Form of 1997 Unit Purchase Option
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On March 17, 1998, Procept, Inc. ("Procept") completed a merger (the "Merger")
with Pacific Pharmaceuticals, Inc. ("Pacific"). In accordance with the Agreement
and Plan of Merger Between Procept, Procept Acquisition Corp. and Pacific dated
December 10, 1998, as amended, each outstanding option and warrant to purchase
Pacific common stock, $0.02 par value, ("Pacific Common Stock") held by
investors and corporate partners has been assumed by Procept. Each such option
and warrant will continue to have, and be subject to, the terms and conditions
set forth in such option or warrant immediately prior to the Merger except that
(i) each option and warrant shall be exercisable (or will become exercisable in
accordance with its terms) for that number of shares of Procept common stock,
$0.01 par value, ("Procept Common Stock") equal to the product of the number of
shares of Pacific Common Stock that were issuable upon exercise of such option
or warrant immediately prior to the Merger multiplied by 0.10865, rounded down
to the nearest whole number of shares, and (ii) the per share exercise price for
the Procept Common Stock issuable upon exercise of such option and warrant shall
be equal to the quotient, rounded down to the nearest whole cent, determined by
dividing the exercise price per share of Pacific Common Stock at which such
option or warrant was exercisable immediately prior to the Merger by 0.10865.
As of March 25, 1999, there are outstanding 1997 Unit Purchase Options to
purchase an aggregate of (i) 135,817 Class A Warrants to purchase Procept Common
Stock and (ii) 395,065 shares of Procept Common Stock.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND NEITHER SUCH SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF NOR
CONVERSION THEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAW. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
PACIFIC PHARMACEUTICALS, INC.
Form of Unit Purchase Option for the Purchase of Units Consisting of
Shares of preferred Stock and Warrants
No. Option Units
FOR VALUE RECEIVED, PACIFIC PHARMACEUTICALS, INC., a Delaware
corporation (the "Company"), hereby certifies that [ ], or permitted assigns, is
entitled to purchase from the Company, at any time or from time to time
commencing on September 7, 1997 and prior to 5:00 P.M., New York City time, on
September 7, 2007, up to [ ] Units, each Unit consisting of (a) five hundred
(500) shares of Premium Preferred Stock (the "Series A Preferred Stock") of the
Company, par value $25.00 per share and stated value $200.00 per share, (the
"Preferred Stock") and (b) fifty thousand (50,000) Class A Warrants (the "Class
A Warrants") to purchase 50,000 shares of Common Stock of the company, for an
aggregate Unit purchase price of $[ ] (computed on the basis of $110,00 per
Unit). (Hereinafter, (i) said Units are referred to as the "Units", (ii) said
Series A Preferred Stock, together with any other equity securities which may be
issued by the company with respect thereto (other than on conversion thereof) or
in substitution therefor, is referred to as the "Preferred Stock", (iii) said
Class A Warrants are referred to as the "Warrants", (iv) the Common Stock
purchasable upon exercise of the Warrants and into which the Preferred Stock is
convertible, is referred as the "Common Stock", (v) the shares of the Preferred
Stock purchasable hereunder or under any other Option (as hereinafter defined)
are referred to as the "Preferred Shares", (vi) the shares of Common Stock
purchasable upon exercise of the Warrants hereunder or under any other Option
(as hereinafter defined) are referred to as the "Warrant Shares", (vii) the
shares of Common Stock purchasable hereunder or under any other Option (as
hereinafter defined) following the conversion of all shares of Preferred Stock
underlying this Option into Common Stock, or other capital stock of the Company
as the case may be, and each share of Common Stock, or other capital stock of
the Company as the case may be, receivable upon the exercise of the Warrants
underlying this Option are referred to as the "Conversion Shares", (viii) the
aggregate purchase price payable for the Units hereunder is referred to as the
"Aggregate Option Price", (ix) the price payable (initially $110,000 per Unit,
subject to adjustment) for each of the Units, hereunder is referred to as the
"Per Unit Price", (x) this Option, all similar Options issued on the date hereof
and all warrants hereafter issued in exchange or substitution for this Option or
such similar Options are referred to as the "Options" and (xi) the holder of
this Option is referred to as the "Holder" and the holder of this Option and all
other Options are referred to as the " Holders" and Holders of more than fifty
percent (50%) of the outstanding Options are referred to as the "Majority of the
Holders." The Aggregate
Option Price is not subject to adjustment. The Per Unit Price is subject to
adjustment as hereinafter provided, in the event of any such adjustment, the
number of Preferred Shares, Conversion Shares of Warrant Shares, as the case may
be, deliverable upon exercise of this Option shall be adjusted in accordance
with paragraph 3(j) below.
This Option, together with options of like tenor, constituting in the
aggregate Options to purchase 10,0003 Units, was originally issued pursuant to
an agency agreement between the Company and Paramount Capital, Inc., as
placement agent the ("Placement Agent") in connection with a private placement
(the "Offering") of 100.003 Units (the "Offering Units") each Offering Unit
consisting of (a) 500 shares of Series A Preferred Stock (the "Offering
Preferred") and (b) 50,000 Class A Warrants (the "Offering Warrants"), for which
the Placement Agent acted as Placement Agent.
1. Exercise of Option.
(a) this Option may be exercised, in whole at any time or in part
from time to time, commencing on September 7, 1997 and prior to 5:00 P.M., New
York City time, on September 7, 2007 by the Holder:
(i) by the surrender of this Option (with the
subscription form at the end hereof duly executed) at the address
set forth in Subsection 9(a) hereof, together with proper payment of
the Aggregate Option Price, or the proportionate part thereof if
this Option is exercised in part, with payment for the number of
Units made by certified or official bank check payable to the order
of the Company; or
(ii) by the surrender of this Option (with the cashless
exercise form at the end hereof duly executed) (a "Cashless
Exercise") at the address set forth in Subsection 9(a) hereof. The
Option Exchange shall take place on the date specified in the
Cashless Exercise Form or, if later, the date the Cashless Exercise
Form is surrendered to the Company (the "Exchange Date"). Such
presentation and surrender shall be deemed a waiver of the Holder's
obligation to pay the Aggregate Option Price, or the proportionate
part thereof if this Option is exercised in part. In the event of a
Cashless Exercise this Option shall represent the right to subscribe
for and acquire the number of Units (rounded to the next highest
integer) equal to (x) the number of Units specified by the Holder in
its Cashless Exercise Form (the "Total Number") (such number not to
exceed the maximum number of Units subject to this Option, as may be
adjusted from time to time) less (y) the number of Units equal to
the quotient obtained by dividing (A) the product of the total
Number and the existing Per Unit Price by (b) the Market Price Per
Unit. "Market Price Per Unit" shall mean first, if there is a
trading market as indicated in Subsection (a) below for the Units,
such Market Price Per Unit and if there is no such trading market in
the Units, then Market Price Per Unit shall equal the sum of the
aggregate Market Price of all shares of Preferred Stock (the "Market
Price Per Share of Preferred Stock") (or, as the case may be, if
after the Conversion Date (as hereinafter defined), the Common
Stock) (the "Market Price Per Share of Common Stock") and Warrants
(the "Market Price Per Warrant") which comprise a Unit, with the
meanings indicated in Subsections (b) through (G) below:
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(A) If the Units are listed on a national
securities exchange or listed or admitted to unlisted
trading privileges on such exchange of listed for
trading on the Nasdaq Nation Market or the Nasdaq
Smallcap Market, the Market Price Per Unit shall be the
last reported sale price (or if no last sale, the last
quoted ask price) of the Units on such exchange or
market for the trading day immediately preceding the
Exchange Date; or
(B) If the Preferred Stock or Warrants are
listed on a national securities exchange or admitted to
unlisted trading privileges on such exchange or listed
for trading on the Nasdaq Nation Market or the Nasdaq
Smallcap Market, the Market Price Per Share of Preferred
Stock, or Market Price Per Warrant, respectively, shall
be the last reported sale price (or if no last sale, the
last quoted ask price) of the Preferred Stock or
Warrants, respectively, on such exchange or market for
the trading day immediately preceding the Exchange Date;
or
(C) If the Preferred Stock or Warrants are
not so listed or admitted to unlisted trading
privileges, the Market Price Per Share of Preferred
Stock, or Market Price Per Warrant, respectively, shall
be the last reported sale price (or if no last sale, the
last quoted ask price) of the Preferred Stock or
Warrants in the over-the-counter market as reported by
the National Quotation Bureau or similar organization or
in the Pink Sheets for the trading day immediately
preceding the Exchange Date; or
(D) If the Preferred Stock is not so listed
or admitted to unlisted trading privileges and the sale
price (or if no last sale, the last quoted ask price) is
not so reported, the Market Price Per Share of Preferred
Stock shall be the Market Price Per Share of the Common
Stock (as set forth in paragraphs (F) and (G) below)
multiplied by the then effective "conversion rate" for
the Preferred Stock (as defined and used in the
Certificate of Designations for the Series A Preferred
Stock), or if the Market Price Per Share of Common Stock
is not so available, the fair market value of the
Preferred Stock as determined by agreement between the
Board of Directors of the Company and a Majority of the
Holders; or
(E) If the Warrants are not so listed or
admitted to unlisted trading privileges, and the sale
price (or if no last sale, the last quoted ask price) is
not so reported for the Warrants, then Market Price Per
Warrant shall be an amount equal to the difference
between (i) the Market Price Per Share of Common Stock
which may be received upon the exercise of the Warrants,
as determined in paragraphs (F) and (G) below, and (ii)
the Warrant Exercise Price.
(F) (i) If the Common Stock is listed on a
national securities exchange or admitted to unlisted
trading privileges on such exchange or listed for
trading on the Nasdaq National Market or the Nasdaq
Smallcap Market, the Market Price Per Share of Common
Stock shall be the last reported sale price (or if no
last sale, the last quoted ask price) of the Common
Stock on such exchange or market for the trading day
immediately preceding the Exchange Date; or (ii) if the
Common Stock is not so listed or admitted to unlisted
trading privileges, the Market Price
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Per Share of Common Stock shall be the last reported
sale price (or if no last sale, the last quoted ask
price) of the Common Stock in the over-the-counter
market as reported by the National Quotation Bureau or
similar organization or in the Pink Sheets, as the case
may be, for the trading day immediately preceding
Exchange Date;
(G) If the Common Stock is not so listed or
admitted to unlisted trading privileges and the sale
price is (or if no last sale, the last quoted ask price)
not so reported, the Market Price Per Share of Common
Stock shall be the fair market value as determined by
agreement between the Board of Directors of the Company
and a Majority of the Holders; or
(H) If the Company and the Majority of the
Holders are unable to reach agreement on any valuation
matter, such valuation shall be submitted to and
determined by a nationally recognized independent
investment bank selected by the Board of Directors of
the Company and the Majority of the Holders (or, if such
selection cannot be agreed upon promptly, or in any
event within ten days, then such valuation shall be made
by a nationally recognized independent investment
banking firm selected by the American Arbitration
Association in New York City in accordance with its
rules), the costs of which valuation shall be paid for
by the Company.
(iii) by the surrender of this Option (with the
subscription (promissory note) form at the end hereof duly executed)
at the address set forth in Subsection 9(a) hereof, together with
the presentation of a promissory note made payable to the
corporation, duly executed and in the form at the end hereof; such
promissory note shall bear interest annually at a rate equal to 5%
and accrued interest shall be payable on an annual basis. Such
promissory note shall be secured by the securities underlying this
Option, which shall be held in safe-keeping by the Company as
collateral for such indebtedness and shall be due and payable, if
not earlier prepaid in accordance with the terms of the promissory
note, on the date which is ten (10) years from the date hereof.
(b) If this Option is exercised in part, the Holder is entitled to
receive a new Option covering the Units, which have not been exercised and
setting forth the proportionate part of the Aggregate Option Price applicable to
such Units. Upon surrender of this Option, the Company will (i) issue a
certificate or certificates in the name of the Holder for the largest number of
whole shares of the Preferred Stock (or the Conversion Shares following the
conversion Date) and Warrants to which the Holder shall be entitled and, if this
Option is exercised in whole, in lieu of any fractional shares of the Preferred
stock (or the Conversion Shares following the Conversion Date) or Warrants to
which the Holder shall be entitled, pay to the Holder cash in an amount equal to
the fair value of such fractional shares (determined in such reasonable manner
as the Board of Directors of the company shall determine), and (ii) deliver the
other securities and properties receivable upon the exercise of this Option, or
the proportionate part thereof if this Option is exercised in part, pursuant to
the provisions of this Option; provided, however that if this Option is
exercised pursuant to paragraph 1(a)(iii), the Company will issue but shall not
deliver such shares until such time as the promissory note and all accrued
interest thereon shall have been paid in full.
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(c) If this Option is exercised on or after the date on which all
shares of Preferred Stock have been converted into conversion Shares (the
"Conversion Date"), then this Option shall be exercisable only for Units
consisting of Warrants and Conversion Shares at the then applicable Per Unit
Price (including any adjustment pursuant to Section 3 below).
2. Reservation of Warrant Shares, Preferred Shares and Conversion
Shares Listing. The Company agrees that, prior to the expiration of this Option,
the Company will at all times (a) have authorized and in reserve, and will keep
available, solely for issuance and delivery upon the exercise of this Option,
the Units, the Warrants and the Preferred Shares underlying such Units (and,
after the Conversion Date, the Conversion Shares underlying such Units) and
other securities and properties as from time to time shall be receivable upon
the exercise of this Option, free and clear of all restrictions on sale or
transfer, other than under Federal or state securities laws, and free and clear
of all preemptive rights and rights of first refusal and (b) have authorized and
in reserve, and will keep available solely for issuance or delivery upon
exercise of the Warrants and conversion of the Preferred Shares, the shares of
Common Stock, the Warrant Shares and the Conversion Shares and other securities
and properties as from time to time shall be receivable upon such exercise and
conversion, free and clear of all restrictions on sale or transfer, other than
under Federal or state securities laws, and free and clear of all preemptive
rights and rights of first refusal; and (c) if the Company is listed or
hereafter lists its Common Stock on any national securities exchange, the Nasdaq
National Market or the Nasdaq Smallcap Market, use its best efforts to keep the
Conversion Shares authorized for listing on such exchange upon notice of
issuance.
3. Protection Against Dilution.
(a) The anti-dilution provisions of the Warrant Agreement shall
protect the Holder from dilution of the purchase rights represented by the
Warrants. Prior to the Conversion Date and in addition to the protection set
forth in the Articles and the protection set forth in 3(a)(iv), the following
anti-dilution provisions shall protect the Holder from dilution resulting from
the issuance of Preferred Stock, Common Stock and Common Stock equivalents:
(i) if at any time or from time to time after the date
of this Option, the Company shall issue or distribute to the holders
of shares of Preferred Stock evidence of its indebtedness, any other
securities of the Company or any cash, property or other assets
(excluding a subdivision, combination or reclassification, or
dividend or distribution payable in shares of Preferred Stock,
referred to in Subsection 3(a)(ii), and also excluding cash
dividends or cash distributions paid out of net profits legally
available therefor in the full amount thereof (any such non-excluded
event being herein called a "Preferred Stock Special Dividend")),
the Per Unit Price shall be adjusted by multiplying the Per Unit
Price then in effect by a fraction, (A) the numerator of which shall
be (x) the then current Market Price Per Share of Preferred Stock in
effect on the record date of such issuance or distribution less (y)
the fair market value (as determined in good faith by the Company's
Board of Directors) of the evidence of indebtedness, cash,
securities or property, or other assets issued or distributed in
such Preferred Stock Special Dividend applicable to one share of
Preferred Stock and (B) the denominator of which shall be the then
current Market Price Per Share of Preferred Stock in effect on the
record date of such issuance or
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distribution. An adjustment made pursuant to this Subsection 3(a)(i)
shall become effective immediately after the record date of any such
Preferred Stock Special Dividend.
(ii) In case the Company shall hereafter (A) pay a
dividend or make a distribution on its capital stock in shares of
Preferred Stock, (B) subdivide its outstanding shares of Preferred
Stock into a greater number of shares, (C) combine its outstanding
shares of Preferred Stock into a smaller number of shares or (D)
issue by reclassification of its Preferred Stock any shares of
capital stock of the Company (other than the Conversion Shares), the
Per Unit Price shall be adjusted by multiplying the Per Unit Price
by a fraction, the numerator of which shall be the number of shares
of Preferred Stock or other capital stock of the Company which this
Option was convertible into prior to such action and the denominator
of which shall be the number of shares of Preferred Stock or other
capital stock of the Company which he would have owned immediately
following such action had such Option been exercised immediately
prior thereto. An adjustment made pursuant to this Subsection
3(a)(ii) shall become effective immediately after the record date in
the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision,
combination or reclassification.
(iii) Except as provided in Subsections 3(a)(i) and
3(f), in case the company shall hereafter issue or sell any
Preferred Stock, any securities convertible into Preferred Stock,
any rights, options of warrants to purchase Preferred Stock or any
securities convertible into Preferred Stock, in each case for a
price per share or entitling the holders thereof to purchase
Preferred Stock at a price per share (determined by dividing (A) the
total amount, if any, received or receivable by the Company in
consideration of the issuance or sale of such securities plus the
total consideration, if any, payable to the Company upon exercise or
conversion thereof (the "Preferred Stock Total Consideration") by
(B) the number of additional shares of Preferred Stock issued, sold
or issuable upon exercise or conversion of such securities) which is
less than either (x) the then current Market Price Per Share of
Preferred Stock in effect on the date of such issuance or sale or
(y) the original stated value per share of Preferred Stock, the Per
Unit Price shall be adjusted as of the date of such issuance or sale
by multiplying the Per Unit Price then in effect by a fraction, the
numerator of which shall be (x) the sum of (A) the number of shares
of Preferred Stock outstanding on the record date of such issuance
or sale plus (B) the Preferred Stock Total Consideration divided by
the Market Price of the Preferred Stock or the original stated value
per share of Preferred Stock, whichever is greater, and the
denominator of which shall be (y) the number of shares of Preferred
Stock outstanding on the record ate of such issuance or sale plus
the maximum number of additional shares of Preferred Stock issued,
sold or issuable upon exercise or conversion of such securities.
(iv) Notwithstanding the anti-dilution provisions set
forth in Subsections 39a)(i)-(iii), if an event set forth in
Subsections 3(a)(i)-(iii) (a "Trigger Event") shall occur, and
provided that the anti-dilution provisions of the Preferred stock,
as set forth in the Certificates of Designation for the Series A
Preferred Stock (the "Certificate"), shall apply to such Trigger
Event, then any adjustments as a result of the Trigger Event shall
occur as follows: (A) first, the anti-dilution provisions, as set
forth in the Certificate shall
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apply; and (B) second, the anti-dilution provisions set forth in
Subsections 39a)(i)-(iii) shall apply to the extent that the
application of such provisions shall result in the Holder receiving
additional shares of capital stock of the Company, having the Per
Unit Price reduced or otherwise further improve the economic
position of the Holder.
(b) Upon the Conversion Date this Option shall be exercisable per
each underlying Unit into the number of shares of Common Stock that the Holder
would have received had it exercised this Option with respect to such Unit and
all the underlying Preferred Stock into Common Stock immediately prior to such
Conversion Date, subject to any adjustment. In addition, after the Conversion
Date, the following anti-dilution provisions shall protect the Holder from
dilution resulting from the issuance of Common Stock and/or Common Stock
equivalents:
(i) If the Company shall issue or distribute to the
holders of shares of Common Stock evidence of its indebtedness, any
other securities of the Company or any cash, property or other
assets (excluding a subdivision, combination or reclassification, or
dividend or distribution payable in shares of Common Stock, referred
to in Subsection 3(b)(II), and also excluding cash dividends or cash
distributions paid out of net profits legally available therefor in
the full amount thereof (any such non-excluded event being herein
called a "Common Stock Special Dividend")), the Per Unit Price shall
be adjusted by multiplying the Per Unit Price then in effect by a
fraction, (A) the numerator of which shall be (x) the then current
Market Price Per Share of Common Stock in effect on the record ate
of such issuance or distribution less (y) the fair market value (as
determined in good faith by the Company's Board of Directors) of the
evidence of indebtedness, cash, securities or property, or other
assets issued or distributed in such Common Stock Special Dividend
applicable to one share of Common Stock and (B) the denominator of
which shall be the then current Market Price Per share of Common
Stock in effect on the record ate of such issuance or distribution.
An adjustment made pursuant to this Subsection 3(b)(i) shall become
effective immediately after the record ate of any such Common Stock
Special Dividend.
(ii) If the Company shall (A) pay a dividend or make a
distribution on its capital stock in shares of Common Stock, (B)
subdivide its outstanding shares of Common Stock into a greater
number of shares (C), combine its outstanding shares of Common stock
into a smaller number of shares or (D) issue by reclassification of
its Common Stock any shares of capital stock of the Company (other
than the Conversion Shares), the Per Unit Price shall be adjusted by
multiplying the Per Unit Price by a fraction, the numerator of which
shall be number of shares of Common Stock or other capital stock of
the Company which this Option was convertible into prior to such
action and the denominator of which shall be the number of shares of
Common Stock or other capital stock of the Company which he would
have owned immediately following such action had such Option been
exercised immediately prior thereto. An adjustment made pursuant to
this Subsection 3(b)(ii) shall become effective immediately after
the record date in the case of a dividend or distribution and shall
become effective immediately after the effective date in the case of
a subdivision, combination or reclassification.
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(iii) Except as provided in Subsections 3(b)(i) and
3(f), in case the Company shall issue or sell any common Stock, any
securities convertible into Common Stock, any rights, options or
warrants to purchase Common Stock or any securities convertible into
Common Stock, in each case for a price per share or entitling the
holders thereof to purchase Common Stock at a price per share
(determined by dividing (A) the total amount, if any, received or
receivable by the Company in consideration of the issuance or sale
of such securities plus the total consideration, if any, payable to
the company upon exercise or conversion thereof (the Common Stock
Total Consideration"), by (B) the number of additional shares of
Common Stock issued, sold or issuable upon exercise or conversion of
such securities) which is less than either (i) the then current
Market Price Per Share of Common Stock in effect on the date of such
issuance or sale or (ii) the Per Unit Price divided by the number of
shares of Common Stock that each Unit is then exercisable for, the
Per Unit Price shall be adjusted as of the date of such issuance or
sale by multiplying the Per Unit Price then in effect by a fraction,
the numerator of which shall be (x) the sum of (1) the number of
shares of Common Stock outstanding on the record date of such
issuance or sale plus (2) the Total Consideration divided by the
then current Market Price of the Common Stock or the Per Unit Price
divided by the number of shares of Common Stock that each Unit is
then exercisable for, whichever is greater, and the denominator of
which shall be (y) the number of shares of Common Stock outstanding
on the record date of such issuance or sale plus the maximum number
of additional shares of Common Stock issued, sold or issuable upon
exercise or conversion of such securities.
(c) No adjustment in the Per Unit Price shall be required unless
such adjustment would require an increase or decrease of at least $0.05 per
Unit; provided, however, that any adjustments which by reason of this Section
39(c) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment; provided, further, however, that
adjustments shall be required and made in accordance with the provisions of this
Section 3 (other than this Subsection 3(c) not later than such time as may be
required in order to preserve the tax-free nature of a distribution to the
Holder of this Option. All calculations under this Section 3 shall be made to
the nearest cent or to the nearest 1/100th of a share, as the case may be.
Anything in this Section 3 to the contrary notwithstanding, the Company shall be
entitled to make such reductions in the Per Unit Price, in addition to those
required by this Section 3, as it in its discretion shall deem to be advisable
in order that any stock dividend, subdivision of shares or distribution of
rights to purchase stock or securities convertible or exchangeable for stock
hereafter made by the Company to its stockholders shall not be taxable.
(d) Whenever the Per Unit Price is adjusted as provided in this
Section 3 and upon any modification of the rights of a Holder of Options in
accordance with this Section 3, the company shall promptly prepare a brief
statement of the facts requiring such adjustment or modification and the manner
of computing the same and cause copies of such certificate to be mailed to the
Holders of the Options. The Company may, but shall not be obligated to unless
requested by a majority of the Holders of more than fifty percent (50%) of the
outstanding Options, obtain, at its expense, a certificate of a firm or
independent public accountants of recognized standing selected by the Board of
Directors (who may be the regular auditors of the Company) setting forth the Per
Unit Price and the number of Warrants and Preferred Shares of Conversion Shares,
as the case may be, after such adjustment or the effect of such modification,
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a brief statement of the facts requiring such adjustment or modification and the
manner of computing the same and cause copies of such certificate to be mailed
to the Holders of the Options.
(e) If the Board of Directors of the Company shall declare any
dividend or other distribution with respect to the Preferred Stock or Common
Stock other than a cash distribution out of earned surplus, the Company shall
mail notice thereof to the Holders of the Options not less than 10 days prior to
the record date fixed for determining stockholders entitled to participate in
such dividend or other distribution.
(f) No adjustment in the Per Unit Price shall be required in the
case of the issuance by the Company of Preferred Stock (or, if after the
Conversion Date, common Stock) (i) pursuant to the exercise of any Option of
(ii) pursuant to (A) the exercise of any stock options or warrants currently
outstanding or (B) securities issued after the date hereof pursuant to any
Company benefit plan provided such issuances were approved by the Company's
Board of Directors and were issued at a price not less than the fair market
value of such securities on the date of issuance; provided, however, that with
respect to Subsection 3(i)(ii), the issuance of such securities were approved by
the board of Directors of the Company and were issued at a price no less than
the "Conversion Price or the Market Price of the securities on the date of
issuance.
(g) In case of any capital reorganization or reclassification, or
any consolidation or merger to which the Company is a party other than a merger
or consolidation in which the Company is the continuing corporation, or in case
of any sale or conveyance to another entity of the property of the Company as an
entirety or substantially as an entirety, or in the case of any statutory
exchange of securities with another corporation (including any exchange effected
in connection with a merger of a third corporation into the Company), the Holder
of this Option shall have the right thereafter to receive on the exercise of
this Option the kind and amount of securities, cash or other property which the
Holder would have owned or have been entitled to receive immediately after such
reorganization, reclassification, consolidation, merger, statutory exchange,
sale or conveyance had this Option been exercised immediately prior to the
effective date of such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance and in any such case, if necessary,
appropriate adjustment shall be made in the application of the provisions set
forth in this Section 3 with respect to the rights and interests hereafter of
the Holder of this Option to the end that the provisions set forth in this
Section 3 shall thereafter correspondingly be made applicable, as nearly as may
reasonably be, in relation to any shares of stock or other securities or
property thereafter deliverable on the exercise of this Option. The above
provisions of this Subsection 3(g) shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, statutory
exchanges, sales or conveyances. The Company shall require the issuer of any
shares of stock or other securities or property thereafter deliverable on the
exercise of this Option to be responsible for all of the agreements and
obligations of the Company hereunder. Notice of any such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
and of said provisions so proposed to be made, shall be mailed to the Holders of
the Options not less than 30 days prior to such event. A sale of all or
substantially all of the assets of the Company for a consideration consisting
primarily of securities shall be deemed a consolidation or merger for the
foregoing purposes.
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(h) If as a result of an adjustment made pursuant to this Section 3,
the Holder of any Option thereafter surrendered for exercise shall become
entitled to receive shares of two or more classes of capital stock or shares of
Preferred Stock (or if after the Conversion Date, Common Stock) and other
capital stock of the Company, the Board of Directors (whose determination shall
be conclusive and shall be described in a written notice to the Holder of any
Option promptly after such adjustment) shall determine the allocation of the
adjusted Per Unit Price between or among shares or such classes of capital stock
or shares of Preferred Stock (or if after the Conversion Date, Common Stock) and
other capital stock.
(i) Upon the expiration of any rights, options, warrants or
conversion privileges, if such shall not have been exercised, the number of
Units purchasable upon exercise of this Option, to the extent this Option has
not then been exercised, shall, upon such expiration, be readjusted and shall
thereafter be such as they would have been had they been originally adjusted (or
had the original adjustment not been required, as the case may be) on the basis
of (i) the fact that Common Stock, or the Preferred Stock, as the case may be,
if any, actually issued or sold upon the exercise of such rights, options,
warrants or conversion privileges, and (ii) the fact that such shares of Common
Stock or the Preferred Stock, as the case may be, if any, were issued or sold
for the consideration actually received by the Company upon such exercise plus
the consideration, if any, actually received by the Company for the issuance,
sale or grant of all such rights. Options, warrants or conversion privileges
whether or not exercised; provided, however, that no such readjustment shall
have the effect of decreasing the number of Units purchasable upon exercise of
this Option by an amount in excess of the amount of the adjustment initially
made in respect of the issuance, sale or grant of such rights, options, warrants
or conversion privileges.
(j) Whenever the Per Unit Price payable upon exercise of each Option
is adjusted pursuant to this Section 3, (i) the number of shares of Preferred
Stock (or if after the Conversion Date, Common Stock) included in an Unit shall
simultaneously be adjusted by multiplying the number of shares of Preferred
Stock (or if after the Conversion Date, Common Stock) included in an Unit
immediately prior to such adjustment by the Per Unit Price in effect immediately
prior to such adjustment and dividing the product so obtained by the Per Unit
Price, as adjusted and (ii) the number of shares of Common Stock or other
securities issuable upon exercise of the Warrants included in the Units and the
exercise price payable for each of the Warrant Shares (initially $0.96 per
Warrant Share, subject to adjustment) pursuant to the Warrant terms shall be
adjusted in accordance with the applicable terms of the Warrant Agreement.
4. Fully Paid Stock; Taxes. The company agrees that the shares of
the Preferred Stock represented by each and every certificate for Preferred
Shares delivered on the exercise of this Option and the shares of Common Stock
delivered upon the exercise of the Warrants or the conversion of the Preferred
Shares or the exercise of this Option following the conversion of all shares of
Preferred Stock into Common Stock, shall at the time of such delivery, be
validly issued and outstanding, fully paid and nonassessable, and not subject to
preemptive rights or rights of first refusal, and the Company will take all such
actions as may be necessary to assure that the par value or stated value, if
any, per share of the Preferred Stock and the Common Stock is at all times equal
to or less than the then Per Unit Price. The Company further covenants and
agrees that it will pay, when due and payable, any and all Federal and state
stamp, original issue
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or similar taxes which may be payable in respect of the issue of any Warrant
Share, Preferred Share, Conversion Share or any certificate thereof to the
extent required because of the issuance by the Company of such security.
5. Registration Under Securities Act of 1933.
(a) The Holder shall, with respect to the Conversion Shares only,
have the right to participate in the registration rights granted to holders of
Registrable Securities pursuant to Section 5 of the subscription agreements (the
"Subscription Agreements"" between such holders and the Company that were
entered into at the time of the initial sale of the Preferred Stock. By
acceptance of this Option, the Holder agrees to comply with the provisions in
Section 5 of the Subscription Agreement to same extent as if it were a party
thereto.
(b) Until all Conversion Shares have been sold under a Registration
Statement or pursuant to Rule 144, the Company shall use its reasonable best
efforts to file with the Securities and Exchange Commission all current reports
and the information as may be necessary to enable the Holder to effect sales of
its shares in reliance upon rule 144 promulgated under the Act.
6. Investment Intent; Limited Transferability.
(a) The Holder represents, by accepting this Option, that it
understands that this Option and any securities obtainable upon exercise of this
Option or upon conversion of such securities have not been registered for sale
under Federal or state securities laws and are being offered and sold to the
Holder pursuant to one or more exemptions from the registration requirements of
such securities laws. In the absence of an effective registration of such
securities or an exemption therefrom, any certificates for such securities shall
bear the legend set forth on the first page hereof. The Holder understands that
it must bear the economic risk of its investment in this Option and any
securities obtainable upon exercise of this Option or upon conversion of such
securities for an indefinite period of time, as this Option and such securities
have not be registered under Federal or state securities laws and therefore
cannot be sold unless subsequently registered under such laws, unless an
exemption from such registration is available.
(b) The Holder, by his acceptance of its Option, represents to the
Company that is acquiring this Option and will acquire any securities obtainable
upon exercise of this Option for its own account for investment and not with a
view to, or for sale in connection with, any distribution thereof in violation
of the Securities Act of 1933, as amended (the "Act"). The Holder agrees that
this Option and any such securities will not be sold or otherwise transferred
unless (i) a registration statement with respect to such transfer is effective
under the Act any applicable state securities laws or (ii) such sale or transfer
is made pursuant to one or more exemptions from the Act.
(c) This Option may not be sold, transferred, assigned or
hypothecated for six months from the date hereof except (i) to any firm or
corporation that succeeds to all or substantially all of the business of
Paramount Capital, Inc., (ii) to any of the officers, employees, associates of
affiliated companies of Paramount Capital, Inc., or of any such successor firm,
(iii) to any NASD member participating in the Offering or any officer or
employee of any such
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NASD member or (iv) in the case of an individual, pursuant to such individual's
last will and testament or the laws of descent and distribution, and is so
transferable only upon the books of the company which it shall cause to be
maintained for such purpose. The Company may treat the registered Holder of this
Option as he or it appears on the Company's books at any time as the Holder for
all purposes. The Company shall permit any Holder of an Option or its duly
authorized attorney, upon written request during ordinary business hours, to
inspect and copy or make extracts from its books showing the registered holders
of Options. All Options issued upon the transfer or assignment of this Option
will be dated the same date as this Option, and all rights of the holder thereof
shall be identical to those of the Holder.
7. Loss, etc., of Option. Upon receipt of evidence satisfactory to
the Company of the loss, theft, destruction or mutilation of this Option, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Option, if mutilated, the Company
shall execute and deliver to the Holder a new Option of like date, tenor and
denomination.
8. Option Holder Not Stockholder. This Option does not confer upon
the Holder of any right to vote or to consent to or receive notice as a
stockholder of the Company, as such, in respect of any matters whatsoever, or
any other rights or liabilities as a stockholder, prior to the exercise hereof;
this Option does, however, confer certain rights and require certain notices to
Holders as set forth herein.
9. Communication. No notice or other communication under this Option
shall be effective unless, but any notice or other communication shall be
effective and shall be deemed to have been given if, the same is in writing and
is mailed by first-class mail, postage prepaid, addressed to:
(a) the Company at Pacific Pharmaceuticals, Inc., 0000 Xxxx Xxxxx
Xxxx, Xxx Xxxxx, XX 00000 Attn: President or such other address as the company
has designated in writing to the Holder, or
(b) the Holder at c/o Paramount Capital Incorporated, 000 Xxxxxxx
Xxxxxx, Xxx Xxxx, XX 00000 or other such address as the Holder has designated in
writing to he Company
10. Headings. The headings of this Option have been inserted as a
matter of convenience and shall not affect the construction hereof.
11. Applicable Law. This Option shall be governed by and construed
in accordance with the law of the State of New York without giving effect to the
principles of conflicts of law thereof.
12. Amendment, Waiver, etc. Except as expressly provided herein,
neither this Option 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;
provided, however, that any provisions hereof may be amended, waived, discharged
or terminated upon the written consent of the Company and the then current
Majority of the Holders of the Options only.
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IN WITNESS WHEREOF, the Company has caused this Option to be signed
by its President and attested by its Secretary this [ ] day of [ ], 1997.
PACIFIC PHARMACEUTICALS, INC.
By:
-------------------------
Name:
Title:
ATTEST:
----------------------------------
Secretary
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SUBSCRIPTION
------------
The undersigned, __________________________, pursuant to the
provisions of the foregoing Option, hereby agrees to subscribe for and purchase
______________________ Units of Pacific Pharmaceuticals, Inc., each Unit
consisting of one share of the Preferred Stock, $25.00 par value, and one Class
A Warrant covered by said Option, and makes payment therefor in full at the
price per share provided by said Option. The undersigned hereby confirms the
representations and warranties made by it in the Option.
Dated:___________________________ Signature:____________________________
Address:______________________________
SUBSCRIPTION
------------
(promissory note)
The undersigned, __________________________, pursuant to the
provisions of the foregoing Warrant, hereby agrees to subscribe for and purchase
______________________ shares of the {referred Stock, par value $.001 per share,
of Pacific Pharmaceuticals, Inc., covered by said Option, and makes payment
therefor in full at the price per share provided by said Option by delivery of
the attached Promissory Note. The undersigned hereby confirms the
representations and warranties made by it in the Promissory Note.
Dated:____________________________ Signature:____________________________
Address:______________________________
CASHLESS EXERCISE
-----------------
The undersigned ________________________________, pursuant to
the provisions of the foregoing Option, hereby elects to exchange its Option for
__________ Units each Unit consisting of one share of the Preferred Stock,
$25.00 par value, and one Class A Warrant pursuant to the cashless exercise
provisions of the Option. The undersigned hereby confirms the representations
and warranties made by it in the Option.
Dated:_____________________________ Signature:____________________________
Address:______________________________
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ASSIGNMENT
----------
FOR VALUE RECEIVED ________________________ hereby sells,
assigns and transfers unto ______________________________ the foregoing Option
and all rights evidenced thereby, and does irrevocably constitute and appoint
_____________________, attorney, to transfer said Option on the books of Pacific
Pharmaceuticals, Inc.
Dated:___________________________ Signature:_____________________________
Address:_______________________________
PARTIAL ASSIGNMENT
------------------
FOR VALUE RECEIVED ________________________ hereby sells,
assigns and transfers unto ______________________________ the right to purchase
______ Units of Pacific Pharmaceuticals, Inc., each Unit consisting of one share
of Preferred Stock, $26.00 par value, and one Class A Warrant covered by the
foregoing Option, and a proportionate part of said Option and the rights
evidenced thereby, and does irrevocably constitute and appoint _______________,
attorney, to transfer that part of said Option on the books of Pacific
Pharmaceuticals, Inc.
Dated:____________________________ Signature:_____________________________
Address:_______________________________
-15-
