1
EXHIBIT 4.1
PRIVATE EQUITY LINE OF CREDIT AGREEMENT
BY AND BETWEEN
KINGSBRIDGE CAPITAL LIMITED
AND
NEOTHERAPEUTICS, INC.
DATED AS OF MARCH 27, 1998
2
TABLE OF CONTENTS
Page
ARTICLE I
Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 "Adjustment Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 "Average Daily Trading Volume" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3 "Bid Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.4 "Blackout Shares" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.5 "Capital Shares" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.6 "Closing" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.7 "Closing Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.8 "Commitment Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.9 "Common Stock" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.10 "Common Stock Equivalents" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.11 "Condition Satisfaction Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.12 "Damages" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.13 "Discount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.14 "Effective Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.15 "Escrow Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.16 "Exchange Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.17 "Floor Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.18 "Initial Registerable Securities" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.19 "Initial Registration Statement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.20 "Investment Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.21 "Legend" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.22 "Market Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.23 "Maximum Commitment Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.24 "Minimum Commitment Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.25 "Material Adverse Effect" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.26 "Maximum Put Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.27 "Minimum Put Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.28 "NASD" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.29 "NASDAQ" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.30 "Outstanding" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.31 "Person" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.32 "Preferred Stock" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.33 "Principal Market" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.34 "Purchase Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.35 "Put" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.36 "Put Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.37 "Put Notice" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
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Section 1.38 "Put Shares" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.39 "Registrable Securities" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.40 "Registration Rights Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.41 "Registration Statement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.42 "Regulation D" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.43 "SEC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.44 "Section 4(2)" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.45 "Securities Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.46 "SEC Documents" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.47 "Standby Letter of Credit" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.48 "Subscription Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.49 "Trading Cushion" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 1.50 "Trading Day" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 1.51 "Underwriter" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 1.52 "Valuation Event" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 1.53 "Valuation Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 1.54 "Warrant" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 1.55 "Warrant Shares" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE II
Purchase and Sale of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.1 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.2 Mechanics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.3 Closings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.4 Special Circumstances; Adjustment Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.5 Termination of Investment Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.6 The Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.7 Blackout Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.8 Liquidated Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.9 Standby Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE III
Representations and Warranties of Investor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.1 Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.2 Sophisticated Investor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.3 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.4 Not an Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
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Section 3.5 Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.6 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.7 Disclosure; Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.8 Manner of Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE IV
Representations and Warranties of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.1 Organization of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.4 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.5 SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.6 Exemption from Registration; Valid Issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.7 No General Solicitation or Advertising in Regard to this Transaction . . . . . . . . . . . . . . . . 14
Section 4.8 Corporate Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.9 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.10 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.11 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.12 No Undisclosed Events or Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.13 No Integrated Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.14 Litigation and Other Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.15 No Misleading or Untrue Communication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.16 Material Non-Public Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE V
Covenants of the Investor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 5.1 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 6.1 Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 6.2 Reservation of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 6.3 Listing of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 6.4 Exchange Act Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.5 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.6 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.7 Additional SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.8 Notice of Certain Events Affecting Registration;
Suspension of Right to Make a Put . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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Section 6.9 Expectations Regarding Put Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 6.10 Consolidation; Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 6.11 Issuance of Put Shares, Warrant Shares and Blackout Shares . . . . . . . . . . . . . . . . . . . . 18
Section 6.12 Legal Opinion on Subscription Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VII
Conditions to Delivery of Put Notices and Conditions to Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 7.1 Conditions Precedent to the Obligation of the
Company to Issue and Sell Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 7.2 Conditions Precedent to the Right of the
Company to Deliver a Put Notice and the Obligation
of the Investor to Purchase Put Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 7.3 Due Diligence Review; Non-Disclosure of
Non-Public Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VIII
Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 8.1 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 8.2 No Other Legend or Stock Transfer Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 8.3 Investor's Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE IX
Choice of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 9.1 Choice of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE X
Assignment; Entire Agreement, Amendment; Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 10.1 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 10.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 10.3 Entire Agreement, Amendment; No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE XI
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Notices; Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 11.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 11.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 11.3 Method of Asserting Indemnification Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE XII
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 12.1 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 12.2 Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 12.3 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 12.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 12.5 Survival; Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 12.6 Title and Subtitles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 12.7 Reporting Entity for the Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
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EXHIBIT 4.1
PRIVATE EQUITY LINE OF CREDIT AGREEMENT
BY AND BETWEEN
KINGSBRIDGE CAPITAL LIMITED
AND
NEOTHERAPEUTICS, INC.
DATED AS OF MARCH 27, 1998
This PRIVATE EQUITY LINE OF CREDIT AGREEMENT is entered into as of the
27th day of March, 1998 (this "Agreement"), by and between Kingsbridge Capital
Limited (the "Investor"), an entity organized and existing under the laws of
the British Virgin Islands, and Neotherapeutics, Inc., a corporation organized
and existing under the laws of the State of Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
from time to time as provided herein, and the Investor shall purchase, up to
$15,000,000 of the Common Stock (as defined below); 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 investments in Common Stock to be made
hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section I.1 "Adjustment Period" shall have the meaning set forth
in Section 2.4(b).
Section I.2 "Average Daily Trading Volume" shall mean, with
respect to any date, the average of the daily trading volumes for the Common
Stock on the Principal Market for twenty-six (26) of the thirty (30)
consecutive Trading Days immediately preceding such date, after removing the
Trading Days with the two (2) highest trading volumes and the Trading Days with
the two (2) lowest trading volumes.
Section I.3 "Bid Price" shall mean the closing bid price (as
reported by NASDAQ) of the Common Stock on the Principal Market.
8
Section I.4 "Blackout Shares" shall have the meaning assigned to
them in Section 2.7.
Section I.5 "Capital Shares" shall mean the Common Stock and any
shares of any other class of common stock whether now or hereafter authorized,
having the right to participate in the distribution of dividends (as and when
declared) and assets (upon liquidation of the Company).
Section I.6 "Closing" shall mean one of the closings of a
purchase and sale of the Common Stock pursuant to Section 2.1.
Section I.7 "Closing Date" shall mean, with respect to a Closing,
the third Trading Day following the Put Date related to such Closing, provided
all conditions to such Closing have been satisfied on or before such Trading
Day.
Section I.8 "Commitment Period" shall mean the period commencing
on the earlier to occur of (i) the Effective Date or (ii) such earlier date as
the Company and the Investor may mutually agree in writing, and expiring on the
earlier to occur of (x) the date on which the Investor shall have purchased Put
Shares pursuant to this Agreement for an aggregate Purchase Price of the
Maximum Commitment Amount, (y) the date this Agreement is terminated pursuant
to Section 2.5, or (z) the date occurring thirty (30) months from the date of
commencement of the Commitment Period.
Section I.9 "Common Stock" shall mean the Company's common stock,
$0.001 par value per share.
Section I.10 "Common Stock Equivalents" shall mean any securities
that are convertible into or exchangeable for Common Stock or any warrants,
options or other rights to subscribe for or purchase Common Stock or any such
convertible or exchangeable securities.
Section I.11 "Condition Satisfaction Date" shall have the meaning
set forth in Section 7.2 of this Agreement.
Section I.12 "Damages" shall mean any loss, claim, damage,
liability, costs and expenses (including, without limitation, reasonable
attorneys' fees and disbursements and costs and expenses of expert witnesses
and investigation).
Section I.13 "Discount" shall mean twelve percent (12%).
Section I.14 "Effective Date" shall mean the date on which the SEC
first declares effective a Registration Statement registering resale of the
Registrable Securities as set forth in Section 7.2(a).
Section I.15 "Escrow Agreement" shall mean the escrow agreement in
the form of Exhibit A entered into pursuant to Section 7.2(p) hereof.
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Section I.16 "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended and the rules and regulations promulgated thereunder.
Section I.17 "Floor Price" shall mean three dollars ($3.00) per
share.
Section I.18 "Initial Registerable Securities" shall have the
meaning set forth in the Registration Rights Agreement.
Section I.19 "Initial Registration Statement" shall have the
meaning set forth in the Registration Rights Agreement.
Section I.20 "Investment Amount" shall mean the dollar amount
(within the range specified in Section 2.2) to be invested by the Investor to
purchase Put Shares with respect to any Put Date as notified by the Company to
the Investor in accordance with Section 2.2 hereof.
Section I.21 "Legend" shall have the meaning specified in
Section 8.1.
Section I.22 "Market Price" on any given date shall mean the
average of the lowest intra-day prices of the Common Stock over the Valuation
Period. "Lowest intra-day price" shall mean the lowest trade price of the
Common Stock (as reported by NASDAQ) during any Trading Day.
Section I.23 "Maximum Commitment Amount" shall mean $15,000,000.
Section I.24 "Minimum Commitment Amount" shall mean $1,000,000.
Section I.25 "Material Adverse Effect" shall mean any effect on
the business, operations, properties, prospects, or financial condition of the
Company that is material and adverse to the Company or to the Company and such
other entities controlling or controlled by the Company, 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
its obligations under any of (a) this Agreement, (b) the Registration Rights
Agreement, and (c) the Warrant.
Section I.26 "Maximum Put Amount" shall mean with respect to any
Put, an amount determined in accordance with the table set forth on Annex A
hereto.
Section I.27 "Minimum Put Amount" shall mean $250,000.
Section I.28 "NASD" shall mean the National Association of
Securities Dealers, Inc.
Section I.29 "NASDAQ" shall mean Nasdaq Stock Market, Inc.
Section I.30 "Outstanding" when used with reference to Common
Shares or Capital
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Shares (collectively the "Shares"), shall mean, at any date as of which the
number of such Shares is to be determined, all issued and outstanding Shares,
and shall include all such Shares issuable in respect of outstanding scrip or
any certificates representing fractional interests in such Shares; provided,
however, that "Outstanding" shall not refer to any such Shares then directly or
indirectly owned or held by or for the account of the Company.
Section I.31 "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section I.32 "Preferred Stock" shall mean the Company's preferred
stock, par value $.001 per share.]
Section I.33 "Principal Market" shall mean the Nasdaq National
Market, the Nasdaq Small-Cap Market, the American Stock Exchange or the New
York Stock Exchange, whichever is at the time the principal trading exchange or
market for the Common Stock.
Section I.34 "Purchase Price" shall mean, with respect to a Put,
the Market Price on the applicable Put Date (or such other date on which the
Purchase Price is calculated in accordance with the terms and conditions of
this Agreement) less the product of the Discount and the Market Price;
provided, however, that in no event shall the Purchase Price be less than the
Floor Price; provided, further, that during the Adjustment Period the Purchase
Price shall be adjusted as set forth in Section 2.4.
Section I.35 "Put" shall mean each occasion the Company elects to
exercise its right to tender a Put Notice requiring the Investor to purchase a
discretionary amount of the Company's Common Stock, subject to the terms and
conditions of this Agreement.
Section I.36 "Put Date" shall mean the Trading Day during the
Commitment Period that a Put Notice to sell Common Stock to the Investor is
deemed delivered pursuant to Section 2.2(b) hereof.
Section I.37 "Put Notice" shall mean a written notice to the
Investor setting forth the Investment Amount that the Company intends to
require the Investor to purchase pursuant to the terms of this Agreement.
Section I.38 "Put Shares" shall mean all shares of Common Stock
issued or issuable pursuant to a Put that has been exercised or may be
exercised in accordance with the terms and conditions of this Agreement.
Section I.39 "Registrable Securities" shall mean the (i) Put
Shares, (ii) the Warrant Shares, (iii) the Blackout Shares and (iv) any
securities issued or issuable with respect to any of the foregoing by way of
exchange, stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization or
otherwise. As to any particular Registrable Securities, once issued such
securities shall cease to
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be Registrable Securities when (w) a Registration Statement has been declared
effective by the SEC and all Registrable Securities have been disposed of
pursuant to a Registration Statement, (x) all Registrable Securities have been
sold under circumstances under which all of the applicable conditions of Rule
144 (or any similar provision then in force) under the Securities Act ("Rule
144") are met, (y) such time as all Registrable Securities have been otherwise
transferred to holders who may trade such shares without restriction under the
Securities Act, and the Company has delivered a new certificate or other
evidence of ownership for such securities not bearing a restrictive legend or
(z) in the opinion of counsel to the Company, which counsel shall be reasonably
acceptable to the Investor, all Registrable Securities may be sold without
registration or the need for an exemption from any registration requirements
and without any time, volume or manner limitations pursuant to Rule 144(k) (or
any similar provision then in effect) under the Securities Act.
Section I.40 "Registration Rights Agreement" shall mean the
registration rights agreement in the form of Exhibit B hereto.
Section I.41 "Registration Statement" shall mean a registration
statement on Form S-3 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC for which the Company then qualifies and which counsel for the Company
shall deem appropriate and which form shall be available for the resale of the
Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement, the Registration Rights Agreement, and the
Warrant and in accordance with the intended method of distribution of such
securities), for the registration of the resale by the Investor of the
Registrable Securities under the Securities Act.
Section I.42 "Regulation D" shall have the meaning set forth in
the recitals of this Agreement.
Section I.43 "SEC" shall mean the Securities and Exchange
Commission.
Section I.44 "Section 4(2)" shall have the meaning set forth in
the recitals of this Agreement.
Section I.45 "Securities Act" shall have the meaning set forth in
the recitals of this Agreement.
Section I.46 "SEC Documents" shall mean the Company's latest Form
10-KSB as of the time in question, all Forms 10-QSB and 8-K filed thereafter,
and the Proxy Statement for its latest fiscal year as of the time in question
until such time the Company no longer has an obligation to maintain the
effectiveness of a Registration Statement as set forth in the Registration
Rights Agreement.
Section I.47 "Standby Letter of Credit" shall have the meaning set
forth in Section 2.9.
Section I.48 "Subscription Date" shall mean the date on which this
Agreement is
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executed and delivered by the parties hereto.
Section I.49 "Trading Cushion" shall mean the mandatory fifteen
(15) Trading Days between Put Dates.
Section I.50 "Trading Day" shall mean any day during which the
Principal Market shall be open for business.
Section I.51 "Underwriter" shall mean any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Investor pursuant to a Registration Statement.
Section I.52 "Valuation Event" shall mean an event in which the
Company at any time during a Valuation Period takes any of the following
actions:
(a) subdivides or combines its Common Stock;
(b) pays a dividend in its Capital Stock or makes any
other distribution of its Capital Shares, except for dividends
paid with respect to the Preferred Stock;
(c) issues any additional Capital Shares ("Additional
Capital Shares"), otherwise than as provided in the foregoing
Subsections (a) and (b) above, at a price per share less, or
for other consideration lower, than the Bid Price in effect
immediately prior to such issuance, or without consideration;
(d) issues any warrants, options or other rights to
subscribe for or purchase any Additional Capital Shares and
the price per share for which Additional Capital Shares may at
any time thereafter be issuable pursuant to such warrants,
options or other rights shall be less than the Bid Price in
effect immediately prior to such issuance;
(e) issues any securities convertible into or
exchangeable for Capital Shares and the consideration per
share for which Additional Capital Shares may at any time
thereafter be issuable pursuant to the terms of such
convertible or exchangeable securities shall be less than the
Bid Price in effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidences of
indebtedness to the holders of its Capital Shares as a
dividend in liquidation or by way of return of capital or
other than as a dividend payable out of earnings or surplus
legally available for dividends under applicable law or any
distribution to such holders made in respect of the sale of
all or substantially all of the Company's assets (other than
under the circumstances provided for in the foregoing
subsections (a) through (e); or
(g) takes any action affecting the number of Outstanding
Capital Shares, other than an action described in any of the
foregoing Subsections (a) through (f) hereof,
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inclusive, which in the opinion of the Company's Board of
Directors, determined in good faith, would have a materially
adverse effect upon the rights of the Investor at the time of
a Put or exercise of the Warrant.
Section I.53 "Valuation Period" shall mean the period of five (5)
Trading Days during which the Purchase Price of the Common Stock is valued,
which period shall be with respect to the Purchase Price on any Put Date, the
two (2) Trading Day preceding and the two (2) Trading Days following the
Trading Day on which the applicable Put Notice is deemed to be delivered, as
well as the Trading Day on which such notice is deemed to be delivered;
provided, however, that if a Valuation Event occurs during any Valuation
Period, a new Valuation Period shall begin on the Trading Day immediately after
the occurrence of such Valuation Event and end on the fifth Trading Day
thereafter.
Section I.54 "Warrant" shall mean the Warrant in the form of
Exhibit C hereto issued pursuant to Section 2.6 of this Agreement.
Section I.55 "Warrant Shares" shall mean all shares of Common
Stock issued or issuable pursuant to exercise of the Warrant.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section II.1 Investments.
(a) Puts. Upon the terms and conditions set forth herein
(including, without limitation, the provisions of Article VII
hereof), on any Put Date the Company may exercise a Put by the
delivery of a Put Notice. The number of Put Shares that the
Investor shall receive pursuant to such Put shall be
determined by dividing the Investment Amount specified in the
Put Notice by the Purchase Price with respect to such Put
Date.
(b) Minimum Amount of Puts. The Company shall, in
accordance with Section 2.2(a), issue and sell Put Shares to
the Investor and the Investor shall purchase Put Shares from
the Company totaling (in aggregate Purchase Prices) at least
the Minimum Commitment Amount. If the Company for any reason
fails to issue and deliver such Put Shares during the
Commitment Period, on the first Trading Day after the
expiration of the Commitment Period, the Company shall wire to
Investor a sum in immediately available funds equal to the
product of (X) the Minimum Commitment Amount minus the
aggregate Investment Amounts of the Put Shares delivered to
the Investor hereunder and (Y) the Discount.
(c) Maximum Amount of Puts. Unless the Company obtains
the requisite approval of its shareholders in accordance with
the corporate laws of Delaware and the applicable rules of the
Principal Market, no more than 19.9% of the
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Outstanding shares of Common Stock, which is equal to
1,089,387 shares, may be issued and sold pursuant to Puts.
Section II.2 Mechanics.
(a) Put Notice. At any time during the Commitment
Period, the Company may deliver a Put Notice to the Investor,
subject to the conditions set forth in Section 7.2; provided,
however, the Investment Amount for each Put as designated by
the Company in the applicable Put Notice shall be neither less
than the Minimum Put Amount nor more than the Maximum Put
Amount.
(b) Date of Delivery of Put Notice. A Put Notice shall
be deemed delivered on (i) the Trading Day it is received by
facsimile or otherwise by the Investor if such notice is
received prior to 12:00 noon New York time, or (ii) the
immediately succeeding Trading Day if it is received by
facsimile or otherwise after 12:00 noon New York time on a
Trading Day or at any time on a day which is not a Trading
Day. No Put Notice may be deemed delivered, on a day that is
not a Trading Day.
Section II.3 Closings. On each Closing Date for a Put, (i) the
Company shall deliver into escrow one or more certificates, at the Investor's
option, representing the Put Shares to be purchased by the Investor pursuant to
Section 2.1 herein, registered in the name of the Investor and (ii) the
Investor shall deliver into escrow the Investment Amount specified in the Put
Notice by wire transfer of immediately available funds to an account designated
by the Company on or before the Closing Date. In addition, on or prior to such
Closing Date, each of the Company and the Investor shall deliver to the other
all documents, instruments and writings required to be delivered or reasonably
requested by either of them pursuant to this Agreement in order to implement
and effect the transactions contemplated herein. Payment of the Investment
Amount to the Company or the Company's draw on the Standby Letter of Credit (as
defined in Section 2.9) and delivery of such certificate(s) to the Investor
shall occur out of escrow in accordance with the Escrow Agreement; provided,
however, that to the extent the Company has not paid the fees, expenses and
disbursements of the Investor's counsel in accordance with Section 12.1, the
amount of such fees, expenses and disbursements shall be paid in immediately
available funds, at the direction of the Investor, to Investor's counsel with
no reduction in the number of Put Shares issuable to the Investor on such
Closing Date.
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Section II.4 Special Circumstances; Adjustment Period.
(a) Adjustment Period Notice. In the event that the
Company shall in good faith anticipate executing an agreement
of acquisition, merger or consolidation within ninety (90)
days after giving the Investor Adjustment Period Notice (as
defined below), the Company may, at its sole discretion, give
the Investor at least twenty-one (21) days' irrevocable
advance notice, in the form of Exhibit D hereto ("Adjustment
Period Notice"), that the Company shall initiate an Adjustment
Period (as defined below). The Company shall not give such
Adjustment Period Notice if it constitutes the disclosure of
material non-public information to the Investor.
(b) During the Adjustment Period:
1. the Purchase Price shall be eighty three
percent (83%) of the Market Price on the applicable
Put Date;
2. the duration of the Trading Cushion shall be
shortened to ten (10) Trading Days until the
expiration of five (5) consecutive weeks after the
date on which the Adjustment Period Notice was given
(the "Adjustment Period"); and
3. the Company may not deliver a Put Notice such
that the number of Put Shares to be purchased by the
Investor upon the applicable Closing, when aggregated
with all other shares of Common Stock then owned by
the Investor beneficially or deemed beneficially
owned by the Investor, would result in the Investor
owning more than 4.9% of all of such Common Stock as
would be outstanding on such Closing Date, as
determined in accordance with Section 13(d) of the
Exchange Act and the regulations promulgated
thereunder. For purposes of this Section 2.4(c), in
the event that the amount of Common Stock outstanding
as determined in accordance with Section 13(d) of the
Exchange Act is greater on a Closing Date than on the
date upon which the Put Notice associated with such
Closing Date is given, the amount of Common Stock
outstanding on such Closing Date shall govern for
purposes of determining whether the Investor, when
aggregating all purchases of Common Stock made
pursuant to this Agreement and, if any, Warrant
Shares, would own more than 4.9% of the Common Stock
following such Closing Date.
Section II.5 Termination of Investment Obligation. The obligation
of the Investor to purchase shares of Common Stock shall terminate permanently
(including with respect to a Closing Date that has not yet occurred) in the
event that (i) there shall occur any stop order or suspension of the
effectiveness of any Registration Statement for an aggregate of thirty (30)
Trading Days during the Commitment Period, for any reason other than deferrals
or suspension during a Blackout Period in accordance with the Registration
Rights Agreement, as a result of
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corporate developments subsequent to the Subscription 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 (ii) the Company shall at any time fail to comply with the requirements of
Section 6.3, 6.4, 6.5 or 6.6.
Section II.6 The Warrant. On the Subscription Date, the Company
shall issue the Warrant to the Investor. The Warrant shall be delivered by the
Company to the Investor upon execution of this Agreement by the parties hereto.
The Warrant Shares shall be registered for resale pursuant to the Registration
Rights Agreement.
Section II.7 Blackout Shares. In the event that, (a) within five
Trading Days following any Closing Date, the Company gives a Blackout Notice to
the Investor of a Blackout Period in accordance with the Registration Rights
Agreement, and (b) the Bid Price on the Trading Day immediately preceding such
Blackout Period ("Old Bid Price") is greater than the Bid Price on the first
Trading Day following such Blackout Period that the Investor may sell its
Registrable Securities pursuant to an effective Registration Statement ("New
Bid Price"), then the Company shall issue to the Investor the number of
additional shares of Registrable Securities (the "Blackout Shares") equal to
the difference between (X) the product of the number of Registrable Securities
held by Investor immediately prior to the Blackout Period multiplied by the Old
Bid Price, divided by the New Bid Price, and (Y) the number of Registrable
Securities held by Investor immediately prior to the Blackout Period.
Section II.8 Liquidated Damages. The parties hereto acknowledge
and agree that the sum payable under Section 2.1(b) and the requirement to
issue Blackout Shares under Section 2.7 above shall give rise to liquidated
damages and not penalties. The parties further acknowledge that (a) the amount
of loss or damages likely to be incurred is incapable or is difficult to
precisely estimate, (b) the amounts specified in such Sections bear a
reasonable proportion and are not plainly or grossly disproportionate to the
probable loss likely to be incurred by the Investor in connection with the
failure by the Company to make Puts with aggregate Purchase Prices totalling at
least the Minimum Commitment Amount or in connection with a Blackout Period
under the Registration Rights Agreement, and (c) the parties are sophisticated
business parties and have been represented by sophisticated and able legal and
financial counsel and negotiated this Agreement at arm's length.
Section II.9 Standby Letter of Credit. On or before July 31,
1998, the Investor shall obtain from a reputable financial institution,
reasonably acceptable to the Company (it being agreed that a Merrill Lynch
company will be acceptable to the Company), a standby letter of credit, bank
guarantee or similar contingent financial instrument or arrangement, in favor
of the Company and in the amount of $1,000,000 (the "Standby Letter of
Credit"); provided, however, that the Investor shall have no such obligation to
obtain the Standby Letter of Credit if on or prior to July 31, 1998 the Company
shall have exercised its Put rights pursuant to Section 2.1 above and the
Investor shall have paid an aggregate of Investment Amounts equal to or greater
than $1,000,000. The Standby Letter of Credit, if any, will enable the Company
to make a draw thereon in the event that in connection with a Closing: (i) the
Company has duly exercised its Put right pursuant to Section 2.1 above; (ii)
there is mutual agreement between the Company and the
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Investor that all of the conditions set forth in Section 7.2 hereof have been
satisfied; (iii) the Company has placed the Put Shares into escrow in
accordance with Section 2.3 and (iv) the Investor has not paid the Investment
Amount into escrow in accordance with Section 2.3 hereof. Any dispute relating
to the satisfaction of the conditions set forth in Section 7.2 hereof shall be
resolved in accordance with the terms of Section 11.3(c) hereof. The Standby
Letter of Credit may not be used for, and shall on the face of any and all
documentation representing the Standby Letter of Credit expressly prohibit any
use thereof for, any purpose other than for payment of the Investment Amount,
including, without limitation, as collateral for any present or future
indebtedness or other obligation of the Company. In the event that the Standby
Letter of Credit is obtained pursuant to this Section 2.9, then the Company
shall pay the fees of the financial institution issuing the Standby Letter of
Credit up to $5,000 per annum. The Standby Letter of Credit shall have a term
equal to the lesser of (i) ninety (90) days from the initial issuance thereof
and (ii) such Closing Date that is the Closing Date on which the Investor shall
have paid an aggregate of Investment Amounts for Put Shares equal to or greater
than $1,000,000.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
The Investor represents and warrants to the Company that:
Section III.1 Intent. The Investor is entering into this Agreement
for its own account and the Investor has no present arrangement (whether or not
legally binding) at any time to sell the Common Stock to or through any person
or entity; provided, however, that by making the representations herein, the
Investor 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.
Section III.2 Sophisticated Investor. The Investor 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 Investor
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 Investor
acknowledges that an investment in the Common Stock is speculative and involves
a high degree of risk.
Section III.3 Authority. This Agreement has been duly authorized
and validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section III.4 Not an Affiliate. The Investor is not an officer,
director or "affiliate" (as that term is defined in Rule 405 of the Securities
Act) of the Company.
Section III.5 Organization and Standing. Investor is duly
organized, validly existing,
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and in good standing under the laws of the British Virgin Islands.
Section III.6 Absence of Conflicts. The execution and delivery of
this Agreement and any other document or instrument contemplated hereby, and
the consummation of the transactions contemplated thereby, and compliance with
the requirements thereof, will not (a) violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Investor, or, to
the Investor's knowledge, (b) violate any provision of any indenture,
instrument or agreement to which Investor is a party or is subject, or by which
Investor or any of its assets is bound, (c) conflict with or constitute a
material default thereunder, (d) result in the creation or imposition of any
lien pursuant to the terms of any such indenture, instrument or agreement, or
constitute a breach of any fiduciary duty owed by Investor to any third party,
or (e) require the approval of any third-party (that has not been obtained)
pursuant to any material contract to which Investor is subject or to which any
of its assets, operations or management may be subject.
Section III.7 Disclosure; Access to Information. Investor has
received all documents, records, books and other information pertaining to
Investor's investment in the Company that have been requested by Investor. The
Investor has reviewed or received copies of the SEC Documents.
Section III.8 Manner of Sale. At no time was Investor presented
with or solicited by or through any leaflet, public promotional meeting,
television advertisement or any other form of general solicitation or
advertising.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor that:
Section IV.1 Organization of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted. Except for Neotherapeutics GmbH, a wholly owned Swiss subsidiary
and as set forth in the SEC Documents, the Company does not own more than fifty
percent (50%) of the outstanding capital stock of or control any other business
entity. The Company is duly qualified as a foreign corporation to do business
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,
other than those in which the failure so to qualify would not have a Material
Adverse Effect.
Section IV.2 Authority. (i) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Registration Rights Agreement, and the Warrant and to issue
the Put Shares, the Warrant, the Warrant Shares and the Blackout Shares; (ii)
the execution and delivery of this Agreement and the Registration Rights
Agreement, and the execution, issuance and delivery of the Warrant, by the
Company and the consummation by it of the transactions contemplated hereby and
thereby have been duly
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authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required; and (iii) each of this Agreement and the Registration Rights
Agreement has been duly executed and delivered, and the Warrant has been duly
executed, issued and delivered, by the Company and constitute valid and binding
obligations of the Company enforceable against the Company in accordance with
their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
Section IV.3 Capitalization. As of March 16, 1998, the authorized
capital stock of the Company consisted of 25,000,000 shares of Common Stock, of
which 5,474,307 shares were issued and outstanding, and 5,000,000 shares of
Preferred stock, of which none were issued and outstanding. Except for (i)
options to purchase not more than 452,300 shares of Common Stock with purchase
prices between $.025 and $12.88 per share; (ii) warrants to purchase not more
than 2,704,000 shares of Common Stock with a purchase price of $11.40 per share
and (iii) warrants to purchase not more than 246,000 Units at $9.12 per unit,
with each "Unit" representing one (1) share of Common Stock and one (1) warrant
to purchase one (1) share of Common Stock at a purchase price of $11.40 per
share, there are no options, warrants, or rights to subscribe to, securities,
rights or obligations convertible into or exchangeable for or giving any right
to subscribe for any shares of capital stock of the Company. All of the
outstanding shares of Common Stock of the Company have been duly and validly
authorized and issued and are fully paid and nonassessable.
Section IV.4 Common Stock. The Company has registered its Common
Stock pursuant to Section 12(b) or 12(g) of the Exchange Act and is in full
compliance with all reporting requirements of the Exchange Act, and the Company
has maintained all requirements for the continued listing or quotation of its
Common Stock, and such Common Stock is currently listed or quoted on the
Principal Market. As of the date hereof, the Principal Market is the Nasdaq
National Market.
Section IV.5 SEC Documents. The Company has delivered or made
available to the Investor true and complete copies of the SEC Documents
(including, without limitation, proxy information and solicitation materials).
The Company has not provided to the Investor any information that, according to
applicable law, rule or regulation, should have been disclosed publicly prior
to the date hereof by the Company, but which has not been so disclosed. As of
their respective dates, the SEC Documents complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as the case
may be, and other federal, state and local laws, rules and regulations
applicable to such SEC Documents, and none of the SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents comply as to form and substance in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent
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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 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).
Section IV.6 Exemption from Registration; Valid Issuances. The
sale and issuance of the Warrant, the Warrant Shares, the Put Shares and any
Blackout Shares in accordance with the terms and on the bases of the
representations and warranties set forth in this Agreement, may and shall be
properly issued pursuant to Rule 4(2), Regulation D and/or any applicable state
law. When issued and paid for as herein provided, the Put Shares, the Warrant
Shares and any Blackout Shares shall be duly and validly issued, fully paid,
and nonassessable. Neither the sales of the Put Shares, the Warrant, the
Warrant Shares or any Blackout Shares pursuant to, nor the Company's
performance of its obligations under, this Agreement, the Registration Rights
Agreement, or the Warrant shall (i) result in the creation or imposition of any
liens, charges, claims or other encumbrances upon the Put Shares, the Warrant
Shares, any Blackout Shares or any of the assets of the Company, or (ii)
entitle the holders of Outstanding Capital Shares to preemptive or other rights
to subscribe to or acquire the Capital Shares or other securities of the
Company. The Put Shares, the Warrant Shares and any Blackout Shares shall not
subject the Investor to personal liability by reason of the ownership thereof.
Section IV.7 No General Solicitation or Advertising in Regard to
this Transaction. Neither the Company nor any of its affiliates nor any
distributor or any person acting on its or their behalf (i) has conducted or
will conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D) or general advertising with respect to any of the Put Shares, the
Warrant, the Warrant Shares or any Blackout Shares, or (ii) made any offers or
sales of any security or solicited any offers to buy any security under any
circumstances that would require registration of the Common Stock under the
Securities Act.
Section IV.8 Corporate Documents. The Company has furnished or
made available to the Investor true and correct copies of the Company's
Certificate of Incorporation, as amended and in effect on the date hereof (the
"Certificate"), and the Company's By-Laws, as amended and in effect on the date
hereof (the "By-Laws").
Section IV.9 No Conflicts. The execution, delivery and
performance of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby, including without limitation
the issuance of the Put Shares, the Warrant, the Warrant Shares and the
Blackout Shares do not and will not (i) result in a violation of the
Certificate or By-Laws or (ii) conflict with, or constitute a material default
(or an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture, instrument or any "lock-up"
or similar provision of any underwriting or similar agreement to which the
Company is a party, or (iii) result in a violation of any federal, state, local
or foreign law, rule, regulation, order, judgment or decree (including federal
and state securities laws and regulations) applicable to the
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Company or by which any property or asset of the Company is bound or affected
(except for such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect) nor is the Company otherwise in violation of,
conflict with or in default under any of the foregoing; provided, however, that
for purposes of the Company's representations and warranties as to violations
of foreign law, rule or regulation referenced in clause (iii), such
representations and warranties are made only to the best of the Company's
knowledge insofar as the execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby are or may be affected by the status of the Investor under
or pursuant to any such foreign law, rule or regulation. The business of the
Company is not being conducted in violation of any law, ordinance or regulation
of any governmental entity, except for possible violations that either singly
or in the aggregate do not and will not 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 Common Stock or the Warrant in accordance with the terms hereof (other
than any SEC, NASD or state securities filings that may be required to be made
by the Company subsequent to any Closing, any registration statement that may
be filed pursuant hereto, and any shareholder approval required by the rules
applicable to companies whose common stock trades on the Nasdaq Small Cap
Market); provided that, for purposes of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investor herein.
Section IV.10 No Material Adverse Change. Since December 31, 1996,
no event has occurred that would have a Material Adverse Effect on the Company,
except as disclosed in the SEC Documents.
Section IV.11 No Undisclosed Liabilities. The Company has no
liabilities or obligations that are material, individually or in the aggregate,
and that are not disclosed in the SEC Documents or otherwise publicly
announced, other than those incurred in the ordinary course of the Company's
businesses since December 31, 1996 and which, individually or in the aggregate,
do not or would not have a Material Adverse Effect on the Company.
Section IV.12 No Undisclosed Events or Circumstances. Since
December 31, 1996, no event or circumstance has occurred or exists with respect
to the or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which
has not been so publicly announced or disclosed in the SEC Documents.
Section IV.13 No Integrated Offering. Neither the Company, nor any
of its affiliates, nor any person acting on its or their behalf has, directly
or indirectly, made any offers or sales of any security or solicited any offers
to buy any security, other than pursuant to this Agreement, under circumstances
that would require registration of the Common Stock under the Securities Act.
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Section IV.14 Litigation and Other Proceedings. Except as may be
set forth in the SEC Documents, there are no lawsuits or proceedings pending or
to the best knowledge of the Company threatened, against the Company, nor has
the Company received any written or oral notice of any such action, suit,
proceeding or investigation, which might have a Material Adverse Effect. Except
as set forth in the SEC Documents, no judgment, order, writ, injunction or
decree or award has been issued by or, so far as is known by the Company,
requested of any court, arbitrator or governmental agency which might result in
a Material Adverse Effect.
Section IV.15 No Misleading or Untrue Communication. The Company,
any Person representing the Company, and, to the knowledge of the Company, any
other Person selling or offering to sell the Put Shares, the Warrant, the
Warrant Shares or the Blackout Shares in connection with the transactions
contemplated by this Agreement, have not made, at any time, any oral
communication in connection with the offer or sale of the same which contained
any untrue statement of a material fact or omitted to state any material fact
necessary in order to make the statements, in the light of the circumstances
under which they were made, not misleading.
Section IV.16 Material Non-Public Information. The Company is not
in possession of, nor has the Company or its agents disclosed to the Investor,
any material non-public information that (i) if disclosed, would, or could
reasonably be expected to have, an effect on the price of the Common Stock or
(ii) according to applicable law, rule or regulation, should have been
disclosed publicly by the Company prior to the date hereof but which has not
been so disclosed.
ARTICLE V
COVENANTS OF THE INVESTOR
Section V.1 Compliance with Law. The Investor's trading
activities with respect to shares of the Company's Common Stock will be in
compliance with all applicable state and federal securities laws, rules and
regulations and the rules and regulations of the Principal Market on which the
Company's Common Stock is listed.
Section V.2 Limitation on Short Sales. The Investor and its
Affiliates shall not engage in short sales of the Company's Common Stock;
provided, however, that the Investor may enter into any short sale or other
hedging or similar arrangement it deems appropriate with respect to Put Shares
after it receives a Put Notice with respect to such Put Shares so long as such
sales or arrangements do not involve more than the number of such Put Shares
(determined as of the date of such Put Notice).
ARTICLE VI
COVENANTS OF THE COMPANY
Section VI.1 Registration Rights. The Company shall cause the
Registration Rights Agreement to remain in full force and effect and the
Company shall comply in all respects with the terms thereof.
Section VI.2 Reservation of Common Stock. As of the date hereof,
the Company has
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available and the Company shall reserve and keep available at all times, free
of preemptive rights, shares of Common Stock for the purpose of enabling the
Company to satisfy any obligation to issue the Put Shares, the Warrant Shares
and the Blackout Shares; such amount of shares of Common Stock to be reserved
shall be calculated based upon the minimum Purchase Price for the Put Shares
under the terms and conditions of this Agreement and the Exercise Price of the
Warrant and a good faith estimate by the Company in consultation with the
Investor of the number of Blackout Shares that will need to be issued. The
number of shares so reserved from time to time, as theretofore increased or
reduced as hereinafter provided, may be reduced by the number of shares
actually delivered hereunder.
Section VI.3 Listing of Common Stock. The Company shall maintain
the listing of the Common Stock on a Principal Market, and as soon as
practicable (but in any event prior to the commencement of the Commitment
Period) will cause the Put Shares, the Warrant Shares and any Blackout Shares
to be listed on the Principal Market. The Company further shall, if the
Company applies to have the Common Stock traded on any other Principal Market,
include in such application the Put Shares, the Warrant Shares and any Blackout
Shares, and shall take such other action as is necessary or desirable in the
opinion of the Investor to cause the Common Stock to be listed on such other
Principal Market as promptly as possible. The Company shall take use its
reasonable best efforts to continue the listing and trading of its Common Stock
on the Principal Market (including, without limitation, maintaining sufficient
net tangible assets) and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the NASD
and the Principal Market.
Section VI.4 Exchange Act Registration. The Company shall (i)
cause its Common Stock to continue to be registered under Section 12(g) or
12(b) of the Exchange Act, will comply in all respects with its reporting and
filing obligations under said Act, and will not take any action or file any
document (whether or not permitted by said Act or the rules thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under said Act.
Section VI.5 Legends. The certificates evidencing the Put Shares,
the Warrant Shares and the Blackout Shares shall be free of legends, except as
provided for in Article VIII.
Section VI.6 Corporate Existence. The Company shall take all
steps necessary to preserve and continue the corporate existence of the
Company.
Section VI.7 Additional SEC Documents. The Company shall deliver
to the Investor, as and when the originals thereof are submitted to the SEC for
filing, copies of all SEC Documents so furnished or submitted to the SEC.
Section VI.8 Notice of Certain Events Affecting Registration;
Suspension of Right to Make a Put. The Company shall immediately notify the
Investor upon the occurrence of any of the following events in respect of a
registration statement or related prospectus in respect of an offering of
Registrable Securities: (i) receipt of any request for additional information
by the SEC or any other federal or state governmental authority during the
period of effectiveness of the
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registration statement for amendments or supplements to the registration
statement or related prospectus; (ii) the issuance by the SEC or any other
federal or state governmental authority of any stop order suspending the
effectiveness of any Registration Statement or the initiation of any
proceedings for that purpose; (iii) receipt 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; (iv) the happening of any event
that makes any statement made in such Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the registration statement, related prospectus or documents so that,
in the case of a Registration Statement, 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 not misleading, and
that in the case of the related prospectus, 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; and (v) the Company's
reasonable determination that a post-effective amendment to the registration
statement would be appropriate, and the Company shall promptly make available
to the Investor any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Investor any Put Notice during the
continuation of any of the foregoing events.
Section VI.9 Expectations Regarding Put Notices. Within ten (10)
days after the commencement of each calendar quarter occurring subsequent to
the commencement of the Commitment Period, the Company undertakes to notify the
Investor as to its reasonable expectations as to the dollar amount it intends
to raise during such calendar quarter, if any, through the issuance of Put
Notices. Such notification shall constitute only the Company's good faith
estimate with respect to such calendar quarter and shall in no way obligate the
Company to raise such amount during such calendar quarter or otherwise limit
its ability to deliver Put Notices during such calendar quarter. The failure by
the Company to comply with this provision can be cured by the Company's
notifying the Investor at any time as to its reasonable expectations with
respect to the current calendar quarter.
Section VI.10 Consolidation; Merger. The Company shall not, at any
time after the date hereof, effect any merger or consolidation of the Company
with or into, or a transfer of all or substantially all of the assets of the
Company to, another entity unless the resulting successor or acquiring entity
(if not the Company) assumes by written instrument the obligation to deliver to
the Investor such shares of stock and/or securities as the Investor is entitled
to receive pursuant to this Agreement and the Warrant.
Section VI.11 Issuance of Put Shares, Warrant Shares and Blackout
Shares. The sale of the Put Shares, the issuance of the Warrant Shares
pursuant to exercise of the Warrant and the issuance of any Blackout Shares
shall be made in accordance with the provisions and requirements of Regulation
D and any applicable state law. Issuance of the Warrant Shares pursuant to
exercise of the Warrant through a cashless exercise shall be made in accordance
with the provisions and requirements of Section 3(a)(9) under the Securities
Act and any applicable state law.
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Section VI.12 Legal Opinion on Subscription Date. The Company's
independent counsel shall deliver to the Investor upon execution of this
Agreement an opinion in the form of Exhibit E, except for paragraph 7 thereof.
ARTICLE VII
CONDITIONS TO DELIVERY OF
PUT NOTICES AND CONDITIONS TO CLOSING
Section VII.1 Conditions Precedent to the Obligation of the Company
to Issue and Sell Common Stock. The obligation hereunder of the Company to
issue and sell the Put Shares to the Investor incident to each Closing is
subject to the satisfaction, at or before each such Closing, of each of the
conditions set forth below.
(a) Accuracy of the Investor's Representation and
Warranties. The representations and warranties of the
Investor shall be true and correct in all material respects as
of the date of this Agreement and as of the date of each such
Closing as though made at each such time.
(b) Performance by the Investor. The Investor shall have
performed, satisfied and complied in all respects with all
covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the
Investor at or prior to such Closing.
Section VII.2 Conditions Precedent to the Right of the Company to
Deliver a Put Notice and the Obligation of the Investor to Purchase Put Shares.
The right of the Company to deliver a Put Notice and the obligation of the
Investor hereunder to acquire and pay for the Put Shares incident to a Closing
is subject to the satisfaction, on (i) the date of delivery of such Put Notice
and (ii) the applicable Closing Date (each a "Condition Satisfaction Date"), of
each of the following conditions:
(a) Registration of Registrable Securities with the SEC.
As set forth in the Registration Rights Agreement, the Company
shall have filed with the SEC the Initial Registration
Statement with respect to the resale of the Initial
Registrable Securities by the Investor that shall have been
declared effective by the SEC prior to the first Put Date, but
in no event later than ninety (90) days after Subscription
Date. For the purposes of any Put Notice with respect
Registerable Securities other than the Initial Registerable
Securities the Company shall have filed with the SEC a
Registration Statement with respect to the resale of such
Registrable Securities by the Investor that shall have been
declared effective by the SEC prior to the Put Date therefor.
(b) Effective Registration Statement. As set forth in
the Registration Rights Agreement, a Registration Statement
shall have previously become effective for the resale by the
Investor of the Registerable Securities subject to such Put
Notice
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and such Registration Statement shall remain effective on each
Condition Satisfaction Date and (i) neither the Company nor
the Investor shall have received notice that the SEC has
issued or intends to issue a stop order with respect to such
Registration Statement or that the SEC otherwise has suspended
or withdrawn the effectiveness of such Registration Statement,
either temporarily or permanently, or intends or has
threatened to do so (unless the SEC's concerns have been
addressed and the Investor is reasonably satisfied that the
SEC no longer is considering or intends to take such action),
and (ii) no other suspension of the use or withdrawal of the
effectiveness of such Registration Statement or related
prospectus shall exist.
(c) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company
shall be true and correct as of each Condition Satisfaction
Date as though made at each such time (except for
representations and warranties specifically made as of a
particular date) with respect to all periods, and as to all
events and circumstances occurring or existing to and
including each Condition Satisfaction Date, except for any
conditions which have temporarily caused any representations
or warranties herein to be incorrect and which have been
corrected with no continuing impairment to the Company or the
Investor.
(d) Performance by the Company. The Company shall have
performed, satisfied and complied in all respects with all
covenants, agreements and conditions required by this
Agreement, the Registration Rights Agreement and the Warrant
to be performed, satisfied or complied with by the Company at
or prior to each Condition Satisfaction Date.
(e) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or adopted by any court or
governmental authority of competent jurisdiction that
prohibits or directly and adversely affects any of the
transactions contemplated by this Agreement, and no proceeding
shall have been commenced that may have the effect of
prohibiting or adversely affecting any of the transactions
contemplated by this Agreement.
(f) Adverse Changes. Since the date of filing of the
Company's most recent SEC Document, no event that had or is
reasonably likely to have a Material Adverse Effect has
occurred.
(g) No Suspension of Trading In or Delisting of Common
Stock. The trading of the Common Stock shall not have been
suspended by the SEC, the Principal Market or the NASD and the
Common Stock shall have been approved for listing or quotation
on and shall not have been delisted from the Principal Market.
The issuance of shares of Common Stock with respect to the
applicable Closing, if any, shall not violate the shareholder
approval requirements of the Principal
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Market.
(h) Legal Opinion. The Company shall have caused to be
delivered to the Investor, within five (5) Trading Days of the
effective date of the Initial Registration Statement and each
subsequent Registration Statement, an opinion of the Company's
independent counsel in the form of Exhibit E hereto, addressed
to the Investor.
(i) Due Diligence. No dispute between the Company and
the Investor shall exist pursuant to Section 7.3 as to the
adequacy of the disclosure contained in any Registration
Statement.
(j) Ten Percent Limitation. On each Closing Date, the
number of Put Shares then to be purchased by the Investor
shall not exceed the number of such shares that, when
aggregated with all other shares of Registerable Securities
then owned by the Investor beneficially or deemed beneficially
owned by the Investor, would result in the Investor owning no
more than 9.9% of all of such Common Stock as would be
outstanding on such Closing Date, as determined in accordance
with Section 16 of the Exchange Act and the regulations
promulgated thereunder. For purposes of this Section 7.2(j),
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
Closing Date than on the date upon which the Put Notice
associated with such Closing Date is given, the amount of
Common Stock outstanding on such Closing Date shall govern for
purposes of determining whether the Investor, when aggregating
all purchases of Common Stock made pursuant to this Agreement
and, if any, Warrant Shares and Blackout Shares, would own
more than 9.9% of the Common Stock following such Closing
Date.
(k) Minimum Bid Price. The Bid Price equals or exceeds
the Floor Price from the Trading Day immediately preceding the
date on which such Notice is deemed delivered until the
Trading Day immediately preceding the Closing Date (as
adjusted for stock splits, stock dividends, reverse stock
splits, and similar events).
(l) Minimum Average Daily Trading Volume. The Average
Daily Trading Volume for the Common Stock with respect to the
applicable Put Date and Closing Date equals or exceeds ten
thousand (10,000) shares per Trading Day.
(m) No Knowledge. The Company shall have no knowledge of
any event more likely than not to have the effect of causing
such Registration Statement to be suspended or otherwise
ineffective (which event is more likely than not to occur
within the fifteen Trading Days following the Trading Day on
which such Notice is deemed delivered).
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(n) Trading Cushion. The Trading Cushion shall have
elapsed since the immediately preceding Put Date.
(o) Shareholder Vote. The issuance of shares of Common
Stock with respect to the applicable Closing, if any, shall
not violate the shareholder approval requirements of the
Principal Market.
(p) Escrow Agreement. The parties hereto shall have
entered into the Escrow Agreement.
(q) Other. On each Condition Satisfaction Date, the
Investor shall have received and been reasonably satisfied
with such other certificates and documents as shall have been
reasonably requested by the Investor in order for the Investor
to confirm the Company's satisfaction of the conditions set
forth in this Section 7.2., including, without limitation, a
certificate in substantially the form and substance of Exhibit
F hereto, executed in either case by an executive officer of
the Company and to the effect that all the conditions to such
Closing shall have been satisfied as at the date of each such
certificate.
Section VII.3 Due Diligence Review; Non-Disclosure of Non-Public
Information.
(a) The Company shall make available for inspection and
review by the Investor, advisors to and representatives of the
Investor (who may or may not be affiliated with the Investor
and who are reasonably acceptable to the Company), any
Underwriter, any Registration Statement or amendment or
supplement thereto or any blue sky, NASD or other filing, all
financial and other records, all SEC Documents and other
filings with the SEC, and all other corporate documents and
properties of the Company as may be reasonably necessary for
the purpose of such review, and cause the Company's officers,
directors and employees to supply all such information
reasonably requested by the Investor or any such
representative, advisor or Underwriter in connection with such
Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made
or submitted by any of them), prior to and from time to time
after the filing and effectiveness of such Registration
Statement for the sole purpose of enabling the Investor and
such representatives, advisors and Underwriters and their
respective accountants and attorneys to conduct initial and
ongoing due diligence with respect to the Company and the
accuracy of such Registration Statement.
(b) Each of the Company, its officers, directors,
employees and agents shall in no event disclose non-public
information to the Investor, advisors to or representatives of
the Investor (including, without limitation, in connection
with the giving of the Adjustment Period Notice pursuant to
Section 2.4) unless prior to disclosure of such information
the Company identifies such information as being non-public
information and provides the Investor, such advisors and
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representatives with the opportunity to accept or refuse to
accept such non-public information for review. The Company
may, as a condition to disclosing any non-public information
hereunder, require the Investor's advisors and representatives
to enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investor.
(c) Nothing herein shall require the Company to disclose
non-public information to the Investor or its advisors or
representatives, and the Company represents that it does not
disseminate non-public information to any investors who
purchase stock in the Company in a public offering, to money
managers or to securities analysts; provided, however, that
notwithstanding anything herein to the contrary, the Company
shall, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and any
Underwriters of any event or the existence of any circumstance
(without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting
non-public information (whether or not requested of the
Company specifically or generally during the course of due
diligence by such persons or entities), which, if not
disclosed in the prospectus included in a Registration
Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated
therein in order to make the statements, therein, in light of
the circumstances in which they were made, not misleading.
Nothing contained in this Section 7.3 shall be construed to
mean that such persons or entities other than the Investor
(without the written consent of the Investor prior to
disclosure of such information) may not obtain non-public
information in the course of conducting due diligence in
accordance with the terms and conditions of this Agreement and
nothing herein shall prevent any such persons or entities from
notifying the Company of their opinion that based on such due
diligence by such persons or entities, that any Registration
Statement contains an untrue statement of a material fact or
omits a material fact required to be stated in such
Registration Statement or necessary to make the statements
contained therein, in light of the circumstances in which they
were made, not misleading.
ARTICLE VIII
LEGENDS
Section VIII.1 Legends. Each of the Warrant and, unless otherwise
provided below, each certificate representing Registrable Securities will bear
the following legend (the "Legend"):
THE SECURITIES EVIDENCED_BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN
RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER
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THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A
TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
THE HOLDER OF THIS CERTIFICATE IS THE BENEFICIARY OF CERTAIN
OBLIGATIONS OF THE COMPANY SET FORTH IN A PRIVATE EQUITY LINE OF
CREDIT AGREEMENT BETWEEN NEOTHERAPEUTICS, INC. AND KINGSBRIDGE CAPITAL
LIMITED DATED AS OF MARCH 27, 1998. A COPY OF THE PORTION OF THE
AFORESAID AGREEMENT EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM
THE COMPANY'S EXECUTIVE OFFICES.
As soon as practicable after the execution and delivery hereof, the
Company is issuing to the transfer agent for its Common Stock (and to any
substitute or replacement transfer agent for its Common Stock upon the
Company's appointment of any such substitute or replacement transfer agent)
instructions in substantially the form of Exhibit G hereto. Such instructions
shall be irrevocable by the Company from and after the date thereof or from and
after the issuance thereof to any such substitute or replacement transfer
agent, as the case may be, except as otherwise expressly provided in the
Registration Rights Agreement. It is the intent and purpose of such
instructions, as provided therein, to require the transfer agent for the Common
Stock from time to time upon transfer of Registrable Securities by the Investor
to issue certificates evidencing such Registrable Securities free of the Legend
during the following periods and under the following circumstances and 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 Investor. At any time after
the Effective Date, 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; provided that (i) a Registration Statement shall then be effective
and (ii) if reasonably requested by the transfer agent the Investor confirms to
the transfer agent that the Investor has complied with the prospectus delivery
requirement.
Section VIII.2 No Other Legend or Stock Transfer Restrictions. No
legend other than the one specified in Section 8.1 has been or shall be placed
on the share certificates representing the Common Stock and no instructions or
"stop transfers 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 VIII.
Section VIII.3 Investor's Compliance. Nothing in this Article VIII
shall affect in any way the Investor' s obligations under any agreement to
comply with all applicable securities laws upon resale of the Common Stock.
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ARTICLE IX
CHOICE OF LAW
Section IX.1 Choice of Law. This Agreement shall be construed
under the laws of the State of New York.
ARTICLE X
ASSIGNMENT; ENTIRE AGREEMENT, AMENDMENT; TERMINATION
Section X.1 Assignment. Neither this Agreement nor any rights of
the Investor or the Company hereunder may be assigned by either party to any
other person. Notwithstanding the foregoing, (a) the provisions of this
Agreement shall inure to the benefit of, and be enforceable by, any transferee
of any of the Common Stock purchased or acquired by the Investor hereunder with
respect to the Common Stock held by such person, and (b) the Investor's
interest in this Agreement may be assigned at any time, in whole or in part, to
any other person or entity (including any affiliate of the Investor) upon the
prior written consent of the Company, which consent shall not to be
unreasonably withheld.
Section X.2 Termination. This Agreement shall terminate thirty
(30) months after the commencement of the Commitment Period; provided, however,
that the provisions of Articles VI, VIII, IX, X, and XI, and of Section 7.3,
shall survive the termination of this Agreement.
Section X.3 Entire Agreement, Amendment; No Waiver. This
Agreement, the Registration Rights Agreement and the Warrant constitute the
full and entire understanding and agreement between the parties with regard to
the subjects hereof and thereof, and no party shall be liable or bound to any
other party in any manner by any warranties, representations or covenants
except as specifically set forth in this Agreement or therein. Except as
expressly provided in this Agreement, neither this Agreement nor any term
hereof may be amended, waived, discharged or terminated other than by a written
instrument signed by both parties hereto. The failure of the either party to
insist on strict compliance with this Agreement, or to exercise any right or
remedy under this Agreement, shall not constitute a waiver of any rights
provided under this Agreement, nor estop the parties from thereafter demanding
full and complete compliance nor prevent the parties from exercising such a
right or remedy in the future.
ARTICLE XI
NOTICES; INDEMNIFICATION
Section XI.1 Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile,
addressed as set forth below or to such other address as such party shall have
specified most recently by written notice given in accordance herewith. Any
notice or other communication
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required or permitted to be given hereunder shall be deemed effective (a) upon
hand delivery or delivery by facsimile, with accurate confirmation generated by
the transmitting facsimile machine, 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:
Neotherapeutics, Inc,
157 Technology Drive
Attention: Alvin J. Glasky
Irvine, California 92618
Telephone: (714) 788-6700
Facsimile: (714) 788-6706
with a copy (which shall not constitute notice) to:
Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660
Attention: Craig Carlson
Telephone: (714) 725-4000
Facsimile: (714) 725-4100
if to the Investor:
Adam Gurney
Kingsbridge Capital Limited
Main Street
Kilcullen, County Kildare
Republic of Ireland
Telephone: 011-353-45-481-811
Facsimile: 011-353-45-482-003
with a copy (which shall not constitute notice) to:
Rogers & Wells LLP
200 Park Avenue, 52nd Floor
New York, NY 10166
Attention: Sara Hanks, Esq.
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33
Telephone: (212) 878-8000
Facsimile: (212) 878-8375
Either party hereto may from time to time change its address or
facsimile number for notices under this Section 11.1 by giving at least ten
(10) days' prior written notice of such changed address or facsimile number to
the other party hereto.
Section XI.2 Indemnification. The Company agrees to indemnify and
hold harmless the Investor, its partners, affiliates, officers, directors,
employees, and duly authorized agents, and each Person or entity, if any, who
controls the Investor within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, together with the Controlling Persons (as
defined in the Registration Rights Agreement) from and against any Damages,
joint or several, and any action in respect thereof to which the Investor, its
partners, affiliates, officers, directors, employees, and duly authorized
agents, and any such Controlling Person becomes subject to, resulting from,
arising out of or relating to any misrepresentation, breach of warranty or
nonfulfillment of or failure to perform any covenant or agreement on the part
of Company contained in this Agreement, as such Damages are incurred, except to
the extent such Damages result primarily from the Investor's failure to perform
any covenant or agreement contained in this Agreement or the Investor's
negligence, recklessness or bad faith in performing its obligations under this
Agreement.
Section XI.3 Method of Asserting Indemnification Claims. All
claims for indemnification by any Indemnified Party (as defined below) under
Section 11.2 shall be asserted and resolved as follows:
(a) In the event any claim or demand in respect of which
any person claiming indemnification under any provision of
Section 11.2 (an "Indemnified Party") might seek indemnity
under Section 11.2 is asserted against or sought to be
collected from such Indemnified Party by a person other than
the Company, the Investor or any affiliate of the Company or
(a "Third Party Claim"), the Indemnified Party shall deliver a
written notification, enclosing a copy of all papers served,
if any, and specifying the nature of and basis for such Third
Party Claim and for the Indemnified Party's claim for
indemnification that is being asserted under any provision of
Section 12.2 against any person (the "Indemnifying Party"),
together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith,
of such Third Party Claim (a "Claim Notice") with reasonable
promptness to the Indemnifying Party. If the Indemnified
Party fails to provide the Claim Notice with reasonable
promptness after the Indemnified Party receives notice of such
Third Party Claim, the Indemnifying Party shall not be
obligated to indemnify the Indemnified Party with respect to
such Third Party Claim to the extent that the Indemnifying
Party's ability to defend has been irreparably prejudiced by
such failure of the Indemnified Party. The Indemnifying Party
shall notify the Indemnified Party as soon as practicable
within the period ending thirty (30) calendar days following
receipt by the Indemnifying Party of either a Claim
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Notice or an Indemnity Notice (as defined below) (the "Dispute
Period") whether the Indemnifying Party disputes its liability
or the amount of its liability to the Indemnified Party under
Section 11.2 and whether the Indemnifying Party desires, at
its sole cost and expense, to defend the Indemnified Party
against such Third Party Claim.
i) If the Indemnifying Party notifies the
Indemnified Party within the Dispute Period that the
Indemnifying Party desires to defend the Indemnified
Party with respect to the Third Party Claim pursuant
to this Section 11.3(a), then the Indemnifying Party
shall have the right to defend, with counsel
reasonably satisfactory to the Indemnified Party, at
the sole cost and expense of the Indemnifying Party,
such Third Party Claim by all appropriate
proceedings, which proceedings shall be vigorously
and diligently prosecuted by the Indemnifying Party
to a final conclusion or will be settled at the
discretion of the Indemnifying Party (but only with
the consent of the Indemnified Party in the case of
any settlement that provides for any relief other
than the payment of monetary damages or that provides
for the payment of monetary damages as to which the
Indemnified Party shall not be indemnified in full
pursuant to Section 11.2). The Indemnifying Party
shall have full control of such defense and
proceedings, including any compromise or settlement
thereof; provided, however, that the Indemnified
Party may, at the sole cost and expense of the
Indemnified Party, at any time prior to the
Indemnifying Party's delivery of the notice referred
to in the first sentence of this clause (i), file any
motion, answer or other pleadings or take any other
action that the Indemnified Party reasonably believes
to be necessary or appropriate to protect its
interests; and provided further, that if requested by
the Indemnifying Party, the Indemnified Party will,
at the sole cost and expense of the Indemnifying
Party, provide reasonable cooperation to the
Indemnifying Party in contesting any Third Party
Claim that the Indemnifying Party elects to contest.
The Indemnified Party may participate in, but not
control, any defense or settlement of any Third Party
Claim controlled by the Indemnifying Party pursuant
to this clause (i), and except as provided in the
preceding sentence, the Indemnified Party shall bear
its own costs and expenses with respect to such
participation. Notwithstanding the foregoing, the
Indemnified Party may take over the control of the
defense or settlement of a Third Party Claim at any
time if it irrevocably waives its right to indemnity
under Section 11.2 with respect to such Third Party
Claim.
ii) If the Indemnifying Party fails to notify the
Indemnified Party within the Dispute Period that the
Indemnifying Party desires to defend the Third Party
Claim pursuant to Section 11.3(a), or if the
Indemnifying Party gives such notice but fails to
prosecute vigorously and diligently or settle the
Third Party Claim, or if the Indemnifying Party fails
to give
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35
any notice whatsoever within the Dispute Period, then
the Indemnified Party shall have the right to defend,
at the sole cost and expense of the Indemnifying
Party, the Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted by
the Indemnified Party in a reasonable manner and in
good faith or will be settled at the discretion of
the Indemnified Party (with the consent of the
Indemnifying Party, which consent will not be
unreasonably withheld). The Indemnified Party will
have full control of such defense and proceedings,
including any compromise or settlement thereof;
provided, however, that if requested by the
Indemnified Party, the Indemnifying Party will, at
the sole cost and expense of the Indemnifying Party,
provide reasonable cooperation to the Indemnified
Party and its counsel in contesting any Third Party
Claim which the Indemnified Party is contesting.
Notwithstanding the foregoing provisions of this
clause (ii), if the Indemnifying Party has notified
the Indemnified Party within the Dispute Period that
the Indemnifying Party disputes its liability or the
amount of its liability hereunder to the Indemnified
Party with respect to such Third Party Claim and if
such dispute is resolved in favor of the Indemnifying
Party in the manner provided in clause (iii) below,
the Indemnifying Party will not be required to bear
the costs and expenses of the Indemnified Party's
defense pursuant to this clause (ii) or of the
Indemnifying Party's participation therein at the
Indemnified Party's request, and the Indemnified
Party shall reimburse the Indemnifying Party in full
for all reasonable costs and expenses incurred by the
Indemnifying Party in connection with such
litigation. The Indemnifying Party may participate
in, but not control, any defense or settlement
controlled by the Indemnified Party pursuant to this
clause (ii), and the Indemnifying Party shall bear
its own costs and expenses with respect to such
participation.
iii) If the Indemnifying Party notifies the
Indemnified Party that it does not dispute its
liability or the amount of its liability to the
Indemnified Party with respect to the Third Party
Claim under Section 11.2 or fails to notify the
Indemnified Party within the Dispute Period whether
the Indemnifying Party disputes its liability or the
amount of its liability to the Indemnified Party with
respect to such Third Party Claim, the Loss in the
amount specified in the Claim Notice shall be
conclusively deemed a liability of the Indemnifying
Party under Section 11.2 and the Indemnifying Party
shall pay the amount of such Loss to the Indemnified
Party on demand. If the Indemnifying Party has
timely disputed its liability or the amount of its
liability with respect to such claim, the
Indemnifying Party and the Indemnified Party shall
proceed in good faith to negotiate a resolution of
such dispute, and if not resolved through
negotiations within the Resolution Period, such
dispute shall be resolved by arbitration in
accordance with paragraph (c) of this Section
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11.3.
(b) In the event any Indemnified Party should have a
claim under Section 11.2 against the Indemnifying Party that
does not involve a Third Party Claim, the Indemnified Party
shall deliver a written notification of a claim for indemnity
under Section 11.2 specifying the nature of and basis for such
claim, together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith,
of such claim (an "Indemnity Notice") with reasonable
promptness to the Indemnifying Party. The failure by any
Indemnified Party to give the Indemnity Notice shall not
impair such party's rights hereunder except to the extent that
the Indemnifying Party demonstrates that it has been
irreparably prejudiced thereby. If the Indemnifying Party
notifies the Indemnified Party that it does not dispute the
claim or the amount of the claim described in such Indemnity
Notice or fails to notify the Indemnified Party within the
Dispute Period whether the Indemnifying Party disputes the
claim or the amount of the claim described in such Indemnity
Notice, the Loss in the amount specified in the Indemnity
Notice will be conclusively deemed a liability of the
Indemnifying Party under Section 11.2 and the Indemnifying
Party shall pay the amount of such Loss to the Indemnified
Party on demand. If the Indemnifying Party has timely
disputed its liability or the amount of its liability with
respect to such claim, the Indemnifying Party and the
Indemnified Party shall proceed in good faith to negotiate a
resolution of such dispute, and if not resolved through
negotiations within the Resolution Period, such dispute shall
be resolved by arbitration in accordance with paragraph (c) of
this Section 11.3.
(c) Any dispute under this Agreement or the Warrant shall
be submitted to arbitration (including, without limitation,
pursuant to this Section 11.3) and shall be finally and
conclusively determined by the decision of a board of
arbitration consisting of three (3) members (the "Board of
Arbitration") selected as hereinafter provided. Each of the
Indemnified Party and the Indemnifying Party shall select one
(1) member and the third member shall be selected by mutual
agreement of the other members, or if the other members fail
to reach agreement on a third member within twenty (20) days
after their selection, such third member shall thereafter be
selected by the American Arbitration Association upon
application made to it for such purpose by the Indemnified
Party. The Board of Arbitration shall meet on consecutive
business days in New York County, New York or such other place
as a majority of the members of the Board of Arbitration
determines more appropriate, and shall reach and render a
decision in writing (concurred in by a majority of the members
of the Board of Arbitration) with respect to the amount, if
any, which the Indemnifying Party is required to pay to the
Indemnified Party in respect of a claim filed by the
Indemnified Party. In connection with rendering its
decisions, the Board of Arbitration shall adopt and follow
such rules and procedures as a majority of the members of the
Board of Arbitration deems necessary or
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37
appropriate. To the extent practical, decisions of the Board
of Arbitration shall be rendered no more than thirty (30)
calendar days following commencement of proceedings with
respect thereto. The Board of Arbitration shall cause its
written decision to be delivered to the Indemnified Party and
the Indemnifying Party. Any decision made by the Board of
Arbitration (either prior to or after the expiration of such
thirty (30) calendar day period) shall be final, binding and
conclusive on the Indemnified Party and the Indemnifying Party
and entitled to be enforced to the fullest extent permitted by
law and entered in any court of competent jurisdiction. Each
party to any arbitration shall bear its own expense in
relation thereto, including but not limited to such party's
attorneys' fees, if any, and the expenses and fees of the
Board of Arbitration shall be divided between the Indemnifying
Party and the Indemnified Party in the same proportion as the
portion of the related claim determined by the Board of
Arbitration to be payable to the Indemnified Party bears to
the portion of such claim determined not to be so payable.
ARTICLE XII
MISCELLANEOUS
Section XII.1 Fees and Expenses. Each of the Company and the
Investor agrees to pay its own expenses incident to the performance of its
obligations hereunder, except that the Company shall pay the fees, expenses and
disbursements of the Investor's counsel in an amount not to exceed $25,000.
Section XII.2 Brokerage. Each of the parties hereto represents
that it has had no dealings in connection with this transaction with any finder
or broker who will demand payment of any fee or commission from the other
party. The Company on the one hand, and the Investor, on the other hand, agree
to indemnify the other against and hold the other harmless from any and all
liabilities to any persons claiming brokerage commissions or finder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section XII.3 Counterparts. This Agreement may be executed in
multiple counterparts, each of which may be executed by less than all of the
parties and shall be deemed to be an original instrument which shall be
enforceable against the parties actually executing such counterparts and all of
which together shall constitute one and the same instrument.
Section XII.4 Entire Agreement. This Agreement, the Annex and
Exhibits hereto, the Warrant, the Registration Rights Agreement and the Escrow
Agreement set forth the entire agreement and understanding of the parties
relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the
parties, both oral and written relating to the subject matter hereof. The
terms and conditions of all Exhibits to this Agreement are incorporated herein
by this reference and shall constitute part of this Agreement as if fully set
forth herein.
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38
Section XII.5 Survival; Severability. The representations,
warranties, covenants and agreements of the parties hereto shall survive each
Closing hereunder. In the event that any provision of this Agreement becomes or
is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it
materially changes the economic benefit of this Agreement to any party.
Section XII.6 Title and Subtitles. The titles and subtitles used in
this Agreement are used for the convenience of reference and are not to be
considered in construing or interpreting this Agreement.
Section XII.7 Reporting Entity for the Common Stock. The reporting
entity relied upon for the determination of the trading price or trading volume
of the Common Stock on any given Trading Day for the purposes of this Agreement
shall be NASDAQ or any successor thereto. The written mutual consent of the
Investor and the Company shall be required to employ any other reporting
entity.
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39
IN WITNESS WHEREOF, the parties hereto have caused this Private Equity
Line of Credit Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
KINGSBRIDGE CAPITAL LIMITED
NEOTHERAPEUTICS, INC.
By: /s/Valentine O'Donoghue
-----------------------------
Valentine O'Donoghue
Director
By: /s/Alvin J. Glasky
-----------------------------
Alvin J. Glasky
President
40
ANNEX A
MAXIMUM PUT AMOUNT
The Maximum Put Amount with respect to a Put shall be determined based
upon the Average Daily Trading Volume of shares of Common Stock with respect to
the relevant Put Date and the Market Price as of such Put Date of shares of
Common Stock on such Put Date as follows:
==================================================================================================================
Average Daily Trading Volume
------------------------------------------------------------------------------
Market Price ($ per share) 10,000-25,000 25,001-50,000 50,001-75,000 75,001-Above
-------------------------- ------------- ------------- ------------- ------------
3.00-6.00 $500,000 $750,000 $1,000,000 $1,250,000
-------------------------- ------------- ------------- ------------- ------------
6.00-8.00 $750,000 $1,000,000 $1,250,000 $1,500,000
-------------------------- ------------- ------------- ------------- ------------
8.00-10.00 $1,000,000 $1,250,000 $1,500,000 $1,750,000
-------------------------- ------------- ------------- ------------- ------------
10.00-12.00 $1,250,000 $1,500,000 $1,750,000 $1,750,000
-------------------------- ------------- ------------- ------------- ------------
12.00-14.00 $1,500,000 $1,750,000 $1,750,000 $2,000,000
-------------------------- ------------- ------------- ------------- ------------
14.00-Above $1,750,000 $1,750,000 $2,000,000 $2,000,000
==================================================================================================================
41
EXHIBIT A
[FORM OF ESCROW AGREEMENT]
42
EXHIBIT B
[FORM OF REGISTRATION RIGHTS AGREEMENT]
3
43
EXHIBIT C
[FORM OF WARRANT]
44
EXHIBIT D
ADJUSTMENT PERIOD NOTICE
Notice is hereby granted that the Board of Directors of
Neotherapeutics, Inc. (the "Company") anticipates executing a merger or
acquisition agreement within ninety (90) days of the date hereof.
The following five-week period is hereby designated as an Adjustment
Period pursuant to Section 2.4 of the Private Equity Line of Credit Agreement,
dated [DATE] by and between the Company and Kingsbridge Capital Limited.
Beginning: ______________________
(no sooner that twenty-one (21) days from the date this notice is deemed to be
delivered)
Expiring: _______________________
The undersigned has executed this Certificate this ____ day of
________, 199_.
____________________________________
Name
Title
5
45
EXHIBIT E
FORM OF OPINION OF THE COMPANY'S INDEPENDENT COUNSEL
[Date]
Kingsbridge Capital Limited
Main Street
Kilcullen, County Kildare
Republic of Ireland
Re: Private Equity Line of Credit Agreement Between Kingsbridge Capital
Limited and [ISSUER]
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section [6.12] [7.2(h)]
of the Private Equity Line of Credit Agreement by and between Kingsbridge
Capital Limited, a British Virgin Islands entity (the "Investor") and [ISSUER]
(the "Company"), dated [DATE] (the "Line of Credit Agreement"), which provides
for the issuance and sale by the Company of up to ____ shares of Common Stock
of the Company (the "Put Shares"), certain additional shares upon the
occurrence of certain events as set forth in Section 2.7 thereof (the "Blackout
Shares"), and a warrant to purchase ____ shares of Common Stock of the Company
(the "Warrant", and the shares of Common Stock issued or issuable pursuant to
exercise of the Warrant, the "Warrant Shares"). All terms used herein have the
meanings defined for them in the Line of Credit Agreement unless otherwise
defined herein.
We have acted as counsel for the Company in connection with the
negotiation of the Line of Credit Agreement, the Warrant, the Registration
Rights Agreement between the Investor and the Company, dated [DATE] (the
"Registration Rights Agreement"), and the Escrow Agreement between the
Investor, the Company and [ESCROW AGENT], dated [DATE] (the "Escrow Agreement",
and together with the Line of Credit Agreement and the Registration Rights
Agreement, the "Agreements"). As counsel, we have made such legal and factual
examinations and inquires as we have deemed advisable or necessary for the
purpose of rendering this opinion. In addition, we have examined, among other
things, originals or copies of such corporate records of the Company,
certificates of public officials and such other documents and questions of law
that we consider necessary or advisable for the purpose of rendering this
opinion. In such examination we have assumed the genuineness of all signatures
on original documents, the authenticity and completeness of all documents
submitted to us as originals, the conformity to original documents of all
copies submitted to us as copies thereof, the legal capacity of natural
persons, and the due execution and delivery of all documents (except as to due
execution and delivery by the Company) where due execution and delivery are a
prerequisite to the effectiveness thereof.
46
Kingsbridge Capital Limited Page 2
[DATE]
As used in this opinion, the expression "to our knowledge" refers to
the current actual knowledge of the attorneys of this firm who have worked on
matters for the Company solely in connection with the Agreements and the
Warrant and the transactions contemplated thereby.
For purposes of this opinion, we have assumed that you have all
requisite power and authority, and have taken any and all necessary corporate
action, to execute and deliver the Agreements, and we are assuming that the
representations and warranties made by the Investor in the Agreements and
pursuant thereto are true and correct.
The opinions hereinafter expressed are subject to the following
qualifications:
[QUALIFICATIONS TO BE NEGOTIATED]
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of [STATE] and has all
requisite power and authority (corporate and other) to carry on its business
and to own, lease and operate its properties and assets as described in the
Company's SEC Documents. To our knowledge, the Company does not own more than
fifty percent (50%) of the outstanding capital stock of or control any other
business entity. The Company is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the Company
owns or leases property, other than those in which the failure so to qualify
would not have a Material Adverse Effect.
2. The Company has the requisite corporate power and authority to
enter into and perform its obligations under the Agreements and the Warrant and
to issue the Put Shares, the Warrant, the Warrant Shares and the Blackout
Shares. The execution and delivery of the Agreements, and the execution,
issuance and delivery of the Warrant, by the Company and the consummation by it
of the transactions contemplated thereby have been duly authorized by all
necessary corporate action and no further consent or authorization of the
Company or its Board of Directors or stockholders is required. Each of the
Agreements has been duly executed and delivered, and the Warrant has been duly
executed, issued and delivered, by the Company and each of the Agreements and
the Warrant constitutes valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application.
3. The execution, delivery and performance of the Agreements and
the Warrant by the Company and the consummation by the Company of the
transactions contemplated thereby, including without limitation the issuance of
the Put Shares, the Warrant, the Warrant Shares and the Blackout Shares, do not
and will not (i) result in a violation of the Company's Articles or By-
47
Kingsbridge Capital Limited Page 3
[DATE]
Laws; (ii) to our knowledge, conflict with, or constitute a material default
(or an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture, instrument or any "lock-up"
or similar provision of any underwriting or similar agreement to which the
Company is a party, except for such conflicts, defaults, terminations,
amendments, accelerations and cancellations as would not, individually or in
the aggregate, have a Material Adverse Effect; or (iii) result in a violation
of any federal or state law, rule or regulation applicable to the Company or by
which any property or asset of the Company is bound or affected, except for
such violations as would not, individually or in the aggregate, have a Material
Adverse Effect. To our knowledge, the Company is not in violation of any terms
of its Articles or Bylaws.
4. The issuance of the Put Shares, the Warrant and the Blackout
Shares in accordance with the Line of Credit Agreement, and the issuance of the
Warrant Shares in accordance with the Warrant, will be exempt from registration
under the Securities Act of 1933 and will be in compliance with [STATE] state
securities laws. When so issued, the Put Shares, the Blackout Shares and the
Warrant Shares will be duly and validly issued, fully paid and nonassessable,
and free of any liens, encumbrances and preemptive or similar rights contained
in the Company's Articles of Incorporation (the "Articles") or Bylaws or, to
our knowledge, in any agreement to which the Company is party.
5. To our knowledge, except as disclosed in the SEC Documents,
there are no claims, actions, suits, proceedings or investigations that are
pending against the Company or its properties, or against any officer or
director of the Company in his or her capacity as such, nor has the Company
received any written threat of any such claims, actions, suits, proceedings, or
investigations which are required to be and have not been disclosed in the SEC
Documents.
6. To our knowledge, there are no outstanding options, warrants,
calls or commitments of any character whatsoever relating to, or securities,
rights or obligations convertible into or exchangeable for, or giving any right
to subscribe for or acquire any shares of Common Stock or contracts,
commitments, understanding, or arrangements by which the Company is or may
become bound to issue additional shares of Common Stock, or securities or
rights convertible or exchangeable into shares of Common Stock, except as
described in the SEC Documents.
[7. Nothing has come to our attention that has caused us to
believe that the Registration Statement and the Prospectus at the time the
Registration Statement became effective and as of the date of the filing with
the Commission of the Company's most recent Annual Report on Form 10-K or
Quarterly Report on Form 10-Q incorporated by reference into such Registration
Statement contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; however, we express no opinion
48
Kingsbridge Capital Limited Page 4
[DATE]
with respect to the financial statements and the notes thereto and the
schedules and other financial and statistical data derived therefrom included
in the Registration Statement or the Prospectus.] [For Opinion pursuant to
Section 7.2(h).]
This opinion is furnished to the Purchaser solely for its benefit in
connection with the transactions described above and may not be relied upon by
any other person or for any other purpose without our prior written consent.
Very truly yours,
49
EXHIBIT F
COMPLIANCE CERTIFICATE
The undersigned, __________, hereby certifies, with respect to shares
of common stock of the _____________ (the "Company") issuable in connection
with the Put Notice, dated _____________ (the "Notice"), delivered pursuant to
Article II of the Private Equity Line of Credit Agreement, dated [DATE], by and
between the Company and Kingsbridge Capital Limited (the "Agreement"), as
follows:
1. The undersigned is the duly elected Chairman and Chief
Executive Officer of the Company.
2. The representations and warranties of the Company set forth in
Article V of the Agreement are true and correct in all material respects as
though made on and as of the date hereof.
3. The Company has performed in all material respects all
covenants and agreements to be performed by the Company on or prior to the
Closing Date related to the Notice and has complied in all material respects
with all obligations and conditions contained in Article VII of the Agreement.
The undersigned has executed this Certificate this ____ day of
________, 199_.
____________________________________
Name
Title
50
EXHIBIT G
INSTRUCTIONS TO TRANSFER AGENT
_______________, 1998
[Name, address and phone and facsimile number of Transfer Agent]
Dear Sirs:
Reference is made to the Private Equity Line of Credit Agreement (the
"Agreement"), dated as of [DATE] between Kingsbridge Capital Limited (the
"Investor") and ___________ (the "Company"). Pursuant to the Agreement,
subject to the terms and conditions set forth in the Agreement the Investor has
agreed to purchase from the Company and the Company has agreed to sell to the
Investor from time to time during the term of the Agreement shares of Common
Stock of the Company, $____ par value per share (the "Common Stock"). As a
condition to the effectiveness of the Agreement, the Company has agreed to
issue to you, as the transfer agent for the Common Stock (the "Transfer
Agent"), these instructions relating to the Common Stock to be issued to the
Investor (or a permitted assignee) pursuant to the Agreement. All terms used
herein and not otherwise defined shall have the meaning set forth in the
Agreement.
1. ISSUANCE OF COMMON STOCK WITHOUT THE LEGEND
Pursuant to the Agreement, the Company is required to prepare and file
with the Commission, and maintain the effectiveness of, a registration
statement or registration statements registering the resale of the Common Stock
to be acquired by the Investor under the Agreement. The Company will advise
the Transfer Agent in writing of the effectiveness of any such registration
statement promptly upon its being declared effective. The Transfer Agent shall
be entitled to rely on such advice and shall assume that the effectiveness of
such registration statement remains in effect unless the Transfer Agent is
otherwise advised in writing by the Company and shall not be required to
independently confirm the continued effectiveness of such registration
statement. In the circumstances set forth in the following two paragraphs, the
Transfer Agent shall deliver to the Investor certificates representing Common
Stock not bearing the Legend without requiring further advice or instruction or
additional documentation from the Company or its counsel or the Investor or its
counsel or any other party (other than as described in such paragraphs).
At any time after the effective date of the applicable registration
statement (provided that the Company has not informed the Transfer Agent in
writing that such registration statement is not effective) upon any surrender
of one or more certificates evidencing Common Stock which bear the Legend, to
the extent accompanied by a notice requesting the issuance of new certificates
51
Kingsbridge Capital Limited Page 2
[DATE]
free of the Legend to replace those surrendered, the Transfer Agent shall
deliver to the Investor the certificates representing the Common Stock not
bearing the Legend, in such names and denominations as the Investor shall
request, provided that, in connection with such event, if so requested by the
Transfer Agent, the Investor (or its permitted assignee) shall confirm in
writing to the Transfer Agent that (i) the Investor confirms to the Transfer
Agent that it has sold, pledged or otherwise transferred or agreed to sell,
pledge or otherwise transfer such Common Stock in a bona fide transaction to a
designated transferee that is not an affiliate of the Company; and (ii) the
Investor confirms to the transfer agent that the Investor has complied with the
prospectus delivery requirements under the Securities Act of 1933, as amended.
Any advice, notice or instructions to the Transfer Agent required or
permitted to be given hereunder may be transmitted via facsimile to the
Transfer Agent's facsimile number of (___)-___-____.
2. MECHANICS OF DELIVERY OF CERTIFICATES REPRESENTING COMMON
STOCK
In connection with any Closing pursuant to which the Investor acquires
Common Stock under the Agreement, the Transfer Agent shall deliver certificates
representing Common Stock (with or without the Legend, as appropriate) as
promptly as practicable, but in no event later than three business days, after
such Closing.
3. FEES OF TRANSFER AGENT; INDEMNIFICATION
The Company agrees to pay the Transfer Agent for all fees incurred in
connection with these Irrevocable Instructions. The Company agrees to indemnify
the Transfer Agent and its officers, employees and agents, against any losses,
claims, damages or liabilities, joint or several, to which it or they become
subject based upon the performance by the Transfer Agent of its duties in
accordance with the Irrevocable Instructions.
52
4. THIRD PARTY BENEFICIARY
The Company and the Transfer Agent acknowledge and agree that the
Investor is an express third party beneficiary of these Irrevocable
Instructions and shall be entitled to rely upon, and enforce, the provisions
hereof.
______________________
By:____________________________________
Name
Title
AGREED:
[NAME OF TRANSFER AGENT]
By:__________________________
Name:
Title: