_______________________________________________________________________________
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
by and among
MacroChem Corporation, as Issuer and Seller
and
the other parties named herein, as Purchasers
with respect to Seller's
Series C Cumulative Convertible Preferred Stock
and Warrants to Purchase Common Stock
December 23, 2005
_______________________________________________________________________________
TABLE OF EXHIBITS AND SCHEDULES
Exhibit A Form of Certificate of Designations, Rights and Preferences of
the Series C Cumulative Convertible Preferred Stock
Exhibit B-1 Form of Common Stock Purchase Warrant
Exhibit B-2 Form of Placement Agent Common Stock Purchase Warrant
Exhibit C Form of Closing Escrow Agreement
Exhibit D Form of Investor Rights Agreement
Exhibit E Form of Opinion of Seller's Counsel
Exhibit F Operating Budget
Schedule 1 Purchasers and Shares of Preferred Stock and Warrants
Purchased
Schedule 3 Disclosure Schedules
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (the "AGREEMENT") dated as
of December 23, 2005, by and among MacroChem Corporation, a Delaware corporation
(the "SELLER"), and each of the other persons listed on SCHEDULE 1 hereto, as
such schedule may be supplemented pursuant to Section 2.2(c) below (each is
individually referred to as a "PURCHASER" and collectively, the "PURCHASERS").
RECITALS:
WHEREAS, each of the Purchasers is willing to purchase from the Seller, and
the Seller desires to sell to the Purchasers, up to an aggregate of 1500 shares
of its Series C Cumulative Convertible Preferred Stock, $10,000 liquidation
preference per share, par value $0.01 per share (the "PREFERRED STOCK"), and
Common Stock Purchase Warrants (the "WARRANTS") entitling the holders thereof to
purchase shares of the Seller's common stock, $0.01 par value (the "COMMON
STOCK") as more fully set forth herein.
NOW THEREFORE, in consideration of the mutual promises and representations,
warranties, covenants and agreements set forth herein, the parties hereto,
intending to be legally bound, hereby agree as follows:
ARTICLE I - PURCHASE AND SALE
1.1 PURCHASE AND SALE.
(a) On the terms and subject to the conditions set forth in this Agreement,
at the Initial Closing (as defined in Section 2.2(a)), the Seller will sell and
each of the Purchasers will purchase the Preferred Stock in the amounts set
forth on SCHEDULE 1 hereto. In addition, the Seller will sell and each Purchaser
will purchase at the Initial Closing Warrants to purchase the number of shares
of Common Stock set forth on SCHEDULE 1 hereto. At any Additional Closing (as
defined in Section 2.2(c)), the Seller will sell and each of the Additional
Purchasers (as defined in Section 2.2(c)) will purchase the Additional
Securities (as defined in Section 2.2(c)) set forth next to the name of such
Additional Purchaser on SCHEDULE 1 as such schedule is supplemented pursuant to
Section 2.2(c).
(b) The shares of Common Stock issuable upon conversion of the Preferred
Stock or upon payment of dividends on the Preferred Stock are referred to herein
as the "CONVERSION SHARES," and the shares of Common Stock issuable upon
exercise of the Warrants are referred to herein as the "WARRANT SHARES."
1.2 TERMS OF THE PREFERRED STOCK AND WARRANTS. The terms and provisions of
the Preferred Stock are set forth in the form of Certificate of Designations,
Rights and Preferences of Series C Cumulative Convertible Preferred Stock,
attached hereto as EXHIBIT A (the "CERTIFICATE OF DESIGNATION"). The terms and
provisions of the Warrants are more fully set forth in the form of Common Stock
Purchase Warrant, attached hereto as EXHIBIT B-1. SCO Securities LLC ("SCO")
and/or its designees and other persons or entities are receiving warrants, in
the form attached hereto as EXHIBIT B-2 (the "PLACEMENT AGENT WARRANTS") as
compensation for services rendered in connection with each Closing of the
transactions set forth herein as provided on SCHEDULE 1 attached hereto as such
schedule is supplemented pursuant to Section 2.2(c). Such Placement Agent
Warrants shall constitute "WARRANTS" for all purposes hereunder and SCO and/or
its designees and such other persons or entities shall constitute "PURCHASERS"
for all purposes hereunder.
1.3 TRANSFERS; LEGENDS.
(a) (i) Except as required by federal securities laws and the securities
law of any state or other jurisdictions, the Preferred Stock, Conversion Shares,
Warrants and Warrant Shares (collectively, the "Securities") may be transferred,
in whole or in part, by any of the Purchasers at any time. In the case of
Preferred Stock, such transfer may be effected by delivering written transfer
instructions to the Seller, and the Seller shall reflect such transfer on its
books and records and reissue certificates evidencing the Preferred Stock upon
surrender of certificates evidencing the Preferred Stock being transferred. Any
such transfer shall be made by a Purchaser in accordance with applicable law.
Any transferee shall agree to be bound by the terms of the Investor Rights
Agreement and this Agreement. The Seller shall reissue certificates evidencing
the Securities upon surrender of certificates evidencing the Securities being
transferred in accordance with this Section 1.3(a).
(ii) In connection with any transfer of Securities other than pursuant
to an effective registration statement under the Securities Act of 1933, as
amended (the "SECURITIES ACT"), or to the Seller, the Seller may require the
transferor thereof to furnish to the Seller an opinion of counsel selected by
the transferor, such counsel and the form and substance of such opinion shall be
reasonably satisfactory to the Seller and Seller's counsel, to the effect that
such transfer does not require registration under the Securities Act; PROVIDED,
HOWEVER, that in the case of a transfer pursuant to Rule 144 under the
Securities Act, no opinion shall be required if the transferor provides the
Seller with a customary seller's representation letter, and if such sale is not
pursuant to subsection (k) of Rule 144, a customary broker's representation
letter and Form 144. Notwithstanding the foregoing, the Seller hereby consents
to and agrees to register on the books of the Seller and with any transfer agent
for the securities of the Seller, without any such legal opinion, any transfer
of Securities by a Purchaser to an Affiliate of such Purchaser, provided that
the transferee certifies to the Seller that it is an "ACCREDITED INVESTOR" as
defined in Rule 501(a) under the Securities Act and that it is acquiring the
Securities solely for investment purposes (subject to the qualifications hereof)
and not with a view to, or for, resale, distribution or fractionalization
thereof in whole or in part in violation of the Securities Act.
(iii) An "AFFILIATE" means any Person (as such term is defined below)
that, directly or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with a Person, as such terms are used
in and construed under Rule 144 under the Securities Act. With respect to a
Purchaser, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Purchaser will be
deemed to be an Affiliate of such Purchaser. A "PERSON" means any individual or
corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an
agency or subdivision of any thereof) or other entity of any kind.
(b) The certificates representing the Preferred Stock shall bear the
following legends:
"THE SHARES REPRESENTED BY, OR ISSUABLE UPON CONVERSION OR EXERCISE OF
2
SECURITIES EVIDENCED BY, THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT UNLESS, IN THE
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, SUCH REGISTRATION IS
NOT REQUIRED."
ARTICLE II - PURCHASE PRICE AND CLOSING
2.1 PURCHASE PRICE. The purchase price (the "PURCHASE PRICE") to be paid by
each Purchaser to the Seller to acquire the Preferred Stock and the applicable
Warrants shall be the amount set forth beside the name of each Purchaser on
SCHEDULE 1 hereto, as such schedule may be supplemented pursuant to Section
2.2(c) in connection with any Additional Closing. The purchase price per share
of Preferred Stock shall be $10,000 (the "PER SHARE PURCHASE PRICE").
2.2 THE CLOSING.
(a) The initial closing of the transactions contemplated under this
Agreement (the "INITIAL CLOSING") will take place as promptly as practicable,
but no later than five (5) business days following satisfaction or waiver of the
conditions set forth in Articles 6.1(a) and (b) and 6.2(a) (other than those
conditions which by their terms are not to be satisfied or waived until the
Initial Closing), at the offices of Xxxxxx and Xxxx LLP, 000 Xxxxxxxx Xxxxxx,
Xxxxxxxx, XX 00000 (or remotely via exchange of documents and signatures) or at
such other place or day as may be mutually acceptable to the Purchasers and the
Seller. The date on which the Initial Closing occurs is the "INITIAL CLOSING
DATE". Any Additional Closing (as defined below) will take place at the offices
of Xxxxxx and Xxxx LLP, 000 Xxxxxxxx Xxxxxx, Xxxxxxxx, XX 00000 (or remotely via
exchange of documents and signatures) or at such other place and on such date as
may be mutually acceptable to the Purchasers in such Additional Closing and the
Seller. The date on which the Additional Closing occurs is the "ADDITIONAL
CLOSING DATE." The term "CLOSING" shall refer to the Initial Closing and any
Additional Closing, as applicable, the term "CLOSING DATE" shall refer to the
Initial Closing Date or the Additional Closing Date, as applicable.
(b) At the Initial Closing, the Purchasers shall purchase, severally and
not jointly, and the Seller shall issue and sell, in the aggregate, 250 shares
of Preferred Stock and Warrants to purchase 100,000,000 shares of Common Stock
on the Initial Closing Date. At the Initial Closing and any Additional Closing,
each Purchaser shall purchase from the Seller, and the Seller shall issue and
sell to each Purchaser, a number of Preferred Shares equal to such Purchaser's
Purchase Price divided by the Per Share Purchase Price and a Warrant to purchase
a number of shares of Common Stock equal to the number of Conversion Shares into
which such Preferred Shares purchased by such Purchaser are then convertible
(rounded up to the nearest whole share). The Purchase Price paid by each
Purchaser in the Initial Closing shall be placed in an escrow account (the
"ESCROW ACCOUNT") pending the Initial Closing pursuant to a Closing Escrow
Agreement among the Seller, SCO and Xxxxxx and Xxxx LLP (the "ESCROW AGENT"),
which agreement shall be in the form attached hereto as EXHIBIT C (the "CLOSING
ESCROW AGREEMENT"). The Purchase Price paid by each Purchaser in any Additional
Closing shall be placed in escrow pending such Additional Closing pursuant to an
escrow agreement in a form substantially similar to the Closing Escrow
Agreement, with such changes as may be necessary or appropriate to account for
the Additional Closing (the "ADDITIONAL CLOSING ESCROW AGREEMENT"). The term
3
"Closing Escrow Agreement" as used herein shall be deemed to refer to the
Additional Closing Escrow Agreement in the case of an Additional Closing (as
defined below).
(c) After the Initial Closing, the Seller may sell up to 1250 additional
shares of Preferred Stock and additional Warrants to purchase up to 500,000,000
shares of Common Stock (subject to adjustment for reverse and forward stock
splits, stock dividends, stock combinations and other similar transactions of
the Common Stock that occur after the Initial Closing and prior to the
applicable Additional Closing) (the "ADDITIONAL SECURITIES"), to one or more
purchasers (the "ADDITIONAL PURCHASERS") as are mutually agreed upon by the
Seller and SCO, provided that (i) all such subsequent sale(s) (each an
"ADDITIONAL CLOSING") are consummated on or prior to January 31, 2006 or at such
later time as mutually agreed by the Seller and SCO and (ii) each Additional
Purchaser shall become a party to this Agreement and the Investor Rights
Agreement, by executing and delivering a counterpart signature page thereto.
SCHEDULE 1 to this Agreement shall be supplemented (A) to reflect the number of
Additional Securities purchased at each such Additional Closing, (B) to reflect
the parties purchasing such Additional Securities and (C) to reflect the
additional Placement Agent Warrants issuable upon consummation of the Additional
Closing.
(d) The Purchasers party to this Agreement hereby (i) irrevocably waive any
preemptive rights, rights of first offer, rights of first refusal, participation
rights, anti-dilution rights or other similar rights they may possess now or
hereafter, pursuant to the terms of any agreement with the Seller, the
Certificate of Designation or otherwise, with respect to sales of Additional
Securities made pursuant to this Agreement and (ii) consent to the joinder of
any Additional Purchasers to this agreement.
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Purchasers as follows:
3.1 CORPORATE EXISTENCE AND POWER; SUBSIDIARIES. The Seller and its
Subsidiaries are corporations duly incorporated, validly existing and in good
standing under the laws of the state in which they are incorporated, and have
all corporate powers required to carry on their business as now conducted. The
Seller and its Subsidiaries are duly qualified to do business as a foreign
corporation and are in good standing in each jurisdiction where the character of
the property owned or leased by them or the nature of their activities makes
such qualification necessary, except for those jurisdictions where the failure
to be so qualified would not have a Material Adverse Effect on the Seller or any
of its Subsidiaries. For purposes of this Agreement, the term "MATERIAL ADVERSE
EFFECT" means, with respect to any person or entity, a material adverse effect
on its or its Subsidiaries' condition (financial or otherwise), business,
properties, assets, liabilities (including contingent liabilities) or results of
operations, taken as a whole. True and complete copies of the Seller's
Certificate of Incorporation, as amended (the "CERTIFICATE"), and Bylaws, as
amended (the "BYLAWS"), as currently in effect and as will be in effect on the
Closing Date (collectively, the "CERTIFICATE AND BYLAWS"), have previously been
provided to the Purchasers. For purposes of this Agreement, the term
"SUBSIDIARY" or "SUBSIDIARIES" means, with respect to any entity, any
corporation or other organization of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
4
directors or other persons performing similar functions are directly or
indirectly owned by such entity or of which such entity is a partner or is,
directly or indirectly, the beneficial owner of 50% or more of any class of
equity securities or equivalent profit participation interests. The Seller has
no Subsidiaries. Therefore, all references in the representations and warranties
in this Article III to "the Seller and its Subsidiaries" or words of similar
import shall be deemed to be references only to the Seller.
3.2 CORPORATE AUTHORIZATION. The execution, delivery and performance by the
Seller of this Agreement, and the Warrants, the Closing Escrow Agreement, the
Certificate of Designation, the Investor Rights Agreement, and each of the other
documents executed pursuant to and in connection with this Agreement
(collectively, the "RELATED DOCUMENTS"), and the consummation of the
transactions contemplated hereby and thereby (including, but not limited to, the
sale and delivery of the Preferred Stock and the Warrants, but not including the
subsequent issuance of the Conversion Shares upon conversion of the Preferred
Stock and the Warrant Shares upon exercise of the Warrants) have been duly
authorized, and no additional corporate or stockholder action is required for
the approval thereof. The subsequent issuance of the Conversion Shares upon
conversion of the Preferred Stock and the Warrant Shares upon exercise of the
Warrants will be duly authorized immediately upon the effectiveness of the 1 for
6 Split (as defined below), and other than effecting the 1 for 6 Split, no
additional corporate or stockholder action is required for the approval thereof.
The Conversion Shares and the Warrant Shares have been duly reserved for
issuance by the Seller, subject to the effectiveness of the 1 for 6 Split. This
Agreement and the Related Documents have been or, to the extent contemplated
hereby or by the Related Documents, will be duly executed and delivered and
constitute the legal, valid and binding agreement of the Seller, enforceable
against the Seller in accordance with their terms, except as may be limited by
bankruptcy, reorganization, insolvency, moratorium and similar laws of general
application relating to or affecting the enforcement of rights of creditors,
whether now or hereafter in effect, and except as enforceability of its
obligations hereunder are subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
3.3 CHARTER, BYLAWS AND CORPORATE RECORDS. The minute books of the Seller
and its Subsidiaries, including, without limitation, all draft minutes not yet
approved by the board of directors, contain complete and accurate records of all
meetings and other corporate actions of the board of directors, committees of
the board of directors, incorporators and stockholders of the Seller and its
Subsidiaries to the date hereof. All material corporate decisions and actions
have been validly made or taken. All corporate books, including without
limitation the share transfer register, comply with applicable laws and
regulations and have been regularly updated. Such books fully and correctly
reflect all the decisions of the stockholders.
3.4 GOVERNMENTAL AUTHORIZATION. Except as otherwise specifically
contemplated in this Agreement and the Related Documents, and except for: (i)
the filings referenced in Section 5.11; (ii) the filing of the Certificate of
Designation; (iii) the filing of a Form D with respect to the Preferred Stock
and Warrants under Regulation D under the Securities Act; (iv) the filing of the
Registration Statement with the Commission; (v) the application(s) to each
trading market for the listing of the Conversion Shares and the Warrant Shares
for trading thereon; (vi) any filings required under state securities laws that
are permitted to be made after the date hereof; and (vii) the filing of the
amendment to the Certificate to effect the 1 for 7 Split and the 1 for 6 Split
5
(as such terms are defined below), the execution, delivery and performance by
the Seller of this Agreement and the Related Documents, and the consummation of
the transactions contemplated hereby and thereby (including, but not limited to,
the sale and delivery of the Preferred Stock and Warrants and the subsequent
issuance of the Conversion Shares and Warrant Shares upon conversion of the
Preferred Stock or otherwise or exercise of the Warrants, as applicable) by the
Seller require no action (including, without limitation, stockholder approval)
by or in respect of, or filing with, any governmental or regulatory body,
agency, official or authority (including, without limitation, Nasdaq).
3.5 NON-CONTRAVENTION. The execution, delivery and performance by the
Seller of this Agreement and the Related Documents, and the consummation by the
Seller of the transactions contemplated hereby and thereby (including the
issuance of the Conversion Shares and Warrant Shares) do not and will not (a)
contravene or conflict with the Certificate (as amended by the Certificate of
Designation) and Bylaws of the Seller and its Subsidiaries (subject, in the case
of issuance of the Conversion Shares and Warrant Shares to the effectiveness of
the 1 for 7 Split and the 1 for 6 Split (as such terms are defined below)); (b)
contravene or conflict with or constitute a violation of any provision of any
law, regulation, judgment, injunction, order or decree binding upon or
applicable to the Seller or its Subsidiaries; (c) constitute a default (or would
constitute a default with notice or lapse of time or both) under or give rise to
a right of termination, cancellation or acceleration or loss of any benefit
under any material agreement, contract or other instrument binding upon the
Seller or its Subsidiaries or under any material license, franchise, permit or
other similar authorization held by the Seller or its Subsidiaries; or (d)
result in the creation or imposition of any Lien (as defined below) on any asset
of the Seller or its Subsidiaries. For purposes of this Agreement, the term
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest, claim or encumbrance of any kind in respect of such asset.
3.6 SEC DOCUMENTS. The Seller is obligated under the Securities Exchange
Act of 1934, as amended (the "EXCHANGE ACT") to file reports pursuant to
Sections 13 or 15(d) thereof (all such reports filed or required to be filed by
the Seller, including all exhibits thereto or incorporated therein by reference,
and all documents filed by the Seller under the Securities Act, in each case,
since January 1, 2001, hereinafter called the "SEC DOCUMENTS"). The Seller has
filed all reports or other documents required to be filed under the Exchange
Act. All SEC Documents filed by the Seller (i) were prepared in all material
respects in accordance with the requirements of the Exchange Act and (ii) did
not at the time they were filed (or, if amended or superseded by a filing prior
to the date hereof, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The Seller has
previously made available (via public filings on the Securities and Exchange
Commission's (the "SEC" or the "COMMISSION") Electronic Data Gathering, Analysis
and Retrieval System) to each Purchaser a correct and complete copy of each
report which the Seller filed with the SEC under the Exchange Act for any period
ending on or after December 31, 2004 (the "RECENT REPORTS").
3.7 FINANCIAL STATEMENTS. Each of the Seller's (i) audited consolidated
balance sheet and related consolidated statements of income, cash flows and
changes in stockholders' equity (including the related notes) as of and for the
years ended December 31, 2004 and December 31, 2003 and (ii) the Seller's
6
unaudited consolidated balance sheet and related consolidated statements of
income, cash flows and changes in stockholders' equity as of and for the nine
months ended September 30, 2005, as contained in the Recent Reports (both of (i)
and (ii), collectively, the "SELLER'S FINANCIAL STATEMENTS" or the "FINANCIAL
STATEMENTS") (x) present fairly in all material respects the financial position
of the Seller and its Subsidiaries on a consolidated basis as of the dates
thereof and the results of operations, cash flows and stockholders' equity as of
and for each of the periods then ended, except that the unaudited financial
statements are subject to normal year-end adjustments, and (y) were prepared in
accordance with United States generally accepted accounting principals ("GAAP")
applied on a consistent basis throughout the periods involved, in each case,
except as otherwise indicated in the notes thereto.
3.8 COMPLIANCE WITH LAW. Except as disclosed in the Recent Reports, the
Seller and its Subsidiaries are in compliance and have conducted their business
so as to comply with all laws, rules and regulations, judgments, decrees or
orders of any court, administrative agency, commission, regulatory authority or
other governmental authority or instrumentality, domestic or foreign, applicable
to their operations, the violation of which would cause a Material Adverse
Affect. Except as disclosed in the Recent Reports, there are no judgments or
orders, injunctions, decrees, stipulations or awards (whether rendered by a
court or administrative agency or by arbitration), including any such actions
relating to affirmative action claims or claims of discrimination, pending or,
to the knowledge of the Seller, threatened against the Seller or its
Subsidiaries or against any of their properties or businesses.
3.9 NO DEFAULTS. The Seller and its Subsidiaries are not, nor since
December 31, 2004 have they received notice that they would be with the passage
of time, giving of notice, or both, (i) in violation of any provision of their
Certificate and Bylaws, except for any violation that would be cured upon
effectiveness of the 1 for 7 Split and the 1 for 6 Split (as such terms are
defined below) (ii) in default or violation of any term, condition or provision
of (A) any judgment, decree, order, injunction or stipulation applicable to the
Seller or its Subsidiaries or (B) any material agreement, note, mortgage,
indenture, contract, lease or instrument, permit, concession, franchise or
license to which the Seller or its Subsidiaries are a party or by which the
Seller or its Subsidiaries or their properties or assets may be bound, and no
circumstances exist which would entitle any party to any material agreement,
note, mortgage, indenture, contract, lease or instrument to which such Seller or
its Subsidiaries are a party, to terminate such as a result of such Seller or
its Subsidiaries, having failed to meet any material provision thereof
including, but not limited to, meeting any applicable milestone under any
material agreement or contract.
3.10 LITIGATION. Except as disclosed in the Recent Reports or on SCHEDULE
3.10, there is no action, suit, proceeding, judgment, claim or investigation
pending or, to the best knowledge of the Seller, threatened against the Seller
and its Subsidiaries which could, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect on the Seller or its Subsidiaries
or which in any manner challenges or seeks to prevent, enjoin, alter or
materially delay any of the transactions contemplated hereby, and there is no
basis for the assertion of any of the foregoing. There are no claims or
complaints existing or, to the knowledge of the Seller or its Subsidiaries,
threatened for product liability in respect of any product of the Seller or its
Subsidiaries, and the Seller and its Subsidiaries are not aware of any basis for
the assertion of any such claim.
7
3.11 ABSENCE OF CERTAIN CHANGES. Since December 31, 2004, the Seller has
conducted its business only in the ordinary course and there has not occurred,
except as set forth in the Recent Reports or any exhibit thereto or incorporated
by reference therein:
(a) Any event that could reasonably be expected to have a Material Adverse
Effect on the Seller or any of its Subsidiaries;
(b) Any amendments or changes in the Certificate or Bylaws of the Seller
and its Subsidiaries, other than on account of the filing of the Certificate of
Designation;
(c) Except as set forth on SCHEDULE 3.11(C), any
(i) incurrence, assumption or guarantee by the Seller or its
Subsidiaries of any debt for borrowed money other than for equipment
leases;
(ii) issuance or sale of any securities convertible into or
exchangeable for securities of the Seller other than to directors,
employees and consultants pursuant to existing equity compensation or stock
purchase plans of the Seller (each a "STOCK PLAN");
(iii) issuance or sale of options or other rights to acquire from the
Seller or its Subsidiaries, directly or indirectly, securities of the
Seller or any securities convertible into or exchangeable for any such
securities, other than options issued to directors, employees and
consultants in the ordinary course of business in accordance with past
practice;
(iv) issuance or sale of any stock, bond or other corporate security;
(v) discharge or satisfaction of any material Lien, other than current
liabilities incurred since December 31, 2004 in the ordinary course of
business;
(vi) declaration or making any payment or distribution to stockholders
or purchase or redemption of any share of its capital stock or other
security;
(vii) sale, assignment or transfer of any of its intangible assets
except in the ordinary course of business, or cancellation of any debt or
claim except in the ordinary course of business;
(viii) waiver of any right of substantial value whether or not in the
ordinary course of business;
(ix) material change in officer compensation except in the ordinary
course of business and consistent with past practices; or
(x) other commitment (contingent or otherwise) to do any of the
foregoing.
(d) Any creation, sufferance or assumption by the Seller or any of its
Subsidiaries of any Lien on any asset (other than Liens in connection with
equipment leases and working capital lines of credit set forth on SCHEDULE
3.11(D)) or any making of any loan, advance or capital contribution to or
8
investment in any Person in an aggregate amount which exceeds $25,000
outstanding at any time;
(e) Except as set forth on Schedule 3.11(e), any entry into, amendment of,
relinquishment, termination or non-renewal by the Seller or its Subsidiaries of
any material contract, license, lease, transaction, commitment or other right or
obligation, other than in the ordinary course of business; or
(f) Any transfer or grant of a right with respect to the trademarks, trade
names, service marks, trade secrets, copyrights or other intellectual property
rights owned or licensed by the Seller or its Subsidiaries, except as among the
Seller and its Subsidiaries.
3.12 NO UNDISCLOSED LIABILITIES. Except as set forth on Schedule 3.12 or in
the Recent Reports, and except for liabilities and obligations incurred in the
ordinary course of business since December 31, 2004, as of the date hereof, (i)
the Seller and its Subsidiaries do not have any material liabilities or
obligations (absolute, accrued, contingent or otherwise) which, and (ii) there
has not been any aspect of the prior or current conduct of the business of the
Seller or its Subsidiaries which may form the basis for any material claim by
any third party which if asserted could result in any such material liabilities
or obligations which, are not fully reflected, reserved against or disclosed in
the balance sheet of the Seller as at December 31, 2004.
3.13 TAXES. Since January 1, 2001, all tax returns and tax reports required
to be filed with respect to the income, operations, business or assets of the
Seller and its Subsidiaries have been timely filed (or appropriate extensions
have been obtained) with the appropriate governmental agencies in all
jurisdictions in which such returns and reports are required to be filed, and
all of the foregoing as filed are correct and complete and, in all material
respects, reflect accurately all liability for taxes of the Seller and its
Subsidiaries for the periods to which such returns relate, and all amounts shown
as owing thereon have been paid. Since January 1, 2001, all income, profits,
franchise, sales, use, value added, occupancy, property, excise, payroll,
withholding, FICA, FUTA and other taxes (including interest and penalties), if
any, collectible or payable by the Seller and its Subsidiaries or relating to or
chargeable against any of its material assets, revenues or income or relating to
any employee, independent contractor, creditor, stockholder or other third party
through the Closing Date, were fully collected and paid by such date if due by
such date or provided for by adequate reserves in the Financial Statements as of
and for the period ended December 31, 2004 (other than taxes accruing after such
date) and all similar items due through the Closing Date will have been fully
paid by that date or provided for by adequate reserves, whether or not any such
taxes were reported or reflected in any tax returns or filings. Since January 1,
2001, no taxation authority has sought to audit the records of the Seller or any
of its Subsidiaries for the purpose of verifying or disputing any tax returns,
reports or related information and disclosures provided to such taxation
authority, or for the Seller's or any of its Subsidiaries' alleged failure to
provide any such tax returns, reports or related information and disclosure.
Since January 1, 2001, no material claims or deficiencies have been asserted
against or inquiries raised with the Seller or any of its Subsidiaries with
respect to any taxes or other governmental charges or levies which have not been
paid or otherwise satisfied, including claims that, or inquiries whether, the
Seller or any of its Subsidiaries has not filed a tax return that it was
required to file, and, to the best of the Seller's knowledge, there exists no
reasonable basis for the making of any such claims or inquiries. Neither the
9
Seller nor any of its Subsidiaries has waived any restrictions on assessment or
collection of taxes or consented to the extension of any statute of limitations
relating to taxation.
3.14 INTERESTS OF OFFICERS, DIRECTORS AND OTHER AFFILIATES. Except as set
forth on Schedule 3.14, the description of any interest held, directly or
indirectly, by any officer, director or other Affiliate of the Seller or its
Subsidiaries (other than the interests of the Seller and its Subsidiaries in
such assets) in any property, real or personal, tangible or intangible, used in
or pertaining to Seller's business, including any interest in the Intellectual
Property (as defined in Section 3.15 hereof), as set forth in the Recent
Reports, is true and complete, and no officer, director or other Affiliate of
the Seller or its Subsidiaries has any interest in any property, real or
personal, tangible or intangible, used in or pertaining to the Seller's
business, including the Seller's Intellectual Property, other than as set forth
in the Recent Reports.
3.15 INTELLECTUAL PROPERTY. Other than as set forth in the Recent Reports:
(a) the Seller or a Subsidiary thereof has the right to use or is the sole
and exclusive owner of all right, title and interest in and to all foreign and
domestic patents, patent rights, trademarks, service marks, trade names, brands
and copyrights (whether or not registered and, if applicable, including pending
applications for registration) owned, used or controlled by the Seller and its
Subsidiaries (collectively, the "RIGHTS") and in and to each material invention,
software, trade secret, technology, product, composition, formula, method of
process used by the Seller or its Subsidiaries (the Rights and such other items,
the "INTELLECTUAL PROPERTY"), and, to the Seller's knowledge, has the right to
use the same, free and clear of any claim or conflict with the rights of others;
(b) no royalties or fees (license or otherwise) are payable by the Seller
or its Subsidiaries to any Person by reason of the ownership or use of any of
the Intellectual Property except as set forth on SCHEDULE 3.15;
(c) there have been no claims made against the Seller or its Subsidiaries
asserting the invalidity, abuse, misuse, or unenforceability of any of the
Intellectual Property, and, to its knowledge, there are no reasonable grounds
for any such claims;
(d) neither the Seller nor its Subsidiaries have made any claim of any
violation or infringement by others of its rights in the Intellectual Property,
and to the best of the Seller's knowledge, no reasonable grounds for such claims
exist; and
(e) neither the Seller nor its Subsidiaries have received notice that it is
in conflict with or infringing upon the asserted rights of others in connection
with the Intellectual Property.
3.16 RESTRICTIONS ON BUSINESS ACTIVITIES. Except as set forth on Schedule
3.16 and in the Recent Reports, there is no agreement, judgment, injunction,
order or decree binding upon the Seller or its Subsidiaries which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any business practice of the Seller or its Subsidiaries, any acquisition of
property by the Seller or its Subsidiaries or the conduct of business by the
Seller or its Subsidiaries as currently conducted or as currently proposed to be
conducted by the Seller.
3.17 PREEMPTIVE RIGHTS. Except as set forth in SCHEDULE 3.17, none of the
10
stockholders of the Seller possess any preemptive rights in respect of the
Preferred Stock or the Conversion Shares or Warrant Shares to be issued to the
Purchasers upon conversion of the Preferred Stock or exercise of the Warrants,
as applicable.
3.18 INSURANCE. The insurance policies providing insurance coverage to the
Seller or its Subsidiaries including for product liability are adequate for the
business conducted by the Seller and its Subsidiaries (currently limited to the
testing phase) and are sufficient for compliance by the Seller and its
Subsidiaries with all requirements of law and all material agreements to which
the Seller or its Subsidiaries are a party or by which any of their assets are
bound. All of such policies are in full force and effect and are valid and
enforceable in accordance with their terms, and the Seller and its Subsidiaries
have complied with all material terms and conditions of such policies, including
premium payments. None of the insurance carriers has indicated to the Seller or
its Subsidiaries an intention to cancel any such policy.
3.19 SUBSIDIARIES AND INVESTMENTS. Except as set forth in the Recent
Reports, the Seller has no Subsidiaries or Investments. For purposes of this
Agreement, the term "INVESTMENTS" shall mean, with respect to any Person, all
advances, loans or extensions of credit to any other Person, all purchases or
commitments to purchase any stock, bonds, notes, debentures or other securities
of any other Person, and any other investment in any other Person, including
partnerships or joint ventures (whether by capital contribution or otherwise) or
other similar arrangement (whether written or oral) with any Person, including
but not limited to arrangements in which (i) the Person shares profits and
losses, (ii) any such other Person has the right to obligate or bind the Person
to any third party, or (iii) the Person may be wholly or partially liable for
the debts or obligations of such partnership, joint venture or other
arrangement.
3.20 CAPITALIZATION. (a) The authorized capital stock of the Seller
consists of 100,000,000 shares of common stock, $0.01 par value per share, of
which 41,885,688 shares are issued and outstanding as of the date hereof, and
6,000,000 shares of preferred stock, issuable in one or more classes or series,
with such relative rights and preferences as the Board of Directors may
determine, of which (i) 500,000 shares have been designated as "Series A
Convertible Preferred Stock", none of which are issued and outstanding, (ii)
600,000 of which have been designated as "Series B Preferred Stock" for issuance
pursuant to that certain Rights Agreement dated as of August 13, 1999, between
the Seller and American Stock Transfer & Trust Company as Rights Agent (the
"RIGHTS AGREEMENT") none of which are issued and outstanding and (iii) 1500
shares will be, immediately prior to the Initial Closing under this Agreement,
designated as the "Series C Cumulative Convertible Preferred Stock", of which no
shares are issued and outstanding immediately prior to the execution of this
Agreement.
(b) All shares of the Seller's issued and outstanding capital stock have
been duly authorized, are validly issued and outstanding, and are fully paid and
nonassessable. No securities issued by the Seller from the date of its
incorporation to the date hereof were issued in violation of any statutory or
common law preemptive rights. There are no dividends which have accrued or been
declared but are unpaid on the capital stock of the Seller. Since January 1,
2001, all taxes required to be paid by Seller in connection with the issuance
and any transfers of the Seller's capital stock have been paid. All permits or
authorizations required to be obtained from or registrations required to be
effected with any Person in connection with any and all issuances of securities
11
of the Seller from January 1, 2001 to the date hereof have been obtained or
effected, and, since January 1, 2001, all securities of the Seller have been
issued and are held in accordance with the provisions of all applicable
securities or other laws.
3.21 OPTIONS, WARRANTS, RIGHTS. Except as set forth on SCHEDULE 3.21, there
are no outstanding (a) securities, notes or instruments convertible into or
exercisable for any of the capital stock or other equity interests of the Seller
or its Subsidiaries; (b) options, warrants, subscriptions or other rights to
acquire capital stock or other equity interests of the Seller or its
Subsidiaries; or (c) commitments, agreements or understandings of any kind,
including employee benefit arrangements, relating to the issuance or repurchase
by the Seller or its Subsidiaries of any capital stock or other equity interests
of the Seller or its Subsidiaries, any such securities or instruments
convertible or exercisable for securities or any such options, warrants or
rights. Other than the rights of the Purchasers under the Preferred Stock and
the Warrants, and except as set forth on SCHEDULE 3.21, neither the Seller nor
the Subsidiaries have granted anti-dilution rights to any person or entity in
connection with any outstanding option, warrant, subscription or any other
instrument convertible or exercisable for the securities of the Seller or any of
its Subsidiaries. Except as set forth in the Recent Reports or on Schedule 3.21,
other than the rights granted to the Purchasers under the Investor Rights
Agreement, there are no outstanding rights which permit the holder thereof to
cause the Seller or the Subsidiaries to file a registration statement under the
Securities Act or which permit the holder thereof to include securities of the
Seller or any of its Subsidiaries in a registration statement filed by the
Seller or any of its Subsidiaries under the Securities Act, and there are no
outstanding agreements or other commitments which otherwise relate to the
registration of any securities of the Seller or any of its Subsidiaries for sale
or distribution in any jurisdiction, except as set forth on SCHEDULE 3.21.
3.22 EMPLOYEES, EMPLOYMENT AGREEMENTS AND EMPLOYEE BENEFIT PLANS. Except as
set forth in the Recent Reports or on SCHEDULE 3.22, there are no material
employment, consulting, severance or indemnification arrangements, agreements,
or understandings between the Seller and any officer, director, consultant or
employee of the Seller or its Subsidiaries (the "EMPLOYMENT AGREEMENTS"). Except
as set forth on Schedule 3.22, no Employment Agreement provides for the
acceleration or change in the award, grant, vesting or determination of options,
warrants, rights, severance payments, or other contingent obligations of any
nature whatsoever of the Seller or its Subsidiaries in favor of any such parties
in connection with the transactions contemplated by this Agreement. Except as
disclosed in the Recent Reports or on SCHEDULE 3.22, the terms of employment or
engagement of all directors, officers, employees, agents, consultants and
professional advisors of the Seller and its Subsidiaries are such that their
employment or engagement may be terminated upon not more than two weeks' notice
given at any time without liability for payment of compensation or damages and
the Seller and its Subsidiaries have not entered into any agreement or
arrangement for the management of their business or any part thereof other than
with their directors or employees.
3.23 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Seller, nor any
Affiliate of the Seller, nor to the knowledge of the Seller, any agent or
employee of the Seller, any other Person acting on behalf of or associated with
the Seller, or any individual related to any of the foregoing Persons, acting
alone or together, has: (a) received, directly or indirectly, any rebates,
payments, commissions, promotional allowances or any other economic benefits,
regardless of their nature or type, from any customer, supplier, trading
12
company, shipping company, governmental employee or other Person with whom the
Seller has done business directly or indirectly; or (b) directly or indirectly,
given or agreed to give any gift or similar benefit to any customer, supplier,
trading company, shipping company, governmental employee or other Person who is
or may be in a position to help or hinder the business of the Seller (or assist
the Seller in connection with any actual or proposed transaction) which (i) may
subject the Seller to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, (ii) if not given in the past, may have
had an adverse effect on the Seller or (iii) if not continued in the future, may
adversely affect the assets, business, operations or prospects of the Seller or
subject the Seller to suit or penalty in any private or governmental litigation
or proceeding.
3.24 PRODUCTS AND SERVICES. Except as set forth on Schedule 3.24, to the
knowledge of the Seller and except as disclosed in the Recent Reports, there
exists no set of facts (i) which could furnish a basis for the withdrawal,
suspension or cancellation of any registration, license, permit or other
governmental approval or consent of any governmental or regulatory agency with
respect to any product or service developed or provided by the Seller or its
Subsidiaries, (ii) which could furnish a basis for the withdrawal, suspension or
cancellation by order of any state, federal or foreign court of law of any
product or service, or (iii) which could have a Material Adverse Effect on the
continued operation of any facility of the Seller or its Subsidiaries or which
could otherwise cause the Seller or its Subsidiaries to withdraw, suspend or
cancel any such product or service from the market or to change the marketing
classification of any such product or service. Each product or service provided
by Seller or its Subsidiaries has been provided in accordance in all material
respects with the specifications under which such product or service normally is
and has been provided and the provisions of all applicable laws or regulations.
3.25 ENVIRONMENTAL MATTERS. None of the premises or any properties owned,
occupied or leased by the Seller or its Subsidiaries (the "PREMISES") has been
used by the Seller or the Subsidiaries or, to the Seller's knowledge, by any
other Person, to manufacture, treat, store, or dispose of any substance that has
been designated to be a "HAZARDOUS SUBSTANCE" under applicable Environmental
Laws (hereinafter defined) ("HAZARDOUS SUBSTANCES") in violation of any
applicable Environmental Laws. To its knowledge, the Seller and its Subsidiaries
have not disposed of, discharged, emitted or released any Hazardous Substances
which would require, under applicable Environmental Laws, remediation,
investigation or similar response activity. No Hazardous Substances are present
as a result of the actions of the Seller or its Subsidiaries or, to the Seller's
knowledge, any other Person, in, on or under the Premises which would give rise
to any liability or clean-up obligations of the Seller or its Subsidiaries under
applicable Environmental Laws. The Seller and, to the Seller's knowledge, any
other Person for whose conduct it may be responsible pursuant to an agreement or
by operation of law, are in material compliance with all laws, regulations and
other federal, state or local governmental requirements, and all applicable
judgments, orders, writs, notices, decrees, permits, licenses, approvals,
consents or injunctions in effect on the date of this Agreement relating to the
generation, management, handling, transportation, treatment, disposal, storage,
delivery, discharge, release or emission of any Hazardous Substance (the
"ENVIRONMENTAL Laws"). Neither the Seller nor, to the Seller's knowledge, any
other Person for whose conduct it may be responsible pursuant to an agreement or
by operation of law has received any written complaint, notice, order, or
citation of any actual, threatened or alleged noncompliance with any of the
Environmental Laws, and there is no proceeding, suit or investigation pending
13
or, to the Seller's knowledge, threatened against the Seller or, to the Seller's
knowledge, any such Person with respect to any violation or alleged violation of
the Environmental Laws, and, to the knowledge of the Seller, there is no basis
for the institution of any such proceeding, suit or investigation.
3.26 LICENSES; COMPLIANCE WITH FDA AND OTHER REGULATORY REQUIREMENTS.
(a) GENERAL. Except as disclosed in the Recent Reports, the Seller holds
all material authorizations, consents, approvals, franchises, licenses and
permits required under applicable law or regulation for the operation of the
business of the Seller and its Subsidiaries as presently operated (the
"GOVERNMENTAL AUTHORIZATIONS"). All the Governmental Authorizations have been
duly issued or obtained and are in full force and effect, and the Seller and its
Subsidiaries are in material compliance with the terms of all the Governmental
Authorizations. Except as set forth on Schedule 3.26, the Seller and its
Subsidiaries have not engaged in any activity that, to their knowledge, would
cause revocation or suspension of any such Governmental Authorizations. The
Seller has no knowledge of any facts which could reasonably be expected to cause
the Seller to believe that the Governmental Authorizations will not be renewed
by the appropriate governmental authorities in the ordinary course. Neither the
execution, delivery nor performance of this Agreement shall adversely affect the
status of any of the Governmental Authorizations.
(b) REGULATORY AUTHORITIES. Without limiting the generality of the
representations and warranties made in paragraph (a) above, the Seller
represents and warrants that (i) the Seller and each of its Subsidiaries is in
material compliance with all applicable provisions of the United States Federal
Food, Drug, and Cosmetic Act and the rules and regulations promulgated
thereunder (the "FDC ACT") and equivalent laws, rules and regulations in
jurisdictions outside the United States in which the Seller or its Subsidiaries
do business, (ii) its products and those of each of its Subsidiaries that are in
the Seller's control are not adulterated or misbranded and are in lawful
distribution, (iii) all of the products marketed by and within the control of
the Seller comply in all material respects with any conditions of approval and
the terms of the application by the Seller to the appropriate Regulatory
Authorities, (iv) to the knowledge of the Seller or its Subsidiaries, no
Regulatory Authority has initiated legal action with respect to the
manufacturing of the Seller's products, such as seizures or required recalls,
and Seller uses best efforts to comply with applicable good manufacturing
practice regulations, (v) its products are labeled and promoted by the Seller
and its representatives in substantial compliance with the applicable terms of
the marketing applications submitted by the Seller to the Regulatory Authorities
and the provisions of the FDC Act and foreign equivalents, (vi) all adverse
events that were known to and required to be reported by Seller to the
Regulatory Authorities have been reported to the Regulatory Authorities in a
timely manner, (vii) neither the Seller nor any of its Subsidiaries is, to their
knowledge, employing or utilizing the services of any individual who has been
debarred under the FDC Act or foreign equivalents, (viii) all stability studies
required to be performed for products distributed by the Seller or any of its
Subsidiaries have been completed or are ongoing in material compliance with the
applicable Regulatory Authority requirements, (ix) any products exported by the
Seller or any of its Subsidiaries have been exported in compliance with the FDC
Act and (x) the Seller and its Subsidiaries is in compliance in all material
respects with all applicable provisions of the Controlled Substances Act. For
purposes of this Article 3.26, "REGULATORY AUTHORITY" means any governmental
authority in a country or region that regulates the manufacture or sale of
Seller's products, including, but not limited to, the United States Food and
Drug Administration.
14
3.27 BROKERS. Except as set forth on SCHEDULE 3.27, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement,
based upon any arrangement made by or on behalf of the Seller, which would make
any Purchaser liable for any fees or commissions.
3.28 SECURITIES LAWS. Neither the Seller nor its Subsidiaries nor any agent
acting on behalf of the Seller or its Subsidiaries has taken or will take any
action which might cause this Agreement or the Preferred Stock or Warrants to
violate the Securities Act or the Exchange Act or any rules or regulations
promulgated thereunder, as in effect on the Closing Date. Assuming that all of
the representations and warranties of the Purchasers set forth in Article IV are
true, all offers and sales of capital stock, securities and notes of the Seller
were conducted and completed in compliance with the Securities Act. All shares
of capital stock and other securities issued by the Seller and its Subsidiaries
prior to the date hereof have been issued in transactions that were either
registered offerings or were exempt from the registration requirements under the
Securities Act and all applicable state securities or "BLUE SKY" laws and in
compliance with all applicable corporate laws.
3.29 DISCLOSURE. No representation or warranty made by the Seller in this
Agreement, nor in any document, written information, financial statement,
certificate, schedule or exhibit prepared and furnished by the Seller or the
representatives of the Seller pursuant hereto or in connection with the
transactions contemplated hereby, contains or will contain any untrue statement
of a material fact, or omits to state a material fact necessary to make the
statements or facts contained herein or therein not misleading in light of the
circumstances under which they were furnished.
3.30 POISON PILL. The Seller and its Board of Directors have taken all
necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the Seller's
Certificate of Incorporation (or similar charter documents) or the laws of its
state of incorporation, including, without limitation, the Rights Agreement,
that is or could become applicable to the Purchasers as a result of the
Purchasers and the Seller fulfilling their obligations or exercising their
rights under this Agreement and the Related Documents, including without
limitation the Seller's issuance of the Securities and the Purchasers' ownership
of the Securities.
3.31 1 FOR 7 REVERSE SPLIT. The stockholders of the Seller have duly
approved a 1 for 7 reverse stock split with respect to the Common Stock (the "1
FOR 7 SPLIT") and the Board of Directors has duly passed resolutions effecting
the 1 for 7 Split, effective as of a date not more than ten days following the
Initial Closing Date. No other corporate action is necessary for the 1 for 7
split to become effective other than the filing of the amendment to the
Certificate in connection therewith.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser, for itself only, hereby severally and not jointly,
represents and warrants to the Seller as follows:
15
4.1 EXISTENCE AND POWER. The Purchaser, if not a natural person, is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of such Purchaser's organization. Such Purchaser has all powers
required to bind it to the representations, warranties and covenants set forth
herein.
4.2 AUTHORIZATION. The execution, delivery and performance by the Purchaser
of this Agreement, the Related Documents to which such Purchaser is a party, and
the consummation by the Purchaser of the transactions contemplated hereby and
thereby have been duly authorized, and no additional action is required for the
approval of this Agreement or the Related Documents. This Agreement and the
Related Documents to which the Purchaser is a party have been or, to the extent
contemplated hereby, will be duly executed and delivered and constitute valid
and binding agreements of the Purchaser, enforceable against such Purchaser in
accordance with their terms, except as may be limited by bankruptcy,
reorganization, insolvency, moratorium and similar laws of general application
relating to or affecting the enforcement of rights of creditors and except that
enforceability of their obligations thereunder are subject to general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
4.3 INVESTMENT. The Purchaser is acquiring the securities described herein
for its own account and not with a view to, or for sale in connection with, any
distribution thereof, nor with the intention of distributing or reselling the
same, provided, however, that by making the representation herein, the Purchaser
does not agree to hold any of the securities for any minimum or other specific
term and reserves the right to dispose of the securities at any time in
accordance with or pursuant to a registration statement or an exemption under
the Securities Act. The Purchaser is aware that none of the securities has been
registered under the Securities Act or under applicable state securities or blue
sky laws. The Purchaser is an "ACCREDITED INVESTOR" as such term is defined in
Rule 501 of Regulation D, as promulgated under the Securities Act.
4.4 RELIANCE ON EXEMPTIONS. The Purchaser understands (a) that the
Preferred Stock and Warrants are being offered and sold to such Purchaser in
reliance upon specific exemptions from the registration requirements of United
States federal and state securities laws and (b) that the Seller is relying upon
the truth and accuracy of, and such Purchaser's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
such Purchaser set forth herein in order to determine the availability of such
exemptions and the eligibility of such Purchaser to acquire the securities and,
in connection with clause (b) above, the Purchaser consents to such reliance.
4.5 EXPERIENCE OF THE PURCHASER. The Purchaser, either alone or together
with its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment. The Purchaser is able to bear the economic
risk of an investment in the securities and, at the present time, is able to
afford a complete loss of such investment.
4.6 GENERAL SOLICITATION. The Purchaser is not purchasing the securities as
a result of any advertisement, article, notice or other communication regarding
the securities published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.
16
ARTICLE V - COVENANTS OF THE SELLER AND PURCHASERS
5.1 INSURANCE. The Seller and its Subsidiaries shall, from time to time
upon the written request of any Purchaser, promptly furnish or cause to be
furnished to such Purchaser evidence, in form and substance reasonably
satisfactory to the Purchaser, of the maintenance of all insurance maintained by
it for loss or damage by fire and other hazards, damage or injury to persons and
property, including from product liability, and under workmen's compensation
laws.
5.2 REPORTING OBLIGATIONS. So long as any of the Preferred Stock is
outstanding, and so long as any Warrant has not been exercised and has not
expired by its terms, the Seller shall furnish to the Purchasers, or any other
persons who hold any of the Preferred Stock or Warrants (provided that such
subsequent holders give notice to the Seller that they hold Preferred Stock or
Warrants and furnish their addresses) promptly upon their becoming available one
copy of (A) each report, notice or proxy statement sent by the Seller to its
stockholders generally, and of each regular or periodic report (pursuant to the
Exchange Act) and (B) any registration statement, prospectus or written
communication pursuant to the Securities Act relating to the issuance or
registration of Conversion Shares and the Warrant Shares and filed by the Seller
with the Commission or any securities market or exchange on which shares of
Common Stock are listed; provided, however, that the Seller shall have no
obligation to deliver periodic reports (pursuant to the Exchange Act) under this
Section 5.2 to the extent such reports are publicly available.
The Purchasers are hereby authorized to deliver a copy of any financial
statement or any other information relating to the business, operations or
financial condition of the Seller which may have been furnished to the
Purchasers hereunder, to any regulatory body or agency having jurisdiction over
the Purchasers or to any Person which shall, or shall have right or obligation
to succeed to all or any part of the Purchasers' interest in the Seller or this
Agreement.
5.3 INVESTIGATION. The representations, warranties, covenants and
agreements set forth in this Agreement shall not be affected or diminished in
any way by any investigation (or failure to investigate) at any time by or on
behalf of the party for whose benefit such representations, warranties,
covenants and agreements were made. Without limiting the generality of the
foregoing, the inability or failure of the Purchasers to discover any breach,
default or misrepresentation by the Seller under this Agreement or the Related
Documents (including under any certificate furnished pursuant to this
Agreement), notwithstanding the exercise by the Purchasers or other holders of
the Preferred Stock of their rights hereunder to conduct an investigation shall
not in any way diminish any liability hereunder.
5.4 USE OF PROCEEDS. The Seller covenants and agrees that the proceeds of
the Purchase Price shall be used by the Seller for working capital and general
corporate purposes; under no circumstances shall any portion of the proceeds be
applied to:
(i) accelerated repayment of debt existing on the date hereof (other
than payments made in connection with the termination of capital leases in
effect on the date hereof);
(ii) the payment of dividends or other distributions on any capital
stock of the Seller other than the Preferred Stock;
17
(iii) increased executive compensation or loans to officers, employees,
stockholders or directors, unless approved by a disinterested majority of
the Board of Directors;
(iv) the purchase of debt or equity securities of any person, including
the Seller and its Subsidiaries, except in connection with investment of
excess cash in high quality (A1/P1 or better) money market instruments
having maturities of one year or less; or
(v) any expenditure not directly related to the business of the Seller.
5.5 CORPORATE EXISTENCE. So long as a Purchaser owns Preferred Stock,
Warrants, Conversion Shares, or Warrant Shares, the Seller shall preserve and
maintain and cause its Subsidiaries to preserve and maintain their corporate
existence and good standing in the jurisdiction of their incorporation and the
rights, privileges and franchises of the Seller and its Subsidiaries (except, in
each case, in the event of a merger or consolidation in which the Seller or its
Subsidiaries, as applicable, is not the surviving entity) in each case where
failure to so preserve or maintain could have a Material Adverse Effect on the
financial condition, business or operations of the Seller and its Subsidiaries
taken as a whole.
5.6 LICENSES. The Seller shall, and shall cause its Subsidiaries to,
maintain at all times all material licenses or permits necessary to the conduct
of its business and as required by any governmental agency or instrumentality
thereof, including without limitation all FDA clearances and approvals.
5.7 LIKE TREATMENT OF PURCHASERS AND HOLDERS. Neither the Seller nor any of
its affiliates shall, directly or indirectly, pay or cause to be paid any
consideration (immediate or contingent), whether by way of interest, fee,
payment for redemption, conversion or exercise of the Securities, or otherwise,
to any Purchaser or holder of Securities, for or as an inducement to, or in
connection with the solicitation of, any consent, waiver or amendment to any
terms or provisions of this Agreement or the Related Documents, unless such
consideration is required to be paid to all Purchasers or holders of Securities
bound by such consent, waiver or amendment. The Seller shall not, directly or
indirectly, redeem any Securities unless such offer of redemption is made pro
rata to all Purchasers or holders of Securities, as the case may be, on
identical terms.
5.8 TAXES AND CLAIMS. The Seller and its Subsidiaries shall duly pay and
discharge (a) all material taxes, assessments and governmental charges upon or
against the Seller or its properties or assets prior to the date on which
penalties attach thereto, unless and to the extent that such taxes are being
diligently contested in good faith and by appropriate proceedings, and
appropriate reserves therefor have been established, and (b) all material lawful
claims, whether for labor, materials, supplies, services or anything else which
might or could, if unpaid, become a lien or charge upon the properties or assets
of the Seller or its Subsidiaries unless and to the extent only that the same
are being diligently contested in good faith and by appropriate proceedings and
appropriate reserves therefor have been established.
5.9 PERFORM COVENANTS. The Seller shall (a) make full and timely payment of
any and all payments on the Preferred Stock, and all other obligations of the
18
Seller to the Purchasers in connection therewith, whether now existing or
hereafter arising, and (b) duly comply with all the terms and covenants
contained herein and in each of the instruments and documents given to the
Purchasers in connection with or pursuant to this Agreement, all at the times
and places and in the manner set forth herein or therein.
5.10 SECURITIES LAWS DISCLOSURE; PUBLICITY. The Seller shall, within four
business days following the date of this Agreement, file a Current Report on
Form 8-K, disclosing the transactions contemplated hereby, including, without
limitation, the disclosures required pursuant to Section 5.01 of Form 8-K, and
make such other filings and notices prior to and following the Closing Date in
the manner and time required by the Commission with respect thereto. The Seller
and SCO shall consult with each other in issuing any press releases with respect
to the transactions contemplated hereby, and neither the Seller nor any
Purchaser shall issue any such press release or otherwise make any such public
statement without the prior consent of the Seller, with respect to any press
release of any Purchaser, or without the prior consent of SCO, with respect to
any press release of the Seller, except if such disclosure is required by law,
in which case the disclosing party shall promptly provide the other party with
prior notice of such public statement or communication.
5.11 SECURITIES LAW COMPLIANCE.
(a) SECURITIES ACT. The Seller shall timely prepare and file with the
Commission the form of notice of the sale of securities pursuant to the
requirements of Regulation D regarding the sale of the Preferred Stock and
Warrants under this Agreement.
(b) STATE SECURITIES LAW COMPLIANCE -- SALE. The Seller shall timely
prepare and file such applications, consents to service of process (but not
including a general consent to service of process) and similar documents and
take such other steps and perform such further acts as shall be required by the
state securities law requirements of each jurisdiction where a Purchaser
resides, as indicated on SCHEDULE 1, with respect to the sale of the Preferred
Stock and Warrants under this Agreement.
(c) STATE SECURITIES LAW COMPLIANCE --RESALE. Beginning no later than 30
days following any date, from time to time, on which the Common Stock is no
longer a "covered security" under Section 18(b)(1)(A) of the Securities Act and
continuing until either (i) the Purchasers have sold all of their Conversion
Shares and Warrant Shares under a registration statement pursuant to the
Investor Rights Agreement or (ii) the Common Stock becomes a "covered security"
under Section 18(b)(1)(A) of the Securities Act, the Seller shall maintain
within either Xxxxx'x Industrial Manual or Standard and Poor's Standard
Corporation Descriptions (or any successors to these manuals which are similarly
qualified as "recognized securities manuals" under state Blue Sky laws) an
updated listing containing (i) the names of the officers and directors of the
Seller, (ii) a balance sheet of the Seller as of a date that is at no time older
than eighteen months and (iii) a profit and loss statement of the Seller for
either the preceding fiscal year or the most recent year of operations.
5.12 NON-PUBLIC INFORMATION. The Seller agrees that neither it nor any
other Person acting on its behalf will provide any Purchaser or its agents or
counsel with any information that the Seller believes constitutes material
non-public information, unless prior thereto such Purchaser shall have executed
19
a written agreement regarding the confidentiality and use of such information.
The Seller understands and confirms that each Purchaser shall be relying on the
foregoing representations and agreement in effecting transactions in securities
of the Seller. The covenant and representation in this Section 5.12 shall not
apply to SCO while an SCO Director Designee (as defined below) serves on the
Board of Directors of the Seller or while SCO continues to serve as financial
advisor to the Seller.
5.13 LISTING OF COMMON STOCK. The Seller agrees that, if the Seller applies
to have the Common Stock listed or re-listed on any of the American Stock
Exchange, the New York Stock Exchange, the Nasdaq National Market or the Nasdaq
Capital Market (each a "TRADING MARKET"), it will include in such application
the Conversion Shares and the Warrant Shares, and will take such other action as
is necessary to cause the Conversion Shares and Warrant Shares to be listed on
such Trading Market as promptly as possible.
5.14 REVERSE STOCK SPLITS. The Seller shall effect the 1 for 7 Split not
more than ten days following the Initial Closing Date. In addition, the Seller
shall use its best efforts to obtain stockholder approval for a 1 for 6 reverse
stock split with respect to its Common Stock (the "1 FOR 6 SPLIT") and to effect
such 1 for 6 Split, in each case, as promptly as practicable following the
Initial Closing Date.
5.15 DIRECTOR DESIGNEES. For as long as at least 20% of the shares of
Preferred Stock issued pursuant to this Agreement remain outstanding, (a) SCO
Capital Partners LLC shall have the right, from time to time, to designate two
individuals, who shall be reasonably satisfactory to the then current Board of
Directors, to serve as directors of the Seller (the "SCO DIRECTOR DESIGNEES"),
(b) the Seller shall use its best efforts to cause the number of directors to be
fixed at seven, two of which shall be the SCO Director Designees (the "SCO BOARD
SEATS"), (c) the Seller shall use its best efforts to cause the SCO Director
Designees to be nominated and elected for service as directors of the Seller at
each meeting of the Seller's shareholders held for the purpose of electing
directors and (d) if at any time, or from time to time, one or more of the SCO
Board Seats is or becomes vacant for any reason prior to the next annual meeting
of shareholders, the Seller shall use its best efforts to cause such vacancy to
be filled with an SCO Director Designee. Promptly, but not more than three (3)
business days following the Initial Closing, the Seller shall increase the size
of its Board of Directors or otherwise cause two vacancies to exist on its Board
of Directors and shall cause the SCO Director Designees to be duly appointed or
elected to fill such vacancies. The following persons are hereby deemed to be
"reasonably satisfactory" pursuant to clause (a) above: Xxxxxx X. Xxxxxxxxx,
Xxxxxxx X. Xxxxx, Xxxx Xxxxxx and Xxxxxx X. Xxxxxxx.
20
5.16 CONDUCT OF BUSINESS BY THE SELLER DURING THE RESTRICTION PERIOD.
(a) Except as specifically contemplated by this Agreement or as approved by
a majority of the Board of Directors (which majority shall include at least one
SCO Director Designee) whether by written consent or at a duly-held meeting
thereof, during the period beginning on the date of the Initial Closing and
ending on the earlier of (i) such date as the Seller shall have received gross
proceeds of at least $3,500,000 in the aggregate in connection with Additional
Closings hereunder (and excluding amounts received at the Initial Closing) and
(ii) March 31, 2006 (the "RESTRICTION PERIOD"), the Seller shall, and shall
cause its Subsidiaries to, carry on its business in substantially the same
manner as currently conducted. In addition, and without limiting the generality
of the foregoing, during the Restriction Period the Seller shall not, and shall
cause its Subsidiaries not to, without the prior approval of a majority of the
Board of Directors (which majority shall include at least one SCO Director
Designee) whether by written consent or at a duly-held meeting thereof:
(i) incur any indebtedness (other than liabilities described in Section
5.16(a)(iii) below) in an amount greater than $10,000 in the aggregate,
guarantee any such indebtedness or make any loans, advances or capital
contributions to, or other investments in, any other Person;
(ii) (A) hire any employees, consultants or other independent
contractors, (B) increase the compensation payable or to become payable to
its directors, officers or employees, (C) grant any severance or
termination pay to, or enter into or amend any Employment Agreement or
severance agreement with, any director or officer of the Seller; provided
that the Seller may amend the transition agreements (the "TRANSITION
AGREEMENTS") attached as exhibits to the Form 8-K filed by the Seller on
September 16, 2005, as amended on November 30, 2005, solely to extend the
"Separation Date" as defined therein to January 31, 2006 and to provide
that the executive officers party thereto shall continue to receive a base
rate of pay through January 31, 2006 equal to one-half of their base rate
of pay in effect on August 31, 2005, (D) adopt any Stock Plan or except as
may be required or appropriate to comply with applicable law, amend any
Stock Plan, (E) grant any options or other rights to purchase equity
securities of the Seller whether pursuant to any Stock Plan or otherwise,
except for the issuance of Warrants pursuant to this Agreement, (F) make or
authorize any payment of any bonus or other amount to any director,
officer, employee or consultant of the Seller (other than reimbursement for
reasonable expenses of such Persons incurred in performance of their duties
for the Seller and upon submission of reasonable written documentation of
such expenses);
(iii) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction, in the ordinary course of
business consistent with past practice or in accordance with their terms,
of liabilities not exceeding $10,000 in the aggregate that are (A)
reflected or reserved against in, or contemplated by, the most recent
financial statements (or the notes thereto) of the Seller included in the
Recent Reports or set forth on Schedule 3.12 hereto or (B) incurred in the
ordinary course of business consistent with past practice (including,
without limitation, legal and accounting expenses) and in compliance with
this Section 5.16;
21
(iv) make or authorize any new capital expenditure or expenditures that
individually is in excess of $10,000 or in the aggregate are in excess of
$25,000;
(v) allow any insurance policy relating to the Seller's business to be
amended or terminated without replacing such policy with a policy providing
at least substantially equal coverage, insuring comparable risks and issued
by an insurance company financially comparable to the prior insurance
company;
(vi) amend or alter the Bylaws of the Seller, except as may be
necessary to comply with Section 5.15; or
(vii) enter into any contract, agreement, commitment or arrangement to
do any of the foregoing.
(b) The restrictions contained in Section 5.16(a) shall not apply to the
payment of expenses in the categories and up to the amounts set forth in the
Operating Budget attached hereto as EXHIBIT F.
ARTICLE VI - CONDITIONS TO CLOSING
6.1 CONDITIONS TO OBLIGATIONS OF PURCHASERS TO EFFECT THE CLOSING. The
obligations of a Purchaser to effect the Closing and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing, of each of the following conditions, any of which may be waived,
in writing, by a Purchaser:
(a) The Seller shall deliver or cause to be delivered to each of the
Purchasers (as applicable) the following:
1. (i) One or more certificates evidencing the aggregate number of
shares of the Preferred Stock, duly authorized, issued, fully paid and
non-assessable, as is indicated on SCHEDULE 1 to be purchased at the
Closing by such Purchaser, registered in the name of such Purchaser, in
such denominations as is indicated on SCHEDULE 1 for such Purchaser;
(ii) One or more certificates evidencing the Warrants, registered in
the name of such Purchaser, in such denominations as is indicated on
SCHEDULE 1 for such Purchaser, pursuant to which such Purchaser shall be
initially entitled to purchase that number of shares of Common Stock as is
indicated on SCHEDULE 1; and
(iii) One or more Placement Agent Warrants to be issued to the
placement agent or its designees, registered in the name of such placement
agent or its designees, in such denominations as is indicated on SCHEDULE
1, pursuant to which such persons shall be initially entitled to purchase
that number of shares of Common Stock as is indicated on SCHEDULE 1.
2. The Investor Rights Agreement, in the form attached hereto as
EXHIBIT D (the "INVESTOR RIGHTS AGREEMENT"), duly executed by the Seller.
22
3. A legal opinion of Ropes & Xxxx LLP ("SELLER'S COUNSEL"), counsel to
the Seller, in the form attached hereto as EXHIBIT E.
4. A certificate of the Secretary of the Seller (the "SECRETARY'S
CERTIFICATE"), as of the Closing Date, in form and substance satisfactory
to the Purchasers, certifying as follows:
(i) that the Certificate of Designation authorizing the Preferred Stock
has been duly filed in the office of the Secretary of State of the State of
Delaware, and that attached to the Secretary's Certificate is true and
complete copy of the Certificate of Incorporation of the Seller, as
amended, and the Certificate of Designation;
(ii) that a true copy of the Bylaws of the Seller, as amended to the
Closing Date, is attached to the Secretary's Certificate;
(iii) that attached thereto are true and complete copies of the
resolutions of the Board of Directors of the Seller authorizing the
execution, delivery and performance of this Agreement and the Related
Documents, instruments and certificates required to be executed by it in
connection herewith and approving the consummation of the transactions in
the manner contemplated hereby including, but not limited to, the
authorization and issuance of the Preferred Stock and that such resolutions
are in full force and effect and that there are no other resolutions of the
Board of Directors with respect to the subject matter thereof;
(iv) the names and true signatures of the officers of the Seller
signing this Agreement and all other documents to be delivered in
connection with this Agreement; and
(v) such other matters as the Purchasers may reasonably request.
5. A wire transfer representing the Purchasers' reasonable legal fees
and other expenses as described in Section 8.2 hereof; such fee may, at the
election of the Purchasers, be paid out of the funds due from the
Purchasers at the Closing.
6. Proof of due filing with the Secretary of State of the State of
Delaware of the Certificate of Designation authorizing the Preferred Stock.
7. A good standing certificate of the Seller, of recent date, certified
by the Secretary of State of the State of Delaware.
8. Evidence satisfactory to the Purchasers that the Seller has taken
all necessary actions to ensure that its representation in Section 3.30 is
true.
9. Evidence satisfactory to the Purchasers that the Board of Directors
of the Seller has approved the 1 for 6 Split to become effective as soon as
practicable following receipt of stockholder approval thereof.
23
10. Such other documents as the Purchasers shall reasonably request.
(b) The Seller shall have de-listed the Common Stock from the Nasdaq
Capital Market and shall have provided evidence satisfactory to the Purchasers
to such effect.
(c) The Seller shall have entered into the Closing Escrow Agreement.
(d) As of the Closing Date, there shall have been no Material Adverse
Effect with respect to the Seller since the date hereof.
6.2 CONDITIONS TO OBLIGATIONS OF THE SELLER TO EFFECT THE CLOSING. The
obligations of the Seller to effect the Closing and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing of each of the following conditions, any of which may be waived,
in writing, by the Seller:
(a) Each of the Purchasers shall deliver or cause to be delivered to the
Seller (i) payment of the Purchase Price set forth opposite such Purchaser's
name on SCHEDULE 1, in cash by wire transfer of immediately available funds to
the Escrow Account designated in writing by the Escrow Agent prior to the date
hereof; (ii) an executed copy of this Agreement; (iii) an executed copy of the
Investor Rights Agreement; (iv) an executed written consent approving the 1 for
6 Split; and (v) such other documents as the Seller shall reasonably request.
ARTICLE VII - INDEMNIFICATION, TERMINATION AND DAMAGES
7.1 SURVIVAL OF REPRESENTATIONS. Except as otherwise provided herein, the
representations and warranties of the Seller and the Purchasers contained in or
made pursuant to this Agreement shall survive the execution and delivery of this
Agreement and the Closing Date and shall continue in full force and effect for a
period of three (3) years from the Initial Closing Date; provided, however, that
the Seller's warranties and representations under Sections 3.13 (Taxes), 3.19
(Subsidiaries and Investments), 3.20 (Capitalization), and 3.21 (Options,
Warrants, Rights), shall survive the Closing Date and continue in full force and
effect until the expiration of all applicable statutes of limitation; and
further provided that the Seller's warranties and representations under Section
3.25 (Environmental Matters) shall survive the Closing Date and continue in full
force and effect for a period of six (6) years from the Initial Closing Date.
The Seller's and the Purchasers' warranties and representations shall in no way
be affected or diminished in any way by any investigation of the subject matter
thereof made by or on behalf of the Seller or the Purchasers.
7.2 INDEMNIFICATION.
(a) The Seller agrees to indemnify and hold harmless the Purchasers, their
Affiliates, each of their officers, directors, partners, employees and agents
and their respective successors and assigns, from and against any losses,
damages, or expenses which are caused by or arise out of (i) any breach or
default in the performance by the Seller of any covenant or agreement made by
the Seller in this Agreement or in any of the Related Documents; (ii) any breach
of warranty or representation made by the Seller in this Agreement or in any of
the Related Documents (iii) any and all third party actions, suits, proceedings,
24
claims, demands, judgments, costs and expenses (including reasonable legal fees
and expenses) incident to any of the foregoing.
(b) The Purchasers, severally and not jointly, agree to indemnify and hold
harmless the Seller, its Affiliates, each of their officers, directors,
partners, employees and agents and their respective successors and assigns, from
and against any losses, damages, or expenses which are caused by or arise out of
(A) any breach or default in the performance by the Purchasers of any covenant
or agreement made by the Purchasers in this Agreement or in any of the Related
Documents; (B) any breach of warranty or representation made by the Purchasers
in this Agreement or in any of the Related Documents; and (C) any and all third
party actions, suits, proceedings, claims, demands, judgments, costs and
expenses (including reasonable legal fees and expenses) incident to any of the
foregoing; provided, however, that a Purchaser's liability under this Section
7.2(b) shall not exceed the Purchase Price paid by such Purchaser hereunder.
7.3 INDEMNITY PROCEDURE. A party or parties hereto agreeing to be
responsible for or to indemnify against any matter pursuant to this Agreement is
referred to herein as the "INDEMNIFYING PARTY" and the other party or parties
claiming indemnity is referred to as the "INDEMNIFIED PARTY". An Indemnified
Party under this Agreement shall, with respect to claims asserted against such
party by any third party, give written notice to the Indemnifying Party of any
liability which might give rise to a claim for indemnity under this Agreement
within sixty (60) business days of the receipt of any written claim from any
such third party, but not later than twenty (20) days prior to the date any
answer or responsive pleading is due, and with respect to other matters for
which the Indemnified Party may seek indemnification, give prompt written notice
to the Indemnifying Party of any liability which might give rise to a claim for
indemnity; provided, however, that any failure to give such notice will not
waive any rights of the Indemnified Party except to the extent the rights of the
Indemnifying Party are materially prejudiced.
The Indemnifying Party shall have the right, at its election, to take over
the defense or settlement of such claim by giving written notice to the
Indemnified Party at least fifteen (15) days prior to the time when an answer or
other responsive pleading or notice with respect thereto is required. If the
Indemnifying Party makes such election, it may conduct the defense of such claim
through counsel of its choosing (subject to the Indemnified Party's approval of
such counsel, which approval shall not be unreasonably withheld), shall be
solely responsible for the expenses of such defense and shall be bound by the
results of its defense or settlement of the claim. The Indemnifying Party shall
not settle any such claim without prior notice to and consultation with the
Indemnified Party, and no such settlement involving any equitable relief or
which might have an adverse effect on the Indemnified Party may be agreed to
without the written consent of the Indemnified Party (which consent shall not be
unreasonably withheld). So long as the Indemnifying Party is diligently
contesting any such claim in good faith, the Indemnified Party may pay or settle
such claim only at its own expense and the Indemnifying Party will not be
responsible for the fees of separate legal counsel to the Indemnified Party,
unless the named parties to any proceeding include both parties or
representation of both parties by the same counsel would be inappropriate due to
conflicts of interest or otherwise. If the Indemnifying Party does not make such
election, or having made such election does not, in the reasonable opinion of
the Indemnified Party proceed diligently to defend such claim, then the
Indemnified Party may (after written notice to the Indemnifying Party), at the
25
expense of the Indemnifying Party, elect to take over the defense of and proceed
to handle such claim in its discretion and the Indemnifying Party shall be bound
by any defense or settlement that the Indemnified Party may make in good faith
with respect to such claim. In connection therewith, the Indemnifying Party will
fully cooperate with the Indemnified Party should the Indemnified Party elect to
take over the defense of any such claim. The parties agree to cooperate in
defending such third party claims and the Indemnified Party shall provide such
cooperation and such access to its books, records and properties as the
Indemnifying Party shall reasonably request with respect to any matter for which
indemnification is sought hereunder; and the parties hereto agree to cooperate
with each other in order to ensure the proper and adequate defense thereof.
With regard to claims of third parties for which indemnification is payable
hereunder, such indemnification shall be paid by the Indemnifying Party upon the
earlier to occur of: (i) the entry of a judgment against the Indemnified Party
and the expiration of any applicable appeal period, or if earlier, five (5) days
prior to the date that the judgment creditor has the right to execute the
judgment; (ii) the entry of an unappealable judgment or final appellate decision
against the Indemnified Party; or (iii) a settlement of the claim.
Notwithstanding the foregoing, the reasonable expenses of counsel to the
Indemnified Party shall be reimbursed on a current basis by the Indemnifying
Party. With regard to other claims for which indemnification is payable
hereunder, such indemnification shall be paid promptly by the Indemnifying Party
upon demand by the Indemnified Party.
ARTICLE VIII - MISCELLANEOUS
8.1 FURTHER ASSURANCES. Each party agrees to cooperate fully with the other
parties and to execute such further instruments, documents and agreements and to
give such further written assurances as may be reasonably requested by any other
party to better evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement, and further agrees to take promptly, or cause to be taken, all
actions, and to do promptly, or cause to be done, all things necessary, proper
or advisable under applicable law to consummate and make effective the
transactions contemplated hereby, to obtain all necessary waivers, consents and
approvals, to effect all necessary registrations and filings, and to remove any
injunctions or other impediments or delays, legal or otherwise, in order to
consummate and make effective the transactions contemplated by this Agreement
for the purpose of securing to the parties hereto the benefits contemplated by
this Agreement.
8.2 FEES AND EXPENSES. The Seller shall be responsible for the payment of
the Purchasers' reasonable legal fees and other third-party expenses relating to
the preparation and negotiation of this Agreement and the Related Documents and
the consummation of the transactions contemplated herein and therein.
8.3 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 5:00 p.m. (New York City time) on a business
26
day, (b) the next business day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a business day or later than 5:00 p.m. (New
York City time) on any business day, or (c) the business day following the date
of mailing, if sent by U.S. nationally recognized overnight courier service such
as Federal Express. The address for such notices and communications shall be as
follows:
If to the Purchasers at each Purchaser's address set forth under its name
on SCHEDULE 1 attached hereto, or with respect to the Seller, addressed to:
MacroChem Corporation
000 Xxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxxxxxx 00000-0000
Attention: Chief Financial Officer
Facsimile No.: 000-000-0000
or to such other address or addresses or facsimile number or numbers as any
such party may most recently have designated in writing to the other parties
hereto by such notice. Copies of notices to the Seller shall be sent to Ropes &
Xxxx LLP, Xxx Xxxxxxxxxxxxx Xxxxx, Xxxxxx, XX 00000, Attn: Xxxxxx X. Xxxxxx,
Facsimile No. 000-000-0000. Copies of notices to any Purchaser shall be sent to
the addresses, if any, listed on SCHEDULE 1 attached hereto.
Unless otherwise stated above, such communications shall be effective when
they are received by the addressee thereof in conformity with this Section 8.3.
Any party may change its address for such communications by giving notice
thereof to the other parties in conformity with this Section.
8.4 GOVERNING LAW. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
enforced in accordance with the laws of the State of New York without reference
to the conflicts of laws principles thereof.
8.5 JURISDICTION AND VENUE. This Agreement shall be subject to the
exclusive jurisdiction of the Xxxxxxx Xxxxxxxx Xxxxx, Xxxxxxxx Xxxxxxxx of New
York and if such court does not have proper jurisdiction, the State Courts of
New York County, New York. The parties to this Agreement agree that any breach
of any term or condition of this Agreement shall be deemed to be a breach
occurring in the State of New York by virtue of a failure to perform an act
required to be performed in the State of New York and irrevocably and expressly
agree to submit to the jurisdiction of the Xxxxxxx Xxxxxxxx Xxxxx, Xxxxxxxx
Xxxxxxxx of New York and if such court does not have proper jurisdiction, the
State Courts of New York County, New York for the purpose of resolving any
disputes among the parties relating to this Agreement or the transactions
contemplated hereby. The parties irrevocably waive, to the fullest extent
permitted by law, any objection which they may now or hereafter have to the
laying of venue of any suit, action or proceeding arising out of or relating to
this Agreement, or any judgment entered by any court in respect hereof brought
in New York County, New York, and further irrevocably waive any claim that any
suit, action or proceeding brought in Xxxxxxx Xxxxxxxx Xxxxx, Xxxxxxxx Xxxxxxxx
of New York and if such court does not have proper jurisdiction, the State
Courts of New York County, New York has been brought in an inconvenient forum.
Each of the parties hereto consents to process being served in any such suit,
action or proceeding, by mailing a copy thereof to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
27
constitute good and sufficient service of process and notice thereof. Nothing in
this Section 8.5 shall affect or limit any right to serve process in any other
manner permitted by law.
8.6 SUCCESSORS AND ASSIGNS. This Agreement is personal to each of the
parties and may not be assigned without the written consent of the other
parties; provided, however, that any of the Purchasers shall be permitted to
assign this Agreement to any Person to whom it assigns or transfers securities
issued or issuable pursuant to this Agreement. Any assignee must be an
"ACCREDITED INVESTOR" as defined in Rule 501(a) promulgated under the Securities
Act.
8.7 SEVERABILITY. If any provision of this Agreement, or the application
thereof, shall for any reason or to any extent be invalid or unenforceable, the
remainder of this Agreement and application of such provision to other persons
or circumstances shall continue in full force and effect and in no way be
affected, impaired or invalidated.
8.8 ENTIRE AGREEMENT. This Agreement and the other agreements and
instruments referenced herein constitute the entire understanding and agreement
of the parties with respect to the subject matter hereof and supersedes all
prior agreements and understandings.
8.9 OTHER REMEDIES. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party shall be deemed cumulative with
and not exclusive of any other remedy conferred hereby or by law, or in equity
on such party, and the exercise of any one remedy shall not preclude the
exercise of any other.
8.10 AMENDMENT AND WAIVERS. Any term or provision of this Agreement may be
amended, and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only by a writing signed by the Seller and the holders of at least a majority of
the Preferred Stock then outstanding, and such waiver or amendment, as the case
may be, shall be binding upon all Purchasers. The waiver by a party of any
breach hereof or default in the performance hereof shall not be deemed to
constitute a waiver of any other default or any succeeding breach or default.
This Agreement may not be amended or supplemented by any party hereto except
pursuant to a written amendment executed by the Seller and the holders of at
least a majority of the Preferred Stock then outstanding. No amendment shall be
effected to impact a holder of Preferred Stock in a disproportionately adverse
fashion without the consent of such individual holder of Preferred Stock.
Notwithstanding the foregoing, this Agreement may be amended by the Seller
without the consent of the Purchasers (other than SCO, which must agree pursuant
to Section 2.2(c)) by supplementing SCHEDULE 1 with respect to Purchasers in any
Additional Closing and by adding any such Purchasers as parties to this
Agreement in accordance with Sections 2.2(c) and (d).
8.11 NO WAIVER. The failure of any party to enforce any of the provisions
hereof shall not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
8.12 CONSTRUCTION OF AGREEMENT; KNOWLEDGE. For purposes of this Agreement,
the term "KNOWLEDGE," when used in reference to a corporation means the
knowledge of the directors and executive officers of such corporation
(including, if applicable, any person designated as a chief scientific, medical
or technical officer) assuming such persons shall have made inquiry that is
28
customary and appropriate under the circumstances to which reference is made,
and when used in reference to an individual means the knowledge of such
individual assuming the individual shall have made inquiry that is customary and
appropriate under the circumstances to which reference is made. Whenever any
form of the word "include" is used in this Agreement, it shall be interpreted as
if it were followed by the phrase "without limitation".
8.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original as against any party whose
signature appears thereon and all of which together shall constitute one and the
same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the parties reflected hereon as signatories. In the event that any
signature is delivered by facsimile or other electronic image transmission
technology, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile signature page were an original thereof.
8.14 NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and permitted assigns, any
rights or remedies under or by reason of this Agreement.
8.15 WAIVER OF TRIAL BY JURY. THE PARTIES HERETO IRREVOCABLY WAIVE TRIAL BY
JURY IN ANY SUIT, ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
8.16 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser under this Agreement or any Related Documents are
several and not joint with the obligations of any other Purchaser, and no
Purchaser shall be responsible in any way for the performance of the obligations
of any other Purchaser under any such agreement. Nothing contained herein or in
any Related Documents, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by such agreement. Each Purchaser
shall be entitled to independently protect and enforce its rights, including
without limitation, the rights arising out of this Agreement or out of the other
Related Documents, and it shall not be necessary for any other Purchaser to be
joined as an additional party in any proceeding for such purpose. Each Purchaser
represents that it has been represented by its own separate legal counsel in its
review and negotiation of this Agreement and the Related Documents. For reasons
of administrative convenience only, the Purchasers acknowledge and agree that
they and their respective counsel have chosen to communicate with the Seller
through Xxxxxx and Xxxx LLP, but Xxxxxx and Xxxx LLP does not represent any of
the Purchasers in this transaction other than SCO.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
SELLER:
MACROCHEM CORPORATION
By:________________________________
Name:
Title:
OMNIBUS SIGNATURE PAGE TO
MACROCHEM CORPORATION
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
The undersigned hereby executes and delivers the Preferred Stock and
Warrant Purchase Agreement to which this signature page is attached,
which, together with all counterparts of the Agreement and signature
pages of the other parties named in said Agreement, shall constitute
one and the same document in accordance with the terms of the
Agreement.
Print Name:___________________________________________
By:____________________________________________________
Name:__________________________________________________
Title:_________________________________________________
Address:_______________________________________________
Telephone:_____________________________________________
Facsimile:_____________________________________________
SOC/EIN#:______________________________________________
Number of Shares of Series C Preferred Stock
Purchased______________________________________________
Number of Warrants Purchased___________________________
Aggregate Purchase Price_______________________________
SCHEDULE 1
MacroChem Corporation
Preferred Stock and Warrant Purchase Agreement
Purchasers and Shares of Preferred Stock and Warrants
____________________________________________________________________________________________________________________________________
NAME, ADDRESS AND FAX COPIES OF NOTICES TO SHARES OF PREFERRED COMMON STOCK PURCHASE PRICE
NUMBER OF PURCHASER STOCK PURCHASED UNDERLYING WARRANTS
____________________________________________________________________________________________________________________________________
SCO Capital Partners LLC
1785 Avenue of the Americas Xxxxxx and Xxxx LLP
35th Floor 000 Xxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000 Xxxxxxxx, XX 00000 200 80,000,000 $2,000,000
Attn: Xxxxxx X. Xxxxxxxxx Telephone: (000) 000-0000
T: (000) 000-0000 Facsimile: (000) 000-0000
F: (000) 000-0000 Attn: Xxxxxxx Xxxxxxx, Esq.
____________________________________________________________________________________________________________________________________
Lake End Capital LLC
00 Xxxx Xxxx Xxxxx
Xxxxxx, Xxx Xxxxxx 00000 50 20,000,000 $500,000
Attn: Xxxxxxx X. Xxxxx
T: (000) 000-0000
F: (000) 000-0000
____________________________________________________________________________________________________________________________________
Totals: $2,500,000
____________________________________________________________________________________________________________________________________
\16289\8\109421.10
