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Exhibit 10.16
SYMBOLLON CORPORATION
STOCK PURCHASE AGREEMENT
This Agreement dated as of August 14, 1996 is entered into by Symbollon
Corporation, a Delaware corporation, residing at 000 Xxxxxx Xxxx Xxxx, Xxxxxxx,
Xxxxxxxxxxxxx 00000 (the "Company"), Xxxxxxx X. Xxxxxxx ("Xxxxxxx"), an
individual residing at Xxxxxxx Research, Inc., 000 Xxxx Xxxx, Xxxxxxxx, Xxx
Xxxxxx 00000 ("Xxxxxxx") and Xxxx X. Xxxxxxx ("Xxxxxxx"), an individual residing
at 00 Xxxxxxxxxxxx Xxxxxx, Xxxxxxxxxxxx, Xxxxxxxxxxxxx 00000 (Xxxxxxx and
Xxxxxxx, and any subsequent valid transferee, shall hereinafter be collectively
referred to as the "Purchasers").
In consideration of the mutual promises and covenants contained in the
Agreement, the parties hereto agree as follows:
1. Authorization and Sale of Shares.
1.1 Authorization. The Company has, or before the Closings (as
defined in Section 2) will have, duly authorized and taken all such corporate
and other actions as is necessary for the issuance, sale and delivery, pursuant
to the terms of this Agreement, of 444,444 shares of its Series A Preferred
Stock, $.001 par value per share (the "Preferred Shares"). The Certificate of
Designation, Preferences and Rights of Series A Preferred Stock is attached
hereto as Exhibit 1.1.
1.2 Sale of Shares. Subject to the terms and conditions of
this Agreement, at the First Closing the Company will sell and issue to the
Purchasers, and the Purchasers will purchase, an aggregate of 444,444 Preferred
Shares for the purchase price of $1.125 per share in accordance with Exhibit
1.2. Subject to the terms and conditions of this Agreement, at the Second
Closing (as defined in Section 2), the Company will sell and issue to the
Purchasers, and the Purchasers will purchase, an aggregate of at least 50% of
222,222 shares of the Company's Class A Common Stock, $.001 par value per share
(the "Common Shares"; hereinafter the Preferred Shares and the Common Shares
purchased pursuant to this Agreement shall be collectively referred to the
"Shares") at the per share purchase price determined in accordance with Section
2.
2. The Closings. The closing of the sale and purchase of the 444,444
Preferred Shares to be issued at the First Closing pursuant to this Agreement
shall take place at the offices of the Company, or such other mutually agreeable
location as the parties may deem appropriate, on the date hereof unless the
parties shall otherwise agree in writing (the "First Closing"). Within fifteen
(15) days of receipt of a written notice from Purchasers to the Company, the
closing of the sale to and purchase by the Purchasers of at least 50% of 222,222
Common Shares to be issued at the Second Closing pursuant to this Agreement
shall take place at the offices of the Company no later than the first
anniversary of this Agreement (or sooner, if all of the conditions to closing
have theretofore been satisfied), or at such other time, date and place as are
mutually agreeable to the parties (the "Second Closing").
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The First Closing and the Second Closing are sometimes each referred to
hereinafter as a "Closing" and collectively as the "Closings". The date of the
First Closing is hereinafter referred to as the "First Closing Date" and the
date of the Second Closing is hereinafter referred to as the "Second Closing
Date".
At each of the Closings, the Company shall deliver to the Purchasers
certificates for the number of Shares being purchased by the Purchasers,
registered in the name of the Purchasers, against payment to the Company of the
purchase price therefor, by wire transfer. The purchase price per share for the
Common Shares to be purchased at the Second Closing shall be $2.00 if the Second
Closing Date is on or before March 31, 1997 or $3.00 if the Second Closing Date
is after March 31, 1997.
3. Representations of the Company. The Company hereby represents
and warrants to the Purchasers as follows:
3.1 Organization and Standing. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full corporate power and authority to conduct its
business as presently conducted and as proposed to be conducted by it and to
enter into and perform this Agreement and to carry out the transactions
contemplated hereby. The Company is qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the nature of
the business transacted by it or the character or location of its properties
requires such qualification, except where the failure to so qualify would not
have a Material Adverse Effect.
3.2 Capitalization. The authorized capital stock of the
Company as of the date hereof consists of 18,750,000 shares of Class A Common
Stock, $.001 par value per share, 1,250,000 shares of Class B Common Stock,
$.001 par value per share, and 5,000,000 shares of Preferred Stock, $.001 par
value per share, of which 1,283,699 shares of Class A Common Stock, 1,199,713
shares of Class B Common Stock and no shares of Preferred Stock are presently
outstanding without taking into effect the transactions contemplated by this
Agreement. There are 1,572,080 Class A Warrants (each of which is exercisable to
purchase one share of Class A Common Stock and one Class B Warrant) and
1,227,920 Class B Warrants (each of which is exercisable to purchase one share
of Class A Common Stock) presently outstanding. There are options presently
outstanding to purchase 100,000 Units (a Unit consists of one share of Class A
Common Stock, one Class A Warrant and one Class B Warrant), and 286,333 shares
of Class A Common Stock. All shares outstanding on the date hereof are, and any
shares that will be issued under the Certificate of Incorporation, when issued,
will be, duly authorized, validly issued and fully paid and nonassessable. There
are no preemptive rights, rights of first refusal, or other similar rights
available to the existing holders of Common Stock or other securities of the
Company.
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3.3 Issuance of Shares. The issuance, sale and delivery of the
Shares have been, or will be on or prior to the applicable Closing Date, duly
authorized by all necessary corporate action on the part of the Company. The
Shares, when issued, sold and delivered against payment therefor in accordance
with the provisions of this Agreement, will be duly and validly issued, fully
paid and non-assessable and free and clear of any liens or preemptive, rights of
first refusal, or other similar rights.
3.4 Authority for Agreement; No Conflicts. The execution,
delivery and performance by the Company of this Agreement, and the consummation
of the transactions contemplated hereby, have been duly authorized by all
necessary corporate action. This Agreement has been duly executed and delivered
by the Company, enforceable against it in accordance with its terms, except that
such enforcement may be subject to applicable moratorium and similar laws
affecting creditors' rights, and the remedy of specific performance and
injunctive relief may be subject to equitable defenses and to the discretion of
the court for which proceeding therefor may be brought. The execution and
delivery of this Agreement and performance of the transactions contemplated by
this Agreement and compliance with its provisions by the Company will not
conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute a default under, or require a consent or waiver
under, its Certificate of Incorporation or By-Laws (each as amended to date) or
any indenture, lease, agreement or other instrument to which the Company is
party or by which it or any of its properties is bound, or violate any decree,
judgment, order, statute, rule, regulation or other provision of law applicable
to the Company, except in each case as would not result in a Material Adverse
Effect.
3.5 Governmental Consents. No consents, approval, order or
authorization of, or regulation, qualification, designation, declaration or
filing with, any governmental authority is required on the part of the Company
in connection with the execution and delivery of this Agreement or the offer,
issuance, sale and delivery of the Shares or the other transactions to be
consummated at any Closing, as contemplated by this Agreement, except for
compliance with the provisions of any laws as to which the failure to be made or
obtained would not result in a Material Adverse Effect and such filings as shall
have been made prior to and shall be effective on and as of the applicable
Closing. Based on the representations made by the Purchasers in Section 4 of
this Agreement, the offer and sale of the Shares to the Purchasers will be in
compliance with applicable federal and state securities laws.
3.6 Corporate Condition. The Company's condition was, in all
material respects, as described in the Disclosure Documents at the respective
dates thereof, including without limitation the reports filed pursuant to the
Exchange Act. There has been no material adverse change in the Company's
business, financial condition or prospects since June 30, 1996. The Disclosure
Documents are true and correct as of their respective dates, in all material
respects, and the financial statements contained in the Disclosure Documents
have been prepared in accordance with generally accepted accounting principles,
consistently applied, and fairly present the financial position and results of
operation and cash flows of the Company, for the periods then
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ended. Without limiting the foregoing, there are no pending or threatened
litigation or other material liabilities, contingent or actual, that are not
disclosed in the Disclosure Documents except as incurred in the ordinary course
of business since June 30, 1996. The Company has paid all material taxes which
are due, except for taxes which it reasonably disputes, or to the best of the
Company's knowledge, threatened against the Company, except as disclosed in the
Disclosure Documents. This Agreement and the Disclosure Documents do not contain
any untrue statement of a material fact and do not omit to state any material
fact required to be stated therein or herein necessary to make statements
contained therein or herein not misleading in the light of the circumstances
under which they were made.
3.7 Current Public Information. The Company has filed all the
materials required to be filed as reports pursuant to the Exchange Act on a
timely basis. Except for the Disclosure Documents, since June 30, 1996 there has
been no filings made by the Company under the Exchange Act or the Securities Act
other than filings required by Section 16 of the Exchange Act. The Company filed
the Quarter Report on Form 10-QSB for the quarter ended June 30, 1996 on August
14, 1996.
3.8 Brokers, Etc. The Company has dealt with no broker,
finder, commission agent or person in connection with the offer or sale of the
Shares and the transactions contemplated by this Agreement and is under no
obligation to pay any broker's fees, finder's fees, or other fees or commissions
in connection with such transactions.
4. Representations of the Purchasers. Each of the Purchasers,
severally and not jointly, represents and warrants to the Company as follows:
4.1 Investment. The Purchasers are acquiring the Shares for
their own accounts for investment and not with a view to, or for sale in
connection with, any distribution thereof, nor with any present intention of
distributing or selling the same. The Purchasers are "Accredited Investors"
within the meaning of Rule 501(a)(4) or (5) of Regulation D under the Securities
Act. The Purchasers understand that the Shares have not been registered under
the Securities Act by reason of a specific exemption from the registration
provisions thereof which depends upon, among other things, the bona fide nature
of their investment intent as expressed herein.
4.2 Power and Authority. The Purchasers have the full power
and authority to execute, deliver and perform this Agreement. This Agreement,
when executed and delivered by the Purchasers, will constitute a valid and
legally binding obligation of the Purchasers, enforceable in accordance with its
terms.
4.3 State of Jurisdiction. Xxxxxxx represents and warrants
that all matters and actions relevant to his considerations, evaluations or
executions of this Agreement or the transactions contemplated hereby by him
including, without limitation, the receipt of any offer to purchase, the receipt
and review of any documents or other materials relevant hereto, the
participation in any communications with the Company or
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any other party, and the
consummation of the transactions contemplated hereby occurred solely in New
Jersey or Massachusetts. Xxxxxxx represents and warrants that all matters and
actions relevant to his consideration, evaluation or execution of this Agreement
or the transactions contemplated hereby by him including, without limitation,
the receipt of any offer to purchase, the receipt and review of any documents or
other materials relevant hereto, the participation in any communications with
the Company or any other party, and the consummation of the transactions
contemplated hereby occurred solely in New Jersey or Massachusetts.
4.4 Independent Investigation. The Purchasers have relied
solely upon an independent investigation made by each of them and their
representatives and have, prior to the date hereof, been given access to and the
opportunity to examine all material contracts and documents of the Company which
have been filed as exhibits to the Company's filings made under the Securities
Act and the Exchange Act through publicly available means. The Purchasers have
been provided with copies of the Company's (i) Annual Report on Form 10-KSB for
the year ended December 31, 1995; (ii) Quarterly Report on Form 10-QSB for the
quarter ended March 31, 1996; (iii) Quarterly Report on Form 10-QSB for the
quarter ended June 30, 1996; (iv) Risk Factors, attached hereto as Exhibit 4.4,
and (v) Proxy Statement dated April 15, 1996 (collectively, the "Disclosure
Documents"). The Purchasers have requested, received, reviewed and considered
all information they deem relevant in making a decision to execute this
Agreement and to purchase the Shares. In making their investment decision to
purchase the Shares, the Purchasers are not relying on any oral or written
representations or assurances from the Company or any other person or any
representation of the Company or any other person other than as set forth in
this Agreement, or the Disclosure Documents. The Purchasers are knowledgeable,
sophisticated and experienced in making, and are qualified to make, decisions
with respect to investments in restricted securities.
4.5 Economic Risk. The Purchasers understand and acknowledge
that an investment in the Shares involves a high degree of risk. The Purchasers
acknowledge that there are limitations on the liquidity of the Shares. The
Purchasers represent that the Purchasers are able to bear the economic risk of
an investment in the Shares, including a possible total loss of investment. In
making this statement, the Purchasers hereby represent and warrant to the
Company that the Purchasers have adequate means of providing for the Purchasers'
current needs and contingencies; that the Purchasers are able to afford to hold
the Shares for an indefinite period; that the Purchasers further represent that
the Purchasers have such knowledge and experience in financial and business
matters that the Purchasers are capable of evaluating the merits and risks of
the investment in the Shares to be received by the Purchasers; and that the
Purchasers are sophisticated accredited investors with experience with
development stage issuers engaged in biotech and pharmaceutical businesses.
Further, the Purchasers represent, as of the Closing Dates, that the Purchasers
have no present need for liquidity in the Shares and the Purchasers are willing
to accept such investment risks. The Purchasers have reviewed the Disclosure
Documents, including, without limitation, the Risk Factors.
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4.6 No Conflicts. The execution of and performance of the
transactions contemplated by this Agreement and compliance with its provisions
by the Purchasers will not conflict with or result in any breach of any of the
terms, conditions or provisions of, or constitute a default under, or require a
consent or waiver under any indenture, lease, agreement or other instrument to
which either of the Purchasers is a party or by which they or any of their
properties are bound, or violate any decree, judgment, order, statute, rule,
regulation or other provision of law applicable to the Purchasers, which
violation would prevent, impair, hinder or delay the consummation of the
transactions contemplated by this Agreement.
4.7 Governmental Consents. No consents, approval, order or
authorization of, or regulation, qualification, designation, declaration or
filing with, any governmental authority is required on the part of the
Purchasers in connection with the execution and delivery of this Agreement or
the purchase of the Shares or the other transactions to be consummated at any
Closing, as contemplated by this Agreement.
4.8 Cooperation. The Purchasers covenant that they shall
cooperate with the Company in connection with all reasonable requests by the
Company to provide information necessary for any filings, notices and
applications to be made by the Company in connection with any regulatory
matters.
4.9 Brokers, Etc. The Purchasers have dealt with no broker,
finder, commission agent or person in connection with the offer or sale of the
Shares and the transactions contemplated by this Agreement and are under no
obligation to pay any broker's fees, finder's fees, or other fees or commissions
in connection with such transactions.
5. Conditions to the Obligations of the Purchasers at the Closings.
Notwithstanding anything to the contrary contained herein, the obligation of the
Purchasers to purchase Shares at each of the Closings is subject to the
fulfillment, or the waiver by the Purchasers, of each of the following
conditions on or before each Closing:
5.1 Accuracy of Representations and Warranties. Each
representation and warranty of the Company contained in Section 3 hereof shall
be true on and as of each Closing Date in all material respects with the same
effect as though such representation and warranty had been made on and as of
that date.
5.2 Performance. The Company shall have performed and complied
with all agreements and conditions contained herein required to be performed or
complied with by the Company prior to or at each Closing.
6. Conditions to the Obligations of the Company. Notwithstanding
anything to the contrary contained herein, the obligations of the Company to
issue, sell and deliver at each Closing the Shares are subject to fulfillment,
on or before each Closing Date, of each of the following conditions:
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6.1 Accuracy of Representations and Warranties. Each
representation and warranty of the Purchasers contained in Section 4 hereof
shall be true on and as of each Closing Date in all material respects with the
same effect as though such representation and warranty had been made on and as
of that date.
6.2 Performance. The Purchasers shall have performed and
complied with all agreements and conditions contained herein required to be
performed or complied with by the Purchasers prior to or at each Closing.
6.3 Second Closing. The Company's obligation to issue, sell
and deliver the Common Shares at the Second Closing is contingent upon (i) the
consummation of the First Closing, (ii) receipt by the Company of written notice
from the Purchasers of its intent to purchase at least 50% of 222,222 Common
Shares at the Second Closing, (iii) the conversion by the Purchasers of the
Preferred Shares into Class A Common Stock, and (iv) the consummation of the
Second Closing before the first anniversary of the date of this Agreement.
7. Transfer Restrictions and Registration.
7.1 Legend. Unless and until otherwise permitted, each
certificate representing the Shares shall be stamped or otherwise imprinted with
a legend in substantially the following form:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW. NO
TRANSFER, SALE OR OTHER DISPOSITION OF THESE SHARES MAY BE MADE UNLESS A
REGISTRATION STATEMENT WITH RESPECT TO THESE SHARES HAS BECOME EFFECTIVE UNDER
SAID ACT, OR SYMBOLLON CORPORATION IS FURNISHED WITH AN OPINION OF COUNSEL
SATISFACTORY IN FORM AND SUBSTANCE TO IT THAT SUCH REGISTRATION IS NOT
REQUIRED."
7.2 Required Registration. The Purchasers shall have the
right, exercisable upon written notice to the Company, to request the Company to
file a registration statement on the Form S-3 (or other applicable form, as the
Company determines appropriate) covering the Shares purchased hereunder on or
after the six-month anniversary of the date of this Agreement. Upon receipt of
any such notice, the Company shall, as expeditiously as possible, effect such
registration, obtain any governmental approval and effect listing with any
securities exchange on which the stock of the Company is then listed, which may
be required to permit the Purchasers to dispose of the Shares. The Company shall
use its best efforts to maintain the effectiveness of the registration statement
until the first to occur of (i) the completion of the distribution of the Shares
covered thereby, (ii) such time as the Shares covered thereby may be sold
without restrictive legend under Rule 144 or other exemption from the
registration requirements of the Securities Act, or (iii) 180 days from the
effective date of the registration statement. The Company agrees to keep the
registration statement current
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during such period. The Company's obligation
shall be limited to one registration; provided, that if the Second Closing
occurs, the Company's obligation shall be limited to two registrations. The
Company shall not be obligated to effect a registration covering the Shares if
at the time of request, all such Shares can be immediately sold without
restrictive legend under Rule 144 or other exemption from the registration
requirements of the Securities Act. The Company shall not be required to cause a
registration statement to become effective pursuant to this Section 7.2 prior to
120 days following the effective date of the most recent registration by the
Company under the Securities Act.
7.3 Piggy-Back Registration Rights. If the Company at any time
proposes to register under the Securities Act any of its Common Stock on any
form on which the Shares may be included, except shares to be issued in
connection with any acquisition of any entity or business, shares issuable upon
the exercise of stock options or shares issuable pursuant to employee benefit
plans, it will each such time give written notice to the Purchasers of its
intention to do so. If the Purchasers desire to have any of their Shares
purchased hereunder included in such registration, they shall, within 20 days
after their receipt of such notice from the Company, notify the Company of the
number of shares which they desire to have so included and the manner in which
they propose to dispose of such Shares. The Company will cause all such Shares
requested to be registered by the Purchasers to be registered or qualified to
the extent requisite to permit the sale or other disposition thereof in the
manner described by the Purchasers; provided, however, that if, in connection
with the offering of Common Stock pursuant to a registration under the
Securities Act, such offering includes shares of Common Stock being sold by the
Company and the managing underwriter shall impose a limitation on the number of
shares of the Common Stock which may be included in any such registration
statement because, in its judgment, such limitation is necessary to effect an
orderly public distribution and such limitation is imposed pro rata with respect
to all securities which have an incidental or "piggy back" rights to be included
in the registration statement and as to which inclusion has been requested
pursuant to such a right, and no outstanding securities are included other than
pursuant to such a right, then the Company shall be obligated to include in such
registration statement only such limited portion of the Shares which it has been
requested hereunder to include.
7.4 Non-public Information. Notwithstanding anything to the
contrary in this Section 7, the Company shall have the right (i) to defer the
initial filing or request for acceleration of effectiveness of any registration
or (ii) after effectiveness, to suspend effectiveness of any such registration
statement, if, in the good faith judgment of the board of directors of the
Company, such delay in filing or requesting acceleration of effectiveness or
such suspension of effectiveness is necessary in light of the existence of
material non-public information (financial or otherwise) concerning the Company
disclosure of which at the time is not, in the opinion of the board of directors
of the Company, (A) otherwise required and (B) in the best interests of the
Company; provided however that the Company will use its best efforts to
terminate such delay or suspension as soon as practicable.
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7.5 Payment of Expenses. The Company shall bear the expense
(excluding underwriting commissions, dealers' fees, brokers' fees, concessions
applicable to the Shares, legal fees and expenses of the Purchasers and any
out-of-pocket expenses of the Purchasers) of all registrations pursuant to this
Section 7.
7.6 Indemnification. The Company hereby agrees to indemnify
and hold harmless the Purchasers and any underwriter against all losses, claims,
damages, liabilities and expenses (under the Applicable Securities Laws, or
common law or otherwise) caused by any untrue statement or alleged untrue
statement of a material fact contained in any registration statement or
prospectus (and as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) or any preliminary prospectus or any
other document prepared and/or furnished to the Purchasers incident to such
registration statements or prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein complete or not misleading except
insofar as such losses, claims, damages, liabilities or expenses are caused by
any untrue statement or omission contained in information furnished in writing
to the Company by the Purchasers expressly for use therein. In connection with
any registration statement in which the Purchasers are participating, and as a
condition to the obligation of the Company to cause any Shares of the Purchasers
to be included in a registration statement pursuant to this Section 7, the
Purchasers will furnish to the Company in writing such information as shall
reasonably be requested by the Company for use in any such registration
statement or prospectus and will indemnify, severally and not jointly, the
Company, its directors and officers, each person, if any, who controls the
Company within the meaning of the Applicable Securities Laws, such underwriters
and each person who controls such underwriters within the meaning of the
Applicable Securities Laws, against any losses, claims, damages, liabilities and
expenses resulting from any untrue statement or alleged untrue statement of a
material fact or any omission or alleged omission of a material fact required to
be stated in the registration statement or prospectus and necessary to make the
statements therein complete or not misleading, but only to the extent that such
untrue statement or omission is contained in information so furnished in writing
by the Purchasers expressly for use therein.
Promptly after receipt by any person entitled to indemnity hereunder
(the "Indemnified Party") of notice of the commencement of any action in respect
of which indemnity may be sought against another party hereunder (the
"Indemnifying Party") such Indemnified Party will notify the Indemnifying Party
in writing of the commencement thereof, and, subject to the provisions
hereinafter stated, the Indemnifying Party shall assume the defense of such
action (including the employment of counsel, who shall be counsel reasonably
satisfactory to such Indemnified Party), and the payment of expenses as incurred
insofar as such action shall relate to any alleged liability in respect of which
indemnity may be sought against the Indemnifying Party. Such Indemnified Party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof but the fees and expenses of such counsel
shall not be at the expense of the Indemnifying Party unless (i) the employment
of such counsel has been specifically authorized by the Indemnifying Party or
(ii) the
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Indemnifying Party shall have failed to assume the defense of such action or
proceeding. The Indemnifying Party shall not be liable to indemnify any person
for any settlement of any such action effected without the Indemnifying Party's
consent, which consent shall not be unreasonably withheld.
If the indemnification provided for in this Section is held by a court
of competent jurisdiction to be unavailable to the Indemnified Party with
respect to any loss, liability, claim, damage or expense referred to herein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other hand in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relevant fault of the Indemnifying Party and the Indemnified
Party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Indemnifying Party or by
the Indemnified Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
7.7 Exchange Act Registration Requirements. The Company shall
use its best efforts to remain subject to the reporting requirements of either
Section 13 or Section 15(d) of the Exchange Act. The Company shall file with the
Commission in a timely manner such information as the Commission may require
under either of said Sections, and shall take all reasonable action as may be
required to be taken under the Exchange Act to permit sales of the Shares
pursuant to Rule 144 (or any similar or successor exemptive rule hereafter in
effect) and the use of Form S-3 (or any similar form which hereafter may be
promulgated under the Securities Act) for registration of the Shares.
7.8 Notice. The Company shall provide notice to the Purchasers
of any "stop order" or other notice affecting the Purchasers right to sell the
Shares under any effective registration statement.
7.9 Only Common Stock to be Registered. The Company shall not
be required pursuant to any provision of this Section 7 to register or qualify
any securities other than the Class A Common Stock of the Company, and the
Company may require as a condition of any such registration or qualification
that any Shares to be included in such registration or qualification other than
the Class A Common Stock be converted to Class A Common Stock no later than the
effective date of any registration or qualification effected pursuant to Section
7.
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8. Definitions. When used in this Agreement, the following terms
shall have the meanings indicated.
"Applicable Securities Laws" means the applicable Federal
and state securities laws.
"Xxxxxxx" means Xxxxxxx X. Xxxxxxx.
"Class A Common Stock" means the Company's Class A Common
Stock, $.001 par value per share.
"Class B Common Stock" means the Company's Class B Common
Stock, $.001 par value per share.
"Closing" shall have the meaning specified in Section 2.
"Commission" means the Securities and Exchange Commission.
"Common Shares" shall have the meaning specified in Section
1.2.
"Common Stock" means, collectively, the Class A Common Stock
and the Class B Common Stock.
"Company" means Symbollon Corporation, a Delaware corporation.
"Disclosure Documents" shall have the meaning specified in
Section 4.4.
"Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"First Closing" shall have the meaning specified in Section 2.
"First Closing Date" shall have the meaning specified in
Section 2.
"Indemnified Party" shall have the meaning specified in
Section 7.6.
"Indemnifying Party" shall have the meaning specified in
Section 7.6.
"Xxxxxxx" means Xxxx X. Xxxxxxx.
"Material Adverse Effect" means a material adverse effect on
the business, prospects, condition (financial or otherwise), assets or results
of operations of the Company taken as a whole.
"Purchasers" means Xxxxxxx X. Xxxxxxx and Xxxx X. Xxxxxxx, and
any subsequent valid transferee.
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"Preferred Shares" shall have the meaning specified in
Section 1.1.
"Second Closing" shall have the meaning specified in
Section 2.
"Second Closing Date" shall have the meaning specified in
Section 2.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" shall have the meaning specified in Section 2.
"Units" means securities of the Company each of which consist
of one share of Class A Common Stock, one Class A Warrant and one Class B
Warrant.
9. Notices. All notices, requests, consents, and other communications
under this Agreement shall be in writing and shall be delivered in person with
receipt acknowledged or mailed by first class certified or registered mail,
return receipt requested, postage prepaid, by reputable overnight mail or
courier, with receipt confirmed, or by telecopy and confirmed by telecopy
answerback, addressed as follows:
If to the Company: Symbollon Corporation
000 Xxxxxx Xxxx Xxxx
Xxxxxxx, Xxxxxxxxxxxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attn: President
and
If to Xxxxxxx: Xxxxxxx X. Xxxxxxx
Xxxxxxx Research, Inc.
000 Xxxx Xxxx
Xxxxxxxx, Xxx Xxxxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
and
If to Xxxxxxx: Xxxx X. Xxxxxxx
00 Xxxxxxxxxxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
12
Page - 13
or at such other address or addresses as may have been furnished in writing by
any party to the other in accordance with the provisions of this Section 9.
Notices and other communications provided in accordance with this Section 9
shall be deemed delivered upon receipt.
10. Entire Agreement. This Agreement, together with the Exhibits and
documents incorporated by reference herein, embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter.
11. Amendments and Waivers. Except as otherwise expressly set forth in
this Agreement, any term of this Agreement may be amended and the observance of
any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the Purchasers. Any amendment or waiver effected in
accordance with this Section 11 shall be binding upon each party. No waivers of
or exceptions to any terms, condition or provision of this Agreement, in any one
or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such term, condition or provision.
12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
13. Section Headings. The section headings are for the
convenience of the parties and in no way alter, modify, amend, limit, or
restrict the contractual obligations of the parties.
14. Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.
15. Governing Law. This Agreement shall be governed by and
construed in accordance with the law of The Commonwealth of Massachusetts.
16. Successors and Assigns. This Agreement shall be binding upon the
parties hereto and their respective successors and assigns and shall inure to
the benefit of the parties hereto. The Purchasers may not assign their rights
hereunder without the prior written consent of the Company except to an entity
controlled by either of the Purchasers, or to an immediate family member of
either of the Purchasers.
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Page - 14
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
SYMBOLLON CORPORATION PURCHASERS
By: /S/ Xxxx X. Xxxxxxxxx /S/ Xxxxxxx X. Xxxxxxx
--------------------- ----------------------
Xxxx X. Xxxxxxxxx, Xxxxxxx X. Xxxxxxx
Vice President
/S/ Xxxx X. Xxxxxxx
----------------------
Xxxx X. Xxxxxxx
14
Page - 15
Exhibit 1.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES A PREFERRED STOCK
OF
SYMBOLLON CORPORATION
The undersigned officers of Symbollon Corporation, a corporation organized and
existing under the General Corporation Law of the State of Delaware, do hereby
certify that, pursuant to authority conferred by the Certificate of
Incorporation, and pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, the Board of Directors of Symbollon
Corporation at a meeting duly authorized and validly held on August 13, 1996,
adopted a resolution providing for certain powers, designations, number,
preferences and relative, participating, optional or other rights, and the
qualifications, limitations or restrictions thereof, of 444,444 shares of Series
A Preferred Stock, $.001 par value, which resolution is as follows:
RESOLVED: That pursuant to Article Fourth of the Certificate of
Incorporation of this Corporation, the Board of Directors hereby
establishes a series of Preferred Stock, $.001 par value, of the
Corporation having the following powers, designations, number,
preferences and relative, participating, option of or others special
rights, and qualifications, limitations or restrictions thereof:
Description and Designation of Series A Preferred Stock
1. Designation. A total of 444,444 shares of the Corporation's
Preferred Stock shall be designated the "Series A Preferred Stock". As used
herein, the term "Preferred Stock" used without reference to any other
outstanding series of Preferred Stock of the Corporation as from time to time
may be outstanding means all such outstanding series of the Corporation's
Preferred Stock, share for share alike and without distinction as to series,
except as otherwise expressly provided for herein, or as the context otherwise
requires.
2. Dividends.
(a) Computation of Cumulative Dividends. The holders of the
outstanding shares of Series A Preferred Stock shall be entitled to receive, out
of funds legally available therefor, cumulative dividends at the annual rate of
$0.09 per share. Cumulative dividends on the Series A Preferred Stock shall be
payable if, as and when declared.
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Dividends on the Series A Preferred Stock shall accrue from day to
day on each share of Series A Preferred Stock from the date of original issuance
of such share, whether or not earned or declared, and shall accrue until paid.
All numbers relating to calculation of cumulative dividends shall
be subject to equitable adjustment in the event of any stock dividend, stock
split, combination, reorganization, recapitalization, reclassification or other
similar event involving a change in the capital structure of the Series A
Preferred Stock. Such dividends on the Series A Preferred Stock shall be
cumulative so that if such dividends in respect of any previous or current
annual dividend period, at the annual rate specified above, shall not have been
paid or declared and a sum sufficient for the payment thereof set apart, the
deficiency shall first be fully paid before any dividend or other distribution
shall be paid or declared and set apart for the Class A Common Stock and Class B
Common Stock (collectively, the "Common Stock"). Upon any conversion of the
Series A Preferred Stock under Section 5 hereof, all such accrued and unpaid
dividends on the Series A Preferred Stock to and until the date of such
conversion shall be forfeited and shall not be due and payable.
(b) Restriction on Distributions. Except to the extent in any
instance approval is provided in writing by the holders of a majority of the
outstanding shares of Preferred Stock (all series acting together as a class)
and except for any transaction related to the Corporation's Class A Warrants or
Class B Warrants, the Corporation shall not declare or pay any dividends, or
purchase, redeem, retire, or otherwise acquire for value any shares of its
capital stock (or rights, options or warrants to purchase such shares) now or
hereafter outstanding, return any capital to its stockholders as such, or make
any distributions of assets to its stockholders as such; provided, however, if
any such action is effected with respect to the Preferred Stock, it shall be
done proportionately equivalent for the holders of all series of outstanding
Preferred Stock.
Nothing herein contained shall prevent the Corporation from: (i)
effecting a stock split or declaring or paying any dividend consisting of shares
of any class of capital stock paid to the holders of shares of such class of
capital stock; or (ii) complying with any specific provision of the terms of the
Preferred Stock.
(c) Participating Dividends. In the event that the Board of
Directors of the Corporation shall declare a dividend payable upon the then
outstanding shares of Common Stock (other than a stock dividend on the Common
Stock distributed solely in the form of additional shares of Common Stock), the
holders of the Preferred Stock shall be entitled, in addition to any cumulative
dividends to which they may be entitled under Section 2(a) hereof, to the amount
of dividends per share of Preferred Stock as would be declared payable on the
largest number of whole shares of Common Stock into which each share of
Preferred Stock held by each holder thereof could be converted pursuant to the
provisions of Section 5 hereof, such number determined as
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of the record date for the determination of holders of Common Stock entitled to
receive such dividend, less any dividends theretofore paid under Section 2(a)
above.
3. Liquidation, Dissolution or Winding Up.
(a) Treatment at Liquidation, Dissolution or Winding Up. In the
event of any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, or in the event of its insolvency, before any
distribution or payment is made to any holders of Common Stock or any other
class or series of capital stock of the Corporation designated to be junior to
the Preferred Stock, and subject to the liquidation rights and preferences of
any class or series of Preferred Stock designated in the future to be senior to,
or on a parity with, the Series A Preferred Stock with respect to liquidation
preferences, the holders of each share of Preferred Stock shall be entitled to
be paid first out of the assets of the Corporation available for distribution to
holders of the Corporation's capital stock of all classes, whether such assets
are capital, surplus or earnings, an amount equal to the greater of:
(i) $1.125 per share of Series A Preferred Stock, plus all
accrued but unpaid cumulative dividends thereon, whether or
not earned or declared, or
(ii) such amount per share of Preferred Stock as would have
been payable had each such share of each series of Preferred
Stock been converted to Common Stock immediately prior to such
event of liquidation, dissolution or winding up pursuant to
the provisions of Section 5 hereof.
The amounts set forth above shall be subject to equitable
adjustment whenever there shall occur a stock dividend, stock split,
combination, reorganization, recapitalization, reclassification or other similar
event involving a change in the capital structure of the Preferred Stock.
If, upon liquidation, dissolution or winding up of the Corporation,
the assets of the Corporation available for distribution to its stockholders
shall be insufficient to pay the holders of all outstanding series of Preferred
Stock the full amounts to which they otherwise would be entitled, the holders of
all outstanding series of Preferred Stock (which is deemed for purposes of this
Section 3 to be on a parity) shall share ratably in any distribution of
available assets pro rata in proportion to the respective liquidation preference
amounts which would otherwise be payable upon liquidation with respect to the
outstanding shares of Preferred Stock if all liquidation preference dollar
amounts with respect to such shares were paid in full, based upon the aggregate
liquidation preference dollar amounts payable upon all shares of Preferred Stock
then outstanding (the "Liquidation Formula").
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Page - 18
After such payment shall have been made in full to the holders of
the Preferred Stock, or funds necessary for such payment shall have been set
aside by the Corporation in trust for the account of holders of the Preferred
Stock so as to be available for such payment, the remaining assets available for
distribution shall be distributed ratably among the holders of the Common Stock.
(b) Distributions Other than Cash. Whenever the distribution
provided for in this Section shall be payable in property other than cash, the
value of such distribution shall be the fair market value of such property as
determined in good faith by the Board of Directors of the Corporation. All
distributions (including distributions other than cash) made hereunder shall be
made pro rata to each series of Preferred Stock in accordance with the
Liquidation Formula described in Section 3(a) above. In the event of any dispute
between the holders of the Preferred Stock and the Corporation regarding the
determination of the fair market value of non-cash distributions, at the
election of the holders of a majority of the outstanding shares of Preferred
Stock, the Corporation shall engage a consulting or investment banking firm
selected by the Board of Directors and approved by the holders of a majority of
the outstanding shares of Preferred Stock to prepare an independent appraisal of
the fair market value of such property to be distributed. Each of the
Corporation and the holders of a majority of the outstanding shares of Preferred
Stock shall provide such approved appraiser with a written estimate of the fair
market value of such property, and the expenses of any appraisal by such a
consulting or investment banking firm shall be borne by the party whose own
written estimate of fair market value proves to be furthest from that of such
consulting or investment banking firm. In the event that the parties' estimates
of fair market value differ from that of the consulting or investment banking
firm by an equal amount, then the Corporation, on the one hand, and the holders
of the Preferred Stock, on the other, shall each pay fifty percent (50%) of such
expenses.
4. Voting Power
Except as otherwise expressly provided in this Section 4 or Section 6
hereof or as otherwise required by law, each holder of Series A Preferred Stock
shall be entitled to vote on all matters and shall be entitled to that number of
votes equal to the largest number of whole shares of Common Stock into which
such holder's shares of Series A Preferred Stock could be converted, pursuant to
the provisions of Section 5 hereof, at the record date for the determination of
stockholders entitled to vote on such matter or, if no such record date is
established, at the date such vote is taken or any written consent of
stockholders is solicited. Except as otherwise expressly provided in this
instruments, the Certificate of Designations, Preferences and Rights of any
other series of outstanding Preferred Stock or as otherwise required by law, the
holders of shares of Preferred Stock and Common Stock shall vote together (or
render written consents in lieu of a vote) as a single class on all matters
submitted to the stockholders of the Corporation.
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Page - 19
5. Conversion Rights. The holders of the Series A Preferred Stock
shall have the following rights with respect to the conversion of such shares
into shares of Class A Common Stock:
(a) General. Subject to and in compliance with the provisions of
this Section 5, any shares of the Series A Preferred Stock may, at the option of
any holder, be converted at any time and from time to time into fully-paid and
non-assessable shares of Class A Common Stock. The number of shares of Class A
Common Stock which a holder of Series A Preferred Stock shall be entitled to
receive upon conversion shall be the product obtained by multiplying the
Applicable Conversion Rate (determined as provided in Section 5(b)) by the
number of shares of Series A Preferred Stock being converted at any time.
(b) Applicable Conversion Rate. The conversion rate in effect at
any time for the Series A Preferred Stock (the "Applicable Conversion Rate")
shall be the quotient obtained by dividing $1.125 by the Series A Applicable
Conversion Value, calculated as provided in Section 5(c) (the "Series A
Applicable Conversion Rate").
(c) Applicable Conversion Value. The Series A Applicable Conversion
Value in effect from time to time, except as adjusted in accordance with Section
5(d) hereof, shall be $1.125 with respect to the Series A Preferred Stock (the
"Series A Applicable Conversion Value").
(d) Adjustments to Series A Applicable Conversion Value.
(i) Closing Bid Price. At any time after August 14, 1997, if
at the time of conversion the average Closing Bid Price (as hereinafter defined)
of the Class A Common Stock of the Corporation for the immediately preceding
twenty (20) consecutive trading days (the "Twenty-Day Average") is below the
Series A Applicable Conversion Value then in effect, then the Series A
Applicable Conversion Value relevant only for the shares of Series A Preferred
Stock being then converted shall automatically be adjusted immediately prior to
conversion to equal 83.33% of the Twenty-Day Average. The preceding adjustment
to the Series A Applicable Conversion Value relevant to the shares being then
converted shall not adjust or otherwise effect the Series A Applicable
Conversion Value of the remaining outstanding shares of Series A Preferred
Stock.
The "Closing Bid Price" shall mean (1) if the Class A Common
Stock is then listed on any national securities exchange, the closing sales
price on the principal national securities exchange on which it is so traded,
(2) if the Class A Common Stock is not then listed on any such exchange, the
closing bid price on the over-the-counter market as reported by NASDAQ's
National Market System or Small Capitalization System ("NASDAQ"), or (3) if the
Class A Common Stock is not then listed on any such exchange or quoted in
NASDAQ, the average of the closing bids on the National Daily Quotation Service.
If for any trading day the Class A Common Stock is listed on
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any such exchange, or quoted in NASDAQ or National Daily Quotation Service and
the actual Closing Bid Price is not determinable in accordance with the above,
then for such trading day the Closing Bid Price shall be the last immediately
reported Closing Bid Price. If the Class A Common Stock is not listed on any
such exchange, or quoted in NASDAQ or National Daily Quotation Service, the
Closing Bid Price shall be determined in good faith by the Board of Directors of
the Corporation.
(ii) Upon Extraordinary Common Stock Event. Upon the
happening of an Extraordinary
Common Stock Event (as hereinafter defined), the Series A Applicable Conversion
Value shall, simultaneously with the happening of such Extraordinary Common
Stock Event, be adjusted by multiplying the Series A Applicable Conversion Value
by a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such Extraordinary Common Stock Event and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such Extraordinary Common Stock Event, and the
product so obtained shall thereafter be the Series A Applicable Conversion
Value. The Series A Applicable Conversion Value, as so adjusted, shall be
readjusted in the same manner upon the happening of any successive Extraordinary
Common Stock Event or Events.
An "Extraordinary Common Stock Event" shall mean (I) the issue of
additional shares of Common Stock as a dividend or other distribution on
outstanding shares of Common Stock, (ii) a subdivision of outstanding shares of
Common Stock into a greater number of shares of Common Stock, or (iii) a
combination or reverse stock split of outstanding shares of Common Stock into a
smaller number of shares of the Common Stock.
(e) Automatic Conversion.
(i) Mandatory Conversion of Preferred Stock. Immediately
upon (1) the effectiveness
of an underwritten public offering on a firm commitment basis pursuant to an
effective registration statement filed pursuant to the Securities Act of 1933,
as amended, covering the offer and sale of Common Stock for the account of the
Corporation in which the Corporation actually receives gross proceeds equal to
or greater than $5,000,000 (calculated after deducting underwriters' discounts
and commissions but before calculation of expenses), and in which the price per
share of Common Stock equals or exceeds $3.00 (such price subject to equitable
adjustment in the event of any stock dividend, stock split, combination,
reorganization, recapitalization, reclassification or other similar event
involving a change in the Common Stock), (2) the approval, set forth in a
written notice to the Corporation, of the holders of at least a majority of the
outstanding shares of Series A Preferred Stock of an election to convert Series
A Preferred Stock into Class A Common Stock, or (3) August 14, 2001, then all
outstanding shares of Series A Preferred Stock shall be converted automatically
into the number of shares of Class A Common Stock into which such shares of
Series A Preferred Stock are then convertible pursuant to Section 5
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hereof as of the closing and consummation of such underwritten public offering,
the stated date of approval of such holders of Series A Preferred Stock or
August 14, 2001, without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent.
(ii) Surrender of Certificates Upon Mandatory Conversion.
Upon the occurrence of
the conversion events specified in the preceding paragraph (i), the holders of
the Series A Preferred Stock shall, upon notice from the Corporation, surrender
the certificates representing such shares at the office of the Corporation or of
its transfer agent for the Common Stock. Thereupon, there shall be issued and
delivered to such holder a certificate or certificates for the number of shares
of Class A Common Stock into which the shares of Series A Preferred Stock so
surrendered were convertible on the date on which such conversion occurred. The
Corporation shall not be obligated to issue such certificates unless
certificates evidencing the shares of Series A Preferred Stock being converted
are either delivered to the Corporation or any such transfer agent, or the
holder notifies the Corporation that such certificates have been lost, stolen or
destroyed and executes an agreement satisfactory to the Corporation to indemnify
the Corporation from any loss incurred by it in connection therewith.
(f) Dividends. In the event the Corporation shall make or issue, or
shall fix a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution (other than a distribution
in liquidation or other distribution otherwise provided for herein) with respect
to the Common Stock payable in (i) securities of the Corporation other than
shares of Common Stock, or (ii) other assets (excluding cash dividends or
distributions), then and in each such event provision shall be made so that the
holders of the Series A Preferred Stock shall receive upon conversion thereof in
addition to the number of shares of Common Stock receivable thereupon, the
number of securities or such other assets of the Corporation which they would
have received had their Series A Preferred Stock been converted into Common
Stock on the date of such event and had they thereafter, during the period from
the date of such event to and including the Conversion Date (as that term is
hereafter defined in Section 5(j)), retained such securities or such other
assets receivable by them during such period, giving application to all other
adjustments called for during such period under this Section 5 with respect to
the rights of the holders of the Series A Preferred Stock.
(g) Capital Reorganization or Reclassification. If the Common Stock
issuable upon the conversion of the Series A Preferred Stock shall be changed
into the same or different number of shares of any class or classes of capital
stock, whether by capital reorganization, recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for elsewhere in this Section 5, or the sale of all or substantially
all of the Corporation's capital stock or assets to any other person), than and
in each such event the holder of each share of
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Series A Preferred Stock shall have the right thereafter to convert such share
into the kind and amount of shares of capital stock and other securities and
property receivable upon such reorganization, recapitalization, reclassification
or other change by the holders of the number of shares of Common Stock into
which such shares of Series A Preferred Stock might have been converted
immediately prior to such reorganization, recapitalization, reclassification
or change, all subject to further adjustment as provided herein.
(h) Capital Reorganization, Merger or Sale of Assets. If at any
time or from time to time there shall be a capital reorganization of the Common
Stock (other than a subdivision, combination, recapitalization, reclassification
or exchange of shares provided for elsewhere in this Section 5) or a merger or
consolidation of the Corporation with or into another corporation (other than a
merger or reorganization involving only a change in the state of incorporation
of the Corporation or the acquisition by the Corporation of another business
where the Corporation survives as a going concern, as further provided in
Section 3 hereof), or the sale of all or substantially all of the Corporation's
capital stock or assets to any other person, then, as a part of such
reorganization, merger, or consolidation or sale, provision shall be made so
that the holders of the Series A Preferred Stock shall thereafter be entitled to
receive upon conversion of the Series A Preferred Stock the number of shares of
stock or other securities or property (including cash) of the Corporation, or of
the successor corporation resulting from such merger, consolidation or sale, to
which such holder would have been entitled if such holder had converted its
shares of Series A Preferred Stock immediately prior to such capital
reorganization, merger, consolidation or sale. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 5
to the end that the provisions of this Section 5 (including adjustment of the
Series A Applicable Conversion Value then in effect and the number of shares of
Common Stock or other securities issuable upon conversion of such shares of
Series A Preferred Stock) shall be applicable after that event in as nearly
equivalent a manner as may be practicable.
The holders of at least a majority of the outstanding shares of
Preferred Stock, upon the occurrence of a capital reorganization, merger or
consolidation of the Corporation, or the sale of all or substantially all its
capital stock or assets, as such events are more fully set forth in the first
paragraph of this Section 5(h), shall have the option of electing treatment for
the Preferred Stock as would be required for an event covered under either (i)
this Section 5(h) or (ii) Section 3 hereof regard a liquidation, dissolution or
winding up of the affairs of the Corporation, notice of which election shall be
submitted in writing to the Corporation at its principal office no later than
twenty (20) business days before the effective date of such event.
(i) Certificate as to Adjustments; Notice by Corporation. In each
case of an adjustment or readjustment of the Series A Applicable Conversion
Rate, the Corporation at its expense will furnish each holder of Series A
Preferred Stock so affected with a certificate prepared by the Treasurer or
Chief Financial Officer of the
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Corporation, showing such adjustment or readjustment, and stating in detail the
facts upon which such adjustment or readjustment is based.
(j) Exercise of Conversion Privilege. To exercise its conversion
privilege, a holder of Series A Preferred Stock shall surrender the certificate
or certificates representing the shares being converted to the Corporation at
its principal office, and shall give written notice to the Corporation at that
office that such holder elects to convert such shares. Such notice shall also
state the name or names (with address or addresses) in which the certificate or
certificates for shares of Class A Common Stock issuable upon such conversion
shall be issued. The certificate or certificates for shares of Series A
Preferred Stock surrendered for conversion shall be accompanied by proper
assignment thereof to the Corporation or in blank. The date when such written
notice is received by the Corporation, together with the certificate or
certificates representing the shares of Series A Preferred Stock being
converted, shall be the "Conversion Date". As promptly as practicable after the
Conversion Date, the Corporation shall issue and shall deliver to the holder of
the shares of Series A Preferred Stock being converted, or on its written order,
such certificate or certificates as it may request for the number of whole
shares of Class A Common Stock issuable upon the conversion of such shares of
Series A Preferred Stock in accordance with the provisions of this Section 5,
and cash, as provided in Section 5(k), in respect of any fraction of a share of
Class A Common Stock issuable upon such conversion. Such conversion shall be
deemed to have been effected immediately prior to the close of business on the
Conversion Date, and at such time the rights of the holder as holder of the
converted shares of Series A Preferred Stock shall cease and the person(s) in
whose name(s) any certificate(s) for shares of Class A Common Stock shall be
issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares of Class A Common Stock represented thereby.
(k) Cash in Lieu of Fractional Shares. No fractional shares of
Class A Common Stock or scrip representing fractional shares shall be issued
upon the conversion of shares of Series A Preferred Stock. Instead of any
fractional shares of Class A Common Stock which would otherwise be issuable upon
conversion of Series A Preferred Stock, the Corporation shall pay to the holder
of the shares of Series A Preferred Stock which were converted a cash adjustment
in respect of such fractional shares in an amount equal to the same fraction of
the market price per share of the Class A Common Stock (as determined in a
reasonable manner prescribed by the Board of Directors) at the close of business
on the Conversion Date. The determination as to whether or not any fractional
shares are issuable shall be based upon the aggregate number of shares of Series
A Preferred Stock being converted at any one time by any holder thereof, not
upon each share of Series A Preferred Stock being converted.
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(l) Partial Conversion. In the event some but not all of the shares
of Series A Preferred Stock represented by a certificate(s) surrendered by a
holder are converted, the Corporation shall execute and deliver to or on the
order of the holder, at the expense of the Corporation, a new certificate
representing the number of shares of Series A Preferred Stock which were not
converted.
(m) Reservation of Common Stock. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of Class A
Common Stock, solely for the purpose of effecting the conversion of the shares
of the Series A Preferred Stock, such number of its shares of Class A Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock (including any shares of
Series A Preferred Stock represented by any warrants, options, subscription or
purchase rights for Series A Preferred Stock), and if at any time the number of
authorized but unissued shares of Class A Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series A
Preferred Stock (including any shares of Series A Preferred Stock represented by
any warrants, options, subscriptions or purchase rights for such Series A
Preferred Stock), the Corporation shall take such action as may be necessary to
increase its authorized but unissued shares of Class A Common Stock to such
number of shares as shall be sufficient for such purpose.
(n) Reissuance of Preferred Stock. No share or shares of Series A
Preferred Stock acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued as Series A Preferred Stock, but all
such shares shall be considered authorized but unissued shares of Preferred
Stock.
6. Restrictions and Limitations.
(a) Corporate Action; Amendments to Charter. The Corporation shall
not take any corporate action or otherwise amend its Certificate of
Incorporation without the approval by vote or written consent of the holders of
at least a majority of the then outstanding shares of Preferred Stock, voting
together as a single class, each share of Preferred Stock to be entitled to one
vote in each instance, if such corporate action or amendment would materially
adversely affect any of the rights, preferences, privileges of or limitations
provided for herein for the benefit of any shares of Preferred Stock or
otherwise materially adversely affect the rights of the holders of the Preferred
Stock. Without limiting the generality of the preceding sentence, the
Corporation will not amend its Certificate of Incorporation or take any other
corporate action without the approval by the holders of at least a majority of
the then outstanding shares of Preferred Stock, voting together as a single
class, if such amendment or corporate action would:
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(i) authorize or issue, or obligate the Corporation
to authorize or issue, additional shares of Preferred
Stock senior to or on a parity with the Preferred
Stock with respect to liquidation preferences,
dividend rights or redemption rights, except for the
designation and issuance of shares of Preferred Stock
approved in any instance by the holders of a majority
of the outstanding shares of Preferred Stock; or
(ii) reduce the amount payable to the holders of
Preferred Stock upon the voluntary or involuntary
liquidation, dissolution or winding up of the
Corporation; or
(iii) adversely affect the liquidation preferences,
dividend rights, voting rights or redemption rights
of the holders of Preferred Stock; or
(iv) cancel or adversely modify the conversion rights
of the holders of Preferred Stock provided for in
Section 5 herein.
7. No Dilution or Impairment. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
capital stock or 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 of the Preferred Stock set forth herein, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the holders of the Preferred Stock against dilution or
other impairment. Without limiting the generality of the foregoing, the
Corporation (a) will not increase the par value of any shares of stock
receivable on the conversion of the Preferred Stock above the amount payable
therefor on such conversion, and (b) will take all such action as may be
necessary or appropriate in order that the Corporation may validly and legally
issue fully paid and nonassessable shares of stock on the conversion of all
Preferred Stock from time to time outstanding.
8. Notices of Record Date. In the event of:
(a) any taking by the Corporation of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of capital stock of any
class or any other securities or property, or to receive any other right, or
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(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other corporation, or
any other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation,
then and in each such event the Corporation shall mail or cause to be mailed to
each holder of Series A Preferred Stock a notice specifying (i) the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right and a description of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (iii) the time, if any, that is
to be fixed, as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding up. Such notice shall be mailed by
first class mail, postage prepaid, at least ten (10) days prior to the date
specified in such notice on which such action is to be taken.
EXECUTED this 14th day of August, 1996.
--------------------------------------
Xxxx X. Xxxxxxxxx, Executive Vice President
ATTEST:
-----------------------------------
Xxxx X. Xxxxxxx, Secretary
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Exhibit 1.2
LIST OF PURCHASERS
Number of Shares
Name of Purchaser to be Purchased
------------------ ----------------
Xxxxxxx X. Xxxxxxx 400,000
Xxxx X. Xxxxxxx 44,444
--------
Total Shares 444,444
Page - 28
Exhibit 4.4
RISK FACTORS
The securities offered hereby are speculative in nature and involve a
high degree of risk. Prior to making an investment, prospective investors should
carefully consider the following factors, as well as others described elsewhere
in the Disclosure Documents, relating to the business of the Company and the
securities offered hereby.
Development Stage Company; Early Stage of Product Development; No Assurance of
Successful Product Development. The Company is in the development stage and has
not conducted any significant operations to date or received any operating
revenues, except for revenues from the sale of the Company's bovine teat
sanitizer, marketed under the name IodoZyme(R), which the Company began shipping
in early 1995. Potential investors should be aware of the problems, delays,
expenses and difficulties encountered by an enterprise in the Company's stage of
development, many of which may be beyond the Company's control. These include,
but are not limited to, unanticipated problems relating to product development,
testing, regulatory compliance, manufacturing costs, production, the competitive
and regulatory environment in which the Company plans to operate, marketing
problems and additional costs and expenses that may exceed current estimates.
Products under development by the Company will require additional development
and investment prior to obtaining regulatory approvals and commercialization.
There can be no assurance that such products will be successfully developed,
meet applicable regulatory standards, be capable of production in commercial
quantities at reasonable costs or be successfully marketed.
Accumulated Deficit; Expectation of Future Losses; Need for Additional
Financing. At December 31, 1995, the Company had an accumulated deficit of
$4,427,664, which deficiency has increased to date. The Company will be required
to conduct significant research, development and testing activities which,
together with manufacturing, and other general and administrative expenses, are
expected to result in operating losses for the foreseeable future. There can be
no assurance that the Company will ever have significant revenues or achieve
profitable operations. At December 31, 1995, the Company had working capital of
$2,076,966, and while the Company anticipates losses for the current fiscal
year, based on its current operating plan, the Company believes it will have
sufficient working capital (including the net proceeds of this Offering) to fund
its operations through the end of the current fiscal year. It is not expected
that the net proceeds of this Offering together with revenues from operations
will be sufficient to enable the Company to complete the necessary regulatory
approval process for its products currently under development, or if any such
approval were obtained, to begin manufacturing or marketing such products on a
commercial basis. Given the Company's limited financial resources, the
uncertainty of the development effort and the necessity for regulatory approval,
there can be no assurance of ultimate success with respect to any product
development program
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or that resulting product, if any, will be commercially successful.
Additionally, the Company's limited resources will require substantial support
for new business areas from corporate partners who would ultimately introduce
the Company's products into the marketplace. In addition to support from
corporate partners, the Company may seek additional financing to fund its
operating requirements. There can be no assurance that the Company will be able
to obtain such partnering arrangements or financing, or that such partnering
arrangements or financing, if available, will be on acceptable terms. In the
event that the Company fails to raise any funds it requires, it may be necessary
for the Company to cease operations or severely limit growth.
Lack of Marketing Experience; Dependence on Outside Parties for Marketing and
Distribution; Uncertainty of Market Acceptance of Products and Proposed
Products. The marketing and distribution of IodoZyme is conducted by West Agro
pursuant to an exclusive marketing and supply agreement with the Company which
covers IodoZyme as well as other products which may be developed for use in
dairy facilities. The Company intends to rely on similar arrangements with
others for the marketing and distribution of its products currently under
development, if and when successfully developed and approved by applicable
regulatory agencies. This results, and will result, in a lack of control by the
Company over some or all of the marketing and distribution of such products.
Although the Company has entered into development agreements with parties
experienced in the marketing of several of the Company's proposed products,
which development agreements contemplate future marketing arrangements, there
can be no assurance that the Company will be able to enter into any marketing
arrangements for such products, if and when developed, on terms acceptable to
the Company or that any marketing efforts undertaken on behalf of the Company
will be successful. Although the Company has no present plans to do so, the
Company may, in the future, determine to directly market certain of its proposed
products. The Company has no marketing experience and significant additional
capital expenditures and management resources would be required to develop a
direct sales force. In the event the Company elects to engage in direct
marketing activities, there can be no assurance that the Company would be able
to obtain the requisite funds or attract and retain the human resources
necessary to successfully market any of such products.
The Company's future growth and profitability will depend, in large
part, on the success of its personnel and others conducting marketing efforts on
behalf of the Company in fostering acceptance among the various markets of the
use of the Company's products as an alternative to other available products or
otherwise. The Company's success in marketing its products will be substantially
dependent on educating its targeted markets as to the distinctive
characteristics and perceived benefits of the Company's products. In this
regard, West Agro, which acts as exclusive marketer and distributor of IodoZyme,
also markets and distributes products which are directly competitive with
IodoZyme. There can be no assurance that the Company's efforts or the efforts of
others will be successful or that any of the Company's products or proposed
products will be favorably accepted among the targeted markets.
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Lack of Manufacturing Experience; Dependence on Outside Parties for
Manufacturing. IodoZyme is currently produced through a combination of internal
manufacturing activities and a network of contract manufacturers. With regard to
its proposed products, the Company intends to rely on similar arrangements with
others for their manufacture. The Company's dependence on third parties for
manufacturing may adversely affect the Company's ability to develop and deliver
products on a timely and competitive basis. The Company may in the future
undertake to manufacture some or all of its products and proposed products
entirely in-house. Except for limited experience regarding IodoZyme, the Company
has no experience with the manufacture of any of its products or proposed
products although certain of the Company's officers have had experience in
similar activities for other companies. In the event the Company continues to
perform its current IodoZyme manufacturing activities in-house, additional
manufacturing space and equipment may be necessary beyond 1996 as product volume
increases. In addition, in the event the Company undertakes to directly
manufacture any of its proposed products, the Company will be required to
attract and retain experienced personnel to develop a manufacturing capability
and to comply with extensive government regulations with respect to its
facilities, including among others, the United States Food and Drug
Administration ("FDA") manufacturing requirements. There can be no assurance
that the Company will be able to successfully establish appropriate
manufacturing operations.
Dependence Upon, and Need for, Key Personnel. The Company does not currently
have a President or Chief Executive Officer. The Company is dependent on the
services of Xx. Xxxx X. Xxxxxxx, the Executive Vice President, Chief Scientific
Officer, Secretary and a director and principal stockholder of the Company, and
Xxxx X. Xxxxxxxxx, the Executive Vice President-Finance and Administration and
Chief Financial Officer of the Company. The loss of either of such individuals
or a reduction in the time devoted by such persons to the Company's business
could have a material adverse effect on the Company's business. The Company has
obtained key-person life insurance coverage in the face amount of $1,000,000 for
Xx. Xxxxxxx naming the Company as beneficiary under such policy. The Company's
success also will depend, in large part, on its ability to attract and retain
highly qualified scientific and business personnel, competition for which is
intense. There can be no assurance that the Company will be able to attract and
retain the necessary personnel to implement its business plan.
Intense Competition and Rapid Technological Change. The Company is engaged in
rapidly evolving and highly competitive fields. There are many companies,
including large pharmaceutical and chemical companies, which have established a
significant presence in the markets which the Company's products and proposed
products are designed to address. Most of these companies have substantially
greater capital resources, research and development staffs, facilities and
experience in obtaining regulatory approvals, as well as in the manufacturing,
marketing and distribution of products, than the Company. There can be no
assurance that the Company's competitors will not succeed in developing
technologies and products that are more effective and less costly than any
products
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developed or being developed by the Company or which could render the Company's
microbicide technology obsolete.
Uncertain Protection of Patents and Proprietary Rights. The Company considers
patent protection of its technology to be critical to its business prospects.
There can be no assurance that the Company's pending patent applications will
issue as patents, that any issued patents will provide the Company with
significant competitive advantages, or that challenges will not be instituted
against the validity or enforceability of any patent owned by the Company or, if
instituted, that such challenges will not be successful. The cost of litigation
to uphold the validity and prevent infringement of patents can be substantial.
Furthermore, there can be no assurance that others will not independently
develop similar or more advanced technologies or design around aspects of the
Company's technology which may be patented, or duplicate the Company's trade
secrets. In some cases, the Company may rely on trade secrets to protect its
innovations. There can be no assurance that trade secrets will be established,
or that secrecy obligations will be honored, or that others will not
independently develop similar or superior technology. To the extent that
consultants, key employees or other third parties apply technological
information independently developed by them or by others to Company projects,
disputes may arise as to the proprietary rights to such information which may
not be resolved in favor of the Company.
Governmental Regulation and Uncertainty of Product Approvals. The production and
marketing of the Company's products and proposed products are subject to
extensive regulation by Federal and state governmental authorities in the United
States and in foreign countries where such products may be produced and
marketed. In the United States, the FDA regulates, where applicable,
development, testing, labeling, manufacturing, registration, notification,
clearance or approval, marketing, distribution, recordkeeping and reporting
requirements for human and animal drugs, medical devices, biologies, cosmetics
and food additives. The Company's proposed products, including a
disinfectant/sterilant for medical instruments and an antimicrobial handwash and
handcream will require FDA clearance prior to marketing. Teat sanitizers,
although considered animal drugs by the FDA, do not currently require clearance
by the FDA prior to marketing. The FDA, however, has recently issued draft
voluntary guidelines governing teat dips and no assurance can be made that
clearance by the FDA will not be required in the future. Required compliance
with these guidelines or other FDA requirements, the probability of which cannot
currently be ascertained by the Company, would have a significant adverse effect
on the marketing of IodoZyme and, consequently, on the Company's results of
operations. The Federal Environmental Protection Agency ("EPA") has regulations
covering many of the same areas for many of the Company's products and proposed
products. In addition, the United States Department of Agriculture ("USDA") may
regulate, on either a voluntary or mandatory basis, products which the Company
may develop for sanitizing food or food contact surfaces. Comparable state and
local agencies may have similar regulations. The FDA and EPA regulatory approval
processes may take a number of years and require the expenditure of substantial
resources. There can be no assurance that the production and marketing of the
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Company's products or other products which may be developed by the Company in
the future, if any, will satisfy the current requirements of the FDA or EPA or
comparable state and foreign authorities or that the Company will have
sufficient funds to complete the regulatory approval process. In addition, there
can be no assurance that government regulations applicable to the Company's
products and proposed products or the interpretation thereof will not change and
thereby prevent the Company from marketing some or all of its products for a
period of time or permanently. The Company is unable to predict the extent of
adverse governmental regulation which might arise from future Federal, state or
foreign legislative or administrative action.
Materials Incompatibility. An important aspect of the Company's present and
future microbicides is that they must be compatible with the surfaces on which
they come in contact. The Company has ceased efforts to develop a microbicide
for dental handpieces and renal control units as a result of staining and
corrosion caused by required microbicide formulations, and the Company has
encountered problems of staining in connection with its efforts to develop a
high level disinfectant for flexible endoscopes. The Company continues to
investigate the balance between the level of microbicidal efficacy and the need
to avoid staining and corrosion. For any proposed inanimate object product
applications, staining or corrosion from a microbicide could be sufficient to
limit or forestall regulatory approval of such microbicide or, if approved,
could adversely affect market acceptance of such microbicide. There can be no
assurance that the Company will be successful in overcoming any problems of
materials incompatibility.
Potential Product Liability and Lack or Insufficiency of Insurance. The
Company's business will expose it to potential product liability risks which are
inherent in the testing, manufacturing, marketing and sale of microbicide
products for animal and human use. If available, product liability insurance
generally is expensive. The Company currently has product liability insurance in
amounts that it believes are adequate to protect it against potential
liabilities. However, there can be no assurance to such effect or that the
Company will be able to maintain such insurance on acceptance terms. In the
event of a successful suit against the Company, a lack or insufficiency of
insurance coverage could have a material adverse effect on the Company's
business and operations.
Charge to Income in the Event of Release of Restrictions on Shares. The
Commission has recently adopted a position with respect to arrangements such as
the one entered into among the Company and all Class B Common Stock
Stockholders. This position provides that, in the event any shares are released
from the restrictions of the kind applicable to the stockholders of the Company
who are officers, directors, consultants or employees of the Company,
compensation expense will be recorded for financial reporting purposes.
Therefore, in the event the Company attains certain earnings thresholds or the
Company's Class A Common Stock meets certain minimum bid prices required for the
release of the restrictions, such release will be deemed additional compensation
expense of the Company. (See "Note E - Capitalization" to the Company's
Financial Statements set forth in the Annual Report on Form 10-KSB for the year
ended December 31, 1995.) Accordingly, the Company will, in the event of the
release of the restrictions, recognize
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during the period in which the earnings thresholds are met or such minimum bid
prices obtained, what could be a substantial one-time charge which would
have the effect of substantially increasing the Company's loss or reducing or
eliminating earnings, if any, at such time. Although the amount of compensation
expense recognized by the Company will not affect the Company's total
stockholders' equity, it may have a depressive effect on the market price of the
Company's securities.
Possible Adverse Effects of Authorization of Preferred Stock. The Company's
Certificate of Incorporation authorizes the issuance of 5,000,000 shares of
preferred stock on terms which may be fixed by the Company's Board of Directors
without further stockholder action. The terms of any series of preferred stock,
which may include priority claims to assets and dividends, and special voting
rights, could adversely affect the rights of holders of the Class A Common
Stock. No preferred stock has been issued to date and the Company has no current
plans to issue such preferred stock other than as contemplated herein. The
issuance of such preferred stock could make the possible takeover of the Company
or the removal of management of the Company more difficult, discourage hostile
bids for control of the Company in which stockholders may receive premiums for
their shares of Class A Common Stock, or otherwise dilute the rights of holders
of Class A Common Stock and the market price of the Class A Common Stock.
Control by Class B Stockholders; Ownership of Shares Having Disproportionate
Voting Rights; Possible Depressive Effect on the Company's Securities. There are
currently 1,199,713 shares of Class B Common Stock outstanding, representing
approximately 48% of the outstanding capital stock and approximately 82% of the
total voting power of the outstanding Class A and Class B Common Stock. As a
result, the Company's Class B Stockholders are able to elect all of the
Company's directors and otherwise control the Company's operations. Officers
and/or directors of the Company beneficially own approximately 90% of the
outstanding shares of Class B Common Stock. Furthermore, the disproportionate
vote afforded the Class B Common Stock could also serve to impede or prevent a
change of control of the Company. As a result, potential acquirers may be
discouraged from seeking to acquire control of the Company through the purchase
of Class A Common Stock, which could have a depressive effect on the price of
the Company's securities.
Arbitrary Determination of Offering Price; Possible Volatility of Stock Price.
The conversion price and other terms of the Shares have been determined by
negotiation between the Company and the Purchasers in connection with this
Offering and are not related to the Company's asset value, net worth or results
of operations. The market prices for securities of emerging and development
stage companies in general, and biopharmaceutical companies in particular, have
historically been highly volatile. Future announcements concerning the Company
or its competitors, including the results of testing, technological innovations
or new commercial products, government regulations, developments concerning
proprietary rights, litigation or public concern as to safety of products
developed by the Company or others, may have a significant adverse impact on the
market price of the Company's securities.
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Possible Delisting of Securities from the NASDAQ System and Possible Market
Illiquidity. There can be no assurance that the Company will meet the criteria
for continued listing of securities on NASDAQ or for use of the Form S-3
registration statement under the Securities Act. In order to qualify for
continued listing on the NASDAQ System, a company must, among other things, have
at least $2,000,000 in total assets, $1,000,000 in capital and surplus, a
minimum bid price of $1.00 per share of common stock, and 100,000 shares in the
public float. In addition, the common stock must have at least two registered
and active market makers and must be held by at least 300 holders and the market
value of its public float must be at least $200,000. If an issuer does not meet
the $1.00 minimum bid price standard, it may, however, remain in NASDAQ if the
market value of its public float is at least $1,000,000 and the issuer has
capital and surplus of at least $2,000,000. At December 31, 1995, the Company's
balance sheet reflects total assets of $2,485,545 and capital and surplus of
$2,307,555. If the Company should become unable to meet the continued listing
criteria of NASDAQ and is delisted therefrom, trading, if any, in the Class A
Common Stock would thereafter be conducted in the over-the-counter market in the
so-called "pink sheets" or, if then available, the "OTC Bulletin Board Service."
As a result, an investor would likely find it more difficult to dispose of, or
to obtain accurate quotations as to the value of, the Company's securities. If
the Company's securities were delisted from NASDAQ, they may become subject to
xxxxx stock restrictions. If the Company's securities were subject to the rules
on xxxxx stocks, the market liquidity for the Company's securities could be
severely adversely affected.
Immediate and Substantial Dilution. Assuming exercise of all outstanding Class A
and Class B Warrants and conversion of all of the Preferred Shares offered
hereby the Purchasers will experience substantial dilution. The outstanding
Warrants have anti-dilution protections for their holders. This Offering could
trigger substantial anti-dilution adjustments under such other instruments.
No Registration. The Shares and the Common Stock issuable upon conversion
thereof have not been registered under the Securities Act of 1933, as amended
(the "Act") or any applicable state securities laws ("State Acts"). These
securities may not be offered, sold of otherwise transferred in the United
States or to U.S. persons unless the securities are registered under the Act and
applicable State Acts or such offers, sales and transfers are made pursuant to
an available exemption from the registration requirements of those laws.
Pursuant to the Stock Purchase Agreement, the Purchasers will agree not to
transfer any securities except in compliance with all Applicable Securities
Laws. Although the Company has undertaken to use its best efforts to effect a
registration of the Class A Common Stock issuable upon conversion of the
Preferred Shares and purchased at the Second Closing, there can be no assurance
that the Company will be able to do so. The value of the Common Stock issuable
upon conversion of the Preferred Shares may be greatly reduced if a registration
statement covering such Common Stock is not kept effective, or if such
securities are not qualified, or exempt from qualification under applicable
state acts.
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No Dividends Anticipated. The Company has never paid any cash dividends on its
common stock and does not anticipate the payment of cash dividends in the
foreseeable future.
Substantial Influence of the Market Makers. There is a limited number of market
makers which currently make a market in the Company's securities and the
securities are thinly traded. Consequently, such market makers may exert a
dominating influence on the market for such securities. Such market-making
activity may be discontinued at any time. The price and liquidity of the
Company's securities may be significantly affected by the degree of any current
market maker's participation in such market.
8
