SUBSCRIPTION AGREEMENT
EXHIBIT
10.1
This
Subscription Agreement (this “Agreement”)
is
entered into as of June 5, 2006 by and among Aeolus Pharmaceuticals, Inc.,
a
Delaware corporation (together with its successors and permitted assigns, the
“Issuer”),
and
the undersigned investors (each, together with its successors and permitted
assigns, the “Investor,”
and
collectively, together with their successors and permitted assigns, the
“Investors”).
Capitalized terms used but not otherwise defined herein shall have the meanings
set forth in Section 9.1
hereof.
RECITALS
Subject
to the terms and conditions of this Agreement, the Investors desire to subscribe
for and purchase, and the Issuer desires to issue and sell to the Investors,
certain shares of the Issuer’s common stock, par value $0.01 per share (the
“Common
Stock”),
and
certain warrants to purchase shares of Common Stock. The Issuer is offering
an
aggregate of 10,000,000 shares of Common Stock at a purchase price of Fifty
Cents ($0.50) per share, together with warrants to purchase 7,000,000 shares
of
Common Stock at an exercise price of Seventy-Five Cents ($0.75) per share and
warrants to purchase 4,000,000 shares of Common Stock at an exercise price
of
Fifty Cents ($0.50), in a private placement to the Investors on the other terms
and conditions contained in this Agreement (the “Offering”),
provided that the Issuer reserves the right to issue and sell a lesser or
greater number of shares or warrants.
TERMS
OF AGREEMENT
In
consideration of the mutual representations and warranties, covenants and
agreements contained herein, the parties hereto agree as follows:
1. SUBSCRIPTION
AND ISSUANCE OF COMMON STOCK AND WARRANTS.
1.1 Subscription
and Issuance of Common Stock.
Subject
to the terms and conditions of this Agreement, the Issuer shall issue and sell
to each Investor, and each Investor subscribes for and shall purchase from
the
Issuer, that number of shares of Common Stock set forth on such Investor’s
counterpart signature page hereof (the “Shares”)
and a
warrant in substantially the form attached hereto as Exhibit A1
(each, a
“Warrant”
and
collectively, the “Warrants”)
to
purchase that number of additional shares of Common Stock (the “Warrant
Shares”
and,
together with the Shares and the Warrants, the “Securities”)
equal
to seventy percent (70%) of the aggregate number of Shares being purchased
by
such Investor pursuant to this Agreement, provided, however, that if any
Investor subscribes for and purchases more than 8,000,000 Shares pursuant to
this Agreement, such Investor shall receive an additional warrant in
substantially the form attached hereto as Exhibit
A2
(which
warrant shall also be a “Warrant”)
to
purchase that number of Warrant Shares equal to 40.816326% of the aggregate
number of Shares being purchased by such Investor pursuant to this Agreement,
for the aggregate purchase price set forth on such counterpart signature page,
which aggregate purchase price shall be equal to the product of the number
of
Shares subscribed for by such Investor multiplied by the per share purchase
price specified in the above Recitals to this Agreement (the “Purchase
Price”).
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1.2 Legends.
(a) Any
certificate or certificates representing the Shares or Warrant Shares shall
bear
the following legend, in addition to any legend that may be required by any
Requirements of Law:
“THE
SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”)
OR THE
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. THE SECURITIES MAY NOT
BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED EXCEPT (1) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT OR (2) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND, IN EACH CASE IN ACCORDANCE
WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER JURISDICTIONS,
AND
IN THE CASE OF A TRANSACTION EXEMPT FROM REGISTRATION, UNLESS THE ISSUER HAS
RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH
TRANSACTION DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT AND SUCH
OTHER APPLICABLE LAWS.”
(b) The
Warrant shall bear the following legend, in addition to any legend that may
be
required by any Requirements of Law:
“NEITHER
THIS WARRANT NOR THE SECURITIES REPRESENTED HEREBY HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE.
SUCH
SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED EXCEPT
(1) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR
(2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT, AND, IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF
THE
STATES AND OTHER JURISDICTIONS, AND IN THE CASE OF A TRANSACTION EXEMPT FROM
REGISTRATION, UNLESS THE ISSUER HAS RECEIVED AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO IT THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION UNDER
THE
SECURITIES ACT AND SUCH OTHER APPLICABLE LAWS.”
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2. CLOSING.
2.1 Closing.
The
closing of the transactions contemplated herein (the “Closing”)
shall
take place on or about June 5, 2006 at the offices of Paul, Hastings, Xxxxxxxx
& Xxxxxx LLP, counsel for the Issuer, located at 0000 Xxxxxx Xxxxxx Xxxxx,
Xxx Xxxxx, Xxxxxxxxxx 00000; provided that, subject to the satisfaction of
the
conditions set forth in Article 8,
the
Issuer reserves the right, in its sole discretion, to change the date of the
Closing. At the Closing: (i) each Investor participating in such Closing
shall pay to the Issuer, by wire transfer of immediately available funds to
an
account designated in writing by the Issuer, the Purchase Price for the Shares
and Warrant being purchased by such Investor hereunder; (ii) the Issuer
shall issue to each such Investor the Shares being purchased by the Investor
hereunder and shall deliver or cause to be delivered to such Investor a
certificate or certificates representing such Shares and a Warrant duly
registered in the name of such Investor, as specified on the signature pages
hereto; and (iii) all other actions referred to in this Agreement which are
required to be taken at such Closing shall be taken and all other agreements
and
documents referred to in this Agreement that are required for such Closing
shall
be executed and delivered.
2.2 Additional
Closings.
At any
time following the Closing, the Issuer may sell such additional Securities
as it
deems appropriate in its sole discretion up to the aggregate amount of
Securities referred to in the Recitals to any additional investor or investors
(each, an “Additional
Investor”)
at one
or more additional closing(s) pursuant to this Agreement that occur within
90
days of the Closing (each, an “Additional
Closing”).
With
respect to each Additional Closing, the Issuer, the Investors and each
Additional Investor agree that: (i) the sale and purchase of Securities at
such Additional Closing shall be made on the terms and conditions set forth
in
this Agreement; (ii) at such Additional Closing, each Additional Investor
participating in such Additional Closing shall pay to the Issuer, by wire
transfer of immediately available funds to an account designated in writing
by
the Issuer, the Purchase Price for the Shares and Warrant being purchased by
such Additional Investor hereunder; (iii) at such Additional Closing, the
Issuer shall issue to each such Additional Investor the Shares being purchased
by the Additional Investor hereunder and shall deliver or cause to be delivered
to such Additional Investor a certificate or certificates representing such
Shares and a Warrant duly registered in the name of such Additional Investor,
as
specified on such Additional Investor’s counterpart signature page hereto;
(iv) the representations and warranties of the Issuer set forth in
Article 3
shall
speak only as of the Additional Closing and the Issuer shall be obligated to
update any such representation or warranty, or any disclosure set forth in
the
Disclosure Schedule (as defined in Article
3)
relating to such representation or warranty, based on events occurring following
the Closing; and (v) the representations and warranties of the Additional
Investor set forth in Article 4
shall
speak as of such Additional Closing. In connection with the foregoing,
notwithstanding anything to the contrary set forth herein, this Agreement may
be
amended by the Issuer without the consent of the Investors solely to include
any
Additional Investor as a party hereto upon the execution by such Additional
Investor of a counterpart signature page hereto, and upon any such execution
by
such Additional Investor of a counterpart signature page hereto, such Additional
Investor shall be deemed to be an “Investor” for all purposes under this
Agreement.
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2.3 Termination.
This
Agreement may be terminated at any time prior to the Closing:
(a) by
mutual
written consent of the Issuer and the Investors purchasing a majority of the
Shares to be issued at the Closing (the “Majority
Investors”);
(b) by
the
Majority Investors, upon a materially inaccurate representation or breach of
any
material warranty, covenant or agreement on the part of the Issuer set forth
in
this Agreement, in either case such that the conditions in Section 8.1
would be
reasonably incapable of being satisfied at or prior to the Closing;
or
(c) by
the
Issuer, upon a materially inaccurate representation or breach of any material
warranty, covenant or agreement on the part of any Investor set forth in this
Agreement, in either case such that the conditions in Section 8.2
would be
reasonably incapable of being satisfied at or prior to the Closing; provided
that in the event of any such materially inaccurate representation or breach
by
an Investor, the Issuer reserves the right not to issue and sell the Shares
and
Warrant to any such Investor at the Closing in lieu of terminating the
Agreement.
2.4 Effect
of Termination.
In the
event of termination of this Agreement pursuant to Section 2.3,
this
Agreement shall forthwith become void, there shall be no liability on the part
of the Issuer or the Investors to each other and all rights and obligations
of
any party hereto shall cease; provided that nothing herein shall relieve any
party from liability for the willful breach of any of its representations and
warranties, covenants or agreements set forth in this Agreement.
3. REPRESENTATIONS
AND WARRANTIES OF THE ISSUER.
As
a
material inducement to the Investors to enter into this Agreement and subscribe
for and purchase the Shares, the Issuer represents and warrants to the Investors
as follows, except, in the case of each representation and warranty, as set
forth in the Disclosure Schedule delivered to each Investor in connection with
such Investor’s investment in the Securities (the “Disclosure
Schedule”):
3.1 Corporate
Status.
Aeolus
Sciences, Inc., a Delaware corporation (the “Subsidiary”),
is a
wholly-owned subsidiary of the Issuer. Each of the Issuer and the Subsidiary
is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Each of the Issuer and the Subsidiary has full
corporate power and authority to own and hold its properties and to conduct
its
business as described in the SEC Reports. Each of the Issuer and the Subsidiary
is duly qualified to do business and is in good standing in each jurisdiction
in
which the nature of its business requires qualification, except for any failure
to be so qualified or be in good standing that would not have an Issuer Material
Adverse Effect. The Issuer has no subsidiaries other than the
Subsidiary.
3.2 Corporate
Power and Authority.
The
Issuer has the corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The Issuer has taken all necessary corporate
action to authorize the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby.
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3.3 Issuance,
Sale and Delivery of the Securities.
The
Shares have been duly authorized and, when issued, delivered and paid for by
the
Investors in the manner set forth in this Agreement, will be validly issued,
fully paid and nonassessable and free and clear of all pledges, Liens,
restrictions and encumbrances (other than restrictions on transfer under state
and/or federal securities laws and restrictions relating to or created by the
Investors). The Issuer has reserved from its duly authorized capital stock
the
maximum number of Warrant Shares. The Warrant Shares, when issued and delivered
upon exercise of the Warrants in the manner set forth therein, will be duly
authorized, validly issued, fully paid and nonassessable and free and clear
of
all pledges, liens, restrictions and encumbrances (other than restrictions
on
transfer under state and/or federal securities laws and restrictions created
by
the Investors).
3.4 Enforceability.
This
Agreement has been duly executed and delivered by the Issuer and (assuming
it
has been duly authorized, executed and delivered by each Investor) constitutes
a
legal, valid and binding obligation of the Issuer, enforceable against the
Issuer in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar laws from time to time in effect affecting
the enforcement of creditors’ rights generally, and general equitable
principles, regardless of whether such enforceability is considered in a
proceeding at law or in equity, and except for the indemnity provisions of
Article 7
of this
Agreement, which may not be enforceable based upon public policy considerations.
When executed and delivered pursuant to the terms of this Agreement, the
Warrants will constitute legal, valid and binding obligations of the Issuer,
enforceable against the Issuer in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or similar laws from time to time in
effect affecting the enforcement of creditors’ rights generally, and general
equitable principles, regardless of whether such enforceability is considered
in
a proceeding at law or in equity.
3.5 No
Violation.
The
execution and delivery by the Issuer of this Agreement, the consummation of
the
transactions contemplated hereby, and the compliance by the Issuer with the
terms and provisions hereof (including, without limitation, the Issuer’s
issuance to the Investors of the Securities as contemplated by and in accordance
with this Agreement), will not: (i) result in a default under (or give any
other party the right, with the giving of notice or the passage of time (or
both), to declare a default or accelerate any obligation under) any Contract
to
which the Issuer or the Subsidiary is a party (except to the extent such a
default or acceleration would not reasonably be expected to have an Issuer
Material Adverse Effect); (ii) violate any Requirement of Law applicable to
the Issuer or the Subsidiary, or result in the creation or imposition of any
Lien upon any of the capital stock, properties or assets of the Issuer or the
Subsidiary (except where such violations of any Requirement of Law or creations
or impositions of any Liens would not reasonably be expected to have an Issuer
Material Adverse Effect); (iii) violate any Permit of Issuer or the Subsidiary,
which violation would reasonably be expected to have an Issuer Material Adverse
Effect or (iv) violate the Certificate of Incorporation or the Bylaws of
the Issuer or the Subsidiary. To the Issuer’s Knowledge, neither the Issuer nor
the Subsidiary is: (a) in default under or in violation of any Contract to
which it is a party or by which it or any of its properties is bound, which
would reasonably be expected to have an Issuer Material Adverse Effect or
(b) in violation of any order of any Governmental Authority.
3.6 Consents/Approvals.
Except
for the filing of a Registration Statement in accordance with Article 6
hereof,
filings with the SEC as may be required in connection with an Incidental
Registration, and filings with the securities commissions of the states in
which
the Securities are to be issued, no consent, filing, authorization or other
action of any Governmental Authority is required to be obtained or made by
the
Issuer for the Issuer’s execution, delivery and performance of this Agreement
which have not already been obtained or made. No consent, approval, waiver
or
other action by any Person under any material Contract to which the Issuer
or
the Subsidiary is a party or by which the Issuer or the Subsidiary or any of
their properties or assets are bound is required or necessary for the execution,
delivery or performance by the Issuer of this Agreement and the consummation
of
the transactions contemplated hereby, except where the failure to obtain such
consent, approval, waiver or other action would not reasonably be expected
to
have an Issuer Material Adverse Effect.
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3.7 Valid
Issuance of Shares and Warrant Shares.
Upon
payment of the Purchase Price by the Investors and delivery to the Investors
of
the certificates for the Shares, such Shares will be validly issued, fully
paid
and non-assessable and will be free and clear of all Liens imposed by the
Issuer, except for restrictions on transfer set forth in this Agreement or
imposed by applicable securities laws. Upon the exercise of the Warrants and
the
payment of the exercise price pursuant to such Warrants by the holders thereof,
the Warrant Shares will be validly issued, fully paid and non-assessable and
will be free and clear of all Liens imposed by the Issuer and the Subsidiary,
except for restrictions on transfer set forth in this Agreement, the Warrants
or
imposed by applicable securities laws.
3.8 Delivery
of SEC Reports.
The
Issuer has made available to the Investors through the SEC’s Electronic Data
Gathering and Retrieval System (“XXXXX”)
true
and complete copies of the SEC Reports.
3.9 Capitalization.
As of
the Closing, the authorized capital stock of the Issuer will consist of
50,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock.
Schedule 3.9
sets
forth (a) the number of shares of capital stock issued and outstanding on
the date hereof; (b) the number of shares of capital stock of the Issuer
issuable pursuant to options outstanding and reserved for issuance, on the
date
hereof, under the Issuer’s stock plans on the date hereof (the “Options”);
and
(c) the number of shares of capital stock of the Issuer issuable and
reserved for issuance, on the date hereof, pursuant to securities (other than
the Securities and the Options) exercisable for, or convertible into or
exchangeable for any shares of capital stock of the Issuer. All issued and
outstanding shares of capital stock of the Issuer have been, and as of the
Closing will be, duly authorized and validly issued and are (or, as of the
Closing, will be) fully paid and non-assessable, have been issued in compliance
with all applicable state and federal securities laws in all material respects
and were not issued in violation of any preemptive, subscription or other
similar rights of any stockholder of the Issuer. Except as described on
Schedule 3.9,
no
Person is entitled to pre-emptive or similar statutory or contractual rights
with respect to any securities of the Issuer.
3.10 No
Material Adverse Changes.
Except
as set forth in or contemplated by the SEC Reports or as otherwise contemplated
herein, since March 31, 2006, there has been no Issuer Material Adverse Effect.
Except as set forth in or contemplated by the SEC Reports, since March 31,
2006,
there has not been: (i) any change in the consolidated assets, liabilities,
financial condition or operating results of the Issuer from that reflected
in
the financial statements included in the SEC Reports, except for changes in
the
ordinary course of business or which would not have and would not reasonably
be
expected to have an Issuer Material Adverse Effect; (ii) any declaration,
setting aside or payment of any dividend, or authorization or payment of any
distribution, on any capital stock of the Issuer or the Subsidiary, or any
redemption or repurchase of any securities of the Issuer or the Subsidiary;
(iii) any material liabilities (absolute, accrued or contingent) incurred
or assumed by the Issuer or the Subsidiary, other than current liabilities
incurred in the ordinary course of business, liabilities under Contracts entered
into in the ordinary course of business, and liabilities not required to be
reflected on the Issuer’s consolidated financial statements pursuant to GAAP or
required to disclosed in the SEC Reports; (iv) any Lien or adverse claim on
any of the Issuer’s or the Subsidiary’s material properties or assets, except
for Liens for taxes not yet due and payable or otherwise in the ordinary course
of business; (v) any satisfaction or discharge of a material Lien, claim or
encumbrance or payment of any material obligation by the Issuer or the
Subsidiary, except in the ordinary course of business or which is not material
to the assets, properties, financial condition, operating results or business
of
the Issuer and the Subsidiary, taken as a whole (as such businesses are
presently conducted); (vi) any sale, assignment or transfer by the Issuer
or the Subsidiary of any of their material assets, tangible or intangible,
except in the ordinary course of business; (vii) any material damage,
destruction to any material assets of the Issuer or the Subsidiary, or loss
or
interference with the Issuer’s or the Subsidiary’s businesses or properties from
fire, flood, windstorm, accident or other calamity, whether or not covered
by
insurance; (viii) any material default by the Issuer or the Subsidiary in
the payment of principal or interest or violation of any covenant with respect
to any outstanding debt obligations; (ix) any material changes to the
Issuer’s or the Subsidiary’s critical accounting policies or material deviations
from historical accounting and other practices in connection with the
maintenance of the Issuer’s or the Subsidiary’s books and records; (x) any
waiver not in the ordinary course of business, by either the Issuer or the
Subsidiary, of a material right or of a material debt owed to it; (xi) except
in
connection with the Offering, any change or amendment to the Issuer’s
Certificate of Incorporation or Bylaws, or material change to any material
Contract or arrangement by which the Issuer or the Subsidiary is bound or to
which any of their respective assets or properties are subject; (xii) any
material labor difficulties or labor union organizing activities with respect
to
employees of the Issuer; (xiii) any material transaction entered into by the
Issuer or the Subsidiary other than in the ordinary course of business
(excluding, with respect to the Issuer, the Offering); (xiv) the loss of the
services of any key employee, or material change in the composition of the
senior management, of the Issuer; (xv) the loss or threatened loss of any
customer which has had or would reasonably be expected to have an Issuer
Material Adverse Effect; (xvi) any other event or condition of any character
that has had or would reasonably be expected to have an Issuer Material Adverse
Effect; or (xvii) any agreement or commitment to do any of the
foregoing.
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3.11 Intellectual
Property.
Each of
the Issuer and the Subsidiary owns or has obtained valid and enforceable
licenses for all the inventions, patent applications, patents, trademarks (both
registered and unregistered), trade names, copyrights, trade secrets and other
intellectual property necessary for the conduct of its business as currently
conducted (collectively, the “Intellectual
Property”).
Each
of the Issuer and the Subsidiary has duly filed, registered and maintained
all
Registered Intellectual Property owned by it, including without limitation
submitting all necessary filings and paying all filing and maintenance fees.
There are no third parties who have any ownership or license rights to any
of
the Intellectual Property that would preclude either the Issuer or the
Subsidiary from conducting its business as currently conducted or would
otherwise result in an Issuer Material Adverse Effect or an Investor Material
Adverse Effect, except for the ownership rights of the owners of the
Intellectual Property licensed by the Issuer or the Subsidiary. There are no
facts known to the Issuer or the Subsidiary that could result in a conclusion
of
invalidity, unenforceability or, with respect to patents, narrowing of claim
construction, of any of the Intellectual Property. With respect to all
in-license agreements of the Intellectual Property entered into by the Issuer
and the Subsidiary: (a) they are in good standing and each of the Issuer
and the Subsidiary is in compliance with their terms and conditions, and
(b) there exists no default under such agreements which would give rise to
a termination or limitation of Issuer’s or the Subsidiary’s rights, as
applicable. To the Issuer’s Knowledge, there are currently no products or
services offered by a third party the making, using or selling of which would
constitute an infringement of any Intellectual Property, which infringement
would have an Issuer Material Adverse Effect or an Investor Material Adverse
Effect. There is no pending or, to the Issuer’s Knowledge, threatened action,
suit, proceeding or claim by others challenging the rights of the Issuer or
the
Subsidiary in or to any of the Intellectual Property, other than claims which
would not reasonably be expected to have an Issuer Material Adverse Effect
or an
Investor Material Adverse Effect. There is no pending or, to the Issuer’s
Knowledge, threatened action, suit, proceeding or claim by others challenging
the validity or scope of any of the Intellectual Property, other than
non-material actions, suits, proceedings and claims. There is no pending or,
to
the Issuer’s Knowledge, threatened action, suit, proceeding or claim by others
that the Issuer or the Subsidiary infringes or otherwise violates any patent,
trademark, copyright, trade secret, or other proprietary or intellectual
property right of others, other than non-material actions, suits, proceedings
and claims. To the Issuer’s Knowledge, the conduct of the Issuer’s and the
Subsidiary’s business as currently conducted and contemplated to be conducted
does not infringe, or constitute contributory infringement, inducement to
infringe, misappropriation or unlawful use of any patent, trademark, copyright,
trade secret, or other proprietary or intellectual property right of others.
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3.12 Litigation.
Except
as disclosed in the SEC Reports, there is no action, suit, proceeding or
investigation pending or, to the Issuer’s Knowledge, currently threatened
against the Issuer or the Subsidiary that questions the validity of this
Agreement or the right of the Issuer to enter into it or to consummate the
transactions contemplated hereby, or that would reasonably be expected to
result, either individually or in the aggregate, in an Issuer Material Adverse
Effect, or any change in the current equity ownership of the Issuer or the
Subsidiary. Neither the Issuer nor the Subsidiary is a party to or subject
to
the provisions of any order, writ, injunction, judgment or decree of any court
or Governmental Authority. There is no action, suit, proceeding or investigation
by the Issuer or the Subsidiary currently pending that would reasonably be
expected to have an Issuer Material Adverse Effect.
3.13 Rights
of Registration.
Except
as contemplated in this Agreement, no Person has the right to require the Issuer
or
the
Subsidiary
to
register any securities of the Issuer or
the
Subsidiary
under
the Securities Act, whether on a demand basis or in connection with the
registration of securities of the Issuer or
the
Subsidiary
for its
own account or for the account of any other Person other than pursuant to
(i) that certain Registration Rights Agreement made and entered into as of
November 21, 2005, by and among the Issuer and certain investors listed on
the
signature pages thereto, (ii) that certain Registration Rights Agreement
dated July 15, 1999 between Interneuron Pharmaceuticals, Inc. and the Issuer,
(iii) that certain Amended and Restated Registration Rights Agreement dated
as of May 15, 2002 among the Issuer, Elan International Services, Ltd. and
Elan
Pharma International Limited, (iv) that certain Registration Rights
Agreement dated September 16, 2003 among the Issuer, Incara, Inc. and Xxxxxxx
Capital, LLC, and (v) that certain Registration Rights Agreement dated
April 19, 2004 among the Issuer, SCO and certain other investors listed on
the
signature pages thereto.
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3.14 Offering.
Subject
in part to the truth and accuracy of the Investors’ representations and
warranties set forth in this Agreement, the offer, sale and issuance of the
Securities as contemplated by this Agreement are exempt from the registration
requirements of the Securities Act and any applicable state securities laws,
and
neither the Issuer, the Subsidiary nor any authorized agent acting on their
behalf will take any action hereafter that would cause the loss of such
exemption.
3.15 Licenses
and Permits.
Each of
the Issuer and the Subsidiary has all Permits under applicable Requirements
of
Law from all applicable Governmental Authorities that are necessary to operate
its businesses as presently conducted and all such Permits are in full force
and
effect, except where the failure to have any such Permits in full force and
effect would not, individually or in the aggregate, reasonably be expected
to
have an Issuer Material Adverse Effect. Neither the Issuer nor the Subsidiary
is
in default under, or in violation of or noncompliance with, any of such Permits,
except for any such default, violation, or noncompliance which would not,
individually or in the aggregate, reasonably be expected to have an Issuer
Material Adverse Effect.
3.16 Material
Contracts.
All
material Contracts to which either the Issuer or the Subsidiary is a party
and
that are required to have been filed by the Issuer on Exhibit 10 to the SEC
Reports have been filed by the Issuer with the SEC pursuant to the requirements
of the Exchange Act. Neither the Issuer nor, to the Issuer’s Knowledge, any
other party to any material Contract of the Issuer or the Subsidiary is in
breach of, or in default under, any such material Contract, except for any
such
breach or default which would not reasonably be expected to have an Issuer
Material Adverse Effect.
3.17 Related
Party Transactions.
No
transaction has occurred between or among the Issuer, the Subsidiary, their
officers or directors or any affiliate or affiliates of any such officer or
director that is required to have been described under applicable securities
laws in the Issuer’s Exchange Act filings and is not so described in such
filings.
3.18 Off-Balance
Sheet Arrangements.
There
is no transaction, arrangement or other relationship between the Issuer or
the
Subsidiary, on the one hand, and an unconsolidated or other off-balance sheet
entity, on the other hand, that is required to be disclosed by the Issuer in
the
Issuer’s Exchange Act filings and is not so disclosed. There are no such
transactions, arrangements or other relationships with the Issuer or the
Subsidiary that may create contingencies or liabilities that are required to
be
disclosed by the Issuer in the Issuer’s Exchange Act filings that are not
disclosed therein.
3.19 Xxxxxxxx-Xxxxx
Act; Internal Accounting Controls.
The
Issuer and the Subsidiary are in compliance in all material respects with all
provisions of the Xxxxxxxx-Xxxxx Act of 2002 that are applicable to them. The
Issuer maintains a consolidated system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting principles
and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management’s general or specific authorization, and
(iv) the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with respect
to
any differences. The Issuer has established disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the Issuer and designed
such disclosure controls and procedures to ensure that material information
relating to the Issuer is made known to the certifying officers by others within
those entities. The Issuer’s certifying officers have evaluated the
effectiveness of the Issuer’s disclosure controls and procedures in accordance
with Item 307 of Regulation S-K under the Exchange Act for the fiscal
quarter ended March 31, 2006 (such date, the “Evaluation
Date”).
The
Issuer presented in its most recently filed Form 10-Q the conclusions of the
certifying officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of the Evaluation Date. Since the
Evaluation Date, to the Issuer’s Knowledge, there have been no significant
changes in the Issuer’s internal controls (as such term is defined in Item
308(c) of Regulation S-K under the Exchange Act).
9
3.20 Listing
and Maintenance Requirements.
The
Common Stock is registered pursuant to Section 12(g) of the Exchange Act,
and neither the Issuer nor the Subsidiary has taken any action designed to,
or
which, to the Issuer’s Knowledge, is likely to have the effect of, terminating
the registration of the Common Stock under the Exchange Act, nor has the Issuer
or the Subsidiary received any notification from the SEC that it is
contemplating terminating such registration. The Issuer has not, in the 12
months preceding the date hereof, received notice from the Over-the-Counter
Bulletin Board (the “OTCBB”)
that
the Issuer is not in compliance with the listing or maintenance requirements
of
the OTCBB. The Issuer is, and believes that it will in the foreseeable future
continue to be, in compliance with all such listing and maintenance
requirements.
3.21 Manipulation
of Price.
The
Issuer and the Subsidiary have not, and to the Issuer’s Knowledge no one acting
on behalf of the Issuer or the Subsidiary has, (i) taken, directly or
indirectly, any action designed to cause or to result in the stabilization
or
manipulation of the price of any security of the Issuer to facilitate the sale
or resale of any of the Securities, (ii) sold, bid for, purchased, or paid
any compensation for soliciting purchases of any of the Securities (other than
for the placement agent’s placement of the Securities), or (iii) paid or
agreed to pay to any person any compensation for soliciting another to purchase
any other securities of the Issuer or the Subsidiary.
3.22 Foreign
Corrupt Practices.
The
Issuer and the Subsidiary have not, and to the Issuer’s Knowledge no director,
officer, agent, employee or other person acting on behalf of the Issuer or
the
Subsidiary, in the course of its actions for, or on behalf of, the Issuer or
the
Subsidiary, has: (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; (ii) made any direct or indirect unlawful payment to
any foreign or domestic government official or employee from corporate funds;
(iii) violated or is in violation of any provision of the U.S. Foreign
Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful bribe,
rebate, payoff, influence payment, kickback or other unlawful payment to any
foreign or domestic government official or employee.
3.23 Employee
Relations.
Neither
the Issuer nor the Subsidiary is a party to any collective bargaining agreement
or employs any member of a union. No executive officer of the Issuer (as defined
in Rule 501(f) of the Securities Act) has formally notified the Issuer that
such
officer intends to leave the Issuer or otherwise terminate such officer’s
employment with the Issuer. No executive officer of the Issuer, to the Issuer’s
Knowledge is in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, in each case with or made to the Issuer. The Subsidiary does not
have
any employees.
10
3.24 ERISA.
To the
Issuer’s Knowledge, the Issuer and the Subsidiary are in compliance, in all
material respects, with all presently applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended, including the regulations
and published interpretations thereunder (“ERISA”);
no
“reportable event” (as defined in ERISA) has occurred with respect to any
“pension plan” (as defined in ERISA) for which the Issuer or the Subsidiary
would have any liability that would reasonably be expected to have an Issuer
Material Adverse Effect or an Investor Material Adverse Effect; neither the
Issuer nor the Subsidiary has incurred or expects to incur liability under
(i) Title (IV) of ERISA with respect to termination of, or withdrawal from,
any “pension plan” or (ii) Sections 412 or 4917 of the Internal Revenue
Code of 1986, as amended, including the regulations and published
interpretations thereunder (the “Code”);
and
each “pension plan” for which the Issuer or the Subsidiary would have any
liability that is intended to be qualified under Section 401(a) of the Code
is so qualified in all material respects and nothing has occurred, whether
by
action or by failure to act, which, in each case, would cause the loss of such
qualification, except as would not reasonably be expected to have an Issuer
Material Adverse Effect or an Investor Material Adverse Effect.
3.25 Environmental
Matters.
There
has been no storage, disposal, generation, manufacture, transportation, handling
or treatment of toxic wastes, hazardous wastes or hazardous substances by the
Issuer or the Subsidiary (or, to the Issuer’s Knowledge, any of their
predecessors-in-interest) at, upon or from any of the property now or previously
owned or leased by the Issuer or the Subsidiary in violation of any applicable
law, ordinance, rule, regulation, order, judgment, decree or permit or which
would require remedial action under any applicable law, ordinance, rule,
regulation, order, judgment, decree or permit; there has been no material spill,
discharge, leak, emission, injection, escape, dumping or release of any kind
into such property or into the environment surrounding such property of any
toxic wastes, medical wastes, solid wastes, hazardous wastes or hazardous
substances due to or caused by the Issuer or the Subsidiary, or to the Issuer’s
Knowledge; the terms “hazardous wastes”, “toxic wastes”, “hazardous substances”,
and “medical wastes” shall have the meanings specified in any applicable local,
state, federal and foreign laws or regulations with respect to environmental
protection.
3.26 Taxes.
To the
Issuer’s Knowledge, the Issuer and the Subsidiary have filed all material
federal, state and foreign income and franchise tax returns and has paid or
accrued all taxes shown as due thereon, and, to the Issuer’s Knowledge, no tax
deficiency has been asserted or threatened against the Issuer or the Subsidiary
which would reasonably be expected to have an Issuer Material Adverse
Effect.
3.27 Transfer
Taxes.
On the
Closing, all stock transfer or other taxes (other than income taxes) that are
required to be paid in connection with the sale of the Securities by the Issuer
to the Investors hereunder will be, or will have been, fully paid or provided
for by the Issuer.
11
3.28 Investment
Company.
Neither
the Issuer nor the Subsidiary is an “investment company” or an “affiliated
person” of, or “promoter” or “principal underwriter” for an investment company,
in each case within the meaning of the Investment Company Act of 1940, as
amended.
3.29 No
Market Manipulation.
Neither
the Issuer nor the Subsidiary has taken, or will take, directly or indirectly,
any action designed to, or that might reasonably be expected to, cause or result
in stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Securities or affect the price at which the Securities
may be issued or resold.
3.30 No
Labor Disputes.
No
labor dispute with the employees of the Issuer exists or, to the Issuer’s
Knowledge, is imminent.
3.31 Insurance
Coverage.
The
Issuer maintains in full force and effect insurance coverage that is customary
for comparably situated companies for the business being conducted and
properties owned or leased by the Issuer and the Subsidiary, and the Issuer
reasonably believes such insurance coverage to be adequate against such
liabilities, claims and risks against which it is customary for comparably
situated companies to insure, including, but not limited to, insurance covering
all real and personal property leased by the Issuer against theft, damage,
destruction, acts of vandalism.
3.32 Listing.
The
Common Stock is quoted on the OTCBB. The Issuer has not received any oral or
written notice that the Common Stock is not eligible nor will become ineligible
for quotation on the OTCBB nor that the Common Stock does not meet all
requirements for the continuation of such quotation. The Issuer satisfies all
the requirements for the continued quotation of the Common Stock on the
OTCBB.
3.33 No
Integrated Offering.
Neither
the Issuer nor any Person acting on its behalf has, directly or indirectly,
made
any offer or sales of any security of the Issuer or solicited any offers to
buy
any security of the Issuer under circumstances that would eliminate the
availability of the exemption from registration under Regulation D promulgated
under the Securities Act in connection with the offer and sale of the Securities
as contemplated hereby.
3.34 SEC
Comments.
There
are no outstanding letters of comment or other issues raised in writing or
otherwise delivered to the Issuer by the staff of the Division of Corporation
Finance of the SEC that have not been fully resolved to the satisfaction of
the
staff of the Division of Corporation Finance of the SEC.
3.35 SEC
Reports; Financial Statements.
The
Issuer has filed all reports, schedules, forms, statements and other documents
required to be filed by it pursuant to the Securities Act and the Exchange
Act,
including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Issuer was required
by
law to file such material) (the foregoing materials, including the exhibits
thereto and documents incorporated by reference therein, being collectively
referred to herein as the “SEC
Reports”)
on a
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Report prior to the expiration of any such extension. As
of
their respective filing dates, the SEC Reports complied in all material respects
with the requirements of the Securities Act and the Exchange Act and the rules
and regulations of the SEC promulgated thereunder, and none of the SEC Reports,
when filed, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which
they
were made, not misleading. The consolidated financial statements of the Issuer
included in the SEC Reports complied in all material respects with applicable
accounting requirements and the rules and regulations of the SEC with respect
thereto as in effect at the time of filing. Such financial statements were
prepared in accordance with GAAP applied on a consistent basis during the
periods involved, except as may be otherwise specified in such financial
statements or the notes thereto and except that unaudited financial statements
may not contain all footnotes required by GAAP, and fairly present in all
material respects the consolidated financial position of the Issuer of and
for
the dates thereof and the results of operations and cash flows for the periods
then ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.
12
3.36 Brokers
or Finders.
Neither
the Issuer nor any of its Affiliates has engaged or used any investment bankers,
brokers or finders in connection with the transactions contemplated by this
Agreement, and no persons or entities are entitled to a fee or compensation
from
the Issuer in respect thereof.
4. REPRESENTATIONS
AND WARRANTIES OF THE INVESTORS.
As
a
material inducement to the Issuer to enter into this Agreement and issue the
Securities, each Investor represents, warrants and covenants to the Issuer
as
follows:
4.1 Power
and Authority.
Such
Investor, if other than a natural person, is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or formation. Such Investor has the corporate, partnership or
other power (or, in the case of a natural person, legal capacity) and authority
under applicable law to execute and deliver this Agreement and consummate the
transactions contemplated hereby, and has all necessary authority to execute,
deliver and perform its obligations under this Agreement and to consummate
the
transactions contemplated hereby. Such Investor has taken all necessary action
to authorize the execution, delivery and performance of this Agreement and
the
transactions contemplated hereby.
4.2 No
Violation.
The
execution and delivery by such Investor of this Agreement, the consummation
of
the transactions contemplated hereby, and the compliance by such Investor with
the terms and provisions hereof, will not: (i) result in a default under
(or give any other party the right, with the giving of notice or the passage
of
time (or both), to declare a default or accelerate any obligation under) any
Contract to which such Investor is a party or by which it or any of its
properties or assets are bound (except to the extent such defaults or
accelerations, individually or in the aggregate, would not reasonably be
expected to have an Investor Material Adverse Effect); (ii) violate any
Requirement of Law applicable to such Investor; or (iii) if such Investor
is other than a natural person, violate any charter, bylaws or similar documents
of such Investor. At or prior to the Closing, such Investor will have complied
with all Requirements of Law applicable to it in connection with the
Offering.
4.3 Consents/Approvals.
No
consent, filing, authorization or action of any Governmental Authority is
required for such Investor’s execution, delivery and performance of this
Agreement. No consent, approval, waiver or other action by any Person under
any
Contract to which such Investor is a party or by which such Investor or any
of
its properties or assets are bound is required or necessary for the execution,
delivery and performance by such Investor of this Agreement and the consummation
of the transactions contemplated hereby.
13
4.4 Enforceability.
This
Agreement has been duly executed and delivered by such Investor and (assuming
it
has been duly authorized, executed, and delivered by the Issuer) constitutes
a
legal, valid and binding obligation of such Investor, enforceable against such
Investor in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, fraudulent conveyances,
reorganization, moratorium or similar laws from time to time in effect affecting
the enforcement of creditor’s rights generally, and general equitable
principles, regardless of whether enforceability is considered in a proceeding
at law or in equity, and except for the indemnity provisions of Article 7
of this
Agreement, which may not be enforceable based upon public policy
considerations.
4.5 Investment
Intent; Restricted Securities.
Such
Investor expressly disclaims being an underwriter and affirms that such Investor
is acquiring the Securities for its own account, with no present intention
of
transferring, distributing or selling such Securities in violation of the
Securities Act or any applicable state securities law, and no one other than
the
Investor has any beneficial interest in the Securities. Such Investor
understands and acknowledges that the Securities are characterized as
“restricted securities” under the U.S. federal securities laws inasmuch as they
are being acquired from the Issuer in a transaction not involving a public
offering and that under such laws and applicable regulations such Securities
may
be resold without registration under the Securities Act only in certain limited
circumstances. Such Investor agrees that it will not sell or otherwise dispose
of any of the Securities unless such sale or other disposition has been
registered under the Securities Act or, in an opinion of counsel acceptable
to
the Issuer, is exempt from registration under the Securities Act and is exempt
from registration or qualification under applicable state securities laws.
Such
Investor understands that the offer and sale by the Issuer of the Securities
being acquired by such Investor hereunder has not been registered under the
Securities Act by reason of an exemption from the registration and prospectus
delivery requirements of the Securities Act pursuant to Section 4(2)
thereof, and that the reliance of the Issuer on such exemption from registration
is predicated in part on these representations and warranties of such Investor.
Such Investor acknowledges that, pursuant to Section 1.2
of this
Agreement, a restrictive legend consistent with the foregoing has been or will
be placed on all certificates representing the Shares, the Warrant Shares and
the Warrant issued to such Investor pursuant to this Agreement.
4.6 Accredited
Investor.
Such
Investor is an “accredited investor” as such term is defined in Rule 501(a) of
Regulation D promulgated under the Securities Act. Without limiting the
foregoing representation, such Investor confirms that it has reviewed the
partial definition of an “Accredited Investor” which is attached hereto as
Exhibit B
(which
is not a complete definition of the term, but which includes the most likely
categories of qualification) to confirm the accuracy of such representation,
and
such Investor has noted by paragraph number, on its signature page hereto,
the
category(ies) pursuant to which such Investor qualifies as an “Accredited
Investor” according to the definition set forth in Exhibit B.
Such
Investor has not been formed for the purpose of acquiring the Securities. Such
Investor is not an officer, director, employee, investment advisor, promoter
or
Affiliate of the Issuer.
14
4.7 Adequate
Information.
Such
Investor has had an opportunity to receive all information related to the Issuer
requested by it and to ask questions of and receive answers from the Issuer
regarding the Issuer, its business and the terms and conditions of the offering
of the Securities, and has reviewed, such information as such Investor considers
necessary or appropriate to evaluate the risks and merits of an investment
in,
and make an informed investment decision with respect to, the Securities. Such
Investor acknowledges that it has access to the SEC Reports, including the
risk
factors contained therein, via XXXXX, and the SEC Reports are specifically
incorporated herein by reference and form an integral part of this Agreement.
Such Investor also acknowledges that the additional risk factors set forth
on
Exhibit C
are
specifically incorporated herein by reference and form an integral part of
this
Agreement. Neither such inquiries nor any other due diligence investigation
conducted by such Investor shall modify, amend or affect such Investor’s right
to rely on the Issuer’s representations and warranties contained in Article 3
hereof.
4.8 Opportunity
to Question.
Such
Investor has had the opportunity to question, and has questioned, to the extent
deemed necessary or appropriate, representatives of the Issuer so as to receive
answers from the Issuer’s representatives regarding the terms and conditions of
an investment in the Securities and to verify information obtained in such
Investor’s examination of the Issuer, including, without limitation, the
information that such Investor received and reviewed as referenced in
Section 4.7
hereof
in relation to its investment in the Securities.
4.9 No
Other Representations.
Such
Investor acknowledges that, in deciding whether to enter into this Agreement
and
to acquire the Securities hereunder, it has not relied on any representations
or
warranties of any type or description made by the Issuer or any of its
representatives with regard to the Issuer or its business, property or prospects
of the investment contemplated herein, other than the representations and
warranties of the Issuer set forth in Article
3
hereof.
4.10 Knowledge
and Experience.
Such
Investor understands that an investment in the Securities involves substantial
risk. Such Investor has such knowledge and experience in financial, tax and
business matters, including substantial experience in evaluating and investing
in common stock and other securities (including the common stock and other
securities of speculative companies), so as to enable such Investor to utilize
the information referred to in Section 4.7
hereof
and any other information made available by the Issuer to such Investor in
order
to evaluate the merits and risks of an investment in the Securities and to
make
an informed investment decision with respect thereto.
4.11 No
General Solicitation.
Such
Investor did not learn of the investment in the Securities as a result of any
public advertising or general solicitation.
4.12 Certain
Trading Activities.
Such
Investor has not directly or indirectly, nor has any Person acting on behalf
of
or pursuant to any understanding with such Investor, engaged in any Trading
Activities since the time that such Investor was first contacted by the Issuer
regarding the Offering. Except for the Offering, such Investor covenants that
neither it nor any Person acting on its behalf or pursuant to any understanding
with it will engage in any Trading Activities prior to the time that the
Offering (including all material terms thereof) is publicly
disclosed.
15
4.13 Commissions.
Such
Investor has not incurred any obligation for any finder’s, broker’s or agent’s
fees or commissions in connection with the transactions contemplated
hereby.
5. COVENANTS.
5.1 Public
Announcements.
Each
Investor agrees not to make any public announcement or issue any press release
or otherwise publicly disseminate any information about the subject matter
of
this Agreement. Except as provided herein, the Issuer shall have the right
to
make such public announcements and shall control, in its sole and absolute
discretion, the timing, form and content of all press releases or other public
communications of any sort relating to the subject matter of this Agreement,
and
the method of their release or the publication thereof. The Issuer also may
issue an initial press release relating to the transactions contemplated by
this
Agreement, but shall not identify any Investor in such press release without
the
consent of such Investor, except as may be required by any Requirement of Law
or
OTCBB rule.
5.2 Non-Public
Information.
On or
before 9:00 a.m. New York City time, on the first Business Day after the
Closing, the Issuer shall issue a press release announcing the execution of
this
Agreement and on or before 5:30 p.m. New York City time on the first Business
Day after the Closing, the Issuer shall file a Current Report on Form 8-K
disclosing any material, non-public information previously disclosed to the
Investors and describing the material terms of the transactions contemplated
by
this Agreement, and attaching as an exhibit to such Form 8-K a form of this
Agreement (and any other exhibit required to be filed therewith pursuant to
the
Exchange Act) (including such exhibit(s), the “8-K
Filing”).
The
Issuer shall not, and shall use its commercially reasonable efforts to cause
each of its officers, directors, employees and agents not to, provide an
Investor with any material, non-public information regarding the Issuer from
and
after the filing of the 8-K Filing without the express written consent of such
Investor. The Issuer understands and confirms that the Investors will rely
on
the representations and covenants set forth in Article
3
and
Article
5
in
effecting transactions in securities of the Issuer.
5.3 Use
of
Purchaser Name.
Except
as may be required by applicable law or regulation, the Issuer shall not use
the
name of any Investor or the name of any Investor’s affiliate in any
advertisement, announcement, press release or other similar public communication
unless it has received the prior written consent of such Investor for the
specific use contemplated or as otherwise required by applicable law or
regulation.
5.4 Further
Assurances.
Each of
the parties hereto shall execute and deliver such additional instruments and
other documents and shall take such further actions as may be reasonably
necessary or appropriate to effectuate, carry out and comply with all the terms
of this Agreement and the transactions contemplated hereby. Each of the
Investors and the Issuer shall make on a prompt and timely basis all
governmental or regulatory notifications and filings required to be made by
it
with or to any Governmental Authority in connection with the consummation of
the
transactions contemplated hereby. The Issuer and the Investors agree to
cooperate with one another in the preparation and filing of all forms,
notifications, reports and information, if any, required or reasonably deemed
advisable pursuant to any Requirement of Law or OTCBB rules in connection with
the transactions contemplated by this Agreement and to use their respective
commercially reasonable efforts to agree jointly on a method to overcome any
objections by any Governmental Authority to any such transactions.
16
5.5 Notification
of Certain Matters.
Prior
to the Closing: (a) the Issuer shall give prompt notice to the Investors of
the occurrence, or non-occurrence, of any event which would be likely to cause
any representation and warranty of the Issuer herein (except as set forth in
the
Disclosure Schedule) to be untrue or inaccurate, or any covenant, condition
or
agreement of or applicable to the Issuer pursuant to this Agreement not to
be
complied with or satisfied; and (b) each Investor shall give prompt notice
to the Issuer of the occurrence, or non-occurrence, of any event which would
be
likely to cause any representation and warranty of such Investor herein to
be
untrue or inaccurate, or any covenant, condition or agreement of or applicable
to such Investor pursuant to this Agreement not to be complied with or
satisfied.
5.6 Confidentiality.
Each
Investor understands that the U.S. Federal securities laws impose restrictions
on trading based on information regarding this Offering. In addition, each
Investor acknowledges that unauthorized disclosure of information regarding
this
Offering may result in a violation by the Issuer of Regulation FD promulgated
by
the SEC. Each Investor agrees to keep confidential certain information relating
to the Issuer that has been disclosed by the Issuer to the Investor in
connection with such Investor’s investment in the Securities. In addition, each
Investor agrees that no portion of the Confidential Information (as defined
below) shall be disclosed to third parties, except as may be required by law,
without the prior written consent of the Issuer; provided that if such Investor
is required by law to disclose any such information, it shall provide the Issuer
with prompt notice thereof in time sufficient to enable the Issuer to seek
an
appropriate protective order; and provided further that each Investor may share
such information with such of its officers, agents and professional advisors
as
may need to know such information to assist such Investor in its evaluation
thereof, on the condition that such parties agree to be bound by the terms
of
this Section 5.6.
“Confidential Information” means the existence and terms of this Agreement, the
transactions contemplated hereby, the disclosures and other information
contained herein and the receipt and content of any notice of a Suspension
Event, excluding any disclosures or other information that is publicly
available.
5.7 Reservation
of Warrant Shares.
The
Issuer has reserved, from its authorized but unissued Common Stock, that number
of shares of Common Stock equal to the number of Warrant Shares initially
issuable upon exercise of the Warrants.
5.8 Removal
of Legends.
Upon
the earlier of (i) the registration of an Investor’s Securities for resale and
receipt by the Issuer of the Investor’s written confirmation that such
Securities will not be disposed of except in compliance with the prospectus
delivery requirements of the Securities Act, or (ii) the date on which an
Investor’s Securities become available for sale pursuant to Rule 144(k) of the
Securities Act, the Issuer shall, in either case upon an Investor’s written
request, promptly cause certificates evidencing the Investor’s Securities to be
replaced with certificates which do not bear restrictive legends, and the
Securities subsequently issued upon exercise of the Warrants, if any, shall
not
bear such restrictive legends provided the provisions of either clause (i)
or
clause (ii) above, as applicable, are satisfied with respect to the Warrant
Shares issued thereunder. When the Issuer is required to cause unlegended
certificates to replace previously issued legended certificates, if unlegended
certificates are not delivered to an Investor within three (3) Business Days
of
submission by that Investor of legended certificate(s) to the Issuer’s transfer
agent, together with a representation letter in customary form and the
Investor’s written request set forth above (with a copy of each to the Issuer),
the Issuer shall be liable to the Investor for liquidated damages in amount
equal to 1.5% of the aggregate Purchase Price of the Securities evidenced by
such certificate(s) for each thirty (30)-day period (or portion thereof) beyond
such three (3)-Business Day period that the unlegended certificates have not
been so delivered.
17
5.9 Securities
Law Compliance.
(a) State
Securities Law Compliance -- Sale. The Issuer 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 an Investor resides as of the date
such
Investor purchases the Shares and the Warrants from the Issuer, as indicated
on
the signature pages to this Agreement, with respect to the sale of the Shares
and Warrants under this Agreement.
(b) 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 Investors have sold all of their Shares and Warrant Shares under
a Registration Statement as provided in this Agreement or (ii) the Common Stock
becomes a “covered security” under Section 18(b)(1)(A) of the Securities Act,
the Issuer shall maintain within either Xxxxx’x Industrial Manual or Standard
and Poor’s Standard Corporation Descriptions (or any successors to these manuals
that are similarly qualified as “recognized securities manuals” under state Blue
Sky laws) (in each case, a “Manual”)
an
updated listing containing (a) the names of the officers and directors of the
Issuer, (b) a balance sheet of the Issuer as of a date that is at no time older
than eighteen months and (c) a profit and loss statement of the Issuer for
either the preceding fiscal year or the most recent year of
operations;
provided that
the
Issuer shall not be required to maintain such information in a Manual pursuant
to this Section
5.9(b)
prior to
the date that is ninety (90) days following the Closing.
6. REGISTRATION
RIGHTS.
Each
Investor shall have the following registration rights with respect to the
Registrable Securities owned by it:
6.1 Transfer
of Registration Rights.
Each
Investor may assign the registration rights with respect to the Shares and/or
Warrant Shares to any party or parties to which it transfers any of its
Registrable Securities in accordance with the terms of this Agreement; provided
that the transferee agrees in writing with the Issuer to be bound by
Articles 6,
7,
and
9
of this
Agreement. Upon assignment of any registration rights pursuant to this
Section 6.1,
the
Investor assigning such rights shall deliver to the Issuer a notice of such
assignment, which shall include the identity and address of such assignee and
such other information reasonably requested by the Issuer in connection with
effecting any such registration, and an agreement, in form and substance
satisfactory to the Issuer and duly executed by the transferee, to be bound
by
Articles 6,
7
and
9
of this
Agreement (collectively, each Investor, along with each such subsequent
transferee who so agrees to be bound and who continues to hold Registrable
Securities is referred to herein as a “Holder”).
18
6.2 Required
Registration.
As
promptly as practicable after the Closing, but in no event later than ninety
(90) days after the date of the Closing, the Issuer agrees to file with the
SEC
a Registration Statement to register the resale of all the Shares and Warrant
Shares (which shall not include an underwritten offering) (a “Required
Registration”).
Such
Registration Statement shall include a plan of distribution substantially in
the
form attached hereto as Exhibit D.
Not
less than three (3) Business Days prior to the filing of such Registration
Statement, the Issuer shall provide each of the Investors (or, if an Investor
shall have so instructed the Issuer, the legal counsel or investment adviser
of
such Investor) with a copy of the Registration Statement proposed to be filed
and shall consider all (but shall not be obligated to give effect to any)
appropriate comments that are timely provided by such Investors to the Issuer
with respect to the Registration Statement. The Issuer shall use its
commercially reasonable efforts to cause the SEC to declare the Registration
Statement effective no later than the one hundred twentieth (120th) day
following the date the Registration Statement is filed with the SEC (including
filing with the SEC a request for acceleration of effectiveness in accordance
with Rule 461 promulgated under the Securities Act within five (5) Business
Days
of the date that the Issuer is notified (orally or in writing, whichever is
earlier) by the SEC that a Registration Statement will not be “reviewed,” or not
be subject to further review). In the event that the Registration Statement
has
not been filed on or prior to the ninetieth (90th) day after the Closing (the
“Filing
Deadline”)
or
declared effective by the SEC on or prior to the one hundred twentieth (120th)
day after the date of the filing of the Registration Statement (the
“Registration
Deadline”),
then
in addition to any other rights the Holders may have hereunder or under
applicable law, within five (5) Business Days of each monthly anniversary of
such Filing Deadline and/or Registration Deadline until the date on which the
Registration Statement is first filed with the SEC or declared effective by
the
SEC, as applicable, the Issuer shall pay to each Holder at each Holder’s
discretion, as evidenced in writing to the Issuer, either (1) an amount in
cash, as liquidated damages and not as a penalty, equal to 1.0% of the aggregate
Purchase Price originally paid to the Issuer in connection with the acquisition
pursuant to the terms of this Agreement of the Registrable Securities then
held
by such Holder or (2) an additional warrant to acquire that number of
shares of Common Stock equal to two percent (2%) of the Shares purchased by
such
Holder pursuant to this Agreement, which warrant shall be substantially in
the
form of the Holder’s Warrant issued pursuant to this Agreement. Once the
Registration Statement has been declared effective, the Issuer shall thereafter
maintain the effectiveness of the Registration Statement until the earlier
of:
(i) the date on which all the Shares and Warrant Shares have been sold
pursuant to the Registration Statement or Rule 144; or (ii) such time as
the Issuer reasonably determines, based on the advice of counsel, that each
Holder, acting independently of all other Holders, will be eligible to sell
under Rule 144 all the Shares and Warrant Shares then owned by such Holder
within the volume limitations imposed by paragraph (e) of Rule 144 in the three
(3)-month period immediately following the termination of the effectiveness
of
the Registration Statement.
6.3 Registration
Procedures.
(a) The
Issuer shall advise the Investors as to the initiation of the registration
process contemplated by Section 6.2
hereof
and as to the completion thereof. In addition, subject to Section 6.2
hereof,
the Issuer shall, to the extent applicable to the Registration
Statement:
19
(i) use
its
commercially reasonable efforts to obtain from each person who now has piggyback
registration rights a waiver of those rights with respect to the Registration
Statement;
(ii) prepare
and file with the SEC such amendments and supplements to the Registration
Statement as may be necessary to keep such Registration Statement continuously
effective and free from any untrue statement of a material fact or omission
of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and comply with provisions of the Securities Act with
respect to the disposition of all Registrable Securities covered thereby during
the period referred to in Section 6.2
hereof;
(iii) provide
copies to and permit counsel designated by the Investors to review each
Registration Statement and all amendments thereto no fewer than three (3)
Business Days prior to their filing with the SEC, and not file any document
to
which counsel reasonably objects;
(iv) furnish
to Xxxxxxxx & Xxxxxxxx LLP at the address set forth in Section
9.3
hereof,
and to the Investors (i) promptly after the same is filed with the SEC or
received by the Issuer (but not later than two (2) Business Days after the
filing date or receipt date, as the case may be), one (1) copy of any
Registration Statement and any amendment thereto, each related preliminary
prospectus and prospectus and each amendment or supplement thereto, and, upon
request of any Investor, each letter written by or on behalf of the Issuer
to
the SEC or the staff of the Division of Corporation Finance of the SEC, and
each
item of correspondence received by the Issuer from the SEC or the staff of
the
Division of Corporation Finance of the SEC, in each case relating to such
Registration Statement (other than any portion of any thereof which contains
information for which the Issuer has sought confidential treatment), and
(ii) such number of copies of a prospectus, including a preliminary
prospectus, and all supplements thereto and such other documents as each
Investor may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by the Investor that are covered by the related
Registration Statement;
(v) use
its
commercially reasonable efforts to cause all Registrable Securities covered
by a
Registration Statement to be listed on each securities exchange, interdealer
quotation system or other market on which similar securities issued by the
Issuer are then listed;
(vi) otherwise
use its commercially reasonable efforts to comply with all applicable rules
and
regulations of the SEC under the Securities Act and the Exchange Act, take
such
other actions as may be reasonable necessary to facilitate the registration
of
the Registrable Securities hereunder; and make available to its security
holders, as soon as reasonably practicable, but not later than the Availability
Date (as defined below), an earnings statement covering a period of at least
twelve (12) months, beginning after the effective date of each Registration
Statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act, including Rule 158 promulgated
thereunder. “Availability
Date”
means
the forty-fifth (45th) day following the end of the first fiscal quarter ending
after the first anniversary of the effective date of such Registration
Statement, except that, if such first quarter is the last quarter of the
Issuer’s fiscal year, “Availability
Date”
means
the ninetieth (90th) day after the end of such first fiscal
quarter);
20
(vii) with
a
view to making available to the Investors the benefits of Rule 144 (or its
successor rule) and any other rule or regulation of the SEC that may at any
time
permit the Investors to sell shares of Common Stock to the public without
registration, the Issuer covenants and agrees to use its commercially reasonable
efforts to: (i) make and keep public information available, as those terms
are understood and defined in Rule 144, until the earlier of (A) six months
after such date as all of the Registrable Securities may be resold pursuant
to
Rule 144(k) or any other rule of similar effect or (B) such date as all of
the Registrable Securities shall have been resold; (ii) file with the SEC
in a timely manner all reports and other documents required of the Issuer under
the Exchange Act; and (iii) furnish to an Investor upon request, as long as
such Investor owns at least 10,000 shares of Registrable Securities, (A) a
written statement by the Issuer that it has complied in all material respects
with the reporting requirements of the Exchange Act, (B) a copy of the
Issuer’s most recent Annual Report on Form 10-K or Quarterly Report on Form
10-Q, and (C) such other information as may be reasonably requested in
order to avail such Investor of any rule or regulation of the SEC that permits
the selling of any such Registrable Securities without
registration;
(viii) notify
the Holders promptly when the Registration Statement is declared effective
by
the SEC, and furnish to each Holder such number of prospectuses, including
preliminary prospectuses, and other documents incident thereto as the Holders
may reasonably request from time to time;
(ix) use
its
commercially reasonable efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions
of
the United States where an exemption is not available and as any Holder may
reasonably request to enable such Holder to consummate the disposition in such
jurisdiction of the Registrable Securities; provided that in no event will
the
Issuer be required to: (x) qualify generally to do business in any
jurisdiction where it would not otherwise be required to be so qualified;
(y) consent to general service of process in any such jurisdiction; or
(z) subject itself to taxation in any jurisdiction where it is not already
subject to taxation;
(x) notify
the Holders at any time when a prospectus relating to the Registrable Securities
is required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in the Registration Statement
contains an untrue statement of a material fact or omits to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading and, subject to Section 6.11
hereof,
prepare a supplement or amendment to such prospectus, so that, as thereafter
delivered to purchasers of such Registrable Securities, such prospectus will
not
contain any untrue statement of a material fact or omit to state a material
fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading;
(xi) with
a
view to making available to the Holders the benefits of certain rules and
regulations of the SEC that at any time permit the sale of the Registrable
Securities to the public without registration, so long as any Registrable
Securities are outstanding, use its commercially reasonable efforts for a period
of two (2) years following the date of the Closing:
21
| (1) |
to
make and keep public information available, as those terms are understood
and defined in Rule 144(c); and
|
| (2) |
to
file with the SEC in a timely manner all reports and other documents
required to be filed by the Issuer under the Exchange Act;
and
|
(xii) advise
the Holders promptly after receiving notice or obtaining knowledge of the
existence of any stop order by the SEC delaying or suspending the effectiveness
of the Registration Statement or of the initiation or threat in writing of
any
proceeding for that purpose, use its commercially reasonable efforts to obtain
the withdrawal of any order suspending the effectiveness of the Registration
Statement at the earliest possible time, and promptly notify the Investors
of
the lifting or withdrawal of any such order.
(b) Notwithstanding
anything stated or implied to the contrary in Section 6.3(a)
hereof,
the Issuer shall not be required to consent to or participate or cooperate
in
connection with any underwritten offering of the Registrable Securities or
to
any specific underwriter participating in any underwritten public offering
of
the Registrable Securities.
(c) Each
Holder agrees to deliver a Notice and Questionnaire in the form attached hereto
as Exhibit E
(the
“Notice
and Questionnaire”)
to the
Issuer at least seven (7) Business Days prior to any distribution by it of
Registrable Securities under the Registration Statement. From and after the
date
the Registration Statement is declared effective, the Issuer shall, as promptly
as is practicable after the date a Notice and Questionnaire is delivered, and
in
any event within the later of seven (7) Business Days after such date, or seven
(7) Business Days after the expiration of any Suspension Period in effect when
the Notice and Questionnaire are delivered to the Issuer or which comes into
effect within seven (7) Business Days of such delivery: (i) if required by
applicable law, file with the SEC a post-effective amendment to the Registration
Statement or prepare and, if required by applicable law, file a supplement
to
the related prospectus or an amendment or supplement to any document
incorporated therein by reference or file any other required document so that
the Holder delivering such Notice and Questionnaire is named as a selling holder
in the Registration Statement and the related prospectus and so that such Holder
is permitted to deliver such prospectus to purchasers of the Registrable
Securities in accordance with applicable law and, if the Issuer shall file
a
post-effective amendment to the Registration Statement, use commercially
reasonable efforts to cause such post-effective amendment to be declared
effective under the Securities Act as promptly as is practicable;
(ii) provide such Holder copies of any documents filed pursuant to this
Section 6.3(c);
and
(iii) notify such Holder as promptly as practicable after the effectiveness
under the Securities Act of any post-effective amendment filed pursuant to
this
Section 6.3(c);
provided that if such Notice and Questionnaire is delivered during a Suspension
Period, the Issuer shall so inform the Holder delivering such Notice and
Questionnaire and shall take the actions set forth in clauses (i),
(ii)
and
(iii)
above
upon expiration of the Suspension Period in accordance with Section 6.11
hereof.
Notwithstanding anything contained herein to the contrary, the Issuer shall
be
under no obligation to name any Person that is not a Holder as a selling holder
in the Registration Statement or related prospectus; provided that any Person
that becomes a Holder pursuant to the provisions of Section 6.1
hereof
(whether or not such Person was a Holder at the time the Registration Statement
was declared effective) shall be named as a selling holder in the Registration
Statement or related prospectus in accordance with the requirements of this
Section 6.3(c).
22
(d) Each
Holder agrees that, upon receipt of any notice from the Issuer of the happening
of any event of the kind described in Section 6.3(a)(iv)
hereof,
and subject to Section 6.11
hereof,
such Holder will forthwith discontinue such Holder’s disposition of Registrable
Securities pursuant to the Registration Statement until such Holder’s receipt of
the copies of the supplemented or amended prospectus contemplated by
Section 6.3(a)(iv)
hereof
and, if so directed by the Issuer, will deliver to the Issuer at the Issuer’s
expense all copies, other than permanent file copies, then in such Holder’s
possession, of the prospectus relating to such Registrable Securities current
at
the time of receipt of such notice.
6.4 Incidental
Registration.
(a) Subject
to Section 6.4(b)
hereof
and Section 6.4(c)
hereof,
if at any time prior to the filing of a Registration Statement in connection
with the Required Registration the Issuer proposes to register under the
Securities Act any shares of the same class as any of the Registrable Securities
(whether in an underwritten public offering or otherwise and whether or not
for
the account of the Issuer or for any stockholder of the Issuer), in a manner
that would permit the registration under the Securities Act of Registrable
Securities for sale to the public, the Issuer will give written notice to each
Holder of its intention to do so not later than twenty (20) days prior to the
anticipated filing date of the applicable Registration Statement. Any Holder
may
elect to participate in such registration on the same basis as the planned
method of distribution contemplated by the proposed Registration Statement
by
delivering to the Issuer written notice of its election, in the form of the
Notice and Questionnaire, within fifteen (15) days after its receipt of the
Issuer’s notice pursuant to this Section 6.4(a).
A
Holder’s election pursuant to this Section 6.4(a)
must
(i) specify the amount of Registrable Securities desired to be included in
such Registration Statement by such Holder and (ii) include any other
information that the Issuer reasonably requests be included in such Registration
Statement. Upon its receipt of a Holder’s election pursuant to this Section 6.4(a),
the
Issuer will, subject to Section 6.5
hereof,
use its commercially reasonable efforts to include in such Registration
Statement all Registrable Securities requested to be included. Any registration
of Registrable Securities pursuant to this Section 6.4
is
referred to as an “Incidental
Registration”,
and
any Holder whose Registrable Securities are included at the request of such
Holder in an Incidental Registration pursuant to this Section 6.4
is
referred to as a “Selling
Stockholder.”
(b) The
Issuer shall have no obligation under this Section 6.4
with
respect to any registration effected pursuant to a registration statement on
Form S-4 (or any other registration statement registering shares issued in
a
merger, consolidation, acquisition, or similar transaction) or Form S-8, or
any
successor or comparable forms, or a registration statement filed in connection
with an exchange offer or any offering of securities solely to the Issuer’s
existing stockholders or otherwise pursuant to a dividend reinvestment plan,
stock purchase plan or other employee benefit plan.
(c) The
Issuer shall have no obligation under this Section 6.4
with
respect to any registration initiated by one or more Third-Party Demand
Stockholders pursuant to one or more registration rights agreements under which
the rights of all such Third-Party Demand Stockholders are pari
passu,
if:
(i) the
applicable agreement between the Issuer and such Third-Party Demand Stockholders
that provides for such registration rights prohibits the inclusion in such
registration of securities other than those offered by such Third-Party Demand
Stockholders and the Issuer, and
23
(ii) no
securities other than those offered by such Third-Party Demand Stockholders
are
included in such registration.
6.5 Limitation
on Inclusion of Registrable Securities; Priorities.
If the
proposed method of distribution in connection with an Incidental Registration
is
an underwritten public offering and the lead managing underwriter thereof
determines in good faith that the amount of securities to be included in such
offering would adversely affect such offering (including an adverse effect
on
the price at which the securities proposed to be registered may be sold), the
amount of securities to be offered may be reduced or limited to the extent
necessary to reduce the total number of securities to be included in such
offering to the amount recommended by the lead managing underwriter as
follows:
(a) in
connection with an offering initiated by the Issuer, if securities are being
offered for the account of other Persons (including any Holders) such reduction
shall be made:
(i) first,
from the securities intended to be offered by such other Persons (including
any
Holders), on a pro
rata
basis,
based on the number of Registrable Securities and other securities that are
requested to be included in such offering; and
(ii) second,
from the number of securities to be offered for the account of the
Issuer;
(b) in
connection with an offering initiated by a Third-Party Demand Stockholder,
such
reduction shall be made:
(i) first,
from securities held by Persons who are not (A) Holders,
(B) Third-Party Demand Stockholders or (C) other stockholders entitled
under any agreement between them and the Issuer to participate pari
passu
with the
Selling Stockholders in such Incidental Registration, and from securities being
offered for the account of the Issuer, allocated between the Issuer and such
other Persons as the Issuer may determine, subject to any agreements between
the
Issuer and such other Persons;
(ii) second,
from the number of Registrable Securities requested to be included in such
offering by the Selling Stockholders and any other stockholders entitled under
any agreements between them and the Issuer to participate pari
passu
with the
Selling Stockholders in such Incidental Registration, on a pro
rata
basis,
based on the number of Registrable Securities and other securities which are
requested to be included in the registration; and
(iii) last,
from securities being offered by the Third-Party Demand
Stockholders.
6.6 Withdrawal
by Selling Stockholder.
Each
Selling Stockholder may, no less than five (5) Business Days before the
anticipated effective date of the applicable Registration Statement for an
Incidental Registration, withdraw some or all of its Registrable Securities
from
inclusion in such Registration Statement. No such withdrawal shall relieve
any
withdrawing Selling Stockholder of its obligation to pay expenses under
Section 6.9
hereof.
24
6.7 Underwriters;
Underwriting Agreement.
In
connection with any Incidental Registration involving an underwritten public
offering of securities for the account of the Issuer or a Third-Party Demand
Stockholder, (a) the managing and lead underwriter(s) shall be selected by
the Issuer, unless otherwise provided in any agreement between the Issuer and
any Third-Party Demand Stockholder, and (b) each Selling Stockholder
electing to participate in the Incidental Registration shall, as a condition
to
the Issuer’s obligation under this Article 6
to
include such Selling Stockholder’s Registrable Securities in such Incidental
Registration, enter into and perform its obligations under an underwriting
agreement or other similar arrangement in customary form with the managing
underwriter(s) of such offering. Notwithstanding anything stated or implied
to
the contrary in this Article 6,
the
Issuer shall not be required to consent to or participate or cooperate in
connection with any underwritten offering of the Registrable Securities or
to
any specific underwriter participating in any underwritten public offering
of
the Registrable Securities.
6.8 Registration
Procedures.
(a) Whenever
the Issuer is obligated by the provisions of Section 6.4(a)
hereof
to effect the registration of any Registrable Securities under the Securities
Act, the Issuer shall, to the extent applicable to the Registration
Statement:
(i) use
its
commercially reasonable efforts to cause the applicable Registration Statement
to become effective as promptly as practicable, and to prepare and file with
the
SEC any amendments and supplements to the Registration Statement and to the
prospectus used in connection therewith as may be necessary to keep the
Registration Statement and such prospectus effective, current and in compliance
with the provisions of the Securities Act during the periods when the Issuer
is
required, pursuant to the applicable registration rights agreement(s) between
the Issuer and Third-Party Demand Stockholders or otherwise, to keep the
Registration Statement effective and current;
(ii) notify
the Selling Stockholders promptly when the Registration Statement is declared
effective by the SEC, and furnish such number of prospectuses, including
preliminary prospectuses, and other documents incident thereto as the Selling
Stockholders may reasonably request from time to time;
(iii) use
its
commercially reasonable efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions
of
the United States where an exemption is not available and as the Persons holding
a majority of the securities covered by such Registration Statement may
reasonably request to enable such Person or Persons to consummate the
disposition of the Registrable Securities in such jurisdiction; provided that
in
no event will the Issuer be required to: (x) qualify to do business as a
foreign corporation in any jurisdiction where it would not otherwise be required
to be so qualified; (y) consent to general service of process in any such
jurisdiction; or (z) subject itself to taxation in any jurisdiction where
it is not already subject to taxation;
25
(iv) notify
the Selling Stockholders at any time when a prospectus relating to the
Registrable Securities is required to be delivered under the Securities Act
of
the happening of a Suspension Event or any other event as a result of which
the
prospectus included in the Registration Statement contains an untrue statement
of a material fact or omits to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading and, subject to Section 6.11
hereof,
prepare a supplement or amendment to such prospectus, so that, as thereafter
delivered to purchasers of such Registrable Securities, such prospectus will
not
contain an untrue statement of a material fact or omit to state a material
fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; and
(v) advise
the Selling Stockholders promptly after receiving notice or obtaining knowledge
of the existence of any stop order by the SEC delaying or suspending the
effectiveness of the Registration Statement or of the initiation or threat
of
any proceeding for that purpose, use its commercially reasonable efforts to
obtain the withdrawal of any order suspending the effectiveness of the
Registration Statement at the earliest possible time, and promptly notify the
Selling Stockholders of the lifting or withdrawal of any such
order.
(b) Each
Selling Stockholder agrees that, upon receipt of any notice from the Issuer
of
the happening of any event of the kind described in Section 6.8(a)(iv)
hereof,
such Selling Stockholder will forthwith discontinue such Selling Stockholder’s
disposition of Registrable Securities pursuant to the Registration Statement
until such Selling Stockholder’s receipt of the copies of the supplemented or
amended prospectus contemplated by Section 6.8(a)(iv)
hereof
and, if so directed by the Issuer, will deliver to the Issuer at the Issuer’s
expense all copies, other than permanent file copies, then in such Selling
Stockholder’s possession, of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice.
6.9 Expenses.
Except
as required by law, all expenses incurred by the Issuer in complying with this
Article 6,
including, without limitation, all registration, application, qualification,
filing, listing, transfer and registrar fees; printing expenses; fees and
disbursements of counsel and accountants for the Issuer; and blue sky fees
and
expenses (including fees and disbursements of Issuer’s counsel related to all
blue sky matters) incurred in connection with any registration, qualification
or
compliance pursuant to this Article 6
shall be
borne by the Issuer. All underwriting or brokerage discounts and selling
commissions applicable to a sale incurred in connection with any registration
of
Registrable Securities and the legal fees and other expenses of a Holder or
Selling Stockholder shall be borne by such Holder or Selling Stockholder;
provided
that
the
Issuer shall pay the fees and expenses of one legal counsel for all Selling
Stockholders or Holders in an amount up to a maximum of $35,000.
6.10 Further
Information.
Each
Holder, in the case of a Required Registration, and each Selling Stockholder,
in
the case of an Incidental Registration, shall cooperate with the Issuer in
connection with the preparation of the Registration Statement, and for so long
as the Issuer is obligated to keep the Registration Statement effective, such
Holder or Selling Stockholder, as the case may be, will provide to the Issuer,
in writing, for use in the Registration Statement, all information regarding
such Holder or Selling Stockholder, as the case may be, its intended method
of
disposition of the applicable Registrable Securities, and such other information
as the Issuer may reasonably request to prepare the Registration Statement
and
prospectus covering the Registrable Securities and to maintain the currency
and
effectiveness thereof. Each Holder and each Selling Stockholder shall indemnify
the Issuer with respect to such information in accordance with Section 7.2
hereof.
26
6.11 Right
of Suspension.
(a) Notwithstanding
any other provision of this Agreement or any related agreement to the contrary,
the Issuer shall have the right, at any time, to suspend the availability of
the
Registration Statement and the related prospectus and offers and sales of the
Registrable Securities pursuant thereto whenever, in the good-faith judgment
of
the management of the Issuer: (i) continuing such availability or
permitting such offers and sales could reasonably be expected to have an adverse
effect upon a pending or proposed significant corporate event, or negotiations,
discussions or pending proposals with respect thereto; (ii) there exists a
material development or a potential material development with respect to or
involving the Issuer that the Issuer would be obligated to disclose in the
prospectus used in connection with the Registration Statement, which disclosure,
in the good-faith judgment of the Issuer, after consultation with counsel,
would
be premature or otherwise inadvisable at such time; (iii) the Registration
Statement or any document incorporated or deemed to be incorporated therein
by
reference contains an untrue statement of a material fact or omits to state
a
material fact required to be stated therein or necessary to make the statements
therein not misleading; or (iv) the prospectus included in the Registration
Statement, as supplemented from time to time, contains an untrue statement
of a
material fact or omits to state a material fact necessary in order to make
the
statements therein, in light of the circumstances under which they were made,
not misleading (each of the events described in clauses (i),
(ii),
(iii)
and
(iv),
a
“Suspension
Event”).
In
the event that a Suspension Event shall occur and the Issuer shall determine
to
suspend the availability of the Registration Statement and offers and sales
of
the Registrable Securities pursuant thereto, the Issuer shall, in addition
to
performing those acts required to be performed under the Securities Act and/or
the Exchange Act or deemed advisable by the Issuer, deliver to the Holders
or
the Selling Stockholders, as applicable, written notice thereof, signed by
an
officer of the Issuer. Upon receipt of such notice, the Holders or the Selling
Stockholders, as applicable, shall discontinue disposition of the Registrable
Securities pursuant to the Registration Statement and prospectus until such
Holders or Selling Stockholders: (A) are advised in writing by the Issuer
that the use of the Registration Statement and related prospectus (and offers
and sales thereunder) may be resumed; (B) have received copies of a
supplemental or amended prospectus, if applicable; and (C) have received
copies of any additional or supplemental filings which are incorporated or
deemed to be incorporated by reference into such prospectus. The Issuer will
use
commercially reasonable efforts to ensure that the use of the Registration
Statement and prospectus may be resumed as promptly as practicable.
(b) The
Issuer’s right to suspend the effectiveness of the Registration Statement and
the offers and sales of the Registrable Securities pursuant thereto, as
described in Section 6.11(a)
hereof,
shall be for a period of time (the “Suspension
Period”)
beginning on the date of the occurrence of the Suspension Event and expiring
on
the earlier to occur of: (i) the date on which the Suspension Event ceases;
or (ii) thirty (30) days after the date of the occurrence of the Suspension
Event; provided that there shall not be more than two (2) Suspension Periods
in
any twelve (12)-month period.
27
6.12 Transfer
of Shares.
Notwithstanding any other provision of this Agreement, an Investor may transfer
all or any part of its Securities to any Person under common management with
such Investor, provided that: (a) such transferee agrees in writing with
the Issuer to be bound by Articles 6,
7
and
9
of this
Agreement; and (b) any such transfer shall be effected in full compliance
with all applicable federal and state securities laws, including, without
limitation, the Securities Act and the rules of the SEC promulgated thereunder.
The Issuer will effect such transfer of restricted certificates and, if the
Securities to be transferred are Registrable Securities registered under an
effective Registration Statement, then upon receipt of the Notice and
Questionnaire from the transferee, the Issuer will promptly amend the prospectus
forming a part of the Registration Statement to add or replace such transferee
as a Selling Stockholder in the Registration Statement, provided that such
transferor and transferee shall be required to provide the Issuer with the
information requested of such Investor in this Agreement, information reasonably
necessary for the Issuer to determine that the transfer was effected in
accordance with all applicable federal and state securities laws, including,
without limitation, the Securities Act and the rules of the SEC promulgated
thereunder, and all other information reasonably requested by the Issuer from
time to time in connection with any transfer, registration, qualification or
compliance referred to in Section 6.10
hereof.
7. INDEMNIFICATION.
7.1 Indemnification
by the Issuer.
The
Issuer will indemnify and hold harmless each Holder or Selling Stockholder
of
Shares and/or Warrant Shares covered by a Registration Statement pursuant to
the
provisions of Article 6
hereof,
any Person who controls such Holder or Selling Stockholder within the meaning
of
the Securities Act, and any officer, director, investment adviser, employee,
agent, partner, member or Affiliate of such Holder or Selling Stockholder (each,
a “Holder/Selling
Stockholder Indemnified Party”),
from
and against, and will promptly reimburse each such Holder/Selling Stockholder
Indemnified Party with respect to, any and all claims, actions, demands, losses,
damages, liabilities, costs and expenses to which such Holder/Selling
Stockholder or any such Holder/Selling Stockholder Indemnified Party may become
subject under the Securities Act or otherwise, insofar as such claims, actions,
demands, losses, damages, liabilities, costs or expenses arise out of or are
based upon: (a) any untrue statement or alleged untrue statement of a
material fact contained in such Registration Statement, any prospectus contained
therein or any amendment or supplement thereto; (b) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of any preliminary
prospectus or prospectus, in light of the circumstances under which they were
made) not misleading; or (c) any inaccurate representation or breach of any
warranty, agreement or covenant of the Issuer contained herein; provided that
the Issuer will not be liable in any such case to the extent that any such
claim, action, demand, loss, damage, liability, cost or expense arises out
of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission (i) made in reliance on and conformity with information
furnished by any Holder or Selling Stockholder, as applicable, in writing
specifically for use in the preparation thereof or (ii) which was cured in
an amendment or supplement to the prospectus (or any amendment or supplement
thereto) delivered to the Holder or Selling Stockholder, as applicable, on
a
timely basis to permit proper delivery thereof prior to the date on which any
Shares or Warrant Shares were transferred or sold by such Holder or Selling
Stockholder, as applicable.
28
7.2 Indemnification
by the Holder or Selling Stockholder.
Each
Holder and each Selling Stockholder of Shares and/or Warrant Shares covered
by a
Registration Statement pursuant to the provisions of Article 6
hereof
will, severally and not jointly, indemnify and hold harmless the Issuer, any
Person who controls the Issuer within the meaning of the Securities Act, and
any
officer, director, employee, agent, partner, member or Affiliate of the Issuer
(each, an “Issuer
Indemnified Party”)
from
and against, and will promptly reimburse the Issuer Indemnified Parties with
respect to, any and all claims, actions, demands, losses, damages, liabilities,
costs or expenses to which such Issuer Indemnified Parties may become subject
under the Securities Act or otherwise, insofar as such claims, actions, demands,
losses, damages, liabilities, costs or expenses arise out of or are based upon:
(a) any untrue statement or alleged untrue statement of a material fact
contained in such Registration Statement, any prospectus contained therein
or
any amendment or supplement thereto; or (b) the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of any preliminary
prospectus or prospectus, in light of the circumstances under which they were
made) not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was so made in reliance on and conformity with written information
furnished by such Holder or Selling Stockholder specifically for use in the
preparation thereof; provided that the liability of any Holder or Selling
Stockholder pursuant to this Section 7.2
shall be
limited to an amount not to exceed the net proceeds received by such Holder
or
Selling Stockholder from the sale of Registrable Securities pursuant to the
Registration Statement which gives rise to such obligation to
indemnify.
7.3 Procedures.
(a) Promptly
after receipt by a party entitled to be indemnified pursuant to the provisions
of Section 7.1
or
Section
7.2
hereof,
as applicable, of notice of the commencement of any action involving the subject
matter of the foregoing indemnity provisions, such indemnified party will,
if a
claim thereof is to be made against the indemnifying party pursuant to the
provisions of Section 7.1
or
Section 7.2
hereof,
notify the indemnifying party of the commencement thereof; provided that the
failure to so notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to an indemnified party otherwise
than under this Article 7,
and
shall not relieve the indemnifying party from liability under this Article 7,
except
to the extent that such indemnifying party is materially prejudiced by such
failure. In case such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party shall have the right to participate in, and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party; provided,
however, that
if
the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded,
based on an opinion of counsel, that there may be a conflict of interest between
the positions of the indemnifying party and the indemnified party in conducting
the defense of any such action or that there may be legal defenses available
to
it and/or other indemnified parties which are different from or additional
to
those available to the indemnifying party, the indemnified party or parties
shall have the right to select separate counsel to assume such legal defenses
and to otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party
to such indemnified party of its election to assume the defense of such action
and approval by the indemnified party of counsel, the indemnifying party will
not be liable to such indemnified party under Section 7.1
or
Section 7.2
hereof
for any legal or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof unless (i) the indemnified party
shall have employed such counsel in connection with the assumption of legal
defenses in accordance with the proviso to the preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for the
expenses of more than one separate counsel, reasonably satisfactory to such
indemnifying party, representing all of the indemnified parties who are parties
to such action) or (ii) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of
action, in each of which cases the reasonable fees and expenses of counsel
shall
be at the expense of the indemnifying party. No indemnifying party shall be
liable to an indemnified party for any settlement of any action or claim without
the written consent of the indemnifying party. No indemnifying party will
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of an unconditional release from all liability in
respect to such action, claim or litigation.
29
(b) If
the
indemnification provided for in this Article 7
is
required by its terms but is for any reason held to be unavailable to or
otherwise insufficient to hold harmless an indemnified party under the above
paragraphs of this Article
7 in
respect to any claims, actions, demands, losses, damages, liabilities, costs
or
expenses referred to herein, then each applicable indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of any claims, actions, demands, losses, damages, liabilities, costs or expenses
referred to herein (i) in such proportion as is appropriate to reflect the
relative benefits received by the Issuer and the Investors from the private
placement of Securities hereunder or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) above but the relative fault of the Issuer and the Investors in connection
with the statements or omissions or inaccuracies in the representations and
warranties in this Agreement and/or the Registration Statement which resulted
in
such claims, actions, demands, losses, damages, liabilities, costs or expenses,
as well as any other relevant equitable considerations. The respective relative
benefits received by the Issuer on the one hand and each Investor on the other
shall be deemed to be in the same proportion as the amount paid by the Investor
to the Issuer pursuant to this Agreement for the Shares purchased by the
Investor that were sold pursuant to the Registration Statement bears to the
difference (the “Difference”)
between the amount the Investor paid for the Shares that were sold pursuant
to
the Registration Statement and the amount received by the Investor from such
sale. The relative fault of the Issuer, on the one hand, and each Investor
on
the other shall be determined by reference to, among other things, whether
the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact or the inaccurate or the alleged inaccurate
representation and/or warranty relates to information supplied by the Issuer
or
by the Investors and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the claims, actions,
demands, losses, damages, liabilities, costs or expenses referred to above
shall
be deemed to include, subject to the limitations set forth in Section 7.3(a)
hereof,
any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim. The provisions
set forth in Section 7.3(a)
hereof
with respect to the notice of the threat or commencement of any threat or action
shall apply if a claim for contribution is to be made under this Section
7.3(b);
provided,
however,
that no
additional notice shall be required with respect to any threat or action for
which notice has been given under Section 7.3(a)
hereof
for purposes of indemnification. The Issuer and each Investor agree that it
would not be just and equitable if contribution pursuant to this Section 7.3(b)
were
determined solely by pro rata allocation (even if the Investors were treated
as
one entity for such purpose) or by any other method of allocation which does
not
take account of the equitable considerations referred to in this paragraph.
Notwithstanding the provisions of this Section 7.3,
no
Investor shall be required to contribute any amount in excess of the amount
by
which the Difference exceeds the amount of any damages that the Investor has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Investor’s obligations to contribute
pursuant to this Section 7.3
are
several and not joint.
30
8. CONDITIONS
TO CLOSING.
8.1 Conditions
to the Obligations of the Investors.
The
obligation of the Investors to proceed with the Closing is subject to the
following conditions:
(a) Representations
and Warranties.
Each of
the representations and warranties of the Issuer contained in this Agreement,
as
qualified by the Disclosure Schedule, shall be true and correct in all material
respects as of the Closing as though made on and as of the Closing, except:
(i) for changes specifically permitted by this Agreement; and
(ii) that those representations and warranties which address matters only
as of a particular date shall remain true and correct as of such
date.
(b) Agreement
and Covenants.
The
Issuer shall have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed or complied
with by it on or prior to the Closing.
(c) No
Order.
No
Governmental Authority shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, injunction,
or
other order (whether temporary, preliminary or permanent) which is in effect
and
which materially restricts, prevents or prohibits consummation of the Closing
or
any transaction contemplated by this Agreement.
(d) Trading.
From
and after the date hereof until the Closing, each of the following conditions
will remain in effect: (i) the trading of the Common Stock shall not have
been suspended by the SEC or on the OTCBB; and (ii) trading in securities
generally on the OTCBB shall not have been suspended.
(e) Officer’s
Certificate.
The
Issuer shall have delivered a Certificate, executed on behalf of the Issuer
by
its Chief Executive Officer or its Chief Financial Officer, dated as of the
date
of the Closing, certifying to the fulfillment of the conditions specified in
Sections
8.1(a)
and
(b).
(f) Secretary’s
Certificate
The
Issuer shall have delivered a Certificate, executed on behalf of the Issuer
by
its Secretary, dated as of the date of the Closing, certifying the resolutions
adopted by the Board of Directors of the Issuer approving the transactions
contemplated by this Agreement and the issuance of the Securities, certifying
the current versions of the Certificate of Incorporation and Bylaws and
certifying as to the signatures and authority of persons signing this Agreement
on behalf of the Issuer.
31
(g) Legal
Opinion.
The
Investors shall have received an opinion from Paul, Hastings, Xxxxxxxx &
Xxxxxx LLP, the Issuer’s counsel, dated as of the date of the Closing, in form
and substance reasonably acceptable to Xxxxxxxx & Xxxxxxxx LLP and
addressing such legal matters as the Investors may reasonably
request.
(h) Issuer
Series A Preferred Stock.
Each
holder of outstanding shares of the Issuer’s Series A Preferred Stock shall have
executed a Conversion Agreement in substantially the form attached as
Exhibit F
hereto.
(i) Waiver
and Acknowledgment.
SCO
Financial Group LLC shall have executed a Waiver and Acknowledgement in
substantially the form attached as Exhibit G
hereto.
8.2 Conditions
to the Obligations of the Issuer.
The
obligation of the Issuer to proceed with the Closing is subject to the following
conditions, any and all of which may be waived by the Issuer, in whole or in
part, to the extent permitted by applicable law:
(a) Representations
and Warranties.
Each of
the representations and warranties of each of the Investors contained in this
Agreement shall be true and correct as of the Closing as though made on and
as
of the Closing, except: (i) for changes specifically permitted by this
Agreement; and (ii) that those representations and warranties which address
matters only as of a particular date shall remain true and correct as of such
date. Unless the Issuer receives written notification to the contrary at the
Closing, the Issuer shall be entitled to assume that the preceding sentence
is
accurate in all respects at the Closing.
(b) Agreement
and Covenants.
Each
Investor shall have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed or complied
with by it on or prior to the Closing. Unless the Issuer receives written
notification to the contrary at the Closing, the Issuer shall be entitled to
assume that the preceding sentence is accurate in all respects at the
Closing.
(c) No
Order.
No
Governmental Authority shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, injunction,
or
other order (whether temporary, preliminary or permanent) which is in effect
and
which materially restricts, prevents or prohibits consummation of the Closing
or
any transaction contemplated by this Agreement.
9. MISCELLANEOUS.
9.1 Defined
Terms.
As used
herein the following terms shall have the following meanings:
(a) “Additional
Closing”
has
the
meaning specified in Section 2.2
of this
Agreement.
32
(b) “Additional
Investor”
has
the
meaning specified in Section 2.2
of this
Agreement.
(c) “Affiliate”
has
the
meaning ascribed to it in Rule 12b-2 of the General Rules and Regulations
promulgated under the Exchange Act, as in effect on the date
hereof.
(d) “Agreement”
has
the
meaning specified in the preamble to this Agreement.
(e) “Business
Day”
means
any day except Saturday, Sunday and any day which shall be a federal legal
holiday or a day on which either (i) the SEC or (ii) banking
institutions in the State of New York are authorized or required by law or
other
governmental action to close.
(f) “Closing”
has
the
meaning specified in Section 2.1
of this
Agreement.
(g) “Common
Stock”
has
the
meaning specified in the Recitals to this Agreement.
(h) “Confidential
Information”
has
the
meaning specified in Section 5.6
of this
Agreement.
(i) “Contract”
means
any indenture, lease, sublease, loan agreement, mortgage, note, restriction,
commitment, obligation or other contract, agreement or instrument.
(j) “Disclosure
Schedule”
has
the
meaning specified in Section 3
of this
Agreement.
(k) “XXXXX”
has
the
meaning specified in Section 3.8
of this
Agreement.
(l) “Exchange
Act”
means
the Securities Exchange Act of 1934, as amended.
(m) “GAAP”
means
generally accepted accounting principles in effect in the United States of
America.
(n) “Governmental
Authority”
means
any nation or government, any state or other political subdivision thereof,
and
any entity or official exercising executive, legislative, judicial, regulatory
or administrative functions of or pertaining to government.
(o) “Holder”
has
the
meaning specified in Section 6.1
of this
Agreement.
(p) “Holder/Selling
Stockholder Indemnified Party”
has
the
meaning specified in Section 7.1
of this
Agreement.
(q) “Incidental
Registration”
has
the
meaning specified in Section 6.4(a)
of this
Agreement.
(r) “Investor”
has
the
meaning specified in the preamble to this Agreement, as modified in Section
1.1
of this
Agreement.
33
(s) “Investor
Material Adverse Effect”
means
any effect, change, development, event or circumstance that, considered together
with all other effects, changes, developments, events or circumstances, is
or
could reasonably be expected to be or to become materially adverse to, or has
or
could reasonably be expected to have or to result in a material adverse effect
on, (a) the right or ability of any Investor to vote or otherwise exercise
ownership rights with respect to the Securities, or (b) any of the rights
of an Investor under this Agreement.
(t) “Issuer”
means
Aeolus Pharmaceuticals, Inc., a Delaware corporation.
(u) “Issuer
Indemnified Party”
has
the
meaning specified in Section 7.2
of this
Agreement.
(v) “Issuer
Material Adverse Effect”
means
any effect, change, development, event or circumstance that, considered together
with all other effects, changes, developments, events or circumstances, is
or
could reasonably be expected to be or to become materially adverse to, or has
or
could reasonably be expected to have or to result in a material adverse effect
on, (a) the business (as currently conducted or proposed to be conducted),
condition (financial or otherwise), cash position, liquidity, working capital,
capitalization, assets (tangible or intangible), liabilities (fixed, contingent
or otherwise), operations or cash flow financial performance of the Issuer
and
the Subsidiary, taken together as a whole, or (b) the ability of the Issuer
to consummate the transactions contemplated by this Agreement or to perform
any
of its obligations under this Agreement.
(w) “Issuer’s
Knowledge,”
(i)
for
purposes other than Section 3.11
of this
Agreement, means the actual knowledge of Xxxxxxx X. Xxxxxxx, Xx., Xxxx X.
XxXxxxx or Xxxxxxx X. XxXxxxx, following commercially reasonable investigation,
and (ii) for purposes of Section 3.11
of this
Agreement only, means the actual knowledge of Xxxxxxx X. Xxxxxxx, Xx. and Xxxxx
Xxx following an investigation of all written materials of the Issuer in its
possession.
(x) “Lien”
means
any mortgage, pledge, security interest, encumbrance, lien or charge of any
kind.
(y) “Manual”
has
the
meaning specified in Section 5.9(b)
of this
Agreement.
(z) “Majority
Investors”
has
the
meaning specified in Section 2.3(a)
of this
Agreement.
(aa) “Notice
and Questionnaire”
has
the
meaning specified in Section 6.3(c)
of this
Agreement.
(bb) “Offering”
has
the
meaning specified in the Recitals to this Agreement.
(cc) “Options”
has
the
meaning specified in Section 3.9
of this
Agreement.
(dd) “OTCBB”
has
the
meaning specified in Section 3.20
of this
Agreement.
(ee) “Permit”
means
any permit, certificate, consent, approval, authorization, order, license,
variance, franchise or other similar indicia of authority issued or granted
by
any Governmental Authority.
34
(ff) “Person”
means
a
natural person, partnership, corporation, limited liability company, business
trust, joint stock company, estate, trust, unincorporated association, joint
venture, Governmental Authority or other entity, of whatever
nature.
(gg) “Placement
Agent Warrants”
has the
meaning specified in Section 1.1
of this
Agreement.
(hh) “Purchase
Price”
has
the
meaning specified in Section 1.1
of this
Agreement.
(ii) “Register”,
“registered”
and
“registration”
refer
to a registration of the offering and sale or resale of Common Stock effected
by
preparing and filing with the SEC a registration statement in compliance with
the Securities Act and the declaration or ordering of the effectiveness of
such
registration statement.
(jj) “Registered
Intellectual Property”
means
any Intellectual Property that is the subject of an application, certificate,
filing, registration or other document issued, filed with or recorded by any
Governmental Authority, including (i) issued patents and patent applications,
(ii) trademark registrations and applications and (iii) copyright registrations
and applications.
(kk) “Registrable
Securities”
means
all Shares and Warrant Shares acquired by the Investors pursuant to this
Agreement and any other shares of Common Stock or other securities issued in
respect of such Shares or Warrant Shares by way of a stock dividend or stock
split or in connection with a combination or subdivision of the Common Stock
or
by way of a recapitalization, merger or consolidation or reorganization of
the
Issuer; provided that as to any particular securities, such securities will
cease to be Registrable Securities when they (i) have been sold pursuant to
a Registration Statement or in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act or (ii) can then be
sold by the Holder without registration under the Securities Act pursuant to
Rule 144(k).
(ll) “Registration
Deadline”
has
the
meaning specified in Section 6.2
of this
Agreement.
(mm) “Registration
Statement”
means
a
registration statement (including the related prospectus) of the Issuer under
the Securities Act on any form selected by the Issuer for which it then
qualifies and which permits the sale thereunder of the number and type of
Registrable Securities (and any other securities of the Issuer) to be included
therein in accordance with this Agreement by the applicable sellers in the
manner described therein. The term “Registration
Statement”
also
shall include all exhibits, financial statements and schedules and documents
incorporated by reference in such Registration Statement when it becomes
effective under the Securities Act, and in the case of the references to the
Registration Statement as of a date subsequent to its effective date, as amended
or supplemented as of such date.
(nn) “Required
Registration”
has
the
meaning specified in Section 6.2
of this
Agreement.
(oo) “Requirements
of Law”
means
as to any Person, the certificate of incorporation, by-laws or other
organizational or governing documents of such Person, and any domestic or
foreign federal, state or local law, rule, regulation, statute or ordinance
or
determination of any arbitrator or a court or other Governmental Authority,
in
each case applicable to, or binding upon, such Person or any of its properties
or to which such Person or any of its property is subject.
35
(pp) “Rule
144”
means
Rule 144 promulgated under the Securities Act, or any successor
thereto.
(qq) “SEC”
means
the Securities and Exchange Commission.
(rr) “Securities”
has
the
meaning specified in Section 1.1
of this
Agreement.
(ss) “Selling
Stockholder”
has
the
meaning specified in Section 6.4(a)
of this
Agreement.
(tt) “Securities
Act”
means
the Securities Act of 1933, as amended.
(uu) “Shares”
has
the
meaning specified in Section 1.1
of this
Agreement.
(vv) “Short
Sales”
means
all “short sales” as defined in Rule 3b-3 of the Exchange Act and all types of
direct and indirect stock pledges, forward sale contracts, options, puts, calls,
short sales, swaps and similar arrangements (including on a total return basis),
and sales and other transactions through non-U.S. broker dealers or foreign
regulated brokers having the effect of hedging the securities or investment
made
under this Agreement.
(ww) “Subsidiary”
has
the
meaning specified in Section 3.1
of this
Agreement.
(xx) “Suspension
Event”
has
the
meaning specified in Section 6.11(a)
of this
Agreement.
(yy) “Suspension
Period”
has
the
meaning specified in Section 6.11(b)
of this
Agreement.
(zz) “Third-Party
Demand Stockholder”
means
any Person having the right to require that the Issuer effect a registration
under the Securities Act of securities owned by such Person, other than pursuant
to this Agreement, and any other Person exercising incidental rights of
registration pursuant to the agreement under which such first Person has the
right to require registration.
(aaa) “Trading
Activities”
means
any of the following: (a) any Short Sales involving the Issuer’s
securities; (b) the establishment of or change in any “put equivalent
position” with the meaning of Rule 16b-3 of the Exchange Act with respect to the
Issuer’s securities; and (c) any other transactions in the securities of
the Issuer.
(bbb) “Warrants”
has
the
meaning specified in Section 1.1
of this
Agreement.
(ccc) “Warrant
Shares”
has
the
meaning specified in Section 1.1
of this
Agreement.
9.2 Other
Definitional Provisions.
36
(a) All
terms
defined in this Agreement shall have the defined meanings when used in any
certificates, reports or other documents made or delivered pursuant hereto
or
thereto, unless the context otherwise requires.
(b) Terms
defined in the singular shall have a comparable meaning when used in the plural,
and vice versa.
(c) All
accounting terms shall have a meaning determined in accordance with
GAAP.
(d) The
words
“hereof,” “herein” and “hereunder,” and words of similar import, when used in
this Agreement shall refer to this Agreement as a whole (including any exhibits
and schedules hereto) and not to any particular provision of this
Agreement.
9.3 Notices.
Unless
otherwise provided, any notice required or permitted under this Agreement shall
be given in writing and shall be deemed effectively given as hereinafter
described: (i) if given by personal delivery, then such notice shall be
deemed given upon such delivery; (ii) if given by telex or telecopier, then
such notice shall be deemed given upon receipt of confirmation of complete
transmittal, (A) if sent during normal business hours of the recipient; or
(B) if not, then on the next Business Day after such receipt; (iii) if
given by mail, then such notice shall be deemed given upon the earlier of
(A) receipt of such notice by the recipient or (B) three (3) days
after such notice is deposited in first class mail, postage prepaid; and
(iv) if given by an internationally recognized overnight air courier,
specifying two day delivery, then such notice shall be deemed given the second
Business Day after delivery to such carrier. All notices shall be addressed
to
the party to be notified at the address as follows, or at such other address
as
such party may designate by ten (10) days’ advance written notice to the other
party:
If
to the
Issuer:
c/o
Xxxxxxx X. XxXxxxx
00000
Xxxxxxxxx Xxxxx
Xxxxxx
Xxxxxx, XX 00000
Facsimile:
(000) 000-0000
With
a
copy (which shall not constitute notice to the Issuer) to:
Paul,
Hastings, Xxxxxxxx & Xxxxxx LLP
0000
Xxxxxx Xxxxxx Xxxxx
Xxx
Xxxxx, XX 00000
Attention:
Xxxxx X. Xxxx, Esq.
Facsimile:
(000) 000-0000
If
to the
Investors, to the addresses set forth on the signature pages
hereto.
37
If
to
Xxxxxxxx & Xxxxxxxx LLP:
Xxxxxxxx
& Xxxxxxxx LLP
00000
Xxxx Xxxxx Xxxxx, Xxx. 000
Xxx
Xxxxx, XX 00000
Attention:
Xxxxxx X. Xxxxxx, Esq.
Facsimile:
(000) 000-0000
9.4 Entire
Agreement.
This
Agreement (including the exhibits and schedules attached hereto) and other
documents delivered at the Closing pursuant hereto, contain the entire
understanding of the parties in respect of its subject matter and supersede
all
prior agreements and understandings between the parties with respect to such
subject matter.
9.5 Expenses;
Taxes.
Except
as otherwise provided in this Agreement, the parties shall pay their own fees
and expenses, including their own counsel fees and expenses, incurred in
connection with this Agreement or any transaction contemplated hereby; provided
that the Issuer shall pay the reasonable and documented legal fees and expenses
of two (2) special counsels to the Investors up to an aggregate amount of
$75,000. Any sales tax, stamp duty, deed transfer or other tax (except taxes
based on the income of the Investors) arising out of the issuance of the
Securities (but not with respect to subsequent transfers) by the Issuer to
the
Investors and consummation of the transactions contemplated by this Agreement
shall be paid by the Issuer. The Issuer shall reimburse the Investors upon
demand for all reasonable out-of-pocket expenses incurred by the Investors,
including without limitation, reimbursement of attorneys’ fees and
disbursements, in connection with any amendment, modification or waiver of
this
Agreement or the Warrants. In the event that legal proceedings are commenced
by
any party to this Agreement against another party to this Agreement in
connection with this Agreement or the Warrants, the party or parties which
do
not prevail in such proceedings shall severally, but not jointly, pay their
pro
rata
share of
the reasonable attorneys’ fees and other reasonable out-of-pocket costs and
expenses incurred by the prevailing party in such proceedings.
9.6 Amendment;
Waiver.
This
Agreement may not be modified, amended, supplemented, canceled or discharged,
except by written instrument executed by the Issuer and the Holders of a
majority of the Registrable Securities. No failure to exercise, and no delay
in
exercising, any right, power or privilege under this Agreement shall operate
as
a waiver, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude the exercise of any other right, power or privilege
hereunder. No waiver of any breach of any provision shall be deemed to be a
waiver of any preceding or succeeding breach of the same or any other provision,
nor shall any waiver be implied from any course of dealing between the parties.
No extension of time for performance of any obligations or other acts hereunder
or under any other agreement shall be deemed to be an extension of the time
for
performance of any other obligations or any other acts. The rights and remedies
of the parties under this Agreement are in addition to all other rights and
remedies, at law or equity, that they may have against each other.
9.7 Binding
Effect; Assignment.
The
rights and obligations of this Agreement shall bind and inure to the benefit
of
the parties and their respective successors and legal assigns. The rights and
obligations of the Issuer pursuant to this Agreement may not be assigned to
any
third party without the prior written consent of the Holders of a majority
of
the Registrable Securities.
38
9.8 Counterparts;
Facsimile Signature.
This
Agreement may be executed by facsimile signature and in any number of
counterparts, including counterparts transmitted by facsimile or other
electronic transmission, each of which shall be an original but all of which
together shall constitute one and the same instrument.
9.9 Headings.
The
headings contained in this Agreement are for convenience of reference only
and
are not to be given any legal effect and shall not affect the meaning or
interpretation of this Agreement.
9.10 Governing
Law; Interpretation.
The
validity, interpretation and performance of this Agreement shall be governed
by,
and construed in accordance with, the laws of the State of California applicable
to contracts made and to be performed entirely within such State, regardless
of
the law that might be applied under principles of conflicts of law. The Issuer
and the Investors each irrevocably submits to the exclusive jurisdiction of
the
state and federal courts located in California for the purpose of any suit,
action, proceeding or judgment relating to or arising out of this Agreement
and
the transactions contemplated hereby. Service of process in connection with
any
such suit, action or proceeding may be served on each party hereto anywhere
in
the world by the same methods as are specified for the giving of notices under
this Agreement. The Issuer and the Investors each irrevocably consents to the
jurisdiction of any such court in any such suit, action or proceeding and to
the
laying of venue in such court. The Issuer and the Investors each irrevocably
waives any objection to the laying of venue of any such suit, action or
proceeding brought in such courts and irrevocably waives any claim that any
such
suit, action or proceeding brought in any such court has been brought in an
inconvenient forum.
9.11 Severability.
The
parties stipulate that the terms and provisions of this Agreement are fair
and
reasonable as of the date of this Agreement. However, in the event any provision
of this Agreement shall be determined by a court of competent jurisdiction
to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated. If, moreover,
any of those provisions shall for any reason be determined by a court of
competent jurisdiction to be unenforceable because excessively broad or vague
as
to duration, activity or subject, it shall be construed by limiting, reducing
or
defining it, so as to be enforceable.
39
9.12 Independent
Nature of Investors' Obligations and Rights.
The
obligations of each Investor under this Agreement and the Warrants are
several
and not joint with the obligations of any other Investor, and no Investor
shall
be responsible in any way for the performance of the obligations of any
other
Investor under any Warrant. Nothing contained herein or in the Warrants,
and no
action taken by any Investor pursuant thereto, shall be deemed to constitute
the
Investors as a partnership, an association, a joint venture or any other
kind of
entity, or create a presumption that the Investors are in any way acting
in
concert or as a group with respect to such obligations or the transactions
contemplated by such agreement. Each Investor shall be entitled to independently
protect and enforce its rights, including without limitation, the rights
arising
out of this Agreement or out of the Warrants, and it shall not be necessary
for
any other Investor to be joined as an additional party in any proceeding
for
such purpose. Each Investor represents that it has been represented by
its own
separate legal counsel in its review and negotiation of this Agreement
and the
Warrants. For reasons of administrative convenience only, the Investors
acknowledge and agree that they and their respective counsel have chosen
to
communicate with the Issuer through Xxxxxxxx & Xxxxxxxx LLP, but Xxxxxxxx
& Xxxxxxxx LLP does not represent any of the Investors in this transaction
other than Efficacy Capital.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
40
IN
WITNESS WHEREOF, the parties hereto have caused this Subscription Agreement
to
be duly executed and delivered as of the date first written above.
|
ISSUER:
|
||
| Aeolus Pharmaceuticals, Inc. | ||
| |
|
|
| By: |
/s/
Xxxxxxx X. Xxxxxxx
|
|
|
Name:
Xxxxxxx X. Xxxxxxx
|
||
| Title: Chief Executive Officer | ||
-1-
[INVESTOR
COUNTERPART SIGNATURE PAGE]
|
NAME
OF INVESTOR:
|
ADDRESS
FOR NOTICE:
|
|
EFFICACY
BIOTECH MASTER
|
Efficacy
Capital Ltd.
|
|
FUND
LTD.
|
00000
Xx Xxxxxx Xxxx, Xxxxx 000
|
|
Xxx
Xxxxx, XX 00000
|
|
|
Attention:
Xxxx Xxxxx
|
|
|
Tax
Identification #:
XX-XXXXXXX
|
SIGNATURE:
By:
Efficacy Capital Ltd.
Its:
Investment Manager
|
By:
|
/s/ Xxxx X. Xxxxx | ||
| Name: Xxxx X. Xxxxx | |||
| Title: Managing Partner |
Date:
June 5, 2006
|
Exact
name to appear on stock certificate:
|
Number
of Shares subscribed for:
|
|
|
EFFICACY
BIOTECH MASTER FUND LTD.
|
9,800,000
|
|
|
Aggregate
Purchase Price (see Section 1.1):
|
Category/categories
pursuant to which Investor qualifies as an Accredited Investor
as defined
in Exhibit B
to
this Agreement (please indicate each applicable section number
noted on
Exhibit B
to
this Agreement):
|
|
|
$4,900,000.00
|
3
|
-2-
[INVESTOR
COUNTERPART SIGNATURE PAGE]
|
NAME
OF INVESTOR:
|
ADDRESS
FOR NOTICE:
|
|
RONIN
CAPITAL, LLC
|
Ronin
Capital, LLC
|
|
|
000
X. XxXxxxx Xx., Xxxxx 000
|
|
Xxxxxxx,
XX 00000
|
|
|
Attention:
Xxxx Xxx
|
|
|
Tax
Identification #:
XX-XXXXXXX
|
SIGNATURE:
|
By:
|
/s/ Xxxx Xxxxxxxx | |||
| Name: | Xxxx Xxxxxxxx III | |||
| Title: | CEO | |||
Date:
June 5, 2006
|
Exact
name to appear on stock certificate:
|
Number
of Shares subscribed for:
|
|
|
Ronin
Capital, LLC
|
200,000
|
|
|
Aggregate
Purchase Price (see Section 1.1):
|
Category/categories
pursuant to which Investor qualifies as an Accredited Investor
as defined
in Exhibit B
to
this Agreement (please indicate each applicable section number
noted on
Exhibit B
to
this Agreement):
|
|
|
$100,000.00
|
#8
|
-3-
EXHIBIT
A1
FORM
OF WARRANT
A-1
EXHIBIT
A2
FORM
OF WARRANT
A-2
EXHIBIT
B
DEFINITION
OF “ACCREDITED INVESTOR”
“Accredited
Investor”
shall
mean any person who comes within any of the following categories, or who the
Issuer reasonably believes comes within any of the following categories, at
the
time of the sale of the Securities to that person:
1. Any
bank
as defined in section 3(a)(2) of the Act, or any savings and loan association
or
other institution as defined in section 3(a)(5)(A) of the Act whether acting
in
its individual or fiduciary capacity; any broker or dealer registered pursuant
to section 15 of the Securities Exchange Act of 1934; any insurance company
as
defined in section 2(13) of the Act; any investment company registered under
the
Investment Company Act of 1940 or a business development company as defined
in
section 2(a)(48) of that Act; any Small Business Investment Company licensed
by
the U.S. Small Business Administration under section 301(c) or (d) of the Small
Business Investment Act of 1958; any plan established and maintained by a state,
its political subdivisions, or any agency or instrumentality of a state or
its
political subdivisions, for the benefit of its employees, if such plan has
total
assets in excess of $5,000,000; any employee benefit plan within the meaning
of
the Employee Retirement Income Security Act of 1974 if the investment decision
is made by a plan fiduciary, as defined in section 3(21) of such act, which
is
either a bank, savings and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total assets in excess
of $5,000,000 or, if a self-directed plan, with investment decisions made solely
by persons that are Accredited Investors;
2. Any
private business development company as defined in section 202(a)(22) of the
Investment Advisers Act of 1940;
3. Any
organization described in section 501(c)(3) of the Internal Revenue Code,
corporation, Massachusetts or similar business trust, or partnership, not formed
for the specific purpose of acquiring the securities offered, with total assets
in excess of $5,000,000;
4. Any
director, executive officer, or general partner of the Issuer, or any director,
executive officer, or general partner of a general partner of the
Issuer;
5. Any
natural person whose individual net worth, or joint net worth with that person’s
spouse, at the time of his purchase exceeds $1,000,000;
6. Any
natural person who had an individual income in excess of $200,000 in each of
the
two most recent years or joint income with that person’s spouse in excess of
$300,000 in each of those years and has a reasonable expectation of reaching
the
same income level in the current year;
7. Any
trust, with total assets in excess of $5,000,000, not formed for the specific
purpose of acquiring the Securities, whose purchase is directed by a
sophisticated person as described in 230.506(b)(2)(ii); and
8. Any
entity in which all of the equity owners are Accredited
Investors.
B-1
EXHIBIT
C
RISK
FACTORS
SALES
OR THE PERCEPTION OF FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK
PRICE.
Sales
of
substantial numbers of shares of our Common Stock in the public market, or
the
perception that significant sales are likely, could adversely affect the market
price of our Common Stock. Compliance with the registration rights provisions
of
this Subscription Agreement could create the perception that all Shares and
Warrant Shares that are a part of this Offering will soon be available for
sale.
This number of Shares and Warrant Shares (i.e., 21,000,000) is far greater
than
the average trading volume for shares of our Common Stock. No
prediction can be made as to the effect, if any, that market sales of such
Shares and Warrant Shares will have on the market price of our Common Stock.
Sales of substantial amounts of such Shares and Warrant Shares in the public
market could adversely affect the market price of our Common Stock.
THE
OFFERING PRICE OF THE SECURITIES MAY NOT BEAR ANY RELATIONSHIP TO OUR ASSETS,
BOOK VALUE, EARNINGS HISTORY, OR OTHER ESTABLISHED CRITERIA. AS A RESULT, YOU
MAY EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
The
offering price of the Securities was established based on such factors as our
capital requirements, financial conditions and prospects, percentage of
ownership to be held by investors following this Offering, and the general
condition of securities markets at the time of the Offering. The offering price
does not necessarily bear any relationship to our assets, book value, earnings
history or other established criteria of value. As a result, you may experience
immediate and substantial dilution.
WE
ARE UNABLE TO DETERMINE WITH CERTAINTY WHEN THE REGISTRATION STATEMENT TO BE
FILED WITH THE SEC WILL BE DECLARED EFFECTIVE. CONSEQUENTLY, YOU MAY NOT BE
ABLE
TO SELL YOUR SHARES OR WARRANT SHARES FOR A SUBSTANTIAL PERIOD OF
TIME.
Although
we have undertaken to register the Shares and Warrant Shares for resale by
you,
you should be aware that we are unable to determine with certainty when the
Registration Statement to be filed with the SEC will become effective. In
addition, the SEC may seek to review our Registration Statement, in which case,
the period necessary to achieve effectiveness of the Registration Statement
with
the SEC will be affected by our ability to provide the SEC with sufficient
disclosures satisfactory to the SEC. The length of the SEC review process is
uncertain and may extend to a number of months. As you are aware, the Shares
and
Warrant Shares being sold in this Offering are restricted in nature and may
not
be publicly resold absent the effectiveness of the Registration Statement or
pursuant to an applicable exemption from registration. Consequently, you may
not
be able to sell your Shares and Warrant Shares for a substantial period of
time.
C-1
WE
MAY ALLOCATE THE NET PROCEEDS OF THIS OFFERING IN WAYS WITH WHICH YOU MAY NOT
AGREE.
We
will
have broad discretion in how we apply the net proceeds from this Offering.
Because the net proceeds of this Offering are not required to be allocated
to
any specific investment or transaction, you cannot determine at this time the
value or appropriateness of our application of the net proceeds, and you and
other stockholders may not agree with our decisions.
C-2
EXHIBIT
D
PLAN
OF DISTRIBUTION
The
selling stockholders, which as used herein includes donees, pledgees,
transferees or other successors-in-interest selling shares of common stock
or
interests in shares of common stock received after the date of this Prospectus
from a selling stockholder as a gift, pledge, partnership distribution or other
transfer, may, from time to time, sell, transfer or otherwise dispose of any
or
all of their shares of common stock or interests in shares of common stock
on
any stock exchange, market or trading facility on which the shares are traded
or
in private transactions. These dispositions may be at fixed prices, at
prevailing market prices at the time of sale, at prices related to the
prevailing market price, at varying prices determined at the time of sale,
or at
negotiated prices.
The
selling stockholders may use any one or more of the following methods when
disposing of shares or interests therein:
-
ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
-
block
trades in which the broker-dealer will attempt to sell the shares as agent,
but
may position and resell a portion of the block as principal to facilitate the
transaction;
-
purchases by a broker-dealer as principal and resale by the broker-dealer for
its account;
-
an
exchange distribution in accordance with the rules of the applicable
exchange;
-
privately negotiated transactions;
-
short
sales effected after the date of this Prospectus;
-
through
the writing or settlement of options or other hedging transactions, whether
through an options exchange or otherwise;
-
broker-dealers may agree with the selling stockholders to sell a specified
number of such shares at a stipulated price per share;
-
a
combination of any such methods of sale; and
-
any
other method permitted pursuant to applicable law.
The
selling stockholders may, from time to time, pledge or grant a security interest
in some or all of the shares of common stock owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of common stock, from time to time, under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus. The selling stockholders also
may
transfer the shares of common stock in other circumstances, in which case the
transferees, pledgees or other successors in interest will be the selling
beneficial owners for purposes of this prospectus.
D-1
In
connection with the sale of our common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
aggregate proceeds to the selling stockholders from the sale of the common
stock
offered by them will be the purchase price of the common stock less discounts
or
commissions, if any. Each of the selling stockholders reserves the right to
accept and, together with their agents from time to time, to reject, in whole
or
in part, any proposed purchase of common stock to be made directly or through
agents. We will not receive any of the proceeds from this offering. Upon any
exercise of the warrants by payment of cash, however, we will receive the
exercise price of the warrants.
The
selling stockholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act of 1933,
provided that they meet the criteria and conform to the requirements of that
rule.
The
selling stockholders and any underwriters, broker-dealers or agents that
participate in the sale of the common stock or interests therein may be
"underwriters" within the meaning of Section 2(11) of the Securities Act. Any
discounts, commissions, concessions or profit they earn on any resale of the
shares may be underwriting discounts and commissions under the Securities Act.
Selling stockholders who are "underwriters" within the meaning of Section 2(11)
of the Securities Act will be subject to the prospectus delivery requirements
of
the Securities Act.
To
the
extent required, the shares of our common stock to be sold, the names of the
selling stockholders, the respective purchase prices and public offering prices,
the names of any agents, dealer or underwriter, any applicable commissions
or
discounts with respect to a particular offer will be set forth in an
accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this
prospectus.
In
order
to comply with the securities laws of some states, if applicable, the common
stock may be sold in these jurisdictions only through registered or licensed
brokers or dealers. In addition, in some states the common stock may not be
sold
unless it has been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied
with.
D-2
We
have
advised the selling stockholders that the anti-manipulation rules of Regulation
M under the Exchange Act may apply to sales of shares in the market and to
the
activities of the selling stockholders and their affiliates. In addition, we
will make copies of this prospectus (as it may be supplemented or amended from
time to time) available to the selling stockholders for the purpose of
satisfying the prospectus delivery requirements of the Securities Act. The
selling stockholders may indemnify any broker-dealer that participates in
transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act.
We
have
agreed to indemnify the selling stockholders against liabilities, including
liabilities under the Securities Act and state securities laws, relating to
the
registration of the shares offered by this prospectus.
We
have
agreed with the selling stockholders to keep the registration statement of
which
this prospectus constitutes a part effective until such time as all of the
shares covered by this prospectus have been disposed of pursuant to and in
accordance with the registration statement or until such earlier time that
we
reasonably
determine, based on the advice of counsel, that each selling stockholder, acting
independently of all other selling stockholders, will be eligible to sell under
Rule 144 of the Securities Act all shares covered by this prospectus then owned
by such selling stockholder within the volume limitations imposed by Rule 144(e)
in the three-month period immediately following the termination of the
effectiveness of the registration statement of which this prospectus forms
a
part.
D-3
EXHIBIT
E
NOTICE
AND QUESTIONNAIRE
The
undersigned beneficial holder of Registrable Securities of Aeolus
Pharmaceuticals, Inc. (the “Issuer”)
understands that the Issuer has filed or intends to file with the Securities
and
Exchange Commission (the “SEC”)
a
Registration Statement under the Securities Act of 1933, as amended (the
“Securities
Act”),
for
the registration and resale of the Registrable Securities in accordance with
the
terms of the Subscription Agreement, dated as of June ___, 2006 (the
“Subscription
Agreement”),
by
and among the Issuer and the purchasers of the Issuer’s securities thereunder.
The Subscription Agreement is available from the Issuer upon request at the
address set forth below. All capitalized terms used but not otherwise defined
herein shall have the respective meanings given to them in the Subscription
Agreement.
Each
beneficial owner of Registrable Securities that has agreed to be bound by
certain provisions of the Subscription Agreement is entitled to the benefits
of
the Subscription Agreement under such provisions. In order to sell or otherwise
dispose of any Registrable Securities pursuant to the Registration Statement,
a
beneficial owner of Registrable Securities generally will be required to be
named as a selling securityholder in the related prospectus, deliver a
prospectus to purchasers of Registrable Securities and be bound by those
provisions of the Subscription Agreement applicable to such beneficial owner
(including certain indemnification provisions as described below). Beneficial
owners that do not complete this Notice and Questionnaire and deliver it to
the
Issuer as provided below will not be named as selling securityholders in the
prospectus and therefore will not be permitted to sell any Registrable
Securities pursuant to the Registration Statement.
Certain
legal consequences may arise from being named as selling securityholders in
the
Registration Statement and the related prospectus. Accordingly, holders and
beneficial owners of Registrable Securities are advised to consult their own
securities law counsel regarding the consequences of being named or not being
named as a selling securityholder in the Registration Statement and the related
prospectus.
Notice
The
undersigned beneficial owner (the “Selling
Stockholder”)
of
Registrable Securities hereby requests that the Issuer include in the
Registration Statement the Registrable Securities beneficially owned by it
and
listed below in Item 3 (unless otherwise specified under Item 3) pursuant to
the
Registration Statement. The undersigned Selling Stockholder, by signing and
returning this Notice and Questionnaire, understands that it will be bound
by
the terms and conditions of this Notice and Questionnaire and the Subscription
Agreement.
The
undersigned Selling Stockholder hereby provides the following information to
the
Issuer and represents and warrants that such information is accurate and
complete:
E-1
Questionnaire
|
1.
|
(a)
|
Full
Legal Name of Selling Stockholder:
__________________________________________________
|
| (b) |
Full
legal name of registered holder (if not the same as (a) above) through
which Registrable Securities
listed
in (3) below are held:
______________________________________________________________
_______________________________________________________________________________________
|
| (c) |
Full
legal name of broker-dealer or other third party through which Registrable
Securities listed in (3) below
are held:
: _________________________________________________________________________________________________
_________________________________________________________________________________________________
|
| (d) |
Full
legal name of DTC participant (if applicable and if not the same
as (b) or
(c) above) through which Registrable
Securities listed in (3) below are held:
______________________________________________
_______________________________________________________________________________________
|
| 2. |
Address
for Notices to Selling Stockholder:
|
Telephone:
___________________________________________________________________________
Fax:
__________________________________________________________________________________
Contact
Person: _________________________________________________________________________
|
3.
|
Beneficial
ownership of Registrable
Securities:________________________________________________________
_________________________________________________________________________________________________
_________________________________________________________________________________________________
|
Unless
otherwise indicated in the space provided below, all shares of common stock
listed in response to Item (3) above, including all shares of common stock
issued or issuable upon exercise of the Warrants held by the Selling
Stockholder, will be included in the Registration Statement. If the undersigned
does not wish all such shares of common stock to be so included, please indicate
below the principal amount or the number of shares to be included:
___________________________________________________________________________________
| 4. |
Beneficial
Ownership of the Issuer’s securities owned by the Selling Stockholder:
_________________________________________________________________________________________________
|
Except
as set forth below in this Item (4), the undersigned is not the beneficial
or
registered owner of any securities of the Issuer other than the Registrable
Securities listed above in Item (3).
| (a) |
Type
and amount of other securities beneficially owned by the Selling
Stockholder:
_______________________________________________________________________________________
|
E-2
| (b) |
CUSIP
No(s). of such other securities beneficially owned:
____________________________________________________________________
|
| 5. |
Relationship
with the Issuer:
|
Except
as set forth below, neither the undersigned nor any of its Affiliates, directors
or principal equity holders (5% or more) has held any position or office or
has
had any other material relationship with the Issuer (or its predecessors or
Affiliates) during the past three years.
State
any
exceptions to the foregoing here:
_________________________________________________________
The
undersigned Selling Stockholder acknowledges that it understands its obligation
to comply with the provisions of the Exchange Act, and the rules thereunder
relating to stock manipulation, particularly Regulation M thereunder (or any
successor rules or regulations) and the provisions of the Securities Act
relating to prospectus delivery, in connection with any offering of Registrable
Securities pursuant to the Registration Statement. The undersigned Selling
Stockholder agrees that neither it nor any person acting on its behalf will
engage in any transaction in violation of such provisions.
The
Selling Stockholder hereby acknowledges its obligations under the Subscription
Agreement to indemnify and hold harmless certain persons set forth therein.
Pursuant to the Subscription Agreement, the Issuer has agreed under certain
circumstances to indemnify the Selling Stockholders against certain
liabilities.
In
accordance with the undersigned Selling Stockholder’s obligation under the
Subscription Agreement to provide such information as maybe required by law
for
inclusion in the Registration Statement, the undersigned Selling Stockholder
agrees to promptly notify the Issuer of any inaccuracies or changes in the
information provided herein that may occur subsequent to the date hereof at
any
time while the Registration Statement remains effective. All notices hereunder
and pursuant to the Subscription Agreement shall be made in writing at the
address set forth below.
In
the
event any Selling Stockholder transfers all or any portion of the Registrable
Securities listed in Item (3) above after the date on which such information
is
provided to the Issuer, the Selling Stockholder will notify the transferees
at
the time of transfer of its rights and obligations under this Notice and
Questionnaire and the Subscription Agreement.
By
signing below, the undersigned Selling Stockholder consents to the disclosure
of
the information contained herein in its answers to items (1) through (5) above
and the inclusion of such information in the Registration Statement and any
related prospectus. The undersigned Selling Stockholder understands that such
information will be relied upon by the Issuer without independent investigation
or inquiry in connection with the preparation or amendment of the Registration
Statement and any related prospectus.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
E-3
IN
WITNESS WHEREOF, the undersigned Selling Stockholder, by authority duly given,
has caused this Notice and Questionnaire to be executed and delivered either
in
person or by its authorized agent.
| Selling Stockholder: | ||
| |
|
|
| By: | ||
|
Name: |
||
| Title: | ||
Dated:
_______________
PLEASE
RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE
TO:
c/o
Xxxxxxx X. XxXxxxx
00000
Xxxxxxxxx Xxxxx
Xxxxxx
Xxxxxx, XX 00000
E-4
EXHIBIT
F
CONVERSION
AGREEMENT
F-1
EXHIBIT
G
WAIVER
AND ACKNOWLEDGMENT
G-1
