the meaning of Section 3(3) of ERISA and employee benefit plans (such as
foreign or excess benefit plans) which are not subject to ERISA, and (B)
any stock option plans, bonus or incentive award plans, severance pay
policies or agreements, deferred compensation arrangements, supplemental
income arrangements, vacation plans, and all other employee benefit
plans, agreements, and arrangements not described in (A) above, and (C)
any trust used to fund benefits under the foregoing maintained by the
Company or any ERISA Affiliate.
(b) An entity is an "ERISA Affiliate" of the Company if it would
---------------
have ever been considered a single employer with the Company under ERISA
Section 4001(b) or part of the same "controlled group" as the Company for
----------------
purposes of ERISA Section 302(d)(8)(C); and an entity is a "Current
-------
Affiliate" if it currently would be considered a single employer with the
---------
Company under ERISA Section 4001(b) or part of the same "controlled
----------
group" as the Company for purposes of ERISA Section 302(d)(8)(C).
-----
(c) An entity "maintains" an Employee Program if such entity
---------
sponsors, contributes to, or provides benefits under such Employee
Program, or has any obligation (by agreement or under applicable law) to
contribute to or provide benefits under such Employee Program, or if such
Employee Program provides benefits to or otherwise covers employees of
such entity (or, in respect of such employees, their spouses, dependents,
or beneficiaries).
(d) "Multiemployer Plan" means a (pension or non-pension) employee
------------------
benefit plan to which more than one employer contributes and which is
maintained pursuant to one or more collective bargaining agreements.
4.13. Private Offerings. No form of general solicitation or
-----------------
general advertising was used by the Company or any of its representatives, or,
to the knowledge of the Company, any other Person acting on behalf of the
Company, in connection with the offering of the Notes and Warrants being
purchased under this Agreement or under any other Transaction Document. Neither
the Company nor any Person acting on the Company's behalf has directly or
indirectly offered the Notes or the Warrants, or any part thereof or any other
similar securities or the securities being purchased under any other Transaction
Document, for
13
<PAGE>
Page 30 of 117 Pages
sale to, or sold or solicited any offer to buy any of the same from, or
otherwise approached or negotiated in respect thereof with any Person or Persons
other than the Purchasers and other investors who the Company reasonably
believed had such knowledge and experience in financial and business matters
that they were capable of evaluating the merits and risks of purchasing the
Notes and the Warrants. The Company further represents to the Purchasers that,
assuming the accuracy of the representations of the Purchasers as set forth in
Section 5 hereof, neither the Company nor any Person acting on the Company's
behalf has taken or will take any action which would subject the issue and sale
of the Notes and the Warrants or the securities being purchased under any other
Transaction Document to the provisions of Section 5 of the Securities Act,
except as contemplated by the Registration Rights Agreement. The Company has not
sold the Notes or the Warrants to anyone other than the Purchasers designated in
this Agreement.
4.14. Broker's or Finder's Commissions. In addition to and not
--------------------------------
in limitation of any other rights hereunder, the Company agrees that it will
indemnify and hold harmless the Purchaser from and against any and all claims,
demands or liabilities for broker's, finder's, placement agent's or other
similar fees or commissions and any and all liabilities with respect to any
taxes (including interest and penalties) payable or incurred or alleged to have
been incurred by the Company or any Person acting or alleged to have been acting
on the Company's behalf, in connection with this Agreement, the issuance or sale
of the Notes or the Warrants, or any other transaction contemplated by any of
the Transaction Documents.
4.15. Disclosure.
----------
(a) There is no untrue statement of material fact in this
Agreement or in any of the other Transaction Documents, and no omission
of a material fact necessary in order to make the statements contained
herein and therein not materially misleading in light of the
circumstances in which such statements were made.
(b) The historical financial and operating information
provided to the Purchasers by the Company has been derived from the
consolidated books and records of the Company based upon reasonable
methods as to allocations and calculations of such financial information.
4.16. Intentionally Deleted.
---------------------
4.17. Federal Reserve Regulations and Other Matters. The Company
---------------------------------------------
will not, directly or indirectly, use any of the proceeds from the sale of the
Notes and Warrants for the purpose, whether immediate, incidental or ultimate,
of buying any "margin stock," or of maintaining, reducing or retiring any
indebtedness originally incurred to purchase any stock that is currently a
"margin stock," or for any other purpose which might constitute the transactions
contemplated hereby a "purpose credit," in each case within the meaning of
Regulation G or U of the Board of Governors of the Federal Reserve System (12
C.F.R. 207
14
<PAGE>
Page 31 of 117 Pages
and 221, as amended, respectively), or otherwise take or permit to be taken any
action which would involve a violation of such Regulation G or Regulation U or
of Regulations T or X of the Board of Governors of the Federal Reserve System
(12 C.F.R. 220 and 224, as amended, respectively) or any other regulation of
such Board. No indebtedness that may be maintained, reduced or retired with the
proceeds from the sale of the Notes or Warrants was incurred for the purpose of
purchasing or carrying any "margin stock" and the Company does not own any such
"margin stock" or have any present intention of acquiring, directly or
indirectly any such "margin stock."
4.18. Books and Records. The minute books of the Company contain
-----------------
complete and accurate records of all meetings and other corporate actions of the
Company's stockholders and the Company's Board of Directors and committees
thereof and accurately reflect all transactions referred to therein. The stock
ledger of the Company is complete and reflects all issuances, transfers,
repurchases and cancellations of shares of Capital Stock of the Company.
4.19. Environmental Regulation, Etc.
------------------------------
(a) Except as set forth on Schedule 4.19, to the knowledge of
-------------
the Company, the Company (i) has no liability under any Environmental Law
or common law cause of action relating to or arising from environmental
conditions which could have a Material Adverse Effect, and any Property
owned, operated, leased, or used by the Company and any facilities and
operations thereon comply with and will continue to comply with all
applicable Environmental Laws to the extent that failure to comply could
have a Material Adverse Effect; (ii) has never entered into or been
subject to any judgment, consent decree, compliance order, or
administrative order with respect to any environmental or health and
safety matter or received any request for information, notice, demand
letter, administrative inquiry, or formal or informal complaint or claim
with respect to any environmental or health and safety matter or the
enforcement of any Environmental Law which could, individually or in the
aggregate, have a Material Adverse Effect; and (iii) has no reason to
believe that any of the items enumerated in the foregoing clause (ii)
will be forthcoming.
(b) Except as set forth on Schedule 4.19, to the knowledge of
-------------
the Company: (i) the Company has never generated, transported, used, stored,
treated, disposed of, or managed and will never generate, transport, use, store,
treat, dispose of, or manage any Hazardous Waste, except in substantial
compliance with applicable Environmental Laws; (ii) the Company is not aware of
and has not caused any Release of a Hazardous Material at any site presently or
formerly owned, operated, leased, or used by the Company; (iii) the Company has
never had Hazardous Material transported from any site presently or formerly
owned, operated, leased, or used by the Company for treatment, storage, or
disposal at any other place, except in substantial compliance with applicable
Environmental Laws; (iv) the Company does not presently own,
15
<PAGE>
Page 32 of 117 Pages
operate, lease, or use any site on which underground storage tanks are or
were located; (v) the Company has never placed underground tanks on any
site owned, operated, leased or used by the Company; (vi) the Company has
never removed underground tanks from any site presently or formerly
owned, operated, leased or used by the Company; (vii) the Company has
never had a Lien imposed by any Governmental Authority on any property,
facility, machinery, or equipment owned, operated, leased, or used by the
Company in connection with the presence of any Hazardous Material.
4.20. Properties and Assets. The Company has good record and
---------------------
marketable fee title to all real Property, has good and marketable title to, or
valid leasehold interests in, or licenses to use, all other Property and assets,
whether tangible or intangible, owned by them and reasonably necessary in the
conduct of business of the Company, except defects in title which do not and
will not have a Material Adverse Effect. All of the leases necessary in any
material respect for the operation of their respective properties and assets,
under which the Company holds any Property or assets, real or personal, are
valid, subsisting and enforceable and afford peaceful and undisturbed possession
of the subject matter of the lease, and no material default by the Company
exists under any of the provisions thereof. All buildings, machinery and
equipment of the Company are in good repair and working order, except for
ordinary wear and tear, and except as would not have a Material Adverse Effect.
All material current uses of such Property or assets of the Company are
permitted as of right and no such regulation or ordinance interferes with such
current uses. To the actual knowledge of the Company, there is no pending
change in any such laws, regulations and ordinances which would have a Material
Adverse Effect. Except as set forth on Schedule 4.20, no condemnation
-------------
proceeding is pending or, to the knowledge of the Company, threatened against
the Company. All Property and assets of any kind (real or personal, tangible or
intangible) of the Company are free from all Liens except for (i) Liens
disclosed on Schedule 4.20 hereto and (ii) Permitted Liens.
-------------
4.21. Insurance. A list of all insurance policies and fidelity
---------
bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors under which the Company may derive any
material benefit is set forth on Schedule 4.21 hereof. There is no claim by the
-------------
Company pending under any of such policies or bonds as to which coverage has
been questioned, reserved, denied or disputed by the underwriters of such
policies or bonds or their agents where such question, reservation, denial or
dispute would have a Material Adverse Effect. All premiums due and payable
under all such policies and bonds have been paid, and the Company is otherwise
in full compliance with the terms and conditions of all such policies and bonds.
Except as set forth on Schedule 4.21, such policies of insurance and bonds (or
-------------
other policies and bonds providing substantially similar insurance coverage) are
and have been in full force and effect for at least the last year and remain in
full force and effect. The Company knows of no threatened termination of any
such policies or bonds.
<PAGE>
Page 33 of 117 Pages
4.22. Employment Practices. Except as set forth on Schedule 4.22
-------------------- -------------
hereto, the Company is not a party to or in the process of negotiating any
collective bargaining or labor agreement or union contract. Except as set forth
on Schedule 4.22, there is no (i) charge, complaint or suit pending or, to the
-------------
knowledge of the Company, threatened against the Company respecting employment,
hiring for employment, terminating from employment, employment practices,
employment discrimination, terms and conditions of employment, safety, wrongful
termination, or wages and hours, involving more than $25,000 in any single
instance, (ii) unfair labor practice charge or complaint pending or, to the
knowledge of the Company, threatened against, or decision or order in effect and
binding on, the Company before or of the National Labor Relations Board, (iii)
grievance or arbitration proceeding arising out of or under collective
bargaining agreements pending or, to the knowledge of the Company, threatened
against the Company, (iv) strike, labor dispute, slow-down, work stoppage or
other interference with work pending or, to the knowledge of the Company,
threatened against the Company, or (v) to the knowledge of the Company, union
organizing activities or union representation question threatened or existing
with respect to any groups of employees of the Company.
4.23. Financial Statements.
--------------------
(a) The Company has delivered to the Purchasers complete and
correct copies of its audited financial statements for the fiscal years
ended December 31, 1994 and 1995 and its unaudited financial statements
for the fiscal quarters ended March 31, 1996, June 30, 1996 and September
30, 1996, together with the notes thereto (the "Financial Statements").
The Financial Statements fairly present in all material respects the
financial position of the Company on the dates of such statements and the
results of its operations for the periods covered thereby; and have been
prepared in accordance with GAAP consistently applied, except, with
respect to unaudited financial statements, the absence of notes thereto
and statements of cash flows and subject to customary year-end
adjustments.
(b) As of December 31, 1995 and as of each Closing Date, and
except as set forth in the Schedules hereto, there are no material
liabilities of the Company of any nature, whether accrued, absolute,
contingent or otherwise, asserted or, to the Company's knowledge,
unasserted, except liabilities stated or adequately reserved against in
the Financial Statements or liabilities or claims which are not required
to be reflected in the Financial Statements or in the notes thereto under
GAAP.
4.24. Intellectual Property.
---------------------
(a) Except as described in Schedule 4.24 hereto, the Company
-----------
has exclusive ownership of, or a license to use, all patent, copyright,
trade secret, trademark, or other proprietary rights (collectively,
"Intellectual Property") used or to be used in the business of the
Company as presently conducted. There are no claims or
17
<PAGE>
Page 34 of 117 Pages
demands of any person pertaining to any of such Intellectual Property and no
proceedings have been instituted, or are pending or, to the Company's knowledge,
threatened, which challenge the rights of the Company in respect thereof. No
claim is known by the Company to be pending or threatened to the effect that any
Intellectual Property owned or licensed by the Company, or which the Company
otherwise has the right to use, is invalid or unenforceable by the Company. The
Company has the right to use, free and clear of claims of other Persons, all
customer lists, designs, manufacturing or other processes, computer software,
systems, data compilations, research results, formulae and other information
required for or incident to its products or its business as presently conducted.
(b) All patents, patent applications, trademarks, trademark
applications and registrations and registered copyrights which are owned or by
or licensed to the Company or used or to be used by the Company in its business
as presently conducted, and all other items of Intellectual Property which are
material to the business or operations of the Company, are listed on Schedule
--------
4.24. All of such patents, patent applications, trademark registrations,
- ----
trademark applications and registered copyrights have been duly registered in,
filed in or issued by the United States Patent and Trademark Office, the United
States Register of Copyrights, or the corresponding offices of other
jurisdictions as identified on said Schedule 4.24, and have been properly
-------------
maintained and renewed in accordance with all applicable provisions of law and
administrative regulations of the United States and each such jurisdiction.
(c) All licenses or other agreements under which the Company is
granted rights in Intellectual Property are listed on Schedule 4.24. All said
-------------
licenses or other agreements are in full force and effect and there is no
material default by any party thereto. To the Company's knowledge, the
licensors under said licenses and other agreements have and had all requisite
power and authority to grant the rights purported to be conferred thereby. True
and complete copies of all such licenses or other agreements, and all amendments
thereto, have been provided to the Purchasers.
(d) All licenses or other agreements under which the Company has
granted rights to others in Intellectual Property owned or licensed by the
Company are listed on Schedule 4.24. All said licenses or other agreements are
-------------
in full force and effect and there is no material default by the Company, or to
the Company's knowledge, any other party thereto. True and complete copies of
all such licenses or other agreements, and all amendments thereto, have been
provided to the Purchasers.
(e) The Company has taken all steps required in accordance with
sound business practice to establish and preserve its ownership of all
Intellectual Property rights with respect to its products, services and
technology. All proprietary trade secrets developed by or belonging to the
Company which have not been patented
18
<PAGE>
Page 35 of 117 Pages
have been kept confidential and each current and prior employee (other
than clerical staff and other employees without access to proprietary
trade secrets), consultant and Scientist (as defined below), except as
disclosed on Schedule 4.24 hereto, has executed an agreement regarding
-------------
confidentiality, proprietary information and assignment of inventions to
the Company and to the best of the Company's knowledge, no such Person is
in breach of any agreements or arrangements with employers or others
relating to proprietary information or assignments of inventions. The
Company has not made any information regarding the Company's proprietary
trade secrets available to any Person other than those employees,
consultants and Scientists who have executed such agreements regarding
confidentiality, proprietary information and assignment of inventions.
Except as set forth on Schedule 4.24, to the best of the Company's
-------------
knowledge, no other Person, including any prior or current employer of
any of the Company's employees, consultants or Scientists, has any right
to or interest in any inventions, improvements, discoveries or other
information assigned to the Company by any of the Company's employees,
consultants or Scientists. Except as set forth on Schedule 4.24, the
-------------
Company has no actual knowledge of any infringement by others of any of
the Company's Intellectual Property rights.
(f) To the Company's knowledge, the Company's products and the
business and activities presently conducted or proposed to be conducted
by the Company do not infringe or violate any Intellectual Property owned
by any other Person. No proceeding charging the Company with infringement
of any adversely held Intellectual Property has been filed or is
threatened to be filed. To the Company's knowledge, there exists no
unexpired patent or patent application which includes claims that would
be infringed by the products, activities or business of the Company. The
Company is not making unauthorized use of any confidential information or
trade secrets of any Person, including without limitation any prior or
current employer of any of the Company's employees, consultants or
Scientists. Except as set forth on Schedule 4.24, neither the Company,
-------------
nor, to the Company's knowledge any employee of the Company or any of the
scientists who are performing consulting services for the Company (such
scientists being the individuals designated as "Scientists" on Schedule
--------
4.24, are hereinafter referred to herein as the "Scientists"), has any
----
agreements or arrangements with any Person other than the Company, or is
obligated under any contract (including any license, covenant or
commitment of any nature) with any Person other than the Company, or is
subject to any judgment, decree or order of any court or administrative
agency, that restricts, interferes or conflicts with the Company's
business or the performance of such employee's or Scientist's duties as
an officer, employee, consultant or director of the Company.
4.25. Taxes. Except as otherwise set forth in Schedule 4.25, the
----- -------------
Company has filed or obtained extensions of all federal, state, local and
foreign income, excise, franchise, real estate, sales and use and other tax
returns heretofore required by law to be filed by it. Except as otherwise set
forth in Schedule 4.25, all material taxes, including, without
-------------
19
<PAGE>
Page 36 of 117 Pages
limitation, all federal, state, county, local, foreign or other income,
Property, sales, use, franchise, value added, employees' income withholding,
social security, unemployment and other taxes, of any nature whatsoever which
have become due or payable by the Company, including any fines or penalties with
respect thereto or interest thereon, whether disputed or not (collectively,
"Taxes"), have been paid in full or are adequately provided for in accordance
with GAAP on the financial statements of the applicable Person. Except as
otherwise set forth in Schedule 4.25, all material deposits, Taxes and other
-------------
assessments and levies required by law to be made, withheld, collected or
provided for by the Company, including deposits with respect to Taxes
constituting employees' income withholding taxes, have been duly made, withheld,
collected or provided for and have been paid over to the proper federal, state
or local authority, or are held by the Company for such payment. No Liens
arising from or in connection with Taxes have been filed and are currently in
effect against the Company, except for Liens for Taxes which are not yet due.
4.26. Transactions with Affiliates. Except as otherwise set
----------------------------
forth on Schedule 4.26, there are no material transactions, agreements or
-------------
understandings between or among the Company and any of its officers or directors
or stockholders or any of their Affiliates or associates.
4.27. No Other Business. The Company has not and is not engaged
-----------------
in any material respect in any business other than the development,
manufacturing, marketing and sale of pharmaceutical products.
4.28. Compliance with Laws. The Company is in substantial
--------------------
compliance with the requirements of all applicable laws, rules, regulations and
orders of any Governmental Authority, except those the non-compliance with which
would not, singly or in the aggregate, have a Material Adverse Effect, or impair
the ability of the Company to perform fully on a timely basis any material
obligation which the Company has or will have under any Transaction Document to
which the Company is a party.
4.29. Investment Company Act. The Company is not an "investment
----------------------
company" within the meaning of the Investment Company Act of 1940, as amended.
4.30. Public Utility Holding Company Act. The Company is not a
----------------------------------
"holding company," or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company," as such terms are defined in the Public Utility Holding Company Act of
1935, as amended.
4.31. Material Contracts and Obligations. Set out on Schedule
---------------------------------- --------
4.31 hereto is a list of: (a) each agreement to which the Company is a party or
- ----
by which it is bound which requires future expenditures by the Company in excess
of $50,000, (b) all employment and consulting agreements, employee benefit,
bonus, pension, profit-sharing, stock option, stock purchase and similar plans
and arrangements, and distributor and sales representative
20
<PAGE>
Page 37 of 117 Pages
agreements to which the Company is a party or by which it is bound, and (c) any
agreement to which any stockholder, officer or director of the Company, or any
"affiliate" or "associate" of such persons (as under the Securities Act of 1933,
as amended), is presently a party, including without limitation any agreement or
other arrangement providing for the furnishing of services by, rental of real or
personal property from, or otherwise requiring payments to, any such person or
entity. The Company has delivered to the Purchasers copies of such of the
foregoing as requested. The Company and, to the best of the Company's
knowledge, each other party thereto have in all material respects performed all
the obligations required to be performed by them to date, have received no
notice of default and are not in default (with due notice or lapse of time or
both) under any lease, agreement or contract described in subsections (a), (b)
or (c) above or that might result in payments by the Company in excess of
$50,000, now in effect to which the Company or any subsidiary is a party or by
which it or its property may be bound. All of such agreements and contracts are
valid, binding and in full force and effect with respect to the Company.
4.32. FDA Approvals. Set out on Schedule 4.32 hereto is a
------------- -------------
detailed description of the United States Food and Drug Administration ("FDA")
approvals that the Company is required to obtain for each of the Company's
pharmaceutical products, the dates on which "Investigational New Drug
Applications" and "New Drug Applications" were (or are expected to be) filed by
the Company with the FDA for each such product, the dates on which clinical
tests and trials were (or are expected to be) completed by the Company for each
such product, and the dates on which FDA approvals were (or are expected to be)
obtained by the Company for each such product.
5. REPRESENTATIONS OF THE PURCHASERS.
---------------------------------
5.1. Purchase for Investment. Each Purchaser individually and
-----------------------
not jointly represents that (a) it is an accredited investor as defined in
Regulation D under the Securities Act, or (b) by reason of its business and
financial experience, and the business and financial experience of those
persons, if any, retained by it to advise it with respect to its investment in
the Notes and the Warrants, such Purchaser together with such advisers have such
knowledge, sophistication and experience in business and financial matters as to
be capable of evaluating the merits and risk of the prospective investment, and
that it is purchasing the Notes and the Warrants for its own account or for one
or more separate accounts maintained by it or for the account of one or more
institutional investors on whose behalf such Purchaser has authority to make
this representation for investment and not with a view to the distribution
thereof or with any present intention of distributing or selling any of the
Notes and the Warrants except in compliance with the Securities Act and except
to one or more such institutional investors, provided that the disposition of
such Purchaser's or such investor's property shall at all times be within its
control. Each Purchaser understands and agrees that the Notes and the Warrants
have not been registered under the Securities Act and may be resold (which
resale is not now
21
<PAGE>
Page 38 of 117 Pages
contemplated) only if registered pursuant to the provisions thereunder or if an
exemption from registration is available.
5.2. Authorization; Non-Contravention; Validity and Binding
------------------------------------------------------
Effect. Each Purchaser individually and not jointly represents that the
- ------
execution, delivery and performance by such Purchaser of the Transaction
Documents to which such Purchaser is a party and all other instruments or
agreements to be executed in connection herewith or therewith, and the purchase
by such Purchaser of the Notes and Warrants pursuant to this Agreement, are
within such Purchaser's powers, having been duly authorized by all necessary
action on the part of such Purchaser; do not require any License, authorization,
approval, qualification or formal exemption from, or other action by or in
respect of, or filing of a declaration or registration with, any court,
Governmental Authority, agency or official or other Person (except such as have
been obtained or as may be required under the Securities Act or state securities
or Blue Sky laws); do not contravene or constitute a default under or violation
of (i) any provision of applicable law or regulation of any Governmental
Authority, (ii) the organizational documents, if any, of such Purchaser, (iii)
any agreement (or require the consent of any Person under any agreement that has
not been obtained) to which such Purchaser is a party, or (iv) any judgment,
injunction, order, decree or other instrument binding upon such Purchaser or any
of its properties; and do not and will not result in the creation or imposition
of any Lien on any asset of such Purchaser. This Agreement is the legal, valid
and binding obligation of such Purchaser, and is enforceable in accordance with
its terms, except for (a) the effect upon this Agreement of bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to or
affecting the rights of creditors generally and (b) limitations imposed by a
court of competent jurisdiction under general equitable principles upon the
specific enforceability of any of the remedies, covenants or other provisions of
this Agreement and upon the availability of injunctive relief or other equitable
remedies.
5.3. Broker's or Finder's Commissions. In addition to and not
--------------------------------
in limitation of any other rights hereunder, each Purchaser individually and not
jointly agrees that it will indemnify and hold harmless the Company from and
against any and all claims, demands or liabilities for broker's, finder's,
placement agent's or other similar fees or commissions and any and all
liabilities with respect to any taxes (including interest and penalties) payable
or incurred or alleged to have been incurred by such Purchaser or any Person
acting or alleged to have been acting on such Purchaser's behalf, in connection
with this Agreement, the issuance or sale of the Notes or the Warrants, or any
other transaction contemplated by any of the Transaction Documents.
5.4 Source of Funds. Each Purchaser individually and not
---------------
jointly represents that the funds used by such Purchaser to purchase the Notes
and Warrants to be purchased by such Purchaser either (a) consist of funds which
do not constitute assets of any employee benefit plan (other than a governmental
plan exempt from the coverage of ERISA), or (b) consist of funds which may be
deemed to constitute assets of one or more specific employee benefit plans,
complete and accurate information as to the identity of each of which
22
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Page 39 of 117 Pages
employee benefit plans has been delivered to the Company by such Purchaser. As
used in this Section 5.4, the terms "employee benefit plan" and "governmental
plan" shall have the respective meanings assigned to such terms in section 3 of
ERISA.
6. TERMS OF THE NOTES; PAYMENTS AND REDEMPTION; REGISTRATION
---------------------------------------------------------
6.1. Maturity; Principal Amount. The maximum aggregate principal
--------------------------
amount of the Notes to be issued to the Purchasers shall be SEVEN MILLION
DOLLARS AND NO CENTS ($7,000,000). The Notes shall mature and all principal
payments and all accrued and unpaid interest thereon and any other payments due
thereunder shall be due and payable in full, without set-off, deduction or
counterclaim, on January 31, 2002 (the "Stated Maturity Date of the Notes").
6.2. Interest. The Notes shall not bear interest for the period
--------
from the dates of issuance thereof through January 31, 1999. The Notes shall
bear interest on the unpaid principal amount thereof from February 1, 1999 until
the Stated Maturity Date of the Notes, at the following rates: (a) from
February 1, 1999 through January 31, 2000, at a rate of seven percent per annum;
(b) from February 1, 2000 through January 31, 2001, at a rate of eight percent
per annum; and (c) from February 1, 2001 through the Stated Maturity Date of the
Notes, at a rate of nine percent per annum. Interest on the unpaid principal
amount of the Notes shall be computed on the basis of a 360 day year and the
actual days elapsed, and shall be payable quarterly in arrears on the last day
of March, June, September and December of each year, commencing on March 31,
1999, and upon any other payment of any principal amount of the Notes.
6.3. Default Interest and Late Charges. In the event that any
---------------------------------
principal amount of the Notes is not paid within five (5) Business Days of when
due and payable (whether at stated maturity, by acceleration or otherwise), the
interest rate on such principal amount shall, notwithstanding anything herein to
the contrary and until all principal payments on the Notes have been brought
current, thereafter be increased by two percent (2%) per annum. Any interest on
any principal amount of the Notes that is not paid when due and payable shall
thereafter be paid, on demand by the holder of such Notes for which such
interest is owed, together with interest thereon at a rate of two percent (2%)
per annum in excess of the rate set forth in Subsection 6.2.
6.4. Payments on the Notes. All payments of principal and
---------------------
interest on the Notes and any other payments due thereunder shall be made by the
Company, without set-off, deduction or counterclaim, to each Purchaser (or its
nominee) at such Purchaser's address and in accordance with the instructions set
forth on such Purchaser's signature page attached hereto, or at such other
address or by such other method as such Purchaser (or its nominee) or any
transferee or successor holder of the Notes shall have designated to the Company
in writing. All such payments shall be made in dollars and in immediately
available funds not
23
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Page 40 of 117 Pages
later than 3:00 p.m. Boston time, on the date such payment shall become due.
Any payment received after such time on any Business Day shall be deemed to have
been received on the next Business Day. If any payment hereunder becomes due
and payable on a day other than a Business Day, such payment shall be extended
to the next succeeding Business Day, and, with respect to payments of principal,
interest thereon shall be payable at the then applicable rate during such
extension.
6.5. Optional Redemption. The Company may at any time and from time to
-------------------
time redeem the then outstanding principal amount of the Notes, in whole or in
part, at a redemption price equal to 100% of the principal amount of Notes to be
redeemed, by giving written notice of redemption to all holders of the Notes not
less than 30 days and not more than 60 days prior to the Redemption Date,
specifying (i) the principal amount of the Notes to be redeemed, (ii) the
Redemption Date, and (iii) the accrued and unpaid interest (as of the Redemption
Date) applicable to the Notes to be redeemed. Notice of redemption having been
so given, the aggregate principal amount of Notes so specified in such notice
and all accrued and unpaid interest to the Redemption Date applicable to the
Notes to be redeemed, shall become due and payable on the Redemption Date. Any
partial redemption shall be in an aggregate principal amount of at least
$500,000 or integral multiples of $500,000 in excess thereof, and shall be
allocated among all of the Notes outstanding, pro rata, in the same proportion
as the outstanding principal amount of each Note bears to the aggregate
outstanding amount of all Notes. No redemption of the Notes pursuant to this
Subsection 6.5 shall relieve the Company from its obligation under Subsection
2.2 of this Agreement to issue and sell to the Purchasers the Notes and Warrants
to be issued and sold to the Purchasers at the Second Closing. In connection
with any such redemption, the holders of Notes shall deliver the Notes to the
Company, and, in connection with holders whose Notes are redeemed only in part,
the Company (at the Company's expense) shall execute, authenticate and deliver
to such holders new Notes equal in principal amount to the unredeemed portion of
the Notes surrendered.
6.6. Change of Control.
-----------------
(a) If there occurs a Change of Control (the date on which a
Change of Control first occurs being referred to herein as the "Change Date"),
then the Company shall notify all holders of the Notes in writing, as provided
in subparagraph (b) below, and the Company shall promptly make an offer to
redeem the Notes (a "Change of Control Offer") at a purchase price in cash equal
to 100% of the principal amount thereof plus accrued interest, if any, to the
Change of Control Purchase Date (as defined below), in accordance with the
procedures set forth in this Subsection 6.6.
(b) Promptly, and in any event within 30 days, after the Change
Date, the Company shall send by first-class mail to each holder of Notes, a
written notice stating that, pursuant to this Subsection 6.6:
24
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Page 41 of 117 Pages
(i) a Change of Control has occurred and the holders of
the Notes may elect to have their Notes purchased by the Company either in
whole or in part, at a purchase price in cash equal to 100% of the
principal amount thereof plus accrued and unpaid interest, if any, to the
date of repurchase;
(ii) the repurchase date (which shall be no less than 30
days nor more than 60 days after the date such notice is mailed) (the
"Change of Control Purchase Date");
(iii) the circumstances and relevant facts known to the
Company regarding such Change of Control (including, to the extent
applicable, information with respect to pro forma historical income, cash
flow and capitalization after giving effect to such Change of Control)
which the Company in good faith believes will enable such holder of Notes
to make an informed decision; and
(iv) all instructions and materials necessary to tender the
Notes pursuant to the Change of Control Offer, together with the
information contained in paragraph (c) below.
(c) Each holder of Notes electing to have its Notes purchased
will be required to deliver to the Company, at the address specified in the
notice received by such holder from the Company, at least three Business Days
prior to the Change of Control Purchase Date, an election form specifying the
principal amount of Notes such holder elects to have purchased.
(d) On the Change of Control Purchase Date, the Company shall pay
the purchase price plus accrued interest to the holders of Notes who have
elected to have their Notes purchased by the Company under this Subsection 6.6,
and upon the payment of such purchase price and accrued interest, the holders of
such purchased Notes shall deliver such purchased Notes to the Company for
cancellation. In connection with holders whose Notes are purchased only in part,
the Company (at the Company's expense) shall execute, authenticate and deliver
to such holders new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered.
6.7. Redemption Following a Qualified Public Offering.
------------------------------------------------
(a) If there occurs a Qualified Public Offering (the date of
closing of such event being a "Qualified Public Offering Date"), then the
Company shall notify all holders of the Notes in writing, and the Company,
within thirty days after the Qualified Public Offering Date, shall either (i)
redeem (a "Qualified Public Offering Redemption") all of the Notes at a purchase
price in cash equal to 100% of the principal amount of the Notes plus accrued
interest, if any, to the Redemption Date
25
<PAGE>
Page 42 of 117 Pages
(which Redemption Date shall be no earlier than 30 days nor later than 60 days
after the Qualified Public Offering Date), or (ii) convert (a "Qualified Public
Offering Conversion") all of the Notes into new converted notes (the "Converted
Notes") in a principal amount equal to 100% of the outstanding principal amount
of the Notes having the terms described in clause (d) below. The determination
of whether to redeem the Notes for cash or convert the Notes into Converted
Notes shall be made by the Company in its sole discretion.
(b) If, following a Qualified Public Offering, the Company elects
to make a Qualified Public Offering Redemption, the Company shall deliver
written notice to the holders of the Notes in accordance with, and shall follow
the procedures set forth in, Subsection 6.5 of this Agreement. Upon receipt of
written notice of a Qualified Public Offering Redemption, each holder of Notes
shall have 20 days to elect to exercise its rights under Section 6.8 of this
Agreement, and to the extent any holder of Notes shall not elect to exercise its
rights under Section 6.8 within such 20 day period, the rights of such holder
under Section 6.8 shall terminate.
(c) If, following a Qualified Public Offering, the Company elects
to make a Qualified Public Offering Conversion, promptly, and in any event
within 30 days, after the Qualified Public Offering Date, the Company shall send
by first-class mail to each holder of Notes, a written notice stating that,
pursuant to this Subsection 6.7:
(i) a Qualified Public Offering has occurred and the
Company has elected to convert all of the Notes into Converted Notes having
a stated principal amount equal to 100% of the principal amount thereof;
(ii) the conversion date (which shall be the 90th day after
the Qualified Public Offering Date) (the "Conversion Date") and the Stated
Maturity of the Converted Notes;
(iii) the Applicable Converted Note Rate as of the date of
such notice; and
(iv) all instructions and materials necessary to tender the
Notes pursuant to the Qualified Public Offering Conversion, together with
the information contained in paragraph (d) below.
(d) Converted Notes issued pursuant to a Qualified Public
Offering Conversion shall have the following terms: (i) the Converted Notes
shall have a Stated Maturity (the "Stated Maturity Date of the Converted Notes")
of not later than the earlier of (A) two years from the Conversion Date or (B)
the Stated Maturity Date of the Notes; (ii) the principal of the Converted Notes
shall be payable in not more than
26
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Page 43 of 117 Pages
eight equal quarterly principal installments commencing on the 90th day after
the Conversion Date and continuing every 90th day thereafter with a final
installment due and payable on the Stated Maturity Date of the Converted Notes;
(iii) the Converted Notes shall bear interest on the unpaid principal balance
thereof at a rate per annum equal to the Applicable Converted Note Rate; and
(iv) interest on the unpaid principal amount of the Converted Notes shall be
computed on the basis of a 360 day year and the actual days elapsed, and shall
be payable quarterly in arrears commencing on the 90th day after the Conversion
Date and continuing every 90th day thereafter, and upon any other payment of any
principal amount of the Converted Notes.
(e) On the Conversion Date, the Company shall pay to all holders
of Notes all accrued and unpaid interest, if any, on the Notes through the
Conversion Date and the Company (at the Company's expense) shall execute,
authenticate and deliver to such holders Converted Notes in principal amount
equal to the principal amounts of the Notes, and upon payment of such purchase
price and accrued interest, shall deliver the Notes to the Company for
cancellation.
(f) Except as otherwise set forth in this Subsection or in the
Converted Notes, all Converted Notes issued pursuant to this Subsection shall be
deemed to be "Notes" for all purposes of this Agreement and the other
Transaction Documents and the holders of Converted Notes shall be entitled to
all rights and remedies available to the holders of Notes hereunder and under
the Security Documents and the other Transaction Documents.
6.8. Right of Holders to Convert Notes into Common Stock.
---------------------------------------------------
(a) Subject to Section 6.7(b) of this Agreement, if there occurs
a Qualified Public Offering, each holder of Notes shall have the right, at any
time and from time to time until the date which is two years after the Qualified
Public Offering Date, to cause the Company to convert the Notes held by such
holder, in whole or in part, into such number of shares of Common Stock as shall
equal the quotient of (i) the aggregate principal amount of the Notes tendered
for conversion divided by (ii) the Initial Qualified Public Offering Price. Any
partial conversion of any holder's Notes shall be in a principal amount of not
less than the lesser of 25% of the principal amount of each such holder's Notes
or $250,000.
(b) Each holder of Notes electing to have all or any portion of
its Notes converted into Common Stock pursuant to this Subsection 6.8 will be
required to deliver to the Company, at its principal office, at least thirty
(30) days prior to the date of conversion, a written notice of conversion
specifying (i) the principal amount of Notes such holder elects to have
converted, (ii) the name or names in which such holder desires the certificate
or certificates for Common Stock to be issued, and (iii) the address to which
such holder desires delivery to be made of such new certificates for
27
<PAGE>
Page 44 of 117 Pages
Common Stock to be issued upon such conversion. On the date of conversion,
the Company shall issue and deliver to such holder or its designee, by hand
delivery, by courier or by first class mail (postage prepaid), at the
address designated by such holder, certificates for the number of shares of
Common Stock to which such holder shall be entitled as a result of the
conversion of its Notes, and upon receipt by the such holder of such
certificates for shares of Common Stock, such holder shall deliver such
Notes to the Company for cancellation. In connection with any holder whose
Notes are converted into Common Stock only in part, the Company shall
execute, authenticate and deliver to such holder new Notes equal in
principal amount to the unconverted portion of the Notes surrendered. The
issuance of certificates for Common Stock upon conversion of Notes shall be
made without charge to the holders of the Notes for any issuance tax in
respect thereof or other costs incurred by the Company in connection with
such conversion and the related issuance of such Common Stock.
(c) The Company shall at all times reserve and keep
available out of its authorized and unissued Common Stock, solely for
issuance upon the conversion of Notes as herein provided, free from any
preemptive rights or other obligations, such number of shares of Common
Stock, as shall from time to time be issuable upon the conversion of all
outstanding Notes. The Company shall prepare and shall in good faith use
all reasonable efforts to obtain and keep in force such governmental or
regulatory permits or other authorizations as may be required by law, and
shall comply with all requirements as to registration, qualification or
listing of the Common Stock, if applicable, in order to enable the Company
lawfully to issue and deliver to each holder of Notes such number of shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all Notes then outstanding and convertible into shares of
Common Stock. The Company shall not close its books against the transfer of
Common Stock in any manner that would interfere with the timely conversion
of any of the Notes.
6.9. Security for and Priority of Notes. The Notes shall at all
----------------------------------
times be secured by substantially all of the property and assets of the Company
pursuant to the terms of the Security Documents. The rights and remedies of the
holders of the Notes under this Agreement and the other Transaction Documents
shall be senior in priority to any and all rights and remedies of the holders of
the Capital Stock of the Company, including, without limitation, any right of
the holders of Preferred Stock or other Capital Stock of the Company to cause
the Company to redeem, repurchase, convert into Indebtedness, or make or pay any
dividend, liquidation preference or other distribution in respect of, or issue
any Capital Stock or securities for or in respect of, any such Preferred Stock
or other Capital Stock of the Company.
28
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Page 45 of 117 Pages
6.10. Registration and Exchange of Notes.
----------------------------------
(a) The Company shall maintain, at its principal office, a
register for the Notes, in which the Company shall record the name and
address of each Person in whose name each Note has been issued and the name
and address of each transferee and prior owner of each Note. The Company
may deem and treat the Person in whose name a Note is so registered as the
holder and owner thereof for all purposes until due presentment of such
Note for registration of transfer as provided in this Subsection 6.10.
(b) Upon surrender for exchange or registration of
transfer any Note at the principal office of the Company, the Company shall
execute and deliver, at its expense, one or more new Notes of any
denominations (of at least $100,000 or such lesser amount as shall equal
the aggregate principal amount of all Notes held by any holder) requested
by the holder of the surrendered Note, each dated the date to which
interest has been paid on the Note so surrendered (or, if no interest has
been paid, the date of such surrendered Note), but in the same aggregate
unpaid principal amount as such surrendered Note, and registered in the
name or such Person or Persons as shall be designated in writing by such
holder. Every Note surrendered for registration of transfer shall be duly
endorsed, or be accompanied by a written instrument of transfer duly
executed by the holder of such Note or by his attorney duly authorized in
writing.
(c) At the request of any holder of any Note, the Company
will issue, at its expense, in replacement of any Note or Notes lost,
stolen, damaged or destroyed, upon surrender of the mutilated portions
thereof, if any, a new Note or Notes of the same denominations, of the same
unpaid principal amounts and otherwise of the same tenor as, the Note or
Notes so lost, stolen, damaged or destroyed. The Company may condition the
replacement of a Note reported by a holder as lost, stolen, damaged or
destroyed, upon the receipt from such holder of an indemnity, security or
surety bond (at the holder's expense) reasonably satisfactory to the
Company.
7. CERTAIN PROVISIONS WITH RESPECT TO THE WARRANTS.
-----------------------------------------------
7.1. Special Repurchase Right of the Company. If, at any time
---------------------------------------
after the Second Closing Date but prior to the first anniversary of the First
Closing Date, the Company shall have redeemed all of the Notes, the Company
shall have the right to repurchase (the "Special Repurchase Right") from each
holder of Warrants a maximum of five percent (5%) of the aggregate amount of
Warrants held by such holder, at a repurchase price (the "Repurchase Price") in
cash equal to $.01 per share of Common Stock purchasable upon exercise the
Warrants. In the event that any holder of Warrants shall hold both Series A
Warrants and Series B Warrants, the Company's Special Repurchase Right shall be
applied first against all Series B Warrants held by such holder and then, if but
only to the extent necessary, to the
29
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Page 46 of 117 Pages
Series A Warrants held by such holder. If the Company elects to exercise its
Special Repurchase Right, the Company shall give written notice of the
repurchase to all holders of Warrants not less than 10 days prior to the
proposed repurchase date (the "Repurchase Date"). Upon the provision of notice
of the Company's exercise of its Special Repurchase Right, all Warrants covered
by such notice shall no longer be exercisable. On the Repurchase Date, the
Company shall deliver to each holder of Warrants the Repurchase Price for the
Warrants being repurchased from such holder, and each holder of Warrants shall
deliver to the Company the Warrant certificate(s) evidencing such holder's
Series B Warrants (and/or, if necessary, the certificate(s) evidencing such
holder's Series A Warrants), duly endorsed for transfer to the Company. On the
Repurchase Date, the Company (at the Company's expense) shall execute,
authenticate and deliver to each holder of Warrants, a new Warrant certificate
(or certificates) evidencing the non-repurchased Warrants surrendered by such
holder.
7.2. Pre-emptive Rights of Holders of Warrants.
-----------------------------------------
(a) The Company hereby grants to each holder of Warrants a
right (the "Pre-emptive Right") to purchase all or any part of such
holder's Pro Rata Portion (as hereinafter defined) of any New Securities
(as defined in Subsection 7.2(b)) which the Company may, from time to time,
at any time on or after the date hereof, propose to issue and sell, subject
to the terms and conditions set forth below. A holder of Warrants' Pro Rata
Portion shall mean a fraction, the numerator of which is the number of
shares of Common Stock then held by such holder plus the number of shares
of Common Stock issuable upon exercise of any Warrants and other
convertible securities, options, rights or warrants then held by such
holder, and the denominator of which is the total number of shares of
Common Stock then outstanding plus the total number of shares of Common
Stock issuable upon conversion or exercise of then outstanding Preferred
Stock, Series D Common Warrants, Series D Preferred Warrants, Series E
Common Warrants, Series F Common Warrants and other convertible securities,
options, rights or warrants; provided, however, for purposes of calculating
the Pro Rata Portion of any holder of Warrants hereunder, the number of
shares of Common Stock issued or issuable upon conversion of the Notes
shall be excluded.
(b) "New Securities" shall mean any Capital Stock of the
Company whether now authorized or not, and all rights, options and warrants
to purchase capital stock, and securities of any type whatsoever which are,
or may become, convertible into Capital Stock; provided however, that the
-------- -------
term "New Securities" does not include (i) shares of Series F Preferred or
Series F Common Warrants issued or issuable in connection with the Series F
Financing; (ii) the Notes and Warrants issued or issuable pursuant to the
terms of this Agreement, the shares of Common Stock issued or issuable upon
the conversion or exercise of the Series A Preferred, Series B Preferred,
Series D Preferred, Series E Preferred, Series F Preferred, Series D Common
Warrants, Series D Preferred Warrants, Series E Common Warrants or the
Series F Common Warrants; (iii) Common Stock offered to the public pursuant
to a Qualified Public Offering; (iv)
30
<PAGE>
securities issued for the acquisition of another corporation by the Company
by merger, purchase of substantially all the assets of such corporation or
other reorganization resulting in the ownership by the Company of not less
than a majority of the voting power of such corporation; (v) not more than
850,000 shares of Common Stock or rights, options or warrants to acquire
Common Stock (such number being subject to adjustment for any stock
dividend, stock split, subdivision, combination or other recapitalization
of the Common Stock of the Company) issued to directors, employees or
consultants of the Company pursuant to a stock option plan or other similar
stock plan or agreement or otherwise and, in the case of rights, options or
warrants, the shares of Common Stock issuable upon exercise thereof; or
(vi) securities issued as a result of any stock split, stock dividend or
reclassification of Common Stock, distributable on a pro rata basis to all
holders of Common Stock.
(c) In the event the Company intends to issue New
Securities, the Company shall give each holder of Warrants written notice
of such intention, describing the type of New Securities to be issued, the
price thereof and the general terms upon which the Company proposes to
effect such issuance. Each holder of New Warrants shall have 20 days from
the date of any such notice to agree to purchase (i) all or any part of
such holder's Pro Rata Portion of such new Securities and (ii) all or part
of any other holder of Warrants' Pro Rata Portion of such New Securities to
the extent that such other holder of Warrants does not elect to purchase
its full Pro Rata Portion of such New Securities, for the price and upon
the general terms and conditions specified in the Company's notice by
giving written notice to the Company stating the quantity of New Securities
to be so purchased.
(d) In the event any holder or holders of Warrants fails
to exercise any Pre-emptive Right with respect to any New Securities within
such 20-day period, the Company may within 120 days thereafter sell any or
all of such New Securities not agreed to be purchased by such holder or
holders of Warrants, at a price and upon general terms no more favorable to
the purchasers thereof than specified in the notice given to each holder of
Warrants pursuant to paragraph (c) above. In the event the Company has not
sold such New Securities within such 120-day period, the Company shall not
thereafter issue or sell any New Securities without first offering such New
Securities to the holders of Warrants in the manner provided above.
(e) For purposes of this Subsection 7.3, a "holder of
Warrants" shall include the general partners, officers or other affiliates
of a holder of Warrants, and a holder of Warrants may apportion its Pro
Rata Portion among, itself and such general partners, officers and other
affiliates in such proportions as it deems appropriate.
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(f) The Pre-emptive Rights granted to the holders of the
Warrants pursuant to this Subsection 7.3 shall expire on the date of
closing of the Company's first Qualified Public Offering.
8. COVENANTS OF THE COMPANY.
------------------------
8.1. General Covenants of the Company. The Company covenants and
--------------------------------
agrees that so long as any Notes or Warrants to purchase at least 75,000 shares
of Common Stock (subject to appropriate adjustment in the event of any stock
split, stock dividend, recapitalization, reclassification or other capital
reorganization) shall remain outstanding:
(a) Financial Statements and Other Information. The
------------------------------------------
Company shall furnish to each holder of Notes or Warrants:
(i) Annual Financial Statements - as soon as avail-
---------------------------
able, but in any event within 120 days after the end of each fiscal
year of the Company, an audited consolidated balance sheet of the
Company and its Subsidiaries, if any, as at the end of such year and
the related audited statements of income, changes in shareholders'
equity and cash flows of the Company and its Subsidiaries, if any, for
such year, setting forth in each case in comparative form the figures
for the previous year, by independent certified public accountants of
nationally recognized standing;
(ii) Quarterly Statements - as soon as available, but
--------------------
in any event not later than 60 days after the end of each of the first
three fiscal quarters of each fiscal year of the Company, an unaudited
consolidated balance sheet of the Company and its Subsidiaries as at
the end of each such fiscal quarter and the related unaudited
consolidated statements of income, changes in shareholders' equity and
cash flows of the Company and its Subsidiaries for such quarter and the
portion of the fiscal year through such date, all in reasonable detail
and setting forth in comparative form the figures for the corresponding
period of the previous year, certified by the chief financial officer,
treasurer or controller of the Company;
(iii) Business Plan - as soon as available, but in any
-------------
event not later than 30 days after the commencement of each fiscal
year, a business plan and projected financial statements for such
fiscal year;
(iv) Regulatory Filings - promptly after they become
------------------
available, copies of any regular and periodic financial information,
and any other information and reports, which the Company shall file
with the Securities and
32
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Page 49 of 117 Pages
Exchange Commission, any state securities regulatory authority, or any
other regulatory agency;
(v) Shareholder Communications - promptly upon the
--------------------------
mailing thereof to the shareholders of the Company generally, copies of
all financial statements, reports and proxy statements so mailed;
(vi) Press Releases - promptly following the release
--------------
by the Company to the press of any material statement or other written
communication, a copy thereof;
(vii) Litigation - promptly, and in any event within
----------
three Business Days after obtaining knowledge thereof, notice of any
(i) litigation, investigation or proceeding which has been commenced by
or against the Company or any of its Subsidiaries, which could have a
Material Adverse Effect, or (ii) any judgment or decree entered against
the Company or any of its Subsidiaries involving a liability of
$100,000 or more (singly or in the aggregate) or in which injunctive or
similar relief is granted; and
(viii) Other Information - promptly any other inform-
-----------------
ation reasonably requested by any holder of Notes or Warrants.
All financial statements required to be delivered pursuant to clause (i)
and (ii) of this Subsection 8.1(a) shall be complete and correct in all
material respects (subject, in the case of interim statements, to normal
year-end audit adjustments) and to be prepared in reasonable detail and in
accordance with GAAP.
(b) Inspection. The Company shall permit each holder of
----------
Notes or Warrants, or any authorized representative thereof, to visit and
inspect the properties of the Company and its Subsidiaries, including their
corporate and financial records, and to discuss their businesses and
finances with executive officers of the Company and its Subsidiaries,
during normal business hours following reasonable advance notice and as
often as may be reasonably requested.
(c) Payment of Taxes and Other Claims. The Company shall
---------------------------------
pay or discharge or cause to be paid or discharged, before any penalty
accrues thereon, (i) all material taxes, assessments and governmental
charges levied or imposed upon the Company or any of its Subsidiaries upon
the income, profits or Property of the Company or any of its Subsidiaries
and (ii) all material lawful claims for labor, materials and supplies
which, if unpaid, would by law become a Lien upon the property of the
Company or any of its Subsidiaries; provided that neither the Company nor
any of its Subsidiaries shall be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claims the
amount, applicability or
33
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validity of which is being contested in good faith by appropriate
proceedings and for which adequate provision has been made or where the
failure to effect such payment or discharge is not adverse in any material
respect to the interests of the holders of the Notes.
(d) Corporate Existence. The Company shall do or cause
-------------------
to be done all things necessary to preserve and keep in full force and
effect its corporate existence and the corporate, partnership or other
existence of each of its Subsidiaries in accordance with the respective
Charter Documents of such Subsidiary and the rights (charter and
statutory), licenses and franchises of the Company and each of its
Subsidiaries, provided, however, that the Company shall not be required to
-------- -------
preserve any such right, license or franchise, or the corporate,
partnership or other existence of any Subsidiary, if the Board of Directors
of the Company shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its
Subsidiaries taken as a whole, and that the loss thereof will not have a
Material Adverse Effect.
(e) Indemnification of Directors; Payment of Directors'
---------------------------------------------------
Expenses. The Company shall (i) at all times maintain provisions in its
--------
Charter Documents indemnifying all members of the Board of Directors of the
Company against liability to the maximum extent permitted under the laws of
the State of Delaware, and (ii) promptly reimburse any member of the Board
of Directors of the Company for his reasonable documented out-of-pocket
expenses incurred in attending each meeting of the Board of Directors of
the Company.
(f) Key Man Insurance. The Company shall (i) use its best
-----------------
efforts to obtain and maintain a life insurance policy with a financially
sound and reputable insurance company on the life of Emmett Clemente in the
face value of $1,000,000, naming the Company as owner and beneficiary
thereof, (ii) not cause or permit any assignment of the proceeds of such
policy, and (iii) not borrow against such policy.
(g) Conflicting Agreements. The Company shall not, and
----------------------
shall not permit any of its Subsidiaries to, enter into any agreement or
instrument (other than agreements or instruments between the Company and
the holders of Senior Indebtedness) that by its terms expressly prohibits
the Company from repurchasing the Notes or the Warrants in accordance with
the terms of this Agreement or the other Transaction Documents.
(h) Books and Records. The Company shall, and shall cause
-----------------
each of its Subsidiaries to, (i) keep true books of records and accounts in
which full and correct entries shall be made of all dealings or
transactions in relation to their businesses and affairs, in accordance
with sound business practices, and (ii) reflect in
34
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their financial statements adequate accruals and appropriations to reserves
in accordance with GAAP.
(i) Compliance with Laws. The Company shall, and shall
--------------------
cause each of its Subsidiaries to, remain in substantial compliance with
all statutes, laws, ordinances, or government rules and regulations to
which the Company and its Subsidiaries are subject.
(j) Investment Company Act. The Company shall not become
----------------------
an investment company subject to registration under the Investment Company
Act of 1940, as amended.
(k) Payments for Consents. The Company shall not, and
---------------------
shall not permit any of its Subsidiaries to, directly or indirectly, pay or
cause to be paid any consideration, whether by way of interest, fee or
otherwise, to any holder of Notes or Warrants for or as an inducement to
any consent, waiver or amendment of any of the terms or provisions of this
Agreement or the other Transaction Documents unless such consideration is
offered to be paid or agreed to be paid to all holders of the Notes or
Warrants which so consent, waive or agree to amend in the time frame set
forth in solicitation documents relating to such consent, waiver or
agreement.
(l) Further Instruments and Acts. The Company shall, and
----------------------------
shall cause each of its Subsidiaries to, execute and deliver such further
instruments and do such further acts any holder of Notes or Warrants may
deem reasonably necessary or proper to carry out more effectively the
purposes of this Agreement and the other Transaction Documents.
8.2. Covenants of the Company Applicable to the Notes. The
------------------------------------------------
Company covenants and agrees that so long as any Notes shall remain outstanding:
(a) Certificates; Notices of Default and Other
------------------------------------------
Information. The Company shall furnish to each holder of the Notes:
-----------
(i) Officer's Certificate - together with the
---------------------
delivery of the financial statements referenced in clause (i) of
Subsection 8.1(a), an Officer's Certificate executed by the chief
executive officer, the Vice President-Finance or principal accounting
officer of the Company, stating whether or not such Officer knows of
any Default or Event of Default, containing a certification from the
chief executive officer, the Vice President-Finance or principal
accounting officer of the Company as to his or her knowledge of the
Company's compliance with all conditions and covenants under this
Agreement and the other Transaction Documents (for purposes of this
clause (i) such compliance shall be determined without regard to any
period of grace or requirement of
35
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notice provided under this Agreement, and, if such Officer knows of
such a Default or Event of Default, the certificate shall describe
any such Default or Event of Default, and its status; and
(ii) Notice of Default - within five Business Days of
-----------------
any Officer becoming aware of (i) any Default, Event of Default or
default in the performance of any covenant, agreement or condition
contained in this Agreement or the other Transaction Documents or
(ii) any event of default under any other mortgage, indenture or
instrument, an Officers' Certificate specifying such Default, Event
of Default, default or event of default and what action the Company
is taking or proposes to take with respect thereto.
(b) Limitation on Additional Indebtedness. The Company
-------------------------------------
shall not, and shall not permit any of its Subsidiaries to, Incur, directly
or indirectly, any Indebtedness (including Acquired Indebtedness), other
than (a) the Indebtedness evidenced by the Notes, (b) Senior Indebtedness,
and (c) the Series A Preferred, the Series B Preferred, the Series D
Preferred, the Series E Preferred and the Series F Preferred, and (d)
Indebtedness in an aggregate amount not in excess of $500,000 secured by
Capitalized Leases or Purchase Money Liens.
(c) Limitation on Restricted Payments. The Company shall
---------------------------------
not, and shall not permit any of its Subsidiaries to, directly or
indirectly, approve, declare, authorize, issue, make, agree to make, or set
aside any funds for the payment of any Restricted Payment, except (a)
dividends, payments or other distributions with respect to any Capital
Stock by any Subsidiary to the Company or to any Wholly-Owned Subsidiary of
the Company, and (b) the redemption, repurchase, retirement or conversion
by the Company of the Notes and the Warrants in accordance with the terms
of this Agreement and the Warrants.
(d) Transactions with Affiliates. The Company shall not,
----------------------------
and shall not permit any of its Subsidiaries to, enter into any transaction
or series of transactions to sell, lease, transfer, exchange or otherwise
dispose of any of its properties or assets to or to purchase any property
or assets from, or for the direct or indirect benefit of, an Affiliate of
the Company or of any Subsidiary of the Company, make any Investment in or
enter into any contract, agreement, understanding, loan, advance or
Guarantee with, or for the direct or indirect benefit of, an Affiliate of
the Company or of any Subsidiary of the Company (each, including any series
of transactions with one or more Affiliates, an "Affiliate Transaction"),
(i) unless such Affiliate Transaction is on terms that are no less
favorable to the Company or the relevant Subsidiary than those that could
have been obtained at that time in a comparable transaction by the Company
or such Subsidiary with an unrelated Person, and (ii) if such Affiliate
Transaction involves or has a potential aggregate value of more than
$100,000, unless such Affiliate Transaction has been approved by a majority
of the Board of Directors who have no
36
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direct or indirect interest in the Affiliate Transaction or in the
Affiliate that is a party to the Affiliate Transaction, or in any other
party that is an Affiliate of any such Affiliate. The provisions of this
Subsection 8.2(d) shall not apply to any Restricted Payment that is made in
compliance with the provisions of this Agreement, to the reasonable and
customary fees and compensation paid or indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any
Subsidiary, as determined by the Board of Directors of the Company or such
Subsidiary or the senior management thereof in good faith, and to
transactions exclusively between or among the Company and any Wholly-Owned
Subsidiary or exclusively between or among Wholly-Owned Subsidiaries
provided such transactions are not otherwise prohibited by this Agreement.
(e) Restrictions on Certain Mergers and Acquisitions. The
------------------------------------------------
Company shall not, and shall not permit any of its Subsidiaries to, become
a party to any merger or consolidation with any Person, or purchase or
enter into any definitive agreement to purchase, in one or more related
transactions, any property or assets of, or any Capital Stock of or other
interests in, any Person (or any affiliated group of Persons), without the
prior written consent of the holders of a majority of the outstanding
principal amount of the Notes, except that (i) any Person may merge or
consolidate with the Company so long as the Company is the surviving
corporation, such transaction does not adversely affect the consolidated
financial condition of the Company and its Subsidiaries, and the fair
market value of the aggregate consideration paid (including all
Indebtedness assumed) by the Company and its Subsidiaries in connection
with such transaction and all other transactions permitted under clauses
(i), (ii) and (iii) of this Subsection 8.2(e) does not exceed (A)
$6,000,000 prior to the closing of a Qualified Public Offering and (B)
$12,000,000 after the closing of a Qualified Public Offering, (ii) any
Person (other than the Company) may merge or consolidate with any Wholly-
Owned Subsidiary of the Company so long as such Wholly-Owned Subsidiary of
the Company is the surviving corporation, such transaction does not
adversely affect the consolidated financial condition of the Company and
its Subsidiaries, and the fair market value of the aggregate consideration
paid (including all Indebtedness assumed) by the Company and its
Subsidiaries in connection with such transaction and all other transactions
permitted under clauses (i), (ii) and (iii) of this Subsection 8.2(e) does
not exceed (A) $6,000,000 prior to the closing of a Qualified Public
Offering and (B) $12,000,000 after the closing of a Qualified Public
Offering, (iii) the Company may purchase property or assets of, or Capital
Stock of, another Person (other than the assets proposed to be acquired by
the Company in connection with the Feverall Acquisition) so long as the
fair market value of the aggregate consideration paid (including all
Indebtedness assumed) by the Company and its Subsidiaries in connection
with such transaction and all other transactions permitted under clauses
(i), (ii) and (iii) of this Subsection 8.2(e) does not exceed (A)
$6,000,000 prior to the closing of a Qualified Public Offering and (B)
$12,000,000 after the closing of a Qualified Public Offering, and (iv)
after the closing of a Qualified Public Offering the Company may consummate
the Feverall Acquisition
37
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for aggregate consideration (including all Indebtedness assumed) of not
more than $12,000,000 (plus the fair market value of inventory).
(f) Maintenance of Properties and Insurance. The Company
---------------------------------------
shall (i) cause all material properties owned by or leased to it or any of
its Subsidiaries and used or useful in the conduct of its business or the
business of such Subsidiary to be maintained and kept in normal condition,
repair and working order and supplied with all necessary equipment and
shall cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company
may be necessary so that the business carried on in connection therewith
may be properly and advantageously conducted at all times; provided,
--------
however, that nothing in this Subsection 8.2(f) shall prevent the Company
-------
or any of its Subsidiaries from discontinuing the maintenance of any such
properties, if such discontinuance is desirable in the conduct of its
business or the business of such Subsidiary, and (ii) provide or cause to
be provided, for itself and its Subsidiaries, insurance (including
appropriate self-insurance) against loss or damage of the kinds customarily
insured against by corporations similarly situated and owning like
properties, including, but not limited to, public liability insurance, with
reputable insurers in such amounts with such deductibles and by such
methods as shall be customary for corporations similarly situated in the
industry.
8.3 Covenants of the Company Applicable to the Warrants. The
---------------------------------------------------
Company covenants and agrees that so long as Warrants to purchase at least
75,000 shares of Common Stock (subject to appropriate adjustment in the event of
any stock split, stock dividend, recapitalization, reclassification or other
capital reorganization) shall remain outstanding:
(a) Board of Directors. The Company shall at all times
------------------
from the date of this Agreement until the later of (i) the date on which
all of the Note Indebtedness shall have been paid in full, and (ii) two and
one-half years after the Qualified Public Offering Date, use its best
efforts to cause (A) the total number of members of the Board of Directors
of the Company to be fixed at nine (9); and (B) such person as shall be
designated from time to time by the holders of a majority of the
outstanding Warrants to be nominated, elected and maintained as one (1) of
the members of the Board of Directors of the Company.
(b) Restrictions on Certain Sales and Mergers. The
-----------------------------------------
Company shall not, and shall not permit any of its shareholders or
Subsidiaries to, become a party to any merger or consolidation of the
Company or any of its Subsidiaries with or into any Person (or any
affiliated group of Persons), or sell or enter into any definitive
agreement to sell, in one or more related transactions, all or
substantially all of the property, assets or Capital Stock of the Company
or any of its Subsidiaries, without the prior written consent of the
holders of a majority of the outstanding Warrants, except that (i) any
Person may merge or consolidate with the Company so long as the
38
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Company is the surviving corporation and such merger is not otherwise
prohibited by this Agreement and (ii) the Company or the shareholders may
sell all or substantially all of the property, assets or Capital Stock of
the Company so long as each holder of Warrants receives cash in exchange
for each Warrant Share (as defined in the Warrants) that would be issuable
to such holder upon the exercise by such holder of the Warrants held by
such holder, in an amount equal to $10.00 (subject to appropriate
adjustment in the event of any stock split, stock dividend,
recapitalization or other capital reorganization) less the applicable
Purchase Price (as defined in the Warrants) required to be paid by such
holder for the issuance of such Warrant Share upon exercise of such
Warrant.
9. DEFAULTS AND REMEDIES
---------------------
9.1. Events of Default. The occurrence of any one of the
-----------------
following shall constitute an "Event of Default" hereunder:
(a) The Company shall fail to pay any interest on any Note
or any Put Note when the same becomes due and payable and the continuance
of such failure for a period of five (5) Business Days;
(b) The Company shall fail (i) to pay any principal of, or
premium, if any, on any Note when and as the same becomes due and payable
at maturity, acceleration, on any Redemption Date, on any Change in Control
Purchase Date, or otherwise, (ii) to repurchase any Warrants on any Put
Purchase Date, or (iii) to pay any principal of, or premium, if any on any
Put Note when and as the same becomes due and payable;
(c) The Company shall fail to perform or comply with any
covenant or agreement contained in this Agreement, the Warrant, the
Security Documents or any of the other Transaction Documents (other than
the covenants referred to in paragraphs (a) or (b) above), and such failure
shall not have been cured or waived within a period of thirty (30) days;
(d) The Company defaults with respect to any Indebtedness
with a principal amount then outstanding in excess of $500,000,
individually or in the aggregate, and such default results in such
Indebtedness becoming due and payable prior to its Stated Maturity;
(e) Any representation or warranty made by the Company in
connection with this Agreement or any of the other Transaction Documents or
any certificate or financial information delivered pursuant to this
Agreement or any of the
39
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other Transaction Documents shall prove to have been incorrect in any
material respect when made;
(f) The Company shall, pursuant to or within the meaning
of any Bankruptcy Law, (i) commence a voluntary case or proceeding; (ii)
consent to the entry of an order for relief against it in an involuntary
case or proceeding; (iii) consent to the appointment of a Custodian of it
or for all or substantially all of its property; (iv) make a general
assignment for the benefit of its creditors; or (v) admit in writing its
inability to pay its debts generally as they become due;
(g) A court of competent jurisdiction shall enter an order
or decree under any Bankruptcy Law that remains unstayed and in effect for
a period of 60 days and (i) is for relief against the Company in an
involuntary case or proceeding; (ii) appoints a Custodian of the Company
for all or substantially all of its Property; or (iii) orders the
liquidation of the Company; or
(h) Any judgment or decree for the payment of money in
excess of $250,000 (to the extent not covered by insurance) shall be
rendered against the Company and shall not be discharged and either (A) an
enforcement proceeding shall have been commenced by a creditor upon such
judgment or decree or (B) there shall have occurred a period of 45 days
following such judgment or decree during which such judgment or decree is
not discharged, waived or the execution thereof stayed.
The foregoing shall constitute Events of Default whatever the reason for
any such Event of Default and whether such Event of Default is voluntary or
involuntary or is effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body.
The term "Bankruptcy Law" means Title 11, United States Code, or any
similar federal or state law for the relief of debtors. "Custodian" means any
receiver, trustee, assignee, liquidator, sequestrator, custodian or similar
official under any Bankruptcy Law.
9.2. Remedies on Default, Etc. After an Event of Default has
------------------------
occurred, the Company shall promptly notify all of the holders of the Notes in
writing of such occurrence. Upon the occurrence of an Event of Default, and at
any time thereafter while such Event of Default is continuing, the holders of a
majority in aggregate principal amount of the Notes at the time outstanding, by
written notice to the Company, may declare (a "Declaration") due and payable an
amount equal to all unpaid principal of, premium, if any, and accrued interest
on, all Notes issued and outstanding (the "Default Amount"). If an Event of
Default specified in clause (f) or (g) of Subsection 9.1 occurs, the Default
Amount shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of any of the holders of the Notes. The
holders of a majority in aggregate principal amount of the Notes, by written
notice to the Company, may rescind any Declaration if all Events of Default then
40
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continuing (other than any Events of Default with respect to the nonpayment of
principal of or interest on any Note which has become due solely as a result of
such Declaration) have been cured.
In addition, if holders of a majority in aggregate principal amount of
Notes make a Declaration which is not rescinded, any holder of any of the Notes
may proceed to enforce its rights by suit in equity, action at law and/or other
appropriate means to collect the payment of principal or interest on the Notes
or to enforce the performance of any provision hereunder or under the Notes or
the other Transaction Documents.
The Company hereby agrees to pay on demand reasonable costs and expenses,
including without limitation reasonable attorneys' fees, Incurred or paid by any
holder of the Notes in enforcing such holders rights upon the occurrence of an
Event of Default.
No provision of this Agreement, the other Transaction Documents or the
Notes shall alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal and interest on the Notes at the times,
places and rates, and in the currency provided.
9.3. Waiver of Past Defaults. The holders of a majority in
-----------------------
aggregate principal amount of the Notes at the time outstanding, by notice to
the Company (and without notice to any other holders of the Notes), may waive
any existing Default or Event of Default and its consequences. When a Default
is waived, it is deemed cured and shall cease to exist, but no such waiver shall
extend to any subsequent or other Default or impair any consequent right.
10. RESTRICTIONS ON TRANSFER.
------------------------
10.1. Restrictive Legends. Except as otherwise permitted by this
-------------------
Section 10, each Note and Warrant certificate (or Common Stock certificate
issued on exercise thereof or in exchange therefor) issued pursuant to this
Agreement shall be stamped or otherwise imprinted with a legend in substantially
the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR
PURSUANT TO THE SECURITIES OR "BLUE SKY" LAWS OF ANY STATE.
SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT IN ACCORDANCE WITH
APPLICABLE "BLUE SKY" LAWS AND PURSUANT TO (i) A REGISTRATION
STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE
UNDER SUCH
41
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ACT, (ii) RULE 144 OR RULE 144A UNDER SUCH ACT, OR (iii) ANY
OTHER EXEMPTION FROM REGISTRATION UNDER SUCH ACT RELATING TO
SUCH ACT, PROVIDED THAT, IF REQUESTED BY THE COMPANY, AN
OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM AND SUB-
STANCE IS FURNISHED TO THE COMPANY THAT AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE.
The Company shall maintain a copy of this Agreement and any amendments
thereto on file in its principal office, and will make such copy available
during normal business hours for inspection to any party thereto or will provide
such copy to any holder of Notes or Warrants upon such holder's request.
Whenever the legend requirement imposed by this Subsection 10.1 shall
terminate, as provided in Subsection 10.2 hereof, the respective holders of
Notes and Warrants for which such legend requirements have terminated shall be
entitled to receive from the Company, at the Company's expense, new Notes or
Warrant certificates, as applicable, without such legend.
10.2. Notice of Transfer; Opinions of Counsel. The holder of each
---------------------------------------
Note or Warrant certificate bearing the restrictive legend set forth in
Subsection 10.1 above (a "Restricted Security") agrees with respect to any
transfer of such Restricted Security, upon reasonable request from the Company
to such holder, to give to the Company (a) written information describing the
transferee and the circumstances of such transfer necessary to establish the
availability of an exemption from the registration requirements of the
Securities Act and/or (b) an opinion of counsel (at the expense of such holder),
which is knowledgeable in securities law matters, in form and substance
reasonably satisfactory to the Company, to the effect that the transfer of such
Restricted Security may be effected without registration of such Restricted
Security under the Securities Act. If the Company fails to request any such
information or opinion, or if for any reason the Company (after having been
furnished with the information and/or opinion requested by the Company pursuant
to this Subsection 10.2) shall fail to provide such holder within 5 days with
written notice that, in the opinion of the Company or its counsel, the transfer
may not be legally effected (the "Illegal Transfer Notice"), such holder shall
thereupon be entitled to have the transfer of the Restricted Security registered
on the books of the Company, or its transfer agent, as the case may be. If the
holder of the Restricted Security delivers to the Company an opinion of counsel
(including regular counsel to such holder or its investment adviser) in form and
substance reasonably satisfactory to the Company that subsequent transfers of
such Restricted Security will not require registration under the Securities Act,
or if the Company does not provide the holders with an Illegal Transfer Notice
as set forth above, the Company will promptly after such contemplated transfer
deliver new certificates for such Restricted Security which do not bear the
Securities Act legend set forth in Subsection 10.1 above. The restrictions
imposed by this Section 10 upon the transferability of any particular Restricted
Security shall cease and
42
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terminate when such Restricted Security has been sold pursuant to an effective
registration statement under the Securities Act or transferred pursuant to Rule
144 promulgated under the Securities Act. The holder of any Restricted Security
as to which such restrictions shall have terminated shall be entitled to receive
from the Company a new security of the same type but not bearing the restrictive
Securities Act legend set forth in Subsection 10.1 and not containing any other
reference to the restrictions imposed by this Subsection 10.2. Notwithstanding
any of the foregoing, no opinion of counsel will be required to be rendered
pursuant to this Subsection 10.2 with respect to the transfer of any securities
on which the restrictive legend has been removed in accordance with this
Subsection 10.2. As used in this Subsection 10.2, the term "transfer"
encompasses any sale, transfer or other disposition of any of the Notes or
Warrants referred to herein. Notwithstanding any provisions contained herein to
the contrary, no transfer of the Notes shall be permitted if such transfer would
be deemed to be a violation of any applicable law, including, without
limitation, a "prohibited transaction" as defined in Section 406 of ERISA or
Section 4975 of the Code.
11. SUBORDINATION.
-------------
11.1 Agreement to Subordinate. The Company agrees, and each
------------------------
holder of Notes by accepting a Note agrees, any provision of this Agreement, the
Notes or the Warrants to the contrary notwithstanding, that all Indebtedness of
the Company under and in respect of the Notes, the Put Notes (as defined in the
Warrants) or this Agreement (collectively, the "Note Indebtedness") is
subordinated in right of payment, to the extent and in the manner provided in
this Article 11, to the prior payment in full of all Senior Indebtedness of the
Company, and that the subordination of all Note Indebtedness pursuant to this
Article 11 is for the benefit of all holders of all Senior Indebtedness of the
Company, whether outstanding on the date of this Agreement or Incurred
thereafter.
11.2 Liquidation; Dissolution; Bankruptcy. Upon any
------------------------------------
distribution of cash, securities or other property of the Company to creditors
upon any Insolvency or Liquidation Proceeding with respect to the Company, the
holders of any Senior Indebtedness will be entitled to receive payment in full
in cash or Cash Equivalents of all Senior Indebtedness (including Post-Petition
Interest) before the holders of the Note Indebtedness will be entitled to
receive any payment or distribution (other than in Reorganization Securities) on
account of the Note Indebtedness and until all Senior Indebtedness is paid in
full in cash or Cash Equivalents, any payment or distribution (other than in
Reorganization Securities) on account of the Note Indebtedness to which the
holders of the Note Indebtedness would be entitled shall be made to the holders
of the Senior Indebtedness on a pro rata basis. Upon any Insolvency or
Liquidation Proceeding with respect to the Company, any payment or distribution
(other than in Reorganization Securities), to which the holders of the Note
Indebtedness would be entitled on account of the Note Indebtedness but for the
provisions of this Article 11 shall be paid by the Company, any other Person
making such payment or distribution, or by the holders of the Note Indebtedness
if received by them, directly to the holders of the Senior Indebtedness (pro
43
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rata to such holders on the basis of the amounts of Senior Indebtedness held by
them) or their Representative, as their interests may appear, for application to
the payment of all outstanding Senior Indebtedness until all such Senior
Indebtedness has been paid in full in cash, after giving effect to all other
payments or distributions to, or provisions made for, holders of Senior
Indebtedness.
11.3. Default on Senior Indebtedness. The Company shall not
------------------------------
make any payment or distribution (other than in Reorganization Securities) on
account of any of the Note Indebtedness if (a) a default in the payment of the
principal of, or premium, if any, or interest on, or any other amount owing with
respect to any Senior Indebtedness (a "Payment Default") occurs and is
continuing, whether at maturity or at a date fixed for prepayment or by
declaration of acceleration or otherwise, or (b) the Company has received
written notice (a "Payment Blockage Notice") from any holder of Senior
Indebtedness that a Nonpayment Default (as defined below) has occurred and is
continuing; provided, however, that payments and distributions on account of the
-------- -------
Note Indebtedness shall resume, and all past due amounts in respect of the Note
Indebtedness shall be paid (i) in the case of a Payment Default, on the date on
which such default is cured or waived or shall have ceased to exist and all
Senior Indebtedness shall have been paid in full in cash or Cash Equivalents and
(ii) in the case of a Nonpayment Default, on the earliest of (A) the date on
which such Nonpayment Default is cured or waived or shall have ceased to exist,
(B) 179 days after the date on which the Payment Blockage Notice with respect to
such Nonpayment Default was received by the Company, or (C) the date on which
such blockage period shall have been terminated by written notice to the Company
from the holder of the Senior Indebtedness which issued the Payment Blockage
Notice unless the maturity of any Senior Indebtedness has been accelerated and
the Company has defaulted with respect to the payment of such Senior
Indebtedness. No more than one Payment Blockage Notice may be given during any
consecutive 365-day period and during any consecutive 365-day period, the
aggregate number of days in which payments due in respect of the Note
Indebtedness may not be made as a result of Nonpayment Defaults on Senior
Indebtedness shall not exceed 179 days and there shall be a period of at least
186 consecutive days in each consecutive 365-day period when such payments are
not prohibited. If any holder of Senior Indebtedness delivers a Payment Blockage
Notice to the holders of the Note Indebtedness in respect of any Nonpayment
Default, no Nonpayment Default that existed or was continuing on the date of
delivery of such notice shall be, or be made, the basis for a subsequent Payment
Blockage Notice unless such default shall have been waived or cured for a period
of not less than 90 days. "Nonpayment Default" means any event of default under
the terms of any instrument governing any Senior Indebtedness permitting one or
more holders of such Senior Indebtedness (or a Representative on behalf of the
holders thereof) to declare all or part of such Senior Indebtedness due and
payable prior to the date on which it would otherwise become due and payable.
11.4. Acceleration of Note Indebtedness. If payment of the Note
---------------------------------
Indebtedness is accelerated because of an Event of Default, the Company shall
promptly notify the holders of the Senior Indebtedness of the acceleration.
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11.5. When Distributions Must be Paid Over.
------------------------------------
(a) If the Company shall make any payment or distribution on
account of the Note Indebtedness at a time when such payment is prohibited
by this Section 11, then and in such event the holders of the Note
Indebtedness shall hold such payment or distribution in trust for the
benefit of, and shall pay over and deliver to, the holders of the Senior
Indebtedness (pro rata as to each of such holders on the basis of the
respective amounts of such Senior Indebtedness held by them) or their
Representative, as their respective interests may appear, for application
to the payment of all outstanding Senior Indebtedness until all such Senior
Indebtedness has been paid in full in cash or Cash Equivalents, after
giving effect to all other payments or distributions to, or provisions made
for, the holders of Senior Indebtedness.
(b) Nothing contained in this Section 11 or elsewhere in this
Agreement or in the Notes or the Warrants shall prevent the Company, at any
time except during the pendency of any Insolvency or Liquidation Proceeding
or under the conditions described in Subsection 11.3, from making payments
or distributions on account of the Note Indebtedness.
(c) With respect to the holders of Senior Indebtedness, the
holders of the Note Indebtedness undertake to perform only such obligations
on their part as are specifically set forth in this Section 11, and no
implied covenants or obligations with respect to any holders of Senior
Indebtedness shall be read into this Agreement against the holders of the
Note Indebtedness. The holders of the Note Indebtedness shall not be deemed
to owe any fiduciary duty to the holders of Senior Indebtedness.
11.6. Notice.
------
(a) The holders of the Note Indebtedness shall not at any time
be charged with the knowledge of the existence of any facts that would prohibit
the making of any payment to the holders of the Note Indebtedness under this
Section 11, unless and until the holders of the Note Indebtedness shall have
received written notice thereof from the Company, one or more holders of Senior
Indebtedness or a Representative of any holders of Senior Indebtedness; and,
prior to the receipt of any such written notice, the holders of the Note
Indebtedness shall be entitled to assume conclusively that no such facts exist.
The holders of the Note Indebtedness shall be entitled to rely on the delivery
to the holders of the Note Indebtedness of written notice by a Person
representing itself as a holder of Senior Indebtedness (or a Representative
thereof) to establish that such notice has been given.
(b) The Company shall promptly notify the holders of the Note
Indebtedness in writing of any facts it knows that would cause a payment of
principal of, or premium, if any, or interest on, the Note Indebtedness to
violate this Section 11, but failure to give such notice shall not affect the
subordination of the Note Indebtedness to the Senior
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Indebtedness provided in this Section 11 or the rights of holders of such Senior
Indebtedness under this Section 11.
11.7. Subrogation. After all Senior Indebtedness has been paid
-----------
in full in cash or Cash Equivalents and until the Note Indebtedness is paid in
full, the holders of the Note Indebtedness shall be subrogated to the rights of
holders of such Senior Indebtedness to receive distributions applicable to such
Senior Indebtedness to the extent that distributions otherwise payable to the
holders of the Note Indebtedness have been applied to the payment of such Senior
Indebtedness. A distribution made under this Section 11 to holders of Senior
Indebtedness that otherwise would have been made to the holders of the Note
Indebtedness is not, as among the Company, its creditors other than holders of
Senior Indebtedness and the holders of the Note Indebtedness, a payment or
distribution by the Company to or on account of its Senior Indebtedness.
11.8 Relative Rights.
---------------
(a) The provisions of this Article 11 are and are intended
solely for the purpose of defining the relative rights of the holders of
the Note Indebtedness on the one hand and the holders of Senior
Indebtedness on the other hand. Nothing contained in this Article 11 or
elsewhere in this Agreement or in the Notes is intended to or shall (i)
impair, as among the Company, its creditors other then holders of Senior
Indebtedness and the holders of the Note Indebtedness, the obligation of
the Company, which is absolute and unconditional, to pay principal of, and
premium, if any, and interest in respect of, the Note Indebtedness in
accordance with its terms; (ii) affect the relative rights of the holders
of the Note Indebtedness and the Company's creditors other than their
rights in relation to holders of Senior Indebtedness; or (iii) prevent any
holder of Note Indebtedness from exercising its available remedies upon a
Default or Event of Default, subject to the rights of holders of Senior
Indebtedness to receive payment and distributions otherwise payable or
distributable to the holders of Note Indebtedness.
(b) The failure to make a payment on account of principal of,
or premium, if any, or interest in respect of the Note Indebtedness by
reason of any provision of this Section 11 shall not be construed as
preventing the occurrence of an Event of Default under Subsection 9.1.
11.9. No Impairment of Subordination.
-------------------------------
(a) No right of any holder of Senior Indebtedness to enforce
the subordination as provided in this Article 11 shall at any time or in
any way be prejudiced or impaired by any act or failure to act by the
Company or by any noncompliance by the Company with the terms, provisions
and covenants of this Agreement, the Notes, the Warrants or any other
Transaction Document or any other
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agreement regardless of any knowledge thereof which any such holder may have or
be otherwise charged with.
(b) Without in any way limiting Subsection 11.9(a), the holders of any
Senior Indebtedness may, at any time and from time to time, without the consent
of or notice to any holders of Note Indebtedness, without incurring any
liabilities to any holder of Note Indebtedness and without impairing or
releasing the subordination and other benefits provided in this Agreement or the
obligations of the holders of Note Indebtedness to the holders of such Senior
Indebtedness, even if the right of reimbursement or subrogation or other right
or remedy of any holder of Note Indebtedness is affected, impaired or
extinguished thereby, do any one or more of the following: (i) amend, renew,
exchange, extend, modify, increase or supplement in any manner such Senior
Indebtedness or any instrument evidencing or guaranteeing or securing such
Senior Indebtedness or any agreement under which such Senior Indebtedness is
outstanding (including, but not limited to, changing the manner, place or terms
of payment or changing or extending the time of payment of, or renewing,
exchanging, amending, increasing, releasing, terminating or altering, (1) the
terms of such Senior Indebtedness, (2) any security for, or any guarantee of,
such Senior Indebtedness, (3) any liability of any obligor on such Senior
Indebtedness (including any guarantor) or any liability Incurred in respect of
such Senior Indebtedness); (ii) sell, exchange, release, surrender, realize
upon, enforce or otherwise deal with in any manner and in any order any property
pledged, mortgaged or otherwise securing such Senior Indebtedness or any
liability of any obligor thereon, to such holder, or any liability incurred in
respect thereof; (iii) settle or compromise any such Senior Indebtedness or any
other liability of any obligor of such Senior Indebtedness to such holder or any
security therefor or any liability incurred in respect thereof and apply any
sums by whomsoever paid and however realized to any liability (including,
without limitation, payment of any of Senior Indebtedness) in any manner or
order; and (iv) release, terminate or otherwise cancel, or fail to take or to
record or otherwise perfect, for any reason or for no reason, any Lien or
security interest securing such Senior Indebtedness by whomsoever granted,
exercise or delay in or refrain from exercising any right or remedy against any
obligor or any guarantor or any other Person, elect any remedy and otherwise
deal freely with any obligor and any security for such Senior Indebtedness or
any liability of any obligor to the holders of such Senior Indebtedness or any
liability incurred in respect of such Senior Indebtedness.
(c) No amendment or modification of the terms or provisions of the
Note Indebtedness shall be made without the consent of the holders of the Senior
Indebtedness if such amendment or modification would have a material adverse
effect on the rights or remedies of the holders of Senior Indebtedness.
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11.10 Representatives of Holders of Senior Indebtedness. Whenever a
-------------------------------------------------
distribution is to be made, or a notice given, to holders of Senior
Indebtedness, the distribution may be made and the notice given to their
Representative, if any. If any payment or distribution of the Company's assets
is required to be made to holders of any Senior Indebtedness pursuant to this
Article 11, the holders of Note Indebtedness shall be entitled to rely upon any
order or decree of any court of competent jurisdiction, or upon any certificate
of a Representative of such Senior Indebtedness, in ascertaining the holders of
such Senior Indebtedness entitled to participate in any such payment or
distribution, the amount to be paid or distributed to holders of such Senior
Indebtedness and all other facts pertinent to such payment or distribution or to
this Article 11.
11.11 Payment. For all purposes of this Article 11, a "payment
-------
or distribution on account of Note Indebtedness" shall include, without
limitation, any direct or indirect payment or distribution on account of the
purchase, prepayment, redemption, retirement, defeasance or acquisition of any
Note or Put Note, any recovery by the exercise of any right of set-off or
redemption on collateral, any direct or indirect payment of principal, premium
or interest with respect to or in connection with any mandatory or optional
redemption or purchase provisions, any direct or indirect payment or
distribution payable or distributable by reason of any other Indebtedness being
subordinated to any Note Indebtedness, and any direct or indirect payment or
recovery on any claim (including claims for indemnification or liquidated
damages) relating to or arising out of this Agreement, any Note or Put Note, or
any other Transaction Document or any of the transactions contemplated by or
referred to therein.
11.12. Lien Subordination. The Company agrees, and each holder of
------------------
Notes by accepting a Note agrees, any provision of this Agreement, the Notes or
the Warrants to the contrary notwithstanding, that upon the request of the
holders of Senior Indebtedness or their Representative, the holders of Note
Indebtedness and the Collateral Agent shall enter into an appropriate
intercreditor agreement or similar document with the holders of Senior
Indebtedness or their Representative containing customary terms and conditions
providing for, among other things, the Liens on the assets of the Company
securing the Senior Indebtedness to be senior in priority to the Liens on the
assets of the Company securing the Note Indebtedness, and restrictions on the
exercise of remedies by the holders of Note Indebtedness; and shall amend the
Security Agreement to conform with the terms of such intercreditor agreement.
12. REGISTRATION RIGHTS.
-------------------
12.1. Required Registrations.
----------------------
(a) At any time after the earlier of December 31, 1998 or the
closing of the Company's first Qualified Public Offering, holders of in the
aggregate at least 35% of the Registrable Shares may request, in writing,
that the Company effect
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the registration on Form S-1 or Form S-2 (or any successor form) of Registrable
Shares owned by such holders having an aggregate offering price of at least
$2,000,000 (based on the then current market price or fair value), provided
that, to the extent the Company is eligible to effect a registration or
qualification on Form S-3 (or any successor Form), the Company shall be entitled
to use such Form S-3 in lieu of Form S-1 or S-2. If the holders initiating the
registration intend to distribute the Registrable Shares by means of an
underwriting, they shall so advise the Company in their request. In the event
such registration is underwritten, the holders of a majority of the Registrable
Shares to be sold in such offering may designate the managing underwriter of
such offering, such managing underwriter to be reasonably acceptable to the
Company. In the event such registration is underwritten, the right of other
holders of Registrable Shares to participate shall be conditioned on such other
holders' participation in such underwriting. Upon receipt of any such request,
the Company shall promptly give written notice of such proposed registration to
all holders of Registrable Shares and all such holders shall have the right, by
giving written notice to the Company within 30 days after the Company provides
its notice, to elect to have included in such registration such of their
Registrable Shares as such holders may request in such notice of election,
subject to the approval of the underwriter managing the offering as provided
below. Thereupon, the Company shall, as expeditiously as possible, use its best
efforts to effect the registration on Form S-1 or Form S-2 (or any successor
form), or Form S-3 (or any successor form) to the extent the Company is eligible
to effect a registration or qualification on such Form S-3 and so elects, of all
Registrable Shares which the Company has been requested to so register.
(b) At any time after the Company becomes eligible to file a
Registration Statement on Form S-3 (or any successor form relating to secondary
offerings), holders of in the aggregate at least 35% of the Registrable Shares
may request the Company, in writing, to effect the registration on Form S-3 (or
such successor form), of Registrable Shares having an aggregate offering price
of at least $500,000 (based on the current public market price). Upon receipt
of any such request, the Company shall promptly give written notice of such
proposed registration to all holders of Registrable Shares and all such holders
shall have the right, by giving written notice to the Company within 30 days
after the Company provides its notice, to elect to have included in such
registration such of their Registrable Shares as such holders may request in
such notice of election. Thereupon, the Company shall, as expeditiously as
possible, use its best efforts to effect the registration on Form S-3, or such
successor form, of all Registrable Shares which the Company has been requested
to register.
(c) The Company shall not be required to effect more than two
registrations pursuant to paragraph (a) above or more than four registrations
pursuant to paragraph (b) above, provided, however, that the Company's
-------- -------
obligations shall be deemed satisfied only when a Registration Statement
covering all shares of Registrable
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Shares specified in notices received as aforesaid (or such lower number of
shares as the managing underwriter shall require under paragraph (e)), for sale
in accordance with the method of disposition specified by the requesting
holders, shall have become effective and, if such method of disposition is a
firm commitment underwritten public offering, all such shares shall have been
sold pursuant thereto (other than shares provided for in over-allotment
option(s)). In addition, the Company shall not be required to effect any
registration (other than as to a public offering that is not underwritten on
Form S-3 or any successor Form) within six months after the effective date of
any other Registration Statement of the Company.
(d) Notwithstanding any other provision of this Agreement, the Company
agrees that as soon as practicable after the Company becomes eligible to file a
Registration Statement on Form S-3 (or any successor form relating to secondary
offerings), the Company shall prepare and file with the Commission a "shelf"
registration statement (the "Shelf Registration Statement") on the appropriate
form for an offering to be made on a continuous basis pursuant to Rule 415 under
the Securities Act (or such successor rule or similar provision then in effect)
covering all of the Registrable Securities. The Company shall use its best
efforts to have the Shelf Registration Statement declared effective as soon as
practicable after filing with the Commission and to keep the Shelf Registration
Statement continuously effective through the third anniversary of the date on
which the Shelf Registration Statement is declared effective. The Company
agrees, if necessary, to supplement or amend the Shelf Registration Statement,
as required by the rules, regulations or instructions applicable to the
registration forms used by the Company for the Shelf Registration Statement or
by the Securities Act, and the Company agrees to furnish to all holders of
Registrable Securities copies of any such supplement or amendment prior to its
being used and/or filed with the Commission. Each holder of Registrable
Securities shall be permitted to withdraw all or any part of the Registrable
Securities held by such holder from the Shelf Registration Statement at any time
prior to the effective date of the Shell Registration Statement. If any holder
of Registrable Securities so elects, the offering of Registrable Securities
pursuant to the Shelf Registration Statement shall be in the form of an
underwritten offering. If they so elect, the holders of Registrable Securities
participating in such Shelf Registration Statement shall select one or more
nationally recognized firms of investment bankers to act as the book-running
managing underwriter or underwriters in connection with such offering and shall
select any additional investment bankers and mangers to be used in connection
with the offering.
(e) If at the time of any request to register Registrable Shares
pursuant to this Section 12.1, the Company is engaged or has fixed plans to
engage within 30 days of the time of the request in a registered public offering
as to which the Stockholders may include Registrable Shares pursuant to Section
12.2, subject to the limitations set forth therein, or is engaged in any other
activity which, in the good faith determination of the Company's Board of
Directors, would be adversely affected by the requested registration to the
material detriment of the Company, then the Company may
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at its option direct that such request be delayed for a period not in excess of
six months from the effective date of such offering or the date of commencement
of such other material activity, as the case may be, such right to delay a
request to be exercised by the Company not more than once in any two-year
period.
(f) Notwithstanding any other provision of this Section 12.1, if the
managing underwriter advises the holders of Registrable Shares initiating the
registration in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the holders of Registrable Shares
initiating the registration shall so advise all holders of Registrable Shares
which would otherwise be included in the underwriting and the number of
Registrable Shares that may be included in the underwriting shall be allocated
among all such holders of Registrable Shares, including the holders of
Registrable Shares initiating the registration, in proportion (as nearly as
practicable) to the amount of Registrable Shares of the Company owned by each
such holder. If the managing underwriter does not limit the number of
Registrable Shares to be underwritten, the Company or other holders of
securities of the company who have registration rights similar to those set
forth in this Section 12.1 may include Common Stock for their respective
accounts in such registration if the managing underwriter states that such
inclusion would not adversely affect the offering of Registrable Shares and if
the number of Registrable Shares which would otherwise have been included in
such registration and underwriting will not thereby be limited or reduced.
(g) Except as set forth in paragraph (d) above and except for
Registration Statements on Form S-4 or Form S-8 or any successor thereto, the
Company will not file with the Commission any other Registration Statement with
respect to its Common Stock, whether for its own account or that of other
stockholders, from the date of receipt of a notice from requesting holders
pursuant to this Subsection 12.1 until the completion of the period of
distribution of the registration contemplated thereby; provided, however, that
-------- -------
this limitation shall apply only to the two registrations pursuant to paragraph
(a) above.
12.2 Incidental Registration.
-----------------------
(a) Whenever the Company proposes to file a Registration Statement
(other than pursuant to Subsection 12.1) at any time and from time to time, the
Company will, prior to such filing, give written notice to all holders of
Registrable Shares of its intention to do so and, upon the written request of
any holder or holders of Registrable Shares given within 20 days after the
Company provides such notice (which request shall state the intended method of
disposition of such Registrable Shares), the Company shall use its best efforts
to cause all Registrable Shares which the Company has been requested by such
holder or holders to register to be registered under the Securities Act to the
extent necessary to permit their sale or other disposition in
51
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accordance with the intended methods of distribution specified in the request of
such holder or holders; provided that the Company shall have the right to
postpone or withdraw any registration effected pursuant to this Subsection 12.2
without obligation to any holder of Registrable Shares.
(b) In connection with any offering under this Subsection 12.2
involving an underwriting, the Company shall not be required to include any
Registrable Shares in such underwriting unless the holders thereof accept the
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it, and then only in such quantity as will not, in the
opinion of the underwriters, jeopardize the success of the offering by the
Company. If in the opinion of the managing underwriter the registration of all,
or part of, the Registrable Shares which the holders have requested to be
included would materially and adversely affect such public offering, then the
Company shall be required to include in the underwriting only that number of
Registrable Shares, if any, which the managing underwriter believes may be sold
without causing such adverse effect. If the number of Registrable Shares to be
included in the underwriting in accordance with the foregoing is less than the
total number of shares which the holders of Registrable Shares have requested to
be included, then the holders of Registrable Shares who have requested
registration and other holders of shares of Common Stock entitled to include
shares of Common Stock in such registration shall participate in the
underwriting pro rata based upon their total ownership of shares of Common Stock
of the Company on an as if-converted basis. If any holder would thus be
entitled to include more shares than such holder requested to be registered, the
excess shall be allocated among other requesting holders pro rata based upon
their total ownership of Registrable Shares.
12.3 Registration Procedures.
-----------------------
(a) If and whenever the Company is required by the provisions of this
Agreement to use its best efforts to effect the registration of any of the
Registrable Shares under the Securities Act, the Company shall:
(i) file with the Commission a Registration Statement with
respect to such Registrable Shares and use its best efforts to cause that
Registration Statement to become and remain effective for 120 days;
(ii) as expeditiously as possible prepare and file with the
Commission any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective for a period of not less than 120 days from
the effective date and comply with the provisions of the Securities Act
applicable to the Company with respect to the disposition of all Registrable
Shares covered by such Registration Statement in accordance with the sellers'
52
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intended method of disposition set forth in such Registration Statement for such
period;
(iii) as expeditiously as possible furnish to each selling holder
of Registrable Shares such reasonable numbers of copies of the Registration
Statement and the prospectus, including a preliminary prospectus, in conformity
with the requirements of the Securities Act, and such other documents as the
selling holder may reasonably request in order to facilitate the public sale or
other disposition of the Registrable Shares owned by such selling holder; and
(iv) as expeditiously as possible use its best efforts to
register or qualify the Registrable Shares covered by the Registration Statement
under the securities or "Blue Sky" laws of such states as each selling holder of
Registrable Shares shall reasonably request, and do any and all other acts and
things that may be necessary or desirable to enable each such selling holder of
Registrable Shares to consummate the public sale or other disposition in such
states of the Registrable Shares owned by such selling holder; provided,
--------
however, that the Company shall not be required to qualify as a foreign
- -------
corporation or execute a general consent to service of process in any
jurisdiction.
(v) immediately notify each seller of Registrable Shares and
each underwriter under such Registration Statement, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event of which the Company has knowledge as a
result of which the prospectus contained in such Registration Statement as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
(vi) if the offering is underwritten and at the request of any
seller of Registrable Shares, use its best efforts to furnish on the date that
Registrable Shares are delivered to the underwriters for sale pursuant to such
registration: (A) an opinion dated such date of counsel representing the
Company for the purposes of such registration, addressed to the underwriters and
to such seller, stating that such Registration Statement has become effective
under the Securities Act and that (1) to the best knowledge of such counsel, no
stop order suspending the effectiveness thereof has been issued and no
proceedings for that purpose have been instituted or are pending or contemplated
under the Securities Act, (2) the Registration Statement' the related prospectus
and each amendment or supplement thereof comply as to form in all material
respects with the requirements of the Securities Act (except that such counsel
need not express any opinion as to financial statements or
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schedules or other financial or statistical data contained therein)
and (3) to such other effects as reasonably may be requested by
counsel for the underwriters or by such seller or its counsel and (B)
a letter dated such date from the independent public accountants
retained by the Company, addressed to the underwriters and to such
seller, stating that they are independent public accountants within
the meaning of the Securities Act and that, in the opinion of such
accountants, the financial statements of the Company included in the
Registration Statement or the prospectus, or any amendment or
supplement thereof, comply as to form in all material respects with
the applicable accounting requirements of the Securities Act, and such
letter shall additionally cover such other financial matters
(including information as to the period ending no more than five
business days prior to the date of such letter) with respect to such
registration as such underwriters reasonably may request; and
(vii) make available for inspection by each seller of
Registrable Shares, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information
reasonably requested by any such seller, in connection with such
Registration Statement.
(b) If the Company has delivered preliminary or final
prospectuses to the selling holders of Registrable Shares and after having
done so the prospectus is amended to comply with the requirements of the
Securities Act, the Company shall immediately notify such selling holders
and, if requested, such selling holders shall immediately cease making
offers of Registrable Shares and return all prospectuses to the Company. The
Company shall promptly provide all selling holders of Registrable Shares
with revised prospectuses and, following receipt of the revised
prospectuses, the selling holders shall be free to resume making offers of
the Registrable Shares. The Company shall be obligated to keep the
Registration Statement effective for a period of additional days equal to
the number of days during which the holders were required to cease making
offers pursuant to this paragraph.
12.4 Allocation of Expenses. The Company will pay all
----------------------
Registration Expenses of all registrations under this Agreement; provided,
--------
however, that if a registration is withdrawn at the request of the holders of
- -------
Registrable Shares who requested such registration (other than as a result of
information concerning the business or financial condition of the Company which
is made known to such holders after the date on which such registration was
requested) and if such requesting holders elect not to have such registration
counted as a registration requested under Subsection 12.1, the requesting
holders shall pay the Registration Expenses of such registration pro rata in
accordance with the number of their Registrable Shares included in such
registration. For purposes of this Section, the term "Registration Expenses"
shall mean all expenses incurred by the Company in complying with this Section
12 including, without limitation, all registration and filing fees, exchange
listing fees, printing
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expenses, fees and disbursements of counsel for the Company and the fees and
expenses of one counsel selected by the selling holders of Registrable Shares to
represent such selling holders, state "Blue Sky" fees and expenses, and the
expense of any special audits incident to or required by any such registration,
but excluding underwriting discounts, selling commissions and the fees and
expenses of any selling holder's own counsel (other than the counsel selected to
represent all selling holders of Registrable Shares).
12.5. Indemnification.
---------------
(a) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, the Company
will indemnify and hold harmless the seller of such Registrable Shares,
each underwriter of such Registrable Shares, each officer and director of
such seller and underwriter, and each other person, if any, who controls
such seller or underwriter within the meaning of the Securities Act or the
Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter; officer or director or
controlling person may become subject under the Securities Act, the
Exchange Act, state securities or "Blue Sky" laws or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Securities
Act, any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or supplement to such Registration
Statement, or arise out of or are based upon the omission or alleged
omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or arise out of or
are based upon any violation or alleged violation by the Company of the
Securities Act or Exchange Act or any state securities laws or any
regulation promulgated under any of them; and the Company will reimburse
such seller, underwriter, each officer and director and each such
controlling person for any legal or any other expenses reasonably incurred
by such seller, underwriter, officer, director or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable
-------- -------
in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any untrue statement or omission
made in such Registration Statement, preliminary prospectus or prospectus,
or any such amendment or supplement, in reliance upon and in conformity
with information furnished to the Company, in writing, by or on behalf of
such seller, underwriter or controlling person specifically for use in the
preparation thereof.
(b) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, each seller of
Registrable Shares, severally and not jointly, will indemnify and hold
harmless the Company, each of its directors and officers and each
underwriter (if any), each other seller of Registrable
55
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Shares and each person, if any, who controls the Company or any such underwriter
within the meaning of the Securities Act or the Exchange Act, against any
losses, claims, damages or liabilities, joint or several, to which the Company,
such directors and officers, underwriter, other seller of Registrable Shares or
controlling person may become subject under the Securities Act, Exchange Act,
state securities or "Blue Sky" laws or otherwise, to the extent that such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement under which such
Registrable Shares were registered under the Securities Act, any preliminary
prospectus or final prospectus contained in the Registration Statement, or any
amendment or supplement to the Registration Statement, or arise out of or are
based upon any omission or alleged omission to state a material fact required to
be stated therein or necessary to make the statements therein not misleading, if
the statement or omission was made in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of such seller,
specifically for use in connection with the preparation of such Registration
Statement, prospectus, amendment or supplement; provided, however, that the
-------- -------
obligations of such Stockholder hereunder shall be limited to an amount equal to
the proceeds received by such seller from the sale of Registrable Shares covered
by such Registration Statement and sold as contemplated therein; and further
provided, however, that in the event of an underwritten offering of capital
- -------- -------
stock of the Company initiated by the Company in which any holders sell
Registrable Shares pursuant to Subsection 12.2, the foregoing indemnity
agreement is subject to the condition that, insofar that it relates to any such
untrue statement (or alleged untrue statement) or omission (or alleged omission)
made in the preliminary prospectus but remedied in the amended prospectus on
file with the Commission at the time the Registration Statement becomes
effective or in the final prospectus, such indemnity agreement shall not inure
to the benefit of (i) the Company and (ii) any seller of Registrable Shares, if
there is no underwriter, if copy of the final prospectus was not furnished to
the person or entity asserting the loss, claim, damage or liability at or prior
to the time such furnishing is required by the Securities Act.
(c) Each party entitled to indemnification under this Subsection 12.5
shall give notice to the party required to provide indemnification promptly
after such indemnified party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the indemnifying party to assume the
defense of any such claim or any litigation resulting therefrom; provided, that
--------
counsel for the indemnifying party, who shall conduct the defense of such claim
or litigation, shall be approved by the indemnified party (whose approval shall
not be unreasonably withheld) and provided, further that an omission so to
-------- -------
notify the indemnifying party shall not relieve it from any liability which it
may have to such indemnified party other than under this Subsection 12.5 and
shall only relieve it from any liability which it may have to such indemnified
party under this Subsection 12.5 if and to the extent the indemnifying party is
prejudiced by such omission. The indemnified party may participate in such
defense
56
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at such party's expense; provided, however, that the indemnifying party
-------- -------
shall pay such expense if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between the indemnified party and
any other party represented by such counsel in such proceeding. No
indemnifying party, in the defense of any such claim or litigation shall,
except with the consent of each indemnified party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim
or litigation, and no indemnified party shall consent to entry of any
judgment or settle such claim or litigation without the prior written
consent of the indemnifying party.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i)
any holder of Registrable Shares exercising rights under this Agreement, or
any officer or director of any holder or any controlling person of any such
holder, makes a claim for indemnification pursuant to this Subsection 12.5
but it is judicially determined (by the entry of a final judgment or decree
by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may
not be enforced in such case notwithstanding the fact that this Subsection
12.5 provides for indemnification in such case, or (ii) contribution under
the Securities Act may be required on the part of any such selling holder
or any such controlling person in circumstances for which indemnification
is provided under this Subsection 12.5; then, and in each such case, the
Company and such holder will contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that such holder is responsible for the
portion represented by the percentage that the public offering price of its
Registrable Shares offered by the Registration Statement bears to the
public offering price of all securities offered by such Registration
Statement, and the Company is responsible for the remaining portion;
provided, however, that, in any such case, (A) no such holder will be
-------- -------
required to contribute any amount in excess of the proceeds to it of all
Registrable Shares sold by it pursuant to such Registration Statement; and
(B) no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
12.6 Special Indemnification with Respect to Underwritten
----------------------------------------------------
Offering. In the event that Registrable Shares are sold pursuant to a
- --------
Registration Statement in an underwritten offering pursuant to Subsection
12.1(a), the Company agrees to enter into an underwriting agreement containing
customary representations and warranties with respect to the business and
operations of an issuer of the securities being registered and customary
covenants and agreements to be performed by such issuer, including without
limitation customary provisions with respect to indemnification by the Company
of the underwriters of such offering.
57
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12.7 Information by Holder. Each holder of Registrable Shares
---------------------
included in any registration shall furnish to the Company such information
regarding such holder and the distribution proposed by such holder as the
Company may reasonably request in writing and as shall be required in connection
with any registration, qualification or compliance referred to in this Section
12.
12.8 "Stand-Off" Agreement. Each holder of Registrable
---------------------
Securities, if requested by the Company and an underwriter of Common Stock or
other securities of the Company, shall agree not to sell or otherwise transfer
or dispose of any Registrable Shares or other securities of the Company held by
such holder for a specified period of time (not to exceed 90 days) following the
effective date of a Registration Statement; provided, that such agreement shall
--------
only apply to the first such Registration Statement covering Common Stock of the
Company to be sold on its behalf to the public in an underwritten offering.
Such agreement shall be in writing in a form satisfactory to the Company and
such underwriter. The Company may impose stop-transfer instructions with
respect to the Registrable Shares or other securities subject to the foregoing'
restriction until the end of the stand-off period.
12.9. Limitations on Subsequent Registration Rights. The Company
---------------------------------------------
shall not, without the prior written consent of holders holding at least a
majority of the Registrable Shares, enter into any agreement (other than this
Agreement) with any holder or prospective holder of any securities of the
Company which would allow such holder or prospective holder (a) to include
securities of the Company in any registration filed under Subsections 12.1 or
12.2, unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only on terms no
more favorable than the terms on which holders of Registrable Shares may include
shares in such registration, or (b) to make a demand registration which could
result in such registration statement being declared effective prior to December
31, 1998; provided, however, that the Company shall not enter into any agreement
-------- -------
with such holder or prospective holder that would give such holder or
prospective holder registration rights with respect to securities of the Company
other than shares of Common Stock issued by the Company or issued or issuable
upon conversion of convertible securities or exercise of warrants to purchase
capital stock of the Company.
12.10. Rule 144 Requirements. After the earliest of (i) the
---------------------
closing of the sale of securities of the Company pursuant to a Registration
Statement, (ii) the registration by the Company of a class of securities under
Section 12 of the Exchange Act, or (iii) the issuance by the Company of an
offering circular pursuant to Regulation A under the Securities Act, the Company
agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;
(b) Use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under
the Securities
58
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Act and the Exchange Act (at any time after it has become subject to such
reporting requirements); and
(c) furnish to any holder of Registrable Shares upon request a
written statement by the Company as to its compliance with the reporting
requirements of said Rule 144 (at any time after 90 days following the
closing of the first sale of securities by the Company pursuant to a
Registration Statement), and of the Securities Act and the Exchange Act (at
any time after it has become subject to such reporting requirements), a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents of the Company as such holder may reasonably
request to avail itself of any similar rule or regulation of the Commission
allowing it to sell any such securities without registration.
13. DEFINITIONS.
-----------
As used herein the following terms have the following respective
meanings:
"Acquired Indebtedness" means Indebtedness of a Person existing at the
---------------------
time such Person becomes a Subsidiary (or such Person is merged into the Company
or a Subsidiary) or assumed in connection with the acquisition of properties or
assets from any such Person and not incurred in connection with, or in
contemplation of, such Person becoming a Subsidiary or such acquisition.
"Affiliate" except as otherwise defined in this Agreement, means with
---------
respect to any Person, any Person directly or indirectly controlling or
controlled by or under common control with such Person, provided that, for
--------
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlled by" and "under common control with"), as used with respect
to any Person, shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
"Agreement" means this Agreement, as amended, modified or supplemented
---------
from time to time, together with any exhibits, schedules or other attachments
thereto.
"Applicable Converted Note Rate" means a rate of interest per annum
------------------------------
equal to the lesser of (i) ten percent (10%) and (ii) the Base Rate plus three
and one-half percent (3 1/2%). The term "Base Rate" as used herein shall mean
the rate of interest announced from time to time by The First National Bank of
Boston at its main office in Boston, Massachusetts as its Base Rate.
"Average Life" means, as of the date of determination, with respect to
------------
any Indebtedness, the quotient obtained by dividing (i) the sum of the products
of the numbers of
59
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years from the date of determination to the dates of each successive Scheduled
principal payment of such Indebtedness multiplied by the amount of such
principal payment by (ii) the sum of all such principal payments.
"beneficial owner" has the meaning ascribed thereto in Rules 13d-3 and
----------------
13d-5 promulgated by the Commission under the Exchange Act, except that a person
shall be deemed to be the beneficial owner of all shares that such person has
the right to acquire, whether such right is exercisable immediately or only
after the passage of time; and the terms "beneficial ownership" and
"beneficially owns" have meanings correlative to the foregoing.
"Board of Directors" means the Board of Directors of the Company or
------------------
any committee thereof duly authorized to act on behalf of such Board.
"Business Day" means any day that is not a Saturday, a Sunday or a day
------------
on which commercial banking institutions in Boston, Massachusetts are authorized
or required to be closed.
"Capital Lease Obligations" of a Person means any obligation which is
-------------------------
required to be classified and accounted for as a capital lease on the face of a
balance sheet of such Person prepared in accordance with GAAP; the amount of
such obligation shall be the capitalized amount thereof, determined in
accordance with GAAP; and the stated maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" means, with respect to any Person, any and all shares,
-------------
interests, participations, rights in or other equivalents (however designated)
of such Person's capital stock, and any rights (other than debt securities
convertible into capital stock), warrants or options exchangeable for or
convertible into such capital stock.
"Capitalized Leases" means leases which are required to be capitalized
------------------
on the balance sheet of the Company in accordance with GAAP.
"Cash Equivalents" means: (i) marketable obligations issued or
----------------
unconditionally guaranteed by the United States government, in each case
maturing within 360 days after the date of acquisition thereof; (ii) marketable
direct obligations issued by any state of the United States or any political
subdivision of any such state or any public instrumentality thereof maturing
within 360 days after the date of acquisition thereof and, at the time of
acquisition, having the highest rating obtainable from either Standard & Poor's
Corporation or Moody's Investors Service, Inc.; (iii) commercial paper maturing
no more than 360 days after the date of acquisition thereof, issued by a
corporation organized under the laws of any state of the United States or of the
District of Columbia and, at the time of acquisition, having a rating in one of
the two highest rating categories obtainable from either Standard & Poor's
Corporation
60
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or Moody's Investors Service, Inc.; (iv) money market funds whose investments
are made solely in securities described in clause (i) maturing within one (1)
year after the date of acquisition thereof; (v) certificates of deposit maturing
within 360 days after the date of acquisition thereof, issued by any commercial
bank that is a member of the Federal Reserve System that has capital, surplus
and undivided profits (as shown on its most recent statement of condition)
aggregating not less than $100,000,000 and is rated A or better by Moody's
Investors Service, Inc. or Standard & Poor's Corporation; and (vi) repurchase
agreements entered into with any commercial bank of the nature referred to in
clause (i), secured by a fully perfected Lien in any obligation of the type
described in any of clauses (i) through (v), having a fair market value at the
time such repurchase agreement is entered into of not less than 100% of the
repurchase obligation thereunder of such commercial bank.
"Change of Control" means the occurrence of any of the following
-----------------
events: (i) any "person" or "group" (as such terms are used in Section 13(d) and
14(d) of the Exchange Act), is or becomes the "beneficial owner", directly or
indirectly, of more than 50% of the total voting power of the Voting Stock of
the Company; (ii) the direct or indirect sale, lease, exchange or other transfer
of all or substantially all of the assets of the Company to any "person" (as
such term is used in Section 13(d) or 14(d) of the Exchange Act), provided that
the foregoing shall not apply to the granting of Liens on such assets to the
extent permitted by this Agreement; or (iii) the Company consolidates with or
merges into another corporation or any Person consolidates with or merges into
the Company, in either event pursuant to a transaction in which either (A) the
outstanding Voting Stock of the Company is changed into or exchanged for cash,
securities or other property (other than any such transaction where the
outstanding Voting Stock of the Company is changed into or exchanged for Voting
Stock of the surviving corporation which is neither Redeemable Stock nor
Exchangeable Stock) or (B) the holders of a majority of the voting power of the
Voting Stock of the Company immediately prior to such transaction own, directly
or indirectly, less than a majority of the voting power of the Voting Stock of
the surviving corporation immediately after such transaction.
"Closings" shall mean the First Closing and the Second Closing; and
--------
"Closing" shall mean either of the Closings.
-------
"Closing Dates" shall mean the First Closing Date and the Second
-------------
Closing Date; and "Closing Date" shall mean either of the Closing Dates.
------------
"Code" means the Internal Revenue Code of 1986, and the rules and
----
regulations thereunder, as amended from time to time.
"Collateral Agent" means Triumph-Connecticut Limited Partnership, in
----------------
its capacity as collateral agent for the holders from time to time of the Note
Indebtedness.
"Commission" means the United States Securities and Exchange
----------
Commission or any other federal agency at the time administering the Securities
Act.
61
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"Common Stock" means the common stock, $0.00004 par value per share,
------------
of the Company and any shares of Capital Stock of the Company into which such
shares may be exchanged or converted pursuant to any recapitalization, or
reclassification of the Company's Capital Stock.
"Company" has the meaning ascribed thereto in the introduction
-------
hereof.
"Default" means any event which is, or after notice or passage of
-------
time, or both, would be, an Event of Default.
"Environment" means soil, surface waters, groundwaters, land, stream
-----------
sediments, surface or subsurface strata and ambient air.
"Environmental Law(s)" means and includes any environmental or health
--------------------
and safety-related law, regulation, rule, ordinance, or legally enforceable
requirement at the foreign, federal, state, or local level.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
-----
the rules and regulations thereunder, as amended from time to time.
"Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
"Exchangeable Stock" means any Capital Stock which is exchangeable or
------------------
convertible into another security (other than Capital Stock of the Company which
is neither Exchangeable Stock nor Redeemable Stock).
"Feverall Acquisition" means the acquisition by the Company from
--------------------
Upsher-Smith Laboratories, Inc. of its Feverall and Acetaminophen Uniserts
Suppository product lines and Acetaminophen Sprinkle Caps product lines pursuant
to terms and conditions approved by the Board of Directors of the Company.
"GAAP" means generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are applicable as of the date of
determination; provided, however, that these definitions and all ratios and
calculations contained in any covenants set forth in this Agreement shall be
determined in accordance with GAAP as in effect and applied by the Company on
the Issue Date, consistently applied.
"Governmental Authority" means any governmental or quasi-governmental
----------------------
authority including, without limitation, any federal, state, territorial,
county, municipal or
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other governmental or quasi-governmental agency, board, branch, bureau,
commission, court, department or other instrumentality or political unit or
subdivision, whether domestic or foreign.
"Guarantee" means the guarantee by a Guarantor of the Company's
---------
obligations under the Notes.
"Guarantor" means any Person who becomes a Guarantor by execution of a
---------
supplement to this Agreement pursuant to Subsection 8.9 hereof, and any of their
respective successors or assigns.
"Hazardous Materials" means and includes any hazardous waste,
-------------------
hazardous material, hazardous substance, petroleum product, oil, toxic
substance, pollutant, contaminant, or other human health or safety, as defined
or regulated under any Environmental Law.
"Hazardous Waste" means and includes any hazardous waste as defined
---------------
or regulated under any Environmental Law.
"Incurrence" means the incurrence, creation, assumption, issuance,
----------
guarantee of the payment of, or in any other manner becoming liable with respect
to, the payment of, any Indebtedness. "Incur" and "Incurred" shall have a
----- --------
comparable meaning.
"Indebtedness" means, with respect to any Person, without duplication,
------------
(i) the principal of and premium (if any) in respect of (A) indebtedness of such
Person for money borrowed and (B) indebtedness evidenced by securities,
debentures, bonds or other similar instruments (including purchase money
obligations) for payment of which such Person is responsible or liable; (ii) all
Capital Lease Obligations of such Person; (iii) all obligations of such Person
issued or assumed as the deferred purchase price of property, all conditional
sale obligations of such Person and all obligations of such Person under any
title retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (iv) all obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's acceptance,
securities purchase facility or similar credit transaction (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in (i) through (iii) above) entered into in the ordinary
course of business of such Person to the extent such letters of credit are not
drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no
later than the third business day following receipt by such Person of a demand
for reimbursement following payment on the letter of credit; (v) all obligations
of the type referred to in clauses (i) through (iv) of other Persons and all
dividends of other Persons for the payment of which, in either case, such Person
is responsible or liable as obligor, guarantor or otherwise; (vi) all
obligations of the type referred to in clauses (i) through (v) of other Persons
secured by any Lien on any property or asset of such Person whether or not such
obligation is assumed by such Person), the amount of such obligation being
deemed to be the lesser of the value of such property or assets or the amount of
the
63
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obligation so secured; and (vii) Redeemable Stock of such Person; provided,
--------
however, that Indebtedness will not include endorsements of negotiable
- -------
instruments for collection in the ordinary course of business.
"Initial Qualified Public Offering Price" means the per share price of
---------------------------------------
Common Stock at the time it is first sold by the Company pursuant to a Qualified
Public Offering.
"Insolvency or Liquidation Proceeding" means, with respect to any
------------------------------------
Person, (i) any insolvency or bankruptcy or similar case or proceeding, or any
reorganization, receivership, liquidation, dissolution or winding up of such
Person, whether voluntary or involuntary, or (ii) any assignment for the benefit
of creditors or any other marshaling of assets and liabilities of such Person.
"Interest Differential" means, with respect to any Insolvency or
---------------------
Liquidation Proceeding involving the Company, the difference between the rate of
interest on the Notes and the rate of interest on the Senior Indebtedness
immediately prior to the commencement of such Insolvency or Liquidation
Proceeding, excluding in each case any increase in the rate of interest
resulting from any default or event of default.
"Investment" in any Person means any loan or advance to, any
----------
acquisition of Capital Stock of, equity interest in, obligation or other
security of, or capital contribution to or other investment in, such Person.
"IRS" means the Internal Revenue Service or any successor agency.
---
"Lien" means any mortgage, lien (statutory or otherwise), charge,
----
pledge, hypothecation, conditional sales agreement, adverse claim, title
retention agreement or other security interest, encumbrance or other title
defect in or on any interest or title of any vendor, lessor, lender or other
secured party to or of such Person under any conditional sale, trust receipt or
other title retention agreement with respect to any Property or asset of such
Person.
"Material Adverse Effect" means, any material adverse effect on the
-----------------------
financial condition, assets, business or results of operations of the Company
and its Subsidiaries, if any, taken as a whole.
"Net Proceeds" means, with respect to a specified transaction, total
------------
cash proceeds net of all customary legal expenses, commissions and other fees
and expenses incurred and all federal, state, provincial, foreign and local
taxes required to be accrued as a liability under GAAP as a consequence of, and
in connection with, such transaction.
"Non-Convertible Capital Stock" means, with respect to any
-----------------------------
corporation, any nonconvertible Capital Stock of such corporation and any
Capital Stock of such corporation convertible solely into nonconvertible common
stock of such corporation which is not
64
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Redeemable Stock or Exchangeable Stock; provided, however, that Non-Convertible
-------- -------
Capital Stock does not include any Redeemable Stock or Exchangeable Stock.
"Officer" means, with respect to any corporation, the Chairman of the
-------
Board, the Chief Executive Officer, the President, any Vice President, the
Treasurer or the Secretary of such corporation.
"Officers' Certificate" means a certificate executed on behalf of the
---------------------
Company by (a) the Chairman of the Board of Directors (if an officer) or the
President or one of the Vice Presidents of the Company and (b) the Treasurer or
one of the Assistant Treasurers or the Secretary or one of the Assistant
Secretaries of the Company.
"Operating Lease" shall mean, as applied to any Person, any lease with
---------------
respect to which such Person is the lessee (including, without limitation,
leases which may be terminated by the lessee at any time) of any property
(whether real, personal or mixed) which is not a lease which is required to be
classified and accounted for as a capital lease on the face of the balance sheet
of such Person prepared in accordance with GAAP.
"Permitted Investments" means: (i) certificates of deposit with a
---------------------
maturity of one year or less issued by U.S. commercial banks having capital and
surplus in exams of $100.0 million; (ii) commercial paper with a minimum rating
of Al and/or Pl by Standard & Poor's Corporation and/or Moodys Investors
Service, Inc., respectively; (iii) direct obligations of the United States or of
a United States agency with a maturity of one year or less; (iv) shares of money
market mutual or similar funds having assets in excess of $100.0 million; and
(v) Investments by the Company in Wholly-Owned Subsidiaries.
"Permitted Liens" means, with respect to any Person, (i) pledges or
---------------
deposits by such Person under workmen's compensation laws, unemployment
insurance laws or similar legislation, or good faith deposits in connection with
bids, tenders, contracts (other than for the payment of Indebtedness), utility
services or leases to which such Person is a party, or deposits to secure public
or statutory obligations of such Person or deposits of cash or U.S. Government
bonds to secure surety or appeal bonds to which such Person is a party, or
deposits as security for contested taxes or import duties or for the payment of
rent and incurred in the ordinary course of such Person's business; (ii) Liens
determined by law, such as carriers' warehousemen's, mechanics' and bankers'
Liens and incurred in the ordinary course of such Person's business; (iii) Liens
for taxes not yet subject to penalties for non-payment or which are being
contested in good faith and by appropriate proceedings, if adequate reserve, as
may be required by GAAP, shall have been made therefor; (iv) Liens in favor of
issuers of surety bonds (other than to satisfy any judgment or judgments) issued
pursuant to the request of and for the account of such Person in the ordinary
course of its business; (v) survey exceptions, encumbrances, easements or
reservations of, or rights of others for, rights-of-way, sewers, electric lines,
telegraph and telephone lines and other similar purposes, or zoning or other
restrictions as to the use of real properties or Liens incidental to the conduct
of the
65
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business of such Person or to the ownership of its properties and incurred in
the ordinary course of such Person's business; (vi) Liens securing the Senior
Indebtedness; (vii) Purchase Money Liens and Capitalized Leases securing
Indebtedness permitted under Section 8.2(b) of this Agreement; and (viii) Liens
granted in favor of Upsher-Smith Laboratories, Inc. or its affiliates on those
assets acquired by the Company pursuant to the Feverall Acquisition.
"Person" means any individual, corporation, partnership, joint
------
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Post-Petition Interest" means, with respect to any Indebtedness of
----------------------
any Person, all interest which would accrue on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding against such Person in
accordance with and at the contract rate (including, without limitation, any
rate applicable upon default) specified in the agreement or instrument creating,
evidencing or governing such Indebtedness, whether or not, pursuant to
applicable law or otherwise, the claim for such interest is allowable as a claim
in such Insolvency or Liquidation Proceeding.
"Preferred Stock" means, with respect to the Borrower, the Series A
---------------
Preferred, the Series B Preferred, the Series D Preferred, the Series E
Preferred, the Series F Preferred, and any other Capital Stock of any class or
classes (however designated) of the Corporation which is preferred, as to the
payment of dividends or as to the dissolution of assets upon any voluntary or
involuntary liquidation or dissolution of such corporation, over shares of
Capital Stock of any other class of such corporation.
"Primsol Solution Final FDA Approval" means the final approval of the
-----------------------------------
FDA for the manufacturing, labeling, marketing, sale and distribution of the
Company's Primsol Solution product for the clinical indications of both (i)
otitis media and (ii) urinary tract infection in patients over 12 years of age.
"Principal Purchaser" has the meaning ascribed thereto in the
-------------------
introduction hereof.
"Principal Purchaser's Special Counsel" means Goodwin, Procter & Hoar
-------------------------------------
LLP, a limited liability partnership including professional corporations, acting
as special counsel to the Principal Purchaser in connection with the
transactions contemplated hereunder.
"Property" means any interest in any kind of property or asset,
--------
whether real, personal or mixed, or tangible or intangible.
"Purchase Money Liens" means Liens to secure the payment of all or any
--------------------
part of the purchase price of assets or property acquired by the Company in the
ordinary course,
66
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provided that each such Lien shall at all times be confined to the property or
assets so acquired.
"Purchaser" except as defined elsewhere in this Agreement, means any
---------
purchaser listed on the signature pages hereto.
"Purchasers" except as defined elsewhere in this Agreement, has the
----------
meaning ascribed thereto in the introduction hereof.
"Put Note" means any promissory note issued by the Company in
--------
connection with the exercise by any holder of Warrants of a Put Right (as
defined in the Warrants).
"Put Purchase Date" means each date on which the Company shall be
-----------------
obligated under the terms of the Warrants to repurchase any of the Warrants
pursuant to an exercise by any holder of Warrants of a Put Right (as defined in
the Warrants).
"Qualified Public Offering" means an underwritten public offering of
-------------------------
the Common Stock of the Company, for the account of the Company, pursuant to an
effective registration statement filed pursuant to the Securities Act, in which
the gross proceeds to the Company are not less than $15,000,000.
"Redeemable Stock" means any Capital Stock that by its terms or
----------------
otherwise is required to be redeemed prior to the first anniversary of the
Stated Maturity of the Notes or is redeemable at the option of the holder
thereof any time prior to the first anniversary of the Stated Maturity of the
Notes.
"Redemption Date" or "redemption date" means the Stated Maturity Date
--------------- ---------------
of the Notes and such earlier date or dates as may be specified in any notice of
optional redemption of the Company delivered in accordance with Subsection 6.5
hereof.
"Refinancing Indebtedness" shall have the meaning assigned to it in
------------------------
the definition of Permitted Indebtedness.
"Registrable Shares" means (i) the shares of Common Stock issued or
------------------
issuable upon exercise or conversion of any share of the Preferred Stock, any of
the Series D Common Warrants, the Series E Common Warrants, the Series F Common
Warrants or the Warrants, (ii) the shares of Common Stock issued or issuable
upon the purchase by any holder of Preferred Stock, Series D Common Warrants,
Series D Preferred Warrants, Series E Common Warrants or Series F Common
Warrants pursuant to the conversion or exercise of any such holder's "first
refusal right" under Section 7.3 of the Series F Financing Agreement, (iii) the
shares of Common Stock issued or issuable upon the purchase by any holder of
Warrants pursuant to the conversion or exercise of any such holder's Pre-emptive
Right, and (iv) any other shares of Common Stock of the Company issued in
respect of such shares (because of
67
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stock splits, stock dividends, reclassifications, recapitalizations, or similar
events); provided, however, that shares of Common Stock which are Registrable
-------- -------
Shares shall cease to be Registrable Shares upon any sale pursuant to a
Registration Statement, Section 4(1) of the Securities Act or Rule 144 under the
Securities Act, or any sale in any manner to a person or entity which, by virtue
of Section 9 of the Series F Financing Agreement is not entitled to the
registration rights provided by Section 8 of the Series F Financing Agreement.
Wherever reference is made in this Agreement to a request or consent of holders
of a certain percentage of Registrable Shares or certain Registrable Shares, or
a certain number of Registrable Shares or certain Registrable Shares, the
determination of such percentage or number shall include shares of Common Stock
issuable upon conversion of the Preferred Stock.
"Registration Statement" means a registration statement filed by the
----------------------
Company with the Commission for a public offering and sale of securities of the
Company (other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
"Release" means any releasing, spilling, leaking, pumping, pouring,
-------
emitting, emptying, discharging, injecting, escaping, leaching, disposing, or
dumping into the Environment.
"Reorganization Securities" means, with respect to any Insolvency or
-------------------------
Liquidation Proceeding involving the Company, Capital Stock or other securities
of the Company as reorganized or readjusted (or Capital Stock or any other
securities of any other Person (other than a Subsidiary of the Company, unless
the Company is no longer in existence and such Subsidiary is the successor to
the Company)), provided for by a plan of reorganization or readjustment and the
payment of all of which Capital Stock or other securities is subordinated, at
least to the same extent as the Notes, to the payment of all outstanding Senior
Indebtedness after giving effect to such plan of reorganization or readjustment;
provided, however, that (i) if Capital Stock, such securities shall have no
- -------- -------
mandatory repurchase, redemption, prepayment, sinking fund, or dividend
obligations prior to six months following the final scheduled maturity date of
all Senior Indebtedness (as modified by such plan of reorganization or
readjustment) and (ii) if debt securities: (A) such securities shall not
provide for amortization (including sinking fund and mandatory redemption,
repurchase, retirement, defeasance or prepayment provisions) commencing prior to
six months following the final scheduled maturity of all Senior Indebtedness of
the Company (as modified by such plan of reorganization or readjustment); (B) if
the rate of interest on such securities is fixed, such rate of interest shall
not exceed the greater of (1) the rate of interest on the Notes and (2) the sum
of the rate of interest on the Senior Indebtedness on the effective date of such
plan of reorganization or readjustment and the Interest Differential; (C) if the
rate of interest on such securities floats, such rate of interest shall not
exceed at any time the sum of the interest rate on the Senior Indebtedness at
such time and the Interest Differential; (D) such securities shall not have
covenants or default provisions materially more burdensome to the
68
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Company than those in effect with respect to the Notes as of the date of
issuance of such securities; and (E) no Subsidiary of the Company (or any
successor to the Company) has any obligation, direct or indirect, to make, grant
or Incur any Lien securing any payment or distribution of any kind in respect of
any Reorganization Securities.
"Representative" means, with respect to the Senior Indebtedness, the
--------------
agent or other representative(s), if any, of holders of such Senior
Indebtedness.
"Restricted Payment" means, with respect to any Person, without
------------------
duplication: (i) any dividend or other distribution, whether in cash or in
Property or securities, declared or paid on any shares of such Person's Capital
Stock, or the making by such Person or any of its subsidiaries of any other
distribution in respect of, such Person's Capital Stock or any warrants, rights
or options to purchase or acquire shares of any class of such Capital Stock;
(ii) the redemption, repurchase, retirement or other acquisition for value by
such Person or any of its subsidiaries, directly or indirectly, of such person's
Capital Stock; (iii) any payment to purchase, redeem, defease or otherwise
acquire or retire for value any Indebtedness (other than Senior Indebtedness);
and (iv) any Investment other than Permitted Investments.
"Rule 144" means Rule 144 as promulgated by the Commission under the
--------
Securities Act, and any successor rule or regulation thereto.
"Rule 144A" means Rule 144A as promulgated by the Commission under the
---------
Securities Act, and any successor rule or regulation thereto.
"Securities Act" means the Securities Act of 1933, and the rules and
--------------
regulations of the Commission promulgated thereunder, as amended.
"Security Documents" means the Security Agreement and such other
------------------
agreements, instruments, financing statements and documents in form and
substance satisfactory to the Principal Purchaser as the Principal Purchaser may
reasonably request that the Company execute and deliver, to provide for the
Collateral Agent to obtain, for the ratable benefit of the holders of the Note
Indebtedness, valid and enforceable perfected Liens on substantially all of the
Company's properties and assets as security for the Note Indebtedness, and all
amendments, waivers, modifications and refinancings thereof.
"Senior Indebtedness" shall mean Indebtedness of the Company to one or
-------------------
more banks or other financial institutions in an aggregate principal amount not
in excess of $6,000,000 at any time outstanding, plus interest and fees with
respect thereto, which Indebtedness by its terms is senior to the Indebtedness
of the Company under and in respect of the Notes and this Agreement.
69
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"Series A Preferred" means the 800,000 shares of Series A Convertible
------------------
Preferred Stock, $.00004 par value per share, of the Company outstanding on the
First Closing Date, each of which shares is convertible into one (1) share of
Common Stock.
"Series B Preferred" means the 399,999 shares of Series B Convertible
------------------
Preferred Stock, $.00004 par value per share, of the Company outstanding on the
First Closing Date, all of which shares are convertible on an aggregate basis
into 415,565 shares of Common Stock.
"Series D Common Warrants" means warrants outstanding on the First
------------------------
Closing Date to purchase 238,572 shares of Common Stock.
"Series D Preferred" means (i) the 1,359,522 shares of Series D
------------------
Convertible Preferred Stock, $.00004 par value per share, of the Company
outstanding on the First Closing Date, and (ii) the 40,067 shares of Series D
Convertible Preferred Stock, $.00004 par value per share, of the Company
issuable upon exercise of the Series D Preferred Warrants, each of which shares
is convertible into one (1) share of Common Stock.
"Series D Preferred Warrants" means warrants outstanding on the First
---------------------------
Closing Date to purchase 40,067 shares of Series D Preferred.
"Series E Common Warrants" means warrants outstanding on the First
------------------------
Closing Date to purchase 122,228 shares of Common Stock.
"Series E Preferred" means the 733,371 shares of Series E Convertible
------------------
Preferred Stock, $.00004 par value per share, of the Company outstanding on the
First Closing Date, each of which shares is convertible into one (1) share of
Common Stock.
"Series F Common Warrants" means warrants to purchase up to an
------------------------
aggregate of 923,077 shares of Common Stock issued or issuable by the Company as
part of the Series F Financing.
"Series F Financing" means the issuance and sale by the Company of up
------------------
to an aggregate of 2,353,848 shares of Series F Preferred and Series F Common
Warrants to purchase up to an aggregate of 923,077 shares of Common Stock,
pursuant to the Series F Financing Agreement.
"Series F Financing Agreement" means the Series F Convertible
----------------------------
Preferred Stock and Warrant Purchase Agreement by and among the Company and the
purchasers parties thereto, dated as of June 28, 1996, as the same may be
amended or supplemented from time to time.
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"Series F Preferred" means up to an aggregate of 2,353,848 shares of
------------------
Series F Convertible Preferred Stock, $.00004 par value per share, of the
Company issued or issuable by the Company as part of the Series F Financing.
"Stated Maturity" means, with respect to any security, the date
---------------
specified in such security as the fixed date on which the principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
"Subsidiary" means with respect to any Person, any corporation,
----------
association or other business entity of which securities representing more than
50% of the combined voting power of the total Voting Stock (or in the case of an
association or other business entity which is not a corporation, more than 50%
of the equity interest) is at the time owned or controlled, directly or
indirectly, by that Person or one or more Subsidiaries of that Person or a
combination thereof. When used herein without reference to any Person,
Subsidiary means a Subsidiary of the Company.
"Threat of Release" means a substantial likelihood of a Release which
-----------------
requires action to prevent or mitigate damage to the Environment which may
result from such Release.
"Transaction Documents" means, collectively, this Agreement, the
---------------------
Notes, the Warrants, the Security Documents and the Third Amended and Restated
Voting Rights Agreement.
"U.S. Government Obligations" means direct obligations (or
---------------------------
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable at the issuer's option.
"Voting Stock" means any class or classes of Capital Stock pursuant to
------------
which the holders thereof have the general voting power under ordinary
circumstances to vote for the election of directors, managers or trustees of any
Persons (irrespective of whether or not at the time, stock of any class or
classes will have, or might have, voting power by the reason of the happening of
any contingency).
"Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of
-----------------------
which (other than directors' qualifying shares) is owned by the Company or
another Wholly Owned Subsidiary.
71
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In addition to the foregoing, the following terms are defined in the
following Subsections of this Agreement:
<TABLE>
<CAPTION>
Term Defined in Subsection
- ---- ---------------------
<S> <C>
"Affiliate Transaction"........................ 8.2(d)
"Approvals".................................... 3.1(n)
"Bankruptcy Law"............................... 9.1
"Change of Control Offer"...................... 6.6(a)
"Change of Control Purchase Date".............. 6.6(b)(ii)
"Charter Documents"............................ 3.1(e)
"Change Date".................................. 6.6
"Closing Fee".................................. 3.1(q)
"Converted Notes".............................. 6.7(a)
"Current Affiliate"............................ 4.12(b)
"Custodian".................................... 9.1
"Declaration".................................. 9.2
"Default Amount"............................... 9.2
"Employee Program"............................. 4.12(a)
"ERISA Affiliate".............................. 4.112(b)
"Event of Default"............................. 9.1
"FDA".......................................... 4.33
"Financial Statements"......................... 4.23
"First Closing"................................ 2.1
"First Closing Date"........................... 2.1
"Illegal Transfer Notice"...................... 10.2
"Indemnified Party" and "Indemnified Parties".. 14.1
"Intellectual Property"........................ 4.24
"License(s)"................................... 4.5
"Losses"....................................... 14.1
"Multiemployer Plan"........................... 4.12(d)
"New Securities"............................... 7.2(b)
"Nonpayment Default"........................... 11.3
"Note Indebtedness"............................ 11.1
"Notes"........................................ 1.1
"Payment Blockage Notice"...................... 11.3
"Payment Default".............................. 11.3
"Pre-emptive Right"............................ 7.2
"Qualified Public Offering Conversion"......... 6.7(a)
"Qualified Public Offering Date"............... 6.7(a)
"Qualified Public Offering Redemption"......... 6.7(a)
"Repurchase Date".............................. 7.1
"Restricted Security".......................... 10.2
</TABLE>
72
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Page 89 of 117 Pages
<TABLE>
<S> <C>
"Scientists".......................................... 4.24
"Second Closing"...................................... 2.2
"Second Closing Date"................................. 2.2
"Series A Warrants"................................... 1.2
"Series B Warrants"................................... 1.2
"Special Repurchase Right"............................ 7.1
"Stated Maturity Date of the Converted Notes"......... 6.7(d)
"Stated Maturity Date of the Notes"................... 6.1
"Taxes"............................................... 4.25
"Warrants"............................................ 1.2
</TABLE>
14. MISCELLANEOUS.
-------------
14.1. Indemnification; Expenses, Etc.
------------------------------
(a) In addition to any and all obligations of the Company to
indemnify the Purchasers hereunder or under the other Transaction Documents, the
Company agrees, without limitation as to time, to indemnify and hold harmless
each Purchaser and its Affiliates, and the employees, officers, directors, and
agents of each Purchaser and its Affiliates (individually, an "Indemnified
Party" and, collectively the "Indemnified Parties") from and against any and all
losses, claims, damages, liabilities, costs (including the costs of preparation
and attorneys' fees) and expenses (including expenses of investigation)
(collectively, "Losses") incurred or suffered by an Indemnified Party in
connection with any proceeding against the Company or any Indemnified Party
brought by any third party arising out of or in connection with this Agreement
or the other Transaction Documents or the transactions contemplated hereby or
thereby or any action taken in connection herewith or therewith (or any other
document or instrument executed herewith or pursuant hereto or thereto), whether
or not the transactions contemplated by this Agreement are consummated and
whether or not any Indemnified Party is a formal party to any Proceeding;
provided, however, that the Company shall not be liable for any losses resulting
- -------- -------
from action on the part of any Indemnified Party which is finally determined in
such proceeding to be wrongful or which is an act of gross negligence,
recklessness, or willful misconduct by such Indemnified Party. The Company
agrees promptly to reimburse any Indemnified Party for all such Losses as they
are incurred or suffered by such Indemnified Party. Except as otherwise provided
herein, the Company agrees (for the benefit of each Purchaser) to pay, and to
hold each Purchaser harmless from and against, all costs and expenses
(including, without limitation, attorneys' fees, expenses and disbursements), if
any, in connection with the enforcement against the Company, as the case may be,
of this Agreement or any other Transaction Document or any other agreement or
instrument furnished pursuant hereto or thereto or in connection herewith or
therewith in any action in which the Purchaser attempting to enforce any of the
foregoing shall prevail.
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Page 90 of 117 Pages
(b) If any Indemnified Party is entitled to indemnification hereunder,
such Indemnified Party shall give prompt notice to the Company of any claim or
of the commencement of any proceeding against the Company or any Indemnified
Party brought by any third party with respect to which such Indemnified Party
seeks indemnification pursuant hereto; provided, however, that the failure so to
-------- -------
notify the Company shall not relieve the Company from any obligation or
liability except to the extent the Company is prejudiced by such failure. The
Company shall have the right, exercisable by giving written notice to an
Indemnified Party promptly after the receipt of written notice from such
Indemnified Party of such claim or proceeding, to assume, at the expense of the
Company, the defense of any such claim or proceeding with counsel reasonably
satisfactory to such Indemnified Party. The Indemnified Party or Parties will
not be subject to any liability for any settlement made without its or their
consent (but such consent will not be unreasonably withheld). The Company shall
not consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by claimant or plaintiff to
such Indemnified Party or Parties of a release, in form and substance
satisfactory to the Indemnified Party or Parties, from all liability in respect
of such claim, litigation or proceeding.
(c) In addition to any other obligations of the Company to indemnify
the Purchasers herein or pursuant to any of the Transaction Documents or any
other agreements or documents executed and delivered in connection therewith,
the Company will pay, and will save each Purchaser and each other holder of any
of the Notes or Warrants harmless from liability for the payment of all expenses
arising in connection with such transactions, including, without limitation:
(a) all document production and duplication charges and the reasonable fees,
charges and expenses of the Principal Purchaser's Special Counsel (whether
arising before or after any Closing Date), the transactions contemplated hereby
and any subsequent proposed modification of, or proposed consent under, this
Agreement, whether or not such proposed modification shall be effected or
proposed consent granted; (b) the costs of obtaining a private placement number
from Standard & Poor's Corporation for the Notes; (c) the costs and expenses,
including attorneys' fees, incurred by any Purchaser in enforcing any rights
under this Agreement or in responding to any subpoena or other legal process
issued in connection with this Agreement or the transactions contemplated hereby
or thereby or by reason of such Purchaser's having acquired the Notes or
Warrants, including without limitation costs and expenses incurred by such
Purchaser in any bankruptcy case; (d) the cost of delivering to such Purchaser's
principal office, insured to its satisfaction, the Notes and Warrants delivered
to such Purchaser hereunder and any Notes Warrants or Common Stock delivered to
such Purchaser upon any substitution of any of the Notes or Warrants pursuant to
the terms of this Agreement or the Transaction Documents and of such Purchaser's
delivering any Notes, Warrant certificates or Common Stock certificates, insured
to its satisfaction, upon any such substitution; and (e) the reasonable
documented out-of-pocket expenses incurred by
74
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such Purchaser in connection with such transactions and any such amendments
or waivers.
14.2. Survival of Representations and Warranties; Severability.
---------------------------------------------------------
All representations and warranties contained in this Agreement or the
Transaction Documents or made in writing by or on behalf of the Company in
connection with the transactions contemplated by this Agreement or the
Transaction Documents shall survive, for the duration of any statutes of
limitation applicable thereto, the execution and delivery of this Agreement, any
investigation at any time made by any Purchaser or on such Purchaser's behalf,
the purchase of the Notes and Warrants by the Purchasers under this Agreement
and any disposition of or payment on the Notes or Warrants. Any provision of
this Agreement that is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provisions in any other
jurisdiction.
14.3. Amendment and Waiver. This Agreement may be amended,
--------------------
modified or supplemented, and waivers or consents to departures from the
provisions hereof may be given, provided that the same are in writing and signed
by the Company, the holders of a majority of the principal amount of the Notes
and the holders of a majority of the Warrants.
14.4. Notices, Etc. Except as otherwise provided in this
------------
Agreement, notices and other communications under this Agreement shall be in
writing and shall be delivered, or mailed by registered or certified mail,
return receipt requested, or by a nationally recognized overnight courier,
postage prepaid, addressed, (a) if to a Purchaser, at the address specified on
such Purchaser's signature page attached hereto or such other address as such
Purchaser shall have furnished to the Company in writing, or (b) if to any other
holder of any Note or Warrant or any part thereof, at such address as such other
holder shall have furnished to the Company in writing, or, until any such other
holder so furnishes to the Company an address, then to and at the address of the
last holder of such Note or Warrant or part thereof who has furnished an address
to the Company, or (c) if to the Company, at its address set forth at the
beginning of this Agreement, to the attention of the Chief Executive Officer, or
at such other address, or to the attention of such other Officer, as the Company
shall have furnished to the Purchasers and each such other holder in writing.
This Agreement and the other Transaction Documents and all documents delivered
in connection herewith or therewith embody the entire agreement and
understanding between the Purchasers and the Company and supersede all prior
agreements and understandings relating to the subject matter hereof. Any notice
hereunder shall be deemed effective three (3) Business Days following deposit
with the U.S. Mail and one (1) Business Day following deposit with a nationally
recognized overnight courier, each as provided above.
14.5. Successors and Assigns. Whenever in this Agreement any of
----------------------
the parties hereto are referred to, such reference shall be deemed to include
the successors and assigns of such party; and all covenants, promises and
agreements by or on behalf of the respective
75
<PAGE>
Page 92 of 117 Pages
parties which are contained in this Agreement shall bind and inure to the
benefit of the successors and assigns of all other parties. The terms and
provisions of this Agreement, and the other Transaction Documents shall inure to
the benefit of and shall be binding upon any assignee or transferee of the
Purchasers, and in the event of such transfer or assignment, the rights and
privileges herein conferred upon the Purchasers shall automatically extend to
and be vested in, and become an obligation of, such transferee or assignee, all
subject to the terms and conditions hereof. In connection therewith, such
transferee or assignee may disclose all documents and information which such
transferee or assignee now or hereafter may have relating to any of the Notes or
Warrants or any part thereof, this Agreement, the other Transaction Documents,
the Company, any other Persons referred to herein or any of the business of any
of the foregoing entities.
14.6. Descriptive Headings. The headings in this Agreement are
--------------------
for purposes of reference only and shall not limit or otherwise affect the
meaning hereof.
14.7. Satisfaction Requirement. If any agreement, certificate or
------------------------
other writing, or any action taken or to be taken, is by the terms of this
Agreement or the other Transactions Documents required to be satisfactory to the
Purchasers or to the holders the Notes or the Warrants, the determination of
such satisfaction shall be made by the Principal Purchaser or such other Persons
holding a majority in aggregate principal amount of the Notes or a majority of
the Warrants, as the case may be, outstanding at such time; provided, that
--------
nothing contained in this Section 14.7, shall be deemed to modify or limit (i)
the right of each holder of Notes and Warrants to require that the Company
repurchase, redeem or convert any of the Notes and Warrants held by such holder
upon the occurrence of certain events as provided in this Agreement and the
other Transaction Documents, or (ii) any other right or remedy which is, by the
terms of this Agreement or the other Transaction Documents, exercisable
independently by each holder of Notes or Warrants.
14.8. GOVERNING LAW. THIS AGREEMENT AND THE NOTES AND WARRANTS
-------------
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE
PARTIES SHALL BE GOVERNED BY, THE LAW OF THE COMMONWEALTH OF MASSACHUSETTS,
WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAW.
14.9. Service of Process. The Company (a) hereby irrevocably
------------------
submits itself to the jurisdiction of the state courts of The Commonwealth of
Massachusetts and to the jurisdiction of the United States District Courts for
the District of Massachusetts, for the purpose of any suit, action or other
proceeding arising out of or based upon this Agreement, the Notes, the Warrants
or any part or parts thereof, the other Transaction Documents or the subject
matter hereof or thereof brought by any Purchaser or its successors or assigns
and (b) hereby waives, and agrees not to assert, by way of motion, as a defense,
or otherwise, in any such suit, action or proceeding, any claim that it is not
subject personally to the jurisdiction of the above-named courts, that its
property is exempt or immune from attachment
76
<PAGE>
Page 93 of 117 Pages
or execution, that the suit, action or proceeding is brought in an inconvenient
forum, that the venue of the suit, action or proceeding is improper or that this
Agreement or the subject matter hereof may not be enforced in or by such court.
The Company hereby consents to service of process by registered mail at the
address to which notices are to be given. The Company agrees that its
submission to jurisdiction and its consent to service of process by mail is made
for the express benefit of the Purchasers. Final judgment against the Company
in any such action, suit or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit, action or proceeding on the judgment, a
certified or true copy of which shall be conclusive evidence of the fact and of
the amount of any indebtedness or liability of the Company therein described or
in any other manner provided by or pursuant to the laws of such other
jurisdiction; provided, however, that a Purchaser may at its option bring suit
-------- -------
or institute other judicial proceedings against the Company or any of the
Company's or its assets in any state or federal court of the United States or in
any country or place where the Company or such assets may be found.
14.10. Counterparts. This Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall be deemed an
original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.
14.11. No Adverse Interpretation of Other Agreements. This
---------------------------------------------
Agreement may not be used to interpret another agreement, indenture, loan or
debt agreement of the Company or any of its Subsidiaries. Any such agreement,
indenture, loan or debt agreement may not be used to interpret this Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
77
<PAGE>
Page 94 of 117 Pages
SECURITIES PURCHASE AGREEMENT
SUBORDINATED NOTES AND
WARRANTS TO PURCHASE COMMON STOCK
COMPANY SIGNATURE PAGE
IN WITNESS WHEREOF, the undersigned, being duly authorized, has executed
this Agreement on behalf of the Company as of the date first above written.
ASCENT PEDIATRICS, INC.
By: /s/ Alan R. Fox
--------------------------
Name: Alan R. Fox
Title: President and Chief Executive Officer
78
<PAGE>
Page 95 of 117 Pages
SECURITIES PURCHASE AGREEMENT
SUBORDINATED NOTES AND
WARRANTS TO PURCHASE COMMON STOCK
PURCHASER SIGNATURE PAGE
<TABLE>
<S> <C> <C>
Accepted and agreed as of the
date first written above: Aggregate Purchase Price to be
paid by Purchaser at First Closing: $1,685,714.29
TRIUMPH-CONNECTICUT LIMITED Credit for Closing Fee owed to
PARTNERSHIP Purchaser at First Closing: ($33,714.29)
By: /s/ Thomas W. Janes Net Purchase Price to be paid
------------------------------ by Purchaser at First Closing: $1,652,000.00
Name: Thomas W. Janes
Title: Managing Director Principal amount of Notes to
be purchased by Purchaser at
Address: First Closing: $1,685,714.29
c/o Triumph Capital
Group, Inc. Shares of Common Stock
60 State Street, 21st Floor issuable upon exercise of
Boston, MA 02109 Series A Warrants to be issued
Telephone: (617) 557-6000 to Purchaser at First Closing: 222,545
-----------
Telecopy: (617) 557-6020
Aggregate Purchase Price to be paid
by Purchaser at Second Closing: $4,214,285.71
Tax ID No.: 04-3183699
Credit for Closing owed to
Purchaser at Second Closing: ($ 84,285.71)
Net Purchase Price to be paid
by Purchaser at Second Closing: $4,130,000.00
Principal amount of Notes to
be purchased by Purchaser at
Second Closing $4,214,285.71
Shares of Common Stock
issuable upon exercise of
Series A Warrants to be issued
to Purchaser at Second Closing: 333,818
-----------
Shares of Common Stock
issuable upon exercise of
Series B Warrants to be issued
to Purchaser at Second Closing: 216,363
-----------
</TABLE>
<PAGE>
Page 96 of 117 Pages
SECURITIES PURCHASE AGREEMENT
SUBORDINATED NOTES AND
WARRANTS TO PURCHASE COMMON STOCK
PURCHASER SIGNATURE PAGE
<TABLE>
<S> <C> <C>
Accepted and agreed as of the
date first written above: Aggregate Purchase Price to be
paid by Purchaser at First Closing: $ 285,714.29
/s/ John D. Howard
- ------------------------------
John D. Howard
Credit for Closing Fee owed to
--and-- Purchaser at First Closing: ($ 5,714.29)
/s/ Lauren R. Howard
- ------------------------------
Lauren R. Howard Net Purchase Price to be paid
by Purchaser at First Closing: $ 280,000.00
Principal amount of Notes to
be purchased by Purchaser at
Address: First Closing: $ 285,714.29
80 Irving Place
New York, NY 10003 Shares of Common Stock
issuable upon exercise of
Telephone (212) 475-4786 Series A Warrants to be issued
Telephone: (212) 358-0970 to Purchaser at First Closing: 37,719
----------
Aggregate Purchase Price to be paid
by Purchaser at Second Closing: $ 714,285.71
Credit for Closing owed to
Purchaser at Second Closing: ($ 14,285.71)
John D. Howard's Tax ID No:
###-##-#### Net Purchase Price to be paid
by Purchaser at Second Closing: $ 700,000.00
Lauren R. Howard's Tax ID No.:
###-##-#### Principal amount of Notes to
be purchased by Purchaser at
Second Closing $ 714,285.71
Shares of Common Stock
issuable upon exercise of
Series A Warrants to be issued
to Purchaser at Second Closing: 56,579
----------
Shares of Common Stock
issuable upon exercise of
Series B Warrants to be issued
to Purchaser at Second Closing: 36,672
----------
</TABLE>
<PAGE>
Page 97 of 117 Pages
SECURITIES PURCHASE AGREEMENT
SUBORDINATED NOTES AND
WARRANTS TO PURCHASE COMMON STOCK
PURCHASER SIGNATURE PAGE
<TABLE>
<S> <C> <C>
Accepted and agreed as of the
date first written above: Aggregate Purchase Price to be
paid by Purchaser at First Closing: $ 21,428.57
Frederick S. Moseley IV and E. Mark
Noonan, as Trustees of the Triumph Capital Credit for Closing Fee owed to
Group, Inc. 401(k) Plan and Trust for the Purchaser at First Closing ($ 428.57)
account of Thomas W. Janes
By: /s/ Frederick S. Moseley IV Net Purchase Price to be paid $ 21,000.00
--------------------------------------- by Purchaser at First Closing:
Frederick S. Moseley IV, as Trustee
By: /s/ E. Mark Noonan Principal amount of Notes to
----------------------------------------- be purchased by Purchaser at
E. Mark Noonan, as Trustee First Closing $ 21,428.57
Address: c/o Triumph Capital Group, Inc.
60 State Street, 21st Floor Shares of Common Stock
Boston, MA 02109 issuable upon exercise of
Telephone: (617) 557-6000 Series A Warrants to be issued
Telephone: (617) 557-6020 to Purchaser at First Closing: 2,829
---------
Aggregate Purchase Price to be paid
by Purchaser at Second Closing: $ 53,571.43
Tax ID No.: 04-3081875
Credit for Closing owed to
Purchaser at Second Closing: ($ 1,071.43)
Net Purchase Price to be paid
by Purchaser at Second Closing: $ 52,500.00
Principal amount of Notes to
be purchased by Purchaser at
Second Closing: $ 53,571.43
Shares of Common Stock
issuable upon exercise of
Series A Warrants to be issued
to Purchaser at Second Closing: 4,243
---------
Shares of Common Stock
issuable upon exercise of
Series B Warrants to be issued
to Purchaser at Second Closing: 2,750
---------
</TABLE>
<PAGE>
Page 98 of 117 Pages
SECURITIES PURCHASE AGREEMENT
SUBORDINATED NOTES AND
WARRANTS TO PURCHASE COMMON STOCK
PURCHASER SIGNATURE PAGE
<TABLE>
<S> <C> <C>
Accepted and agreed as of the
date first written above: Aggregate Purchase Price to be
paid by Purchaser at First Closing: $ 7,142.85
Credit for Closing Fee owed to
Purchaser at First Closing ($ 142.85)
Net Purchase Price to be paid $ 7,000.00
/s/ Duane E. Thurman by Purchaser at First Closing:
- --------------------------------------------
Duane E. Thurman
Principal amount of Notes to
be purchased by Purchaser at
First Closing $ 7,142.85
Address: 705 Newtown Road
Berwyn, PA 19312-2020 Shares of Common Stock
issuable upon exercise of
Telephone: (610) 293-1265 Series A Warrants to be issued
Telephone: (610) 902-0577 to Purchaser at First Closing: 943
--------
Aggregate Purchase Price to be paid
by Purchaser at Second Closing: $ 17,857.15
Tax ID No.: ###-##-####
Credit for Closing owed to
Purchaser at Second Closing: ($ 357.15)
Net Purchase Price to be paid
by Purchaser at Second Closing: $ 17,500.00
Principal amount of Notes to
be purchased by Purchaser at
Second Closing: $ 17,857.15
Shares of Common Stock
issuable upon exercise of
Series A Warrants to be issued
to Purchaser at Second Closing: 1,414
--------
Shares of Common Stock
issuable upon exercise of
Series B Warrants to be issued
to Purchaser at Second Closing: 917
--------
</TABLE>
<PAGE>
Page 99 of 117 Pages
EXHIBIT C
---------
WAIVER AND AMENDMENT
MARCH 13, 1997
WHEREAS, a Securities Purchase Agreement (the "Securities Purchase
Agreement") by and among Ascent Pediatrics, Inc. (the "Company"), Triumph-
Connecticut Limited Partnership ("Triumph"), and certain other purchasers listed
on the signature pages thereto (together with Triumph, the "Purchasers") was
executed on January 31, 1997;
WHEREAS, at the First Closing and pursuant to Section 1.3 of the
Securities Purchase Agreement, the Purchasers purchased from the Company Notes
in the aggregate principal amount of $2,000,000 and Series A Warrants to
purchase in the aggregate 264,036 shares of Common Stock of the Company at an
aggregate purchase price of $2,000,000;
WHEREAS, Section 1.4 of the Securities Purchase Agreement provides for a
Second Closing wherein the Purchasers shall purchase from the Company Notes in
the aggregate principal amount of $5,000,000, Series A Warrants to purchase in
the aggregate of 396,054 shares of Common Stock of the Company, and Series B
Warrants to purchase in the aggregate 256,072 shares of Common Stock of the
Company, at an aggregate purchase price of $5,000,000.
WHEREAS, Section 3.1 of the Securities Purchase Agreement sets forth
certain conditions precedent to the Purchasers' obligations at the Second
Closing; and
WHEREAS, Section 14.3 of the Securities Purchase Agreement provides that
the Securities Purchase Agreement may be amended, modified or supplemented, and
waivers or consents to departures from the provisions of the Securities Purchase
Agreement may be given, if the same are in writing and signed by the Company,
the holders of a majority of the principal amount of the Notes and the holders
of a majority of the Warrants.
NOW, THEREFORE, in contemplation of the Second Closing, for good and
valuable consideration and pursuant to Section 14.3 of the Securities Purchase
Agreement, the Company and Triumph, as a holder of the majority of the principal
amount of the Notes and the Warrants, expressly agree to the following:
1. That Section 3.1(l)(ii) of the Securities Purchase Agreement be
waived in its entirety;
2. That Section 3.1(q) be amended so that it shall read in the entirety
as follows:
"3.1(q) ADDITIONAL CONDITIONS TO SECOND CLOSING. Prior to or
contemporaneous with the Second Closing, the Company shall have
either (x)
<PAGE>
Page 100 of 117 Pages
received the Primsol Solution Final FDA Approval or (y) closed a
Qualified Public Offering." and
3. That Section 8.2(b) be amended so that it shall read in its entirety
as follows:
"(b) LIMITATIONS ON ADDITIONAL INDEBTEDNESS. The Company
shall not, and shall not permit any of its Subsidiaries to, incur,
directly or indirectly, any Indebtedness (including Acquired
Indebtedness), other than (a) the Indebtedness evidenced by the
Notes, (b) Senior Indebtedness, and (c) the Series A Preferred, the
Series B Preferred, the Series D Preferred, the Series E Preferred
and the Series F Preferred, (d) up to $5,500,000 of purchase money
Indebtedness in connection with the Feverall Acquisition, and (e)
Indebtedness in an aggregate amount not in excess of $500,000 secured
by Capitalized Leases or Purchase Money Liens."
Capitalized terms used here but not otherwise defined herein have the
meanings ascribed thereto in the Securities Purchase Agreement.
IN WITNESS WHEREOF, The Company and Triumph have duly executed this Waiver
and Amendment under seal as of the date first above written.
TRIUMPH-CONNECTICUT
LIMITED PARTNERSHIP
as Principal Purchaser
By: /s/ Thomas W. Janes
---------------------------------
Title: Managing Director
ASCENT PEDIATRICS, INC.
By: /s/ John G. Bernardi
---------------------------------
Title: Vice President, Finance
<PAGE>
Page 101 of 117 Pages
EXHIBIT D
---------
ASSIGNMENT, ASSUMPTION AND CONSENT AGREEMENT
This Assignment, Assumption and Consent Agreement ("Assignment
Agreement"), dated as of April 29, 1997, is by and among TRIUMPH-CONNECTICUT
LIMITED PARTNERSHIP, a Connecticut Limited Partnership (the "Principal
Purchaser"), JEFFREY F. LICK, an individual residing in Boston, Massachusetts
(the "New Purchaser"), and ASCENT PEDIATRICS, INC., a Delaware corporation (the
"Company"). Capitalized terms used herein with definition shall have the
meanings ascribed to such terms in the Securities Purchase Agreement referenced
below.
RECITALS:
A. Pursuant to a Securities Purchase Agreement dated as of January 31,
1997, as amended (the "Securities Purchase Agreement"), among the Company, the
Principal Purchaser and certain other purchasers identified therein
(collectively with the Principal Purchaser, the "Purchasers"), the Company (i)
issued and sold to the Principal Purchaser at the First Closing $1,685,714.29
principal amount of Notes and Series A Warrants to purchase 222,545 shares of
Common Stock of the Company, and (ii) agreed to issue and sell to the Principal
Purchaser at the Second Closing $4,214,285.71 principal amount of Notes, Series
A Warrants to purchase 333,818 shares of Common Stock, and Series B Warrants to
purchase 216,363 shares of Common Stock of the Company.
B. The Principal Purchaser desires to sell, assign and transfer to the
New Purchaser, and the New Purchaser desires to purchase and assume from the
Principal Purchaser, a 0.33898305% interest in and to the rights and interests
of the Principal Purchaser in, to and under the Securities Purchase Agreement
and all Notes and Warrants issued and sold, and all additional Notes and
Warrants to be issued and sold to the Principal Purchaser by the Company
thereunder.
AGREEMENTS
NOW, THEREFORE, the parties hereto, each intending to be legally bound,
hereby agree as follows:
1. Assignment. For other good and valuable consideration the receipt
----------
and sufficiency of which are hereby acknowledged, the Principal Purchaser hereby
sells and assigns, without recourse, to the New Purchaser, and the New Purchaser
hereby purchases and assumes, without recourse, from the Principal Purchaser,
effective as of the date first set forth above (the "Effective Date"), a
0.33898305% interest in and to the rights, interests and obligations of the
Principal Purchaser in, to and under the Securities Purchase Agreement and all
Notes and Warrants issued and sold, and all additional Notes and Warrants to be
issued and sold, to the Principal Purchaser by the Company thereunder. The New
Purchaser hereby represents and warrants to the Principal Purchaser and the
Company that the New Purchaser has received and
<PAGE>
Page 102 of 117 Pages
fully reviewed complete copies of the Transaction Documents, and the New
Purchaser hereby makes and agrees to be bound by all the representations,
warranties and agreements of the Purchasers set forth in the Securities Purchase
Agreement and the other Transaction Documents. The Company hereby consents to
the assignment of the interest assigned to the New Purchaser by the Principal
Purchaser pursuant to this Assignment Agreement and agrees with the Principal
Purchaser and the New Purchaser that from and after the Effective Date (i) the
New Purchaser shall be a party to and be bound by all the provisions of the
Securities Purchase Agreement and the other Transaction Documents, and, to the
extent of the interest assigned to the New Purchaser by the Principal Purchaser
pursuant to this Assignment Agreement, the New Purchaser shall have the rights
and obligations of a "Purchaser" thereunder, and (ii) the Principal Purchaser
shall, to the extent of the interest assigned to the New Purchaser by the
Principal Purchaser pursuant to this Assignment Agreement, relinquish its rights
and be released from its obligations under the Securities Purchase Agreement.
2. Contemporaneously with the execution of this Assignment Agreement,
the Principal Purchaser is delivering to the Company the original Note in the
principal amount of $1,685,714.29 registered in the name of the Principal
Purchaser, and the original Series A Warrant certificate for the purchase of
222,545 shares of Common Stock of the Company registered in the name of the
Principal Purchaser, and, in substitution for and replacement of such original
Note and Series A Warrant certificate, the Principal Purchaser and the New
Purchaser hereby request that the Company issue and deliver the following new
Notes and Series A Warrant certificates to the Principal Purchaser and the New
Purchaser: (i) an original Note in the principal amount of $1,680,000.00
registered in the name of the Principal Purchaser, (ii) an original Note in the
principal amount of $5,714.29 registered in the name of the New Purchaser, (iii)
an original Series A Warrant certificate for the purchase of 221,791 shares of
Common Stock of the Company registered in the name of the Principal Purchaser,
and (iv) an original Series A Warrant certificate for the purchase of 754 shares
of Common Stock of the Company registered in the name of the New Purchaser, in
each case, dated January 31, 1997.
3. The parties hereby further agree that in accordance with the terms of
the Securities Purchase Agreement, at the Second Closing, the Company shall
issue, sell and cause to be delivered to each of the Principal Purchaser and the
New Purchaser, an additional Note in the principal amount specified opposite
such Purchaser's name on the signature pages hereto, an additional Series A
Warrant certificate to purchase the number of shares of Common Stock opposite
such Purchaser's name on the signature pages hereto, and a Series B Warrant
certificate to purchase the number of shares of Common Stock opposite such
Purchaser's name on the signature pages hereto, in each case dated the date of
the Second Closing and registered in such Purchaser's name, against payment of
the purchase price therefor in the amount specified opposite such Purchaser's
name on the signature pages hereto.
3. This Assignment, Acceptance and Consent Agreement shall be governed
by and construed in accordance with the laws of The Commonwealth of
Massachusetts.
2
<PAGE>
Page 103 of 117 Pages
ASSIGNMENT, ACCEPTANCE AND
CONSENT AGREEMENT
PURCHASER SIGNATURE PAGE
Accepted and agreed as of the
date first written above:
TRIUMPH-CONNECTICUT LIMITED
PARTNERSHIP
By: /s/ Thomas W. Janes
-------------------
Name: Thomas W. Janes
Title: Managing Director
Address: c/o Triumph Capital
Group, Inc.
60 State Street, 21st Floor
Boston, MA 02109
Telephone: (617) 557-6000
Telecopy: (617) 557-6020
Aggregate Purchase Price to be paid
by Purchaser at Second Closing: $ 4,200,000.00
Tax ID No.: 04-3183699
Credit for Closing Fee owed to
Purchaser at Second Closing: ($ 84,000.00)
Net Purchase Price to be paid
by Purchaser at Second Closing: $ 4,116,000.00
Principal amount of Notes to
be purchased by Purchaser at
Second Closing: $ 4,200,000.00
Shares of Common Stock
Series A Warrants to be issued
to Purchaser at Second Closing: 332,687
Shares of Common Stock
issuable upon exercise of
Series B Warrants to be issued
to Purchaser at Second Closing: 215,630
3
<PAGE>
Page 104 of 117 Pages
ASSIGNMENT, ACCEPTANCE AND
CONSENT AGREEMENT
SIGNATURE PAGE
Accepted and agreed as of the
date first written above:
/s/ Jeffrey F. Lick
-------------------
Jeffrey F. Lick
Address:
c/o Triumph Capital Group, Inc.
60 State Street, 21st Floor
Boston, MA 02109
Telephone: (617) 557-6000
Telecopy: (617) 557-6020
Aggregate Purchase Price to be paid
by Purchaser at Second Closing: $14,285.71
Tax ID No.: ###-##-####
Credit for Closing Fee owed to
Purchaser at Second Closing: ($ 285.71)
Net Purchase Price to be paid
by Purchaser at Second Closing: $14,000.00
Principal amount of Notes to
be purchased by Purchaser at
Second Closing: $14,285.71
Shares of Common Stock
issuable upon exercise of
Series A Warrants to be issued
to Purchaser at Second Closing: 1,131
Shares of Common Stock
issuable upon exercise of
Series B Warrants to be issued
to Purchaser at Second Closing: 733
4
<PAGE>
Page 105 of 117 Pages
ASSIGNMENT, ACCEPTANCE AND
CONSENT AGREEMENT
SIGNATURE PAGE
Accepted and agreed as of the
date first written above:
ASCENT PEDIATRICS, INC.
BY: /s/ John G. Bernardi
-------------------------------
Name: John G. Bernardi
Title: Vice President, Finance
5
<PAGE>
Page 106 of 117 Pages
EXHIBIT E
---------
WAIVER, CONSENT AND AMENDMENT AGREEMENT
THIS WAIVER, CONSENT AND AMENDMENT AGREEMENT ("Agreement") is made as of
May 30, 1997, by and between Ascent Pediatrics, Inc. (the "Company"), Triumph-
Connecticut Limited Partnership (the "Principal Purchaser"), and the other
purchasers listed on the signature pages hereto (the "Other Purchasers").
WHEREAS, pursuant to a Securities Purchase Agreement dated as of January
31, 1997 (the "Purchase Agreement") among the Company, the Principal Purchaser
and certain of the Other Purchasers (i) the Company issued and sold to the
Principal Purchaser and certain of the Other Purchasers at the First Closing (as
such term is defined in the Purchase Agreement) $2,000,000 aggregate principal
amount of the Company's Subordinated Secured Notes due December 31, 2002 and
Series A Warrants to purchase in the aggregate 264,036 shares of the Company's
Common Stock; and (ii) the Company agreed to issue and sell to the Principal
Purchaser and certain of the Other Purchasers, and the Principal Purchaser and
certain of the Other Purchasers agreed to purchase from the Company, at the
Second Closing (as such term is defined in the Purchase Agreement) an additional
$5,000,000 aggregate principal amount of the Company's Subordinated Secured
Notes due December 31, 2002, additional Series A Warrants to purchase in the
aggregate 396,054 shares of the Company's Common Stock, and Series B Warrants to
purchase in the aggregate 256,702 shares of the Company's Common Stock; and
WHEREAS, pursuant to a Waiver and Amendment dated as of March 13, 1997
among the Company, the Principal Purchaser and certain of the Other Purchasers,
the parties to the Purchase Agreement agreed to waive Section 3.1(l)(ii) of the
Purchase Agreement and to modify Section 3.1(q) of the Purchase Agreement to
provide for the Second Closing to occur after or contemporaneous with either (i)
the receipt by the Company of the Primsol Solution FDA Approval (as such term is
defined in the Purchase Agreement), or (ii) the closing of a Qualified Public
Offering (as such term is defined in the Purchase Agreement); and
WHEREAS, pursuant to an Assignment, Assumption and Consent Agreement dated
as of April 29, 1997 among the Principal Purchaser, Jeffrey F. Lick (the "New
Purchaser") and the Company, the Principal Purchaser sold and assigned to the
New Purchaser, and the New Purchaser purchased and assumed from the Principal
Purchaser, a 0.33898305% interest in and to all rights and interests of the
Principal Purchaser under the Purchase Agreement, and the New Purchaser became
one of the "Purchasers" as such term is defined in the Purchase Agreement; and
WHEREAS, the Company has informed the Purchasers that it intends to
consummate a Qualified Public Offering on or about June 4, 1997, and in
connection with such Qualified Public Offering, on May 27, 1997 the Company
amended its Charter Documents to effectuate a 0.85-for-one reverse split of the
Company's Common Stock; and
<PAGE>
Page 107 of 117 Pages
WHEREAS, Subsection 2.2 of the Purchase Agreement provides for the Company
to give the Purchasers thirty (30) days prior written notice of the proposed
Second Closing; and
WHEREAS, Subsection 3.1(o) of the Purchase Agreement provides as a
condition to the Second Closing that the Company's Charter Documents (as such
term is defined in the Purchase Agreement) shall not have been modified or
amended since the date of execution of the Purchase Agreement; and
WHEREAS, there exists a potential conflict in the notice requirements of
Subsections 6.5 and 6.8 of the Purchase Agreement.
NOW THEREFORE, in contemplation of the Second Closing, for good and
valuable consideration, the Company and the Purchasers hereby expressly agree to
the following waivers, consents and modifications to the Purchase Agreement:
1. The Purchasers hereby consent to the amendment of the Company's
Charter Documents to effectuate the 0.85-for-one reverse split of the Company's
Common Stock, and waive Subsection 3.1(o) of the Purchase Agreement to the
extent that such Subsection prohibits such an amendment of the Company's Charter
Documents prior to the Second Closing.
2. The Purchasers hereby waive the provision in Subsection 2.2 of the
Purchase Agreement that requires the Company to give the Purchasers thirty (30)
days prior written notice of the proposed Second Closing, and subject to the
satisfaction by the Company of all conditions precedent set forth in Subsections
3.1 and 3.2 of the Purchase Agreement, the Company and the Purchasers agree that
the Second Closing shall take place on June 4, 1997, immediately following the
consummation of the Qualified Public Offering.
3. The Company and the Purchasers hereby agree that Subsection 6.5 of
the Purchase Agreement be, and it hereby is, amended to replace Subsection 6.5
in its entirety with the following new Subsection 6.5:
" 6.5. Optional Redemption. The Company may at any time and
-------------------
from time to time redeem the then outstanding principal amount of the
Notes, in whole or in part (provided that any partial redemption shall be
in an aggregate principal amount of at least $500,000 or integral
multiples of $500,000 in excess thereof, and shall be allocated among all
of the Notes outstanding, pro rata, in the same proportion as the
outstanding principal amount of each Note bears to the aggregate
outstanding principal amount of all Notes), at a redemption price equal to
100% of the principal amount of Notes to be redeemed, by giving written
notice of redemption to all holders of the Notes not less than 30 days and
not more than 60 days prior to the Redemption Date, specifying (i) the
aggregate principal amount of all Notes to be redeemed, (ii) the principal
amount of Notes held by each holder to be redeemed, (iii) the Redemption
Date, and (iv) the accrued and unpaid interest (as of the Redemption Date)
applicable to the Notes to be
2
<PAGE>
Page 108 of 117 Pages
redeemed. Notice of redemption having been so given, the aggregate
principal amount of Notes so specified in such notice and all accrued and
unpaid interest to the Redemption Date applicable to the Notes to be
redeemed, shall become due and payable on the Redemption Date; provided
--------
that upon receipt of any such written notice of redemption, each holder of
Notes shall have 20 days to elect to exercise its rights under Subsection
6.8 of this Agreement to convert into shares of Common Stock all or a
portion of the principal amount of Notes held by such holder that are the
subject of the Company's proposed redemption. To the extent any holder of
Notes shall elect to exercise its rights under Subsection 6.8 within such
20 day period to convert into Common Stock all or any portion of the
principal amount of Notes held by such holder that are the subject of the
Company's proposed redemption, that portion of the principal amount of
Notes which such holder has elected to convert shall not be subject to the
Company's proposed redemption. To the extent any holder of Notes does not
elect to exercise its rights under Subsection 6.8 within such 20 day
period to convert into shares of Common Stock any of the Notes held by
such holder that are the subject of the Company's proposed redemption,
such holder shall be deemed to have waived its rights under Subsection 6.8
to convert into shares of Common Stock those Notes held by such holder
that are the subject of the Company's proposed redemption. No redemption
of the Notes pursuant to this Subsection 6.5 shall relieve the Company
from its obligation under Subsection 2.2 of this Agreement to issue and
sell to the Purchasers the Notes and Warrants to be issued and sold to the
Purchasers at the Second Closing. In connection with any such redemption
(or, if applicable, conversion), the holders of Notes shall deliver the
Notes to the Company, and, in connection with holders whose Notes are
redeemed (or, if applicable, converted) only in part, the Company (at the
Company's expense) shall execute, authenticate and deliver to such holders
new Notes equal in principal amount to the unredeemed (and unconverted)
portion of the Notes surrendered."
4. The Company and the Purchasers hereby agree that Subsection 6.8 of
the Purchase Agreement be, and it hereby is, amended to replace paragraphs (a)
and (b) of Subsection 6.8 with the following new paragraphs (a) and (b):
"(a) Subject to the provisions of Subsections 6.5 and 6.7(b)
of this Agreement, if there occurs a Qualified Public Offering, each
holder of Notes shall have the right, at any time and from time to
time until the date which is two years after the Qualified Public
Offering Date, to cause the Company to convert the Notes held by such
holder, in whole or in part, into such number of shares of Common
Stock as shall equal the quotient of (i) the aggregate principal
amount of the Notes tendered for conversion divided by (ii) the
Initial Qualified Public Offering Price. Any partial conversion of
any holder's Notes shall be in a principal amount of not less than
the lesser of 25% of the principal amount of each such holder's Notes
or $250,000.
3
<PAGE>
Page 109 of 117 Pages
(b) Subject to the provisions of Subsections 6.5 and 6.7(b)
of this Agreement, each holder of Notes electing to have all or any
portion of its Notes converted into Common Stock pursuant to this
Subsection 6.8 will be required to deliver to the Company, at its
principal office, at least thirty (30) days prior to the date of
conversion, a written notice of conversion specifying (i) the
principal amount of Notes such holder elects to have converted, (ii)
the name or names in which such holder desires the certificate or
certificates for Common Stock to be issued, and (iii) the address to
which such holder desires delivery to be made of such new
certificates for Common Stock to be issued upon such conversion. On
the date of conversion, the Company shall issue and deliver to such
holder or its designee, by hand delivery, by courier or by first
class mail (postage prepaid), at the address designated by such
holder, certificates for the number of shares of Common Stock to
which such holder shall be entitled as a result of the conversion of
its Notes, and upon receipt by the such holder of such certificates
for shares of Common Stock, such holder shall deliver such Notes to
the Company for cancellation. In connection with any holder whose
Notes are converted into Common Stock only in part, the Company shall
execute, authenticate and deliver to such holder new Notes equal in
principal amount to the unconverted portion of the Notes surrendered.
The issuance of certificates for Common Stock upon conversion of
Notes shall be made without charge to the holders of the Notes for
any issuance tax in respect thereof or other costs incurred by the
Company in connection with such conversion and the related issuance
of such Common Stock."
5. The Company and the Purchasers agree that in accordance with the
terms of the Series A Warrants and the Series B Warrants, effective as of May
27, 1997, the numbers of shares of Common Stock purchasable upon the exercise of
the Series A Warrants and the Series B Warrants, and the purchase prices for
such shares shall be deemed adjusted to give effect to the 0.85-for-one reverse
split of the Company's Common Stock as follows: (i) the aggregate number of
shares of Common Stock purchasable upon exercise of all Series A Warrants issued
at the First Closing shall be adjusted from 264,036 shares of pre-split Common
Stock to 224,429 shares of post-split Common Stock; (ii) the aggregate number of
shares of Common Stock purchasable upon exercise of all Series A Warrants to be
issued at the Second Closing shall be adjusted from 396,054 shares of pre-split
Common Stock to 336,644 shares of post-split Common Stock; (iii) the aggregate
number of shares of Common Stock purchasable upon exercise of all Series B
Warrants to be issued at the Second Closing shall be adjusted from 256,702
shares of pre-split Common Stock to 218,195 shares of post-split Common Stock;
(iv) the purchase price payable upon exercise of the Series A Warrants shall be
adjusted from $.01 per share of pre-split Common Stock to $.01 per share of
post-split Common Stock; and (v) the purchase price payable upon exercise of the
Series B Warrants shall be adjusted from $4.50 per share of pre-split Common
Stock to $5.29 per share of post-split Common Stock. Accordingly, at the Second
Closing, the Company shall issue to each Purchaser: (i) a Series A Warrant
Certificate dated the date of the Second Closing for the purchase, at an
exercise price of $.01 per
4
<PAGE>
Page 110 of 117 Pages
share, of the number of shares of post-split Common Stock of the Company
specified opposite such Purchaser's name on the signature page hereto under the
heading "Shares of Common Stock issuable upon exercise of Series A Warrants to
be issued to Purchaser at Second Closing"; and (ii) a Series B Warrant
Certificate dated the date of the Second Closing for the purchase, at an
exercise price of $5.29 per share, of the number of shares of post-split Common
Stock of the Company specified opposite such Purchaser's name on the signature
page hereto under the heading "Shares of Common Stock issuable upon exercise of
Series B Warrants to be issued to Purchaser at Second Closing". In addition, at
the request of each Purchaser, the Company shall deliver to such Purchaser a new
post-split Series A Warrant Certificate dated the date of the First Closing for
the purchase, at an exercise price of $.01 per share, of the number of shares of
post-split Common Stock of the Company specified opposite such Purchaser's name
on the signature page hereto under the heading "Shares of Common Stock issuable
upon exercise of Series A Warrants held by Purchaser as of 5/30/97", against
delivery by such Purchaser of the original pre-split Series A Warrant
Certificate held by such Purchaser.
6. Pursuant to Subsection 6.7(a) of the Purchase Agreement, within
thirty days after the consummation of the Qualified Public Offering, the Company
must either (i) redeem all of the Notes or (ii) convert all of the Notes into
Converted Notes (as such term is defined in the Purchase Agreement). The
Company has informed the Purchasers that the Company does not intend to redeem
the Notes following the consummation of its Qualified Public Offering.
Accordingly, the Company and the Purchasers agree that: (i) in lieu of the
$5,000,000 aggregate principal amount of Notes to be issued and sold to the
Purchasers at the Second Closing, the Company shall issue and sell to the
Purchasers on the Second Closing Date $5,000,000 aggregate principal amount of
Converted Notes; and (ii) in exchange for the $2,000,000 aggregate principal
amount of Notes currently held by the Purchasers, the Company shall issue to the
Purchasers on the Second Closing Date $2,000,000 aggregate principal amount of
Converted Notes. The principal amount of Converted Notes to be issued to each
Purchaser on the Second Closing Date shall be as set forth on the signature
pages hereto, and the terms of the Converted Notes shall be as follows: (a) the
Converted Notes shall have a Stated Maturity (as such term is defined in the
Purchase Agreement) of September 2, 1999; (b) the principal of the Converted
Notes shall be due payable in eight equal quarterly installments commencing on
December 2, 1997 and continuing on the 2nd day of each March, June, September
and December thereafter with a final installment due and payable on September 2,
1999; (c) the Converted Notes shall bear interest on the unpaid principal
balance thereof from September 2, 1997 through their Stated Maturity at the
Applicable Converted Note Rate (as such term is defined in the Purchase
Agreement); and (d) interest on the unpaid principal amount of the Converted
Notes shall be payable quarterly in arrears commencing on December 2, 1997 and
continuing on the 2nd day of each March, June, September and December
thereafter, and upon any other payment of any principal amount of the Converted
Notes.
5
<PAGE>
Page 111 of 117 Pages
7. The Company and the Purchasers hereby further agree that the term
"Registrable Shares" as defined in Section 13 of the Purchase Agreement be, and
it hereby is, amended to replace such definition in its entirety with the
following new definition:
"Registrable Shares" means (i) the shares of Common Stock
issued or issuable upon exercise or conversion of any share of the
Preferred Stock, any of the Series D Common Warrants, the Series E Common
Warrants, the Series F Common Warrants or the Warrants, (ii) the shares of
Common Stock issued or issuable upon the purchase by any holder of
Warrants pursuant to the conversion or exercise of any such holder's Pre-
emptive Right, (iii) the shares of Common Stock issued or issuable upon
the conversion by any holder of Notes of all or any portion of such
holder's Notes, and (iv) any other shares of Common Stock of the Company
issued in respect of such shares (because of stock splits, stock
dividends, reclassifications, recapitalizations, or similar events);
provided, however, that shares of Common Stock which are Registrable
-------- -------
Shares shall cease to be Registrable Shares upon any sale pursuant to a
Registration Statement, Section 4(1) of the Securities Act or Rule 144
under the Securities Act, or any sale in any manner to a person or entity
which, by virtue of Section 9 of the Series F Financing Agreement is not
entitled to the registration rights provided by Section 8 of the Series F
Financing Agreement. Wherever reference is made in this Agreement to a
request or consent of holders of a certain percentage of Registrable
Shares or certain Registrable Shares, or a certain number of Registrable
Shares or certain Registrable Shares, the determination of such percentage
or number shall include shares of Common Stock issuable upon conversion of
the Preferred Stock.
8. Except as otherwise expressly set forth herein, all of the terms and
conditions of the Purchase Agreement, the Notes, the Warrants and the Security
Documents shall remain in full force and effect.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
6
<PAGE>
Page 112 of 117 Pages
WAIVER, CONSENT AND AMENDMENT AGREEMENT
COMPANY SIGNATURE PAGE
IN WITNESS WHEREOF, the undersigned, being duly authorized, has executed
this Agreement on behalf of the Company as of the date first above written.
ASCENT PEDIATRICS, INC.
By: /s/ John G. Bernardi
------------------------------------
Name: John G. Bernardi
Title: Vice President, Finance
<PAGE>
Page 113 of 117 Pages
WAIVER, CONSENT AND AMENDMENT AGREEMENT
PURCHASER SIGNATURE PAGE
Accepted and agreed as of the
date first written above:
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Jeffrey F. Lick
- ----------------------------
Jeffrey F. Lick
Principal amount of Notes
held by Purchaser as of 5/30/97: $5,714.29
Address: c/o Triumph Capital
Group, Inc.
60 State St., 21st Floor Shares of Common Stock
Boston, MA 02109 issuable upon exercise of
Series A Warrants held by
Telephone: (617) 557-6000 Purchaser as of 5/30/97: 641*
Telecopy: (617) 557-6020
Aggregate Purchase Price to be paid
by Purchaser at Second Closing: $14,285.71
Credit for Closing Fee owed to
Purchaser at Second Closing: ($285.71)
Net Purchase Price to be paid
by Purchaser at Second Closing: $14,000
Tax ID No.: ###-##-#### Principal amount of Notes to
be purchased by Purchaser at
Second Closing: $14,285.71
Shares of Common Stock
issuable upon exercise of
Series A Warrants to be issued
to Purchaser at Second Closing: 961*
Shares of Common Stock
issuable upon exercise of
Series B Warrants to be issued
to Purchaser at Second Closing: 623*
</TABLE>
* After giving effect to 0.85-for-one stock split
<PAGE>
Page 114 of 117 Pages
WAIVER, CONSENT AND AMENDMENT AGREEMENT
PURCHASER SIGNATURE PAGE
Accepted and agreed as of the
date first written above:
<TABLE>
<CAPTION>
TRIUMPH-CONNECTICUT LIMITED PARTNERSHIP
BY: TRIUMPH-CONNECTICUT CAPITAL ADVISORS, L.P.,
its General Partner
<S> <C> <C>
By: /s/ Thomas W. Janes
---------------------------
Name: Thomas W. Janes
Title: Managing Director Principal amount of Notes
held by Purchaser as of 5/30/97: $1,680,000.00
Address: c/o Triumph Capital
Group, Inc. Shares of Common Stock
60 State Street, 21st Floor issuable upon exercise of
Boston, MA 02109 Series A Warrants held by
Telephone: (617) 557-6000 Purchaser as of 5/30/97: 188,522*
Telecopy: (617) 557-6020
Aggregate Purchase Price to be paid
by Purchaser at Second Closing: $4,200,000.00
Credit for Closing Fee owed to
Purchaser at Second Closing: ($84,000.00)
Net Purchase Price to be paid
by Purchaser at Second Closing: $4,116,000.00
Tax ID No.: 04-3183699 Principal amount of Notes to
be purchased by Purchaser at
Second Closing: $4,200,000.00
Shares of Common Stock
issuable upon exercise of
Series A Warrants to be issued
to Purchaser at Second Closing: 282,784*
Shares of Common Stock
issuable upon exercise of
Series B Warrants to be issued
to Purchaser at Second Closing: 183,285*
</TABLE>
* After giving effect to 0.85-for-one stock split
<PAGE>
Page 115 of 117 Pages
WAIVER, CONSENT AND AMENDMENT AGREEMENT
PURCHASER SIGNATURE PAGE
Accepted and agreed as of the
date first written above:
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ John D. Howard
- -----------------------------------
John D. Howard
--and--
/s/ Lauren R. Howard
- -----------------------------------
Lauren R. Howard Principal amount of Notes
held by Purchaser as of 5/30/97: $285,714.29
Shares of Common Stock
Address: 80 Irving Place issuable upon exercise of
New York, NY 10003 Series A Warrants held by
Telephone: (212) 475-4786 Purchaser as of 5/30/97: 32,061*
Telecopy: (212) 358-0970
Aggregate Purchase Price to be paid
by Purchaser at Second Closing: $714,285.71
John D. Howard's Tax ID No.: Credit for Closing Fee owed to
###-##-#### Purchaser at Second Closing: ($ 14,285.71)
Lauren R. Howard's Tax ID No.: Net Purchase Price to be paid
###-##-#### by Purchaser at Second Closing: $700,000.00
Principal amount of Notes to
be purchased by Purchaser at
Second Closing: $714,285.71
Shares of Common Stock
issuable upon exercise of
Series A Warrants to be issued
to Purchaser at Second Closing: 48,092*
Shares of Common Stock
issuable upon exercise of
Series B Warrants to be issued
to Purchaser at Second Closing: 31,171*
</TABLE>
* After giving effect to 0.85-for-one stock split
<PAGE>
Page 116 of 117 Pages
WAIVER, CONSENT AND AMENDMENT AGREEMENT
PURCHASER SIGNATURE PAGE
Accepted and agreed as of the
date first written above:
Frederick S. Moseley IV and E. Mark
Noonan, as Trustees of the Triumph Capital
Group, Inc. 401(k) Plan and Trust for the
account of Thomas W. Janes
<TABLE>
<CAPTION>
<S> <C> <C>
By: /s/ Frederick S. Moseley
-----------------------------------
Frederick S. Moseley IV, as Trustee
By: /s/ E. Mark Noonan
-----------------------------------
E. Mark Noonan, as Trustee Principal amount of Notes
held by Purchaser as of 5/30/97: $21,428.57
Address: c/o Triumph Capital
Group, Inc. Shares of Common Stock
60 State Street, 21st Floor issuable upon exercise of
Boston, MA 02109 Series A Warrants held by
Telephone: (617) 557-6000 Purchaser as of 5/30/97: 2,404*
Telecopy: (617) 557-6020
Aggregate Purchase Price to be paid
by Purchaser at Second Closing: $53,571.43
Credit for Closing Fee owed to
Purchaser at Second Closing: ($1,071.43)
Net Purchase Price to be paid
by Purchaser at Second Closing: $52,500.00
Principal amount of Notes to
be purchased by Purchaser at
Second Closing: $53,571.43
Shares of Common Stock
issuable upon exercise of
Series A Warrants to be issued
to Purchaser at Second Closing: 3,606*
Shares of Common Stock
issuable upon exercise of
Series B Warrants to be issued
to Purchaser at Second Closing: 2,337*
</TABLE>
* After giving effect to 0.85-for-one stock split
<PAGE>
Page 117 of 117 Pages
WAIVER, CONSENT AND AMENDMENT AGREEMENT
PURCHASER SIGNATURE PAGE
Accepted and agreed as of the
date first written above:
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Duane E. Thurman
- -----------------------------------
Duane E. Thurman
Principal amount of Notes
held by Purchaser as of 5/30/97: $7,142.85
Address: 705 Newtown Road Shares of Common Stock
Berwyn, PA 19312-2020 issuable upon exercise of
Series A Warrants held by
Telephone: (610) 293-1265 Purchaser as of 5/30/97: 801*
Telecopy: (610) 902-0577
Aggregate Purchase Price to be paid
by Purchaser at Second Closing: $17,857.15
Credit for Closing Fee owed to
Purchaser at Second Closing: ($ 357.15)
Net Purchase Price to be paid
by Purchaser at Second Closing: $17,500.00
Tax ID No. ###-##-#### Principal amount of Notes to
be purchased by Purchaser at
Second Closing: $17,857.15
Shares of Common Stock
issuable upon exercise of
Series A Warrants to be issued
to Purchaser at Second Closing: 1,201*
Shares of Common Stock
issuable upon exercise of
Series B Warrants to be issued
to Purchaser at Second Closing: 779*
</TABLE>
* After giving effect to 0.85-for-one stock split
