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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 4, 1999
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PharmaPrint Inc.
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(Exact name of registrant as specified in charter)
Delaware 000-21141
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(State or other jurisdiction of Incorporation (Commission File Number)
33-0640125
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(IRS Employer Identification Number)
2600 Michelson Drive, Suite 1600, Irvine, Ca 92612
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (949) 794-7778
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ITEM 5. OTHER EVENTS.
On June 4, 1999, the Registrant completed a $10 million private
placement (the "Private Placement") of Series A Convertible Preferred Stock
("Series A Preferred Stock") with RGC International Investors, LDC (the
"Investor") pursuant to Rule 506 of Regulation D promulgated under the
Securities Act of 1933. The Series A Preferred Stock is convertible into
shares of the Registrant's common stock at a conversion price of $8.55 (120%
of the average closing bid price of the Registrant's common stock for the
three trading days prior to the execution of definitive documantation on June
4, 1999), upon the terms and subject to the conditions set forth in the
Certificate of Designations, Preferences and Rights of Series A Convertible
Preferred Stock. Subject to a limit on the total number of shares of Common
Stock issuable upon conversion of the Series A Preferred Stock, after October
4, 1999, the conversion price may be reduced to a price equal to a 100% of a
measure of the market price of the common stock at the time of conversion.
The Registrant has the option to redeem the Series A Preferred Stock under
certain circumstances. The Series A Preferred Stock has a yield of six
percent, payable at the time of conversion in shares of the Registrant's
common stock. In connection with the Private Placement, the Registrant
granted the Investor registration rights which obligate the Registrant to
register the resale of the shares of common stock issuable upon conversion of
the Series A Preferred Stock.
The Registrant issued a press release announcing the consummation of
the Private Placement and a copy of the press release, the Certificate of
Designations, Preferences and Rights of the Series A Preferred Stock, the
Securities Purchase Agreement and the Registration Rights Agreement are attached
as Exhibits to this Current Report on Form 8-K. This summary description of the
transaction is qualified in its entirety by reference to the documents filed as
Exhibits hereto.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits
4 Certificate of Designations, Preferences and Rights
of Series A Convertible Preferred Stock of the
Registrant
10.1 Securities Purchase Agreement, dated as of June 4,
1999, between the Registrant and RGC International
Investors, LDC
10.2 Registration Rights Agreement, dated as of June 4,
1999, between the Registrant and RGC International
Investors, LDC
99 Press Release of the Registrant dated June 8, 1999
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PHARMAPRINT INC.
Date: June 11, 1999 By: /s/ James R. Wodach
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James R. Wodach
Senior Vice President and
Chief Financial Officer
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EXHIBIT INDEX
4 Certificate of Designations, Preferences and Rights of Series
A Convertible Preferred Stock of the Registrant
10.1 Securities Purchase Agreement, dated as of June 4, 1999,
between the Registrant and RGC International Investors, LDC
10.2 Registration Rights Agreement, dated as of June 4, 1999,
between the Registrant and RGC International Investors, LDC
99 Press Release of the Registrant dated June 8, 1999
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EXHIBIT 4
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
PHARMAPRINT INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
PHARMAPRINT INC., a corporation organized and existing under
the Delaware General Corporation Law (the "CORPORATION"), hereby certifies that
the following resolutions were adopted by the Board of Directors of the
Corporation on June 2, 1999 pursuant to authority of the Board of Directors as
required by Section 151(g) of the Delaware General Corporation Law:
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of this Corporation (the "BOARD OF DIRECTORS" or the
"BOARD") in accordance with the provisions of its Articles of Incorporation, the
Board of Directors hereby authorizes a series of the Corporation's previously
authorized Preferred Stock, par value $.001 per share (the "PREFERRED STOCK"),
and hereby states the designation and number of shares, and fixes the relative
rights, preferences, privileges, powers and restrictions thereof as follows:
Series A Convertible Preferred Stock:
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I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 10,000
shares of Preferred Stock, is Series A Convertible Preferred Stock (the "SERIES
A PREFERRED STOCK") and the stated value shall be One Thousand Dollars ($1,000)
per share (the "STATED VALUE").
II. RANK
The Series A Preferred Stock shall rank (i) prior to the
Corporation's common stock, par value $.001 per share (the "COMMON STOCK"); (ii)
prior to any class or series of capital stock of the Corporation hereafter
created (unless, with the consent of the holders of Series A Preferred Stock
obtained in accordance with Article X hereof, such class or series of capital
stock specifically, by its terms, ranks senior to or PARI PASSU with the Series
A Preferred Stock) (collectively, with the Common Stock, "JUNIOR SECURITIES");
(iii) PARI PASSU with any class or series of capital stock of the Corporation
hereafter created (with the consent of the holders of Series A Preferred Stock
obtained in accordance with Article X hereof) specifically ranking, by its
terms, on parity with the Series A Preferred Stock ("PARI PASSU SECURITIES");
and (iv) junior to any class or series of capital stock of the Corporation
hereafter created (with the consent of the holders of Series A Preferred Stock
obtained in accordance with Article X hereof) specifically ranking, by its
terms, senior to the Series A Preferred Stock ("SENIOR SECURITIES"), in each
case as to distribution of assets upon liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary.
III. DIVIDENDS
The Series A Preferred Stock shall not bear any dividends.
Except as provided below, in no event, so long as any Series A Preferred Stock
shall remain outstanding, shall any dividend whatsoever be declared or paid
upon, nor shall any distribution be made upon, any Junior Securities, nor shall
any shares of Junior Securities be purchased or redeemed by the Corporation nor
shall any moneys be paid to or made available for a sinking fund for the
purchase or redemption of any Junior Securities (other than, in each case, a
distribution of Junior Securities), without, in each such case, the written
consent of the holders of a majority of the outstanding shares of Series A
Preferred Stock, voting together as a class.
IV. LIQUIDATION PREFERENCE
A. LIQUIDATION EVENT. If the Corporation shall commence a
voluntary case under the Federal bankruptcy laws or any other applicable Federal
or State bankruptcy, insolvency or similar law, or consent to the entry of an
order for relief in an involuntary case under any law or to the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or make an assignment
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for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or state bankruptcy, insolvency or similar law
resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of thirty (30) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"LIQUIDATION EVENT"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation (other than Senior Securities) upon
liquidation, dissolution or winding up unless prior thereto, the holders of
shares of Series A Preferred Stock, subject to Article VI, shall have received
the Liquidation Preference (as defined in Article IV.C) with respect to each
share. If upon the occurrence of a Liquidation Event, the assets and funds
available for distribution among the holders of the Series A Preferred Stock and
holders of PARI PASSU Securities (including any dividends or distribution paid
on any PARI PASSU Securities after the date of filing of this Certificate of
Designation) shall be insufficient to permit the payment to such holders of the
preferential amounts payable thereon, then the entire assets and funds of the
Corporation legally available for distribution to the Series A Preferred Stock
and the PARI PASSU Securities shall be distributed ratably among such shares in
proportion to the ratio that the Liquidation Preference payable on each such
share bears to the aggregate liquidation preference payable on all such shares.
Any prior dividends or distribution made after the date of filing of this
Certificate of Designation shall offset, dollar for dollar, the amount payable
to the class or series to which such distribution was made.
B. CERTAIN ACTS DEEMED LIQUIDATION EVENT. At the option of any
holder of Series A Preferred Stock, the sale, conveyance or disposition of all
or substantially all of the assets of the Corporation, the effectuation by the
Corporation of a transaction or series of related transactions in which more
than 50% of the voting power of the Corporation is disposed of, or the
consolidation, merger or other business combination of the Corporation with or
into any other Person (as defined below) or Persons when the Corporation is not
the survivor shall either: (i) be deemed to be a liquidation, dissolution or
winding up of the Corporation pursuant to which the Corporation shall be
required to distribute upon consummation of and as a condition to such
transaction with respect to each outstanding share of Series A Preferred Stock
an amount equal to the sum of (a) 120% of the Stated Value thereof plus (b) an
amount equal to six percent (6%) per annum of such Stated Value for the period
beginning on the date of issuance of the Series A Preferred Stock (the "ISSUE
DATE") and ending on the date of final distribution to the holder thereof
(prorated for any portion of such period) plus (c) all Conversion Default
Payments (as defined in Article VI.E below), Delivery Default Payments (as
defined in Article VI.D below) and any other amounts owed to such holder
pursuant to Section 2(c) of the Registration Rights Agreement (as defined below)
or (ii) be treated pursuant to Article VI.C(b) hereof. "PERSON" shall mean any
individual, corporation, limited liability company, partnership, association,
trust or other entity or organization.
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C. LIQUIDATION PREFERENCE. For purposes hereof, the
"LIQUIDATION PREFERENCE" with respect to a share of the Series A Preferred Stock
shall mean an amount equal to the sum of (i) the Stated Value thereof plus (ii)
and amount equal to six percent (6%) per annum of such Stated Value for the
period beginning on the Issue Date and ending on the date of final distribution
to the holder thereof (prorated for any portion of such period). The liquidation
preference with respect to any PARI PASSU Securities shall be as set forth in
the Certificate of Designation filed in respect thereof.
V. REDEMPTION
A. MANDATORY REDEMPTION. If any of the following events (each,
a "MANDATORY REDEMPTION EVENT") shall occur:
(i) The Corporation fails to issue shares of Common
Stock to the holders of Series A Preferred Stock upon exercise by the holders of
their conversion rights in accordance with the terms of this Certificate of
Designation (for a period of at least sixty (60) days if such failure is solely
as a result of the circumstances governed by the second paragraph of Article
VI.E below and the Corporation is using its best efforts to authorize a
sufficient number of shares of Common Stock as soon as practicable), fails to
transfer or to cause its transfer agent to transfer (electronically or in
certificated form) any certificate for shares of Common Stock issued to the
holders upon conversion of the Series A Preferred Stock as and when required by
this Certificate of Designation or the Registration Rights Agreement, dated as
of June 4, 1999, by and among the Corporation and the other signatories thereto
(the "REGISTRATION RIGHTS AGREEMENT"), fails to remove any restrictive legend
(or to withdraw any stop transfer instructions in respect thereof) on any
certificate or any shares of Common Stock issued to the holders of Series A
Preferred Stock upon conversion of the Series A Preferred Stock as and when
required by this Certificate of Designation, the Securities Purchase Agreement
dated as of June 4, 1999, by and between the Corporation and the other
signatories thereto (the "PURCHASE AGREEMENT") or the Registration Rights
Agreement, or fails to fulfill its obligations pursuant to Sections 4(c), 4(e),
4(h), 4(i), 4(j) or 5 of the Purchase Agreement (or makes any announcement,
statement or threat that it does not intend to honor the obligations described
in this paragraph) and any such failure shall continue uncured (or any
announcement, statement or threat not to honor its obligations shall not be
rescinded in writing) for ten (10) days after the Corporation shall have been
notified thereof in writing by any holder of Series A Preferred Stock;
(ii) The Corporation fails to obtain effectiveness
with the Securities and Exchange Commission (the "SEC") prior to December 4,
1999 of the Registration Statement (as defined in the Registration Rights
Agreement) required to be filed pursuant to Section 2(a) of the Registration
Rights Agreement, or fails to obtain the effectiveness of any additional
Registration Statement (required to be filed pursuant to Section 3(b) of the
Registration Rights Agreement) within sixty (60) days after the Registration
Trigger Date (as defined in the Registration Rights Agreement), or any such
Registration Statement, after its initial effectiveness and during the
Registration Period
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(as defined in the Registration Rights Agreement), lapses in effect or sales of
all of the Registrable Securities (as defined in the Registration Rights
Agreement, the "REGISTRABLE SECURITIES") otherwise cannot be made thereunder
(whether by reason of the Corporation's failure to amend or supplement the
prospectus included therein in accordance with the Registration Rights
Agreement, the Corporation's failure to file and obtain effectiveness with the
SEC of an additional Registration Statement required pursuant to Section 3(b) of
the Registration Rights Agreement or otherwise) for more than thirty (30)
consecutive days or more than sixty (60) days in any twelve (12) month period
after such Registration Statement becomes effective;
(iii) The Corporation or any material subsidiary of
the Corporation shall make an assignment for the benefit of creditors, or apply
for or consent to the appointment of a receiver or trustee for it or for all or
substantially all of its property or business; or such a receiver or trustee
shall otherwise be appointed;
(iv) Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings for relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Corporation or any material subsidiary of the Corporation; or
(v) The Corporation shall fail to maintain the
listing of the Common Stock on the Nasdaq National Market ("NASDAQ"), the Nasdaq
SmallCap Market ("NASDAQ SMALLCAP"), the New York Stock Exchange ("NYSE") or the
American Stock Exchange ("AMEX"),
then, upon the occurrence and during the continuation of any Mandatory
Redemption Event specified in subparagraphs (i), (ii) or (v), at the option of
the holders of at least 50% of the then outstanding shares of Series A Preferred
Stock exercisable by delivery of written notice (the "MANDATORY REDEMPTION
NOTICE") to the Corporation of such Mandatory Redemption Event, or upon the
occurrence of any Mandatory Redemption Event specified in subparagraphs (iii) or
(iv), the then outstanding shares of Series A Preferred Stock shall become
immediately redeemable and the Corporation shall purchase each holder's
outstanding shares of Series A Preferred Stock for an amount per share equal to
the greater of (1) the sum of (a) 120% multiplied by the Stated Value of the
shares to be redeemed plus (b) an amount equal to six percent (6%) per annum of
such Stated Value for the period beginning on the Issue Date and ending on the
date of payment of the Mandatory Redemption Amount (the "MANDATORY REDEMPTION
DATE") plus (c) all Conversion Default Payments (as defined in Article VI.E
below), Delivery Default Payments (as defined in Article VI.D below) and any
other amounts owed to such holder pursuant to Section 2(c) of the Registration
Rights Agreement, and (2) the "PARITY VALUE" of the shares to be redeemed, where
parity value means the product of (a) the highest number of shares of Common
Stock issuable upon conversion of such shares of Series A Preferred Stock in
accordance with Article VI below (without giving any effect to any limitations
on conversions of shares contained herein, and treating the Trading Day (as
defined in Article VI.B) immediately preceding the Mandatory Redemption Date as
the "CONVERSION DATE" (as defined in Article VI.B(a)) for purposes of
determining the lowest applicable Conversion Price, unless the Mandatory
Redemption Event arises as a result of a breach in respect of a specific
Conversion Date in which case such Conversion Date shall be the Conversion
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Date), multiplied by (b) the highest Closing Price (as defined below) for the
Common Stock during the period beginning on the date of first occurrence of the
Mandatory Redemption Event and ending one day prior to the Mandatory Redemption
Date (the greater of such amounts being referred to as the "MANDATORY REDEMPTION
AMOUNT"). "CLOSING PRICE," as of any date, means the last sale price of the
Common Stock on Nasdaq as reported by Bloomberg Financial Markets or an
equivalent reliable reporting service mutually acceptable to and hereafter
designated by the holders of a majority in interest of the shares of Series A
Preferred Stock and the Corporation ("BLOOMBERG") or, if Nasdaq is not the
principal trading market for such security, the last sale price of such security
on the principal securities exchange or trading market where such security is
listed or traded as reported by Bloomberg, or if the foregoing do not apply, the
last sale price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
last sale price of such security is available in the over-the-counter market on
the electronic bulletin board for such security or in any of the foregoing
manners, the average of the bid prices of any market makers for such security
that are listed in the "pink sheets" by the National Quotation Bureau, Inc. If
the Closing Price cannot be calculated for such security on such date in the
manner provided above, the Closing Price shall be the fair market value as
mutually determined by the Corporation and the holders of a majority in interest
of shares of Series A Preferred Stock being converted for which the calculation
of the Closing Price is required in order to determine the Conversion Price of
such Series A Preferred Stock.
B. TRADING MARKET REDEMPTION. If the Series A Preferred Stock
ceases to be convertible by any holder as a result of the limitations described
in Article VI.A(c) below (a "TRADING MARKET REDEMPTION EVENT"), and the
Corporation has not, prior to, or within ninety (90) days of, the date that such
Trading Market Redemption Event arises, (1) either (i) obtained the Stockholder
Approval (as defined in Article VI.A(b)) or (ii) eliminated any prohibitions
under applicable law or the rules or regulations of any stock exchange,
interdealer quotation system or other self-regulatory organization with
jurisdiction over the Corporation or any of its securities on the Corporation's
ability to issue shares of Common Stock in excess of the Maximum Share Amount
(as defined in Article VI.A(b)), and (2) delivered to the holders of the Series
A Preferred Stock a Share Limit Waiver (as defined in Article VI.A(b)) (provided
that the Share Limit Waiver may not, without the written consent of the holders
of at least 50% of the then outstanding shares of Series A Preferred Stock, be
delivered by the Corporation after the 90th Trading Day immediately preceding
the Automatic Conversion Date and, provided further, that in no event shall the
Corporation be entitled to deliver a Share Limit Waiver unless the shares of
Common Stock issuable in excess of the Maximum Share Amount are (x) authorized
and reserved for issuance, (y) registered for re-sale under the 1933 Act by the
holders of the Series A Preferred Stock (or may otherwise be resold publicly
without restriction) and (z) eligible to be traded on Nasdaq, the NYSE, the AMEX
or Nasdaq SmallCap), then the Corporation shall be obligated to redeem all of
the then outstanding shares of Series A Preferred Stock in accordance with this
Article V.B on the earlier of (x) the Automatic Conversion Date or (y) such date
as the Corporation shall elect. Solely for purposes of this Article V.B, the
Automatic Conversion Date shall be June 4, 2001 and shall not be subject to
extension as provided in Article VIII hereof without the written consent of the
holders of at least 50% of the then outstanding shares of Series A Preferred
Stock delivered to the Corporation prior
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to June 4, 2001. The Corporation shall effect a redemption pursuant to this
Article V.B by sending written notice to the holders of the Series A Preferred
Stock at least fifteen (15) Trading Days prior to the earlier of (x) the
Automatic Conversion Date and (y) such earlier date as the Corporation shall
specify (the earlier of such dates being the "TRADING MARKET REDEMPTION DATE")
of its election to redeem the shares of Series A Preferred Stock eligible for
redemption pursuant to this Article V.B. (the "TRADING MARKET REDEMPTION
NOTICE"). On the Trading Market Redemption Date, the Corporation shall redeem
all of the then outstanding shares of Series A Preferred Stock for an amount in
cash equal to the sum of (i) 103% multiplied by the Stated Value of the shares
of Series A Preferred Stock to be redeemed plus (ii) an amount equal to six (6%)
per annum of such Stated Value beginning on the Issue Date and ending on the
Automatic Conversion Date plus (iii) all Conversion Default Payments (as defined
in Article VI.E below), Delivery Default Payments (as defined in Article VI.D
below) and any other amounts owed to such holder pursuant to Section 2(c) of the
Registration Rights Agreement, for each share of Series A Preferred Stock being
redeemed (the "TRADING MARKET REDEMPTION AMOUNT").
C. OPTIONAL REDEMPTION. Notwithstanding anything to the
contrary contained in this Article V, so long as (i) no Mandatory Redemption
Event shall have occurred and be continuing, (ii) any Registration Statement
required to be filed and be effective pursuant to the Registration Rights
Agreement is then in effect and has been in effect and sales of all of the
Registrable Securities can be made thereunder for at least twenty (20) days
prior to the Optional Redemption Date (as defined below) and (iii) the
Corporation has a sufficient number of authorized shares of Common Stock
reserved for issuance upon full conversion of the Series A Preferred Stock, then
at any time after the date which is twelve (12) months following the date the
Registration Statement (as defined in the Registration Rights Agreement) is
declared effective by the SEC (subject to extension for each Trading Day
following effectiveness that sales of all of the Registrable Securities cannot
be made pursuant to the Registration Statement (whether by reason of the
Corporation's failure to properly supplement or amend prospectus included
therein in accordance with the terms of the Registration Rights Agreement or
otherwise, including during an Allowed Delay (as defined in Section 3(f) of the
Registration Rights Agreement))), the Corporation shall have the right,
exercisable within two (2) Trading Days following any day (a "REDEMPTION TRIGGER
DATE") on which the average of the Closing Bid Prices of the Common Stock for
the ten (10) consecutive Trading Days immediately preceding such Redemption
Trigger Date is below $4.8125 (as adjusted for stock splits, stock dividends and
similar events, the "REDEMPTION THRESHOLD") to deliver written notice to the
holders of the Series A Preferred Stock (which notice may not be sent to the
holders of the Series A Preferred Stock until the Corporation is permitted to
redeem the Series A Preferred Stock pursuant to this Article V.C) of its
intention to redeem all of the outstanding shares of Series A Preferred Stock in
accordance with this Article V. Any notice of redemption hereunder (an "OPTIONAL
REDEMPTION") shall be delivered to the holders of Series A Preferred Stock at
their registered addresses appearing on the books and records of the Corporation
and shall state (1) that the Corporation is exercising its right to redeem all
of the outstanding shares of Series A Preferred Stock and (2) the date of
redemption (the "OPTIONAL REDEMPTION NOTICE"), which date shall be fifteen (15)
Trading Days after the date of delivery of the Optional Redemption Notice. On
the date fixed for redemption (the "OPTIONAL REDEMPTION DATE"), the Corporation
shall make
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payment of the Optional Redemption Amount (as defined below) to or upon the
order of the holders as specified by the holders in writing to the Corporation
at least one (1) business day prior to the Optional Redemption Date. If the
Corporation exercises its right to redeem the Series A Preferred Stock, the
Corporation shall make payment to the holders of an amount in cash (the
"OPTIONAL REDEMPTION AMOUNT") equal to the sum of (i) 115% multiplied by the
Stated Value of the shares of Series A Preferred Stock to be redeemed plus (ii)
an amount equal to six percent (6%) per annum of such Stated Value for the
period beginning on the Issue Date and ending on the Optional Redemption Date
plus (iii) all Conversion Default Payments (as defined in Article VI.E below),
Delivery Default Payments (as defined in Article VI.D below) and any other
amounts owed to such holder pursuant to Section 2(c) of the Registration Rights
Agreement, for each share of Series A Preferred Stock then held. Notwithstanding
notice of an Optional Redemption, the holders shall at all times prior to the
Optional Redemption Date maintain the right to convert all or any shares of
Series A Preferred Stock in accordance with Article VI and any shares of Series
A Preferred Stock so converted after receipt of an Optional Redemption Notice
and prior to the Optional Redemption Date set forth in such notice and payment
of the aggregate Optional Redemption Amount shall be deducted from the shares of
Series A Preferred Stock which are otherwise subject to redemption pursuant to
such notice. If the Corporation delivers an Optional Redemption Notice and fails
to pay the Optional Redemption Amount due to the holders of the Series A
Preferred Stock within two (2) business days following the Optional Redemption
Date, the Corporation shall forever forfeit its right to redeem the Series A
Preferred Stock pursuant to this Article V.C.
D. FAILURE TO PAY REDEMPTION AMOUNTS. In the case of a
Mandatory Redemption Event or the delivery of an Optional Redemption Notice, if
the Corporation fails to pay the Mandatory Redemption Amount or Optional
Redemption Amount, as applicable, within five (5) business days of written
notice that such amount is due and payable, then (assuming there are sufficient
authorized shares) in addition to all other available remedies, each holder of
Series A Preferred Stock shall have the right at any time, so long as the
Mandatory Redemption Event continues, or at any time after delivery of an
Optional Redemption Notice, to require the Corporation, upon written notice, to
immediately issue (in accordance with and subject to the terms of Article VI
below), in lieu of the Mandatory Redemption Amount or Optional Redemption
Amount, as applicable, the number of shares of Common Stock of the Corporation
equal to such applicable redemption amount divided by any Conversion Price, as
chosen in the sole discretion of the holder of Series A Preferred Stock, in
effect from the date of the Mandatory Redemption Event (or the date of delivery
of an Optional Redemption Notice) until the date such holder elects to exercise
its rights pursuant to this Article V.D.
VI. CONVERSION AT THE OPTION OF THE HOLDER
A. OPTIONAL CONVERSION
(a) CONVERSION AMOUNT. Each holder of shares of
Series A Preferred Stock may, at its option at any time and from time to time,
upon surrender of the certificates therefor,
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convert any or all of its shares of Series A Preferred Stock into Common Stock
as set forth below (an "OPTIONAL CONVERSION"). Each share of Series A Preferred
Stock shall be convertible into such number of fully paid and nonassessable
shares of Common Stock as such Common Stock exists on the Issue Date, or any
other shares of capital stock or other securities of the Corporation into which
such Common Stock is thereafter changed or reclassified, as is determined by
dividing (1) the sum of (a) the Stated Value thereof plus (b) the Premium Amount
(as defined below) plus (c) at the option of such holder of the Series A
Preferred Stock, any amounts owed to such holder pursuant to Section 2(c) of the
Registration Rights Agreement (the sum of (a), (b) and (c) being collectively
referred to as the "CONVERSION AMOUNT"), by (2) the then effective Conversion
Price (as defined below); PROVIDED, HOWEVER, that in no event (other than
pursuant to the Automatic Conversion (as defined in Article VIII)) shall a
holder of shares of Series A Preferred Stock be entitled to convert any such
shares in excess of that number of shares upon conversion of which the sum of
(x) the number of shares of Common Stock beneficially owned by the holder and
its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
shares of Series A Preferred Stock or the unexercised or unconverted portion of
any other securities of the Corporation subject to a limitation on conversion or
exercise analogous to the limitations contained herein) and (y) the number of
shares of Common Stock issuable upon the conversion of the shares of Series A
Preferred Stock with respect to which the determination of this proviso is being
made, would result in beneficial ownership by a holder and such holder's
affiliates of more than 4.9% of the outstanding shares of Common Stock. For
purposes of the proviso to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13D-G thereunder, except as
otherwise provided in clause (x) of such proviso. The "PREMIUM AMOUNT" means the
product of the Stated Value, multiplied by .06, multiplied by (N/365), where "N"
equals the number of days elapsed from the Issue Date to and including the
Conversion Date (as defined in Article VI.B).
(b) TRADING MARKET LIMITATION. Unless the Corporation
(1) either (i) is permitted by the applicable rules and regulations of the
principal securities market on which the Common Stock is listed or traded to
issue shares of Common Stock upon conversion of or otherwise pursuant to the
Series A Preferred Stock in excess of the Maximum Share Amount (as defined
below) or (ii) has obtained approval of the issuance of shares of Common Stock
upon conversion of the Series A Preferred Stock in excess of the Maximum Share
Amount in accordance with applicable law and the rules and regulations of any
stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Corporation or any of its securities
(the "STOCKHOLDER APPROVAL"), and (2) has provided written notice to the holders
of Series A Preferred Stock that it has waived the restrictions contained in
this Article VI.A(b) on issuing shares of Common Stock upon conversion of the
Series A Preferred Stock in excess of the Maximum Share Amount (the "SHARE LIMIT
WAIVER") (provided that such Share Limit Waiver may not, without the written
consent of the holders of at least 50% of the then outstanding shares of Series
A Preferred Stock, be delivered by the Corporation after the 90th Trading Day
immediately preceding the Automatic Conversion Date (as defined in Article VIII)
and, provided further, that in no event shall the Corporation be entitled to
deliver a Share Limit Waiver unless the shares of Common Stock
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issuable in excess of the Maximum Share Amount are (x) authorized and reserved
for issuance, (y) registered for re-sale under the 1933 Act by the holders of
the Series A Preferred Stock (or may otherwise be resold publicly without
restriction) and (z) eligible to be traded on Nasdaq, the NYSE, the AMEX or
Nasdaq SmallCap), in no event shall the total number of shares of Common Stock
issued upon conversion of the Series A Preferred Stock (including any shares of
capital stock or rights to acquire shares of capital stock issued by the
Corporation which are aggregated or integrated with the Common Stock issued or
issuable upon conversion of the Series A Preferred Stock for purposes of any
such rule or regulation) exceed 2,776,594 (19.99% of the total shares of Common
Stock outstanding on the Issue Date) (the "MAXIMUM SHARE AMOUNT"), subject to
equitable adjustments from time to time for stock splits, stock dividends,
combinations, capital reorganizations and similar events relating to the Common
Stock occurring after the Issue Date. With respect to each holder of Series A
Preferred Stock, the Maximum Share Amount shall refer to such holder's PRO RATA
share thereof determined in accordance with Article XI below.
B. CONVERSION PRICE.
(a) CALCULATION OF CONVERSION PRICE. Subject to
subparagraph (b) below, the "CONVERSION PRICE" shall be (i) prior to the
earliest of (A) December 4, 1999, (B) the date the Corporation makes a public
announcement that it intends to merge or consolidate with any other corporation
(other than a merger in which the Corporation is the continuing Corporation and
the capital stock of the Corporation remains unchanged) or sell or transfer
substantially all of the assets of the Corporation, (C) the date any person,
group or entity (including the Corporation) publicly announces a tender offer to
purchase 50% or more of the Corporation's Common Stock (or any other takeover
scheme), (D) the date there is a material adverse change in the business,
operations, assets, financial condition or prospects of the Corporation or its
subsidiaries, taken as a whole or (E) the occurrence of any Mandatory Redemption
Event (the earliest of such dates being hereafter referred to as the "MARKET
PRICE TRIGGER DATE"), the Fixed Conversion Price; PROVIDED, HOWEVER, that prior
to the Market Price Trigger Date, the Conversion Price shall be the lesser of
the Variable Conversion Price and the Fixed Conversion Price (1) if the
Corporation, upon written consent to holders of the Series A Preferred Stock,
allows conversions prior to the Market Price Trigger Date at the lesser of the
Variable Conversion Price and the Fixed Conversion Price, (2) on any day after
October 4, 1999, that the Common Stock trades at a price greater than or equal
to (a) 120% of the applicable Market Price or (b) the Fixed Conversion Price and
(ii) beginning on the Market Price Trigger Date, the lesser of the Variable
Conversion Price and the Fixed Conversion Price. The Conversion Price shall be
subject to adjustments pursuant to the provisions of Article VI.C below.
"VARIABLE CONVERSION PRICE" shall mean 100% of the Market Price. "MARKET PRICE"
shall mean the average of the Closing Bid Prices for any three (3) consecutive
Trading Days (the "MARKET PRICE DAYS") during the fifteen (15) Trading Day
period ending one (1) Trading Day prior to the date (the "CONVERSION DATE") the
Notice of Conversion (as defined in Article VI.E) is sent by a holder to the
Corporation via facsimile (the "PRICING PERIOD"). The Market Price Days shall be
designated by the converting holder at the time of conversion (from among the
days comprising the Pricing Period) and such designation shall be set forth in
the Conversion Notice. "FIXED CONVERSION PRICE" shall mean $8.55. "CLOSING BID
PRICE" means, for any security as of any date, the closing bid price on Nasdaq
as reported by
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Bloomberg or, if Nasdaq is not the principal trading market for such security,
the closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg,
or if the foregoing do not apply, the closing bid price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing bid price of such security is available
in the over-the-counter market on the electronic bulletin board for such
security or in any of the foregoing manners, the average of the bid prices of
any market makers for such security that are listed in the "pink sheets" by the
National Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated
for such security on such date in the manner provided above, the Closing Bid
Price shall be the fair market value as mutually determined by the Corporation
and the holders of a majority in interest of shares of Series A Preferred Stock
being converted for which the calculation of the Closing Bid Price is required
in order to determine the Conversion Price of such Series A Preferred Stock.
"TRADING DAY" shall mean any day on which the Common Stock is traded for any
period on Nasdaq, or on the principal securities exchange or other securities
market on which the Common Stock is then being traded.
(b) CONVERSION PRICE DURING MAJOR ANNOUNCEMENTS.
Notwithstanding anything contained in subparagraph (a) of this Paragraph B to
the contrary, in the event the Corporation (i) makes a public announcement that
it intends to consolidate or merge with any other corporation (other than a
merger in which the Corporation is the surviving or continuing corporation and
its capital stock is unchanged) or sell or transfer all or substantially all of
the assets of the Corporation or (ii) any person, group or entity (including the
Corporation) publicly announces a tender offer to purchase 50% or more of the
Corporation's Common Stock (or any other takeover scheme) (the date of the
announcement referred to in clause (i) or (ii) is hereinafter referred to as the
"Announcement Date"), then the Conversion Price shall, effective upon the
Announcement Date and continuing through the Adjusted Conversion Price
Termination Date (as defined below), be equal to the lower of (x) the Conversion
Price which would have been applicable for an Optional Conversion occurring on
the Announcement Date and (y) the Conversion Price that would otherwise be in
effect. From and after the Adjusted Conversion Price Termination Date, the
Conversion Price shall be determined as set forth in subparagraph (a) of this
Article VI.B. For purposes hereof, "ADJUSTED CONVERSION PRICE TERMINATION DATE"
shall mean, with respect to any proposed transaction or tender offer (or
takeover scheme) for which a public announcement as contemplated by this
subparagraph (b) has been made, the date upon which the Corporation (in the case
of clause (i) above) or the person, group or entity (in the case of clause (ii)
above) consummates or publicly announces the termination or abandonment of the
proposed transaction or tender offer (or takeover scheme) which caused this
subparagraph (b) to become operative.
C. ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price shall
be subject to adjustment from time to time as follows:
(a) ADJUSTMENT TO CONVERSION PRICE DUE TO STOCK
SPLIT, STOCK DIVIDEND, ETC. If at any time when Series A Preferred Stock is
issued and outstanding, the number of outstanding shares of Common Stock is
increased or decreased by a stock split, stock dividend, combination,
reclassification, rights offering below the Trading Price (as defined below) to
all
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holders of Common Stock or other similar event, which event shall have taken
place during the reference period for determination of the Conversion Price for
any Optional Conversion, Corporation Conversion or Automatic Conversion of the
Series A Preferred Stock, then the Conversion Price shall be calculated giving
appropriate effect to the stock split, stock dividend, combination,
reclassification or other similar event. In such event, the Corporation shall
notify the Transfer Agent of such change on or before the effective date
thereof. "TRADING PRICE," which shall be measured as of the record date in
respect of the rights offering, means (i) the average of the last reported sale
prices for the shares of Common Stock on Nasdaq as reported by Bloomberg, as
applicable, for the five (5) Trading Days immediately preceding such date, or
(ii) if Nasdaq is not the principal trading market for the shares of Common
Stock, the average of the last reported sale prices on the principal trading
market for the Common Stock during the same period as reported by Bloomberg, or
(iii) if market value cannot be calculated as of such date on any of the
foregoing bases, the Trading Price shall be the fair market value as reasonably
determined in good faith by (a) the Board of Directors of the Corporation or,
(b) at the option of a majority-in-interest of the holders of the outstanding
Series A Preferred Stock by an independent investment bank of nationally
recognized standing in the valuation of businesses similar to the business of
the Corporation.
(b) ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If,
at any time when Series A Preferred Stock is issued and outstanding and prior to
the conversion of all Series A Preferred Stock, there shall be any merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock of the Corporation
shall be changed into the same or a different number of shares of another class
or classes of stock or securities of the Corporation or another entity, or in
case of any sale or conveyance of all or substantially all of the assets of the
Corporation other than in connection with a plan of complete liquidation of the
Corporation, then the holders of Series A Preferred Stock shall thereafter have
the right to receive upon conversion of the Series A Preferred Stock, upon the
basis and upon the terms and conditions specified herein and in lieu of the
shares of Common Stock immediately theretofore issuable upon conversion, such
stock, securities or assets which the holders of Series A Preferred Stock would
have been entitled to receive in such transaction had the Series A Preferred
Stock been converted in full immediately prior to such transaction (without
regard to any limitations on conversion contained herein), and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the holders of Series A Preferred Stock to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the Conversion
Price and of the number of shares of Common Stock issuable upon conversion of
the Series A Preferred Stock) shall thereafter be applicable, as nearly as may
be practicable in relation to any securities or assets thereafter deliverable
upon the conversion of Series A Preferred Stock. The Corporation shall not
effect any transaction described in this subsection (b) unless (a) it first
gives, to the extent practical, thirty (30) days' prior written notice (but in
any event at least fifteen (15) business days prior written notice) of the
record date of the special meeting of stockholders to approve, or if there is no
such record date, the consummation of, such merger, consolidation, exchange of
shares, recapitalization, reorganization or other similar event or sale of
assets (during which time the holders of Series A Preferred Stock shall be
entitled to convert the Series A Preferred Stock) and (b) the resulting
successor or acquiring entity (if not the Corporation) and, if an entity
different from the
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successor or acquiring entity, the entity whose capital stock or assets the
holders of Common Stock of the Corporation are entitled to receive as a result
of such merger, consolidation, exchange of shares, recapitalization,
reorganization or other similar event or sale of assets, assumes by written
instrument all of the obligations of this Certificate of Designation including
this subsection (b). The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers or share exchanges.
(c) [Reserved].
(d) ADJUSTMENT DUE TO DISTRIBUTION. Subject to
Article III, if the Corporation shall declare or make any distribution of its
assets (or rights to acquire its assets) to holders of Common Stock as a
dividend, stock repurchase, by way of return of capital or otherwise (including
any dividend or distribution to the Corporation's shareholders in cash or shares
(or rights to acquire shares) of capital stock of a subsidiary (i.e., a
spin-off)) (a "DISTRIBUTION"), then the holders of Series A Preferred Stock
shall be entitled, upon any conversion of shares of Series A Preferred Stock
after the date of record for determining shareholders entitled to such
Distribution, to receive the amount of such assets which would have been payable
to the holder with respect to the shares of Common Stock issuable upon such
conversion had such holder been the holder of such shares of Common Stock on the
record date for the determination of shareholders entitled to such Distribution.
(e) PURCHASE RIGHTS. Subject to Article III, if at
any time when any Series A Preferred Stock is issued and outstanding, the
Corporation issues any convertible securities or rights to purchase stock,
warrants, securities or other property (the "PURCHASE RIGHTS") pro rata to the
record holders of any class of Common Stock, then the holders of Series A
Preferred Stock will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Common Stock acquirable
upon complete conversion of the Series A Preferred Stock (without regard to any
limitations on conversion contained herein) immediately before the date on which
a record is taken for the grant, issuance or sale of such Purchase Rights, or,
if no such record is taken, the date as of which the record holders of Common
Stock are to be determined for the grant, issue or sale of such Purchase Rights.
(f) ADJUSTMENT FOR RESTRICTED PERIODS. In the event
that (i) the Corporation fails to obtain effectiveness with the SEC of any
Registration Statement (as defined in the Registration Rights Agreement)
required to be filed pursuant to the Registration Rights Agreement on or prior
to the date on which such Registration Statement is required to become effective
pursuant to the terms of the Registration Rights Agreement, (ii) any such
Registration Statement after its initial effectiveness and during the
Registration Period (as defined in the Registration Rights Agreement) lapses in
effect, or sales of all of the Registrable Securities (as defined in the
Registration Rights Agreement) otherwise cannot be made thereunder, whether by
reason of the Corporation's failure or inability to amend or supplement the
prospectus (the "PROSPECTUS") included therein in accordance with the
Registration Rights Agreement or otherwise
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(including, without limitation, during an Allowed Delay (as defined in Section
3(f) of the Registration Rights Agreement)) or (iii) a Trading Market Redemption
Event occurs (each of the events described in clauses (i), (ii) and (iii) being
referred to as an "EXTENDED LOOKBACK EVENT"), then, at the election of each
holder of Series A Preferred Stock, the Pricing Period for any conversions
taking place within fifteen (15) Trading Days of the date the Corporation gives
the holders of the Series A Preferred Stock notice of the cure of such Extended
Lookback Event (which notice may not be given by the Corporation until such
Extended Lookback Event is actually cured) shall be comprised of, (x) in the
case of an event described in clause (i), the fifteen (15) Trading Days
preceding the date on which such Registration Statement is required to become
effective pursuant to the terms of the Registration Rights Agreement plus all
Trading Days through and including the third (3rd) Trading Day following the
actual date of effectiveness of the Registration Statement; (y) in the case of
an event described in clause (ii), the fifteen (15) Trading Days preceding the
date on which the holder of the Series A Preferred Stock is first notified that
sales may not be made under the Prospectus, plus all Trading Days through and
including the third (3rd) Trading Day following the date on which the Holder is
first notified that such sales may again be made under the Prospectus; and (z)
in the case of an event described in clause (iii), the fifteen (15) Trading Days
preceding the occurrence of the Trading Market Redemption Event, plus all
Trading Days through and including the third (3rd) Trading Day following the
date of delivery by the Corporation of the Share Limit Waiver (provided that a
Share Limit Waiver may only be delivered if the conditions set forth in clause
(1) of Article VI.A(b) have been satisfied). If a holder of Series A Preferred
Stock determines that sales may not be made pursuant to the Prospectus (whether
by reason of the Corporation's failure or inability to amend or supplement the
Prospectus or otherwise) it shall so notify the Corporation in writing and,
unless the Corporation provides such holder with a written opinion of the
Corporation's counsel to the contrary, such determination shall be binding for
purposes of this paragraph.
(g) NOTICE OF ADJUSTMENTS. Upon the occurrence of
each adjustment or readjustment of the Conversion Price pursuant to this Article
VI.C, the Corporation, at its expense, shall promptly compute such adjustment or
readjustment and prepare and furnish to each holder of Series A Preferred Stock
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of Series
A Preferred Stock, furnish to such holder a like certificate setting forth (i)
such adjustment or readjustment, (ii) the Conversion Price at the time in effect
and (iii) the number of shares of Common Stock and the amount, if any, of other
securities or property which at the time would be received upon conversion of a
share of Series A Preferred Stock.
D. MECHANICS OF CONVERSION. In order to convert Series A
Preferred Stock into full shares of Common Stock, a holder of Series A Preferred
Stock shall: (i) submit a copy of the fully executed notice of conversion in the
form attached hereto as Exhibit A ("NOTICE OF CONVERSION") to the Corporation by
facsimile dispatched prior to Midnight, New York City time (the "CONVERSION
NOTICE DEADLINE") on the date specified therein as the Conversion Date (or by
other means resulting in, or reasonably expected to result in, notice to the
Corporation on the
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Conversion Date) to the office of the Corporation or its designated Transfer
Agent for the Series A Preferred Stock, which notice shall specify the number of
shares of Series A Preferred Stock to be converted, the applicable Conversion
Price and a calculation of the number of shares of Common Stock issuable upon
such conversion (together with a copy of the first page of each certificate to
be converted); and (ii) surrender the original certificates representing the
Series A Preferred Stock being converted (the "PREFERRED STOCK CERTIFICATES"),
duly endorsed, along with a copy of the Notice of Conversion to the office of
the Corporation or the Transfer Agent for the Series A Preferred Stock as soon
as practicable thereafter. The Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such
conversion, unless either the Preferred Stock Certificates are delivered to the
Corporation or its Transfer Agent as provided above, or the holder notifies the
Corporation or its Transfer Agent that such certificates have been lost, stolen
or destroyed (subject to the requirements of subparagraph (a) below). In the
case of a dispute as to the calculation of the Conversion Price, the Corporation
shall promptly issue such number of shares of Common Stock that are not disputed
in accordance with subparagraph (b) below. The Corporation shall submit the
disputed calculations to its outside accountant via facsimile within two (2)
business days of receipt of the Notice of Conversion. The accountant shall audit
the calculations and notify the Corporation and the holder of the results no
later than 48 hours from the time it receives the disputed calculations. The
accountant's calculation shall be deemed conclusive absent manifest error.
(a) LOST OR STOLEN CERTIFICATES. Upon receipt by the
Corporation of evidence of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing shares of Series A Preferred Stock,
and (in the case of loss, theft or destruction) of indemnity reasonably
satisfactory to the Corporation, and upon surrender and cancellation of the
Preferred Stock Certificate(s), if mutilated, the Corporation shall execute and
deliver new Preferred Stock Certificate(s) of like tenor and date.
(b) DELIVERY OF COMMON STOCK UPON CONVERSION. Upon
the surrender of certificates as described above together with a Notice of
Conversion, the Corporation shall issue and, within two (2) business days after
such surrender (or, in the case of lost, stolen or destroyed certificates, after
provision of agreement and indemnification pursuant to subparagraph (a) above)
(the "DELIVERY PERIOD"), deliver (or cause its Transfer Agent to so issue and
deliver) in accordance with the terms hereof and the Purchase Agreement
(including, without limitation, in accordance with the requirements of Section
2(g) of the Purchase Agreement) to or upon the order of the holder (i) that
number of shares of Common Stock for the portion of the shares of Series A
Preferred Stock converted as shall be determined in accordance herewith and (ii)
a certificate representing the balance of the shares of Series A Preferred Stock
not converted, if any. In addition to any other remedies available to the
holder, including actual damages and/or equitable relief, the Corporation shall
pay to a holder $2,000 per day in cash for each day beyond a two (2) day grace
period following the Delivery Period that the Corporation fails to deliver
Common Stock (a "DELIVERY DEFAULT") issuable upon surrender of shares of Series
A Preferred Stock with a Notice of Conversion until such time as the Corporation
has delivered all such Common Stock (the "DELIVERY DEFAULT PAYMENTS"). Such
Delivery Default Payments shall be paid to such holder by the fifth day of the
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month following the month in which it has accrued or, at the option of the
holder (by written notice to the Corporation by the first day of the month
following the month in which it has accrued), shall be convertible into Common
Stock in accordance with the terms of this Article VI.
In lieu of delivering physical certificates representing the
Common Stock issuable upon conversion, provided the Corporation's Transfer Agent
is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer ("FAST") program, upon request of the holder and its
compliance with the provisions contained in Article VI.A and in this Article
VI.D, the Corporation shall use its best efforts to cause its Transfer Agent to
electronically transmit the Common Stock issuable upon conversion to the holder
by crediting the account of holder's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission ("DWAC") system. The time periods for delivery and
penalties described in the immediately preceding paragraph shall apply to the
electronic transmittals described herein.
(c) NO FRACTIONAL SHARES. If any conversion of Series
A Preferred Stock would result in a fractional share of Common Stock or the
right to acquire a fractional share of Common Stock, such fractional share shall
be disregarded and the number of shares of Common Stock issuable upon Conversion
of the Series A Preferred Stock shall be the next higher number of shares.
(d) CONVERSION DATE. The "CONVERSION DATE" shall be
the date specified in the Notice of Conversion, provided that the Notice of
Conversion is submitted by facsimile (or by other means resulting in, or
reasonably expected to result in, notice) to the Corporation or its Transfer
Agent before Midnight, New York City time, on the date so specified, otherwise
the Conversion Date shall be the first business day after the date so specified
on which the Notice of Conversion is actually received by the Corporation or its
Transfer Agent. The person or persons entitled to receive the shares of Common
Stock issuable upon conversion shall be treated for all purposes as the record
holder or holders of such securities as of the Conversion Date and all rights
with respect to the shares of Series A Preferred Stock surrendered shall
forthwith terminate except the right to receive the shares of Common Stock or
other securities or property issuable on such conversion and except that the
holders preferential rights as a holder of Series A Preferred Stock shall
survive to the extent the Corporation fails to deliver such securities.
E. RESERVATION OF SHARES. A number of shares of the authorized
but unissued Common Stock sufficient to provide for the conversion of the Series
A Preferred Stock outstanding (based on the lesser of the then current Variable
Conversion Price and the Fixed Conversion Price) shall at all times be reserved
by the Corporation, free from preemptive rights, for such conversion or
exercise; PROVIDED, HOWEVER, that until a Share Limit Waiver is delivered by the
Corporation following the satisfaction of the conditions contained in clause (1)
of Article VI.A(b), in no event shall the Corporation be required to reserve a
number of shares of Common Stock greater than the Maximum Share Amount. As of
the date of issuance of the Series A Preferred Stock, 2,766,594 authorized and
unissued shares of Common Stock have been duly reserved for issuance upon
conversion of the Series A Preferred Stock (the "RESERVED AMOUNT"). Subject to
the proviso
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contained in the first sentence of this Article VI.E, the Reserved Amount shall
be increased from time to time in accordance with the Company's obligations
pursuant to Section 4(h) of the Purchase Agreement. In addition, if the
Corporation shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into which
each share of the Series A Preferred Stock shall be convertible, the Corporation
shall at the same time also make proper provision so that thereafter there shall
be a sufficient number of shares of Common Stock authorized and reserved, free
from preemptive rights, for conversion of the outstanding Series A Preferred
Stock.
If at any time a holder of shares of Series A Preferred Stock
submits a Notice of Conversion, and the Corporation does not have sufficient
authorized but unissued shares of Common Stock available to effect such
conversion in accordance with the provisions of this Article VI (a "CONVERSION
DEFAULT"), subject to Article XI, the Corporation shall issue to the holder all
of the shares of Common Stock which are available to effect such conversion. The
number of shares of Series A Preferred Stock included in the Notice of
Conversion which exceeds the amount which is then convertible into available
shares of Common Stock (the "EXCESS AMOUNT") shall, notwithstanding anything to
the contrary contained herein, not be convertible into Common Stock in
accordance with the terms hereof until (and at the holder's option at any time
after) the date additional shares of Common Stock are authorized by the
Corporation to permit such conversion, at which time the Conversion Price in
respect thereof shall be the lesser of (i) the Conversion Price on the
Conversion Default Date (as defined below) and (ii) the Conversion Price on the
Conversion Date elected by the holder in respect thereof. The Corporation shall
use its best efforts to effect an increase in the authorized number of shares of
Common Stock as soon as possible following the earlier of (i) such time that a
holder of Series A Preferred Stock notifies the Corporation or that the
Corporation otherwise becomes aware that there are or likely will be
insufficient authorized and unissued shares to allow full conversion thereof and
(ii) a Conversion Default. In addition, the Corporation shall pay to the holder
payments ("CONVERSION DEFAULT PAYMENTS") for a Conversion Default in the amount
of (a) .24, multiplied by (b) the sum of the Stated Value plus the Premium
Amount per share of Series A Preferred Stock held by such holder through the
Authorization Date (as defined below), multiplied by (c) (N/365), where N = the
number of days from the day the holder submits a Notice of Conversion giving
rise to a Conversion Default (the "CONVERSION DEFAULT DATE") to the date (the
"AUTHORIZATION DATE") that the Corporation authorizes a sufficient number of
shares of Common Stock to effect conversion of the full number of shares of
Series A Preferred Stock. The Corporation shall send notice to the holder of the
authorization of additional shares of Common Stock, the Authorization Date and
the amount of holder's accrued Conversion Default Payments. The accrued
Conversion Default Payment for each calendar month shall be paid in cash or
shall be convertible into Common Stock at the applicable Conversion Price, at
the holder's option, as follows:
(a) In the event the holder elects to take such
payment in cash, cash payment shall be made to holder by the fifth day of the
month following the month in which it has accrued; and
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(b) In the event the holder elects to take such
payment in Common Stock, the holder may convert such payment amount into Common
Stock at the Conversion Price (as in effect at the time of Conversion) at any
time after the fifth day of the month following the month in which it has
accrued in accordance with the terms of this Article VI (so long as there is
then a sufficient number of authorized shares of Common Stock).
The holder's election shall be made in writing to the
Corporation at any time prior to 9:00 p.m, New York City Time, on the third
(3rd) day of the month following the month in which Conversion Default payments
have accrued. If no election is made, the holder shall be deemed to have elected
to receive cash. Nothing herein shall limit the holder's right to pursue actual
damages (to the extent in excess of the Conversion Default Payments) for the
Corporation's failure to maintain a sufficient number of authorized shares of
Common Stock, and each holder shall have the right to pursue all remedies
available at law or in equity (including a decree of specific performance and/or
injunctive relief).
F. NOTICE OF CONVERSION PRICE ADJUSTMENTS. Upon the occurrence
of each adjustment or readjustment of the Conversion Price pursuant to this
Article VI, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Series A Preferred Stock a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series A Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (i) such
adjustment or readjustment, (ii) the Conversion Price at the time in effect and
(iii) the number of shares of Common Stock and the amount, if any, of other
securities or property which at the time would be received upon conversion of a
share of Series A Preferred Stock.
G. STATUS AS STOCKHOLDERS. Upon submission of a Notice of
Conversion by a holder of Series A Preferred Stock, (i) the shares covered
thereby (other than the shares, if any, which cannot be issued because their
issuance would exceed such holder's allocated portion of the Reserved Amount or
Maximum Share Amount) shall be deemed converted into shares of Common Stock and
(ii) the holder's rights as a holder of such converted shares of Series A
Preferred Stock shall cease and terminate, excepting only the right to receive
certificates for such shares of Common Stock and to any remedies provided herein
or otherwise available at law or in equity to such holder because of a failure
by the Corporation to comply with the terms of this Certificate of Designation.
Notwithstanding the foregoing, if a holder has not received certificates for all
shares of Common Stock prior to the tenth (10th) business day after the
expiration of the Delivery Period with respect to a conversion of shares of
Series A Preferred Stock for any reason, then (unless the holder otherwise
elects to retain its status as a holder of Common Stock by so notifying the
Corporation) the holder shall regain the rights of a holder of such shares of
Series A Preferred Stock with respect to such unconverted shares of Series A
Preferred Stock and the Corporation shall, as soon as practicable, return such
unconverted shares of Series A Preferred Stock to the holder or, if such shares
of Series A Preferred Stock have not been surrendered, adjust its records to
reflect that such shares of Series A Preferred Stock have not been converted. In
all cases, the holder shall retain all
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<PAGE>
of its rights and remedies (including, without limitation, (i) the right to
receive Delivery Default Payments pursuant to Article VI.D to the extent
required thereby for such Delivery Default and any subsequent Delivery Default
and (ii) the right to have the Conversion Price with respect to subsequent
conversions determined in accordance with Article VI.E.) for the Corporation's
failure to convert the Series A Preferred Stock .
VII. CONVERSION BY THE CORPORATION
Subject to the limitations on conversion set forth in Article
VI.A(c) and so long as (i) all of the shares of Common Stock issuable upon
conversion of all outstanding shares of Series A Preferred Stock are then (x)
authorized and reserved for issuance, (y) registered for re-sale under the 1933
Act by the holders of the Series A Preferred Stock (or may otherwise be resold
publicly without restriction) and (z) eligible to be traded on Nasdaq, the NYSE,
the AMEX or Nasdaq SmallCap and (ii) there is not then a continuing Mandatory
Redemption Event or Trading Market Redemption Event, then, at any time after the
one (1) year anniversary of the date the Registration Statement required to be
filed pursuant to Section 2(a) of the Registration Rights Agreement is declared
effective by the SEC (subject to extension for each Trading Day following
effectiveness that sales of all of the Registrable Securities (as defined in the
Registration Rights Agreement) cannot be made pursuant to the Registration
Statement (whether by reason of the Company's failure to properly supplement or
amend the prospectus included therein in accordance with the terms of the
Registration Rights Agreement, during an Allowed Delay or otherwise)), the
Corporation shall have the right, exercisable within two (2) Trading Days
following any day (a "FORCED CONVERSION TRIGGER DATE") on which the average of
the Closing Bid Prices of the Common Stock during the twenty (20) consecutive
Trading Day period immediately preceding such Forced Conversion Trigger Date is
greater than 150% of the Fixed Conversion Price, to deliver written notice (the
"CORPORATION CONVERSION NOTICE") to the holders of the Series A Preferred Stock
(which notice may not be sent to the holders of the Series A Preferred Stock
until the Corporation is permitted to convert the Series A Preferred Stock
pursuant to this Article VII) of its intention to convert all of the outstanding
shares of Series A Preferred Stock into shares of Common Stock in accordance
with this Article VII and Article VI; PROVIDED, HOWEVER, that a Corporation
Conversion shall not be permitted if during the period beginning on the date the
Corporation Conversion Notice is delivered to the holders of the Series A
Preferred Stock and ending on the Trading Day prior to the Corporation
Conversion Date the average Closing Bid Price of the Common Stock for any five
(5) consecutive Trading Days during such period is not greater than 150% of the
Fixed Conversion Price. Any conversion hereunder (a "CORPORATION CONVERSION")
shall be as of the date (the "CORPORATION CONVERSION DATE") specified in the
Corporation Conversion Notice (but in no event prior to the fifteenth (15)
trading day following the date of such notice). The Corporation Conversion shall
be delivered to the holders of Series A Preferred Stock at their registered
addresses appearing on the books and records of the Corporation, which notice
shall contain substantially the same information as the Notice of Conversion
described in Article VI.E. The Corporation Conversion Date shall be the
"Conversion Date" for purposes of determining the Conversion Price and the time
within which certificates representing the Common Stock must be delivered to the
holder upon a Corporation
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Conversion. Notwithstanding notice of a Corporation Conversion, the holders
shall at all times prior to the Corporation Conversion Date maintain the right
to convert all or any shares of Series A Preferred Stock in accordance with
Article VI.
VIII. AUTOMATIC CONVERSION
Subject to the limitations on conversion set forth in Article
VI.A(b) and subject to the provisions of Article V.B, and so long as (i) all of
the shares of Common Stock issuable upon conversion of all outstanding shares of
Series A Preferred Stock are then (x) authorized and reserved for issuance, (y)
registered for re-sale under the 1933 Act by the holders of the Series A
Preferred Stock (or may otherwise be resold publicly without restriction) and
(z) eligible to be traded on Nasdaq, the NYSE, the AMEX or Nasdaq SmallCap and
(ii) there is not then a continuing Mandatory Redemption Event, each share of
Series A Preferred Stock issued and outstanding on June 4, 2001 (the "AUTOMATIC
CONVERSION DATE"), automatically shall be converted into shares of Common Stock
on such date at the then effective Market Price in accordance with, and subject
to, the provisions of Article VI hereof (the "AUTOMATIC CONVERSION"). The
Automatic Conversion Date shall be delayed by one (1) Trading Day for each
Trading Day occurring prior thereto and prior to the full conversion of the
Series A Preferred Stock that (i) any Registration Statement required to be
filed and to be effective pursuant to the Registration Rights Agreement is not
effective or sales of all of the Registrable Securities (as defined in the
Registration Rights Agreement) otherwise cannot be made thereunder during the
Registration Period (whether by reason of the Corporation's failure to properly
supplement or amend the prospectus included during therein in accordance with
the terms of the Registration Rights Agreement or otherwise, including during
any Allowed Delays (as defined in Section 3(f) of the Registration Rights
Agreement)), (ii) any Mandatory Redemption Event (as defined in Article V.A)
exists, without regard to whether any cure periods shall have run or (iii) that
the Corporation is in breach of any of its obligations pursuant to Section 4(h)
of the Purchase Agreement. The Automatic Conversion Date shall be the Conversion
Date for purposes of determining the Conversion Price and the time within which
certificates representing the Common Stock must be delivered to the holder.
IX. VOTING RIGHTS
The holders of the Series A Preferred Stock have no voting
power whatsoever, except as otherwise provided by the Delaware General
Corporation Law ("DGCL"), in this Article IX, and in Article X below.
Notwithstanding the above, the Corporation shall provide each
holder of Series A Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise
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acquire (including by way of merger, consolidation or recapitalization) any
share of any class or any other securities or property, or to receive any other
right, or for the purpose of determining shareholders who are entitled to vote
in connection with any proposed sale, lease or conveyance of all or
substantially all of the assets of the Corporation, or any proposed liquidation,
dissolution or winding up of the Corporation, the Corporation shall mail a
notice to each holder, at least ten (10) days prior to the record date specified
therein (or thirty (30) days prior to the consummation of the transaction or
event, whichever is earlier), of the date on which any such record is to be
taken for the purpose of such dividend, distribution, right or other event, and
a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
To the extent that under the DGCL the vote of the holders of
the Series A Preferred Stock, voting separately as a class or series as
applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the holders of at least a majority of the shares
of the Series A Preferred Stock represented at a duly held meeting at which a
quorum is present or by written consent of a majority of the shares of Series A
Preferred Stock (except as otherwise may be required under the DGCL) shall
constitute the approval of such action by the class. To the extent that under
the DGCL holders of the Series A Preferred Stock are entitled to vote on a
matter with holders of Common Stock, voting together as one class, each share of
Series A Preferred Stock shall be entitled to a number of votes equal to the
number of shares of Common Stock into which it is then convertible using the
record date for the taking of such vote of shareholders as the date as of which
the Conversion Price is calculated. Holders of the Series A Preferred Stock
shall be entitled to notice of all shareholder meetings or written consents (and
copies of proxy materials and other information sent to shareholders) with
respect to which they would be entitled to vote, which notice would be provided
pursuant to the Corporation's bylaws and the DGCL.
X. PROTECTIVE PROVISIONS
So long as shares of Series A Preferred Stock are outstanding,
the Corporation shall not, without first obtaining the approval (by vote or
written consent, as provided by the DGCL) of the holders of at least a majority
of the then outstanding shares of Series A Preferred Stock:
(a) alter, amend or repeal (whether by merger,
consolidation or otherwise) any of the rights, preferences or privileges of the
Series A Preferred Stock or any capital stock of the Corporation so as to affect
adversely the Series A Preferred Stock;
(b) create any new class or series of capital stock
having a preference over the Series A Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined in Article II hereof, "SENIOR SECURITIES");
(c) create any new class or series of capital stock
(other than the Series B Convertible Preferred Stock issued or issuable pursuant
to the Purchase Agreement (the "SERIES
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B PREFERRED STOCK") ranking PARI PASSU with the Series A Preferred Stock as to
distribution of assets upon liquidation, dissolution or winding up of the
Corporation (as previously defined in Article II hereof, "PARI PASSU
SECURITIES");
(d) increase the authorized number of shares of
Series A Preferred Stock;
(e) issue any Senior Securities or PARI PASSU
Securities (other than the Series B Convertible Preferred Stock issued or
issuable pursuant to the Purchase Agreement);
(f) increase the par value of the Common Stock, or
(g) do any act or thing not authorized or
contemplated by this Certificate of Designation which would result in taxation
of the holders of shares of the Series A Preferred Stock under Section 305 of
the Internal Revenue Code of 1986, as amended (or any comparable provision of
the Internal Revenue Code as hereafter from time to time amended).
In the event holders of at least a majority of the then
outstanding shares of Series A Preferred Stock agree to allow the Corporation to
alter or change the rights, preferences or privileges of the shares of Series A
Preferred Stock, pursuant to subsection (a) above, so as to affect the Series A
Preferred Stock, then the Corporation will deliver notice of such approved
change to the holders of the Series A Preferred Stock that did not agree to such
alteration or change (the "DISSENTING HOLDERS") and Dissenting Holders shall
have the right for a period of thirty (30) days to convert pursuant to the terms
of this Certificate of Designation as they exist prior to such alteration or
change or continue to hold their shares of Series A Preferred Stock.
XI. PRO RATA ALLOCATIONS
The Maximum Share Amount (including any increases thereto)
shall be allocated by the Corporation pro rata among the holders of Series A
Preferred Stock and Series B Preferred Stock based on the number of shares of
Series A Preferred Stock and Series B Preferred Stock issued to each holder.
Each increase to the Maximum Share Amount shall be allocated pro rata among the
holders of Series A Preferred Stock and Series B Preferred Stock based on the
number of shares of Series A Preferred Stock and Series B Preferred Stock held
by each holder at the time of the increase in the Maximum Share Amount. In the
event a holder shall sell or otherwise transfer any of such holder's shares of
Series A Preferred Stock or Series B Preferred Stock, each transferee shall be
allocated a pro rata portion of such transferor's Maximum Share Amount. Any
portion of the Maximum Share Amount which remains allocated to any person or
entity which does not hold any Series A Preferred Stock shall be allocated to
the remaining holders of shares of Series A Preferred Stock, pro rata based on
the number of shares of Series A Preferred Stock then held by such holders.
The Reserved Amount (including any increases thereto) shall be
allocated by the Corporation pro rata among the holders of Series A Preferred
Stock based on the number of shares
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of Series A Preferred Stock issued to each holder. Each increase to the Reserved
Amount shall be allocated pro rata among the holders of Series A Preferred Stock
based on the number of shares of Series A Preferred Stock held by each holder at
the time of the increase in the Reserved Amount. In the event a holder shall
sell or otherwise transfer any of such holder's shares of Series A Preferred
Stock, each transferee shall be allocated a pro rata portion of such
transferor's Reserved Amount. Any portion of the Reserved Amount which remains
allocated to any person or entity which does not hold any Series A Preferred
Stock shall be allocated to the remaining holders of shares of Series A
Preferred Stock, pro rata based on the number of shares of Series A Preferred
Stock then held by such holders.
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<PAGE>
IN WITNESS WHEREOF, this Certificate of Designation is
executed on behalf of the Corporation this 4th day of June, 1999.
PHARMAPRINT INC.
By: /s/ Elliot P. Friedman
--------------------------
Elliot P. Friedman
Chief Executive Officer
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<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series A Preferred Stock)
The undersigned hereby irrevocably elects to convert ______ shares of
Series A Preferred Stock, represented by stock certificate No(s). __________
(the "PREFERRED STOCK CERTIFICATES") into shares of common stock ("COMMON
STOCK") of PharmaPrint Inc., a Delaware corporation (the "CORPORATION")
according to the conditions of the Certificate of Designation of Series A
Preferred Stock, as of the date written below. If securities are to be issued in
the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering herewith such
certificates. No fee will be charged to the Holder for any conversion, except
for transfer taxes, if any. A copy of each Preferred Stock Certificate is
attached hereto (or evidence of loss, theft or destruction thereof).
The Corporation shall electronically transmit the Common Stock issuable
pursuant to this Notice of Conversion to the account of the undersigned or its
nominee with DTC through its Deposit Withdrawal Agent Commission system ("DWAC
TRANSFER").
Name of DTC Prime Broker:
-------------------------
Account Number:
--------------------------------
/_/ In lieu of receiving shares of Common Stock issuable pursuant to this
Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Corporation issue a certificate or certificates for
the number of shares of Common Stock set forth above (which numbers are
based on the Holder's calculation attached hereto) in the name(s)
specified immediately below or, if additional space is necessary, on an
attachment hereto:
Name:
--------------------------------
Address:
--------------------------------
--------------------------------
The undersigned represents and warrants that all offers and sales by
the undersigned of the securities issuable to the undersigned upon conversion of
the Series A Preferred Stock shall be made pursuant to registration of the
securities under the Securities Act of 1933, as amended (the "ACT"), or pursuant
to an exemption from registration under the Act.
Date of Conversion:
--------------------------------
Market Price Days:
-------------------------------
Applicable Conversion Price:
----------------------
Number of Shares of
-------------------------------
Common Stock to be Issued:
------------------------
Signature:
-----------------------------------------
Name:
---------------------------------------------
Address:
------------------------------------------
------------------------------------------
*The Corporation is not required to issue shares of Common Stock until the
original Series A Preferred Stock Certificate(s) (or evidence of loss, theft or
destruction thereof) to be converted are received by the Corporation or its
Transfer Agent. The Corporation shall issue and deliver shares of Common Stock
to an overnight courier not later than two (2) business days following receipt
of the original Preferred Stock Certificate(s) to be converted, and shall make
payments pursuant to the Certificate of Designation for the number of business
days such issuance and delivery is late.
<PAGE>
EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of June 4,
1999, by and among PharmaPrint Inc., a Delaware corporation, with headquarters
located at 2600 Michelson Drive, Suite 1600, Irvine, California 92612
("COMPANY"), and each of the purchasers set forth on the signature pages hereto
(the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 under Regulation D ("REGULATION D") as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 ACT");
B. The Company has authorized two new series of preferred stock, the
first designated as Series A Convertible Preferred Stock (the "SERIES A
PREFERRED STOCK"), having the rights, preferences and privileges set forth in
the Certificate of Designations, Rights and Preferences attached hereto as
EXHIBIT "A-1" (the "SERIES A CERTIFICATE OF DESIGNATION") and the second
designated as Series B Convertible Preferred Stock (the "SERIES B PREFERRED
STOCK"), having the rights, preferences and privileges set forth in the
Certificate of Designations, Rights and Preferences attached hereto as EXHIBIT
"A-2" (the "SERIES B CERTIFICATE OF DESIGNATION" and, collectively with the
Series A Certificate of Designation, the "CERTIFICATES OF DESIGNATION") ;
C. The Preferred Shares (as defined below) are convertible into shares
of common stock, $.001 par value per share, of the Company (the "COMMON STOCK"),
upon the terms and subject to the limitations and conditions set forth in the
Certificates of Designation;
D. The Buyers desire to purchase and the Company desires to issue and
sell, upon the terms and conditions set forth in this Agreement, (i) an
aggregate of Ten Thousand (10,000) shares of Series A Preferred Stock (together
with any shares of Series A Preferred Stock issued in replacement thereof or as
a dividend thereon or otherwise with respect thereto in accordance with the
terms thereof, the "SERIES A PREFERRED SHARES") and Two Thousand (2,000) shares
of Series B Preferred Stock (together with any shares of Series B Preferred
Stock issued in replacement thereof or as a dividend thereon or otherwise with
respect thereto in accordance with the terms thereof, the "SERIES B PREFERRED
SHARES" and, collectively with the Series A Preferred Shares, the "PREFERRED
SHARES"), for an aggregate purchase price of Twelve Million Dollars
($12,000,000);
<PAGE>
E. Each Buyer wishes to purchase, upon the terms and conditions stated
in this Agreement, the number of Preferred Shares as is set forth immediately
below its name on the signature pages hereto;
F. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as EXHIBIT "B" (the "REGISTRATION RIGHTS
AGREEMENT"), pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws; and
NOW THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
a. PURCHASE OF PREFERRED SHARES. On each Closing Date
(as defined below), the Company shall issue and sell to each Buyer and each
Buyer severally agrees to purchase from the Company such number of Preferred
Shares for the aggregate purchase price with respect to such applicable Closing
(as defined below) as is set forth immediately below such Buyer's name on the
signature pages hereto. The issuance, sale and purchase of the Preferred Shares
shall take place at two (2) closings (each a "CLOSING"), the first of which is
hereinafter referred to as the "FIRST CLOSING" and the second of which is
referred to as the "SECOND CLOSING." The aggregate number of Series A Preferred
Shares to be issued at the First Closing is Ten Thousand (10,000) for an
aggregate purchase price of Ten Million Dollars ($10,000,000) (the "FIRST
CLOSING PURCHASE PRICE") and the aggregate number of Series B Preferred Shares
to be issued at the Second Closing is Two Thousand (2,000) for an aggregate
purchase price of Two Million Dollars ($2,000,000) (the "SECOND CLOSING PURCHASE
PRICE" and, collectively with the First Closing Purchase Price, the "PURCHASE
PRICE"). Subject to the satisfaction (or waiver) of the conditions thereto set
forth in Section 6 and Section 7 below, (i) at the First Closing, the Company
shall issue and sell to each Buyer and each Buyer shall purchase from the
Company the number of Series A Preferred Shares which such Buyer is purchasing
hereunder and as set forth below such Buyer's name on the signature pages hereto
and (ii) at the Second Closing, the Company shall issue and sell to each Buyer
and each Buyer shall purchase from the Company the number of Series B Preferred
Shares as is set forth below such Buyer's name on the signature pages hereto.
b. FORM OF PAYMENT. On each Closing Date (as defined
below), (i) each Buyer shall pay the applicable Purchase Price for the Preferred
Shares to be issued and sold to it at the applicable Closing by wire transfer of
immediately available funds to the Company, in accordance with the Company's
written wiring instructions, against delivery of duly executed certificates
representing such number of Preferred Shares which such Buyer is purchasing and
(ii) the Company shall deliver such certificates duly executed on behalf of the
Company, to the Buyer, against delivery of such applicable Purchase Price.
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<PAGE>
c. CLOSING DATE. Subject to the satisfaction (or
waiver) of the conditions thereto set forth in Section 6 and Section 7 below,
the date and time of the issuance and sale of the Preferred Shares pursuant to
this Agreement (the "CLOSING DATE") shall be (i) in the case of the First
Closing, 12:00 noon Eastern Standard Time on June 4, 1999 and (ii) in the case
of Second Closing, as soon as practicable (but no later than 12:00 noon Eastern
Standard Time on the fifth (5th) business day) following the satisfaction (or
waiver) of the conditions to the Second Closing set forth in Sections 6 and 7
below (but in no event later than the fifth (5th) business day following the
satisfaction of the condition set forth in Section 7(b)(ii)) or, in each case,
such other mutually agreed upon time. Each closing shall occur on the applicable
Closing Date at the offices of Morgan, Lewis & Bockius LLP, 1701 Market Street,
Philadelphia, Pennsylvania 19103, or at such other location as may be agreed to
by the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer
severally (and not jointly) represents and warrants to the Company solely as to
such Buyer that:
a. INVESTMENT PURPOSE. As of the date hereof, the
Buyer is purchasing the Preferred Shares and the shares of Common Stock issuable
upon conversion of or otherwise pursuant to the Preferred Shares (including,
without limitation, such additional shares of Common Stock as are issuable as a
result of the events described in Articles V, VI.D(b) or VI.E of the
Certificates of Designation and Section 2(c) of the Registration Rights
Agreement) (such shares of Common Stock being collectively referred to herein as
the "CONVERSION SHARES" and, collectively with the Preferred Shares, the
"SECURITIES") for its own account and not with a present view towards the public
sale or distribution thereof, except pursuant to sales registered or exempted
from registration under the 1933 Act; PROVIDED, HOWEVER, that by making the
representations herein, the Buyer does not agree to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.
b. ACCREDITED INVESTOR STATUS. The Buyer is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D (an
"ACCREDITED INVESTOR").
c. RELIANCE ON EXEMPTIONS. The Buyer understands that
the Securities are being offered and sold to it in reliance upon specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and the Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.
d. INFORMATION. The Buyer and its advisors, if any,
have been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities which have been requested by the Buyer or its advisors. The Buyer and
its advisors, if any, have been afforded the opportunity to ask questions of the
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<PAGE>
Company. Neither such inquiries nor any other due diligence investigation
conducted by Buyer or any of its advisors or representatives shall modify, amend
or affect Buyer's right to rely on the Company's representations and warranties
contained in Section 3 below. The Buyer understands that its investment in the
Securities involves a significant degree of risk.
e. GOVERNMENTAL REVIEW. The Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed upon or made any recommendation or endorsement of the
Securities.
f. TRANSFER OR RE-SALE. The Buyer understands that
(i) except as provided in the Registration Rights Agreement, the sale or re-sale
of the Securities has not been and is not being registered under the 1933 Act or
any applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the 1933 Act, (b) the Buyer shall have delivered to the Company
an opinion of counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to the effect that
the Securities to be sold or transferred may be sold or transferred pursuant to
an exemption from such registration, (c) the Securities are sold or transferred
to an "affiliate" (as defined in Rule 144 promulgated under the 1933 Act (or a
successor rule) ("RULE 144")) of the Buyer who agrees to sell or otherwise
transfer the Securities only in accordance with this Section 2(f) and who is an
Accredited Investor or (d) the Securities are sold pursuant to Rule 144; (ii)
any sale of such Securities made in reliance on Rule 144 may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any re-sale of such Securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder (in each case, other than pursuant to the Registration Rights
Agreement). Notwithstanding the foregoing or anything else contained herein to
the contrary, the Securities may be pledged as collateral in connection with a
BONA FIDE margin account or other lending arrangement.
g. LEGENDS. The Buyer understands that the Preferred
Shares and, until such time as the Conversion Shares have been registered under
the 1933 Act as contemplated by the Registration Rights Agreement or otherwise
may be sold pursuant to Rule 144 without any restriction as to the number of
securities as of a particular date that can then be immediately sold, the
Conversion Shares, may bear a restrictive legend in substantially the following
form (and a stop-transfer order may be placed against transfer of the
certificates for such Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities may not be sold, transferred or assigned in the
absence of an effective registration statement for the
securities under said Act, or an opinion of counsel, in form,
substance and scope customary for opinions of counsel in
comparable transactions, that
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<PAGE>
registration is not required under said Act or unless sold
pursuant to Rule 144 under said Act."
The legend set forth above shall be removed and the Company
shall issue a certificate without such legend to the holder of any Security upon
which it is stamped, if, unless otherwise required by applicable state
securities laws, (a) such Security is registered for sale under an effective
registration statement filed under the 1933 Act or otherwise may be sold
pursuant to Rule 144 without any restriction as to the number of securities as
of a particular date that can then be immediately sold, or (b) such holder
provides the Company with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions, to the effect that
a public sale or transfer of such Security may be made without registration
under the 1933 Act and such sale or transfer is effected or (c) such holder
provides the Company with reasonable assurances that such Security can be sold
pursuant to Rule 144. The Buyer agrees to sell all Securities, including those
represented by a certificate(s) from which the legend has been removed, in
compliance with applicable prospectus delivery requirements, if any.
h. AUTHORIZATION; ENFORCEMENT. This Agreement and the
Registration Rights Agreement have been duly and validly authorized. This
Agreement has been duly executed and delivered on behalf of the Buyer, and this
Agreement constitutes, and upon execution and delivery by the Buyer of the
Registration Rights Agreement, such agreement will constitute, valid and binding
agreements of the Buyer enforceable in accordance with their terms.
i. RESIDENCY. The Buyer is a resident of the
jurisdiction set forth immediately below such Buyer's name on the signature
pages hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Buyer that:
a. ORGANIZATION AND QUALIFICATION. The Company and
each of its Subsidiaries (as defined below), if any, is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated, with full power and authority
(corporate and other) to own, lease, use and operate its properties and to carry
on its business as and where now owned, leased, used, operated and conducted.
SCHEDULE 3(A) sets forth a list of all of the Subsidiaries of the Company and
the jurisdiction in which each is incorporated. The Company and each of its
Subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which its ownership or use of property or
the nature of the business conducted by it makes such qualification necessary
except where the failure to be so qualified or in good standing would not have a
Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means any material adverse
effect on (i) the Securities, (ii) the business, operations, assets, financial
condition or prospects of the Company and its Subsidiaries, if any, taken as a
whole, or (iii) on the transactions contemplated hereby or by the agreements or
instruments to be entered into in connection herewith. "SUBSIDIARIES" means any
corporation or other organization, whether incorporated or
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unincorporated, in which the Company owns, directly or indirectly, any equity or
other ownership interest.
b. AUTHORIZATION; ENFORCEMENT. (i) The Company has
all requisite corporate power and authority to file and perform its obligations
under the Certificates of Designation and to enter into and perform this
Agreement and the Registration Rights Agreement and to consummate the
transactions contemplated hereby and thereby and to issue the Securities, in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
this Agreement and the Registration Rights Agreement by the Company and the
consummation by it of the transactions contemplated hereby and thereby
(including without limitation, the issuance of the Preferred Shares and the
issuance and reservation for issuance of the Conversion Shares issuable upon
conversion of or otherwise pursuant to the Preferred Shares) have been duly
authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board of Directors, or its stockholders is
required, (iii) this Agreement has been duly executed and delivered by the
Company, and (iv) this Agreement constitutes, and upon execution and delivery by
the Company of the Registration Rights Agreement and upon execution and filing
of the Certificates of Designation, each of such agreements and instruments will
constitute, a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms.
c. CAPITALIZATION. As of the date hereof, the
authorized capital stock of the Company consists of (i) 24,000,000 shares of
Common Stock of which 13,889,919 shares are issued and outstanding, 2,646,064
shares are reserved for issuance pursuant to the Company's stock option plans,
561,500 shares are reserved for issuance pursuant to securities (other than the
Preferred Shares) exercisable for, or convertible into or exchangeable for
shares of Common Stock and 2,776,594 shares are reserved for issuance upon
conversion of the Preferred Shares (subject to adjustment pursuant to the
Company's covenant set forth in Section 4(h) below); and (ii) 1,000,000 shares
of preferred stock, none of which are issued and outstanding and 10,000 of which
are designated as the Series A Preferred Shares. All of such outstanding shares
of capital stock are, or upon issuance will be, duly authorized, validly issued,
fully paid and nonassessable. No shares of capital stock of the Company are
subject to preemptive rights or any other similar rights of the stockholders of
the Company or any liens or encumbrances imposed through the actions or failure
to act of the Company. Except as disclosed in SCHEDULE 3(C), as of the effective
date of this Agreement, (i) there are no outstanding options, warrants, scrip,
rights to subscribe for, puts, calls, rights of first refusal, agreements,
understandings, claims or other commitments or rights of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for any shares of capital stock of the Company or any of its Subsidiaries, or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
Subsidiaries, (ii) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
its or their securities under the 1933 Act (except the Registration Rights
Agreement) and (iii) there are no anti-dilution or price adjustment provisions
contained in any security issued by the Company (or in any agreement providing
rights to security holders) that will be triggered by the issuance of the
Preferred Shares or the Conversion Shares. The Company has furnished to the
Buyer true and correct copies
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of the Company's Certificate of Incorporation as in effect on the date hereof
("CERTIFICATE OF INCORPORATION"), the Company's By-laws, as in effect on the
date hereof (the "BY-LAWS"), and the terms of all securities convertible into or
exercisable for Common Stock of the Company and the material rights of the
holders thereof in respect thereto. The Company shall provide the Buyer with a
written update of this representation signed by the Company's Chief Executive or
Chief Financial Officer on behalf of the Company as of the Closing Date.
d. ISSUANCE OF SHARES. The Preferred Shares are duly
authorized and, upon issuance in accordance with the terms of this Agreement,
will be validly issued, fully paid and non-assessable, and free from all taxes,
liens, claims and encumbrances with respect to the issue thereof and shall not
be subject to preemptive rights or other similar rights of stockholders of the
Company and will not impose personal liability upon the holder thereof. The
Conversion Shares are duly authorized and reserved for issuance, and, upon
conversion of the Preferred Shares in accordance with the terms thereof, will be
validly issued, fully paid and non-assessable, and free from all taxes, liens,
claims and encumbrances and will not be subject to preemptive rights or other
similar rights of stockholders of the Company and will not impose personal
liability upon the holder thereof.
e. ACKNOWLEDGMENT OF DILUTION. The Company
understands and acknowledges the potentially dilutive effect to the Common Stock
upon the issuance of the Conversion Shares upon conversion of or otherwise
pursuant to the Preferred Shares. The Company's directors and executive officers
have studied and fully understand the nature of the Securities being sold
hereunder. The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of the Preferred Shares in accordance with
this Agreement and the Certificates of Designation is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Company. Taking the foregoing into
account, the Company's Board of Directors has determined, in its good faith
business judgment, that the issuance of the Securities hereunder and under the
Certificates of Designation and the consummation of the transactions
contemplated hereby and thereby are in the best interest of the Company and its
stockholders.
f. SERIES OF PREFERRED STOCK. The terms,
designations, powers, preferences and relative, participating and optional or
special rights, and the qualifications, limitations and restrictions of each
series of preferred stock of the Company (other than the Preferred Shares) are
as stated in the Certificate of Incorporation, filed on or prior to the date
hereof, and the Bylaws. The terms, designations, powers, preferences and
relative, participating and optional or special rights, and the qualifications,
limitations and restrictions of the Preferred Shares are as stated in the
Certificates of Designation.
g. NO CONFLICTS. The execution, delivery and
performance of this Agreement and the Registration Rights Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the filing of the
Certificates of Designation and the issuance and reservation for issuance, as
applicable,
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of the Preferred Shares and Conversion Shares) will not (i) conflict with or
result in a violation of any provision of the Certificate of Incorporation or
By-laws or (ii) violate or conflict with, or result in a breach of any provision
of, or constitute a default (or an event which with notice or lapse of time or
both could become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture, patent,
patent license or instrument to which the Company or any of its Subsidiaries is
a party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations
and regulations of any self-regulatory organizations to which the Company or its
securities are subject) applicable to the Company or any of its Subsidiaries or
by which any property or asset of the Company or any of its Subsidiaries is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). Neither the
Company nor any of its Subsidiaries is in violation of its Certificate of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its Subsidiaries is in default (and no event has occurred which with
notice or lapse of time or both could put the Company or any of its Subsidiaries
in default) under, and neither the Company nor any of its Subsidiaries has taken
any action or failed to take any action that would give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party or by which any property or assets of the Company or any of its
Subsidiaries is bound or affected, except for possible defaults as would not,
individually or in the aggregate, have a Material Adverse Effect. The businesses
of the Company and its Subsidiaries, if any, are not being conducted, and shall
not be conducted so long as a Buyer owns any of the Securities, in violation of
any law, ordinance or regulation of any governmental entity. Except as
specifically contemplated by this Agreement and as required under the 1933 Act
and any applicable state securities laws, the Company is not required to obtain
any consent, authorization or order of, or make any filing or registration with,
any court, governmental agency, regulatory agency, self regulatory organization
or stock market or any third party in order for it to execute, deliver or
perform any of its obligations under this Agreement or the Registration Rights
Agreement in accordance with the terms hereof or thereof or to issue and sell
the Preferred Shares in accordance with the terms hereof and to issue the
Conversion Shares upon conversion of or otherwise pursuant to the Preferred
Shares. Except as disclosed in SCHEDULE 3(G), all consents, authorizations,
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on or prior to
the date hereof. The Company is not in violation of the listing requirements of
the Nasdaq National Market ("NASDAQ") and does not reasonably anticipate that
the Common Stock will be delisted by the Nasdaq in the foreseeable future. The
Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.
h. SEC DOCUMENTS; FINANCIAL STATEMENTS. Since March
31, 1996, the Company has timely filed all reports, schedules, forms, statements
and other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"1934 ACT") (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents (other than exhibits to such documents) incorporated by reference
therein, being hereinafter referred to herein
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as the "SEC DOCUMENTS"). The Company has made available to each Buyer true and
complete copies of the SEC Documents, except for such exhibits and incorporated
documents. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. None of the statements made in any such SEC Documents is, or has
been, required to be amended or updated under applicable law (except for such
statements as have been amended or updated in subsequent filings prior to the
date hereof). As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with United States generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the consolidated financial position of the Company and
its consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments).
Except as set forth in the financial statements of the Company included in the
SEC Documents, the Company has no liabilities, contingent or otherwise, other
than (i) liabilities incurred in the ordinary course of business subsequent to
March 31, 1998 and (ii) obligations under contracts and commitments incurred in
the ordinary course of business and not required under generally accepted
accounting principles to be reflected in such financial statements, which,
individually or in the aggregate, are not material to the financial condition or
operating results of the Company.
i. ABSENCE OF CERTAIN CHANGES. Since March 31, 1998
and except as set forth in the SEC Documents filed after such date, there has
been no material adverse change and no material adverse development in the
assets, liabilities, business, properties, operations, financial condition or
results of operations of the Company or any of its Subsidiaries.
j. ABSENCE OF LITIGATION. There is no action, suit,
claim, proceeding, inquiry or investigation before or by any court, public
board, government agency, self-regulatory organization or body pending or, to
the knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company or any of its Subsidiaries, or their officers or directors
in their capacity as such, that could have a Material Adverse Effect. SCHEDULE
3(J) contains a complete list and summary description of any pending or
threatened proceeding against or affecting the Company or any of its
Subsidiaries, without regard to whether it would have a Material Adverse Effect.
The Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.
k. PATENTS, COPYRIGHTS, ETC.
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(i) The Company and each of its Subsidiaries
owns or possesses the requisite licenses or rights to use all patents, patent
applications, patent rights, inventions, know-how, trade secrets, trademarks,
trademark applications, service marks, service names, trade names and copyrights
("INTELLECTUAL PROPERTY") necessary to enable it to conduct its business as now
operated (and, except as set forth in SCHEDULE 3(K) hereof, to the best of the
Company's knowledge, as presently contemplated to be operated in the future);
there is no claim or action by any person pertaining to, or proceeding pending,
or to the Company's knowledge threatened, which challenges the right of the
Company or of a Subsidiary with respect to any Intellectual Property necessary
to enable it to conduct its business as now operated (and, except as set forth
in SCHEDULE 3(K) hereof, to the best of the Company's knowledge, as presently
contemplated to be operated in the future); to the best of the Company's
knowledge, the Company's or its Subsidiaries' current and intended products,
services and processes do not infringe on any Intellectual Property or other
rights held by any person; and the Company is unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company and
each of its Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of their Intellectual Property.
(ii) All of the Company's computer software
and computer hardware, and other similar or related items of automated,
computerized or software systems that are used or relied on by the Company in
the conduct of its business or that were, or currently are being, sold or
licensed by the Company to customers (collectively, "INFORMATION TECHNOLOGY"),
are Year 2000 Compliant. For purposes of this Agreement, the term "YEAR 2000
COMPLIANT" means, with respect to the Company's Information Technology, that the
Information Technology is designed to be used prior to, during and after the
calendar Year 2000 A.D., and the Information Technology used during each such
time period will accurately receive, provide and process date and time data
(including, but not limited to, calculating, comparing and sequencing) from,
into and between the 20th and 21st centuries, including the years 1999 and 2000,
and leap-year calculations, and will not malfunction, cease to function, or
provide invalid or incorrect results as a result of the date or time data, to
the extent that other information technology, used in combination with the
Information Technology, properly exchanges date and time data with it. The
Company has delivered to the Buyer true and correct copies of all analyses,
reports, studies and similar written information, whether prepared by the
Company or another party, relating to whether the Information Technology is Year
2000 Compliant.
l. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the
Company nor any of its Subsidiaries is subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or regulation
which in the judgment of the Company's officers has or is expected in the future
to have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is a party to any contract or agreement which in the judgment of
the Company's officers has or is expected to have a Material Adverse Effect.
m. TAX STATUS. Except as set forth on SCHEDULE 3(M),
the Company and each of its Subsidiaries has made or filed all federal, state
and foreign income and all other tax returns, reports and declarations required
by any jurisdiction to which it is subject (unless and only
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to the extent that the Company and each of its Subsidiaries has set aside on its
books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provisions reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim. The Company has not executed a
waiver with respect to the statute of limitations relating to the assessment or
collection of any foreign, federal, state or local tax. Except as set forth on
SCHEDULE 3(M), none of the Company's tax returns is presently being audited by
any taxing authority.
n. CERTAIN TRANSACTIONS. Except as set forth on
SCHEDULE 3(N) and except for arm's length transactions pursuant to which the
Company or any of its Subsidiaries makes payments in the ordinary course of
business upon terms no less favorable than the Company or any of its
Subsidiaries could obtain from third parties and other than the grant of stock
options disclosed on SCHEDULE 3(C), none of the officers, directors, or
employees of the Company is presently a party to any transaction with the
Company or any of its Subsidiaries (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
o. DISCLOSURE. All information relating to or
concerning the Company or any of its Subsidiaries set forth in this Agreement
and provided to the Buyers pursuant to Section 2(d) hereof and otherwise in
connection with the transactions contemplated hereby is true and correct in all
material respects and the Company has not omitted to state any material fact
necessary in order to make the statements made herein or therein, in light of
the circumstances under which they were made, not misleading. No event or
circumstance has occurred or exists with respect to the Company or any of its
Subsidiaries or its or their business, properties, prospects, operations or
financial conditions, which has not been publicly announced or disclosed but,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company (assuming for this purpose that the Company's
reports filed under the 1934 Act are being incorporated into an effective
registration statement filed by the Company under the 1933 Act).
p. ACKNOWLEDGMENT REGARDING BUYERS' PURCHASE OF
SECURITIES. The Company acknowledges and agrees that the Buyers are acting
solely in the capacity of arm's length purchasers with respect to this Agreement
and the transactions contemplated hereby. The Company further acknowledges that
no Buyer is acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement and the transactions
contemplated hereby and that any statement made by any Buyer or any of their
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is not advice or a
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recommendation and is merely incidental to the Buyers' purchase of the
Securities and has not been publicly relied upon by the Company, its officers or
its directors in any way. The Company further represents to each Buyer that the
Company's decision to enter into this Agreement has been based solely on the
independent evaluation of the Company and its representatives.
q. NO INTEGRATED OFFERING. Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales of any security or solicited any
offers to buy any security under circumstances that would require registration
under the 1933 Act of the issuance of the Securities to the Buyers. The issuance
of the Securities to the Buyers will not be integrated with any other issuance
of the Company's securities (past, current or future) for purposes of any
stockholder approval provisions applicable to the Company or its securities.
r. NO BROKERS. The Company has taken no action which
would give rise to any claim by any person for brokerage commissions, finder's
fees or similar payments relating to this Agreement or the transactions
contemplated hereby.
s. PERMITS; COMPLIANCE. The Company and each of its
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "COMPANY
PERMITS"), and there is no action pending or, to the knowledge of the Company,
threatened regarding suspension or cancellation of any of the Company Permits.
Neither the Company nor any of its Subsidiaries is in conflict with, or in
default or violation of, any of the Company Permits, except for any such
conflicts, defaults or violations which, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect. Since March 31,
1998, neither the Company nor any of its Subsidiaries has received any
notification with respect to possible conflicts, defaults or violations of
applicable laws, except for notices relating to possible conflicts, defaults or
violations, which conflicts, defaults or violations would not have a Material
Adverse Effect.
t. ENVIRONMENTAL MATTERS.
(i) Except as set forth in SCHEDULE 3(T),
there are, to the Company's knowledge, with respect to the Company or any of its
Subsidiaries or any predecessor of the Company, no past or present violations of
Environmental Laws (as defined below), releases of any material into the
environment, actions, activities, circumstances, conditions, events, incidents,
or contractual obligations which may give rise to any common law environmental
liability or any liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 or similar federal, state, local or
foreign laws and neither the Company nor any of its Subsidiaries has received
any notice with respect to any of the foregoing, nor is any action pending or,
to the Company's knowledge, threatened in connection with any of the foregoing.
The term "ENVIRONMENTAL LAWS" means all federal, state, local or foreign laws
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface
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water, groundwater, land surface or subsurface strata), including, without
limitation, laws relating to emissions, discharges, releases or threatened
releases of chemicals, pollutants contaminants, or toxic or hazardous substances
or wastes (collectively, "HAZARDOUS MATERIALS") into the environment, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were
stored, used or disposed of in compliance with applicable law, no Hazardous
Materials are contained on or about any real property currently owned, or to the
best of the Company's knowledge leased or used, by the Company or any of its
Subsidiaries, and no Hazardous Materials were released on or about any real
property previously owned, or to the Company's knowledge leased or used, by the
Company or any of its Subsidiaries during the period the property was owned,
leased or used by the Company or any of its Subsidiaries, except in the normal
course of the Company's or any of its Subsidiaries' business.
(iii) Except as set forth in SCHEDULE 3(T),
there are no underground storage tanks on or under any real property owned, or
to the Company's knowledge leased or used, by the Company or any of its
Subsidiaries that are not in compliance with applicable law.
u. TITLE TO PROPERTY. The Company and its
Subsidiaries have good and marketable title in fee simple to all real property
and good and marketable title to all personal property owned by them which is
material to the business of the Company and its Subsidiaries, in each case free
and clear of all liens, encumbrances and defects except such as are described in
SCHEDULE 3(U) or such as would not have a Material Adverse Effect. Any real
property and facilities held under lease by the Company and its Subsidiaries are
held by them under valid, subsisting and enforceable leases with such exceptions
as would not have a Material Adverse Effect.
v. INSURANCE. The Company and each of its
Subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as management of the Company
believes to be prudent and customary in the businesses in which the Company and
its Subsidiaries are engaged. Neither the Company nor any such Subsidiary has
any reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect.
w. INTERNAL ACCOUNTING CONTROLS. The Company and each
of its Subsidiaries maintain a system of internal accounting controls
sufficient, in the judgment of the Company's board of directors, to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization and (iv) the recorded accountability
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for assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
x. FOREIGN CORRUPT PRACTICES. Neither the Company,
nor any of its Subsidiaries, nor any director, officer, agent, employee or other
person acting on behalf of the Company or any Subsidiary has, in the course of
his actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977; or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.
y. SOLVENCY. The Company (both before and after
giving effect to the transactions contemplated by this Agreement) is solvent
(I.E., its assets have a fair market value in excess of the amount required to
pay its probable liabilities on its existing debts as they become absolute and
matured) and currently the Company has no information that would lead it to
reasonably conclude that the Company would not have the ability to, nor does it
intend to take any action that would impair its ability to, pay its debts from
time to time incurred in connection therewith as such debts mature. The Company
did not receive a qualified opinion from its auditors with respect to its most
recent fiscal year end and does not anticipate or know of any basis upon which
its auditors might issue a qualified opinion in respect of its current fiscal
year.
z. NO INVESTMENT COMPANY. The Company is not, and
upon the issuance and sale of the Securities as contemplated by this Agreement
and the Certificates of Designation will not be an "investment company" required
to be registered under the Investment Company Act of 1940 (an "INVESTMENT
COMPANY"). The Company is not controlled by an Investment Company.
4. COVENANTS.
a. BEST EFFORTS. The parties shall use their best
efforts to satisfy timely each of the conditions described in Section 6 and 7 of
this Agreement; PROVIDED, HOWEVER, that the Company shall have no obligation to
satisfy the condition described in Section 7(b)(iii).
b. FORM D; BLUE SKY LAWS. The Company agrees to file
a Form D with respect to the Securities as required under Regulation D and to
provide a copy thereof to each Buyer promptly after such filing. The Company
shall, on or before the Closing Date with respect to each Closing, take such
action as the Company shall reasonably determine is necessary to qualify the
Securities for sale to the Buyers at the applicable Closing pursuant to this
Agreement under applicable securities or "blue sky" laws of the states of the
United States (or to obtain an exemption
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from such qualification), and shall provide evidence of any such action so taken
to each Buyer on or prior to the Closing Date with respect to each Closing.
c. REPORTING STATUS; ELIGIBILITY TO USE FORM S-3. The
Company's Common Stock is registered under Section 12(g) of the 1934 Act. So
long as any Buyer beneficially owns any of the Securities, the Company shall
timely file all reports required to be filed with the SEC pursuant to the 1934
Act, and the Company shall not terminate its status as an issuer required to
file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would permit such termination. The Company currently
meets, and will take all necessary action to continue to meet, the "registrant
eligibility" requirements set forth in the general instructions to Form S-3.
d. USE OF PROCEEDS. The Company shall use the
proceeds from the sale of the Preferred Shares in the manner set forth in
SCHEDULE 4(D) attached hereto and made a part hereof and, except as set forth in
SCHEDULE 4(D), shall not, directly or indirectly, use such proceeds for any loan
to or investment in any other corporation, partnership, enterprise or other
person (except in connection with its currently existing direct or indirect
Subsidiaries).
e. ADDITIONAL EQUITY CAPITAL; RIGHT OF FIRST REFUSAL.
Subject to the exceptions described below, the Company will not, without the
prior written consent of a majority-in-interest of the Buyers, negotiate or
contract with any party to obtain additional equity or equity-equivalent
financing (including debt financing with an equity component) that involves (A)
the issuance of Common Stock (whether upon conversion or exercise of a security
convertible into or exercisable for Common Stock ("CONVERTIBLE SECURITIES") or
otherwise) at a discount to the market price of the Common Stock on the date of
issuance thereof or, in the case of Convertible Securities, the date of issuance
of such Convertible Securities (in each case taking into account the value of
any warrants or options to acquire Common Stock issued in connection therewith)
or (B) the issuance of Convertible Securities that are convertible into or
exercisable for an indeterminate number of shares of Common Stock or where the
issuance price of the Common Stock upon conversion or exercise of such
Convertible Securities (including, based upon any conversion, exchange or reset
formula) changes at any time after the date of issuance of such Convertible
Securities, during the period (the "LOCK-UP PERIOD") beginning on the Closing
Date and ending on the date which is one hundred eighty (180) days from the date
the Registration Statement (as defined in the Registration Rights Agreement) is
declared effective (plus any days in which sales cannot be made thereunder). In
addition, subject to the exceptions described below, the Company will not
negotiate or contract with any party to obtain equity or equity-equivalent
financing (including debt financing with an equity component) ("FUTURE
OFFERINGS") during the period beginning on the Closing Date and ending one
hundred eighty-five (185) days after the end of the Lock-up Period, unless it
shall have first delivered to each Buyer, at least fifteen (15) business days
prior to offering such Future Offering to any other Person (as defined in
Article IV.B of the Certificates of Designation), written notice describing the
proposed Future Offering, including the terms and conditions thereof and
proposed definitive documentation to be entered into in connection therewith,
and providing each Buyer an option during the ten (10) day period following
delivery of such notice to purchase its pro rata share
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(based on the ratio that the number of Preferred Shares purchased by it
hereunder bears to the aggregate number of Preferred Shares purchased hereunder)
of the securities being offered in the Future Offering on the same terms as
contemplated by such Future Offering (the limitations referred to in this
sentence and the preceding sentence are collectively referred to as the "CAPITAL
RAISING LIMITATIONS"). In the event the terms and conditions of a proposed
Future Offering are amended in any respect after delivery of the notice to the
Buyers concerning the proposed Future Offering, the Company shall deliver a new
notice to each Buyer describing the amended terms and conditions of the proposed
Future Offering and each Buyer thereafter shall have an option during the ten
(10) day period following delivery of such new notice to purchase its pro rata
share of the securities being offered on the same terms as contemplated by such
proposed Future Offering, as amended. The foregoing sentence shall apply to
successive amendments to the terms and conditions of any proposed Future
Offering. The Capital Raising Limitations shall not apply to any transaction
involving (i) issuances of securities in a firm commitment underwritten public
offering (excluding a continuous offering pursuant to Rule 415 under the 1933
Act) or (ii) issuances of securities as consideration for a merger,
consolidation or purchase of assets, or in connection with any strategic
partnership or joint venture (the primary purpose of which is not to raise
equity capital), or in connection with the disposition or acquisition of a
business, product or license by the Company. The Capital Raising Limitations
also shall not apply to the issuance of securities upon exercise or conversion
of the Company's options, warrants or other convertible securities outstanding
as of the date hereof or to the grant of additional options or warrants, or the
issuance of additional securities, under any Company stock option or restricted
stock plan approved by the stockholders of the Company.
f. EXPENSES. The Company shall reimburse Rose Glen
Capital Management, L.P. ("ROSE GLEN") for all expenses incurred by it in
connection with the negotiation, preparation, execution, delivery and
performance of this Agreement and the other agreements to be executed in
connection herewith, including, without limitation, attorneys' and consultants'
fees and expenses and travel expenses. The Company's obligation to reimburse
Rose Glen's expenses under this Section 4(f) shall be limited to Thirty Thousand
Dollars ($30,000) of which Ten Thousand Dollars ($10,000) was advanced
previously.
g. FINANCIAL INFORMATION. The Company agrees to send
the following reports to each Buyer until such Buyer transfers, assigns, or
sells all of the Securities: (i) within ten (10) business days after the filing
with the SEC, a copy of its Annual Report on Form 10-KSB, its Quarterly Reports
on Form 10-QSB and any Current Reports on Form 8-K; (ii) within one (1) business
day after release, copies of all press releases issued by the Company or any of
its Subsidiaries; and (iii) contemporaneously with the making available or
giving to the stockholders of the Company, copies of any notices or other
information the Company makes available or gives to such stockholders.
h. RESERVATION OF SHARES. The Company shall at all
times have authorized, and reserved for the purpose of issuance, a sufficient
number of shares of Common Stock to provide for the full conversion of the
outstanding Preferred Shares and issuance of the Conversion
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Shares in connection therewith (based on the lesser of the Variable Conversion
Price (as defined in the Certificates of Designation) in effect from time to
time and the Fixed Conversion Price (as defined in the Certificates of
Designation) in effect from time to time) and as otherwise required by the
Certificates of Designation; PROVIDED, HOWEVER, that until a Share Limit Waiver
(as defined in the Certificates of Designation, a "SHARE LIMIT WAIVER") is
delivered by the Company following the satisfaction of the conditions contained
in clause (1) of Article VI.A(b) of the Certificates of Designation, in no event
shall the Company be required to reserve a number of shares of Common Stock
greater than the Maximum Share Amount (as defined in the Certificates of
Designation). The Company shall not reduce the number of shares of Common Stock
reserved for issuance upon conversion of or otherwise pursuant to the Preferred
Shares without the consent of each Buyer. Subject to the proviso contained in
the first sentence of this Section 4(h), the Company shall use its best efforts
at all times to maintain the number of shares of Common Stock so reserved for
issuance at no less than two (2) times the number that is then actually issuable
upon full conversion of the Preferred Shares (based on the lesser of the
Variable Conversion Price (as defined in the Certificates of Designation) in
effect from time to time and the Fixed Conversion Price (as defined in the
Certificates of Designation) in effect from time to time). Subject to the
proviso contained in the first sentence of this Section 4(h), if at any time the
number of shares of Common Stock authorized and reserved for issuance is below
the number of Conversion Shares issued and issuable upon conversion of or
otherwise pursuant to the Preferred Shares (based on the lesser of the Market
Price in effect from time to time and the Fixed Conversion in effect from time
to time Price (each as defined in the Certificates of Designation)), the Company
will promptly take all corporate action necessary to authorize and reserve a
sufficient number of shares, including, without limitation, calling a special
meeting of stockholders to authorize additional shares to meet the Company's
obligations under this Section 4(h), in the case of an insufficient number of
authorized shares, and using its best efforts to obtain stockholder approval of
an increase in such authorized number of shares.
i. LISTING. The Company shall promptly secure the
listing of the Conversion Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and, so long as any Buyer owns
any of the Securities shall maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all Conversion Shares from time to
time issuable upon conversion of or otherwise pursuant to the Preferred Shares.
The Company will obtain and, so long as any Buyer owns any of the Securities,
maintain the listing and trading of its Common Stock on Nasdaq, the Nasdaq
SmallCap Market ("NASDAQ SMALLCAP"), the New York Stock Exchange ("NYSE"), or
the American Stock Exchange ("AMEX") and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the National Association of Securities Dealers ("NASD") and such exchanges, as
applicable. The Company shall promptly provide to each Buyer copies of any
notices it receives from Nasdaq and any other exchanges or quotation systems on
which the Common Stock is then listed regarding the continued eligibility of the
Common Stock for listing on such exchanges and quotation systems.
j. CORPORATE EXISTENCE. So long as a Buyer
beneficially owns any Preferred Shares, the Company shall maintain its corporate
existence and shall not merge,
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consolidate or sell all or substantially all of the Company's assets, except in
the event of a merger or consolidation or sale of all or substantially all of
the Company's assets, where (i) the surviving or successor entity (and, if an
entity different from the surviving or successor entity, the entity whose
securities into which the Preferred Shares shall become convertible pursuant to
Article VI.C(b) of the Certificates of Designation) in such transaction assumes
the Company's obligations hereunder and under the agreements and instruments
entered into in connection herewith and (ii) the entity whose securities into
which the Preferred Shares shall become convertible pursuant to Article VI.C(b)
of the Certificates of Designation is a publicly traded corporation whose Common
Stock is listed for trading on Nasdaq, Nasdaq SmallCap, NYSE or AMEX.
k. NO INTEGRATION. The Company shall not make any
offers or sales of any security (other than the Securities) under circumstances
that would require registration of the Securities being offered or sold
hereunder under the 1933 Act or cause the offering of Securities to be
integrated with any other offering of securities by the Company for the purpose
of any stockholder approval provision applicable to the Company or its
securities.
l. TRADING GUIDELINES. So long as a Buyer holds
Preferred Shares, such Buyer covenants and agrees that it will conduct all
transactions in the Common Stock in compliance with applicable securities laws
and will not create any daily low trading price in the Common Stock.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue
irrevocable instructions to its transfer agent to issue certificates, registered
in the name of each Buyer or its nominee, for the Conversion Shares in such
amounts as specified from time to time by each Buyer to the Company upon
conversion of the Preferred Shares in accordance with the terms thereof (the
"IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). Prior to registration of the
Conversion Shares under the 1933 Act or the date on which the Conversion Shares
may be sold pursuant to Rule 144 without any restriction as to the number of
securities as of a particular date that can then be immediately sold, all such
certificates shall bear the restrictive legend specified in Section 2(g) of this
Agreement. The Company warrants that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 5, and stop transfer
instructions to give effect to Section 2(f) hereof (in the case of the
Conversion Shares, prior to registration of the Conversion Shares under the 1933
Act or the date on which the Conversion Shares may be sold pursuant to Rule 144
without any restriction as to the number of securities as of a particular date
that can then be immediately sold), will be given by the Company to its transfer
agent and that the Securities shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this Agreement
and the Registration Rights Agreement. Nothing in this Section shall affect in
any way the Buyer's obligations and agreement set forth in Section 2(g) hereof
to comply with all applicable prospectus delivery requirements, if any, upon
re-sale of the Securities. If a Buyer provides the Company with (i) an opinion
of counsel, in form, substance and scope customary for opinions in comparable
transactions, to the effect that a public sale or transfer of such Securities
may be made without registration under the 1933 Act and such sale or transfer is
effected or (ii) the Buyer provides reasonable assurances that the Securities
can be sold pursuant to Rule 144, the Company shall permit
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<PAGE>
the transfer, and, in the case of the Conversion Shares, promptly instruct its
transfer agent to issue one or more certificates, free from any restrictive
legend, in such name and in such denominations as specified by such Buyer.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The
obligation of the Company hereunder to issue and sell the Preferred Shares to a
Buyer at each of the First Closing and the Second Closing is subject to the
satisfaction, at or before the Closing Date in respect of such applicable
Closing, of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion:
a. With respect to the First Closing and the Second
Closing:
(i) The applicable Buyer shall have executed
this Agreement and the Registration Rights Agreement and delivered the same to
the Company.
(ii) The applicable Buyer shall have
delivered the applicable Purchase Price in accordance with Section 1(b) above.
(iii) The Series A Certificate of
Designation shall have been accepted for filing with the Secretary of State of
the State of Delaware.
(iv) The representations and warranties of
the applicable Buyer shall be true and correct in all material respects as of
the date when made and as of the applicable Closing Date as though made at that
time (except for representations and warranties that speak as of a specific
date, which representations and warranties shall be true and correct as of such
date), and the applicable Buyer shall have performed, satisfied and complied in
all material respects with the covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by the applicable
Buyer at or prior to the applicable Closing Date.
(v) No litigation, statute, rule,
regulation, executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or endorsed by or in any court or governmental
authority of competent jurisdiction or any self-regulatory organization having
authority over the matters contemplated hereby which prohibits the consummation
of any of the transactions contemplated by this Agreement.
b. With respect to the Second Closing:
(i) The Series B Certificate of Designation
shall have been accepted for filing with the Secretary of State of the State of
Delaware.
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<PAGE>
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The
obligation of each Buyer hereunder to purchase the Preferred Shares at each of
the First Closing and the Second Closing is subject to the satisfaction, at or
before the Closing Date in respect of such applicable Closing, of each of the
following conditions, provided that these conditions are for such Buyer's sole
benefit and may be waived by such Buyer at any time in its sole discretion:
a. With respect to the First Closing and the Second
Closing:
(i) The Company shall have executed this
Agreement and the Registration Rights Agreement and delivered the same to the
Buyer.
(ii) The Company shall have delivered to
such Buyer duly executed certificates (in such denominations as the Buyer shall
request) representing the Preferred Shares purchased at such Closing in
accordance with Section 1(b) above.
(iii) The Series A Certificate of
Designation shall have been accepted for filing with the Secretary of State of
the State of Delaware, and a copy thereof certified by such Secretary of State
shall have been delivered to such Buyer.
(iv) The Irrevocable Transfer Agent
Instructions, in form and substance satisfactory to a majority-in-interest of
the Buyers, shall have been delivered to and acknowledged in writing by the
Company's Transfer Agent.
(v) The representations and warranties of
the Company shall be true and correct in all material respects as of the date
when made and as of the applicable Closing Date as though made at such time
(except for representations and warranties that speak as of a specific date,
which representations and warranties shall be true and correct as of such date)
and the Company shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or prior
to the applicable Closing Date. The Buyer shall have received a certificate or
certificates, executed by the chief executive officer or chief financial officer
of the Company, dated as of the applicable Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by such Buyer
including, but not limited to certificates with respect to the Company's
Certificate of Incorporation, By-laws and Board of Directors' resolutions
relating to the transactions contemplated hereby.
(vi) No litigation, statute, rule,
regulation, executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or endorsed by or in any court or governmental
authority of competent jurisdiction or any self-regulatory organization having
authority over the matters contemplated hereby which prohibits the consummation
of any of the transactions contemplated by this Agreement.
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<PAGE>
(vii) The Conversion Shares shall have been
authorized for quotation on Nasdaq and trading in the Common Stock on Nasdaq
shall not have been suspended by the SEC or Nasdaq.
(viii) The Buyer shall have received an
opinion of the Company's counsel, dated as of the applicable Closing Date, in
form, scope and substance reasonably satisfactory to the Buyer and in
substantially the same form as EXHIBIT "D" attached hereto.
(ix) The Buyer shall have received an
officer's certificate described in Section 3(c) above, dated as of the
applicable Closing Date.
(x) No material adverse change or
development in the business, operations, properties, prospects, financial
condition or operations of the Company shall have occurred since the date
hereof.
(xi) The Company shall have received all
consents of Silicon Valley Bank necessary for the Company to be able to fulfill
its obligations under the Certificates of Designation including but not limited
to its obligations to redeem the Preferred Shares under Article V of the
Certificates of Designation.
B. With respect to the Second Closing:
(i) The Series B Certificate of Designation
shall have been accepted for filing with the Secretary of State of the State of
Delaware.
(ii) The Registration Statement (as defined
in the Registration Rights Agreement) shall have been declared effective and no
stop order shall have issued in respect thereof.
(iii) If, at any time after the date hereof
and prior to the date of the Second Closing, the number of shares of Common
Stock issued and issuable upon conversion of the Preferred Shares (including the
Preferred Shares issuable at the Second Closing) is equal to 60% of the Maximum
Share Amount (as defined in the Certificates of Designation), the Company shall
have held an annual or special meeting of its stockholders and obtained at such
meeting such approvals of the Company's stockholders in accordance with the
applicable law and the rules and regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Corporation or any of its securities as may be required to issue all of the
shares of Common Stock issuable upon conversion of or otherwise pursuant to the
Preferred Shares (including the Preferred Shares issuable at the Second Closing)
(the "STOCKHOLDER APPROVAL").
(iv) If the Company has obtained the
Stockholder Approval, the Company shall have delivered to each Buyer a Share
Limit Waiver.
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8. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware applicable to
agreements made and to be performed in the State of Delaware (without regard to
principles of conflict of laws). Both parties irrevocably consent to the
jurisdiction of the United States federal courts and the state courts located in
Delaware with respect to any suit or proceeding based on or arising under this
Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby and irrevocably agree that all
claims in respect of such suit or proceeding may be determined in such courts.
Both parties irrevocably waive the defense of an inconvenient forum to the
maintenance of such suit or proceeding. Both parties further agree that service
of process upon a party mailed by first class mail shall be deemed in every
respect effective service of process upon the party in any such suit or
proceeding. Nothing herein shall affect either party's right to serve process in
any other manner permitted by law. Both parties agree that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
b. COUNTERPARTS; SIGNATURES BY FACSIMILE. This
Agreement may be executed in one or more counterparts, all of which shall be
considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party.
This Agreement, once executed by a party, may be delivered to the other party
hereto by facsimile transmission of a copy of this Agreement bearing the
signature of the party so delivering this Agreement.
c. HEADINGS. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. SEVERABILITY. If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
e. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and
the instruments referenced herein contain the entire understanding of the
parties with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.
f. NOTICES. Any notices required or permitted to be
given under the terms of this Agreement shall be sent by certified or registered
mail (return receipt requested) or delivered personally or by courier (including
a recognized overnight delivery service) or by facsimile and shall be effective
five days after being placed in the mail, if mailed by regular United States
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mail, or upon receipt, if delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile, in each case addressed
to a party. The addresses for such communications shall be:
If to the Company:
PharmaPrint Inc.
2600 Michelson Drive, Suite 1600
Irvine, California 92612
Attention: Chief Executive Officer
Facsimile: (949) 794-7777
With copy to:
Klehr, Harrison, Harvey, Branzburg & Ellers, LLP
1401 Walnut Street
Philadelphia, Pennsylvania 19102
Attention: Barry J. Siegel, Esquire
Facsimile: (215) 568-6603
If to a Buyer: To the address set forth immediately below such
Buyer's name on the signature pages hereto.
With copy to:
Morgan, Lewis & Bockius, LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
Attention: Keith S. Marlowe
Facsimile: (215) 963-5083
Each party shall provide notice to the other party of any
change in address.
g. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
assigns. Neither the Company nor any Buyer shall assign this Agreement or any
rights or obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its
rights hereunder to (i) any of its "affiliates," as that term is defined under
the 1934 Act and (ii) after the Maximum Share Amount (as defined in the
Certificates of Designation) has been issued, any person that purchases
Securities in a private transaction from a Buyer, without the consent of the
Company.
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h. THIRD PARTY BENEFICIARIES. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
i. SURVIVAL. The representations and warranties of
the Company and the agreements and covenants set forth in Sections 3, 4, 5 and 8
shall survive the closing hereunder notwithstanding any due diligence
investigation conducted by or on behalf of the Buyers. The Company agrees to
indemnify and hold harmless each of the Buyers and all their officers,
directors, employees and agents for loss or damage arising as a result of or
related to any breach or alleged breach by the Company of any of its
representations, warranties and covenants set forth in Sections 3 and 4 hereof
or any of its covenants and obligations under this Agreement or the Registration
Rights Agreement, including advancement of expenses as they are incurred.
j. PUBLICITY. The Company and each of the Buyers
shall have the right to review a reasonable period of time before issuance of
any press releases, filings with the SEC, the NASD or any stock exchange or
interdealer quotation system, or any other public statements with respect to the
transactions contemplated hereby; PROVIDED, HOWEVER, that the Company shall be
entitled, without the prior approval of each of the Buyers, to make any press
release or public filings with respect to such transactions as is required by
applicable law and regulations (although each of the Buyers shall be consulted
by the Company in connection with any such press release prior to its release
and shall be provided with a copy thereof and be given an opportunity to comment
thereon).
k. FURTHER ASSURANCES. Each party shall do and
perform, or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request in order to
carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
l. NO STRICT CONSTRUCTION. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
m. REMEDIES. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to each Buyer by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Agreement will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this
Agreement, that each Buyer shall be entitled, in addition to all other available
remedies in law or in equity, to an injunction or injunctions to prevent or cure
any breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions of this Agreement, without the necessity of showing
economic loss and without any bond or other security being required.
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IN WITNESS WHEREOF, the undersigned Buyers and the Company
have caused this Agreement to be duly executed as of the date first above
written.
PHARMAPRINT INC.
By: /s/ Elliot P. Friedman
-------------------------------
Name: Elliot P. Friedman
-------------------------------
Title: Chief Executive Officer
-------------------------------
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P., Investment Manager
By: RGC General Partner Corp., as General Partner
By: /s/ Wayne D. Bloch
-------------------------------
Wayne D. Bloch
Managing Director
RESIDENCE: Cayman Islands
ADDRESS:
c/o Rose Glen Capital Management, L.P.
3 Bala Plaza East, Suite 200
251 St. Asaphs Road
Bala Cynwyd, PA 19004
Facsimile: (610) 617-0570
Telephone: (610) 617-5900
AGGREGATE SUBSCRIPTION AMOUNT:
<TABLE>
<S> <C>
FIRST CLOSING:
Number of Preferred Shares: 10,000
Aggregate Purchase Price: $10,000,000
SECOND CLOSING:
Number of Preferred Shares: 2,000
Aggregate Purchase Price: $2,000,000
</TABLE>
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EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of June 4,
1999, by and among PharmaPrint Inc., a Delaware corporation, with its
headquarters located at 2600 Michelson Drive, Suite 1600, Irvine, California
92612 (the "COMPANY"), and each of the undersigned (together with their
respective affiliates and any assignee or transferee of all of their respective
rights hereunder, the "INITIAL INVESTORS").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "SECURITIES PURCHASE AGREEMENT"),
the Company has agreed, upon the terms and subject to the conditions contained
therein, to issue and sell to the Initial Investors shares of its Series A
Convertible Preferred Stock (the "SERIES A PREFERRED STOCK") and Series B
Convertible Preferred Stock (the "SERIES B PREFERRED STOCK" and, collectively
with the Series A Preferred Stock, the "PREFERRED STOCK"), that are convertible
into shares of the Company's common stock, par value $.001 per share (the
"COMMON STOCK"), upon the terms and subject to the limitations and conditions
set forth in the Certificate of Designations, Rights, Preferences, Privileges
and Restrictions with respect to the Series A Preferred Stock (the "SERIES A
CERTIFICATE OF DESIGNATION") and the Certificate of Designations, Rights,
Preferences, Privileges and Restrictions with respect to the Series B Preferred
Stock ("SERIES B CERTIFICATE OF DESIGNATION" and, collectively with the Series A
Certificate of Designation, the "CERTIFICATES OF DESIGNATION"); and
B. To induce the Initial Investors to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"1933 ACT"), and applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Initial Investors hereby agree as follows:
1. DEFINITIONS.
A. As used in this Agreement, the following terms shall have
the following meanings:
<PAGE>
(i) "INVESTORS" means the Initial Investors and any
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "REGISTER," "REGISTERED," and "REGISTRATION"
refer to a registration effected by preparing and filing a Registration
Statement or Statements in compliance with the 1933 Act and pursuant to Rule 415
under the 1933 Act or any successor rule providing for offering securities on a
continuous basis ("RULE 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(iii) "REGISTRABLE SECURITIES" means the Conversion
Shares issued or issuable upon conversion of or otherwise pursuant to the
Preferred Shares (including Preferred Shares issuable at the Second Closing
under the Securities Purchase Agreement) (including, without limitation, any
shares issued or issuable pursuant to Articles V, VII.D(b) and VII.E of the
Certificates of Designation and Section 2(c) herein) and any shares of capital
stock issued or issuable as a dividend on or in exchange for or otherwise with
respect to any of the foregoing.
(iv) "REGISTRATION STATEMENT(S)" means a registration
statement(s) of the Company under the 1933 Act.
b. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Securities Purchase
Agreement.
2. REGISTRATION.
a. MANDATORY REGISTRATION. The Company shall prepare, and, on
or prior to the date (the "FILING DATE") which is five (5) days after the
Company files its Annual Report on Form 10-KSB for the fiscal year ended March
31, 1999 (but in no event later than July 6, 1999), file with the SEC a
Registration Statement on Form S-3 (or, if Form S-3 is not then available, on
such form of Registration Statement as is then available to effect a
registration of the Registrable Securities, subject to the consent of the
Initial Investors, which consent will not be unreasonably withheld) covering the
resale of the Registrable Securities, which Registration Statement, to the
extent allowable under the 1933 Act and the rules and regulations promulgated
thereunder (including Rule 416), shall state that such Registration Statement
also covers such indeterminate number of additional shares of Common Stock as
may become issuable upon conversion of or otherwise pursuant to the Preferred
Shares to prevent dilution resulting from stock splits, stock dividends or
similar transactions. The number of shares of Common Stock initially included in
such Registration Statement shall be no less than two (2) times the aggregate
number of Conversion Shares that are then issuable upon conversion of or
otherwise pursuant to the Preferred Shares (including Preferred Shares issuable
at the Second Closing under the Securities Purchase Agreement) (based on the
lesser of Variable Conversion Price and the Fixed Conversion Price (each as
defined in the Certificates of Designation) then in effect), in each case
without regard to any limitation on the Investor's ability to convert the
Preferred Shares; PROVIDED, HOWEVER, that until a Share Limit Waiver (as defined
in
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the Certificates of Designation, a "SHARE LIMIT WAIVER") is delivered by the
Company following the satisfaction of the conditions contained in clause (1) of
Article VI.A(b) of the Certificates of Designation, in no event shall the
Company be required to register a number of shares of Common Stock greater than
the Maximum Share Amount (as defined in the Certificates of Designation). The
Company acknowledges that, subject to the proviso in the preceding sentence, the
number of shares initially included in the Registration Statement represents a
good faith estimate of the maximum number of shares issuable upon conversion of
the Preferred Shares. The Registration Statement (and each amendment or
supplement thereto, and each request for acceleration of effectiveness thereof)
shall be provided to (and subject to the approval of) the Initial Investors and
their counsel prior to its filing or other submission.
b. [Intentionally Omitted]
c. PAYMENTS BY THE COMPANY. The Company shall use its best
efforts to obtain effectiveness of the Registration Statement as soon as
practicable, but in any event not later than the one-hundred twentieth (120th)
day after the Closing Date with respect to the First Closing under the
Securities Purchase Agreement (the "REGISTRATION DEADLINE"). If (i) the
Registration Statement covering the Registrable Securities required to be filed
by the Company pursuant to Section 2(a) hereof is not declared effective by the
SEC within one-hundred twenty (120) days after the First Closing Date, or (ii)
after the Registration Statement has been declared effective by the SEC, sales
of all of the Registrable Securities cannot be made pursuant to the Registration
Statement, or (iii) the Common Stock is not listed or included for quotation on
the Nasdaq National Market ("NASDAQ"), the Nasdaq SmallCap Market ("NASDAQ
SMALLCAP"), the New York Stock Exchange (the "NYSE") or the American Stock
Exchange (the "AMEX") after being so listed or included for quotation, then the
Company will make payments to the Investors in such amounts and at such times as
shall be determined pursuant to this Section 2(c) as partial relief for the
damages to the Investors by reason of any such delay in or reduction of their
ability to sell the Registrable Securities (which remedy shall not be exclusive
of any other remedies available at law or in equity). The Company shall pay to
each holder of the Preferred Shares or Registrable Securities an amount equal to
the stated value of the Preferred Shares then outstanding (and, in the case of
holders of Registrable Securities, the stated value of Preferred Shares from
which such Registrable Securities were converted) ("AGGREGATE SHARE PRICE")
multiplied by the Applicable Percentage (as defined below) times the sum of: (i)
the number of months (prorated for partial months) after the Registration
Deadline and prior to the date the Registration Statement is declared effective
by the SEC; PROVIDED, HOWEVER, that there shall be excluded from such period any
delays which are solely attributable to changes required by the Investors in the
Registration Statement with respect to information relating to the Investors,
including, without limitation, changes to the plan of distribution, or to the
failure of the Investors to conduct their review of the Registration Statement
pursuant to Section 3(h) below in a reasonably prompt manner; (ii) the number of
months (prorated for partial months) that sales of all of the Registrable
Securities cannot be made pursuant to the Registration Statement after the
Registration Statement has been declared effective (including, without
limitation, when sales cannot be made by reason of the Company's failure to
properly supplement or amend the prospectus included therein in accordance with
the terms of this Agreement (including Section 3(b) hereof), but
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excluding any days during an Allowed Delay (as defined in Section 3(f)); and
(iii) the number of months (prorated for partial months) that the Common Stock
is not listed or included for quotation on Nasdaq, Nasdaq SmallCap, NYSE or AMEX
or that trading thereon is halted after the Registration Statement has been
declared effective. The term "APPLICABLE PERCENTAGE" means one and one-half
hundredths (.015). (For example, if the Registration Statement becomes effective
one (1) month after the Registration Deadline, the Company would pay $15,000 for
each $1,000,000 of Aggregate Share Price. If thereafter, sales could not be made
pursuant to the Registration Statement for an additional period of one (1)
month, the Company would pay an additional $15,000 for each $1,000,000 of
Aggregate Share Price). Such amounts shall be paid in cash or, at each
Investor's option, may be added to the Conversion Amount (as defined in the
Certificates of Designation) of the Preferred Shares pursuant to Article VI.A(a)
of the Certificates of Designation and thereafter be convertible into Common
Stock at the Conversion Price (as defined in the Certificates of Designation) in
accordance with the terms of the Preferred Shares. Any shares of Common Stock
issued upon conversion of such amounts shall be Registrable Securities. If the
Investor desires to convert the amounts due hereunder into Registrable
Securities, it shall so notify the Company in writing within two (2) business
days of the date on which such amounts are first payable in cash and such
amounts shall be so convertible (pursuant to the mechanics set forth in the
Certificates of Designation), beginning on the last day upon which the cash
amount would otherwise be due in accordance with the following sentence.
Payments of cash pursuant hereto shall be made within five (5) days after the
end of each period that gives rise to such obligation, provided that, if any
such period extends for more than thirty (30) days, interim payments shall be
made for each such thirty (30) day period.
d. PIGGY-BACK REGISTRATIONS. Subject to the last sentence of
this Section 2(d), if at any time prior to the expiration of the Registration
Period (as hereinafter defined) the Company shall determine to file with the SEC
a Registration Statement relating to an offering for its own account or the
account of others under the 1933 Act of any of its equity securities (other than
on Form S-4 or Form S-8 or their then equivalents relating to equity securities
to be issued solely in connection with any acquisition of any entity or business
or equity securities issuable in connection with stock option or other employee
benefit plans), the Company shall send to each Investor who is entitled to
registration rights under this Section 2(d) written notice of such determination
and, if within fifteen (15) days after the effective date of such notice, such
Investor shall so request in writing, the Company shall include in such
Registration Statement all or any part of the Registrable Securities such
Investor requests to be registered, except that if, in connection with any
underwritten public offering for the account of the Company the managing
underwriter(s) thereof shall impose a limitation on the number of shares of
Common Stock which may be included in the Registration Statement because, in
such underwriter(s)' judgment, marketing or other factors dictate such
limitation is necessary to facilitate public distribution, then the Company
shall be obligated to include in such Registration Statement only such limited
portion of the Registrable Securities with respect to which such Investor has
requested inclusion hereunder as the underwriter shall permit. Any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking to
include Registrable Securities in proportion to the number of Registrable
Securities sought to be included by such Investors; PROVIDED, HOWEVER, that the
Company shall not exclude any Registrable
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Securities unless the Company has first excluded all outstanding securities, the
holders of which are not entitled to inclusion of such securities in such
Registration Statement or are not entitled to pro rata inclusion with the
Registrable Securities; and PROVIDED, FURTHER, HOWEVER, that, after giving
effect to the immediately preceding proviso, any exclusion of Registrable
Securities shall be made pro rata with holders of other securities having the
right to include such securities in the Registration Statement other than
holders of securities entitled to inclusion of their securities in such
Registration Statement by reason of demand registration rights. No right to
registration of Registrable Securities under this Section 2(d) shall be
construed to limit any registration required under Section 2(a) hereof. If an
offering in connection with which an Investor is entitled to registration under
this Section 2(d) is an underwritten offering, then each Investor whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering. Notwithstanding
anything to the contrary set forth herein, the registration rights of the
Investors pursuant to this Section 2(d) shall only be available in the event the
Company fails to timely file, obtain effectiveness or maintain effectiveness of
any Registration Statement to be filed pursuant to Section 2(a) in accordance
with the terms of this Agreement.
e. ELIGIBILITY FOR FORM S-3. The Company represents and
warrants that it meets the registrant eligibility and transaction requirements
for the use of Form S-3 for registration of the sale by the Initial Investors
and any other Investors of the Registrable Securities and the Company shall file
all reports required to be filed by the Company with the SEC in a timely manner
so as to maintain such eligibility for the use of Form S-3.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall prepare promptly, and file with the SEC
as soon as practicable after the First Closing Date (but in no event later than
the Filing Date), a Registration Statement with respect to the number of
Registrable Securities provided in Section 2(a), and thereafter use its best
efforts to cause such Registration Statement relating to Registrable Securities
to become effective as soon as possible after such filing, (but in no event
later than the Registration Deadline), and keep the Registration Statement
effective pursuant to Rule 415 at all times until such date as is the earlier of
(i) the date on which all of the Registrable Securities have been sold and (ii)
the date on which the Registrable Securities (in the opinion of counsel to the
Initial Investors) may be immediately sold to the public without registration or
restriction (including without limitation as to volume by each holder thereof)
under the 1933 Act (the "REGISTRATION PERIOD"), which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to make the
statements therein not misleading.
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b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statements and the prospectus used in connection with the
Registration Statements as may be necessary to keep the Registration Statements
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities of the Company covered by the Registration Statements
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statements. Subject to the proviso of
the second sentence of Section 2(a), in the event that on any Trading Day (as
defined in the Certificates of Designation) (the "REGISTRATION TRIGGER DATE")
the number of shares available under a Registration Statement filed pursuant to
this Agreement is insufficient to cover all of the Registrable Securities issued
or issuable upon conversion of or otherwise pursuant to the Preferred Shares
(based on the lesser of the Variable Conversion Price and the Fixed Conversion
Price (each as defined in the Certificates of Designation) then in effect), in
each case without giving effect to any limitations on the Investors' ability to
convert the Preferred Shares, the Company shall amend the Registration
Statement, or file a new Registration Statement (on the short form available
therefore, if applicable), or both, so as to cover two hundred (200%) percent of
all of the Registrable Securities so issued or issuable (without giving effect
to any limitations on conversion or exercise contained in the Certificates of
Designation) as of the Registration Trigger Date, in each case, as soon as
practicable, but in any event within twenty (20) business days after the
necessity therefor arises (based on the market price of the Common Stock and
other relevant factors on which the Company reasonably elects to rely). The
Company shall use its best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as practicable following the
filing thereof, but in any event within sixty (60) days of the Registration
Trigger Date. The provisions of Section 2(c) above shall be applicable with
respect to the Company's obligations under this Section 3(b).
c. The Company shall furnish to each Investor whose
Registrable Securities are included in a Registration Statement and its legal
counsel (i) promptly after the same is prepared and publicly distributed, filed
with the SEC, or received by the Company, one copy of each Registration
Statement and any amendment thereto, each preliminary prospectus and prospectus
and each amendment or supplement thereto, and, in the case of the Registration
Statement referred to in Section 2(a), each letter written by or on behalf of
the Company to the SEC or the staff of the SEC, and each item of correspondence
from the SEC or the staff of the SEC, in each case relating to such Registration
Statement (other than any portion of any thereof which contains information for
which the Company has sought confidential treatment), and (ii) such number of
copies of a prospectus, including a preliminary prospectus, and all amendments
and supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor. The Company will immediately notify each Investor by
facsimile of the effectiveness of each Registration Statement or any
post-effective amendment. The Company will promptly respond to any and all
comments received from the SEC, with a view towards causing each Registration
Statement or any amendment thereto to be declared effective by the SEC as soon
as practicable and shall file an acceleration request as soon as practicable
following
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<PAGE>
the resolution or clearance of all SEC comments or, if applicable, following
notification by the SEC that any such Registration Statement or any amendment
thereto will not be subject to review.
d. The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by the Registration Statements
under such other securities or "blue sky" laws of such jurisdictions in the
United States as the Investors who hold a majority in interest of the
Registrable Securities being offered reasonably request, (ii) prepare and file
in those jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; PROVIDED, HOWEVER, that
the Company shall not be required in connection therewith or as a condition
thereto to (a) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (b) subject itself
to general taxation in any such jurisdiction, (c) file a general consent to
service of process in any such jurisdiction, (d) provide any undertakings that
cause the Company undue expense or burden, or (e) make any change in its charter
or bylaws, which in each case the Board of Directors of the Company determines
to be contrary to the best interests of the Company and its stockholders.
e. [Intentionally Omitted]
f. As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor of the happening of any event, of
which the Company has knowledge, as a result of which the prospectus included in
any Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its best
efforts promptly to prepare a supplement or amendment to any Registration
Statement to correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to each Investor as such Investor may
reasonably request; provided that, for not more than twenty (20) consecutive
trading days (or a total of not more than forty-five (45) trading days in any
twelve (12) month period), the Company may delay the disclosure of material
non-public information concerning the Company (as well as prospectus or
Registration Statement updating) the disclosure of which at the time is not, in
the good faith opinion of the Company, in the best interests of the Company (an
"ALLOWED DELAY"); provided, further, that the Company shall promptly (i) notify
the Investors in writing of the existence of (but in no event, without the prior
written consent of an Investor, shall the Company disclose to such investor any
of the facts or circumstances regarding) material non-public information giving
rise to an Allowed Delay and (ii) advise the Investors in writing to cease all
sales under such Registration Statement until the end of the Allowed Delay. Upon
expiration of the Allowed Delay, the Company shall again be bound by the first
sentence of this Section 3(f) with respect to the information giving rise
thereto.
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<PAGE>
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of any
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest possible moment and to notify each
Investor who holds Registrable Securities being sold (or, in the event of an
underwritten offering, the managing underwriters) of the issuance of such order
and the resolution thereof.
h. The Company shall permit a single firm of counsel
designated by the Initial Investors to review such Registration Statement and
all amendments and supplements thereto (as well as all requests for acceleration
or effectiveness thereof) a reasonable period of time prior to their filing with
the SEC, and not file any document in a form to which such counsel reasonably
objects and will not request acceleration of such Registration Statement without
prior notice to such counsel. The sections of such Registration Statement
covering information with respect to the Investors, the Investor's beneficial
ownership of securities of the Company or the Investors intended method of
disposition of Registrable Securities shall conform to the information provided
to the Company by each of the Investors.
i. The Company shall make generally available to its security
holders as soon as practicable, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the 1933 Act) covering a twelve-month
period beginning not later than the first day of the Company's fiscal quarter
next following the effective date of the Registration Statement.
j. At the request of any Investor, the Company shall furnish,
on the date that Registrable Securities are delivered to an underwriter, if any,
for sale in connection with any Registration Statement (i) an opinion, dated as
of such date, from counsel representing the Company for purposes of such
Registration Statement, in form, scope and substance as is customarily given in
an underwritten public offering, addressed to the underwriters, if any, and the
Investors and (ii) a letter, dated such date, from the Company's independent
certified public accountants in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and the Investors.
k. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to a
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Initial Investors, (iv) one firm of attorneys
and one firm of accountants or other agents retained by all other Investors, and
(v) one firm of attorneys retained by all such underwriters (collectively, the
"INSPECTORS") all pertinent financial and other records, and pertinent corporate
documents and properties of the Company (collectively, the "RECORDS"), as shall
be reasonably deemed necessary by each Inspector to enable each Inspector to
exercise its due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; PROVIDED, HOWEVER, that
each Inspector shall hold in confidence and shall not make any disclosure
(except to an Investor) of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are
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so notified, unless (a) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement, (b) the
release of such Records is ordered pursuant to a subpoena or other order from a
court or government body of competent jurisdiction, or (c) the information in
such Records has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company shall not be
required to disclose any confidential information in such Records to any
Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
3(k). Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein (or in any other confidentiality agreement between
the Company and any Investor) shall be deemed to limit the Investor's ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.
l. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
m. The Company shall (i) cause all the Registrable Securities
covered by the Registration Statement to be listed on each national securities
exchange on which securities of the same class or series issued by the Company
are then listed, if any, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (ii) to the extent the securities
of the same class or series are not then listed on a national securities
exchange, secure the designation and quotation of all the Registrable Securities
covered by the Registration Statement on Nasdaq or, if not eligible for Nasdaq,
on the Nasdaq SmallCap, and, without limiting the generality of the foregoing,
to arrange for at least two market makers to register with the National
Association of Securities Dealers, Inc. ("NASD") as such with respect to such
Registrable Securities.
n. The Company shall provide a transfer agent and registrar,
which may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
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o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to a Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request, and, within three (3)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver, to the transfer agent
for the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an instruction in the
form attached hereto as EXHIBIT 1 and an opinion of such counsel in the form
attached hereto as EXHIBIT 2.
p. At the request of the holders of a majority-in-interest of
the Registrable Securities, the Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and any prospectus used in connection with the
Registration Statement as may be necessary in order to change the plan of
distribution set forth in such Registration Statement.
q. The Company shall comply with all applicable laws related
to a Registration Statement and offering and sale of securities and all
applicable rules and regulations of governmental authorities in connection
therewith (including without limitation the 1933 Act and the 1934 Act and the
rules and regulations promulgated by the SEC).
r. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
s. The Company shall not, and shall not agree to, allow the
holders of any securities of the Company to include any of their securities in
any Registration Statement under Section 2(a) hereof or any amendment or
supplement thereto under Section 3(b) hereof without the consent of the holders
of a majority-in-interest of the Registrable Securities. In addition, the
Company shall not offer any securities for its own account or the account of
others in any Registration Statement under Section 2(a) hereof or any amendment
or supplement thereto under Section 3(b) hereof without the consent of the
holders of a majority-in-interest of the Registrable Securities.
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
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a. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least three (3)
business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor.
b. Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statements hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statements.
c. In the event Investors holding a majority-in-interest of
the Registrable Securities being registered (with the approval of the Initial
Investors) determine to engage the services of an underwriter, each Investor
agrees to enter into and perform such Investor's obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.
d. Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(f)
or 3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements in
usual and customary form entered into by the Company, (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions and any expenses in excess of those
payable by the Company pursuant to Section 5 below.
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5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualification fees, printers and accounting fees, the
fees and disbursements of counsel for the Company, and, subject to Section 4(f)
of the Securities Purchase Agreement, the reasonable fees and disbursements of
one counsel selected by the Initial Investors pursuant to Sections 2(b) and 3(h)
hereof shall be borne by the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify,
hold harmless and defend (i) each Investor who holds such Registrable
Securities, (ii) the directors, officers, partners, employees, agents and each
person who controls any Investor within the meaning of the 1933 Act or the
Securities Exchange Act of 1934, as amended (the "1934 ACT"), if any, (iii) any
underwriter (as defined in the 1933 Act) for the Investors, and (iv) the
directors, officers, partners, employees and each person who controls any such
underwriter within the meaning of the 1933 Act or the 1934 Act, if any (each, an
"INDEMNIFIED PERSON"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "CLAIMS") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading; (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading; or
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities (the matters in the foregoing clauses (i) through (iii)
being, collectively, "VIOLATIONS"). Subject to the restrictions set forth in
Section 6(c) with respect to the number of legal counsel, the Company shall
reimburse the Indemnified Person, promptly as such expenses are incurred and are
due and payable, for any reasonable legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by any Indemnified Person
or underwriter for such Indemnified
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<PAGE>
Person expressly for use in connection with the preparation of such Registration
Statement or any such amendment thereof or supplement thereto; (ii) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld; and (iii) with respect to any preliminary prospectus,
shall not inure to the benefit of any Indemnified Person if the untrue statement
or omission of material fact contained in the preliminary prospectus was
corrected on a timely basis in the prospectus, as then amended or supplemented,
such corrected prospectus was timely made available by the Company pursuant to
Section 3(c) hereof, and the Indemnified Person was promptly advised in writing
not to use the incorrect prospectus prior to the use giving rise to a Violation
and such Indemnified Person, notwithstanding such advice, used it. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, each person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act, any
underwriter and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person who
controls such stockholder or underwriter within the meaning of the 1933 Act or
the 1934 Act (collectively and together with an Indemnified Person, an
"INDEMNIFIED PARTY"), against any Claim to which any of them may become subject,
under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim arises out
of or is based upon any Violation by such Investor, in each case to the extent
(and only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and subject to
Section 6(c) such Investor will reimburse any legal or other expenses (promptly
as such expenses are incurred and are due and payable) reasonably incurred by
them in connection with investigating or defending any such Claim; PROVIDED,
HOWEVER, that the indemnity agreement contained in this Section 6(b) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of such Investor, which consent shall not be
unreasonably withheld; PROVIDED, FURTHER, HOWEVER, that the Investor shall be
liable under this Agreement (including this Section 6(b) and Section 7) for only
that amount as does not exceed the net proceeds to such Investor as a result of
the sale of Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the prospectus, as then amended or
supplemented.
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<PAGE>
c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; PROVIDED, HOWEVER, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The indemnifying party shall pay for only one
separate legal counsel for the Indemnified Persons or the Indemnified Parties,
as applicable, and such legal counsel shall be selected by Investors holding a
majority-in-interest of the Registrable Securities included in the Registration
Statement to which the Claim relates (with the approval of a
majority-in-interest of the Initial Investors), if the Investors are entitled to
indemnification hereunder, or the Company, if the Company is entitled to
indemnification hereunder, as applicable. The failure to deliver written notice
to the indemnifying party within a reasonable time of the commencement of any
such action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; PROVIDED, HOWEVER, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of such fraudulent misrepresentation, and (iii) contribution (together
with any indemnification or other obligations under this Agreement) by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
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<PAGE>
With a view to making available to the Investors the benefits of Rule
144 promulgated under the 1933 Act or any other similar rule or regulation of
the SEC that may at any time permit the investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees to:
a. make and keep public information available, as those terms
are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by
the Investors to any transferee of all or any portion of Registrable Securities
if: (i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement, and (vi) such transferee shall be an "ACCREDITED INVESTOR" as that
term defined in Rule 501 of Regulation D promulgated under the 1933 Act.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company, each
of the Initial Investors (to the extent such Initial Investor still
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<PAGE>
owns Registrable Securities) and Investors who hold a majority interest of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 10 shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices required or permitted to be given under the
terms hereof shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective five days
after being placed in the mail, if mailed by regular United States mail, or upon
receipt, if delivered personally or by courier (including a recognized overnight
delivery service) or by facsimile, in each case addressed to a party. The
addresses for such communications shall be:
If to the Company:
PharmaPrint Inc.
2600 Michelson Drive, Suite 1600
Irvine, California 92612
Attention: Chief Executive Officer
Facsimile: (949) 794-7777
With copy to:
Klehr, Harrison, Harvey, Branzburg & Ellers, LLP
1401 Walnut Street
Philadelphia, Pennsylvania 19102
Attention: Barry J. Siegel, Esquire
Facsimile: (215) 568-6603
If to an Investor: to the address set forth immediately below such Investor's
name on the signature pages to the Securities Purchase Agreement.
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<PAGE>
With copy to:
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103-2921
Attention: Keith S. Marlowe
Facsimile: (215) 963-5299
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed in the State of Delaware (without regard to principles of
conflict of laws). Both parties irrevocably consent to the jurisdiction of the
United States federal courts and the state courts located in Delaware with
respect to any suit or proceeding based on or arising under this Agreement, the
agreements entered into in connection herewith or the transactions contemplated
hereby or thereby and irrevocably agree that all claims in respect of such suit
or proceeding may be determined in such courts. Both parties irrevocably waive
the defense of an inconvenient forum to the maintenance of such suit or
proceeding. Both parties further agree that service of process upon a party
mailed by first class mail shall be deemed in every respect effective service of
process upon the party in any such suit or proceeding. Nothing herein shall
affect either party's right to serve process in any other manner permitted by
law. Both parties agree that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
e. This Agreement and the Securities Purchase Agreement
(including all schedules and exhibits thereto) constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein and therein. This Agreement and the
Securities Purchase Agreement supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile
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<PAGE>
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. Except as otherwise provided herein, all consents and other
determinations to be made by the Investors pursuant to this Agreement shall be
made by Investors holding a majority of the Registrable Securities, determined
as if the all of the shares of Preferred Stock then outstanding have been
converted into for Registrable Securities.
k. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to each Investor by vitiating
the intent and purpose of the transactions contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for breach of its obligations
hereunder will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of any of the provisions hereunder, that each Investor
shall be entitled, in addition to all other available remedies in law or in
equity, to an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof, without the necessity of showing economic loss and without
any bond or other security being required.
l. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent, and no rules
of strict construction will be applied against any party.
m. In the event that any provision of this Agreement is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any provision hereof which may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision hereof.
n. The initial number of Registrable Securities included in
any Registration Statement and each increase to the number of Registrable
Securities included therein shall be allocated pro rata among the Investors
based on the number of Registrable Securities held by each Investor at the time
of such establishment or increase, as the case may be. In the event an Investor
shall sell or otherwise transfer any of such holder's Registrable Securities,
each transferee shall be allocated a pro rata portion of the number of
Registrable Securities included in a Registration Statement for such transferor.
Any shares of Common Stock included on a Registration Statement and which remain
allocated to any person or entity which does not hold any Registrable Securities
shall be allocated to the remaining Investors, pro rata based on the number of
shares of Registrable
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Securities then held by such Investors. For the avoidance of doubt, the number
of Registrable Securities held by an Investor shall be determined as if all
Preferred Shares then outstanding and held by an Investor were converted into
Registrable Securities.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the Company and the undersigned Initial
Investors have caused this Agreement to be duly executed as of the date first
above written.
PHARMAPRINT INC.
BY: /s/ Elliot P. Friedman
-------------------------------
Name: Elliot P. Friedman
-------------------------------
Title: Chief Executive Officer
-------------------------------
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P., Investment Manager
By: RGC General Partner Corp., as General Partner
By: /s/ Wayne D. Bloch
-------------------------------
Wayne D. Bloch
Managing Director
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Exhibit 99
PHARMAPRINT BEGINS SALES ACTIVITIES FOR NEW PRODUCT LINE; ANNOUNCES $10 MILLION
PREFERRED STOCK FINANCING TO FUND THIS AND OTHER RELATED NEW BUSINESS ACTIVITIES
Tuesday, June 8,1999 04:33 PM
IRVINE, Calif.--(BUSINESS WIRE)--June 8, 1999--PharmaPrint Inc. (Nasdaq:PPRT)
Tuesday reported that it has begun sales activities for its new vitamin-herbal
product line and is developing two additional business opportunities.
Each of these new businesses has the potential to "exceed the value of our
successful Centrum(R) Herbals business," according to Chairman and Chief
Executive Officer, Elliot Friedman.
Today's news
PharmaPrint has begun discussions with important mass market and Internet
retailers for private label brands of new vitamin-herbal products developed and
manufactured by PharmaPrint. Volume deliveries of these products are expected in
the fall of 1999. Friedman said the company expects a revenue contribution in
excess of $25 million from these products in the fiscal year ending March 31,
2001, and gross margins to be significantly higher than those of PharmaPrint's
herbal-only products sold through American Home Products Corporation (NYSE:AHP)
as Centrum(R) Herbals.
The company also announced that, in order to fund these and other related
business development activities, it recently completed a $10 million private
placement of its Series A Convertible Preferred Stock with funds managed by Rose
Glen Capital Management L.P. The preferred stock converts into common shares of
PharmaPrint based upon a conversion price of $8.55 (120% of the average closing
bid price of PharmaPrint common stock for the three trading days prior to the
execution of definitive documentation on June 4, 1999). Under certain
circumstances, the company has the option to redeem the preferred stock. With
limited exceptions, the preferred stock may not be converted prior to the
six-month anniversary of issuance. Subject to a cap on the total number of
shares issuable, the conversion price may be subject to future adjustment based
upon 100% of the then current market price of PharmaPrint common stock. The
preferred stock has a yield of 6%, payable in common stock at the time of
conversion.
Friedman said, "We are pleased to have Rose Glen as a financial partner." Rose
Glen Capital has provided financing for various high-growth technology driven
and health care related companies including CMGI Inc. (NASDAQ:CMGI); Laser
Vision Centers, Inc. (NASDAQ:LVCI); and Geron Corporation (NASDAQ:GERN).
New Business Lines
PharmaPrint is developing two additional business opportunities and expects that
as the company
<PAGE>
achieves significant progress additional announcements will be made. These
opportunities relate to applying the company's technology to functional foods
and the development of an Internet strategy.
"These businesses," Friedman said, "all leverage our leadership in developing
and manufacturing bioactive herbal products. We regard the vitamin-herbal and
each other business currently being developed as each having equal or greater
potential than our current excellent Centrum(R) Herbals opportunity."
Present successes
PharmaPrint is the developer and sole source for AHP's successful new Centrum(R)
Herbals, launched in November 1998. In a short period of time Centrum(R) Herbals
has become a leading brand in the top mass market retailers, providing a
powerful endorsement of the PharmaPrint technology. PharmaPrint expects to
report revenues of more than $30 million from Centrum(R) Herbals in the fiscal
year ending March 31, 2000.
Vitamin-herbals
Friedman said, "Demand for vitamin products is growing 8% in the U.S. as the
American population adopts a healthier lifestyle. Emerging even faster is a
market segment of vitamin-herbals that could reach a billion dollars within five
years if present trends continue." Vitamin-herbals represent an opportunity for
the following reasons:
- -- PharmaPrint vitamin-herbal combinations guarantee the correct profile of
bioactive ingredients in each capsule.
- -- PharmaPrint manufactures its vitamin-herbal products to the demanding
specifications of pharmaceutical GMP.
- -- The PharmaPrint(tm) Process already has a track record of proven success with
the scientific community and the consumer.
Direct sales
Friedman said that PharmaPrint's initial channel strategy for vitamin-herbals is
to work only with the relatively small number of important mass market and
Internet retailers to create private brands for each. These brands can be sold
at substantial discounts to name brands and still generate PharmaPrint's
profitability expectations.
To secure these critical mass market customers, PharmaPrint has engaged
Markowitz & McNaughton, Inc. a leader in researching and identifying
opportunities for the marketing of consumer products to lead mass market
merchants.
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Zane Markowitz, President and Chief Executive Officer of Markowitz & McNaughton,
said, "The elements necessary for successful penetration of the mass retailing
community are trust, performance and value. From my 20 years working with the
largest retailers, I have rarely seen a product that is better suited for this
channel, particularly as a private label. PharmaPrint vitamin-herbals provide
the highest value at the lowest cost in a market that appears to be exploding."
Orders for vitamin-herbals are expected from major retailers this summer and
first deliveries to stores are expected this fall. Product launch plans are
being developed on a retailer-specific basis as part of the private label
strategy. Manufacturing is being conducted through PharmaPrint's existing
GMP-based resources.
Internet sales
Private labeling is one of the most important trends in mass retailing - both in
store and on the Internet. To optimize PharmaPrint's benefits from Internet
sales, the company has engaged William Greenberg, MD, one of the top marketers
of Internet health products. His first focus will be working with major Internet
retailers on expanding their private label vitamin-herbal orders via the
Internet.
Dr. Greenberg said, "The cost/value relationship is critical on-line.
PharmaPrint vitamin-herbal products as private label brands of major Internet
retailers are especially well suited to this environment."
About PharmaPrint
PharmaPrint is a developer and manufacturer of dietary supplements and
pharmaceuticals derived from natural plant extracts. The company uses its
proprietary technology (the PharmaPrint(tm) Process) to develop and produce
botanical products that contain active ingredients in consistent amounts. The
PharmaPrint(tm) Process was developed at the University of Southern California
School of Medicine.
The company notes that any forward-looking statements in this document are
subject to change based on factors including, but not limited to, changes in the
company's relationship with American Home Products Corporation, the cost and
availability of botanical extracts, the cost and availability of manufacturing
service contractors, research and development expenses, the ability to obtain
and enforce patents, limited manufacturing experience, government regulation and
uncertainty of product approvals, the results of research and development and
clinical and toxicology studies, the ability to commercialize and market
products, and competition. Additional information on potential factors that
could affect the company's financial results are included in the company's
Registration Statement on Form S-8 dated February 12, 1999, and its Annual
Report on Form 10-KSB for the year ended March 31,1998.
For more information on PharmaPrint Inc. via facsimile at no cost, simply call
1-800-PRO-INFO and dial client code "PPRT".
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CONTACT: PharmaPrint Inc., Irvine
James R. Wodach or James R. Burgess, 949/794-7778
or
The Financial Relations Board, 310/442-0599
Tim Kent (general information)
Moira Conlon (investor/analyst)
Marjorie Ornston (media)
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