EXHIBIT 1.1
STRUCTURED EQUITY LINE FLEXIBLE FINANCING AGREEMENT
STRUCTURED EQUITY LINE FLEXIBLE FINANCING AGREEMENT dated as of
March 23, 2001 (the "Agreement"), between Cripple Creek Securities, LLC (the
"Investor"), and Cygnus, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Company").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company may elect to issue to the Investor, and
the Investor shall purchase from the Company, from time to time as provided
herein, shares of the Company's common stock, par value $0.001 per share (the
"Common Stock"), for a maximum aggregate Purchase Price of $33,000,000 (the
"Maximum Offering Amount");
NOW, THEREFORE, the parties hereto agree as follows:
I.
CERTAIN DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement (including the
recitals above), the following terms shall have the following meanings specified
or indicated (such meanings to be equally applicable to both the singular and
plural forms of the terms defined):
"ADDITIONAL AMOUNT" shall have the meaning set forth in Section
2.1(b) hereof.
"ADDITIONAL PURCHASE DATE" shall mean any Trading Day on which the
Investor notifies the Company by delivery of an Investor Notice of the
Investor's election to purchase all or a portion of an Additional Amount.
"ADDITIONAL PURCHASE NOTICE" shall have the meaning set forth in
Section 2.3(b) hereof.
"AFFILIATE" shall have the meaning ascribed to it in the Securities
Act and the rules and regulations promulgated thereunder.
"BALANCE SHEET" shall mean the unaudited consolidated balance sheet
of the Company as of September 30, 2000.
"BANKRUPTCY CODE" shall mean title 11 of the United States Code, as
amended.
"BENEFIT PLAN" shall have the meaning set forth in Section 5.12
hereof.
"BLOOMBERG" shall mean Bloomberg Financial Press.
"BLUE SKY LAWS" shall mean the United States and state securities
and takeover laws.
"CALL PURCHASE DATE" shall mean any Trading Day on which the
Investor notifies the Company by delivery of an Investor Notice of the
Investor's election to purchase all or a portion of an Investor Call Amount.
"CANCELLATION NOTICE" shall mean a notice delivered by the Company
in its sole and absolute discretion to the Investor with respect to an
Investment Period notifying the Investor that the Company shall not sell and the
Investor shall not purchase Common Stock represented by the Investor Call Amount
for such Investment Period.
"CAPITAL STOCK" shall mean any and all shares, interests,
participations or other equivalents (however designated) of corporate stock or
any and all equivalent ownership interests in a Person (other than a
corporation).
"CLOSING" shall mean the consummation of each purchase and sale of
Common Stock pursuant to Section 2.4 hereof.
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"CLOSING DATE" shall mean, with respect to each purchase and sale
of Common Stock, subject to the conditions contained herein, the second Trading
Day following the date of receipt of the Investor's Notice to the Company of its
election to purchase Common Stock from the Company.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMITMENT PERIOD" shall mean the period commencing on the date
that the first Investment Period begins and expiring on the earliest to occur of
(a) the election by the Company or the Investor to terminate the Investor's
obligations and rights to purchase Common Stock pursuant to Section 10.4 herein,
(b) the date on which the Investor shall have made purchases of Common Stock
pursuant to this Agreement in an aggregate Purchase Price of $33,000,000, (c)
the date this Agreement is terminated pursuant to Section 2.5(b), and (d) June
30, 2003 (subject to extension as provided by Section 2.5(a)(iii)).
"COMMON STOCK" shall have the meaning set forth in the recitals
above.
"COMPANY ASSETS" shall have the meaning set forth in Section 5.16
hereof.
"COMPENSATION PLANS" shall mean any stock or option or similar
equity-based compensation plans, including employee stock purchase plans.
"CONDITION SATISFACTION DATE" shall have the meaning set forth in
Section 3.2 hereof.
"EFFECTIVE DATE" shall mean the date hereof, or such later date as
the parties hereto shall have agreed.
"8% LIMIT" shall have the meaning specified in Section 2.2(b)
hereof.
"ENVIRONMENTAL LAWS" shall mean all federal, state and local laws
and regulations relating to pollution or the environment (including, without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata), including, without limitation, laws and regulations relating to
emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern.
"EQUITY OFFERING" shall mean the issuance and sale by the Company,
of any shares of Common Stock or securities which are convertible into or
exchangeable for the Common Stock or any warrants, options or other rights to
subscribe for or purchase the Common Stock or any such convertible or
exchangeable securities other than (i) shares of Common Stock or options to
purchase Common Stock which may be issued pursuant to the Compensation Plans or
upon conversion or exercise of any securities outstanding on the date hereof,
(ii) shares of Common Stock which may be issued upon exercise of the Warrants or
warrants or options or Common Stock issued upon exercise of warrants or options
issued after the date hereof with an exercise price approximately equal to the
fair market value of the Common Stock on the date of grant (provided that the
exception set forth in this clause (ii) shall not apply to warrants or options
issued after the date hereof in an aggregate amount exceeding twenty-five
percent (25%) of the Company's issued and outstanding Common Stock as of the
date hereof), and (iii) shares of Common Stock or securities which are
convertible into or exchangeable for Common Stock or any warrants, options or
other rights to subscribe for or purchase Common Stock or any such convertible
or exchangeable securities, in each case which are issued pursuant to this
Agreement, pursuant to the Convertible Debenture and Warrant Purchase Agreement,
dated as of June 29, 1999, in strategic partnering transactions that do not
result in any acquisition or other change in control of the Company, or in
connection with any merger or other acquisition transaction.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"FLOOR PRICE" shall be the dollar amount designated by the Company
in a Mandatory Purchase Notice; provided that, in the case of a sixty (60) day
Investment Period, the Company may reset the Floor Price on the thirtieth (30th)
day of such Investment Period upon at least ten (10) days prior written notice
to the Investor, and, in the case of a ninety (90) day Investment Period, the
Company may reset the Floor Price on the thirtieth (30th) and/or
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the sixtieth (60th) day(s) of such Investment Period, each upon at least ten
(10) days prior written notice to the Investor. In the event a Mandatory
Purchase Notice is not timely delivered with respect to a certain Investment
Period, the Floor Price as set at the end of the preceding Investment Period
will continue to be the Floor Price.
"FOOD AND DRUG ACT" shall mean the Federal Food, Drug and Cosmetic
Act, 21 U.S.C. Sections 301 ET seq. and the rules and regulations promulgated
thereunder.
"GAAP" shall have the meaning set forth in Section 5.9(a).
"GOVERNMENTAL ENTITY" shall mean any federal, state, local or
foreign legislative body, court, government, department or instrumentality, or
governmental, administrative or regulatory authority or agency.
"INVESTMENT AMOUNT" shall mean the dollar amount paid by the
Investor pursuant to any Mandatory Purchase, Additional Amount or Investor Call
Amount.
"INVESTMENT PERIOD" shall mean each successive thirty (30), sixty
(60) or ninety (90) day period, as mutually agreed upon in writing by the
parties prior to the beginning of each such Investment Period, commencing on the
first Trading Day subsequent to the expiration of the immediately preceding
Investment Period, unless otherwise agreed upon by the parties.
"INVESTOR CALL AMOUNT" shall have the meaning set forth in Section
2.1(c) hereof.
"INVESTOR CALL PURCHASE NOTICE" shall have the meaning set forth in
Section 2.3(c) hereof.
"INVESTOR NOTICE" shall have the meaning set forth in Section
2.3(d)(ii) hereof.
"KNOWLEDGE OF THE COMPANY" shall mean the actual knowledge, without
independent inquiry, of any of the executive officers of the Company.
"KNOWLEDGE OF THE INVESTOR" shall mean the actual knowledge,
without independent inquiry, of any of the executive officers of the Investor.
"LIENS" shall have the meaning set forth in Section 5.16 hereof.
"MANDATORY PURCHASE" shall have the meaning set forth in Section
2.1(a) hereof.
"MANDATORY PURCHASE DATE" shall mean any Trading Day during any
Investment Period on which the Investor notifies the Company by delivery of an
Investor Notice of its election to purchase all or a portion of the Minimum
Obligation (subject to the limitations set forth in Section 2.1(a)) in respect
of such Investment Period.
"MANDATORY PURCHASE NOTICE" shall have the meaning set forth in
Section 2.3(a) hereof.
"MATERIAL ADVERSE EFFECT" shall mean (i) any adverse effect on the
business, operations, properties, or financial condition of the entity with
respect to which such term is used and its subsidiaries, or other entities
controlled by such entity, taken as a whole, and which is material to such
entity and its subsidiaries or other entities controlled by such entity, taken
as a whole, and (ii) any condition or situation, whether or not a material
adverse effect, which would reasonably be expected to prohibit or otherwise
materially interfere with or prevent such entity from entering into or
performing its obligations under, or from consummating the transactions
contemplated by, this Agreement, the Registration Rights Agreement or the
Warrants or any other agreement or document contemplated hereby or thereby.
"MATERIALS OF ENVIRONMENTAL CONCERN" shall mean hazardous
substances as defined under the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss. 9601 ET SEQ. and hazardous wastes
as defined under the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901,
ET SEQ. and petroleum and
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petroleum products and such other chemicals, materials or substances as are
listed as "hazardous wastes", "hazardous materials", "toxic substances", or
words of similar import under any similar federal, state and local laws.
"MAXIMUM OFFERING AMOUNT" shall have the meaning set forth in the
recitals above.
"MINIMUM OBLIGATION" shall have the meaning set forth in Section
2.1(a) hereof.
"NASD" shall mean the National Association of Securities Dealers,
Inc.
"NASDAQ" shall mean the National Association of Securities Dealers
Automated Quotation system.
"9.9% LIMIT" shall have the meaning specified in Section 2.2(c)
hereof.
"PERSON" shall mean an individual, partnership, corporation,
limited liability company, trust or unincorporated organization, or a government
or agency or subdivision thereof.
"PRINCIPAL MARKET" shall mean the New York Stock Exchange, the
American Stock Exchange, or NASDAQ National Market, whichever is at the time the
principal trading exchange or market for the Common Stock (or any similar
organization or agency succeeding such market or exchange's functions of
reporting prices).
"PROSPECTUS" shall mean the prospectus included in the Registration
Statement, as amended or supplemented by any prospectus supplement, including
post-effective amendments, and all material incorporated by reference in such
prospectus.
"PURCHASE PRICE" shall have the meaning set forth in Section 2.4(b)
hereof.
"REGISTRATION RIGHTS AGREEMENT" shall have the meaning set forth in
Section 2.6(c) hereof.
"REGISTRATION STATEMENT" shall have the meaning set forth in
Section 3.2(a).
"SEC" shall mean the Securities and Exchange Commission.
"SEC DOCUMENTS" shall have the meaning set forth in Section 5.9
hereof.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder.
"SECURITIES EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended, together with the rules and regulations promulgated
thereunder.
"STOCK PRICE" on a given Trading Day shall mean the volume-weighted
average price for the Common Stock on the Principal Market during such Trading
Day, calculated utilizing Bloomberg's volume-average pricing function.
"SUBSIDIARY" shall mean, with respect to any Person, any
corporation, limited or general partnership, trust, association or other
business entity of which 50% or more of the outstanding Capital Stock or other
interests entitled to vote in the election of the board of directors of such
corporation (irrespective of whether, at the time, Capital Stock of any other
class or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency), managers, trustees or other
controlling persons, or an equivalent controlling interest therein, of such
Person is, at the time, directly or indirectly, owned by such Person and/or one
or more Subsidiaries of such Person.
"TAX RETURN" shall mean any report, return, information statement
or other information required to be supplied to any federal, state, local or
foreign taxing authority, or any election permitted to be made, in connection
with Taxes.
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"TAXES" shall mean all taxes, charges, fees, levies, duties or
other assessments, including without limitation all net income, gross income,
gross receipts, franchise, value added, sales, use, property, ad valorem,
transfer, withholding, profits, license, employee, payroll, social security,
unemployment, excise, estimated, severance and any other taxes, duties,
withholdings, fees, assessments or charges of any kind whatsoever, including any
interest, penalties or additions to taxes, imposed by any federal, state, local
or foreign taxing authority.
"TRADING DAY" shall mean a day on which the Common Stock is traded
on the Principal Market.
"VALUE OF OPEN MARKET TRADING" shall mean, with respect to any
Trading Day, the product of the reported trading volume of the Common Stock on
the Principal Market, multiplied by the weighted average trading price (by
trading volume) of the Common Stock on such day (each as determined by
Bloomberg, or any other reputable pricing service chosen by the Investor and
reasonably acceptable to the Company that reports trading on substantially the
same basis as NASDAQ National Market as of the date hereof); PROVIDED, HOWEVER,
that in the event that the Company consummates a registered public offering of
Common Stock (whether primary or secondary), the Trading Day on which such
transaction is consummated shall be excluded from any calculation under this
Agreement based upon the Value of Open Market Trading; PROVIDED FURTHER, that
any block trades of 20,000 shares or more of Common Stock, other than block
trades caused by or involving the Investor, shall not be included in the
calculation when determining reported trading volume and weighted average
trading price.
"WARRANT" shall have the meaning set forth in Section 2.6(a)
hereof.
"WARRANT EXERCISE PRICE" shall have the meaning set forth in
Section 2.6(a) hereof.
"WARRANT REGISTRATION STATEMENT" shall have the meaning set forth
in Section 3.2(a) hereof.
"WARRANTS" shall have the meaning set forth in Section 2.6(a)
hereof.
"WARRANT SHARE AMOUNT" shall have the meaning set forth in Section
2.6(a) hereof.
"WARRANT SHARES" shall have the meaning set forth in Section 2.6(c)
hereof.
II.
PURCHASE AND SALE OF COMMON STOCK
SECTION 2.1. INVESTMENTS. Subject to the terms and conditions set
forth herein (including, without limitation, the provisions of Article III
hereof), during the Commitment Period:
(a) MANDATORY MONTHLY PURCHASES AT COMPANY'S ELECTION. If the
Company, in its sole discretion, elects to deliver a Mandatory Purchase Notice
with respect to any Investment Period in accordance with Section 2.3(a), then
upon the Company's delivery of such Mandatory Purchase Notice, the Investor
shall be obligated in such Investment Period to purchase ("Mandatory Purchase")
from the Company shares of Common Stock during such Investment Period for an
aggregate Purchase Price to be specified by the Company in the Mandatory
Purchase Notice, but not to exceed $1,000,000 if the applicable Investment
Period is at least thirty (30) days, $2,000,000 if the applicable Investment
Period is at least sixty (60) days or $3,000,000 if the applicable Investment
Period is ninety (90) days, in each case, subject to the adjustments and
limitations imposed by this Agreement (the "Minimum Obligation"). Upon receipt
of a Mandatory Purchase Notice, subject to the terms and conditions contained
herein, the Investor shall be obligated to purchase on one or more Closing Dates
in respect of each such Mandatory Purchase Date or Mandatory Purchase Dates as
the Investor elects during the Investment Period, shares of Common Stock for an
aggregate Purchase Price equal to the Minimum Obligation.
(b) ADDITIONAL AMOUNTS AT THE COMPANY'S ELECTION. For any
Investment Period during which the Company elects to obligate the Investor to
make a Mandatory Purchase, the Company may deliver to the Investor an
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Additional Purchase Notice with respect to the same Investment Period in
accordance with Section 2.3(b). Upon any such delivery of an Additional
Purchase Notice with respect to an Investment Period, the Investor shall be
obligated to purchase shares of Common Stock from the Company (in addition to
the Minimum Obligation) during such Investment Period for an aggregate
Purchase Price to be specified by the Company in the Additional Purchase
Notice, but not to exceed $3,000,000 if the applicable Investment Period is
at least thirty (30) days, $6,000,000 if the applicable Investment Period is
at least sixty (60) days or $9,000,000 if the applicable Investment Period is
ninety (90) days, in each case (which individual purchases shall be at least
$50,000 and multiples of $50,000 in excess thereof), subject to the
adjustments and limitations imposed by this Agreement (the "Additional
Amount"). Upon receipt of such Additional Purchase Notice, the Investor shall
be obligated to purchase on each Closing Date in respect of each such
Additional Purchase Date or Additional Purchase Dates as the Investor elects
during the Investment Period to which such Additional Purchase Notice
relates, shares of Common Stock for an aggregate Purchase Price equal to the
Additional Amount.
(c) INVESTOR CALL. For any Investment Period with respect to which
the Company has timely delivered a Mandatory Purchase Notice, the Investor may
deliver to the Company an Investor Call Purchase Notice or Notices during such
Investment Period, subject to the Company's right to limit or cancel the
Investor Call Amount pursuant to Section 2.3(a)(ii) and Section 2.3(a)(iii).
Upon delivery of such an Investor Call Purchase Notice, the Company shall be
obligated to sell shares of Common Stock to the Investor (in addition to the
Minimum Obligation and the Additional Amount, if any) during the corresponding
Investment Period for an aggregate Purchase Price to be specified by the
Investor in the Investor Call Purchase Notice, but not to exceed an aggregate of
$3,000,000 if the applicable Investment Period is at least thirty (30) days,
$6,000,000 if the applicable Investment Period is at least sixty (60) days or
$9,000,000 if the applicable Investment Period is ninety (90) days, in each case
(which individual purchases shall be at least $50,000 and multiples of $50,000
in excess thereof), subject to adjustments and limitations imposed by this
Agreement (the "Investor Call Amount"). Upon delivery of such Investor Call
Purchase Notice, the Investor shall be obligated to purchase on each Closing
Date in respect of each such Call Purchase Date or Call Purchase Dates as the
Investor elects during the Investment Period to which such Investor Call
Purchase Notice relates, shares of Common Stock for an aggregate Purchase Price
equal to the Investor Call Amount.
(d) PURCHASE OF LESS THAN OR MORE THAN MINIMUM OBLIGATION,
ADDITIONAL AMOUNT AND INVESTOR CALL AMOUNT. Upon delivery of a Mandatory
Purchase Notice (and, if the Company elects, an Additional Purchase Notice and,
if the Investor elects, an Investor Call Purchase Notice), the Investor may
purchase an amount of Common Stock in any Investment Period equal to up to five
percent (5%) more than, or less than, the aggregate dollar amount of the Minimum
Obligation and/or the Additional Amount and/or the Investor Call Amount with
respect to such Investment Period, and any such purchases shall be treated for
purposes of this Agreement as satisfying the Investor's obligations with respect
to the Minimum Obligation and/or the Additional Amount and/or the Investor Call
Amount, respectively.
SECTION 2.2. LIMITATIONS ON INVESTMENT AMOUNT.
(a) OVERALL MAXIMUM. In no event shall the aggregate dollar amount
of the purchases made by the Investor pursuant to Section 2.1 exceed the Maximum
Offering Amount.
(b) INVESTMENT PERIOD LIMITS. Notwithstanding the obligations and
rights of the Investor to purchase shares of Common Stock pursuant to Section
2.1 (a), (b) and (c), the aggregate Investment Amount for any Investment Period
(whether pursuant to a Minimum Obligation, an Additional Purchase Notice or an
Investor Call Purchase Notice or any combination thereof) shall not at the
option of the Investor exceed the lesser of (x) the Minimum Obligation plus the
amount set forth in any Additional Purchase Notice and Investor Call Purchase
Notice with respect to such Investment Period, if any, (y) an amount equal to 8%
of the aggregate Value of Open Market Trading of the Common Stock on the
Principal Market for each Trading Day during the Investment Period immediately
preceding such Investment Period on which the Stock Price was above the Floor
Price for such preceding Investment Period (rounded up to the next increment of
$10,000), or (z) an amount equal to 8% of the aggregate Value of Open Market
Trading of the Common Stock on the Principal Market for each Trading Day during
such Investment Period on which the Stock Price is above the Floor Price
(rounded up to the next increment of $10,000) (the lower of the amounts referred
to in clauses (y) and (z), the "8% Limit"); PROVIDED, HOWEVER, that the Investor
may waive, in whole or in part, the 8% Limit in any Investment Period.
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(c) 9.9% LIMIT.
(i) Notwithstanding anything to the contrary contained
herein, the number of shares of Common Stock that may be acquired by the
Investor at any time pursuant to this Agreement shall not exceed a number that,
when added to the total number of shares of Common Stock deemed beneficially
owned by the Investor at such time (other than by virtue of the ownership by the
Investor of securities or rights to acquire securities that have limitations on
the Investor's right to convert, exercise or purchase similar to the limitation
set forth herein (including the Warrants and the warrants issued in connection
with the Structured Equity Line Flexible Financing Agreement dated June 30,
1999)), together with all shares of Common Stock deemed beneficially owned
(other than by virtue of the ownership of securities or rights to acquire
securities that have limitations on the right to convert, exercise or purchase
similar to the limitation set forth herein) by the Investor's "affiliates" (as
defined in Rule 144 of the Securities Act ) ("Aggregation Parties"), that would
be aggregated for purposes of determining whether a group under Section 13(d) of
the Exchange Act exists, would exceed 9.9% of the total issued and outstanding
shares of the Common Stock (the "9.9% Limit").
(ii) The Investor covenants at all times on each day (each
such day being referred to as a "Covenant Day") as follows: During the balance
of such Covenant Day and the succeeding sixty-one (61) days (the balance of such
Covenant Day and the succeeding 61 days being referred to as the "Covenant
Period") the Investor will not acquire shares of Common Stock pursuant to any
right (including exercise of the Warrants) existing at the commencement of the
Covenant Period to the extent the number of shares so acquired by the Investor
and its Aggregation Parties (ignoring all dispositions) would exceed: (A) the
9.9% Limit as determined at the beginning of the Covenant Period, minus (B) the
number of shares of Common Stock actually owned by the Investor and its
Aggregation Parties at the commencement of the Covenant Period. A new and
independent covenant will be deemed to be given by the Investor as of each
moment of each Covenant Day. No covenant will terminate, diminish or modify any
other covenant. The Investor agrees to comply with each such covenant. This
Section 2.2(c) controls in the case of any conflict with any other provision of
this Agreement or any agreement entered into in connection herewith.
(iii) The Investor shall notify the Company when it becomes
aware that it may not be permitted to purchase shares of Common Stock as a
result of the provisions of this Section 2.2(c). The Company shall have no
obligation to issue shares of Common Stock to the Investor and the Investor
shall have no obligation to purchase shares from the Company that may not be
acquired by the Investor by reason of the provisions of this Section 2.2(c). The
Investor shall have no liability for any failure to purchase shares from the
Company that are not permitted to be acquired by the Investor pursuant to this
Section 2.2(c). In the event of a notice issued pursuant to this Section
2.2(c)(iii), the Investor shall, as soon as it is commercially reasonable to do
so, dispose of a number of shares of Common Stock that the Investor has acquired
(other than shares acquired pursuant to this Agreement or the Warrants), as is
necessary to permit the Company to issue, as soon as reasonably practicable,
Common Stock as required by the terms of this Agreement, other than the
limitations contained in this Section 2.2(c).
(iv) Nothing contained in this Section 2.2(c) shall affect
or relieve in any way the Company's obligation to deliver shares previously
purchased by the Investor pursuant to this Agreement as to which there has not
been a Closing.
SECTION 2.3. MECHANICS OF NOTIFICATION
(a) MANDATORY PURCHASE NOTICE.
(i) On or before the third (3rd) Trading Day preceding
the commencement of an Investment Period, unless otherwise agreed by the parties
to this Agreement, the Chief Financial Officer of the Company (or such other
person as designated in writing) may, at the Company's sole discretion, deliver
a written notice to the Investor (each such notice being a "Mandatory Purchase
Notice") which states that the Investor shall be obligated to purchase the
Minimum Obligation during such Investment Period subject to the terms and
conditions contained herein and sets the Floor Price for such Investment Period.
Each Mandatory Purchase Notice shall be irrevocable.
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(ii) COMPANY CANCELLATION OR LIMITATION OF MINIMUM
OBLIGATION OR INVESTOR CALL. In the event the Company intends not to obligate
the Investor to purchase Common Stock represented by the Minimum Obligation
during an Investment Period or in the event the Company intends to cancel or
limit the amount of the Investor Call Amount, on or before the third (3rd)
Trading Day preceding the commencement of such Investment Period, the Company
shall deliver a Cancellation Notice to the Investor. The delivery of such
Cancellation Notice shall cancel or limit the amount of the Investor Call Amount
to the extent set forth in such Cancellation Notice. Such Cancellation Notice
shall be irrevocable.
(iii) EFFECT OF INACTION BY THE COMPANY. In the event that
the Company fails to deliver a Mandatory Purchase Notice for an Investment
Period, then the Investor shall have no rights or obligations to purchase any
Common Stock, including, but not limited to, any Common Stock with respect to an
Investor Call Amount for such Investment Period. In the event the Company
delivers a Mandatory Purchase Notice for an Investment Period but fails to
deliver a Cancellation Notice for such Investment Period, then the Investor
shall have the right to deliver an Investor Call Purchase Notice as set forth in
Section 2.1(d); PROVIDED, HOWEVER, that if the Company has also delivered a
Cancellation Notice for such period, then the Investor shall have no right to
deliver any such Investor Call Purchase Notice for such Investment Period.
(b) ADDITIONAL PURCHASE NOTICES. If the Company has delivered a
Mandatory Purchase Notice relating to an Investment Period, the Chief Financial
Officer (or such other person as designated in writing) of the Company may, in
the Company's sole discretion, deliver an Additional Purchase Notice to the
Investor on or before the third (3rd) Trading Day preceding the commencement of
the Investment Period (each such notice being an "Additional Purchase Notice"),
stating the Additional Amount which the Investor shall be required to purchase
during such Investment Period (in addition to the amount representing the
Minimum Obligation). Each Additional Purchase Notice shall be irrevocable. An
Additional Purchase Notice may not be delivered if the Company has not delivered
a Mandatory Purchase Notice with respect to the same Investment Period.
(c) INVESTOR CALL PURCHASE NOTICES. Unless the Company has
delivered a Cancellation Notice for an Investment Period, the Investor may, in
the Investor's sole discretion, deliver an Investor Call Purchase Notice to the
Company from time to time during the Investment Period (each such notice being
an "Investor Call Purchase Notice"), stating the Investor Call Amount which the
Investor shall purchase on such day. Each Investor Call shall be irrevocable. An
Investor Call Purchase Notice may not be delivered if the Company has delivered
a Cancellation Notice with respect to the same Investment Period.
(d) DATE OF DELIVERY OF NOTICES.
(i) NOTICES TO THE INVESTOR. A Mandatory Purchase Notice,
an Additional Purchase Notice and a Cancellation Notice (each, a "Company
Notice") and any other notice sent by the Company to the Investor shall be
deemed to be delivered on the Trading Day it is received by facsimile or
otherwise received in writing via courier, hand delivery or first-class mail
(return receipt requested) by the Investor if such notice is received prior to
5:00 P.M. New York time, or it shall be deemed to be delivered on the
immediately succeeding Trading Day if it is received by facsimile or otherwise
after 5:00 P.M. New York time or on any day which is not a Trading Day (in which
case the provisions of Section 2.2(c) and the conditions to the Closing must be
satisfied as of such immediately succeeding Trading Day).
(ii) NOTICES TO THE COMPANY. Any notice sent by the
Investor to the Company, including but not limited to an Investor Call Purchase
Notice, notifying the Company of the Investor's election to purchase Common
Stock (each an "Investor Notice") and any other notice sent by the Investor to
the Company shall be deemed to be delivered on the Trading Day it is received by
facsimile or otherwise received in writing via courier, hand delivery or
first-class mail (return receipt requested) by the Company if such notice is
received prior to 5:00 P.M. California time, or it shall be deemed to be
delivered on the immediately succeeding Trading Day if it is received by
facsimile or otherwise after 5:00 P.M. California time or on any day which is
not a Trading Day (in which case the provisions of Section 2.2(c) and the
conditions to the Closing must be satisfied as of such immediately succeeding
Trading Day).
9
SECTION 2.4. CLOSINGS
(a) CERTIFICATES AGAINST PAYMENT. On each Closing Date (i) the
Company shall deliver to the Investor one or more certificates representing the
number of shares of Common Stock to be purchased on such Closing Date by the
Investor pursuant to Section 2.1 registered in the name of the Investor or, at
the Investor's option, deposit such certificate(s) into such account or accounts
previously designated by the Investor and (ii) the Investor shall deliver to the
Company the amount determined pursuant to Section 2.4(c). In addition, on or
prior to each Closing Date, each of the Company and the Investor shall deliver
all documents, instruments and writings required to be delivered or reasonably
requested by either of them pursuant to this Agreement.
(b) PURCHASE PRICE PER SHARE. (i) The purchase price per share of
the Company's Common Stock (the "Purchase Price") shall be the average of the
two (2) lowest Stock Prices during the six (6) Trading Days prior to but
excluding a Mandatory Purchase Date, an Additional Purchase Date or a Call
Purchase Date, as the case may be (the "Purchase Price Period"); PROVIDED,
HOWEVER, that any trading price below the Floor Price during such six (6)
Trading Days shall be deemed to be equal to the Floor Price for purposes of
determining the Purchase Price. If the Company, at any time during a Purchase
Price Period, subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) its shares of Common Stock into a
greater number of shares, then, as of the beginning of the Purchase Price
Period, the Stock Price in effect prior to such subdivision shall be
proportionately reduced. If the Company, at any time during a Purchase Price
Period, combines (by reverse stock split, recapitalization, reorganization,
reclassification or otherwise) its shares of Common Stock into a smaller number
of shares, then as of the beginning of the Purchase Price Period, the Stock
Price in effect prior to such combination shall be proportionately increased.
(c) PAYMENT FOR THE COMMON STOCK. On each Closing Date, the
Investor shall pay to the Company the Investment Amount (less any amounts
withheld pursuant to Section 11.2) by federal funds wire transfer or transfer of
New York Clearing House funds, and the Investor shall receive from the Company
the number of shares of Common Stock determined by dividing the Investment
Amount by the applicable Purchase Price (rounded to the nearest whole number of
shares). Such Investment Amount, as so adjusted, shall be paid into such
account(s) designated by the Company prior to the relevant Closing Date.
SECTION 2.5. TERMINATION, SUSPENSION AND MODIFICATION OF
INVESTMENT OBLIGATION
(a) (i) BLOCKING EVENTS. The Investor shall not have any
obligation to purchase any shares of Common Stock from the Company on any
Closing Date, nor shall a Mandatory Purchase Notice, an Additional Purchase
Notice or an Investor Call Purchase Notice be delivered at any time during the
Commitment Period when there shall exist any one or more of the following: (A)
the withdrawal of the effectiveness of the Registration Statement, (B) the
Company's failure to satisfy in all material respects the requirements of
Section 3.2 or 3.3, or (C) any failure or interruption in the compliance in all
material respects by the Company with the covenants provided in Article VI.
(ii) REDUCTION OR ELIMINATION OF INVESTOR OBLIGATION TO
PURCHASE In the event that one or more of the events listed in Section
2.5(a)(i)(A) through (C) above occur during the Investment Period, the
obligation of the Investor to purchase shares of Common Stock (either pursuant
to a Minimum Obligation, an Additional Purchase Notice or an Investor Call
Purchase Notice) during such Investment Period shall, unless waived in writing
by the Investor, be canceled for the remainder of the Investment Period.
(iii) SUSPENSION OF INVESTOR OBLIGATION TO PURCHASE. Any
time during an Investment Period, the Company may provide to the Investor
written notice that the Investor's purchase obligation pursuant to any Mandatory
Purchase Notice or any Additional Purchase Notice will be suspended. Such
written notice shall be delivered by the Company to the Investor one (1) Trading
Day prior to the effective time of such suspension. Upon such suspension, the
Investor shall not have any right to purchase any shares of Common Stock from
the Company (including pursuant to an Investor Call Purchase Notice) during any
such suspension; PROVIDED, that in the event the Company provides the Investor
with written notice of such suspension, the Investment Period shall be extended
for the same number of Trading Days as such suspension lasts and the period for
determination of the Purchase Price
10
with respect to any Investor Notice delivered during the extended period, as
determined pursuant to Section 2.4(b) may, at the Investor's option, include
Trading Days during the period of suspension.
(b) ADDITIONAL EVENTS OF TERMINATION OF INVESTOR OBLIGATION. The
obligations and rights of the Investor to purchase shares of Common Stock under
this Agreement may, if the Investor in its sole and absolute discretion so
elects, be terminated (including with respect to a Closing Date which has not
yet occurred) in the event that (i) there shall occur any stop order or
suspension of the effectiveness of the Registration Statement or Warrant
Registration Statement, or any withdrawal of the effectiveness of the
Registration Statement or Warrant Registration Statement for a period greater
than fifteen (15) Trading Days in any twelve (12) month period (except in the
case of an event described in Sections 2(a)(i)(A), 2(a)(i)(B) or 2(a)(i)(C) of
the Registration Rights Agreement, in which case such time periods shall be
extended to twenty (20) consecutive Trading Days and forty (40) Trading Days in
any 12 month period, respectively); or (ii) the Company shall at any time fail
materially to comply with the requirements of Sections 6.2, 6.3, 6.4, or 6.6 and
the Company shall fail to cure such noncompliance within (A) ten (10) Trading
Days after receipt of notice from the Investor of its election to terminate this
Agreement, provided that the Investor has been notified by the Company of such
noncompliance within two (2) Trading Days of the occurrence of such
noncompliance or, if the noncompliance relates to a failure of the Company to
comply with the provisions of Section 6.6, the Investor otherwise becomes aware
of such noncompliance or (B) otherwise within five (5) Trading Days of the
occurrence of such noncompliance; PROVIDED, HOWEVER, that notwithstanding the
foregoing, the Investor may, in its sole and absolute discretion, terminate this
Agreement if the Company shall fail to maintain the listing of the Common Stock
on a Principal Market, or if trading of the Common Stock on a Principal Market
shall have been suspended for a period of ten (10) consecutive Trading Days.
SECTION 2.6. WARRANTS
(a) WARRANTS.
(i) Upon each and every purchase by the Investor of
Common Stock, whether pursuant to the delivery of Mandatory Purchase Notices
alone or through a combination of Mandatory Purchase Notices, Additional
Purchase Notices and Investor Call Purchase Notices (each, a "Purchase"), the
Investor shall receive the right to purchase Common Stock pursuant to a warrant
issued by the Company to the Investor five (5) business days following the end
of each calendar year (each, a "Warrant" and collectively, the "Warrants")
during the Commitment Period for a number of shares equal to the Warrant Share
Amount (as defined in Section 2.6(a)(iii) below) for such calendar year. Each of
the Warrants, if any, shall be substantially in the form of EXHIBIT A hereto.
(ii) If the weighted average of the Purchase Prices at
which shares of Common Stock were purchased at the Closings of all Purchases by
the Investor during the prior calendar year is $10.00 or greater than $10.00,
then each Warrant shall entitle the holder thereof to purchase Common Stock from
time to time within five (5) years from the date each Warrant is issued at an
exercise price per share equal to 120% of the weighted average of the Purchase
Prices at which shares of Common Stock were purchased at the Closings of all
Purchases by the Investor during such calendar year (the "Warrant Exercise
Price").
(iii) "Warrant Share Amount" shall mean, for any given
calendar year, a number of shares equal to 10% of the amount of shares purchased
by the Investor in such calendar year.
(iv) Each Warrant shall provide that it shall not be
exercisable on any date to the extent that such exercise would limit the ability
of the Investor to purchase shares of Common Stock as a result of a Minimum
Obligation, an Additional Purchase Notice or an Investor Call Purchase Notice
such that its holding would exceed the 9.9% Limit.
(v) If the weighted average of the Purchase Prices at
which shares of Common Stock were purchased at the Closings of all Purchases by
the Investor during the prior calendar year is $10.00 or greater than $10.00,
then prior to the issuance of the Warrant described in Section 2.6(a)(i), the
Investor may inform the Company that it is electing to receive, in lieu of the
Warrant described in Section 2.6(a)(ii), a series of Warrants equal to the
number of Investment Periods occurring in the prior calendar year. Each such
Warrant will have the same terms as described in Section 2.6(a)(ii) and (iii),
except that the "Warrant Share Amount" shall equal a number
11
of shares equal to 10% of the number of shares purchased in each Investment
Period, and the exercise price per share shall be equal to 120% of the
weighted average of the Purchase Price at which shares of Common Stock were
purchased at the Closings of all Purchases by the Investor in each
corresponding Investment Period.
(vi) If the weighted average of the Purchase Prices at
which shares of Common Stock were purchased at the Closings of all Purchases by
the Investor during the prior calendar year is less than $10.00, then (A) the
Company may, at its election, choose to issue either a series of Warrants as
provided in Section 2.6(a)(v), or only one Warrant as provided in Section
2.6(a)(i); and (B) the Warrant Exercise Price for the Warrant or Warrants (I) if
issued pursuant to Section 2.6(a)(i), shall be the weighted average of the
following: (w) 150% of the weighted average of those Purchase Prices that were
below $10.00 per share at Closings of Purchases of Common Stock during the prior
calendar year; and (x) 120% of the weighted average of those Purchase Prices
that were $10.00 or higher per share at Closings of Purchases of Common Stock
during the prior calendar year, or (II) if issued pursuant to Section 2.6(a)(v),
shall be, for each Warrant issued in the series, the weighted average of the
following: (y) 150% of the weighted average of those Purchase Prices that were
below $10.00 per share at Closings of Purchases of Common Stock during the
applicable Investment Period; and (z) 120% of the weighted average of those
Purchase Prices that were $10.00 or higher per share at Closings of Purchases of
Common Stock during the applicable Investment Period.
(b) Pursuant to the Structured Equity Line Flexible Financing
Agreement by and between the Company and the Investor dated as of June 30, 1999
(the "1999 Agreement"), the Company agrees to issue to the Investor warrants,
substantially in the form of EXHIBIT A hereto, such that (i) there shall be a
separate warrant issued to the Investor for each Closing (as defined in the 1999
Agreement) that occurred in the calendar year 2000 and the calendar year 2001
prior to the date hereof; (ii) the number of shares of Common Stock covered by
each such warrant shall be equal to a number that is one percent (1%) of the
aggregate Purchase Price (as defined in the 1999 Agreement) paid at each such
Closing by the Investor; (iii) the Warrant Exercise Price (as defined in the
1999 Agreement) shall be equal to 120% of the Purchase Price per share of Common
Stock purchased at such Closing; and (iv) the warrants issued in respect of
Closings that occurred in calendar year 2000 shall be issued as promptly as
practicable, and the warrants issued in respect of the calendar year 2001 shall
be issued as promptly as practicable following January 1, 2002.
(c) REGISTRATION RIGHTS FOR WARRANT SHARES. The resale by the
Investor of Common Stock issuable upon exercise of the Warrants (the "Warrant
Shares") shall be subject to a registration rights agreement (the "Registration
Rights Agreement") entered into between the Company and the Investor dated June
30, 1999; provided, however, that the parties agree that such agreement shall be
amended as follows: (1) the term "Warrant" shall additionally refer to the
warrants described in Section 2.6(b) of this Agreement and all warrants that may
be issued to the Investor pursuant to Section 2.6(a) of this Agreement, and (2)
references in the first whereas clause of the Registration Rights Agreement to
the Structured Equity Line Flexible Financing Agreement dated as of June 30,
1999 shall be read to include this Agreement.
III.
CONDITIONS TO DELIVERY OF MANDATORY
PURCHASE NOTICES, ADDITIONAL PURCHASE NOTICES AND CONDITIONS TO CLOSING
3.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO ISSUE
AND SELL COMMON STOCK. The obligation hereunder of the Company to issue and sell
Common Stock to the Investor incident to each Closing is subject to the
satisfaction, at or before each such Closing, of each of the conditions set
forth below, which conditions cannot be waived without the prior written consent
of the Company.
(a) ACCURACY OF THE INVESTOR'S REPRESENTATION AND
WARRANTIES. The representations and warranties of the Investor set forth in this
Agreement shall be true and correct in all material respects as of the date of
each such Closing as though made at each such time.
12
(b) PERFORMANCE BY THE INVESTOR. The Investor shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Investor at or prior to such Closing.
(c) NO INJUNCTION. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which, in the reasonable opinion of the Company and its legal
counsel, prohibits or adversely affects any of the transactions contemplated by
this Agreement, and no proceeding shall have been commenced which may have the
effect of prohibiting or adversely affecting any of the transactions
contemplated by this Agreement.
3.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE INVESTOR TO
PURCHASE PURSUANT TO THE MINIMUM OBLIGATION OR AN ADDITIONAL PURCHASE NOTICE.
The obligation of the Investor to purchase pursuant to the Minimum Obligation or
the Additional Obligation and the right of the Company to deliver a Mandatory
Purchase Notice or an Additional Purchase Notice and the obligation of the
Investor hereunder to acquire and pay for Common Stock incident to a Closing is
subject to the satisfaction, on the third (3rd) day preceding an Investment
Period for which the Company has delivered a Mandatory Purchase Notice, and on
the applicable Closing Date (each a "Condition Satisfaction Date") of each of
the following conditions, which conditions cannot be waived without the prior
written consent of the Company and the Investor.
(a) REGISTRATION OF THE COMMON STOCK WITH THE SEC. The
Company will cause a registration statement for the registration with the SEC of
the Common Stock to be acquired pursuant to this Agreement under the Securities
Act (the "Registration Statement") to be declared effective by the SEC. The
Company shall be in compliance in all material respects with its obligations
under the Registration Rights Agreement and, on the Condition Satisfaction Date
if so required by the Registration Rights Agreement, a registration statement
for the registration of the resale by the Investor of Common Stock to be issued
upon exercise of the Warrants (the "Warrant Registration Statement") shall be
effective. Furthermore, the Company shall have filed (i) with the applicable
state securities commissions such blue sky filings as shall have been requested
by the Investor, and (ii) any required filings with the Principal Market.
(b) EFFECTIVE REGISTRATION STATEMENT. The Registration
Statement shall be in effect on each Condition Satisfaction Date and neither the
Company nor the Investor shall have received notice that the SEC has issued or
intends to issue a stop order with respect to the Registration Statement or that
the SEC otherwise has suspended or withdrawn the effectiveness of the
Registration Statement, either temporarily or permanently, or intends or has
threatened to do so.
(c) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND
WARRANTIES. The representations and warranties of the Company as set forth in
this Agreement and the Registration Rights Agreement shall be true and correct
in all material respects as of each Condition Satisfaction Date as though made
at each such time except as disclosed in SEC Documents or in a supplemental
disclosure schedule delivered to the Investor and except for representations and
warranties made as of a specific date.
(d) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement and the Registration Rights
Agreement to be performed, satisfied or complied with by the Company at or prior
to each Condition Satisfaction Date.
(e) NO INJUNCTION. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits or adversely affects any of the transactions
contemplated by this Agreement, and no proceeding shall have been commenced
which may have the effect of prohibiting or adversely affecting any of the
transactions contemplated by this Agreement.
(f) ADVERSE CHANGES. Since September 30, 2000, the date
through which the most recent quarterly report of the Company on Form 10-Q has
been prepared and filed with the SEC, no event which had or is
13
reasonably likely to have a Material Adverse Effect has occurred, except as
disclosed in the SEC Documents or Company press releases subsequent to such
date.
(g) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON
STOCK. The trading of the Common Stock shall not have been suspended by the SEC,
the Principal Market or the NASD, and the Common Stock shall have been approved
for listing or quotation on and shall not have been delisted from the Principal
Market. The issuance of shares of Common Stock with respect to the applicable
Closing, if any, shall not violate the shareholder approval requirements of the
Principal Market.
(h) LEGAL OPINIONS. Except as otherwise provided in this
Section 3.2(h), the Company shall have caused to be delivered to the Investor,
(i) within five (5) Trading Days following the effective date of the
Registration Statement and the Warrant Registration Statement, as applicable,
and (ii) contemporaneously with the delivery of each Mandatory Purchase Notice,
opinions of the Company's counsel substantially in the form set forth in EXHIBIT
B hereto; PROVIDED, HOWEVER, that in the event that no suspension pursuant to
Section 2.5(a)(iii) is in effect and such opinions cannot be delivered by the
Company's counsel to the Investor, the Company shall promptly notify the
Investor and promptly revise each of the Registration Statement and the Warrant
Registration Statement, as applicable, and the Company and the Investor shall
postpone, or at the Investor's option cancel, any pending Closing Date until
such an opinion is delivered to the Investor. In the event of such a
postponement, the Purchase Price of the Common Stock to be issued at such
Closing as determined pursuant to Section 2.4 shall be the lower of such
Purchase Price calculated as of the originally scheduled Closing Date or
calculated as of the actual Closing Date. Notwithstanding the foregoing, no
opinions shall be required to be delivered pursuant to this Section 3.2(h)
unless and until the Company delivers a Mandatory Purchase Notice with respect
to an Investment Period.
(i) ACCOUNTANT'S LETTER.
(i) The Company shall have furnished to the
Investor a comfort letter of its independent auditors in customary form,
including a statement to the effect that they have performed the procedures in
accordance with the provisions of Statement on Auditing Standards No. 71, as
amended, on the most recent unaudited Quarterly Report on Form 10-Q as shall
have been reasonably requested by the Investor with respect to certain financial
information contained in the Registration Statement and shall have delivered to
the Investor a report addressed to the Investor, (x) within five (5) Trading
Days prior to the beginning of each Investment Period and (y) within ten (10)
Trading Days following the filing during any Investment Period with the SEC of
each SEC Document containing unaudited financial statements of the Company which
is deemed to be incorporated by reference in the Registration Statement.
(ii) In the event that the Investor shall have
requested delivery of an "agreed upon procedures" report pursuant to Section
3.3, the Company shall engage its independent auditors to perform certain agreed
upon procedures and report thereon as shall have been reasonably requested by
the Investor with respect to certain financial information of the Company and
the Company shall deliver to the Investor a copy of such report addressed to the
Investor.
(iii) In the event that a report required by this
Section 3.2 cannot be delivered by the Company's independent auditors, the
Company shall promptly revise the Registration Statement and the Company and the
Investor shall postpone any pending Closing Date for a period of up to five (5)
Trading Days until such a report is delivered (or such Closing shall otherwise
be canceled). In the event of such a postponement, the Purchase Price of the
Common Stock to be issued at such Closing as determined pursuant to Section 2.4
shall be the lower of such Purchase Price as calculated as of the originally
scheduled Closing Date and as of the actual Closing Date.
(j) OFFICER'S CERTIFICATE. The Company shall have
delivered to the Investor, on each Closing Date, a certificate in form and
substance reasonably acceptable to the Investor, executed by an executive
officer of the Company substantially in the form set forth in EXHIBIT C hereto.
(k) DUE DILIGENCE. No dispute between the Company and the
Investor shall exist pursuant to Section 3.3 as to the adequacy of the
disclosure contained in the Registration Statement.
14
(l) BENEFICIAL OWNERSHIP LIMITATION. On each Closing
Date, (i) the Investor shall not be required or entitled to purchase shares of
Common Stock in violation of Section 2.2(c) and (ii) the Investor shall have
received and been reasonably satisfied with such other certificates and
documents as shall have been reasonably requested by the Investor in order for
the Investor to confirm the Company's satisfaction of the conditions set forth
in this Section 3.2. For the purposes of clause (i) of this Section 3.2(l), in
the event that the amount of Common Stock outstanding as determined in
accordance with Section 13(d) of the Exchange Act and the regulations
promulgated thereunder is greater on a Closing Date than on the date upon which
the Minimum Obligation begins or the Additional Purchase Notice or the Investor
Call Purchase Notice associated with such Closing Date are given, the amount of
Common Stock outstanding on such Closing Date shall govern for the purposes of
determining whether the Investor, when aggregating all Purchases of Common Stock
made pursuant to this Agreement and, if any, Warrant Shares, would own more than
9.9% of the Common Stock following such Closing Date.
3.3 DUE DILIGENCE REVIEW. The Company shall make available, during
normal business hours, for inspection and review by the Investor, advisors to
and representatives of the Investor (who may or may not be affiliated with the
Investor and who are reasonably acceptable to the Company), or any underwriter
participating in any disposition of Common Stock on behalf of the Investor
pursuant to the Registration Statement or the Warrant Registration Statement or
amendments or supplements thereto or any blue sky or NASD filing all financial
and other records, all SEC Documents and other filings with the SEC, and all
other corporate documents and properties of the Company as may be reasonably
necessary for the purpose of such review, and cause the Company's officers,
directors and employees, within a reasonable time period, to supply all such
information reasonably requested by the Investor or any such representative,
advisor or underwriter reasonably related to the Registration Statement
(including, without limitation, in response to all questions and other inquiries
reasonably made or submitted by any of them), prior to and from time to time
after the filing and effectiveness of the Registration Statement for the sole
purpose of enabling the Investor and such representatives, advisors and
underwriters and their respective accountants and attorneys to conduct initial
and ongoing due diligence with respect to the Company and the accuracy of the
Registration Statement.
The Company shall not disclose nonpublic information to the Investor,
advisors to or representatives of the Investor unless prior to disclosure of
such information the Company identifies such information as being nonpublic
information and provides the Investor, such advisors and representatives with
the opportunity to accept or refuse to accept such nonpublic information for
review. The Company may, as a condition to disclosing any nonpublic information
hereunder, require the Investor's advisors and representatives to enter into a
confidentiality agreement (including an agreement with such advisors and
representatives prohibiting them from trading in Common Stock during such period
of time as they are in possession of nonpublic information) in form reasonably
satisfactory to the Company and the Investor.
Nothing herein shall require the Company to disclose nonpublic
information to the Investor or its advisors or representatives, PROVIDED,
HOWEVER, that notwithstanding anything herein to the contrary, the Company will
immediately notify the advisors and representatives of the Investor and, if any,
underwriters, of any event or the existence of any circumstance (without any
obligation to disclose the specific event or circumstance) of which it becomes
aware, constituting nonpublic information (whether or not requested of the
Company specifically or generally during the course of due diligence by and such
persons or entities), which, if not disclosed in the Prospectus included in the
Registration Statement, would cause such Prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements therein, in light of the circumstances in which they were
made, not misleading. Nothing contained in this Section 3.3 shall be construed
to mean that such persons or entities other than the Investor (without the
written consent of the Investor prior to disclosure of such information) may not
obtain nonpublic information in the course of conducting due diligence in
accordance with the terms of this Agreement. In the event that the Investor's
independent counsel reasonably believes that the Registration Statement contains
an untrue statement of a material fact or omits a material fact required to be
stated in the Registration Statement or necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading, (a) unless a suspension pursuant to Section 2.5(a)(iii) is in
effect, the Company shall file with the SEC an amendment to the Registration
Statement responsive to such alleged untrue statement or omission and provide
the Investor, as promptly as practicable, with copies of the
15
Registration Statement and related Prospectus, as so amended, (b) if the
Company disputes the existence of any such material misstatement or omission,
(i) the Company's independent counsel shall provide the Investor's
independent counsel with a letter stating that nothing has come to their
attention that would lead them to believe that the Registration Statement or
the related Prospectus, as of the date of such opinion, contains an untrue
statement of a material fact or omits a material fact required to be stated
in the Registration Statement or the related Prospectus or necessary to make
the statements contained therein, in light of the circumstances in which they
were made, not misleading and (ii) in the event the dispute relates to the
adequacy of financial disclosure and the Investor shall reasonably request,
the Company's independent auditors shall provide to the Company a letter
outlining the performance of such "agreed upon procedures" as shall be
reasonably requested by the Investor and the Company shall provide the
Investor with a copy of such letter, or (c) if the Company disputes the
existence of any such material misstatement or omission, and the dispute
relates to the timing of disclosure of a material event and the Company's
independent counsel is unable to provide the opinion referenced in clause
(b)(i) above to the Investor, then this Agreement shall be suspended for a
period of up to thirty (30) days, at the end of which, if the dispute still
exists between the Company's independent counsel and the Investor's
independent counsel, the Company shall either (i) amend the Registration
Statement as provided above, (ii) provide to the Investor the Company's
independent counsel opinion and a copy of the letter of the Company's
independent auditors referenced above, or (iii) the Investor's obligation to
purchase during the relevant Investment Period shall be suspended as if the
Company had provided notice pursuant to Section 2.5(a)(iii) until such
dispute is resolved. The Investor hereby agrees to hold harmless the
Company's independent auditors from any liability that may arise out of the
delivery of an "agreed upon procedures" letter pursuant to clause (b)(ii)
above.
IV.
REPRESENTATIONS AND WARRANTIES OF INVESTOR
The Investor represents and warrants to the Company as follows:
4.1 NO PRESENT ARRANGEMENT. The Investor is entering into this
Agreement for its own account and the Investor has no present arrangement
(whether or not legally binding) at any time to sell the Common Stock to or
through any person or entity; PROVIDED, HOWEVER, that by making the
representations herein, the Investor does not agree to hold the Common Stock for
any minimum or other specific term and reserves the right to dispose of the
Common Stock at any time in accordance with federal and state securities laws
applicable to such disposition.
4.2 SOPHISTICATED INVESTOR. The Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited
investor (as defined in Rule 501 of Regulation D), and the Investor has such
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in Common Stock. The Investor acknowledges
that an investment in the Common Stock is speculative and involves a high degree
of risk.
4.3 AUTHORITY. The Investor has full power and authority as a
limited liability company to execute and deliver this Agreement, the
Registration Rights Agreement and the Warrants and to consummate the
transactions contemplated hereby in accordance with the terms hereof. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by the Investor. No
other proceedings on the part of Investor are necessary to approve and authorize
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby in accordance with the terms hereof. This
Agreement has been validly executed and delivered by the Investor and is a valid
and binding agreement of the Investor enforceable against it in accordance with
its terms, subject to applicable bankruptcy, insolvency or similar laws relating
to, or affecting generally the enforcement of, creditors' rights and remedies or
by other equitable principles of general application.
4.4 NO BROKERS. The Investor has taken no action that would give
rise to any claim by any person for brokerage commission, finder's fees or
similar payments by the Company relating to this Agreement or the transactions
contemplated hereby.
16
4.5 NOT AN AFFILIATE. The Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
4.6 ORGANIZATION AND STANDING. The Investor is a limited liability
company duly organized, validly existing, and in good standing under the laws of
the State of New York, and has all requisite power and authority as a limited
liability company to carry on its business as now being conducted, and is duly
qualified to do business and in good standing in each jurisdiction in which the
nature of the business conducted by it makes such qualifications necessary,
except where the failure to be so qualified or in good standing would not
reasonably be expected to have a material adverse effect.
4.7 ABSENCE OF CONFLICTS. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on the Investor, or
the provision of any indenture, instrument or agreement to which the Investor is
a party or is subject, or by which the Investor or any of its assets is bound,
or conflict with or constitute a material default thereunder, or result in the
creation or imposition of any lien pursuant to the terms of any such indenture,
instrument or agreement, or constitute a breach of any fiduciary duty owed by
the Investor to any third party, or require the approval of any third party
(which has not been obtained) pursuant to any material contract, agreement,
instrument, relationship or legal obligation to which the Investor is subject or
to which any of its assets, operations or management may be subject.
4.8 DISCLOSURE: ACCESS TO INFORMATION. The Investor has received
all documents, records, books and other information pertaining to the Investor's
investment in the Company that have been requested by the Investor. The Investor
further acknowledges that it understands that the Company is subject to the
periodic reporting requirements of the Exchange Act, and the Investor has
reviewed or received copies of any such reports that have been requested by it
and which it considers necessary or appropriate for deciding whether to enter
into this Agreement and perform its obligations hereunder. The Investor further
represents that it has had an opportunity to ask questions and receive answers
from the Company regarding the terms and conditions of the purchase of the
Common Stock and the Warrants, and the business, properties, prospects, and
financial condition of the Company.
4.9 MANNER OF SALE. At no time was the Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
4.10 FINANCIAL CAPABILITY. The Investor presently has or will have
the financial capacity and the necessary capital to perform its obligations
hereunder. The Investor has, or has available to it, sufficient funds to satisfy
all of its financial obligations under this Agreement. The Investor will
promptly notify the Company of any event or circumstance which could be
reasonably be expected to hinder the Investor's ability to perform its
obligations hereunder.
4.11 NO NASD PROCEEDINGS. To the knowledge of the Investor, there
are no disciplinary proceedings involving the Investor or any of its employees
pending before the NASD.
4.12 NO HEDGING OR SHORT SELLING. (a) During the period sixty (60)
days prior to the date of this Agreement the Investor has not engaged in any
short sales or hedging of any kind in anticipation of this Agreement, and (b)
during the term of this Agreement the Investor may make sales in anticipation of
Mandatory Purchase Notices, but may not make any sales with the intention of
reducing the prior of the Common Stock to the Investor's benefit.
17
V.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed in the SEC Documents, Company press releases or in
the Disclosure Schedule delivered by the Company to the Investor on the date
hereof or where non-disclosure would not reasonably be expected to have a
Material Adverse Effect, the Company represents and warrants to the Investor as
follows:
5.1 CORPORATE ORGANIZATION. The Company and each of its
Subsidiaries is a corporation duly organized, validly existing and, if
applicable, in good standing under the laws of its jurisdiction of
incorporation, and has all requisite corporate power and authority to own or
lease and operate its properties and to carry on its business as now being
conducted, and is duly qualified to do business and in good standing in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification necessary, except where
the failure to be so qualified or in good standing would not reasonably be
expected to have a Material Adverse Effect. The Company has made available to
the Investor or its agents complete and correct copies of the Certificate of
Incorporation, as amended, and by-laws of the Company as in effect on the date
hereof.
5.2 CAPITALIZATION.
(a) The authorized Capital Stock of the Company consists of (i)
55,000,000 shares of Common Stock and (ii) 5,000,000 shares of preferred stock,
$.001 par value per share (the "Preferred Stock"). As of December 31, 2000,
there were (i) 27,476,105 shares of Common Stock issued and outstanding, all of
which are duly authorized and validly issued, fully paid and nonassessable; (ii)
convertible securities (excluding interest) providing for the issuance of
1,354,744 shares; (iii) options to purchase 3,296,006 shares of Common Stock;
and (iv) warrants to purchase 890,109 shares of Common Stock. Except as set
forth in the Disclosure Schedule, no shares of Capital Stock of the Company are
entitled to preemptive rights.
(b) Except as set forth in Schedule 5.2(b), the Company
does not have outstanding any Capital Stock or securities convertible into or
exchangeable for any shares of Capital Stock or any options, warrants or other
rights, agreements, arrangements or commitments of any character to which the
Company is a party or otherwise obligating the Company to issue or sell or
entitling any Person to acquire from the Company, and the Company is not a party
to any agreement, arrangement or commitment obligating it to repurchase, redeem
or otherwise acquire, any shares of its Capital Stock or securities convertible
into or exchangeable for any of its Capital Stock.
(c) Upon issuance of the Common Stock, and payment of the
Purchase Price therefor, pursuant to a purchase and sale in accordance with the
terms of this Agreement, the Company will transfer to the Investor good and
valid title to the Common Stock, free and clear of any material Lien, other than
Liens, if any, created by the Investor; and such Common Stock will be duly
authorized, fully paid and nonassessable.
5.3 SUBSIDIARIES.
(a) The Company does not have any Subsidiaries other than
those listed on SCHEDULE 5.3(A) of the Disclosure Schedule. Except as set forth
in the Disclosure Schedule, each Subsidiary is wholly-owned by the Company.
(b) (i) All the outstanding stock or other equity or
ownership interests of each Subsidiary is owned free and clear of all material
Liens and is validly issued and (ii) there are no options, warrants or other
rights, agreements, arrangements or commitments of any character to which any
Subsidiary is a party or otherwise obligating any Subsidiary to issue or sell,
or entitling any Person to acquire from any Subsidiary, and no Subsidiary is a
party to any agreement, arrangement or commitment obligating it to repurchase,
redeem or otherwise acquire, any shares of the Capital Stock or any securities
convertible into or exchangeable for the Capital Stock of any such Subsidiary.
18
5.4 AUTHORIZATION. The Company has full corporate power and
authority to execute and deliver this Agreement, the Registration Rights
Agreement and the Warrants, to issue the Common Stock pursuant to this Agreement
and the Warrants, and to consummate the transactions contemplated hereby and
thereby in accordance with the terms hereof and thereof. The execution and
delivery of this Agreement, the Registration Rights Agreement and the Warrants,
and the issuance of the Common Stock issuable upon a Closing and pursuant to the
Warrants, and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by the Board of Directors of the Company. To
the Company's Knowledge, no other corporate proceedings on the part of the
Company are necessary to approve and authorize the execution and delivery of
this Agreement, the Registration Rights Agreement and the Warrants, and the
issuance of the Common Stock issuable upon a Closing and pursuant to the
Warrants, and the consummation of the transactions contemplated hereby and
thereby in accordance with the terms hereof and thereof, except for any approval
of the Company's shareholders that may be required pursuant to Rule 4460 of the
Marketplace Rules of NASDAQ National Market. This Agreement, the Registration
Rights Agreement and the Warrants, have been duly executed and delivered by the
Company, and the Common Stock issuable in accordance with the terms of this
Agreement or upon exercise of the Warrants, will be duly and validly issued,
fully paid and nonassessable, and each of this Agreement, the Registration
Rights Agreement and the Warrants, when executed and delivered will constitute
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms, except to the extent limited by (i) bankruptcy,
insolvency, reorganization, fraudulent transfer, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights generally and (ii)
general principles of equity.
5.5 NO VIOLATION; CONSENTS.
(a) Assuming the making or receipt of all filings,
notices, registrations, consents, approvals, permits and authorizations
described in this Section 5.5, the execution and delivery of this Agreement, the
Registration Rights Agreement and the Warrants, and the issuance of the Common
Stock, the consummation of the transactions contemplated hereby, by the
Registration Rights Agreement and the Warrants, and the compliance by the
Company with any of the provisions hereof or of the Registration Rights
Agreement and the Warrants, will not (i) conflict with, violate or result in any
breach of the Certificate of Incorporation, as amended, or by-laws of the
Company or its Subsidiaries, (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default or
give rise to any right of termination, cancellation or acceleration under, or
result in the creation of any Lien on or against any of the properties of the
Company or any of its Subsidiaries pursuant to any of the terms or conditions of
any note, bond, mortgage, indenture, license, agreement or other instrument or
obligation to which the Company or any of its Subsidiaries is a party or by
which any of them or any of their properties or assets may be bound, or (iii)
violate any statute, law, rule, regulation, writ, injunction, judgment, order or
decree of any Governmental Entity, binding on the Company or any of its
Subsidiaries or any of their properties or assets, excluding from the foregoing
clauses (i), (ii) and (iii) conflicts, violations, breaches, defaults, rights of
termination, cancellation or acceleration, and liens which, individually or in
the aggregate, would not have a Material Adverse Effect.
(b) Except for (i) applicable requirements, if any, under
Blue Sky Laws, (ii) the filing of additional listing applications with NASDAQ
National Market, and (iii) the filing of the Registration Statement and Warrant
Registration Statement, no filing, consent, approval, permit, authorization,
notice, registration or other action of or with any Governmental Entity is
required to be made or obtained by or with respect to the Company or any of its
Subsidiaries in connection with the execution and delivery of this Agreement,
the Registration Rights Agreement and the Warrants, the issuance of the Common
Stock or the consummation by the Company of the transactions contemplated hereby
and thereby.
5.6 COMPLIANCE WITH APPLICABLE LAW. The businesses of the Company
are not being conducted in violation of any law, ordinance, rule, regulation,
judgment, decree or order of any Governmental Entity, except for possible
violations which, individually or in the aggregate, would not have a Material
Adverse Effect. The Company and each of its Subsidiaries possess all domestic
and foreign governmental licenses, permits, authorizations and approvals and
have made all registrations and given all notifications required under federal,
state, local or foreign law to carry on in all respects their businesses as
currently conducted, except as otherwise disclosed in writing by the Company to
the Investor on or prior to the date hereof, and except where the failure to
have any such licenses, permits, authorizations or approvals, individually or in
the aggregate, would not have a Material
19
Adverse Effect. To the Knowledge of the Company, no investigation or review
by any Governmental Entity with respect to the Company or any of its
Subsidiaries is pending or threatened, other than those the outcome of which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect.
5.7 COMPLIANCE WITH FOOD AND DRUG ACT.
(a) FDA PERMITS. The Company and each of its Subsidiaries
have all material licenses, permits, consents, approvals and authorizations that
are required under the Food and Drug Act and any similar foreign law, rule or
regulation (collectively, the "FDA Permits") in connection with the conduct of
the businesses of the Company and each of its Subsidiaries as presently
conducted. The Company has obtained and owns or has the right to use the FDA
Permits in accordance with the terms thereof. Each FDA Permit is valid and in
full force and effect. The FDA Permits are currently effective and sufficient
for the operation of the Company's businesses as currently conducted. All
information supplied by or on behalf of the Company and each of its Subsidiaries
to obtain or maintain each FDA Permit was, as of the date given, true and
complete in all material respects. The Company and each of its Subsidiaries have
complied in all material respects with all conditions and requirements imposed
by the FDA Permits and neither the Company nor any of its Subsidiaries has
received any notice of cancellation, suspension or termination of any of the FDA
Permits and to the Knowledge of the Company no Governmental Entity intends to
cancel, suspend or terminate any of the FDA Permits or that valid grounds for
such cancellation, suspension or termination exist.
(b) FOOD AND DRUG ACT. (i) The Company and each of its
Subsidiaries are in compliance in all material respects with all applicable
material requirements of the Food and Drug Act and any similar foreign law, rule
or regulation, (ii) the Company's and each of its Subsidiaries' existing
inventory of products held for sale, and all products manufactured by the
Company, any of its Subsidiaries or any of the Company's Affiliates and sold
within the two (2) years preceding the date hereof, have been produced in
compliance in all material respects with all applicable material requirements of
the Food and Drug Act or any similar foreign law, rule or regulation, including,
without limitation, all "current good manufacturing practices" and similar
requirements thereunder and (iii) to the Knowledge of the Company there is no
event, condition, circumstance, activity, practice, incident, action or plan of
the Company or any Subsidiary which is likely to interfere with or prevent the
Company's or any of its Subsidiaries continued compliance with all applicable
material requirements of the Food and Drug Act or any similar foreign law, rule
or regulation, or which may give rise to any common law or legal liability of
the Company or any Subsidiary under, or otherwise form the basis of any Lien or
any claim, action, suit, arbitration, inquiry, proceeding or investigation by or
before any Governmental Entity based on or related to, the Food and Drug Act or
any similar foreign law, rule or regulation, other than those the outcome of
which, individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect.
5.8 LITIGATION. Except as set forth in Schedule 5.8, there is no
claim, action or proceeding (including any condemnation proceeding) pending or,
to the Knowledge of the Company, threatened against or relating to the Company
or any of its Subsidiaries by or before any Governmental Entity or arbitrator
that if adversely determined, individually or in the aggregate, would have a
Material Adverse Effect, nor is there any judgment, decree, injunction, rule or
order of any Governmental Entity or arbitrator outstanding against the Company
or any of its Subsidiaries that has had, or would reasonably be expected in the
future to have, a Material Adverse Effect or which reasonably could be expected
to materially adversely affect the transactions contemplated by this Agreement.
5.9 SEC DOCUMENTS, FINANCIAL STATEMENTS.
(a) The Common Stock is registered pursuant to Section
12(g) of the Securities Exchange Act and the Company has filed all reports,
schedules, forms, statements and other documents, together with all exhibits,
financial statements and schedules thereto required to be filed by it with the
SEC pursuant to the reporting requirements of the Securities Exchange Act,
including material filed pursuant to Section 13(a) or 15(d), (all of the
foregoing, and all other documents and registration statements, whether
heretofore or hereafter filed with the SEC since January 1, 1996, and the
Registration Statement, when declared effective, being hereinafter referred to
as the "SEC Documents" except where failure to file would not reasonably be
expected to have a Material Adverse Effect). The Common Stock is currently
listed or quoted on the Principal Market, which is, as of the date
20
hereof NASDAQ National Market. The Company has not provided to the Investor
any material information which, according to applicable law, rule or
regulation, should have been disclosed publicly by the Company but which has
not been so disclosed, other than with respect to the transactions
contemplated by this Agreement. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Securities Exchange Act or the Securities Act, as the case may be, and the
rules and regulations of the SEC promulgated thereunder and other federal,
state and local laws, rules and regulations applicable to such SEC Documents,
and none of the SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated herein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of the date of
delivery by the Investor of the Prospectus contained in the Registration
Statement in connection with sales of Common Stock by the Investor, such
Prospectus will comply in all material respects with the requirements of the
Securities Act and the rules and regulations of the SEC promulgated
thereunder, and other federal, state and local laws, rules and regulations
applicable to such Prospectus. The financial statements of the Company
included (or incorporated by reference) in the SEC Documents comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC or other applicable rules and
regulations with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis during the periods involved (except (i) as may
be otherwise indicated in such financial statements or the notes thereto or
(ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly
present in all material respects the consolidated financial position of the
Company and its Subsidiaries as of 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 year-end audit adjustments).
(b) During the three (3) years preceding the date hereof,
the SEC has not issued an order preventing or suspending the use of any
prospectus relating to the offering of any shares of Common Stock or instituted
proceedings for that purpose.
5.10 NO UNDISCLOSED OR CONTINGENT LIABILITIES. Neither the Company
nor any of its Subsidiaries has any claims, liabilities or obligations of any
nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether due or to become due) that would be required to be reflected or reserved
against on a consolidated balance sheet of the Company and its consolidated
Subsidiaries under GAAP, except for claims, liabilities or obligations (i)
reflected or reserved against on the Balance Sheet, (ii) disclosed in the
Company's most recent Form 10-K or any SEC Document filed subsequent to such
Form 10-K (iii) incurred by the Company or any of its Subsidiaries since
September 30, 2000 in the ordinary course of business and consistent with past
practice and that, individually or in the aggregate, would not have a Material
Adverse Effect or (iv) as set forth in the Disclosure Schedule.
5.11 TAXES. The Company has timely filed all Tax Returns required
to be filed and has paid all federal, state, county, local and foreign taxes for
all the tax years through December 31, 1999 shown on such Tax Returns as being
due and payable, to the extent such taxes have become due (other than taxes
which are being challenged in good faith by the Company and have been adequately
reserved for by the Company), except where any failure to file or pay would not
have a Material Adverse Effect. There are no unpaid tax deficiencies or
assessments which would reasonably be expected to have a Material Adverse
Effect. The Company has paid all Taxes which have become due and payable by the
Company (other than Taxes which are being challenged in good faith or have been
adequately reserved for by the Company), whether pursuant to any assessments, or
otherwise, except where any failure to pay would not have a Material Adverse
Effect. The amounts currently set up as provisions for Taxes or otherwise by the
Company on its books and records are sufficient in all material respects for the
payment of all its unpaid federal, foreign, state, county and local taxes
accrued through the dates as of which they speak, except where any insufficiency
would not have a Material Adverse Effect.
5.12 EMPLOYEE BENEFIT PLANS. All employee benefit plans and other
benefit arrangements covering the employees of the Company and its Subsidiaries
(the "Benefit Plans") have been operated and administered in all material
respects in compliance with their terms and applicable law, and there are no
claims, liabilities or obligations of any kind whatsoever relating to the
Benefit Plans which individually or in the aggregate would have a Material
Adverse Effect.
21
5.13 ABSENCE OF CERTAIN CHANGES. Except as set forth in the
Disclosure Schedule, since September 30, 2000, the business of the Company and
its Subsidiaries has been conducted in the ordinary course consistent with past
practices and there has not been:
(i) any event, occurrence, development or state
of circumstances or facts which, individually or in the aggregate, has had or
would reasonably be expected to have a Material Adverse Effect;
(ii) any declaration, setting aside or payment of
any dividend or other distribution with respect to any shares of Capital Stock
of the Company, other than the normal quarterly dividend of the Company, or any
repurchase, redemption or other acquisition by the Company or any Subsidiary of
any outstanding shares of Capital Stock or other securities of, or other
ownership interests in, the Company or any Subsidiary;
(iii) any amendment of any material term of any
outstanding security of the Company or any Subsidiary;
(iv) any incurrence, assumption or guarantee by
the Company or any Subsidiary of any indebtedness for borrowed money, other than
working lines of credit or borrowings under existing lines of credit, and any
license fees and royalties and pursuant to any lease;
(v) any creation or assumption by the Company or
any Subsidiary of any Lien on any material asset other than in the ordinary
course of business consistent with past practice;
(vi) any making of any loan, advance or capital
contributions to or investment in any Person in excess of $500,000 other than
loans, advances or capital contributions to or investments in wholly-owned
Subsidiaries made in the ordinary course of business consistent with past
practice;
(vii) any damage, destruction or other casualty
loss (whether or not covered by insurance) affecting the business or assets of
the Company or any Subsidiary which, individually or in the aggregate, has had
or would reasonably be expected to have a Material Adverse Effect;
(viii) any transaction or commitment made, or any
contract or agreement entered into, by the Company or any Subsidiary relating to
its assets or business (including the acquisition or disposition of any assets)
or any relinquishment by the Company or any Subsidiary of any contract or other
right, in any such case, material to the Company and the Subsidiaries, taken as
a whole, other than transactions and commitments in the ordinary course of
business consistent with past practice and those contemplated by this Agreement;
or
(ix) any change in any method of accounting or
accounting practice by the Company or any Subsidiary.
5.14 ENVIRONMENTAL MATTERS.
(a) The Company and its Subsidiaries have obtained all
permits, licenses and other authorizations, and have made all registrations and
given all notifications, that are required with respect to the operation of
their respective businesses under all applicable Environmental Laws other than
those permits, licenses, other authorizations, registrations and notifications
the failure of which to obtain or make, individually or in the aggregate, would
not have a Material Adverse Effect.
(b) The Company and its Subsidiaries are in compliance in
all material respects with all terms and conditions of the required permits,
licenses and other authorizations referred to in subsection (a) of this Section
5.14, and also in compliance in all material respects with any other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in the Environmental Laws or
contained in any regulation, code, plan, order, decree, judgment, injunction,
settlement agreement, notice or demand letter issued, entered, promulgated or
approved thereunder, other than where the failure to be in such compliance,
individually or in the aggregate, would not have a Material Adverse Effect.
22
(c) There is no civil, criminal or administrative action,
suit, demand, claim, hearing, notice of violation, investigation, proceeding,
notice or demand letter (collectively "Actions") pending or, to the Knowledge of
the Company, threatened against the Company or any of its Subsidiaries relating
in any way to Environmental Laws or any regulation, code, plan, order, decree,
judgment, injunction, notice or demand letter issued, entered, promulgated or
approved thereunder other than Actions that, if determined adversely to the
Company or such Subsidiaries, would not reasonably be expected to have a
Material Adverse Effect.
5.15 MATERIAL CONTRACTS.
(a) Except as set forth in Schedule 5.15, neither the
Company nor any Subsidiary is a party to or bound by any agreement or contract,
written or oral, material to the Company and its Subsidiaries taken as a whole
except as filed pursuant to Section 10 of Item 601 of Regulation S-K as an
exhibit to any of the SEC Documents ("Material Contracts").
(b) Each Material Contract is in full force and effect
and constitutes a legal, valid and binding obligation of the Company or the
Subsidiary party thereto and, to the Knowledge of the Company, each other party
thereto, and is enforceable against the Company or its Subsidiaries and, to the
Knowledge of the Company, each other party thereto in accordance with its terms,
except to the extent that such enforceability is limited by (i) bankruptcy,
insolvency, reorganization, fraudulent transfer, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights generally and (ii)
general principles of equity, and neither the Company nor any of its
Subsidiaries, nor, to the Knowledge of the Company, any other party thereto is
in conflict therewith or in violation or breach thereof or default thereunder,
except for such conflicts, violations, breaches and defaults which, individually
or in the aggregate, would not reasonably be expected to have a Material Adverse
Effect.
5.16 PROPERTIES; ENCUMBRANCES. Subject to the next succeeding
sentence, each of the Company and its Subsidiaries has good and valid title, and
in the case of real property, insurable title, to all material properties and
assets which it purports to own (real, personal and mixed, tangible and
intangible, including all forms of goodwill, rights, intellectual property and
intellectual property rights) (collectively, the "Company Assets"), including,
without limitation, all the material properties and assets reflected on the
Balance Sheet (except for (i) real and personal property sold since the date of
the Balance Sheet or which was obsolete or no longer useful in connection with
the businesses of the Company and its Subsidiaries and (ii) capital leases
reflected on the Balance Sheet), and all material properties and assets
purchased by the Company and its Subsidiaries since the date of the Balance
Sheet. All Company Assets are free and clear of all liens, mortgages, claims,
interests, charges, security interests or other encumbrances or adverse
interests of any nature whatsoever and other title or interest retention
arrangements, except (A) as reflected on the Balance Sheet, (B) as set forth on
SCHEDULE 5.16 of the Disclosure Schedule, (C) statutory Liens of carriers,
warehousemen, mechanics, workmen and materialmen for liabilities and obligations
incurred in the ordinary course of business consistent with past practice that
are not yet delinquent or being contested in good faith, (D) such defects,
irregularities, encumbrances and other imperfections of title as normally exist
with respect to property similar in character and that, individually or in the
aggregate together with all other such exceptions, do not have a Material
Adverse Effect, (E) Liens for Taxes and (F) Liens that do not interfere with the
present use of the property subject to the Lien ("Liens").
5.17 INSURANCE. All current primary, excess and umbrella policies
of insurance owned or held by or on behalf of or providing insurance coverage to
the Company or any of its Subsidiaries are in full force and effect. With
respect to all such insurance policies providing insurance coverage to the
Company or any of its Subsidiaries, no premiums are in arrears and no notice of
cancellation or termination has been received with respect to any such policy,
other than notices of cancellation or termination routinely sent at the end of a
policy term. To the Company's knowledge, the insurance coverage of the Company
and its Subsidiaries is consistent with the coverage generally maintained by
corporations of similar size and engaged in similar lines of business.
5.18 EMPLOYEE CLAIMS; LABOR MATTERS. There are no claims or actions
pending or, to the Knowledge of the Company, threatened between the Company or
any of its Subsidiaries and any of their respective employees, unions, or former
employees that would, or would be reasonably likely to, individually or in the
23
aggregate, have a Material Adverse Effect. The Company and each of its
Subsidiaries have no collective bargaining agreements covering employees of the
Company or any Subsidiary.
5.19 MATERIAL DISCLOSURE. To the Knowledge of the Company, there is
no fact, transaction or development which the Company has not disclosed to the
Investor in writing (including pursuant to the SEC Documents filed prior to the
date hereof) which would reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect. This Agreement (including any
Exhibit or Schedule hereto) and any written statements, documents or
certificates furnished to the Investor by the Company or its Subsidiaries prior
to the date hereof in connection with the transactions contemplated hereby,
taken as a whole, do not and will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated herein or therein or
necessary to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading.
5.20 INTELLECTUAL PROPERTY. The Company and its Subsidiaries own or
possess adequate patent rights or licenses or other rights to use patent rights,
inventions, trademarks, service marks, trade names and copyrights the Company
reasonably believes are necessary to conduct the general business now operated
by them and neither the Company nor any of its Subsidiaries has received any
notice of infringement or conflict with asserted rights of others with respect
to any patent, patent rights, inventions, trademarks, service marks, trade names
or copyrights which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect.
5.21 NO GENERAL SOLICITATION IN REGARD TO THIS TRANSACTION. Neither
the Company nor any of its Subsidiaries or affiliates nor any distributor or any
person acting on its or their behalf has conducted any general solicitation (as
that term is used in Rule 502(c) of Regulation D under the Securities Act) with
respect to any of the Common Stock offered hereby, nor have they made any offers
or sales of any security or solicited any offers to buy any security under any
circumstances that would require registration of the Common Stock offered hereby
under the Securities Act.
5.22 NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. To the Company's
Knowledge, since September 30, 2000, no event or circumstance has occurred or
exists with respect to the Company or its Subsidiaries or their respective
businesses, properties, prospects, operations or financial condition, which,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company.
5.23 NO INTEGRATED OFFERING. Neither the Company, nor any of its
Subsidiaries or affiliates, nor any person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, other than pursuant to this Agreement, under
circumstances that would require the offering of such other securities to be
integrated with the shares of Common Stock to be issued under this Agreement.
5.24 NO BROKERS. Except as set forth in the Schedule 5.24, the
Company has taken no action which would give rise to any claim by any Person for
brokerage commissions, finder's fees or similar payments by the Investor
relating to this Agreement for the transactions contemplated hereby.
5.25 NO VIOLATION OF COVENANTS. No material event of default has
occurred and is continuing (or event which with the lapse of time or notice or
both would constitute such an event) which has not otherwise been waived under
any revolving credit facility, indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument for money borrowed or any other
material agreement to which the Company or any of its Subsidiaries is bound, or
to which any of the property or assets of the Company or any of its Subsidiaries
is subject.
VI.
COVENANTS OF THE COMPANY
6.1 REGISTRATION RIGHTS. The Company shall comply in all material
respects with the terms of the Registration Rights Agreement.
24
6.2 RESERVATION OF COMMON STOCK. Except as disclosed in the SEC
Documents, the Company has reserved and will continue to reserve and keep
available at all times in any Investment Period, such number of shares of Common
Stock, free of preemptive rights, necessary to enable the Company to satisfy any
obligation to issue shares of its Common Stock incident to the Closings in such
Investment Period and incident to the exercise of the Warrants issued hereunder,
such amount of shares of Common Stock to be reserved to be calculated based upon
the Floor Price therefor under the terms of this Agreement, and assuming the
full exercise of the Warrants. The number of shares so reserved from time to
time, as theretofore increased or reduced as hereinafter provided, may be
reduced by the number of shares actually delivered hereunder and the number of
shares so reserved shall be increased to reflect (a) potential increases in the
Common Stock which the Company may thereafter be so obligated to issue by reason
of adjustments to the Purchase Price therefor and the issuance of the Warrants
and (b) stock splits and stock dividends and distributions.
6.3 LISTING OF COMMON STOCK. During the term of this Agreement,
the Company hereby agrees to maintain the listing of the Common Stock on a
Principal Market, and as soon as practicable but in any event prior to the
commencement of the Commitment Period to list the additional shares of Common
Stock issuable under this Agreement (including Common Stock issuable upon
exercise of the Warrants). The Company further agrees that, if the Company
applies to have the Common Stock traded on any Principal Market other than
NASDAQ National Market, it will include in such application the Common Stock
issuable under this Agreement (including Common Stock issuable upon exercise of
the Warrants), and will take such other action as is necessary or desirable to
cause the Common Stock to be listed on such other Principal Market as promptly
as possible. If the Principal Market is NASDAQ National Market, the Company
shall maintain sufficient net tangible assets to satisfy the requirements of the
NASD for the listing of the Common Stock on NASDAQ National Market.
6.4 EXCHANGE ACT REGISTRATION. During the term of this Agreement,
the Company will cause its Common Stock to continue to be registered under
Section 12(g) of the Exchange Act, will comply in all respects with its
reporting and filing obligations under the Exchange Act, and will not take any
action or file any document (whether or not permitted by the Exchange Act or the
rules thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under the Exchange Act. If
required, the Company will take all action to continue the listing and trading
of its Common Stock on the Principal Market and will comply in all material
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the NASD and the Principal Market.
6.5 LEGENDS. The certificates evidencing the Common Stock to be
issued to the Investor at each Closing and upon the exercise of the Warrants
(except as otherwise as provided by Section 7.1) shall be free of legends or
stop transfer or other restrictions.
6.6 CORPORATE EXISTENCE. The Company will take all steps necessary
to preserve and continue the corporate existence and solvency of the Company;
PROVIDED, HOWEVER, that nothing herein shall be construed to limit the ability
of the Company to partake in any merger, asset sale, or acquisition transaction
involving the Company, subject to the Company's complying with the terms of this
Agreement.
6.7 "BLACKOUT PERIOD". During the term of this Agreement, the
Company will immediately upon the occurrence of any of the following events in
respect of the Registration Statement or related Prospectus in respect of an
offering of securities required to be registered under this Agreement or the
Registration Rights Agreement: (a) receipt by the Company of any request from
the SEC or any other federal or state governmental authority during the period
of effectiveness of the Registration Statement for amendments or supplements to
the Registration Statement or related Prospectus; (b) the issuance by the SEC or
any other federal or state governmental authority of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose; (c) receipt of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
such registrable securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (d) the happening of any event
which makes any statement made in the Registration Statement or related
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or which requires the making of any
changes in the Registration Statement, related Prospectus or documents so that,
in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to
25
make the statements therein not misleading, and that in the case of the
related Prospectus, it will not contain any 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, in the light of the circumstances
under which they were made, not misleading; and (e) the Company's reasonable
determination that a post-effective amendment to the Registration Statement
would be appropriate, in which event the Company will promptly make available
to the Investor any such supplement or amendment to the related Prospectus.
The Investor shall not be obligated to purchase any shares pursuant to a
Minimum Obligation or an Additional Purchase Notice during a portion of an
Investment Period in which any of the foregoing events continued.
VII.
LEGENDS AND DELIVERY OF CERTIFICATES,
COMPLIANCE AND INVESTOR COVENANTS
7.1 LEGENDS AND DELIVERY OF CERTIFICATES. The Warrants and, unless
otherwise provided below, the certificates evidencing the Common Stock to be
issued to the Investor at any Closing and upon exercise of the Warrants, will
bear the following legend (the "Legend"):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
THEY MAY NOT BE SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN
APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
In the event shares of Common Stock are issued incident to a Closing or
upon exercise of the Warrants in circumstances pursuant to which shares of
Common Stock are either required to bear the Legend or are not to bear the
Legend, such certificates (bearing or not bearing the Legend, as appropriate)
shall be issued and delivered to the Investor or as otherwise directed by the
Investor on the applicable Closing Date or within two (2) Trading Days of the
surrender of the Warrants for exercise (together with all other documentation
required to be delivered to effect such exercise), as applicable, in each case
against payment therefor.
The Company shall cause the transfer agent for the Common Stock to
issue and deliver to the Investor or as otherwise directed by the Investor,
shares of Common Stock not bearing the Legend, during the following periods and
under the following circumstances and without the need for any further advice or
instruction or documentation to the transfer agent by or from the Investor:
(a) At any time from and after the effective date of the
applicable registration statement: (i) incident to the issuance of any shares of
Common Stock pursuant to a Closing; (ii) incident to the exercise of the
Warrants; and (iii) upon any surrender of one or more certificates evidencing
Common Stock and which bear the Legend, to the extent accompanied by a notice
requesting the issuance of new certificates free of the Legend to replace those
surrendered; PROVIDED THAT in connection with such event the Investor confirms
to the transfer agent that it intends to sell such Common Stock to a third party
which is not an Affiliate of the Company or the Investor, and the Investor
agrees to redeliver such Common Stock to the transfer agent to add the Legend in
the event the Common Stock is not sold; and
(b) At any time from and after the Closing Date, upon any
surrender of one or more certificates evidencing Common Stock and which bear the
Legend, to the extent accompanied by a notice requesting the issuance of new
certificates free of the Legend to replace those surrendered and containing or
also accompanied by representations that (i) the then holder thereof is
permitted to dispose of such Common Stock pursuant to Rule 144(k) under the
Securities Act, (ii) such holder intends to effect the sale or other disposition
of such Common Stock whether or not pursuant to the Registration Statement, to a
purchaser or purchasers who will not be subject to the registration requirements
of the Securities Act or (iii) such holder is not then subject to such
requirements;
26
PROVIDED THAT in the case of surrenders described in clauses (i), (ii) and
(iii) thereof, the holder provides an opinion of counsel in form and
substance reasonably satisfactory to the Company.
7.2 NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No legend has
been or shall be placed on the share certificates representing the Common Stock
and no instructions or stop transfers or other restrictions on transfer have
been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in this Article VII.
7.3 INVESTOR'S COMPLIANCE. Nothing in this Article VII shall
affect in any way the Investor's obligations under any agreement to comply with
all applicable securities laws upon resale of the Common Stock.
VIII.
OTHER ISSUANCES OF COMMON STOCK
8.1 EQUITY OFFERING ADJUSTMENT TO PURCHASE PRICE. In the event
that the Company makes an Equity Offering during an Investment Period, then
notwithstanding anything herein to the contrary, the purchase price per share of
Common Stock for any Investment Amount made solely within such Investment Period
but following the consummation of the Equity Offering shall be the lower of (a)
the lowest effective purchase price per share of Common Stock received by the
Company in any such Equity Offering, and (b) the price per share of Common Stock
determined hereunder with respect to Purchases of Common Stock effected by the
Investor during such Investment Period.
8.2 OTHER ADJUSTMENTS TO PURCHASE PRICE AND FLOOR PRICE. The
volume-weighted average price of the Common Stock for any Trading Day used to
calculate the Purchase Price and the Floor Price shall be adjusted
proportionally to reflect any stock splits, stock dividends, reclassifications,
combinations and similar transactions involving the Company's Common Stock.
IX.
CHOICE OF LAW AND VENUE, WAIVER OF JURY TRIAL
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF THE
STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF
LAW. The parties hereby agree that all actions or proceedings arising directly
or indirectly from or in connection with this Agreement shall, at the option of
either party, be litigated only in the United States District Court for the
Northern District of California unless such District Court declines
jurisdiction, in which case such actions or proceedings shall be litigated only
in the state court located in San Francisco County, California. The parties
consent to the jurisdiction and venue of the foregoing court and consent that
any process or notice of motion or other application to said court or a judge
thereof may be served inside or outside the State of California or the Northern
District of California by registered mail, return receipt requested, directed to
the party for which it is intended at its address set forth in this Agreement
(and service so made shall be deemed complete five (5) Trading Days after the
same has been posted as aforesaid) or by personal service or in such other
manner as may be permissible under the rules of said court. The parties hereto
hereby irrevocably waive any and all right to a trial by jury with respect to
any legal proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
27
X.
ASSIGNMENT, ENTIRE AGREEMENT, AMENDMENT, TERMINATION
10.1 ASSIGNMENT. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, the Investor's rights and obligations
under this Agreement may be assigned at any time, in whole, with the prior
written consent of the Company (which consent shall not be unreasonably
withheld) to any Affiliate of the Investor (a "Permitted Transferee"). The
rights and obligation of the Investor under this Agreement shall inure to the
benefit of, and be enforceable by and against, any such Permitted Transferee.
10.2 ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Registration
Rights Agreement, and the other documents delivered pursuant hereto constitute
the full and entire understanding and agreement between the parties with regard
to the subjects hereof and thereof, and no party shall be liable or bound to any
other party in any manner by any warranties, representations or covenants except
as specifically set forth in this Agreement or therein. Except as expressly
provided in this Agreement, neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought.
10.3 PUBLICITY. The Company agrees that it will not disclose, and
will not include in any public announcement, the name of the Investor without
its prior consent, unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement. Except
as may be required by law, the Company shall consult with the Investor before
issuing any press release or otherwise making any public statements with respect
to this Agreement and shall not issue any such press release or make any such
public statement prior to such consultation.
10.4 TERMINATION. (a) The Company may, in its sole discretion,
terminate this Agreement and Investor's obligations and rights to purchase any
Investment Amount for the remainder of the Commitment Period by delivery of
written notice of termination to the Investor. Such written notice shall be
delivered by the Company to the Investor one (1) Trading Day prior to the
effective date of such termination.
(b) The Investor may terminate this Agreement as a result
of (i) a breach (which is not cured in accordance with this Agreement) by the
Company of any material representation, warranty, covenant or other obligation
in this Agreement or the Registration Rights Agreement or (ii) if the Investor
reasonably determines, in its sole discretion, at any time that the adoption of,
or change in, or any change in the interpretation or application of, any law,
regulation, rule, guideline or treaty (including, but not limited to, changes of
capital adequacy) makes it illegal or materially impractical for the Investor to
fulfill its commitment pursuant to this Agreement, but in the case of either (i)
or (ii) above, Investor may terminate this Agreement only after a 60-day period
in which the parties negotiate in good faith, in the case of (i), a reasonable
substitute for such provision or, in the case of (ii), a reasonable alternative
manner not illegal or impossible for the Investor to fulfill its commitment
pursuant to this Agreement.
XI.
NOTICES, ETC., COST AND EXPENSES, INDEMNIFICATION
11.1 NOTICES, ETC.. All notices, demands, requests, consents,
approvals or other communications required or permitted to be given hereunder or
which are given with respect to this Agreement shall be in writing and shall be
personally served or deposited in the mail, registered or certified, return
receipt requested, postage prepaid, or delivered by reputable air courier
service with charges prepaid, or transmitted by hand delivery, telegram, telex
or facsimile, addressed as set forth below, or to such other address as such
party shall have specified most recently by written notice: (a) if to the
Company, to: Cygnus, Inc., 000 Xxxxxxxxx Xxxxx, Xxxxxxx Xxxx, Xxxxxxxxxx 00000;
Attention: Chief Executive Officer, Facsimile No.: (000) 000-0000, with copy;
Attention: General Counsel (b) if to the Investor, Cripple Creek Securities,
LLC, 000 Xxxxxxxxx Xxxxxx, Xxxxxxxxx, Xxx
00
Xxxxxx 00000, Attention: Xxxxxx X. Xxxxxxx, Facsimile No.: (000) 000-0000,
with copies (which shall not constitute notice) to: Xxxxxx & Xxxxxx, 000 00xx
Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000-0000, Attn. X. Xxxxxxxxx Xxxxxx,
Facsimile No.: (000) 000-0000. Subject to Section 2.3(c), notice shall be
deemed given on the date of service or transmission if personally served or
transmitted by telegram, telex or facsimile during normal business hours of
the recipient. Notice otherwise sent as provided herein shall be deemed given
on the third business day following the date mailed or on the second business
day following delivery of such notice by a reputable air courier service.
11.2 COSTS AND EXPENSES. The Company shall be responsible for the
Investor's (a) legal fees and related expenses incurred in entering into this
Agreement up to a maximum amount of $25,000, and (b) costs and expenses in
connection with the performance of its obligations hereunder up to a maximum
amount of $5,000 for each calendar quarter. The Company agrees to pay the
Investor the amounts due under clause (b) of the preceding sentence within
thirty (30) days following the Investor's request therefor. In the event payment
is not received within such thirty (30) day period, Investor shall have the
right to deduct any such amounts owed by the Company to the Investor from any
amounts owed by the Investor to the Company pursuant to Section 2.4(c) herein.
11.3 INDEMNIFICATION.
(a) INDEMNIFICATION OF INVESTOR. The Company agrees to
indemnify and hold harmless the Investor and each person, if any, who controls
the Investor within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act as follows:
(i) against any and all loss, liability, claim,
damage and commercially reasonable expense whatsoever, as incurred on a monthly
basis, arising out of any untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including any Prospectus, or
the omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not misleading or
arising out of any untrue statement or alleged untrue statement of a material
fact contained in any Prospectus (or any amendment or supplement thereto), or
the omission or alleged omission therefrom of a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading;
(ii) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred on a monthly basis, to the extent of
the aggregate amount paid in settlement of any litigation, or any investigation
or proceeding by any governmental agency or body, based upon any such untrue
statement or omission, or any such alleged untrue statement or omission;
PROVIDED THAT (subject to Section 11.3(d) below) any such settlement is effected
with the written consent of the Company; and
(iii) against any and all expenses whatsoever, as
incurred on a monthly basis (including the fees and disbursements of counsel),
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under (i) or (ii) above;
PROVIDED, however, that the indemnity agreement set forth in this Section
11.3(a) shall not apply to any loss, liability, claim, damage or expense to the
extent arising out of any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with written
information furnished to the Company by the Investor expressly for use in the
Registration Statement (or any amendment thereto), including any Prospectus (or
any amendment or supplement thereto), or in any offering circular or other
document, as applicable.
(b) INDEMNIFICATION OF COMPANY. The Investor agrees to
indemnify and hold harmless the Company, its directors, each of its officers who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act against any and all loss, liability, claim, damage and
commercially reasonable whatsoever, as occurred on a monthly basis, arising out
of any of the matters referred to in clauses (i), (ii) and (iii) of Section
11.3(a), but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto), including any Prospectus (or any amendment or supplement
thereto), or in any offering circular or other document, as applicable, in
reliance upon and in conformity with written
29
information furnished to the Company by the Investor expressly for use in the
Registration Statement (or any amendment or supplement thereto) or in any
offering circular or other document, as applicable.
(c) ACTION AGAINST PARTIES; NOTIFICATION. Each
indemnified party shall give notice as promptly as reasonably practicable to
each indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party shall not relieve such indemnifying party from any liability hereunder to
the extent it is not materially prejudiced as a result thereof and in any event
shall not relieve it from any liability which it may have otherwise than on
account of his indemnity agreement. In case any such action is brought against
any indemnified party, and it notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof. Notwithstanding the foregoing, the indemnified party
or parties shall have the right to employ its own counsel in any such case but
the reasonable fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying party in connection with the
defense of such action at the expense of the indemnifying party, (ii) the
indemnifying party shall not have employed counsel to have charge of the defense
of such action within a reasonable time after notice of commencement of the
action, or (iii) such indemnified party or parties shall have reasonably
concluded that there may be defenses available to it or them which are different
from or additional to those available to the indemnifying party (in which case
the indemnifying party shall not have the right to direct the defense of such
action on behalf of the indemnified parties), in any of which events such
reasonable fees and expenses of one additional counsel shall be borne by the
indemnifying party. In no event shall the indemnifying party be liable for fees
and expenses of more than one counsel (in addition to one local counsel) for the
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances. No indemnifying party shall, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry or any judgment with respect to any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever in respect of which indemnification or contribution could
be sought under this Section 11.3 or Section 11.4 hereof (whether or not the
indemnified parties are actual or potential parties thereto), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of an
any indemnified party.
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE.
If at any time an indemnified party shall have requested an indemnifying party
to reimburse the indemnified party for the commercially reasonable fees and
expenses of counsel under circumstances where the indemnifying party is required
to provide such reimbursement hereunder, such indemnifying party agrees that it
shall be liable for any settlement of the nature contemplated by Section
11.3(a)(ii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request (unless such fees are less
than $15,000 per month) prior to the date of such settlement. No party hereto
shall be responsible for any settlement agreed to by the other party unless such
settlement is consented to by the first party or the settlement is permitted
without such consent under this paragraph (d). If a court of competent
jurisdiction determines by final order that any person who received
reimbursement of fees and expenses pursuant to this Agreement was not entitled
thereto, such person shall promptly pay such amounts to the payor with interest
at eight percent (8%) per annum from the date of payment.
11.4 CONTRIBUTION. If the indemnification provided for in Section
11.3 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
commercially reasonable expenses referred to herein, then each indemnifying
party shall contribute to the aggregate amount of such losses, liabilities,
claims, damages and expenses incurred by such indemnified party, as incurred (a)
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Investor on the other hand from the
offering of the Common Stock pursuant to this Agreement or (b) if the allocation
provided by clause (a) is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(a) above but also the relative fault of the Company on the
30
one hand and of the Investor on the other hand in connection with the
statements or omissions which resulted in such losses, liabilities, claims,
damages or commercially reasonable expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Company on the one hand and the
Investor on the other hand in connection with the offering of the Common Stock
pursuant to this Agreement shall be deemed to be in the same respective portions
as the total proceeds from the offering of the Common Stock pursuant to this
Agreement received by the Company from the Investor and the total profits
received by the Investor upon the sale of such Common Stock bear to the
aggregate public offering price.
The relative fault of the Company on the one hand and the Investor on
the other hand shall be determined by reference to, among other things, whether
any such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company or by the Investor and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Company and the Investor agree that it would not be just and
equitable if contribution pursuant to this Section 11.4 were determined on a
pro-rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section 11.4.
The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 11.4
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 11.4, the Investor shall
not be required to contribute any amount in excess of the amount by which the
total price at which the Common Stock purchased by it and resold to the public
exceeds the amount of any damages which the Investor has otherwise been required
to pay by reason of any 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.
For purposes of this Section 11.4, each person, if any, who controls
the Investor within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act shall have the same rights to contribution as such
Investor, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act shall have the same rights to contribution as the Company.
11.5 GENERAL INDEMNIFICATION. Each party shall indemnify the other
against any loss, cost or damages (including reasonable attorney's fees and
expenses) incurred as a result of such party's breach of any representation,
warranty, covenant or agreement in this Agreement.
XII.
MISCELLANEOUS
12.1 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which together shall constitute one instrument.
12.2 SURVIVAL: SEVERABILITY. (a) The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing
hereunder. The indemnity and contribution agreements contained in Sections 11.3
and 11.4 hereof shall survive and remain operative and in full force and effect
regardless of (i) any termination of this Agreement or of the Commitment Period,
(ii) any investigation made by or on behalf of any
31
indemnified party or by or on behalf of the Company, and (iii) the
consummation of the sale or successive resales of the Common Stock. In the
event that any provision of this Agreement becomes or is declared by a court
of competent jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said provision;
PROVIDED THAT such severability shall be ineffective if it materially changes
the economic benefit of this Agreement to any party.
12.3 TITLE AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
12.4 EFFECTIVENESS OF THE AGREEMENT. This Agreement shall be
effective as of the Effective Date.
[REST OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof.
CRIPPLE CREEK SECURITIES, LLC CYGNUS, INC.
By: /s/ Xxxxxx X. Xxxxxxx By: /s/ Xxxxx X. Xxxxxxx
------------------------------ --------------------------------------------------
Name: Xxxxxx X. Xxxxxxx Name: Xxxxx X. Xxxxxxx
Title: Principal Title: Senior Vice President - Finance and Chief
Financial Officer
[SIGNATURE PAGE TO STRUCTURED EQUITY LINE FLEXIBLE FINANCING AGREEMENT]
33
EXHIBIT A
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, OR
ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID
ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM
SUCH REGISTRATION REQUIREMENTS.
CYGNUS, INC.
Common Stock Purchase Warrant
Cygnus, Inc., a Delaware corporation (the "Company"), hereby certifies
that for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Cripple Creek Securities, LLC, having an address at 000
Xxxxxxxxx Xxxxxx, Xxxxxxxxx, Xxx Xxxxxx 00000, ("Purchaser") or any other
Warrant Holder (hereinafter defined) is entitled, on the terms and conditions
set forth below, to purchase from the Company at any time after the date hereof
(subject to the provisions of Section 2 hereof) and ending sixty (60) months
after the date hereof, up to that number of fully paid and nonassessable shares
of the common stock, par value $.001 per share, of the Company (the "Common
Stock") as determined pursuant to Section 2.6 of the Agreement (hereinafter
defined) at the Purchase Price (hereinafter defined) per share, as the same may
be adjusted pursuant to Section 5 herein.
1. DEFINITIONS.
(a) The term "Purchase Price" shall mean the Warrant Exercise
Price as such term is defined in the Structured Equity Line Flexible
Financing(SM) Agreement by and between the Company and the Purchaser, dated as
of March 23, 2001 (the "Agreement").
(b) The term "Warrant Holder" shall mean the Purchaser or any
permitted assignee of all or any portion of this Warrant, subject to the
limitations set forth herein.
(c) The term "Warrant Shares" shall mean the shares of Common
Stock or other securities issuable upon exercise of this Warrant.
(d) Other terms used herein which are defined in the Agreement or
the Registration Rights Agreement by and between the Company and the Purchaser,
dated as of June 30, 1999 (the "Rights Agreement"), shall have the same meanings
herein as therein.
2. EXERCISE OF WARRANT.
This Warrant may be exercised by Warrant Holder, in whole or in part,
at any time and from time to time, on or prior to the date sixty (60) months
from the date hereof, by either of the following methods:
(a) The Warrant Holder may surrender this Warrant, together with
cash, a certified check payable to the Company or wire transfer of immediately
available funds to an account designated by the Company representing the
aggregate Purchase Price of the number of Warrant Shares for which the Warrant
is being surrendered and the form of subscription attached hereto as EXHIBIT A,
duly executed by Warrant Holder ("Subscription Notice"), at the offices of the
Company; or
(b) The Warrant Holder may also exercise this Warrant, in whole or
in part, on a "cashless" or "net-issue" basis by delivering to the offices of
the Company this Warrant, together with a Subscription Notice specifying the
number of Warrant Shares to be delivered to the Warrant Holder and the number of
Warrant Shares to be surrendered in payment of the aggregate Purchase Price
according to the following formula:
D = FMV - PP multiplied by SS
--------
FMV
Where
"D" means the number of Warrant Shares to be delivered on exercise of the
Warrant, "FMV" means the Fair Market Value, and "SS" means the number of Warrant
Shares to be delivered in payment of the Purchase Price "PP" means Purchase
Price
(c) such that, without the exchange of any funds, the Warrant
Holder will receive that number of Warrant Shares (and such other consideration
otherwise issuable, or payable, upon exercise of this Warrant) less that number
of Warrant Shares having an aggregate Fair Market Value on the date prior to the
date of exercise equal to the aggregate Purchase Price that would otherwise have
been paid by the Warrant Holder as specified in the Subscription Notice.
In the event that the Warrant is not exercised in full, the number of
Warrant Shares shall be reduced by the number of such Warrant Shares for which
this Warrant is exercised, and the Company, at its expense, shall forthwith
issue and deliver or upon the order of Warrant Holder a new Warrant of like
tenor in the name of Warrant Holder or as Warrant Holder (upon payment by
Warrant Holder of any applicable transfer taxes) may request, reflecting such
adjusted Warrant Shares.
3. DELIVERY OF CERTIFICATES.
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(a) Subject to the terms and conditions of this Warrant, as soon
as practicable after the exercise of this Warrant in full or in part, and in any
event within three (3) Trading Days thereafter, the Company shall transmit the
certificates (together with any other stock or other securities or property to
which Warrant Holder is entitled upon exercise) by messenger or overnight
delivery service to reach the address designated by such holder within three (3)
trading days after the receipt of the Warrant, the Subscription Notice and
payment of the aggregate Purchase Price in Section 2(a) or 2(b), as appropriate
("T+3"). In lieu of delivering physical certificates representing the Common
Stock issuable upon exercise, provided the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer ("FAST") program, upon request of the Warrant Holder, the Company shall
use its best efforts to cause its transfer agent to electronically transmit the
Common Stock issuable upon exercise to the Warrant Holder by crediting the
account of Warrant Holder's prime broker with DTC through its Deposit Withdrawal
Agent Commission ("DWAC") system. The time periods for delivery described in the
immediately preceding paragraph shall apply to the electronic transmittals
described herein.
(b) This Warrant may not be exercised as to fractional shares of
Common Stock. In the event that the exercise of this Warrant, in full or in
part, would result in the issuance of any fractional share of Common Stock, then
in such event Warrant Holder shall be entitled to cash equal to the Fair Market
Value of such fractional share.
4. REPRESENTATIONS AND COVENANTS.
(a) REPRESENTATIONS AND COVENANTS OF THE COMPANY. From the date
hereof through the last date on which this Warrant is exercisable, the Company
shall take all steps reasonably necessary and within its control to insure that
the Common Stock remains listed on a Principal Market so long as it is publicly
traded and shall not amend its Certificate of Incorporation or Bylaws so as to
adversely affect any rights of the Warrant Holder under this Warrant in any
material respect.
(b) REPRESENTATIONS AND COVENANTS OF THE PURCHASER. The Purchaser
shall not resell Warrant Shares, unless such resale is pursuant to an effective
registration statement under the Act or pursuant to an applicable exemption from
such registration requirements and such sale otherwise complies with state and
federal securities laws.
5. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES.
The number and kind of securities purchasable upon exercise of this
Warrant and the Purchase Price shall be subject to adjustment from time to time
as follows:
(a) SUBDIVISIONS, COMBINATIONS AND OTHER ISSUANCES. If the Company
shall at any time after the date hereof but prior to the expiration of this
Warrant subdivide its outstanding securities as to which purchase rights under
this Warrant exist, by split-up, or otherwise, or combine its outstanding
securities as to which purchase rights under this Warrant exist, the number of
Warrant Shares as to which this Warrant is exercisable as of the date of such
split-up or combination shall forthwith be proportionately increased in the case
of a split-up, or
-3-
proportionately decreased in the case of a combination. Appropriate
adjustments shall also be made to the Purchase Price payable per share, so
that the aggregate Purchase Price payable for the total number of Warrant
Shares purchasable under this Warrant as of such date shall remain the same.
(b) STOCK DIVIDEND. If at any time after the date hereof but prior
to the expiration of this Warrant, the Company declares a dividend or other
distribution on Common Stock payable in Common Stock or other securities or
rights convertible into Common Stock ("Common Stock Equivalents") without
payment of any consideration by holders of Common Stock for the additional
shares of Common Stock or the Common Stock Equivalents (including the additional
shares of Common Stock issuable upon exercise or conversion thereof), then the
number of shares of Common Stock for which this Warrant may be exercised shall
be increased as of the record date (or the date of such dividend distribution if
no record date is set) for determining which holders of Common Stock shall be
entitled to receive such dividends, in proportion to the increase in the number
of outstanding shares (and shares of Common Stock issuable upon conversion of
all such securities convertible into Common Stock) of Common Stock as a result
of such dividend, and the Purchase Price per share shall be adjusted so that the
aggregate Purchase Price for the Warrant Shares issuable hereunder immediately
after the record date (or on the date of such distribution, if applicable), for
such dividend shall equal the aggregate Purchase Price immediately before such
record date (or on the date of such distribution, if applicable).
(c) OTHER DISTRIBUTIONS. If at any time after the date hereof but
prior to the expiration of this Warrant, the Company distributes to holders of
its Common Stock, other than as part of its dissolution, liquidation or the
winding up of its affairs, any shares of its capital stock, any evidence of
indebtedness or any of its assets (other than cash, Common Stock or securities
convertible into or exchangeable for Common Stock), then the number of Warrant
Shares for which this Warrant is exercisable shall be increased to equal: (i)
the number of Warrant Shares for which this Warrant is exercisable immediately
prior to such event, (ii) multiplied by a fraction, (A) the numerator of which
shall be the Fair Market Value per share of Common Stock on the record date for
the dividend or distribution, and (B) the denominator of which shall be the Fair
Market Value per share of Common Stock on the record date for the dividend or
distribution minus the amount allocable to one share of Common Stock of the
value (as determined in good faith by the Board of Directors of the Company) of
any and all such evidences of indebtedness, shares of capital stock, other
securities or property, so distributed. The Purchase Price shall be reduced to
equal: (i) the Purchase Price in effect immediately before the occurrence of any
such event (ii) multiplied by a fraction, (A) the numerator of which is the
number of Warrant Shares for which this Warrant is exercisable immediately
before the adjustment, and (B) the denominator of which is the number of Warrant
Shares for which this Warrant is exercisable immediately after the adjustment.
(d) MERGER, ETC. If at any time after the date hereof there shall
be a merger or consolidation of the Company with or into or a transfer of all or
substantially all of the assets of the Company to another entity, then the
Warrant Holder shall be entitled to receive upon payment of the aggregate
Purchase Price then in effect, the number of shares or other securities or
property of the Company or of the successor corporation resulting from such
merger or consolidation,
-4-
which would have been received by Warrant Holder for the shares of stock
subject to this Warrant had this Warrant been exercised just prior to such
transfer, merger or consolidation becoming effective or to the applicable
record date thereof, as the case may be. The Company will not merge into or
consolidate with or into any other corporation, or sell or otherwise transfer
its property, assets and business substantially as an entirety to another
corporation, unless the corporation resulting from such merger or
consolidation (if not the Company), or such transferee corporation, as the
case may be, shall expressly assume, by supplemental agreement reasonably
satisfactory in form and substance to the Warrant Holder, the due and
punctual performance and observance of each and every covenant and condition
of this Warrant to be performed and observed by the Company.
(e) RECLASSIFICATION, ETC. If at any time after the date hereof
there shall be a reorganization or reclassification of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, then the Warrant Holder
shall thereafter be entitled to receive upon exercise of this Warrant, during
the period specified herein and upon payment of the Purchase Price then in
effect, the number of shares or other securities or property resulting from such
reorganization or reclassification, which would have been received by the
Warrant Holder for the shares of stock subject to this Warrant had this Warrant
at such time been exercised.
6. NO IMPAIRMENT.
The Company will not, by amendment of its Certificate of Incorporation
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out all of such terms
and in the taking of all such action as may be reasonably necessary or
appropriate in order to protect the rights of the Warrant Holder against
impairment. Without limiting the generality of the foregoing, the Company (a)
will not increase the par value of any Warrant Shares above the amount payable
therefor on such exercise, and (b) will take all such action as may be
reasonably necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares on the exercise of
this Warrant.
7. NOTICE OF ADJUSTMENTS.
Whenever the Purchase Price or number of Warrant Shares purchasable
hereunder shall be adjusted pursuant to Section 5 hereof, the Company shall
execute and deliver to the Warrant Holder (by first class mail, postage prepaid)
a certificate setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated and the Purchase Price and number of shares purchasable hereunder
after giving effect to such adjustment.
8. RIGHTS AS SHAREHOLDER.
Prior to exercise of this Warrant, the Warrant Holder shall not be
entitled to any rights as a stockholder of the Company with respect to the
Warrant Shares, including (without limitation)
-5-
the right to vote such shares, receive dividends or other distributions
thereon or be notified of stockholder meetings. However, in the event of any
taking by the Company of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to
receive any dividend or other distribution (other than a cash dividend), any
right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right
(other than the right to vote), the Company shall provide notice pursuant to
Section 13 below to each Warrant Holder, at least 10 days prior to the date
of such record, therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
9. LIMITATION ON EXERCISE.
Notwithstanding anything to the contrary contained herein, this Warrant
may not be exercised by the Warrant Holder to the extent that, after giving
effect to Warrant Shares to be issued pursuant to a Subscription Notice, the
total number of shares of Common Stock deemed beneficially owned by such holder
(other than by virtue of ownership of this Warrant, or ownership of other
securities that have limitations on the holder's rights to convert or exercise
similar to the limitations set forth herein), together with all shares of Common
Stock deemed beneficially owned by the holder's "affiliates" (as defined in Rule
144 of the Act) that would be aggregated for purposes of determining whether a
group under Section 13(d) of the Securities Exchange Act of 1934 exists, would
exceed 9.9% of the total issued and outstanding shares of the Common Stock. The
delivery of a Subscription Notice by the Warrant Holder shall be deemed a
representation by such holder that it is in compliance with this paragraph. The
term "deemed beneficially owned" as used in this Warrant shall exclude shares
that might otherwise be deemed beneficially owned by reason of the exercise of
this Warrant.
10. REPLACEMENT OF WARRANT.
On receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of the Warrant and, in the case of any
such loss, theft or destruction of the Warrant, on delivery of an indemnity
agreement or security reasonably satisfactory in form and amount to the Company
or, in the case of any such mutilation, on surrender and cancellation of such
Warrant, the Company, at the Warrant Holder's expense will execute and deliver,
in lieu thereof, a new Warrant of like tenor.
-6-
11. SPECIFIC ENFORCEMENT; CONSENT TO JURISDICTION AND CHOICE OF LAW.
(a) The Company and the Warrant Holder acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Warrant were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Warrant and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which either of them may be entitled by
law or equity.
(b) EACH OF THE COMPANY AND THE WARRANT HOLDER (I) HEREBY
IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURT
LOCATED IN SAN FRANCISCO COUNTY, CALIFORNIA FOR THE PURPOSES OF ANY SUIT, ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS WARRANT AND (II) HEREBY WAIVES,
AND AGREES NOT TO ASSERT IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT
IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURT, THAT THE SUIT,
ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF
THE SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH OF THE COMPANY AND THE WARRANT
HOLDER CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING
BY MAILING A COPY THEREOF TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO
IT UNDER THIS WARRANT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND
SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING IN THIS PARAGRAPH
SHALL AFFECT OR LIMIT ANY RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW.
(c) THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
SUCH STATE'S PRINCIPLES OF CONFLICT OF LAWS.
12. ENTIRE AGREEMENT: AMENDMENTS.
This Warrant and the provisions contained in the Agreement and the
Rights Agreement contain the entire understanding of the parties with respect to
the matters covered hereby and thereby and except as specifically set forth
herein and therein, neither the Company nor the Warrant Holder makes any
representation, warranty, covenant or undertaking with respect to such matters.
This Warrant and any term thereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought.
13. NOTICES.
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be effective (a) upon hand delivery or
delivery by telex (with correct answer back received), telecopy or facsimile at
the address or number designated below (if delivered on a business day during
normal business hours where such notice is to be received), or the first
-7-
business day following such delivery (if delivered other than on a business day
during normal business hours where such notice is to be received) or (b) on the
second business day following the date of mailing by express courier service,
fully prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur. The addresses for such communications
shall be:
to the Company:
Cygnus, Inc.
000 Xxxxxxxxx Xxxxx
Xxxxxxx Xxxx, XX 00000
Attn: Chief Executive Officer
Fax: (000) 000-0000
with copies to:
Cygnus, Inc.
000 Xxxxxxxxx Xxxxx
Xxxxxxx Xxxx, XX 00000
Attn: General Counsel
Fax: (000) 000-0000
to the Purchaser:
Cripple Creek Securities, LLC
c/o Palladin Group, L.P.
000 Xxxxxxxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
Attn: Xxxxxx X. Xxxxxxx
Fax: (000) 000-0000
with copies to:
Xxxxxx & Xxxxxx
000 00xx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Attn: Xxxxxxx X. Xxxxx
Fax: (000) 000-0000
Either party hereto may from time to time change its address for notices under
this Section 13 by giving at least 10 days prior written notice of such changed
address to the other party hereto.
14. MISCELLANEOUS.
This Warrant and any term hereof may be changed, waived, discharged
or terminated only by an instrument in writing signed by the party against
which enforcement of such change, waiver, discharge or termination is sought.
The headings in this Warrant are for purposes of reference only, and shall
not limit otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity
or enforceability of any other provisions.
-8-
15. ASSIGNMENT.
This Warrant may not be assigned, by the Warrant Holder, in whole or in
part, without the prior written consent of the Company; PROVIDED, HOWEVER, that
upon written notice to the Company, the Warrant Holder may assign this Warrant,
in whole or in part, to an Affiliate of the Warrant Holder without the Company's
consent. In either case, to effect a transfer of this Warrant, the Warrant
Holder shall submit this Warrant to the Company together with a duly executed
Assignment in substantially the form and substance of the Form of Assignment
which accompanies this Warrant and, upon the Company's receipt hereof, and in
any event, within three (3) business days thereafter, the Company shall issue a
Warrant to the Warrant Holder to evidence that portion of this Warrant, if any
as shall not have been so transferred or assigned.
-9-
Dated: ____ __, 200_
CYGNUS, INC.
By: _______________________________
Printed: ______________
Title: ________________
Attest:
By:____________________________
Its:___________________________
[SIGNATURE PAGE TO WARRANT]
SUBSCRIPTION NOTICE
(FORM OF WARRANT EXERCISE)
(TO BE SIGNED ONLY ON EXERCISE OF WARRANT)
TO _______________
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant:
_____(A) for, and to purchase thereunder, _______________ shares of
Common Stock of Cygnus, Inc., a Delaware corporation (the
"Common Stock"), and herewith, or by wire transfer, makes
payment of $_____therefor; or
_____(B) in a "cashless" or "net-issue exercise" for, and to purchase
thereunder _______________ shares of Common Stock.
The undersigned requests that the certificates for such shares
be issued in the name of, and
_____(A) delivered to ___________________, whose address is
_____________________; or
_____(B) electronically transmitted and credited to the account of
______________ undersigned's prime broker (Account No.
_______________) with Depository Trust Company through its
Deposit Withdrawal Agent Commission system.
Dated: _______________
_______________________
________________________________________
(Signature must conform to name of holder as
specified on the face of the Warrant)
_________________________
(Address)
Tax Identification Number: _____________
____________________
FORM OF ASSIGNMENT
(TO BE SIGNED ONLY ON TRANSFER OF WARRANT)
For value received, the undersigned hereby sells, assigns, and
transfers unto ______________ the right represented by the within Warrant to
purchase ____ shares of Common Stock of Cygnus, Inc., a Delaware corporation, to
which the within Warrant relates, and appoints _________ Attorney to transfer
such right on the books of Cygnus, Inc., a Delaware corporation, with full power
of substitution of premises.
Dated: _______________
________________________________________
(Signature must conform to name of holder as
specified on the face of the Warrant)
________________________________________
(Address)
Signed in the presence of:
__________________________
EXHIBIT B
___________, 200_
Cripple Creek Securities, LLC
000 Xxxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Ladies and Gentlemen:
We have acted as counsel for Cygnus, Inc., a Delaware
corporation (the "Company"), in connection with the proposed issuance and sale
to you of _________ shares (the "Shares") of the Company's common stock, par
value $.001 per share (the "Common Stock"), pursuant to that certain Structured
Equity Line Flexible Financing Agreement, dated as of March 23, 2001 (the
"Agreement"), between you and the Company. This opinion is rendered pursuant to
Section 3.2(h) of the Agreement. Capitalized terms used herein not otherwise
defined shall have the meanings set forth in the Agreement.
We have examined executed copies of the Agreement and such
other documents and certificates of public officials and representatives of the
Company as we have deemed necessary as a basis for the opinion expressed herein.
As to questions of fact material to such opinions, we have, when relevant facts
were not independently established, relied upon certificates of officers of the
Company.
We have assumed the genuineness of all signatures and
documents submitted as originals, that all copies submitted to us conform to the
originals, the legal capacity of all natural persons, and, as to documents
executed by entities other than the Company, that each such entity has complied
with any applicable requirement to file returns and pay taxes under the
California Franchise Tax law and had the power to enter into and perform its
obligations thereunder, and that such documents have been duly authorized,
executed and delivered by, and are binding upon and enforceable against, such
entities.
We assume that you know of no agreements, understandings or
negotiations between the parties not set forth in the Agreement that would
modify the terms or rights and obligations of the parties thereunder.
We express no opinion as to the laws of any jurisdiction other
than the laws of the State of New York, the General Corporation Law of the State
of Delaware and applicable federal laws of the United States.
Based upon the foregoing and subject to the qualifications set
forth below, it is our opinion that:
1. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
2. The Company has full corporate power and authority to
own its properties and to carry on its business in the manner described in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000.
1
3. The authorized capital stock of the Company consists
of 55,000,000 shares of Common Stock, $.001 par value, and 5,000,000 shares of
Preferred Stock, $.001 par value. No shares of the Company's capital stock are
entitled to preemptive rights pursuant to the Company's Certificate of
Incorporation or By-Laws or the General Corporation Law of the State of
Delaware.
4. The Company has full corporate power and authority to
enter into and perform the Agreement and the Registration Rights Agreement
(collectively, the "Transaction Documents") and to issue the Shares.
5. The Transaction Documents have been duly authorized
by all necessary corporate action on the part of the Company, and have been duly
executed and delivered by the Company.
6. The Transaction Documents are valid and binding
obligations of the Company enforceable in accordance with their terms.
7. The Shares will be duly and validly authorized, and,
upon delivery thereof and payment therefor in accordance with the Transaction
Documents, will be duly and validly issued and will be fully paid and
nonassessable.
8. To our knowledge, the execution and delivery of the
Transaction Documents by the Company do not conflict with or violate its
Certificate of Incorporation or By-Laws.
9. To our knowledge, except as described in the SEC
documents and in SCHEDULE 5.8 to the Agreement, there is no litigation pending
or threatened against the Company.
The opinions set forth above are subject to the following
qualifications:
(a) Our opinion in paragraph 6 above is subject to and
limited by: (i) the effect of bankruptcy, insolvency, reorganization,
receivership, conservatorship, arrangement, moratorium or other laws
affecting or relating to the rights of creditors generally; (ii) the
rules governing the availability of specific performance, injunctive
relief or other equitable remedies and general principles of equity,
regardless of whether considered in a proceeding in equity or at law;
(iii) limitations imposed by public policy or applicable law relating
to fiduciary duties; and (iv) the effect of statutes and rules of law
which cannot be waived prospectively by an obligor.
(b) We express no opinion as to:
(1) provisions to the effect that rights or
remedies are not exclusive, that every right or remedy is cumulative
and may be exercised in addition to or with any other right or remedy,
that the election of some particular remedy or remedies does not
preclude recourse to one or another remedy or that failure to exercise
or delay in exercising rights or remedies will not operate as a waiver
of any such right or remedy;
(2) provisions prohibiting waivers of any terms
or provisions of any of the Transaction Documents other than in
writing, or prohibiting oral modifications thereof or modification by
course of dealing to the extent such provisions are inconsistent with
applicable law;
2
(3) the unenforceability under certain
circumstances of provisions indemnifying a party against, or requiring
contributions toward, that party's liability for its own wrongful or
negligent acts or where such indemnification or contribution is
contrary to public policy or prohibited by law;
(4) any provision providing for the exclusive
jurisdiction of a particular court or purporting to waive rights to
trial by jury, service of process or objections to the laying of venue
or to forum on the basis of forum NON CONVENIENS, in connection with
any litigation arising out of or pertaining to the Transaction
Documents;
(5) provisions providing for a penalty in the
event of a default;
(6) provisions of the Transaction Documents to
the extent that they purport to exclude conflict of law principles
under New York law; and
(7) any provision providing for liquidated
damages.
(c) Whenever a statement herein is qualified by "known to
us," "to our knowledge" or similar phrase, it indicates that in the
course of our representation of the Company no information that would
give us current actual knowledge of the inaccuracy of such statement
has come to the attention of the attorneys in this firm who have
rendered legal services in connection with this transaction. We have
not made any independent investigation to determine the accuracy of
such statement, except as expressly described herein. No inference as
to our knowledge of any matters bearing on the accuracy of such
statement should be drawn from the fact of our representation of the
Company in other matters in which such attorneys are not involved.
This opinion is rendered solely for your information in connection with the
transaction described above and may not be relied upon by any other person for
any purpose without our prior written consent.
Very truly yours,
XXXXXX, XXXXXXXXXX & XXXXXXXXX LLP
3
______, 2001
Cripple Creek Securities, LLC
000 Xxxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Ladies and Gentlemen:
I am the Senior Vice President and General Counsel of Cygnus,
Inc., a Delaware corporation (the "Company"), and, in this regard, have acted as
counsel to the Company in connection with the proposed issuance and sale to you
of _________ shares (the "Shares") of the Company's common stock, par value
$.001 per share (the "Common Stock"), pursuant to that certain Structured Equity
Line Flexible Financing Agreement, dated as of March 23, 2001 (the "Agreement"),
between you and the Company. This opinion is rendered pursuant to Section 3.2(h)
of the Agreement. Capitalized terms used herein and not otherwise defined shall
have the meanings set forth in the Agreement.
I have examined executed copies of the Agreement and such
other documents and certificates of public officials and representatives of the
Company as I have deemed necessary as a basis for the opinion expressed herein.
As to questions of fact material to such opinions, I have, when relevant facts
were not independently established, relied upon certificates of officers of the
Company.
I have assumed the genuineness of all signatures and documents
submitted as originals, that all copies submitted to me conform to the
originals, the legal capacity of all natural persons, and, as to documents
executed by entities other than the Company, that each such entity has complied
with any applicable requirement to file returns and pay taxes under the
California Franchise Tax law and had the power to enter into and perform its
obligations thereunder, and that such documents have been duly authorized,
executed and delivered by, and are binding upon and enforceable against, such
entities.
I express no opinion as to the laws of any jurisdiction other
than the laws of the State of California and the federal laws of the United
States.
Based upon the foregoing and subject to the qualifications set
forth below, it is my opinion that:
1. The Company is duly qualified as a foreign
corporation to do business and is in good standing in every United
States jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where
the failure to so qualify would not have a Material Adverse Effect.
2. No shares of the Company's capital stock are entitled
to preemptive rights pursuant to any contract.
3. The execution and delivery by the Company of the
Agreement and the Registration Rights Agreement do not, to my
knowledge, (i) conflict with, constitute a default (or an event with
notice or lapse of time, or both, would become a default) under or give
to others any right of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument of the Company
filed with or incorporated by reference as an exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31, 2000, or
(ii) require the Company to obtain any consent, approval or
authorization of any court or governmental authority.
The opinions set forth above are subject to the following
qualifications:
4
Whenever a statement herein is qualified by "to my
knowledge", it indicates that in the course of representation of the Company
no information that would give me current actual knowledge of the inaccuracy
of such statement has come to my attention.
This opinion is rendered solely for your information in
connection with the transaction described above and may not be relied upon by
any other person for any purpose without my prior written consent.
Very truly yours,
Xxxxxxx X. XxXxxxx
Senior Vice President, General Counsel
and Secretary
5
EXHIBIT C
CYGNUS, INC.
COMPLIANCE CERTIFICATE OF
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
Pursuant to Section 3.2(j) of the Structured Equity Line Flexible
Financing Agreement between Cygnus, Inc.(the "Company") and Cripple Creek
Securities LLC dated as of March 23, 2001 (the "Investment Agreement"), the
undersigned, Xxxx Xxxxxxx, President & Chief Executive Officer of the Company,
solely in his capacity as such, and Xxxxx Xxxxxxx, Chief Financial Officer of
the Company, solely in his capacity as such, each do hereby certify as follows:
1. They are the duly elected and qualified President & Chief
Executive Officer of the Company, and the Chief Financial Officer of the
Company, respectively.
2. The representations and warranties of the Company set forth in
the Investment Agreement and the Registration Rights Agreement are true and
correct when made and as of the date hereof, except for representations and
warranties that speak as of a specific date, which representations and
warranties were true and correct as of such date, and except as disclosed in SEC
Documents.
3. The conditions to Closing contained in Section 3.2(a) through
Section 3.2(l) of the Investment Agreement have been satisfied as of the date
hereof with respect to the Closing to be consummated on the date hereof.
4. There have been no changes to the Certificate of Incorporation
or Bylaws of the Company since March 23, 2001.
5. The Company has performed, satisfied and complied with the
covenants, agreements and conditions required by the Investment Agreement to be
performed, satisfied or complied with by the Company at or prior to such Closing
Date, including but not limited to those set forth in Section 3.2 thereof.
6. We have carefully examined the Registration Statement and
prospectus, and any amendments thereof or supplements thereto (including any
term sheet within the meaning of Rule 434 of the Rules and Regulations), and
(A) such documents contain all statements and information
required to be included therein; the Registration Statement, or any amendment
thereof, does not contain any 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; and the prospectus, as amended or
supplemented, does not include any untrue statement of 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
(B) since the effective date of the Registration
Statement, there has occurred no event required to be set forth in an amended or
supplemented prospectus which has not been so set forth.
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Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Investment Agreement.
In Witness Whereof, the undersigned have executed this Certificate as of this
___ day of ____, 200_.
__________________________________
XXXX XXXXXXX
President & Chief Executive Officer
__________________________________
XXXXX XXXXXXX
Chief Financial Officer
2
