<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. ___)
Filed by the Registrant [X]
Filed by a party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
INCARA PHARMACEUTICALS CORPORATION
--------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
INCARA PHARMACEUTICALS CORPORATION
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or Item 22(a)(2) of
Schedule 14A.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
INCARA PHARMACEUTICALS CORPORATION
P.O. Box 14287
3200 East Highway 54
Cape Fear Building, Suite 300
Research Triangle Park, North Carolina 27709
---------------------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 19, 2000
---------------------------------------
_________________
TO THE STOCKHOLDERS OF INCARA PHARMACEUTICALS CORPORATION:
A Special Meeting of Stockholders of Incara Pharmaceuticals Corporation
will be held at the Company's offices at 3200 East Highway 54, Cape Fear
Building, Suite 300, Research Triangle Park, North Carolina, on
Thursday, October 19, 2000 at 9:00 a.m., for the following purposes:
1. To approve a private equity financing facility of up to
$18,900,000, based on availability, with Torneaux Fund Ltd., pursuant to
which Incara would issue common stock and warrants exercisable for common
stock; and
2. To act upon such other matters as may properly come before the
meeting or any adjournment thereof.
This item is more fully described in the attached Proxy Statement.
The Board of Directors has fixed the close of business on August 31, 2000,
as the record date for the determination of stockholders entitled to notice of
and to vote at the meeting or any adjournments thereof. A list of stockholders
of Incara entitled to vote at the meeting will be available for examination by a
stockholder at Incara's office, for the ten days prior to the meeting and during
normal business hours. You are cordially invited to attend the meeting in
person. However, to assure your representation at the meeting, you are urged to
mark, sign, date and return the enclosed proxy card as promptly as possible in
the postage-prepaid envelope enclosed for that purpose. You may vote in person
at the meeting, even if you returned a proxy.
IMPORTANT--YOUR PROXY IS ENCLOSED
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND PROMPTLY
RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED FOR
MAILING IN THE UNITED STATES.
By Order of the Board of Directors
Richard W. Reichow
Executive Vice President
Chief Financial Officer,
Treasurer and Secretary
Research Triangle Park,
North Carolina
September 12, 2000
<PAGE>
INCARA PHARMACEUTICALS CORPORATION
P.O. Box 14287
3200 East Highway 54
Cape Fear Building, Suite 300
Research Triangle Park, North Carolina 27709
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
OCOTBER 19, 2000
INFORMATION CONCERNING SOLICITATION AND VOTING
The enclosed proxy is solicited by the Board of Directors of Incara
Pharmaceuticals Corporation, a Delaware corporation, for use at Incara's Special
Meeting of Stockholders to be held at the Company's offices at 3200 East Highway
54, Cape Fear Building, Suite 300, Research Triangle Park, North Carolina, at
9:00 a.m. on October 19, 2000, and any adjournments thereof. The cost of
soliciting proxies will be borne by Incara. In addition to solicitation of
proxies by mail, employees of Incara, without extra remuneration, might solicit
proxies personally or by telephone. Incara will reimburse brokerage firms and
other custodians, nominees and fiduciaries for their reasonable out-of-pocket
expenses for forwarding proxy materials to beneficial owners and seeking
instruction with respect thereto. The mailing address of the principal
executive offices of Incara is P.O. Box 14287, Research Triangle Park, North
Carolina 27709. Copies of this Proxy Statement and accompanying proxy card were
mailed to stockholders on or about September 12, 2000.
Revocability of Proxies
You have the power to revoke your proxy at any time before it is voted by
giving a later proxy or written notice to Incara (Attention: Richard W. Reichow,
Corporate Secretary), or by attending the meeting and voting in person.
Voting
When the enclosed proxy is properly executed and returned (and not
subsequently properly revoked), the shares it represents will be voted in
accordance with the directions indicated thereon, or, if no direction is
indicated thereon, it will be voted:
1. FOR the approval of the private equity financing facility of up to
$18,900,000 with Torneaux Fund Ltd.; and
2. In the discretion of the proxies with respect to any other matters
properly brought before the stockholders at the meeting.
Record Date
Only the holders of record of Incara's common stock at the close of
business on the record date, August 31, 2000 (the "Record Date"), are entitled
to notice of and to vote at the meeting. On the Record Date, 7,246,062 shares
of common stock were outstanding. Stockholders will be entitled to one vote for
each share of common stock held on the Record Date.
1
<PAGE>
PROPOSAL NO. 1 - APPROVAL OF THE TORNEAUX
PRIVATE EQUITY FINANCING FACILITY
General
Incara requires additional working capital to support its operations. In
an effort to meet these capital requirements, on August 17, 2000 the Company
entered into a Common Stock Purchase Agreement (the "Purchase Agreement") with
Torneaux Fund Ltd. Pursuant to the Purchase Agreement, Incara may issue and
sell, from time to time, up to 2,556,810 shares of common stock, subject to the
satisfaction of certain conditions. In addition, in connection with each
issuance of common stock to Torneaux, Incara will issue to Torneaux warrants to
purchase shares of common stock up to a maximum of 383,522 shares.
As required by the Purchase Agreement, on August 17, 2000, Incara also
entered into a Registration Rights Agreement with Torneaux pursuant to which
Incara must file a registration statement with the Securities and Exchange
Commission covering all shares of common stock to be issued under the Purchase
Agreement and all shares of common stock issuable upon exercise of the warrants
for resale by Torneaux.
This proxy statement summarizes the Purchase Agreement and the Registration
Rights Agreement. It might not contain all of the information you want, so we
have attached a copy of the Purchase Agreement as Appendix A and a copy of the
Registration Rights Agreement as Appendix B. You should read them if you want
more information.
The Purchase Agreement
Beginning on the date the registration statement is declared effective by
the SEC, and continuing for 15 months thereafter, Incara may in its sole
discretion sell, or put, shares of common stock to Torneaux. The 15-month
period is divided into 12 pricing periods, each consisting of 20 trading days on
the Nasdaq National Market.
From time to time during the 15-month term, Incara may make 12 draw downs,
by giving notice and requiring Torneaux to purchase shares of common stock, for
the draw down amount. Torneaux's purchase price will fluctuate based upon the
daily volume weighted average price over a 20-day trading period. Prior to each
draw down, Incara will provide Torneaux with a notice that sets forth the dollar
amount of the common stock it will sell, the commencement date of the pricing
period, and the threshold price, which is the lowest price per share at which
Incara will issue new shares of common stock. Incara may issue a draw down
notice for up to $250,000 if the threshold price is equal to $2.00, and an
additional $100,000 for every $1.00 increase of the threshold price above $2.00
up to $10.00 for a maximum draw down amount of $1,050,000. If Incara sets the
threshold price between $2.00 and $2.99, then the purchase price to be paid by
Torneaux is 88% of the daily volume weighted average price over the pricing
period. For each $1.00 increase in the threshold price above $2.00, the
purchase price to be paid by Torneaux is increased by 0.5% up to a discount of
92%. If the daily volume weighted average price on a given trading day is less
than the threshold price set by Incara, then the amount that Incara can draw
down will be reduced by 1/20 for that pricing period. In addition, if trading
in Incara common stock is suspended for more than three hours in any trading
day, then the daily volume weighted average price for that trading day is deemed
to be below the threshold price and, consequently, reduces the draw down amount
by 1/20. At no time may the threshold price be less than $2.00 per share,
unless mutually agreed upon by Incara and Torneaux.
As the price of Incara's common stock increases above $2.00, fewer shares
can be sold to Torneaux. Assuming the price of Incara common stock was $2.00
every day during all pricing periods during the 15-month term of the Purchase
Agreement, the maximum amount of shares of common stock that could be sold by
Incara would be 1,704,540 for gross cash proceeds of $3,000,000, assuming the
average trading volume for 10 trading days preceding a draw down notice by
Incara is less than 200,000 shares. In the event the average trading for such
10-day period exceeds 200,000 or 400,000, Torneaux, in its sole discretion, can
purchase additional common stock by increasing the then available draw down
amount by 25% or 50%, respectively. If the 400,000 share trading volume
threshold were met and the price of Incara common stock were $2.00 during the
entire 15-month term of the Purchase Agreement, the maximum draw down amount
available to Incara would be $4,500,000 and the maximum number of shares
possible for sale would be 2,556,810 shares. If the 400,000 share trading
volume threshold were met and the price of Incara common stock were $10.00
during the entire 15-month term of the Purchase Agreement, the maximum draw down
amount available to Incara would be $18,900,000 and the maximum number of shares
possible for sale would be 2,054,340 shares. On September 5, 2000, the closing
price on the Nasdaq National Market for Incara common stock was $3.50 and the
average trading volume for the preceding 10 days was 139,191 shares.
2
<PAGE>
Incara's ability to cause Torneaux to purchase shares of common stock under
the Purchase Agreement is subject to certain conditions, including, but not
limited to:
. The number of shares the Company may sell to Torneaux on any
settlement date, when aggregated with all other shares then owned by
Torneaux, cannot exceed 9.9% of the total common stock Incara then has
outstanding.
. The total number of shares that Incara may sell to Torneaux under the
Purchase Agreement, together with shares of common stock underlying
warrants that Incara may issue to Torneaux under the Purchase
Agreement, cannot exceed 19.9% of Incara's outstanding common stock on
August 17, 2000, unless Incara has obtained stockholder approval as
required by the rules of The Nasdaq Stock Market Inc. The Company is
seeking this required stockholder approval by use of this proxy
statement.
. The Company's common stock continues to be traded on the Nasdaq
National Market or other stock exchange specified in the Purchase
Agreement.
. The registration statement must remain effective so that Torneaux may
publicly resell the shares that it acquires from Incara under the
Purchase Agreement.
. There has not been a material change in ownership of Incara in which
its officers and directors no longer own at least 5% of the Company's
outstanding common stock, except as a result of the issuance of shares
under the Purchase Agreement and upon exercise of the warrants issued
to Torneaux.
. There has not been an effect on the business, operations, properties,
or financial condition of Incara that is material and adverse to
Incara and its subsidiaries or affiliates, taken as a whole and/or any
condition or situation that would prohibit or otherwise interfere, in
a material respect, with Incara's ability to perform its obligations
under the Purchase Agreement.
In the event Incara has not requested draw downs in an aggregate amount of
$1,250,000 within seven months of the registration statement being declared
effective by the SEC, Incara, at Torneaux's option, shall either pay Torneaux
$60,000 or issue warrants to Torneaux to purchase 60,000 shares of Incara common
stock with an exercise price of $2.10 per share, the volume weighted average
price per share on August 17, 2000.
Torneaux may terminate the Purchase Agreement upon Incara's failure to
comply with certain provisions in the Purchase Agreement or upon any stop order
or suspension of the effectiveness of the registration statement for an
aggregate of five trading days, for any reason other than deferrals or
suspension during a blackout period as a result of corporate development that
would require the registration statement to be amended.
Incara estimates a total of 1,704,540 shares of common stock could be
issued to Torneaux under the Purchase Agreement, assuming the price of Incara
common stock is $2.00 per share and the 10-day average daily trading volume is
less than 200,000 shares during the 15-month term of the Purchase Agreement.
Based on this assumption, warrants convertible into a total of 255,681 shares of
common stock could be issued to Torneaux. The shares of Incara common stock
will be purchased by Torneaux at a price lower than the future market price of
the common stock. Consequently, if stockholders approve the Torneaux financing,
the existing holders of Incara common stock face substantial dilution of their
voting power and percentage ownership in the Company. Additionally, as Incara
issues more shares, the price of the common stock may decline further.
The Registration Agreement
Incara must file a registration statement with the SEC by September 18,
2000 in order to permit Torneaux to resell to the public any common stock it
purchases pursuant to the Purchase Agreement and any common stock into which the
warrants are converted. The Company intends to prepare and file a registration
statement and such amendments and supplements to the registration statement as
may be necessary in accordance with the Securities Act and the rules and
regulations promulgated under it, in order to keep effective the registration
statement so that Incara may put shares to Torneaux during the term of the
Purchase Agreement.
3
<PAGE>
If the registration statement is not declared effective by the SEC within
120 days from its filing, or, except in certain circumstances, if the
effectiveness of the registration statement is suspended during the 15-month
term of the Purchase Agreement, or the common stock is delisted from the Nasdaq
National Market or another stock exchange specified in the Purchase Agreement,
then Incara must pay in cash to Torneaux, as liquidated damages, $20,000 if the
registration statement is not declared effective within 120 days from its
filing, or in all other circumstances above, an amount equal to 1% of the
aggregate purchase price for all shares purchased and then held by Torneaux for
the initial 30-day period, and 2% of the aggregate purchase price for each
subsequent 30-day period, until the event is cured. In addition, if Incara
fails to deliver the shares of common stock when due to Torneaux and the failure
continues for 10 trading days, then Incara will pay, in cash or restricted
shares of common stock, at Torneaux's option, an amount equal to 2% of the draw
down amount for the initial 30-day period and each 30-day period thereafter
until Incara has delivered the shares and warrants. During a draw down pricing
period, Incara may not enter into any agreement with a third party to secure
equity financings without Torneaux's prior consent, except that Incara may enter
into a loan, credit or lease facility with a bank or financing institution.
The Warrants
In connection with the Purchase Agreement, Incara will issue warrants to
Torneaux in the amount of 15% of the shares of common stock issued in any draw
down by Incara, at an exercise price equal to 115% of the purchase price per
share paid by Torneaux for the related shares of common stock. The warrants
will contain provisions that protect Torneaux against dilution by adjustment of
the exercise price and the number of shares issuable thereunder upon the
occurrence of specified events, such as a merger, stock split, stock dividend,
recapitalization and additional issuance of common stock. The exercise price
for the warrant shares is payable in cash.
NASDAQ Marketplace Rule 4460(i)
This proposal is submitted for stockholder approval pursuant to Nasdaq
Marketplace Rule 4460(i), which is one of several non-quantitative designation
criteria required of a Nasdaq National Market issuer, such as the Company. One
of the events that necessitate prior stockholder approval pursuant to Rule
4460(i) is as follows:
. In connection with a transaction other than a public offering
involving the sale or issuance by the issuer of common stock (or
securities convertible into or exercisable for common stock) equal to
20% or more of the common stock or 20% or more of the voting power
outstanding before the issuance for less than the greater of book or
market value of the stock.
Because the proposed financing arrangement with Torneaux involves the
potential issuance by the Company of common stock greater than 20% of the
Company's currently outstanding common stock at below market value (the "20%
Share Limitation"), the portion of the Torneaux facility that could exceed the
20% Share Limitation is subject to Rule 4460(i) and, therefore, requires your
approval. In addition, if the Company wished to enter into other financing
arrangements that require the issuance of the Company's common stock, whether at
below market value or not, Nasdaq possibly could integrate such additional
financing arrangements with the Torneaux equity financing facility and, if the
issuance of Incara's common stock in all such integrated financing arrangements,
including that with Torneaux, exceeds the 20% Share Limitation, would subject
all such financing arrangements to stockholder approval. Management of the
Company believes it is important for the Company to have flexibility in seeking
new financing without having to delay such financing arrangements to obtain
stockholder approval and, therefore, is submitting the Torneaux financing
arrangement to you for approval. In this manner, if the Company finds a
satisfactory source of new financing that requires the Company to issue its
common stock, whether at below market value or not, no stockholder approval of
such new financing arrangement would be required unless the new financing
arrangement exceeded the 20% Share Limitation. Absent stockholder approval of
the Torneaux equity facility, the Company would be limited to issuing no more
than 1,449,212 shares of common stock and warrants in connection with the
Torneaux facility and possibly could be prohibited from entering into any other
equity-based financings in which the Company wished to engage (based on the
number of shares of common stock outstanding on the date the Purchase Agreement
was signed). In addition, absent stockholder approval, the Company would not be
able to draw down the full amount of the funds available under the Torneaux
equity financing facility, which funds currently are needed for working capital.
4
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If the Company is unsuccessful in obtaining approval from its stockholders
for the proposal, but the Company nonetheless issues more than 1,449,212 shares
of common stock under the Torneaux equity financing facility or another equity-
based financing arrangement that is integrated with the Torneaux facility,
Nasdaq could delist the Company's common stock on the Nasdaq National Market.
If this happens, the common stock could be traded in the over-the-counter market
on the OTC Electronic Bulletin Board, an electronic bulletin board established
for securities that do not meet the Nasdaq SmallCap Market listing requirements,
in what is commonly referred to as the "pink sheets". In such an event, the
market price of the common stock may be adversely impacted and you may find it
difficult to dispose, or obtain accurate quotations as to the market value, of
your shares of common stock. In addition, the Company could find it more
difficult to obtain future financing.
Vote Required
The affirmative vote of the holders of a majority of the shares of Incara's
common stock present or represented and voting on this proposal at the meeting
will be required to approve the Torneaux financing. Votes withheld on this
proposal will be counted for purposes of determining the presence or absence of
a quorum for the transaction of business and will be treated as shares
represented and voting on this proposal at the meeting. While there is no
definitive statutory or case law authority in Delaware as to the proper
treatment of abstentions, Incara believes that abstentions should be counted for
purposes of determining both whether a quorum is present at the meeting and the
total number of shares represented and voting on this proposal at the meeting.
In the absence of controlling precedent to the contrary, Incara intends to treat
abstentions in this manner, which means they will have the same effect as votes
against the proposal. In a 1988 case, Berlin v. Emerald Partners, the Delaware
Supreme Court held that, while broker non-votes may be counted for purposes of
determining the presence or absence of a quorum of the transaction of business,
broker non-votes should not be counted for purposes of determining the number of
shares represented and voting with respect to the particular proposal on which
the broker has expressly not voted. Broker non-votes with respect to the
proposal will therefore not be considered represented and voting and,
accordingly, will not affect the determination as to whether the requisite vote
has been obtained to approve the proposal.
Board Recommendation; Reasons
Based primarily on its consideration of the factors described below, the
Board believes that the consummation of the Torneaux financing is in the best
interests of the Company and its stockholders.
Among the factors considered by the Board in approving the Torneaux
financing was the Board's view that the proceeds from the financing are
necessary to support the Company's near-term working capital requirements, as
well as its growth over the longer term. The Board determined that the economic
terms of the proposed financing would be of substantial benefit to the Company
and its stockholders and that the financing is fair to the Company's
stockholders from a financial point of view. In reaching its determination, the
Board considered the purchase price to be paid for the common stock by Torneaux
and its relationship to the trading prices of the common stock prior to the
execution of the Purchase Agreement.
The Board of Directors has approved and recommends a vote "FOR" the
approval of the Torneaux private equity line of credit.
OTHER INFORMATION
Principal Stockholders
The following table sets forth certain information regarding the ownership
of shares of Incara's common stock as of the Record Date by (i) each person
known by Incara to beneficially own more that 5% of the outstanding shares of
common stock, (ii) each director of Incara, (iii) executive officer of Incara,
and (iv) all directors and executive officers of Incara as a group. Except as
indicated in footnotes to this table, the persons named in this table have sole
voting and investment power with respect to all shares of common stock indicated
below. As of the Record Date, Incara had 7,246,062 shares of common stock
outstanding. Share ownership in each case includes shares issuable upon exercise
of options that may be exercised within 60 days after the Record Date for
purposes of computing the percentage of common stock owned by such person but
not for purposes of computing percentage owned by any other person.
5
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<TABLE>
<CAPTION>
Beneficially Percentage
Owned Owned
------------ ----------
<S> <C> <C>
Clayton I. Duncan (1)............................................. 696,027 9.4%
David B. Sharrock (2)............................................. 46,034 *
Edgar H. Schollmaier (3).......................................... 33,479 *
Stephen M. Prescott, M.D. (3)..................................... 15,322 *
David P. Ward (4)................................................. 226,116 3.1%
Richard W. Reichow (5)............................................ 282,706 3.9%
W. Bennett Love (6)............................................... 102,105 1.4%
John P. Richert (7)............................................... 103,354 1.4%
Interneuron Pharmaceuticals, Inc. ................................ 482,011 6.7%
One Ledgemont Center
99 Hayden Avenue
Lexington, Massachusetts 02421
Lola M. Reid (8).................................................. 555,890 7.6%
3621 Sweeten Creek Road
Chapel Hill, NC 27514
James D. Crapo (9)................................................ 495,951 6.7%
4650 South Forest St.
Englewood, CO 80110
All directors and executive officers as a group (8 persons)(10)... 1,505,143 19.4%
</TABLE>
__________________
*Less than one percent
(1) Includes 392,470 shares owned (of which, 121,491 shares are unvested shares
of restricted stock) by Mr. Duncan, 152,000 shares owned by Mr. Duncan's
children, and 151,557 shares issuable upon exercise of options held by Mr.
Duncan. Mr. Duncan disclaims beneficial ownership of the shares held by
his children. Mr. Duncan is Chairman of the Board of Directors, President
and Chief Executive Officer of Incara.
(2) Includes 1,000 shares owned and 45,034 shares issuable upon exercise of
options held by Mr. Sharrock, a director of Incara.
(3) Consists of shares issuable upon exercise of options held by the named
individual, a director of Incara.
(4) Includes 109,616 shares owned (of which, 79,506 shares are unvested shares
of restricted stock) and 116,500 shares issuable upon exercise of options
held by Dr. Ward, an executive officer of Incara.
(5) Includes 206,906 shares owned (of which, 79,506 shares are unvested shares
of restricted stock) and 75,800 shares issuable upon exercise of options
held by Mr. Reichow, an executive officer of Incara.
(6) Includes 66,105 shares owned (of which 31,304 shares are unvested shares of
restricted stock) and 36,000 shares issuable upon exercise of options held
by Mr. Love, an executive officer of Incara.
(7) Includes 67,354 shares owned (of which, 34,430 shares are unvested shares
of restricted stock) and 36,000 shares issuable upon exercise of options
held by Mr. Richert, an executive officer of Incara.
(8) Includes 314,286 shares owned by Dr. Reid and 131,604 shares owned by Dr.
Mark Furth, Dr. Reid's husband and 110,000 shares issuable upon exercise of
options held by Dr. Reid. Dr. Reid disclaims beneficial ownership of the
shares held by her husband.
(9) Includes 339,951 shares owned by Dr. Crapo and 156,000 shares issuable upon
exercise of options held by Dr. Crapo.
(10) See footnotes (1)-(7).
6
<PAGE>
Deadline for Stockholder Proposals
Stockholders having proposals that they desire to present at the 2001
annual meeting of stockholders of Incara should, if they desire that such
proposals be included in Incara's proxy statement relating to such meeting,
submit such proposals in time to be received by Incara not later than October
17, 2000. To be so included, all such submissions must comply with the
requirements of Rule 14a-8 promulgated under the Exchange Act and the Board of
Directors directs our close attention to that Rule. Proposals may be mailed to
Richard W. Reichow, Corporate Secretary, Incara Pharmaceuticals Corporation,
P.O. Box 14287, Research Triangle Park, North Carolina 27709.
If a stockholder of the Company wishes to present a proposal before the
2001 annual meeting, but does not wish to have the proposal considered for
inclusion in the Company's proxy statement and proxy card, such stockholder must
also give written notice to the Secretary of the Company at the address noted
above. The Secretary must receive such notice no later than January 1, 2001.
If a stockholder fails to provide timely notice of a proposal to be presented at
the 2001 Annual Meeting, the proxies designated by the Board of Directors of the
Company will have discretionary authority to vote on any such proposal.
Other Matters
The Board of Directors knows of no other business to be brought before the
meeting, but it is intended that, as to any such other business, the shares will
be voted pursuant to the proxy in accordance with the best judgement of the
person or persons acting thereunder.
7
<PAGE>
APPENDIX A
COMMON STOCK PURCHASE AGREEMENT
Dated as of August 17, 2000
by and between
INCARA PHARMACEUTICALS CORPORATION
and
TORNEAUX FUND LTD.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I................................................................................ 1
Section 1.1 Definitions.............................................................. 1
ARTICLE II Purchase and Sale of Common Stock............................................. 3
Section 2.1 Purchase and Sale of Stock............................................... 3
Section 2.2 The Shares............................................................... 3
Section 2.3 The Warrants............................................................. 4
Section 2.4 Closing.................................................................. 4
ARTICLE III Representations and Warranties............................................... 4
Section 3.1 Representations and Warranties of the Company.:.......................... 4
Section 3.2 Representations, Warranties and Covenants of the Purchaser............... 11
ARTICLE IV Covenants..................................................................... 13
Section 4.1 Securities............................................................... 13
Section 4.2 Registration and Listing................................................. 13
Section 4.3 Registration Statement................................................... 13
Section 4.4 Compliance with Laws..................................................... 14
Section 4.5 Keeping of Records and Books of Account.................................. 14
Section 4.6 Reporting Requirements................................................... 14
Section 4.7 Other Agreements......................................................... 15
Section 4.8 Non-Public Information................................................... 15
Section 4.9 No Stop Orders........................................................... 15
Section 4.10 Amendments to the Registration Statement................................. 15
Section 4.11 Prospectus Delivery...................................................... 16
Section 4.12 Legends.................................................................. 16
ARTICLE V Conditions to Closing and Draw Downs........................................... 17
Section 5.1 Conditions Precedent to the Obligation of the Company to Close this
Agreement................................................................ 17
Section 5.2 Conditions Precedent to the Obligation of the Purchaser to Close this
Agreement................................................................ 17
Section 5.3 Conditions Precedent to the Obligation of the Purchaser to Accept a Draw
Down and Purchase the Shares. ........................................... 18
Section 5.4 Parallel conditions 5.3(a), (d), (e) of (f) for Us....................... 19
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
ARTICLE VI Draw Down Terms............................................................... 20
Section 6.1 Draw Down Terms........................................................ 20
ARTICLE VII Legends...................................................................... 22
Section 7.1 Legend................................................................. 22
Section 7.2 No Other Legend or Stock Transfer Restrictions......................... 23
Section 7.3 Purchaser's Compliance................................................. 23
ARTICLE VIII Termination................................................................. 23
Section 8.1 Termination by Mutual Consent.......................................... 23
Section 8.2 Other Termination...................................................... 24
Section 8.3 Effect of Termination.................................................. 24
ARTICLE IX Indemnification............................................................... 24
Section 9.1 General Indemnity...................................................... 24
ARTICLE X Miscellaneous.................................................................. 28
Section 10.1 Fees and Expenses...................................................... 28
Section 10.2 Specific Enforcement, Consent to Jurisdiction.......................... 28
Section 10.3 Entire Agreement; Amendment............................................ 28
Section 10.4 Notices................................................................ 29
Section 10.5 Waivers................................................................ 29
Section 10.6 Headings............................................................... 30
Section 10.7 Successors and Assigns................................................. 30
Section 10.8 Governing Law.......................................................... 30
Section 10.9 Survival............................................................... 30
Section 10.10 Counterparts........................................................... 30
Section 10.11 Publicity.............................................................. 30
Section 10.12 Severability........................................................... 30
Section 10.13 Further Assurances..................................................... 31
Section 10.14 Confidentiality........................................................ 31
</TABLE>
-ii-
<PAGE>
COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of
---------
August 17, 2000 by and between Incara Pharmaceuticals Corporation, a Delaware
corporation (the "Company"), and Torneaux Fund Ltd., a limited liability company
-------
organized under the laws of the Commonwealth of The Bahamas (the "Purchaser").
---------
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Purchaser,
from time to time as provided herein, and the Purchaser shall purchase, up to
2,556,810 shares of the Company's common stock, $.001 par value per share (the
"Common Stock"); and
------------
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of the United
------------ ------------
States Securities Act of 1933, as amended and the rules and regulations
promulgated thereunder (the "Securities Act"), and/or upon such other exemption
--------------
from the registration requirements of the Securities Act as may be available
with respect to any or all of the purchases of Common Stock to be made hereunder
from time to time.
The parties hereto agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions.
-----------
(a) "Alternate Market" shall mean the Nasdaq Small Cap Market, the
----------------
American Stock Exchange, the New York Stock Exchange or the OTC Bulletin Board,
whichever is at the time the principal trading exchange or market for the Common
Stock.
(b) "Commission" shall have the meaning assigned to such term in
----------
Section 3.1(f) hereof.
(c) "Commission Documents" shall have the meaning assigned to such
--------------------
term in Section 3.1(f) hereof.
(d) "Commission Filings" means the Company's Form 10-K for the fiscal
------------------
year ended September 30, 1999, its Form 10-K/A for the fiscal year ended
September 30, 1999 and
A-1
<PAGE>
filed January 7, 2000, its Forms 10-Q for the fiscal quarters ended March 31,
2000, June 30, 2000, and December 31, 1999, its Forms 8-K filed October 12, 1999
and July 21, 2000, and all other filings made by the Company after the date
hereof pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
(e) "Draw Down" shall have the meaning assigned to such term in Section
---------
6.1(a) hereof.
(f) "Draw Down Amount" means the actual amount of a Draw Down, with a
----------------
minimum amount of $250,000.00 and a maximum amount of $1,575,000.00.
(g) "Draw Down Discount Percentage" means 88% if the Threshold Price is
-----------------------------
equal to or greater than $2.00; provided, however, that for every $1.00 increase
-------- -------
of the Threshold Price above $2.00, to a maximum Threshold Price of $10.00, such
draw down discount percentage shall increase by 0.50%, incrementally, to a
maximum draw down discount percentage of 92%,
(h) "Draw Down Exercise Date" shall have the meaning assigned to such term
-----------------------
in Section 5.3 hereof.
(i) "Draw Down Notice" shall have the meaning assigned to such term in
----------------
Section 6.1(i) hereof.
(j) "Draw Down Pricing Period" shall mean a period of twenty (20)
------------------------
consecutive trading days on the Nasdaq National Market ("Nasdaq") or an
Alternate Market starting with the first trading day specified in a Draw Down
Notice (or such other period of consecutive trading days as mutually agreed upon
by the Company and the Purchaser).
(k) "Investment Period" shall have the meaning assigned to such term in
-----------------
Section 8.1 hereof.
(l) "Material Adverse Effect" shall mean any effect on the business,
-----------------------
results of operations, properties, or financial condition of the Company that is
material and adverse to the Company and its subsidiaries and affiliates, taken
as a whole, and/or any condition, circumstance or situation that would prohibit
or otherwise interfere with the ability of the Company to enter into and perform
any of its obligations under this Agreement in any material respect.
(m) "Material Change in Ownership" shall mean that, as of any particular
----------------------------
measurement date, the officers and directors of the Company shall beneficially
own in the aggregate less than 5% of the outstanding Common Stock of the
Company, except that for purposes of making any such calculation, Common Stock
issued to the Purchaser pursuant to this Agreement shall not be included in such
calculation.
(n) "Person" means an individual or a corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
A-2
<PAGE>
(o) "Proceeding" means an action, claim, suit, investigation or proceeding
----------
(including, without limitation, an investigation or partial proceeding, such as
a deposition) commenced against any Person.
(p) "Prospectus" as used in this Agreement means the prospectus in the form
----------
included in the Registration Statement, as supplemented from time to time
pursuant to Rule 424(b) of the Securities Act.
(q) "Registration Statement" shall mean the registration statement on Form
----------------------
S-1, to be filed with the Commission for the registration for resale of the
Shares, as such Registration Statement may be amended from time to time.
(r) "Settlement Date" shall have the meaning assigned to such term in
---------------
Section 6.1(d) hereof.
(s) "Shares" shall mean the shares of Common Stock of the Company that may
------
be purchased hereunder pursuant to a Draw Down and/or upon exercise of the
Warrants (as defined Section 2.3).
(t) "Threshold Price" is the lowest price which the Company may set in the
---------------
Draw Down Notice to sell Shares during a Draw Down Pricing Period (not taking
into account the Draw Down Discount Percentage during such Draw Down Pricing
Period).
(u) "VWAP" shall mean the daily volume weighted average price (based on a
----
trading day from 9:30 a.m. to 4:00 p.m., eastern time) of the Company's Common
Stock on the Nasdaq (or any successor thereto) or an Alternate Market as
reported by Bloomberg Financial LP using the AQR function.
(v) "Warrants" shall have the meaning assigned to such term in Section
--------
2.3(a) hereof.
ARTICLE II
Purchase and Sale of Common Stock
Section 2.1 Purchase and Sale of Stock. Subject to the terms and
--------------------------
conditions of this Agreement, the Company shall issue and sell to the Purchaser
and the Purchaser shall purchase from the Company (i) up to 2,556,810 shares of
Common Stock, based on Draw Downs in accordance with Section 6.1, and (ii) the
Warrants in accordance with Section 2.3 hereof. Except as provided in Section
6.1(m) hereof, in no event shall the amount of Common Stock required to be
purchased by the Purchaser be less than $250,000 or exceed $1,575,000 per Draw
Down during any Draw Down Pricing Period.
Section 2.2 The Shares. The Company has authorized and has reserved and
----------
covenants to continue to reserve, subject to Section 4.3(b) hereof, free of
preemptive rights and other similar contractual rights of stockholders,
2,940,332 shares of its Common Stock to cover
A-3
<PAGE>
the Shares to be issued in connection with all Draw Downs and the shares of
Common Stock issuable pursuant to the exercise of Warrants.
Section 2.3 The Warrants. (a) At each Settlement Date, the Company shall
------------
issue to the Purchaser a warrant (the "Warrant") to purchase up to 15% of the
-------
number of shares of Common Stock purchased for such Settlement Period, rounded
down to the nearest whole share. Each Warrant shall be exercisable for a period
of three (3) years commencing on the date of issuance of such Warrant at an
exercise price of 115% of the price per Share paid by the Purchaser during such
Settlement Period.
(b) No Warrant shall be exercisable if the shares of Common Stock issuable
upon any exercise of such Warrant, when aggregated with all other shares of
Common Stock then owned by the Purchaser, would result in the Purchaser owning
more than 9.99% of all of such Common Stock as would be outstanding on such date
of exercise, as determined in accordance with Section 16 of the Exchange Act and
the regulations promulgated thereunder.
Section 2.4 Closing. In consideration of and in express reliance upon the
-------
representations, warranties, covenants, terms and conditions of this Agreement,
the Company agrees to issue and sell to the Purchaser and the Purchaser agrees
to purchase from the Company, that number of the Shares to be issued in
connection with each Draw Down. The closing of the execution and delivery of
this Agreement (the "Closing") shall take place at the offices of Parker Chapin
-------
LLP, The Chrysler Building, 405 Lexington Avenue, New York, NY 10174 at 5:00
p.m. Eastern Time on (i) August 17, 2000, or (ii) such other time and place or
on such date as the Purchaser and the Company may agree upon (the "Closing
-------
Date"). Each party shall deliver all documents, instruments and writings
----
required to be delivered by such party pursuant to this Agreement at or prior to
the Closing.
ARTICLE III
Representations and Warranties
Section 3.1 Representations and Warranties of the Company. Except as set
---------------------------------------------
forth in the Commission Documents or on the Schedule of Exceptions delivered
herewith, the Company hereby makes the following representations and warranties
to the Purchaser:
(a) Organization, Good Standing and Power. The Company is a corporation
-------------------------------------
duly incorporated, validly existing and in good standing under the laws of
Delaware and has the requisite corporate power to own, lease and operate its
properties and assets and to conduct its business as it is now being conducted.
As of the date hereof, the Company does not have any subsidiaries (as defined in
Section 3.1(g)) except as set forth in the Company's most recent Form 10-K,
including the accompanying financial statements (the "Form 10-K"), or in the
---------
Company's most recent Form 10-Q (the "Form 10-Q"). The Company and each such
---------
subsidiary is duly qualified to do business as a foreign corporation and is in
good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary except for
any jurisdiction in which the failure to be so qualified would not have a
Material Adverse Effect.
A-4
<PAGE>
(b) Authorization; Enforcement. The Company has the requisite corporate
--------------------------
power and authority to enter into and perform this Agreement and to issue and
sell the Shares in accordance with the terms hereof. The execution, delivery
and performance of this Agreement by the Company and the consummation by it of
the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action, and, except as contemplated by Section 4.4(b),
no further consent or authorization of the Company or of its Board of Directors
or stockholders is required. This Agreement has been duly executed and
delivered by the Company. This Agreement constitutes, or when executed and
delivered shall constitute, a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of creditors'
rights and remedies or by other equitable principles of general application.
(c) Capitalization. The authorized capital stock of the Company and the
--------------
shares thereof issued and outstanding as of July 31, 2000 are set forth in
Section 3.1(c) of the Schedule of Exceptions. All of the outstanding shares of
----------------------
the Company's Common Stock have been duly and validly authorized, and are fully
paid and non-assessable. Except as set forth in this Agreement, as of July 31,
2000, no shares of Common Stock are entitled to preemptive rights and there are
no outstanding options, warrants, scrip, rights to subscribe to, call or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company. Furthermore,
except as set forth in this Agreement, as of the date hereof, there are no
contracts, commitments, understandings or arrangements by which the Company is
or may become bound to issue additional shares of the capital stock of the
Company or options, securities or rights convertible into shares of capital
stock of the Company. Except for customary transfer restrictions contained in
agreements entered into by the Company in order to sell restricted securities,
as of the date hereof, the Company is not a party to any agreement granting
registration rights to any person with respect to any of its equity or debt
securities. The Company is not a party to, and it has no knowledge of, any
agreement restricting the voting or transfer of any shares of the capital stock
of the Company. The offer and sale of all capital stock, convertible
securities, rights, warrants or options of the Company issued prior to the
Closing complied with all applicable federal and state securities laws and no
stockholder has a right of rescission or damages with respect thereto which
would have a Material Adverse Effect. The Company has furnished or made
available to the Purchaser true and correct copies of the Company's Certificate
of Incorporation as in effect on the date hereof (the "Certificate"), and the
-----------
Company's Bylaws as in effect on the date hereof (the "Bylaws").
------
(d) Issuance of Shares. The sale and issuance of the Shares in accordance
------------------
with the terms and on the basis of the representations and warranties set forth
in this Agreement will be exempt from the registration requirements of the
Securities Act. The Shares have been duly authorized by all necessary corporate
action and, when paid for or issued in accordance with the terms hereof, the
Shares shall be validly issued and outstanding, fully paid and non-assessable,
and the Purchaser shall be entitled to all rights accorded to a holder of Common
Stock. No representation is made by the Company as to compliance under Bahamian
law of the offer, sale and issuance of the Shares.
A-5
<PAGE>
(e) No Conflicts. The execution, delivery and performance of this
------------
Agreement by the Company and the consummation by the Company of the transactions
contemplated therein do not (i) violate any provision of the Company's
Certificate or Bylaws, (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, mortgage, deed of trust, indenture,
note, bond, license, lease agreement, instrument or obligation to which the
Company is a party, (iii) create or impose a lien, charge or encumbrance on any
property of the Company under any agreement or any commitment to which the
Company is a party or by which the Company is bound or by which any of its
respective properties or assets are bound, or (iv) result in a violation of any
federal, state, local or foreign statute, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations) applicable
to the Company or any of its subsidiaries or by which any property or asset of
the Company or any of its subsidiaries are bound or affected, except, in all
cases, for such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect. The Company is not required under federal,
state or local law, rule or regulation to obtain any consent, authorization or
order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement, or issue and sell the Shares in accordance with the terms
hereof (other than any filings which may be required to be made by the Company
with the Commission or Nasdaq subsequent to the Closing, and any registration
statement which may be filed pursuant hereto); provided that, for purpose of the
--------
representation made in this sentence, the Company is assuming and relying upon
the accuracy of the relevant representations and agreements of the Purchaser
herein.
(f) Commission Documents, Financial Statements. The Common Stock of the
------------------------------------------
Company is registered pursuant to Section 12(b) or 12(g) of the Exchange Act,
and the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the Securities and Exchange Commission
(the "Commission") pursuant to the reporting requirements of the Exchange Act,
----------
including material filed pursuant to Section 13(a) or 15(d) of the Exchange Act
(all of the foregoing including filings incorporated by reference therein being
referred to herein as the "Commission Documents"). The Company has delivered or
--------------------
made available to the Purchaser true and complete copies of the Commission
Documents filed with the Commission since December 29, 1999 and prior to the
Closing Date. The Company has not provided to the Purchaser any information
which, according to applicable law, rule or regulation, should have been
disclosed publicly by the Company but which has not been so disclosed, other
than with respect to the transactions contemplated by this Agreement. The Form
10-K for the year ended September 30, 1999 complied in all material respects
with the requirements of the Exchange Act and the rules and regulations of the
Commission promulgated thereunder and other federal, state and local laws, rules
and regulations applicable to such document, and, as of its date, such Form 10-K
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the
Commission Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the Commission or other applicable rules and regulations with respect thereto.
Such financial statements have been prepared in accordance with generally
accepted accounting
A-6
<PAGE>
principles ("GAAP") applied on a consistent basis 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 financial position of the Company
and its subsidiaries as of the dates thereof and the results of operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
(g) Subsidiaries. The Commission Documents set forth each subsidiary of
------------
the Company as of the date hereof, showing the jurisdiction of its incorporation
or organization and showing the percentage of each person's ownership of the
outstanding stock or other interests of such subsidiary. For the purposes of
this Agreement, "subsidiary" shall mean any corporation or other entity of which
at least a majority of the securities or other ownership interest having
ordinary voting power (absolutely or contingently) for the election of directors
or other persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other subsidiaries. None of such
subsidiaries is a "significant subsidiary" as defined in Regulation S-X.
(h) No Material Adverse Change. Since June 30, 2000, the Company has not
--------------------------
experienced or suffered any Material Adverse Effect, except continued losses
from operations.
(i) No Undisclosed Liabilities. Neither the Company nor any of its
--------------------------
subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent
or otherwise) that would be required to be disclosed on a balance sheet of the
Company or any subsidiary (including the notes thereto) in conformity with GAAP,
other than those incurred in the ordinary course of the Company's or its
subsidiaries' respective businesses since June 30, 2000 and which, individually
or in the aggregate, do not or would not have a Material Adverse Effect.
(j) No Undisclosed Events or Circumstances. No event or circumstance has
--------------------------------------
occurred or exists with respect to the Company or its subsidiaries or their
respective businesses, properties, prospects, operations or financial condition,
which, under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed and which, individually or in the aggregate, do not or would not have
a Material Adverse Effect.
(k) Indebtedness. The Commission Documents set forth as of June 30, 2000
------------
all outstanding secured and unsecured Indebtedness of the Company or any
subsidiary, or for which the Company or any subsidiary has commitments. For the
purposes of this Agreement, "Indebtedness" shall mean (i) any liabilities for
borrowed money or amounts owed in excess of $100,000 (other than trade accounts
payable incurred in the ordinary course of business), (ii) all guaranties,
endorsements and other contingent obligations in respect of Indebtedness of
others, whether or not the same are or should be reflected in the Company's
balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business, and (iii) the present value of any lease payments
in excess of $100,000 due under leases required to be capitalized in accordance
with GAAP. Neither the Company nor any subsidiary is in default with respect to
any Indebtedness.
A-7
<PAGE>
(l) Title to Assets. Each of the Company and the subsidiaries has good and
---------------
marketable title to all of its real and personal property reflected in the
Commission Documents, free of any mortgages, pledges, charges, liens, security
interests or other encumbrances. All leases of the Company and each of its
subsidiaries are valid and subsisting and in full force and effect in all
material respects.
(m) Actions Pending. There is no Proceeding pending or, to the knowledge
---------------
of the Company, threatened against the Company or any subsidiary which questions
the validity of this Agreement or the transactions contemplated hereby or any
action taken or to be taken pursuant hereto or thereto. There is no Proceeding
pending or, to the knowledge of the Company, threatened, against or involving
the Company, any subsidiary or any of their respective properties or assets and
which, if adversely determined, is reasonably likely to result in a Material
Adverse Effect.
(n) Compliance with Law. The business of the Company and the subsidiaries
-------------------
has been and is presently being conducted in accordance with all applicable
federal, state and local governmental laws, rules, regulations and ordinances,
except to the extent that does not cause a Material Adverse Effect. The Company
and each of its subsidiaries have all franchises, permits, licenses, consents
and other governmental or regulatory authorizations and approvals necessary for
the conduct of its business as now being conducted by it, except for such
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals, the failure to possess which, individually or in
the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
(o) Certain Fees. No brokers, finders or financial advisory fees or
------------
commissions will be payable by the Company or any subsidiary with respect to the
transactions contemplated by this Agreement.
(p) Disclosure. Neither this Agreement or the Schedule of Exceptions nor
----------
any other documents, certificates or instruments furnished to the Purchaser by
or on behalf of the Company or any subsidiary in connection with the
transactions contemplated by this Agreement, taken as a whole, contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made herein or therein, in the light of the
circumstances under which they were made herein or therein, not misleading.
(q) Operation of Business. The Company or one of the subsidiaries owns or
---------------------
possesses all patents, trademarks, domain names (whether or not registered) and
any patentable improvements or copyrightable derivative works thereof, websites
and intellectual property rights relating thereto, service marks, trade names,
copyrights, licenses and authorizations as set forth in the Commission Documents
or the Commission Filings and all rights with respect to the foregoing, which
are necessary for the conduct of its business as now conducted without any
conflict with the rights of others, except to the extent that a Material Adverse
Effect could not reasonably be expected to result from such conflict.
(r) Environmental Compliance. The Company and each of its subsidiaries
------------------------
have obtained all material approvals, authorization, certificates, consents,
licenses, orders and permits or other similar authorizations of all governmental
authorities, or from any other person, that are
A-8
<PAGE>
required under any Environmental Laws. "Environmental Laws" shall mean all
applicable laws relating to the protection of the environment including, without
limitation, all requirements pertaining to reporting, licensing, permitting,
controlling, investigating or remediating emissions, discharges, releases or
threatened releases of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, materials or wastes, whether solid, liquid or
gaseous in nature, into the air, surface water, groundwater or land, or relating
to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, material or wastes, whether solid, liquid or
gaseous in nature. Except for such instances as would not individually or in the
aggregate have a Material Adverse Effect, there are no past or present events,
conditions, circumstances, incidents, actions or omissions relating to or in any
way affecting the Company or its subsidiaries that violate or could violate any
Environmental Law after the Closing or that could give rise to any environmental
liability, or otherwise form the basis of any claim, action, demand, suit,
proceeding, hearing, study or investigation (i) under any Environmental Law, or
(ii) based on or related to the manufacture, processing, distribution, use,
treatment, storage (including without limitation underground storage tanks),
disposal, transport or handling, or the emission, discharge, release or
threatened release of any hazardous substance.
(s) Material Agreements. Neither the Company nor any subsidiary is a party
-------------------
to any written or oral contract, instrument, agreement, commitment, obligation,
plan or arrangement, a copy of which would be required to be filed with the
Commission as an exhibit to a Commission Documents (collectively, "Material
--------
Agreements") if the Company or any subsidiary were registering securities under
----------
the Securities Act immediately prior to the effectiveness of this Agreement.
The Company and each of its subsidiaries has in all material respects performed
all the obligations required to be performed by them to date under the foregoing
agreements, have received no notice of default and, are not in default under any
Material Agreement now in effect.
(t) Transactions with Affiliates. Other than employment or consulting
----------------------------
arrangements, there are no loans, leases, agreements, contracts, royalty
agreements, management contracts or arrangements or other continuing
transactions exceeding $100,000 between (a) the Company or any subsidiary on the
one hand, and (b) on the other hand, any officer, employee, consultant or
director of the Company, or any of its subsidiaries, or any person who would be
covered by Item 404(a) of Regulation S-K or any corporation or other entity
controlled by such officer, employee, consultant, director or person.
(u) Securities Act of 1933. The Company has complied in all material
----------------------
respects with all applicable federal and state securities laws in connection
with the offer, issuance and sale of the Shares hereunder. The Company has not
distributed and, prior to the completion of the sale of the Shares to the
Purchaser, will not distribute any offering material in connection with the
offer and sale of the Shares other than the Registration Statement, the
Prospectus or other materials, if any, permitted by the Securities Act.
(v) 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 or
sales of any security or solicited any offers to buy any security, other than
pursuant to this Agreement, under circumstances that would require registration
of the
A-9
<PAGE>
Common Stock under the Securities Act. Neither the Company nor any of its
affiliates nor any person acting on its behalf has conducted or will conduct any
general solicitation (as that term is defined in Rule 502(c) of Regulation D) or
general advertising with respect to any of the Shares, the Warrants or any of
the shares of Common Stock issuable pursuant to exercise of the Warrants, except
for the filing of the Registration Statement.
(w) Employees. As of the date hereof, neither the Company nor any
---------
subsidiary has any collective bargaining arrangements or agreements covering any
of its employees. Each of the Company and its subsidiaries requires its
officers, employees and certain consultants to enter into agreements regarding
proprietary information, noncompetition, nonsolicitation, confidentiality, or
other similar agreements containing restrictive covenants. As of the date
hereof, no officer, consultant or key employee of the Company or any subsidiary
whose termination, either individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect, has terminated or, to the knowledge
of the Company, has any intention of terminating his or her employment or
engagement with the Company or any subsidiary.
(x) Use of Proceeds. The proceeds from the sale of the Shares will be used
---------------
by the Company and its subsidiaries for the purposes set forth in the Prospectus
under "Use of Proceeds."
(y) Public Utility Holding Company Act and Investment Company Act Status.
--------------------------------------------------------------------
The Company is not a "holding company" or a "public utility company" as such
terms are defined in the Public Utility Holding Company Act of 1935, as amended.
The Company is not, and as a result of and immediately upon Closing will not be,
an "investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.
(z) ERISA. No liability to the Pension Benefit Guaranty Corporation has
-----
been incurred with respect to any Plan by the Company or any of its subsidiaries
which is or would have a Material Adverse Effect. The execution and delivery of
this Agreement and the issue and sale of the Shares will not involve any
transaction which is subject to the prohibitions of Section 406 of ERISA or in
connection with which a tax could be imposed pursuant to Section 4975 of the
Internal Revenue Code of 1986, as amended, provided that, if any of the
--------
Purchaser, or any person or entity that owns a beneficial interest in any of the
Purchaser, is an "employee pension benefit plan" (within the meaning of Section
3(2) of ERISA) with respect to which the Company is a "party in interest"
(within the meaning of Section 3(14) of ERISA), the requirements of Sections
407(d)(5) and 408(e) of ERISA, if applicable, are met. As used in this Section
3.1(z), the term "Plan" shall mean an "employee pension benefit plan" (as
defined in Section 3 of ERISA) which is or has been established or maintained,
or to which contributions are or have been made, by the Company or any
subsidiary or by any trade or business, whether or not incorporated, which,
together with the Company or any subsidiary, is under common control, as
described in Section 414(b) or (c) of the Code.
(aa) Acknowledgment Regarding Purchaser's Purchase of Shares. The Company
-------------------------------------------------------
acknowledges and agrees that the Purchaser is acting solely in the capacity of
arm's length purchaser with respect to this Agreement and the transactions
contemplated hereunder. The Company further acknowledges that the Purchaser is
not acting as a financial advisor or
A-10
<PAGE>
fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereunder and any advice given by
the Purchaser or any of its representatives or agents in connection with this
Agreement and the transactions contemplated hereunder is merely incidental to
the Purchaser's purchase of the Shares.
Section 3.2 Representations, Warranties and Covenants of the Purchaser.
----------------------------------------------------------
The Purchaser hereby makes the following representations, warranties and
covenants to the Company:
(a) Organization and Standing of the Purchaser. The Purchaser is a limited
------------------------------------------
liability company duly organized, validly existing and in good standing under
the laws of the Commonwealth of The Bahamas.
(b) Authorization and Power. The Purchaser has the requisite corporate
-----------------------
power and authority to enter into and perform this Agreement and to purchase the
Shares in accordance with the terms hereof. The execution, delivery and
performance of this Agreement by Purchaser and the consummation by it of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action, and no further consent or authorization of the
Purchaser, its Board of Directors or stockholders is required. This Agreement
has been duly executed and delivered by the Purchaser. This Agreement
constitutes a valid and binding obligation of the Purchaser enforceable against
the Purchaser in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of creditors' rights and remedies or by
other equitable principles of general application.
(c) No Conflicts. The execution, delivery and performance of this
------------
Agreement and the consummation by the Purchaser of the transactions contemplated
hereby or relating hereto do not and will not (i) result in a violation of such
Purchaser's charter documents or bylaws, (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of any material agreement, mortgage, deed of trust,
indenture, note, bond, license, lease agreement, instrument or obligation to
which the Purchaser is a party, (iii) create or impose any lien, charge or
encumbrance on any property of the Purchaser under any agreement or any
commitment to which the Purchaser is party or by which the Purchaser is on or by
which any of its respective properties or assets are bound or (iv) result in a
violation of any law, rule or regulation, or any order, judgment or decree of
any court or governmental agency applicable to the Purchaser or its properties,
except for such conflicts, defaults and violations as would not, individually or
in the aggregate, prohibit or otherwise interfere with the ability of the
Purchaser to enter into and perform its obligations under this Agreement in any
material respect. The Purchaser is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or to purchase the Shares in accordance with
the terms hereof, provided that for purposes of the representation made in this
--------
sentence, the Purchaser is assuming and relying upon the accuracy of the
relevant representations and agreements of the Company herein.
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<PAGE>
(d) Information. The Purchaser 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 Shares which
have been requested by the Purchaser. The Purchaser and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. The
Purchaser has sought such accounting, legal and tax advice as it has considered
necessary to make an informed investment decision with respect to its
acquisition of the Shares. Purchaser understands that it (and not the Company)
shall be responsible for its own tax liabilities that may arise as a result of
this investment or the transactions contemplated by this Agreement.
(e) Acquisition for Investment. The Purchaser is purchasing the Shares
--------------------------
solely for its own account for the purpose of investment and not with a view to
or for sale in connection with a distribution. The Purchaser has no present
intention to sell the Shares, nor a present arrangement (whether or not legally
binding) to effect any distribution of the Shares to or through any person or
entity; provided, however, that by making the representations herein, the
-------- -------
Purchaser does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
(f) Sophisticated Investor. The Purchaser is a sophisticated investor (as
----------------------
described in Rule 506(b) (2) (ii) of Regulation D) and an accredited investor
(as defined in Rule 501 of Regulation D), and the Purchaser has such experience
in business and financial matters that it is capable of evaluating the merits
and risks of an investment in Common Stock. The Purchaser acknowledges that an
investment in the Common Stock is speculative and involves a high degree of
risk.
(g) General. The Purchaser understands that the Shares are being offered
-------
and sold in reliance on a transactional exemption from the registration
requirement of federal and state securities laws and the Company is relying upon
the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of the Purchaser set forth herein in order to
determine the applicability of such exemptions and the suitability of the
Purchaser to acquire the Shares.
(h) Selling Restriction. The Purchaser has the right to sell shares of the
-------------------
Company's Common Stock equal in number to the number of Shares to be purchased
pursuant to this Agreement during the Investment Period (as defined in Section
8.1 hereof). The Purchaser covenants, however, that prior to and during the
term of the Investment Period, neither the Purchaser nor any of its affiliates
nor any entity managed by the Purchaser will ever be in a net short position
with respect to shares of the Common Stock of the Company in any accounts
directly or indirectly managed by the Purchaser or any affiliate of the
Purchaser or any entity managed by the Purchaser.
(i) Ten Percent Limitation. On each Settlement Date, the number of Shares
----------------------
then to be purchased by the Purchaser shall not exceed the number of such shares
that, when aggregated with all other shares of Common Stock then owned by the
Purchaser beneficially or deemed beneficially owned by the Purchaser, would
result in the Purchaser owning more than 9.9% of all of such Common Stock as
would be outstanding on such Settlement Date, as
A-12
<PAGE>
determined in accordance with Section 16 of the Exchange Act and the regulations
promulgated thereunder. For purposes of this Section 3.2(i), in the event that
the amount of Common Stock outstanding as determined in accordance with Section
16 of the Exchange Act and the regulations promulgated thereunder is greater on
a Settlement Date than on the date upon which the Draw Down Notice associated
with such Settlement Date is given, the amount of Common Stock outstanding on
such Settlement Date shall govern for purposes of determining whether the
Purchaser, when aggregating all purchases of Common Stock made pursuant to this
Agreement would own more than 9.9% of the Common Stock following such Settlement
Date.
ARTICLE IV
Covenants
The Company covenants with the Purchaser as follows, which covenants are
for the benefit of the Purchaser and its permitted assignees.
Section 4.1 Securities. The Company shall notify the Commission and
----------
Nasdaq or an Alternate Market, if applicable, in accordance with their rules and
regulations, of the transactions contemplated by this Agreement, and shall take
all other necessary actions and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of the
Shares to the Purchaser and the resale of the Shares by the Purchaser.
Section 4.2 Registration and Listing. The Company will take all
------------------------
action necessary to cause its Common Stock to continue to be registered under
Sections 12(b) or 12(g) of the Exchange Act, will comply in all respects with
its reporting and filing obligations under the Exchange Act, and will not take
any action or file any document (whether or not permitted by the Securities Act
or the rules promulgated thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under the
Exchange Act or Securities Act, except as permitted herein. The Company will
take all action necessary to continue the listing or trading of its Common Stock
and the listing of the Shares purchased by Purchaser hereunder on Nasdaq or an
Alternate Market, if applicable, and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
Nasdaq or an Alternate Market.
Section 4.3 Registration Statement.
----------------------
(a) The Company shall cause the Registration Rights Agreement,
substantially in the form attached hereto as Exhibit E (the "Registration Rights
-------------------
Agreement") to remain in full force and effect and comply in all respects with
---------
terms thereof.
A-13
<PAGE>
(b) On or before the 30/th/ day after the Closing Date (the "Filing Date"),
-----------
the Company shall cause to be filed with the Commission a Registration Statement
on Form S-1 (or any other comparable form) to register for resale the Shares
(pursuant to a Draw Down or the exercise of any Warrant) to be purchased by the
Purchaser pursuant to this Agreement. The Company shall use its reasonable best
efforts to take all steps necessary to cause the Registration Statement to be
declared effective on the earlier of (i) the 120th day following the Filing Date
and (ii) the date which is within five (5) business days of the date on which
the Commission informs the Company that the Commission (1) will not review the
Registration Statement or (2) that the Company may request the acceleration of
the effectiveness of the Registration Statement.
(c) Before the Purchaser shall be obligated to accept any Draw Down request
from the Company, the Company shall have caused a sufficient number of shares of
Common Stock to be registered to cover the Shares to be issued in connection
with such Draw Down request (including any Warrants to be exercised in
connection therewith).
(d) The Company shall file a Prospectus supplement to its then current
Registration Statement on the first business day immediately following the end
of each Settlement Period, and will deliver a Prospectus and a Prospectus
supplement to the Purchaser on the corresponding Settlement Date.
Section 4.4 Compliance with Laws.
--------------------
(a) The Company shall comply, and cause each subsidiary to comply, with all
applicable laws, rules, regulations and orders, noncompliance with which could
reasonably be expected to have a Material Adverse Effect.
(b) Unless the Company obtains the requisite approval of its stockholders
or waiver of such approval in accordance with the applicable rules of Nasdaq,
the Company will not be obligated to issue and the Purchaser will not be
obligated to purchase any shares of the Company's Common Stock which would
result in the issuance under this Agreement of more than nineteen and nine-
tenths percent (19.9%) of the issued and outstanding shares of the Company's
Common Stock.
Section 4.5 Keeping of Records and Books of Account. The Company shall
---------------------------------------
keep and cause each subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 4.6 Reporting Requirements. Upon written request, the Company
----------------------
shall furnish the following to the Purchaser so long as such Purchaser shall be
obligated hereunder to purchase Shares:
(a) Quarterly Reports filed with the Commission on Form 10-Q as soon as
available, and in any event within 45 days after the end of each of the first
three fiscal quarters of the Company; and
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<PAGE>
(b) Annual Reports filed with the Commission on Form 10-K as soon as
available, and in any event within 90 days after the end of each fiscal year of
the Company.
Section 4.7 Other Agreements. During a Draw Down Pricing Period, the
----------------
Company may not enter into any financing agreement or issue any debt or equity
securities or securities convertible into Common Stock or enter into any
agreement with a third party to issue any such securities the primary purpose of
which would be to obtain equity financing for the Company (an "Other Financing")
---------------
without the prior written consent of the Purchaser, except for the issuance of
capital stock and convertible securities issued in a private placement pursuant
to an agreement between the Company and Davenport & Company LLC dated April 20,
2000. If the Purchaser consents to the Company entering into an Other
Financing, the Purchaser shall have the option (the "Purchase Option") to (A)
---------------
purchase the Draw Down Amount of shares of Common Stock granted during such Draw
Down Pricing Period at (i) the price and on the terms at which the Company
issued shares of Common Stock in the Other Financing during such Draw Down
Pricing Period or (ii) the applicable Draw Down Discount Percentage times the
VWAP for such Draw Down Pricing Period, or (B) elect not to purchase any Shares
during such Draw Down Pricing Period. If the Purchaser does not exercise its
Purchase Option in writing on or before the business day preceding the
Settlement Date, the Company shall have the right to close such Other Financing
on the scheduled closing date with a third party; provided that all of the
--------
financial terms and conditions of such closing are substantially the same as
those provided to the Purchaser prior to the Purchaser giving its consent to
such Other Financing.
Section 4.8 Non-Public Information. Neither the Company nor any of its
----------------------
directors, officers or agents shall disclose any material non-public information
about the Company to the Purchaser.
Section 4.9 No Stop Orders. The Company will advise the Purchaser
--------------
promptly and, if requested by the Purchaser, will confirm such advice in
writing: (i) of its receipt of notice of any request by the Commission for
amendment of or a supplement to the Registration Statement, any Prospectus or
for additional information; (ii) of its receipt of notice of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or of the suspension of qualification of the Shares for offering or
sale in any jurisdiction or the initiation of any Proceeding for such purpose;
and (iii) of its becoming aware of the happening of any event, which makes any
statement of a material fact made in the Registration Statement or the
Prospectus (as then amended or supplemented) untrue or which requires the making
of any additions to or changes in the Registration Statement or the Prospectus
(as then amended or supplemented) in order to state a material fact required by
the Securities Act or the regulations thereunder to be stated therein or
necessary in order to make the statements therein not misleading, or of the
necessity to amend or supplement the Prospectus (as then amended or
supplemented) to comply with the Securities Act. If at any time the Commission
shall issue any stop order suspending the effectiveness of the Registration
Statement, the Company will make commercially reasonable efforts to obtain the
withdrawal of such order at the earliest practicable time.
Section 4.10 Amendments to the Registration Statement. The Company will
----------------------------------------
not (i) file any amendment to the Registration Statement or make any amendment
or supplement to
A-15-
<PAGE>
the Prospectus of which the Purchaser shall not previously have been advised or
to which the Purchaser shall reasonably object in writing within three (3)
business days after being so advised or (ii) so long as, in the reasonable
opinion of counsel for the Purchaser, a Prospectus is required to be delivered
in connection with sales by any Purchaser or dealer, file any information,
documents or reports pursuant to the Exchange Act without delivering a copy of
such information, documents or reports to the Purchaser promptly following such
filing.
Section 4.11 Prospectus Delivery. Prior to any Settlement Date, the
-------------------
Company will deliver to the Purchaser, without charge, in such quantities as
reasonably requested by the Purchaser, copies of each form of Prospectus. As
soon after the Registration Statement has been declared effective by the
Commission and thereafter from time to time for such period as in the opinion of
counsel for the Purchaser a Prospectus is required by the Securities Act to be
delivered in connection with sales by the Purchaser, the Company will promptly
deliver to the Purchaser, without charge, as many copies of the Prospectus (and
of any amendment or supplement thereto) as the Purchaser may reasonably request.
The Company consents to the use of the Prospectus (and of any amendment or
supplement thereto) in accordance with the provisions of the Securities Act and
with the securities or Blue Sky laws of the jurisdictions in which the Shares
may be sold by the Purchaser, in connection with the offering and sale of the
Shares and for such period of time thereafter as the Prospectus is required by
the Securities Act to be delivered in connection with sales of the Shares. If
during such period of time any event shall occur that in the judgment of the
Company or in the opinion of counsel for the Purchaser is required to be set
forth in the Prospectus (as then amended or supplemented) or should be set forth
therein in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is necessary
to supplement or amend the Prospectus to comply with the Securities Act, the
Company will promptly prepare and, subject to the provisions of Section 4.10
above, file with the Commission an appropriate supplement or amendment thereto,
and will expeditiously furnish to the Purchaser a reasonable number of copies
thereof. The Company shall file a Prospectus supplement to its current
Registration Statement on the first business day immediately following the end
of each Settlement Period, and the Company shall deliver to the Purchaser an
appropriate Prospectus and Prospectus supplement on each Settlement Date.
Section 4.12 Legends. The certificates evidencing the Shares and the
-------
shares of Common Stock issuable upon exercise of the Warrants shall be free of
legends, except as provided for in Article VII.
Section 4.13 No Material Adverse Effect or Material Change in Ownership;
-----------------------------------------------------------
Notice. No Material Adverse Effect or Material Change in Ownership shall occur
------
during the Investment Period. The Company shall immediately notify the Purchaser
that (i) a Material Adverse Effect or Material Change in Ownership has occurred
or (ii) the Company has entered into an Other Financing (as defined in Section
4.7).
A-16-
<PAGE>
ARTICLE V
Conditions to Closing and Draw Downs
Section 5.1 Conditions Precedent to the Obligation of the Company to
--------------------------------------------------------
Close this Agreement. The obligation hereunder of the Company to enter into
--------------------
this Agreement is subject to the satisfaction or waiver, at or before the
Closing, of each of the conditions set forth below. These conditions are for
the Company's sole benefit and may be waived by the Company at any time in its
sole discretion.
(a) No Injunction. No statute, regulation, executive order, decree, ruling
-------------
or injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
(b) No Proceedings or Litigation. No Proceeding before any arbitrator or
----------------------------
any governmental authority shall have been commenced, and no investigation by
any governmental authority shall have been threatened, against the Company or
any subsidiary, or any of the officers, directors or affiliates of the Company
or any subsidiary seeking to restrain, prevent or change the transactions
contemplated by this Agreement, or seeking damages in connection with such
transactions.
Section 5.2 Conditions Precedent to the Obligation of the Purchaser to
----------------------------------------------------------
Close this Agreement. The obligation hereunder of the Purchaser to enter this
--------------------
Agreement is subject to the satisfaction or waiver, at or before the Closing, of
each of the conditions set forth below. These conditions are for the Purchaser's
sole benefit and may be waived by the Purchaser at any time in its sole
discretion.
(a) No Injunction. No statute, rule, regulation, executive order, decree,
-------------
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.
(b) No Proceedings or Litigation. No Proceeding before any arbitrator or
----------------------------
any governmental authority shall have been commenced, and no investigation by
any governmental authority shall have been threatened, against the Company or
any subsidiary, or any of the officers, directors or affiliates of the Company
or any subsidiary seeking to restrain, prevent or change the transactions
contemplated by this Agreement, or seeking damages in connection with such
transactions.
(c) Registration Rights Agreement. At or prior to the Closing, the Company
-----------------------------
shall have executed and delivered the Registration Rights Agreement to the
Purchaser.
(d) Opinion of Counsel, etc. At the Closing, the Purchaser shall have
------------------------
received an opinion of counsel to the Company, dated the date of Closing, in the
form of Exhibit A hereto, and such other certificates and documents as the
Purchaser or its counsel shall reasonably require incident to the Closing.
A-17-
<PAGE>
Section 5.3 Conditions Precedent to the Obligation of the Purchaser to
----------------------------------------------------------
Accept a Draw Down and Purchase the Shares. The obligation hereunder of the
------------------------------------------
Purchaser to accept a Draw Down Notice and to acquire and pay for the Shares is
subject to the satisfaction or waiver, at or before the date of each Draw Down
Notice (the "Draw Down Exercise Date") and each Settlement Date, of each of the
-----------------------
conditions set forth below. The conditions are for the Purchaser's sole benefit
and may be waived by the Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each of 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 Draw Down Exercise Date
as though made at that time except for representations and warranties that speak
as of a particular date.
(b) Registration Statement. The Company shall have Shares registered under
----------------------
the Registration Statement in an amount equal to or in excess of the number of
Shares issuable pursuant to such Draw Down Notice. The Registration Statement
registering the Shares shall have been declared effective by the Commission
prior to the initial Draw Down Exercise Date, and such Registration Statement
shall remain effective on each Settlement Date, and shall be amended or
supplemented, as required, to disclose the sale of the Shares at least one (1)
trading day prior to each Settlement Date, and the Company shall have delivered
to the Purchaser an appropriate Prospectus on each Settlement Date.
(c) No Suspension. Trading in the Company's Common Stock shall not have
-------------
been suspended by the Commission or Nasdaq or an Alternate Market (except for
any suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to each Draw Down request), and, at any
time prior to such request, trading in securities generally as reported on
Nasdaq or an Alternate Market shall not have been suspended or limited, or
minimum prices shall not have been established on securities whose trades are
reported by the American Stock Exchange, or on the New York Stock Exchange, nor
shall a banking moratorium have been declared either by the United States or New
York State authorities, nor shall there have occurred any material outbreak or
escalation of hostilities or other national or international calamity or crisis
of such magnitude in its effect on, or any material adverse change in any
financial market which, in each case, in the judgment of the Purchaser, makes it
impracticable or inadvisable to purchase the Shares. The Common Stock shall not
have been delisted from Nasdaq and an Alternate Market.
(d) Performance by the Company. The Company shall have performed,
--------------------------
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to each Draw Down Exercise Date and each
Settlement Date. The Company shall have issued transfer agent instructions to
its transfer agent, and an original copy of the transfer agent instructions
shall have been signed by the transfer agent as acknowledged and agreed.
(e) No Injunction. No statute, rule, regulation, executive order, decree,
-------------
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.
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<PAGE>
(f) No Proceedings or Litigation. No Proceeding before any arbitrator or
----------------------------
any governmental authority shall have been commenced, and no investigation by
any governmental authority shall have been threatened, against the Company or
any subsidiary, or any of the officers, directors or affiliates of the Company
or any subsidiary seeking to restrain, prevent or change the transactions
contemplated by this Agreement, or seeking damages in connection with such
transactions.
(g) Material Adverse Effect; Material Change in Ownership. No Material
-----------------------------------------------------
Adverse Effect and no Material Change in Ownership shall have occurred.
(h) Intentionally Omitted.
---------------------
(i) No Knowledge. The Company shall have no knowledge of any event more
------------
likely than not to have the effect of causing the Registration Statement to be
suspended or otherwise ineffective (which event is more likely than not to occur
within the 25 trading days following the trading day on which the Draw Down
Notice is deemed delivered.)
(j) Limitation on Obligation to Purchase. At no time will the Purchaser be
------------------------------------
obligated to purchase any Shares which would result in the issuance under this
Agreement of Shares representing more than nineteen and nine-tenths percent
(19.9%) of the issued and outstanding shares of the Company's Common Stock on
the Closing Date, unless approved by the stockholders of the Company if required
by law or stock market or exchange regulation.
(k) Other. On each Settlement Date, the Purchaser shall have received a
-----
certificate in substantially the form and substance of Exhibit B hereto,
---------
executed by an executive officer of the Company to the effect that all the
conditions to such Settlement Date shall have been satisfied as at the date of
each such certificate.
Section 5.4 Conditions Precedent to the Obligation of the Company to
--------------------------------------------------------
Issue a Draw Down Notice and Sell the Shares. The obligation hereunder of the
--------------------------------------------
Company to issue a Draw Down Notice and to sell the Shares is subject to the
satisfaction or waiver, at or before each Draw Down Exercise Date and each
Settlement Date, of each of the conditions set forth below. The conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion.
(a) Accuracy of the Purchaser's Representations and Warranties. Each of
----------------------------------------------------------
the representations and warranties of the Purchaser shall be true and correct in
all material respects as of the date when made and as of the Draw Down Exercise
Date as though made at that time except for representations and warranties that
speak as of a particular date.
(b) Performance by the Purchaser. The Purchaser shall have performed,
----------------------------
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Purchaser at or prior to each Draw Down Exercise Date and each
Settlement Date.
(c) No Injunction. No statute, rule, regulation, executive order, decree,
-------------
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or
A-19-
<PAGE>
governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
ARTICLE VI
Draw Down Terms
Section 6.1 Draw Down Terms. Subject to the satisfaction of the
---------------
conditions set forth in this Agreement, the parties agree as follows:
(a) The Company, may, in its sole discretion, issue a Draw Down Notice with
respect to a draw down (a "Draw Down") of $250,000 if the Threshold Price is
---------
equal to $2.00, and an additional $100,000 for every $1.00 increase of the
Threshold Price above $2.00, up to a maximum Threshold Price of $10.00, for a
maximum Draw Down Amount of $1,050,000, which Draw Down Amount may be increased
to a maximum of $1,575,000 in accordance with clause (m) of this Section 6.1,
and which Draw Down the Purchaser will be obligated to accept. Prior to issuing
any Draw Down Notice, the Company shall have Shares representing at least the
Draw Down Amount registered under the Registration Statement.
(b) The number of Shares to be issued in connection with each Draw Down
shall be equal to the sum of the quotients (for each trading day of the Draw
Down Pricing Period for which the VWAP equals or exceeds the Threshold Price) of
(x) 1/20th (or such other fraction based upon the agreed upon Draw Down Pricing
Period) of the Draw Down Amount divided by (y) (A) the applicable Draw Down
Discount Percentage multiplied by (B) the VWAP for such day, such number of
Shares rounded down to the nearest whole share.
(c) Only one Draw Down shall be allowed in each Draw Down Pricing Period.
Each Draw Down Pricing Period shall consist of two (2) periods of ten (10)
consecutive trading days (each, a "Settlement Period").
-----------------
(d) The number of Shares purchased by the Purchaser with respect to each
Draw Down shall be determined on a daily basis during each Draw Down Pricing
Period and settled on the second business day following the end of each
Settlement Period (the "Settlement Date").
---------------
(e) There shall be a minimum of five (5) trading days (or such other number
of trading days mutually agreed upon by the Purchaser and the Company) between
Draw Downs.
(f) There shall be a maximum of twelve (12) Draw Downs during the term of
this Agreement.
(g) Each Draw Down will expire on the last trading day of each Draw Down
Pricing Period.
(h) For each trading day during the Draw Down Pricing Period that the VWAP
is at or above the Threshold Price, 1/20/th/ (or such other fraction based upon
the agreed upon Draw
A-20-
<PAGE>
Down Pricing Period) of the Draw Down Amount shall be allocated to purchase
Shares at a price equal to the product of (x) the Draw Down Discount Percentage
multiplied by (y) the VWAP for such day. If the VWAP on a given trading day is
less than the Threshold Price, then the amount of the Draw Down for the relevant
Draw Down Pricing Period shall be reduced by 1/20/th/ (or such other fraction,
based upon the agreed upon Draw Down Pricing Period). At no time shall the
Threshold Price be set below $2.00 unless agreed upon by both parties. If
trading in the Company's Common Stock is suspended for any reason for more than
three (3) hours in any trading day, the price of the Common Stock shall be
deemed to be below the Threshold Price for that trading day and the Draw Down
Amount for the relevant Draw Down Pricing Period will be reduced by 1/20/th/.
(i) The Company must inform the Purchaser via facsimile transmission as to
the Draw Down Amount the Company wishes to exercise before commencement of
trading on the first trading day of the Draw Down Pricing Period (the "Draw Down
---------
Notice"), substantially in the form attached hereto as Exhibit C. In addition
------
to the Draw Down Amount, the Company shall set the Threshold Price and shall
designate the first trading day of the Draw Down Pricing Period with each Draw
Down Notice.
(j) On each Settlement Date, the Company shall deliver the Shares purchased
by the Purchaser during the Settlement Period to the Purchaser or its designees
via the Purchaser's prime broker account through its Deposit Withdrawal Agent
Commission system (DWAC), and upon receipt of the Shares, the Purchaser shall
cause payment therefor to be made to the Company's designated account by wire
transfer of immediately available funds provided that the Shares are received by
the Purchaser no later than 1:00 p.m., eastern time, or next day available funds
if the Shares are received thereafter.
(k) Intentionally Omitted.
(l) If on the Settlement Date, the Company fails to deliver the Shares and
the Warrants to be purchased by the Purchaser, and such failure continues for
ten (10) trading days, the Company shall pay, in cash or restricted shares of
Common Stock (subject to the Company's compliance with applicable securities
laws), at the option of the Purchaser, as liquidated damages and not as a
penalty, to the Purchaser an amount equal to two percent (2%) of the Draw Down
Amount for the initial thirty (30) days and each additional thirty (30) day
period thereafter until such failure has been cured, which shall be pro rated
for such periods less than thirty (30) days (the "Periodic Amount"). Cash
---------------
payments to be made pursuant to this Section 6.1(l) shall be due and payable
immediately upon demand in immediately available cash funds. Certificates
evidencing the restricted shares of Common Stock shall be delivered immediately
upon demand. The parties agree that the Periodic Amount represents a reasonable
estimate on the part of the parties, as of the date of this Agreement, of the
amount of damages that may be incurred by the Purchaser if the Company fails to
deliver the Shares and the Warrants on the Settlement Date. If the Purchaser
elects to receive shares of Common Stock instead of cash, the Purchaser shall
have the right to demand registration once within twelve (12) months of the date
of issuance of such shares of Common Stock and piggyback registration rights if
the Company files a separate registration statement.
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(m) Upon receipt of a Draw Down Notice, the Purchaser, in its sole
discretion, may increase the Draw Down Amount stated in such Draw Down Notice by
(i) twenty five (25%) if the average volume for the ten (10) trading days
preceding the date of the Draw Down Notice of the Company's Common Stock (the
"Average Volume") exceeds two hundred thousand (200,000) shares of Common Stock
--------------
per day; and (ii) fifty percent (50%) if the Average Volume exceeds four hundred
thousand (400,000) shares of Common Stock per day. The Purchaser shall notify
the Company within one (1) trading day of receipt of a Draw Down Notice if the
Purchaser intends to increase the Draw Down Amount pursuant to the preceding
sentence.
(n) Prior to issuing the first Draw Down Notice, the Company shall place in
escrow, with an entity designated by the Purchaser (the "Escrow Agent"), such
------------
number of shares of Common Stock as will equal the sum of the maximum number of
shares of Common Stock which the Purchaser could purchase during any Draw Down
Pricing Period and upon exercise of Warrants to be issued in connection with
such Draw Down Pricing Period. Thereafter, prior to issuing a Draw Down Notice
the Company shall place in escrow with the Escrow Agent (i) such number of
shares of Common Stock that would cause the number of shares of Common Stock
held in escrow to be equal to the maximum number of shares of Common Stock which
the Warrants may be exercisable, and (ii) if the Company's transfer agent is
unable to issue the Shares via DWAC, such number of shares of Common Stock that
would cause the number of shares of Common Stock held in escrow to be equal to
the maximum number of shares of Common Stock the Purchaser could purchase during
such Draw Down Pricing Period. The shares of Common Stock subject to such escrow
shall be released by the Escrow Agent to the Purchaser only in the event the
Company fails to deliver the Shares on the relevant Settlement Date. The
Purchaser's obligation to purchase the Shares on the Settlement Date shall be
contingent upon the fulfillment of the Company of the escrow requirements
contained in this Section 6.1(n). The Purchaser may, at its sole discretion,
waive the escrow requirements contained in this Section 6.1(n) at any time prior
to the relevant Settlement Date.
ARTICLE VII
Legends
Section 7.1 Legend. Unless otherwise provided below, each certificate
------
representing the Shares and the Warrants shall be stamped or otherwise imprinted
with a legend substantially in the following form (the "Legend"):
------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR INCARA
PHARMACEUTICALS CORPORATION (THE "COMPANY") SHALL HAVE RECEIVED AN
OPINION OF ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER
A-22-
<PAGE>
THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED.
As soon as practicable after the execution and delivery hereof, the Company
shall issue to the transfer agent instructions in substantially the form of
Exhibit D hereto. Such instructions shall be irrevocable by the Company from
and after the date thereof or from and after the issuance thereof. It is the
intent and purpose of such instructions, as provided therein, to require the
transfer agent to issue to the Purchaser, at the Purchaser's option, via DWAC or
in the form of certificates evidencing the Shares incident to a Draw Down and
issued on a Settlement Date, free of the Legend, without consultation by the
transfer agent with the Company or its counsel and without the need for any
further advice or instruction or documentation to the transfer agent by or from
the Company or its counsel or the Purchaser; provided, that (a) the Registration
--------
Statement shall then be effective, (b) the Purchaser confirms to the transfer
agent and the Company that it has or intends to sell such Shares to a third
party that is not an affiliate of the Purchaser or the Company and the Purchaser
agrees to redeliver the certificate representing such Shares to the transfer
agent to add the Legend in the event the Shares are not sold, and (c) if
reasonably requested by the transfer agent or the Company, the Purchaser
confirms to the transfer agent and the Company that the Purchaser has complied
with the prospectus delivery requirement under the Securities Act. At any time
after the date the Registration Statement has been declared effective by the
Commission, upon surrender of one or more certificates evidencing Common Stock
that bear the Legend, to the extent accompanied by a notice requesting the
issuance of new certificates free of the Legend to replace those surrendered,
the transfer agent shall reissue such shares of common stock via DWAC or free of
Legend. If the transfer agent fails to deliver the Shares on the Settlement
Date and such failure continues for ten (10) trading days, then the Company
shall pay liquidated damages to the Purchaser in the amount provided in Section
6.1(l) hereof.
Section 7.2 No Other Legend or Stock Transfer Restrictions. No legend
----------------------------------------------
other than the one specified in Section 7.1 has been or shall be placed on the
share certificates representing the Shares and the shares of Common Stock
issuable upon exercise of the Warrants and no instructions or "stop transfer
orders," so called, "stock transfer restrictions," or other restrictions have
been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in this Article VII.
Section 7.3 Purchaser's Compliance. Nothing in this Article VII shall
----------------------
affect in any way the Purchaser's obligations under any agreement to comply with
all applicable securities laws upon resale of the Shares.
ARTICLE VIII
Termination
Section 8.1 Termination by Mutual Consent. The term of this Agreement
-----------------------------
shall be the earlier of (i) fifteen (15) months from the date on which the
Commission declares the Registration Statement effective (the "Investment
----------
Period") and (ii) the date that all of the Shares
------
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<PAGE>
registered under the Registration Statement have been issued and sold. This
Agreement may be terminated at any time by mutual consent of the parties.
Section 8.2 Other Termination. The Purchaser may terminate this
-----------------
Agreement upon one (1) day's notice (v) if an event resulting in a Material
Adverse Effect has occurred, (w) the Registration Statement is not declared
effective within 120 days following the Filing Date, (x) there shall occur any
stop order or suspension of the effectiveness of the Registration Statement for
an aggregate of five (5) trading days during the Investment Period, for any
reason other than deferrals or suspension during a blackout period as a result
of corporate developments subsequent to the Closing Date that would require such
Registration Statement to be amended to reflect such event in order to maintain
its compliance with the disclosure requirements of the Securities Act, or (y)
the Company shall at any time fail to comply with the requirements of Section
4.2, 4.3 or 4.4 hereof. This Agreement shall terminate immediately if (i) the
Company breaches Section 4.7 hereof, (ii) a Material Change in Ownership shall
occur or (iii) the Purchaser shall fail to comply with Section 3.2(i) (each, a
"Terminating Event"); provided, however, that if a Terminating Event occurs
-------- -------
during a Draw Down Pricing Period, this Agreement shall terminate on the final
Settlement Date for such Draw Down Pricing Period.
Section 8.3 Effect of Termination. In the event of termination by the
---------------------
Company or the Purchaser, written notice thereof shall forthwith be given to the
other party and the transactions contemplated by this Agreement shall be
terminated without further action by either party. If this Agreement is
terminated as provided in Section 8.1 or 8.2 herein, this Agreement shall become
void and of no further force and effect, except as provided in Section 10.9.
Nothing in this Section 8.3 shall be deemed to release the Company or the
Purchaser from any liability for any breach under this Agreement, or to impair
the rights of the Company and the Purchaser to compel specific performance by
the other party of its obligations under this Agreement.
ARTICLE IX
Indemnification
Section 9.1 General Indemnity.
-----------------
(a) Indemnification by the Company. The Company shall, notwithstanding any
------------------------------
termination of this Agreement, indemnify and hold harmless the Purchaser, the
officers, directors, agents, brokers (including brokers who offer and sell the
Shares as principal as a result of a pledge or any failure to perform under a
margin call of Common Stock), investment advisors and employees of each of them,
each Person who controls the Purchaser within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act and the directors, officers,
agents and employees of each such controlling Person, and the respective
successors, assigns, estate and personal representatives of each of the
foregoing, to the fullest extent permitted by applicable law, from and against
any and all claims, losses, damages, liabilities, penalties, judgments, costs
(including, without limitation, costs of investigation) and expenses (including,
without limitation, reasonable attorneys' fees and expenses) (collectively,
"Losses"), as incurred, arising out of or relating to any untrue statement or
------
alleged untrue statement of a material fact
A-24-
<PAGE>
contained, or incorporated by reference, in the Registration Statement or any
Prospectus or in any amendment or supplement thereto, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statement therein (in the case of any
Prospectus or in any supplement thereto, in the light of the circumstances under
which they were made) not misleading; provided, however, that the Company shall
-------- -------
not be liable under this Section 9.1(a) to the extent that a court of competent
jurisdiction shall have determined by a final judgment that such Losses,
resulted directly from any such acts or failures to act, undertaken or omitted
to be taken by the Purchaser or such Person through its gross negligence, bad
faith or willful misconduct; provided, further, that the foregoing indemnity
-------- -------
shall not apply (i) to any Losses arising out of or based any such untrue
statements or omissions based solely upon information regarding Purchaser
furnished in writing to the Company by the Purchaser expressly for use therein,
which information was reasonably relied on by the Company for use therein or to
the extent that such information relates to the Purchaser or the Purchaser's
proposed method of distribution of Shares and was reviewed and expressly
approved in writing by the Purchaser for use in the Registration Statement, any
Prospectus (or in any amendment or supplement thereto) and (ii) with respect to
any Prospectus or any supplement or amendment thereto to the extent that any
Losses of Purchaser results from the fact that the Purchaser sold shares of
Common Stock and did not send or give, at or prior to the written confirmation
of such sale, a copy of a supplement or amendment to the Prospectus if the
Company has furnished copies thereof to the Purchaser and the Losses result from
an untrue statement or omission of a material fact contained in the Prospectus
which was corrected in any supplement or amendment thereto. The Purchaser shall
notify the Company promptly of the institution or threat of any Proceeding of
which the Company is aware in connection with the transactions contemplated by
this Agreement. Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of an Indemnified Party (as defined in
clause (c) of this Section 9.1 hereof) and shall survive the transfer of the
Shares by the Purchaser.
(b) Indemnification by the Purchaser. The Purchaser shall, notwithstanding
--------------------------------
any termination of this Agreement, indemnify and hold harmless the Company, each
of its directors, officers, agents and employees, each Person who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act and the directors, officers, agents and employees of each such
controlling Person, and the respective successors, assigns, estate and personal
representatives of each of the foregoing, to the fullest extent permitted by
applicable law, from and against any and all Losses as incurred, arising out of
or relating to any untrue statement or alleged untrue statement of a material
fact contained, or incorporated by reference, in the Registration Statement or
any Prospectus or in any amendment or supplement thereto, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statement therein (in the case of any
Prospectus or supplement thereto, in the light of the circumstances under which
they were made) not misleading, to the extent, but only to the extent, that such
untrue statement or omission is contained in or omitted from any information so
furnished in writing by the Purchaser to the Company specifically for inclusion
in the Registration Statement or such Prospectus and that such information was
reasonably relied upon by the Company for use in the Registration Statement,
such Prospectus or to the extent that such information relates to the Purchaser
or the Purchaser's proposed method of distribution of Shares and was reviewed
and expressly approved in writing by the Purchaser expressly for use in the
Registration Statement, such Prospectus or such Prospectus supplement; provided,
--------
however, that the Purchaser shall be liable to the
-------
A-25-
<PAGE>
Company under this Section 9.1(b) with respect to any Prospectus or any
supplement or amendment thereto to the extent that any such Losses of the
Company results from the fact that the Purchaser sold shares of Common Stock and
did not send or give, at or prior to the written confirmation of such sale, a
copy of a supplement or amendment to the Prospectus if the Company has furnished
copies thereof to the Purchaser and the Losses result from an untrue statement
or omission of a material fact contained in the Prospectus which was corrected
in any supplement or amendment thereto. The Company shall notify the Purchaser
promptly of the institution or threat of any Proceeding of which the Company is
aware in connection with the transactions contemplated by this Agreement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of an indemnified party and shall survive the transfer of
the Shares by the Purchaser. Notwithstanding anything to the contrary contained
herein, the Purchaser shall be liable under this Section 9.1(b) for only that
amount as does not exceed the net proceeds to Purchaser as a result of the sale
of Shares pursuant to such Registration Statement.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall be
--------------------------------------
brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party promptly shall notify the Person
-----------------
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
------------------
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel in any
such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel in writing that a conflict of interest is
likely to exist if the same counsel were to represent such Indemnified Party and
the Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and one such counsel shall be at the expense
of the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
A-26-
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All reasonable fees and expenses of the Indemnified Party (including
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten (10)
Business Days of written notice thereof to the Indemnifying Party (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
--------
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section 9.1(a) or
------------
9.1(b) is unavailable to an Indemnified Party because of a failure or refusal of
a governmental authority to enforce such indemnification in accordance with its
terms (by reason of public policy or otherwise), then each Indemnifying Party,
in lieu of indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions, statements or
omissions that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material fact, has been taken
or made by, or relates to information supplied by, such Indemnifying Party or
Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action, statement or
omission. The amount paid or payable by a party as a result of any Losses shall
be deemed to include, subject to the limitations set forth in Section 9.1(c),
any reasonable attorneys' or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for in
this Section was available to such party in accordance with its terms.
Notwithstanding anything to the contrary contained herein, the Purchaser shall
be liable or required to contribute under this Section 9.1(d) for only that
amount as does not exceed the net proceeds to such Purchaser as a result of the
sale of Shares pursuant to such Registration Statement.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 9.1(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
A-27-
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ARTICLE X
Miscellaneous
Section 10.1 Fees and Expenses. Except as set forth in Article IX, the
-----------------
Company shall pay (i) all reasonable fees and expenses related to the
transactions contemplated by this Agreement; provided, that the Company shall
--------
pay, at the Closing, all reasonable attorneys fees and expenses (exclusive of
disbursements and out-of-pocket expenses and reasonably itemized) incurred by
the Purchaser up to $35,000 in connection with the preparation, negotiation,
execution and delivery of this Agreement, (ii) all reasonable fees and expenses
incurred by the Purchaser in connection with any amendments, modifications or
waivers of this Agreement or incurred in connection with the enforcement of this
Agreement, including, without limitation, all reasonable attorneys' fees and
expenses, and (iii) all stamp or other similar taxes and duties levied in
connection with issuance of the Shares pursuant hereto. In addition, if by the
seven (7) month anniversary of the commencement of the Investment Period the
Company has not requested Draw Down Amounts in an aggregate of $1,250,000, the
Company, at the Purchaser's option, shall either (x) pay to the Purchaser a fee
equal to $60,000 in cash or immediately available funds; or (y) issue warrants
to the Purchaser to purchase 60,000 shares of the Company's Common Stock at an
exercise price of 100% of the VWAP of the Common Stock on the Closing Date.
Section 10.2 Specific Enforcement, Consent to Jurisdiction.
---------------------------------------------
(a) The Company and the Purchaser acknowledge and agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled 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 or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
(b) Each of the Company and the Purchaser (i) hereby irrevocably submits to
the jurisdiction of the United States District Court and other courts of the
United States sitting in the State of New York for the purposes of any suit,
action or proceeding arising out of or relating to this Agreement and (ii)
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Each of the Company and
the Purchaser consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing in this
Section 10.2 shall affect or limit any right to serve process in any other
manner permitted by law.
Section 10.3 Entire Agreement; Amendment. This Agreement and the
---------------------------
Registration Rights Agreement contain the entire understanding of the parties
with respect to the matters covered hereby and, except as specifically set forth
herein, neither the Company nor the Purchaser makes any representations,
warranty, covenant or undertaking with respect to such
A-28-
<PAGE>
matters. No provision of this Agreement may be waived or amended other than by a
written instrument signed by the party against whom enforcement of any such
amendment or waiver is sought.
Section 10.4 Notices. Any notice, demand, request, waiver or other
-------
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery, or by telecopy or facsimile at
the address or number designated below (if delivered on a business day during
normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business day
during normal business hours where such notice is to be received) or (b) on the
second business day following the date of mailing by express courier service,
fully prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur. The addresses for such communications
shall be:
If to the Company: Incara Pharmaceuticals Corporation
P.O. Box 14287
3200 E. Highway 54
Suite 300
Research Triangle Park, NC 27709
Tel. No.: (919) 558-8688
Fax No.: (919) 544-1245
Attention: Clayton I. Duncan, CEO
With copies to: Wyrick Robbins Yates & Ponton LLP
4101 Lake Boone Trail, Suite 300
Raleigh, North Carolina 27607
Tel. No.: (919) 781-4000
Fax No.: (919) 781-4865
Attention: Donald R. Reynolds, Esq.
If to the Purchaser: Torneaux Fund Ltd.
Charlotte House
Charlotte Street
P.O. Box N 9204
Nassau, Bahamas
Tel. No.: (242) 325-1033
Fax No.: (242) 323-7918
Attention: Director
Any party hereto may from time to time change its address for notices by
giving at least ten (10) days prior written notice of such changed address to
the other party hereto.
Section 10.5 Waivers. No waiver by either party of any default with
-------
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing
A-29-
<PAGE>
waiver in the future or a waiver of any other provisions, condition or
requirement hereof, nor shall any delay or omission of any party to exercise any
right hereunder in any manner impair the exercise of any such right accruing to
it thereafter.
Section 10.6 Headings. The article, section and subsection headings in
--------
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 10.7 Successors and Assigns. The Purchaser may not assign this
-----------------------
Agreement to any person without the prior written consent of the Company, which
consent will not be unreasonably withheld. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns. After
Closing, the assignment by a party to this Agreement of any rights hereunder
shall not affect the obligations of such party under this Agreement.
Section 10.8 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of New York, without
giving effect to the choice of law provisions.
Section 10.9 Survival. The representations and warranties of the Company
--------
and the Purchaser contained in Article III and the covenants contained in
Article IV shall survive the execution and delivery hereof and the Closing until
the termination of this Agreement, and the agreements and covenants set forth in
Article IX of this Agreement shall survive the execution and delivery hereof and
the Closing hereunder. Section 10.14 shall survive the termination of this
Agreement.
Section 10.10 Counterparts. This Agreement may be executed in any number
------------
of counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. In the event any signature is
delivered by facsimile transmission, the party using such means of delivery
shall cause four additional executed signature pages to be physically delivered
to the other parties within five (5) days of the execution and delivery hereof.
Section 10.11 Publicity. Except as required by applicable law, the
---------
Company shall not issue any press release or otherwise make any public statement
or announcement with respect to this Agreement or the transactions contemplated
hereby or the existence of this Agreement without the prior consent of the
Purchaser, which consent will not be reasonably withheld or delayed.
Section 10.12 Severability. The provisions of this Agreement are
------------
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement, and this Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable
A-30-
<PAGE>
provision, or part of such provision, had never been contained herein, so that
such provisions would be valid, legal and enforceable to the maximum extent
possible.
Section 10.13 Further Assurances. From and after the date of this
------------------
Agreement, upon the request of the Purchaser or the Company, each of the Company
and the Purchaser shall execute and deliver such instrument, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement.
Section 10.14 Confidentiality. Purchaser agrees to maintain the
---------------
confidentiality of all information about the Company received from any director,
officer, employee or agent of the Company, until such time as that confidential
information is released to the public generally other than as a result of any
disclosure by Purchaser.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
A-31-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Common Stock
Purchase Agreement to be duly executed by their respective authorized officer as
of the date first above written.
INCARA PHARMACEUTICALS CORPORATION
By:________________________________
Name:
Title:
TORNEAUX FUND LTD.
By:________________________________
Name:
Title:
A-32-
<PAGE>
APPENDIX B
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement is made and entered into as of
August 17, 2000 (this "Agreement"), by and among Incara Pharmaceuticals
Corporation, a Delaware corporation (the "Company"), and Torneaux Fund Ltd., a
company organized under the laws of the Commonwealth of The Bahamas (the
"Purchaser").
WHEREAS, the Company agrees to issue and sell to the Purchaser and the
Purchaser agrees to purchase from the Company, pursuant to that certain Common
Stock Purchase Agreement, dated as of the date hereof, by and among the Company
and the Purchaser (the "Purchase Agreement") up to 2,556,810 shares of the
------------------
Company's Common Stock (as defined below) and Warrants (as defined below) to
purchase Common Stock; and
WHEREAS, the Company desires to grant to the Purchaser registration
rights as set forth herein with respect to the shares of Common Stock being
purchased under the Purchase Agreement and the shares of Common Stock issuable
upon exercise of the Warrants.
The Company and the Purchaser hereby agree as follows:
1. Definitions.
-----------
Capitalized terms used and not otherwise defined herein shall have the
meanings given such terms in the Purchase Agreement. As used in this Agreement,
the following terms shall have the following meanings:
"Advice" shall have the meaning set forth in Section 3(m).
------
"Affiliate" means, with respect to any Person, any other Person that
---------
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
-------
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," "controlling" and "controlled" have meanings
---------- ----------- ----------
correlative to the foregoing.
"Blackout Period" shall have the meaning set forth in Section 3(n).
---------------
"Board" shall have the meaning set forth in Section 3(n).
-----
"Business Day" means any day except Saturday, Sunday and any day which
------------
shall be a legal holiday or a day on which banking institutions in the state of
New York generally are authorized or required by law or other government actions
to close.
B-1
<PAGE>
"Commission" means the Securities and Exchange Commission.
----------
"Common Stock" means the Company's common stock, par value $.001 per
------------
share.
"Effectiveness Date" means with respect to the Registration Statement
------------------
the earlier of the 120/th/ day following the Filing Date and the date which is
within five (5) Business Days of the date on which the Commission informs the
Company that the Commission (i) will not review the Registration Statement or
(ii) that the Company may request the acceleration of the effectiveness of the
Registration Statement.
"Effectiveness Period" shall have the meaning set forth in Section 2.
--------------------
"Event" shall have the meaning set forth in Section 7(e).
-----
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Filing Date" means the date the Registration Statement is filed which
-----------
date shall be the 30/th/ day after the Closing Date.
"Holder" or "Holders" means the holder or holders, as the case may be,
------ -------
from time to time of Registrable Securities, including without limitation, the
Purchaser and its assignees.
"Indemnified Party" shall have the meaning set forth in Section 5(c).
-----------------
"Indemnifying Party" shall have the meaning set forth in Section 5(c).
------------------
"Liquidated Damages" shall have the meaning set forth in Section 7(e).
-------------------
"Losses" shall have the meaning set forth in Section 5(a).
------
"Nasdaq" shall mean the Nasdaq National Market.
------
"Person" means an individual or a corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or proceeding
----------
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened in writing.
"Prospectus" means the prospectus included in the Registration
----------
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the
B-2
<PAGE>
Prospectus, including post-effective amendments, and all material incorporated
by reference in such Prospectus.
"Registrable Securities" means (i) the shares of Common Stock issuable
----------------------
pursuant to Draw Downs pursuant to the Purchase Agreement (the "Common Shares")
and upon the exercise of the Warrants (the "Warrant Shares") and upon any stock
split, stock dividend, recapitalization or similar event with respect to such
Common Shares or Warrant Shares, and (ii) any other dividend or other
distribution with respect to, conversion or exchange of, or in replacement of,
Registrable Securities. Notwithstanding anything herein contained to the
contrary, such registered shares of Common Stock shall be allocated among the
Holders pro rata based on the total number of Registrable Securities issued or
issuable as of each date that a Registration Statement, as amended, relating to
the resale of the Registrable Securities is declared effective by the
Commission.
"Registration Statement" means the registration statement and any
----------------------
additional registration statements contemplated by Section 2, including (in each
case) the Prospectus, amendments and supplements to such registration statement
or Prospectus, including pre- and post-effective amendments, all exhibits
thereto, and all material incorporated by reference in such registration
statement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
--------
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission pursuant to
--------
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to
--------
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Special Counsel" means any special counsel to the Holders, for which
---------------
the Holders will be reimbursed by the Company pursuant to Section 4 hereof.
"Warrants" means the warrants to purchase shares of Common Stock
--------
issued to the Purchaser on each Settlement Date in connection with each Draw
Down, and any other warrants of like tenor issued in substitution or exchange
thereof.
2. Registration. On or prior to the Filing Date the Company shall
------------
prepare and file with the Commission a "shelf" Registration Statement covering
all Registrable Securities for an offering to be made on a continuous basis
pursuant to Rule 415. The Registration Statement shall be on Form S-1 (except
if the Company is not then eligible to register for resale the Registrable
Securities on Form S-1, in which case such registration shall be on another
appropriate form in accordance herewith). The Company shall (a) not permit any
securities other
B-3
<PAGE>
than the Registrable Securities to be included in the Registration Statement,
(b) use its best efforts to cause the Registration Statement to be declared
effective under the Securities Act (including filing with the Commission a
request for acceleration of effectiveness within five (5) Business Days of the
date that the Company is notified (orally or in writing, whichever is earlier)
by the Commission that a Registration Statement will not be "reviewed," or not
be subject to further review) as soon as possible after the filing thereof, but
in any event prior to the Effectiveness Date, and to keep such Registration
Statement continuously effective under the Securities Act until such date as is
the earlier of (x) the date when all Registrable Securities covered by such
Registration Statement have been sold or (y) the date on which the Registrable
Securities may be sold without any restriction pursuant to Rule 144(k) as
determined by the counsel to the Company pursuant to a written opinion letter,
addressed to the Company's transfer agent to such effect (the "Effectiveness
-------------
Period"). If an additional Registration Statement is required, for any reason,
------
to be filed because the actual number of shares of Warrant Shares exceeds the
number of shares of Common Stock initially registered in respect of the Warrant
Shares based upon the computation on the Closing Date, the Company shall have
twenty (20) Business Days to file such additional Registration Statement, and
the Company shall use its best efforts to cause such additional Registration
Statement to be declared effective by the Commission as soon as possible, but in
no event later than thirty (30) days after filing.
3. Registration Procedures.
-----------------------
In connection with the Company's registration obligations hereunder,
the Company shall:
(a) Prepare and file with the Commission on or prior to the Filing
Date, a Registration Statement on Form S-1 (or if the Company is not then
eligible to register for resale the Registrable Securities on Form S-1 such
registration shall be on another appropriate form in accordance herewith) in
accordance with the method or methods of distribution thereof as specified by
the Holders (except if otherwise directed by the Holders), and cause the
Registration Statement to become effective and remain effective as provided
herein; provided, however, that not less than five (5) Business Days prior to
-------- -------
the filing of the Registration Statement or any related Prospectus or any
amendment (including any document that would be incorporated therein by
reference), the Company shall (i) furnish to the Holders and any Special
Counsel, copies of all such documents proposed to be filed, which documents
(other than those incorporated by reference) will be subject to the review of
such Holders and such Special Counsel, and (ii) at the request of any Holder
cause its executive officers and directors, counsel and independent certified
public accountants to respond to such inquiries as shall be necessary, in the
reasonable opinion of counsel to such Holders, to conduct a reasonable
investigation within the meaning of the Securities Act. The Company shall not
file the Registration Statement or any such Prospectus or any amendments or
supplements thereto to which the Holders of a majority of the Registrable
Securities or any Special Counsel shall reasonably object in writing within
three (3) Business Days of their receipt thereof.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to the
applicable Registrable Securities for the
B-4
<PAGE>
Effectiveness Period and prepare and file with the Commission such additional
Registration Statements in order to register for resale under the Securities Act
all of the Registrable Securities; (ii) cause the related Prospectus to be
amended or supplemented by any required Prospectus supplement, and as so
supplemented or amended to be filed pursuant to Rule 424 (or any similar
provisions then in force) promulgated under the Securities Act; (iii) respond as
promptly as possible to any comments received from the Commission with respect
to the Registration Statement or any amendment thereto and as promptly as
possible provide the Holders true and complete copies of all correspondence from
and to the Commission relating to the Registration Statement; and (iv) comply in
all material respects with the provisions of the Securities Act and the Exchange
Act with respect to the disposition of all Registrable Securities covered by the
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold and any
Special Counsel as promptly as possible (and, in the case of (i)(A) below, not
less than five (5) Business Days prior to such filing) and (if requested by any
such Person) confirm such notice in writing no later than one (1) Business Day
following the day (i)(A) when a Prospectus or post-effective amendment to the
Registration Statement is proposed to be filed; (B) when the Commission notifies
the Company whether there will be a "review" of such Registration Statement and
whenever the Commission comments in writing on such Registration Statement and
(C) with respect to the Registration Statement or any post-effective amendment,
when the same has become effective; (ii) of any request by the Commission or any
other Federal or state governmental authority for amendments or supplements to
the Registration Statement or Prospectus or for additional information; (iii) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement covering any or all of the Registrable Securities or
the initiation of any Proceeding for that purpose; (iv) if at any time any of
the representations and warranties of the Company contained in this Agreement or
the Purchase Agreement ceases to be true and correct in all material respects;
(v) of the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction, or the initiation or
threatening of any Proceeding for such purpose; and (vi) of the occurrence of
any event that makes any statement made in the Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires any revisions to the
Registration Statement, Prospectus or other documents so that, in the case of
the Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
The Company shall promptly furnish to Special Counsel, without charge,
(i) any correspondence from the Commission or the Commission's staff to the
Company or its representatives relating to any Registration Statement and (ii)
promptly after the same is prepared and filed with the Commission, a copy of any
written response to the correspondence received from the Commission.
B-5
<PAGE>
(d) Use commercially reasonable efforts to avoid the issuance of, or,
if issued, obtain the withdrawal of, (i) any order suspending the effectiveness
of the Registration Statement or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
(e) If requested by the Holders of a majority in interest of the
Registrable Securities, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as the
Company reasonably agrees should be included therein and (ii) make all required
filings of such Prospectus supplement or such post-effective amendment as soon
as practicable after the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective amendment.
(f) Furnish to each Holder and any Special Counsel, without charge, at
least one conformed copy of each Registration Statement and each amendment
thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all exhibits
to the extent requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
Commission.
(g) Promptly deliver to each Holder and any Special Counsel, without
charge, as many copies of the Registration Statement, Prospectus or Prospectuses
(including each form of prospectus) and each amendment or supplement thereto as
such Persons may reasonably request; and the Company hereby consents to the use
of such Prospectus and each amendment or supplement thereto by each of the
selling Holders in connection with the offering and sale of the Registrable
Securities covered by such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling Holders and
any Special Counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder requests in writing, to
keep each such registration or qualification (or exemption therefrom) effective
during the Effectiveness Period and to do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by a Registration Statement; provided, however,
-------- -------
that the Company shall not be required to qualify generally to do business in
any jurisdiction where it is not then so qualified or to take any action that
would subject it to general service of process in any such jurisdiction where it
is not then so subject or subject the Company to any material tax in any such
jurisdiction where it is not then so subject.
(i) Cooperate with the Holders to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be sold
pursuant to a Registration Statement, which certificates shall be free of all
restrictive legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as any Holder may request at least
two (2) Business Days prior to any sale of Registrable Securities.
B-6
<PAGE>
(j) Upon the occurrence of any event contemplated by Section 3(c)(vi),
as promptly as possible, prepare a supplement or amendment, including a post-
effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
(k) Use its best efforts to cause all Registrable Securities relating
to such Registration Statement to be listed on Nasdaq or any Alternate Market,
if any, on which similar securities issued by the Company are then listed as and
when required pursuant to the Purchase Agreement.
(l) Comply in all material respects with all applicable rules and
regulations of the Commission and make generally available to its security
holders earning statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 not later than forty-five (45) days after the end of
any twelve (12)-month period (or ninety (90) days after the end of any twelve
(12)-month period if such period is a fiscal year) commencing on the first day
of the first fiscal quarter of the Company after the effective date of the
Registration Statement, which statement shall conform to the requirements of
Rule 158.
(m) Require each selling Holder to furnish to the Company information
regarding such Holder and the distribution of such Registrable Securities as is
required by law to be disclosed in the Registration Statement, and the Company
may exclude from such registration the Registrable Securities of any such Holder
who fails to furnish such information within a reasonable time prior to the
filing of each Registration Statement, supplemented Prospectus and/or amended
Registration Statement.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar federal statute then in
force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(g) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(c) and (ii) it and its officers, directors or Affiliates, if any, will
comply with the prospectus delivery requirements of the Securities Act as
applicable to them in connection with sales of Registrable Securities pursuant
to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable Securities
that, upon receipt of a notice from the Company of the occurrence of any event
of the kind described in
B-7
<PAGE>
Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or 3(c)(vi), such Holder will
forthwith discontinue disposition of such Registrable Securities under the
Registration Statement until such Holder's receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement contemplated by
Section 3(j), or until it is advised in writing (the "Advice") by the Company
------
that the use of the applicable Prospectus may be resumed, and, in either case,
has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.
(n) If (i) there is material non-public information regarding the
Company which the Company's Board of Directors (the "Board") reasonably
-----
determines not to be in the Company's best interest to disclose and which the
Company is not otherwise required to disclose, or (ii) there is a significant
business opportunity (including, but not limited to, the acquisition or
disposition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or other similar transaction) available to
the Company which the Board reasonably determines not to be in the Company's
best interest to disclose and which the Company would be required to disclose
under the Registration Statement, then the Company may suspend the sale of
Registrable Securities under a Registration Statement for a period not to exceed
twenty (20) consecutive days, provided that the Company may not suspend its
obligation under this Section 3(n) for more than forty-five (45) days in the
aggregate during any twelve (12) month period (each, a "Blackout Period");
---------------
provided, however, that no such suspension shall be permitted for consecutive
-------- -------
twenty (20) day periods, arising out of the same set of facts, circumstances or
transactions.
(o) Within two (2) business days after the Registration Statement
which includes the Registrable Securities is ordered effective by the
Commission, the Company shall deliver, and shall cause legal counsel for the
Company to deliver, to the transfer agent for such Registrable Securities (with
copies to the Holders whose Registrable Securities are included in such
Registration Statement) confirmation that the Registration Statement has been
declared effective by the Commission in the form attached hereto as Exhibit A.
---------
4. Registration Expenses
---------------------
All fees and expenses incident to the performance of or compliance
with this Agreement by the Company shall be borne by the Company whether or not
the Registration Statement is filed or becomes effective and whether or not any
Registrable Securities are sold pursuant to the Registration Statement. The
fees and expenses referred to in the foregoing sentence shall include, without
limitation the following: (i) all registration and filing fees (including,
without limitation, fees and expenses (A) with respect to filings required to be
made with the Nasdaq and each other securities exchange or market on which
Registrable Securities are required hereunder to be listed, (B) with respect to
filings required to be made with the Commission, and (C) in compliance with
state securities or Blue Sky laws (including, without limitation, the reasonable
fees and disbursements of counsel for the Holders in connection with Blue Sky
qualifications of the Registrable Securities and determination of the
eligibility of the Registrable Securities for investment under the laws of such
jurisdictions as the Holders of a majority of Registrable Securities may
designate)); (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities and of printing
B-8
<PAGE>
prospectuses if the printing of prospectuses is requested by the holders of a
majority of the Registrable Securities included in the Registration Statement);
(iii) messenger, telephone and delivery expenses; (iv) fees and disbursements of
counsel for the Company and Special Counsel for the Holders, in the case of the
Special Counsel, to a maximum amount of $15,000, (v) Securities Act liability
insurance, if the Company so desires such insurance; and (vi) fees and expenses
of all other Persons retained by the Company in connection with the consummation
of the transactions contemplated by this Agreement, including, without
limitation, the Company's independent public accountants (including the expenses
of any comfort letters or costs associated with the delivery by independent
public accountants of a comfort letter or comfort letters). In addition, the
Company shall be responsible for all of its internal expenses incurred in
connection with the consummation of the transactions contemplated by this
Agreement (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit, the fees and expenses incurred in connection with the listing
of the Registrable Securities on any securities exchange as required hereunder.
5. Indemnification.
---------------
(a) Indemnification by the Company. The Company shall,
------------------------------
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents, brokers (including brokers who
offer and sell Registrable Securities as principal as a result of a pledge or
any failure to perform under a margin call of Common Stock), investment advisors
and employees of each of them, each Person who controls any such Holder (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) and the officers, directors, agents and employees of each such controlling
Person, and the respective successors, assigns, estate and personal
representatives of each of the foregoing, to the fullest extent permitted by
applicable law, from and against any and all claims, losses, damages,
liabilities, penalties, judgments, costs (including, without limitation, costs
of investigation) and expenses (including, without limitation, reasonable
attorneys' fees and expenses) (collectively, "Losses"), as incurred, arising out
------
of or relating to any untrue statement or alleged untrue statement of a material
fact contained, or incorporated by reference, in the Registration Statement or
any Prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the statement
therein (in the case of any Prospectus or in any supplement thereto, in the
light of the circumstances under which they were made) not misleading; provided,
--------
however, that the Company shall not be liable under this Section 5(a) to the
-------
extent that a court of competent jurisdiction shall have determined by a final
judgment that such Losses, resulted directly from any such acts or failures to
act, undertaken or omitted to be taken by such Holder or such Person through its
gross negligence, bad faith or willful misconduct; provided, further, that the
-------- -------
foregoing indemnity shall not apply (i) to any Losses arising out of or based
upon any untrue statements or omissions based solely upon information regarding
such Holder furnished in writing to the Company by such Holder expressly for use
therein, which information was reasonably relied on by the Company for use
therein or to the extent that such information relates to such Holder or such
Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder for use in the
Registration Statement, any Prospectus or in any amendment or supplement thereto
and (ii) with respect to any Prospectus or any supplement or
B-9
<PAGE>
amendment thereto to the extent that any Losses of such Holder results from the
fact that the Holder sold shares of Common Stock and did not send or give, at or
prior to the written confirmation of such sale, a copy of a supplement or
amendment to the Prospectus if the Company has furnished copies thereof to the
Holder and the Losses result from an untrue statement or omission of a material
fact contained in the Prospectus which was corrected in any supplement or
amendment thereto. The Purchaser shall notify the Holders promptly of the
institution, or threat of any Proceeding of which the Company is aware in
connection with the transactions contemplated by this Agreement. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of an Indemnified Party (as defined in clause (c) of this Section 5)
and shall survive the transfer of the Registrable Securities by the Holders.
(b) Indemnification by Holders. Each Holder shall, notwithstanding
--------------------------
any termination of this Agreement, severally and not jointly, indemnify and hold
harmless the Company, each of its directors, officers, agents and employees,
each Person who controls the Company (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act), and the directors, officers,
agents and employees of each such controlling Person, and the respective
successors, assigns, estate and personal representatives of each of the
foregoing, to the fullest extent permitted by applicable law, from and against
any and all Losses, as incurred, arising out of or relating to any untrue
statement or alleged untrue statement of a material fact contained, or
incorporated by reference, in the Registration Statement, any Prospectus or any
form of prospectus or in any amendment or supplement thereto, or arising out of
or relating to any omission or alleged omission of a material fact required to
be stated therein or necessary to make the statement therein (in the case of any
Prospectus or supplement thereto, in the light of the circumstances under which
they were made) not misleading, to the extent, but only to the extent, that such
untrue statement or omission is contained in or omitted from any information so
furnished in writing by such Holder to the Company specifically for inclusion in
the Registration Statement or such Prospectus and that such information was
reasonably relied upon by the Company for use in the Registration Statement,
such Prospectus or to the extent that such information relates to such Holder or
such Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such Prospectus supplement;
provided, however, that the Holder shall be liable to the Company under this
-------- -------
Section 5(b) with respect to any Prospectus or any supplement or amendment
thereto to the extent that any such Losses of the Company results from the fact
that the Holder sold shares of Common Stock and did not send or give, at or
prior to the written confirmation of such sale, a copy of a supplement or
amendment to the Prospectus if the Company has furnished copies thereof to the
Holder and the Losses result from an untrue statement or omission of a material
fact contained in the Prospectus which was corrected in any supplement or
amendment thereto. The Company shall notify the Holder promptly of the
institution or threat of any Proceeding of which the Company is aware in
connection with the transactions contemplated by this Agreement. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of an indemnified party and shall survive the transfer of the
Registrable Securities by the Holders. Notwithstanding anything to the contrary
contained herein, the Holder shall be liable under this Section 5(b) for only
that amount as does not exceed the net proceeds to such Holder as a result of
the sale of Registrable Securities pursuant to such Registration Statement.
B-10
<PAGE>
(c) Conduct of Indemnification Proceedings. If any Proceeding shall
--------------------------------------
be brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party promptly shall notify the Person
-----------------
from whom indemnity is sought (the "Indemnifying Party) in writing, and the
------------------
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel in writing that a conflict of interest is
likely to exist if the same counsel were to represent such Indemnified Party and
the Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and one such counsel shall be at the expense
of the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall,
without the prior written consent of the Indemnified Party, effect any
settlement of any pending Proceeding in respect of which any Indemnified Party
is a party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability on claims that are the subject matter of
such Proceeding.
All reasonable fees and expenses of the Indemnified Party (including
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten (10)
Business Days of written notice thereof to the Indemnifying Party (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
--------
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section 5(a)
------------
or 5(b) is unavailable to an Indemnified Party because of a failure or refusal
of a governmental authority to enforce such indemnification in accordance with
its terms (by reason of public policy or otherwise), then each Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such Losses, in
B-11
<PAGE>
such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party and Indemnified Party in connection with the actions,
statements or omissions that resulted in such Losses as well as any other
relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material fact,
has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a
result of any Losses shall be deemed to include, subject to the limitations set
forth in Section 5(c), any reasonable attorneys' or other reasonable fees or
expenses incurred by such party in connection with any Proceeding to the extent
such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms. Notwithstanding anything to the contrary contained
herein, the Holder shall be liable or required to contribute under this Section
5(d) for only that amount as does not exceed the net proceeds to such Holder as
a result of the sale of Registrable Securities pursuant to such Registration
Statement.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6. Rule 144.
--------
As long as any Holder owns Common Shares, Warrants or Warrant Shares,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act. As long as any Holder owns Common Shares, Warrants or Warrant
Shares, if the Company is not required to file reports pursuant to Section 13(a)
or 15(d) of the Exchange Act, it will prepare and furnish to the Holders and
make publicly available in accordance with Rule 144(c) promulgated under the
Securities Act annual and quarterly financial statements, together with a
discussion and analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to be included
in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as
any other information required thereby, in the time period that such filings
would have been required to have been made under the Exchange Act. The Company
further covenants that it will take such further action as any Holder may
reasonably request, all to the extent required from time to time to enable such
Person to sell Common Shares and Warrant Shares without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act, including providing any legal opinions of
counsel to the
B-12
<PAGE>
Company referred to in the Purchase Agreement. Upon the request of any Holder,
the Company shall deliver to such Holder a written certification of a duly
authorized officer as to whether it has complied with such requirements.
7. Miscellaneous.
-------------
(a) Remedies. In the event of a breach by the Company or by a Holder,
--------
of any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any of its
--------------------------
subsidiaries has, as of the date hereof entered into and currently in effect,
nor shall the Company or any of its subsidiaries, on or after the date of this
Agreement, enter into any agreement with respect to its securities that is
inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. Neither the Company nor any of
its subsidiaries has previously entered into any agreement currently in effect
granting any registration rights with respect to any of its securities to any
Person. Without limiting the generality of the foregoing, without the written
consent of the Holders of a majority of the then outstanding Registrable
Securities, the Company shall not grant to any Person the right to request the
Company to register any securities of the Company under the Securities Act
unless the rights so granted are subject in all respects to the prior rights in
full of the Holders set forth herein, and are not otherwise in conflict with the
provisions of this Agreement.
(c) Intentionally Omitted.
---------------------
(d) Piggy-Back Registrations. If at any time when there is not an
------------------------
effective Registration Statement covering (i) Common Shares or (ii) Warrant
Shares, the Company shall determine to prepare and file with the Commission a
registration statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity securities,
other than on Form S-4 or Form S-8 (each as promulgated under the Securities
Act) or its 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 holder of Registrable Securities written
notice of such determination and, if within thirty (30) days after receipt of
such notice, any such holder shall so request in writing (which request shall
specify the Registrable Securities intended to be disposed of by the Holders),
the Company will cause the registration under the Securities Act of all
Registrable Securities which the Company has been so requested to register by
the holder, to the extent requisite to permit the disposition of the Registrable
Securities so to be registered, provided that if at any time after giving
written notice of its intention to register any securities and prior to the
effective date of the registration statement filed in connection with
B-13
<PAGE>
such registration, the Company shall determine for any reason not to register or
to delay registration of such securities, the Company may, at its election, give
written notice of such determination to such holder and, thereupon, (i) in the
case of a determination not to register, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration (but
not from its obligation to pay expenses in accordance with Section 4 hereof),
and (ii) in the case of a determination to delay registering, shall be permitted
to delay registering any Registrable Securities being registered pursuant to
this Section 7(d) for the same period as the delay in registering such other
securities. The Company shall include in such registration statement all or any
part of such Registrable Securities such holder requests to be registered;
provided, however, that the Company shall not be required to register any
-------- -------
Registrable Securities pursuant to this Section 7(d) that are eligible for sale
pursuant to Rule 144(k) of the Securities Act. In the case of an underwritten
public offering, if the managing underwriter(s) or underwriter(s) should
reasonably object to the inclusion of the Registrable Securities in such
registration statement, then if the Company after consultation with the managing
underwriter should reasonably determine that the inclusion of such Registrable
Securities, would materially adversely affect the offering contemplated in such
registration statement, and based on such determination recommends inclusion in
such registration statement of fewer or none of the Registrable Securities of
the Holders, then (x) the number of Registrable Securities of the Holders
included in such registration statement shall be reduced pro-rata among such
Holders (based upon the number of Registrable Securities requested to be
included in the registration), if the Company after consultation with the
underwriter(s) recommends the inclusion of fewer Registrable Securities, or (y)
none of the Registrable Securities of the Holders shall be included in such
registration statement, if the Company after consultation with the
underwriter(s) recommends the inclusion of none of such Registrable Securities;
provided, however, that if securities are being offered for the account of other
-------- -------
persons or entities as well as the Company, such reduction shall not represent a
greater fraction of the number of Registrable Securities intended to be offered
by the Holders than the fraction of similar reductions imposed on such other
persons or entities (other than the Company).
(e) Failure to Obtain Effectiveness of the Registration Statement and
-----------------------------------------------------------------
Other Events. The Company and the Holders agree that the Holders will suffer
------------
damages if the Registration Statement is not declared effective by the
Commission on or prior to the Effectiveness Date and maintained in the manner
contemplated herein during the Effectiveness Period or if certain other events
occur. The Company and the Holders further agree that it would not be feasible
to ascertain the extent of such damages with precision. Accordingly, if (i) the
Registration Statement is not declared effective by the Commission on or prior
to the Effectiveness Date (or in the event an additional Registration Statement
filed because the actual number of shares of Common Stock issuable pursuant to a
Draw Down or into which the Warrants are exercisable exceeds the number of
shares of Common Stock initially registered is not filed and declared effective
within the time periods set forth in Section 2 hereof), or (ii) the Company
fails to file with the Commission a request for acceleration in accordance with
Rule 461 promulgated under the Securities Act within five (5) Business Days of
the date that the Company is notified (orally or in writing, whichever is
earlier) by the Commission that a Registration Statement will not be "reviewed,"
or not subject to further review, or (iii) except as contemplated by Section
3(n), the Registration Statement is filed with and declared effective by the
Commission but thereafter ceases to be effective as to all Registrable
Securities at any time
B-14
<PAGE>
prior to the expiration of the Effectiveness Period, without being succeeded
immediately by a subsequent Registration Statement filed with and declared
effective by the Commission, or (iv) trading in the Common Stock shall be
suspended or if the Common Stock is delisted from Nasdaq and any Alternate
Market for any reason for more than three (3) Business Days in the aggregate, or
(v) the exercise rights of the Holders under the Warrants are suspended for any
reason, including by the Company, or (vi) the Company breaches in a material
respect any covenant or other material term or condition to this Agreement, the
Purchase Agreement (other than a representation or warranty contained therein)
or any other agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated hereby and thereby, and such
breach continues for a period of thirty (30) days after written notice thereof
to the Company, or (vii) the Company has breached Section 3(n) of this Agreement
(any such failure or breach being referred to as an "Event"), the Company shall
-----
pay as liquidated damages for such failure and not as a penalty (the "Liquidated
----------
Damages") to each Holder an amount equal to (A) $20,000 with respect to the
-------
occurrence of an Event described in clause (i) of this Section 7(e) and (B) with
respect to the occurrence of an Event described in clauses (ii) through (vii) of
this Section 7(e), one percent (1%) of the aggregate purchase price of all of
the Registrable Securities then held by the such Holder pursuant to the Purchase
Agreement for the initial thirty (30) day period following such Event until the
applicable Event has been cured, which amount shall be pro rated for any period
less than thirty (30) days, and two percent (2%) of the aggregate purchase price
of all of the Registrable Securities then held by the such Holder pursuant to
the Purchase Agreement for each thirty (30) day period thereafter until the
applicable Event has been cured, which shall be pro rated for any period less
than thirty (30) days (the "Periodic Amount"). Payments to be made pursuant to
---------------
this Section 7(e) shall be due and payable immediately upon demand of the
Holders in cash. The parties agree that the Periodic Amount represents a
reasonable estimate on the part of the parties, as of the date of this
Agreement, of the amount of damages that may be incurred by the Holders if the
Registration Statement has not been declared effective by the Commission on or
prior to the Effectiveness Date and is not maintained in the manner contemplated
herein during the Effectiveness Period or if any other Event as described herein
has occurred.
(f) Consent to Jurisdiction. Each of the Company and the Purchaser
-----------------------
(i) hereby irrevocably submits to the jurisdiction of the United States District
Court for the Southern District of New York and the courts of the State of New
York located in New York county for the purposes of any suit, action or
proceeding arising out of or relating to this Agreement or the Purchase
Agreement and (ii) hereby waives, and agrees not to assert in any such suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is
improper. Each of the Company and the Purchaser consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address in effect for notices to it under this Agreement and agrees
that such service shall constitute good and sufficient service of process and
notice thereof. Nothing in this Section 7(f) shall affect or limit any right to
serve process in any other manner permitted by law.
(g) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in
B-15
<PAGE>
writing and signed by the Company and Holders of a majority of the Registrable
Securities at the time, provided, however, that the provisions of this sentence
-------- -------
may not be amended, modified, or supplemented except in accordance with the
provisions of the immediately preceding sentence.
(h) Notices. Any and all notices or other communications or
-------
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earlier of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified for notice prior to 5:00 p.m., eastern
standard time, on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified for notice later than 5:00 p.m., eastern
time, on any date and earlier than 11:59 p.m., eastern time, on such date, (iii)
the Business Day following the date of mailing, if sent by nationally recognized
overnight courier service or (iv) actual receipt by the party to whom such
notice is required to be given. The addresses for such communications shall be
with respect to the Holder: Torneaux Fund Ltd.
Charlotte House
Charlotte Street
P. O. Box N 9204
Nassau, Bahamas
Tel. No.: (242) 325-1033
Fax No.: (242) 323-7918
Attention: Director
with respect to the Company: Incara Pharmaceuticals Corporation
3200 E. Highway 54
Suite 300
Research Triangle Park, NC 27709
Tel. No.: (919) 558-8688
Fax No.: (919) 544-1245
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to any Holder shall be sent to the address
set forth above, if applicable. Copies of notices to the Company shall be sent
to Wyrick Robbins Yates & Ponton LLP, 4101 Lake Boone Trail, Suite 300, Raleigh,
North Carolina 27607, Attention: Donald R. Reynolds, Esq., Facsimile no.: (919)
781-4865.
(i) Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties and their successors and permitted assigns
and shall inure to the benefit of each Holder and its successors and assigns
(but not to a purchaser of Registrable Securities sold under a Registration
Statement or pursuant to Rule 144.) The Company may not assign this Agreement
or any of its rights or obligations hereunder without the prior written consent
of each Holder. The Purchaser may assign its rights hereunder in the manner and
to the Persons as permitted under the Purchase Agreement.
B-16
<PAGE>
(j) Assignment of Registration Rights. The rights of each Holder
---------------------------------
hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by each Holder to any transferee of such Holder of all
or a portion of the shares of Registrable Securities (but not to a purchaser of
Registrable Securities sold under a Registration Statement or pursuant to Rule
144.) if: (i) the Holder 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 assignees is restricted under the
Securities Act and applicable state securities laws, (iv) at or before the time
the Company receives the written notice contemplated by clause (ii) of this
Section 7(j), the transferee or assignee agrees in writing with the Company to
be bound by all of the provisions of this Agreement; and (v) such transfer shall
have been made in accordance with the applicable requirements of the Purchase
Agreement. In addition, each Holder shall have the right to assign its rights
hereunder to any other Person with the prior written consent of the Company,
which consent shall not be unreasonably withheld. The rights to assignment
shall apply to the Holders' (and to subsequent) successors and assigns.
(k) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement.
In the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
(l) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York, without regard to
principles of conflicts of law thereof. This Agreement shall not be interpreted
or construed with any presumption against the party causing this Agreement to be
drafted.
(m) Cumulative Remedies. The remedies provided herein are cumulative
-------------------
and not exclusive of any remedies provided by law.
(n) Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held to be invalid, illegal, void or unenforceable in any
respect, the remainder of the terms, provisions, covenants and restrictions set
forth herein shall remain in full force and effect and shall in no way be
affected, impaired or invalidated, and the parties hereto shall use their
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
B-17
<PAGE>
(o) Headings. The headings herein are for convenience only, do not
--------
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
(p) Shares Held by the Company and its Affiliates. Whenever the
---------------------------------------------
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than any Holder or transferees or successors or assigns
thereof if such Holder is deemed to be an Affiliate solely by reason of its
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage and shall not be counted as outstanding.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
B-18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed by their respective authorized persons as
of the date first indicated above.
INCARA PHARMACEUTICALS CORPORATION.
By:________________________________
Name:
Title:
TORNEAUX FUND LTD.
By:________________________________
Name:
Title:
B-19
<PAGE>
REVOCABLE PROXY
INCARA PHARMACEUTICALS CORPORATION
3200 East Highway 54
Cape Fear Building, Suite 300
Research Triangle Park, North Carolina 27709
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned, a stockholder of Incara Pharmaceuticals Corporation, a
Delaware corporation ("Incara"), hereby constitutes and appoints Clayton
I. Duncan and Richard W. Reichow, or either of them, attorneys and
proxies with full power of substitution to act and vote all shares of
the undersigned at the special meeting of stockholders of Incara to be
held at Incara's offices at 3200 East Highway 54, Cape Fear Building,
Suite 300, Research Triangle Park, North Carolina on October 19, 2000
commencing at 9:00 a.m., Eastern Time, and any adjournment(s) thereof
(the "Meeting").
[X] Please mark votes as in this example.
Incara's Board of Directors has approved and recommends a vote "FOR" Proposal 1.
1. To approve the private equity FOR AGAINST ABSTAIN
financing facility of up to [_] [_] [_]
$18,900,000 with Torneaux Fund Ltd.
This proxy will be voted as directed above. In the absence of any
direction, this proxy will be voted "For" Proposal 1, with discretion to vote
upon such other matters as may be brought before the Meeting. Any proxy
heretofore given by the undersigned for the Meeting is hereby revoked and
declared null and void and without any effect whatsoever.
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE MEETING. IF YOU
ATTEND THE MEETING, YOU CAN VOTE EITHER IN PERSON OR BY YOUR PROXY.
Signature:________________ Date:______ Signature:______________ Date:_______
Note: Please sign exactly as your name(s) appear(s) hereon. Joint owners
should each sign. Executors, administrators, trustees, guardians or other
fiduciaries should give full title as such. If signing for a corporation,
please sign in full corporate name by a duly authorized officer.
