Exhibit-10.1
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT ("Agreement") is made as of the 13th day of
November, 2006 by and among Zila, Inc., a Delaware corporation (the "Company"),
and the Investors set forth on the signature pages affixed hereto (each an
"Investor" and collectively the "Investors").
RECITALS
A. The Company and the Investors are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the U.S.
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended.
B. The Investors wish to purchase from the Company, and the Company
wishes to sell and issue to the Investors, upon the terms and conditions stated
in this Agreement, (i) an aggregate of 9,100,000 shares of the Company's Common
Stock, par value $0.001 per share (together with any securities into which such
shares may be reclassified the "Common Stock") at a purchase price of $1.75 per
share; (ii) an aggregate of $12,075,000 in principal amount of the Company's 12%
Convertible Notes in the form attached hereto as Exhibit A (the "Notes"), which
Notes, only upon the satisfaction of certain conditions, shall automatically
convert into shares of Common Stock, at a conversion price of $1.75 per share
(subject to adjustment); (iii) warrants to purchase an aggregate of up to
5,403,000 shares of Common Stock (subject to adjustment) at an exercise price
equal to $2.21 per share (subject to adjustment) in the form attached hereto as
Exhibit B (the "Initial Warrants"); and (iv) warrants to purchase an aggregate
of up to 3,105,000 shares of Common Stock (subject to adjustment) at an exercise
price equal to $2.21 per share (subject to adjustment) in the form attached
hereto as Exhibit C (the "Additional Warrants" and together with the Initial
Warrants, the "Warrants").
C. Contemporaneous with the sale of the Common Stock, the Notes and
the Warrants, the parties hereto will execute and deliver a Registration Rights
Agreement, in the form attached hereto as Exhibit D (the "Registration Rights
Agreement"), pursuant to which the Company will agree to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder, and applicable state securities laws.
In consideration of the mutual promises made herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. In addition to those terms defined above and elsewhere in
this Agreement, for the purposes of this Agreement, the following terms shall
have the meanings set forth below:
"Additional Warrant Shares" means the shares of Common Stock issuable
upon the exercise of the Additional Warrants.
"Affiliate" means, with respect to any Person, any other Person which
directly or indirectly through one or more intermediaries Controls, is
controlled by, or is under common control with, such Person.
"Amendment" means an amendment to the Company's Certificate of
Incorporation increasing the authorized Common Stock of the Company to
147,500,000 shares.
"Automatic Conversion Date" means the date the principal amount of the
Notes and any accrued and unpaid interest due thereon automatically convert into
fully paid and nonassessable shares of Common Stock in accordance with the terms
and conditions of the Notes.
"Business Day" means a day, other than a Saturday or Sunday, on which
banks in New York City are open for the general transaction of business.
"Company's Knowledge" means the actual knowledge of the executive
officers (as defined in Rule 405 under the 0000 Xxx) of the Company, after due
inquiry.
"Confidential Information" means trade secrets, confidential
information and know-how (including but not limited to ideas, formulae,
compositions, processes, procedures and techniques, research and development
information, computer program code, performance specifications, support
documentation, drawings, specifications, designs, business and marketing plans,
and customer and supplier lists and related information).
"Control" (including the terms "controlling", "controlled by" or
"under common control with") means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Conversion Shares" means the shares of Common Stock issuable upon the
conversion of the Notes.
"Initial Warrant Shares" means the shares of Common Stock issuable
upon the exercise of the Initial Warrants.
"Intellectual Property" means all of the following: (i) patents,
patent applications, patent disclosures and inventions (whether or not
patentable and whether or not reduced to practice); (ii) trademarks, service
marks, trade dress, trade names, corporate names, logos, slogans and Internet
domain names, together with all goodwill associated with each of the foregoing;
(iii) copyrights and copyrightable works; (iv) registrations, applications and
renewals for any of the foregoing; and (v) proprietary computer software
(including but not limited to data, data bases and documentation).
"Material Adverse Effect" means a material adverse effect on (i) the
assets, liabilities, results of operations, condition (financial or other),
business, or prospects of the Company and its Subsidiaries taken as a whole, or
(ii) the ability of the Company to perform its obligations under the Transaction
Documents.
2
"Nasdaq" means The Nasdaq Stock Market, Inc.
"Permitted Acquisition" means the acquisition contemplated by the
non-binding letter of intent described in the Company's definitive proxy
statement, dated September 6, 2006 (the "September Proxy Statement"), of all of
the equity interests of an entity in the dental products industry; provided,
that the acquisition is consummated on substantially the terms described in the
September Proxy Statement.
"Person" means an individual, corporation, partnership, limited
liability company, trust, business trust, association, joint stock company,
joint venture, sole proprietorship, unincorporated organization, governmental
authority or any other form of entity not specifically listed herein.
"Proposals" has the meaning set forth in Section 7.9.
"Purchase Price" means Twenty Eight Million Dollars ($28,000,000).
"Registration Statement" has the meaning set forth in the Registration
Rights Agreement.
"SEC Filings" has the meaning set forth in Section 4.6.
"Securities" means the Shares, the Notes, the Warrants, the Conversion
Shares and the Warrant Shares.
"Senior Secured Convertible Note Transaction" means the transactions
contemplated by that certain Purchase Agreement, by and between the Company and
Balyasny Asset Management L.P., relating to the sale and issuance of (i) an
aggregate of $12,000,000 in principal amount of the Company's 6% Senior Secured
Convertible Notes, which Notes, only upon the satisfaction of certain
conditions, shall, at the option of each holder, be convertible into shares of
Common Stock and (ii) warrants to purchase an aggregate of up to 1,909,091
shares of Common Stock.
"Shares" means the shares of Common Stock being purchased by the
Investors hereunder but, for the avoidance of doubt, shall not include the
Warrant Shares.
"Subsidiary" of any Person means another Person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
Person.
"Trading Day" means (i) if the relevant stock or security is listed or
admitted for trading on The New York Stock Exchange, Inc., the Nasdaq Global
Market, the Nasdaq Capital Market or any other national securities exchange, a
day on which such exchange is open for business; (ii) if the relevant stock or
security is quoted on a system of automated dissemination of quotations of
securities prices, a day on which trades may be effected through such system; or
(iii) if the relevant stock or security is not listed or admitted for trading on
any national securities
3
exchange or quoted on any system of automated dissemination of quotation of
securities prices, a day on which the relevant stock or security is traded in a
regular way in the over-the-counter market and for which a closing bid and a
closing asked price for such stock or security are available, shall mean a day,
other than a Saturday or Sunday, on which The New York Stock Exchange, Inc. is
open for trading.
"Transaction Documents" means this Agreement, the Notes, the Warrants
and the Registration Rights Agreement.
"Warrant Shares" means the shares of Common Stock issuable upon the
exercise of the Warrants.
"1933 Act" means the Securities Act of 1933, as amended, or any
successor statute, and the rules and regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute, and the rules and regulations promulgated thereunder.
2. Purchase and Sale of the Shares, the Notes and the Warrants. Subject to
the terms and conditions of this Agreement, on the Closing Date (as defined
below), each of the Investors shall severally, and not jointly, purchase, and
the Company shall sell and issue to the Investors, the Shares, the Notes and the
Initial Warrants in the respective amounts set forth opposite the Investors'
names on the signature pages attached hereto in exchange for the Purchase Price
as specified in Section 3 below. No later than the close of business on the
Trading Day immediately following the date the Proposals are approved by the
Company's stockholders at the Stockholders Meeting (as defined below) in
accordance with Section 7.9, the Company shall issue to the Investors entitled
thereto the Additional Warrants for no additional consideration in accordance
with Section 7.10.
3. Closing. Upon confirmation that the other conditions to closing
specified herein have been satisfied or duly waived by the Investors, the
Company shall deliver to Xxxxxxxxxx Xxxxxxx PC, in trust, a certificate or
certificates representing the Shares, the Notes and the Initial Warrants, each
registered in such name or names as the Investors may designate, with
instructions that such certificates, Notes or Initial Warrants are to be held
for release to the Investors only upon payment in full of the Purchase Price to
the Company by all the Investors. Upon such receipt by Xxxxxxxxxx Xxxxxxx PC of
the certificates, the Notes and the Initial Warrants, each Investor shall
promptly, but no more than one Business Day thereafter, cause a wire transfer in
same day funds to be sent to the account of the Company as instructed in writing
by the Company, in an amount representing such Investor's pro rata portion of
the Purchase Price as set forth on the signature pages to this Agreement. On the
date (the "Closing Date") the Company receives the Purchase Price, the
certificates evidencing the Shares, the Notes and the Initial Warrants shall be
released to the Investors (the "Closing"). The Closing shall take place at the
offices of Xxxxxxxxxx Xxxxxxx PC, 1251 Avenue of the Xxxxxxxx, 00xx Xxxxx, Xxx
Xxxx, Xxx Xxxx 00000, or at such other location and on such other date as the
Company and the Investors shall mutually agree.
4
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Investors that, except as set forth in the
schedules delivered herewith (collectively, the "Disclosure Schedules"):
4.1 Organization, Good Standing and Qualification. Each of the Company
and its Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority to carry on its business as now
conducted and to own its properties. Each of the Company and its Subsidiaries is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction in which the conduct of its business or its ownership or
leasing of property makes such qualification or leasing necessary unless the
failure to so qualify has not had and could not reasonably be expected to have a
Material Adverse Effect. The Company's Subsidiaries are listed on Schedule 4.1
hereto.
4.2 Authorization. The Company has full power and authority and,
except for approval of the Proposals by its stockholders as contemplated by
Section 7.9, has taken all requisite action on the part of the Company, its
officers, directors and stockholders necessary for (i) the authorization,
execution and delivery of the Transaction Documents, (ii) the authorization of
the performance of all obligations of the Company hereunder or thereunder and
(iii) the authorization, issuance (or reservation for issuance) and delivery of
the Securities. The Transaction Documents constitute, or upon delivery or
issuance, as applicable, will constitute, the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability, relating
to or affecting creditors' rights generally.
4.3 Capitalization. Schedule 4.3 sets forth (a) the authorized capital
stock of the Company as of July 31, 2006; (b) the number of shares of capital
stock issued and outstanding; (c) the number of shares of capital stock issuable
pursuant to the Company's stock plans; and (d) the number of shares of capital
stock issuable and reserved for issuance pursuant to securities (other than the
Securities) exercisable for, or convertible into or exchangeable for any shares
of capital stock of the Company. All of the issued and outstanding shares of the
Company's capital stock have been duly authorized and validly issued and are
fully paid, nonassessable and free of pre-emptive rights and were issued in
compliance in all material respects with applicable state and federal securities
law and any rights of third parties. Except as described on Schedule 4.3, all of
the issued and outstanding shares of capital stock of each Subsidiary have been
duly authorized and validly issued and are fully paid, nonassessable and free of
pre-emptive rights, were issued in compliance in all material respects with
applicable state and federal securities law and any rights of third parties and
are owned by the Company, beneficially and of record, subject to no lien,
encumbrance or other adverse claim. Except as described in the SEC Filings or on
Schedule 4.3, no Person is entitled to pre-emptive or similar statutory or
contractual rights with respect to any securities of the Company. Except as
described in the SEC Filings or on Schedule 4.3, there are no outstanding
warrants, options, convertible securities or other rights, agreements or
arrangements of any character under which the Company or any of its Subsidiaries
is or may be obligated to issue any equity securities of any kind and except as
contemplated by this Agreement and the Senior Secured Convertible Note
Transaction, neither the Company nor any of its Subsidiaries is currently in
negotiations for
5
the issuance of any equity securities of any kind. Except as described in the
SEC Filings or on Schedule 4.3, except for the Registration Rights Agreement and
the registration rights agreement contemplated by the Senior Secured Convertible
Note Transaction, there are no voting agreements, buy-sell agreements, option or
right of first purchase agreements or other agreements of any kind among the
Company and any of the securityholders of the Company relating to the securities
of the Company held by them. Except as described in the SEC Filings or on
Schedule 4.3 and except as provided in the Registration Rights Agreement and the
registration rights agreement contemplated by the Senior Secured Convertible
Note Transaction, no Person has the right to require the Company to register any
securities of the Company under the 1933 Act, whether on a demand basis or in
connection with the registration of securities of the Company for its own
account or for the account of any other Person.
Except as described in the SEC Filings or on Schedule 4.3, the issuance and
sale of the Securities hereunder will not obligate the Company to issue shares
of Common Stock or other securities to any other Person (other than the
Investors) and will not result in the adjustment of the exercise, conversion,
exchange or reset price of any outstanding security.
Except as described in the SEC Filings or on Schedule 4.3, the Company does
not have outstanding stockholder purchase rights or "poison pill" or any similar
arrangement in effect giving any Person the right to purchase any equity
interest in the Company upon the occurrence of certain events.
4.4 Valid Issuance. The Shares have been duly and validly authorized
and, when issued and paid for pursuant to this Agreement, will be validly
issued, fully paid and nonassessable, and shall be free and clear of all
encumbrances and restrictions (other than those created by the Investors),
except for restrictions on transfer set forth in the Transaction Documents or
imposed by applicable securities laws. The Notes and the Warrants have been duly
and validly authorized. Subject to the approval of the Proposals by the
Company's stockholders as contemplated by Section 7.9, the Conversion Shares
have been duly and validly authorized and, when issued upon the due conversion
of the Notes, will be validly issued, fully paid and nonassessable, and shall be
free and clear of all encumbrances and restrictions (other than those created by
the Investors), except for restrictions on transfer set forth in the Transaction
Documents or imposed by applicable securities laws. Upon the due exercise of the
Initial Warrants, the Initial Warrant Shares will be validly issued, fully paid
and non-assessable free and clear of all encumbrances and restrictions, except
for restrictions on transfer set forth in the Transaction Documents or imposed
by applicable securities laws and except for those created by the Investors, and
subject to the approval of the Proposals by the Company's stockholders as
contemplated by Section 7.9, upon the due exercise of the Additional Warrants,
the Additional Warrant Shares will be validly issued, fully paid and
non-assessable free and clear of all encumbrances and restrictions, except for
restrictions on transfer set forth in the Transaction Documents or imposed by
applicable securities laws and except for those created by the Investors. The
Company has reserved a sufficient number of shares of Common Stock for issuance
upon the exercise of the Initial Warrants and subject to the approval of the
Proposals by the Company's stockholders as contemplated by Section 7.9, shall
have reserved a sufficient number of shares of Common Stock for issuance upon
the conversion of the Notes and the exercise of the Additional Warrants, free
and clear of all encumbrances and restrictions, except
6
for restrictions on transfer set forth in the Transaction Documents or imposed
by applicable securities laws and except for those created by the Investors.
4.5 Consents. Except for approval of the Proposals by its stockholders
as contemplated by Section 7.9, the execution, delivery and performance by the
Company of the Transaction Documents and the offer, issuance and sale of the
Securities require no consent of, action by or in respect of, or filing with,
any Person, governmental body, agency, or official other than filings that have
been made pursuant to applicable state securities laws and post-sale filings
pursuant to applicable state and federal securities laws which the Company
undertakes to file within the applicable time periods. Subject to the accuracy
of the representations and warranties of each Investor set forth in Section 5
hereof, the Company has taken all action necessary to exempt (i) the issuance
and sale of the Securities, (ii) the issuance of the Conversion Shares upon due
conversion of the Notes, (iii) the issuance of the Warrant Shares upon due
exercise of the Warrants, and (iv) the other transactions contemplated by the
Transaction Documents from the provisions of any stockholder rights plan or
other "poison pill" arrangement, any anti-takeover, business combination or
control share law or statute binding on the Company or to which the Company or
any of its assets and properties may be subject and any provision of the
Company's Certificate of Incorporation or Bylaws that is or could reasonably be
expected to become applicable to the Investors as a result of the transactions
contemplated hereby, including without limitation, the issuance of the
Securities and the ownership, disposition or voting of the Securities by the
Investors or the exercise of any right granted to the Investors pursuant to this
Agreement or the other Transaction Documents.
4.6 Delivery of SEC Filings; Business. The Company has filed on the
XXXXX system, true and complete copies of the Company's most recent Annual
Report on Form 10-K for the fiscal year ended July 31, 2006 (the "10-K"), and
all other reports filed by the Company pursuant to the 1934 Act since the filing
of the 10-K and prior to the date hereof (collectively, the "SEC Filings"). The
SEC Filings are the only filings required of the Company pursuant to the 1934
Act for such period. The Company and its Subsidiaries are engaged in all
material respects only in the business described in the SEC Filings and the SEC
Filings contain a complete and accurate description in all material respects of
the business of the Company and its Subsidiaries, taken as a whole.
4.7 Use of Proceeds. The net proceeds of the sale of the Shares, the
Notes and the Warrants hereunder shall be used by the Company for working
capital and general corporate purposes; provided, however, that the Company
shall have the right to use the net proceeds from the sale of the Notes only to
fund all or a portion of the purchase price of the Permitted Acquisition (as
defined in the Notes).
4.8 No Material Adverse Change. Since July 31, 2006, except for the
Amendment and except as identified and described in the SEC Filings or as
described on Schedule 4.8, there has not been:
(i) any change in the consolidated assets, liabilities,
financial condition or operating results of the Company from that reflected in
the financial statements included in the 10-K, except for changes in the
ordinary course of business which have not had
7
and could not reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate;
(ii) any declaration or payment of any dividend, or any
authorization or payment of any distribution, on any of the capital stock of the
Company, or any redemption or repurchase of any securities of the Company;
(iii) any material damage, destruction or loss, whether or
not covered by insurance to any assets or properties of the Company or its
Subsidiaries;
(iv) any waiver, not in the ordinary course of business, by
the Company or any Subsidiary of a material right or of a material debt owed to
it;
(v) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company or a Subsidiary, except
in the ordinary course of business and which is not material to the assets,
properties, financial condition, operating results or business of the Company
and its Subsidiaries taken as a whole (as such business is presently conducted
and as it is proposed to be conducted);
(vi) any change or amendment to the Company's Certificate of
Incorporation or Bylaws, or material change to any material contract or
arrangement by which the Company or any Subsidiary is bound or to which any of
their respective assets or properties is subject;
(vii) any material labor difficulties or labor union
organizing activities with respect to employees of the Company or any
Subsidiary;
(viii) any material transaction entered into by the Company
or a Subsidiary other than in the ordinary course of business;
(ix) the loss of the services of any key employee, or
material change in the composition or duties of the senior management of the
Company or any Subsidiary;
(x) the loss or threatened loss of any customer which has
had or could reasonably be expected to have a Material Adverse Effect; or
(xi) any other event or condition of any character that has
had or could reasonably be expected to have a Material Adverse Effect.
4.9 SEC Filings; S-3 Eligibility.
(a) At the time of filing thereof, the SEC Filings complied as to
form in all material respects with the requirements of the 1934 Act and did not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
8
(b) Each registration statement and any amendment thereto filed
by the Company since January 1, 2003 pursuant to the 1933 Act and the rules and
regulations thereunder, as of the date such statement or amendment became
effective, complied as to form in all material respects with the 1933 Act and
did not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein not misleading; and each prospectus filed pursuant to
Rule 424(b) under the 1933 Act, as of its issue date and as of the closing of
any sale of securities pursuant thereto did not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
(c) The Company is eligible to use Form S-3 to register the
Registrable Securities (as such term is defined in the Registration Rights
Agreement) for sale by the Investors as contemplated by the Registration Rights
Agreement.
4.10 No Conflict, Breach, Violation or Default. Subject to the
approval of the Proposals by the Company's stockholders as contemplated by
Section 7.9, the execution, delivery and performance of the Transaction
Documents by the Company and the issuance and sale of the Securities, will not
conflict with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under (i) the Company's Certificate of
Incorporation or the Company's Bylaws, both as in effect on the date hereof, but
after giving effect to the Amendment, (true and complete copies of which have
been made available to the Investors through the XXXXX system), or (ii)(a) any
statute, rule, regulation or order of any governmental agency or body or any
court, domestic or foreign, having jurisdiction over the Company, any Subsidiary
or any of their respective assets or properties, or (b) any agreement or
instrument to which the Company or any Subsidiary is a party or by which the
Company or a Subsidiary is bound or to which any of their respective assets or
properties is subject, except, in the case of clause (ii) for such conflicts,
breaches or violations as could not reasonably be expected to have a Material
Adverse Effect.
4.11 Tax Matters. The Company and each Subsidiary has timely prepared
and filed all tax returns required to have been filed by the Company or such
Subsidiary with all appropriate governmental agencies and timely paid all taxes
shown to be due thereon. The charges, accruals and reserves on the books of the
Company in respect of taxes for all fiscal periods are adequate in all material
respects, and there are no material unpaid assessments against the Company or
any Subsidiary nor, to the Company's Knowledge, any basis for the assessment of
any additional taxes, penalties or interest for any fiscal period or audits by
any federal, state or local taxing authority except for any assessment which is
not material to the Company and its Subsidiaries, taken as a whole. All material
taxes and other assessments and levies that the Company or any Subsidiary is
required to withhold or to collect for payment have been duly withheld and
collected and paid to the proper governmental entity or third party when due.
There are no tax liens or claims pending or, to the Company's Knowledge,
threatened against the Company or any Subsidiary or any of their respective
assets or property. Except as described in the SEC Filings or on Schedule 4.11,
there are no outstanding tax sharing agreements or other such arrangements
between the Company and any Subsidiary or other corporation or entity.
9
4.12 Title to Properties. Except as disclosed in the SEC Filings and
for liens contemplated by the Senior Secured Convertible Note Transaction, the
Company and each Subsidiary has good and marketable title to all real properties
and all other material properties and assets owned by it, in each case free from
liens, encumbrances and defects that would materially affect the value thereof
or materially interfere with the use made or currently planned to be made
thereof by them; and except as disclosed in the SEC Filings, the Company and
each Subsidiary holds any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with the
use made or currently planned to be made thereof by them.
4.13 Certificates, Authorities and Permits. The Company and each
Subsidiary possess adequate certificates, authorities or permits issued by
appropriate governmental agencies or bodies necessary to conduct the business
now operated by it, and neither the Company nor any Subsidiary has received any
written notice of proceedings relating to the revocation or modification of any
such certificate, authority or permit that, if determined adversely to the
Company or such Subsidiary, could reasonably be expected to have a Material
Adverse Effect, individually or in the aggregate.
4.14 Labor Matters.
(a) Except as described in the SEC Filings or on Schedule 4.14,
the Company is not a party to or bound by any collective bargaining agreements
or other agreements with labor organizations. The Company has not violated in
any material respect any laws, regulations, orders or contract terms, affecting
the collective bargaining rights of employees, labor organizations or any laws,
regulations or orders affecting employment discrimination, equal opportunity
employment, or employees' health, safety, welfare, wages and hours.
(b) (i) There are no labor disputes existing, or to the Company's
Knowledge, threatened, involving strikes, slow-downs, work stoppages, job
actions, disputes, lockouts or any other disruptions of or by the Company's
employees, (ii) there are no unfair labor practices or petitions for election
pending or, to the Company's Knowledge, threatened before the National Labor
Relations Board or any other federal, state or local labor commission relating
to the Company's employees, (iii) to the Company's Knowledge, no demand for
recognition or certification heretofore made by any labor organization or group
of employees is pending with respect to the Company and (iv) to the Company's
Knowledge, the Company enjoys good labor and employee relations with its
employees and labor organizations.
(c) The Company is, and at all times has been, in compliance in
all material respects with all applicable laws respecting employment (including
laws relating to classification of employees and independent contractors) and
employment practices, terms and conditions of employment, wages and hours, and
immigration and naturalization. There are no claims pending against the Company
before the Equal Employment Opportunity Commission or any other administrative
body or in any court asserting any violation of Title VII of the Civil Rights
Act of 1964, the Age Discrimination Act of 1967, 42 U.S.C. Sections 1981 or 1983
or any other federal, state or local law, statute or ordinance barring
discrimination in employment.
10
(d) Except as disclosed in the SEC Filings or as described on
Schedule 4.14, the Company is not a party to, or bound by, any employment or
other contract or agreement that contains any severance, termination pay or
change of control liability or obligation, including, without limitation, any
"excess parachute payment," as defined in Section 2806(b) of the Internal
Revenue Code.
(e) Except as specified in Schedule 4.14, each of the Company's
employees is a Person who is either a United States citizen or a permanent
resident entitled to work in the United States. To the Company's Knowledge, the
Company has no liability for the improper classification by the Company of such
employees as independent contractors or leased employees prior to the Closing.
4.15 Intellectual Property.
(a) All Intellectual Property of the Company and its Subsidiaries
is currently in compliance in all material respects with all legal requirements
(including timely filings, proofs and payments of fees) and, to the Company's
Knowledge, is valid and enforceable. Except as described in Schedule 4.15, no
Intellectual Property of the Company or its Subsidiaries which is necessary for
the conduct of Company's and each of its Subsidiaries' respective businesses as
currently conducted has been or is now the subject of any cancellation, dispute
or litigation. To the Company's Knowledge, no such action is threatened except
as described in Schedule 4.15. No patent of the Company or its Subsidiaries has
been or is now the subject of any interference, reissue, re-examination or
opposition proceeding.
(b) All of the licenses and sublicenses and consent, royalty or
other agreements concerning Intellectual Property which are necessary for the
conduct of the Company's and each of its Subsidiaries' respective businesses as
currently conducted to which the Company or any Subsidiary is a party or by
which any of their assets are bound (other than generally commercially
available, non-custom, off-the-shelf software application programs having a
retail acquisition price of less than $10,000 per license) (collectively,
"License Agreements") are valid and binding obligations of the Company or its
Subsidiaries that are parties thereto and, to the Company's Knowledge, the other
parties thereto, enforceable in accordance with their terms, except to the
extent that enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws
affecting the enforcement of creditors' rights generally, and there exists no
event or condition which will result in a material violation or breach of or
constitute (with or without due notice or lapse of time or both) a material
default by the Company or any of its Subsidiaries under any such License
Agreement.
(c) The Company and its Subsidiaries own or have the valid right
to use all of the Intellectual Property that is necessary for the conduct of the
Company's and each of its Subsidiaries' respective businesses as currently
conducted and for the ownership, maintenance and operation of the Company's and
its Subsidiaries' properties and assets, free and clear of all liens,
encumbrances, adverse claims or obligations to license all such owned
Intellectual Property and Confidential Information, other than licenses entered
into in the ordinary course of the Company's and its Subsidiaries' businesses.
To the Company's Knowledge, the Company and its Subsidiaries have a valid and
enforceable right to use all third
11
party Intellectual Property and Confidential Information used or held for use in
the respective businesses of the Company and its Subsidiaries.
(d) To the Company's Knowledge, the conduct of the Company's and
its Subsidiaries' businesses as currently conducted does not infringe or
otherwise impair or conflict with (collectively, "Infringe") any Intellectual
Property rights of any third party or any confidentiality obligation owed to a
third party, and, to the Company's Knowledge, the Intellectual Property and
Confidential Information of the Company and its Subsidiaries which are necessary
for the conduct of Company's and each of its Subsidiaries' respective businesses
as currently conducted are not being Infringed by any third party. There is no
litigation or order pending or outstanding or, to the Company's Knowledge,
threatened or imminent, that seeks to limit or challenge or that concerns the
ownership, use, validity or enforceability of any Intellectual Property or
Confidential Information of the Company and its Subsidiaries and the Company's
and its Subsidiaries' use of any Intellectual Property or Confidential
Information owned by a third party, and, to the Company's Knowledge, there is no
valid basis for the same.
(e) The consummation of the transactions contemplated hereby and
by the other Transaction Documents will not result in the alteration, loss,
impairment of or restriction on the Company's or any of its Subsidiaries'
ownership or right to use any of the Intellectual Property or Confidential
Information which is necessary for the conduct of Company's and each of its
Subsidiaries' respective businesses as currently conducted or as currently
proposed to be conducted.
(f) The Company and its Subsidiaries have taken reasonable steps
to protect the Company's and its Subsidiaries' rights in their Intellectual
Property and Confidential Information. Each employee, consultant and contractor
who has had access to Confidential Information which is necessary for the
conduct of Company's and each of its Subsidiaries' respective businesses as
currently conducted has executed an agreement to maintain the confidentiality of
such Confidential Information and has executed appropriate agreements that are
substantially consistent with the Company's standard forms thereof. To the
Company's Knowledge, except under confidentiality obligations, there has been no
material disclosure of any of the Company's or its Subsidiaries' Confidential
Information to any third party.
4.16 Environmental Matters. Neither the Company nor any Subsidiary is
in violation of any statute, rule, regulation, decision or order of any
governmental agency or body or any court, domestic or foreign, relating to the
use, disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, "Environmental Laws"), owns or operates any real
property contaminated with any substance that is subject to any Environmental
Laws, is liable for any off-site disposal or contamination pursuant to any
Environmental Laws, or is subject to any claim relating to any Environmental
Laws, which violation, contamination, liability or claim has had or could
reasonably be expected to have a Material Adverse Effect, individually or in the
aggregate; and, to the Company's Knowledge, there is no pending or threatened
investigation that might lead to such a claim.
4.17 Litigation. Except as described in the SEC Filings or on Schedule
4.17, there are no pending actions, suits or proceedings against or affecting
the Company, its
12
Subsidiaries or any of its or their properties; and to the Company's Knowledge,
no such actions, suits or proceedings are threatened or contemplated.
4.18 Financial Statements. The financial statements included in each
SEC Filing present fairly, in all material respects, the consolidated financial
position of the Company as of the dates shown and its consolidated results of
operations and cash flows for the periods shown, and such financial statements
have been prepared in conformity with United States generally accepted
accounting principles, applied on a consistent basis ("GAAP") (except as may be
disclosed therein or in the notes thereto, and, in the case of quarterly
financial statements, as permitted by Form 10-Q under the 1934 Act). Except as
set forth in the financial statements of the Company included in the SEC Filings
filed prior to the date hereof or as described on Schedule 4.18, neither the
Company nor any of its Subsidiaries has incurred any liabilities, contingent or
otherwise, except those incurred in the ordinary course of business, consistent
(as to amount and nature) with past practices since the date of such financial
statements, none of which, individually or in the aggregate, have had or could
reasonably be expected to have a Material Adverse Effect.
4.19 Insurance Coverage. The Company and each Subsidiary maintains in
full force and effect insurance coverage that is customary for comparably
situated companies for the business being conducted and properties owned or
leased by the Company and each Subsidiary, and the Company reasonably believes
such insurance coverage to be adequate against all liabilities, claims and risks
against which it is customary for comparably situated companies to insure.
4.20 Compliance with Nasdaq Continued Listing Requirements. The
Company is in compliance with applicable Nasdaq continued listing requirements.
There are no proceedings pending or, to the Company's Knowledge, threatened
against the Company relating to the continued listing of the Common Stock on
Nasdaq and the Company has not received any notice of, nor to the Company's
Knowledge is there any basis for, the delisting of the Common Stock from Nasdaq.
4.21 No Manipulation. The Company has not taken and will not take any
action designed to or that might reasonably be expected to cause or result in an
unlawful manipulation of the price of the Common Stock.
4.22 Brokers and Finders. No Person will have, as a result of the
transactions contemplated by the Transaction Documents, any valid right,
interest or claim against or upon the Company, any Subsidiary or an Investor for
any commission, fee or other compensation pursuant to any agreement, arrangement
or understanding entered into by or on behalf of the Company, other than as
described in Schedule 4.22.
4.23 No Directed Selling Efforts or General Solicitation. Neither the
Company nor any Person acting on its behalf has conducted any general
solicitation or general advertising (as those terms are used in Regulation D) in
connection with the offer or sale of any of the Securities.
13
4.24 No Integrated Offering. Neither the Company nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any Company security or solicited any
offers to buy any security, under circumstances that would adversely affect
reliance by the Company on Section 4(2) for the exemption from registration for
the transactions contemplated hereby or would require registration of the
Securities under the 1933 Act.
4.25 Private Placement. Assuming the accuracy of the representations
and warranties of the Investors contained in Section 5 hereof, the offer and
sale of the Securities to the Investors as contemplated hereby is exempt from
the registration requirements of the 1933 Act.
4.26 Questionable Payments. Neither the Company nor any of its
Subsidiaries nor, to the Company's Knowledge, any of their respective current or
former stockholders, directors, officers, employees, agents or other Persons
acting on behalf of the Company or any Subsidiary, has on behalf of the Company
or any Subsidiary or in connection with their respective businesses: (a) used
any corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity; (b) made any direct or
indirect unlawful payments to any governmental officials or employees from
corporate funds; (c) established or maintained any unlawful or unrecorded fund
of corporate monies or other assets; (d) made any false or fictitious entries on
the books and records of the Company or any Subsidiary; or (e) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment of
any nature.
4.27 Transactions with Affiliates. Except as disclosed in the SEC
Filings or as disclosed on Schedule 4.27, none of the officers or directors of
the Company and, to the Company's Knowledge, none of the employees of the
Company is presently a party to any transaction with the Company or any
Subsidiary (other than as holders of stock options and/or warrants, and for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
Company's Knowledge, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
4.28 Internal Controls. The Company is in compliance in all material
respects with the provisions of the Xxxxxxxx-Xxxxx Act of 2002 currently
applicable to the Company. The Company and the Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined in 1934
Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure
controls and procedures to ensure that material information relating to the
Company, including the
14
Subsidiaries, is made known to the certifying officers by others within those
entities, particularly during the period in which the Company's most recently
filed period report under the 1934 Act, as the case may be, is being prepared.
The Company's certifying officers have evaluated the effectiveness of the
Company's disclosure controls and procedures as of the end of the period covered
by the most recently filed periodic report under the 1934 Act (such date, the
"Evaluation Date"). The Company presented in its most recently filed periodic
report under the 1934 Act the conclusions of the certifying officers about the
effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date, there have
been no significant changes in the Company's internal controls (as such term is
defined in Item 308 of Regulation S-K). The Company maintains and will continue
to maintain a standard system of accounting established and administered in
accordance with GAAP and the applicable requirements of the 0000 Xxx.
4.29 Disclosures. Neither the Company nor any Person acting on its
behalf has provided the Investors or their agents or counsel with any
information that constitutes or might constitute material, non-public
information. The written materials delivered to the Investors in connection with
the transactions contemplated by the Transaction Documents do not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained therein, in light of the circumstances
under which they were made, not misleading.
5. Representations and Warranties of the Investors. Each of the Investors
hereby severally, and not jointly, represents and warrants to the Company that:
5.1 Organization and Existence. Such Investor is a validly existing
corporation, limited partnership or limited liability company and has all
requisite corporate, partnership or limited liability company power and
authority to enter into and to consummate the transactions contemplated by the
Transaction Documents and to perform its other obligations thereunder.
5.2 Authorization. The execution, delivery and performance by such
Investor of the Transaction Documents to which such Investor is a party have
been duly authorized and will each constitute the valid and legally binding
obligation of such Investor, enforceable against such Investor in accordance
with their respective terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors' rights generally.
5.3 Purchase Entirely for Own Account. The Securities to be received
by such Investor hereunder will be acquired for such Investor's own account, not
as nominee or agent, and not with a view to the resale or distribution of any
part thereof in violation of the 1933 Act, and such Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same in violation of the 1933 Act without prejudice, however, to such
Investor's right at all times to sell or otherwise dispose of all or any part of
such Securities in compliance with applicable federal and state securities laws.
Nothing contained herein shall be deemed a representation or warranty by such
Investor to hold the Securities for any period of time. Such Investor is not a
broker-dealer registered with the SEC under the 1934 Act or an entity engaged in
a business that would require it to be so registered. Such Investor is acquiring
15
the Securities in the ordinary course of business and does not have any
agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities in violation of the 1933 Act.
5.4 Investment Experience. Such Investor acknowledges that it can bear
the economic risk and complete loss of its investment in the Securities and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment contemplated
hereby.
5.5 Disclosure of Information. Such Investor has had an opportunity to
receive all information related to the Company requested by it and to ask
questions of and receive answers from the Company regarding the Company, its
business and the terms and conditions of the offering of the Securities,
including the merits and risks of investing in the Securities. Such Investor
acknowledges receipt of copies of the SEC Filings. Neither such inquiries nor
any other due diligence investigation conducted by such Investor shall modify,
limit or otherwise affect such Investor's right to rely on the Company's
representations and warranties contained in this Agreement.
5.6 Restricted Securities. Such Investor understands that the
Securities are characterized as "restricted securities" under the U.S. federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the 1933 Act only in certain limited circumstances. The Investor is familiar
with Rule 144 under the 1933 Act and understands the resale limitations imposed
thereunder.
5.7 Legends. It is understood that, except as provided below,
certificates evidencing the Securities may bear the following or any similar
legend:
(a) "The securities represented hereby may not be transferred
unless (i) such securities have been registered for sale pursuant to the
Securities Act of 1933, as amended, (ii) such securities may be sold pursuant to
Rule 144(k), or (iii) the Company has received an opinion of counsel reasonably
satisfactory to it that such transfer may lawfully be made without registration
under the Securities Act of 1933 or qualification under applicable state
securities laws."
(b) If required by the authorities of any state in connection
with the issuance of sale of the Securities, the legend required by such state
authority.
5.8 Accredited Investor. Such Investor is an accredited investor as
defined in Rule 501(a) of Regulation D, as amended, under the 0000 Xxx.
5.9 No General Solicitation. Such Investor did not learn of the
investment in the Securities as a result of any general solicitation or general
advertising.
5.10 Brokers and Finders. No Person will have, as a result of the
transactions contemplated by the Transaction Documents, any valid right,
interest or claim against or upon the Company, any Subsidiary or an Investor for
any commission, fee or other compensation
16
pursuant to any agreement, arrangement or understanding entered into by or on
behalf of such Investor.
5.11 Prohibited Transactions. Such Investor does not currently have
any short position in the Common Stock. Since the earlier to occur of (i) the
last thirty (30) days prior to the date hereof and (ii) the time such Investor
was first contacted with respect to the transactions contemplated hereby,
neither such Investor nor any Affiliate of such Investor which (x) had knowledge
of the transactions contemplated hereby, (y) has or shares discretion relating
to such Investor's investments or trading or information concerning such
Investor's investments, including in respect of the Securities, or (z) is
subject to such Investor's review or input concerning such Affiliate's
investments or trading (collectively, "Trading Affiliates") has, directly or
indirectly, effected or agreed to effect any short sale (as defined in Rule
200(a) of Regulation SHO), whether or not against the box, established any "put
equivalent position" (as defined in Rule 16a-1(h) under the 0000 Xxx) with
respect to the Common Stock, borrowed or pre-borrowed any shares of Common
Stock, granted any other right (including, without limitation, any put or call
option) with respect to the Common Stock or with respect to any security that
includes, relates to or derived any significant part of its value from the
Common Stock, entered into any direct or indirect stock pledge, forward sales
contract, swap, or similar arrangement (including on a total return basis),
sales or other transactions through non-U.S. broker dealers or foreign regulated
brokers, or otherwise sought to hedge its position in the Securities (each, a
"Prohibited Transaction"). Prior to the earlier to occur of (i) the termination
of this Agreement or, (ii) one-hundred twenty (120) days after the public
announcement of the transactions contemplated hereby, such Investor shall not,
and shall cause its Trading Affiliates not to, engage, directly or indirectly,
in a Prohibited Transaction nor any sale, assignment, pledge, hypothecation,
put, call, or other transfer of any of the Common Stock or other securities
acquired hereunder. Such Investor acknowledges that the representations,
warranties and covenants contained in this Section 5.11 are being made for the
benefit of the Investors as well as the Company and that each of the other
Investors shall have an independent right to assert any claims against such
Investor arising out of any breach or violation of the provisions of this
Section 5.11.
6. Conditions to Closing.
6.1 Conditions to the Investors' Obligations. The obligation of each
Investor to purchase the Shares, the Notes and the Initial Warrants at the
Closing is subject to the fulfillment to such Investor's satisfaction, on or
prior to the Closing Date, of the following conditions, any of which may be
waived by such Investor (as to itself only):
(a) The representations and warranties made by the Company in
Section 4 hereof qualified as to materiality shall be true and correct at all
times prior to and on the Closing Date, except to the extent any such
representation or warranty expressly speaks as of an earlier date, in which case
such representation or warranty shall be true and correct as of such earlier
date, and, the representations and warranties made by the Company in Section 4
hereof not qualified as to materiality shall be true and correct in all material
respects at all times prior to and on the Closing Date, except to the extent any
such representation or warranty expressly speaks as of an earlier date, in which
case such representation or warranty shall be true and correct in all material
respects as of such earlier date. The Company shall have performed in all
17
material respects all obligations and covenants herein required to be performed
by it on or prior to the Closing Date.
(b) The Company shall have obtained any and all consents,
permits, approvals, registrations and waivers (excluding approval of the
Proposals by its stockholders) necessary or appropriate for consummation of the
purchase and sale of the Securities and the consummation of the other
transactions contemplated by the Transaction Documents, all of which shall be in
full force and effect.
(c) The Company shall have executed and delivered the
Registration Rights Agreement.
(d) The Company shall have received confirmation from Nasdaq to
the effect that (i) the issuance and sale of the Shares, the Notes and the
Initial Warrants as contemplated hereby will not require stockholder approval
pursuant to the requirements of Nasdaq Marketplace Rule 4350(i), and (ii) the
Shares and the Initial Warrant Shares have been approved for inclusion in The
Nasdaq Global Market upon official notice of issuance.
(e) No judgment, writ, order, injunction, award or decree of or
by any court, or judge, justice or magistrate, including any bankruptcy court or
judge, or any order of or by any governmental authority, shall have been issued,
and no action or proceeding shall have been instituted by any governmental
authority, enjoining or preventing the consummation of the transactions
contemplated hereby or by the other Transaction Documents.
(f) The Company shall have delivered a Certificate, executed on
behalf of the Company by its Chief Executive Officer or its Chief Financial
Officer, dated as of the Closing Date, certifying to the fulfillment of the
conditions specified in subsections (a), (b), (d), (e) and (i) of this Section
6.1.
(g) The Company shall have delivered a Certificate, executed on
behalf of the Company by its Secretary, dated as of the Closing Date, (i)
certifying the resolutions adopted by the Board of Directors of the Company (A)
approving the transactions contemplated by this Agreement and the other
Transaction Documents and, subject to Section 7.9(b) below, the issuance of the
Securities, (B) approving the Amendment and directing that the Amendment be
submitted to the Company's stockholders for approval and (C) calling the
Stockholders Meeting and setting the record and meeting dates therefor, (ii)
certifying the current versions of the Certificate of Incorporation and Bylaws
of the Company and (iii) certifying as to the signatures and authority of
persons signing the Transaction Documents and related documents on behalf of the
Company.
(h) The Investors shall have received an opinion from Xxxxx &
Xxxxxx L.L.P., the Company's counsel, dated as of the Closing Date, in form and
substance reasonably acceptable to the Investors and addressing such legal
matters as the Investors may reasonably request.
(i) No stop order or suspension of trading shall have been
imposed by Nasdaq, the SEC or any other governmental or regulatory body with
respect to public trading in the Common Stock.
18
(j) The Permitted Acquisition will have closed or will close
simultaneous to the transactions contemplated by this Agreement.
6.2 Conditions to Obligations of the Company. The Company's obligation
to sell and issue the Shares, the Notes and the Initial Warrants at the Closing
is subject to the fulfillment to the satisfaction of the Company on or prior to
the Closing Date of the following conditions, any of which may be waived by the
Company:
(a) The representations and warranties made by the Investors in
Section 5 hereof, other than the representations and warranties contained in
Sections 5.3, 5.4, 5.5, 5.6, 5.7, 5.8 and 5.9 (the "Investment
Representations"), shall be true and correct in all material respects when made,
and shall be true and correct in all material respects on the Closing Date with
the same force and effect as if they had been made on and as of said date. The
Investment Representations shall be true and correct in all respects when made,
and shall be true and correct in all respects on the Closing Date with the same
force and effect as if they had been made on and as of said date. The Investors
shall have performed in all material respects all obligations and covenants
herein required to be performed by them on or prior to the Closing Date.
(b) The Investors shall have executed and delivered the
Registration Rights Agreement.
(c) The Investors shall have delivered the Purchase Price to the
Company.
6.3 Termination of Obligations to Effect Closing; Effects.
(a) The obligations of the Company, on the one hand, and the
Investors, on the other hand, to effect the Closing shall terminate as follows:
(i) Upon the mutual written consent of the Company and the
Investors;
(ii) By the Company if any of the conditions set forth in
Section 6.2 shall have become incapable of fulfillment, and shall not have been
waived by the Company;
(iii) By an Investor (with respect to itself only) if any of
the conditions set forth in Section 6.1 shall have become incapable of
fulfillment, and shall not have been waived by the Investor; or
(iv) By either the Company or any Investor (with respect to
itself only) if the Closing has not occurred on or prior to December 15, 2006;
provided, however, that, except in the case of clause (i) above, the party
seeking to terminate its obligation to effect the Closing shall not then be in
breach of any of its representations, warranties, covenants or agreements
contained in this Agreement or the other Transaction
19
Documents if such breach has resulted in the circumstances giving rise to such
party's seeking to terminate its obligation to effect the Closing.
(b) In the event of termination by the Company or any Investor of
its obligations to effect the Closing pursuant to this Section 6.3, written
notice thereof shall forthwith be given to the other Investors and the other
Investors shall have the right to terminate their obligations to effect the
Closing upon written notice to the Company and the other Investors. Nothing in
this Section 6.3 shall be deemed to release any party from any liability for any
breach by such party of the terms and provisions of this Agreement or the other
Transaction Documents or to impair the right of any party to compel specific
performance by any other party of its obligations under this Agreement or the
other Transaction Documents.
7. Covenants and Agreements of the Company.
7.1 Reservation of Common Stock. From and after the effectiveness of
the Amendment, the Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
providing for the conversion of the Notes and the exercise of the Warrants, such
number of shares of Common Stock as shall from time to time equal the Conversion
Shares issuable upon the due conversion of the Notes and the Warrant Shares
issuable upon the due exercise of the Warrants in accordance with their
respective terms.
7.2 Intentionally Omitted.
7.3 No Conflicting Agreements. The Company will not take any action,
enter into any agreement or make any commitment that would conflict or interfere
in any material respect with the Company's obligations to the Investors under
the Transaction Documents.
7.4 Insurance. The Company shall not materially reduce the insurance
coverages described in Section 4.19.
7.5 Compliance with Laws. The Company will comply in all material
respects with all applicable laws, rules, regulations, orders and decrees of all
governmental authorities.
7.6 Listing of Underlying Shares and Related Matters. Promptly
following the date hereof, the Company shall take all necessary action to cause
the Shares and the Initial Warrant Shares to be listed on the Nasdaq Global
Market no later than the Closing Date. Promptly following the Closing, the
Company shall take all necessary action to cause the Conversion Shares and the
Additional Warrant Shares to be listed on the Nasdaq Global Market no later than
the Automatic Conversion Date. Further, if the Company applies to have its
Common Stock or other securities traded on any other principal stock exchange or
market, it shall include in such application the Shares, the Conversion Shares
and the Warrant Shares and will take such other action as is necessary to cause
such Common Stock to be so listed. The Company will use commercially reasonable
efforts to continue the listing and trading of its Common Stock on the Nasdaq
Global Market and, in accordance, therewith, will use commercially reasonable
efforts to comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of such market or exchange, as applicable.
20
7.7 Termination of Covenants. The provisions of Sections 7.2 through
7.5 shall terminate and be of no further force and effect on the date on which
the Company's obligations under the Registration Rights Agreement to register or
maintain the effectiveness of any registration covering the Registrable
Securities (as such term is defined in the Registration Rights Agreement) shall
terminate.
7.8 Removal of Legends. Upon the earlier of (i) registration for
resale pursuant to the Registration Rights Agreement or (ii) Rule 144(k)
becoming available, the Company shall (A) deliver to the transfer agent for the
Common Stock (the "Transfer Agent") irrevocable instructions that the Transfer
Agent shall reissue a certificate representing the Shares, the Conversion Shares
and the Warrant Shares without legends upon receipt by such Transfer Agent of
the legended certificates for such shares or the Notes and/or the Warrants (or
any legended certificates previously issued for such Shares), together with
either (1) a customary representation by the Investor that Rule 144(k) applies
to the shares of Common Stock represented thereby or (2) a statement by the
Investor that such Investor has sold the shares of Common Stock represented
thereby in accordance with the Plan of Distribution contained in the
Registration Statement therefor, and (B) cause its counsel to deliver to the
Transfer Agent one or more blanket opinions to the effect that the removal of
such legends in such circumstances may be effected under the 1933 Act. From and
after the earlier of such dates, upon an Investor's written request, the Company
shall promptly cause certificates representing previously issued Shares,
Conversion Shares or Warrant Shares to be replaced with certificates which do
not bear such restrictive legends, and Conversion Shares subsequently issued
upon due conversion of the Notes and Warrant Shares subsequently issued upon due
exercise of the Warrants shall not bear such restrictive legends provided the
provisions of either clause (i) or clause (ii) above, as applicable, are
satisfied with respect to such Conversion Shares and/or Warrant Shares. When the
Company is required to cause unlegended certificates to replace previously
issued legended certificates, if: (1) unlegended certificates are not delivered
to an Investor within three (3) Business Days of submission by that Investor of
legended certificate(s) and supporting documentation to the Transfer Agent as
provided above and (2) prior to the time such Shares are received free from
restrictive legends, the Investor, or any third party on behalf of such Investor
or for the Investor's account, purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
Investor of such Shares (a "Buy-In"), then the Company shall pay in cash to the
Investor (for costs incurred either directly by such Investor or on behalf of a
third party) the amount by which the total purchase price paid for Common Stock
as a result of the Buy-In (including brokerage commissions, if any) exceeds the
proceeds received by such Investor as a result of the sale to which such Buy-In
relates. The Investor shall provide the Company written notice indicating the
amounts payable to the Investor in respect of the Buy-In.
7.9 Proxy Statement; Stockholders Meeting. (a) The Company shall take
all action necessary to call an annual meeting of its stockholders (the
"Stockholders Meeting"), which shall conclude not later than December 31, 2006
(the "Stockholders Meeting Deadline"), for the purpose of, among other things,
seeking approval of the Company's stockholders for the following proposals
(collectively, the "Proposals"): (i) the issuance and sale to the Investors of
the Notes and applicable Warrant Shares pursuant to Nasdaq Marketplace Rule
4350(i) and (ii) the Amendment. In connection therewith, the Company will, in
accordance with its customary practice for annual meetings, prepare and file
with the SEC proxy materials (including a proxy
21
statement and form of proxy) for use at the Stockholders Meeting and, after
receiving and promptly responding to any comments of the SEC thereon, shall mail
such proxy materials to the stockholders of the Company. Each Investor shall
furnish in writing to the Company such information relating to such Investor and
its investment in the Company as the Company may reasonably request for
inclusion in the Proxy Statement. The Company will comply with Section 14(a) of
the 1934 Act and the rules promulgated thereunder in relation to any proxy
statement (as amended or supplemented, the "Proxy Statement") and any form of
proxy to be sent to the stockholders of the Company in connection with the
Stockholders Meeting, and the Proxy Statement shall not, on the date that the
Proxy Statement (or any amendment thereof or supplement thereto) is first mailed
to stockholders or at the time of the Stockholders Meeting, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein not false or misleading, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies or the Stockholders
Meeting which has become false or misleading. If the Company should discover at
any time prior to the Stockholders Meeting, any event relating to the Company or
any of its Subsidiaries or any of their respective affiliates, officers or
directors that is required to be set forth in a supplement or amendment to the
Proxy Statement, in addition to the Company's obligations under the 1934 Act,
the Company will promptly inform the Investors thereof.
(b) Subject to their fiduciary obligations under applicable law
(as determined in good faith by the Company's Board of Directors after
consultation with the Company's outside counsel), the Company's Board of
Directors shall recommend to the Company's stockholders that the stockholders
vote in favor of the Proposals (the "Company Board Recommendation") and take all
commercially reasonable action (including, without limitation, the hiring of a
proxy solicitation firm of nationally recognized standing) to solicit the
approval of the stockholders for the Proposals unless the Board of Directors
shall have modified, amended or withdrawn the Company Board Recommendation
pursuant to the provisions of the immediately succeeding sentence. The Company
covenants that the Board of Directors of the Company shall not modify, amend or
withdraw the Company Board Recommendation unless the Board of Directors (after
consultation with the Company's outside counsel) shall determine in the good
faith exercise of its business judgment that maintaining the Company Board
Recommendation would violate its fiduciary duty to the Company's stockholders.
Whether or not the Company's Board of Directors modifies, amends or withdraws
the Company Board Recommendation pursuant to the immediately preceding sentence,
the Company shall in accordance with Section 146 of the Delaware General
Corporation Law and the provisions of its Certificate of Incorporation and
Bylaws, (i) take all action necessary to convene the Stockholders Meeting as
promptly as practicable, but no later than the Stockholders Meeting Deadline, to
consider and vote upon the approval of the Proposals and (ii) submit the
Proposals at the Stockholders Meeting to the stockholders of the Company for
their approval.
(c) The Company shall file the Amendment with the Secretary of
State of the State of Delaware no later than the close of business on the date
the Proposals are approved by the Company's stockholders in accordance with this
Section 7.9.
7.10 Delivery of Additional Warrants. On the Trading Day immediately
following the date the Proposals are approved by the Company's stockholders in
accordance
22
with Section 7.9, the Company shall issue and deliver to the Investors for no
additional consideration the Additional Warrants in the amounts set forth
opposite the Investors' names at the addresses set forth opposite such
Investors' names on the signature pages hereto.
8. Survival and Indemnification.
8.1 Survival. The representations, warranties, covenants and
agreements contained in this Agreement shall survive the Closing of the
transactions contemplated by this Agreement.
8.2 Indemnification. The Company agrees to indemnify and hold harmless
each Investor and its Affiliates and their respective directors, officers,
employees and agents from and against any and all losses, claims, damages,
liabilities and expenses (including without limitation reasonable attorney fees
and disbursements and other expenses incurred in connection with investigating,
preparing or defending any action, claim or proceeding, pending or threatened
and the costs of enforcement thereof) (collectively, "Losses") to which such
Person may become subject as a result of any breach of representation, warranty,
covenant or agreement made by or to be performed on the part of the Company
under the Transaction Documents, and will reimburse any such Person for all such
amounts as they are incurred by such Person.
8.3 Conduct of Indemnification Proceedings. Promptly after receipt by
any Person (the "Indemnified Person") of notice of any demand, claim or
circumstances which would or might give rise to a claim or the commencement of
any action, proceeding or investigation in respect of which indemnity may be
sought pursuant to Section 8.2, such Indemnified Person shall promptly notify
the Company in writing and the Company shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Person, and shall assume the payment of all fees and expenses; provided,
however, that the failure of any Indemnified Person so to notify the Company
shall not relieve the Company of its obligations hereunder except to the extent
that the Company is materially prejudiced by such failure to notify. In any such
proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless: (i) the Company and the Indemnified Person shall
have mutually agreed to the retention of such counsel; or (ii) in the reasonable
judgment of counsel to such Indemnified Person representation of both parties by
the same counsel would be inappropriate due to actual or potential differing
interests between them. The Company shall not be liable for any settlement of
any proceeding effected without its written consent, which consent shall not be
unreasonably withheld, but if settled with such consent, or if there be a final
judgment for the plaintiff, the Company shall indemnify and hold harmless such
Indemnified Person from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. Without the prior written
consent of the Indemnified Person, which consent shall not be unreasonably
withheld, the Company shall not effect any settlement of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Person from all liability arising out of such proceeding.
23
9. Miscellaneous.
9.1 Successors and Assigns. This Agreement may not be assigned by a
party hereto without the prior written consent of the Company or the Investors,
as applicable, provided, however, that an Investor may assign its rights and
delegate its duties hereunder in whole or in part to an Affiliate or to a third
party acquiring some or all of its Securities in a private transaction without
the prior written consent of the Company or the other Investors, after notice
duly given by such Investor to the Company provided, that no such assignment or
obligation shall affect the obligations of such Investor hereunder. The
provisions of this Agreement shall inure to the benefit of and be binding upon
the respective permitted successors and assigns of the parties. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
9.2 Counterparts; Faxes. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement may also
be executed via facsimile, which shall be deemed an original.
9.3 Titles 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.
9.4 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given as hereinafter described (i) if given by personal delivery,
then such notice shall be deemed given upon such delivery, (ii) if given by
telex or telecopier, then such notice shall be deemed given upon receipt of
confirmation of complete transmittal, (iii) if given by mail, then such notice
shall be deemed given upon the earlier of (A) receipt of such notice by the
recipient or (B) three days after such notice is deposited in first class mail,
postage prepaid, and (iv) if given by an internationally recognized overnight
air courier, then such notice shall be deemed given one Business Day after
delivery to such carrier. All notices shall be addressed to the party to be
notified at the address as follows, or at such other address as such party may
designate by ten days' advance written notice to the other party:
If to the Company:
Zila, Inc.
0000 Xxxxx 0xx Xxxxxx
Xxxxxxx, Xxxxxxx 00000-0000
Attention: Xxxx X. Xxxxxxxxxxx, Esq.
Fax: (000) 000-0000
If to the Investors:
to the addresses set forth on the signature pages hereto.
24
9.5 Expenses. The parties hereto shall pay their own costs and
expenses in connection herewith, except that the Company shall pay the
reasonable fees and expenses of Xxxxxxxxxx Xxxxxxx PC not to exceed $85,000; it
being understood that Xxxxxxxxxx Xxxxxxx PC has only rendered legal advice to
the Greenway Capital Funds participating in this transaction and not to the
Company or any other Investor in connection with the transactions contemplated
hereby, and that each of the Company and each Investor has relied for such
matters on the advice of its own respective counsel. Such expenses shall be paid
not later than the Closing. The Company shall reimburse the Investors upon
demand for all reasonable out-of-pocket expenses incurred by the Investors,
including without limitation reimbursement of attorneys' fees and disbursements
for one counsel on behalf of the Investors, in connection with any amendment,
modification or waiver of this Agreement or the other Transaction Documents
requested by the Company. In the event that legal proceedings are commenced by
any party to this Agreement against another party to this Agreement in
connection with this Agreement or the other Transaction Documents, the party or
parties which do not prevail in such proceedings shall severally, but not
jointly, pay their pro rata share of the reasonable attorneys' fees and other
reasonable out-of-pocket costs and expenses incurred by the prevailing party in
such proceedings.
9.6 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Investors. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any Securities purchased under this Agreement at the time outstanding,
each future holder of all such Securities, and the Company.
9.7 Publicity. Except as set forth below, no public release or
announcement concerning the transactions contemplated hereby shall be issued by
the Company or the Investors without the prior consent of the Company (in the
case of a release or announcement by the Investors) or the Investors (in the
case of a release or announcement by the Company) (which consents shall not be
unreasonably withheld), except as such release or announcement may be required
by law or the applicable rules or regulations of any securities exchange or
securities market, in which case the Company or the Investors, as the case may
be, shall allow the Investors or the Company, as applicable, to the extent
reasonably practicable in the circumstances, reasonable time to comment on such
release or announcement in advance of such issuance. By 8:30 a.m. (New York City
time) on the Trading Day immediately following the Closing Date, the Company
shall issue a press release disclosing the consummation of the transactions
contemplated by this Agreement. No later than the fourth Trading Day following
the Closing Date, the Company will file a Current Report on Form 8-K attaching
the press release described in the foregoing sentence as well as copies of the
Transaction Documents. In addition, the Company will make such other filings and
notices in the manner and time required by the SEC or Nasdaq. Notwithstanding
the foregoing, the Company shall not publicly disclose the name of any Investor,
or include the name of any Investor in any filing with the SEC (other than the
Registration Statement and any exhibits to filings made in respect of this
transaction in accordance with periodic filing requirements under the 0000 Xxx)
or any regulatory agency or Nasdaq, without the prior written consent of such
Investor, except to the extent such disclosure is required by law or trading
market regulations, in which case the Company shall provide the Investors with
prior notice of such disclosure.
25
9.8 Severability. Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof but shall be interpreted as if it
were written so as to be enforceable to the maximum extent permitted by
applicable law, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction. To the extent permitted by applicable law, the parties hereby
waive any provision of law which renders any provision hereof prohibited or
unenforceable in any respect.
9.9 Entire Agreement. This Agreement, including the Exhibits and the
Disclosure Schedules, and the other Transaction Documents constitute the entire
agreement among the parties hereof with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter hereof and
thereof.
9.10 Further Assurances. The parties shall execute and deliver all
such further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.
9.11 Governing Law; Consent to Jurisdiction; Waiver of Jury Trial.
This Agreement shall be governed by, and construed in accordance with, the
internal laws of the State of New York without regard to the choice of law
principles thereof. Each of the parties hereto irrevocably submits to the
exclusive jurisdiction of the courts of the State of New York located in New
York County and the United States District Court for the Southern District of
New York for the purpose of any suit, action, proceeding or judgment relating to
or arising out of this Agreement and the transactions contemplated hereby.
Service of process in connection with any such suit, action or proceeding may be
served on each party hereto anywhere in the world by the same methods as are
specified for the giving of notices under this Agreement. Each of the parties
hereto irrevocably consents to the jurisdiction of any such court in any such
suit, action or proceeding and to the laying of venue in such court. Each party
hereto irrevocably waives any objection to the laying of venue of any such suit,
action or proceeding brought in such courts and irrevocably waives any claim
that any such suit, action or proceeding brought in any such court has been
brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO
REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND
REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.
9.12 Independent Nature of Investors' Obligations and Rights. The
obligations of each Investor under any Transaction Document are several and not
joint with the obligations of any other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor under any Transaction Document. The decision of each Investor to
purchase Securities pursuant to the Transaction Documents has been made by such
Investor independently of any other Investor. Nothing contained herein or in any
Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to
26
such obligations or the transactions contemplated by the Transaction Documents.
Each Investor acknowledges that no other Investor has acted as agent for such
Investor in connection with making its investment hereunder and that no Investor
will be acting as agent of such Investor in connection with monitoring its
investment in the Securities or enforcing its rights under the Transaction
Documents. Each Investor shall be entitled to independently protect and enforce
its rights, including, without limitation, the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose. The Company acknowledges that each of the Investors
has been provided with the same Transaction Documents for the purpose of closing
a transaction with multiple Investors and not because it was required or
requested to do so by any Investor.
[signature page follows]
27
IN WITNESS WHEREOF, the parties have executed this Agreement or caused
their duly authorized officers to execute this Agreement as of the date first
above written.
The Company: ZILA, INC.
By: /s/ Xxxx X. Xxxxxxxxxxx
------------------------------------
Name: Xxxx X. Xxxxxxxxxxx
Title: Vice President, General Counsel
and Secretary
28
The Investors:
Xxxx Xxxxxxx
By: /s/ Xxxx Xxxxxxx
------------------------------------
Name: Xxxx Xxxxxxx
Title:
---------------------------------
Aggregate Purchase Price: $437,500
Number of Shares: 0
Principal Amount of Notes: $437,500
Number of Initial Warrants: 37,500 (112,500 additional warrants)
Address for Notice:
c/o Goldman Capital Management
000 Xxxx Xxxxxx - 00xx Xxxxx
Xxx Xxxx, XX 00000
29
The Investors:
Crescent International Ltd.
By: /s/ Xxxxxx Xxxxx-Xxxxxxxx
------------------------------------
Name: Xxxxxx Xxxxx-Xxxxxxxx
Title: Authorized Signatory
Aggregate Purchase Price: $749,999.25
Number of Shares: 0
Principal Amount of Notes: $749,999.25
Number of Initial Warrants: 64,285 (192,856 additional warrants)
Address for Notice:
x/x Xxxxxxx (Xxxxxxxxxxx) X.X.
00 Xxxxxx Xxxxx - Xxxxx
XX-0000 Xxxxxxxx/Xxxxxx, Xxxxxxxxxxx
30
The Investors:
BTG Investments, LLC
By: /s/ Xxxxxx X. Xxxx
------------------------------------
Name: Xxxxxx X. Xxxx
Title: Member
Aggregate Purchase Price: $750,001
Number of Shares: 0
Principal Amount of Notes: $750,001
Number of Initial Warrants: 64,285 (192,857 additional warrants)
Address for Notice:
c/x Xxxx Capital Partners, LLC
00 Xxxxxxxxx Xxxxx
Xxxxxxx Xxxxx, XX 00000
31
The Investors:
Visium Balanced Offshore Fund, Ltd.
By: /s/ Xxxx Xxxxxxxx
------------------------------------
Name: Xxxx Xxxxxxxx
Title: CCO
Aggregate Purchase Price: $2,010,977.50
Number of Shares: 0
Principal Amount of Notes: $2,010,977.50
Number of Initial Warrants: 172,369 (517,108 additional warrants)
Address for Notice:
c/o Visium Asset Management, LLC
000 X. 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
32
The Investors:
Visium Balanced Fund, LP
By: /s/ Xxxx Xxxxxxxx
------------------------------------
Name: Xxxx Xxxxxxxx
Title: CCO
Aggregate Purchase Price: $1,207,620.75
Number of Shares: 0
Principal Amount of Notes: $1,207,620.75
Number of Initial Warrants: 103,510 (310,531 additional warrants)
Address for Notice:
c/o Visium Asset Management, LLC
000 X. 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
33
The Investors:
Visium Long Bias Offshore Fund, Ltd.
By: /s/ Xxxx Xxxxxxxx
------------------------------------
Name: Xxxx Xxxxxxxx
Title: CCO
Aggregate Purchase Price: $1,409,429
Number of Shares: 0
Principal Amount of Notes: $1,409,429
Number of Initial Warrants: 120,808 (362,424 additional warrants)
Address for Notice:
c/o Visium Asset Management, LLC
000 X. 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
34
The Investors:
Visium Long Bias Fund, LP
By: /s/ Xxxx Xxxxxxxx
------------------------------------
Name: Xxxx Xxxxxxxx
Title: CCO
Aggregate Purchase Price: $371,973
Number of Shares: 0
Principal Amount of Notes: $371,973
Number of Initial Warrants: 31,883 (95,650 additional warrants)
Address for Notice:
c/o Visium Asset Management, LLC
000 X. 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
35
The Investors:
Iroquois Master Fund Ltd.
By: /s/ Xxxxxx Xxxxxxxxx
------------------------------------
Name: Xxxxxx Xxxxxxxxx
Title: Authorized Signatory
Aggregate Purchase Price: $749,999.25
Number of Shares: 0
Principal Amount of Notes: $749,999.25
Number of Initial Warrants: 64,285 (192,856 additional warrants)
Address for Notice:
000 Xxxxxxxxx Xxx., 00xx Xxxxx
Xxx Xxxx, XX 00000
36
The Investors:
SF Capital Partners Ltd.
By: /s/ Xxxxx X. Xxxxxxxx
------------------------------------
Name: Xxxxx X. Xxxxxxxx
Title: Managing Director
Aggregate Purchase Price: $2,387,500.50
Number of Shares: 0
Principal Amount of Notes: $2,387,500.50
Number of Initial Warrants: 204,642 (613,928 additional warrants)
Address for Notice:
c/x Xxxxx Offshore Management LLC
Attn: Xxxxx X. Xxxxxxxx
0000 Xxxxx Xxxx Xxxxx
Xx. Xxxxxxx, XX 00000
37
The Investors:
Xxxxxx Xxxxx Capital, L.P.
By: WS Capital Management, L.P., General
Partner
By: WS Capital, L.L.C., General Partner
By: /s/ Xxxx X. Xxxxxx
------------------------------------
Name: Xxxx X. Xxxxxx
Title: Member
Aggregate Purchase Price: $50,700
Number of Shares: 0
Principal Amount of Notes: $50,700
Number of Initial Warrants: 4,345 (13,036 additional warrants)
Address for Notice:
Xxxxxx Xxxxx Capital, L.P.
000 Xxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxx, XX 00000
38
The Investors:
Xxxxxx Xxxxx Capital (QP), L.P.
By: WS Capital Management, L.P., General
Partner
By: WS Capital, L.L.C., General Partner
By: /s/ Xxxx X. Xxxxxx
------------------------------------
Name: Xxxx X. Xxxxxx
Title: Member
Aggregate Purchase Price: $325,500
Number of Shares: 0
Principal Amount of Notes: $325,500
Number of Initial Warrants: 27,900 (83,700 additional warrants)
Address for Notice:
Xxxxxx Xxxxx Capital (QP), L.P.
000 Xxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxx, XX 00000
39
The Investors:
Xxxxxx Xxxxx International Fund, Ltd.
By: WS Capital Management, L.P., as
agent and attorney in fact
By: WS Capital, L.L.C., General Partner
By: /s/ Xxxx X. Xxxxxx
------------------------------------
Name: Xxxx X. Xxxxxx
Title: Member
Aggregate Purchase Price: $453,700
Number of Shares: 0
Principal Amount of Notes: $453,700
Number of Initial Warrants: 38,888 (116,665 additional warrants)
Address for Notice:
WS Opportunity Fund International, Ltd.
000 Xxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxx, XX 00000
40
The Investors:
HHMI Investments, L.P.
By: WS Capital Management, L.P.,
Investment Manager
By: WS Capital, L.L.C., General Partner
By: /s/ Xxxx X. Xxxxxx
------------------------------------
Name: Xxxx X. Xxxxxx
Title: Member
Aggregate Purchase Price: $170,100
Number of Shares: 0
Principal Amount of Notes: $170,100
Number of Initial Warrants: 14,580 (43,740 additional warrants)
Address for Notice:
HHMI Investments, L.P.
000 Xxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxx, XX 00000
41
The Investors:
SRB Greenway Capital, L.P.
By: SRB Management, L.P., General
Partner
By: BC Advisors, L.L.C., General Partner
By: /s/ Xxxxxx X. Xxxxxx
------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Member
Aggregate Purchase Price: $104,600
Number of Shares: 0
Principal Amount of Notes: $104,600
Number of Initial Warrants: 8,965 (26,896 additional warrants)
Address for Notice:
SRB Greenway Capital, L.P.
000 Xxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxx, XX 00000
42
The Investors:
SRB Greenway Capital (QP), L.P.
By: SRB Management, L.P., General
Partner
By: BC Advisors, L.L.C., General Partner
By: /s/ Xxxxxx X. Xxxxxx
------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Member
Aggregate Purchase Price: $857,200
Number of Shares: 0
Principal Amount of Notes: $857,200
Number of Initial Warrants: 73,474 (220,423 additional warrants)
Address for Notice:
SRB Greenway Capital (QP), L.P.
000 Xxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxx, XX 00000
43
The Investors:
SRB Greenway Offshore Operating Fund,
L.P.
By: SRB Management, L.P., General
Partner
By: BC Advisors, L.L.C., General Partner
By: /s/ Xxxxxx X. Xxxxxx
------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Member
Aggregate Purchase Price: $38,200
Number of Shares: 0
Principal Amount of Notes: $38,200
Number of Initial Warrants: 3,274 (9,823 additional warrants)
Address for Notice:
SRB Greenway Offshore Operating Fund, L.P.
000 Xxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxx, XX 00000
44
The Investors:
Mac & Co.
By: /s/ Xxxx Xxxxxx
------------------------------------
Name: Xxxx Xxxxxx
Title: Investment Advisor to Purchaser
Aggregate Purchase Price: $222,460
Number of Shares: 127,120
Principal Amount of Notes: $0
Number of Initial Warrants: 61,017
Address for Notice:
c/o Xxxxxxx Xxxxx & Company, LLC
000 X. Xxxxx Xxxxxx
Xxxxxxx, XX 00000
45
The Investors:
Xxxxxxx & Co., FFC City of Dearborn
Policemen and Firemen Revised
Retirement Systems
By: /s/ Xxxx Xxxxxx
------------------------------------
Name: Xxxx Xxxxxx
Title: Investment Advisor to Purchaser
Aggregate Purchase Price: $84,600.25
Number of Shares: 48,343
Principal Amount of Notes: $0
Number of Initial Warrants: 23,204
Address for Notice:
c/o Xxxxxxx Xxxxx & Company, LLC
000 X. Xxxxx Xxxxxx
Xxxxxxx, XX 00000
46
The Investors:
Xxxxxxx & Co., FFC City of Dearborn
General Employees Retirement Systems
By: /s/ Xxxx Xxxxxx
------------------------------------
Name: Xxxx Xxxxxx
Title: Investment Advisor to Purchaser
Aggregate Purchase Price: $53,145.75
Number of Shares: 30,369
Principal Amount of Notes: $0
Number of Initial Warrants: 14,577
Address for Notice:
c/o Xxxxxxx Xxxxx & Company, LLC
000 X. Xxxxx Xxxxxx
Xxxxxxx, XX 00000
47
The Investors:
Xxxxxxx Xxxxx Small Cap Growth Fund
By: /s/ Xxxx Xxxxxx
------------------------------------
Name: Xxxx Xxxxxx
Title: Investment Advisor to Purchaser
Aggregate Purchase Price: $8,281,614.25
Number of Shares: 4,732,351
Principal Amount of Notes: $0
Number of Initial Warrants: 2,271,528
Address for Notice:
c/o Xxxxxxx Xxxxx & Company, LLC
000 X. Xxxxx Xxxxxx
Xxxxxxx, XX 00000
48
The Investors:
Booth & Co., FFC Hartmarx
Retirement Income Trust
By: /s/ Xxxx Xxxxxx
------------------------------------
Name: Xxxx Xxxxxx
Title: Investment Advisor to Purchaser
Aggregate Purchase Price: $109,697
Number of Shares: 62,684
Principal Amount of Notes: $0
Number of Initial Warrants: 30,088
Address for Notice:
c/o Xxxxxxx Xxxxx & Company, LLC
000 X. Xxxxx Xxxxxx
Xxxxxxx, XX 00000
49
The Investors:
Booth & Co., FFC Rush University Medical
Center Endowment Fund
By: /s/ Xxxx Xxxxxx
------------------------------------
Name: Xxxx Xxxxxx
Title: Investment Advisor to Purchaser
Aggregate Purchase Price: $143,911.25
Number of Shares: 82,235
Principal Amount of Notes: $0
Number of Initial Warrants: 39,472
Address for Notice:
c/o Xxxxxxx Xxxxx & Company, LLC
000 X. Xxxxx Xxxxxx
Xxxxxxx, XX 00000
50
The Investors:
Booth & Co., FFC Rush University Medical
Center Pension and Retirement
By: /s/ Xxxx Xxxxxx
------------------------------------
Name: Xxxx Xxxxxx
Title: Investment Advisor to Purchaser
Aggregate Purchase Price: $173,321.75
Number of Shares: 99,041
Principal Amount of Notes: $0
Number of Initial Warrants: 47,539
Address for Notice:
c/o Xxxxxxx Xxxxx & Company, LLC
000 X. Xxxxx Xxxxxx
Xxxxxxx, XX 00000
51
The Investors:
MicroCapital Fund LP
By: /s/ Xxxxx X. Xxxxxxx
------------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Senior Vice President
Aggregate Purchase Price: $4,768,750
Number of Shares: 2,725,000
Principal Amount of Notes: $0
Number of Initial Warrants: 1,308,000
Address for Notice:
MicroCapital Fund LP
000 Xxxxx Xxxxxx, Xxx. 0000
Xxx Xxxx, XX 00000
52
The Investors:
MicroCapital Fund Ltd.
By: /s/ Xxxxx X. Xxxxxxx
------------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Managing Member, MicroCapital LLC
Aggregate Purchase Price: $1,662,500
Number of Shares: 950,000
Principal Amount of Notes: $0
Number of Initial Warrants: 456,000
Address for Notice:
MicroCapital Fund Ltd.
000 Xxxxx Xxxxxx, Xxx. 0000
Xxx Xxxx, XX 00000
53
The Investors:
Whalehaven Capital Fund Limited
By: /s/ Xxxx Xxxxxxxxxxx
------------------------------------
Name: Xxxx Xxxxxxxxxxx
Title: Chief Financial Officer
Aggregate Purchase Price: $424,999.75
Number of Shares: 242,857
Principal Amount of Notes: $0
Number of Initial Warrants: 116,571
Address for Notice:
0xx Xxxxx, 00 Xxx-Xx-Xxxxx Xxxx
P.O. Box HM1027
Xxxxxxxx HMDX Bermuda
54
EXHIBIT A
THE SECURITIES REPRESENTED HEREBY MAY NOT BE TRANSFERRED UNLESS (I) SUCH
SECURITIES HAVE BEEN REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OF 1933,
AS AMENDED, (II) SUCH SECURITIES MAY BE SOLD PURSUANT TO RULE 144(K), OR (III)
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT
THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933 OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS.
12% CONVERTIBLE NOTE
$ ______________ November __, 2006
FOR VALUE RECEIVED, Zila, Inc., a Delaware corporation (the "Company"),
hereby unconditionally promises to pay to the order of ________________ (the
"Holder"), having an address at __________________________, at such address or
at such other place as may be designated in writing by the Holder, or its
assigns, the aggregate principal sum of _____________ United States Dollars
($______________), together with interest from the date set forth above on the
unpaid principal balance of this Note outstanding at a rate equal to twelve
percent (12%) (computed on the basis of the actual number of days elapsed in a
360-day year) per annum and continuing on the outstanding principal until this
12% Convertible Note (the "Note") is automatically converted into Common Stock
as provided herein or indefeasibly and irrevocably paid in full by the Company.
Interest on this Note shall accrue and shall be payable on the Stated Maturity
Date (as defined below); provided, however, that if this Note is automatically
converted in accordance with Section 4 hereof on or before December 31, 2006, no
interest on this Note shall be deemed to have accrued or be payable. Subject to
the other provisions of this Note, the principal of this Note and all accrued
and unpaid interest hereon shall mature and become due and payable on May __,
2007 (the "Stated Maturity Date"). Except as provided herein, all payments of
principal and interest by the Company under this Note shall be made in United
States dollars in immediately available funds to an account specified by the
Holder. In no event shall any interest charged, collected or reserved under this
Note exceed the maximum rate then permitted by applicable law and if any such
payment is paid by the Company, then such excess sum shall be credited by the
Holder as a payment of principal.
This Note is one of a series of Notes (the "Company Notes") of like tenor
in an aggregate principal amount of Twelve Million Seventy Five Thousand United
States Dollars ($12,075,000) issued by the Company pursuant to the terms of the
Purchase Agreement (as defined below).
1. Definitions. Capitalized terms used herein shall have the respective
meanings ascribed thereto in the Purchase Agreement unless otherwise defined
herein. Unless the context otherwise requires, when used herein the following
terms shall have the meaning indicated:
"Additional Rights" has the meaning set forth in Section 4 hereof.
"Affiliate" shall mean, with respect to any Person, any other Person
which directly or indirectly through one or more intermediaries Controls, is
controlled by, or is under common control with, such Person.
"Board" shall mean the Board of Directors of Company.
"Business Day" other than a Saturday or Sunday, on which banks in New
York City are open for the general transaction of business.
"Common Stock" shall mean the Common Stock, par value $0.001 per
share, of the Company or any securities into which shares of Common Stock may be
reclassified after the date hereof.
"Company" has the meaning set forth in the first paragraph hereof.
"Company Notes" has the meaning set forth in the second paragraph
hereof.
"Control" (including the terms "controlling", "controlled by" or
"under common control with") means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Conversion Price" shall mean initially $1.75 per share, subject to
adjustment as provided in Section 4.
"Conversion Shares" has the meaning set forth in Section 4 hereof.
"Convertible Securities" has the meaning set forth in Section 4
hereof.
"Event of Default" has the meaning set forth in Section 6 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Excluded Issuances" has the meaning set forth in Section 4(j) hereof.
"Forced Conversion Event" shall mean the effectiveness of the filing
of the Amendment to the Company's Certificate of Incorporation as contemplated
by Section 7.9 of the Purchase Agreement.
"Fiscal Year" means the period commencing on August 1 of any year and
ending on July 31 of the following year.
"Future Working Capital Line" means Indebtedness of the Company (i) in
the form of one or more working capital line of credit facilities and (ii) that
is secured by the Company's accounts and inventory; provided, that the aggregate
of all such working capital line of credit facilities shall not exceed
$7,000,000.
"Hedging Agreement" means any interest rate swap, collar, cap, floor
or forward rate agreement or other agreement regarding the hedging of interest
rate risk exposure executed
A-2
in connection with hedging the interest rate exposure of any Person and any
confirming letter executed pursuant to such agreement, all as amended,
supplemented, restated or otherwise modified from time to time.
"Holder" has the meaning set forth in the first paragraph hereof.
"Indebtedness" means any liability or obligation (i) for borrowed
money, other than trade payables incurred in the ordinary course of business,
(ii) evidenced by bonds, debentures, notes, or other similar instruments, (iii)
in respect of letters of credit or other similar instruments (or reimbursement
obligations with respect thereto), except letters of credit or other similar
instruments issued to secure payment of trade payables or obligations in respect
of workers' compensation, unemployment insurance and other social security laws
or regulation, all arising in the ordinary course of business consistent with
past practices, (iv) to pay the deferred purchase price of property or services,
except trade payables arising in the ordinary course of business consistent with
past practices, (v) as lessee under capitalized leases, (vi) secured by a Lien
on any asset of the Company or a Subsidiary, whether or not such obligation is
assumed by the Company or such Subsidiary.
"Investment" means, for any Person: (a) the acquisition (whether for
cash, property, services or securities or otherwise) of capital stock, bonds,
notes, debentures, partnership or other ownership interests or other securities
of any other Person or any agreement to make any such acquisition (including,
without limitation, any "short sale" or any sale of any securities at a time
when such securities are not owned by the Person entering into such sale); (b)
the making of any deposit with, or advance, loan or other extension of credit
to, any other Person (including the purchase of property from another Person
subject to an understanding or agreement, contingent or otherwise, to resell
such property to such Person), but excluding any such advance, loan or extension
of credit having a term not exceeding 90 days arising in connection with the
sale of inventory or supplies by such Person in the ordinary course of business;
(c) the entering into of any guarantee of, or other contingent obligation with
respect to, Indebtedness or other liability of any other Person and (without
duplication) any amount committed to be advanced, lent or extended to such
Person; or (d) the entering into of any Hedging Agreement.
"Investors" has the meaning set forth in the Purchase Agreement.
"Lien" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof and any
agreement to give any of the foregoing).
"Majority Holders" has the meaning set forth in Section 8 hereof.
"Market Price", as of a particular date (the "Valuation Date"), shall
mean the following: (a) if the Common Stock is then listed on a national stock
exchange, the closing sale price of one share of Common Stock on such exchange
on the last Trading Day prior to the Valuation Date; (b) if the Common Stock is
then quoted on the National Association of Securities Dealers, Inc. OTC Bulletin
Board (the "Bulletin Board") or such similar quotation system or association,
the closing sale price of one share of Common Stock on the Bulletin
A-3
Board or such other quotation system or association on the last Trading Day
prior to the Valuation Date or, if no such closing sale price is available, the
average of the high bid and the low asked price quoted thereon on the last
trading day prior to the Valuation Date; (c) if such security is then included
in the "pink sheets," the closing sale price of one share of Common Stock on the
"pink sheets" on the last Trading Day prior to the Valuation Date or, if no such
closing sale price is available, the average of the high bid and the low ask
price quoted on the "pink sheets" as of the end of the last Trading Day prior to
the Valuation Date; or (d) if the Common Stock is not then listed on a national
stock exchange or quoted on the Bulletin Board, the "pink sheets" or such other
quotation system or association, the fair market value of one share of Common
Stock as of the Valuation Date, as determined in good faith by the Board of
Directors of the Company and the Holder. If the Common Stock is not then listed
on a national securities exchange or quoted on the Bulletin Board, the "pink
sheets" or other quotation system or association, the Board of Directors of the
Company shall respond promptly, in writing, to an inquiry by the Holder as to
the fair market value of a share of Common Stock as determined by the Board of
Directors of the Company. In the event that the Board of Directors of the
Company and the Holder are unable to agree upon the fair market value in respect
of subpart (d) of this paragraph, the Company and the Holder shall jointly
select an appraiser, who is experienced in such matters. The decision of such
appraiser shall be final and conclusive, and the cost of such appraiser shall be
borne equally by the Company and the Holder.
"Note" has the meaning set forth in the first paragraph hereof.
"Options" has the meaning set forth in Section 4 hereof.
"Permitted Indebtedness" means:
(a) Unsecured Indebtedness existing on the Closing Date and
refinancings, renewals and extensions of any such Indebtedness if (i) the
average life to maturity thereof is greater than or equal to that of the
Indebtedness being refinanced or extended (ii) the principal amount thereof or
interest payable thereon is not increased, and (iii) the terms thereof are not
less favorable to the Company or the Subsidiary incurring such Indebtedness than
the Indebtedness being refinanced, renewed or extended;
(b) the Future Working Capital Line;
(c) the Secured Notes;
(d) Guaranties by any Subsidiary of any "Permitted Indebtedness" of
the Company or another Subsidiary;
(e) Indebtedness representing the deferred purchase price of property
and capital lease obligations which collectively does not exceed $1,000,000 in
aggregate principal amount; and
(f) Indebtedness of the Company to any wholly owned Subsidiary and
Indebtedness of any wholly owned Subsidiary to the Company or another wholly
owned Subsidiary which constitutes "Permitted Indebtedness."
A-4
"Permitted Investments" means:
(a) direct obligations of the United States of America, or of any
agency thereof, or obligations guaranteed as to principal and interest by the
United States of America, or of any agency thereof, in either case maturing not
more than 90 days from the date of acquisition thereof;
(b) certificates of deposit issued by any bank or trust company
organized under the laws of the United States of America or any State thereof
and having capital, surplus and undivided profits of at least $500,000,000,
maturing not more than 90 days from the date of acquisition thereof;
(c) commercial paper rated A-1 or better or P-1 by Standard & Poor's
Ratings Services or Xxxxx'x Investors Services, Inc., respectively, maturing not
more than 90 days from the date of acquisition thereof; in each case so long as
the same (x) provide for the payment of principal and interest (and not
principal alone or interest alone) and (y) are not subject to any contingency
regarding the payment of principal or interest; and
(d) the acquisition contemplated by the non-binding letter of intent
described in the Company's definitive proxy statement, dated September 6, 2006
(the "September Proxy Statement"), of all of the equity interests of an entity
in the dental products industry; provided, that the acquisition is consummated
on substantially the terms described in the September Proxy Statement (the
"Permitted Acquisition").
"Permitted Liens" means:
(a) Liens imposed by law for taxes that are not yet due or are being
contested in good faith and for which adequate reserves have been established on
the Company's books and records in accordance with U.S. generally accepted
accounting principles, consistently applied;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
and other like Liens imposed by law, arising in the ordinary course of business
and securing obligations that are not overdue by more than 30 days or that are
being contested in good faith and by appropriate proceedings;
(c) pledges and deposits made in the ordinary course of business in
compliance with workers' compensation, unemployment insurance and other social
security laws or regulations;
(d) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature, in each case in the ordinary course of
business;
(e) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary course
of business that do not secure any monetary obligations and do not materially
detract from the value of the affected property or interfere with the ordinary
conduct of business of the Company or any of its Subsidiaries;
A-5
(f) Liens granted to secure the obligations of the Company or any
Subsidiary under any Indebtedness permitted under clauses (b), (c) and (e) of
the definition of "Permitted Indebtedness;" provided, however, that any Liens
securing Indebtedness permitted under (i) clause (b) of such definition shall be
limited to the Company's accounts and inventory and (ii) clause (e) of such
definition shall be limited to the property acquired through such Indebtedness.
"Person" means an individual, corporation, partnership, limited
liability company, trust, business trust, association, joint stock company,
joint venture, sole proprietorship, unincorporated organization, governmental
authority or any other form of entity not specifically listed herein.
"Purchase Agreement" shall mean the Purchase Agreement, dated as of
November __, 2006, and as that agreement may be amended from time to time, by
and among the Company and the Investors.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement, dated as of November __, 2006, and as that agreement may be amended
from time to time, by and among the Company and the Investors.
"Restricted Payment" has the meaning set forth in Section 5(b)(iv)
hereof.
"Secured Notes" means up to $12,000,000 in aggregate principal amount
of the Company's 6% Senior Secured Convertible Notes due November 2009.
"Stated Maturity Date" has the meaning set forth in the first
paragraph hereof.
"Subsidiary" of any Person means another Person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
Person.
"Trading Day" means (i) if the relevant stock or security is listed or
admitted for trading on The New York Stock Exchange, Inc., the Nasdaq Global
Market, the Nasdaq Capital Market or any other national securities exchange, a
day on which such exchange is open for business; (ii) if the relevant stock or
security is quoted on a system of automated dissemination of quotations of
securities prices, a day on which trades may be effected through such system; or
(iii) if the relevant stock or security is not listed or admitted for trading on
any national securities exchange or quoted on any system of automated
dissemination of quotation of securities prices, a day on which the relevant
stock or security is traded in a regular way in the over-the-counter market and
for which a closing bid and a closing asked price for such stock or security are
available, shall mean a day, other than a Saturday or Sunday, on which The New
York Stock Exchange, Inc. is open for trading.
"Trigger Issuance" has the meaning set forth in Section 4(i) hereof.
2. Purchase Agreement. This Note is one of the several 12% Convertible
Notes of the Company issued pursuant to the Purchase Agreement. This Note is
subject to the terms and
A-6
conditions of, and entitled to the benefit of, the provisions of the Purchase
Agreement. This Note is transferable and assignable to any Person to whom such
transfer is permissible under the Purchase Agreement and applicable law. The
Company agrees to issue from time to time a replacement Note in the form hereof
to facilitate such transfers and assignments. In addition, after delivery of an
indemnity in form and substance reasonably satisfactory to the Company, the
Company also agrees to promptly issue a replacement Note if this Note is lost,
stolen, mutilated or destroyed.
3. No Right of Prepayment or Redemption. This Note shall not be prepayable
or redeemable by the Company prior to the Stated Maturity Date.
4. Automatic Conversion.
(a) Neither this Note nor any portion of this Note shall be converted
into shares of Common Stock at any time unless and until a Forced Conversion
Event shall have occurred. All of the principal amount of this Note and any
accrued and unpaid interest due hereon shall automatically and without any
action on the part of the Holder convert into fully paid and nonassessable
shares of Common Stock on the Trading Day immediately following the occurrence
of a Forced Conversion Event (the "Automatic Conversion Date"). On the Automatic
Conversion Date, this Note and all interest accrued thereon shall automatically
and with no action on the part of the Holder convert into such number of fully
paid and nonassessable shares of Common Stock as is obtained by: (i) adding (A)
the principal amount of this Note and (B) the amount of any accrued but unpaid
interest on this Note and (ii) dividing the result obtained pursuant to clause
(i) above by the Conversion Price then in effect (such shares, the "Conversion
Shares"). The Company shall provide prompt written notice of the Automatic
Conversion Date to the Holder.
(b) Promptly after the Automatic Conversion Date, the Holder of this
Note shall deliver this Note to the Company (or, in lieu thereof, an appropriate
lost security affidavit in the event this Note shall have been lost or
destroyed, together with a customary indemnity agreement) to the Company at its
principal office (or such other office or agency of the Company as the Company
may designate by notice in writing to the Holder), together with a statement of
the name or names (with address) in which the certificate or certificates for
the Conversion Shares issuable upon such conversion shall be issued. Promptly
following the surrender of this Note (or, in lieu thereof, delivery of an
appropriate lost security affidavit in the event this Note shall have been lost
or destroyed, together with a customary indemnity agreement) as aforesaid, but
in no event more than three (3) Business Days thereafter, the Company shall
issue and deliver, or cause to be issued and delivered, to the Holder,
registered in such name or names as the Holder may direct in writing, a
certificate or certificates for the number of whole Conversion Shares issuable
upon the conversion of this Note. To the extent permitted by law, such
conversion shall be deemed to have been effected, and the Conversion Price shall
be determined, as of the close of business on the Automatic Conversion Date, and
at such time, the rights of the Holder shall cease with respect to the Note
being converted, and the Person or Persons in whose name or names any
certificate or certificates for Conversion Shares shall be issuable upon such
conversion shall be deemed to have become the holder or holders of record of the
Conversion Shares represented thereby.
A-7
(c) No fractional shares shall be issued upon any conversion of this
Note into Common Stock. If any fractional share of Common Stock would, except
for the provisions of the first sentence of this Section 4(c), be delivered upon
such conversion, the Company, in lieu of delivering such fractional share, shall
pay to the Holder an amount in cash equal to the Market Price of such fractional
share of Common Stock.
(d) If the Company shall, at any time or from time to time while this
Note is outstanding, pay a dividend or make a distribution on its Common Stock
in shares of Common Stock, subdivide its outstanding shares of Common Stock into
a greater number of shares or combine its outstanding shares of Common Stock
into a smaller number of shares or issue by reclassification of its outstanding
shares of Common Stock any shares of its capital stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), then (i) the Conversion Price in effect
immediately prior to the date on which such change shall become effective shall
be adjusted by multiplying such Conversion Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such change and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after giving effect to such change and
(ii) the number of Conversion Shares issuable upon conversion of this Note shall
be adjusted by multiplying the number of Conversion Shares issuable upon
conversion of this Note immediately prior to the date on which such change shall
become effective by a fraction, the numerator of which is shall be the
Conversion Price in effect immediately prior to the date on which such change
shall become effective and the denominator of which shall be the Conversion
Price in effect immediately after giving effect to such change, calculated in
accordance with clause (i) above. Such adjustments shall be made successively
whenever any event listed above shall occur.
(e) If any capital reorganization, reclassification of the capital
stock of the Company, consolidation or merger of the Company with another
corporation in which the Company is not the survivor, or sale, transfer or other
disposition of all or substantially all of the Company's assets to another
Person shall be effected, then, as a condition of such reorganization,
reclassification, consolidation, merger, sale, transfer or other disposition,
lawful and adequate provision shall be made whereby the Holder shall thereafter
have the right to purchase and receive upon the basis and upon the terms and
conditions herein specified and in lieu of the Conversion Shares immediately
theretofore issuable upon conversion of this Note such shares of stock,
securities or assets as would have been issuable or payable with respect to or
in exchange for a number of Conversion Shares equal to the number of Conversion
Shares immediately theretofore issuable upon conversion of this Note, had such
reorganization, reclassification, consolidation, merger, sale, transfer or other
disposition not taken place, and in any such case appropriate provision shall be
made with respect to the rights and interests of the Holder to the end that the
provisions hereof (including, without limitation, provision for adjustment of
the Conversion Price) shall thereafter be applicable, as nearly equivalent as
may be practicable in relation to any shares of stock, securities or assets
thereafter deliverable upon the conversion hereof. The Company shall not effect
any such consolidation, merger, sale, transfer or other disposition unless prior
to or simultaneously with the consummation thereof the successor corporation (if
other than the Company) resulting from such consolidation or merger, or the
corporation purchasing or otherwise acquiring such assets or other appropriate
corporation or entity shall assume the obligation to deliver to the Holder, at
the last address of the Holder
A-8
appearing on the books of the Company, such shares of stock, securities or
assets as, in accordance with the foregoing provisions, the Holder may be
entitled to purchase, without regard to any conversion limitation specified in
Section 4, and the other obligations under this Note. The provisions of this
paragraph (e) shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, sales, transfers or other
dispositions.
(f) In case the Company shall fix a payment date for the making of a
distribution to all holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus or dividends or distributions referred to in Section 4(d)), or
subscription rights or warrants, the Conversion Price to be in effect after such
payment date shall be determined by multiplying the Conversion Price in effect
immediately prior to such payment date by a fraction, the numerator of which
shall be the total number of shares of Common Stock outstanding multiplied by
the Market Price of Common Stock immediately prior to such payment date, less
the fair market value (as determined by the Board in good faith) of said assets
or evidences of indebtedness so distributed, or of such subscription rights or
warrants, and the denominator of which shall be the total number of shares of
Common Stock outstanding multiplied by such Market Price immediately prior to
such payment date. Such adjustment shall be made successively whenever such a
payment date is fixed.
(g) An adjustment to the Conversion Price shall become effective
immediately after the payment date in the case of each dividend or distribution
and immediately after the effective date of each other event which requires an
adjustment.
(h) In the event that, as a result of an adjustment made pursuant to
this Section 4, the Holder shall become entitled to receive any shares of
capital stock of the Company other than shares of Common Stock, the number of
such other shares so receivable upon conversion of this Note shall be subject
thereafter to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions contained in this Note.
(i) Except as provided in Section 4(j) hereof, if and whenever the
Company shall issue or sell, or is, in accordance with any of Sections 4(i)(i)
through 4(i)(vii) hereof, deemed to have issued or sold, any Additional Shares
of Common Stock (as defined below) for no consideration or for a consideration
per share less than the Conversion Price in effect immediately prior to the time
of such issuance or sale, then and in each such case (a "Trigger Issuance") the
then-existing Conversion Price, shall be reduced, as of the close of business on
the effective date of the Trigger Issuance, to a price determined as follows:
Adjusted Conversion Price = (A x B) + D
-----------
A+C
where
"A" equals the number of shares of Common Stock outstanding,
including Additional Shares of Common Stock (as defined below) deemed to be
issued hereunder, immediately preceding such Trigger Issuance;
X-0
"X" equals the Conversion Price in effect immediately
preceding such Trigger Issuance;
"C" equals the number of Additional Shares of Common Stock
issued or deemed issued hereunder as a result of the Trigger Issuance; and
"D" equals the aggregate consideration, if any, received or
deemed to be received by the Company upon such Trigger Issuance;
provided, however, that in no event shall the Conversion Price after giving
effect to such Trigger Issuance be greater than the Conversion Price in effect
prior to such Trigger Issuance.
For purposes of this subsection (i), "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued or sold by the Company or deemed to
be issued or sold pursuant to this subsection (i), other than Excluded Issuances
(as defined in subsection (j) hereof).
For purposes of this Section 4(i), the following subsections (i)(i) to
(i)(viii) shall also be applicable (subject, in each such case, to the
provisions of Section 4(j) hereof):
(i) In case at any time the Company shall in any manner grant
(directly and not by assumption in a merger or otherwise) any warrants or other
rights to subscribe for or to purchase, or any options for the purchase of,
Common Stock or any stock or security convertible into or exchangeable for
Common Stock (such warrants, rights or options being called "Options" and such
convertible or exchangeable stock or securities being called "Convertible
Securities") whether or not such Options or the right to convert or exchange any
such Convertible Securities are immediately exercisable, and the price per share
for which Common Stock is issuable upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities (determined by dividing
(i) the sum (which sum shall constitute the applicable consideration) of (x) the
total amount, if any, received or receivable by the Company as consideration for
the granting of such Options, plus (y) the aggregate amount of additional
consideration payable to the Company upon the exercise of all such Options, plus
(z), in the case of such Options which relate to Convertible Securities, the
aggregate amount of additional consideration, if any, payable upon the issuance
or sale of such Convertible Securities and upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options) shall be less
than the Conversion Price immediately prior to the time of the granting of such
Options, then the total number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the total amount of
such Convertible Securities issuable upon the exercise of such Options shall be
deemed to have been issued for such price per share as of the date of granting
of such Options or the issuance of such Convertible Securities and thereafter
shall be deemed to be outstanding for purposes of adjusting the Conversion
Price. Except as otherwise provided in subsection 4(i)(iii), no adjustment of
the Conversion Price shall be made upon the actual issuance of such Common Stock
or of such Convertible Securities upon exercise of such Options or upon the
actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities.
A-10
(ii) In case the Company shall in any manner issue (directly and not
by assumption in a merger or otherwise) or sell any Convertible Securities,
whether or not the rights to exchange or convert any such Convertible Securities
are immediately exercisable, and the price per share for which Common Stock is
issuable upon such conversion or exchange (determined by dividing (i) the sum
(which sum shall constitute the applicable consideration) of (x) the total
amount received or receivable by the Company as consideration for the issuance
or sale of such Convertible Securities, plus (y) the aggregate amount of
additional consideration, if any, payable to the Company upon the conversion or
exchange thereof, by (ii) the total number of shares of Common Stock issuable
upon the conversion or exchange of all such Convertible Securities) shall be
less than the Conversion Price immediately prior to the time of such issuance or
sale, then the total maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities shall be deemed to
have been issued for such price per share as of the date of the issuance or sale
of such Convertible Securities and thereafter shall be deemed to be outstanding
for purposes of adjusting the Conversion Price, provided that (a) except as
otherwise provided in subsection 4(i)(iii), no adjustment of the Conversion
Price shall be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities and (b) no further
adjustment of the Conversion Price shall be made by reason of the issuance or
sale of Convertible Securities upon exercise of any Options to purchase any such
Convertible Securities for which adjustments of the Conversion Price have been
made pursuant to the other provisions of Section 4(i).
(iii) Upon the happening of any of the following events, namely, if
the purchase price provided for in any Option referred to in subsection 4(i)(i)
hereof, the additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in subsections 4(i)(i) or
4(i)(ii), or the rate at which Convertible Securities referred to in subsections
4(i)(i) or 4(i)(ii) are convertible into or exchangeable for Common Stock shall
change at any time (including, but not limited to, changes under or by reason of
provisions designed to protect against dilution), the Conversion Price in effect
at the time of such event shall forthwith be readjusted to the Conversion Price
which would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold. On the termination of any Option for which
any adjustment was made pursuant to this subsection 4(i) or any right to convert
or exchange Convertible Securities for which any adjustment was made pursuant to
this subsection 4(i) (including without limitation upon the redemption or
purchase for consideration of such Convertible Securities by the Company), the
Conversion Price then in effect hereunder shall forthwith be changed to the
Conversion Price which would have been in effect at the time of such termination
had such Option or Convertible Securities, to the extent outstanding immediately
prior to such termination, never been issued.
(iv) Subject to the provisions of this Section 4(i), in case the
Company shall declare a dividend or make any other distribution upon any stock
of the Company (other than the Common Stock) payable in Common Stock, Options or
Convertible Securities, then any Common Stock, Options or Convertible
Securities, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without consideration;
provided, that if any adjustment is made to the Conversion Price as a result of
a declaration of a
A-11
dividend and such dividend is rescinded, the Conversion Price shall be
appropriately readjusted to the Conversion Price in effect had such dividend not
been declared.
(v) In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold for cash, the consideration received therefor
shall be deemed to be the net amount received by the Company therefor, after
deduction therefrom of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Company in connection therewith. In case any
shares of Common Stock, Options or Convertible Securities shall be issued or
sold for a consideration other than cash, the amount of the consideration other
than cash received by the Company shall be deemed to be the fair value of such
consideration as determined in good faith by the Board, after deduction of any
expenses incurred or any underwriting commissions or concessions paid or allowed
by the Company in connection therewith. In case any Options shall be issued in
connection with the issuance and sale of other securities of the Company,
together comprising one integral transaction in which no specific consideration
is allocated to such Options by the parties thereto, such Options shall be
deemed to have been issued for such consideration as determined in good faith by
the Board of Directors of the Company. If Common Stock, Options or Convertible
Securities shall be issued or sold by the Company and, in connection therewith,
other Options or Convertible Securities (the "Additional Rights") are issued,
then the consideration received or deemed to be received by the Company shall be
reduced by the fair market value of the Additional Rights (as determined using
the Black-Scholes option pricing model or another method mutually agreed to by
the Company and the Holder). The Board shall respond promptly, in writing, to an
inquiry by the Holder as to the fair market value of the Additional Rights. In
the event that the Board and the Holder are unable to agree upon the fair market
value of the Additional Rights, the Company and the Holder shall jointly select
an appraiser, who is experienced in such matters. The decision of such appraiser
shall be final and conclusive, and the cost of such appraiser shall be borne
evenly by the Company and the Holder.
(vi) In case the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them (i) to receive a dividend or
other distribution payable in Common Stock, Options or Convertible Securities or
(ii) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issuance
or sale of the shares of Common Stock deemed to have been issued or sold upon
the declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(vii) The number of shares of Common Stock outstanding at any given
time shall not include shares owned or held by or for the account of the Company
or any of its wholly-owned subsidiaries, and the disposition of any such shares
(other than the cancellation or retirement thereof) shall be considered an
issuance or sale of Common Stock for the purpose of this subsection (i).
(viii) Notwithstanding any other provision in this subsection (i) to
the contrary, if a reduction in the Conversion Price pursuant to this subsection
(i) (other than as set forth in this clause (viii)) would require the Company to
obtain stockholder approval of the transactions contemplated by the Purchase
Agreement to be consummated on the Closing Date pursuant to Nasdaq Marketplace
Rule 4350(i) and such stockholder approval has not been obtained, (i) the
A-12
Conversion Price shall be reduced to the maximum extent that would not require
stockholder approval under such Rule, and (ii) the Company shall use its
commercially reasonable efforts to obtain such stockholder approval as soon as
reasonably practicable, including by calling a special meeting of stockholders
to vote on such Conversion Price adjustment. This provision shall not restrict
the number of shares of Common Stock which a Holder may receive or beneficially
own in order to determine the amount of securities or other consideration that
such Holder may receive in the event of a transaction contemplated by Section 4
of this Note.
(j) Anything herein to the contrary notwithstanding, the Company shall
not be required to make any adjustment of the Conversion Price in the case of
the issuance of (A) capital stock, Options or Convertible Securities issued to
directors, officers, employees or consultants of the Company in connection with
their service as directors of the Company, their employment by the Company or
their retention as consultants by the Company pursuant to an equity compensation
program approved by the Board of Directors of the Company or the compensation
committee of the Board of Directors of the Company, (B) shares of Common Stock
issued upon the conversion or exercise of Options or Convertible Securities
issued prior to the date hereof, provided such securities are not amended after
the date hereof to increase the number of shares of Common Stock issuable
thereunder or to lower the exercise or conversion price thereof, (C) securities
issued pursuant to the Purchase Agreement and securities issued upon the
exercise or conversion of those securities, (D) shares of Common Stock issued or
issuable by reason of a dividend, stock split or other distribution on shares of
Common Stock (but only to the extent that such a dividend, split or distribution
results in an adjustment in the Conversion Price pursuant to the other
provisions of this Note) and (E) securities issued in connection with the
Secured Notes (collectively, "Excluded Issuances").
(k) In case at any time:
(i) the Company shall declare any dividend upon its Common Stock or
any other class or series of capital stock of the Company payable in cash or
stock or make any other distribution to the holders of its Common Stock or any
such other class or series of capital stock;
(ii) the Company shall offer for subscription pro rata to the holders
of its Common Stock or any other class or series of capital stock of the Company
any additional shares of stock of any class or other rights; or
(iii) there shall be any capital reorganization or reclassification of
the capital stock of the Company, any acquisition or a liquidation, dissolution
or winding up of the Company;
then, in any one or more of said cases, the Company shall give, by delivery in
person or by certified or registered mail, return receipt requested, addressed
to the Holder at the address of such Holder as shown on the books of the
Company, (a) at least 20 Business Days' prior written notice of the date on
which the books of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining rights to vote
in respect of any event set forth in clause (iii) of this Section 4(k) and (b)
in the case of any event set forth in clause (iii) of this Section 4(k), at
least 20 Business Days' prior written notice of the date when the same shall
take place. Such notice in accordance with the foregoing clause (a) shall also
A-13
specify, in the case of any such dividend, distribution or subscription rights,
the date on which the holders of Common Stock or such other class or series of
capital stock shall be entitled thereto and such notice in accordance with the
foregoing clause (b) shall also specify the date on which the holders of Common
Stock and such other series or class of capital stock shall be entitled to
exchange their Common Stock and other stock for securities or other property
deliverable upon consummation of the applicable event set forth in clause (iii)
of this Section 4(k).
(l) Upon any adjustment of the Conversion Price, then and in each such
case the Company shall give prompt written notice thereof, by delivery in person
or by certified or registered mail, return receipt requested, addressed to the
Holder at the address of such Holder as shown on the books of the Company, which
notice shall state the Conversion Price resulting from such adjustment and
setting forth in reasonable detail the method upon which such calculation is
based.
(m) From and after the effectiveness of the Amendment (as defined in
the Purchase Agreement), the Company shall at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issuance
upon conversion of this Note as herein provided, such number of shares of Common
Stock as shall then be issuable upon the conversion of this Note. The Company
covenants that all shares of Common Stock which shall be so issued shall be duly
and validly issued and fully paid and nonassessable, and free from all taxes,
liens and charges with respect to the issue thereof, and, without limiting the
generality of the foregoing, and that the Company will from time to time take
all such action as may be requisite to assure that the par value per share of
the Common Stock is at all times equal to or less than the Conversion Price in
effect at the time. The Company shall take all such action as may be necessary
to assure that all such shares of Common Stock may be so issued without
violation of any applicable law or regulation, or of any requirement of any
national securities exchange or trading market upon which the Common Stock may
be listed. The Company shall not take any action which results in any adjustment
of the Conversion Price if the total number of shares of Common Stock issued and
issuable after such action upon conversion of this Note would exceed the total
number of shares of Common Stock then authorized by the Company's Certificate of
Incorporation.
(n) The issuance of certificates for shares of Common Stock upon
conversion of this Note shall be made without charge to the holders thereof for
any issuance tax in respect thereof, provided that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any certificate in a name other than that of the
Holder.
(o) The Company will not at any time close its transfer books against
the transfer, as applicable, of this Note or of any shares of Common Stock
issued or issuable upon the conversion of this Note in any manner which
interferes with the timely conversion of this Note, except as may otherwise be
required to comply with applicable securities laws.
A-14
5. Covenants.
(a) So long as any amount due under this Note is outstanding and until
the earlier of (i) the indefeasible payment in full of all amounts payable by
the Company hereunder and (ii) the conversion of this Note:
(i) The Company shall and shall cause each of its Subsidiaries to (A)
carry on and conduct its business in substantially the same manner and in
substantially the same fields of enterprise as it is presently conducting, (B)
do all things necessary to remain duly organized, validly existing, and in good
standing as a domestic corporation under the laws of its state of incorporation
and (C) maintain all requisite authority to conduct its business in those
jurisdictions in which its business is conducted.
(ii) The Company shall promptly notify the Holder in writing of (A)
any change in the business or the operations the Company or any Subsidiary which
could reasonably be expected to have a Material Adverse Effect, and (B) any
information which indicates that any financial statements which are the subject
of any representation contained in the Transaction Documents, or which are
furnished to the Holder pursuant to the Transaction Documents, fail, in any
material respect, to present fairly, as of the date thereof and for the period
covered thereby, the financial condition and results of operations purported to
be presented therein, disclosing the nature thereof.
(iii) The Company shall promptly notify the Holder of the occurrence
of any Event of Default or any event which, with the giving of notice, the lapse
of time or both would constitute an Event of Default, which notice shall include
a written statement as to such occurrence, specifying the nature thereof and the
action (if any) which is proposed to be taken with respect thereto.
(iv) The Company shall promptly notify the Holder of any action, suit
or proceeding at law or in equity or by or before any governmental
instrumentality or other agency against the Company or any Subsidiary or to
which the Company or any Subsidiary may be subject which alleges damages in
excess of Two Hundred Fifty Thousand United States Dollars ($250,000).
(v) The Company shall promptly notify the Holder of any default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument to which the Company or any
Subsidiary is a party which default could reasonably be expected to have a
Material Adverse Effect.
(vi) The Company shall and shall cause each Subsidiary to pay when due
all taxes, assessments and governmental charges and levies upon it or its
income, profits or property, except those that are being contested in good faith
by appropriate proceedings and with respect to which adequate reserves have been
set aside.
(vii) The Company shall and shall cause each Subsidiary to all times
maintain with financially sound and reputable insurance companies insurance
covering its assets and its businesses in such amounts and covering such risks
(including, without limitation, hazard,
A-15
business interruption and public liability) as is consistent with sound business
practice and as may be obtained at commercially reasonable rates.
(viii) The Company shall and shall cause each Subsidiary to comply
with all laws, rules, regulations, orders, writs, judgments, injunctions,
decrees or awards to which they may be subject except where the failure to so
comply could not reasonably be expected to have a Material Adverse Effect.
(ix) The Company shall and shall cause each Subsidiary to use
commercially reasonable efforts to do all things necessary to maintain,
preserve, protect and keep its properties in good repair, working order and
condition and use commercially reasonable efforts to make all necessary and
proper repairs, renewals and replacements so that its business carried on in
connection therewith may be properly conducted.
(x) At its own expense, the Company shall and shall cause each
Subsidiary to make, execute, endorse, acknowledge, file and/or deliver any
documents and take all commercially reasonable actions necessary or required to
maintain its ownership rights in its Intellectual Property, including, without
limitation, (i) any action reasonably required to protect the Intellectual
Property in connection with any infringement, suspected infringement, passing
off, act of unfair competition or other unlawful interference with the rights of
the Company or any Subsidiary in and to such Intellectual Property, and (ii) any
registrations with the United States Patent & Trademark Office and any
corresponding foreign patent and/or trademark office required for the Company or
any Subsidiary to carry on its business as presently conducted and as presently
proposed to be conducted. Except for non-exclusive licenses granted in the
ordinary course of business, the Company shall not and shall cause each
Subsidiary not to transfer, assign or otherwise convey the Intellectual
Property, any registrations or applications thereof and all goodwill associated
therewith, to any person or entity.
(xi) Promptly after the occurrence thereof, the Company shall and
shall cause each Subsidiary to inform the Holder of the following material
developments: (i) entering into material agreements outside the ordinary course
of business consistent with past practice, (ii) any issuance of debt securities
by the Company or any Subsidiary, (iii) the incurrence of any Indebtedness,
other than Permitted Indebtedness, by the Company or any Subsidiary, (iv) a
change in the number of the Board of Directors of the Company, (v) a sale, lease
or transfer of any material portion of the assets of the Company or any
Subsidiary and (vi) any change in ownership of any Subsidiary (specifying the
details of any such change, including the identity and ownership amount of any
new owner).
(b) So long as any amount due under this Note is outstanding and until
the earlier of (i) the indefeasible payment in full of all amounts payable by
the Company hereunder and (ii) the conversion of this Note, without the prior
written consent of the Majority Holders (for purposes of this Section 5(b), any
Company Notes held by any employee, director or officer of the Company or any
Subsidiary shall not be deemed to be outstanding):
(i) The Company shall not and shall cause each Subsidiary not to
create, incur, guarantee, issue, assume or in any manner become liable in
respect of any Indebtedness, other than Permitted Indebtedness.
A-16
(ii) The Company shall not and shall cause each Subsidiary not to
create, incur, assume or suffer to exist any Lien upon any of its property,
whether now owned or hereafter acquired other than Permitted Liens. The Company
shall not, and shall cause each Subsidiary not to, be bound by any agreement
which limits the ability of the Company or any Subsidiary to grant Liens.
(iii) The Company shall not and shall cause each Subsidiary not to,
directly or indirectly, enter into or permit to exist any transaction or series
of related transactions (including, without limitation, the purchase, sale,
lease or exchange of any property or the rendering of any service (other than
service as an employee)) with, or for the benefit of, any of its Affiliates
other than a wholly owned Subsidiary, except for consulting arrangements with
directors approved by the Board.
(iv) The Company shall not, and shall cause each of its Subsidiaries
not to, directly or indirectly, declare or pay any dividends on account of any
shares of any class or series of its capital stock now or hereafter outstanding,
or set aside or otherwise deposit or invest any sums for such purpose, or
redeem, retire, defease, purchase or otherwise acquire any shares of any class
of its capital stock (or set aside or otherwise deposit or invest any sums for
such purpose) for any consideration or apply or set apart any sum, or make any
other distribution (by reduction of capital or otherwise) in respect of any such
shares or pay any interest, premium if any, or principal of any Indebtedness or
redeem, retire, defease, repurchase or otherwise acquire any Indebtedness (or
set aside or otherwise deposit or invest any sums for such purpose) for any
consideration or apply or set apart any sum, or make any other payment in
respect thereof or agree to do any of the foregoing (each of the foregoing is
herein called a "Restricted Payment"); provided, that (i) the Company may make
payments of interest, premium if any, and principal of the Notes in accordance
with the terms hereof, (ii) provided that no Event of Default or event which,
with the giving of notice, the lapse of time or both would constitute an Event
of Default has occurred and is continuing, the Company may declare and pay
regular, recurring dividends on the shares of its Series B Preferred Stock
outstanding on the date hereof in accordance with the terms of the Series B
Preferred Stock as in effect on the date hereof, (iii) provided that no Event of
Default or event which, with the giving of notice, the lapse of time or both
would constitute an Event of Default has occurred and is continuing, the Company
and its Subsidiaries may make regularly scheduled payments of interest and
principal of any Permitted Indebtedness, (iv) any Subsidiary directly or
indirectly wholly owned by the Company may pay dividends on its capital stock
and (v) the Company may repurchase capital stock from a former employee in
connection with the termination or other departure of such employee, strictly in
accordance with the terms of any agreement entered into with such employee and
in effect on the Closing Date (as defined in the Purchase Agreement), provided
that (A) such repurchase is approved by a majority of the Board, (B) payments
permitted under this clause (v) shall not exceed $1,000,000 in the aggregate,
and (C) no such payment may be made if an Event of Default or an event which,
with the giving of notice, the lapse of time or both would constitute an Event
of Default has occurred and is continuing or would result from such payment.
(v) Except as contemplated by the Permitted Acquisition, the Company
shall not and shall cause each Subsidiary not to, directly or indirectly, engage
in any business other than the business of developing, manufacturing and
marketing preventive healthcare
A-17
technologies and products, focused on enhanced body defense and the detection of
pre-disease states.
(vi) The Company shall not and shall cause each Subsidiary not to make
or own any Investment in any Person, including without limitation any joint
venture, other than (A) Permitted Investments, (B) operating deposit accounts
with banks, (C) Hedging Agreements entered into in the ordinary course of the
Company's financial planning and not for speculative purposes and (D)
investments by the Company in the capital stock of any wholly owned Subsidiary.
(vii) The Company shall not and shall cause each Subsidiary not to,
directly or indirectly, become or remain liable as lessee or as a guarantor or
other surety with respect to any lease of any property (whether real, personal
or mixed), whether now owned or hereafter acquired, which the Company or any
Subsidiary (a) has sold or transferred or is to sell or to transfer to any other
Person, or (b) intends to use for substantially the same purpose as any other
property which has been or is to be sold or transferred by the Company or any
Subsidiary to any Person in connection with such lease.
(viii) The Company shall not and shall cause each Subsidiary not to
settle, or agree to indemnify or defend third parties against, any material
lawsuit, except as may be required by judicial or regulatory order or by
agreements entered into prior to the date hereof on a basis consistent with past
practice. A material lawsuit shall be any lawsuit in which the amount in
controversy exceeds One Million United States Dollars ($1,000,000).
(ix) Other than the Amendment to Certificate of Incorporation as
contemplated by Section 7.9 of the Purchase Agreement, the Company shall not and
shall cause each Subsidiary not to amend its bylaws, certificate of
incorporation or other charter document in a manner adverse to the Holder.
(x) The Company shall not change its Fiscal Year.
6. Event of Default. The occurrence of any of following events shall
constitute an "Event of Default" hereunder:
(a) the failure of the Company to make any payment of principal on
this Note when due, whether at maturity, upon acceleration or otherwise;
(b) the failure of the Company to make any payment of interest on this
Note, or any other amounts due under the other Transaction Documents (as defined
under the Purchase Agreement) when due, whether at maturity, upon acceleration
or otherwise, and such failure continues for more than five (5) days;
(c) the Company and/or its Subsidiaries fail to make a required
payment or payments on Indebtedness of $250,000 or more in aggregate principal
amount and such failure continues for more than ten (10) days;
(d) there shall have occurred an acceleration of the stated maturity
of any Indebtedness of the Company or its Subsidiaries of $250,000 or more in
aggregate principal
A-18
amount (which acceleration is not rescinded, annulled or otherwise cured within
ten (10) days of receipt by the Company or a Subsidiary of notice of such
acceleration);
(e) the Company makes an assignment for the benefit of creditors or
admits in writing its inability to pay its debts generally as they become due;
or an order, judgment or decree is entered adjudicating the Company as bankrupt
or insolvent; or any order for relief with respect to the Company is entered
under title 11 of the United States Code or any other bankruptcy or insolvency
law; or the Company petitions or applies to any tribunal for the appointment of
a custodian, trustee, receiver or liquidator of the Company or of any
substantial part of the assets of the Company, or commences any proceeding
relating to it under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction; or any
such petition or application is filed, or any such proceeding is commenced,
against the Company and either (i) the Company by any act indicates its approval
thereof, consents thereto or acquiescence therein or (ii) such petition
application or proceeding is not dismissed within sixty (60) days;
(f) a final, non-appealable judgment which, in the aggregate with
other outstanding final judgments against the Company and its Subsidiaries,
exceeds $250,000 shall be rendered against the Company or a Subsidiary and
within sixty (60) days after entry thereof, such judgment is not discharged or
execution thereof stayed pending appeal, or within sixty (60) days after the
expiration of such stay, such judgment is not discharged; provided, however,
that a judgment that provides for the payment of royalties subsequent to the
date of the judgment shall be deemed to be discharged so long as the Company or
the Subsidiary affected thereby is in compliance with the terms of such
judgment;
(g) the Company is in breach of the requirements of Section 5(b)
hereof;
(h) if any representation or statement of fact made in any Transaction
Document or furnished to the Holder at any time by or on behalf of the Company
proves to have been false in any material respect when made or furnished; or
(i) if the Company fails to observe or perform in any material respect
any of its covenants contained in the Transaction Documents (other than any
failure which is covered by Section 5(a), (b) or (g)), and such failure
continues for thirty (30) days after receipt by the Company of notice thereof.
Upon the occurrence of any such Event of Default all unpaid principal and
accrued interest under this Note shall become immediately due and payable (A)
upon election of the Holder, with respect to (a) through (d) and (f) through
(i), and (B) automatically, with respect to (e). Upon the occurrence of any
Event of Default, the Holder may, in addition to declaring all amounts due
hereunder to be immediately due and payable, pursue any available remedy,
whether at law or in equity, including, without limitation, exercising its
rights under the other Transaction Documents. If an Event of Default occurs, the
Company shall pay to the Holder the reasonable attorneys' fees and disbursements
and all other reasonable out-of-pocket costs incurred by the Holder in order to
collect amounts due and owing under this Note or otherwise to enforce the
Holder's rights and remedies hereunder and under the other Transaction
Documents.
A-19
7. No Waiver. To the extent permitted by applicable law, no delay or
omission on the part of the Holder in exercising any right under this Note shall
operate as a waiver of such right or of any other right of the Holder, nor shall
any delay, omission or waiver on any one occasion be deemed a bar to or waiver
of the same or any other right on any future occasion.
8. Amendments in Writing. Any term of this Note may be amended or waived
upon the written consent of the Company and the holders of Company Notes
representing at least 50% of the principal amount of Company Notes then
outstanding (the "Majority Holders"); provided, that (x) any such amendment or
waiver must apply to all outstanding Company Notes; and (y) without the consent
of the Holder hereof, no amendment or waiver shall (i) change the Stated
Maturity Date of this Note, (ii) reduce the principal amount of this Note or the
interest rate due hereon, (iii) change the Conversion Price or (iv) change the
place of payment of this Note. No such waiver or consent on any one instance
shall be construed to be a continuing waiver or a waiver in any other instance
unless it expressly so provides.
9. Waivers. The Company hereby forever waives presentment, demand,
presentment for payment, protest, notice of protest, notice of dishonor of this
Note and all other demands and notices in connection with the delivery,
acceptance, performance and enforcement of this Note.
10. Waiver of Jury Trial. THE COMPANY HEREBY WAIVES ITS RIGHT TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS NOTE OR
ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL
OTHER CLAIMS. THE COMPANY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
11. Governing Law; Consent to Jurisdiction. This Note shall be governed by
and construed under the law of the State of New York, without giving effect to
the conflicts of law principles thereof. The Company and, by accepting this
Note, the Holder, each irrevocably submits to the exclusive jurisdiction of the
courts of the State of New York located in New York County and the United States
District Court for the Southern District of New York for the purpose of any
suit, action, proceeding or judgment relating to or arising out of this Note and
the transactions contemplated hereby. Service of process in connection with any
such suit, action or proceeding may be served on each party hereto anywhere in
the world by the same methods as are specified for the giving of notices under
this Note. The Company and, by accepting this Note, the Holder, each irrevocably
consents to the jurisdiction of any such court in any such suit, action or
proceeding and to the laying of venue in such court. The Company and, by
accepting this Note, the Holder, each irrevocably waives any objection to the
laying of venue of any such suit, action or proceeding brought in such courts
and irrevocably waives any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
12. Costs. If action is instituted to collect on this Note, the Company
promises to pay all reasonable costs and expenses, including reasonable
attorney's fees, incurred in connection with such action.
13. Notices. All notices hereunder shall be given in writing and shall be
deemed delivered when received by the other party hereto at the address set
forth in the Purchase
A-20
Agreement or at such other address as may be specified by such party from time
to time in accordance with the Purchase Agreement.
14. Successors and Assigns. This Note shall be binding upon the successors
or assigns of the Company and shall inure to the benefit of the successors and
assigns of the Holder.
[Remainder of Page Intentionally Left Blank]
A-21
IN WITNESS WHEREOF, the Company has caused this 12% Convertible Note to be
signed in its name, effective as of the date first above written.
ZILA, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
A-22
EXHIBIT B
THE SECURITIES REPRESENTED HEREBY MAY NOT BE TRANSFERRED UNLESS (I) SUCH
SECURITIES HAVE BEEN REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OF 1933,
AS AMENDED, (II) SUCH SECURITIES MAY BE SOLD PURSUANT TO RULE 144(K), OR (III)
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT
THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933 OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS.
SUBJECT TO THE PROVISIONS OF SECTION 10 HEREOF, THIS WARRANT SHALL BE VOID
AFTER 5:00 P.M. EASTERN TIME ON NOVEMBER __, 2011 (THE "EXPIRATION DATE").
No. __________
ZILA, INC.
WARRANT TO PURCHASE [_______] SHARES OF
COMMON STOCK, PAR VALUE $0.001 PER SHARE
For VALUE RECEIVED, ____________________ ("Warrantholder"), is entitled to
purchase, subject to the provisions of this Warrant, from Zila, Inc., a Delaware
corporation ("Company"), from and after the six month anniversary of the Closing
Date (the "Initial Exercise Date") and at any time not later than 5:00 P.M.,
Eastern time, on the Expiration Date (as defined above), at an exercise price
per share equal to $2.21 (the exercise price in effect being herein called the
"Warrant Price"), ______ shares ("Warrant Shares") of the Company's Common
Stock, par value $0.001 per share ("Common Stock"). The number of Warrant Shares
purchasable upon exercise of this Warrant and the Warrant Price shall be subject
to adjustment from time to time as described herein. Terms not otherwise defined
herein have the respective meanings ascribed to them in the Purchase Agreement,
dated November __, 2006 (the "Purchase Agreement"), among the Company, the
initial holder of this Warrant and the other parties thereto.
1. Registration. The Company shall maintain books for the transfer and
registration of the Warrant. Upon the initial issuance of this Warrant, the
Company shall issue and register the Warrant in the name of the Warrantholder.
2. Transfers. As provided herein, this Warrant may be transferred only
pursuant to a registration statement filed under the Securities Act of 1933, as
amended (the "Securities Act"), or an exemption from such registration. Subject
to such restrictions, the Company shall transfer this Warrant from time to time
upon the books to be maintained by the Company for that purpose, upon surrender
hereof for transfer, properly endorsed or accompanied by appropriate
instructions for transfer and such other documents as may be reasonably required
by the Company, including, if required by the Company, an opinion of its counsel
to the effect that such transfer is exempt from the registration requirements of
the Securities Act, to establish that such
transfer is being made in accordance with the terms hereof, and a new Warrant
shall be issued to the transferee and the surrendered Warrant shall be canceled
by the Company.
3. Exercise of Warrant. Subject to the provisions hereof, the Warrantholder
may exercise this Warrant, in whole or in part, at any time prior to its
expiration upon surrender of the Warrant, together with delivery of a duly
executed Warrant exercise form, in the form attached hereto as Appendix A (the
"Exercise Agreement") and payment by cash, certified check or wire transfer of
funds (or, in certain circumstances, by cashless exercise as provided below) of
the aggregate Warrant Price for that number of Warrant Shares then being
purchased, to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the Warrantholder). The Warrant Shares
so purchased shall be deemed to be issued to the Warrantholder or the
Warrantholder's designee, as the record owner of such shares, as of the close of
business on the date on which this Warrant shall have been surrendered for
exercise (or the date evidence of loss, theft or destruction thereof and
security or indemnity satisfactory to the Company has been provided to the
Company in connection with such exercise), the Warrant Price shall have been
paid and the completed Exercise Agreement shall have been delivered.
Certificates for the Warrant Shares so purchased shall be delivered to the
Warrantholder within a reasonable time, not exceeding three (3) business days,
after this Warrant shall have been so exercised. The certificates so delivered
shall be in such denominations as may be requested by the Warrantholder and
shall be registered in the name of the Warrantholder or such other name as shall
be designated by the Warrantholder, as specified in the Exercise Agreement. If
this Warrant shall have been exercised only in part, then, unless this Warrant
has expired, the Company shall, at its expense, at the time of delivery of such
certificates, deliver to the Warrantholder a new Warrant representing the right
to purchase the number of shares with respect to which this Warrant shall not
then have been exercised. As used herein, "business day" means a day, other than
a Saturday or Sunday, on which banks in New York City are open for the general
transaction of business. Each exercise hereof shall constitute the
re-affirmation by the Warrantholder that the representations and warranties
contained in Section 5 of the Purchase Agreement are true and correct in all
material respects with respect to the Warrantholder as of the time of such
exercise.
4. Compliance with the Securities Act of 1933. Except as provided in the
Purchase Agreement, the Company may cause the legend set forth on the first page
of this Warrant to be set forth on each Warrant, and a similar legend on any
security issued or issuable upon exercise of this Warrant, unless counsel for
the Company is of the opinion as to any such security that such legend is
unnecessary.
5. Payment of Taxes. The Company will pay any documentary stamp taxes
attributable to the initial issuance of Warrant Shares issuable upon the
exercise of the Warrant; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificates for Warrant Shares in a
name other than that of the Warrantholder in respect of which such shares are
issued, and in such case, the Company shall not be required to issue or deliver
any certificate for Warrant Shares or any Warrant until the person requesting
the same has paid to the Company the amount of such tax or has established to
the Company's reasonable satisfaction that such tax
B-2
has been paid. The Warrantholder shall be responsible for income taxes due under
federal, state or other law, if any such tax is due.
6. Mutilated or Missing Warrants. In case this Warrant shall be mutilated,
lost, stolen, or destroyed, the Company shall issue in exchange and substitution
of and upon surrender and cancellation of the mutilated Warrant, or in lieu of
and substitution for the Warrant lost, stolen or destroyed, a new Warrant of
like tenor and for the purchase of a like number of Warrant Shares, but only
upon receipt of evidence reasonably satisfactory to the Company of such loss,
theft or destruction of the Warrant, and with respect to a lost, stolen or
destroyed Warrant, reasonable indemnity or bond with respect thereto, if
requested by the Company.
7. Reservation of Common Stock. The Company hereby represents and warrants
that there have been reserved, and the Company shall at all applicable times
keep reserved until issued (if necessary) as contemplated by this Section 7, out
of the authorized and unissued shares of Common Stock, sufficient shares to
provide for the exercise of the rights of purchase represented by this Warrant.
The Company agrees that all Warrant Shares issued upon due exercise of the
Warrant shall be, at the time of delivery of the certificates for such Warrant
Shares, duly authorized, validly issued, fully paid and non-assessable shares of
Common Stock of the Company.
8. Adjustments. Subject and pursuant to the provisions of this Section 8,
the Warrant Price and number of Warrant Shares subject to this Warrant shall be
subject to adjustment from time to time as set forth hereinafter.
(a) If the Company shall, at any time or from time to time while this
Warrant is outstanding, pay a dividend or make a distribution on its Common
Stock in shares of Common Stock, subdivide its outstanding shares of Common
Stock into a greater number of shares or combine its outstanding shares of
Common Stock into a smaller number of shares or issue by reclassification of its
outstanding shares of Common Stock any shares of its capital stock (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), then (i) the Warrant Price in effect
immediately prior to the date on which such change shall become effective shall
be adjusted by multiplying such Warrant Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such change and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after giving effect to such change and
(ii) the number of Warrant Shares purchasable upon exercise of this Warrant
shall be adjusted by multiplying the number of Warrant Shares purchasable upon
exercise of this Warrant immediately prior to the date on which such change
shall become effective by a fraction, the numerator of which is shall be the
Warrant Price in effect immediately prior to the date on which such change shall
become effective and the denominator of which shall be the Warrant Price in
effect immediately after giving effect to such change, calculated in accordance
with clause (i) above. Such adjustments shall be made successively whenever any
event listed above shall occur.
(b) If any capital reorganization, reclassification of the capital
stock of the Company, consolidation or merger of the Company with another
corporation in which the Company is not the survivor, or sale, transfer or other
disposition of all or substantially all of the
B-3
Company's assets to another corporation shall be effected, then, as a condition
of such reorganization, reclassification, consolidation, merger, sale, transfer
or other disposition, lawful and adequate provision shall be made whereby each
Warrantholder shall thereafter have the right to purchase and receive upon the
basis and upon the terms and conditions herein specified and in lieu of the
Warrant Shares immediately theretofore issuable upon exercise of the Warrant,
such shares of stock, securities or assets as would have been issuable or
payable with respect to or in exchange for a number of Warrant Shares equal to
the number of Warrant Shares immediately theretofore issuable upon exercise of
the Warrant, had such reorganization, reclassification, consolidation, merger,
sale, transfer or other disposition not taken place, and in any such case
appropriate provision shall be made with respect to the rights and interests of
each Warrantholder to the end that the provisions hereof (including, without
limitation, provision for adjustment of the Warrant Price) shall thereafter be
applicable, as nearly equivalent as may be practicable in relation to any shares
of stock, securities or assets thereafter deliverable upon the exercise hereof.
The Company shall not effect any such consolidation, merger, sale, transfer or
other disposition unless prior to or simultaneously with the consummation
thereof the successor corporation (if other than the Company) resulting from
such consolidation or merger, or the corporation purchasing or otherwise
acquiring such assets or other appropriate corporation or entity shall assume
the obligation to deliver to the Warrantholder, at the last address of the
Warrantholder appearing on the books of the Company, such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the
Warrantholder may be entitled to purchase, and the other obligations under this
Warrant. The provisions of this paragraph (b) shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers, sales,
transfers or other dispositions.
(c) In case the Company shall fix a payment date for the making of a
distribution to all holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus or dividends or distributions referred to in Section 8(a)), or
subscription rights or warrants, the Warrant Price to be in effect after such
payment date shall be determined by multiplying the Warrant Price in effect
immediately prior to such payment date by a fraction, the numerator of which
shall be the total number of shares of Common Stock outstanding multiplied by
the Market Price (as defined below) per share of Common Stock immediately prior
to such payment date, less the fair market value (as determined by the Company's
Board of Directors in good faith) of said assets or evidences of indebtedness so
distributed, or of such subscription rights or warrants, and the denominator of
which shall be the total number of shares of Common Stock outstanding multiplied
by such Market Price per share of Common Stock immediately prior to such payment
date. "Market Price", as of a particular date (the "Valuation Date"), shall mean
the following: (a) if the Common Stock is then listed on a national stock
exchange, the closing sale price of one share of Common Stock on such exchange
on the last Trading Day prior to the Valuation Date; (b) if the Common Stock is
then quoted on the National Association of Securities Dealers, Inc. OTC Bulletin
Board (the "Bulletin Board") or such similar quotation system or association,
the closing sale price of one share of Common Stock on the Bulletin Board or
such other quotation system or association on the last Trading Day prior to the
Valuation Date or, if no such closing sale price is available, the average of
the high bid and the low asked price quoted thereon on the last trading day
prior to the Valuation Date; (c) if such security is then included in the "pink
sheets," the closing sale price of
B-4
one share of Common Stock on the "pink sheets" on the last Trading Day prior to
the Valuation Date or, if no such closing sale price is available, the average
of the high bid and the low ask price quoted on the "pink sheets" as of the end
of the last Trading Day prior to the Valuation Date; or (d) if the Common Stock
is not then listed on a national stock exchange or quoted on the Bulletin Board,
the "pink sheets" or such other quotation system or association, the fair market
value of one share of Common Stock as of the Valuation Date, as determined in
good faith by the Board of Directors of the Company and the Warrantholder. If
the Common Stock is not then listed on a national securities exchange or quoted
on the Bulletin Board, the "pink sheets" or other quotation system or
association, the Board of Directors of the Company shall respond promptly, in
writing, to an inquiry by the Warrantholder prior to the exercise hereunder as
to the fair market value of a share of Common Stock as determined by the Board
of Directors of the Company. In the event that the Board of Directors of the
Company and the Warrantholder are unable to agree upon the fair market value in
respect of subpart (d) of this paragraph, the Company and the Warrantholder
shall jointly select an appraiser, who is experienced in such matters. The
decision of such appraiser shall be final and conclusive, and the cost of such
appraiser shall be borne equally by the Company and the Warrantholder. Such
adjustment shall be made successively whenever such a payment date is fixed.
(d) An adjustment to the Warrant Price shall become effective
immediately after the payment date in the case of each dividend or distribution
and immediately after the effective date of each other event which requires an
adjustment.
(e) In the event that, as a result of an adjustment made pursuant to
this Section 8, the Warrantholder shall become entitled to receive any shares of
capital stock of the Company other than shares of Common Stock, the number of
such other shares so receivable upon exercise of this Warrant shall be subject
thereafter to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Warrant Shares
contained in this Warrant.
(f) Except as provided in subsection (g) hereof, if and whenever the
Company shall issue or sell, or is, in accordance with any of subsections (f)(l)
through (f)(7) hereof, deemed to have issued or sold, any Additional Shares of
Common Stock (as defined below) for no consideration or for a consideration per
share less than the Warrant Price in effect immediately prior to the time of
such issuance or sale, then and in each such case (a "Trigger Issuance") the
then-existing Warrant Price, shall be reduced, as of the close of business on
the effective date of the Trigger Issuance, to a price determined as follows:
Adjusted Warrant Price = (A x B) + D
-----------
A+C
where
"A" equals the number of shares of Common Stock outstanding,
including Additional Shares of Common Stock (as defined below) deemed to be
issued hereunder, immediately preceding such Trigger Issuance;
B-5
"B" equals the Warrant Price in effect immediately preceding
such Trigger Issuance;
"C" equals the number of Additional Shares of Common Stock
issued or deemed issued hereunder as a result of the Trigger Issuance; and
"D" equals the aggregate consideration, if any, received or
deemed to be received by the Company upon such Trigger Issuance;
provided, however, that in no event shall the Warrant Price after giving effect
to such Trigger Issuance be greater than the Warrant Price in effect prior to
such Trigger Issuance.
For purposes of this subsection (f), "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued or sold by the Company or deemed to
be issued or sold pursuant to this subsection (f), other than Excluded Issuances
(as defined in subsection (g) hereof).
For purposes of this subsection (f), the following subsections (f)(l) to
(f)(8) shall also be applicable (subject, in each such case, to the provisions
of Section 8(g) hereof):
(f)(1) Issuance of Rights or Options. In case at any time the Company
shall in any manner grant (directly and not by assumption in a merger or
otherwise) any warrants or other rights to subscribe for or to purchase, or any
options for the purchase of, Common Stock or any stock or security convertible
into or exchangeable for Common Stock (such warrants, rights or options being
called "Options" and such convertible or exchangeable stock or securities being
called "Convertible Securities") whether or not such Options or the right to
convert or exchange any such Convertible Securities are immediately exercisable,
and the price per share for which Common Stock is issuable upon the exercise of
such Options or upon the conversion or exchange of such Convertible Securities
(determined by dividing (i) the sum (which sum shall constitute the applicable
consideration) of (x) the total amount, if any, received or receivable by the
Company as consideration for the granting of such Options, plus (y) the
aggregate amount of additional consideration payable to the Company upon the
exercise of all such Options, plus (z), in the case of such Options which relate
to Convertible Securities, the aggregate amount of additional consideration, if
any, payable upon the issuance or sale of such Convertible Securities and upon
the conversion or exchange thereof, by (ii) the total maximum number of shares
of Common Stock issuable upon the exercise of such Options or upon the
conversion or exchange of all such Convertible Securities issuable upon the
exercise of such Options) shall be less than the Warrant Price in effect
immediately prior to the time of the granting of such Options, then the total
number of shares of Common Stock issuable upon the exercise of such Options or
upon conversion or exchange of the total amount of such Convertible Securities
issuable upon the exercise of such Options shall be deemed to have been issued
for such price per share as of the date of granting of such Options or the
issuance of such Convertible Securities and thereafter shall be deemed to be
outstanding for purposes of adjusting the Warrant Price. Except as otherwise
provided in subsection 8(f)(3), no adjustment of the Warrant Price shall be made
upon the actual issuance of such Common Stock or of such Convertible Securities
upon exercise of such Options or upon the actual issuance of such Common Stock
upon conversion or exchange of such Convertible Securities.
B-6
(f)(2) Issuance of Convertible Securities. In case the Company shall
in any manner issue (directly and not by assumption in a merger or otherwise) or
sell any Convertible Securities, whether or not the rights to exchange or
convert any such Convertible Securities are immediately exercisable, and the
price per share for which Common Stock is issuable upon such conversion or
exchange (determined by dividing (i) the sum (which sum shall constitute the
applicable consideration) of (x) the total amount received or receivable by the
Company as consideration for the issuance or sale of such Convertible
Securities, plus (y) the aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange thereof, by (ii) the
total number of shares of Common Stock issuable upon the conversion or exchange
of all such Convertible Securities) shall be less than the Warrant Price in
effect immediately prior to the time of such issuance or sale, then the total
maximum number of shares of Common Stock issuable upon conversion or exchange of
all such Convertible Securities shall be deemed to have been issued for such
price per share as of the date of the issuance or sale of such Convertible
Securities and thereafter shall be deemed to be outstanding for purposes of
adjusting the Warrant Price, provided that (a) except as otherwise provided in
subsection 8(f)(3), no adjustment of the Warrant Price shall be made upon the
actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities and (b) no further adjustment of the Warrant Price shall
be made by reason of the issuance or sale of Convertible Securities upon
exercise of any Options to purchase any such Convertible Securities for which
adjustments of the Warrant Price have been made pursuant to the other provisions
of subsection 8(f).
(f)(3) Change in Option Price or Conversion Rate. Upon the happening
of any of the following events, namely, if the purchase price provided for in
any Option referred to in subsection 8(f)(l) hereof, the additional
consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in subsections 8(f)(l) or 8(f)(2), or the
rate at which Convertible Securities referred to in subsections 8(f)(l) or
8(f)(2) are convertible into or exchangeable for Common Stock shall change at
any time (including, but not limited to, changes under or by reason of
provisions designed to protect against dilution), the Warrant Price in effect at
the time of such event shall forthwith be readjusted to the Warrant Price which
would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold. On the termination of any Option for which
any adjustment was made pursuant to this subsection 8(f) or any right to convert
or exchange Convertible Securities for which any adjustment was made pursuant to
this subsection 8(f) (including without limitation upon the redemption or
purchase for consideration of such Convertible Securities by the Company), the
Warrant Price then in effect hereunder shall forthwith be changed to the Warrant
Price which would have been in effect at the time of such termination had such
Option or Convertible Securities, to the extent outstanding immediately prior to
such termination, never been issued.
B-7
(f)(4) Stock Dividends. Subject to the provisions of this Section
8(f), in case the Company shall declare a dividend or make any other
distribution upon any stock of the Company (other than the Common Stock) payable
in Common Stock, Options or Convertible Securities, then any Common Stock,
Options or Convertible Securities, as the case may be, issuable in payment of
such dividend or distribution shall be deemed to have been issued or sold
without consideration; provided, that if any adjustment is made to the Warrant
Price as a result of a declaration of a dividend and such dividend is rescinded,
the Warrant Price shall be appropriately readjusted to the Warrant Price in
effect had such dividend not been declared.
(f)(5) Consideration for Stock. In case any shares of Common Stock,
Options or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the net amount received by
the Company therefor, after deduction therefrom of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Company in
connection therewith. In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold for a consideration other than cash, the
amount of the consideration other than cash received by the Company shall be
deemed to be the fair value of such consideration as determined in good faith by
the Board of Directors of the Company, after deduction of any expenses incurred
or any underwriting commissions or concessions paid or allowed by the Company in
connection therewith. In case any Options shall be issued in connection with the
issuance and sale of other securities of the Company, together comprising one
integral transaction in which no specific consideration is allocated to such
Options by the parties thereto, such Options shall be deemed to have been issued
for such consideration as determined in good faith by the Board of Directors of
the Company. If Common Stock, Options or Convertible Securities shall be issued
or sold by the Company and, in connection therewith, other Options or
Convertible Securities (the "Additional Rights") are issued, then the
consideration received or deemed to be received by the Company shall be reduced
by the fair market value of the Additional Rights (as determined using the
Black-Scholes option pricing model or another method mutually agreed to by the
Company and the Warrantholder). The Board of Directors of the Company shall
respond promptly, in writing, to an inquiry by the Warrantholder as to the fair
market value of the Additional Rights. In the event that the Board of Directors
of the Company and the Warrantholder are unable to agree upon the fair market
value of the Additional Rights, the Company and the Warrantholder shall jointly
select an appraiser, who is experienced in such matters. The decision of such
appraiser shall be final and conclusive, and the cost of such appraiser shall be
borne evenly by the Company and the Warrantholder.
(f)(6) Record Date. In case the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them (i) to receive a
dividend or other distribution payable in Common Stock, Options or Convertible
Securities or (ii) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall be deemed to be the date of
the issuance or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(f)(7) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company or any of its wholly-owned subsidiaries, and the
disposition of any such shares (other than the
B-8
cancellation or retirement thereof) shall be considered an issuance or sale of
Common Stock for the purpose of this subsection (f).
(f)(8) Nasdaq Limitation. Notwithstanding any other provision in
Section 8(f) to the contrary, if a reduction in the Warrant Price pursuant to
Section 8(f) (other than as set forth in this clause (f)(8)) would require the
Company to obtain stockholder approval of the transactions contemplated by the
Purchase Agreement to be consummated on the Closing Date pursuant to Nasdaq
Marketplace Rule 4350(i) and such stockholder approval has not been obtained,
(i) the Warrant Price shall be reduced to the maximum extent that would not
require stockholder approval under such Rule, and (ii) the Company shall use its
commercially reasonable efforts to obtain such stockholder approval as soon as
reasonably practicable, including by calling a special meeting of stockholders
to vote on such Warrant Price adjustment. This provision shall not restrict the
number of shares of Common Stock which a Warrantholder may receive or
beneficially own in order to determine the amount of securities or other
consideration that such Holder may receive in the event of a transaction
contemplated by Section 8 of this Warrant.
(g) Anything herein to the contrary notwithstanding, the Company shall
not be required to make any adjustment of the Warrant Price in the case of the
issuance of (A) capital stock, Options or Convertible Securities issued to
directors, officers, employees or consultants of the Company in connection with
their service as directors of the Company, their employment by the Company or
their retention as consultants by the Company pursuant to an equity compensation
program approved by the Board of Directors of the Company or the compensation
committee of the Board of Directors of the Company, (B) shares of Common Stock
issued upon the conversion or exercise of Options or Convertible Securities
issued prior to the date hereof, provided such securities are not amended after
the date hereof to increase the number of shares of Common Stock issuable
thereunder or to lower the exercise or conversion price thereof, (C) securities
issued pursuant to the Purchase Agreement and securities issued upon the
exercise or conversion of those securities, (D) shares of Common Stock issued or
issuable by reason of a dividend, stock split or other distribution on shares of
Common Stock (but only to the extent that such a dividend, split or distribution
results in an adjustment in the Warrant Price pursuant to the other provisions
of this Warrant) and (E) securities issued in connection with the Secured Notes
(collectively, "Excluded Issuances").
(h) Upon any adjustment to the Warrant Price pursuant to Section 8(f)
above, the number of Warrant Shares purchasable hereunder shall be adjusted by
multiplying such number by a fraction, the numerator of which shall be the
Warrant Price in effect immediately prior to such adjustment and the denominator
of which shall be the Warrant Price in effect immediately thereafter.
(i) To the extent permitted by applicable law and the listing
requirements of any stock market or exchange on which the Common Stock is then
listed, the Company from time to time may decrease the Warrant Price by any
amount for any period of time if the period is at least twenty (20) days, the
decrease is irrevocable during the period and the Board shall have made a
determination that such decrease would be in the best interests of the Company,
which determination shall be conclusive. Whenever the Warrant Price is decreased
pursuant to the preceding sentence, the Company shall provide written notice
thereof to the Warrantholder at
B-9
least five (5) days prior to the date the decreased Warrant Price takes effect,
and such notice shall state the decreased Warrant Price and the period during
which it will be in effect.
9. Fractional Interest. The Company shall not be required to issue
fractions of Warrant Shares upon the exercise of this Warrant. If any fractional
share of Common Stock would, except for the provisions of the first sentence of
this Section 9, be deliverable upon such exercise, the Company, in lieu of
delivering such fractional share, shall pay to the exercising Warrantholder an
amount in cash equal to the Market Price of such fractional share of Common
Stock on the date of exercise.
10. Extension of Expiration Date. If the Company fails to cause any
Registration Statement covering Registrable Securities (unless otherwise defined
herein, capitalized terms are as defined in the Registration Rights Agreement
relating to the Warrant Shares (the "Registration Rights Agreement")) to be
declared effective prior to the applicable dates set forth therein, or if any of
the events specified in Section 2(c)(ii) of the Registration Rights Agreement
occurs, and the Blackout Period (whether alone, or in combination with any other
Blackout Period) continues for more than 60 days in any 12 month period, or for
more than a total of 90 days, then the Expiration Date of this Warrant shall be
extended one day for each day beyond the 60-day or 90-day limits, as the case
may be, that the Blackout Period continues.
11. Benefits. Nothing in this Warrant shall be construed to give any
person, firm or corporation (other than the Company and the Warrantholder) any
legal or equitable right, remedy or claim, it being agreed that this Warrant
shall be for the sole and exclusive benefit of the Company and the
Warrantholder.
12. Notices to Warrantholder. Upon the happening of any event requiring an
adjustment of the Warrant Price, the Company shall promptly give written notice
thereof to the Warrantholder at the address appearing in the records of the
Company, stating the adjusted Warrant Price and the adjusted number of Warrant
Shares resulting from such event and setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based.
Failure to give such notice to the Warrantholder or any defect therein shall not
affect the legality or validity of the subject adjustment.
13. Identity of Transfer Agent. The Transfer Agent for the Common Stock is
Computershare Trust Company. Upon the appointment of any subsequent transfer
agent for the Common Stock or other shares of the Company's capital stock
issuable upon the exercise of the rights of purchase represented by the Warrant,
the Company will mail to the Warrantholder a statement setting forth the name
and address of such transfer agent.
14. Notices. Unless otherwise provided, any notice required or permitted
under this Warrant shall be given in writing and shall be deemed effectively
given as hereinafter described (i) if given by personal delivery, then such
notice shall be deemed given upon such delivery, (ii) if given by telex or
facsimile, then such notice shall be deemed given upon receipt of confirmation
of complete transmittal, (iii) if given by mail, then such notice shall be
deemed given upon the earlier of (A) receipt of such notice by the recipient or
(B) three days after such notice is deposited in first class mail, postage
prepaid, and (iv) if given by an internationally recognized overnight air
courier, then such notice shall be deemed given one business day after
B-10
delivery to such carrier. All notices shall be addressed as follows: if to the
Warrantholder, at its address as set forth in the Company's books and records
and, if to the Company, at the address as follows, or at such other address as
the Warrantholder or the Company may designate by ten days' advance written
notice to the other:
If to the Company:
Zila, Inc.
0000 Xxxxx 0xx Xxxxxx
Xxxxxxx, Xxxxxxx 00000-0000
Attention: Xxxx X. Xxxxxxxxxxx, Esq.
Fax: (000) 000-0000
15. Registration Rights. The initial Warrantholder is entitled to the
benefit of certain registration rights with respect to the shares of Common
Stock issuable upon the exercise of this Warrant as provided in the Registration
Rights Agreement, and any subsequent Warrantholder may be entitled to such
rights.
16. Successors. All the covenants and provisions hereof by or for the
benefit of the Warrantholder shall bind and inure to the benefit of its
respective successors and assigns hereunder.
17. Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This
Warrant shall be governed by, and construed in accordance with, the internal
laws of the State of New York, without reference to the choice of law provisions
thereof. The Company and, by accepting this Warrant, the Warrantholder, each
irrevocably submits to the exclusive jurisdiction of the courts of the State of
New York located in New York County and the United States District Court for the
Southern District of New York for the purpose of any suit, action, proceeding or
judgment relating to or arising out of this Warrant and the transactions
contemplated hereby. Service of process in connection with any such suit, action
or proceeding may be served on each party hereto anywhere in the world by the
same methods as are specified for the giving of notices under this Warrant. The
Company and, by accepting this Warrant, the Warrantholder, each irrevocably
consents to the jurisdiction of any such court in any such suit, action or
proceeding and to the laying of venue in such court. The Company and, by
accepting this Warrant, the Warrantholder, each irrevocably waives any objection
to the laying of venue of any such suit, action or proceeding brought in such
courts and irrevocably waives any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum. EACH OF THE
COMPANY AND, BY ITS ACCEPTANCE HEREOF, THE WARRANTHOLDER HEREBY WAIVES ANY RIGHT
TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS WARRANT AND
REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.
18. Mandatory Exercise. Notwithstanding any other provision contained in
this Warrant to the contrary, from and after the first anniversary of the
Initial Exercise Date, in the event that the closing price per share of Common
Stock equals or exceeds $5.00 (appropriately adjusted for any stock split,
reverse stock split, stock dividend or other reclassification or
B-11
combination of the Common Stock occurring after the date hereof) for twenty (20)
consecutive trading days commencing after the Registration Statement (as defined
in the Registration Rights Agreement) with respect to the shares of Common Stock
issuable upon the exercise of this Warrant has been declared effective, the
Company, upon thirty (30) days prior written notice (the "Notice Period") given
to the Warrantholder within one business day immediately following the end of
such twenty (20) trading day period, may demand that the Warrantholder exercise
its cash exercise rights hereunder, and the Warrantholder must exercise its
rights hereunder prior to the end of the Notice Period; provided that (i) the
Company simultaneously gives a similar notice to all holders of Company Warrants
(as defined below), (ii) all of the shares of Common Stock issuable hereunder
either (A) are registered pursuant to an effective Registration Statement (as
defined in the Registration Rights Agreement) which has not been suspended and
for which no stop order is in effect, and pursuant to which the Warrantholder is
able to sell such shares of Common Stock at all times during the Notice Period
or (B) no longer constitute Registrable Securities (as defined in the
Registration Rights Agreement) and (iii) this Warrant is fully exercisable for
the full amount of Warrant Shares covered hereby. If such exercise is not made
or if only a partial exercise is made, any and all rights to further exercise
the Warrant shall cease upon the expiration of the Notice Period.
Notwithstanding any such notice by the Company, the Warrantholder shall have the
right to exercise this Warrant prior to the end of the Notice Period.
19. Cashless Exercise. Notwithstanding any other provision contained herein
to the contrary, from and after the first anniversary of the Closing Date (as
defined in the Purchase Agreement) and so long as the Company is required under
the Registration Rights Agreement to have effected the registration of the
Warrant Shares for resale to the public pursuant to a Registration Statement (as
such term is defined in the Registration Rights Agreement), if the Warrant
Shares may not be freely sold to the public as a result of the Company's failure
to perform or satisfy its obligations under the Registration Rights Agreement,
the Warrantholder may elect to receive, without the payment by the Warrantholder
of the aggregate Warrant Price in respect of the shares of Common Stock to be
acquired, shares of Common Stock of equal value to the value of this Warrant, or
any specified portion hereof, by the surrender of this Warrant (or such portion
of this Warrant being so exercised) together with a Net Issue Election Notice,
in the form annexed hereto as Appendix B, duly executed, to the Company.
Thereupon, the Company shall issue to the Warrantholder such number of fully
paid, validly issued and nonassessable shares of Common Stock as is computed
using the following formula:
X = Y (A - B)
---------
A
where
X = the number of shares of Common Stock to which the
Warrantholder is entitled upon such cashless exercise;
Y = the total number of shares of Common Stock covered by this
Warrant for which the Warrantholder has surrendered purchase rights at such time
for cashless exercise (including both shares to be issued to the Warrantholder
and shares as to which the purchase rights are to be canceled as payment
therefor);
B-12
A = the "Market Price" of one share of Common Stock as at the
date the net issue election is made; and
B = the Warrant Price in effect under this Warrant at the time
the net issue election is made.
20. Limitations on Exercise. Notwithstanding anything to the contrary
contained herein, the number of Warrant Shares that may be acquired by the
Warrantholder upon any exercise of this Warrant (or otherwise in respect hereof)
shall be limited to the extent necessary to insure that, following such exercise
(or other issuance), the total number of shares of Common Stock then
beneficially owned by such Warrantholder and its Affiliates and any other
Persons whose beneficial ownership of Common Stock would be aggregated with the
Warrantholder's for purposes of Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), does not exceed 9.999% of the total
number of issued and outstanding shares of Common Stock (including for such
purpose the shares of Common Stock issuable upon such exercise). For such
purposes, beneficial ownership shall be determined in accordance with Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder.
This provision shall not restrict the number of shares of Common Stock which a
Holder may receive or beneficially own in order to determine the amount of
securities or other consideration that such Holder may receive in the event of a
transaction contemplated by Section 8 of this Warrant. This restriction may not
be waived.
21. No Rights as Stockholder. Prior to the exercise of this Warrant, the
Warrantholder shall not have or exercise any rights as a stockholder of the
Company by virtue of its ownership of this Warrant.
22. Amendment; Waiver. This Warrant is one of a series of Warrants of like
tenor issued by the Company pursuant to the Purchase Agreement and initially
covering an aggregate of 5,403,000 shares of Common Stock (collectively, the
"Company Warrants"). Any term of this Warrant may be amended or waived
(including the adjustment provisions included in Section 8 of this Warrant) upon
the written consent of the Company and the holders of Company Warrants
representing at least 50% of the number of shares of Common Stock then subject
to all outstanding Company Warrants (the "Majority Holders"); provided, that (x)
any such amendment or waiver must apply to all Company Warrants; and (y) the
number of Warrant Shares subject to this Warrant, the Warrant Price and the
Expiration Date may not be amended, and the right to exercise this Warrant may
not be altered or waived, without the written consent of the Warrantholder.
23. Section Headings. The section headings in this Warrant are for the
convenience of the Company and the Warrantholder and in no way alter, modify,
amend, limit or restrict the provisions hereof.
B-13
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed, as of the ______ day of November, 2006.
ZILA, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
B-14
APPENDIX A
ZILA, INC.
WARRANT EXERCISE FORM
To Zila, Inc.:
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant ("Warrant") for, and to purchase thereunder by
the payment of the Warrant Price and surrender of the Warrant, _______________
shares of Common Stock ("Warrant Shares") provided for therein, and requests
that certificates for the Warrant Shares be issued as follows:
Name ________________________________
Address _____________________________
_____________________________________
_____________________________________
Federal Tax ID or Social Security No.
and delivered by
____ (certified mail to the above address, or
____ (electronically (provide DWAC Instructions:_________________). or
____ (other (specify): ___________________________________________).
and, if the number of Warrant Shares shall not be all the Warrant Shares
purchasable upon exercise of the Warrant, that a new Warrant for the balance of
the Warrant Shares purchasable upon exercise of this Warrant be registered in
the name of the undersigned Warrantholder or the undersigned's Assignee as below
indicated and delivered to the address stated below.
Note: The signature must correspond with the name of the Warrantholder as
written on the first page of the Warrant in every particular, without alteration
or enlargement or any change whatever, unless the Warrant has been assigned.
Dated: ___________________, ____ Signature:
-----------------------------
----------------------------------------
Name (please print)
----------------------------------------
----------------------------------------
Address
----------------------------------------
Federal Identification or
Social Security No.
A-1
Assignee:
----------------------------------------
----------------------------------------
----------------------------------------
X-0
XXXXXXXX X
ZILA, INC.
NET ISSUE ELECTION NOTICE
To: Zila, Inc.
Date:[_________________________]
The undersigned hereby elects under Section 19 of this Warrant to surrender
the right to purchase [____________] shares of Common Stock pursuant to this
Warrant and hereby requests the issuance of [_____________] shares of Common
Stock. The certificate(s) for the shares issuable upon such net issue election
shall be issued in the name of the undersigned or as otherwise indicated below.
-------------------------------------
Signature
-------------------------------------
Name for Registration
-------------------------------------
Mailing Address
B-1
EXHIBIT C
THE SECURITIES REPRESENTED HEREBY MAY NOT BE TRANSFERRED UNLESS (I) SUCH
SECURITIES HAVE BEEN REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OF 1933,
AS AMENDED, (II) SUCH SECURITIES MAY BE SOLD PURSUANT TO RULE 144(K), OR (III)
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT
THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933 OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS.
SUBJECT TO THE PROVISIONS OF SECTION 10 HEREOF, THIS WARRANT SHALL BE VOID
AFTER 5:00 P.M. EASTERN TIME ON NOVEMBER __, 2011 (THE "EXPIRATION DATE").
No. __________
ZILA, INC.
WARRANT TO PURCHASE [_______] SHARES OF
COMMON STOCK, PAR VALUE $0.001 PER SHARE
For VALUE RECEIVED, ____________________ ("Warrantholder"), is entitled to
purchase, subject to the provisions of this Warrant, from Zila, Inc., a Delaware
corporation ("Company"), from and after the Automatic Conversion Date (as
defined in the Purchase Agreement referenced below) and at any time not later
than 5:00 P.M., Eastern time, on the Expiration Date (as defined above), at an
exercise price per share equal to $2.21 (the exercise price in effect being
herein called the "Warrant Price"), ______ shares ("Warrant Shares") of the
Company's Common Stock, par value $0.001 per share ("Common Stock"). The number
of Warrant Shares purchasable upon exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time as described herein.
Terms not otherwise defined herein have the respective meanings ascribed to them
in the Purchase Agreement, dated November __, 2006 (the "Purchase Agreement"),
among the Company, the initial holder of this Warrant and the other parties
thereto.
Section 1. Registration. The Company shall maintain books for the transfer
and registration of the Warrant. Upon the initial issuance of this Warrant, the
Company shall issue and register the Warrant in the name of the Warrantholder.
Section 2. Transfers. As provided herein, this Warrant may be transferred
only pursuant to a registration statement filed under the Securities Act of
1933, as amended (the "Securities Act"), or an exemption from such registration.
Subject to such restrictions, the Company shall transfer this Warrant from time
to time upon the books to be maintained by the Company for that purpose, upon
surrender hereof for transfer, properly endorsed or accompanied by appropriate
instructions for transfer and such other documents as may be reasonably required
by the Company, including, if required by the Company, an opinion of its counsel
to the effect that such transfer is exempt from the registration requirements of
the Securities Act, to establish
that such transfer is being made in accordance with the terms hereof, and a new
Warrant shall be issued to the transferee and the surrendered Warrant shall be
canceled by the Company.
Section 3. Exercise of Warrant. Subject to the provisions hereof, the
Warrantholder may exercise this Warrant, in whole or in part, at any time prior
to its expiration upon surrender of the Warrant, together with delivery of a
duly executed Warrant exercise form, in the form attached hereto as Appendix A
(the "Exercise Agreement") and payment by cash, certified check or wire transfer
of funds (or, in certain circumstances, by cashless exercise as provided below)
of the aggregate Warrant Price for that number of Warrant Shares then being
purchased, to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the Warrantholder). The Warrant Shares
so purchased shall be deemed to be issued to the Warrantholder or the
Warrantholder's designee, as the record owner of such shares, as of the close of
business on the date on which this Warrant shall have been surrendered for
exercise (or the date evidence of loss, theft or destruction thereof and
security or indemnity satisfactory to the Company has been provided to the
Company in connection with such exercise), the Warrant Price shall have been
paid and the completed Exercise Agreement shall have been delivered.
Certificates for the Warrant Shares so purchased shall be delivered to the
Warrantholder within a reasonable time, not exceeding three (3) business days,
after this Warrant shall have been so exercised. The certificates so delivered
shall be in such denominations as may be requested by the Warrantholder and
shall be registered in the name of the Warrantholder or such other name as shall
be designated by the Warrantholder, as specified in the Exercise Agreement. If
this Warrant shall have been exercised only in part, then, unless this Warrant
has expired, the Company shall, at its expense, at the time of delivery of such
certificates, deliver to the Warrantholder a new Warrant representing the right
to purchase the number of shares with respect to which this Warrant shall not
then have been exercised. As used herein, "business day" means a day, other than
a Saturday or Sunday, on which banks in New York City are open for the general
transaction of business. Each exercise hereof shall constitute the
re-affirmation by the Warrantholder that the representations and warranties
contained in Section 5 of the Purchase Agreement are true and correct in all
material respects with respect to the Warrantholder as of the time of such
exercise.
Section 4. Compliance with the Securities Act of 1933. Except as provided
in the Purchase Agreement, the Company may cause the legend set forth on the
first page of this Warrant to be set forth on each Warrant, and a similar legend
on any security issued or issuable upon exercise of this Warrant, unless counsel
for the Company is of the opinion as to any such security that such legend is
unnecessary.
Section 5. Payment of Taxes. The Company will pay any documentary stamp
taxes attributable to the initial issuance of Warrant Shares issuable upon the
exercise of the Warrant; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificates for Warrant Shares in a
name other than that of the Warrantholder in respect of which such shares are
issued, and in such case, the Company shall not be required to issue or deliver
any certificate for Warrant Shares or any Warrant until the person requesting
the same has paid to the Company the amount of such tax or has established to
the Company's reasonable satisfaction that such tax
C-2
has been paid. The Warrantholder shall be responsible for income taxes due under
federal, state or other law, if any such tax is due.
Section 6. Mutilated or Missing Warrants. In case this Warrant shall be
mutilated, lost, stolen, or destroyed, the Company shall issue in exchange and
substitution of and upon surrender and cancellation of the mutilated Warrant, or
in lieu of and substitution for the Warrant lost, stolen or destroyed, a new
Warrant of like tenor and for the purchase of a like number of Warrant Shares,
but only upon receipt of evidence reasonably satisfactory to the Company of such
loss, theft or destruction of the Warrant, and with respect to a lost, stolen or
destroyed Warrant, reasonable indemnity with respect thereto, if requested by
the Company.
Section 7. Reservation of Common Stock. The Company hereby represents and
warrants that there have been reserved, and the Company shall at all applicable
times keep reserved until issued (if necessary) as contemplated by this Section
7, out of the authorized and unissued shares of Common Stock, sufficient shares
to provide for the exercise of the rights of purchase represented by this
Warrant. The Company agrees that all Warrant Shares issued upon due exercise of
the Warrant shall be, at the time of delivery of the certificates for such
Warrant Shares, duly authorized, validly issued, fully paid and non-assessable
shares of Common Stock of the Company.
Section 8. Adjustments. Subject and pursuant to the provisions of this
Section 8, the Warrant Price and number of Warrant Shares subject to this
Warrant shall be subject to adjustment from time to time as set forth
hereinafter.
(a) If the Company shall, at any time or from time to time while this
Warrant is outstanding, pay a dividend or make a distribution on its Common
Stock in shares of Common Stock, subdivide its outstanding shares of Common
Stock into a greater number of shares or combine its outstanding shares of
Common Stock into a smaller number of shares or issue by reclassification of its
outstanding shares of Common Stock any shares of its capital stock (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), then (i) the Warrant Price in effect
immediately prior to the date on which such change shall become effective shall
be adjusted by multiplying such Warrant Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such change and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after giving effect to such change and
(ii) the number of Warrant Shares purchasable upon exercise of this Warrant
shall be adjusted by multiplying the number of Warrant Shares purchasable upon
exercise of this Warrant immediately prior to the date on which such change
shall become effective by a fraction, the numerator of which is shall be the
Warrant Price in effect immediately prior to the date on which such change shall
become effective and the denominator of which shall be the Warrant Price in
effect immediately after giving effect to such change, calculated in accordance
with clause (i) above. Such adjustments shall be made successively whenever any
event listed above shall occur.
(b) If any capital reorganization, reclassification of the capital
stock of the Company, consolidation or merger of the Company with another
corporation in which the Company is not the survivor, or sale, transfer or other
disposition of all or substantially all of the
C-3
Company's assets to another corporation shall be effected, then, as a condition
of such reorganization, reclassification, consolidation, merger, sale, transfer
or other disposition, lawful and adequate provision shall be made whereby each
Warrantholder shall thereafter have the right to purchase and receive upon the
basis and upon the terms and conditions herein specified and in lieu of the
Warrant Shares immediately theretofore issuable upon exercise of the Warrant,
such shares of stock, securities or assets as would have been issuable or
payable with respect to or in exchange for a number of Warrant Shares equal to
the number of Warrant Shares immediately theretofore issuable upon exercise of
the Warrant, had such reorganization, reclassification, consolidation, merger,
sale, transfer or other disposition not taken place, and in any such case
appropriate provision shall be made with respect to the rights and interests of
each Warrantholder to the end that the provisions hereof (including, without
limitation, provision for adjustment of the Warrant Price) shall thereafter be
applicable, as nearly equivalent as may be practicable in relation to any shares
of stock, securities or assets thereafter deliverable upon the exercise hereof.
The Company shall not effect any such consolidation, merger, sale, transfer or
other disposition unless prior to or simultaneously with the consummation
thereof the successor corporation (if other than the Company) resulting from
such consolidation or merger, or the corporation purchasing or otherwise
acquiring such assets or other appropriate corporation or entity shall assume
the obligation to deliver to the Warrantholder, at the last address of the
Warrantholder appearing on the books of the Company, such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the
Warrantholder may be entitled to purchase, and the other obligations under this
Warrant. The provisions of this paragraph (b) shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers, sales,
transfers or other dispositions.
(c) In case the Company shall fix a payment date for the making of a
distribution to all holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus or dividends or distributions referred to in Section 8(a)), or
subscription rights or warrants, the Warrant Price to be in effect after such
payment date shall be determined by multiplying the Warrant Price in effect
immediately prior to such payment date by a fraction, the numerator of which
shall be the total number of shares of Common Stock outstanding multiplied by
the Market Price (as defined below) per share of Common Stock immediately prior
to such payment date, less the fair market value (as determined by the Company's
Board of Directors in good faith) of said assets or evidences of indebtedness so
distributed, or of such subscription rights or warrants, and the denominator of
which shall be the total number of shares of Common Stock outstanding multiplied
by such Market Price per share of Common Stock immediately prior to such payment
date. "Market Price", as of a particular date (the "Valuation Date"), shall mean
the following: (a) if the Common Stock is then listed on a national stock
exchange, the closing sale price of one share of Common Stock on such exchange
on the last Trading Day prior to the Valuation Date; (b) if the Common Stock is
then quoted on the National Association of Securities Dealers, Inc. OTC Bulletin
Board (the "Bulletin Board") or such similar quotation system or association,
the closing sale price of one share of Common Stock on the Bulletin Board or
such other quotation system or association on the last Trading Day prior to the
Valuation Date or, if no such closing sale price is available, the average of
the high bid and the low asked price quoted thereon on the last trading day
prior to the Valuation Date; (c) if such security is then included in the "pink
sheets," the closing sale price of
C-4
one share of Common Stock on the "pink sheets" on the last Trading Day prior to
the Valuation Date or, if no such closing sale price is available, the average
of the high bid and the low ask price quoted on the "pink sheets" as of the end
of the last Trading Day prior to the Valuation Date; or (d) if the Common Stock
is not then listed on a national stock exchange or quoted on the Bulletin Board,
the "pink sheets" or such other quotation system or association, the fair market
value of one share of Common Stock as of the Valuation Date, as determined in
good faith by the Board of Directors of the Company and the Warrantholder. If
the Common Stock is not then listed on a national securities exchange or quoted
on the Bulletin Board, the "pink sheets" or other quotation system or
association, the Board of Directors of the Company shall respond promptly, in
writing, to an inquiry by the Warrantholder prior to the exercise hereunder as
to the fair market value of a share of Common Stock as determined by the Board
of Directors of the Company. In the event that the Board of Directors of the
Company and the Warrantholder are unable to agree upon the fair market value in
respect of subpart (d) of this paragraph, the Company and the Warrantholder
shall jointly select an appraiser, who is experienced in such matters. The
decision of such appraiser shall be final and conclusive, and the cost of such
appraiser shall be borne equally by the Company and the Warrantholder. Such
adjustment shall be made successively whenever such a payment date is fixed.
(d) An adjustment to the Warrant Price shall become effective
immediately after the payment date in the case of each dividend or distribution
and immediately after the effective date of each other event which requires an
adjustment.
(e) In the event that, as a result of an adjustment made pursuant to
this Section 8, the Warrantholder shall become entitled to receive any shares of
capital stock of the Company other than shares of Common Stock, the number of
such other shares so receivable upon exercise of this Warrant shall be subject
thereafter to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Warrant Shares
contained in this Warrant.
(f) Except as provided in subsection (g) hereof, if and whenever the
Company shall issue or sell, or is, in accordance with any of subsections (f)(l)
through (f)(7) hereof, deemed to have issued or sold, any Additional Shares of
Common Stock (as defined below) for no consideration or for a consideration per
share less than the Warrant Price in effect immediately prior to the time of
such issuance or sale, then and in each such case (a "Trigger Issuance") the
then-existing Warrant Price, shall be reduced, as of the close of business on
the effective date of the Trigger Issuance, to a price determined as follows:
(A x B) + D
Adjusted Warrant Price = -----------
A + C
where
"A" equals the number of shares of Common Stock outstanding,
including Additional Shares of Common Stock (as defined below) deemed to be
issued hereunder, immediately preceding such Trigger Issuance;
X-0
"X" equals the Warrant Price in effect immediately preceding such
Trigger Issuance;
"C" equals the number of Additional Shares of Common Stock issued
or deemed issued hereunder as a result of the Trigger Issuance; and
"D" equals the aggregate consideration, if any, received or
deemed to be received by the Company upon such Trigger Issuance;
provided, however, that in no event shall the Warrant Price after giving effect
to such Trigger Issuance be greater than the Warrant Price in effect prior to
such Trigger Issuance.
For purposes of this subsection (f), "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued or sold by the Company or deemed to
be issued or sold pursuant to this subsection (f), other than Excluded Issuances
(as defined in subsection (g) hereof).
For purposes of this subsection (f), the following subsections (f)(l) to
(f)(8) shall also be applicable (subject, in each such case, to the provisions
of Section 8(g) hereof):
(f)(1) Issuance of Rights or Options. In case at any time the Company
shall in any manner grant (directly and not by assumption in a merger or
otherwise) any warrants or other rights to subscribe for or to purchase, or any
options for the purchase of, Common Stock or any stock or security convertible
into or exchangeable for Common Stock (such warrants, rights or options being
called "Options" and such convertible or exchangeable stock or securities being
called "Convertible Securities") whether or not such Options or the right to
convert or exchange any such Convertible Securities are immediately exercisable,
and the price per share for which Common Stock is issuable upon the exercise of
such Options or upon the conversion or exchange of such Convertible Securities
(determined by dividing (i) the sum (which sum shall constitute the applicable
consideration) of (x) the total amount, if any, received or receivable by the
Company as consideration for the granting of such Options, plus (y) the
aggregate amount of additional consideration payable to the Company upon the
exercise of all such Options, plus (z), in the case of such Options which relate
to Convertible Securities, the aggregate amount of additional consideration, if
any, payable upon the issuance or sale of such Convertible Securities and upon
the conversion or exchange thereof, by (ii) the total maximum number of shares
of Common Stock issuable upon the exercise of such Options or upon the
conversion or exchange of all such Convertible Securities issuable upon the
exercise of such Options) shall be less than the Warrant Price in effect
immediately prior to the time of the granting of such Options, then the total
number of shares of Common Stock issuable upon the exercise of such Options or
upon conversion or exchange of the total amount of such Convertible Securities
issuable upon the exercise of such Options shall be deemed to have been issued
for such price per share as of the date of granting of such Options or the
issuance of such Convertible Securities and thereafter shall be deemed to be
outstanding for purposes of adjusting the Warrant Price. Except as otherwise
provided in subsection 8(f)(3), no adjustment of the Warrant Price shall be made
upon the actual issuance of such Common Stock or of such Convertible Securities
upon exercise of such Options or upon the actual issuance of such Common Stock
upon conversion or exchange of such Convertible Securities.
C-6
(f)(2) Issuance of Convertible Securities. In case the Company shall
in any manner issue (directly and not by assumption in a merger or otherwise) or
sell any Convertible Securities, whether or not the rights to exchange or
convert any such Convertible Securities are immediately exercisable, and the
price per share for which Common Stock is issuable upon such conversion or
exchange (determined by dividing (i) the sum (which sum shall constitute the
applicable consideration) of (x) the total amount received or receivable by the
Company as consideration for the issuance or sale of such Convertible
Securities, plus (y) the aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange thereof, by (ii) the
total number of shares of Common Stock issuable upon the conversion or exchange
of all such Convertible Securities) shall be less than the Warrant Price in
effect immediately prior to the time of such issuance or sale, then the total
maximum number of shares of Common Stock issuable upon conversion or exchange of
all such Convertible Securities shall be deemed to have been issued for such
price per share as of the date of the issuance or sale of such Convertible
Securities and thereafter shall be deemed to be outstanding for purposes of
adjusting the Warrant Price, provided that (a) except as otherwise provided in
subsection 8(f)(3), no adjustment of the Warrant Price shall be made upon the
actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities and (b) no further adjustment of the Warrant Price shall
be made by reason of the issuance or sale of Convertible Securities upon
exercise of any Options to purchase any such Convertible Securities for which
adjustments of the Warrant Price have been made pursuant to the other provisions
of subsection 8(f).
(f)(3) Change in Option Price or Conversion Rate. Upon the happening
of any of the following events, namely, if the purchase price provided for in
any Option referred to in subsection 8(f)(l) hereof, the additional
consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in subsections 8(f)(l) or 8(f)(2), or the
rate at which Convertible Securities referred to in subsections 8(f)(l) or
8(f)(2) are convertible into or exchangeable for Common Stock shall change at
any time (including, but not limited to, changes under or by reason of
provisions designed to protect against dilution), the Warrant Price in effect at
the time of such event shall forthwith be readjusted to the Warrant Price which
would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold. On the termination of any Option for which
any adjustment was made pursuant to this subsection 8(f) or any right to convert
or exchange Convertible Securities for which any adjustment was made pursuant to
this subsection 8(f) (including without limitation upon the redemption or
purchase for consideration of such Convertible Securities by the Company), the
Warrant Price then in effect hereunder shall forthwith be changed to the Warrant
Price which would have been in effect at the time of such termination had such
Option or Convertible Securities, to the extent outstanding immediately prior to
such termination, never been issued.
C-7
(f)(4) Stock Dividends. Subject to the provisions of this Section
8(f), in case the Company shall declare a dividend or make any other
distribution upon any stock of the Company (other than the Common Stock) payable
in Common Stock, Options or Convertible Securities, then any Common Stock,
Options or Convertible Securities, as the case may be, issuable in payment of
such dividend or distribution shall be deemed to have been issued or sold
without consideration; provided, that if any adjustment is made to the Warrant
Price as a result of a declaration of a dividend and such dividend is rescinded,
the Warrant Price shall be appropriately readjusted to the Warrant Price in
effect had such dividend not been declared.
(f)(5) Consideration for Stock. In case any shares of Common Stock,
Options or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the net amount received by
the Company therefor, after deduction therefrom of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Company in
connection therewith. In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold for a consideration other than cash, the
amount of the consideration other than cash received by the Company shall be
deemed to be the fair value of such consideration as determined in good faith by
the Board of Directors of the Company, after deduction of any expenses incurred
or any underwriting commissions or concessions paid or allowed by the Company in
connection therewith. In case any Options shall be issued in connection with the
issuance and sale of other securities of the Company, together comprising one
integral transaction in which no specific consideration is allocated to such
Options by the parties thereto, such Options shall be deemed to have been issued
for such consideration as determined in good faith by the Board of Directors of
the Company. If Common Stock, Options or Convertible Securities shall be issued
or sold by the Company and, in connection therewith, other Options or
Convertible Securities (the "Additional Rights") are issued, then the
consideration received or deemed to be received by the Company shall be reduced
by the fair market value of the Additional Rights (as determined using the
Black-Scholes option pricing model or another method mutually agreed to by the
Company and the Warrantholder). The Board of Directors of the Company shall
respond promptly, in writing, to an inquiry by the Warrantholder as to the fair
market value of the Additional Rights. In the event that the Board of Directors
of the Company and the Warrantholder are unable to agree upon the fair market
value of the Additional Rights, the Company and the Warrantholder shall jointly
select an appraiser, who is experienced in such matters. The decision of such
appraiser shall be final and conclusive, and the cost of such appraiser shall be
borne evenly by the Company and the Warrantholder.
(f)(6) Record Date. In case the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them (i) to receive a
dividend or other distribution payable in Common Stock, Options or Convertible
Securities or (ii) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall be deemed to be the date of
the issuance or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(f)(7) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company or any of its wholly-owned subsidiaries, and the
disposition of any such shares (other than the
C-8
cancellation or retirement thereof) shall be considered an issuance or sale of
Common Stock for the purpose of this subsection (f).
(f)(8) Nasdaq Limitation. Notwithstanding any other provision in
Section 8(f) to the contrary, if a reduction in the Warrant Price pursuant to
Section 8(f) (other than as set forth in this clause (f)(8)) would require the
Company to obtain stockholder approval of the transactions contemplated by the
Purchase Agreement to be consummated on the Closing Date pursuant to Nasdaq
Marketplace Rule 4350(i) and such stockholder approval has not been obtained,
(i) the Warrant Price shall be reduced to the maximum extent that would not
require stockholder approval under such Rule, and (ii) the Company shall use its
commercially reasonable efforts to obtain such stockholder approval as soon as
reasonably practicable, including by calling a special meeting of stockholders
to vote on such Warrant Price adjustment. This provision shall not restrict the
number of shares of Common Stock which a Warrantholder may receive or
beneficially own in order to determine the amount of securities or other
consideration that such Holder may receive in the event of a transaction
contemplated by Section 8 of this Warrant.
(g) Anything herein to the contrary notwithstanding, the Company shall
not be required to make any adjustment of the Warrant Price in the case of the
issuance of (A) capital stock, Options or Convertible Securities issued to
directors, officers, employees or consultants of the Company in connection with
their service as directors of the Company, their employment by the Company or
their retention as consultants by the Company pursuant to an equity compensation
program approved by the Board of Directors of the Company or the compensation
committee of the Board of Directors of the Company, (B) shares of Common Stock
issued upon the conversion or exercise of Options or Convertible Securities
issued prior to the date hereof, provided such securities are not amended after
the date hereof to increase the number of shares of Common Stock issuable
thereunder or to lower the exercise or conversion price thereof, (C) securities
issued pursuant to the Purchase Agreement and securities issued upon the
exercise or conversion of those securities, (D) shares of Common Stock issued or
issuable by reason of a dividend, stock split or other distribution on shares of
Common Stock (but only to the extent that such a dividend, split or distribution
results in an adjustment in the Warrant Price pursuant to the other provisions
of this Warrant) and (E) securities issued in connection with the Secured Notes
(collectively, "Excluded Issuances").
(h) Upon any adjustment to the Warrant Price pursuant to Section 8(f)
above, the number of Warrant Shares purchasable hereunder shall be adjusted by
multiplying such number by a fraction, the numerator of which shall be the
Warrant Price in effect immediately prior to such adjustment and the denominator
of which shall be the Warrant Price in effect immediately thereafter.
(i) To the extent permitted by applicable law and the listing
requirements of any stock market or exchange on which the Common Stock is then
listed, the Company from time to time may decrease the Warrant Price by any
amount for any period of time if the period is at least twenty (20) days, the
decrease is irrevocable during the period and the Board shall have made a
determination that such decrease would be in the best interests of the Company,
which determination shall be conclusive. Whenever the Warrant Price is decreased
pursuant to the preceding sentence, the Company shall provide written notice
thereof to the Warrantholder at
C-9
least five (5) days prior to the date the decreased Warrant Price takes effect,
and such notice shall state the decreased Warrant Price and the period during
which it will be in effect.
Section 9. Fractional Interest. The Company shall not be required to issue
fractions of Warrant Shares upon the exercise of this Warrant. If any fractional
share of Common Stock would, except for the provisions of the first sentence of
this Section 9, be deliverable upon such exercise, the Company, in lieu of
delivering such fractional share, shall pay to the exercising Warrantholder an
amount in cash equal to the Market Price of such fractional share of Common
Stock on the date of exercise.
Section 10. Extension of Expiration Date. If the Company fails to cause any
Registration Statement covering Registrable Securities (unless otherwise defined
herein, capitalized terms are as defined in the Registration Rights Agreement
relating to the Warrant Shares (the "Registration Rights Agreement")) to be
declared effective prior to the applicable dates set forth therein, or if any of
the events specified in Section 2(c)(ii) of the Registration Rights Agreement
occurs, and the Blackout Period (whether alone, or in combination with any other
Blackout Period) continues for more than 60 days in any 12 month period, or for
more than a total of 90 days, then the Expiration Date of this Warrant shall be
extended one day for each day beyond the 60-day or 90-day limits, as the case
may be, that the Blackout Period continues.
Section 11. Benefits. Nothing in this Warrant shall be construed to give
any person, firm or corporation (other than the Company and the Warrantholder)
any legal or equitable right, remedy or claim, it being agreed that this Warrant
shall be for the sole and exclusive benefit of the Company and the
Warrantholder.
Section 12. Notices to Warrantholder. Upon the happening of any event
requiring an adjustment of the Warrant Price, the Company shall promptly give
written notice thereof to the Warrantholder at the address appearing in the
records of the Company, stating the adjusted Warrant Price and the adjusted
number of Warrant Shares resulting from such event and setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based. Failure to give such notice to the Warrantholder or any
defect therein shall not affect the legality or validity of the subject
adjustment.
Section 13. Identity of Transfer Agent. The Transfer Agent for the Common
Stock is Computershare Trust Company. Upon the appointment of any subsequent
transfer agent for the Common Stock or other shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrant, the Company will mail to the Warrantholder a statement setting forth
the name and address of such transfer agent.
Section 14. Notices. Unless otherwise provided, any notice required or
permitted under this Warrant shall be given in writing and shall be deemed
effectively given as hereinafter described (i) if given by personal delivery,
then such notice shall be deemed given upon such delivery, (ii) if given by
telex or facsimile, then such notice shall be deemed given upon receipt of
confirmation of complete transmittal, (iii) if given by mail, then such notice
shall be deemed given upon the earlier of (A) receipt of such notice by the
recipient or (B) three days after such notice is deposited in first class mail,
postage prepaid, and (iv) if given by an internationally recognized overnight
air courier, then such notice shall be deemed given one business day after
C-10
delivery to such carrier. All notices shall be addressed as follows: if to the
Warrantholder, at its address as set forth in the Company's books and records
and, if to the Company, at the address as follows, or at such other address as
the Warrantholder or the Company may designate by ten days' advance written
notice to the other:
If to the Company:
Zila, Inc.
0000 Xxxxx 0xx Xxxxxx
Xxxxxxx, Xxxxxxx 00000-0000
Attention: Xxxx X. Xxxxxxxxxxx, Esq.
Fax: (000) 000-0000
Section 15. Registration Rights. The initial Warrantholder is entitled to
the benefit of certain registration rights with respect to the shares of Common
Stock issuable upon the exercise of this Warrant as provided in the Registration
Rights Agreement, and any subsequent Warrantholder may be entitled to such
rights.
Section 16. Successors. All the covenants and provisions hereof by or for
the benefit of the Warrantholder shall bind and inure to the benefit of its
respective successors and assigns hereunder.
Section 17. Governing Law; Consent to Jurisdiction; Waiver of Jury Trial.
This Warrant shall be governed by, and construed in accordance with, the
internal laws of the State of New York, without reference to the choice of law
provisions thereof. The Company and, by accepting this Warrant, the
Warrantholder, each irrevocably submits to the exclusive jurisdiction of the
courts of the State of New York located in New York County and the United States
District Court for the Southern District of New York for the purpose of any
suit, action, proceeding or judgment relating to or arising out of this Warrant
and the transactions contemplated hereby. Service of process in connection with
any such suit, action or proceeding may be served on each party hereto anywhere
in the world by the same methods as are specified for the giving of notices
under this Warrant. The Company and, by accepting this Warrant, the
Warrantholder, each irrevocably consents to the jurisdiction of any such court
in any such suit, action or proceeding and to the laying of venue in such court.
The Company and, by accepting this Warrant, the Warrantholder, each irrevocably
waives any objection to the laying of venue of any such suit, action or
proceeding brought in such courts and irrevocably waives any claim that any such
suit, action or proceeding brought in any such court has been brought in an
inconvenient forum. EACH OF THE COMPANY AND, BY ITS ACCEPTANCE HEREOF, THE
WARRANTHOLDER HEREBY WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY
LITIGATION WITH RESPECT TO THIS WARRANT AND REPRESENTS THAT COUNSEL HAS BEEN
CONSULTED SPECIFICALLY AS TO THIS WAIVER.
Section 18. Mandatory Exercise. Notwithstanding any other provision
contained in this Warrant to the contrary, from and after the first anniversary
of the Automatic Conversion Date, in the event that the closing price per share
of Common Stock equals or exceeds $5.00 (appropriately adjusted for any stock
split, reverse stock split, stock dividend or other
C-11
reclassification or combination of the Common Stock occurring after the date
hereof) for twenty (20) consecutive trading days commencing after the
Registration Statement (as defined in the Registration Rights Agreement) with
respect to the shares of Common Stock issuable upon the exercise of this Warrant
has been declared effective, the Company, upon thirty (30) days prior written
notice (the "Notice Period") given to the Warrantholder within one business day
immediately following the end of such twenty (20) trading day period, may demand
that the Warrantholder exercise its cash exercise rights hereunder, and the
Warrantholder must exercise its rights hereunder prior to the end of the Notice
Period; provided that (i) the Company simultaneously gives a similar notice to
all holders of Company Warrants (as defined below), (ii) all of the shares of
Common Stock issuable hereunder either (A) are registered pursuant to an
effective Registration Statement (as defined in the Registration Rights
Agreement) which has not been suspended and for which no stop order is in
effect, and pursuant to which the Warrantholder is able to sell such shares of
Common Stock at all times during the Notice Period or (B) no longer constitute
Registrable Securities (as defined in the Registration Rights Agreement) and
(iii) this Warrant is fully exercisable for the full amount of Warrant Shares
covered hereby. If such exercise is not made or if only a partial exercise is
made, any and all rights to further exercise the Warrant shall cease upon the
expiration of the Notice Period. Notwithstanding any such notice by the Company,
the Warrantholder shall have the right to exercise this Warrant prior to the end
of the Notice Period.
Section 19. Cashless Exercise. Notwithstanding any other provision
contained herein to the contrary, from and after the first anniversary of the
Closing Date (as defined in the Purchase Agreement) and so long as the Company
is required under the Registration Rights Agreement to have effected the
registration of the Warrant Shares for resale to the public pursuant to a
Registration Statement (as such term is defined in the Registration Rights
Agreement), if the Warrant Shares may not be freely sold to the public as a
result of the Company's failure to perform or satisfy its obligations under the
Registration Rights Agreement, the Warrantholder may elect to receive, without
the payment by the Warrantholder of the aggregate Warrant Price in respect of
the shares of Common Stock to be acquired, shares of Common Stock of equal value
to the value of this Warrant, or any specified portion hereof, by the surrender
of this Warrant (or such portion of this Warrant being so exercised) together
with a Net Issue Election Notice, in the form annexed hereto as Appendix B, duly
executed, to the Company. Thereupon, the Company shall issue to the
Warrantholder such number of fully paid, validly issued and nonassessable shares
of Common Stock as is computed using the following formula:
X = Y (A - B)
---------
A
where
X = the number of shares of Common Stock to which the
Warrantholder is entitled upon such cashless exercise;
Y = the total number of shares of Common Stock covered by this
Warrant for which the Warrantholder has surrendered purchase rights at such time
for cashless
C-12
exercise (including both shares to be issued to the Warrantholder and shares as
to which the purchase rights are to be canceled as payment therefor);
A = the "Market Price" of one share of Common Stock as at the
date the net issue election is made; and
B = the Warrant Price in effect under this Warrant at the time
the net issue election is made.
Section 20. Limitations on Exercise. Notwithstanding anything to the
contrary contained herein, the number of Warrant Shares that may be acquired by
the Warrantholder upon any exercise of this Warrant (or otherwise in respect
hereof) shall be limited to the extent necessary to insure that, following such
exercise (or other issuance), the total number of shares of Common Stock then
beneficially owned by such Warrantholder and its Affiliates and any other
Persons whose beneficial ownership of Common Stock would be aggregated with the
Warrantholder's for purposes of Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), does not exceed 9.999% of the total
number of issued and outstanding shares of Common Stock (including for such
purpose the shares of Common Stock issuable upon such exercise). For such
purposes, beneficial ownership shall be determined in accordance with Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder.
This provision shall not restrict the number of shares of Common Stock which a
Holder may receive or beneficially own in order to determine the amount of
securities or other consideration that such Holder may receive in the event of a
transaction contemplated by Section 8 of this Warrant. This restriction may not
be waived.
Section 21. No Rights as Stockholder. Prior to the exercise of this
Warrant, the Warrantholder shall not have or exercise any rights as a
stockholder of the Company by virtue of its ownership of this Warrant.
Section 22. Amendment; Waiver. This Warrant is one of a series of Warrants
of like tenor issued by the Company pursuant to the Purchase Agreement and
initially covering an aggregate of 3,105,000 shares of Common Stock
(collectively, the "Company Warrants"). Any term of this Warrant may be amended
or waived (including the adjustment provisions included in Section 8 of this
Warrant) upon the written consent of the Company and the holders of Company
Warrants representing at least 50% of the number of shares of Common Stock then
subject to all outstanding Company Warrants (the "Majority Holders"); provided,
that (x) any such amendment or waiver must apply to all Company Warrants; and
(y) the number of Warrant Shares subject to this Warrant, the Warrant Price and
the Expiration Date may not be amended, and the right to exercise this Warrant
may not be altered or waived, without the written consent of the Warrantholder.
Section 23. Section Headings. The section headings in this Warrant are for
the convenience of the Company and the Warrantholder and in no way alter,
modify, amend, limit or restrict the provisions hereof.
C-13
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed, as of the ______ day of November, 2006.
ZILA, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
C-14
APPENDIX A
ZILA, INC.
WARRANT EXERCISE FORM
To Zila, Inc.:
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant ("Warrant") for, and to purchase thereunder by
the payment of the Warrant Price and surrender of the Warrant, _______________
shares of Common Stock ("Warrant Shares") provided for therein, and requests
that certificates for the Warrant Shares be issued as follows:
----------------------------------------
Name
----------------------------------------
Address
----------------------------------------
----------------------------------------
Federal Tax ID or Social Security No.
and delivered by
____ (certified mail to the above address, or
____ (electronically (provide DWAC Instructions: ________________), or
____ (other (specify): __________________________________________).
and, if the number of Warrant Shares shall not be all the Warrant Shares
purchasable upon exercise of the Warrant, that a new Warrant for the balance of
the Warrant Shares purchasable upon exercise of this Warrant be registered in
the name of the undersigned Warrantholder or the undersigned's Assignee as below
indicated and delivered to the address stated below.
Note: The signature must correspond with the name of the Warrantholder as
written on the first page of the Warrant in every particular, without alteration
or enlargement or any change whatever, unless the Warrant has been assigned.
Dated: ___________________, ____ Signature:
-----------------------------
----------------------------------------
Name (please print)
----------------------------------------
----------------------------------------
Address
----------------------------------------
Federal Identification or
Social Security No.
A-1
Assignee:
----------------------------------------
----------------------------------------
----------------------------------------
X-0
XXXXXXXX X
ZILA, INC.
NET ISSUE ELECTION NOTICE
To: Zila, Inc.
Date: [_________________________]
The undersigned hereby elects under Section 19 of this Warrant to surrender
the right to purchase [____________] shares of Common Stock pursuant to this
Warrant and hereby requests the issuance of [_____________] shares of Common
Stock. The certificate(s) for the shares issuable upon such net issue election
shall be issued in the name of the undersigned or as otherwise indicated below.
----------------------------------------
Signature
----------------------------------------
Name for Registration
----------------------------------------
Mailing Address
B-1
EXHIBIT D
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and entered
into as of this ___ day of November, 2006, by and among Zila, Inc., a Delaware
corporation (the "Company"), and the "Investors" named in that certain Purchase
Agreement by and among the Company and the Investors (the "Purchase Agreement").
The parties hereby agree as follows:
1. Certain Definitions.
As used in this Agreement, the following terms shall have the following
meanings:
"Additional Warrants" means the warrants to purchase shares of Common Stock
issuable to the Investors on the Automatic Conversion Date pursuant to the
Purchase Agreement, the form of which is attached to the Purchase Agreement as
Exhibit C.
"Additional Warrant Shares" means the shares of Common Stock issuable upon
the exercise of the Additional Warrants.
"Affiliate" means, with respect to any person, any other person which
directly or indirectly controls, is controlled by, or is under common control
with, such person.
"Automatic Conversion Date" means the date the principal amount of the
Notes and any accrued and unpaid interest due thereon automatically convert into
fully paid and nonassessable shares of Common Stock in accordance with the terms
and conditions of the Notes.
"Business Day" means a day, other than a Saturday or Sunday, on which banks
in New York City are open for the general transaction of business.
"Common Stock" shall mean the Company's common stock, par value $0.001 per
share, and any securities into which such shares may hereinafter be
reclassified.
"Conversion Shares" means the shares of Common Stock issuable upon the due
conversion of the Notes.
"Initial Warrants" means the warrants to purchase shares of Common Stock
issued to the Investors on the Closing Date pursuant to the Purchase Agreement,
the form of which is attached to the Purchase Agreement as Exhibit B.
"Initial Warrant Shares" means the shares of Common Stock issuable upon the
exercise of the Initial Warrants.
"Investors" shall mean the Investors identified in the Purchase Agreement
and any Affiliate or permitted transferee of any Investor who is a subsequent
holder of any Warrants or Registrable Securities.
"Notes" means the 12% Convertible Notes issued by the Company to the
Investors pursuant to the Purchase Agreement, the form of which is attached to
the Purchase Agreement as Exhibit A.
"Prospectus" shall mean (i) the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement, with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement and by all other amendments and
supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such prospectus, and (ii) any "free
writing prospectus" as defined in Rule 163 under the 1933 Act.
"Register," "registered" and "registration" refer to a registration made by
preparing and filing a Registration Statement or similar document in compliance
with the 1933 Act (as defined below), and the declaration or ordering of
effectiveness of such Registration Statement or document.
"Registrable Securities" shall mean (i) the Shares, (ii) the Conversion
Shares, (iii) the Warrant Shares and (iv) any other securities issued or
issuable with respect to or in exchange for Registrable Securities; provided,
that, a security shall cease to be a Registrable Security upon (A) sale pursuant
to a Registration Statement or Rule 144 under the 1933 Act, or (B) such security
becoming eligible for sale by the Investors pursuant to Rule 144(k).
"Registration Statement" shall mean any registration statement of the
Company filed under the 1933 Act that covers the resale of any of the
Registrable Securities pursuant to the provisions of this Agreement, amendments
and supplements to such Registration Statement, including post-effective
amendments, all exhibits and all material incorporated by reference in such
Registration Statement.
"Required Investors" means the Investors holding a majority of the
Registrable Securities.
"SEC" means the U.S. Securities and Exchange Commission.
"Secured Note Agreement" means the Purchase Agreement, dated as of November
__, 2006, among the Company and the investor parties thereto relating to the
issuance and sale by the Company of its 6% Senior Secured Convertible Notes and
certain warrants relating thereto.
"Secured Note Securities" means the shares of Common Stock issuable upon
conversion of the securities issued pursuant to the terms of the Secured Note
Agreement.
"Shares" means the shares of Common Stock issued on the Closing Date
pursuant to the Purchase Agreement.
"Trading Day" means (i) if the relevant stock or security is listed or
admitted for trading on The New York Stock Exchange, Inc., the Nasdaq Global
Market, the Nasdaq Capital Market or any other national securities exchange, a
day on which such exchange is open for business; (ii) if the relevant stock or
security is quoted on a system of automated dissemination of quotations of
securities prices, a day on which trades may be effected through such system; or
(iii) if the
D-2
relevant stock or security is not listed or admitted for trading on any national
securities exchange or quoted on any system of automated dissemination of
quotation of securities prices, a day on which the relevant stock or security is
traded in a regular way in the over-the-counter market and for which a closing
bid and a closing asked price for such stock or security are available, shall
mean a day, other than a Saturday or Sunday, on which The New York Stock
Exchange, Inc. is open for trading.
"Warrant Shares" means the shares of Common Stock issuable upon the
exercise of the Warrants.
"Warrants" means the Initial Warrants and the Additional Warrants.
"1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
2. Registration.
(a) Registration Statements.
(i) (A) Promptly following the closing of the purchase and sale of the
securities contemplated by the Purchase Agreement (the "Closing Date") but no
later than thirty (30) days after the Closing Date (the "Initial Filing
Deadline") the Company shall prepare and file with the SEC one Registration
Statement on Form S-3 (or, if Form S-3 is not then available to the Company, on
such form of registration statement as is then available to effect a
registration for resale of the Registrable Securities, subject to the Required
Investors' consent), covering the resale of the Shares and the Initial Warrant
Shares and any and all other securities issued or issuable with respect to or in
exchange for such Registrable Securities. Promptly following the Automatic
Conversion Date, and in no event later than thirty (30) days after the Automatic
Conversion Date (the "Second Filing Deadline"), the Company shall prepare and
file with the SEC another Registration Statement on Form S-3 (or, if Form S-3 is
not then available to the Company, on such form of registration statement as is
then available to effect a registration for resale of the Registrable
Securities, subject to the Required Investors' consent), covering, among other
things, the resale of the Conversion Shares and the Additional Warrant Shares
and any and all other securities issued or issuable with respect to or in
exchange for such Registrable Securities. In connection with the second
Registration Statement referred to above, the Company may avail itself of Rule
429 under the 0000 Xxx.
(B) Subject to any SEC comments, each Registration Statement
filed pursuant to Section 2(a)(i) shall include the plan of distribution
attached hereto as Exhibit A. Each such Registration Statement also shall cover,
to the extent allowable under the 1933 Act and the rules promulgated thereunder
(including Rule 416), such indeterminate number of additional shares of Common
Stock resulting from stock splits, stock dividends or similar transactions with
respect to the Registrable Securities to which such Registration Statement
relates. Such Registration Statement shall not include any shares of Common
Stock or other securities for the account of any other holder without the prior
written consent of the Required
D-3
Investors; provided, however, that the Company shall have the right to include
(i) Secured Note Securities and (ii) the shares of Common Stock issued to Xxxx
or which Xxxx may have the right to acquire as compensation for Xxxx'x services
to the Company in connection with the transaction contemplated by the Purchase
Agreement and the Secured Note Agreement. Each Registration Statement (and each
amendment or supplement thereto, and each request for acceleration of
effectiveness thereof) shall be provided in accordance with Section 3(c) to the
Investors and/or their counsel prior to its filing or other submission. If the
Registration Statement covering the Shares and the Initial Warrant Shares and
any and all other securities issued or issuable with respect to or in exchange
for such Registrable Securities is not filed with the SEC on or prior to the
Initial Filing Deadline and/or the Registration Statement covering the
Conversion Shares and the Additional Warrant Shares and any and all other
securities issued or issuable with respect to or in exchange for such
Registrable Securities is not filed with the SEC on or prior to the Second
Filing Deadline for such Registrable Securities, the Company will make pro rata
payments to each Investor, as liquidated damages and not as a penalty, in an
amount equal to 1.0% of the aggregate amount invested by such Investor for the
Registrable Securities included in the applicable Registration Statement for
each 30-day period or pro rata for any portion thereof following the Initial
Filing Deadline or the Second Filing Deadline, as the case may be, for which the
applicable Registration Statement is not filed with respect to the applicable
Registrable Securities. Such payments shall constitute the Investors' exclusive
monetary remedy for such events, but shall not affect the right of the Investors
to seek injunctive relief. Such payments shall be made to each Investor in cash.
(ii) Additional Registrable Securities. Upon the written demand of any
Investor and upon any change in the Conversion Price (as defined in the Notes)
or in the Warrant Price (as defined in the Warrants) such that additional shares
of Common Stock become issuable upon the conversion of the Notes or the exercise
of the Warrants (the "Additional Shares"), the Company shall prepare and file
with the SEC one or more Registration Statements on Form S-3 or amend the
relevant Registration Statement filed pursuant to clause (i) above, if such
Registration Statement has not previously been declared effective (or, if Form
S-3 is not then available to the Company, on such form of registration statement
as is then available to effect a registration for resale of the Additional
Shares, subject to the Required Investors' consent) covering the resale of the
Additional Shares, but only to the extent the Additional Shares are not at the
time covered by an effective Registration Statement. Such Registration Statement
also shall cover, to the extent allowable under the 1933 Act and the rules
promulgated thereunder (including Rule 416), such indeterminate number of
additional shares of Common Stock resulting from stock splits, stock dividends
or similar transactions with respect to the Additional Shares. Such Registration
Statement shall not include any shares of Common Stock or other securities for
the account of any other holder without the prior written consent of the
Required Investors; provided, however, that the Company shall have the right to
include (i) Secured Note Securities and (ii) the shares of Common Stock issued
to Xxxx or which Xxxx may have the right to acquire as compensation for Xxxx'x
services to the Company in connection with the transaction contemplated by the
Purchase Agreement and the Secured Note Agreement. The Registration Statement
(and each amendment or supplement thereto, and each request for acceleration of
effectiveness thereof) shall be provided in accordance with Section 3(c) to the
Investors and/or their counsel prior to its filing or other submission. If a
Registration Statement covering the Additional Shares is required to be filed
under this Section 2(a)(ii) and is not filed with the SEC within thirty (30)
days of the request of any Investor or upon the occurrence of any
D-4
of the events specified in this Section 2(a)(ii), the Company will make pro rata
payments to each Investor, as liquidated damages and not as a penalty, in an
amount equal to 1.0% of the aggregate amount invested by such Investor with
respect to the securities giving rise to the issuance of such Additional Shares
for each 30-day period or pro rata for any portion thereof following the date by
which such Registration Statement should have been filed for which no
Registration Statement is filed with respect to the Additional Shares. Such
payments shall constitute the Investors' exclusive monetary remedy for such
events, but shall not affect the right of the Investors to seek injunctive
relief. Such payments shall be made to each Investor in cash.
(b) Expenses. The Company will pay all expenses associated with each
registration, including filing and printing fees, the Company's counsel and
accounting fees and expenses, costs associated with clearing the Registrable
Securities for sale under applicable state securities laws, listing fees, fees
and expenses of one counsel to the Investors and the Investors' reasonable
expenses in connection with the registration, but excluding discounts,
commissions, fees of underwriters, selling brokers, dealer managers or similar
securities industry professionals with respect to the Registrable Securities
being sold.
(c) Effectiveness.
(i) The Company shall use commercially reasonable efforts to have any
Registration Statement declared effective as soon as practicable. The Company
shall notify the Investors by facsimile or e-mail as promptly as practicable,
and in any event, within twenty-four (24) hours, after (A) any Registration
Statement is declared effective and (B) the filing of any related Prospectus
under Rule 424(b), at which time the Company shall also provide the Investors
with copies of such related Prospectus. If (A)(w) a Registration Statement
covering the resale of the Shares and the Initial Warrant Shares and any and all
other securities issued or issuable with respect to or in exchange for such
Registrable Securities is not declared effective by the SEC prior to the earlier
of (i) five (5) Business Days after the SEC shall have informed the Company that
no review of the Registration Statement will be made or that the SEC has no
further comments on the Registration Statement or (ii) the 90th day after the
Closing Date (the 120th day after the Closing Date if the Registration Statement
is reviewed by the SEC), (x) a Registration Statement covering the resale of the
Conversion Shares and the Additional Warrant Shares and any and all other
securities issued or issuable with respect to or in exchange for such
Registrable Securities is not declared effective by the SEC prior to the earlier
of (i) five (5) Business Days after the SEC shall have informed the Company that
no review of the Registration Statement will be made or that the SEC has no
further comments on the Registration Statement or (ii) the 90th day after the
Automatic Conversion Date (the 120th day after the Automatic Conversion Date if
the Registration Statement is reviewed by the SEC) or (y) a Registration
Statement covering Additional Shares is not declared effective by the SEC within
ninety (90) days following the time such Registration Statement was required to
be filed pursuant to Section 2(a)(ii) (the 120th day after such date if the
Registration Statement is reviewed by the SEC), or (B) after a Registration
Statement has been declared effective by the SEC, sales cannot be made pursuant
to such Registration Statement for any reason (including without limitation by
reason of a stop order, or the Company's failure to update the Registration
Statement), but excluding the inability of any Investor to sell the Registrable
Securities covered thereby due to market conditions and except as excused
pursuant to subparagraph (ii) below, then the Company will make pro rata
payments to each Investor, as liquidated damages and not as a penalty, in an
D-5
amount equal to (i) 1.0% of the aggregate amount invested by such Investor for
the Registrable Securities included in the applicable Registration Statement
that has not been declared effective (or, in the case of a Registration
Statement relating to Additional Shares, the securities giving rise to the
issuance of such Additional Shares) for each 30-day period or pro rata for any
portion thereof following the date by which such Registration Statement should
have been effective (the "Blackout Period") and (ii) 1.0% of the aggregate
amount invested by such Investor for the Registrable Securities included in the
applicable Registration Statement that is not available for resales (or, in the
case of a Registration Statement relating to Additional Shares, the securities
giving rise to the issuance of such Additional Shares) for each 30-day period or
pro rata for any portion thereof that sales could not be made thereunder as
provided in clause (B) above. Such payments shall constitute the Investors'
exclusive monetary remedy for such events, but shall not affect the right of the
Investors to seek injunctive relief. The amounts payable as liquidated damages
pursuant to this paragraph shall be paid monthly within three (3) Business Days
of the last day of each month following the commencement of the Blackout Period
until the termination of the Blackout Period.
(ii) For not more than twenty (20) consecutive days or for a total of
not more than forty-five (45) days in any twelve (12) month period, the Company
may delay the disclosure of material non-public information concerning the
Company, by suspending the use of any Prospectus included in any registration
contemplated by this Section containing such information, the disclosure of
which at the time is not, in the good faith opinion of the Company, in the best
interests of the Company (an "Allowed Delay"); provided, that the Company shall
promptly (a) notify the Investors in writing of the existence of (but in no
event, without the prior written consent of an Investor, shall the Company
disclose to such Investor any of the facts or circumstances regarding) material
non-public information giving rise to an Allowed Delay, (b) advise the Investors
in writing to cease all sales under the Registration Statement until the end of
the Allowed Delay and (c) use commercially reasonable efforts to terminate an
Allowed Delay as promptly as practicable.
(d) Limitation on Liquidated Damages. Notwithstanding the other provisions
of this Section 2, in no event shall the Company be liable for liquidated
damages in excess of an aggregate of 24% of the aggregate purchase price paid by
the Investors pursuant to the Purchase Agreement.
3. Company Obligations. The Company will use commercially reasonable efforts to
effect the registration of the Registrable Securities in accordance with the
terms hereof, and pursuant thereto the Company will, as expeditiously as
practicable:
(a) use commercially reasonable efforts to cause each such Registration
Statement to become effective after 4:00 p.m. E.S.T. (the date the Registration
Statement is declared effective shall be referred to as the "Effective Date")
and to remain continuously effective for a period that will terminate upon the
earlier of (i) the date on which all Registrable Securities covered by such
Registration Statement as amended from time to time, have been sold, and (ii)
the date on which all Registrable Securities covered by such Registration
Statement may be sold pursuant to Rule 144(k) (the "Effectiveness Period") and
advise the Investors in writing when the Effectiveness Period has expired;
D-6
(b) prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement and the Prospectus as may be necessary
to keep the Registration Statement effective for the Effectiveness Period and to
comply with the provisions of the 1933 Act and the 1934 Act with respect to the
distribution of all of the Registrable Securities covered thereby;
(c) provide copies to and permit counsel designated by the Investors, if
any, in the selling securityholder questionnaire attached hereto as Exhibit B
(the "Selling Securityholder Questionnaire") to review each Registration
Statement and all amendments and supplements thereto no fewer than seven (7)
days prior to their filing with the SEC and not file any document to which such
counsel reasonably objects;
(d) furnish to the Investors and their legal counsel designated by the
Investors, if any, in the Selling Securityholder Questionnaire (i) promptly
after the same is prepared and publicly distributed, filed with the SEC, or
received by the Company (but not later than two (2) Business Days after the
filing date, receipt date or sending date, as the case may be) one (1) copy of
any Registration Statement and any amendment thereto, each preliminary
prospectus and Prospectus and each amendment or supplement thereto, and each
letter written by or on behalf of the Company to the SEC or the staff of the
SEC, and each item of correspondence from the SEC or the staff of the SEC, in
each case relating to such Registration Statement (other than any portion of any
thereof which contains information for which the Company has sought confidential
treatment), and (ii) such number of copies of a Prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents as each Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor that are
covered by the related Registration Statement;
(e) use commercially reasonable efforts to (i) prevent the issuance of any
stop order or other suspension of effectiveness and, (ii) if such order is
issued, obtain the withdrawal of any such order at the earliest possible moment;
(f) prior to any public offering of Registrable Securities, use
commercially reasonable efforts to register or qualify or cooperate with the
Investors and their counsel designated by the Investors, if any, in the Selling
Securityholder Questionnaire in connection with the registration or
qualification of such Registrable Securities for offer and sale under the
securities or blue sky laws of such jurisdictions requested by the Investors and
do any and all other commercially reasonable acts or things necessary or
advisable to enable the distribution in such jurisdictions of the Registrable
Securities covered by the Registration Statement; provided, however, that the
Company shall not be required in connection therewith or as a condition thereto
to (i) qualify to do business in any jurisdiction where it would not otherwise
be required to qualify but for this Section 3(f), (ii) subject itself to general
taxation in any jurisdiction where it would not otherwise be so subject but for
this Section 3(f), or (iii) file a general consent to service of process in any
such jurisdiction;
(g) use commercially reasonable efforts to cause all Registrable Securities
covered by a Registration Statement to be listed on each securities exchange,
interdealer quotation system or other market on which similar securities issued
by the Company are then listed;
D-7
(h) immediately notify the Investors, at any time prior to the end of the
Effectiveness Period, upon discovery that, or upon the happening of any event as
a result of which, the Prospectus includes an untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, and promptly prepare, file with the SEC and furnish
to such holder a supplement to or an amendment of such Prospectus as may be
necessary so that such Prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing; and
(i) otherwise use commercially reasonable efforts to comply with all
applicable rules and regulations of the SEC under the 1933 Act and the 1934 Act,
including, without limitation, Rule 172 under the 1933 Act, file any final
Prospectus, including any supplement or amendment thereof, with the SEC pursuant
to Rule 424 under the 1933 Act prior to 9:30 a.m. E.S.T. on the Trading Day
immediately following the Effective Date, promptly inform the Investors in
writing if, at any time during the Effectiveness Period, the Company does not
satisfy the conditions specified in Rule 172 and, as a result thereof, the
Investors are required to deliver a Prospectus in connection with any
disposition of Registrable Securities and take such other actions as may be
reasonably necessary to facilitate the registration of the Registrable
Securities hereunder; and make available to its security holders, as soon as
reasonably practicable, but not later than the Availability Date (as defined
below), an earnings statement covering a period of at least twelve (12) months,
beginning after the effective date of each Registration Statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the 1933
Act, including Rule 158 promulgated thereunder (for the purpose of this
subsection 3(i), "Availability Date" means the 45th day following the end of the
fourth fiscal quarter that includes the effective date of such Registration
Statement, except that, if such fourth fiscal quarter is the last quarter of the
Company's fiscal year, "Availability Date" means the 90th day after the end of
such fourth fiscal quarter).
(j) with a view to making available to the Investors the benefits of Rule
144 (or its successor rule) and any other rule or regulation of the SEC that may
at any time permit the Investors to sell shares of Common Stock to the public
without registration, the Company covenants and agrees to: (i) make and keep
public information available, as those terms are understood and defined in Rule
144, until the earlier of (A) six months after such date as all of the
Registrable Securities may be resold pursuant to Rule 144(k) or any other rule
of similar effect or (B) such date as all of the Registrable Securities shall
have been resold; (ii) file with the SEC in a timely manner all reports and
other documents required of the Company under the 1934 Act; and (iii) furnish to
each Investor upon request, as long as such Investor owns any Registrable
Securities, (A) a written statement by the Company that it has complied with the
reporting requirements of the 1934 Act, (B) a copy of the Company's most recent
Annual Report on Form 10-K or Quarterly Report on Form 10-Q, and (C) such other
information as may be reasonably requested in order to avail such Investor of
any rule or regulation of the SEC that permits the selling of any such
Registrable Securities without registration.
4. Due Diligence Review; Information. The Company shall make available, during
normal business hours, for inspection and review by the Investors, advisors to
and representatives of the Investors (who may or may not be affiliated with the
Investors and who are reasonably
D-8
acceptable to the Company), all financial and other records, all SEC Filings (as
defined in the Purchase Agreement) 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 Investors or any such representative, advisor or
underwriter in connection with such 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
Investors 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 such Registration
Statement.
The Company shall not disclose material nonpublic information to the
Investors, or to advisors to or representatives of the Investors, unless prior
to disclosure of such information the Company identifies such information as
being material nonpublic information and provides the Investors, such advisors
and representatives with the opportunity to accept or refuse to accept such
material nonpublic information for review and any Investor wishing to obtain
such information enters into an appropriate confidentiality agreement with the
Company with respect thereto.
5. Obligations of the Investors.
(a) Each Investor has furnished to the Company a Selling Securityholder
Questionnaire and shall furnish in writing to the Company such additional
information regarding itself, the Registrable Securities held by it and the
intended method of disposition of the Registrable Securities held by it, as
shall be reasonably required to effect the registration of such Registrable
Securities and shall execute such documents in connection with such registration
as the Company may reasonably request. At least five (5) Business Days prior to
the first anticipated filing date of any Registration Statement, the Company
shall notify each Investor of the information the Company requires from such
Investor, to the extent not included in the Selling Securityholder
Questionnaire, if such Investor elects to have any of the Registrable Securities
included in the Registration Statement. An Investor shall provide such
information to the Company at least two (2) Business Days prior to the first
anticipated filing date of such Registration Statement if such Investor elects
to have any of the Registrable Securities included in the Registration
Statement.
(b) Each Investor, by its acceptance of the Registrable Securities agrees
to cooperate with the Company as reasonably requested by the Company in
connection with the preparation and filing of a Registration Statement
hereunder, unless such Investor has notified the Company in writing of its
election to exclude all of its Registrable Securities from such Registration
Statement.
(c) Each Investor agrees that, upon receipt of any notice from the Company
of either (i) the commencement of an Allowed Delay pursuant to Section 2(c)(ii)
or (ii) the happening of an event pursuant to Section 3(h) hereof, such Investor
will immediately discontinue disposition of Registrable Securities pursuant to
the Registration Statement covering such Registrable
D-9
Securities, until the Investor is advised by the Company that such dispositions
may again be made.
6. Indemnification.
(a) Indemnification by the Company. The Company will indemnify and hold
harmless each Investor and its officers, directors, members, employees and
agents, successors and assigns, and each other person, if any, who controls such
Investor within the meaning of the 1933 Act, against any losses, claims, damages
or liabilities, joint or several, to which they may become subject under the
1933 Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon: (i) any untrue
statement or omission or alleged untrue statement or omission of any material
fact in any Registration Statement, any preliminary Prospectus or final
Prospectus, or any amendment or supplement thereof required to be stated therein
or necessary to make the statements therein not misleading; (ii) any blue sky
application or other document executed by the Company specifically for that
purpose or based upon written information furnished by the Company filed in any
state or other jurisdiction in order to qualify any or all of the Registrable
Securities under the securities laws thereof (any such application, document or
information herein called a "Blue Sky Application"); (iii) any violation by the
Company or its agents of any rule or regulation promulgated under the 1933 Act
applicable to the Company or its agents and relating to action or inaction
required of the Company in connection with such registration; or (iv) any
failure to register or qualify the Registrable Securities included in any such
Registration in any state where the Company or its agents has affirmatively
undertaken or agreed in writing that the Company will undertake such
registration or qualification on an Investor's behalf and will reimburse such
Investor, and each such officer, director or member and each such controlling
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company will not be liable in any such case
if and to the extent that any such loss, claim, damage or liability arises out
of or is based upon (i) such Investor's failure to comply with the prospectus
delivery requirements of the Securities Act at any time when the Company does
not meet the conditions for use of Rule 172, has advised the Investor in writing
that the Company does not meet such conditions and that therefore the Investor
is required to deliver a Prospectus in connection with any sale or other
disposition of Registrable Securities and has provided such Investor with a
current Prospectus for such use, (ii) an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished by such Investor or any such controlling person in writing
specifically for use in such Registration Statement or Prospectus or (iii) the
use by an Investor of an outdated or defective Prospectus after the Company has
notified the Investor that such Prospectus is outdated or defective and the use
of a corrected or updated Prospectus would have avoided such losses, claims,
damages, liabilities or expenses.
(b) Indemnification by the Investors. Each Investor agrees, severally but
not jointly, to indemnify and hold harmless, to the fullest extent permitted by
law, the Company, its directors, officers, employees, stockholders and each
person who controls the Company (within the meaning of the 0000 Xxx) against any
losses, claims, damages, liabilities and expense (including reasonable attorney
fees) resulting from (i) such Investor's failure to comply with the prospectus
delivery requirements of the Securities Act at any time when the Company does
not meet the conditions for use of Rule 172, has advised the Investor in writing
that the Company
D-10
does not meet such conditions and that therefore the Investor is required to
deliver a Prospectus in connection with any sale or other disposition of
Registrable Securities and has provided such Investor with a current Prospectus
for such use, (ii) the use by an Investor of an outdated or defective Prospectus
after the Company has notified the Investor that such Prospectus is outdated or
defective and the use of a corrected or updated Prospectus would have avoided
such losses, claims, damages, liabilities or expenses, and (iii) any untrue
statement of a material fact or any omission of a material fact required to be
stated in the Registration Statement or Prospectus or preliminary Prospectus or
amendment or supplement thereto or necessary to make the statements therein not
misleading, to the extent, but only to the extent that such untrue statement or
omission is contained in any information furnished in writing by such Investor
to the Company specifically for inclusion in such Registration Statement or
Prospectus or amendment or supplement thereto. In no event shall the liability
of an Investor be greater in amount than the dollar amount of the proceeds (net
of all expense paid by such Investor in connection with any claim relating to
this Section 6 and the amount of any damages such Investor has otherwise been
required to pay by reason of such untrue statement or omission) received by such
Investor upon the sale of the Registrable Securities included in the
Registration Statement giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. Any person entitled to
indemnification hereunder shall (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification and (ii) permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; provided that any person entitled to
indemnification hereunder shall have the right to employ separate counsel and to
participate in the defense of such claim, but the fees and expenses of such
counsel shall be at the expense of such person unless (a) the indemnifying party
has agreed to pay such fees or expenses, or (b) the indemnifying party shall
have failed to assume the defense of such claim and employ counsel reasonably
satisfactory to such person or (c) in the reasonable judgment of any such
person, based upon written advice of its counsel, a conflict of interest exists
between such person and the indemnifying party with respect to such claims (in
which case, if the person notifies the indemnifying party in writing that such
person elects to employ separate counsel at the expense of the indemnifying
party, the indemnifying party shall not have the right to assume the defense of
such claim on behalf of such person); and provided, further, that the failure of
any indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations hereunder, except to the extent that such
failure to give notice shall materially adversely affect the indemnifying party
in the defense of any such claim or litigation. It is understood that the
indemnifying party shall not, in connection with any proceeding in the same
jurisdiction, be liable for fees or expenses of more than one separate firm of
attorneys at any time for all such indemnified parties. No indemnifying party
will, except with the consent of the indemnified party, consent to entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect of such claim or litigation.
(d) Contribution. If for any reason the indemnification provided for in the
preceding paragraphs (a) and (b) is unavailable to an indemnified party or
insufficient to hold it harmless, other than as expressly specified therein,
then the indemnifying party shall contribute to the amount paid or payable by
the indemnified party as a result of such loss, claim, damage or liability in
such proportion as is appropriate to reflect the relative fault of the
indemnified party
D-11
and the indemnifying party, as well as any other relevant equitable
considerations. No person guilty of fraudulent misrepresentation within the
meaning of Section 11(f) of the 1933 Act shall be entitled to contribution from
any person not guilty of such fraudulent misrepresentation. In no event shall
the contribution obligation of a holder of Registrable Securities be greater in
amount than the dollar amount of the proceeds (net of all expenses paid by such
holder in connection with any claim relating to this Section 6 and the amount of
any damages such holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission) received by
it upon the sale of the Registrable Securities giving rise to such contribution
obligation.
7. Miscellaneous.
(a) Amendments and Waivers. This Agreement may be amended only by a writing
signed by the Company and the Required Investors. The Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company shall have obtained the written consent to
such amendment, action or omission to act, of the Required Investors.
(b) Notices. All notices and other communications provided for or permitted
hereunder shall be made as set forth in Section 9.4 of the Purchase Agreement.
(c) Assignments and Transfers by Investors. The provisions of this
Agreement shall be binding upon and inure to the benefit of the Investors and
their respective successors and assigns. An Investor may transfer or assign, in
whole or from time to time in part, to one or more persons its rights hereunder
in connection with the transfer of Registrable Securities by such Investor to
such person, provided that such Investor complies with all laws applicable
thereto and provides written notice of assignment to the Company promptly after
such assignment is effected.
(d) Assignments and Transfers by the Company. This Agreement may not be
assigned by the Company (whether by operation of law or otherwise) without the
prior written consent of the Required Investors, provided, however, that the
Company may assign its rights and delegate its duties hereunder to any surviving
or successor corporation in connection with a merger or consolidation of the
Company with another corporation, or a sale, transfer or other disposition of
all or substantially all of the Company's assets to another corporation, without
the prior written consent of the Required Investors, after notice duly given by
the Company to each Investor.
(e) Benefits of the Agreement. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective permitted
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
(f) Counterparts; Faxes. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute
D-12
one and the same instrument. This Agreement may also be executed via facsimile,
which shall be deemed an original.
(g) Titles 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.
(h) Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof but shall be interpreted as if it were written so as
to be enforceable to the maximum extent permitted by applicable law, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties hereby waive any provision of law which
renders any provisions hereof prohibited or unenforceable in any respect.
(i) Further Assurances. The parties shall execute and deliver all such
further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.
(j) Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
(k) Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This
Agreement shall be governed by, and construed in accordance with, the internal
laws of the State of New York without regard to the choice of law principles
thereof. Each of the parties hereto irrevocably submits to the exclusive
jurisdiction of the courts of the State of New York located in New York County
and the United States District Court for the Southern District of New York for
the purpose of any suit, action, proceeding or judgment relating to or arising
out of this Agreement and the transactions contemplated hereby. Service of
process in connection with any such suit, action or proceeding may be served on
each party hereto anywhere in the world by the same methods as are specified for
the giving of notices under this Agreement. Each of the parties hereto
irrevocably consents to the jurisdiction of any such court in any such suit,
action or proceeding and to the laying of venue in such court. Each party hereto
irrevocably waives any objection to the laying of venue of any such suit, action
or proceeding brought in such courts and irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in an
inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A
TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS
THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.
D-13
IN WITNESS WHEREOF, the parties have executed this Agreement or caused
their duly authorized officers to execute this Agreement as of the date first
above written.
The Company: ZILA, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
D-14
[NAME OF INVESTOR]
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
D-15
Exhibit A
PLAN OF DISTRIBUTION
The selling stockholders, which as used herein includes donees, pledgees,
transferees or other successors-in-interest selling shares of common stock or
interests in shares of common stock received after the date of this prospectus
from a selling stockholder as a gift, pledge, partnership distribution or other
transfer, may, from time to time, sell, transfer or otherwise dispose of any or
all of their shares of common stock or interests in shares of common stock on
any stock exchange, market or trading facility on which the shares are traded or
in private transactions. These dispositions may be at fixed prices, at
prevailing market prices at the time of sale, at prices related to the
prevailing market price, at varying prices determined at the time of sale, or at
negotiated prices.
The selling stockholders may use any one or more of the following methods
when disposing of shares or interests therein:
- ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
- block trades in which the broker-dealer will attempt to sell the
shares as agent, but may position and resell a portion of the block as
principal to facilitate the transaction;
- purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
- an exchange distribution in accordance with the rules of the
applicable exchange;
- privately negotiated transactions;
- short sales effected after the date the registration statement of
which this Prospectus is a part is declared effective by the SEC;
- through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise;
- broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
- a combination of any such methods of sale; and
- any other method permitted by applicable law.
The selling stockholders may, from time to time, pledge or grant a security
interest in some or all of the shares of common stock owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the shares of common stock, from time to time, under
this prospectus, or under an amendment to this prospectus under Rule 424(b)(3)
or other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as
A-1
selling stockholders under this prospectus. The selling stockholders also may
transfer the shares of common stock in other circumstances, in which case the
transferees, pledgees or other successors in interest will be the selling
beneficial owners for purposes of this prospectus.
In connection with the sale of our common stock or interests therein, the
selling stockholders may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
The aggregate proceeds to the selling stockholders from the sale of the
common stock offered by them will be the purchase price of the common stock less
discounts or commissions, if any. Each of the selling stockholders reserves the
right to accept and, together with their agents from time to time, to reject, in
whole or in part, any proposed purchase of common stock to be made directly or
through agents. We will not receive any of the proceeds from this offering. Upon
any exercise of the warrants by payment of cash, however, we will receive the
exercise price of the warrants.
The selling stockholders also may resell all or a portion of the shares in
open market transactions in reliance upon Rule 144 under the Securities Act of
1933, provided that they meet the criteria and conform to the requirements of
that rule.
The selling stockholders and any underwriters, broker-dealers or agents
that participate in the sale of the common stock or interests therein may be
"underwriters" within the meaning of Section 2(11) of the Securities Act. Any
discounts, commissions, concessions or profit they earn on any resale of the
shares may be underwriting discounts and commissions under the Securities Act.
Selling stockholders who are "underwriters" within the meaning of Section 2(11)
of the Securities Act will be subject to the prospectus delivery requirements of
the Securities Act.
To the extent required, the shares of our common stock to be sold, the
names of the selling stockholders, the respective purchase prices and public
offering prices, the names of any agents, dealer or underwriter, any applicable
commissions or discounts with respect to a particular offer will be set forth in
an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this prospectus.
In order to comply with the securities laws of some states, if applicable,
the common stock may be sold in these jurisdictions only through registered or
licensed brokers or dealers. In addition, in some states the common stock may
not be sold unless it has been registered or qualified for sale or an exemption
from registration or qualification requirements is available and is complied
with.
A-2
We have advised the selling stockholders that the anti-manipulation rules
of Regulation M under the Exchange Act may apply to sales of shares in the
market and to the activities of the selling stockholders and their affiliates.
In addition, to the extent applicable we will make copies of this prospectus (as
it may be supplemented or amended from time to time) available to the selling
stockholders for the purpose of satisfying the prospectus delivery requirements
of the Securities Act. The selling stockholders may indemnify any broker-dealer
that participates in transactions involving the sale of the shares against
certain liabilities, including liabilities arising under the Securities Act.
We have agreed to indemnify the selling stockholders against liabilities,
including liabilities under the Securities Act and state securities laws,
relating to the registration of the shares offered by this prospectus.
We have agreed with the selling stockholders to keep the registration
statement of which this prospectus constitutes a part effective until the
earlier of (1) such time as all of the shares covered by this prospectus have
been disposed of pursuant to and in accordance with the registration statement
or (2) the date on which the shares may be sold pursuant to Rule 144(k) of the
Securities Act.
A-3
Exhibit B
Zila, Inc.
Selling Securityholder Questionnaire
The undersigned beneficial owner (the "SELLING SECURITYHOLDER") of common stock
(the "COMMON STOCK"), of Zila, Inc. (the "COMPANY") understands that the Company
has filed or intends to file with the Securities and Exchange Commission (the
"COMMISSION") one or more Registration Statements for the registration and
resale of the Registrable Securities, in accordance with the terms of the
Registration Rights Agreement, dated as of November __, 2006 (the "REGISTRATION
RIGHTS AGREEMENT"), among the Company and the Investors named therein. A copy of
the Registration Rights Agreement is available from the Company upon request at
the address set forth below. All capitalized terms used and not otherwise
defined herein shall have the meanings ascribed thereto in the Registration
Rights Agreement.
The undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate:
QUESTIONNAIRE
1. NAME.
(a) Full legal name of Selling Securityholder:
----------------------------------------------------------------------
(b) Full legal name of registered Holder (if not the same as (a) above)
through which Registrable Securities listed in Item 3 below are held:
----------------------------------------------------------------------
(c) Full legal name of Natural Control Person (which means a natural person
who directly or indirectly alone or with others has power to vote or dispose of
the securities covered by the questionnaire):
----------------------------------------------------------------------
(d) State of organization or domicile of Selling Securityholder:
----------------------------------------------------------------------
B-1
2. ADDRESS FOR NOTICES TO SELLING SECURITYHOLDER:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Telephone:
---------------------------------------------------------------------
Fax:
---------------------------------------------------------------------------
Contact Person:
----------------------------------------------------------------
Email:
-------------------------------------------------------------------------
Note: By providing an email address, the undersigned hereby consents to receipt
of notices by email.
Any such notice shall also be sent to the following address (which shall not
constitute notice):
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Telephone:
---------------------------------------------------------------------
Fax:
---------------------------------------------------------------------------
Contact Person:
----------------------------------------------------------------
Email:
-------------------------------------------------------------------------
3. BENEFICIAL OWNERSHIP OF REGISTRABLE SECURITIES:
Type and principal amount of Registrable Securities beneficially
owned:
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
If applicable, provide the information required by Items 1 and 2 for
each beneficial owner.
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
4. BROKER-DEALER STATUS:
(a) Are you a broker-dealer?
Yes [ ] No [ ]
B-2
Note: If yes, the Commission's staff has indicated that you should be
identified as an underwriter in any Registration Statement filed pursuant to the
Registration Rights Agreement.
(b) Are you an affiliate of a broker-dealer?
Yes [ ] No [ ]
(c) If you are an affiliate of a broker-dealer, do you certify that you
bought the Registrable Securities in the ordinary course of business, and at the
time of the purchase of the Registrable Securities to be resold, you had no
agreements or understandings, directly or indirectly, with any person to
distribute the Registrable Securities?
Yes [ ] No [ ]
Note: If no, the Commission's staff has indicated that you should be
identified as an underwriter in any Registration Statement filed pursuant to the
Registration Rights Agreement.
If you checked "Yes" to either of the questions in Item 4(a) or Item 4(b)
above, please state (a) the name of any such broker-dealer, (b) the nature
of your affiliation or association with such broker-dealer, (c) information
as to such broker-dealer's participation in any capacity in the offering or
the original placement of the Securities, (d) the number of shares of
equity securities or face value of debt securities of the Company owned by
you, (e) the date such securities were acquired and (f) the price paid for
such securities.
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
5. BENEFICIAL OWNERSHIP OF OTHER SECURITIES OF THE COMPANY OWNED BY THE SELLING
SECURITYHOLDER.
Except as set forth below in this Item 5, the undersigned is not the
beneficial or registered owner of any securities of the Company other than
the Registrable Securities listed above in Item 3.
Type and amount of other securities beneficially owned by the Selling
Securityholder:
----------------------------------------------------------------------
----------------------------------------------------------------------
B-3
6. RELATIONSHIPS WITH THE COMPANY:
Except as set forth below, neither the undersigned nor any of its
affiliates, officers, directors or principal equity holders (owners of 5%
of more of the equity securities of the undersigned) has held any position
or office or has had any other material relationship with the Company (or
its predecessors or affiliates) during the past three years.
State any exceptions here:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
7. PLAN OF DISTRIBUTION:
Except as set forth below, the undersigned intends to distribute the
Registrable Securities listed above in Item 3 only as set forth in Exhibit
A to the Registration Rights Agreement (if at all):
---------------------------------------------------------------------------
---------------------------------------------------------------------------
The undersigned agrees to promptly notify the Company of any inaccuracies or
changes in the information provided herein that may occur subsequent to the date
hereof and prior to the effective date of any applicable Registration Statement
filed pursuant to the Registration Rights Agreement.
By signing below, the undersigned consents to the disclosure of the information
contained herein in its answers to Items 1 through 7 and the inclusion of such
information in each Registration Statement filed pursuant to the Registration
Rights Agreement and each related prospectus. The undersigned understands that
such information will be relied upon by the Company in connection with the
preparation or amendment of any such Registration Statement and the related
prospectus.
By signing below, the undersigned acknowledges that it understands its
obligation to comply, and agrees that it will comply, with the provisions of the
Exchange Act and the rules and regulations thereunder, particularly Regulation
M. The undersigned also acknowledges that it understands that the answers to
this Questionnaire are furnished for use in connection with Registration
Statements filed pursuant to the Registration Rights Agreement and any
amendments or supplements thereto filed with the Commission pursuant to the
Securities Act.
I confirm that, to the best of my knowledge and belief, the foregoing statements
(including without limitation the answers to this Questionnaire) are correct.
B-4
IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this
Questionnaire to be executed and delivered either in person or by its duly
authorized agent.
Dated: Beneficial Owner:
------------------------------ ----------------------
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED QUESTIONNAIRE, AND RETURN THE
ORIGINAL BY OVERNIGHT MAIL, TO:
Zila, Inc.
0000 X. 0xx Xxxxxx
Xxxxxxx, XX 00000
Fax No.: (000) 000 0000
Attn: Xxxx X. Xxxxxxxxxxx
with a copy to:
Xxxxx & Xxxxxx L.L.P.
000 Xxxx Xxx Xxxxx Xxxxxx
Xxxxxxx, XX 00000
Fax No.: (000) 000 0000
Attn: Xxxxxxx X. Xxxxxxx, Esq.
B-5
