NOTE PURCHASE AND WARRANT AGREEMENT
NOTE PURCHASE AND WARRANT AGREEMENT dated as of April 14,
1997 by and between IOMED, INC., a Utah corporation (the "Company"), and ELAN
INTERNATIONAL SERVICES, LTD., a Bermuda corporation ("EIS"), and ELAN
INTERNATIONAL MANAGEMENT, LTD., a Bermuda corporation ("EIM").
RECITAL:
The parties hereto and Elan Corporation, plc, a public
limited company existing under the laws of Ireland and the parent corporation
of EIS and EIM ("Elan"), have executed a binding letter agreement dated March
31, 1997 (the "Letter Agreement"), in connection with which, subject to the
terms and conditions thereof, EIM agreed to provide certain loans to the
Company and the Company agreed to issue a certain warrant to EIS, the parties
intending that this Agreement constitute the Note Purchase Agreement referred
to therein.
AGREEMENT:
The parties agree as follows:
ARTICLE 1
PURCHASE AND SALE OF NOTES AND WARRANT AND CONVERSION
1.1 Initial Securities; Etc. On the terms and subject to the
conditions set forth in this Agreement, on the date hereof, the Company agrees
to sell to EIM, and EIM agrees to purchase from the Company, (x) the promissory
note in the form attached hereto as Exhibit A (the "A Note") in the original
principal amount of $10 million and (y) the promissory note in the form
attached hereto as Exhibit B (the "B Note"; together with the A Note, the
"Notes") in the original principal amount of $5 million.
The Company shall issue to EIS on the date hereof a warrant
in the form attached hereto as Exhibit C (the "Warrant"; together with the
Notes, the "Initial Securities") to acquire up to 500,000 shares (as adjusted
as provided in the Warrant) of the Company's common stock, par value $.001 per
share (the "Common Stock").
EIS has undertaken to subscribe for shares of Common Stock,
and the Warrant is exercisable for shares of Common Stock (such Common Stock,
the "Conversion Shares"; together with the Initial Securities, the
"Securities"), as provided herein. In connection with the transactions
described above, the Company and EIS are entering into a Registration Rights
Agreement in the form attached hereto as Exhibit D (the "Registration Rights
Agreement"; together with this Agreement, the Notes, the Warrant and the
License Agreements (to be entered into by certain affiliates of EIM with the
Company on the date hereof), the "Closing Agreements").
1.2 Purchase Price. The purchase price for the Notes shall be
$15 million (the "Purchase Price"). Such amount shall be payable by EIM by wire
transfer to an account or accounts designated in writing by the Company on the
date hereof.
1.3 Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place on the date hereof at the
offices of counsel to EIS and EIM in New York City, or at such other place as
the parties may agree. At the Closing:
(x) the Company shall deliver to EIM and EIS, as applicable:
(i) original executed counterparts of the Initial Securities and the Closing
Agreements, (ii) a signed copy of the legal opinion referred to in the Letter
Agreement, (iii) a signed form UCC-1 in customary form, together with a
fully-signed counterpart of this Agreement in form for filing with the U.S.
Patent and Trademark Office to secure the B Note as provided herein, and (iv)
such other documents and instruments that EIS and EIM may reasonably request
and that shall be customary for similar closings;
(y) the Company shall deliver to Elan and Drug Delivery
Systems Inc., a New York corporation original executed counterparts of each of
the License Agreements; and
(z) EIM shall (I) pay the Purchase Price and (II) deliver to
the Company (i) original executed counterparts of the Initial Securities and
Closing Agreements to which it (or Elan, EIS and/or DDS) is a party, (ii) such
other documents and instruments that the Company may reasonably request and
that shall be customary for similar closings.
In addition, (x) by signing this Agreement, the Company on
the one hand, and EIS and EIM on the other hand, confirm that the conditions to
closing set forth in Sections 4(a) and 4(b), as applicable, of the Letter
Agreement have been satisfied and (y) each of the parties shall hereafter take
such additional actions as shall be necessary or appropriate to implement the
transactions contemplated hereby.
Each of the parties shall, if required, mutually and
reasonably cooperate with each other in connection with the filing of all
documents and instruments necessary or appropriate in connection with a
pre-closing notification of the Federal Trade Commission (the "FTC") and the
Department of Justice (the "DOJ") pursuant to the Xxxx-Xxxxx-Xxxxxx Anti-Trust
Improvements Act of 1976, as amended ("HSR"). Each of the parties shall use
their respective commercially reasonable efforts to promptly comply with all
formal or informal requests for additional information by the FTC or DOJ in
respect of such filing. It shall be a condition precedent to the acquisition of
any voting securities by EIS or its affiliates that the parties shall have
complied with applicable law relating thereto, including the consummation of
all necessary filings under HSR, and that all applicable waiting periods shall
have expired.
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1.4 Repayment of the Notes; Etc. (a) The A Note.
Notwithstanding the provisions of the A Note, the A Note shall be repaid in
full in cash, at the earlier of (x) the date of the Company's initial public
offering (the "IPO") of equity securities under the Securities Act of 1933 (the
"Securities Act") and (y) two years from the date hereof (the date of such
repayment, the "Repayment Date"). Such repayment shall occur solely as follows:
On the Repayment Date, the Company shall repay the A Note and accrued interest
thereon (which shall not be subject to withholding taxes) to EIM and EIS shall
purchase shares of Common Stock from the Company, as follows:
(I) Conversion at IPO. If the IPO occurs on or prior to
the date which is two years after the date hereof and the price to the public
in the IPO (as set forth on the cover page of the prospectus forming a part of
the registration statement) (the "Price to the Public") is $2.50 per share or
greater (subject to the Anti-dilution Adjustments (as defined herein)), EIS
shall purchase for $10 million (plus accrued interest from the date hereof) 4
million Conversion Shares in connection with the IPO. If the Price to the
Public in such IPO is less than $2.50 per share (subject to the Anti-dilution
Adjustments), EIS shall purchase in connection with the IPO, for a purchase
price equal to the outstanding principal amount of the A Note and accrued and
unpaid interest thereon, a number of shares of Common Stock equal to the
quotient of (x) the aggregate outstanding principal amount of the A Note plus
accrued and unpaid interest thereon and (y) such Price to the Public. Such
purchase and issuance of Conversion Shares and payment to EIM shall occur
simultaneously with the closing of the IPO and after receipt of the interest
payment as set forth above.
The Conversion Shares referred to above shall not be
registered, but shall constitute Registrable Securities under the Registration
Rights Agreement.
(II) Conversion After Two Years. In the event that the IPO
shall not have occurred on or prior to the date which is two years after the
date hereof, then the Repayment Date shall be the date which is two years after
the date hereof, and on such date (x) the Company shall repay in full the A
Note and accrued interest thereon and (y) thereafter EIS shall purchase from
the Company for a cash amount equal to the outstanding principal amount of the
A Note and accrued and unpaid interest thereon, a number of Conversion Shares
equal to (A) such outstanding principal amount of the A Note and accrued and
unpaid interest thereon (B) divided by the greater of (x) $2.50 per share
(subject to the Anti-dilution Adjustments) and (y) an amount equal to 80% of
the price per share (on an as-converted basis) of the most recent bona fide
Institutional Financing (as defined below) which shall have occurred prior to
such two-year anniversary. Institutional Financing means a debt, equity or
combined financing (including a financing coupled with or in the form of a
property (including intellectual property), transfer or license) with an
unaffiliated third party which is a venture capital or similar organization, an
underwriter, financial advisor, broker/dealer or person or entity acting in a
similar capacity or an industry or "strategic" investor, joint venturer,
licensee or similar person.
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Upon any repayment of the A Note described in clause (I) or
(II) above, the Company shall immediately issue and deliver to EIS a
certificate in respect of the applicable number of Conversion Shares (which
shall bear an appropriate restrictive legend) and EIM shall deliver to the
Company the original counterpart of the A Note.
(b) The B Note. In the event that, at any time that all or
any portion of the B Note or accrued and unpaid interest thereon (the "B
Outstanding Amount") shall be outstanding the Company completes its IPO, then
(x) upon consummation of the IPO the Company shall pay to EIM the B Outstanding
Amount (and accrued and unpaid interest thereon (which will not be subject to
withholding taxes) at the rate set forth in the B Note from and after the date
of the IPO until paid in full) in full cancellation and satisfaction of the B
Note, and (y) thereafter, EIS shall purchase from the Company for cash in such
IPO a number of fully-registered shares (which shall, upon issuance be admitted
for trading or listed privileges on the then-principal exchange or listing
authority on which the Common Stock is traded) equal to the quotient of (I) the
B Outstanding Amount and (II) the Price to the Public in such IPO. In any such
event, EIS shall deliver to the Company the original counterpart of the B Note.
1.5 Certain Provisions Relating to the Notes. (a) During such
time that either or both of the Notes is outstanding, the Company shall not
incur or permit to exist any indebtedness of the Company or any of its
subsidiaries without the consent of EIM; provided, that the foregoing
restrictions shall not apply to indebtedness reflected on the Financial
Statements (as defined below), arising from trade accounts payable in the
ordinary course of business which are not more than 90 days past due or from a
bank or other institutional lender or lenders solely for working capital
purposes, to purchase items of equipment (provided that the principal amount of
such indebtedness does not exceed the fair market value of such equipment at
the time of purchase) and capitalized lease obligations, each of which may be
senior to or pari passu with the Notes (other than collateral in respect of the
B Note, as provided herein), in each case, in a maximum aggregate outstanding
principal amount not in excess of the amount that can prudently be financed
solely by such working capital, or equipment capitalized lease obligations,
each as determined under U.S. generally accepted accounting principles, as
reasonably and in good faith determined by such lender or lenders. In the event
that the Company is permitted to incur any indebtedness as described above, EIM
shall, if requested by the Company, execute and deliver an agreement, in form
and substance reasonably satisfactory to EIM and the Company, to evidence the
fact that such indebtedness may be senior to or pari passu with the Notes.
(b) The B Note (including accrued and unpaid interest
thereon) shall be secured by all of the Elan Iontophoretic Intellectual
Property and the DDS Iontophoretic Patent Rights (as defined in the License
Agreements) and the proceeds thereof, on a first priority perfected security
interest, which the parties agree is hereby created. In connection therewith,
(x) upon the request of EIS or EIM the Company shall cause to be filed, within
10 days of the date hereof, with the Secretary of State of the State of Utah a
Form UCC-1 in customary form and a counterpart of this Agreement with the
United States Patent and Trademark Office, and (y) the holder of the B Note
shall be entitled to all of the rights and remedies of a secured creditor under
applicable law,
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including the Uniform Commercial Code of the States of Utah and New York,
including the right to foreclose, take possession of and sell or use, such
Iontophoretic Intellectual Property; provided, that if any event giving rise to
the exercise of such rights and remedies shall have occurred, the holder of the
B Note shall not exercise such foreclosure or similar rights for a period of
six months from the occurrence of such event, during which period each of the
Company and such holder shall use commercially reasonable good faith efforts to
enter into appropriate arrangements to repay the the B Outstanding Amount in a
reasonable and expeditious manner.
1.6 Certain Provisions Relating to New Stock. Notwithstanding
the other provisions of this Section 1 or the Warrant, in the event that, at
any time, EIS's and its affiliates' aggregate ownership of securities
representing outstanding voting equity securities of the Company (on an as
converted basis) may exceed 19.9% of the aggregate outstanding shares of Common
Stock, EIS may elect, in its sole discretion, that in lieu of receiving
Conversion Shares in connection with any repayment of the Notes or purchasing
Common Stock in connection with the IPO or exercise of the Warrant, it shall
receive all of the shares of a new series of Convertible Preferred Stock or
second series of Common Stock (collectively, the "New Stock") to be created by
the Company, to the extent of the excess of such ownership percentage over
19.9%. In such event, the Common Stock issuable in connection with the
repayment of the Note(s) and/or Warrant (or portion thereof) elected by EIS
shall be converted into such New Stock. The New Stock, if issued, shall be in
form and substance reasonably satisfactory to EIS and shall (i) rank pari passu
with the Common Stock, (ii) have the benefit of the same registration rights as
are granted to EIS as set forth in the Registration Rights Agreement and other
rights as holders of the Common Stock, including rights to receive dividends
and distributions and upon liquidation, (iii) be convertible into shares of
Common Stock, initially on a share for share basis, subject to the
Anti-dilution Adjustments, and (iv) be non-voting, except to the extent
required by applicable law.
1.7 Anti-dilution Adjustments. The number of Conversion
Shares issuable to a Holder upon conversion of the A Note and the New Stock
shall be subject to the following anti-dilution adjustments (the "Anti-dilution
Adjustments"):
(a) Reclassification, Merger, Etc. In case of (i) any
reclassification, reorganization, change or conversion of securities of the
class issuable upon conversion of the A Note or the New Stock (other than a
change in par value, or from par value to no par value), or (ii) any
consolidation of the Company with or into another corporation (other than a
merger or consolidation with another corporation in which the Company is the
acquiring and the surviving corporation and which does not result in any
reclassification or change of outstanding securities issuable upon conversion
of the A Note or the New Stock), or (iii) any sale of all or substantially all
of the assets of the Company, then the Company, or such successor or purchasing
corporation, as the case may be, shall duly execute and deliver to the
holder(s) of the A Note and the New Stock a new certificate or supplement
thereto (in form and substance reasonably satisfactory to such holder(s)), so
that such holder(s) shall have the right to receive, for no additional
consideration, and in lieu of the shares of Conversion Shares theretofore
issuable upon such
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conversion(s), the kind and amount of shares of stock, other securities, money
and property receivable upon such reclassification, reorganization, change,
conversion, merger or consolidation by a holder of the number of shares of
Conversion Shares into which the A Note and/or New Stock are then convertible.
Such new or supplemental certificate(s) shall provide for adjustments that
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 1.7. The provisions of this Section 1.7(a) shall similarly
attach to successive reclassifications, reorganizations, changes, mergers,
consolidations and transfers.
(b) Subdivision or Combination of Shares. If the Company at
any time during which the A Note or New Stock is outstanding shall subdivide or
combine its Common Stock, (i) in the case of a subdivision, the conversion
prices of such securities shall be proportionately decreased and the number of
Conversion Shares purchasable hereunder shall be proportionately increased, and
(ii) in the case of a combination, the conversion prices of such securities
shall be proportionately increased and the number of Conversion Shares
purchasable hereunder shall be proportionately decreased.
(c) Stock Dividends; Etc. If the Company at any time while
the A Note or New Stock is outstanding shall (i) pay a dividend with respect to
Common Stock payable in Common Stock (or rights, options, warrants or similar
instruments in respect thereof (collectively, "Options")), or (ii) make any
other distribution with respect to Common Stock (except any distribution
specifically provided for in Sections 1.7(a) and (b) above), the conversion
prices applicable to such securities shall be adjusted by multiplying such
conversion prices in effect immediately prior to such date of determination of
the holders of securities entitled to receive such distribution, by a fraction
(A) the numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution, and (B) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution, as if all of such
Options had been exercised and the Company received the consideration payable
in respect thereof. Upon each adjustment in the conversion prices pursuant to
this Section 1.7(c), the number of Conversion Shares issuable hereunder shall
be adjusted, to the nearest whole share, to the product obtained by multiplying
the number of Conversion Shares issuable immediately prior to such adjustment
by a fraction, the numerator of which shall be the conversion price immediately
prior to such adjustment and the denominator of which shall be the conversion
price immediately thereafter.
(d) Repurchases or Redemptions of Common Stock or Options.
If the Company at any time while the A Note and/or New Stock is outstanding
shall repurchase or redeem any outstanding shares of Common Stock or any
Options, at a price which is greater than the then-current conversion price(s),
such conversion price(s) shall thereupon be adjusted by multiplying the
conversion price(s) in effect at the time of such repurchase by a fraction (i)
the numerator of which shall be the conversion price(s) in effect immediately
prior to such repurchase or redemption and (ii) the denominator of which shall
be the fair market value of the consideration paid for the shares of Common
Stock and/or Options at the time of purchase. Upon each adjustment in
conversion prices pursuant to this Section 1.7(d), the number of Conversion
Shares issuable hereunder shall be adjusted, to the nearest whole share, to the
product obtained by
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multiplying the number of Conversion Shares purchasable immediately prior to
such adjustment in the conversion price(s) by a fraction, the numerator of
which shall be the applicable conversion price immediately prior to such
adjustment and the denominator of which shall be the applicable conversion
price immediately thereafter. Notwithstanding the foregoing, this Section
1.7(d) will not apply to redemptions of the Company's Series C Preferred Stock
made pursuant to existing agreements.
(e) No Impairment. The Company will not, by amendment of its
charter or by-laws or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Company, but will
at all times in good faith assist in the carrying out of all the provisions of
this Section 1.7 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of this A Note and
New Stock against impairment.
(f) Notice of Adjustments. Whenever the conversion prices
above or the number of Conversion Shares purchasable hereunder shall be
adjusted pursuant to this Section 1.7, the Company shall prepare a certificate
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated.
Such certificate shall be signed by its chief financial officer and shall be
delivered to the holders of the A Note and New Stock.
(g) Fractional Shares. No fractional Conversion Shares will
be issued in connection with any exercise hereunder, but in lieu of such
fractional shares the Company shall make a cash payment therefor based on the
fair market value of the Conversion Shares on the date of exercise as
reasonably determined in good faith by the Company's Board of Directors.
1.8 Certain Securities Laws Matters. Unless registered in the
IPO or another registered public offering, the certificates representing the
Securities shall bear appropriate and customary restrictive legends relating to
the restrictions on transfer applicable thereto.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to EIS and EIM as
follows:
2.1 Organization; etc. The Company is a corporation duly
organized, validly existing and is good standing under the laws of the State of
Utah and is qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which the failure to be so qualified would
have a material adverse effect on the business or financial condition of the
Company. The Company is not in default of its charter or bylaws, any applicable
laws or regulations or any contract or agreement binding upon or affecting it
or its properties or assets and the execution, delivery and performance of this
Agreement and the transactions contemplated hereby will not result in any such
violation.
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2.2 Authorization. The Company has full corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly authorized,
executed and delivered by the Company, and constitutes the valid and binding
obligation of the Company, enforceable in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency or other similar
laws affecting creditors' rights and by general equitable principles.
2.3 Valid Issuance. The Securities have been duly and validly
authorized and, when issued, shall be fully paid and non-assessable and free
from any and all pre-emptive or similar rights, and any other options, warrants
or rights.
2.4 No Violation. The execution, delivery and performance by
the Company of this Agreement and each of the other transaction documents, the
issuance, sale and delivery of the Securities and compliance with the
provisions hereof by the Company, will not (a) violate any provision of
applicable law, statute, rule or regulation applicable to the Company or any
ruling, writ, injunction, order, judgment or decree of any court arbitrator,
administrative agency or other governmental body applicable to the Company or
any of its properties or assets, or (b) conflict with or breach any of the
terms, conditions or provisions of, or constitute (with 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 Encumbrance (as defined
below) upon any of the properties or assets of the Company under the
Certificate of Incorporation, as amended, or by-laws of the Company or any
material contract to which the Company is a party, except where such violation,
conflict or breach would not, individually or in the aggregate, have a material
adverse effect on the Company. As used herein, "Encumbrance" shall mean any
liens, charges, encumbrances, equities, claims, options proxies, pledges
security interests, or other similar rights of any nature, except for such
conflicts, breaches or defaults which would not, individually or in the
aggregate, have a material adverse effect on the Company.
2.5 Capitalization. (a) As of the date hereof, the
authorized, issued and outstanding capital stock of the Company consists solely
of 15,040,455 shares of Common Stock and 172,800 shares of Series C Preferred
Stock. As of the date hereof, options to purchase 1,585,493 shares of Common
Stock, and warrants to purchase 295,000 shares of Common Stock, are
outstanding. Except for (a) the options and warrants described above, and (b)
an obligation to issue additional shares of Common Stock (4,628 shares as of
the date hereof) to Laboratories Xxxxxxxx, S.C.A. ("Xxxxxxxx") pursuant to the
adjustment provisions of the agreement between the Company and Xxxxxxxx, dated
February 20, 1996 (the "Xxxxxxxx Agreement"), the Company does not have
outstanding any rights (except pre-emptive or other) or options to subscribe
for or purchase, or any warrants or other agreements providing for or requiring
the issuance by the Company of, any capital stock or securities convertible
into or exchangeable for its capital stock.
(b) Schedule 2.5(b) hereto sets forth an accurate and
complete list of all holders of any equity interest in the Company (including
Options), with their corresponding equity ownership interests; no other person
or entity holds any equity interest in the Company or any
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Option in respect thereof.
(c) Except as set forth on Schedule 2.5(c), the Company does
not own any capital stock of, or other securities issued by, any other person
or entity, or interest in any joint venture or similar arrangement.
(d) Except for the filing of any notice subsequent to the
Closing which may be required under applicable federal or state securities law
(which, if required, shall be filed on a timely basis as may so be required),
no permit, authorization, consent or approval of or by, or any notification of
or filing with, any Person (governmental or private) is required in connection
with the execution, delivery or performance of this Agreement by the Company.
There is no approval of the Company's stockholders required under applicable
laws, regulations or stock exchange or listing authority rules or regulations
in connection with the execution and delivery of the Closing Agreements or the
consummation of the transactions contemplated herein, including the issuance of
the Securities.
2.6 Litigation. The Company is not a party, nor has it been
threatened in writing to be made a party, to any charge, complaint, action,
suit, proceeding, hearing or investigation of or in any court of quasi-judicial
or administrative agency of any federal, state local or foreign jurisdiction or
before any arbitrator, which could result in any material adverse change in the
assets, liabilities, business, financial condition, operations, results of
operations or future prospects of the Company.
2.7 Reports and Financial Statements, etc. (a) EIS has
heretofore been furnished with complete and correct copies of the unaudited
consolidated balance sheet of the Company as of December 31, 1996 and of the
unaudited consolidated statements of income and operations and cash flow for
the six month period then ended (collectively, the "Financial Statements") set
forth on Schedule 2.7(a) .
(b) Each of the Financial Statements was prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with prior periods, subject to normal year-end adjustments (which
are not material) and is accurate and complete in all material respects. Each
of the balance sheets included in such financial statements fairly presents the
financial condition of the Company as of the close of business on the date
thereof, and each of the statements of income included in such Financial
Statements fairly presents the results of operations of the Company for the
fiscal period then ended.
(c) The Company owns all of its material properties and
assets, including all Intellectual Property as summarized on Schedule 2.7(c).
(d) Other than as set forth in the Financial Statements, the
Company has no outstanding liabilities or obligations, contingent or otherwise,
than those incurred in the normal course of business, which have or may have a
materially adverse effect on the financial condition
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of the Company.
2.8 Material Adverse Change. There has been no material
adverse change in the business condition (financial or otherwise) of the
Company since December 31, 1996.
2.9 Material Contracts. All of the Company's material
contracts and agreements are listed on Schedule 2.9 (the "Material Contracts").
There is no default or violation thereunder by any party thereto, and the
consummation of the Closing Agreements and transactions contemplated hereby
will not cause the Company or any party to a Material Contract to be in default
or violation thereof.
2.10 Disclosure. This Agreement and the other Closing
Agreements do not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements contained herein and
therein not misleading. The Company is not aware of any material contingency,
event or circumstance relating to its business or prospects, which could have a
material adverse effect thereon, in order for the disclosure herein relating to
the Company not to be misleading in any material respect.
2.11 Brokers or Finders. The Company has not retained any
investment banker, broker or finder in connection with the transactions
contemplated by this Agreement and the other Closing Agreements. The Company
agrees to indemnify and hold EIS and EIM harmless against any liability,
settlement or expense arising out of, or in connection with, any such claim.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF EIS AND EIM
EIS and EIM hereby represent and warrant to the Company as
follows:
3.1 Organization and Authority. (a) Each of EIM and EIS is a
Bermuda corporation and has full corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby. This
Agreement has been duly and validly authorized, executed and delivered by each
of EIS and EIM, and constitutes the valid and binding obligation of each,
enforceable in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency or other similar laws affecting creditors'
rights and by general equitable principles.
(b) Each of EIS and EIM has full corporate authority to
execute and deliver this Agreement and the Closing Agreements and to consummate
the transactions contemplated hereby and thereby; this Agreement has been duly
executed and delivered by each of EIS and EIM and constitutes the legal and
valid obligations of each and is enforceable against each in accordance with
its terms, and the execution, delivery and performance of this Agreement and
the transactions contemplated hereby will not violate or result in a default
under or creation of a lien or encumbrance under EIS's or EIM's memorandum and
articles of association or other organic documents, any material agreement or
instrument binding upon or affecting it or its
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properties or assets or any applicable laws, rules, regulations or orders
affecting it or its properties or assets.
(c) Neither EIS nor EIM is now in material default of its
charter or by-laws or similar organic documents, any applicable material laws
or regulations or any contract or agreement binding upon or affecting them or
their properties or assets and the execution delivery and performance of this
Agreement and the transactions contemplated hereby will not result in such
violation.
3.2 Investment Intent; Etc. EIM and EIS are each acquiring
the Securities, for its own account and not with a present view to, or in
connection with, any distribution. Both understand that the Securities have not
been registered under the Securities Act, by reason of a specific exemption
from the registration requirements of the Act which depends upon, among other
things, the bona fide nature of the investment intent as expressed herein, and
that, accordingly, they may be required to hold such Securities for an
indefinite period.
3.3 Disclosure. No representation or warranty by EIS or EIM
contained in this Agreement contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements contained herein
not misleading in light of the circumstances under which they were made.
3.4 Reliance. Neither EIS nor EIM has relied on any
representations, warranties, covenants or information in making its investment
decision in regard to the Securities, except for those provided by the Company
and set forth in this Agreement or the Closing Agreements.
ARTICLE 4
COVENANTS OF THE COMPANY
The Company hereby covenants that:
4.1 Board Seat. Until such time as EIS and its affiliates
collectively own securities representing less than 10% of the Common Stock or
equivalents, on an as converted and fully diluted basis (i.e., assuming
conversion of the Notes and exercise of the Warrant, but excluding conversion
or exercise of all options) the Company shall use its best efforts to cause EIS
to designate one member of the Company's Board of Directors.
4.2 [INTENTIONALLY OMITTED]
4.3 Financial Statements. For so long as the covenants
contained in Section 4.1 are in effect, the Company shall deliver to EIM:
(a) as soon as available and in any event within 90 days
after the end of each fiscal year of the Company, beginning with the fiscal
year ending June 30, 1997, audited financial
11
statements of the Company for such year, accompanied by a report thereon of
independent public accountants of recognized national standing, which report
shall state that such financial statements fairly present the financial
condition and results of operations of the Company as at the end of, and for,
such fiscal year; and
(b) as soon as available and in any event within 45 days
after the end of each fiscal quarter of the Company (other than the last fiscal
quarter in each fiscal year) unaudited financial statements of the Company for
such fiscal quarter accompanied, in each case, by a certificate of the chief
financial officer of the Company, which certificate shall state that such
financial statements fairly present the financial position and results of
operations of the Company in accordance with generally accepted accounting
principles, subject to changes resulting from year-end audit adjustments.
4.4 Operating Covenants. From the date hereof, and until
the B Note is repaid in full, without the prior written consent of EIM, the
Company shall not:
(a) dispose of any material asset or business, including
any intellectual property rights;
(b) make pay or declare any dividend or distribution to any
equity holder (in such capacity) or redeem any of its capital stock; except
that the Company shall be permitted to redeem shares of its Series C Preferred
Stock pursuant to previously existing contractual arrangements;
(c) consummate any joint venture, equity investment in an
unaffiliated entity or similar transaction; or
(d) vary its business plan or practices, in any material
respect, from past practices.
4.5 Post-Closing. From the date hereof, and until the B Note
is repaid in full, the Company agrees to do or cause to be done such further
acts and things, and deliver or cause to be delivered to EIM such additional
assignments, agreements, powers and instruments as EIM may reasonably require
or deem advisable to carry into effect the purposes of this Agreement and the
Closing Agreements, or better to assure and confirm unto EIM and EIS their
rights powers and remedies hereunder and thereunder.
4.6 Indemnification. (a) In addition to all rights and
remedies available to the parties hereunder at law or in equity, the Company
shall indemnify EIS, EIM and their respective affiliates, stockholders,
directors, officers, employees, agents, representatives, successors and
permitted assigns (collectively, the "Elan Indemnified Persons") and save and
hold each of them harmless against and pay on behalf of or reimburse each Elan
Indemnified Person as and when incurred for any loss, liability, demand, claim,
action, cause of action, cost, damage, deficiency, tax, penalty, fine or
expense, whether or not arising out of any claims by or on behalf of the
Company or any third party, including interest, penalties, reasonable
attorney's fees, and
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expenses and all amounts paid in investigation defense or settlement of any of
the foregoing (collectively, "Losses") which any such Elan Indemnified Person
may suffer, sustain or become subject to, as a result of, in connection with,
relating to or incidental to, or by virtue of:
(i) any misrepresentation or breach of warranty on the
part of the Company under Article 2 of this Agreement; or
(ii) any nonfulfillment or breach of any covenant or
agreement on the part of the Company under this Agreement.
(b) The maximum recovery of an Elan Indemnified Person under
this Section 4.6 shall not exceed $15,000,000. An Elan Indemnified Person shall
not assert a claim unless the Losses, when aggregated with all previous Losses
hereunder, equal or exceed $50,000, but at such time that such indemnified
Person is permitted to assert a claim, such claim shall include all Losses
covered by this Section 4.6.
(c) In addition to all rights and remedies available to the
parties hereunder at law or in equity, EIS and EIM shall indemnify the Company
and its respective affiliates, stockholders, directors, officers, employees,
agents, representatives, successors and permitted assigns (collectively, the
"Company Indemnified Persons") and save and hold each of them harmless against
and pay on behalf of or reimburse each Company Indemnified Person as and when
incurred for any Losses which any Company Indemnified Person may suffer,
sustain or become subject to, as a result of, in connection with, relating to,
incidental to or by virtue of:
(i) any misrepresentation or breach of warranty on the
part of EIS and/or EIM under Article 3 of this Agreement; or
(ii) any nonfulfillment or breach of any covenant or
agreement on the part of EIS and/or EIM under this Agreement; or
(iii) any taxes, or related obligations, for which the
Company may be liable as a result of this Agreement or the transactions
contemplated hereby.
In the event that EIS or EIM reorganizes its assets or
business such that all or a substantial portion of its assets are transferred
to another entity which is affiliated with them, such entity shall be liable
for EIS's or EIM's indemnification obligations hereunder.
(d) The maximum recovery of a Company Indemnified Person
under this Section 4.6 shall not exceed $1,500,000. A Company Indemnified
Person shall not assert a claim unless the Losses, when aggregated with all
previous Losses hereunder, equal or exceed $50,000, but at such time that such
Company Indemnified Person is permitted to assert a claim, such claim shall
include all Losses covered by this Section 4.6.
(e) Notwithstanding the foregoing, and subject to the
following sentence, upon
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judicial determination which is final and no longer appealable, that the act or
omission giving rise to either indemnification set forth above resulted
primarily out of or was based primarily upon an Elan Indemnified Person's or a
Company Indemnified Person's (each, as applicable, an "I.P.") gross negligence,
fraud, or willful misconduct by an I.P. (unless such action was based on that
I. P.'s reliance in good faith upon any representation, warranty or promise
made by a counter-party to this Agreement (a "Counter-Party") herein), the
Counter-Party shall not be responsible for any Losses sought to be indemnified
in connection therewith, and that Counter- Party shall be entitled to recover
from such I.P. all amounts previously paid in full or partial satisfaction of
such indemnity, together with all its costs and expenses reasonably incurred in
effecting such recovery, if any. In no event shall a failure by the Company to
withhold taxes and pay such amounts to the appropriate taxing authority
constitiute gross negligence, fraud or willful misconduct by the Company.
(f) All indemnification rights hereunder shall survive the
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein to the extent provided above. All
indemnification rights hereunder shall terminate 27 months after the Closing,
except for claims made in writing prior to such time.
(g) If for any reason the indemnity provided for in this
Section 4.6 is unavailable to an I.P. or is insufficient to hold such I.P.
harmless from all such Losses arising with respect to the transactions
contemplated herein, then the Counter-Party and the I.P. shall each contribute
to the amount paid or payable by such Loss in such proportion as is appropriate
to reflect the relative benefits received by the Counter-Party and the I.P. as
well as any relevant equitable considerations. The indemnity, contribution and
expense reimbursement obligations that any Counter-Party has under this Section
4.6 shall be in addition to any liability that the respective Counter-Party may
otherwise have. The Company, EIM and EIS further agree that the indemnification
and reimbursement commitments set forth in this Agreement shall apply whether
or not the they are formal parties to any such lawsuits, claims or other
proceedings.
ARTICLE 5
MISCELLANEOUS
5.1 Notices. Any notice or other communication required or
permitted hereunder must be writing, and shall be delivered personally, by
facsimile or by certified, registered, or express mail, postage prepaid and
return receipt requested. Such notice shall be deemed given when so delivered
personally or when sent by confirmed facsimile transmission on a business day
to the party in question or, if mailed, three business days after the date of
deposit into the United States mails, as follows:
(a) if to the Company:
IOMED, Inc.
0000 Xxxx 0000 Xxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
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Attention: President
Fax No. (000) 000-0000
with a copy to:
Xxxxxxx Xxxxx & Xxxxxxx
000 Xxxxx Xxxx Xxxxxx, Xxxxx 0000
Xxxx Xxxx Xxxx, Xxxx 00000
Attention: Xxxxxx X. Xxxxxxxxx
Fax No. (000) 000-0000
(b) if to EIS or EIM, to:
Elan International Services, Ltd.,
000 Xx. Xxxxx Xxxxx
Xxxxxx Xxxxxx XX00 Bermuda
Attention: President
Fax No.
or
Elan International Management, Ltd.
000 Xx. Xxxxx Xxxxx
Xxxxxx Xxxxxx XX00 Bermuda
Attention: President
Fax No.
with a copy to:
Xxxxx Xxxxxxxxxxxx Xxxxxxxxxxx XxXxxxxxx & Xxxx, LLC
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxxx Xxxxxxx
Fax No. (000) 000-0000
5.2 Governing Law. This Agreement shall be governed by the
laws of the State of New York, without giving effect to the choice of laws
provisions thereof.
5.3 Public Disclosure. Each of EIM, EIS and the Company
agrees that, neither party will make any public disclosure of this Agreement or
any of the transactions or agreements contemplated hereby without the consent
of the other after appropriate notice has been given thereto, except to the
extent as required by applicable law or judicial or administrative process;
provided however, that either party shall have the right to make such
disclosure to potential financing sources and governmental regulatory agencies,
including the Securities and Exchange Commission.
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5.4 Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
5.5 Entire Agreement. This 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.
5.6 Exchanges; Lost, Stolen or Mutilated Certificates. Upon
surrender by EIM or EIS to the Company of a certificate representing any
Securities acquired by EIM or EIS hereunder, as applicable, the Company at its
expense will issue in exchange therefor and deliver to EIM or EIS as
applicable, a new certificate or certificates representing such Securities, in
such denomination or denominations, aggregating the number of shares of Common
Stock underlying such Securities represented by the certificate so surrendered,
as may be requested by EIM or EIS. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of any certificate
representing any Security acquired hereunder and in the case of any loss or
theft or destruction, upon delivery of an indemnity agreement reasonably
satisfactory to the Company or in the case of any mutilation upon surrender of
the certificate, the Company, at its expense, will issue and deliver to EIM or
EIS a new certificate representing such Securities.
5.7 Expenses. Each party shall bear and be responsible for
its own costs and expenses incurred in connection with this Agreement and the
other Closing Agreements and the transactions contemplated herein and thereby.
5.8 Restrictions on Transfer. Neither EIM, EIS, Elan nor
the Company shall transfer or assign their respective rights or interests
acquired under this Agreement, the Notes or the Closing Agreements (other than
to any of their respective affiliates (as defined in the regulations
promulgated under the Securities Exchange Act of 1934)); provided that (a) EIM
shall have the right to transfer or assign an amount up to 50% of its interest
in the A Note without the prior consent of the Company, and an amount greater
than 50% of its interest in the A Note with the consent of the Company, which
will not be unreasonably withheld, so long as, in the case of any such
assignment or transfer, the assignee or transferee is not a competitor in any
material respect with the Company on the date of such proposed transfer, and
EIM shall act as agent for the assignee for giving and/or receiving notices or
waivers relating to the A Note, (b) EIS shall be permitted to transfer or
assign its rights as described in the Registration Rights Agreement, and (c)
the transferee has agreed in writing in form reasonably satisfactory to the
Company to be bound by the provisions of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first written above.
IOMED, Inc.
By:
-----------------------------------
Name:
Title:
Elan International Services, Ltd.
By:
-----------------------------------
Name:
Title:
Elan International Management, Ltd.
By:
-----------------------------------
Name:
Title:
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