EXHIBIT 1.1
EXECUTION COPY
October 20, 2006
Banc of America Securities LLC
as Placement Agent
9 West 57th Street, 29th Floor
New York, New York 10019
Lazard Capital Markets LLC
as Placement Agent
30 Rockefeller Plaza
New York, NY 10020
Ladies and Gentlemen:
Lexicon Genetics Incorporated, a Delaware corporation (the "COMPANY"),
proposes to issue and sell to certain investors (collectively, the "INVESTORS")
up to an aggregate of 10,582,011 shares (the "SHARES") of Common Stock, par
value $0.001 per share (the "COMMON STOCK"), of the Company. The Company desires
to engage Banc of America Securities LLC ("BAS" or the "LEAD PLACEMENT AGENT")
and Lazard Capital Markets LLC ("LCM") as its exclusive lead placement agent and
co-placement agent, respectively (the "PLACEMENT AGENTS" and each, a "PLACEMENT
AGENT"), in connection with such issuance and sale. The Shares are described in
the Prospectus that is referred to below.
The Company has prepared and filed, in accordance with the provisions of
the Securities Act of 1933, as amended, and the rules and regulations thereunder
(collectively, the "ACT"), with the Securities and Exchange Commission (the
"COMMISSION") a registration statement under the Act on Form S-3 (File No.
333-122214) on January 21, 2005 (the "REGISTRATION STATEMENT"). The registration
statement has been declared by the Commission to be effective under the Act. The
Company will next file with the Commission pursuant to Rule 424(b) under the Act
a final prospectus supplement to the Basic Prospectus (as defined below),
describing the Shares and the offering thereof, in such form as has been
provided to or discussed with, and reasonably approved, by the Placement Agents.
The term "REGISTRATION STATEMENT" as used in this Agreement means the
registration statement, at the time it became effective and as supplemented or
amended prior to the execution of this Agreement (excluding the prospectus
supplement dated as of September 14, 2006), including (i) all financial
statements, exhibits and schedules thereto and (ii) all documents incorporated
by reference or deemed to be incorporated by reference therein. The term "BASIC
PROSPECTUS" as used in this Agreement means the basic prospectus dated as of
June 13, 2006 that is part of the registration statement for use in connection
with the offer and/or sale of the Shares pursuant to this Agreement. The term
"PROSPECTUS SUPPLEMENT" as used in this Agreement means the final prospectus
supplement dated as of October 20, 2006 specifically relating to the
Shares and which will be filed with the Commission pursuant to Rule 424(b) under
the Act after the date and time that this Agreement is executed and delivered by
the parties hereto (the "EXECUTION TIME"). The term "PROSPECTUS" as used in this
Agreement means the Basic Prospectus together with the Prospectus Supplement
except that if such Basic Prospectus is amended or supplemented on or prior to
the date of the Prospectus Supplement, the term "PROSPECTUS" shall refer to the
Basic Prospectus as so amended or supplemented and as supplemented by the
Prospectus Supplement. Any reference herein to the registration statement, the
Registration Statement, the Basic Prospectus, any Prospectus Supplement or the
Prospectus shall be deemed to refer to and include (i) the documents
incorporated by reference therein as of the date of the Prospectus pursuant to
Item 12 of Form S-3 under the Securities Act (the "INCORPORATED DOCUMENTS") and
(ii) the copy of the Registration Statement, the Basic Prospectus, the
Prospectus Supplement, the Prospectus or the incorporated documents filed with
the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
system ("EDGAR"). Any reference herein to the terms "AMEND," "AMENDMENT" or
"SUPPLEMENT" with respect to the Registration Statement, the Prospectus
Supplement or the Prospectus shall be deemed to refer to and include the filing
of any document under the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder (collectively, the "EXCHANGE ACT") after the
effective date of the Registration Statement, or the date of the Prospectus, as
the case may be, deemed to be incorporated therein by reference. As used herein,
"BUSINESS DAY" shall mean a day on which the Nasdaq Global Market (the "NASDAQ")
is open for trading.
The term "DISCLOSURE PACKAGE" shall mean (i) the Prospectus as of the
Execution Time, (ii) the issuer free writing prospectuses as defined in Rule 433
of the Act (each, an "ISSUER FREE WRITING PROSPECTUS"), if any, identified in
Exhibit A hereto, (iii) any other free writing prospectus that the parties
hereto shall hereafter expressly agree in writing to treat as part of the
Disclosure Package, and (iv) the information identified in Schedule B hereto.
The Company hereby confirms its agreement with the Placement Agents as
follows:
Section 1. Agreement to Act as Placement Agents. Upon the basis of the
representations and warranties of the Company and subject to the terms and
conditions set forth in this Agreement and in the letter agreement dated October
16, 2006 between the Company and the Placement Agents (the "ENGAGEMENT LETTER"),
the Company engages the Placement Agents to act as the exclusive placement
agents, on a best efforts basis, in connection with the offer and sale by the
Company of Shares to the Investors. LCM may utilize the expertise of Lazard
Freres & Co. LLC in connection with LCM's placement agent activities. As
compensation for services rendered, at the time of purchase (as defined below)
the Company shall pay to the Placement Agents, by Federal Funds wire transfer of
immediately available funds to an account or accounts designated by the
Placement Agents, an amount equal to 6% of the gross proceeds received by the
Company in respect of the sale of the Shares, which shall be allocated between
the Placement Agents as follows: 70% to BAS and 30% to LCM. The Shares are being
sold at a price of $3.78 per share. The Placement Agents may retain other
brokers or dealers to act as subagents on its behalf in connection with the
offering and sale of the Shares; provided that the Company will only be
obligated to pay the Placement Agents for services rendered hereunder.
This Agreement shall not give rise to any commitment by the Placement
Agents or any of its affiliates to underwrite or purchase any of the Shares, and
the Placement Agents shall have no
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authority to bind the Company in respect of the sale of any Shares. The sale of
the Shares shall be made pursuant to a purchase agreement in the form included
as Exhibit B hereto (the "PURCHASE AGREEMENT"). The Placement Agents shall
communicate to the Company each reasonable offer or indication of interest
received by it to purchase Shares. The Company shall have the sole right to
accept offers to purchase the Shares and may reject any such offer in whole or
in part.
Section 2. Payment and Delivery. Subject to the terms and conditions
hereof, payment of the purchase price for, and delivery of certificates for, the
Shares shall be made at the office of King & Spalding LLP (or at such other
place as shall be agreed upon by the Placement Agents and the Company), at 10:00
A.M., New York City time, on October 25, 2006 (unless another time shall be
agreed to by the Placement Agents and the Company). Subject to the terms and
conditions hereof, payment of the purchase price for the Shares shall be made to
the Company by Federal Funds wire transfer of immediately available funds,
against delivery of the Shares, through the facilities of The Depository Trust
Company ("DTC"), to such persons, and shall be registered in such name or names
and shall be in such denominations, as the Placement Agents may request at least
one business day before the time of purchase. The Shares shall be delivered by
the Company free from any transfer taxes or other similar fees or charges under
federal law or the laws of any state, or any political subdivision thereof,
required to be paid in connection with the execution and delivery of this
Agreement or the issuance by the Company or sale by the Company of the Shares.
Payment of the purchase price for the Shares shall be made at the time of
purchase by the Investors directly to the Company. The time at which such
payment and delivery are to be made is hereinafter sometimes called the "TIME OF
PURCHASE." Electronic transfer of the Shares shall be made at the time of
purchase in such names and in such denominations as the Placement Agents shall
specify.
Section 3. Representations and Warranties of the Placement Agents. Each of
the Placement Agents represents and warrants to and agrees with the Company that
it has not distributed and will not distribute, prior to the time of purchase,
any Issuer Free Writing Prospectus as defined in Rule 433 of the Act other than
the Issuer Free Writing Prospectuses listed on Exhibit A.
Section 4. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with the Placement Agents that:
(a) the Registration Statement has been declared effective under the Act;
the Company has complied to the Commission's satisfaction with all requests of
the Commission for additional or supplemental information; no stop order of the
Commission preventing or suspending the use of the Basic Prospectus, the
Prospectus Supplement or the Prospectus or the effectiveness of the Registration
Statement has been issued or is in effect, and no proceedings for such purpose
have been instituted or are pending or, to the Company's knowledge, are
contemplated or threatened by the Commission; the Company is eligible to use
Form S-3. The Registration Statement complied when it became effective, complies
and will comply, at the time of purchase, the Basic Prospectus, the Prospectus
Supplement and the Prospectus complied as of their respective dates, comply and
will comply at the time of purchase, and the offering of the Shares complies and
will comply at the time of purchase in all material respects with the
requirements of the Act (including Rule 415 under the Act); any statutes,
regulations, legal or governmental proceedings,
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business relationships or related-party transactions, direct or contingent
material liabilities or obligations (including any off-balance sheet
obligations), contracts or other documents that are required to be described in
the Registration Statement, the Disclosure Package or the Prospectus or to be
filed as exhibits to the Registration Statement have been and will be so
described or filed; the conditions to the use of Form S-3 have been satisfied;
and the Registration Statement did not at the time of effectiveness, does not
and will not at the time of purchase contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, and the Basic Prospectus, the
Prospectus Supplement and the Prospectus did not as of their respective dates,
do not and will not at the time of purchase contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and the documents incorporated by
reference in the Basic Prospectus, the Prospectus Supplement, the Registration
Statement and the Prospectus, at the time they became effective or were filed
with the Commission, complied in all material respects with the requirements of
the Exchange Act and did not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, provided that the representations and warranties set forth
in this paragraph do not apply to statements or omissions in the Registration
Statement, the Basic Prospectus, the Prospectus Supplement or the Prospectus
based upon information relating to the Placement Agents furnished to the Company
in writing by the Placement Agents expressly for use therein;
(b) the Disclosure Package does not and at the time of purchase, as defined
herein, will not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
provided that the representations and warranties set forth in this paragraph do
not apply to statements or omissions in the Disclosure Package based upon
information relating to the Placement Agents furnished to the Company in writing
by the Placement Agents expressly for use therein;
(c) each Issuer Free Writing Prospectus, as of its issue date and at all
subsequent times through the time of purchase, as defined herein, did not, does
not and will not contain any information that conflicted, conflicts or will
conflict with the information contained in the Registration Statement. If at any
time following issuance of an Issuer Free Writing Prospectus there occurred or
occurs an event or development as a result of which such Issuer Free Writing
Prospectus conflicted or would conflict with the information contained in the
Registration Statement, the Company has promptly notified or will promptly
notify the Placement Agents and has promptly amended or will promptly amend or
supplement, at its own expense, such Issuer Free Writing Prospectus to eliminate
or correct such conflict;
(d) as of the Execution Time (with such date being used as the
determination date for purposes of this clause), the Company is not an
Ineligible Issuer (as defined in Rule 405 of the Act);
(e) the Company has not distributed and will not distribute, prior to the
time of purchase, any offering material in connection with the offering and sale
of the Shares other than
4
the Prospectus, any Issuer Free Writing Prospectus reviewed and consented to by
the Placement Agents (which consent shall not be unreasonably withheld) or
listed in Exhibit A hereto or the Registration Statement;
(f) the statements included or incorporated by reference into the
Disclosure Package and the Prospectus under the headings "ALLIANCES,
COLLABORATIONS AND LICENSES", "PATENTS AND PROPRIETARY RIGHTS", "GOVERNMENTAL
REGULATION" and "RISK FACTORS--RISKS RELATED TO OUR INDUSTRY" (other than the
statements under the headings "--THE UNCERTAINTY OF PHARMACEUTICAL PRICING AND
REIMBURSEMENT MAY DECREASE THE COMMERCIAL POTENTIAL OF ANY PRODUCTS THAT WE OR
OUR COLLABORATORS MAY DEVELOP AND AFFECT OUR ABILITY TO RAISE CAPITAL", "--WE
MAY BE SUED FOR PRODUCT LIABILITY" and "--PUBLIC PERCEPTION OF ETHICAL AND
SOCIAL ISSUES MAY LIMIT OR DISCOURAGE THE USE OF OUR TECHNOLOGIES, WHICH COULD
REDUCE OUR REVENUES"), insofar as such statements summarize legal matters,
agreements, documents or proceedings discussed therein, are accurate and fair
summaries of such legal matters, agreements, documents or proceedings;
(g) as of the date of this Agreement, the Company has an authorized and
outstanding capitalization as set forth or incorporated by reference in each of
the Disclosure Package and the Prospectus and, as of the time of purchase, the
Company shall have an authorized and outstanding capitalization as set forth in
each of the Disclosure Package and the Prospectus (subject, in each case, to the
issuance of shares of Common Stock on September 15, 2006 pursuant to the Common
Stock Purchase Agreement between the Company and Azimuth Opportunity Ltd.
("AZIMUTH") dated June 12, 2006 (the "AZIMUTH EQUITY AGREEMENT"), the issuance
of shares of Common Stock upon conversion of existing convertible securities,
the exercise of existing stock options and warrants disclosed as outstanding in
each of the Disclosure Package and the Prospectus and the grant of options under
existing stock option plans described in each of the Disclosure Package and the
Prospectus); all of the issued and outstanding shares of capital stock,
including the Common Stock, of the Company have been duly authorized and validly
issued and are fully paid and non-assessable, have been issued in compliance
with all federal and state securities laws and were not issued in violation of
any preemptive right, resale right, right of first refusal or similar right;
(h) the Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with the requisite corporate power and authority to own, lease
and operate its properties and conduct its business as described or incorporated
by reference in each of the Disclosure Package and the Prospectus, and to
execute, deliver and perform its obligations under this Agreement and under the
Purchase Agreement;
(i) the Company is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction where the ownership or leasing of
its properties or the conduct of its business requires such qualification,
except where the failure to be so qualified and in good standing would not,
individually or in the aggregate, have or reasonably be expected to have a
material adverse effect on the condition, financial or otherwise, or in the
earnings, business, properties, prospects or operations of the Company and the
Subsidiaries (as hereinafter defined) taken as a whole (a "MATERIAL ADVERSE
EFFECT");
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(j) the Company has no subsidiaries (as defined in the Act) other than as
listed in Schedule A annexed hereto (collectively, the "SUBSIDIARIES"); the
Company has no Significant Subsidiaries (as such term is defined in Rule 1-02 of
Regulation S-X promulgated under the Act) other than the Significant
Subsidiaries indicated on Schedule A (each, a "SIGNIFICANT SUBSIDIARY"); the
Company owns all of the issued and outstanding capital stock or other equity
interests of each of the Subsidiaries other than as listed in Schedule A annexed
hereto; complete and correct copies of the certificate of incorporation and the
bylaws, of the Company and all amendments thereto have been made available to
the Placement Agents, and no changes therein will be made subsequent to the date
hereof and prior to the time of purchase; each Subsidiary has been duly
incorporated or formed and is validly existing as a corporation, limited
liability company or limited partnership, as the case may be, in good standing,
if applicable, under the laws of the jurisdiction of its incorporation or
formation, with the requisite power and authority to own, lease and operate its
properties and to conduct its business as described in each of the Disclosure
Package and the Prospectus; each Significant Subsidiary is duly qualified to do
business as a foreign corporation, limited liability company or limited
partnership, as the case may be, and is in good standing, if applicable, in each
jurisdiction where the ownership or leasing of its properties or the conduct of
its business requires such qualification, except where the failure to be so
qualified and in good standing would not, individually or in the aggregate, have
a Material Adverse Effect; all of the outstanding shares of capital stock or
ownership interests of each of the Significant Subsidiaries owned by the Company
or any Subsidiary have been duly authorized and validly issued, are fully paid
and non-assessable and are owned by the Company or such Subsidiary subject to no
security interest, other encumbrance or adverse claims other than as listed in
Schedule A annexed hereto or disclosed in each of the Disclosure Package and the
Prospectus; and no options, warrants or other rights to purchase, agreements or
other obligations to issue or other rights to convert any obligation into shares
of capital stock or ownership interests in the Significant Subsidiaries are
outstanding other than as listed in Schedule A annexed hereto;
(k) the Shares have been duly authorized and, when issued, delivered and
paid for in accordance with the terms of this Agreement, will be validly issued,
fully paid and non-assessable and will not be sold to the Investors in violation
of statutory or contractual preemptive rights, resale rights, rights of first
refusal or similar rights;
(l) the capital stock of the Company, including the Shares, conforms in all
material respects to the description thereof contained in each of the Disclosure
Package and the Prospectus;
(m) this Agreement has been duly authorized, executed and delivered by the
Company;
(n) neither the Company nor any of its subsidiaries is (i) in violation or
in default (or, with the giving of notice or lapse of time, would be in default)
("DEFAULT") under its charter or by-laws, (ii) in Default under any indenture,
mortgage, loan or credit agreement, deed of trust, note, contract, franchise,
lease or other agreement, obligation, condition, covenant or instrument to which
the Company or such subsidiary is a party or by which it may be bound
(including, without limitation, the Azimuth Equity Agreement, the Loan and
Security Agreement, dated April 21, 2004, between Lex-Gen Woodlands, L.P. and
iStar Financial Inc. and the Note Agreement, dated December 17, 2002 and amended
November 30, 2005, between the Company
6
and Genentech, Inc.), or to which any of the property or assets of the Company
or any of its subsidiaries is subject, in each case only to the extent material
to the Company and its subsidiaries, taken as a whole (each, an "EXISTING
INSTRUMENT") or (iii) in violation of any statute, law, rule, regulation,
judgment, order or decree of any court, regulatory body, administrative agency,
governmental body, arbitrator or other authority having jurisdiction over the
Company or such subsidiary or any of its properties, as applicable, except with
respect to clauses (ii) and (iii) only, for such Defaults and violations as
would not, individually or in the aggregate, have a Material Adverse Effect. The
Company's execution, delivery and performance of this Agreement and consummation
of the transactions contemplated hereby, by the Disclosure Package and by the
Prospectus (i) have been duly authorized by all necessary corporate action and
will not result in any Default under the charter or by-laws of the Company or
any subsidiary, (ii) will not conflict with or constitute a breach of, or
Default under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, or require the consent of any other party to, any
Existing Instrument, and (iii) will not result in any violation of any statute,
law, rule, regulation, judgment, order or decree applicable to the Company or
any of its subsidiaries of any court, regulatory body, administrative agency,
governmental body, arbitrator or other authority having jurisdiction over the
Company or any of its subsidiaries or any of its or their properties, except
with respect to clauses (ii) and (iii) only, for such conflicts, breaches,
Defaults or violations as would not, individually or in the aggregate, have a
Material Adverse Effect;
(o) no approval, authorization, consent or order of or filing with any
federal, state, local or foreign governmental or regulatory commission, board,
body, authority or agency or of or with the Nasdaq, or approval of the
stockholders of the Company, is required in connection with the sale by the
Company of the Shares or the consummation by the Company of the transactions
contemplated hereby other than registration under the Act of the offer and sale
of the Shares, which has been effected, and any necessary qualification under
the securities or blue sky laws of the various jurisdictions in which the Shares
are being offered under the terms of this Agreement or under the rules and
regulations of the National Association of Securities Dealers, Inc. (the
"NASD");
(p) except as set forth in the Disclosure Package and the Prospectus, (i)
no person has the right, contractual or otherwise, to cause the Company to issue
or sell to it any shares of Common Stock or shares of any other capital stock or
other equity interests of the Company, (ii) no person has any warrants, options,
preemptive rights, resale rights, rights of first refusal or other rights to
purchase any shares of Common Stock or shares of any other capital stock or
other securities of the Company, and (iii) except as provided herein, no person
has the right to act as an underwriter, placement agent or financial advisor to
the Company or is entitled to receive from the Company any brokerage or finder's
fee or other fee or commission in connection with the offer and sale of the
Shares, in the case of each of the foregoing clauses, whether as a result of the
filing or effectiveness of the Registration Statement or the sale of the Shares
as contemplated thereby or otherwise and except, in each case, for such rights
as have been duly and validly satisfied or waived; except as disclosed in each
of the Disclosure Package and the Prospectus, no person has the right,
contractual or otherwise, to cause the Company to register under the Act any
shares of Common Stock or shares of any other capital stock or other securities
of the Company, or to include any such shares or interests in the Registration
Statement or the offering contemplated by this Agreement, whether as a result of
the filing or
7
effectiveness of the Registration Statement or the sale of the Shares as
contemplated thereby or otherwise other than such rights as have been duly and
validly satisfied or waived;
(q) each of the Company and the Significant Subsidiaries has all material
licenses, authorizations, consents and approvals and has made all material
filings required under any federal, state, local or foreign law, regulation or
rule, and has obtained all material authorizations, consents and approvals from
other persons, necessary in order to conduct its respective business as
described in each of the Disclosure Package and the Prospectus, except for such
licenses, authorizations, consents, approvals and filings, the failure of which
to have, maintain or make would not, individually or in the aggregate, have a
Material Adverse Effect; neither the Company nor any of the Significant
Subsidiaries is in violation of, or in default under, or has received notice of
any proceedings relating to revocation or modification of, any such license,
authorization, consent or approval or any federal, state, local or foreign law,
regulation or rule or any decree, order or judgment applicable to the Company or
any of the Significant Subsidiaries, except where such violation, default,
revocation or modification would not, individually or in the aggregate, have a
Material Adverse Effect;
(r) except as disclosed in each of the Disclosure Package and the
Prospectus, there are no legal or governmental actions, suits, claims,
investigations or proceedings pending or, to the Company's knowledge, threatened
to which the Company or any of the Significant Subsidiaries or any of their
respective directors or officers is or would be a party or of which any of their
respective properties is or would be subject at law or in equity, before or by
any federal, state, local or foreign governmental or regulatory commission,
board, body, authority or agency, except any such action, suit, claim,
investigation or proceeding which would not result in a judgment, decree or
order having, individually or in the aggregate, a Material Adverse Effect or
adversely affect the consummation of the transactions contemplated hereby;
(s) no labor problem or dispute with the employees of the Company or any of
its subsidiaries exists or is threatened or imminent, and the Company is not
aware of any existing or imminent labor disturbance by the employees of any of
its or its subsidiaries' principal suppliers, contractors or customers, that
could have a Material Adverse Effect;
(t) Ernst & Young LLP, whose reports on the consolidated financial
statements of the Company and the Subsidiaries are filed with the Commission as
part of the Registration Statement and the Prospectus, are independent public
accountants as required by the Act and the Exchange Act and the applicable
published rules and regulations thereunder;
(u) the financial statements included or incorporated by reference in the
Registration Statement and included or incorporated by reference in the
Disclosure Package and the Prospectus, together with the related notes and
schedules, present fairly in all material respects the consolidated financial
position of the Company and the Subsidiaries as of the dates indicated and the
consolidated results of operations and cash flows of the Company and the
Subsidiaries for the periods specified, comply as to form in all material
respects with the applicable accounting requirements of the Act and have been
prepared in conformity with generally accepted accounting principles in the
United States applied on a consistent basis throughout the periods involved,
except (i) as may be otherwise specified in such financial statements or the
notes thereto, or (ii) in the case of unaudited interim statements, to the
extent they may exclude
8
footnotes or may be condensed or summary statements; the other financial data of
the Company set forth in the Registration Statement, the Disclosure Package and
the Prospectus are accurately presented and prepared on a basis consistent with
the financial statements and books and records of the Company; the financial
data set forth in the Prospectus under the captions "SELECTED FINANCIAL DATA"
fairly present the information set forth therein on a basis consistent with that
of the audited financial statements contained in the Registration Statement. The
Company's ratio of earnings to fixed charges set forth in the Prospectus under
the caption "RATIO OF EARNINGS TO FIXED CHARGES" and in Exhibit 12.1 to the
Registration Statement has been calculated in compliance with Item 503(d) of
Regulation S-K under the Act;
(v) subsequent to the respective dates as of which information is given or
incorporated by reference in the Disclosure Package, there has not been (i) any
material adverse change, or any development that could reasonably be expected to
result in a prospective material adverse change, in the condition, financial or
otherwise, or in the earnings, business, operations, properties or prospects,
whether or not arising from transactions in the ordinary course of business, of
the Company and its Significant Subsidiaries, considered as one entity (a
"MATERIAL ADVERSE CHANGE", (ii) any transaction which is material to the Company
and the Significant Subsidiaries taken as a whole, (iii) any obligation, direct
or contingent (including any off-balance sheet obligations), incurred by the
Company or the Significant Subsidiaries, which is material to the Company and
the Significant Subsidiaries taken as a whole, (iv) any change in the capital
stock of the Subsidiaries or (v) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company;
(w) the Company has been advised of the rules and requirements under the
Investment Company Act of 1940, as amended (the "INVESTMENT COMPANY ACT"). The
Company is not, and after receipt of payment for the Shares and the application
of the proceeds thereof as contemplated under the caption "USE OF PROCEEDS" in
the Prospectus will not be, an "INVESTMENT COMPANY" within the meaning of the
Investment Company Act and will conduct its business in a manner so that it will
not become subject to the Investment Company Act;
(x) except as described in each of the Disclosure Package and the
Prospectus, the Company and each of the Significant Subsidiaries has good and
marketable title to all property (real and personal) described in the Disclosure
Package and the Prospectus as being owned by each of them, free and clear of all
liens, claims, security interests or other encumbrances, or subject only to
liens, claims, security interests or other encumbrances that do not individually
or in the aggregate materially affect the value of such property or materially
interfere with the use made of such property by the Company and the Significant
Subsidiaries; all the property described in the Disclosure Package and the
Prospectus as being held under lease by the Company or a Significant Subsidiary
is held thereby under valid, subsisting and enforceable leases except as would
not reasonably be expected to result in a Material Adverse Effect;
(y) the Company and its subsidiaries own, possess, license or have other
rights to use, on reasonable terms, all patents, patent applications, trade and
service marks, trade and service mark registrations, trade names, copyrights,
licenses, inventions, trade secrets, technology, know-how and other intellectual
property (collectively, the "INTELLECTUAL PROPERTY") necessary for the conduct
of the Company's business as now conducted or as proposed in the Disclosure
Package and the Prospectus to be conducted, except as would not be reasonably
expected to
9
result in a Material Adverse Effect. Except as set forth in the Disclosure
Package and the Prospectus, (a) to the Company's best knowledge, there is no
material infringement by third parties of any such Intellectual Property owned
by or exclusively licensed to the Company; (b) there is no pending or, to the
Company's best knowledge, threatened action, suit, proceeding or claim by others
challenging the Company's rights in or to any material Intellectual Property,
and the Company is unaware of any facts which would form a reasonable basis for
any such claim; (c) there is no pending or, to the Company's best knowledge,
threatened action, suit, proceeding or claim by others challenging the validity
or scope of any such Intellectual Property, and the Company is unaware of any
facts which would form a reasonable basis for any such claim; and (d) there is
no pending or, to the Company's best knowledge, threatened action, suit,
proceeding or claim by others that the Company's business as now conducted
infringes or otherwise violates any patent, trademark, copyright, trade secret
or other proprietary rights of others, except for such threatened actions,
suits, proceedings or claims which, if determined adversely to the Company,
would not have a Material Adverse Effect, and the Company is unaware of any
other fact which would form a reasonable basis for any such claim;
(z) none of the following events has occurred or exists: (i) a failure to
fulfill the obligations, if any, under the minimum funding standards of Section
302 of the United States Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and the regulations and published interpretations thereunder
with respect to a Plan, determined without regard to any waiver of such
obligations or extension of any amortization period; (ii) an audit or
investigation by the Internal Revenue Service, the U.S. Department of Labor, the
Pension Benefit Guaranty Corporation or any other federal or state governmental
agency or any foreign regulatory agency with respect to the employment or
compensation of employees by any member of the Company that could have a
Material Adverse Effect on the Company; or (iii) any breach of any contractual
obligation, or any violation of law or applicable qualification standards, with
respect to the employment or compensation of employees by any member of the
Company that could have a Material Adverse Effect. None of the following events
has occurred or is reasonably likely to occur: (i) a material increase in the
Company's "accumulated post retirement benefit obligations" (within the meaning
of Statement of Financial Accounting Standards 106) compared to the amount of
such obligations in the Company's most recently completed fiscal year; or (ii)
any event or condition giving rise to a liability under Title IV of ERISA that
could have a Material Adverse Effect. For purposes of this paragraph, the term
"PLAN" means a plan (within the meaning of Section 3(3) of ERISA) subject to
Title IV of ERISA with respect to which any member of the Company may have any
liability;
(aa) except as otherwise disclosed in the Disclosure Package and the
Prospectus, (i) neither the Company nor any of its subsidiaries is in violation
of any federal, state, local or foreign law, regulation, order, permit or other
requirement relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including without
limitation, laws and regulations relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum and petroleum products
(collectively, "MATERIALS OF ENVIRONMENTAL CONCERN"), or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environment Concern (collectively,
"ENVIRONMENTAL LAWS"), which violation includes, but is not limited to,
noncompliance with any permits or other governmental
10
authorizations required for the operation of the business of the Company or its
subsidiaries under applicable Environmental Laws, or noncompliance with the
terms and conditions thereof, nor has the Company or any of its subsidiaries
received any written communication, whether from a governmental authority,
citizens group, employee or otherwise, that alleges that the Company or any of
its subsidiaries is in violation of any Environmental Law, except, in each of
the foregoing instances listed in this subsection (i), as would not,
individually or in the aggregate, have a Material Adverse Effect; (ii) there is
no claim, action or cause of action filed with a court or governmental
authority, no investigation with respect to which the Company has received
written notice, and no written notice by any person or entity alleging potential
liability for investigatory costs, cleanup costs, governmental responses costs,
natural resources damages, property damages, personal injuries, attorneys' fees
or penalties arising out of, based on or resulting from the presence, or release
into the environment, of any Material of Environmental Concern at any location
owned, leased or operated by the Company or any of its subsidiaries, now or in
the past (collectively, "ENVIRONMENTAL CLAIMS"), pending or, to the best of the
Company's knowledge, threatened against the Company or any of its subsidiaries
or any person or entity whose liability for any Environmental Claim the Company
or any of its subsidiaries has retained or assumed either contractually or by
operation of law, except as would not, individually or in the aggregate, have a
Material Adverse Effect; (iii) to the best of the Company's knowledge, there are
no past, present or anticipated future actions, activities, circumstances,
conditions, events or incidents, including, without limitation, the release,
emission, discharge, presence or disposal of any Material of Environmental
Concern, that reasonably could result in a violation of any Environmental Law,
require expenditures to be incurred pursuant to Environmental Law, or form the
basis of a potential Environmental Claim against the Company or any of its
subsidiaries or against any person or entity whose liability for any
Environmental Claim the Company or any of its subsidiaries has retained or
assumed either contractually or by operation of law, except as would not,
individually or in the aggregate, have a Material Adverse Effect; and (iv)
neither the Company nor any of its subsidiaries is subject to any pending or
threatened proceeding under Environmental Law to which a governmental authority
is a party and which is reasonably likely to result in monetary sanctions of
$100,000 or more;
(bb) all tax returns required to be filed by the Company and each of the
Significant Subsidiaries have been filed, and all material taxes and other
assessments of a similar nature (whether imposed directly or through
withholding) including any interest, additions to tax or penalties applicable
thereto due or claimed to be due from such entities have been paid, other than
those being contested in good faith; the Company has made appropriate provisions
in the applicable financial statements referred to in Section 4(u) above in
respect of all federal, state, local and foreign income and franchise taxes for
all current or prior periods as to which the tax liability of the Company or any
of its consolidated subsidiaries has not been finally determined;
(cc) the Company and its subsidiaries are insured by what the Company
reasonably considers to be recognized, financially sound and reputable
institutions with policies in such amounts and with such deductibles and
covering such risks as are generally deemed adequate and customary for their
businesses including, but not limited to, policies covering real and personal
property owned or leased by the Company and its subsidiaries against theft,
damage, destruction and acts of vandalism. All policies of insurance and
fidelity or surety bonds insuring the Company or any of its subsidiaries or
their respective businesses, assets, employees, officers and directors are in
full force and effect; the Company and its subsidiaries are in compliance with
11
the terms of such policies and instruments in all material respects; and there
are no claims by the Company or any of its subsidiaries under any such policy or
instrument as to which any insurance company is denying liability or defending
under a reservation of rights clause; and neither the Company nor any such
subsidiary has been refused any insurance coverage sought or applied for without
subsequently obtaining substantially similar insurance coverage from an
alternative provider. The Company has no reason to believe that it or any
subsidiary will not be able (i) to renew its existing insurance coverage as and
when such policies expire or (ii) to obtain comparable coverage from similar
institutions as may be necessary or appropriate to conduct its business as now
conducted and at a cost that would not have a Material Adverse Effect;
(dd) neither the Company nor any of the Significant Subsidiaries has
sustained since the date of the last quarterly financial statements included in
the Disclosure Package any loss or interference with its respective business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order or
decree, except as would not, individually or in the aggregate, have a Material
Adverse Effect;
(ee) except as otherwise disclosed in each of the Disclosure Package and
the Prospectus, the Company has not sent or received any written communication
regarding termination of any of the material contracts or agreements referred to
or described in, or filed as an exhibit to, the Registration Statement, and no
such termination has been threatened by the Company or, to the Company's
knowledge, any other party to any such contract or agreement;
(ff) no subsidiary of the Company is currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any other
distribution on such subsidiary's capital stock, from repaying to the Company
any loans or advances to such subsidiary from the Company or from transferring
any of such subsidiary's property or assets to the Company or any other
subsidiary of the Company, except as described in or contemplated by the
Disclosure Package and the Prospectus;
(gg) the Company has not taken and will not take, directly or indirectly,
any action designed to or that might be reasonably expected to cause or result
in stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Shares; the Company acknowledges that the Placement
Agents may engage in passive market making transactions in the Shares on the
Nasdaq in accordance with Regulation M under the Exchange Act;
(hh) except as otherwise disclosed in the Disclosure Package, (i) the
Company believes that, as of December 31, 2005, its internal control over
financial reporting as defined in Rule 13a-15 under the Securities Exchange Act
of 1934, as amended, was effective and (ii) the Company and each of the
Significant Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (A) transactions are executed in
accordance with management's general or specific authorizations; (B)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (C) access to assets is permitted only in
accordance with management's general or specific authorization; and (D) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences;
12
(ii) except as disclosed in the Disclosure Package and Prospectus or in any
document incorporated by reference therein, since the end of the Company's most
recent audited fiscal year, there has been (i) no material weakness in the
Company's internal control over financial reporting (whether or not remediated)
and (ii) no change in the Company's internal control over financial reporting
that has materially adversely affected, or is reasonably likely to materially
adversely affect, the Company's internal control over financial reporting;
(jj) the Company has established and maintains disclosure controls and
procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the
Exchange Act); the principal executive officers (or their equivalents) and
principal financial officers (or their equivalents) of the Company have made all
certifications required by the Sarbanes-Oxley Act of 2002 and any related rules
and regulations promulgated by the Commission (the "SARBANES-OXLEY ACT"), and
the statements contained in any such certification are complete and correct; and
the Company and the Company's directors and officers, in their capacities as
such, are and have been otherwise in compliance in all material respects with
all applicable provisions of the Sarbanes-Oxley Act that are effective;
(kk) the Company is eligible to use Form S-3 pursuant to the standards for
Form S-3 prior to October 21, 1992 and pursuant to the current standards for use
of Form S-3;
(ll) the Shares have been approved for quotation on the Nasdaq Global
Market, subject only to official notice of issuance;
(mm) there are no outstanding loans, advances (except normal advances for
business expenses in the ordinary course of business) or guarantees or
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company, except as disclosed in the Disclosure Package and the
Prospectus; and
(nn) nothing has come to the attention of the Company that has caused the
Company to believe that the statistical and market-related data included in the
Disclosure Package and the Prospectus is not based on or derived from sources
that are reliable and accurate in all material respects.
In addition, any certificate signed by any officer of the Company or any of
the Significant Subsidiaries and delivered to the Placement Agents or counsel
for the Placement Agents in connection with the closing of the sale of the
Shares shall be deemed to be a representation and warranty by the Company or
Subsidiary, as the case may be, as to matters covered thereby, to the Placement
Agents.
Section 5. Certain Covenants of the Company. The Company hereby agrees:
(a) to make available to the Placement Agents in New York City, from time
to time to furnish to the Placement Agents, without charge, as many copies of
the Prospectus (or of the Prospectus as amended or supplemented if the Company
shall have made any amendments or supplements thereto after the effective date
of the Registration Statement), including any documents incorporated or deemed
incorporated by reference therein, and the Disclosure Package as the Placement
Agents may reasonably request for the purposes contemplated by the Act;
13
(b) until the time of purchase, to advise the Placement Agents promptly,
confirming such advice in writing, of (i) any comments of, or requests by the
Commission for amendments or supplements to the Registration Statement or the
Prospectus or for additional information with respect thereto, or (ii) of notice
of institution of proceedings for, or the entry of a stop order, suspending the
effectiveness of the Registration Statement or of any proceedings to remove,
suspend or terminate from listing or quotation the Common Stock from any
securities exchange upon which it is listed for trading or included or
designated for quotation, or of the threatening or initiation of any proceedings
for any of such purposes; the Company shall use its reasonable best efforts to
prevent the issuance of any such stop order or notice of prevention or
suspension of such use, and if the Commission shall enter any such stop order or
issue any such notice at any time, the Company will use its reasonable best
efforts to obtain the lifting or reversal of such order or notice at the
earliest possible moment, or, subject to Section 5(c), will file an amendment to
the Registration Statement or will file a new registration statement and use its
reasonable best efforts to have such amendment or new registration statement
declared effective as soon as practicable;
(c) to advise the Placement Agents promptly of any proposal to amend or
supplement the Registration Statement or the Prospectus, including by filing any
documents that would be incorporated therein by reference, to provide the
Placement Agents and their counsel copies of any such documents for review and
comment a reasonable amount of time prior to any proposed filing and to file no
such amendment or supplement to which the Placement Agents shall reasonably
object unless advised by counsel that the filing of such amendment or supplement
is required by law;
(d) until the time of purchase, the Company will file all documents
required to be filed with the Commission pursuant to Section 13, 14 or 15 of the
Exchange Act in the manner and within the time periods required by the Exchange
Act;
(e) if, until the time of purchase, any event or development shall occur or
condition exist as a result of which the Disclosure Package or the Prospectus as
then amended or supplemented would include any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein in the light of the circumstances under which they were made
or then prevailing, as the case may be, not misleading, or if, in the opinion of
counsel for the Placement Agents, it shall be necessary to amend or supplement
the Disclosure Package or the Prospectus, or to file under the Exchange Act any
document incorporated by reference in the Disclosure Package or the Prospectus,
in order to make the statements therein, in the light of the circumstances under
which they were made or then prevailing, as the case may be, not misleading, or
if in the opinion of counsel for the Placement Agents it is otherwise necessary
or advisable to amend or supplement the Registration Statement, the Disclosure
Package or the Prospectus, or to file under the Exchange Act any document
incorporated by reference in the Disclosure Package or the Prospectus, in order
to comply with law, including in connection with the delivery of the Prospectus,
the Company agrees to (i) notify the Placement Agents of any such event or
condition and (ii) promptly prepare (subject to Section 5(c) and 5(f) hereof),
file with the Commission (and use its reasonable best efforts to have any
amendment to the Registration Statement or any new registration statement to be
declared effective) and furnish at its own expense to the Placement Agents and
to dealers, amendments or supplements to the Registration Statement, the
Disclosure Package or the Prospectus, or any new registration
14
statement, necessary in order to make the statements in the Disclosure Package
or the Prospectus as so amended or supplemented, in the light of the
circumstances under which they were made or then prevailing, as the case may be,
not misleading or so that the Registration Statement, the Disclosure Package or
the Prospectus, as amended or supplemented, will comply with law;
(f) not to make, unless it obtains the prior written consent of the
Placement Agents which consent shall not be unreasonably withheld, any offer
relating to the Shares that would constitute an Issuer Free Writing Prospectus
or that would otherwise constitute a "FREE WRITING PROSPECTUS" (as defined in
Rule 405 of the Act) or a portion thereof required to be filed by the Company
with the Commission or retained by the Company under Rule 433 of the Act. Any
such free writing prospectus consented to by the Placement Agents is hereinafter
referred to as a "PERMITTED FREE WRITING PROSPECTUS." The Company agrees that it
(i) will treat each Permitted Free Writing Prospectus as an Issuer Free Writing
Prospectus, and (ii) will comply with the requirements of Rules 164 and 433 of
the Act applicable to any Permitted Free Writing Prospectus authorized by the
Company, including in respect of timely filing with the Commission, legending
and recordkeeping;
(g) the Company shall cooperate with the Placement Agents and counsel for
the Placement Agents to qualify or register the Shares for sale under (or obtain
exemptions from the application of) the state securities or blue sky laws or
Canadian provincial securities laws of those jurisdictions in which the Shares
are offered or sold, shall comply with such laws and shall continue such
qualifications, registrations and exemptions in effect so long as required for
the distribution of the Shares; the Company shall not be required to qualify as
a foreign corporation or to take any action that would subject it to general
service of process in any such jurisdiction where it is not presently qualified
or where it would be subject to taxation as a foreign corporation, other than
those arising out of the offering or sale of the Shares in any jurisdiction
where it is not now so subject; the Company will advise the Placement Agents
promptly of the suspension of the qualification or registration of (or any such
exemption relating to) the Shares for offering, sale or trading in any
jurisdiction or any initiation or threat of any proceeding for any such purpose,
and in the event of the issuance of any order suspending such qualification,
registration or exemption, the Company shall use its reasonable best efforts to
obtain the withdrawal thereof at the earliest possible moment;
(h) the Company shall apply the net proceeds from the sale of the Shares
sold by it in the manner described under the caption "USE OF PROCEEDS" in the
Disclosure Package and the Prospectus;
(i) to make generally available to its security holders and the Placement
Agents an earnings statement of the Company (which will satisfy the provisions
of Section 11(a) of the Act) covering a period of twelve months beginning after
the effective date of the Registration Statement (as defined in Rule 158(c)
under the Act);
(j) to comply with all the undertakings contained in the Registration
Statement;
(k) during the period commencing on the date hereof and ending on the 15th
business day following the date of the Prospectus Supplement, the Company will
not, without the prior written consent of BAS (which consent may be withheld at
the sole reasonable discretion of
15
BAS), directly or indirectly, sell, offer, contract or grant any option to sell,
pledge, transfer or establish an open "PUT EQUIVALENT POSITION" or liquidate or
decrease a "CALL EQUIVALENT POSITION" within the meaning of Rule 16a-1(h) under
the Exchange Act, or otherwise dispose of or transfer (or enter into any
transaction which is designed to, or might reasonably be expected to, result in
the disposition of), or announce the offering of, or file any registration
statement under the Securities Act in respect of, any shares of Common Stock or
other equity securities of the Company, options or warrants to acquire shares of
the Common Stock or other equity securities of the Company or securities
exchangeable or exercisable for or convertible into shares of Common Stock or
other equity securities of the Company (other than as contemplated by this
Agreement with respect to the Shares); provided, however, that the Company may
issue shares of its Common Stock or options to purchase its Common Stock, or
Common Stock upon exercise of options (i) pursuant to contractual obligations of
the Company in effect as of the date of this Agreement and disclosed to the
Placement Agents or their counsel or disclosed in the Registration Statement,
the Disclosure Package and the Prospectus prior to the date hereof; (ii) on a
pro rata basis to all holders of a class of outstanding equity securities of the
Company; (iii) pursuant to employee benefit or purchase plans in effect as of
the date of this Agreement; (iv) to Azimuth in accordance with the Azimuth
Equity Agreement; (v) pursuant to any corporate strategic development or similar
transaction and (vi) pursuant to any merger or acquisition transaction approved
by the Company's board of directors;
(l) to, on or before 8:30 a.m., New York time, (i) on the first business
day following execution of this Agreement, issue a press release reasonably
acceptable to the Placement Agents disclosing all material terms of the
transactions contemplated hereby, and (ii) on the first business day following
execution of this Agreement, file a Current Report on Form 8-K with the
Commission (the "8-K FILING") describing the terms of the transactions
contemplated by this Agreement and the Purchase Agreement and including as
exhibits to such Current Report on Form 8-K this Agreement and the form of
Purchase Agreement, in the form required by the Exchange Act;
(m) to maintain a transfer agent and, if necessary under the jurisdiction
of incorporation of the Company, a registrar for the Common Stock;
(n) if, at the time this Agreement is executed and delivered, it is
necessary for a post-effective amendment to the Registration Statement to be
declared effective before the offering of the Shares may commence, the Company
will endeavor to cause such post-effective amendment to become effective as soon
as possible and will advise the Placement Agents promptly and, if requested by
the Placement Agents, will confirm such advice in writing, when such
post-effective amendment has become effective;
(o) until the time of purchase, to comply with all applicable securities
and other laws, rules and regulations, including, without limitation, the
Sarbanes-Oxley Act, and use its reasonable best efforts to cause the Company's
directors and officers, in their capacities as such, to comply with such laws,
rules and regulations, including, without limitation, the provisions of the
Sarbanes-Oxley Act;
16
(p) it shall not invest, or otherwise use the proceeds received by the
Company from its sale of the Shares in such a manner as would require the
Company or any of its subsidiaries to register as an investment company under
the Investment Company Act; and
(q) it will not take, directly or indirectly, any action designed to cause
or result in, or that has constituted or might reasonably be expected to
constitute, under the Exchange Act or otherwise, the stabilization or
manipulation of the price of any securities of the Company to facilitate the
sale or resale of the Shares.
Section 6. Reimbursement of Placement Agents' Expenses. If this Agreement
is terminated by the Placement Agents pursuant to Section 8(x) or 8(y)(ii), or
if the sale to the Investors of the Shares at the time of purchase is not
consummated because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or to comply with any provision hereof,
the Company shall reimburse the Placement Agents, severally, upon demand for all
of their out-of-pocket expenses, including the fees and disbursements of their
counsel.
Section 7. Conditions of Placement Agents' Obligations. The obligations of
the Placement Agents hereunder shall be subject to the accuracy of the
representations and warranties on the part of the Company set forth in Section 4
hereof as of the date hereof and at the time of purchase as though then made, to
the accuracy of the statements of the Company made in any certificates pursuant
to the provisions hereof, to the timely performance by the Company of its
covenants and other obligations hereunder, and to each of the following
additional conditions:
(a) The Company shall furnish to the Placement Agents at the time of
purchase the favorable opinion of (i) outside counsel for the Company addressed
to the Placement Agents, and dated the time of purchase, in form and substance
satisfactory to King & Spalding LLP, counsel for the Placement Agents, in the
form set forth in Exhibit D and (ii) in-house counsel for the Company addressed
to the Placement Agents, and dated the time of purchase, in form and substance
satisfactory to King & Spalding LLP, in the form set forth in Exhibit E;
(b) The Placement Agents shall have received from Ernst & Young LLP,
independent public accountants for the Company, letters dated, respectively, the
date of this Agreement and the time of purchase, and addressed to the Placement
Agents in the forms heretofore approved by the Placement Agents;
(c) On or prior to the date hereof, the Company shall have furnished to the
Placement Agents an agreement in the form of Exhibit C hereto from each director
and executive officer of the Company, and such agreement shall be in full force
and effect at the time of purchase;
(d) The Placement Agents shall have received at the time of purchase an
opinion of King & Spalding LLP, counsel for the Placement Agents, dated the time
of purchase, in form and substance reasonably satisfactory to the Placement
Agents, and the Company shall have furnished to such counsel such documents as
they reasonably request for the purpose of delivering such opinion;
17
(e) Prior to the time of purchase, no Prospectus or amendment or supplement
to the Registration Statement or the Prospectus, including documents deemed to
be incorporated by reference therein, shall have been filed to which the
Placement Agents reasonably objects in writing;
(f) The Prospectus Supplement shall have been filed with the Commission
pursuant to Rule 424(b) under the Act before 5:30 P.M. New York City time by no
later than the second full business day after the date of this Agreement;
(g) All material required to be filed by the Company pursuant to Rule
433(d) under the Securities Act shall have been filed with the Commission within
the applicable time periods prescribed for such filings under such Rule 433;
(h) Prior to the time of purchase, (i) no stop order with respect to the
effectiveness of the Registration Statement shall have been issued under the Act
or proceedings initiated under Section 8(d) or 8(e) of the Act; (ii) the
Registration Statement shall not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; and (iii) the Disclosure Package and
Prospectus shall not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they are made,
not misleading;
(i) Between the time of execution of this Agreement and the time of
purchase, (i) in the judgment of the Placement Agents, there shall not have
occurred any Material Adverse Change; (ii) there shall not have been any change
or decrease specified in the letter or letters referred to in paragraph (b) of
this Section 7 which is, in the sole judgment of the Placement Agents, so
material and adverse as to make it impractical or inadvisable to proceed with
the offering or delivery of the Shares as contemplated by the Registration
Statement and the Prospectus;
(j) The Shares shall have been authorized for quotation on Nasdaq and
satisfactory evidence of such actions shall have been provided to the Placement
Agents; and
(k) The Company will, at the time of purchase, deliver to the Placement
Agents a certificate executed by the Chairman of the Board, Chief Executive
Officer or President of the Company and its Chief Financial Officer or Chief
Accounting Officer to the effect that the signers of such certificate have
reviewed the Registration Statement, the Prospectus and any amendment or
supplement thereto, the Disclosure Package and each Issuer Free Writing
Prospectus, to the effect set forth in subsection (h) of this Section 7, and
further to the effect that:
(i) for the period from and after the date of this Agreement until the
time of purchase, there has not occurred any Material Adverse Change;
(ii) the representations, warranties and covenants of the Company set
forth in Section 4 of this Agreement are true and correct on and as of the
time of purchase with the same force and effect as though expressly made on
and as of such time of purchase; and
18
(iii) the Company has complied with all the agreements hereunder and
satisfied all the conditions on its part to be performed or satisfied
hereunder at or prior to the time of purchase.
Section 8. Effective Date of Agreement; Termination. This Agreement shall
become effective when the parties hereto have executed and delivered this
Agreement.
The obligations of the Placement Agents hereunder shall be subject to
termination in the absolute discretion of the Placement Agents if (x) since the
time of execution of this Agreement or the earlier respective dates as of which
information is given in the Registration Statement, the Disclosure Package and
the Prospectus, there has been any material adverse change in the business,
properties, prospects, operations management, financial condition or results of
operations of the Company and the Subsidiaries taken as a whole, which would, in
the Placement Agents' reasonable judgment, make it impracticable or inadvisable
to proceed with the transactions contemplated by this Agreement or the delivery
of the Shares on the terms and in the manner contemplated in the Registration
Statement, the Disclosure Package and the Prospectus, or (y) since the Execution
Time, there shall have occurred: (i) a suspension or material limitation in
trading in securities generally on the American Stock Exchange, the New York
Stock Exchange or Nasdaq or minimum or maximum prices shall have been generally
established on any of such exchanges by the Commission or the NASD; (ii) a
suspension or material limitation in trading in the Company's securities on
Nasdaq; (iii) a general moratorium on commercial banking activities declared by
either federal or New York State authorities or a material disruption in
commercial banking or securities settlement or clearance services in the United
States; (iv) an outbreak or significant escalation of hostilities or acts of
terrorism involving the United States, or a declaration by the United States of
a national emergency or war; or (v) any other calamity or crisis or any change
in financial, political or economic conditions in the United States or
elsewhere, if the effect of any such event specified in clause (iv) or (v) in
the Placement Agents' judgment makes it impracticable or inadvisable to proceed
with the transactions contemplated by this Agreement or the delivery of the
Shares on the terms and in the manner contemplated in the Registration
Statement, the Disclosure Package and the Prospectus.
If the Placement Agents elect to terminate this Agreement as provided in
this Section 8, the Company shall be notified promptly in writing.
If the sale of the Shares, as contemplated by this Agreement, is not
carried out for any reason permitted under this Agreement or if such sale is not
carried out because the Company shall be unable to comply with any of the terms
of this Agreement, the Company shall not be under any obligation or liability
under this Agreement (except to the extent provided in Sections 6, 9 and 13
hereof), and the Placement Agents shall be under no obligation or liability to
the Company under this Agreement (except to the extent provided in Section 9
hereof). Under such circumstances, the Engagement Letter shall remain in full
force and effect in accordance with its terms.
Section 9. Indemnification; Contribution
(a) The Company agrees (i) to indemnify, defend and hold harmless each
Placement Agent, Lazard Freres & Co. LLC and each of their directors, officers,
employees and agents, and
19
each person, if any, who controls such Placement Agent or Lazard Freres & Co.
LLC within the meaning of Section 15 of the Act or Section 20 of the Exchange
Act, and the successors and assigns of all of the foregoing persons, from and
against any loss, damage, expense, liability or claim (or actions in respect
thereof as contemplated below) which such Placement Agent, Lazard Freres & Co.
LLC or any such person may incur under the Act, the Exchange Act, the common law
or otherwise, insofar as such loss, damage, expense, liability or claim (or
actions in respect thereof as contemplated below) arises out of or is based (A)
in whole or in part upon any inaccuracy in the representations and warranties of
the Company contained herein, (B) in whole or in part upon any failure of the
Company to perform its obligations hereunder or under law, (C) upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, or any amendment thereto, including any information
deemed to be a part thereof pursuant to Rule 430A, Rule 430B or Rule 430C under
the Act, or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, (D) upon any untrue statement or alleged untrue statement of a
material fact contained in the Disclosure Package, any Issuer Free Writing
Prospectus, the Prospectus (or any amendment or supplement thereto) or the
omission or alleged omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, or (E) in whole or in part upon any act or failure to
act or alleged act or failure to act by such Placement Agent in reliance upon
(A), (B), (C) or (D), and in connection with or relating in any manner to the
Shares or the offering contemplated hereby, provided that the Company shall not
be liable under this clause (E) to the extent that a court of competent
jurisdiction shall have determined by a final judgment that such loss, claim,
damage, liability or action resulted primarily from any such acts or failures to
act undertaken or omitted to be taken by such Placement Agent through its bad
faith or willful misconduct; and (ii) to reimburse each Placement Agent, its
officers, directors, employees, agents and each such controlling person for any
and all expenses (including the fees and disbursements of counsel chosen by such
Placement Agent) as such expenses are reasonably incurred by such Placement
Agent, Lazard Freres & Co. LLC or their officers, directors, employees and
agents or such controlling person in connection with investigating, defending,
settling, compromising or paying any such loss, claim, damage, liability,
expense or action; provided, however, that the foregoing indemnity agreement
shall not apply to any loss, claim, damage, liability or expense to the extent,
but only to the extent, arising out of or based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with written information furnished to the Company by the
Placement Agents expressly for use in the Registration Statement, any Issuer
Free Writing Prospectus, or the Prospectus (or any amendment or supplement
thereto). The indemnity agreement set forth in this Section 9(a) shall be in
addition to any liabilities that the Company may otherwise have.
(b) Each of the Placement Agents agrees, severally and not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who signed the Registration Statement and each person, if any, who
controls the Company within the meaning of the Act or the Exchange Act, against
any loss, claim, damage, liability or expense, as incurred, to which the Company
or any such director, officer or controlling person may become subject, insofar
as such loss, claim, damage, liability or expense (or actions in respect thereof
as contemplated below) arises out of or is based upon any untrue or alleged
untrue statement of a material fact contained in the Registration Statement, the
Disclosure Package, any Issuer Free Writing Prospectus or the Prospectus (or any
amendment or supplement thereto), or arises out of or is based upon the
20
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, and only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in the
Registration Statement, the Disclosure Package, any Issuer Free Writing
Prospectus or the Prospectus (or any amendment or supplement thereto), in
reliance upon and in conformity with written information furnished to the
Company by the Placement Agents expressly for use therein; and to reimburse the
Company or any such director, officer or controlling person for any legal and
other expense reasonably incurred by the Company or any such director, officer
or controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action. The Company hereby acknowledges that the only information that the
Placement Agents have furnished to the Company expressly for use in the
Registration Statement, the Disclosure Package, any Issuer Free Writing
Prospectus or the Prospectus (or any amendment or supplement thereto) are the
statements set forth in the penultimate paragraph of the Prospectus Supplement
under the caption "PLAN OF DISTRIBUTION" concerning stabilization.
(c) Promptly after receipt by an indemnified party under this Section 9 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section 9, notify the indemnifying party in writing of the commencement thereof;
but the failure to so notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any liability other than the
indemnification obligation provided in paragraph (a) or (b) above. In case any
such action is brought against any indemnified party and such indemnified party
seeks or intends to seek indemnity from an indemnifying party, the indemnifying
party will be entitled to participate in, and, to the extent that it shall
elect, jointly with all other indemnifying parties similarly notified, by
written notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof with
counsel reasonably satisfactory to such indemnified party; provided, however, if
the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties that are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of such indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 9 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel (other than local counsel), reasonably approved
by the indemnifying party, representing the indemnified parties who are parties
to such action) or (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the
21
indemnified party within a reasonable time after notice of commencement of the
action, in each of which cases the fees and expenses of counsel shall be at the
expense of the indemnifying party.
(d) The indemnifying party under this Section 9 shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party against any loss,
claim, damage, liability or expense by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by Section 11(c) hereof, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if such settlement is entered
into more than 60 days after receipt by such indemnifying party of the aforesaid
request and such indemnifying party shall not have reimbursed the indemnified
party in accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement, compromise or consent to the entry of judgment in
any pending or threatened action, suit or proceeding in respect of which any
indemnified party is or could have been a party and indemnity was or could have
been sought hereunder by such indemnified party, unless such settlement,
compromise or consent (i) includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such action,
suit or proceeding and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act, by or on behalf of any indemnified
party.
(e) If the indemnification provided for in Section 9(a) or (b), as
applicable, is for any reason unavailable to or otherwise insufficient to hold
harmless an indemnified party in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount paid or payable by such indemnified party, as
incurred, as a result of any losses, claims, damages, liabilities or expenses
referred to therein (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company, on the one hand, and the Placement
Agents, on the other hand, from the placement of the Shares pursuant to this
Agreement or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company, on the one hand, and the Placement Agents, on the other
hand, in connection with the statements or omissions contained in the
Registration Statement, the Disclosure Package, any Issuer Free Writing
Prospectus or the Prospectus (or any amendment or supplement thereto) or
inaccuracies in the representations and warranties herein which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company, on the
one hand, and the Placement Agents, on the other hand, in connection with the
placement of the Shares pursuant to this Agreement shall be deemed to be in the
same respective proportions as the total net proceeds from the placement of the
Shares pursuant to this Agreement (before deducting expenses) received by the
Company, and the total compensation received by the Placement Agents bear to the
aggregate proceeds from the placement of the Shares. The relative fault of the
Company, on the one hand, and the Placement Agents, on the other hand, shall be
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact
22
or any such inaccurate or alleged inaccurate representation or warranty relates
to information supplied by the Company, on the one hand, or the Placement
Agents, on the other hand, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in Section 9(c), any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim.
The Company and the Placement Agents agree that it would not be just and
equitable if contribution pursuant to this Section 9(e) were determined by pro
rata allocation (even if the Placement Agents were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in this Section 9(e).
(f) Notwithstanding the provisions of Section 9(e), no Placement Agent
shall be required to contribute any amount in excess of the compensation
received by such Placement Agent in connection with the placement contemplated
by this Agreement. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The Placement
Agents' obligations to contribute pursuant to Section 9(e) are several, and not
joint, in proportion to their respective percentage allocations of the
compensation payable by the Company pursuant to Section 1 hereof. For purposes
of Section 9(e), each director, officer, employee and agent of a Placement Agent
and each person, if any, who controls a Placement Agent within the meaning of
the Act or the Exchange Act shall have the same rights to contribution as such
Placement Agent, and each director of the Company, each officer of the Company
who signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Act or the Exchange Act shall have the same
rights to contribution as the Company.
Section 10. No Advisory or Fiduciary Responsibility. The Company
acknowledges and agrees that: (i) it is a sophisticated business enterprise with
competent internal financial advisors and legal counsel, and the Company has
retained the Placement Agents for the limited purposes set forth in this
Agreement; (ii) the placement of the Shares pursuant to this Agreement,
including the determination of commissions, is an arm's-length commercial
transaction between the Company, on the one hand, and the Placement Agents, on
the other hand, and the Company is capable of evaluating and understanding and
understands and accepts the terms, risks and conditions of the transactions
contemplated by the Agreement; (iii) in connection with each transaction
contemplated hereby and the process leading to such transaction, each of the
Placement Agents is and has been acting solely as a principal and is not the
financial advisor or fiduciary of the Company or its respective officers,
directors, partners, affiliates, stockholders, creditors or employees or any
other party; (iv) the Placement Agents have not assumed nor will they assume an
advisory or fiduciary responsibility in favor of the Company with respect to any
of the transactions contemplated hereby or the process leading thereto
(irrespective of whether either of the Placement Agents or Lazard Freres & Co.
LLC has advised or is currently advising the Company on other matters) and
neither of the Placement Agents has an obligation to the Company with respect to
the offering contemplated hereby
23
except the obligations expressly set forth in this Agreement; (v) the Placement
Agents and their affiliates may be engaged in a broad range of transactions that
involve interests that differ from those of the Company and that the Placement
Agents have no obligation to disclose any such interests by virtue of any
advisory or fiduciary relationship; and (vi) the Placement Agents have not
provided any legal, accounting, regulatory or tax advice with respect to the
offering contemplated hereby and the Company has consulted its own legal,
accounting, regulatory and tax advisors to the extent it deemed appropriate.
This Agreement supersedes all prior agreements and understandings (whether
written or oral) between the Company, on the one hand, and the Placement Agents
and Lazard Freres & Co. LLC, on the other, with respect to the subject matter
hereof. The Company hereby waives and releases, to the fullest extent permitted
by law, any claims that the Company may have against the Placement Agents with
respect to any breach or alleged breach of fiduciary duty.
Section 11. Notices. Except as otherwise herein provided, all statements,
requests, notices and agreements shall be in writing or by telegram and, if to
the Placement Agents, shall be sufficient in all respects if delivered or sent
to Banc of America Securities LLC, 9 West 57th Street, 29th Floor, New York, New
York 10019, Attention: General Counsel, with copies to King & Spalding LLP, 1185
Avenue of the Americas, New York, NY 10036, Attention: Christopher C. Paci,
Esq., and, if to the Company, shall be sufficient in all respects if delivered
or sent to the Company at the offices of the Company at Lexicon Genetics
Incorporated, 8800 Technology Forest Place, The Woodlands, TX 77381-1160,
Attention: Chief Financial Officer and General Counsel with copies to Vinson &
Elkins L.L.P., 2300 First City Tower, 1001 Fannin Street, Houston, Texas 77002,
Attention: David P. Oelman, Esq.
Section 12. Governing Law; Construction. This Agreement and any claim,
counterclaim or dispute of any kind or nature whatsoever arising out of or in
any way relating to this Agreement ("CLAIM"), directly or indirectly, shall be
governed by, and construed in accordance with, the laws of the State of New
York. The section headings in this Agreement have been inserted as a matter of
convenience of reference and are not a part of this Agreement.
Section 13. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers set forth in or made pursuant to this
Agreement (i) will remain operative and in full force and effect, regardless of
any (A) investigation, or statement as to the results thereof, made by or on
behalf of the Placement Agents, the officers or employees of the Placement
Agents, or any person controlling the Placement Agents, the Company, the
officers or employees of the Company, or any person controlling the Company, as
the case may be or (B) acceptance of the Shares and payment for them hereunder
and (ii) will survive delivery of and payment for the Shares sold hereunder and
any termination of this Agreement
Section 14. Parties at Interest. The Agreement herein set forth has been
and is made solely for the benefit of the Placement Agents and the Company and
to the extent provided in Section 8 hereof any person or entity entitled to
indemnification thereunder, and their respective successors, assigns, heirs,
personal representatives and executors and administrators. This Agreement shall
also inure to the benefit of Lazard Freres & Co. LLC and its successors, assigns
and personal representatives, which shall be third party beneficiaries hereof.
No other person,
24
partnership, association or corporation (including a purchaser, as such
purchaser, from the Placement Agents) shall acquire or have any right under or
by virtue of this Agreement.
Section 15. Counterparts. This Agreement may be signed by the parties in
one or more counterparts, which together shall constitute one and the same
agreement among the parties.
Section 16. Successors and Assigns. This Agreement shall be binding upon
the Placement Agents and the Company and their successors and assigns and any
successor or assign of the Company's and the Placement Agents' respective
businesses and/or assets.
25
If the foregoing correctly sets forth the understanding among the Company
and the Placement Agents, please so indicate in the space provided below for
that purpose, whereupon this agreement and your acceptance shall constitute a
binding agreement among the Company and the Placement Agents.
Very truly yours,
LEXICON GENETICS INCORPORATED
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Accepted and agreed to as of the date first above written, on behalf of itself,
BANC OF AMERICA SECURITIES LLC
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
LAZARD CAPITAL MARKETS LLC
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
26
SCHEDULE A
SUBSIDIARIES
Lexicon Pharmaceuticals (New Jersey), Inc. (Significant Subsidiary)
Lex-Gen Woodlands GP, LLC
Lex-Gen (Delaware), LLC (Significant Subsidiary)
Lex-Gen Woodlands, L.P. (Significant Subsidiary)
Lexicon Celtic Limited
Sch. A-1
SCHEDULE B
Total number of Shares being offered: 10,582,011 Shares
Offering price: $3.78 per Share
Placement agency fees: $0.2268 per Share
Dilution in net tangible book value to new investors: $2.80 per Share
Sch. B-1
EXHIBIT A
ISSUER FREE WRITING PROSPECTUSES
None.
A-1
EXHIBIT B
FORM OF PURCHASE AGREEMENT
[SEE ATTACHED]
B-1
EXHIBIT C
FORM OF LOCK-UP AGREEMENT
October __, 2006
Banc of America Securities LLC
as Placement Agent
9 West 57th Street
New York, NY 10019
Lazard Capital Markets LLC
as Placement Agent
30 Rockefeller Plaza
New York, NY 10020
Re: Lexicon Genetics Incorporated (the "COMPANY")
Ladies and Gentlemen:
The undersigned is an owner of record or beneficially of certain shares of
Common Stock of the Company ("COMMON STOCK") or securities convertible into or
exchangeable or exercisable for Common Stock. The Company proposes to carry out
an offering of Common Stock (the "OFFERING") for which you will act as the
placement agents (the "PLACEMENT AGENTS") pursuant to a placement agency
agreement (the "PLACEMENT AGENCY AGREEMENT"). The undersigned acknowledges that
you are relying on the representations and agreements of the undersigned
contained in this letter in carrying out the Offering and in entering into
placement arrangements with the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not, (and will cause any spouse or immediate family member of
the spouse or the undersigned living in the undersigned's household not to),
without the prior written consent of Banc of America Securities LLC ("BAS") on
behalf of the Placement Agents (which consent may be withheld in its sole
reasonable discretion), directly or indirectly, sell, offer, contract or grant
any option to sell (including without limitation any short sale), pledge,
transfer, establish an open "put equivalent position" or liquidate or decrease a
"call equivalent position" within the meaning of Rule 16a-1(h) under the
Securities Exchange Act of 1934, as amended, or otherwise dispose of or transfer
(or enter into any transaction which is designed to, or might reasonably be
expected to, result in the disposition of) including the filing (or
participation in the filing) of a registration statement (except for a
registration statement on Form S-8) with the Securities and Exchange
C-1
Commission in respect of, any shares of Common Stock, options or warrants to
acquire shares of Common Stock, or securities exchangeable or exercisable for or
convertible into shares of Common Stock currently or hereafter owned either of
record or beneficially (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934, as amended) by the undersigned (or such spouse or family member),
or publicly announce an intention to do any of the foregoing, for a period
commencing on the date hereof and continuing through the close of trading on the
date 15 business days after the date of the Prospectus Supplement relating to
the Offering (the "LOCK-UP PERIOD"). In addition, the undersigned agrees that,
without the prior written consent of BAS on behalf of the Placement Agents, it
will not, during the Lock-Up Period, make any demand for or exercise any right
with respect to, the registration of any shares of Common Stock or any security
convertible into or exercisable or exchangeable for Common Stock.
The undersigned also agrees and consents to the entry of stop transfer
instructions with the Company's transfer agent and registrar against the
transfer of shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock held by the undersigned except in
compliance with the foregoing restrictions.
It is understood that if the Company advises the Placement Agents in
writing that it does not intend to proceed with the Offering, or if either the
Company or the Placement Agents shall advise the other party in writing that the
Offering has been terminated, then the undersigned will be released from its
obligations under this agreement.
With respect to the Offering only, the undersigned waives any registration
rights relating to registration under the Securities Act of any Common Stock
owned either of record or beneficially by the undersigned, including any rights
to receive notice of the Offering.
This agreement is irrevocable and will be binding on the undersigned and
the respective successors, heirs, personal representatives, and assigns of the
undersigned.
- -------------------------------------
Printed Name of Holder
By:
---------------------------------
Signature
C-2
EXHIBIT D
OPINION OF OUTSIDE COUNSEL FOR THE COMPANY
(i) the Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own, lease and operate its properties and
conduct its business as described in the Disclosure Package and the Prospectus;
(ii) the Company is duly qualified as a foreign corporation to transact
business and is in good standing in the State of Texas;
(iii) the Placement Agency Agreement has been duly authorized, executed and
delivered by the Company;
(iv) the Company has an authorized capitalization as set forth in each of
the Disclosure Package and the Prospectus; the authorized capital stock of the
Company, including the Shares, conforms to the description thereof contained in
each of the Disclosure Package and the Prospectus; the Shares have been duly
authorized and, when issued, delivered and paid for in accordance with the
Purchase Agreement, will be validly issued, fully paid and non-assessable;
(v) each of Lexicon Pharmaceuticals (New Jersey), Inc., Lex-Gen (Delaware),
LLC and Lex-Gen Woodlands, L.P. (collectively, the "Subsidiaries") has been duly
incorporated or formed, as the case may be, and is validly existing as a
corporation, limited liability company or limited partnership, as the case may
be, in good standing under the laws of the State of Delaware, has corporate or
other power and authority to own or lease, as the case may be, and to operate
its properties and to conduct its business as described in the Disclosure
Package and the Prospectus; Lexicon Pharmaceuticals (New Jersey), Inc. is duly
qualified as a foreign corporation to transact business and is in good standing
in the State of New Jersey; each of Lex-Gen (Delaware), LLC and Lex-Gen
Woodlands, L.P. is duly qualified as a foreign limited liability company or
limited partnership, as the case may be, to transact business and is in good
standing in the State of Texas;
(vi) all of the issued and outstanding capital stock or other equity
interests of each of the Subsidiaries has been duly authorized and validly
issued, is fully paid and non-assessable and is owned by the Company directly,
free and clear of any security interest, mortgage, pledge, lien, encumbrance or,
to the knowledge of such counsel, any pending or threatened claim;
(vii) (A) the Registration Statement and the Prospectus (except as to the
financial statements and schedules and other financial data contained therein,
as to which such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Act; and (B) the documents
incorporated by reference in the Registration Statement and the Prospectus, at
the time they became effective or were filed
D-1
with the Commission, complied as to form in all material respects with the
requirements of the Exchange Act (except as to the financial statements and
schedules and other financial data contained therein, as to which such counsel
need express no opinion);
(viii) the Registration Statement has become effective under the Act and,
to such counsel's knowledge, no stop order proceedings with respect thereto are
pending or threatened under the Act and any required filing of the Prospectus
and any supplement thereto pursuant to Rule 424 under the Act has been made in
the manner and within the time period required by such Rule 424;
(ix) no approval, authorization, consent or order of or filing with any
court or governmental authority or agency, is required by the Company in
connection with the consummation by the Company of the transactions contemplated
hereby (other than such consents, approvals, authorizations, orders and
qualifications as have been obtained under the Act and except such counsel need
express no opinion as to any necessary qualification under the state securities
or blue sky laws of the various jurisdictions in which the Shares are being
offered by the Placement Agents);
(x) the execution, delivery and performance by the Company of its
obligations under the Placement Agency Agreement (other than performance by the
Company of its obligations under the indemnification section of the Placement
Agency Agreement, as to which no opinion need be rendered) (i) will not result
in any violation of the provisions of the charter or by-laws or other
organizational documents of the Company or any of the Subsidiaries; (ii) will
not constitute a breach of, or Default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or any of its subsidiaries pursuant to, (A) the Company's Common Stock
Purchase Agreement, dated June 12, 2006, between the Company and Azimuth
Opportunity Ltd., (B) the Loan and Security Agreement, dated April 21, 2004,
between Lex-Gen Woodlands, L.P. and iStar Financial Inc., or (C) the Note
Agreement, dated December 17, 2002 and amended November 30, 2005, between the
Company and Genentech, Inc.; or (iii) will not result in any violation of any
United States federal, New York or Texas statute, law or rule, which in our
experience is normally applicable to transactions of the type contemplated by
the Purchase Agreement or the General Corporation Law of the State of Delaware
("DGCL"), or, to our knowledge, any judgment, regulation, order or decree
applicable to the Company or any of its subsidiaries of any court, regulatory
body, administrative agency, governmental body, arbitrator or other authority
having jurisdiction over the Company or any of its subsidiaries or any of its or
their properties;
(xi) the Company is not, and after receipt of payment for the Shares and
the application of the proceeds thereof as contemplated under the caption "Use
of Proceeds" in the prospectus will not be an "investment company" as such term
is defined in the Investment Company Act;
D-2
(xii) those statements in the Prospectus under the captions "Description of
Capital Stock" and "Plan of Distribution," insofar as such statements of law,
summaries of legal matters or legal proceedings, or legal conclusions, have been
reviewed by such counsel and accurately and fairly present in all material
respects the information required to be shown;
(xiii) no person has the right, pursuant to the Company's certificate of
incorporation or bylaws or the express terms of any Reviewed Document, to cause
the Company to register under the Act any shares of Common Stock or shares of
any other capital stock or other equity interest of the Company, or to include
any such shares or interest in the Registration Statement or the offering
contemplated thereby, whether as a result of the filing or effectiveness of the
Registration Statement or the sale of the Shares as contemplated thereby or
otherwise other than such rights as have been duly satisfied or waived;
(xiv) in addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company and representatives of the Placement Agents at which the contents of the
Registration Statement, the Disclosure Package and the Prospectus were discussed
and, although such counsel is not passing upon and does not assume
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement, the Disclosure Package or the
Prospectus, on the basis of the foregoing nothing has come to the attention of
such counsel that causes such counsel to believe that (i) either the
Registration Statement or any amendment thereto at the time such Registration
Statement or amendment became effective, 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 not misleading, (ii) the Disclosure
Package at the Execution Time contained an 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, or (iii) the Prospectus or any supplement
thereto at the date of such Prospectus or such supplement, at the Execution Time
and at the time of purchase, contained an 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 (it being understood that such counsel need
express no opinion with respect to the financial statements and schedules and
other financial data included in the Registration Statement, the Disclosure
Package, the Prospectus or the Basic Prospectus); and
(xv) in rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the General
Corporation Law of the State of Delaware, the New York Corporation Law or the
federal law of the United States, to the extent they deem proper and specified
in such opinion, upon the opinion (which shall be dated as of the time of
purchase, as the case may be, shall be satisfactory in form and substance to the
Placement Agents, shall expressly state that the Placement Agents may rely on
such opinion as if it were addressed to them and shall be
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furnished to the Placement Agents) of other counsel of good standing whom they
believe to be reliable and who are satisfactory to counsel for the Placement
Agents; provided, however, that such counsel shall further state that they
believe that they and the Placement Agents are justified in relying upon such
opinion of other counsel, and (B) as to matters of fact, to the extent they deem
proper, on certificates of responsible officers of the Company and public
officials.
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EXHIBIT E
OPINION OF IN-HOUSE COUNSEL
(i) no stockholder of the Company or any other person has any preemptive
right, right of first refusal or other similar right to subscribe for or
purchase securities of the Company arising (i) by operation of the charter or
by-laws of the Company or the General Corporation Law of the State of Delaware
or (ii) to the knowledge of such counsel, otherwise;
(ii) to such counsel's knowledge, there are no legal or governmental
actions, suits, claims, investigations or proceedings pending to which the
Company or any of the Significant Subsidiaries is a party or to which any of
their respective properties is subject at law or in equity, before or by any
court or governmental agency or body which are required to be described in the
Registration Statement, the Disclosure Package or the Prospectus but are not so
described;
(iii) those statements in the Prospectus under the captions "Alliances,
Collaborations and Licenses", "Patents and Proprietary Rights" and "Governmental
Regulation", insofar as such statements are statements of law, summaries of
legal matters or legal proceedings, or legal conclusions, have been reviewed by
such counsel and accurately and fairly present in all material respects the
information required to be shown;
(iv) the Company and each subsidiary possess such valid and current
licenses, certificates, authorizations or permits issued by the appropriate
state, federal or foreign regulatory agencies or bodies as are necessary to
conduct their respective businesses, and neither the Company nor any subsidiary
has received any notice of proceedings relating to the revocation or
modification of, or non-compliance with, any such license, certificate,
authorization or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, could have a Material Adverse Effect;
and
(v) in addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company, representatives of the independent public accountants of the Company
and representatives of the Placement Agents at which the contents of the
Registration Statement, the Disclosure Package and the Prospectus were discussed
and, although such counsel is not passing upon and does not assume
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement, the Disclosure Package or the
Prospectus, on the basis of the foregoing nothing has come to the attention of
such counsel that causes such counsel to believe that (i) either the
Registration Statement or any amendment thereto at the time such Registration
Statement or amendment became effective, 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 not misleading, (ii) the Disclosure
Package at the Execution Time contained an 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
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misleading, or (iii) the Prospectus or any supplement thereto at the date of
such Prospectus or such supplement, at the Execution Time and at the time of
purchase, contained an 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 (it being understood that such counsel need express no opinion
with respect to the financial statements and schedules and other financial data
included in the Registration Statement, the Disclosure Package, the Prospectus
or the Basic Prospectus).
(vi) In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the General
Corporation Law of the State of Delaware, the New York Corporation Law or the
federal law of the United States, to the extent they deem proper and specified
in such opinion, upon the opinion (which shall be dated as of the time of
purchase, as the case may be, shall be satisfactory in form and substance to the
Placement Agents, shall expressly state that the Placement Agents may rely on
such opinion as if it were addressed to them and shall be furnished to the
Placement Agents) of other counsel of good standing whom they believe to be
reliable and who are satisfactory to counsel for the Placement Agents; provided,
however, that such counsel shall further state that they believe that they and
the Placement Agents are justified in relying upon such opinion of other
counsel, and (B) as to matters of fact, to the extent they deem proper, on
certificates of responsible officers of the Company and public officials.
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