1
Exhibit 10.1.32
EXECUTION COPY
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (this "Agreement") dated
as of February 16, 1999, by and among NEOPROBE CORPORATION, a Delaware
corporation (the "Company"), and the PURCHASERS listed on Exhibit A
("Purchasers").
The Company desires to issue and sell to Purchasers, and
Purchasers desire to purchase from the Company, shares (the "Preferred
Shares"), of 5% Series B Convertible Preferred Stock, par value $.001 per
share, stated value $100 per share, of the Company ("Preferred Stock"), having
the rights, designations and preferences set forth in the Certificate of
Designations of the Company (the "Certificate of Designations") in the
identical form and substance of Exhibit B, upon and subject to the terms and
conditions of this Agreement. Unless the context otherwise requires, the term
"Preferred Shares" shall include (i) all shares of Preferred Stock issued or
issuable at the First Closing and the Second Closing (in each case as defined
below) and (ii) all shares of Preferred Stock that may be issuable upon
exercise of the Unit Purchase Option (as defined in Section 5.21).
Pursuant to the terms of the Certificate of Designations, the
Preferred Shares will be convertible into shares ("Common Shares") of common
stock, par value $.001 per share, of the Company ("Common Stock"), and pursuant
to the terms of this Agreement, the Purchasers will have registration rights
with respect to the Common Shares issuable upon such conversion and upon
exercise of the Warrants (as defined below).
To induce Purchasers to purchase the Preferred Shares, the
Company shall issue to the Purchasers warrants to purchase shares of Common
Stock in the form attached as Exhibit C (the "Warrants"). Unless the context
otherwise requires, the term Common Shares shall be deemed to include any
shares of Common Stock issued or issuable upon conversion of Preferred Shares,
including those that may be issued as a dividend pursuant to the Certificate of
Designations and any shares of Common Stock issuable upon exercise of the
Warrants.
Accordingly, in consideration of the premises and the mutual
agreements contained herein, and for other good and valuable consideration,
Purchasers and the Company agree as follows:
1. Purchase of Company Securities.
1.1. Purchase and Sale of the Preferred Shares and the
Warrants. (a) Subject to the terms and conditions of this Agreement, (i) the
Company shall issue and sell to Purchasers, and Purchasers, severally and not
jointly, shall purchase from the Company, the aggregate number of shares of
Preferred Stock (the "Initial Preferred Shares") set forth on Exhibit A
(allocated among the Purchasers as set forth on Exhibit A), and (ii) the
Company shall issue to Purchasers the aggregate number of Warrants (the
"Initial Warrants") set forth on Exhibit A (allocated among the Purchasers as
set forth on Exhibit A) at the First Closing (as such term is defined in
Section 2.1). The aggregate purchase price for the Initial Preferred Shares
shall be $3,000,000 (the "Initial Purchase Price") (allocated among the
Purchasers as set forth on Exhibit A). "Operative Documents" shall mean this
Agreement, the Warrants and the Certificate of Designations.
(b) Subject to the terms and conditions of this Agreement, and provided that
the Required Shareholder Approvals have been obtained and the Shelf
Registration Statement has become effective, in the event that the Company's
sales for any two consecutive fiscal quarters, commencing with the second
quarter of 1999 and ending with the third quarter of 2000, are at least 90% of
the sales indicated on the projections attached as Exhibit D for each of such
fiscal quarters, the Company shall have the right upon notice to the Purchaser
Representative (as defined in Section 11.3) within 60 days after the end of the
first two-fiscal quarter period that such sales are achieved to require
Purchasers to purchase, on a pro rata basis, an aggregate number of shares of
Preferred Stock (the "Additional Preferred Shares") equal to the number of
Preferred Shares purchased at the First Closing (as defined in Section 2.1) for
an aggregate purchase price of $3,000,000, and the Company shall issue to
Purchasers, on a pro rata basis, an aggregate number of Warrants (the
"Additional
1
2
Warrants") equal to the number of Warrants issued at the First Closing;
provided however, (i) the Company shall not be entitled to give the notice
permitted by this Section 1.1(b) if the Market Price of the Common Stock (after
adjustment for any stock splits, combinations and the like) is less than 120%
of the Initial Conversion Price in effect on the date hereof and (ii) the
Purchasers shall not be required to purchase any Additional Preferred Shares
if, as of the date scheduled for the Second Closing, the Market Price for the
Common Stock is less than 120% of the Initial Conversion Price in effect on the
date hereof. A notice contemplated by this Section 1.1 shall be accompanied by
(i) an Officer's Certificate to the effect that there has not at any time been
(a) any material adverse change in the business, financial condition, operating
results, business prospects, employee relations or customer relations of the
Company or its Subsidiaries, or (b) other adverse changes, which in the
aggregate have been materially adverse to the Company or its Subsidiaries, and
(ii) an unqualified certification, in form and substance satisfactory to
Purchasers, of the Chief Financial Officer of the Company as to the sales of
the Company for the applicable fiscal quarters of the Company to the effect
that the sales figures have been prepared in accordance with the books and
records of the Company and generally accepted accounting principles applied on
a basis consistent with prior periods and the projections. The Additional
Warrants shall be exercisable until the seventh anniversary of the date of
their issuance. Capitalized terms used but not defined in this Section 1.1(b)
shall have the meanings ascribed thereto in the Certificate of Designations.
(c) In the event any additional shares of Common Stock are issued pursuant to
the Warrants issued pursuant to Section 8.6, the purchase price(s) paid for the
Preferred Shares shall be reallocated on a pro rata, as converted basis over
the Preferred Shares and such shares of Common Stock.
2. Closing.
2.1. Closing. (a) The closing of the purchase and sale of the
Initial Preferred Shares and the issuance of the Initial Warrants shall take
place at the offices of Paramount Capital, Inc. ("Paramount"), at 000 Xxxxxxx
Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx, 00000. Such closing (the "First
Closing") will take place at 10:00 A.M., local time, on February 16, 1999;
provided that the Closing may take place at such other time, place or later
date as may be mutually agreed upon by the Company and Purchasers. The date of
the Closing is referred to as the "First Closing Date." At the First Closing,
the Company will deliver to Purchasers the Initial Preferred Shares and the
Initial Warrants against payment of the Initial Purchase Price by Purchasers by
wire transfer payable to the Company. The Initial Preferred Shares and the
Initial Warrants shall be registered in Purchasers' names or the names of the
nominees of Purchasers in such denominations as Purchasers shall request
pursuant to instructions delivered to the Company not less than two days prior
to the First Closing Date.
(b) The purchase and sale of the Additional Preferred Shares and the issuance
of the Additional Warrants shall take place at a closing (the "Second Closing";
each of the First Closing and the Second Closing being referred to herein as a
"Closing") held on a date as promptly as practicable following the date notice
is given to the Purchaser Representative by the Company pursuant to Section
1.1(b) (the "Second Closing Date"; each of the First Closing Date and the
Second Closing Date being referred to herein as a "Closing Date") and in any
event within 30 days of the date of such notice.
2.2. Limitation on Holder's Right to Convert/Vote.
Notwithstanding anything to the contrary in any Operative Document, no
Preferred Share may be converted or voted, no Warrant may be exercised and no
shares of Common Stock issued as a dividend on Preferred Shares or upon
exercise of Warrants may be voted by a Purchaser if such right to convert,
exercise or right to vote would cause the total number of Common Shares deemed
beneficially owned (as defined in Rule 13(d)(3) of the Securities Act of 1933,
as amended) by such Purchaser, together with all Common Shares deemed
beneficially owned by the holder's Affiliates (such term and certain other
capitalized terms used herein being defined in Section 9) and by any other
Person whose ownership of such securities would be aggregated for purposes of
determining whether a "group" exists under Section 13(d) of the Securities
Exchange Act of 1934, as amended, would exceed 4.9% of the total issued and
outstanding shares of Common Stock, provided that each Purchaser shall have the
right to waive this restriction, in whole or in part, upon 61 days prior notice
to the Company. A transferee of such securities shall not be bound by this
provision unless it expressly agrees to be so bound.
2
3
3. Conditions to the Obligations of Purchasers at the
Closings. (a) Conditions to Each Closing. The obligation of Purchasers to
purchase and pay for the Preferred Shares and the Warrants to be purchased by
Purchasers at each Closing is subject to the satisfaction on or prior to the
applicable Closing Date of the following conditions, which may only be waived
by written consent of Purchasers:
3.1. Opinion of Counsel to the Company. Purchasers shall have
received from Benesch, Friedlander, Xxxxxx & Xxxxxxx LLP, counsel for the
Company, its opinion dated such Closing Date in the form of Exhibit E.
3.2. Representations and Warranties. All of the
representations and warranties of the Company contained in this Agreement and
the other Operative Documents shall be true and correct at and as of such
Closing Date.
3.3. Performance of Covenants. All of the covenants and
agreements of the Company contained in this Agreement and the other Operative
Documents required to be performed on or prior to such Closing Date shall have
been performed in a manner satisfactory in all respects to Purchasers.
3.4. Legal Action. No injunction, order, investigation, claim,
action or proceeding before any court or governmental body shall be pending or
threatened wherein an unfavorable judgment, decree or order would restrain,
impair or prevent the carrying out of the Operative Documents or any of the
transactions contemplated thereby, declare unlawful the transactions
contemplated by the Operative Documents or cause any such transaction to be
rescinded.
3.5. Consents. The Company shall have obtained in writing or
made all consents, waivers, approvals, orders, permits, licenses and
authorizations of, and registrations, declarations, notices to and filings and
applications with, any governmental authority or any other Person (including,
without limitation, security holders and creditors of the Company) required to
be obtained or made in order to enable the Company to observe and comply with
all its obligations under the Operative Documents and to consummate and perform
the transactions contemplated thereby. The Board of Directors of the Company
shall have taken all action required by the terms of the Rights Agreement dated
as of July 18, 1995, between the Company and Continental Stock Transfer & Trust
Company, to permit the transactions contemplated by the Operative Documents and
the Paramount Agreements (as such term is defined in Section 5.21) without
triggering any rights of the Company's security holders pursuant to such Rights
Agreement or any securities issued or issuable thereunder.
3.6. Closing Documents. The Company shall have delivered to
Purchasers the following:
(a) a certificate executed by the President and Chief Executive
Officer of the Company dated such Closing Date stating that the conditions set
forth in Sections 3.2 through 3.5 have been satisfied;
(b) an incumbency certificate dated the Closing Date for the
officers of the Company executing the Operative Documents and any other
documents or instruments delivered in connection therewith at, or in connection
with, such Closing;
(c) a certificate of the Secretary of the Company, dated such
Closing Date, as to the continued and valid existence of the Company,
certifying the attached copy of the By-laws of the Company, the authorization
of the execution, delivery and performance of the Operative Documents, and the
resolutions adopted by the Board of Directors of the Company authorizing the
actions to be taken by the Company under the Operative Documents;
(d) a certificate of the Secretary of State of the State of
Delaware, dated a recent date, to the effect that the Company is in good
standing in the State of Delaware and that all annual reports, if any, have
been filed as required and that all taxes and fees have been paid in connection
therewith;
3
4
(e) a certified copy of the Certificate of Incorporation of the
Company as filed with the Secretary of State of the State of Delaware,
including any amendments thereto; and
(f) such certificates, other documents and instruments as
Purchasers and their counsel may reasonably request in connection with, and to
effect, the transactions contemplated by the Operative Documents.
3.7. Proceedings. All corporate and other proceedings taken or
to be taken in connection with the transactions contemplated by this Agreement
and the other Operative Documents to be consummated at such Closing and all
documents incident thereto shall be satisfactory in form and substance to
Purchasers.
3.8. Closing Financial Statements; Absence of Changes. (a)
The Company shall have provided to Purchasers (i) the unaudited consolidated
balance sheets of the Company and its Subsidiaries as of September 30, 1998,
and the related unaudited consolidated statements of operations, stockholders'
equity, and cash flows for the three-month (and nine-month) periods then ended
(the "Financial Statements"), all of which will be correct and complete and
will present fairly the financial position of the Company and the results of
its operations and changes in its financial position as of the time and for the
periods then ended, (ii) the unqualified certification, in form and substance
satisfactory to Purchasers, of the Chief Financial Officer of the Company as to
the Financial Statements to the effect that the Financial Statements have been
prepared in accordance with the books and records of the Company and its
Subsidiaries and generally accepted accounting principles applied on a basis
consistent with prior years (except as otherwise specified in such
certification), and present fairly the financial position of the Company and
its Subsidiaries and the and the results of their operations and changes in
their financial position as of the time and for the periods then ended, and
(iii) a "bring-down" certificate, in form and substance satisfactory to
Purchaser, of the Chief Executive Officer of the Company and the Chief
Financial Officer of the Company with respect to the financial position of the
Company as of such Closing Date and as to results for the period from the date
of the Financial Statements to such Closing Date.
(b) Except as set forth on the schedules to this Agreement,
there shall have been no material adverse change in the business, financial
condition, operating results, employee or customer relations or prospects of,
or otherwise with respect to, the Company and its Subsidiaries, from September
30, 1998 to such Closing Date.
3.9. Schedules. The Company shall have provided to
Purchasers all schedules required pursuant to this Agreement, which schedules
shall be satisfactory to Purchasers in their sole discretion.
4. Conditions to the Obligations of the Company at the
Closings. The obligation of the Company to issue and sell the Preferred Shares
and the Warrants to Purchasers at each Closing is subject to the satisfaction
on or prior to the applicable Closing Date of the following conditions, any of
which may be waived by the Company:
4.1. Representations and Warranties. The representations and
warranties of Purchasers contained in this Agreement shall be true and correct
at and as of such Closing Date.
4.2. Legal Action. No injunction, order, investigation, claim,
action or proceeding before any court or governmental body shall be pending or
threatened wherein an unfavorable judgment, decree or order would restrain,
impair or prevent the carrying out of the Operative Documents or any of the
transactions contemplated thereby, declare unlawful the transactions
contemplated by the Operative Documents or cause any such transaction to be
rescinded.
5. Representations and Warranties of the Company. The
Company represents and warrants to Purchasers as of each Closing Date as
follows (it being understood that the Company's representations set forth in
Sections 5.14 and 5.15 shall, for purposes of the Second Closing Date, be
deemed to relate to any updated versions of such Schedules provided by the
Company to Purchasers on or prior to such Closing Date):
4
5
5.1. Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Each of the Company's Subsidiaries is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization. The Company and its Subsidiaries have all requisite corporate
power and authority, and hold all licenses, permits and other required
authorizations from governmental authorities, necessary to conduct their
respective businesses as now being conducted or proposed to be conducted and to
own or lease the properties and assets they now own or hold under license or
lease (except that the Company may in the future be required to obtain certain
approvals of the U.S. Food and Drug Administration in connection with its
business as proposed to be conducted). The Company and the Subsidiaries are
duly qualified or licensed and in good standing as a foreign corporation in
each jurisdiction wherein the character of their properties or the nature of
the activities conducted by them makes such qualification or licensing
necessary.
5.2. Charter Documents. The Company has heretofore delivered
to Purchasers true, correct and complete copies of the Certificate of
Incorporation and By-Laws (or comparable organizational documents) of the
Company and its Subsidiaries as in full force and effect on the date hereof.
5.3. Capitalization. Except as set forth on Schedule 5.3 with
respect to the Second Closing Date, as of such Closing Date, the Company's
authorized capitalization consists of 50,000,000 shares of Common Stock, of
which 22,967,910 shares are issued and outstanding as of such Closing Date, and
5,000,000 shares of preferred stock, par value $.001 per share, of which
500,000 shares are designated as Series A Junior Participating Preferred Stock
(none of which are issued and outstanding). 2,950,313 shares of Common Stock
are reserved for issuance upon the conversion or exercise of convertible
securities, options, warrants or other rights to purchase Common Stock
outstanding as of such Closing Date. All outstanding securities of the Company
are validly issued, fully paid and nonassessable. No stockholder of the Company
is entitled to any preemptive rights with respect to the purchase or sale of
any securities by the Company. There are no outstanding options, warrants or
other rights, commitments or arrangements, written or oral, to purchase or
otherwise acquire any authorized but unissued shares of capital stock of the
Company or any security directly or indirectly convertible into or exchangeable
for any capital stock of the Company or under which any such option, warrant or
convertible security may be issued in the future except (i) as set forth on
Schedule 5.3, (ii) for the Preferred Shares and Warrants issued or issuable to
Purchasers or pursuant to the Placement Warrants or (iii) as are issued to
persons other than Purchasers and Paramount in conformity with the terms and
provisions of the Operative Documents. There are no voting trusts or
agreements, stockholders' agreements, pledge agreements, buy-sell, rights of
first offer, negotiation or refusal or proxies or similar arrangements relating
to any securities of the Company to which the Company is a party, and to the
best knowledge of the Company there are no other such trusts, agreement,
rights, proxies or similar arrangements. Except as set forth on Schedule 5.3
and as contemplated by this Agreement, none of the shares of capital stock of
the Company is reserved for any purpose, and the Company is neither subject to
any obligation (contingent or otherwise), nor has any option to repurchase or
otherwise acquire or retire any shares of its capital stock. Schedule 5.3 sets
forth (i) the number of shares of Common Stock authorized for issuance under
the Company's 1994 Amended and Restated Stock Option and Restricted Stock
Purchase Plan and the Company's 1996 Stock Incentive Plan, in each case as
amended and restated (collectively, the "Option Plans"); (ii) the number of
shares of Common Stock as to which options issued under the Option Plans have
been (a) reserved for issuance and (b) exercised, in each case as of such
Closing Date; and (iii) the exercise prices for all outstanding options under
the Option Plans as of such Closing Date. Schedule 5.3 also sets forth a list
of all securities of the Company which are issued and outstanding or reserved
for issuance upon exercise or conversion of outstanding securities of the
Company as to which the Company is obligated to file a registration statement
under the Securities Act other than on Form S-8.
5.4 Due Authorization, Valid Issuance, Etc. The Preferred
Shares to be purchased on such Closing Date have been duly authorized and, when
issued in accordance with this Agreement upon such Closing Date, will be
validly issued, fully paid and nonassessable and will be free and clear of all
liens imposed by or through the Company. The Warrants to be purchased on such
Closing Date have been duly authorized and, when issued in accordance with this
Agreement upon such Closing Date, will be validly issued and free and clear of
all liens imposed by or through the Company. The Common Shares issuable upon
conversion of the Preferred Shares to be issued on such Closing Date have been
and will, at all times until their issuance, be
5
6
duly authorized and reserved, and such Common Shares, upon conversion of such
Preferred Shares in accordance with the terms and conditions of the Certificate
of Designations and this Agreement, and any shares of Common Stock issued as a
dividend upon such Preferred Shares, upon issuance, will be validly issued,
fully paid and nonassessable shares of Common Stock and will be free and clear
of all liens imposed by or through the Company. The Common Stock issuable upon
the exercise of the Warrants to be issued on such Closing Date have been and
will, at all times until their issuance, be duly authorized and reserved, and
upon the exercise of the Warrants in accordance with the terms and conditions
thereof and this Agreement, will be validly issued, fully paid and
nonassessable shares of Common Stock and will be free and clear of all liens
imposed by or through the Company. The issuance, sale and clear delivery of
such Preferred Shares and Warrants, and the Common Shares issuable upon
conversion of such Preferred Shares, the exercise of such Warrants and as
dividends on such Preferred Shares will not be subject to any preemptive right
of stockholders of the Company or to any right of first refusal or other right
in favor of any person or entity. The Company's executive officers and
directors have studied and fully understand the nature of the securities being
sold hereunder, and recognize that they have a potential dilutive effect.
Except as set forth on Schedule 5.4, no antidilution adjustments with respect
to the outstanding securities of the Company will be triggered by the issuance
of the securities contemplated by the Operative Documents.
5.5. Subsidiaries. Except as set forth on Schedule 5.5, the
Company has no wholly or partially owned Subsidiaries (as defined in Section
9.10) and does not control, directly or indirectly, any other corporation,
business trust, firm, partnership, association, joint venture, entity or
organization. Except as set forth on Schedule 5.5, the Company does not own any
shares of stock, partnership interest, joint venture interest or any other
security, equity or interest in any other corporation or other Person.
5.6. Authorization; No Breach. The Company has the full
corporate power and authority to execute, deliver and enter into each of the
Operative Documents and to perform its obligations thereunder, and the
execution, delivery and performance of each of the Operative Documents and all
other transactions contemplated by each of the Operative Documents have been
duly authorized by the Company. Each of the Operative Documents constitutes a
legal, valid and binding obligation of the Company, enforceable in accordance
with its terms except as such enforceability may be limited by (a) bankruptcy,
insolvency, moratorium and similar laws affecting creditors' rights generally
and (b) the availability of remedies under general equitable principles. Except
as set forth on Schedule 5.6, the execution and delivery by the Company of the
Operative Documents, the offering, sale and issuance of the Preferred Shares
and the Warrants, and the performance and fulfillment of the Company of its
obligations under the Operative Documents, do not and will not (i) conflict
with or result in a breach of the terms, conditions or provisions of, (ii)
constitute a default under, or event which, with notice or lapse of time or
both, would constitute a breach of or default under, (iii) result in the
creation of any lien, security interest, adverse claim, charge or encumbrance
upon the capital stock or assets of the Company pursuant to, (iv) give any
third party the right to accelerate any obligation under or terminate, (v)
result in a violation of, (vi) result in the loss of any license, certificate,
legal privilege or legal right enjoyed or possessed by the Company under, or
(vii) require any authorization, consent, approval, exemption or other action
by or notice to any court or administrative or governmental body pursuant to or
require the consent of any other Person under, the Certificate of Incorporation
or By-Laws of the Company or any law, statute, rule or regulation to which the
Company is subject or by which any of its properties are bound, or any
agreement, instrument, order, judgment or decree to which the Company is
subject or by which its properties are bound.
5.7. Financial Statements and SEC Documents. (a) Attached as
Schedule 5.7 (or contained within the SEC documents (as defined in Section
5.7(b)) are the audited consolidated balance sheets of the Company and its
Subsidiaries as of December 31, 1995, 1996, and 1997, and the related audited
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended December 31, 1995, 1996, and 1997, and for the period from
November 16, 1983 (date of inception) to December 31, 1997, together with the
related notes thereto (the "Audited Financial Statements"), all of which will
be correct and complete, and which shall be accompanied by an unqualified
report, in form and substance reasonable satisfactory to the Purchaser
Representative, of independent public accountants reasonably satisfactory to
the Purchaser Representative to the effect that the Audited Financial
Statements have been prepared in accordance with the books and records of the
Company and its Subsidiaries and generally accepted accounting principles,
6
7
have been applied consistently with the past practices of the Company and its
Subsidiaries (except as otherwise noted in such Audited Financial Statements),
reflect all liabilities and obligations of the Company and its Subsidiaries, as
of their respective dates, and present fairly the financial position of the
Company and its Subsidiaries and the results of their operations as of the time
and for the periods indicated therein.
(b) The Company has made available to Purchasers a true and
complete copy of each report, schedule, registration statement and definitive
proxy statement filed by the Company with the SEC since January 1, 1995 (as
such documents have since the time of their filing been amended, the "SEC
Documents") which are all the documents (other than preliminary material) that
the Company was required to file with the SEC since such date. As of their
respective dates, the SEC Documents complied in all respects with the
requirements of the Securities Act (as defined in Section 9.8) and/or the
Securities Exchange Act (as defined in Section 9.9) as the case may be, and the
rules and regulations of the SEC thereunder applicable to such SEC Documents
and none of the SEC Documents contained any untrue statement of a material fact
or omitted to statement of material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of the Company
included in the SEC Documents comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto or, in
the case of the unaudited statements, as permitted by Form 10-Q of the SEC) and
fairly present the financial position of the Company as at the dates thereof
and the consolidated results of their operations and cash flows for the periods
then ended.
5.8. No Material Adverse Changes. Since September 30, 1998,
except as disclosed in (i) the SEC Documents filed subsequent to that date and
(ii) Schedule 5.8 there has not at any time been (a) any material adverse
change in the business, financial condition, operating results, business
prospects, employee relations or customer relations of the Company or its
Subsidiaries, or (b) other adverse changes, which in the aggregate have been
materially adverse to the Company or its Subsidiaries. Except as set forth on
Schedule 5.8, no event or circumstance has occurred or exists with respect to
the Company or its Subsidiaries or their respective businesses, properties,
prospects, operations or financial condition, which, under applicable law, rule
or regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed.
5.9. Absence of Certain Developments. Except as contemplated
by this Agreement, and except as set forth in Schedule 5.9, since September 30,
1998, the Company and each of its Subsidiaries have not, nor will have prior to
such Closing Date: (a) issued any securities (other than, with respect to the
Second Closing, as permitted or contemplated by the Operative Documents); (b)
borrowed any amount or incurred or became subject to any liabilities (absolute
or contingent), other than liabilities incurred in the ordinary course of
business and liabilities under contracts entered into in the ordinary course of
business, none of which are or shall be material and which involve less than
$50,000; (c) discharged or satisfied any lien, adverse claim or encumbrance or
paid any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business; (d) declared or made any
payment or distribution of cash or other property to the stockholders of the
Company with respect to the Common Stock or purchased or redeemed any shares of
Common Stock; (e) mortgaged, pledged or subjected to any lien, adverse claim,
charge or any other encumbrance, any of its properties or assets, except for
liens for taxes not yet due and payable; (f) sold, assigned or transferred any
of its assets, tangible or intangible, except in the ordinary course of
business and in an amount less than $50,000, or disclosed to any person, firm
or entity not party to a confidentiality agreement with the Company any
proprietary confidential information; (g) suffered any extraordinary losses or
waived any rights of material value; (h) made any capital expenditures or
commitments therefor; (i) entered into any other transaction other than in the
ordinary course of business in an amount less than $50,000 or entered into any
material transaction, whether or not in the ordinary course of business; (j)
made any charitable contributions or pledges; (k) suffered damages, destruction
or casualty loss, whether or not covered by insurance, affecting any of the
properties or assets of the Company or its Subsidiaries or any other properties
or assets of the Company or its Subsidiaries which could have a material
adverse effect on the business, financial condition, operating results,
employee or customer relations or prospects of, or otherwise with respect to
the business or operations of the Company or its Subsidiaries; (l) made any
change in the nature or
7
8
operations of the business of the Company or its Subsidiaries; or (m) resolved
or entered into any agreement or understanding with respect to any of the
foregoing.
5.10. Properties. The Company and its Subsidiaries have good
and marketable title to all of the real property and good title to all of the
personal property and assets they purport to own, including those reflected as
owned on (a) the December 31, 1998 balance sheet included in the financial
statements included in Schedule 5.8 with respect to the Company and (b) the
September 30, 1998 balance sheet included in the Financial Statements with
respect to the Subsidiaries, or acquired after such dates, and a good and valid
leasehold interest in all property indicated as leased on (a) the December 31,
1998 balance sheet in Schedule 5.8 with respect to the Company and (b) the
September 30, 1998 balance sheet included in the Financial Statements with
respect to the Subsidiaries, whether such property is real or personal, free
and clear of all liens, adverse claims, charges, encumbrances or restrictions
of any nature whatsoever, except (a) such as are reflected on (i) the December
31, 1998 balance sheet included in the financial statements included in
Schedule 5.8 with respect to the Company and (ii) the September 30, 1998
balance sheet included in the Financial Statements with respect to the
Subsidiaries, or described in Schedule 5.10 and (b) for receivables and charges
collected in the ordinary course of business. Except as disclosed in Schedule
5.10, the Company and its Subsidiaries own or lease all such properties as are
necessary to their operations as now conducted and as presently proposed to be
conducted and all such properties are, in all material respects, in good
operating condition and repair.
5.11. Taxes. The Company and its Subsidiaries have timely filed
all federal, state, local and foreign tax returns and reports required to be
filed, and all taxes, fees, assessments and governmental charges of any nature
shown by such returns and reports to be due and payable have been timely paid
except for those amounts being contested in good faith and for which
appropriate amounts have been reserved in accordance with generally accepted
accounting principles and are reflected on (a) the December 31, 1998 balance
sheet in Schedule 5.8 with respect to the Company and (b) the September 30,
1998 balance sheet included in the Financial Statements with respect to the
Subsidiaries. There is no tax deficiency that has been, or, to the knowledge of
the Company or its Subsidiaries might be, asserted against the Company or its
Subsidiaries that would adversely affect the business or operations, or
proposed business or operations, of the Company or its Subsidiaries. All such
tax returns and reports were prepared in accordance with the relevant rules and
regulations of each taxing authority having jurisdiction over the Company and
its Subsidiaries and are true and correct. The Company and its Subsidiaries
have neither given nor been requested to give any waiver of any statute of
limitations relating to the payment of federal, state, local or foreign taxes.
The Company and the Subsidiaries have not been, nor is it now being, audited by
any federal, state, local or foreign tax authorities. The Company and
Subsidiaries have made all required deposits for taxes applicable to the
current tax year. The Company and its Subsidiaries are not, and have never
been, a member of any "affiliated group" within the meaning of Section 1504 of
the Internal Revenue Code, as in effect from time to time.
5.12. Litigation. Except as set forth on Schedule 5.12, there
are no actions, suits, proceedings, orders, investigations or claims pending
or, to the knowledge of the Company and its Subsidiaries, threatened against or
affecting the Company or its Subsidiaries, at law or in equity or before or by
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality; there are no arbitration proceedings
pending under collective bargaining agreements or otherwise; and, to the
knowledge of the Company and its Subsidiaries, there is no basis for any of the
foregoing.
5.13. Compliance with Law. The Company and its Subsidiaries
have complied in all respects with all applicable statutes and regulations of
the United States and of all states, municipalities and applicable agencies and
foreign jurisdictions or bodies in respect of the conduct of their business and
operations.
5.14. Trademarks and Patents. Schedule 5.14 contains a true,
complete and correct list of all trademarks, trade names, patents and
copyrights (and applications therefor) if any, owned or licensed or used or
required to be used by the Company and the Subsidiaries as of or prior to such
Closing Date in connection with their respective businesses and, each such
trademark, trade name, patent and copyright (and application therefor) listed
in Schedule 5.14 as being owned by the Company or a Subsidiary is not subject
to any license, royalty arrangement, option or dispute and is free and clear of
all liens. To the best knowledge of
8
9
the Company and its Subsidiaries, none of the trademarks, trade names, patents
or copyrights used by the Company and its Subsidiaries in connection with their
businesses infringe any trademark, trade name, patent or copyright of others in
the United States or in any other country, in any way which adversely affects
or which in the future may adversely affect the business or operations of the
Company or its Subsidiaries. No stockholder, officer or director of the Company
or any Subsidiary or any other person owns or has any interest in any
trademark, trade name, service xxxx, patent, copyright or application therefor,
or trade secret, licenses, invention, information or proprietary right or
process, if any, used by the Company or its Subsidiaries in connection with
their businesses. The Company and its Subsidiaries have no notice or knowledge
of any objection or claim being asserted by any person with respect to the
ownership, validity enforceability or use of any such trademarks, trade names,
patents and copyrights (and applications therefor) listed on Schedule 5.14 or
challenging or questioning the validity or effectiveness of any license
relating thereto. There are no unresolved conflicts with, or pending claims of,
any other person, whether in litigation or otherwise, involving the trademarks,
trade names, patents and copyrights (and applications therefor), and there are
no liens, encumbrances, adverse claims, or rights of any other person which
would prevent the Company from fulfilling its obligations under this Agreement.
To the best knowledge of the Company and the Subsidiaries, the business of the
Company and its Subsidiaries, as presently conducted and as proposed to be
conducted does not and will not cause the Company or any Subsidiary to violate
any trademark, trade name, patent, copyright, trade secret, license or
proprietary interest of any other person or entity, in any way which adversely
affects or which in the future may adversely affect the business or operations
of the Company and its Subsidiaries. Except as disclosed in Schedule 5.14, the
Company and the Subsidiaries possess all proprietary technology necessary for
the conduct of business by the Company and the Subsidiaries, both as presently
conducted and as presently proposed to be conducted.
5.15. Insurance. Schedule 5.15 contains a brief description of
each insurance policy maintained by the Company and its Subsidiaries with
respect to their properties, assets and business; each such policy is in full
force and effect; and the Company and the Subsidiaries are not in default with
respect to their obligations under any of such insurance policies. Such
insurance coverage is in amounts not less than is customarily maintained by
corporations engaged in the same or similar business and similarly situated,
including, without limitation, insurance against loss, damage, fire, theft,
public liability and other risks. The activities and operations of the Company
and its Subsidiaries have been conducted in a manner so as to conform to all
applicable provisions of these insurance policies and the Company and the
Subsidiaries have not taken or failed to take any action which would cause any
such insurance policy to lapse.
5.16. Agreements. Except as set forth in Schedule 5.16, the
Company and the Subsidiaries are not party to nor bound by any agreement or
commitment, written or oral, which obligates the Company or any Subsidiary to
make payments to any person, or which obligates any person to make payments to
the Company or any Subsidiary, in the case of each such agreement in an amount
exceeding $50,000, or which is otherwise material to the conduct and operation
of the business or proposed business of the Company and its Subsidiaries or any
of their properties or assets, including, without limitation, all shareholder,
employment, non-competition and consulting agreements and employee benefit
plans and arrangements and collective bargaining agreements to which the
Company or any Subsidiary is a party or by which it is bound. All such
agreements are legal, valid and binding obligations of the Company and its
Subsidiaries, in full force and effect, and enforceable in accordance with
their respective terms, except as the enforceability thereof may be limited by
(a) bankruptcy, insolvency, moratorium, and similar laws affecting creditors'
rights generally and (b) the availability of remedies under general equitable
principles. The Company and the Subsidiaries have performed all obligations
required to be performed by it, and are not in default, or in receipt of any
claim, under any such agreement or commitment, and the Company and its
Subsidiaries have no present expectation or intention of not fully performing
all of such obligations, nor does the Company or any Subsidiary have any
knowledge of any breach or anticipated breach by the other parties to any such
agreement or commitment. The Company and its Subsidiaries are not party to any
contract, agreement, instrument or understanding which materially adversely
affects the business, properties, prospects, operations, assets or condition
(financial or otherwise) of the Company or its Subsidiaries. Purchasers have
been furnished with, or the Company has made available for the Purchaser's
review, a true and correct copy of each written agreement referred to in
Schedule 5.16, together with all amendments, waivers or other changes thereto.
9
10
5.17. Undisclosed Liabilities. Except as set forth on Schedule
5.17, the Company and the Subsidiaries have no obligation or liability (whether
accrued, absolute, contingent, unliquidated, or otherwise, whether or not known
to the Company or its Subsidiaries, whether due or to become due) arising out
of transactions entered into at or included in Schedule 5.8 or on the September
30, 1998 balance sheet included in the Financial Statements prior to such
Closing Date, or any action or inaction at or prior to such Closing Date, or
any state of facts existing at or prior to such Closing Date, except (a)
liabilities reflected on the December 31, 1998 balance sheet included in the
financial statements included in Schedule 5.8 or the September 30, 1998 balance
sheet included in the Financial Statements, (b) liabilities in an amount less
than $50,000 incurred in the ordinary course of business since September 30,
1998 (none of which is a liability for breach of contract, breach of warranty,
torts, infringements, claims or lawsuits); (c) liabilities or obligations
disclosed in the schedules to this Agreement or (d) with respect to the Second
Closing Date, liabilities the incurrence of which did not constitute a
violation of this Agreement.
5.18. Employees; Conflicting Agreements. (a) The Company has
caused all present members of management and all professional employees of and
consultants and advisors to the Company and its Subsidiaries, including all
employees and consultants and advisors involved in research and development,
and will cause all such persons in the future, to be subject to agreements with
respect to (i) nondisclosure of confidential information, (ii) assignment of
patents, trademarks, copyrights and proprietary rights to the Company or its
Subsidiaries and (iii) disclosure to the Company and its Subsidiaries of
inventions in form and substance satisfactory to the Purchaser Representative
(as defined in Section 11.3).
(b) To the best knowledge of the Company and its Subsidiaries,
no stockholder, director, officer or key employee of the Company or any
Subsidiary is a party to or bound by any agreement, contract or commitment, or
subject to any restrictions in connection with any previous or current
employment of any such person (other than as set forth on Schedule 5.18(b) with
respect to the Company), which adversely affects, or which in the future may
adversely affect, the business or the proposed business of the Company or any
Subsidiary or the rights of any of the Purchasers under the Operative
Documents, including, without limitation, in respect of Purchasers rights as a
holder of the Preferred Shares, the Warrants and the shares of Common Stock
issuable in connection therewith.
5.19. Disclosure. Neither this Agreement nor any of the
schedules, exhibits, written statements, documents or certificates prepared or
supplied by the Company with respect to the transactions contemplated by the
Operative Documents contain any untrue statement of a material fact or omit a
material fact necessary to make the statements contained therein not misleading
in light of the circumstances under which made. There exists no fact or
circumstance which, to the knowledge of the Company or its Subsidiaries upon
due inquiry, materially adversely affects, or which could reasonably be
anticipated to have a material adverse effect on, the existing or expected
financial condition, operating results, assets, customer relations, employee
relations or business prospects of the Company or its Subsidiaries.
5.20. Compliance with Securities Laws. (a) Other than
Paramount, neither the Company nor any of its Affiliates nor anyone acting on
their behalf has directly or indirectly offered the Preferred Shares and the
Warrants or any part thereof or any similar security of the Company (or any
other securities convertible or exchangeable for the Preferred Shares and the
Warrants or any similar security), for sale to, or solicited any offer to buy
the same from, anyone other than Purchasers. Assuming the accuracy and truth of
each of Purchasers' representations set forth in Section 6, all securities of
the Company and its Subsidiaries heretofore sold and issued were sold and
issued, and the Preferred Shares and the Warrants (and any other securities
convertible or exchangeable for the Preferred Shares and the Warrants) were
offered and will be sold and issued, in compliance with all applicable federal,
state and foreign securities laws. Neither the Company, nor any of its
Affiliates, nor, to its knowledge, any person or entity acting on its or their
behalf has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would
require registration of the Preferred Shares, the Warrants or the shares of
Common Stock underlying the Preferred Shares or the Warrants under the
Securities Act or for the offering of the same to be integrated with any other
offering of securities.
10
11
(b) The Company has not directly or indirectly purchased or
redeemed any shares of Common Stock during the 30 Trading Days (as such term is
defined in the Certificate of Designations) preceding the First Closing Date.
5.21. Brokers. Except for Paramount, no finder, broker, agent,
financial person or other intermediary has acted on behalf of the Company in
connection with the offering of the Preferred Shares or the Warrants, the
execution of the Operative Documents or the consummation of any of the
transactions contemplated by the Operative Documents. The Company has agreed to
grant certain registration rights to the holders of the Unit Purchase Option
for the Purchase of Preferred Stock and Warrants (the "Unit Purchase Option")
issuable to Paramount pursuant to the Financial Advisory Agreement between
Paramount and the Company dated the date hereof (the "Financial Advisory
Agreement"). The Company shall be solely responsible for payment of the fees
and expenses of Paramount pursuant to the Financial Advisory Agreement and the
Letter Agreement between the Company and Paramount dated as of January 21, 1999
(the "Letter Agreement"). The Unit Purchase Option, the Financial Advisory
Agreement and the Letter Agreement are referred to herein collectively as the
"Paramount Agreements."
5.22. Transactions with Affiliates. Except as set forth on
Schedule 5.22, no director, officer, employee, consultant or agent of the
Company or its Subsidiaries, or member of the family of any such person or any
corporation, partnership, trust or other entity in which any such person, or
any member of the family of any such person, has a substantial interest in or
is an officer, director, trustee, partner or holder of more than 5% of the
outstanding capital stock thereof, is a party to any transaction with the
Company or any Subsidiary, including any contract, agreement or other
arrangement providing for the employment of, furnishing of services by or
requiring payments to any such person or firm.
5.23. Environmental Matters (a) The Company and its
Subsidiaries, and all properties owned, operated or leased by the Company and
its Subsidiaries have obtained and currently maintain all environmental permits
required for their business and operations and are in compliance with all such
environmental permits; (ii) there are no legal proceedings pending nor, to the
best knowledge of the Company and its Subsidiaries, threatened to modify or
revoke any such environmental permits; and (iii) neither Company (and its
Subsidiaries) nor any property owned, operated or leased by the Company (and
its Subsidiaries) has received any notice from any source that there is lacking
any environmental permit required for the current use or operation of the
business of the Company or its Subsidiaries, or any property owned, operated or
leased by the Company or its Subsidiaries.
(b) All real property owned, operated or leased by the Company
and its Subsidiaries, and, to the best knowledge of the Company and its
Subsidiaries, all property adjacent to such properties, are free from
contamination by any hazardous material; and the Company and its Subsidiaries
are not subject to environmental costs and liabilities with respect to
hazardous materials, and no facts or circumstances exist which could give rise
to environmental costs and liabilities with respect to hazardous materials.
(c) There is not now, nor has there been in the past, on, in,
or under any real property owned, leased, or operated by the Company and its
Subsidiaries, or by any of their respective predecessors (i) any asbestos-
containing materials, (ii) any underground storage tanks, (iii) above-ground
storage tanks, (iv) impoundments, (v) poly-chlorinated biphenyls or (vi)
radioactive substances.
(d) The Company has provided or made available to Purchasers
drafts and final versions of all environmental site assessments (including, but
not limited to Phase I and Phase II reports), risk management studies and
internal environmental audits that have been conducted by or on behalf of the
Company and its Subsidiaries ("Environmental Studies"), with respect to any
real property that now or in the past has been owned, operated or leased by the
Company and its Subsidiaries, or any of their respective predecessors.
(e) The Company and its Subsidiaries, and all properties
owned, operated or leased by the Company and its Subsidiaries, comply with all
environmental laws.
11
12
(f) Neither the Company (and its Subsidiaries) nor any
property owned, leased or operated by the Company (and its Subsidiaries) has
received or been issued any written request for information, or has been
notified that it is a potentially responsible party under the environmental
laws with respect to any on-site or off-site for which environmental costs and
liabilities are asserted.
6. Representations, Warranties and Covenants of Purchasers.
Purchasers severally represent, warrant and covenant to the Company as of each
Closing Date (and with respect to Section 6.1, as of each date of exercise of
any Warrants) as follows:
6.1. Investment Intent. Each Purchaser is an "accredited investor"
within the meaning of Regulation D under the Securities Act. Each Purchaser has
experience in making investments in development stage biotechnology companies
and is acquiring the Preferred Shares and the Warrants for its own account and
not with a present view to, or for sale in connection with, any distribution
thereof in violation of the registration requirements of the Securities Act.
Each Purchaser consents to the placing of a legend on the certificates
representing its respective Preferred Shares and Warrants to the effect that
the shares of Common Stock issuable upon exercise or conversion, as the case
may be, of the Preferred Shares and Warrants have not been registered under the
Securities Act and may not be transferred except in accordance with applicable
securities laws or an exception therefrom. The Purchasers acknowledge and agree
that Paramount has not supplied any information to the Purchasers other than
information furnished in writing to the Company by Paramount, that Paramount
has no responsibility for the accuracy or completeness of any such information
and that the Purchasers have not relied upon the independent investigation or
verification, if any, which may have been undertaken by Paramount. The
Purchasers were contacted regarding the transactions contemplated by the
Operative Documents by Paramount, with whom the Purchasers have a prior
substantial pre-existing relationship.
6.2. Authorization. Each Purchaser has the power and authority
to execute and deliver this Agreement and to perform its obligations hereunder,
having obtained all required consents, if any, and this Agreement, when
executed and delivered, will constitute a legal valid and binding obligation of
such Purchaser.
6.3. Brokers. Other than Paramount, no finder, broker, agent,
financial person or other intermediary has acted on behalf of Purchasers in
connection with the offering of the Preferred Shares and the Warrants or the
consummation of this Agreement or any of the transactions contemplated hereby.
6.4. Trading Restrictions. Purchasers have not directly or
indirectly sold any shares of Common Stock during the 30 Trading Days (as such
term is defined in the Certificate of Designations) preceding the First Closing
Date. As of the First Closing Date, the Purchasers do not directly or
indirectly have a "short" position with respect to the Common Stock. During the
30 Trading Days (as such term is defined in the Certificate of Designations)
prior to the Reset Date (as such term is defined in the Certificate of
Designations), the Purchasers shall not directly or indirectly sell any shares
of Common Stock. During the 10 consecutive Trading Days ending on the Trading
Day preceding the effective date of conversion of any Purchaser' shares of
Preferred Stock, such Purchaser shall not directly or indirectly sell any
shares of Common Stock on more than seven of such Trading Days.
7. Covenants of the Company. Until such time as Purchasers
and their Affiliates beneficially own less than two percent (2%) of the Common
Stock after giving effect to the conversion or exercise of all securities of
the Company beneficially owned by Purchasers and their Affiliates, the Company
covenants and agrees with Purchasers as follows:
7.1. Books and Accounts. The Company will, and will cause each
of its Subsidiaries to: (a) make and keep books, records and accounts, which,
in reasonable detail, accurately and fairly reflect its transactions, including
without limitation, dispositions of its assets; and (b) devise and maintain a
system of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management's
general or specific authorization, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and
12
13
in accordance with the Company's and such Subsidiaries' past practices or any
other criteria applicable to such statements, and to maintain accountability
for assets, (iii) access to assets is permitted only in accordance with
management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
7.2. Periodic Reports. (a) The Company will furnish to the
Purchaser Representative as soon as practicable, and in any event within 90
days after the end of each fiscal year of the Company (commencing with the
fiscal year ended December 31, 1998), an annual report of the Company and its
Subsidiaries, including an audited consolidated balance sheet as at the end of
such fiscal year and an audited consolidated statement of operations,
stockholders' equity (deficit) and cash flows for such fiscal year, together
with the related notes thereto, setting forth in each case in comparative form
corresponding figures for the preceding fiscal year, all of which will be
correct and complete and will present fairly the financial position of the
Company and its Subsidiaries and the results of their operations and changes in
their financial position as of the time and for the period then ended. Such
financial statements shall be accompanied by an unqualified report, in form and
substance reasonably satisfactory to the Purchaser Representative, of
independent public accountants reasonably satisfactory to the Purchaser
Representative to the effect that such financial statements have been prepared
in accordance with the books and records of the Company and its Subsidiaries
and generally accepted accounting principles applied on a basis consistent with
prior years (except as otherwise specified in such report), and present fairly
the financial position of the Company and its Subsidiaries and the results of
their operations and changes in their financial position as of the time and for
the period then ended. The Company will use its best efforts, and shall cause
its Subsidiaries, to conduct its business so that such report of the
independent public accountants will not contain any qualifications as to the
scope of the audit, the continuance of the Company and the Subsidiaries, or
with respect to the Company's and the Subsidiaries' compliance with generally
accepted accounting principles consistently applied, except for changes in
methods of accounting in which such accountants concur. The delivery
requirements of the first two sentences of this paragraph shall be deemed
satisfied if the Company provides to the Purchaser Representative within 90
days after the end of each fiscal year (or such earlier date as may be required
by the SEC) a copy of the Company's Annual Report on Form 10-K as filed with
the SEC for such fiscal year which includes the information and other
substantive delivery requirements set forth in this Section 7.2(a).
(b) The Company will furnish to the Purchaser Representative, as
soon as practicable and in any event within 45 days after the end of each of
the first three fiscal quarters of the Company during each fiscal year, a
quarterly report of the Company and its Subsidiaries consisting of an unaudited
consolidated balance sheet as at the end of such quarter and an unaudited
consolidated statement of operations, stockholders' equity (deficit) and cash
flows for such quarter and the portion of the fiscal year then ended, setting
forth in each case in comparative form corresponding figures for the preceding
fiscal year. All such reports shall be certified by the Chief Financial Officer
of the Company to be correct and complete, to present fairly the financial
position of the Company and its Subsidiaries and the consolidated results of
their operations and changes in their financial position as of the time and for
the period then ended and to have been prepared in accordance with generally
accepted accounting principles. The delivery requirements of the first sentence
of this paragraph shall be deemed satisfied with respect to any fiscal quarter
if the Company delivers to the Purchaser Representative with 45 days after the
end of such fiscal quarter (or such earlier date as may be required by the SEC)
a copy of its Quarterly Report on Form 10-Q as filed with the SEC for such
quarter.
(c) The Company shall furnish to the Purchaser Representative,
within 30 days after the end of each calendar month, an unaudited consolidated
balance sheet of the Company and its Subsidiaries as of the end of such month
and the related unaudited consolidated statement of operations, stockholders'
equity (deficit) and cash flows for such month and for the fiscal year to date,
setting forth in each case in comparative form the corresponding figures for
the budget for the current fiscal year (which, for any period on or after
delivery of the first Operating Budget (as defined in Section 7.2(d)), shall be
the relevant Operating Budget), or such other financial information as
otherwise agreed to by the parties hereto. All such statements shall be
certified by the Chief Financial Officer of the Company to the effect that such
statements fairly present the financial condition of the Company and its
Subsidiaries as of the dates shown and the results of their operations for the
periods then ended and that such statements have been prepared in conformity
with generally accepted
13
14
accounting principles consistently applied except for normal, recurring, year-
end audit adjustments and the absence of footnotes.
(d) Commencing with the Company's fiscal year commencing January
1, 1999, the Company shall furnish to the Purchaser Representative, as soon as
practicable and in any event not less than 60 days prior to the end of each
fiscal year of the Company, (i) an annual operating budget for the Company and
its Subsidiaries, for the succeeding fiscal year, containing projections of
profit and loss, cash flow and ending balance sheets for each month of such
fiscal year (each an "Operating Budget") and (ii) a Business Plan (as defined
in Section 7.19) for the Company and its Subsidiaries. The Company shall
furnish to the Purchaser Representative within five days after the date the
Board of Directors has approved each Operating Budget and Business Plan, which
shall be no later than 60 days after the beginning of each fiscal year, such
Operating Budget and Business Plan as approved by the Board of Directors.
Promptly upon preparation thereof, the Company shall furnish to the Purchaser
Representative any other operating budgets or business plans that the Company
may prepare and any revisions or modifications of such previously furnished
Operating Budgets or Business Plans.
(e) The annual statements and quarterly statements furnished
pursuant to Sections 7.02(a) and (b) shall include a narrative discussion
prepared by the Company describing the business operations of the Company and
its Subsidiaries during the period covered by such statements. The monthly
statements furnished pursuant to Section 7.02(c) shall be accompanied by a
statement describing any material events, transactions or deviations from the
relevant Business Plan and containing an explanation of the causes and
circumstances thereof.
7.3. Certificates of Compliance. The Company covenants that
promptly after the occurrence of any default hereunder or any default under or
breach of any material agreement, or any other material adverse event or
circumstance affecting the financial condition, operating results, employee or
customer relations or prospects of, or otherwise with respect to, the Company
or any Subsidiary, it will deliver to the Purchaser Representative an Officers'
Certificate specifying in reasonable detail the nature and period of existence
thereof, and what actions the Company has taken and proposes to take with
respect thereto.
7.4. Other Reports and Inspection. The Company will furnish to
Purchasers (a) as soon as practicable after issuance, copies of any financial
statements or reports prepared by the Company for, or otherwise furnished to,
its stockholders or the SEC and (b) promptly, such other documents, reports and
financial data as Purchasers may reasonably request. In addition the Company
will, upon reasonable prior notice, make available to Purchasers or its
representatives or designees (x) all assets, properties and business records of
the Company and its Subsidiaries for inspection and/or copying and (y) the
directors, officers and employees of the Company and its Subsidiaries for
interviews concerning the business, affairs and finances of the Company and its
Subsidiaries.
7.5. Insurance. The Company will, and will cause its
Subsidiaries to, at all times maintain valid policies of worker's compensation
insurance and such other insurance with respect to its properties and business
of the kinds and in amounts not less than is customarily maintained by
corporations engaged in the same or similar business and similarly situated,
including, without limitation, insurance against fire, loss, damage, theft,
public liability and other risks. The activities and operations of the Company
and its Subsidiaries shall be conducted in a manner to conform in all material
respects to all applicable provisions of such policies.
7.6. Use of Proceeds; Restriction on Payments. (a) The
Company shall use the net proceeds from the sale of the Preferred Shares and
Warrants for general corporate purposes. The Company covenants and agrees that
it will not directly or indirectly use any of the proceeds to (i) repay any
indebtedness of the Company, including but not limited to any indebtedness to
officers, employees, directors or principal stockholders of the Company, but
excluding accounts payable incurred in the ordinary course of business or (ii)
redeem, repurchase or otherwise acquire any equity or equity-linked security of
the Company. The Company shall not make any payment or series of related
payments in excess of $25,000 without the prior written consent of the
Purchaser Representative, provided that subsequent to the effectiveness of the
Shelf
14
15
Registration Statement (as defined in Section 8.1), so long as the Company has
not less than $1,000,000 of cash and cash-equivalents, the written consent of
the Purchaser Representative shall not be required unless such payment or
series of related payments is in excess of $100,000.
(b) Notwithstanding anything to the contrary in this Agreement
or any other Operative Document, the Company shall set aside and hold in a
segregated, escrow account satisfactory to the Purchasers, $1,500,000 in cash
from the proceeds of the sale of the Preferred Shares until the later of (x)
the receipt of the Required Shareholder Approvals (as defined in Section 7.29)
and (y) the declaration of effectiveness of the Shelf Registration Statement.
7.7. Material Changes. The Company will promptly notify the
Purchaser Representative of any material adverse change in the business,
properties, prospects, assets or condition, financial or otherwise, of the
Company or its Subsidiaries, or any other material adverse event or
circumstance affecting the Company or its Subsidiaries, and of any litigation
or governmental proceeding pending or, to the knowledge of the Company,
threatened in writing against the Company or its Subsidiaries or against any
director or officer of the Company or its Subsidiaries (excluding any material
appearing on an internet "chat" or "bulletin" board).
7.8. Transactions with Affiliates. Except for the transactions
contemplated by this Agreement, the Company shall not, and shall cause its
Subsidiaries not to, (a) engage in any transaction with, (b) make any loans to,
nor (c) enter into any contract, agreement or other arrangement (i) providing
for (x) the employment of, (y) the furnishing of services by, or (z) the rental
of real or personal property from, or (ii) otherwise requiring payments to, any
officer, director or key employee of the Company or its Subsidiaries or any
relative of such persons or any other "affiliate" or "associate" of such
persons (as such terms are defined in the rules and regulations promulgated
under the Securities Act), without the prior written approval of the
Purchasers.
7.9. Trading Restrictions. During the 30 Trading Days prior
to the Reset Date (as such term is defined in the Certificate of Designations),
the Company shall not directly or indirectly purchase or redeem any shares of
Common Stock or resolve or contract to do any of the foregoing.
7.10. Corporate Existence, Licenses and Permits; Maintenance of
Properties; New Businesses. The Company will, and will cause its Subsidiaries
to, at all times conduct its business in the ordinary course and cause to be
done all things necessary to maintain, preserve and renew its existence and
will preserve and keep in force and effect, all licenses, permits and
authorizations necessary to the conduct of its business. The Company will, and
will cause its Subsidiaries to, also maintain and keep its properties in good
repair, working order and condition, and from time to time, to make all needful
and proper repairs, renewals and replacements, so that the business carried on
in connection therewith may be properly conducted at all times.
7.11. Other Material Obligations. The Company will, and will
cause its Subsidiaries to, comply with, (a) all material obligations which it
is subject to, or becomes subject to, pursuant to any contract or agreement,
whether oral or written, as such obligations are required to be observed or
performed, unless and to the extent that the same are being contested in good
faith and by appropriate proceedings and the Company and the Subsidiaries have
set aside on their books adequate reserves with respect thereto, and (b) all
applicable laws, rules, and regulations of all governmental authorities, the
violation of which could have a material adverse effect upon the business,
financial condition, operating results, employee or customer relations or
prospects of, or otherwise with respect to of the Company or its Subsidiaries.
7.12. Amendment to the Certificate of Incorporation and the By-
Laws. The Company will perform and be in compliance with and observe all of
the provisions set forth in its Certificate of Incorporation and By-Laws to the
extent that the performance of such obligations is legally permissible;
provided that the fact that performance is not legally permissible will not
prevent such nonperformance from constituting an event of default under this
Agreement. Except with the consent of the Purchaser Representative, the Company
will not amend its Certificate of Incorporation or By-Laws or any Certificate
of Designations for any other series of Preferred Stock of the Company so as to
affect adversely the rights of Purchasers under the
15
16
Operative Documents, the Certificate of Incorporation, the By-Laws, or the
Preferred Shares. The provisions of this Section 7.12 shall not be deemed to
prohibit (i) a combination of the outstanding shares of Common Stock effected
at the Company's 1999 annual meeting of stockholders for purposes of satisfying
applicable NASD listing standards so long as the ratio applicable to such
combination shall have been consented to by the Purchaser Representative (which
consent shall not be unreasonably withheld) or (ii) the amendment of the
Company's charter documents to reduce the minimum number of the Company's
Directors so long as such revised minimum number shall have been consented to
by the Purchaser Representative and, following such alteration, the Company is
in compliance with (A) all applicable NASD listing standards (or the listing
standards of any national securities exchange on which the Common Stock is
listed) and (B) Section 7.20(a).
7.13. Merger; Sale of Assets. The Company shall, and, except as
set forth on Schedule 7.13, shall cause its Subsidiaries not to, not become a
party to any merger, consolidation or reorganization, or sell, lease, license,
sublicense or otherwise dispose of all or substantially all of its assets,
without the prior approval of the Purchaser Representative.
7.14. Acquisition. The Company shall, and shall cause its
Subsidiaries not to, acquire any interest in any business from any person, firm
or entity (whether by a purchase of assets, purchase of stock, merger or
otherwise) without the prior approval of the Purchaser Representative, except
the acquisition of 1% or less of any class of outstanding securities of a
company whose securities are listed on a national securities exchange or which
has not fewer than 1,000 stockholders and except as otherwise specifically
permitted pursuant to the provisions of this Agreement.
7.15. Dividends; Distributions; Repurchases of Common Stock;
Treasury Stock. The Company shall, and shall cause its Subsidiaries not to,
declare or pay any dividends on, or make any other distribution with respect
to, its capital stock, whether now or hereafter outstanding, or purchase,
acquire, redeem or retire any shares of its capital stock, without the consent
of the Purchaser Representative, provided, however, the foregoing shall not
prohibit any dividend, distribution, purchase, acquisition, redemption or
retirement of, or with respect to, any Preferred Shares in accordance with the
Certificate of Designations.
7.16. Consents and Waivers. (a) The Company has obtained all
consents and waivers needed to enable it to perform all of its obligations
under the Operative Agreements and the transactions contemplated hereby.
(b) The Company has obtained from all holders of options,
warrants and other securities of the Company having any right of first refusal,
offer, sale, negotiation or similar rights or antidilution or other rights
(other than the holders of the Company's Class B Warrants) to have the terms
(including, without limitation, conversion or exercise prices or rates) of such
instruments adjusted by virtue of the purchase and sale of the Preferred Shares
and the Warrants or the other transactions contemplated by the Operative
Documents, a written waiver in form and substance satisfactory to Purchasers
and their counsel.
7.17. Taxes and Liens. The Company shall, and shall cause its
Subsidiaries to, duly pay and discharge when payable, all taxes, assessments
and governmental charges imposed upon or against the Company and its
Subsidiaries or their properties, or any part thereof or upon the income or
profits therefrom, in each case before the same become delinquent and before
penalties accrue thereon, as well as all claims for labor, materials or
supplies which if unpaid might by law become a lien upon any of their property,
unless and to the extent that the same are being contested in good faith and by
appropriate proceedings and the Company and the Subsidiaries has set aside on
its books adequate reserves with respect thereto.
7.18. Restrictive Agreement. The Company covenants and agrees
that subsequent to the Closing, it shall, and shall cause its Subsidiaries not
to, be a party to any agreement or instrument which by its terms would restrict
the Company's performance of its obligations pursuant to this Operative
Documents, the Certificate of Incorporation or By-laws of the Company, the
Preferred Shares or the Warrants.
7.19. Business Plan. Commencing with the Company's fiscal year
commencing January 1, 1999, the Company's Chief Financial Officer shall prepare
or have prepared and submit to the Board of
16
17
Directors not less than 60 days prior to the beginning of each fiscal year of
the Company, an updated business plan (the "Business Plan") for such year which
shall set forth the Company's and its Subsidiaries' product development,
marketing and servicing plans, capital expenditures and expense budgets and
shall encompass a statement of long range strategy over a five-year period and
short-range tactics over a two-year period. The Business Plan shall specify
quantitative and qualitative goals for the Company and its Subsidiaries and
relate the attainment of those goals to the Company's and its Subsidiaries'
strategic objectives.
7.20. Director and Observer. (a) The Purchaser Representative
shall be entitled to designate a Director to the Board of Directors of the
Company. If necessary, the Board of Directors of the Company will elect such
person to the Board of Directors by creating a new position on the Board of
Directors promptly following such person's nomination by the Purchaser
Representative and shall nominate such person for election in connection with
any stockholder vote for Directors, and the Company will use its best efforts
to ensure that the stockholders of the Company agree to vote all their
securities in favor of such person's election. The Company agrees to vote all
voting securities for which the Company holds proxies, granting it voting
discretion, or is otherwise entitled to vote, in favor of, and to use its best
efforts in all respect to cause, the election of each such individual proposed
by the Purchaser Representative. In the event that a vacancy is created on the
Board of Directors at any time by the death, disability, resignation or removal
(with or without cause) of any such individual proposed and nominated by the
Purchaser Representative pursuant to this Agreement, the Company will, and will
use its best efforts to ensure that the stockholders of the Company, vote all
its voting securities to elect the individual proposed by the Purchaser
Representative to fill such vacancy and serve as a voting Director. Any
Director or observer of the Purchaser Representative pursuant to this Article 8
shall enter into a mutually satisfactory confidentiality agreement containing
reasonable terms and conditions and similar in form and substance to that
agreed to by each other Director of the Company. Such Director (or observer)
shall also be subject to the terms and conditions of the Company's policies on
trading restrictions.
(b) In addition to the rights set forth in Section 7.20(a), from
and after the First Closing Date, until such time as Purchasers or their
Affiliates shall not beneficially own any securities of the Company, the
Purchasers shall be entitled to designate nonvoting observers who shall be
entitled to attend all meetings of the Board of Directors and any of its
committees and who shall be provided (i) reasonable prior notice of all
meetings of the Board of Directors and any of its committees, (ii) reasonable
prior notice of any action that the Board of Directors or any of its committees
may take by written consent, (iii) promptly delivered copies of all minutes and
other records of action by, and all written information furnished to, the Board
of Directors or any of its committees and (iv) any other information requested
by such observer which a member of the Board of Directors would be entitled to
request to discharge his or her duties. Such observers shall be entitled to the
same rights to expense reimbursement for attendance at meeting as any outside
Director.
(c) If the Purchaser Representative gives notice to the Company
that the Purchasers desire to remove a Director proposed by the Purchasers or
the Purchaser Representative pursuant to this Agreement, the Company shall, and
shall use its best effort to ensure that the stockholders of the Company shall,
vote all its voting securities in favor of removing such Director if a vote of
holders of such securities shall be required to remove the Director, and the
Company agrees to take any action necessary to facilitate such removal.
(d) Each Director nominated by the Purchasers shall be entitled
to the same type and an amount of compensation at least equal to the highest
amount payable to any other Director for serving in such capacity.
(e) Concurrently with either Closing Date, if requested by the
Purchaser Representative, the Company shall have caused the appointment of the
initial Directors nominated by the Purchaser Representative, to its Board of
Directors in accordance with the provisions of this Section 7.20, which
individuals shall be identified in writing to the Company by such time.
(f) At any time that a designee of the Purchaser Representative
serves on the Company's Board of Directors, the Purchasers shall be entitled to
representation on any committee of the Board of Directors proportionate with
their representation of the Board as a whole.
17
18
7.21. Board of Directors. (a) The Company shall promptly
reimburse each Director or observer of the Company designated by the Purchaser
Representative who is not an employee of the Company for all of his reasonable
expenses incurred in attending each meeting of the Board of Directors of the
Company or any committee thereof.
(b) The Company shall at all times maintain provisions in its
By-laws and/or Certificate of Incorporation indemnifying all directors against
liability and absolving all directors from liability to the Company and its
stockholders to the maximum extent permitted under the laws of the State of
Delaware.
(c) The By-laws of the Company shall always contain provisions
consistent with the provisions of this Section 7.21 except to the extent this
Section 7.21 deals with the possible observer.
(d) For so long as any designee of the Purchaser Representative
is a director of the Company, procure and maintain director and officer
liability insurance in adequate amounts with a reputable insurance carrier.
7.22. No Subsidiaries. Except for extant Subsidiaries, the
Company will not create or acquire any entity that would be a Subsidiary (as
defined in Section 9.11 without the prior written consent of the Purchaser
Representative.
7.23. Publicity. (a) The Company shall not issue any press
release or make any other public announcement with respect to this Agreement or
the transactions contemplated hereby or utilizing the names of Purchasers or
their officers, directors, employees, agents or Affiliates without obtaining
the prior approval of Purchasers, except as may be required by law or the
regulations of any securities exchange or the Nasdaq National Market.
(b) Except as may be required by law or the regulations of any
securities exchange or the Nasdaq National Market, the Company shall not
disclose the names, identity, addresses or any other information regarding each
of Purchasers or any of its officers, directors, employees, shareholders,
nominees and/or designees without such Purchaser's prior written consent;
provided, however, that a copy of this Agreement with all exhibits hereto may
be filed with the SEC by the Company and that the name of each Purchaser (but
not its address) may be disclosed in the Shelf Registration Statement.
(c) After the First Closing Date, upon request of the Purchaser
Representative, the Company shall cause, at its sole expense, the immediate
publication of a "tombstone" advertisement in the Wall Street Journal (National
Edition) announcing the consummation of this Agreement and the transactions
contemplated herein, the exact form and substance of which shall be mutually
agreed upon by the Company and the Purchaser Representative.
7.24. Restriction on Securities. (a) During the 18 months
following the First Closing Date, the Company shall not, and shall cause its
Subsidiaries not to, without prior written consent of the Purchaser
Representative, issue, offer or sell any of its equity or debt securities
(including, without limitation, any securities convertible into or exercisable
for such securities); provided that the Company may issue (i) shares of Common
Stock pursuant to an Equity Purchase Agreement on the terms described on
Schedule 7.24 (the "Equity Purchase Agreement"), it being understood that the
Purchasers shall possess a right of first refusal with respect to the Equity
Purchase Agreement as set forth in Section 7.26, and (ii) shares of Common
Stock upon conversion or exercise of the Company's outstanding securities and
pursuant to exercise of options under the Option Plans in accordance with the
terms of such plan (it being agreed that the issuance of any additional options
under such plan may be effected only with the prior written consent of the
Purchaser Representative). This Section 7.24 shall not apply to the offerings
to be conducted by the Company with Paramount acting as placement agent or in
connection with the Paramount Agreements or the issuance of Common Stock
pursuant to the terms of the Certificate of Designations, the Warrants or the
Warrants issuable to Paramount pursuant to the Paramount Agreements. During the
18-months following the First Closing Date, the Company shall not, and shall
cause its Subsidiaries not to, without the prior written consent of the
Purchaser Representative, offer or sell any of its debt or equity securities in
reliance on Regulation S of the Securities Act. During the 36-
18
19
month period following the First Closing Date, the Company will not extend the
expiration date or lower the exercise price of any options or warrants, or take
any similar action with respect to any convertible securities of the Company,
without the prior written consent of the Purchaser Representative.
(b) Prior to the First Closing Date, the Company shall obtain
the written agreement of all executive officers and directors of the Company
(i) to "lock-up" all of the shares of Common Stock owned by each of them at any
time until the later of (x) 24 months following the First Closing Date and (y)
six months following the effective date of the Shelf Registration Statement
relating to the Additional Preferred Shares and Additional Warrants, (ii) not
directly or indirectly, issue, agree or offer to sell, grant an option for the
purchase or sale, assign, sell, contract to sell, sell "short" or "short
against the box" (as those terms are generally understood), pledge,
hypothecate, distribute or otherwise encumber or dispose of, any such shares
(including options, rights, warrants or other securities convertible into,
exchangeable, exercisable for or evidencing any right to purchase or subscribe
for shares of capital stock of the Company (whether or not beneficially owned
by such person) or any beneficial interest therein of any shares of the Common
Stock, (iii) not directly or indirectly purchase, contract to purchase or
otherwise acquire any shares of Common Stock during the 30 Trading Days prior
to the Reset Date, all in form and substance satisfactory to Purchasers and
their counsel.
7.25. Restriction on Liens. The Company shall not, and shall
cause its Subsidiaries not to, create or permit the imposition of any liens on
any of their assets from and after the First Closing Date without the prior
written consent of the Purchaser Representative.
7.26. Right of First Refusal (a) If the Company wishes to
enter into the Equity Purchase Agreement, in whole or in part, it shall first
give a written notice (the "Notice") to the Purchasers specifying (x) the
amount of the funds which the Company wishes to raise and (y) the equity shares
that it is offering for sale pursuant to the Equity Purchase Agreement (the
"Equity Amount"), containing an irrevocable offer (open to acceptance for a
period of 30 days after the date such Notice is received) to enter into an
Equity Purchase Agreement for the Equity Amount on terms consistent with
Schedule 7.24 and which shall be stated in the Notice (the "Terms").
(b) The Purchasers shall have the right to purchase all or a
portion of the Equity Amount; provided, however, that the Purchasers must,
within 5 days after receipt of the Notice, determine the portion of the Equity
Amount it is willing to purchase.
(c) If the offer is accepted by the Purchasers, the Purchasers
shall provide the Company with written notice of such acceptance specifying the
Equity Amount as to which the Purchasers are accepting (a "Notice of
Acceptance") within 30 days of receipt of the Notice.
(d) The closing of the purchase by the Purchasers of the
Equity Amount pursuant to this Section 7.26 shall take place at the principal
offices of the Purchaser Representative on the date chosen by the Purchasers
which date shall, except as otherwise provided in this Section 7.26, in no
event be more than 30 days after the Notice of Acceptance is given. At such
closing, the Purchasers shall deliver to the Company against delivery of duly
endorsed certificates representing the securities being sold a certified check
or checks in the appropriate amount. Such securities shall be delivered to the
Purchasers free and clear of all liens, claims, charges, security interests,
options, adverse claims or other legal or equitable encumbrances.
(e) To the extent the Purchasers' ability to consummate the
transactions to contemplated by the Equity Purchase Agreement as provided
herein (i) is limited by any law, statute, regulation, order, writ, injunction,
decree, rule, regulation, policy or guideline promulgated, or judgment entered,
by any federal, state, local or foreign court or governmental authority
applicable to the Purchasers; or (ii) would constitute or cause a material
breach or default (immediately or with notice or lapse of time or both) of any
agreement or instrument to which the Purchasers is a party or by which the
Purchasers or any of their assets are bound, the Purchasers shall have the
option to purchase any equity securities not acquired by it pursuant to this
Section 7.24 on the date chosen by the Purchasers (not later than the 15th
business day) after such date as the Purchasers learn that it is no longer so
restricted from acquiring such securities.
19
20
(f) If, at the end of the 30th day after the Notice is
received, the Purchasers have not delivered an effective Notice of Acceptance
of the offer contained in such Notice, or if it has delivered a Notice of
Acceptance covering less than all the Equity Amount, then the Company shall
have 30 days in which to enter into an Equity Purchase Agreement for the Equity
Amount not accepted for purchase by the Purchasers, at a price not lower than
the Terms and on terms not more favorable to the prospective purchaser than
those contained in the Notice, to any third party. Promptly after any
transaction pursuant to this Section 7.26, the Company shall notify the
Purchasers of the consummation thereof and shall furnish such evidence of the
completion and time of completion of such transaction and of the terms thereof
as the Purchasers may reasonably request. If, at the end of such 30-day
period, the Company has not completed the transaction for any or all of such
Equity Amount, the Company shall no longer be permitted to enter into a third
party Equity Purchase Agreement pursuant to this Section 7.26 without again
complying with this Section in its entirety. If the Company determines at any
time within such 30-day period that the transaction with respect to any or all
of such Equity Amount at a price not lower than the Terms and on terms not more
favorable to the third party than those contained in the Notice is impractical,
the Company may terminate all attempts to enter into such arrangement and
recommence the procedures of this Section in their entirety without waiting for
the expiration of such 30-day period by delivering written notice of such
decision to the Purchasers.
(g) The Purchasers shall have the right to assign, at any
time, its right to purchase all or a portion of the Equity Amount pursuant to
this Section 7.26 to any affiliate of such Purchasers or the Purchaser
Representative. Upon such assignment, such assignee shall assume all the same
rights and obligations of the Purchasers under this Section 7.26.
7.27. Restrictions on Indebtedness. The Company shall not, and
shall cause its Subsidiaries not to, incur, create, assume or permit to exist
any indebtedness except (i) indebtedness represented by the obligations of the
Company under Section 13 of the Certificate of Designations and Section 7.28,
(ii) pursuant to equipment lease financings with commercial banks or Persons
whose business consists in substantial part of engaging in such financings,
(iii) pursuant to customary accounts receivable and inventory financing in the
ordinary course of business, (iv) in an amount less than $25,000 incurred in
the ordinary course of business, provided that subsequent to the effectiveness
of the Shelf Registration Statement (as defined in Section 8.1), so long as the
Company has not less than $1,000,000 of cash and cash-equivalents, the
incurrence of indebtedness with respect to a transaction or series of
transactions not to exceed $100,000 in the ordinary course of business shall be
permitted, and (v) indebtedness for borrowed money existing on the date hereof
and disclosed in writing to the Purchasers, but not any extensions, renewals or
replacements of such indebtedness.
7.28. Repayment Upon Certain Events. In the event that (a) the Company
does not initiate the meeting of its shareholders for the purpose of obtaining
the Required Shareholder Approvals by May 28, 1999, (b) the Company does not
obtain the Required Shareholder Approvals at such meeting or by 30 days
following such meeting if such meeting is adjourned in good faith by the
Company in accordance with the Company's By-laws, (c) the Shelf Registration
Statement has not become effective by the Outside Target Date (as defined in
Section 8.6), or any other Redemption Event (as defined in Section 13 of the
Certificate of Designations) occurs, the Company shall effect the redemption of
the Series B Preferred Stock in accordance with the terms of the Certificate of
Designations and Purchasers shall be entitled to retain the Warrants issued to
them.
7.29. Required Shareholder Approvals. The Company will use its best
efforts to notice and hold a stockholders meeting as promptly as practicable
and in any event not later than May 28, 1999, to obtain any stockholder
approvals required by the Company (including those required by all applicable
agreements between the Company and the National Association of Securities
Dealers ("NASD") or the rules of the Nasdaq National Market), including,
without limitation to allow for issuance of all securities to the Purchasers
and Paramount in connection with or contemplated by the Operative Documents and
the Paramount Agreements. The "Required Shareholder Approvals" shall mean the
authorization and approval by the holders of the transactions contemplated by
the Operative Documents and the Paramount Agreements, including issuance of the
Preferred Shares, the Warrants and the Common Shares issuable pursuant to the
terms of the Preferred Shares and the Warrants, to the extent such
authorization is necessary to comply with any rule or
20
21
regulation of the NASD, the Nasdaq National Market or any other or any other
applicable law, rule or regulation of any regulatory agency or applicable stock
exchange or market.
8. Registration of Common Stock.
8.1. Registration. (i) Not later than 30 days after the First Closing Date,
the Company will file with the SEC a shelf registration statement (the "Shelf
Registration Statement") with respect to the resale of the Registrable
Securities beneficially owned by Purchasers following the First Closing. Not
later than 30 days following the Second Closing Date, the Company will amend
the Shelf Registration Statement to include the Registrable Securities
beneficially owned by Purchasers as a consequence of the Second Closing. The
Company will use its best efforts to effect the registrations, qualifications
or compliances (including, without limitation, the execution of any required
undertaking to file post-effective amendments, appropriate qualifications under
applicable blue sky or other state securities laws and appropriate compliance
with applicable securities laws, requirements or regulations) as may be
reasonably requested and as would permit or facilitate that sale and
distribution of all Registrable Securities until the distribution thereof is
complete; provided that the Company shall not be obligated to maintain the
effectiveness of the Shelf Registration Statement (and any related
qualifications and compliance) following the earlier of (x) the third
anniversary of the last Closing Date and (y) at such time as the Company shall
deliver an opinion of counsel reasonably satisfactory to the holders of
Registrable Securities (such holders, including, without limitation, the
holders of the Placement Warrants, are referred to as the "Holders') and in
form and substance satisfactory to each Holder that (i) such Holders may sell
in a single transaction all Registrable Securities then held or issuable to
such Holder on a registered securities exchange or Nasdaq market under an
applicable exemption from the registration requirements of the Securities Act
and all other applicable securities laws and (ii) all transfer restrictions and
restrictive legends with respect to such Registrable Securities will be removed
upon the consummation of such sale. Holders of Common Stock acquired pursuant
to the Equity Purchase Agreement shall be permitted to include their shares of
Common Stock in the Shelf Registration Statement provided that, in the event
the holders of Registrable Securities elect to retain an underwriter in
connection with the distribution contemplated by the Shelf Registration
Statement, the inclusion in the Shelf Registration Statement of shares of
Common Stock issued pursuant to the Equity Purchase Agreement shall be
conditioned on such underwriter consenting thereto (which consent may be
conditioned upon, among any other factors deemed relevant by such underwriter,
the holders of such shares of Common Stock disposing of such shares of Common
Stock pursuant to the related underwriting agreement).
8.2. Registration Procedures. In connection with the
registration of any Registrable Securities under the Securities Act as provided
in this Section 8, the Company will use its best efforts, as expeditiously as
possible:
(a) Prepare and file with the SEC the Shelf Registration
Statement with respect to such Registrable Securities and use its best efforts
to cause such Shelf Registration Statement to become effective as expeditiously
as possible but in any event by the Targeted Effective Date (as such term is
defined in Section 8.6(b));
(b) Prepare and file with the SEC such amendments and
supplements to such Shelf Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Shelf Registration
Statement effective until the disposition of all securities in accordance with
the intended methods of disposition by the seller or sellers thereof set forth
in such Shelf Registration Statement shall be completed, and to comply with the
provisions of the Securities Act (to the extent applicable to the Company) with
respect to such dispositions;
(c) Furnish to each seller of such Registrable Securities such
number of copies of such Shelf Registration Statement and of each such
amendment and supplement thereto (in each case including all exhibits), such
number of copies of the prospectus included in such Shelf Registration
Statement (including each preliminary prospectus), in conformity with the
requirements of the Securities Act, and such other
21
22
documents, as such seller may reasonably request, in order to facilitate the
disposition of the Registrable Securities owned by such seller;
(d) Use its best efforts to register or qualify such Registrable
Securities covered by such Shelf Registration Statement under such other
securities or blue sky laws of such jurisdictions as any seller reasonably
requests, and do any and all other acts and things which may be reasonably
necessary or advisable to enable such seller to consummate the disposition in
such jurisdictions of the Registrable Securities owned by such seller, except
that the Company will not for any such purpose be required to qualify generally
to do business as a foreign corporation in any jurisdiction wherein it would
not, but for the requirements of this Section 8.2(d) be obligated to be
qualified, to subject itself to taxation in any such jurisdiction, or to
consent to general service of process in any such jurisdiction;
(e) Provide a transfer agent and registrar for all such
Registrable Securities covered by such Shelf Registration Statement not later
than the effective date of such Shelf Registration Statement;
(f) Notify each seller of such Registrable Securities at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such Shelf Registration Statement contains an untrue
statement of a material fact or omits any fact necessary to make the statements
therein not misleading, and, at the request of any such seller, the Company
will prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not misleading;
(g) Cause all such Registrable Securities to be listed on each
securities exchange or automated over-the-counter trading system on which
similar securities issued by the Company are then listed;
(h) Enter into such customary agreements (including, in the
event Purchasers elect to engage an underwriter in connection with the Shelf
Registration Statement, an underwriting agreement containing customary terms
and conditions) and take all such other actions as reasonably required in order
to expedite or facilitate the disposition of such Registrable Securities; and
(i) Make available for inspection by any seller of Registrable
Securities, all financial and other records, pertinent corporation documents
and properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such seller in
connection with the Shelf Registration Statement pursuant to Section 8.1.
8.3 Registration and Selling Expenses. (a) All expenses
incurred by the Company in connection with the Company's performance of or
compliance with this Section 8, including, without limitation (i) all
registration and filing fees (including all expenses incident to filing with
the National Association of Securities Dealers, Inc.), (ii) blue sky fees and
expenses, (iii) all necessary printing and duplicating expenses, (iv) all fees
and disbursements of counsel and accountants retained by the Company (including
the expenses of any audit of financial statements) and (v) a single counsel
retained by the Purchaser Representative on behalf of Purchasers to represent
all Purchasers (all such expenses being called "Registration Expenses"), will
be paid by the Company except as otherwise expressly provided in this Section
8.3.
(b) The Company will, in any event, in connection with any
registration statement, pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal, accounting or other duties in connection therewith and expenses of
audits of year-end financial statements), the expense of liability insurance
and the expenses and fees for listing the securities to be registered on one or
more securities exchanges or automated over-the-counter trading systems on
which similar securities issued by the Company are then listed.
(c) Nothing in this Agreement shall be construed to prevent any
Holder or Holders of Registrable Securities from retaining such counsel as they
shall choose at their own expense.
22
23
8.4. Other Public Sales and Registrations. The Company agrees
that it will not, on its own behalf, file or cause to become effective any
other registration of any of its securities under the Securities Act or
otherwise effect a public sale or distribution of its securities (except
pursuant to registration on Form S-8 or any successor form relating to a
special offering to the employees or security holders of the Company) until at
least 180 days have elapsed after the effective date of the Shelf Registration
Statement.
8.5. Indemnification. (a) The Company shall indemnify, to the
extent permitted by law, each holder of Registrable Securities, its officers
and directors, if any, and each person, if any, who controls such holder within
the meaning of the Securities Act, against all losses, claims, damages,
liabilities and expenses (under the Securities Act 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 has furnished any amendments or supplements
thereto) or any preliminary prospectus, which registration statement,
prospectus or preliminary prospectus shall be prepared in connection with the
registration contemplated by this Section 8, 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 not misleading, except insofar as
such losses, claims, damages, liabilities or expenses are caused by any untrue
statement or alleged untrue statement contained in or by any omission or
alleged omission from information furnished in writing by such holder to the
Company in connection with the registration contemplated by this Section 8,
provided the Company will not be liable pursuant to this Section 8.5 if such
losses, claims, damages, liabilities or expenses have been caused by any
selling security holder's failure to deliver a copy of the registration
statement or prospectus, or any amendments or supplements thereto, after the
Company has furnished such holder with the number of copies required by Section
8.2(c).
(b) In connection with any registration statement in which a
holder of Registrable Securities is participating, each such holder shall
furnish to the Company in writing such information as is reasonably requested
by the Company for use in any such registration statement or prospectus and
shall severally, but not jointly, indemnify, to the extent permitted by law,
the Company, its directors and officers and each person, if any, who controls
the Company within the meaning of the Securities Act, 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 or any amendment thereof or supplement thereto or necessary to
make the statements therein not misleading, but only to the extent such losses,
claims, damages, liabilities or expenses are caused by an untrue statement or
alleged untrue statement contained in or by an omission or alleged omission
from information so furnished in writing by such holder in connection with the
registration contemplated by this Section 8. If the offering pursuant to any
such registration is made through underwriters, each such holder agrees to
enter into an underwriting agreement in customary form with such underwriters
and to indemnify such underwriters, their officers and directors, if any, and
each person who controls such underwriters within the meaning of the Securities
Act to the same extent as hereinabove provided with respect to indemnification
by such holder of the Company. Notwithstanding the foregoing or any other
provision of this Agreement, in no event shall a holder of Registrable
Securities be liable for any such losses, claims, damages, liabilities or
expenses in excess of the lesser of (a) the net proceeds received by such
holder in the offering or (b) $500,000.
(c) Promptly after receipt by an indemnified party under Section
8.5 (a) or (b) of notice of the commencement of any action or proceeding, such
indemnified party will, if a claim in respect thereof is made against the
indemnifying party under such Section, notify the indemnifying party in writing
of the commencement thereof; but the omission so to notify the indemnifying
party will not relieve it from any liability which it may have to any
indemnified party otherwise than under such Section. In case any such action or
proceeding is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein, and, to the extent that it wishes, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel approved by such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under such Section for any legal or any other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof (other than reasonable costs of investigation) unless incurred at the
written request of the indemnifying party. Notwithstanding the above, the
indemnified party
23
24
will have the right to employ counsel of its own choice in any such action or
proceeding if the indemnified party has reasonably concluded that there may be
defenses available to it which are different from or additional to those of the
indemnifying party, or counsel to the indemnified party is of the opinion that
it would not be desirable for the same counsel to represent both the
indemnifying party and the indemnified party because such representation might
result in a conflict of interest (in either of which cases the indemnifying
party will not have the right to assume the defense of any such action or
proceeding on behalf of the indemnified party or parties and such legal and
other expenses will be borne by the indemnifying party). An indemnifying party
will not be liable to any indemnified party for any settlement of any such
action or proceeding effected without the consent of such indemnifying party.
(d) If the indemnification provided for in Section 8.5(a) or (b)
is unavailable under applicable law to an indemnified party in respect of any
losses, claims, damages or liabilities referred to therein, then each
applicable indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and of
the Holders on the other in connection with the statements or omissions which
resulted in such losses, claims, damages, or liabilities, as well as any other
relevant equitable considerations. The relative fault of the Company on the one
hand and of the Holders on the other 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
Company or by the Holders and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by a party as a result of the losses,
claims, damages and liabilities referred to above shall be deemed to include,
subject to the limitations set forth in Section 8.5(c), any legal or other fees
or expenses reasonably incurred by such party in connection with investigating
or defending any action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation.
(e) Promptly after receipt by the Company or any holder of
Securities of notice of the commencement of any action or proceeding, such
party will, if a claim for contribution in respect thereof is to be made
against another party (the "contributing party"), notify the contributing party
of the commencement thereof; but the omission so to notify the contributing
party will not relieve it from any liability which it may have to any other
party other than for contribution under this Agreement. In case any such
action, suit, or proceeding is brought against any party, and such party
notifies a contributing party of the commencement thereof, the contributing
party will be entitled to participate therein with the notifying party and any
other contributing party similarly notified.
8.6. Additional Common Stock Issuable Upon Delay of Registration
and Other Events. (a) Except to the extent any delay is due to the failure of
a Holder to reasonably cooperate in providing to the Company such information
as shall be reasonably requested by the Company in writing for use in the Shelf
Registration Statement, if the Shelf Registration Statement is not filed with
the SEC within 30 days following the Closing Date (the "Outside Target Date"),
the Company shall immediately declare and issue to each Holder (i) additional
Warrants equal to 1.5% of the Warrants then held by such Holder and (ii) an
amount equal to 1.5% of the liquidation preference pursuant to Section 3 of the
Certificate of Designations of the Preferred Shares then held or issuable to
such Holder, for each day after the Outside Target Date that the Registration
Statement remains unfiled.
(b) Except to the extent any delay is due to the failure of a
Holder to reasonably cooperate in providing to the Company such information as
shall be reasonably requested by the Company in writing for use in the Shelf
Registration Statement, if the Shelf Registration Statement is not declared
effective by the SEC by the Targeted Effective Date, the Company shall
immediately declare, issue and pay for no additional consideration to each
Holder (i) additional Warrants equal to 1.5% of the Warrants then held by such
Holder and (ii) an amount equal to 1.5% of the liquidation preference pursuant
to Section 3 of the Certificate of Designations of the Preferred Shares then
held or issuable to such Holder, for each day the Shelf Registration Statement
is not declared effective by the SEC following the occurrence of the Targeted
Effective Date. As used herein, "Targeted Effective Date" shall mean the 90th
day after the Closing Date, provided that in the
24
25
event the SEC does not provide comments to the Company (or declare the Shelf
Registration Statement Effective) within (i) 35 days after the initial filing
of the Shelf Registration Statement or (ii) seven days after the filing of any
pre-effective amendment to the Shelf Registration Statement, so long as the
Company has used reasonable efforts to respond promptly to any comments pending
at the time a pre-effective amendment to the Shelf Registration Statement is
filed, the Targeted Effective Date shall be deferred for a number of days equal
to the number of days by which the SEC's response time exceeded 35 days or
seven days, as applicable.
(c) Except to the extent any delay is due to the failure of a
Holder to reasonably cooperate in providing to the Company such information as
shall be reasonably requested by the Company in writing for use in the Shelf
Registration Statement, following the declaration of the effectiveness of the
Shelf Registration Statement by the SEC, if the Shelf Registration Statement is
not maintained by Company during the period required by Section 8.1 for more
than five Trading Days (as such term is defined in the Certificate of
Designations), the Company shall immediately declare and issue to each Holder
(i) additional Warrants equal to 1.5% of the Warrants then held by such Holder
and (ii) an amount equal to 1.5% of the liquidation preference pursuant to
Section 3 of the Certificate of Designations of the Preferred Shares then held
or issuable to such Holder, for each additional Trading Day that the Shelf
Registration Statement is not effective.
(d) All shares of Common Stock issuable pursuant to this Section
8.6 shall be duly authorized, fully paid and nonassessable shares of Common
Stock and shall be included in the Shelf Registration Statement contemplated by
Section 8.1. Such shares shall be registered in Purchasers' names or the name
of the nominee(s) of Purchasers in such denominations as Purchasers shall
request pursuant to instructions delivered to the Company.
(e) All shares of Preferred Stock issuable upon exercise of the
Placement Warrants shall be deemed to be outstanding and to constitute
outstanding Preferred Shares for purposes of this Section 8.6.
9. Certain Definitions. For the purposes of this Agreement,
the following terms have the respective meanings set forth below:
9.1. "Affiliate" means any person, corporation, firm or entity
that directly or indirectly controls, is controlled by, or is under common
control with the indicated person, corporation, firm or entity.
9.2. "Common Stock" means the Company's Common Stock.
9.3. "Generally Accepted Accounting Principles" means generally
accepted accounting principles consistently applied.
9.4. "Officers' Certificate" means a certificate executed on
behalf of the Company by its President, Chairman of the Board, Chief Executive
Officer, Chief Financial Officer or Secretary.
9.5. "Person" shall mean any natural person and any
corporation, partnership, joint venture, limited liability company or other
legal person, but shall not include any governmental entity.
9.6. "Registrable Securities" means (i) the shares of Common
Stock issuable upon exercise of the Warrants and the warrants issuable upon
exercise of the Unit Purchase Option, (ii) the shares of Common Stock issuable
upon conversion of Preferred Stock (including without limitation the shares of
Common Stock issuable upon conversion of the Preferred Stock issuable upon
exercise of the Unit Purchase Option), (iii) any shares of Common Stock issued
in satisfaction of dividends accrued on the Preferred Stock and (iv) any other
shares of Common Stock now owned or hereafter acquired by Purchasers (whether
Common Stock owned directly or underlying securities of the Company that are
convertible or exchangeable directly or indirectly for shares of Common Stock)
or Paramount. Without limitation of the foregoing, any shares of Common Stock
issued pursuant to Section 8.6 or Section 13 of the Certificate of Designations
shall be deemed to be Registrable Securities and the Company shall promptly
amend the Shelf Registration Statement to include such shares in the Shelf
Registration Statement contemplated by Section 8.1 after their issuance.
25
26
9.7. "Securities" means the Preferred Shares, the Common
Shares, the Warrants and any Preferred Stock or Common Stock underlying the
foregoing whether issued at the Closing or thereafter or pursuant to the
Placement Warrants.
9.8. "Securities Act" means, as of any given time, the
Securities Act of 1933, as amended, or any similar federal law then in force.
9.9. "Securities Exchange Act" means, as of any given time, the
Securities Exchange Act of 1934, as amended, or any similar federal law then in
force.
9.10. "SEC" shall mean the United States Securities and Exchange
Commission and includes any governmental body or agency succeeding to the
functions thereof.
9.11. "Subsidiary" means any person, corporation, firm or entity
at least the majority of the equity securities (or equivalent interest) of
which are, at the time as of which any determination is being made, owned of
record or beneficially by the Company, directly or indirectly, through any
Subsidiary or otherwise.
10.1 Company Indemnities. (a) The Company agrees to
indemnify, defend and hold Purchasers and their officers, directors, partners,
employees, consultants and agents (the "Purchasers' Indemnitees") harmless from
and against any liability, obligation, claim, cost, loss, judgment, damage or
expense (including reasonable legal fees and expenses) (collectively,
"Liabilities") incurred or suffered by any of Purchasers' Indemnitees as a
result of or arising out of or in connection with the Company's breach of any
representation, warranty, covenant or agreement of the Company contained in
this Agreement.
11. Miscellaneous.
11.1. Termination; Survival of Representations, Warranties and
Covenants. Except as otherwise provided for in this Agreement all
representations, warranties, covenants and agreements contained in this
Agreement, or in any document, exhibit, schedule or certificate by any party
delivered in connection herewith shall survive the execution and delivery of
this Agreement and the Closing Dates and the consummation of the transactions
contemplated hereby, regardless of any investigation made by Purchasers or on
their behalf.
11.2. Expenses. The Company shall pay all its own expenses in
connection with this Agreement and the transactions contemplated herein. The
Company agrees to pay promptly and save the Purchasers harmless against
liability for the payment all expenses incurred by the Company and the
Purchasers in connection with the preparation and consummation of the Agreement
and the transactions contemplated herein, including but not limited to: all
costs and expenses under Section 8, including without limitation, the costs of
preparing, printing and filing with the SEC the Shelf Registration Statement
and amendments, post-effective amendments, and supplements thereto; preparing,
printing and delivering exhibits thereto and copies of the preliminary, final
and supplemental prospectuses; preparing, printing and delivering all selling
documents, including but not limited to the subscription agreement, the warrant
agreement and stock and warrant certificates; legal fees and disbursements of
the Purchasers' counsel (which amount shall be offset against payment of the
purchase price for legal fees that have been accrued up to such date and the
remainder of which shall be paid within 30 days of submission of any statements
therefor) in connection with the preparation and consummation of this Agreement
and the transactions contemplated herein, including the legal fees and costs of
negotiating and drafting any transaction documents, due diligence and any
necessary regulatory filings (including, without limitation, the Shelf
Registration Statement, Forms 3, 4 and 5 and Schedule 13-D or -G filings); the
cost of a total of three sets of bound closing volumes for the Purchasers and
their counsel; and the cost of the tombstone advertisement in the Wall Street
Journal (National Edition) pursuant to Section 7.23(c). The provisions of this
Section shall survive any termination of this Agreement in all instances,
including without limitation, (i) if the transactions contemplated by this
Agreement have not been consummated or (ii) if the transactions have been
terminated by Purchasers for any reason.
26
27
11.3. Amendments and Waivers. The Operative Documents, the
exhibits and schedules thereto and the Paramount Agreements set forth the
entire agreement and understanding among the parties as to the subject matter
hereof and merges and supersedes all prior discussions, agreements and
understandings of any and every nature among them. This Agreement may be
amended only by mutual written agreement of the Company and the Purchaser
Representative, and the Company may take any action herein prohibited or omit
to take any action herein required to be performed by it, and any breach of any
covenant, agreement, warranty or representation may be waived, only if the
Company has obtained the written consent or waiver of the Purchaser
Representative. No course of dealing between or among any persons having any
interest in this Agreement will be deemed effective to modify, amend or
discharge any part of this Agreement or any rights or obligations of any person
under or by reason of this Agreement. "Purchaser Representative" shall mean a
representative of Purchasers, elected by the Majority Holders, identified to
the Company in writing from time to time by Paramount. "Majority Holders" shall
mean the holders of a majority of the shares of Common Stock issuable pursuant
to the terms of the Preferred Stock, the Warrants (other than shares issuable
as dividends on the Preferred Stock, except to the extent outstanding). It is
agreed and understood that the Purchaser Representative shall act solely on
behalf of Purchasers and that the Purchaser Representative shall have no
duties, obligations or liabilities whatsoever to the Company by virtue of
acting as such.
11.4. Successors and Assigns. This Agreement may not be
assigned by the Company except with the prior written consent of the Purchaser
Representative. This Agreement shall be binding upon and inure to the benefit
of the Company and its permitted successors and assigns and Purchasers and
their successors and assigns. The provisions hereof which are for Purchasers'
benefit as purchasers or holders of the Preferred Shares and the Warrants are
also for the benefit of, and enforceable by, any subsequent holder of such
Preferred Shares and Warrants.
11.5. Notices. All notices, demands and other communications to
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given personally or when
mailed by certified or registered mail, return receipt requested and postage
prepaid, and addressed to the addresses of the respective parties set forth
below or to such changed addresses as such parties may have fixed by notice;
provided, however, that any notice of change of address shall be effective only
upon receipt:
If to the Company:
Neoprobe Corporation
000 Xxxxx Xxxxx Xxxxx, Xxxxx 000
Xxxxxx, XX 00000-0000
Attn: Xxxxx X. Xxxx
With a Copy to:
Benesch, Friedlander, Xxxxxx & Xxxxxxx LLP
Suite 900
00 Xxxx Xxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxx
If to the Purchasers:
The Aries Master Fund
The Aries Domestic Fund
in care of Paramount Capital Asset Management, Inc.
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxxxx X. Xxxxx
27
28
With a Copy to:
Xxxxxxx, Xxxxxxxx & Kotel,
A Professional Corporation
Tower Forty-Nine
00 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxx X. Xxxxx
11.6. Governing Law; Consent to Jurisdiction. The validity,
performance, construction and effect of this Agreement shall be governed by
those laws of the State of New York which are applicable to agreements that are
negotiated, executed, delivered and performed solely in the State of New York.
The parties hereto irrevocably consent to the jurisdiction of the courts of the
State of New York and of any federal court located in such State in connection
with any action or proceeding arising out of or relating to this Agreement, any
document or instrument delivered pursuant to, in connection with or
simultaneously with this Agreement, or a breach of this Agreement or any such
document or instrument. In any such action or proceeding, each party hereto
waives personal service of any summons, complaint or other process and agrees
that service thereof may be made in accordance with the notice provisions of
Section 11.5. Within 30 days after such service, or such other time as may be
mutually agreed upon in writing by the attorneys for the parties to such action
or proceeding, the party so served shall appear or answer such summons,
complaint or other process.
11.7. Counterparts. This Agreement may be executed in any
number of counterparts and, notwithstanding that any of the parties did not
execute the same counterpart, each of such counterparts shall, for all
purposes, be deemed an original, and all such counterparts shall constitute one
and the same instrument binding on all of the parties thereto.
11.8. Headings. The headings of the Sections are inserted as a
matter of convenience and for reference only and in no way define, limit or
describe the scope of this Agreement or the meaning of any provision hereof.
11.9. Severability. In the event that any provision of this
Agreement or the application of any provision hereof is declared to be illegal,
invalid or otherwise unenforceable by a court of competent jurisdiction, the
remainder of this Agreement shall not be affected except to the extent
necessary to delete such illegal, invalid or unenforceable provision unless the
provision held invalid shall substantially impair the benefit of the remaining
portion of this Agreement.
11.10. Freedom of Action. (a) The Purchasers and their
Affiliates shall not have any obligation to the Company not to (i) engage in
the same or similar activities or lines of business as the Company or develop
or market any products, services or technologies that does or may in the future
compete, directly or indirectly, with those of the Company, (ii) invest or own
any interest publicly or privately in, or develop a business relationship with,
any corporation, partnership or other person or entity engaged in the same or
similar activities or lines or business as, or otherwise in competition with,
the Company or (iii) do business with any client, collaborator, licensor,
consultant, vendor or customer of the Company. The Purchasers and their
officers, directors, employees or former employees and Affiliates shall not
have any obligation, or be liable, to the Company solely on account of the
conduct described in the preceding sentence. It is agreed and understood that
the preceding sentence shall not limit the obligations to the Company under
applicable law of any person acting as a director of the Company. In the event
that any Purchaser or any officer, director, employee or former employee or
Affiliate thereof acquires knowledge of a potential transaction, agreement,
arrangement or other matter which may be a corporate opportunity for a
Purchaser and the Company, no Purchaser or officer, director, employee or
former employee or Affiliate thereof shall have any duty to communicate or
offer such corporate opportunity to the Company and no Purchaser or officer,
director, employee or former employee or Affiliate thereof shall be liable to
the Company for breach of any fiduciary duty, as a stockholder or otherwise,
solely by reason of the fact that such Purchaser or officer, director, employee
or former employee or Affiliate thereof pursues or acquires such corporate
opportunity for any such person or entity, directs such corporate opportunity
to another person or entity or communicates or fails to
28
29
communicate such corporate opportunity to the Company. As used in this Section,
Purchasers shall mean any, some or all of the Purchasers and their Affiliates
(excluding the Company and the Subsidiaries as Affiliates of the Purchasers).
(b) The provisions of this Section 11.10 shall be enforceable to
the fullest extent permitted by law.
11.11. Exculpation Among Purchasers and Holders. Each Purchaser
acknowledges and agrees that it is not relying upon any other Purchaser, or any
officer, director, employee partner or affiliate of any such other Purchaser,
in making its investment or decision to invest in the Company or in monitoring
such investment. Each Purchaser agrees that no Purchaser nor any controlling
person, officer, director, stockholder, partner, agent or employee of any
Purchaser shall be liable for any action heretofore or hereafter taken or
omitted to be taken by any of them relating to or in connection with the
Company or the securities, or both.
11.12. Actions by Purchasers. Any actions permitted to be taken
by holders or Purchasers of Preferred Shares, Common Shares, Common Stock,
and/or Warrants or otherwise by any Purchaser and any consents required to be
obtained from the same under this Agreement, may be taken or given only by, in
the case of consents or actions requiring approval of a Purchaser, by the
applicable Purchaser, and in all other cases, except to the extent inconsistent
with any explicit provision of this Agreement, only by the Purchaser
Representative.
29
30
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
NEOPROBE CORPORATION
By: /s/ Xxxxx X. Xxxx
-----------------------------------------
Name: Xxxxx X. Xxxx
Title: President and Chief Executive
Officer
THE ARIES MASTER FUND,
a Cayman Island exempted Company
By: /s/ Xxxxxxx X. Xxxxxxxxx
-------------------------------------
Name:
Title:
THE ARIES DOMESTIC FUND, L.P.
By: /s/ Xxxxxxx X. Xxxxxxxxx
-------------------------------------
Name:
Title:
30
31
EXHIBIT A
Name Initial Initial
----
$ Amount Preferred Shares Warrants
-------- ---------------- --------
The Aries Master Fund, a 2,100,000 21,000 2,038,835
Cayman Island exempted
Company
The Aries Domestic Fund, L.P. 900,000 9,000 873,786
31
