STRUCTURED EQUITY LINE FLEXIBLE FINANCING AGREEMENT dated as of June 30,
1999 (the "Agreement"), between Cripple Creek Securities, LLC (the "Investor"),
and Cygnus, Inc., a corporation organized and existing under the laws of the
State of Delaware (the "Company").
W I T N E S S E T H :
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company may elect to issue to the Investor, and
the Investor shall purchase from the Company, from time to time as provided
herein, shares of the Company's common stock, par value $0.001 per share (the
"Common Stock"), for a maximum aggregate Purchase Price of $30,000,000 (the
"Maximum Offering Amount");
NOW, THEREFORE, the parties hereto agree as follows:
I.
CERTAIN DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement (including the recitals
above), the following terms shall have the following meanings specified or
indicated (such meanings to be equally applicable to both the singular and
plural forms of the terms defined):
"ADDITIONAL AMOUNT" shall have the meaning set forth in Section 2.1(c)
hereof.
"ADDITIONAL PURCHASE DATE" shall mean any Trading Day on which the Investor
notifies the Company by delivery of an Investor Notice of the Investor's
election to purchase all or a portion of an Additional Amount.
"ADDITIONAL PURCHASE NOTICE" shall have the meaning set forth inSection
2.3(b) hereof.
"AFFILIATE" shall have the meaning ascribed to it in the Securities Act and
the rules and regulations promulgated thereunder.
"BALANCE SHEET" shall mean the unaudited consolidated balance sheet of the
Company as of March 31, 1999.
"BANKRUPTCY CODE" shall mean title 11 of the United States Code, as
amended.
"BENEFIT PLAN" shall have the meaning set forth in Section 5.12 hereof.
"BLOOMBERG" shall mean Bloomberg Financial Press.
"BLUE SKY LAWS" shall mean the United States and state securities and
takeover laws.
"CALL PURCHASE DATE" shall mean any Trading Day on which the Investor
notifies the Company by delivery of an Investor Notice of the Investor's
election to purchase all or a portion of an Investor Call Amount.
"CANCELLATION NOTICE" shall mean a notice delivered by the Company in its
sole and absolute discretion to the Investor with respect to an Investment
Period notifying the Investor that the Company shall not sell and the Investor
shall not purchase Common Stock represented by the Investor Call Amount for such
Investment Period.
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"CAPITAL STOCK" shall mean any and all shares, interests, participations or
other equivalents (however designated) of corporate stock or any and all
equivalent ownership interests in a Person (other than a corporation).
"CLOSING" shall mean the consummation of each purchase and sale of Common
Stock pursuant to Section 2.4 hereof.
"CLOSING DATE" shall mean, with respect to each purchase and sale of Common
Stock, subject to the conditions contained herein, the second Trading Day
following the date of receipt of the Investor's Notice to the Company of its
election to purchase Common Stock from the Company.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMITMENT PERIOD" shall mean the period commencing on the date that the
Initial Investment Period begins and expiring on the earliest to occur of (a)
the election by the Company or the Investor to terminate the Investor's
obligations and rights to purchase Common Stock pursuant to Section 10.4 herein,
(b) the date on which the Investor shall have made purchases of Common Stock
pursuant to this Agreement in an aggregate Purchase Price of $30,000,000, (c)
the date this Agreement is terminated pursuant to Section 2.5(b), and (d) the
first day following the twenty-fourth (24th) month (subject to extension as
provided by Section 2.2(c)(ii)) from the date of commencement of such period.
"COMMON STOCK" shall have the meaning set forth in the recitals above.
"COMPANY ASSETS" shall have the meaning set forth in Section 5.16 hereof.
"COMPENSATION PLANS" shall mean any stock or option or similar equity-based
compensation plans, including employee stock purchase plans.
"CONDITION SATISFACTION DATE" shall have the meaning set forth in
Section 3.2 hereof.
"EFFECTIVE DATE" shall mean the date hereof, or such later date as the
parties hereto shall have agreed.
"8% LIMIT" shall have the meaning specified in Section 2.2(b) hereof.
"ENVIRONMENTAL LAWS" shall mean all federal, state and local laws and
regulations relating to pollution or the environment (including, without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata), including, without limitation, laws and regulations relating to
emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern.
"EQUITY OFFERING" shall mean the issuance and sale by the Company, of any
shares of Common Stock or securities which are convertible into or exchangeable
for the Common Stock or any warrants, options or other rights to subscribe for
or purchase the Common Stock or any such convertible or exchangeable securities
other than (i) shares of Common Stock or options to purchase Common Stock which
may be issued pursuant to the Compensation Plans or upon conversion or exercise
of any securities outstanding on the date hereof, (ii) shares of Common Stock
which may be issued upon exercise of the Warrants or warrants or options or
Common Stock issued upon exercise of warrants or options issued after the date
hereof with an exercise price approximately equal to the fair market value of
the Common Stock on the date of grant (provided that the exception set forth in
this clause (ii) shall not apply to warrants or options issued after the date
hereof in an aggregate amount exceeding twenty-five percent (25%) of the
Company's issued and outstanding Common Stock as of the date hereof) , and (iii)
shares of Common Stock or securities which are convertible into or exchangeable
for Common Stock or any warrants, options or other rights to subscribe for or
purchase Common Stock or any such convertible or exchangeable securities, in
each case which are issued pursuant to this Agreement, pursuant to the
Convertible Debenture
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and Warrant Purchase Agreement, dated as of June 29, 1999, in strategic
partnering transactions that do not result in any acquisition or other change in
control of the Company, or in connection with any merger or other acquisition
transaction.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"FINAL WARRANT" shall have the meaning set forth in Section 2.6(c).
"FLOOR PRICE" shall be the dollar amount designated by the Company in a
Mandatory Purchase Notice. In the event a Mandatory Purchase Notice is not
timely delivered with respect to a certain Investment Period, the Floor Price
set for the preceding Investment Period will continue to be the Floor Price.
"FOOD AND DRUG ACT" shall mean the Federal Food, Drug and Cosmetic Act, 21
U.S.C. Sections 301 et seq. and the rules and regulations promulgated
thereunder.
"GAAP" shall have the meaning set forth in Section 5.9(a).
"GOVERNMENTAL ENTITY" shall mean any federal, state, local or foreign
legislative body, court, government, department or instrumentality, or
governmental, administrative or regulatory authority or agency.
"INITIAL INVESTMENT AMOUNT" shall mean $4,000,000.
"INITIAL INVESTMENT PERIOD" shall mean the eighty (80) Trading Days
beginning on the Effective Date.
"INITIAL INVESTMENT PURCHASE PRICE" shall mean the average of the closing
bid price per share of the Common Stock for the ten (10) Trading Days prior to
the Effective Date.
"INVESTMENT AMOUNT" shall mean the dollar amount paid by the Investor
pursuant to any Mandatory Purchase, Additional Amount or Investor Call Amount.
"INVESTMENT PERIOD" shall mean each successive one-month period commencing
on (a) in the case of the first Investment Period, the first Trading Day of the
calendar month following the end of the Initial Investment Period, PROVIDED that
the first Investment Period may start as of a different date upon the mutual
written consent of the Company and Investor, and (b) in the case of subsequent
Investment Periods, commencing on the first Trading Day subsequent to the
expiration of the immediately preceding Investment Period.
"INVESTOR CALL AMOUNT" shall have the meaning set forth in Section 2.1(d)
hereof.
"INVESTOR CALL PURCHASE NOTICE" shall have the meaning set forth in
Section 2.3(c) hereof.
"INVESTOR NOTICE" shall have the meaning set forth in Section
2.3(d)(ii) hereof.
"KNOWLEDGE OF THE COMPANY" shall mean the actual knowledge, without
independent inquiry, of any of the executive officers of the Company.
"KNOWLEDGE OF THE INVESTOR" shall mean the actual knowledge, without
independent inquiry, of any of the executive officers of the Investor.
"LIENS" shall have the meaning set forth in Section 5.16 hereof.
"MANDATORY PURCHASE" shall have the meaning set forth in Section
2.1(b) hereof.
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"MANDATORY PURCHASE DATE" shall mean, any Trading Day during any Investment
Period on which the Investor notifies the Company by delivery of an Investor
Notice of its election to purchase all or a portion of the Minimum Obligation
(subject to the limitations set forth in Section 2.1(a)) in respect of such
Investment Period.
"MANDATORY PURCHASE NOTICE" shall have the meaning set forth in Section
2.3(a) hereof.
"MATERIAL ADVERSE EFFECT" shall mean (i) any adverse effect on the
business, operations, properties, or financial condition of the entity with
respect to which such term is used and its subsidiaries, or other entities
controlled by such entity, taken as a whole, and which is material to such
entity and its subsidiaries or other entities controlled by such entity, taken
as a whole, and (ii) any condition or situation, whether or not a material
adverse effect, which would reasonably be expected to prohibit or otherwise
materially interfere with or prevent such entity from entering into or
performing its obligations under, or from consummating the transactions
contemplated by, this Agreement, the Registration Rights Agreement or the
Warrants or any other agreement or document contemplated hereby or thereby.
"MATERIALS OF ENVIRONMENTAL CONCERN" shall mean hazardous substances as
defined under the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601 ET SEQ. and hazardous wastes as defined
under the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, ET
SEQ. and petroleum and petroleum products and such other chemicals, materials or
substances as are listed as "hazardous wastes", "hazardous materials", "toxic
substances", or words of similar import under any similar federal, state and
local laws.
"MAXIMUM OFFERING AMOUNT" shall have the meaning set forth in the recitals
above.
"MINIMUM OBLIGATION" shall have the meaning set forth in Section 2.1(b)
hereof.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ" shall mean the National Association of Securities Dealers
Automated Quotation system.
"9.9% LIMIT" shall have the meaning specified in Section 2.2(c) hereof.
"PERSON" shall mean an individual, partnership, corporation, limited
liability company, trust or unincorporated organization, or a government or
agency or subdivision thereof.
"PRINCIPAL MARKET" shall mean the New York Stock Exchange, the American
Stock Exchange, or NASDAQ, whichever is at the time the principal trading
exchange or market for the Common Stock (or any similar organization or agency
succeeding such market or exchange's functions of reporting prices).
"PROSPECTUS" shall mean the prospectus included in the Registration
Statement, as amended or supplemented by any prospectus supplement, including
post-effective amendments, and all material incorporated by reference in such
prospectus.
"PURCHASE PRICE" shall have the meaning set forth in Section 2.4(b)
hereof.
"REGISTRATION RIGHTS AGREEMENT" shall have the meaning set forth
in Section 2.6(c) hereof.
"REGISTRATION STATEMENT" shall mean the Company's registration statement on
Form S-3 declared effective by the SEC on November 12, 1997 or any successor
registration statement filed by the Company with respect to the Common Stock to
be issued pursuant to this Agreement (other than the Warrant Shares).
"SEC" shall mean the Securities and Exchange Commission.
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"SEC DOCUMENTS" shall have the meaning set forth in Section 5.9 hereof.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder.
"SECURITIES EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, together with the rules and regulations promulgated thereunder.
"STOCK PRICE" on a given Trading Day shall mean the low trading price for
the Common Stock on the Principal Market during such Trading Day, calculated in
the manner utilized by NASDAQ as reported by Bloomberg.
"SUBSIDIARY" shall mean, with respect to any Person, any corporation,
limited or general partnership, trust, association or other business entity of
which 50% or more of the outstanding Capital Stock or other interests entitled
to vote in the election of the board of directors of such corporation
(irrespective of whether, at the time, Capital Stock of any other class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency), managers, trustees or other controlling
persons, or an equivalent controlling interest therein, of such Person is, at
the time, directly or indirectly, owned by such Person and/or one or more
Subsidiaries of such Person.
"TAX RETURN" shall mean any report, return, information statement or other
information required to be supplied to any federal, state, local or foreign
taxing authority, or any election permitted to be made, in connection with
Taxes.
"TAXES" shall mean all taxes, charges, fees, levies, duties or other
assessments, including without limitation all net income, gross income, gross
receipts, franchise, value added, sales, use, property, ad valorem, transfer,
withholding, profits, license, employee, payroll, social security, unemployment,
excise, estimated, severance and any other taxes, duties, withholdings, fees,
assessments or charges of any kind whatsoever, including any interest, penalties
or additions to taxes, imposed by any federal, state, local or foreign taxing
authority.
"TRADING DAY" shall mean a day on which the Common Stock is traded on the
Principal Market.
"VALUE OF OPEN MARKET TRADING" shall mean, with respect to any Trading Day,
the product of the reported trading volume of the Common Stock on the Principal
Market, multiplied by the weighted average trading price (by trading volume) of
the Common Stock on such day (each as determined by Bloomberg, or any other
reputable pricing service chosen by the Investor and reasonably acceptable to
the Company that reports trading on substantially the same basis as NASDAQ as of
the date hereof); PROVIDED, however, that in the event that the Company
consummates a registered public offering of Common Stock (whether primary or
secondary), the Trading Day on which such transaction is consummated shall be
excluded from any calculation under this Agreement based upon the Value of Open
Market Trading; PROVIDED FURTHER, that any block trades of 20,000 shares or more
of Common Stock, other than block trades caused by or involving the Investor,
shall not be included in the calculation when determining reported trading
volume and weighted average trading price.
"WARRANT" shall have the meaning set forth in Section 2.6(b) hereof.
"WARRANT EXERCISE PRICE" shall have the meaning set forth in Section 2.6(a)
hereof.
"WARRANT REGISTRATION STATEMENT" shall have the meaning set forth in
Section 3.2(a) hereof.
"WARRANTS" shall have the meaning set forth in Section 2.6(b) hereof.
"WARRANT SHARE AMOUNT" shall have the meaning set forth in Section 2.6(b)
hereof.
"WARRANT SHARES" shall have the meaning set forth in Section 2.6(c) hereof.
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II.
PURCHASE AND SALE OF COMMON STOCK
SECTION 2.1. INVESTMENTS. Subject to the terms and conditions set forth
herein (including, without limitation, the provisions of Article III hereof),
during the Commitment Period:
(a) INITIAL INVESTMENT. On the first Trading Day following the Effective
Date, the Company shall deliver against payment by the Investor of $4,000,000 by
federal fund wire transfer or transfer of New York Clearing House Funds to the
Company's account, the number of shares of Common Stock (rounded down to the
nearest whole share) determined by dividing the Initial Investment Amount by the
Initial Investment Purchase Price. During the Initial Investment Period, the
Investor shall deliver to the Company, Investor Notices as if the Investor were
obligated during the Initial Investment Period to purchase shares of Common
Stock for an aggregate Purchase Price equal to the Initial Investment Amount;
PROVIDED, HOWEVER, that in no event may the Investor deliver, without the
written consent of the Company, an Investor Notice during such Initial
Investment Period with respect to a dollar amount, which, together with the
aggregate dollar amount covered by Investor Notices previously delivered, would
exceed the greater of (i) $3,000,000, or (ii) 8% of the average daily Value of
Open Market Trading of the Common Stock on the Principal Market for all prior
Trading Days in the Initial Investment Period. In the event (ii) is less than
$4,000,000 at the end of the Initial Investment Period, the Initial Investment
Period shall be extended (and no other Investment Period shall commence) until
ten (10) Trading Days after (ii) has reached $4,000,000. If the aggregate number
of shares of Common Stock the Investor would have received pursuant to all
Investor Notices delivered pursuant to this paragraph is greater than the number
of shares of Common Stock the Investor received on the Effective Date, then the
Company shall deliver to the Investor within two (2) days after the end of the
Initial Investment Period that number of shares of Common Stock equal to such
difference.
(b) MANDATORY MONTHLY PURCHASES AT COMPANY'S ELECTION. If the Company, in
its sole discretion, elects to deliver a Mandatory Purchase Notice with respect
to any Investment Period in accordance with Section 2.3(a), then upon the
Company's delivery of such Mandatory Purchase Notice, the Investor shall be
obligated in such Investment Period to purchase ("Mandatory Purchase") from the
Company shares of Common Stock during such Investment Period for an aggregate
Purchase Price to be specified by the Company in the Mandatory Purchase Notice,
but not to exceed $500,000, subject to the adjustments and limitations imposed
by this Agreement (the "Minimum Obligation"). Upon receipt of a Mandatory
Purchase Notice, subject to the terms and conditions contained herein, the
Investor shall be obligated to purchase on one or more Closing Dates in respect
of each such Mandatory Purchase Date or Mandatory Purchase Dates as the Investor
elects during the Investment Period, shares of Common Stock for an aggregate
Purchase Price equal to the Minimum Obligation.
(c) ADDITIONAL AMOUNTS AT THE COMPANY'S ELECTION. For any Investment
Period during which the Company elects to obligate the Investor to make a
Mandatory Purchase, the Company may deliver to the Investor an Additional
Purchase Notice with respect to the same Investment Period in accordance with
Section 2.3(b). Upon any such delivery of an Additional Purchase Notice with
respect to an Investment Period, the Investor shall be obligated to purchase
shares of Common Stock from the Company (in addition to the Minimum Obligation)
during such Investment Period for an aggregate Purchase Price to be specified by
the Company in the Additional Purchase Notice, but not to exceed $1,000,000
(which individual purchases shall be at least $50,000 and multiples of $50,000
in excess thereof), subject to the adjustments and limitations imposed by this
Agreement (the "Additional Amount"). Upon receipt of such Additional Purchase
Notice, the Investor shall be obligated to purchase on each Closing Date in
respect of each such Additional Purchase Date or Additional Purchase Dates as
the Investor elects during the Investment Period
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to which such Additional Purchase Notice relates, shares of Common Stock
for an aggregate Purchase Price equal to the Additional Amount.
(d) INVESTOR CALL. For any Investment Period with respect to which the
Company has timely delivered a Mandatory Purchase Notice, the Investor may
deliver to the Company an Investor Call Purchase Notice or Notices during such
Investment Period, subject to the Company's right to limit or cancel the
Investor Call Amount pursuant to Section 2.3(a)(ii) and Section 2.3(a)(iii).
Upon delivery of such an Investor Call Purchase Notice, the Company shall be
obligated to sell shares of Common Stock to the Investor (in addition to the
Minimum Obligation and the Additional Amount, if any) during the corresponding
Investment Period for an aggregate Purchase Price to be specified by the
Investor in the Investor Call Purchase Notice, but not to exceed an aggregate of
$1,000,000 for any Investment Period (which individual purchases shall be at
least $50,000 and multiples of $50,000 in excess thereof), subject to
adjustments and limitations imposed by this Agreement (the "Investor Call
Amount"). Upon delivery of such Investor Call Purchase Notice, the Investor
shall be obligated to purchase on each Closing Date in respect of each such Call
Purchase Date or Call Purchase Dates as the Investor elects during the
Investment Period to which such Investor Call Purchase Notice relates, shares of
Common Stock for an aggregate Purchase Price equal to the Investor Call Amount.
(e) PURCHASE OF LESS THAN OR MORE THAN MINIMUM OBLIGATION, ADDITIONAL
AMOUNT AND INVESTOR CALL AMOUNT. Upon delivery of a Mandatory Purchase Notice
(and, if the Company elects, an Additional Purchase Notice and, if the Investor
elects, an Investor Call Purchase Notice), the Investor may purchase an amount
of Common Stock in any Investment Period equal to up to five percent (5%) more
than, or less than, the aggregate dollar amount of the Minimum Obligation and/or
the Additional Amount and/or the Investor Call Amount with respect to such
Investment Period, and any such purchases shall be treated for purposes of this
Agreement as satisfying the Investor's obligations with respect to the Minimum
Obligation and/or the Additional Amount and/or the Investor Call Amount,
respectively.
SECTION 2.2. LIMITATIONS ON INVESTMENT AMOUNT.
(a) OVERALL MAXIMUM. In no event shall the aggregate dollar amount of the
purchases made by the Investor pursuant to Section 2.1 exceed the Maximum
Offering Amount.
(b) INVESTMENT PERIOD LIMITS. Notwithstanding the obligations and rights
of the Investor to purchase shares of Common Stock pursuant to Section 2.1 (b),
(c) and (d), the aggregate Investment Amount for any Investment Period (whether
pursuant to a Minimum Obligation, an Additional Purchase Notice or an Investor
Call Purchase Notice or any combination thereof) shall not at the option of the
Investor exceed the lesser of (x) the Minimum Obligation plus the amount set
forth in any Additional Purchase Notice and Investor Call Purchase Notice with
respect to such Investment Period, if any, or (y) an amount equal to the product
of (I) 8% of the average daily Value of Open Market Trading of the Common Stock
on the Principal Market for each Trading Day during the Investment Period
immediately preceding such Investment Period times (II) the number of Trading
Days in such immediately preceding Investment Period (rounded up to the next
increment of $10,000), or (z) an amount equal to the product of (I) 8% of the
average daily Value of Open Market Trading of the Common Stock on the Principal
Market for each Trading Day during such Investment Period times (II) the number
of Trading Days in which the Stock Price is above the Floor Price in such
Investment Period (rounded up to the next increment of $10,000) (the lower of
the amounts referred to in clause (y) and (z), the "8% Limit"); provided,
however, that the Investor may waive, in whole or in part, the 8% Limit in any
Investment Period.
(c) 9.9% LIMIT. Notwithstanding anything herein to the contrary, the
Investor shall not be required or entitled to purchase shares of Common Stock
pursuant to this Agreement on any Closing Date to the extent such purchase, when
aggregated with all other shares of Common Stock acquired pursuant to this
Agreement and then owned by the Investor, and with the shares of Common Stock
beneficially or deemed beneficially owned by the Investor pursuant hereto, and
the Warrants theretofore issued to the Investor pursuant to Section 2.6 and
still owned by the Investor, would result in the Investor or any Affiliate of
the Investor beneficially owning more than 9.9% of all the issued and
outstanding Common
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Stock on such Closing Date, as determined in accordance herewith and
Section 13(d) of the Exchange Act (the "9.9% Limit"). Notwithstanding the
foregoing, the Investor and its Affiliates shall not be deemed to beneficially
own shares of Common Stock other than those acquired pursuant to this Agreement.
SECTION 2.3. MECHANICS OF NOTIFICATION
(a) MANDATORY PURCHASE NOTICE.
(i) On or before the third (3rd) Trading Day preceding the
commencement of an Investment Period, unless otherwise agreed by the parties to
this Agreement, the Chief Financial Officer of the Company (or such other person
as designated in writing) may, at the Company's sole discretion, deliver a
written notice to the Investor (each such notice being a "Mandatory Purchase
Notice") which states that the Investor shall be obligated to purchase the
Minimum Obligation during such Investment Period subject to the terms and
conditions contained herein and sets the Floor Price for such Investment Period.
Each Mandatory Purchase Notice shall be irrevocable.
(ii) COMPANY CANCELLATION OR LIMITATION OF MINIMUM OBLIGATION OR
INVESTOR CALL. In the event the Company intends not to obligate the Investor to
purchase Common Stock represented by the Minimum Obligation during an Investment
Period or in the event the Company intends to cancel or limit the amount of the
Investor Call Amount, on or before the third (3rd) Trading Day preceding the
commencement of such Investment Period, the Company shall deliver a Cancellation
Notice to the Investor. The delivery of such Cancellation Notice shall cancel or
limit the amount of the Investor Call Amount to the extent set forth in such
Cancellation Notice. Such Cancellation Notice shall be irrevocable.
(iii) EFFECT OF INACTION BY THE COMPANY. In the event that the
Company fails to deliver a Mandatory Purchase Notice for an Investment Period,
then the Investor shall have no rights or obligations to purchase any Common
Stock, including, but not limited to, any Common Stock with respect to an
Investor Call Amount for such Investment Period. In the event the Company
delivers a Mandatory Purchase Notice for an Investment Period but fails to
deliver a Cancellation Notice for such Investment Period, then the Investor
shall have the right to deliver an Investor Call Purchase Notice as set forth in
Section 2.1(d); PROVIDED, HOWEVER, that if the Company has also delivered a
Cancellation Notice for such period, then the Investor shall have no right to
deliver any such Investor Call Purchase Notice for such Investment Period.
(b) ADDITIONAL PURCHASE NOTICES. If the Company has delivered a
Mandatory Purchase Notice relating to an Investment Period, the Chief Financial
Officer (or such other person as designated in writing) of the Company may, in
the Company's sole discretion, deliver an Additional Purchase Notice to the
Investor on or before the third (3rd) Trading Day preceding the commencement of
the Investment Period (each such notice being an "Additional Purchase Notice"),
stating the Additional Amount which the Investor shall be required to purchase
during such Investment Period (in addition to the amount representing the
Minimum Obligation). Each Additional Purchase Notice shall be irrevocable. An
Additional Purchase Notice may not be delivered if the Company has not delivered
a Mandatory Purchase Notice with respect to the same Investment Period.
(c) INVESTOR CALL PURCHASE NOTICES. Unless the Company has delivered a
Cancellation Notice for an Investment Period, the Investor may, in the
Investor's sole discretion, deliver an Investor Call Purchase Notice to the
Company from time to time during the Investment Period (each such notice being
an "Investor Call Purchase Notice"), stating the Investor Call Amount which the
Investor shall purchase on such day. Each Investor Call shall be irrevocable. An
Investor Call Purchase Notice may not be delivered if the Company has delivered
a Cancellation Notice with respect to the same Investment Period.
(d) DATE OF DELIVERY OF NOTICES.
(i) NOTICES TO THE INVESTOR. A Mandatory Purchase Notice, an
Additional Purchase Notice and a Cancellation Notice (each, a "Company Notice")
and any other notice sent by the Company to the Investor shall be deemed to be
delivered on the Trading Day it is received by facsimile or otherwise
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received in writing via courier, hand delivery or first-class mail (return
receipt requested) by the Investor if such notice is received prior to 5:00 P.M.
New York time, or it shall be deemed to be delivered on the immediately
succeeding Trading Day if it is received by facsimile or otherwise after 5:00
P.M. New York time or on any day which is not a Trading Day (in which case the
provisions of Section 2.2(c) and the conditions to the Closing must be satisfied
as of such immediately succeeding Trading Day).
(ii) NOTICES TO THE COMPANY. Any notice sent by the Investor to the
Company, including but not limited to an Investor Call Purchase Notice,
notifying the Company of the Investor's election to purchase Common Stock (each
an "Investor Notice") and any other notice sent by the Investor to the Company
shall be deemed to be delivered on the Trading Day it is received by facsimile
or otherwise received in writing via courier, hand delivery or first-class mail
(return receipt requested) by the Company if such notice is received prior to
5:00 P.M. California time, or it shall be deemed to be delivered on the
immediately succeeding Trading Day if it is received by facsimile or otherwise
after 5:00 P.M. California time or on any day which is not a Trading Day (in
which case the provisions of Section 2.2(c) and the conditions to the Closing
must be satisfied as of such immediately succeeding Trading Day).
SECTION 2.4. CLOSINGS
(a) CERTIFICATES AGAINST PAYMENT. On each Closing Date (i) the Company
shall deliver to the Investor one or more certificates representing the number
of shares of Common Stock to be purchased on such Closing Date by the Investor
pursuant to Section 2.1 registered in the name of the Investor or, at the
Investor's option, deposit such certificate(s) into such account or accounts
previously designated by the Investor and (ii) the Investor shall deliver to the
Company the amount determined pursuant to Section 2.4(c). In addition, on or
prior to each Closing Date, each of the Company and the Investor shall deliver
all documents, instruments and writings required to be delivered or reasonably
requested by either of them pursuant to this Agreement.
(b) PURCHASE PRICE PER SHARE. (i) The purchase price per share of the
Company's Common Stock (the "Purchase Price") shall be 98% of the average of the
two (2) lowest Stock Prices during the six (6) Trading Days prior to but
excluding a Mandatory Purchase Date, an Additional Purchase Date or a Call
Purchase Date, as the case may be (the "Purchase Price Period"); provided,
however, that any trading price below the Floor Price during such six (6)
Trading Days shall be deemed to be equal to the Floor Price for purposes of
determining the Purchase Price; and PROVIDED FURTHER, however, that in no event
shall any transaction in the Common Stock effected directly or indirectly by the
Investor or any Affiliate of the Investor be one of such two (2) lowest Stock
Prices. In order to give effect to the second proviso in the preceding sentence,
the Investor shall immediately advise the Company of any transactions which
should be excluded from the determination of the Purchase Price as a result of
such proviso, in which case, the next lowest Stock Price shall be deemed to be
the lowest Stock Price for the purposes of this paragraph. If the Company, at
any time during a Purchase Price Period, subdivides (by any stock split, stock
dividend, recapitalization, reorganization, reclassification or otherwise) its
shares of Common Stock into a greater number of shares, then, as of the
beginning of the Purchase Price Period, the Stock Price in effect prior to such
subdivision shall be proportionately reduced. If the Company, at any time during
a Purchase Price Period, combines (by reverse stock split, recapitaliztion,
reorganziation, reclassification or otherwise) its shares of Common Stock into a
smaller number of shares, then as of the beginning of the Purchase Price Period,
the Stock Price in effect prior to such combination shall be proportionately
increased.
(c) PAYMENT FOR THE COMMON STOCK. On each Closing Date, the Investor
shall pay to the Company the Investment Amount (less any amounts withheld
pursuant to Section 11.2) by federal funds wire transfer or transfer of New York
Clearing House funds, and the Investor shall receive from the Company the number
of shares of Common Stock determined by dividing the Investment Amount by the
applicable Purchase Price (rounded to the nearest whole number of shares). Such
Investment Amount, as so adjusted, shall be paid into such account(s) designated
by the Company prior to the relevant Closing Date.
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SECTION 2.5. TERMINATION, SUSPENSION AND MODIFICATION OF INVESTMENT
OBLIGATION
(a) (i) BLOCKING EVENTS. The Investor shall not have any obligation to
purchase any shares of Common Stock from the Company on any Closing Date, nor
shall a Mandatory Purchase Notice, an Additional Purchase Notice or an Investor
Call Purchase Notice be delivered at any time during the Commitment Period when
there shall exist any one or more of the following: (A) the withdrawal of the
effectiveness of the Registration Statement, (B) the Company's failure to
satisfy in all material respects the requirements of Section 3.2 or 3.3, or (C)
any failure or interruption in the compliance in all material respects by the
Company with the covenants provided in Article VI.
(ii) REDUCTION OR ELIMINATION OF INVESTOR OBLIGATION TO PURCHASE. In
the event that one or more of the events listed in Section 2.5(a)(i)(A)
through (C) above occur during the Investment Period, the obligation of the
Investor to purchase shares of Common Stock (either pursuant to a Minimum
Obligation, an Additional Purchase Notice or an Investor Call Purchase Notice)
during such Investment Period shall, unless waived in writing by the Investor,
be canceled for the remainder of the Investment Period.
(iii) SUSPENSION OF INVESTOR OBLIGATION TO PURCHASE. Any time
during an Investment Period, the Company may provide to the Investor written
notice that the Investor's purchase obligation pursuant to any Mandatory
Purchase Notice or any Additional Purchase Notice will be suspended. Such
written notice shall be delivered by the Company to the Investor one (1) Trading
Day prior to the effective time of such suspension. Upon such suspension, the
Investor shall not have any right to purchase any shares of Common Stock from
the Company (including pursuant to an Investor Call Purchase Notice) during any
such suspension; provided, that in the event the Company provides the Investor
with written notice of such suspension, the Investment Period shall be extended
for the same number of Trading Days as such suspension lasts and the period for
determination of the Purchase Price with respect to any Investor Notice
delivered during the extended period, as determined pursuant to Section 2.4(b)
may, at the Investor's option, include Trading Days during the period of
suspension.
(b) ADDITIONAL EVENTS OF TERMINATION OF INVESTOR OBLIGATION. The
obligations and rights of the Investor to purchase shares of Common Stock under
this Agreement may, if the Investor in its sole and absolute discretion so
elects, be terminated (including with respect to a Closing Date which has not
yet occurred) in the event that (i) there shall occur any stop order or
suspension of the effectiveness of the Registration Statement or Warrant
Registration Statement, or any withdrawal of the effectiveness of the
Registration Statement or Warrant Registration Statement for a period greater
than fifteen (15) Trading Days in any twelve (12) month period (except in the
case of an event described in Sections 2(a)(i)(A), 2(a)(i)(B) or 2(a)(i)(C) of
the Registration Rights Agreement, in which case such time periods shall be
extended to twenty (20) consecutive Trading Days and forty (40) Trading Days in
any 12 month period, respectively); or (ii) the Company shall at any time fail
materially to comply with the requirements of Sections 6.2, 6.3, 6.4, or 6.6 and
the Company shall fail to cure such noncompliance within (A) ten (10) Trading
Days after receipt of notice from the Investor of its election to terminate this
Agreement, provided that the Investor has been notified by the Company of such
noncompliance within two (2) Trading Days of the occurrence of such
noncompliance or, if the noncompliance relates to a failure of the Company to
comply with the provisions of Section 6.6, the Investor otherwise becomes aware
of such noncompliance or (B) otherwise within five (5) Trading Days of the
occurrence of such noncompliance; provided, however, that notwithstanding the
foregoing, the Investor may, in its sole and absolute discretion, terminate this
Agreement if the Company shall fail to maintain the listing of the Common Stock
on a Principal Market, or if trading of the Common Stock on a Principal Market
shall have been suspended for a period of ten (10) consecutive Trading Days.
SECTION 2.6. WARRANTS
(a) WARRANTS.
(i) Upon each and every purchase by the Investor of Common Stock
(including the Initial Investment), whether pursuant to the delivery of
Mandatory Purchase Notices alone or through a combination of Mandatory Purchase
Notices, Additional Purchase Notices and Investor Call Purchase Notices (each, a
"Purchase"), the Investor shall receive the right to purchase Common Stock
pursuant to a
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warrant issued by the Company to the Investor five (5) business days
following the end of each calendar year (each, a "Warrant" and collectively, the
"Warrants") during the Commitment Period for a number of shares equal to the
Warrant Share Amount (as defined in Section 2.6(a)(iii) below) for such calendar
year.
(ii) Each Warrant shall entitle the holder thereof to purchase
Common Stock from time to time within five (5) years from the date each Warrant
is issued at an exercise price per share equal to 120% of the weighted average
of the Purchase Prices at which shares of Common Stock were purchased at the
Closings of all Purchases by the Investor during such calendar year (the
"Warrant Exercise Price").
(iii) "Warrant Share Amount" shall mean, for any given calendar
year, a number of shares equal to 10,000 times a fraction, where the denominator
is $1,000,000 and the numerator is the aggregate Purchase Price of Common Stock
purchased at the Closings of all Purchases by the Investor in such calendar year
(including the Initial Investment Amount).
(iv) Each Warrant shall provide that it shall not be exercisable
on any date to the extent that such exercise would limit the ability of the
Investor to purchase shares of Common Stock as a result of a Minimum Obligation,
an Additional Purchase Notice or an Investor Call Purchase Notice such that its
holding would exceed the 9.9% Limit.
(b) FINAL WARRANT. Subject to Section 10.4, within five (5) Trading Days of
the end of the Commitment Period, the Company will issue to the Investor a
warrant, exercisable by the Investor in its sole and absolute discretion from
time to time within five (5) years from the last day of the Commitment Period
(the "Final Warrant") to purchase that number of shares of Common Stock equal to
120,000 less the number of shares issuable upon exercise of any and all Warrants
issued pursuant to Section 2.6(a), at an exercise price per share equal to 120%
of the average of the exercise prices per share for all Warrants previously
issued (the "Final Warrant Exercise Price"). The Final Warrant shall provide
that it shall not be exercisable on any date to the extent that the Investors
holdings would exceed the 9.9% Limit. Each of the Warrants, if any, and the
Final Warrant shall be substantially in the form of EXHIBIT A hereto.
(c) REGISTRATION RIGHTS FOR WARRANT SHARES. The resale by the Investor of
Common Stock issuable upon exercise of the Warrants (the "Warrant Shares") shall
be subject to a registration rights agreement (the "Registration Rights
Agreement") entered into between the Company and the Investor on the date of
execution of this Agreement.
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III.
CONDITIONS TO DELIVERY OF MANDATORY
PURCHASE NOTICES, ADDITIONAL PURCHASE NOTICES AND CONDITIONS TO
CLOSING
3.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO ISSUE AND SELL
COMMON STOCK. The obligation hereunder of the Company to issue and sell Common
Stock to the Investor incident to each Closing is subject to the satisfaction,
at or before each such Closing, of each of the conditions set forth below, which
conditions cannot be waived without the prior written consent of the Company.
(a) ACCURACY OF THE INVESTOR'S REPRESENTATION AND WARRANTIES. The
representations and warranties of the Investor set forth in this Agreement shall
be true and correct in all material respects as of the date of each such Closing
as though made at each such time.
(b) PERFORMANCE BY THE INVESTOR. The Investor shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Investor at or prior to such Closing.
(c) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which,
in the reasonable opinion of the Company and its legal counsel, prohibits or
adversely affects any of the transactions contemplated by this Agreement, and no
proceeding shall have been commenced which may have the effect of prohibiting or
adversely affecting any of the transactions contemplated by this Agreement.
3.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE INVESTOR TO PURCHASE
PURSUANT TO THE MINIMUM OBLIGATION OR AN ADDITIONAL PURCHASE NOTICE. The
obligation of the Investor to purchase pursuant to the Minimum Obligation or the
Additional Obligation and the right of the Company to deliver a Mandatory
Purchase Notice or an Additional Purchase Notice and the obligation of the
Investor hereunder to acquire and pay for Common Stock incident to a Closing is
subject to the satisfaction, on the third (3rd) day preceding an Investment
Period for which the Company has delivered a Mandatory Purchase Notice, and on
the applicable Closing Date (each a "Condition Satisfaction Date") of each of
the following conditions, which conditions cannot be waived without the prior
written consent of the Company and the Investor.
(a) REGISTRATION OF THE COMMON STOCK WITH THE SEC. The Registration
Statement shall be effective, the Company shall be in compliance in all material
respects with its obligations under the Registration Rights Agreement and, on
the Condition Satisfaction Date if so required by the Registration Rights
Agreement, a registration statement for the registration of the resale by the
Investor of Common Stock to be issued upon exercise of the Warrants (the
"Warrant Registration Statement") shall be effective. Furthermore, the Company
shall have filed (i) with the applicable state securities commissions such blue
sky filings as shall have been requested by the Investor, and (ii) any required
filings with the Principal Market.
(b) EFFECTIVE REGISTRATION STATEMENT. The Registration Statement shall
be in effect on each Condition Satisfaction Date and neither the Company nor the
Investor shall have received notice that the SEC has issued or intends to issue
a stop order with respect to the Registration Statement or that the SEC
otherwise has suspended or withdrawn the effectiveness of the Registration
Statement, either temporarily or permanently, or intends or has threatened to do
so.
(c) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company as set forth in this Agreement and
the Registration Rights Agreement shall be true and correct in all material
respects as of each Condition Satisfaction Date as though made at each such time
except as disclosed in SEC Documents or in a supplemental disclosure schedule
delivered to the Investor and except for representations and warranties made as
of a specific date.
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(d) PERFORMANCE BY THE COMPANY. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement and the Registration Rights Agreement
to be performed, satisfied or complied with by the Company at or prior to each
Condition Satisfaction Date.
(e) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits or adversely affects any of the transactions contemplated by this
Agreement, and no proceeding shall have been commenced which may have the effect
of prohibiting or adversely affecting any of the transactions contemplated by
this Agreement.
(f) ADVERSE CHANGES. Since March 31, 1999, the date through which the
most recent quarterly report of the Company on Form 10-Q has been prepared and
filed with the SEC, no event which had or is reasonably likely to have a
Material Adverse Effect has occurred, except as disclosed in the SEC Documents
or Company press releases subsequent to such date.
(g) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON STOCK. The
trading of the Common Stock shall not have been suspended by the SEC, the
Principal Market or the NASD, and the Common Stock shall have been approved for
listing or quotation on and shall not have been delisted from the Principal
Market. The issuance of shares of Common Stock with respect to the applicable
Closing, if any, shall not violate the shareholder approval requirements of the
Principal Market.
(h) LEGAL OPINIONS. Except as otherwise provided in this Section
3.2(h), the Company shall have caused to be delivered to the Investor, (i)
within five (5) Trading Days following the effective date of the Registration
Statement and the Warrant Registration Statement, as applicable, and (ii)
contemporaneously with the delivery of each Mandatory Purchase Notice, opinions
of the Company's counsel in the form set forth in EXHIBIT B hereto; PROVIDED,
however, that in the event that no suspension pursuant to Section 2.5(a)(iii) is
in effect and such opinions cannot be delivered by the Company's counsel to the
Investor, the Company shall promptly notify the Investor and promptly revise
each of the Registration Statement and the Warrant Registration Statement, as
applicable, and the Company and the Investor shall postpone, or at the
Investor's option cancel, any pending Closing Date until such an opinion is
delivered to the Investor. In the event of such a postponement, the Purchase
Price of the Common Stock to be issued at such Closing as determined pursuant to
Section 2.4 shall be the lower of such Purchase Price calculated as of the
originally scheduled Closing Date or calculated as of the actual Closing Date.
Notwithstanding the foregoing, no opinions shall be required to be delivered
pursuant to this Section 3.2(h) unless and until the Company delivers a
Mandatory Purchase Notice with respect to an Investment Period.
(i) ACCOUNTANT'S LETTER.
(i) The Company shall have furnished to the Investor a
comfort letter of its independent auditors in customary form, including a
statement to the effect that they have performed the procedures in accordance
with the provisions of Statement on Auditing Standards No. 71, as amended, on
the most recent unaudited Quarterly Report on Form 10-Q as shall have been
reasonably requested by the Investor with respect to certain financial
information contained in the Registration Statement and shall have delivered to
the Investor a report addressed to the Investor, (x) within five (5) Trading
Days following the effective date of the Registration Statement and (y) within
ten (10) Trading Days following the filing with the SEC of each SEC Document
containing unaudited financial statements of the Company which is deemed to be
incorporated by reference in the Registration Statement.
(ii) In the event that the Investor shall have requested
delivery of an "agreed upon procedures" report pursuant to Section 3.3, the
Company shall engage its independent auditors to perform certain agreed upon
procedures and report thereon as shall have been reasonably requested by the
Investor with respect to certain financial information of the Company and the
Company shall deliver to the Investor a copy of such report addressed to the
Investor.
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(iii) In the event that a report required by this Section
3.2 cannot be delivered by the Company's independent auditors, the Company shall
promptly revise the Registration Statement and the Company and the Investor
shall postpone any pending Closing Date for a period of up to five (5) Trading
Days until such a report is delivered (or such Closing shall otherwise be
canceled). In the event of such a postponement, the Purchase Price of the Common
Stock to be issued at such Closing as determined pursuant to Section 2.4 shall
be the lower of such Purchase Price as calculated as of the originally scheduled
Closing Date and as of the actual Closing Date.
(j) OFFICER'S CERTIFICATE. The Company shall have delivered to the
Investor, on each Closing Date, a certificate in form and substance reasonably
acceptable to the Investor, executed by an executive officer of the Company and
to the effect that all the conditions to such Closing shall have been satisfied
as at the date of each such certificate.
(k) DUE DILIGENCE. No dispute between the Company and the Investor
shall exist pursuant to Section 3.3 as to the adequacy of the disclosure
contained in the Registration Statement.
(l) BENEFICIAL OWNERSHIP LIMITATION. On each Closing Date, (i) the
Investor shall not be required or entitled to purchase shares of Common Stock in
violation of Section 2.2(c) and (ii) the Investor shall have received and been
reasonably satisfied with such other certificates and documents as shall have
been reasonably requested by the Investor in order for the Investor to confirm
the Company's satisfaction of the conditions set forth in this Section 3.2. For
the purposes of clause (i) of this Section 3.2(l), in the event that the amount
of Common Stock outstanding as determined in accordance with Section 13(d) of
the Exchange Act and the regulations promulgated thereunder is greater on a
Closing Date than on the date upon which the Minimum Obligation begins or the
Additional Purchase Notice or the Investor Call Purchase Notice associated with
such Closing Date are given, the amount of Common Stock outstanding on such
Closing Date shall govern for the purposes of determining whether the Investor,
when aggregating all Purchases of Common Stock made pursuant to this Agreement
and, if any, Warrant Shares, would own more than 9.9% of the Common Stock
following such Closing Date.
3.3 DUE DILIGENCE REVIEW. The Company shall make available, during
normal business hours, for inspection and review by the Investor, advisors to
and representatives of the Investor (who may or may not be affiliated with the
Investor and who are reasonably acceptable to the Company), or any underwriter
participating in any disposition of Common Stock on behalf of the Investor
pursuant to the Registration Statement or the Warrant Registration Statement or
amendments or supplements thereto or any blue sky or NASD filing all financial
and other records, all SEC Documents and other filings with the SEC, and all
other corporate documents and properties of the Company as may be reasonably
necessary for the purpose of such review, and cause the Company's officers,
directors and employees, within a reasonable time period, to supply all such
information reasonably requested by the Investor or any such representative,
advisor or underwriter reasonably related to the Registration Statement
(including, without limitation, in response to all questions and other inquiries
reasonably made or submitted by any of them), prior to and from time to time
after the filing and effectiveness of the Registration Statement for the sole
purpose of enabling the Investor and such representatives, advisors and
underwriters and their respective accountants and attorneys to conduct initial
and ongoing due diligence with respect to the Company and the accuracy of the
Registration Statement.
The Company shall not disclose nonpublic information to the Investor,
advisors to or representatives of the Investor unless prior to disclosure of
such information the Company identifies such information as being nonpublic
information and provides the Investor, such advisors and representatives with
the opportunity to accept or refuse to accept such nonpublic information for
review. The Company may, as a condition to disclosing any nonpublic information
hereunder, require the Investor's advisors and representatives to enter into a
confidentiality agreement (including an agreement with such advisors and
representatives prohibiting them from trading in Common Stock during such period
of time as they are in possession of nonpublic information) in form reasonably
satisfactory to the Company and the Investor.
Nothing herein shall require the Company to disclose nonpublic
information to the Investor or its advisors or representatives, PROVIDED,
however, that notwithstanding anything herein to the contrary, the
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Company will immediately notify the advisors and representatives of the
Investor and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting nonpublic information
(whether or not requested of the Company specifically or generally during the
course of due diligence by and such persons or entities), which, if not
disclosed in the Prospectus included in the Registration Statement, would cause
such Prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements therein, in light
of the circumstances in which they were made, not misleading. Nothing contained
in this Section 3.3 shall be construed to mean that such persons or entities
other than the Investor (without the written consent of the Investor prior to
disclosure of such information) may not obtain nonpublic information in the
course of conducting due diligence in accordance with the terms of this
Agreement. In the event that the Investor's independent counsel reasonably
believes that the Registration Statement contains an untrue statement of a
material fact or omits a material fact required to be stated in the Registration
Statement or necessary to make the statements contained therein, in light of the
circumstances in which they were made, not misleading, (a) unless a suspension
pursuant to Section 2.5(a)(iii) is in effect, the Company shall file with the
SEC an amendment to the Registration Statement responsive to such alleged untrue
statement or omission and provide the Investor, as promptly as practicable, with
copies of the Registration Statement and related Prospectus, as so amended, (b)
if the Company disputes the existence of any such material misstatement or
omission, (i) the Company's independent counsel shall provide the Investor's
independent counsel with a letter stating that nothing has come to their
attention that would lead them to believe that the Registration Statement or the
related Prospectus, as of the date of such opinion, contains an untrue statement
of a material fact or omits a material fact required to be stated in the
Registration Statement or the related Prospectus or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading and (ii) in the event the dispute relates to the adequacy
of financial disclosure and the Investor shall reasonably request, the Company's
independent auditors shall provide to the Company a letter outlining the
performance of such "agreed upon procedures" as shall be reasonably requested by
the Investor and the Company shall provide the Investor with a copy of such
letter, or (c) if the Company disputes the existence of any such material
misstatement or omission, and the dispute relates to the timing of disclosure of
a material event and the Company's independent counsel is unable to provide the
opinion referenced in clause (b)(i) above to the Investor, then this Agreement
shall be suspended for a period of up to thirty (30) days, at the end of which,
if the dispute still exists between the Company's independent counsel and the
Investor's independent counsel, the Company shall either (i) amend the
Registration Statement as provided above, (ii) provide to the Investor the
Company's independent counsel opinion and a copy of the letter of the Company's
independent auditors referenced above, or (iii) the Investor's obligation to
purchase during the relevant Investment Period shall be suspended as if the
Company had provided notice pursuant to Section 2.5(a)(iii) until such dispute
is resolved. The Investor hereby agrees to hold harmless the Company's
independent auditors from any liability that may arise out of the delivery of an
"agreed upon procedures" letter pursuant to clause (b)(ii) above.
IV.
REPRESENTATIONS AND WARRANTIES OF INVESTOR
The Investor represents and warrants to the Company as follows:
4.1 NO PRESENT ARRANGEMENT. The Investor is entering into this
Agreement for its own account and the Investor has no present arrangement
(whether or not legally binding) at any time to sell the Common Stock to or
through any person or ENTITY; PROVIDED, however, that by making the
representations herein, the Investor does not agree to hold the Common Stock for
any minimum or other specific term and reserves the right to dispose of the
Common Stock at any time in accordance with federal and state securities laws
applicable to such disposition.
4.2 SOPHISTICATED INVESTOR. The Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an
accredited investor (as defined in Rule 501 of Regulation D), and the Investor
has such experience in business and financial matters that it is capable of
evaluating the
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merits and risks of an investment in Common Stock. The Investor acknowledges
that an investment in the Common Stock is speculative and involves a high
degree of risk.
4.3 AUTHORITY. The Investor has full power and authority as a limited
liability company to execute and deliver this Agreement, the Registration Rights
Agreement and the Warrants and to consummate the transactions contemplated
hereby in accordance with the terms hereof. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by the Investor. No other proceedings on the part of Investor
are necessary to approve and authorize the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby in
accordance with the terms hereof. This Agreement has been validly executed and
delivered by the Investor and is a valid and binding agreement of the Investor
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable principles
of general application.
4.4 NO BROKERS. The Investor has taken no action that would give rise
to any claim by any person for brokerage commission, finder's fees or similar
payments by the Company relating to this Agreement or the transactions
contemplated hereby.
4.5 NOT AN AFFILIATE. The Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
4.6 ORGANIZATION AND STANDING. The Investor is a limited liability
company duly organized, validly existing, and in good standing under the laws of
the State of New York, and has all requisite power and authority as a limited
liability company to carry on its business as now being conducted, and is duly
qualified to do business and in good standing in each jurisdiction in which the
nature of the business conducted by it makes such qualifications necessary,
except where the failure to be so qualified or in good standing would not
reasonably be expected to have a material adverse effect.
4.7 ABSENCE OF CONFLICTS. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on the Investor, or
the provision of any indenture, instrument or agreement to which the Investor is
a party or is subject, or by which the Investor or any of its assets is bound,
or conflict with or constitute a material default thereunder, or result in the
creation or imposition of any lien pursuant to the terms of any such indenture,
instrument or agreement, or constitute a breach of any fiduciary duty owed by
the Investor to any third party, or require the approval of any third party
(which has not been obtained) pursuant to any material contract, agreement,
instrument, relationship or legal obligation to which the Investor is subject or
to which any of its assets, operations or management may be subject.
4.8 DISCLOSURE: ACCESS TO INFORMATION. The Investor has received
all documents, records, books and other information pertaining to the Investor's
investment in the Company that have been requested by the Investor. The Investor
further acknowledges that it understands that the Company is subject to the
periodic reporting requirements of the Exchange Act, and the Investor has
reviewed or received copies of any such reports that have been requested by it
and which it considers necessary or appropriate for deciding whether to enter
into this Agreement and perform its obligations hereunder. The Investor further
represents that it has had an opportunity to ask questions and receive answers
from the Company regarding the terms and conditions of the purchase of the
Common Stock and the Warrants, and the business, properties, prospects, and
financial condition of the Company.
4.9 MANNER OF SALE. At no time was the Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
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4.10 FINANCIAL CAPABILITY. The Investor presently has or will have
the financial capacity and the necessary capital to perform its obligations
hereunder. The Investor has, or has available to it, sufficient funds to satisfy
all of its financial obligations under this Agreement. The Investor will
promptly notify the Company of any event or circumstance which could be
reasonably be expected to hinder the Investor's ability to perform its
obligations hereunder.
4.11 NO NASD PROCEEDINGS. To the knowledge of the Investor, there
are no disciplinary proceedings involving the Investor or any of its employees
pending before the NASD.
4.12 NO HEDGING OR SHORT SELLING. (a) During the period sixty (60)
days prior to the date of this Agreement the Investor has not engaged in any
short sales or hedging of any kind in anticipation of this Agreement, and (b)
during the term of this Agreement the Investor may make sales in anticipation of
Mandatory Purchase Notices, but may not make any sales with the intention of
reducing the prior of the Common Stock to the Investor's benefit.
V.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed in the SEC Documents, Company press releases or in
the Disclosure Schedule delivered by the Company to the Investor on the date
hereof or where non-disclosure would not reasonably be expected to have a
Material Adverse Effect, the Company represents and warrants to the Investor as
follows:
5.1 CORPORATE ORGANIZATION. The Company and each of its Subsidiaries
is a corporation duly organized, validly existing and, if applicable, in good
standing under the laws of its jurisdiction of incorporation, and has all
requisite corporate power and authority to own or lease and operate its
properties and to carry on its business as now being conducted, and is duly
qualified to do business and in good standing in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification necessary, except where the failure to be so
qualified or in good standing would not reasonably be expected to have a
Material Adverse Effect. The Company has made available to the Investor or its
agents complete and correct copies of the Certificate of Incorporation, as
amended, and by-laws of the Company as in effect on the date hereof.
5.2 CAPITALIZATION.
(a) The authorized Capital Stock of the Company consists of (i)
55,000,000 shares of Common Stock and (ii) 5,000,000 shares of preferred stock,
$.001 par value per share (the "Preferred Stock"). As of June 23, 1999, there
were (i) 22,646,345 shares of Common Stock issued and outstanding all of which
are duly authorized and validly issued, fully paid and nonassessable and (ii)
options to purchase 3,768,271 shares of Common Stock. Except as set forth in the
Disclosure Schedule, no shares of Capital Stock of the Company are entitled to
preemptive rights.
(b) Except as set forth in Schedule 5.2(b), the Company does not
have outstanding any Capital Stock or securities convertible into or
exchangeable for any shares of Capital Stock or any options, warrants or other
rights, agreements, arrangements or commitments of any character to which the
Company is a party or otherwise obligating the Company to issue or sell or
entitling any Person to acquire from the Company, and the Company is not a party
to any agreement, arrangement or commitment obligating it to repurchase, redeem
or otherwise acquire, any shares of its Capital Stock or securities convertible
into or exchangeable for any of its Capital Stock.
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(c) Upon issuance of the Common Stock, and payment of the
Purchase Price therefor, pursuant to a purchase and sale in accordance with the
terms of this Agreement, the Company will transfer to the Investor good and
valid title to the Common Stock, free and clear of any material Lien, other than
Liens, if any, created by the Investor; and such Common Stock will be duly
authorized, fully paid and nonassessable.
5.3 SUBSIDIARIES.
(a) The Company does not have any Subsidiaries other than those
listed on SCHEDULE 5.3(a) of the Disclosure Schedule. Except as set forth in the
Disclosure Schedule, each Subsidiary is wholly-owned by the Company.
(b) (i) All the outstanding stock or other equity or ownership
interests of each Subsidiary is owned free and clear of all material Liens and
is validly issued and (ii) there are no options, warrants or other rights,
agreements, arrangements or commitments of any character to which any Subsidiary
is a party or otherwise obligating any Subsidiary to issue or sell, or entitling
any Person to acquire from any Subsidiary, and no Subsidiary is a party to any
agreement, arrangement or commitment obligating it to repurchase, redeem or
otherwise acquire, any shares of the Capital Stock or any securities convertible
into or exchangeable for the Capital Stock of any such Subsidiary.
5.4 AUTHORIZATION. The Company has full corporate power and
authority to execute and deliver this Agreement, the Registration Rights
Agreement and the Warrants, to issue the Common Stock pursuant to this Agreement
and the Warrants, and to consummate the transactions contemplated hereby and
thereby in accordance with the terms hereof and thereof. The execution and
delivery of this Agreement, the Registration Rights Agreement and the Warrants,
and the issuance of the Common Stock issuable upon a Closing and pursuant to the
Warrants, and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by the Board of Directors of the Company. To
the Company's Knowledge, no other corporate proceedings on the part of the
Company are necessary to approve and authorize the execution and delivery of
this Agreement, the Registration Rights Agreement and the Warrants, and the
issuance of the Common Stock issuable upon a Closing and pursuant to the
Warrants, and the consummation of the transactions contemplated hereby and
thereby in accordance with the terms hereof and thereof, except for any approval
of the Company's shareholders that may be required pursuant to Rule 4460 of the
Marketplace Rules of NASDAQ. This Agreement, the Registration Rights Agreement
and the Warrants, have been duly executed and delivered by the Company, and the
Common Stock issuable in accordance with the terms of this Agreement or upon
exercise of the Warrants, will be duly and validly issued, fully paid and
nonassessable, and each of this Agreement, the Registration Rights Agreement and
the Warrants, when executed and delivered will constitute valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except to the extent limited by (i) bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and (ii) general
principles of equity.
5.5 NO VIOLATION; CONSENTS.
(a) Assuming the making or receipt of all filings, notices,
registrations, consents, approvals, permits and authorizations described in this
Section 5.5, the execution and delivery of this Agreement, the Registration
Rights Agreement and the Warrants, and the issuance of the Common Stock, the
consummation of the transactions contemplated hereby, by the Registration Rights
Agreement and the Warrants, and the compliance by the Company with any of the
provisions hereof or of the Registration Rights Agreement and the Warrants, will
not (i) conflict with, violate or result in any breach of the Certificate of
Incorporation, as amended, or by-laws of the Company or its Subsidiaries, (ii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default or give rise to any right of termination,
cancellation or acceleration under, or result in the creation of any Lien on or
against any of the properties of the Company or any of its Subsidiaries pursuant
to any of the terms or conditions of any note, bond, mortgage, indenture,
license, agreement or other instrument or obligation to which the Company or any
of its Subsidiaries is a party or by which any of them or any of their
properties
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or assets may be bound, or (iii) violate any statute, law, rule, regulation,
writ, injunction, judgment, order or decree of any Governmental
Entity, binding on the Company or any of its Subsidiaries or any of their
properties or assets, excluding from the foregoing clauses (i), (ii) and (iii)
conflicts, violations, breaches, defaults, rights of termination, cancellation
or acceleration, and liens which, individually or in the aggregate, would not
have a Material Adverse Effect.
(b) Except for (i) applicable requirements, if any, under Blue
Sky Laws, (ii) the filing of additional listing applications with NASDAQ, and
(iii) the filing of the Registration Statement and Warrant Registration
Statement, no filing, consent, approval, permit, authorization, notice,
registration or other action of or with any Governmental Entity is required to
be made or obtained by or with respect to the Company or any of its Subsidiaries
in connection with the execution and delivery of this Agreement, the
Registration Rights Agreement and the Warrants, the issuance of the Common Stock
or the consummation by the Company of the transactions contemplated hereby and
thereby.
5.6 COMPLIANCE WITH APPLICABLE LAW. The businesses of the Company are
not being conducted in violation of any law, ordinance, rule, regulation,
judgment, decree or order of any Governmental Entity, except for possible
violations which, individually or in the aggregate, would not have a Material
Adverse Effect. The Company and each of its Subsidiaries possess all domestic
and foreign governmental licenses, permits, authorizations and approvals and
have made all registrations and given all notifications required under federal,
state, local or foreign law to carry on in all respects their businesses as
currently conducted, except as otherwise disclosed in writing by the Company to
the Investor on or prior to the date hereof, and except where the failure to
have any such licenses, permits, authorizations or approvals, individually or in
the aggregate, would not have a Material Adverse Effect. To the Knowledge of the
Company, no investigation or review by any Governmental Entity with respect to
the Company or any of its Subsidiaries is pending or threatened, other than
those the outcome of which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect.
5.7 COMPLIANCE WITH FOOD AND DRUG ACT.
(a) FDA PERMITS. The Company and each of its Subsidiaries have
all material licenses, permits, consents, approvals and authorizations that are
required under the Food and Drug Act and any similar foreign law, rule or
regulation (collectively, the "FDA Permits") in connection with the conduct of
the businesses of the Company and each of its Subsidiaries as presently
conducted. The Company has obtained and owns or has the right to use the FDA
Permits in accordance with the terms thereof. Each FDA Permit is valid and in
full force and effect. The FDA Permits are currently effective and sufficient
for the operation of the Company's businesses as currently conducted. All
information supplied by or on behalf of the Company and each of its Subsidiaries
to obtain or maintain each FDA Permit was, as of the date given, true and
complete in all material respects. The Company and each of its Subsidiaries have
complied in all material respects with all conditions and requirements imposed
by the FDA Permits and neither the Company nor any of its Subsidiaries has
received any notice of cancellation, suspension or termination of any of the FDA
Permits and to the Knowledge of the Company no Governmental Entity intends to
cancel, suspend or terminate any of the FDA Permits or that valid grounds for
such cancellation, suspension or termination exist.
(b) FOOD AND DRUG ACT. (i) The Company and each of its
Subsidiaries are in compliance in all material respects with all applicable
material requirements of the Food and Drug Act and any similar foreign law, rule
or regulation, (ii) the Company's and each of its Subsidiaries' existing
inventory of products held for sale, and all products manufactured by the
Company, any of its Subsidiaries or any of the Company's Affiliates and sold
within the two (2) years preceding the date hereof, have been produced in
compliance in all material respects with all applicable material requirements of
the Food and Drug Act or any similar foreign law, rule or regulation, including,
without limitation, all "current good manufacturing practices" and similar
requirements thereunder and (iii) to the Knowledge of the Company there is no
event, condition, circumstance, activity, practice, incident, action or plan of
the Company or any Subsidiary which is likely to interfere with or prevent the
Company's or any of its Subsidiaries continued compliance with all applicable
material requirements of the Food and Drug Act or any similar foreign law, rule
or regulation, or which may give rise to any common law or legal liability of
the Company or any
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Subsidiary under, or otherwise form the basis of any Lien or any claim, action,
suit, arbitration, inquiry, proceeding or investigation by or before any
Governmental Entity based on or related to, the Food and Drug Act or any similar
foreign law, rule or regulation, other than those the outcome of which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect.
5.8 LITIGATION. Except as set forth in Schedule 5.8, there is no
claim, action or proceeding (including any condemnation proceeding) pending or,
to the Knowledge of the Company, threatened against or relating to the Company
or any of its Subsidiaries by or before any Governmental Entity or arbitrator
that if adversely determined, individually or in the aggregate, would have a
Material Adverse Effect, nor is there any judgment, decree, injunction, rule or
order of any Governmental Entity or arbitrator outstanding against the Company
or any of its Subsidiaries that has had, or would reasonably be expected in the
future to have, a Material Adverse Effect or which reasonably could be expected
to materially adversely affect the transactions contemplated by this Agreement.
5.9 SEC DOCUMENTS, FINANCIAL STATEMENTS.
(a) The Common Stock is registered pursuant to Section 12(g) of
the Securities Exchange Act and the Company has filed all reports, schedules,
forms, statements and other documents, together with all exhibits, financial
statements and schedules thereto required to be filed by it with the SEC
pursuant to the reporting requirements of the Securities Exchange Act, including
material filed pursuant to Section 13(a) or 15(d), (all of the foregoing, and
all other documents and registration statements, whether heretofore or hereafter
filed with the SEC since January 1, 1996, and the Registration Statement, when
declared effective, being hereinafter referred to as the "SEC Documents" except
where failure to file would not reasonably be expected to have a Material
Adverse Effect). The Common Stock is currently listed or quoted on the Principal
Market, which is, as of the date hereof NASDAQ. The Company has delivered or
made available to the Investor true and complete copies of the SEC Documents
through March 31, 1999. The Company has not provided to the Investor any
material information which, according to applicable law, rule or regulation,
should have been disclosed publicly by the Company but which has not been so
disclosed, other than with respect to the transactions contemplated by this
Agreement. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Securities Exchange Act or the
Securities Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such SEC Documents, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated herein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of the date of delivery by the Investor of the Prospectus
contained in the Registration Statement in connection with sales of Common Stock
by the Investor, such Prospectus will comply in all material respects with the
requirements of the Securities Act and the rules and regulations of the SEC
promulgated thereunder, and other federal, state and local laws, rules and
regulations applicable to such Prospectus. The financial statements of the
Company included (or incorporated by reference) in the SEC Documents comply as
to form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC or other applicable rules and
regulations with respect thereto. Such financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") applied on
a consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the case
of unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements) and fairly present in all material
respects the consolidated financial position of the Company and its Subsidiaries
as of the dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).
(b) During the three (3) years preceding the date hereof, the
SEC has not issued an order preventing or suspending the use of any prospectus
relating to the offering of any shares of Common Stock or instituted proceedings
for that purpose.
5.10 NO UNDISCLOSED OR CONTINGENT LIABILITIES. Neither the Company
nor any of its Subsidiaries has any claims, liabilities or obligations of any
nature whatsoever (whether absolute, accrued,
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contingent or otherwise and whether due or to become due) that would be required
to be reflected or reserved against on a consolidated balance sheet of the
Company and its consolidated Subsidiaries under GAAP, except for claims,
liabilities or obligations (i) reflected or reserved against on the Balance
Sheet, (ii) disclosed in the Company's most recent Form 10-K or any SEC Document
filed subsequent to such Form 10-K (iii) incurred by the Company or any of its
Subsidiaries since March 31, 1999 in the ordinary course of business and
consistent with past practice and that, individually or in the aggregate, would
not have a Material Adverse Effect or (iv) as set forth in the Disclosure
Schedule.
5.11 TAXES. The Company has timely filed all Tax Returns required
to be filed and has paid all federal, state, county, local and foreign taxes for
all the tax years through December 31, 1998 shown on such Tax Returns as being
due and payable, to the extent such taxes have become due (other than taxes
which are being challenged in good faith by the Company and have been adequately
reserved for by the Company), except where any failure to file or pay would not
have a Material Adverse Effect. There are no unpaid tax deficiencies or
assessments which would reasonably be expected to have a Material Adverse
Effect. The Company has paid all Taxes which have become due and payable by the
Company (other than Taxes which are being challenged in good faith or have been
adequately reserved for by the Company), whether pursuant to any assessments, or
otherwise, except where any failure to pay would not have a Material Adverse
Effect. The amounts currently set up as provisions for Taxes or otherwise by the
Company on its books and records are sufficient in all material respects for the
payment of all its unpaid federal, foreign, state, county and local taxes
accrued through the dates as of which they speak, except where any insufficiency
would not have a Material Adverse Effect.
5.12 EMPLOYEE BENEFIT PLANS. All employee benefit plans and other
benefit arrangements covering the employees of the Company and its Subsidiaries
(the "Benefit Plans") have been operated and administered in all material
respects in compliance with their terms and applicable law, and there are no
claims, liabilities or obligations of any kind whatsoever relating to the
Benefit Plans which individually or in the aggregate would have a Material
Adverse Effect.
5.13 ABSENCE OF CERTAIN CHANGES. Except as set forth in the
Disclosure Schedule, since March 31, 1999, the business of the Company and its
Subsidiaries has been conducted in the ordinary course consistent with past
practices and there has not been:
(i) any event, occurrence, development or state of
circumstances or facts which, individually or in the aggregate, has had or would
reasonably be expected to have a Material Adverse Effect;
(ii) any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of Capital Stock of
the Company, other than the normal quarterly dividend of the Company, or any
repurchase, redemption or other acquisition by the Company or any Subsidiary of
any outstanding shares of Capital Stock or other securities of, or other
ownership interests in, the Company or any Subsidiary;
(iii) any amendment of any material term of any
outstanding security of the Company or any Subsidiary;
(iv) any incurrence, assumption or guarantee by the
Company or any Subsidiary of any indebtedness for borrowed money, other than
working lines of credit or borrowings under existing lines of credit, and any
license fees and royalties and pursuant to any lease;
(v) any creation or assumption by the Company or any
Subsidiary of any Lien on any material asset other than in the ordinary course
of business consistent with past practice;
(vi) any making of any loan, advance or capital
contributions to or investment in any Person in excess of $500,000 other than
loans, advances or capital contributions to or investments in wholly-owned
Subsidiaries made in the ordinary course of business consistent with past
practice;
-24-
(vii) any damage, destruction or other casualty loss
(whether or not covered by insurance) affecting the business or assets of the
Company or any Subsidiary which, individually or in the aggregate, has had or
would reasonably be expected to have a Material Adverse Effect;
(viii) any transaction or commitment made, or any
contract or agreement entered into, by the Company or any Subsidiary relating to
its assets or business (including the acquisition or disposition of any assets)
or any relinquishment by the Company or any Subsidiary of any contract or other
right, in any such case, material to the Company and the Subsidiaries, taken as
a whole, other than transactions and commitments in the ordinary course of
business consistent with past practice and those contemplated by this Agreement;
or
(ix) any change in any method of accounting or
accounting practice by the Company or any Subsidiary.
5.14 ENVIRONMENTAL MATTERS.
(a) The Company and its Subsidiaries have obtained all permits,
licenses and other authorizations, and have made all registrations and given all
notifications, that are required with respect to the operation of their
respective businesses under all applicable Environmental Laws other than those
permits, licenses, other authorizations, registrations and notifications the
failure of which to obtain or make, individually or in the aggregate, would not
have a Material Adverse Effect.
(b) The Company and its Subsidiaries are in compliance in all
material respects with all terms and conditions of the required permits,
licenses and other authorizations referred to in subsection (a) of this Section
5.14, and also in compliance in all material respects with any other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in the Environmental Laws or
contained in any regulation, code, plan, order, decree, judgment, injunction,
settlement agreement, notice or demand letter issued, entered, promulgated or
approved thereunder, other than where the failure to be in such compliance,
individually or in the aggregate, would not have a Material Adverse Effect.
(c) There is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice of violation, investigation, proceeding, notice
or demand letter (collectively "Actions") pending or, to the Knowledge of the
Company, threatened against the Company or any of its Subsidiaries relating in
any way to Environmental Laws or any regulation, code, plan, order, decree,
judgment, injunction, notice or demand letter issued, entered, promulgated or
approved thereunder other than Actions that, if determined adversely to the
Company or such Subsidiaries, would not reasonably be expected to have a
Material Adverse Effect.
5.15 MATERIAL CONTRACTS.
(a) Except as set forth in Schedule 5.15, neither the
Company nor any Subsidiary is a party to or bound by any agreement or contract,
written or oral, material to the Company and its Subsidiaries taken as a whole
except as filed pursuant to Section 10 of Item 601 of Regulation S-K as an
exhibit to any of the SEC Documents ("Material Contracts").
(b) Each Material Contract is in full force and effect and
constitutes a legal, valid and binding obligation of the Company or the
Subsidiary party thereto and, to the Knowledge of the Company, each other party
thereto, and is enforceable against the Company or its Subsidiaries and, to the
Knowledge of the Company, each other party thereto in accordance with its terms,
except to the extent that such enforceability is limited by (i) bankruptcy,
insolvency, reorganization, fraudulent transfer, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights generally and (ii)
general principles of equity, and neither the Company nor any of its
Subsidiaries, nor, to the Knowledge of the Company, any other party thereto is
in conflict therewith or in violation or breach thereof or default
-25-
thereunder, except for such conflicts, violations, breaches and defaults which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect.
5.16 PROPERTIES; ENCUMBRANCEs. Subject to the next succeeding
sentence, each of the Company and its Subsidiaries has good and valid title, and
in the case of real property, insurable title, to all material properties and
assets which it purports to own (real, personal and mixed, tangible and
intangible, including all forms of goodwill, rights, intellectual property and
intellectual property rights) (collectively, the "Company Assets"), including,
without limitation, all the material properties and assets reflected on the
Balance Sheet (except for (i) real and personal property sold since the date of
the Balance Sheet or which was obsolete or no longer useful in connection with
the businesses of the Company and its Subsidiaries and (ii) capital leases
reflected on the Balance Sheet), and all material properties and assets
purchased by the Company and its Subsidiaries since the date of the Balance
Sheet. All Company Assets are free and clear of all liens, mortgages, claims,
interests, charges, security interests or other encumbrances or adverse
interests of any nature whatsoever and other title or interest retention
arrangements, except (A) as reflected on the Balance Sheet, (B) as set forth on
SCHEDULE 5.16 of the Disclosure Schedule, (C) statutory Liens of carriers,
warehousemen, mechanics, workmen and materialmen for liabilities and obligations
incurred in the ordinary course of business consistent with past practice that
are not yet delinquent or being contested in good faith, (D) such defects,
irregularities, encumbrances and other imperfections of title as normally exist
with respect to property similar in character and that, individually or in the
aggregate together with all other such exceptions, do not have a Material
Adverse Effect, (E) Liens for Taxes and (F) Liens that do not interfere with the
present use of the property subject to the Lien ("Liens").
5.17 INSURANCE. All current primary, excess and umbrella policies
of insurance owned or held by or on behalf of or providing insurance coverage to
the Company or any of its Subsidiaries are in full force and effect. With
respect to all such insurance policies providing insurance coverage to the
Company or any of its Subsidiaries, no premiums are in arrears and no notice of
cancellation or termination has been received with respect to any such policy,
other than notices of cancellation or termination routinely sent at the end of a
policy term. To the Company's knowledge, the insurance coverage of the Company
and its Subsidiaries is consistent with the coverage generally maintained by
corporations of similar size and engaged in similar lines of business.
5.18 EMPLOYEE CLAIMS; LABOR MATTERS. There are no claims or
actions pending or, to the Knowledge of the Company, threatened between the
Company or any of its Subsidiaries and any of their respective employees,
unions, or former employees that would, or would be reasonably likely to,
individually or in the aggregate, have a Material Adverse Effect. The Company
and each of its Subsidiaries have no collective bargaining agreements covering
employees of the Company or any Subsidiary.
5.19 MATERIAL DISCLOSURE. To the Knowledge of the Company, there
is no fact, transaction or development which the Company has not disclosed to
the Investor in writing (including pursuant to the SEC Documents filed prior to
the date hereof) which would reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect. This Agreement (including any
Exhibit or Schedule hereto) and any written statements, documents or
certificates furnished to the Investor by the Company or its Subsidiaries prior
to the date hereof in connection with the transactions contemplated hereby,
taken as a whole, do not and will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated herein or therein or
necessary to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading.
5.20 INTELLECTUAL PROPERTY. The Company and its Subsidiaries own
or possess adequate patent rights or licenses or other rights to use patent
rights, inventions, trademarks, service marks, trade names and copyrights the
Company reasonably believes are necessary to conduct the general business now
operated by them and neither the Company nor any of its Subsidiaries has
received any notice of infringement or conflict with asserted rights of others
with respect to any patent, patent rights, inventions, trademarks, service
marks, trade names or copyrights which, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect.
-26-
5.21 NO GENERAL SOLICITATION IN REGARD TO THIS TRANSACTION.
Neither the Company nor any of its Subsidiaries or affiliates nor any
distributor or any person acting on its or their behalf has conducted any
general solicitation (as that term is used in Rule 502(c) of Regulation D under
the Securities Act) with respect to any of the Common Stock offered hereby, nor
have they made any offers or sales of any security or solicited any offers to
buy any security under any circumstances that would require registration of the
Common Stock offered hereby under the Securities Act.
5.22 NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. To the Company's
Knowledge, since March 31, 1999, no event or circumstance has occurred or exists
with respect to the Company or its Subsidiaries or their respective businesses,
properties, prospects, operations or financial condition, which, under
applicable law, rule or regulation, requires public disclosure or announcement
prior to the date hereof by the Company.
5.23 NO INTEGRATED OFFERING. Neither the Company, nor any of its
Subsidiaries or affiliates, nor any person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, other than pursuant to this Agreement, under
circumstances that would require the offering of such other securities to be
integrated with the shares of Common Stock to be issued under this Agreement.
5.24 NO BROKERS. Except as set forth in the Schedule 5.24, the
Company has taken no action which would give rise to any claim by any Person for
brokerage commissions, finder's fees or similar payments by the Investor
relating to this Agreement for the transactions contemplated hereby.
5.25 NO VIOLATION OF COVENANTS. No material event of default has
occurred and is continuing (or event which with the lapse of time or notice or
both would constitute such an event) which has not otherwise been waived under
any revolving credit facility, indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument for money borrowed or any other
material agreement to which the Company or any of its Subsidiaries is bound, or
to which any of the property or assets of the Company or any of its Subsidiaries
is subject.
VI.
COVENANTS OF THE COMPANY
6.1 REGISTRATION RIGHTS. The Company shall comply in all
material respects with the terms of the Registration Rights Agreement.
6.2 RESERVATION OF COMMON STOCK. Except as disclosed in the SEC
Documents, the Company has reserved and will continue to reserve and keep
available at all times in any Investment Period, such number of shares of Common
Stock, free of preemptive rights, necessary to enable the Company to satisfy any
obligation to issue shares of its Common Stock incident to the Closings in such
Investment Period and incident to the exercise of the Warrants issued hereunder,
such amount of shares of Common Stock to be reserved to be calculated based upon
the Floor Price therefor under the terms of this Agreement, and assuming the
full exercise of the Warrants. The number of shares so reserved from time to
time, as theretofore increased or reduced as hereinafter provided, may be
reduced by the number of shares actually delivered hereunder and the number of
shares so reserved shall be increased to reflect (a) potential increases in the
Common Stock which the Company may thereafter be so obligated to issue by reason
of adjustments to the Purchase Price therefor and the issuance of the Warrants
and the Final Warrant and (b) stock splits and stock dividends and
distributions.
6.3 LISTING OF COMMON STOCK. During the term of this Agreement,
the Company hereby agrees to maintain the listing of the Common Stock on a
Principal Market, and as soon as practicable but in any event prior to the
commencement of the Commitment Period to list the additional shares of Common
Stock issuable under this Agreement (including Common Stock issuable upon
exercise of the Warrants). The Company further agrees that, if the Company
applies to have the Common Stock
-27-
traded on any Principal Market other than NASDAQ, it will include in such
application the Common Stock issuable under this Agreement (including Common
Stock issuable upon exercise of the Warrants), and will take such other action
as is necessary or desirable to cause the Common Stock to be listed on such
other Principal Market as promptly as possible. If the Principal Market is
NASDAQ, the Company shall maintain sufficient net tangible assets to satisfy the
requirements of the NASD for the listing of the Common Stock on NASDAQ.
6.4 EXCHANGE ACT REGISTRATION. During the term of this Agreement,
the Company will cause its Common Stock to continue to be registered under
Section 12(g) of the Exchange Act, will comply in all respects with its
reporting and filing obligations under the Exchange Act, and will not take any
action or file any document (whether or not permitted by the Exchange Act or the
rules thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under the Exchange Act. If
required, the Company will take all action to continue the listing and trading
of its Common Stock on the Principal Market and will comply in all material
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the NASD and the Principal Market.
6.5 LEGENDS. The certificates evidencing the Common Stock to be
issued to the Investor at each Closing and upon the exercise of the Warrants and
the Final Warrant (except as otherwise as provided by Section 7.1) shall be free
of legends or stop transfer or other restrictions.
6.6 CORPORATE EXISTENCE. The Company will take all steps
necessary to preserve and continue the corporate existence and solvency of the
Company; PROVIDED, HOWEVER, that nothing herein shall be construed to limit the
ability of the Company to partake in any merger, asset sale, or acquisition
transaction involving the Company, subject to the Company's complying with the
terms of this Agreement.
6.7 "BLACKOUT PERIOD". During the term of this Agreement, the
Company will immediately upon the occurrence of any of the following events in
respect of the Registration Statement or related Prospectus in respect of an
offering of securities required to be registered under this Agreement or the
Registration Rights Agreement: (a) receipt by the Company of any request from
the SEC or any other federal or state governmental authority during the period
of effectiveness of the Registration Statement for amendments or supplements to
the Registration Statement or related Prospectus; (b) the issuance by the SEC or
any other federal or state governmental authority of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose; (c) receipt of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
such registrable securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (d) the happening of any event
which makes any statement made in the Registration Statement or related
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or which requires the making of any
changes in the Registration Statement, related Prospectus or documents so that,
in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related Prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (e) the Company's
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate, in which event the Company will promptly make
available to the Investor any such supplement or amendment to the related
Prospectus. The Investor shall not be obligated to purchase any shares pursuant
to a Minimum Obligation or an Additional Purchase Notice during a portion of an
Investment Period in which any of the foregoing events continued.
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VII.
LEGENDS AND DELIVERY OF CERTIFICATES,
COMPLIANCE AND INVESTOR COVENANTS
7.1 LEGENDS AND DELIVERY OF CERTIFICATES. The Warrants and,
unless otherwise provided below, the certificates evidencing the Common Stock to
be issued to the Investor at any Closing and upon exercise of the Warrants, will
bear the following legend (the "Legend"):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES
LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN
APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
In the event shares of Common Stock are issued incident to a
Closing or upon exercise of the Warrants in circumstances pursuant to which
shares of Common Stock are either required to bear the Legend or are not to bear
the Legend, such certificates (bearing or not bearing the Legend, as
appropriate) shall be issued and delivered to the Investor or as otherwise
directed by the Investor on the applicable Closing Date or within two (2)
Trading Days of the surrender of the Warrants for exercise (together with all
other documentation required to be delivered to effect such exercise), as
applicable, in each case against payment therefor.
The Company shall cause the transfer agent for the Common Stock to
issue and deliver to the Investor or as otherwise directed by the Investor,
shares of Common Stock not bearing the Legend, during the following periods and
under the following circumstances and without the need for any further advice or
instruction or documentation to the transfer agent by or from the Investor:
(a) At any time from and after the effective date
of the applicable registration statement: (i) incident to the issuance of any
shares of Common Stock pursuant to a Closing; (ii) incident to the exercise of
the Warrants; and (iii) upon any surrender of one or more certificates
evidencing Common Stock and which bear the Legend, to the extent accompanied by
a notice requesting the issuance of new certificates free of the Legend to
replace those surrendered; PROVIDED THAT in connection with such event the
Investor confirms to the transfer agent that it intends to sell such Common
Stock to a third party which is not an Affiliate of the Company or the Investor,
and the Investor agrees to redeliver such Common Stock to the transfer agent to
add the Legend in the event the Common Stock is not sold; and
(b) At any time from and after the Closing Date,
upon any surrender of one or more certificates evidencing Common Stock and which
bear the Legend, to the extent accompanied by a notice requesting the issuance
of new certificates free of the Legend to replace those surrendered and
containing or also accompanied by representations that (i) the then holder
thereof is permitted to dispose of such Common Stock pursuant to Rule 144(k)
under the Securities Act, (ii) such holder intends to effect the sale or other
disposition of such Common Stock whether or not pursuant to the Registration
Statement, to a purchaser or purchasers who will not be subject to the
registration requirements of the Securities Act or (iii) such holder is not then
subject to such requirements; PROVIDED THAT in the case of surrenders described
in clauses (i), (ii) and (iii) thereof, the holder provides an opinion of
counsel in form and substance reasonably satisfactory to the Company.
7.2 NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No legend has
been or shall be placed on the share certificates representing the Common Stock
and no instructions or stop transfers or other restrictions on transfer have
been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in this Article VII.
7.3 INVESTOR'S COMPLIANCE. Nothing in this Article VII shall
affect in any way the Investor's obligations under any agreement to comply with
all applicable securities laws upon resale of the Common Stock.
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VIII.
OTHER ISSUANCES OF COMMON STOCK
8.1 EQUITY OFFERING ADJUSTMENT TO PURCHASE PRICE. In the event
that the Company makes an Equity Offering during an Investment Period, then
notwithstanding anything herein to the contrary, the purchase price per share of
Common Stock for any Investment Amount made solely within such Investment Period
but following the consummation of the Equity Offering shall be the lower of (a)
the lowest effective purchase price per share of Common Stock received by the
Company in any such Equity Offering, and (b) the price per share of Common Stock
determined hereunder with respect to Purchases of Common Stock effected by the
Investor during such Investment Period.
8.2 OTHER ADJUSTMENTS TO PURCHASE PRICE AND FLOOR PRICE. The
daily low trading or closing bid price, as applicable, of the Common Stock for
any Trading Day used to calculate the Purchase Price and the Floor Price shall
be adjusted proportionally to reflect any stock splits, stock dividends,
reclassifications, combinations and similar transactions involving the Company's
Common Stock.
IX.
CHOICE OF LAW AND VENUE, WAIVER OF JURY TRIAL
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF
THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW OR
CHOICE OF LAW. The parties hereby agree that all actions or proceedings arising
directly or indirectly from or in connection with this Agreement shall, at the
option of either party, be litigated only in the United States District Court
for the Northern District of California unless such District Court declines
jurisdiction, in which case such actions or proceedings shall be litigated only
in the state court located in San Francisco County, California. The parties
consent to the jurisdiction and venue of the foregoing court and consent that
any process or notice of motion or other application to said court or a judge
thereof may be served inside or outside the State of California or the Northern
District of California by registered mail, return receipt requested, directed to
the party for which it is intended at its address set forth in this Agreement
(and service so made shall be deemed complete five (5) Trading Days after the
same has been posted as aforesaid) or by personal service or in such other
manner as may be permissible under the rules of said court. The parties hereto
hereby irrevocably waive any and all right to a trial by jury with respect to
any legal proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
X.
ASSIGNMENT, ENTIRE AGREEMENT, AMENDMENT, TERMINATION
10.1 ASSIGNMENT. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, the Investor's rights and obligations
under this Agreement may be assigned at any time, in whole, with the prior
written consent of the Company (which consent shall not be unreasonably
withheld) to any Affiliate of the Investor (a "Permitted Transferee"). The
rights and obligation of the Investor under this Agreement shall inure to the
benefit of, and be enforceable by and against, any such Permitted Transferee.
10.2 ENTIRE AGREEMENT; AMENDMENT. This Agreement, the
Registration Rights Agreement, and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof, and no party shall be liable or
bound to any other party in any manner by any warranties, representations or
covenants except as specifically set forth in this Agreement or therein. Except
as expressly provided in this Agreement, neither this Agreement nor any term
hereof may be amended, waived, discharged or terminated other than by a written
instrument signed by the party against whom enforcement of any such amendment,
waiver, discharge or termination is sought.
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10.3 PUBLICITY. The Company agrees that it will not disclose, and
will not include in any public announcement, the name of the Investor without
its prior consent, unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement. Except
as may be required by law, the Company shall consult with the Investor before
issuing any press release or otherwise making any public statements with respect
to this Agreement and shall not issue any such press release or make any such
public statement prior to such consultation.
10.4 TERMINATION. (a) The Company may, in its sole discretion,
terminate this Agreement and Investor's obligations and rights to purchase any
Investment Amount for the remainder of the Commitment Period by delivery of
written notice of termination to the Investor. Such written notice shall be
delivered by the Company to the Investor one (1) Trading Day prior to the
effective date of such termination. The date of any such termination shall be
considered to be the final day of the Commitment Period for purposes of issuance
of the Final Warrant; PROVIDED HOWEVER that in the event the Company terminates
this Agreement as a result of the Investor's breach of its obligations
hereunder, the Company shall have no obligation to issue the Final Warrant.
(b) The Investor may terminate this Agreement as a result of (i)
a breach (which is not cured in accordance with this Agreement) by the Company
of any material representation, warranty, covenant or other obligation in this
Agreement or the Registration Rights Agreement or (ii) if the Investor
reasonably determines, in its sole discretion, at any time that the adoption of,
or change in, or any change in the interpretation or application of, any law,
regulation, rule, guideline or treaty (including, but not limited to, changes of
capital adequacy) makes it illegal or materially impractical for the Investor to
fulfill its commitment pursuant to this Agreement, but in the case of either (i)
or (ii) above, Investor may terminate this Agreement only after a 60-day period
in which the parties negotiate in good faith, in the case of (i), a reasonable
substitute for such provision or, in the case of (ii), a reasonable alternative
manner not illegal or impossible for the Investor to fulfill its commitment
pursuant to this Agreement.
XI.
NOTICES, ETC., COST AND EXPENSES, INDEMNIFICATION
11.1 NOTICES, ETC.. All notices, demands, requests, consents,
approvals or other communications required or permitted to be given hereunder or
which are given with respect to this Agreement shall be in writing and shall be
personally served or deposited in the mail, registered or certified, return
receipt requested, postage prepaid, or delivered by reputable air courier
service with charges prepaid, or transmitted by hand delivery, telegram, telex
or facsimile, addressed as set forth below, or to such other address as such
party shall have specified most recently by written notice: (a) if to the
Company, to: Cygnus, Inc., 000 Xxxxxxxxx Xxxxx, Xxxxxxx Xxxx, Xxxxxxxxxx 00000;
Attention: Chief Executive Officer, Facsimile No.: (000) 000-0000, with copy;
Attention: General Counsel (b) if to the Investor, Cripple Creek Securities,
LLC, 000 Xxxxxxxxx Xxxxxx, Xxxxxxxxx, Xxx Xxxxxx 00000, Attention: Xxxxxx X.
Xxxxxxx, Facsimile No.: (000) 000-0000, with copies (which shall not constitute
notice) to: Xxxxxx & Xxxxxx, 000 00xx Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000-0000,
Attn. X. Xxxxxxxxx Xxxxxx, Facsimile No.: (000) 000-0000. Subject to Section
2.3(c), notice shall be deemed given on the date of service or transmission if
personally served or transmitted by telegram, telex or facsimile during normal
business hours of the recipient. Notice otherwise sent as provided herein shall
be deemed given on the third business day following the date mailed or on the
second business day following delivery of such notice by a reputable air courier
service.
11.2 COSTS AND EXPENSES. The Company shall be responsible for the
Investor's (a) legal fees and related expenses incurred in entering into this
Agreement up to a maximum amount of $35,000, which shall be payable upon the
funding of the Initial Investment Amount, and (b) costs and expenses in
connection with the performance of its obligations hereunder up to a maximum
amount of $25,000 initially, and $5,000 quarterly thereafter. The Company agrees
to pay the Investor the amounts due under clause (b) of the preceding sentence
within thirty (30) days following the Investor's request therefor. In the event
payment is not received within such thirty (30) day period, Investor shall have
the right to deduct any such
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amounts owed by the Company to the Investor from any amounts owed by the
Investor to the Company pursuant to Section 2.4(c) herein.
11.3 INDEMNIFICATION.
(a) INDEMNIFICATION OF INVESTOR. The Company agrees to
indemnify and hold harmless the Investor and each person, if any, who controls
the Investor within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act as follows:
(i) against any and all loss, liability, claim, damage
and commercially reasonable expense whatsoever, as incurred on a monthly basis,
arising out of any untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including any Prospectus, 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 or
arising out of any untrue statement or alleged untrue statement of a material
fact contained in any 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;
(ii) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred on a monthly basis, to the extent of the
aggregate amount paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, based upon any such untrue
statement or omission, or any such alleged untrue statement or omission;
PROVIDED THAT (subject to Section 11.3(d) below) any such settlement is effected
with the written consent of the Company; and
(iii) against any and all expenses whatsoever, as
incurred on a monthly basis (including the fees and disbursements of counsel),
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under (i) or (ii) above;
PROVIDED, however, that the indemnity agreement set forth in this Section
11.3(a) shall not apply to any loss, liability, claim, damage or expense to the
extent arising out of any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with written
information furnished to the Company by the Investor expressly for use in the
Registration Statement (or any amendment thereto), including any Prospectus (or
any amendment or supplement thereto), or in any offering circular or other
document, as applicable.
(b) INDEMNIFICATION OF COMPANY. The Investor agrees to
indemnify and hold harmless the Company, its directors, each of its officers who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act against any and all loss, liability, claim, damage and
commercially reasonable whatsoever, as occurred on a monthly basis, arising out
of any of the matters referred to in clauses (i), (ii) and (iii) of Section
11.3(a), but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto), including any Prospectus (or any amendment or supplement
thereto), or in any offering circular or other document, as applicable, in
reliance upon and in conformity with written information furnished to the
Company by the Investor expressly for use in the Registration Statement (or any
amendment or supplement thereto) or in any offering circular or other document,
as applicable.
(c) ACTION AGAINST PARTIES; NOTIFICATION. Each indemnified
party shall give notice as promptly as reasonably practicable to each
indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party shall not relieve such indemnifying party from any liability hereunder to
the extent it is not materially prejudiced as a result thereof and in any event
shall not relieve it from any liability which it may have otherwise than on
account of his indemnity agreement. In case any such action is brought against
any indemnified party, and it notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the
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indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof. Notwithstanding the foregoing,
the indemnified party or parties shall have the right to employ its own counsel
in any such case but the reasonable fees and expenses of such counsel shall be
at the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying party in
connection with the defense of such action at the expense of the indemnifying
party, (ii) the indemnifying party shall not have employed counsel to have
charge of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party or parties shall
have reasonably concluded that there may be defenses available to it or them
which are different from or additional to those available to the indemnifying
party (in which case the indemnifying party shall not have the right to direct
the defense of such action on behalf of the indemnified parties), in any of
which events such reasonable fees and expenses of one additional counsel shall
be borne by the indemnifying party. In no event shall the indemnifying party be
liable for fees and expenses of more than one counsel (in addition to one local
counsel) for the indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry or any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 11.3 or
Section 11.4 hereof (whether or not the indemnified parties are actual or
potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim 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 an any indemnified party.
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If
at any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for the commercially reasonable fees and
expenses of counsel under circumstances where the indemnifying party is required
to provide such reimbursement hereunder, such indemnifying party agrees that it
shall be liable for any settlement of the nature contemplated by Section
11.3(a)(ii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request (unless such fees are less
than $15,000 per month) prior to the date of such settlement. No party hereto
shall be responsible for any settlement agreed to by the other party unless such
settlement is consented to by the first party or the settlement is permitted
without such consent under this paragraph (d). If a court of competent
jurisdiction determines by final order that any person who received
reimbursement of fees and expenses pursuant to this Agreement was not entitled
thereto, such person shall promptly pay such amounts to the payor with interest
at eight percent (8%) per annum from the date of payment.
11.4 CONTRIBUTION. If the indemnification provided for in Section
11.3 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
commercially reasonable expenses referred to herein, then each indemnifying
party shall contribute to the aggregate amount of such losses, liabilities,
claims, damages and expenses incurred by such indemnified party, as incurred (a)
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Investor on the other hand from the
offering of the Common Stock pursuant to this Agreement or (b) if the allocation
provided by clause (a) is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(a) above but also the relative fault of the Company on the one hand and of the
Investor on the other hand in connection with the statements or omissions which
resulted in such losses, liabilities, claims, damages or commercially reasonable
expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and
the Investor on the other hand in connection with the offering of the Common
Stock pursuant to this Agreement shall be deemed to be in the same respective
portions as the total proceeds from the offering of the Common Stock pursuant to
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this Agreement received by the Company from the Investor and the total profits
received by the Investor upon the sale of such Common Stock bear to the
aggregate public offering price.
The relative fault of the Company on the one hand and the Investor
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 relates to information
supplied by the Company or by the Investor and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Investor agree that it would not be just and
equitable if contribution pursuant to this Section 11.4 were determined on a
pro-rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section 11.4.
The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 11.4
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 11.4, the Investor
shall not be required to contribute any amount in excess of the amount by which
the total price at which the Common Stock purchased by it and resold to the
public exceeds the amount of any damages which the Investor has otherwise been
required to pay by reason of any such untrue or alleged untrue statement or
omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
For purposes of this Section 11.4, each person, if any, who
controls the Investor within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act shall have the same rights to contribution as
such Investor, 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 Section 15 of the Securities Act or Section 20 of
the Exchange Act shall have the same rights to contribution as the Company.
11.5 GENERAL INDEMNIFICATION. Each party shall indemnify the other
against any loss, cost or damages (including reasonable attorney's fees and
expenses) incurred as a result of such party's breach of any representation,
warranty, covenant or agreement in this Agreement.
XII.
MISCELLANEOUS
12.1 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which together shall constitute one instrument.
12.2 SURVIVAL: SEVERABILITY. (a) The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing
hereunder. The indemnity and contribution agreements contained in Sections 11.3
and 11.4 hereof shall survive and remain operative and in full force and effect
regardless of (i) any termination of this Agreement or of the Commitment Period,
(ii) any investigation made by or on behalf of any indemnified party or by or on
behalf of the Company, and (iii) the consummation of the sale or successive
resales of the Common Stock. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; PROVIDED THAT such
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severability shall be ineffective if it materially changes the economic benefit
of this Agreement to any party.
12.3 TITLE AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
12.4 EFFECTIVENESS OF THE AGREEMENT. This Agreement shall be
effective as of the Effective Date.
[REST OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective authorized officers as of the date
hereof.
CRIPPLE CREEK SECURITIES, LLC CYGNUS, INC.
By: /s/ Xxxxxxx X. Xxxxxx By: /s/ Xxxx X. Xxxxxxx
----------------------------- ------------------------------
By: The Palladin Group Name: Xxxx X. Xxxxxxx
Attorney-in-Fact and Investment AdvisorTitle: President and
By: Xxxxxxx X. Xxxxxx Chief Executive Officer
[SIGNATURE PAGE TO STRUCTURED EQUITY LINE FLEXIBLE FINANCING AGREEMENT]
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