Exhibit 10.2
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT (this "Agreement") made as of June 30,
1999 between Procept, Inc. a Delaware corporation (the "Company") and the
undersigned investor (the "Subscriber").
W I T N E S S E T H:
WHEREAS, the Subscriber is a holder of shares of Series A
Convertible Preferred Stock of BG Development Corporation (the "BGDC Shares")
and desires to exchange the BGDC Shares for shares of the Company's Common Stock
(the "Common Stock") and Class D Warrants to purchase shares of the Company's
Common Stock on the terms set forth in Exhibit A hereto (the "Class D Warrants")
(collectively, the "Securities") on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the promises and the
mutual representations and covenants hereinafter set forth, the parties hereto
do hereby agree as follows:
I. SUBSCRIPTION FOR SECURITIES AND REPRESENTATIONS BY SUBSCRIBER
1.1 Subject to the terms and conditions hereinafter set forth, the
Subscriber hereby subscribes for the Securities at the rate of 1.89 shares of
Common Stock and Class D Warrants exercisable for 0.63 shares for each BGDC
Share. The parties agree that for the purposes of this agreement, each BGDC
Share is valued at $3.99 and each share of Common Stock is valued at $2.11.
Within seven days after the delivery to Procept of an executed copy of this
Agreement and the Subscriber's certificate for BGDC Shares exchanged hereunder,
Procept will deliver the certificates representing the Securities to the
Subscriber. The number of BGDC Shares being delivered and Securities being
issued is as set forth on the signature page to this Agreement.
1.2 The Subscriber recognizes that the purchase of Securities
involves a high degree of risk including, but not limited to, the following:
(i) the Company remains a development stage business with limited operating
history and requires substantial additional funds; (ii) an investment in the
Company is highly speculative, and only investors who can afford the loss of
their entire investment should consider investing in the Company and the
Securities; (iii) the Subscriber may not be able to liquidate his investment;
(iv) transferability of the Securities is extremely limited; (v) in the event
of a disposition of the Securities, the Subscriber could sustain the loss of
his entire investment and (vi) the Company has not paid any dividends since
inception and does not anticipate the payment of dividends in the foreseeable
future. Such risks are more fully set forth in the Company's Exchange Act
Reports (as defined below) filed with the Securities and Exchange Commission.
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1.3 The Subscriber represents that the Subscriber is an "accredited
investor" as such term is defined in Rule 501 of Regulation D promulgated under
the Securities Act of 1933, as amended (the "Act"), and that the Subscriber is
able to bear the economic risk of an investment in the Securities.
1.4 The Subscriber hereby acknowledges and represents that (i) the
Subscriber has prior investment experience, including investment in securities
that are non-listed, unregistered and are not traded on the Nasdaq National or
SmallCap Market, nor on the National Association of Securities Dealers, Inc.'s
(the "NASD") automated quotation system, or the Subscriber has employed, at its
own expense, and relied upon the services of an investment advisor, attorney
and/or accountant to read all of the documents furnished or made available by
the Company to the Subscriber and to evaluate the investment, tax and legal
merits and the consequences and risks of such a transaction on the Subscriber's
behalf and that such person has such knowledge and experience in financial and
business matters is capable of evaluating the merits and risks of the
prospective investment and satisfies the conditions set out in Rule 501(h) under
the Act; (ii) the Subscriber recognizes the highly speculative nature of this
investment; and (iii) the Subscriber is able to bear the economic risk which the
Subscriber hereby assumes.
1.5 The Subscriber hereby acknowledges receipt and careful review of
(a) the Company's Report on Form 10-K for the year ended December 31, 1998 and
the Company's Reports on Form 10-Q filed after such year end (the "Exchange Act
Reports") and (b) this Agreement and all attachments to it, and hereby
represents that the Subscriber has been furnished by the Company during the
course of this transaction with all information regarding the Company which the
Subscriber has requested or desired to know, has been afforded the opportunity
to ask questions of, and to receive answers from, duly authorized officers or
other representatives of the Company concerning the terms and conditions of the
Securities and the affairs of the Company and has received any additional
information which the Subscriber has requested.
1.6 The Subscriber has relied solely upon the information provided by
the Company in the Exchange Act Reports and in this Agreement in making the
decision to invest in the Securities. To the extent necessary, the Subscriber
has retained, at the sole expense of the Subscriber, and relied upon appropriate
professional advice regarding the investment, tax and legal merits and
consequences of this Agreement and its purchase of the Securities hereunder.
(b) The Subscriber represents that no Securities were offered or
sold to it by means of any form of general solicitation or general advertising,
and in connection therewith the Subscriber did not (A) receive or review any
advertisement, article, notice or other communication published in a newspaper
or magazine or similar media or broadcast over television or radio whether
closed circuit, or generally available; or (B) attend any seminar meeting or
industry investor conference whose attendees were invited by any general
solicitation or general advertising.
1.7 The Subscriber hereby represents that the Subscriber either by
reason of the Subscriber's business or financial experience, or the business or
financial experience of the Subscriber's professional advisors (who are
unaffiliated with and who are not compensated by the Company
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or any affiliate or selling agent of the Company, directly or indirectly), has
the capacity to protect the Subscriber's own interests in connection with the
transaction contemplated hereby.
1.8 The Subscriber hereby acknowledges that the Securities have not
been reviewed by the United States Securities and Exchange Commission (the "SEC"
or the "Commission") or any state regulatory authority, since the sale of the
Securities is intended to be exempt from the registration requirements of
Section 5 of the Act. The Subscriber shall not sell or otherwise transfer the
Securities unless they are registered under the Act or unless an exemption from
such registration is available.
1.9 The Subscriber understands that the Securities have not been
registered under the Securities Act of 1933, as amended (the "Act") by reason of
a claimed exemption under the provisions of the Act which depends, in part, upon
the Subscriber's investment intention. In this connection, the Subscriber hereby
represents that the Subscriber is purchasing the Securities for the Subscriber's
own account for investment and not with a view toward the resale or distribution
to others. The Subscriber was not formed for the purpose of purchasing the
Securities.
1.10 The Subscriber understands although there currently is a public
market for the Common Stock, reliance upon Rule 144 under the Act, as amended,
for resales requires, among other conditions, a one-year holding period prior to
the resale (in limited amounts) of securities acquired in a non-public offering
without having to satisfy the registration requirements under the Act. The
Subscriber understands and hereby acknowledges that the Company is under no
obligation to register any of the Securities under the Act or any state
securities or "blue sky" laws other than as set forth in Article V. The
Subscriber shall hold the Company and its directors, officers, employees,
controlling persons and agents and their respective heirs, representatives,
successors and assigns harmless from, and shall indemnify them against, all
liabilities, costs and expenses incurred by them as a result of (i) any
misrepresentation made by the Subscriber contained in this Agreement, (ii) any
sale or distribution by the Subscriber in violation of the Act or any applicable
state securities or "blue sky" laws or (iii) any untrue statement of a material
fact made by the Subscriber and contained herein or omission to state herein a
material fact necessary in order to make the statements contained herein, in
light of the circumstances under which they were made, not misleading.
1.11 The Subscriber consents to the placement of a legend on any
certificate or other document evidencing the Securities that such Securities
have not been registered under the Act or any state securities or "blue sky"
laws and setting forth or referring to the restrictions on transfer ability and
sale thereof contained in this Agreement. The Subscriber is aware that the
Company will make a notation in its appropriate records with respect to the
restrictions on the transferability of such Securities.
1.12 The Subscriber hereby represents that the address of the
Subscriber furnished by Subscriber on the signature page hereof is the
Subscriber's principal business address.
1.13 The Subscriber represents that the Subscriber has full power and
authority (corporate, statutory and otherwise) to execute and deliver this
Agreement and to purchase the Securities. This Agreement constitutes the legal,
valid and binding obligation of the Subscriber, enforceable
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against the Subscriber in accordance with its terms.
1.14 The Subscriber (a) is authorized and qualified to become an
investor in the Company and the person signing this Agreement on behalf of such
entity has been duly authorized by such entity to do so, and (b) it is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization.
1.15 The Subscriber acknowledges that at such time, if ever, as the
Securities are registered, sales of the Securities will be subject to state
securities laws, including those of the State of New Jersey which require any
securities sold in New Jersey to be sold through a registered broker-dealer or
in reliance upon an exemption from registration.
1.16 The Subscriber represents and warrants that it has not engaged,
consented to nor authorized any broker, finder or intermediary to act on its
behalf, directly or indirectly, as a broker, finder or intermediary in
connection with the transactions contemplated by this Agreement. The Subscriber
shall indemnify and hold harmless the Company from and against all fees,
commissions or other payments owing to any such person or firm acting on behalf
of such Subscriber hereunder.
1.17 The Subscriber, whose name appears on the signature line below,
shall be the beneficial owner of the Securities for which such Subscriber
subscribes.
II. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
The Company hereby represents, warrants and covenants to the Subscriber
that:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has full corporate power and lawful authority to
conduct its business as described in the Exchange Act Reports. The Company is
duly qualified to do business as a foreign corporation and is in good standing
in Massachusetts and in each jurisdiction in which the nature of the business
conducted, or as proposed to be conducted in the Exchange Act Reports, by it or
the properties owned, leased or operated by it, makes such qualification or
licensing necessary and where the failure to be so qualified or licensed would
have a material adverse effect upon the business, prospects and financial
condition of the Company. The Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
laws require the Company to be so qualified and/or authorized to do business.
2.2 CAPITALIZATION AND VOTING RIGHTS. The authorized capital stock of
the Company is 30,000,000 shares of Common Stock and 1,000,000 shares of
Preferred Stock. As of April 15, 1999, 11,278,764 shares of Common Stock were
issued and outstanding and no shares of Preferred Stock were issued and
outstanding. All issued and outstanding shares of capital stock of the Company
are validly issued, fully paid and nonassessable. The Securities have been duly
and validly authorized and, when issued and paid for pursuant to this Agreement,
will be validly issued, fully paid and nonassessable. Except as set forth in the
Exchange Act Reports and the Proxy Statement for the Company's 1999 Annual
Meeting of Stockholders (the "Proxy
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Statement"), there are no outstanding options, warrants, agreements, convertible
securities, preemptive rights or other rights to subscribe for or to purchase
any shares of capital stock of the Company. Except as set forth in the Exchange
Act Reports and the Proxy Statement, in this Agreement and as otherwise required
by law, there are no restrictions upon the voting or transfer of the Securities
pursuant to the Company's Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), By-laws or other governing documents or any
agreement or other instruments to which the Company is a party or by which the
Company is bound.
2.3 AUTHORIZATION; ENFORCEABILITY. The Company has all corporate right,
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. All corporate action on the part of the
Company, its directors and stockholders necessary for the authorization,
execution, delivery and performance of this Agreement by the Company, the
authorization, sale, issuance and delivery of the Securities contemplated hereby
and the performance of the Company's obligations hereunder has been taken. This
Agreement has been duly executed and delivered by the Company and constitutes a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies,
and to limitations of public policy. Upon the issuance and delivery of the
Securities as contemplated by this Agreement, such securities will be duly and
validly authorized and issued, fully paid and nonassessable. The issuance and
sale of the Securities contemplated hereby will not give rise to any preemptive
rights or rights of first refusal on behalf of any person.
2.4 NO CONFLICT; GOVERNMENTAL CONSENTS.
(a) The execution and delivery by the Company of this Agreement
and the consummation of the transactions contemplated hereby will not result in
the violation of any law, statute, rule, regulation, order, writ, injunction,
judgment or decree of any court or governmental authority to or by which the
Company is bound, or of any provision of the Certificate of Incorporation or
By-laws of the Company, and will not conflict with, or result in a breach or
violation of, any of the terms or provisions of, or constitute (with due notice
or lapse of time or both) a default under, any lease, loan agreement, mortgage,
security agreement, trust indenture or other agreement or instrument to which
the Company is a party or by which it is bound or to which any of its properties
or assets is subject, nor result in the creation or imposition of any lien upon
any of the properties or assets of the Company.
(b) No consent, approval, authorization or other order of any
governmental authority or other third-party is required to be obtained by the
Company in connection with the authorization, execution and delivery of this
Agreement or with the authorization, issuance and sale of the Securities or the
Securities comprising the Securities, except such filings as may be required to
be made with the Commission, the NASD and the National Association of Securities
Dealers Automated Quotation System ("Nasdaq") and with any state or foreign blue
sky or securities regulatory authority.
2.5 LICENSES. Except as set forth in the Exchange Act Reports, the
Company has all licenses,
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permits and other governmental authorizations currently required for the conduct
of its business or ownership of properties and is in all material respects
complying therewith.
2.6 LITIGATION. Except as set forth in the Exchange Act Reports, the
Company knows of no pending or threatened legal or governmental proceedings
against the Company which could materially adversely affect the business,
property, financial condition, operations or prospects of the Company.
2.7 ACCURACY OF REPORTS. All material reports required to be filed by
the Company within the three years prior to the date of this Agreement under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), have been duly
filed with the SEC, complied at the time of filing in all material respects with
the requirements of their respective forms and, except to the extent updated or
superseded by the Exchange Act Reports or any subsequently filed report, to the
best of the Company's knowledge, were complete and correct in all material
respects as of the dates at which the information was furnished, and contained
(as of such dates) no untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements contained therein, in
light of the circumstances under which they were made, not misleading.
2.8 EXCHANGE ACT REPORTS; DISCLOSURE. No information set forth in the
Exchange Act Reports contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading.
2.9 INVESTMENT COMPANY. The Company is not an "investment company"
within the meaning of such term under the Investment Company Act of 1940, as
amended, and the rules and regulations of the Commission thereunder.
2.10 LISTING. The Company shall promptly file an Application for
Listing of Additional Shares with the Nasdaq National Market (the "Nasdaq") and
hereby represents and warrants to and the Subscriber that it will take any other
necessary action in accordance with the rules of the Nasdaq to enable the
Securities to trade on the Nasdaq.
2.11 RESERVATION OF SHARES; TRANSFER TAXES, ETC. The Company shall at
all times reserve and keep available, out of its authorized and unissued shares
of Common Stock, solely for the purpose of effecting any Semi-Annual Issuance
(as defined below), Qualified Offering Issuance (as defined below) and Dilution
Issuance (as defined below and, together with Qualified Offering Issuances and
Semi-Annual Issuances, referred to herein as "Article VI Issuances"), such
number of shares of its Common Stock free of preemptive rights as shall be
sufficient to effect such exercises and Article VI Issuances from time to time
required or reasonably anticipated. The Company shall use its best efforts from
time to time, in accordance with the laws of the State of Delaware to increase
the authorized number of shares of Common Stock if at any time the number of
shares of authorized, unissued and unreserved Common Stock shall not be
sufficient to permit any required or reasonably anticipated Article VI
Issuances. In the event, and to the extent, that the company does not have
sufficient authorized but unissued shares of Common Stock to effect any Article
VI Issuance, the Company shall pay the Subscriber cash in an amount
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per share of Common Stock that would have been issued to such Subscriber
pursuant to such Article VI Issuance but for the lack of sufficient authorized
but unissued Common Stock equal to the greater of (i) 1.40 times the Dilution
Value (as defined below) and (ii) the Market Price, in either case determined as
of the date of the event giving rise to such Article VI Issuance.
The Company shall pay any and all issue or other taxes that may be
payable in respect of any Article VI Issuance.
III. [INTENTIONALLY OMITTED]
IV. [INTENTIONALLY OMITTED]
V. REGISTRATION RIGHTS
5.1 As used in this Agreement, the following terms shall have the
following meanings:
(a) "AFFILIATE" shall mean, with respect to any Person (as
defined below), any other Person controlling, controlled by, or under direct or
indirect common control with, such Person (for the purposes of this definition
"control," when used with respect to any specified Person, shall mean the power
to direct the management and policies of such person, directly or indirectly,
whether through ownership of voting securities, by contract or otherwise; and
the terms "controlling" and "controlled" shall have meanings correlative to the
foregoing).
(b) "BUSINESS DAY" shall mean a day Monday through Friday on
which banks are generally open for business in New York.
(c) "HOLDERS" shall mean the Subscriber or any person to whom
the rights under Article V have been transferred in accordance with Section 5.9
hereof.
(d) "PERSON" shall mean any person, individual, corporation,
limited liability company, partnership, trust or other nongovernmental entity or
any governmental agency, court, authority or other body (whether foreign,
federal, state, local or otherwise).
(e) The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer
to the registration effected by preparing and filing a registration statement in
compliance with the Act, and the declaration or ordering of the effectiveness of
such registration statement.
(f) "REGISTRABLE SECURITIES" shall mean (i) the Securities (ii)
a number of shares of Common Stock issuable upon issuances pursuant to Article
VI with respect to the first two (2) Semi-Annual Issuances (as defined below)
and (iii) any shares of Common Stock issued as (or issuable upon the conversion
of any warrant, right or other security which is issued as) a dividend or other
distribution with respect to or in replacement of the Securities; provided,
however, that securities shall only be treated as Registrable Securities if and
only for so long as they (A) have not been disposed of pursuant to a
registration statement declared effective by the Commission, (B) have not been
sold in a transaction exempt from the registration and prospectus delivery
requirements of the Act so that all transfer restrictions and restrictive
legends with
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respect thereto are removed upon the consummation of such sale or (C) are held
by a Holder or a permitted transferee pursuant to Section 5.9.
(g) "REGISTRATION EXPENSES" shall mean all expenses incurred by
the Company in complying with Section 5.2 hereof, including, without limitation,
all registration, qualification and filing fees, printing expenses, escrow fees,
fees and expenses of counsel for the Company, blue sky fees and expenses and the
expense of any special audits incident to, or required by, any such registration
(but excluding the fees of legal counsel for any Holder).
(h) "REGISTRATION STATEMENT" shall have the meaning ascribed to
such term in Section 5.2.
(i) "REGISTRATION PERIOD" shall have the meaning ascribed to
such term in Section 5.4.
(j) "SELLING EXPENSES" shall mean all underwriting discounts
and selling commissions applicable to the sale of Registrable Securities and all
fees and expenses of legal counsel for any Holder.
5.2 No later than twenty (20) business days after the date of this
Agreement (the "Filing Date"), the Company shall file a "shelf" registration
statement on the appropriate form (the "Registration Statement") with the
Commission and use its best efforts to effect the registration, qualifications
or compliances (including, without limitation, the execution of any required
undertaking to file post- effective amendments, appropriate qualifications or
exemptions under applicable blue sky or other state securities laws and
appropriate compliance with applicable securities laws, requirements or
regulations) of the Registrable Securities. Notwithstanding the foregoing, the
Company shall not be obligated to enter into any underwriting agreement for the
sale of any of the Registrable Securities.
5.3 All Registration Expenses incurred in connection with any
registration, qualification, exemption or compliance pursuant to Section 5.2
shall be borne by the Company. All Selling Expenses relating to the sale of
securities registered by or on behalf of Holders shall be borne by such Holders
pro rata on the basis of the number of securities so registered; provided that
if a Holder uses its own legal counsel in addition to one counsel for all of the
Holders of securities registered on behalf of the Holders, such Holder shall
bear the cost of such counsel.
5.4 In the case of the registration, qualification, exemption or
compliance effected by the Company pursuant to this Agreement, the Company
shall, upon reasonable request, inform each Holder as to the status of such
registration, qualification, exemption and compliance. At its expense the
Company shall:
(a) use its best efforts to keep such registration, and any
qualification, exemption or compliance under state securities laws which the
Company determines to obtain, continuously effective until the Holders have
completed the distribution described in the registration statement relating
thereto. The period of time during which the Company is required hereunder to
keep the Registration Statement effective is referred to herein as "the
Registration Period." Notwithstanding the foregoing, at the Company's election,
the Company may cease to keep such
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registration, qualification, exemption or compliance effective with respect to
any Registrable Securities, and the registration rights of a Holder shall
expire, at such time as the Holder (who is not an affiliate of the Company) may
sell under Rule 144 under the Act (or other exemption from registration
acceptable to the Company) in a three-month period all Registrable Securities
then held by such Holder; and
(b) advise the Holders:
(i) when the Registration Statement or any amendment
thereto has been filed with the Commission and when the Registration Statement
or any post-effective amendment thereto has become effective;
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the prospectus included therein or
for additional information;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for such purpose;
(iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Registrable Securities
included therein for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose; and
(v) of the happening of any event that requires the making
of any changes in the Registration Statement or the prospectus so that, as of
such date, the statements therein are not misleading and do not omit to state a
material fact required to be stated therein or necessary to make the statements
therein (in the case of the prospectus, in the light of the circumstances under
which they were made) not misleading;
(c) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of any Registration Statement at the
earliest possible time;
(d) furnish to each Holder, without charge, at least one copy
of such Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, and, if the Holder so requests in
writing, all exhibits (including those incorporated by reference) in the form
filed with the Commission;
(e) during the Registration Period, deliver to each Holder,
without charge, as many copies of the prospectus included in such Registration
Statement and any amendment or supplement thereto as such Holder may reasonably
request; and the Company consents to the use, consistent with the provisions
hereof, of the prospectus and any amendment or supplement thereto by each of the
selling Holders of Registrable Securities in connection with the offering and
sale of the Registrable Securities covered by the prospectus and any amendment
or supplement thereto. In addition, upon the reasonable request of the Holder
and subject in all cases to confidentiality protections reasonably acceptable to
the Company, the Company will meet with a Holder or a representative thereof at
the Company's headquarters to discuss all information relevant for disclosure in
the Registration Statement covering the Registrable
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Securities, and will otherwise cooperate with any Holder conducting an
investigation for the purpose of reducing or eliminating such Holder's exposure
to liability under the Act, including the reasonable production of information
at the Company's headquarters;
(f) during the Registration Period, deliver to each Holder,
without charge, (i) as soon as practicable (but in the case of the annual report
of the Company to its stockholders, within 120 days after the end of each fiscal
year of the Company) one copy of: (A) its annual report to its stockholders, if
any (which annual report shall contain financial statements audited in
accordance with generally accepted accounting principles in the United States of
America by a firm of certified public accountants of recognized standing); (B)
if not included in substance in its annual report to stockholders, its annual
report on Form 10-K (or similar form); (C) each of its quarterly reports to its
stockholders, if any, and, if not included in substance in its quarterly reports
to stockholders, its quarterly report on Form 10-Q (or similar form), and (D) a
copy of the full Registration Statement (the foregoing, in each case, excluding
exhibits); and (ii) upon reasonable request, all exhibits excluded by the
parenthetical to the immediately preceding clause (D), and all other information
that is generally available to the public;
(g) prior to any public offering of Registrable Securities
pursuant to any Registration Statement, register or qualify or obtain an
exemption for offer and sale under the securities or blue sky laws of such
jurisdictions as any such Holders reasonably request in writing, provided that
the Company shall not for any such purpose be required to qualify generally to
transact business as a foreign corporation in any jurisdiction where it is not
so qualified or to consent to general service of process in any such
jurisdiction, and do any and all other acts or things reasonably necessary or
advisable to enable the offer and sale in such jurisdictions of the Registrable
Securities covered by such Registration Statement;
(h) cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold pursuant to any Registration Statement free of any restrictive legends
to the extent not required at such time and in such denominations and registered
in such names as Holders may request at least three (3) business days prior to
sales of Registrable Securities pursuant to such Registration Statement;
(i) upon the occurrence of any event contemplated by
Section 5.4(b)(v) above, the Company shall promptly prepare a post-effective
amendment to the Registration Statement or a supplement to the related
prospectus, or file any other required document so that, as thereafter
delivered to purchasers of the Registrable Securities included therein, the
prospectus will not include any untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading; and
(j) use its best efforts to comply with all applicable rules
and regulations of the Commission, and will make generally available to the
Holders not later than 45 days (or 90 days if the fiscal quarter is the fourth
fiscal quarter) after the end of its fiscal quarter in which the first
anniversary date of the effective date of the Registration Statement occurs, an
earnings statement satisfying the provisions of Section 11(a) of the Act.
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5.5 The Holders shall have no right to take any action to restrain,
enjoin or otherwise delay any registration pursuant to Section 5.2 hereof as a
result of any controversy that may arise with respect to the interpretation or
implementation of this Agreement.
5.6 (a) To the extent permitted by law, the Company shall indemnify
each Holder, each underwriter of the Registrable Securities and each person
controlling such Holder within the meaning of Section 15 of the Act, with
respect to which any registration, qualification or compliance has been effected
pursuant to this Agreement, against all claims, losses, damages and liabilities
(or action in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened (subject to Section 5.6(c)
below), arising out of or based on (i) any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus or offering circular, or any amendment or supplement thereof,
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
light of the circumstances in which they were made, or (ii) any violation or
alleged violation by the Company of the Act, the Exchange Act, or any rule or
regulation promulgated under the Act, or the Exchange Act, and shall reimburse
each Holder, each underwriter of the Registrable Securities and each person
controlling such Holder, for legal and other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action as incurred; provided that the Company shall not be liable
in any such case to the extent that any untrue statement or omission or
allegation thereof is made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Holder and stated
to be specifically for use in preparation of such registration statement,
prospectus or offering circular; provided that the Company shall not be liable
in any such case where the claim, loss, damage or liability arises out of or is
related to the failure of the Holder to comply with the covenants and agreements
contained in this Agreement respecting sales of Registrable Securities, and
except that the foregoing indemnity agreement is subject to the condition that,
insofar as it relates to any such untrue statement or alleged untrue statement
or omission or alleged omission made in the preliminary prospectus but
eliminated or remedied in the amended prospectus on file with the Commission at
the time the registration statement becomes effective or in the amended
prospectus filed with the Commission pursuant to Rule 424(b) of the Act or in
the prospectus subject to completion and Exchange Act Reports under Rule 434 of
the Act, which together meet the requirements of Section 10(a) of the Act (the
"Final Prospectus"), such indemnity agreement shall not inure to the benefit of
any such Holder, any such underwriter or any such controlling person, if a copy
of the Final Prospectus furnished by the Company to the Holder for delivery was
not furnished to the person or entity asserting the loss, liability, claim or
damage at or prior to the time such furnishing is required by the Act and the
Final Prospectus would have cured the defect giving rise to such loss,
liability, claim or damage.
(b) Each Holder will severally, if Registrable Securities held
by such Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter of the Registrable Securities and
each person who controls the Company within the meaning of Section 15 of the
Act, against all claims, losses, damages and liabilities (or actions in respect
thereof),
11
including any of the foregoing incurred in settlement of any litigation,
commenced or threatened (subject to Section 5.6(c) below), arising out of or
based on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus or offering circular, or any
amendment or supplement thereof, incident to any such registration,
qualification or compliance or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in light of the circumstances in which
they were made, and will reimburse the Company, such directors and officers,
each underwriter of the Registrable Securities and each person controlling the
Company for reasonable legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action as incurred, in each case to the extent, but only to the
extent, that such untrue statement or omission or allegation thereof is made in
reliance upon, and in conformity with, written information furnished to the
Company by or on behalf of the Holder and stated to be specifically for use in
preparation of such registration statement, prospectus or offering circular;
provided that the indemnity shall not apply to the extent that such claim, loss,
damage or liability results from the fact that a current copy of the prospectus
or offering circular was not made available to the Holder and such current copy
of the prospectus or offering circular would have cured the defect giving rise
to such loss, claim, damage or liability. Notwithstanding the foregoing, in no
event shall a Holder be liable for any such claims, losses, damages or
liabilities in excess of the proceeds received by such Holder in the offering,
except in the event of fraud by such Holder.
(c) Each party entitled to indemnification under this
Section 5.6 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may
be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall
not unreasonably be withheld), and the Indemnified Party may participate in
such defense at such Indemnified Party's expense, and provided further that
the failure of any Indemnified Party to give notice as provided herein shall
not relieve the Indemnifying Party of its obligations under this Agreement,
unless such failure is materially prejudicial to the Indemnifying Party in
defending such claim or litigation. An Indemnifying Party shall not be liable
for any settlement of an action or claim effected without its written consent
(which consent will not be unreasonably withheld).
(d) If the indemnification provided for in this Section 5.6 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party thereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue
12
statement of a material fact or the omission to state a material fact relates to
information supplied by the Indemnifying Party or by the Indemnified Party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
5.7 Upon receipt of any notice from the Company of the happening of
any event requiring the preparation of a supplement or amendment to a prospectus
relating to Registrable Securities so that, as thereafter delivered to the
Holders, such prospectus will not contain an untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, each Holder shall forthwith
discontinue disposition of Registrable Securities pursuant to the registration
statement contemplated by Section 5.2 until its receipt of copies of the
supplemented or amended prospectus from the Company and, if so directed by the
Company, each Holder shall deliver to the Company all copies, other than
permanent file copies then in such Holder's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
(b) Each Holder shall suspend, upon request of the Company, any
disposition of Registrable Securities pursuant to the Registration Statement and
prospectus contemplated by Section 5.2 during (i) any period not to exceed two
30-day periods within any one 12-month period the Company requires in connection
with a primary underwritten offering of equity securities and (ii) any period,
not to exceed one 45-day period per circumstance or development, when the
Company determines in good faith that offers and sales pursuant thereto should
not be made by reason of the presence of material undisclosed circumstances or
developments with respect to which the disclosure that would be required in such
a prospectus is premature, would have an adverse effect on the Company or is
otherwise inadvisable.
(c) As a condition to the inclusion of its Registrable
Securities, each Holder shall furnish to the Company such information regarding
such Holder, the Securities of the Company owned beneficially or of record by
such holder and the distribution proposed by such Holder as the Company may
request in writing or as shall be required in connection with any registration,
qualification or compliance referred to in this Article V.
(d) Each Holder hereby covenants with the Company (i) not to
make any sale of the Registrable Securities without effectively causing the
prospectus delivery requirements under the Act to be satisfied, and (ii) if such
Registrable Securities are to be sold by any method or in any transaction other
than on a national securities exchange, the Nasdaq National Market, Nasdaq
SmallCap Market or in the over-the-counter market, in privately negotiated
transactions, or in a combination of such methods, to notify the Company at
least five (5) business days prior to the date on which the Holder first offers
to sell any such Registrable Securities.
(e) Each Holder acknowledges and agrees that the Registrable
Securities sold pursuant to the Registration Statement described in this Section
are not transferable on the books of the Company unless the stock certificate
submitted to the transfer agent evidencing such Registrable Securities is
accompanied by a certificate reasonably satisfactory to the Company to the
effect that (i) the Registrable Securities have been sold in accordance with
such Registration
13
Statement and (ii) the requirement of delivering a current prospectus has been
satisfied.
(f) Each Holder shall not take any action with respect to any
distribution deemed to be made pursuant to such registration statement, which
would constitute a violation of Regulation M under the Exchange Act or any other
applicable rule, regulation or law.
(g) At the end of the period during which the Company is
obligated to keep the Registration Statement current and effective as described
above, the Holders of Registrable Securities included in the Registration
Statement shall discontinue sales of shares pursuant to such Registration
Statement upon receipt of notice from the Company of its intention to remove
from registration the shares covered by such Registration Statement which remain
unsold, and such Holders shall notify the Company of the number of shares
registered which remain unsold immediately upon receipt of such notice from the
Company.
5.8 With a view to making available to the Holders the benefits of
certain rules and regulations of the Commission which at any time permit the
sale of the Registrable Securities to the public without registration, the
Company shall use its reasonable best efforts:
(a) to make and keep public information available, as those
terms are understood and defined in Rule 144 under the Act, at all times;
(b) to file with the Commission in a timely manner all reports
and other documents required of the Company under the Exchange Act; and
(c) so long as a Holder owns any unregistered Registrable
Securities, to furnish to such Holder upon any reasonable request a written
statement by the Company as to its compliance with Rule 144 under the Act, and
of the Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company as such Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing a Holder to sell any such securities without registration.
5.9 The rights to cause the Company to register Registrable Securities
granted to the Holders by the Company under Section 5.1 may be assigned in full
by a Holder in connection with a transfer by such Holder of its Registrable
Securities, provided that (i) such transfer shall otherwise be effected in
accordance with applicable securities laws and Section 6.9; (ii) such Holder
gives prior written notice to the Company; and (iii) such transferee agrees to
comply with the terms and provisions of this Agreement, and such transfer is
otherwise in compliance with this Agreement. Except as specifically permitted by
this Section 5.9, the rights of a Holder with respect to Registrable Securities
as set out herein shall not be transferable to any other Person, and any
attempted transfer shall cause all rights of such Holder therein to be
forfeited.
5.10 With the written consent of the Company and the Holders holding at
least a majority of the Registrable Securities that are then outstanding, any
provision of this Article V may be waived (either generally or in a particular
instance, either retroactively or prospectively and either for a specified
period of time or indefinitely) or amended. Upon the effectuation of each such
waiver or amendment, the Company shall promptly give written notice thereof to
the
14
Holders, if any, who have not previously received notice thereof or consented
thereto in writing.
VI. ADDITIONAL CONTRACTUAL RIGHTS
6.1 DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings, unless the context otherwise requires:
(a) "Article VI Rights" shall mean the rights to receive all
Semi-Annual Issuances, Dilution Issuances and Qualified Offering Issuances and
the right to exercise the Liquidation Put and the Exchange Right, as provided
herein and in other contracts providing for similar issuances.
(b) "Change of Shares" shall mean any event that necessitates
an adjustment to the Dilution Value (as defined below) pursuant to Section 6.7
below.
(c) The "Closing Bid Price" of any security, for any trading
day (as defined below), shall be the reported per share closing bid price,
regular way, of such security on the relevant Stock Market (as defined below) on
such trading day or, if there were no transactions on such trading day, the
average of the reported closing bid and asked prices, regular way, of such
security on the relevant Stock Market on such trading day.
(d) "Dilution Event" shall mean any event that necessitates an
adjustment to the Dilution Value (as defined below) pursuant to Section 6.6
below, other than the issuance of Common Stock in connection with the Pacific
Merger.
(e) The "Dilution Value" initially shall be $2.11. The Dilution
Value is subject to adjustment pursuant to Sections 6.6, 6.7 and 6.15.
(f) "Fair Market Value" of any asset (including any security)
means the fair market value thereof as mutually determined by the Company in
good faith.
(g) The "Issuance Base Amount" for the Subscriber, at any time,
means the sum of (i) the number of shares of Common Stock the Subscriber has
subscribed for, (ii) the number of shares of any Semi-Annual Issuances (as
defined below) made to such Subscriber occurring before such time, (iii) the
number of shares of any Dilution Issuances (as defined below) made to such
Subscriber occurring before such time and (iv) the number of shares of any
Qualified Offering Issuances (as defined below) made to such subscriber
occurring before such time (with appropriate adjustments for any Change of
Shares and subject to reduction pursuant to Section 6.10). For any transferee
Rights Holder, the Issuance Base Amount, at any time, shall be the number of
shares of Common Stock related to such Article VI Rights as were transferred to
such Rights Holder plus the number of shares of any Semi- Annual Issuance,
Dilution Issuance and Qualified Offering Issuance made to such Rights Holder
occurring subsequent to such transfer but before such time. The Issuance Base
Amount shall include Dilution Issuances which would have been required but for
the operation of Paragraph 6.6(b)(i).
(h) "Liquidation Event" shall mean any (i) liquidation,
dissolution or winding up of
15
the Company, whether voluntary or involuntary, (ii) sale or other disposition of
all or substantially all of the assets of the Company or (iii) any
consolidation, merger, combination, reorganization or other transaction in which
the Company is not the surviving entity or shares of Common Stock constituting
more than fifty percent (50%) of the voting power of the Company are exchanged
for or changed into stock or securities of another entity, cash and/or any other
property (clause (iii) of this Subsection being referred to as a "Merger
Transaction"). Notwithstanding the above, any consolidation, merger,
combination, reorganization or other transaction in which the Company is not the
surviving entity but the stockholders of the Company immediately prior to such
transaction own in excess of 50% of the voting power of the corporation
surviving such transaction and own such interest in substantially the same
proportions as prior to such transaction, shall not be considered a Liquidation
Event or a Merger Transaction, provided that the surviving corporation has made
appropriate provisions to ensure that the Article VI Rights survive any such
transaction.
(i) "Market Price" per share of Common Stock shall mean the
average Closing Bid Price (adjusted, where appropriate, for any Change of
Shares) for twenty (20) consecutive trading days, ending with the trading day
immediately prior to the date as of which the Market Price is being determined;
provided, however, that if the prices referred to in the definition of Closing
Bid Price cannot be determined on any trading day, "Market Price" shall mean the
Fair Market Value.
(j) The "Post-Dilution Common Quantity" means the quotient of
the Pre-Dilution Common Value (as defined below) divided by the Dilution Value
immediately following the relevant Dilution Event, or Qualified Offering
Adjustment Event (as defined below).
(k) The "Pre-Dilution Common Value" means the product of the
Issuance Base Amount multiplied by the Dilution Value immediately preceding the
relevant Dilution Event, or Qualified Offering Adjustment Event (as defined
below).
(l) "Rights Holder" shall mean the Subscriber or any Person who
succeeds to such Subscriber's Article VI Rights pursuant to Section 6.9 and any
and all Persons who now or hereafter are entitled to contractual rights
substantially the same as those set forth in this Article VI.
(m) The "Stock Market" shall mean, with respect to any
security, the principal national securities exchange on which such security is
listed or admitted to trading or, if such security is not listed or admitted to
trading on any national securities exchange, shall mean The Nasdaq National
Market System or The Nasdaq SmallCap Market (collectively, "Nasdaq") or, if such
security is not quoted on Nasdaq, shall mean the OTC Bulletin Board or, if such
security is not quoted on the OTC Bulletin Board, shall mean the
over-the-counter market as furnished by any NASD member firm selected from time
to time by the Company for that purpose.
(n) A "trading day" shall mean a day on which the Stock Market
is open for the transaction of business.
(o) "Trading Price" shall mean the lower of (i) the average
Closing Bid Price of the
16
Common Stock for the thirty (30) consecutive trading days immediately preceding
the date as of which the Trading Price is being determined (with appropriate
adjustments for any Change of Shares) and (ii) the average Closing Bid Price of
the Common Stock for five (5) consecutive trading days immediately preceding the
date as of which the Trading Price is being determined (with appropriate
adjustments for any Change of Shares).
(p) The "Transfer Agent" shall mean American Stock Transfer &
Trust Company or the duly appointed successor thereto serving as the transfer
agent for the Common Stock.
6.2 [INTENTIONALLY OMITTED]
6.3 [INTENTIONALLY OMITTED]
6.4 SEMI-ANNUAL ISSUANCES. On each six month anniversary of April 9,
1999 (or the next succeeding business day), the Company shall issue (each a
"Semi-Annual Issuance") to the Rights Holder a number of shares of Common Stock
equal to 5% of the Issuance Base Amount on the applicable six month anniversary
date.
6.5 DILUTION ISSUANCES. Upon the occurrence of any Dilution Event, the
Company shall issue (each a "Dilution Issuance") to the Rights Holder a number
of shares of Common Stock equal to the difference of the Post-Dilution Common
Quantity minus the Issuance Base Amount.
6.6 ANTI-DILUTION ADJUSTMENTS.
(a) Except as otherwise provided in Subsection 6.6(c), in
the event the Company shall, at any time or from time to time after the date
hereof, sell or issue any shares of Common Stock for a consideration per share
less than either (i) the Dilution Value in effect on the date of such sale or
issuance or (ii) the Market Price of the Common Stock as of the date of the sale
or issuance (any such sale or issuance a "Dilutive Issuance"), then, and
thereafter upon each further Dilutive Issuance, the Dilution Value in effect
immediately prior to such Dilutive Issuance shall be changed to a price (rounded
to the nearest cent) determined by multiplying the Dilution Value in effect
immediately prior thereto by a fraction, the numerator of which shall be the sum
of the number of shares of Common Stock outstanding immediately prior to the
Dilutive Issuance and the number of shares of Common Stock which the aggregate
consideration received (determined as provided in Paragraph 6.6(b)(v) below) for
the issuance of such additional shares would purchase at the greater of (x) the
Dilution Value in effect on the date of such issuance or (y) the Market Price of
the Common Stock as of such date, and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after the Dilutive
Issuance. Such adjustment shall be made successively whenever such an issuance
is made.
(b) For purposes of Subsection 6.6(a), the following Paragraphs
(i) to (v) shall also be applicable:
(i) No adjustment of the Dilution Value shall be made
unless such adjustment would require a decrease of at least $.01; provided that
any adjustments which by reason of this Paragraph 6.6(b)(i) are not required to
be made shall be carried forward and shall be made at the
17
time of and together with the next subsequent adjustment which, together with
adjustments so carried forward, shall require a decrease of at least $.01 in the
Dilution Value then in effect hereunder.
(ii) In case of (A) the sale or other issuance by the
Company (including as a component of a unit) of any rights or warrants to
subscribe for or purchase, or any options for the purchase of, Common Stock or
any securities convertible into or exchangeable for Common Stock (such
securities convertible, exercisable or exchangeable into Common Stock being
herein called "Convertible Securities"), or (B) the issuance by the Company,
without the receipt by the Company of any consideration therefor, of any rights
or warrants to subscribe for or purchase, or any options for the purchase of,
Common Stock or Convertible Securities, whether or not such rights, warrants or
options, or the right to convert or exchange such Convertible Securities, are
immediately exercisable, and the consideration per share for which Common Stock
is issuable upon the exercise of such rights, warrants or options or upon the
conversion or exchange of such Convertible Securities (determined by dividing
(x) the minimum aggregate consideration, as set forth in the instrument relating
thereto, without regard to any antidilution or similar provisions contained
therein for a subsequent adjustment of such amount, payable to the Company upon
the exercise of such rights, warrants or options, plus the consideration
received by the Company for the issuance or sale of such rights, warrants or
options, plus, in the case of such Convertible Securities, the minimum aggregate
amount, as set forth in the instrument relating thereto, without regard to any
antidilution or similar provisions contained therein for a subsequent adjustment
of such amount, of additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by (y) the total
maximum number, as set forth in the instrument relating thereto, without regard
to any antidilution or similar provisions contained therein for a subsequent
adjustment of such amount, of shares of Common Stock issuable upon the exercise
of such rights, warrants or options or upon the conversion or exchange of such
Convertible Securities issuable upon the exercise of such rights, warrants or
options) is less than either the Dilution Value or the Market Price of the
Common Stock as of the date of the issuance or sale of such rights, warrants or
options, then such total maximum number of shares of Common Stock issuable upon
the exercise of such rights, warrants or options or upon the conversion or
exchange of such Convertible Securities (as of the date of the issuance or sale
of such rights, warrants or options) shall be deemed to be "Common Stock" for
purposes of Subsection 6.6(a) and shall be deemed to have been sold for an
amount equal to such consideration per share and shall cause an adjustment to be
made in accordance with Subsection 6.6(a).
(iii) In case of the sale or other issuance by the Company
of any Convertible Securities, whether or not the right of conversion or
exchange thereunder is immediately exercisable, and the price per share for
which Common Stock is issuable upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the total amount of
consideration received by the Company for the sale of such Convertible
Securities, plus the minimum aggregate amount, as set forth in the instrument
relating thereto, without regard to any antidilution or similar provisions
contained therein for a subsequent adjustment of such amount, of additional
consideration, if any, other than such Convertible Securities, payable upon the
conversion or exchange thereof, by (y) the total maximum number, as set forth in
the instrument
18
relating thereto without regard to any antidilution or similar provisions
contained therein for a subsequent adjustment of such amount, of shares of
Common Stock issuable upon the conversion or exchange of such Convertible
Securities) is less than either the Dilution Value or the Market Price of the
Common Stock as of the date of the sale or other issuance of such Convertible
Securities, then such total maximum number of shares of Common Stock issuable
upon the conversion or exchange of such Convertible Securities (as of the date
of the sale of such Convertible Securities) shall be deemed to be "Common Stock"
for purposes of Subsection 6.6(a) and shall be deemed to have been sold for an
amount equal to such consideration per share and shall cause an adjustment to be
made in accordance with Subsection 6.6(a).
(iv) In case the Company shall modify the rights of
conversion, exchange or exercise of any of the securities referred to in
Paragraphs (ii) or (iii) of this Subsection 6.6(b) or any other securities of
the Company convertible, exchangeable or exercisable for shares of Common Stock,
for any reason other than an event that would require adjustment to prevent
dilution, so that the consideration per share received by the Company after such
modification is less than either the Dilution Value or the Market Price of the
Common Stock as of the date prior to such modification, then such securities, to
the extent not theretofore exercised, converted or exchanged, shall be deemed to
have expired or terminated immediately prior to the date of such modification
and the Company shall be deemed for purposes of calculating any adjustments
pursuant to this Section 6.6 to have issued such new securities upon such new
terms on the date of modification. Such adjustment shall become effective as of
the date upon which such modification shall take effect. On the expiration or
cancellation of any such right, warrant or option or the termination or
cancellation of any such right to convert or exchange any such Convertible
Securities, the Dilution Value then in effect hereunder shall forthwith be
readjusted to such Dilution Value as would have obtained (A) had the adjustments
made upon the issuance or sale of such rights, warrants, options or Convertible
Securities been made upon the basis of the issuance of only the number of shares
of Common Stock theretofore actually delivered (and the total consideration
received therefor) upon the exercise of such rights, warrants or options or upon
the conversion or exchange of such Convertible Securities and (B) had
adjustments been made on the basis of the Dilution Value as adjusted under
clause (A) of this sentence for all transactions (which would have affected such
adjusted Dilution Value) made after the issuance or sale of such rights,
warrants, options or Convertible Securities.
(v) In case of the sale of any shares of Common Stock,
any Convertible Securities, any rights or warrants to subscribe for or purchase,
or any options for the purchase of, Common Stock or Convertible Securities, the
consideration received by the Company therefor shall be deemed to be the gross
sales price therefor without deducting therefrom any expense paid or incurred by
the Company or any underwriting discounts or commissions or concessions paid or
allowed by the Company in connection therewith. In the event that any securities
shall be issued in connection with any other securities of the Company, together
comprising one integral transaction in which no specific consideration is
allocated among the securities, then each of such securities shall be deemed to
have been issued for such consideration as the Board of Directors of the Company
determines in good faith.
(c) Notwithstanding any other provision hereof, no adjustment
to the Dilution Value
19
will be made:
(i) upon the exercise of any of the options outstanding on the
date hereof under the Company's existing stock option plans; or
(ii) upon the issuance or exercise of options which may
hereafter be granted with the approval of the Board of Directors, or exercised,
under any employee benefit plan of the Company to officers, directors,
consultants or employees, but only with respect to such options as are
exercisable at prices no lower than the Closing Bid Price (or, if the prices
referenced in the definition of Closing Bid Price cannot be determined, the Fair
Market Value) of the Common Stock as of the date of grant thereof; or
(iii) upon issuance or exercise of (i) any currently outstanding
options and warrants, and (ii) any issuance of Common Stock pursuant to this
Article VI or to other Rights Holders pursuant to similar contractual
obligations; or
(iv) upon the issuance or sale of Common Stock or Convertible
Securities pursuant to the exercise of any rights, options or warrants to
receive, subscribe for or purchase, or any options for the purchase of, Common
Stock or Convertible Securities, whether or not such rights, warrants or options
were outstanding on the date hereof or were thereafter issued or sold, provided
that an adjustment was either made or not required to be made in accordance with
Subsection 6.6(a) in connection with the issuance or sale of such securities or
any modification of the terms thereof; or
(v) upon the issuance or sale of Common Stock upon conversion
or exchange of any Convertible Securities, provided that any adjustments
required to be made upon the issuance or sale of such Convertible Securities or
any modification of the terms thereof were so made, and whether or not such
Convertible Securities were outstanding on the date hereof or were thereafter
issued or sold; or
(vi) upon the issuance of stock that may hereafter be purchased
or sold with the approval of the Board of Directors, under the 1993 Employee
Stock Purchase Plan of the Company to officers, directors, consultants or
employees, but only with respect to such shares as are purchased and/or sold in
accordance with the current plan and at the prices no lower than eighty-five
percent (85%) of the Closing Bid Price (or, if the prices referenced in the
definition of Closing Bid Price cannot be determined, 85% of the Fair Market
Value) of the Common Stock as of the date of purchase and/or sale thereof;
Paragraph 6.6(b)(iv) shall nevertheless apply to any modification
of the rights of conversion, exchange or exercise of any of the securities
referred to in this Subsection 6.6(c), except that Paragraph 6.6(b)(iv) shall
not apply to any modification of the rights of conversion, exchange or exercise
of the securities excepted by Paragraph (iii) of this Subsection 6.6(c) that are
required by the original terms of those respective instruments.
(d) As used in this Section 6.6, the term "Common Stock" shall
mean and include the
20
Company's Common Stock authorized on the date of the first original issue of the
Securities and shall also include any capital stock of any class of the Company
thereafter authorized which shall not be limited to a fixed sum or percentage in
respect of the rights of the holders thereof to participate in dividends and in
the distribution of assets upon the voluntary liquidation, dissolution or
winding up of the Company.
(e) The Company from time to time may decrease the Dilution
Value by any amount for any period of time if the period is at least 20 days and
if the decrease is irrevocable during the period. Whenever the Dilution Value is
so decreased, the Company shall mail to the Rights Holders a notice of the
decrease at least 15 days before the date the decreased Dilution Value takes
effect, and such notice shall state the decreased Dilution Value and the period
it will be in effect.
The Company may make such decreases in the Dilution Value,
in addition to those required or allowed by this Article VI, as shall be
determined by it, as evidenced by a resolution of the Board of Directors, to be
advisable in order to avoid or diminish any income tax to holders of Common
Stock resulting from any dividend or distribution of stock or issuance of rights
or warrants to purchase or subscribe for stock or from any event treated as such
for income tax purposes.
6.7 CHANGE OF SHARES ADJUSTMENTS. In the event the Company shall, at
any time or from time to time after the date hereof (i) issue any shares of
Common Stock as a stock dividend to the holders of Common Stock or (ii)
subdivide or combine the outstanding shares of Common Stock into a greater or
lesser number of shares (any such issuance, subdivision or combination being
herein called a "Change of Shares"), then the Dilution Value shall be changed to
a price (rounded to the nearest cent) determined by multiplying the Dilution
Value in effect immediately prior to such Change of Shares by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to the Change of Shares and the denominator of which shall be
the number of shares of Common Stock outstanding immediately following the
Change of Shares.
6.8 LIQUIDATION PUT. The Rights Holder may require the Company to
repurchase with cash any number (not to exceed such Rights Holder's Issuance
Base Amount) of shares of Common Stock then owned by such Rights Holder for 140%
of the aggregate Dilution Value of such shares; provided, however, in the event
of a Merger Transaction, any repurchase pursuant to this Section 6.8 may be paid
in cash, property (valued as provided in Subsection 6.8 (d)) and/or securities
(valued as provided in Subsection 6.8 (d)) of the entity surviving such Merger
Transaction.
(b) The Rights Holder covenants not to exercise the Liquidation
Put unless a Liquidation Event has occurred.
(c) The Rights Holder's Article VI Rights shall be terminated
to the pro rata extent of any exercise of such Rights Holder's Liquidation Put.
(d) Any securities or other property to be delivered to the
Rights Holder pursuant
21
to this Section 6.8 shall be valued as follows:
(i) Securities not subject to an investment letter or other
similar restriction on free marketability:
(A) If actively traded on the Stock Market, the value
shall be deemed to be the Market Price of such
securities as of the third day prior to the date
of valuation.
(B) If not actively traded on the Stock Market, the
value shall be the Fair Market Value of such
securities.
(ii) For securities for which there is an active public market but
which are subject to an investment letter or other restrictions on free
marketability, the value shall be the Fair Market Value thereof, determined by
discounting appropriately the Market Price thereof.
(iii) For all other securities, the value shall be the Fair Market
Value thereof.
6.9 TRANSFER OF RIGHTS UNDER THIS ARTICLE VI. The Rights Holder's
Article VI. Rights are not transferable unless the transferee will be both the
record and beneficial owner of the related Common Stock and executes and
delivers to the Company a counterpart to this Agreement agreeing to be bound by
the obligations of the Subscriber hereunder. Any such transferee must provide
his or her name and address, which name and address must be that of the
beneficial owner, to the Company. Any transfer of Common Stock and related
Article VI Rights must be performed in accordance with applicable securities
laws and regulations, and the transferor must provide the Company with an
opinion of counsel, satisfactory to the Company, to that effect. Furthermore, no
transfer of Article VI Rights may be made relating to fewer shares of Common
Stock than the quotient of $25,000 divided by the Dilution Value. ANY PURPORTED
TRANSFER OF ARTICLE VI RIGHTS NOT IN COMPLIANCE WITH THIS SECTION 6.9 SHALL BE
NULL AND VOID AND THE RIGHTS HOLDER SHALL FORFEIT ALL ARTICLE VI RIGHTS RELATED
TO SUCH TRANSFERRED COMMON STOCK. Upon, and to the extent of, any transfer of
Common Stock without the related Article VI Rights, such related Article VI
Rights shall terminate.
6.10 ADJUSTMENTS TO ISSUANCE BASE AMOUNT. Upon the termination of any
of the Rights Holder's Article VI Rights, such Rights Holder's Issuance Base
Amount shall be proportionally reduced.
6.11 NOTICES.
(i) After each adjustment of the Dilution Value pursuant
to Sections 6.6, 6.7 and 6.15 the Company will promptly prepare a certificate
signed by the Chief Executive Officer or President, and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary, of the Company
setting forth: (i) the Dilution Value as so adjusted and (ii) a brief statement
of the facts accounting for such adjustment. The Company will promptly file such
certificate with the Transfer Agent and cause a brief summary thereof to be sent
by ordinary first
22
class mail to each Rights Holder at his or her last address as it shall appear
on the Transfer Agent's record books. No failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity of such
adjustment. The affidavit of an officer of the Transfer Agent or the Secretary
or an Assistant Secretary of the Company that such notice has been mailed shall,
in the absence of fraud, be prima facie evidence of the facts therein stated.
The Transfer Agent may rely on the information in the certificate as true and
correct and has no duty nor obligation independently to verify the amounts or
calculations therein set forth.
(ii) After any adjustment in the Issuance Base Amount
resulting from (i) any Semi-Annual Issuances, Dilution Issuances or Qualified
Offering Issuance (ii) any Change in Shares or (iii) any termination of Article
VI Rights, the Company will promptly prepare a certificate signed by the Chief
Executive Officer or President, and by the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary, of the Company setting forth: (x)
the Issuance Base Amount immediately preceding and succeeding such adjustment
and (y) a brief statement of the facts accounting for such adjustment. The
Company will promptly file such certificate with the Transfer Agent and cause a
brief summary thereof to be sent by ordinary first class mail to each Rights
Holder at his or her last address as it shall appear on the Transfer Agent's
record books. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity of such adjustment. The affidavit of
an officer of the Transfer Agent or the Secretary or an Assistant Secretary of
the Company that such notice has been mailed shall, in the absence of fraud, be
prima facie evidence of the facts therein stated. The Transfer Agent may rely on
the information in the certificate as true and correct and has no duty nor
obligation independently to verify the amounts or calculations therein set
forth.
6.12 TREASURY STOCK. Any Semi-Annual Issuance and Dilution Issuance
shall be made with duly authorized, fully-paid and non-assessable shares of
Common Stock, in accordance with Delaware Law, and shall be drawn from the
treasury stock of the Company to the extent available. The Company shall
promptly furnish to the Placement Agent, upon request, an opinion of counsel
reasonably satisfactory to the Placement Agent that the requirements of this
Section 6.12 have been met as to any issuance referred to herein. The Company
shall not otherwise sell, issue, cancel or otherwise impair any of its treasury
stock without the Placement Agent's prior written consent.
6.13 MANDATORY TERMINATION OF ARTICLE VI RIGHTS. At any time on or
after the date hereof, the Company may cause the Rights Holder's Article VI
Rights to be terminated if the Market Price of the Common Stock shall have
exceeded 300% of the then applicable Dilution Value as of the third business day
prior to the date of notice of termination. No greater than 60 nor fewer than 20
days prior to the date of any such mandatory termination, notice by first class
mail, postage prepaid, shall be given to the Rights Holders, addressed to such
Rights Holders at their last addresses as they shall appear in the Transfer
Agent's record books. Each such notice shall specify the date fixed for
termination. Any notice which is mailed as herein provided shall be conclusively
presumed to have been duly given by the Company on the date deposited in the
mail, whether or not the Rights Holder receives such notice; and failure
properly to give such notice by mail, or any defect in such notice, to any
Rights Holders shall not affect the validity of the proceedings for the
termination of any other Rights Holders' Article VI Rights.
23
6.14 WAIVER.
With the written consent of the Company and the Rights Holders holding
at least a majority of the issued and outstanding Common Stock subject to
Article VI Rights, any provision of this Article VI may be waived (either
generally or in a particular instance, either retroactively or prospectively and
either for a specified period of time or indefinitely) or amended. Upon the
effectuation of each such waiver or amendment, the Company shall promptly give
written notice thereof to the Rights Holders, if any, who have not previously
received notice thereof or consented thereto in writing.
6.15 OPTIONAL EXCHANGE/RESET. (a) Upon the receipt of requisite
approvals, if any, from the stockholders of the Company, the shares of Common
Stock acquired hereunder may be exchanged (the "Exchange Right"), at the option
of each Rights Holder, upon the completion of a Qualified Offering (as defined
below) into Qualified Offering Securities (as defined below). Upon exchange of
their shares of Common Stock, up to the Issuance Base Amount, the exchanging
Rights Holders shall receive an amount of Qualified Offering Securities equal to
the quotient of (i) the Issuance Base Amount being exchanged multiplied by the
Dilution Value at the time of the Qualified Offering, divided by (ii) the
Qualified Offering Securities Price (as defined below) multiplied by .75 (the
"Exchange Price"); provided, however, that in the event that the Exchange Price
divided by the Underlying Common Stock Amount (as defined below) is less than
the greater of (a) 50% of the Offering Price and (b) 50% of the average closing
bid price of the Common Stock for the twenty trading days immediately preceding
the date of such exchange (the "Floor Price"), then the Exchange Price shall
equal the Floor Price multiplied by the Underlying Common Stock Amount.
As used herein the following terms shall have the following meanings:
(i) "Underlying Common Stock Amount" shall equal the number
of shares of Common Stock and Common Stock underlying Convertible Securities
included as part of each Qualified Offering Security but shall not include
Common Stock underlying warrants or options to purchase Common Stock or to
purchase a Convertible Security, whether or not such warrant or option contains
a right to exercise such warrant or option by the delivery of shares deemed
purchased thereunder, including, without limitation, by a cashless exercise.
(ii) "Qualified Offering Security" and "Qualified Offering
Securities" shall mean the security or securities (whether they are Common
Stock, Convertible Securities, Securities of Common Stock and/or Convertible
Securities (as defined below) and warrants or other similar rights) issued or
sold in the Qualified Offering (including any contractual rights granted to
investors in connection with the Qualified Offering).
(iii) "Qualified Offering" shall mean the sale or series of
sales of equity securities of the Company next occurring after the date hereof
of this Offering, including, without limitation, Common Stock, warrants,
Securities of Common Stock and warrants, other securities exchangeable,
convertible or exercisable for Common Stock, alone or in Securities, whether in
a public offering or private placement, raising gross proceeds in excess of
$2,500,000; excluding, however, at the Company's option, a firm commitment
underwritten public offering.
24
(iv) "Qualified Offering Securities Price" shall mean the
selling price to investors for each Qualified Offering Security.
(v) "Convertible Security" and "Convertible Securities"
shall mean any security convertible into or exchangeable for a share or shares
of Common Stock without the payment of any additional consideration in such
conversion or exchange other than the delivery of such security, but shall not
include a warrant or option to purchase Common Stock or to purchase a
Convertible Security, whether or not such warrant or option contains a right to
exercise such warrant or option by the delivery of shares deemed purchased
thereunder, including, without limitation, by a cashless exercise.
(b) Upon and to the extent of any exchange into Qualified
Offering securities as set forth in Section 6.15(a) above, the Article VI Rights
related to the exchanged Common Stock shall terminate.
(c) Upon the receipt of requisite approvals, if any, from the
stockholders of the Company, holders who elect not to exchange their Common
Stock upon a Qualified Offering for Qualified Offering Securities, shall have
the Dilution Value with respect to their Article VI Rights adjusted (a
"Qualified Offering Adjustment Event") to equal the Exchange Price and shall
receive an additional number of shares (the "Qualified Offering Issuance") of
Common Stock equal to the difference between (i) the quotient of (a) the
Issuance Base Amount multiplied by the Dilution Value in effect prior to the
date of adjustment divided by (b) the (x) Exchange Price divided by (y) the
Underlying Common Stock Amount, and (ii) the Issuance Base Amount prior to the
date of adjustment; provided, however, that no adjustment shall be made if it
would result in an increase in the Dilution Value. Holders receiving Qualified
Offering Issuance shall have Article VI Rights with respect to such shares.
VII. MISCELLANEOUS
7.1 Any notice or other communication given hereunder shall be deemed
sufficient if in writing and sent by registered or certified mail, return
receipt requested, or delivered by hand against written receipt therefor,
addressed to Procept, Inc., 000 Xxxxxxxx Xxxxx, Xxxxxxxxx, Xxxxxxxxxxxxx 00000,
Attn: Xxxx X. Xxx, and to the Subscriber at the Subscriber's address indicated
on the signature page of this Agreement and to any Rights Holders at his or her
last address as it shall appear in the Transfer Agent's record books. Notices
shall be deemed to have been given or delivered on the date of mailing, except
notices of change of address, which shall be deemed to have been given or
delivered when received.
7.2 Except as provided in Section 5.10 above, this Agreement shall not
be changed, modified or amended except by a writing signed by the parties to be
charged, and this Agreement may not be discharged except by performance in
accordance with its terms or by a writing signed by the party to be charged.
7.3 Subject to the provisions of Sections 5.9, 6.9 and 7.12, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and to their respective heirs, legal representatives, successors and assigns.
This Agreement sets forth the entire agreement and
25
understanding between the parties as to the subject matter hereof and merges and
supersedes all prior discussions, agreements and understandings of any and every
nature among them.
7.4 Upon the execution and delivery of this Agreement by the
Subscriber, this Agreement shall become a binding obligation of the Subscriber
with respect to the purchase of Securities as herein provided, subject, however,
to the right hereby reserved by the Company to enter into the same agreements
with other subscribers and to add and/or delete other persons as subscribers.
7.5 NOTWITHSTANDING THE PLACE WHERE THIS AGREEMENT MAY BE EXECUTED BY
ANY OF THE PARTIES HERETO, THE PARTIES EXPRESSLY AGREE THAT ALL THE TERMS AND
PROVISIONS HEREOF SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE
LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
IN THE EVENT THAT A JUDICIAL PROCEEDING IS NECESSARY, THE EXCLUSIVE FOR A FOR
RESOLVING DISPUTES ARISING OUT OF, OR RELATING TO, THIS AGREEMENT ARE EITHER THE
SUPREME COURT OF THE STATE OF NEW YORK IN AND FOR THE COUNTY OF NEW YORK OR THE
FEDERAL COURTS FOR SUCH STATE AND COUNTY, AND ALL RELATED APPELLATE COURTS, THE
PARTIES HEREBY IRREVOCABLY CONSENT TO THE JURISDICTION OF SUCH COURTS AND AGREE
TO SAID VENUE.
7.6 In order to discourage frivolous claims, unless a claimant in any
proceeding arising out of this Agreement succeeds in establishing his claim and
recovering a judgment against another party (regardless of whether such claimant
succeeds against one of the other parties to the action), then the other party
shall be entitled to recover from such claimant all of its/their reasonable
legal costs and expenses relating to such proceeding and/or incurred in
preparation therefor.
7.7 The holding of any provision of this Agreement to be invalid or
unenforceable by a court of competent jurisdiction shall not affect any other
provision of this Agreement, which shall remain in full force and effect. If any
provision of this Agreement shall be declared by a court of competent
jurisdiction to be invalid, illegal or incapable of being enforced in whole or
in part, such provision shall be interpreted so as to remain enforceable to the
maximum extent permissible consistent with applicable law and the remaining
conditions and provisions or portions thereof shall nevertheless remain in full
force and effect and enforceable to the extent they are valid, legal and
enforceable, and no provisions shall be deemed dependent upon any other covenant
or provision unless so expressed herein.
7.8 A waiver by either party of a breach of any provision of this
Agreement shall not operate, or be construed, as a waiver of any subsequent
breach by that same party.
7.9 The parties shall execute and deliver all such further documents,
agreements and instruments and shall take such other and further action as may
be necessary or appropriate to carry out the purposes and intent of this
Agreement.
7.10 This Agreement may be executed in two or more counterparts each of
which shall be
26
deemed an original, but all of which shall together constitute one and the same
instrument.
7.11 The Subscriber shall not issue any public statement with respect
to the Subscriber's investment or proposed investment in the Company or the
terms of any agreement or covenant between them and the Company without the
Company's prior written consent, except such disclosures as may be required
under applicable law or under any applicable order, rule or regulation.
(b) The Company shall not disclose the name, address or any
other information about the Subscriber, except as required by law; provided,
that the Company may use the name and the address of the Subscriber in the
Registration Statement.
7.12 Nothing in this Agreement shall create or be deemed to create any
rights in any person or entity not a party to this Agreement, except (a) for the
holders of Registrable Securities and (b) for any Rights Holders to whom
Article VI Rights were transferred pursuant to 6.9.
7.13 The Company acknowledges and agrees that irreparable damage would
occur in the event that any of the provisions of Article V and Article VI of
this Agreement were not performed in accordance with its specific terms or were
otherwise breached and that such damage would not be compensable in money
damages and that it would be extremely difficult or impracticable to measure the
resultant damages. Accordingly, the Subscriber shall be entitled to an
injunction or injunctions with respect to the provisions of this Agreement and
to enforce specifically the terms and provisions hereof, in addition to any
other remedy to which it may be entitled at law or in equity, and the Company
expressly waives any defense that a remedy in damages would be adequate and
expressly waives any requirement in an action for specific performance for the
posting of a bond by the Subscriber bringing such action.
27
IN WITNESS WHEREOF, this Agreement has been executed as of the first
date set forth above.
PROCEPT, INC.
By:
Title:
Name of Subscriber:
By:
Title:
Address:
(1) Number of Shares of BGDC Series A Preferred Stock Being Exchanged:
(2) Number of Shares of Procept Common Stock to be Issued:
((1) x 1.89)
(3) Number of Shares of Procept Common Stock Subject to Class D Warrants:
((1) x 0.63)
28
EXHIBIT 10.2
Schedule of Parties to June 30, 1999 Subscription Agreements
The following individuals and entities are parties to Subscription
Agreements dated as of June 30, 1999 with the Company:
1. Xxxx X. Ain
2. Palmetto Partners, Ltd.
3. Xxxxxxx X. Xxxxxxxx
4. Xxxxxx Xxxxx
5. Osterweis Revocable Trust
6. Prager, Dreifuss & Partners
7. The Keys Foundation
8. Xxxxx X. Xxxxxxxxxx
9. X.X. Xxxx & Co., Inc.
10. Xxxxxx X. & Xxxxxxxx X. Xxxxxx
11. Xxxxx Xxxxxx
12. Aries Domestic Fund, L.P.
13. The Aries Trust
1
