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EXHIBIT 4.1
PHARMCHEM, INC.
UNSECURED SUBORDINATED NOTE AND WARRANT PURCHASE AGREEMENT
THIS UNSECURED SUBORDINATED NOTE AND WARRANT PURCHASE AGREEMENT (this
"AGREEMENT") is made as of September 12, 2001 by and between PharmChem, Inc., a
Delaware corporation (the "COMPANY") and Micro Cap Partners, LP, a Delaware
limited Partnership ("INVESTOR").
A. WHEREAS, the Company is willing to deliver to Investor an unsecured
subordinated promissory note, and Investor is willing to loan funds to
the Company, all on the terms and subject to the conditions set forth in
this Agreement;
B. WHEREAS, the Company is also willing, in consideration of said loan,
to issue a warrant to Investor for seventy-five thousand (75,000) shares
of the Company's Common Stock.
THE PARTIES AGREE AS FOLLOWS:
1. LOAN TRANSACTION.
1.1 LOAN BY INVESTOR. Subject to all of the terms and conditions set
forth herein, Investor agrees to loan to the Company Seven Hundred Fifty
Thousand Dollars ($750,000) (the "LOAN").
1.2 DELIVERY OF NOTE. The Company shall deliver to Investor pursuant to
the terms and conditions hereof an unsecured subordinated promissory note in
substantially the form attached hereto as Exhibit A (the "NOTE") for the Loan.
1.3 ISSUANCE OF WARRANTS. The Company shall issue to Investor, for no
additional consideration, a warrant for seventy-five thousand (75,000) shares of
the Company's Common Stock, in substantially the form attached hereto as Exhibit
B (the "WARRANT").
1.4 CLOSING DATE. The closing of the purchase and sale of the Note and
the issuance of the Warrant shall take place at such date and at such place as
the Company and Investor shall agree, but in no event later than ten (10)
business days after the date first set forth hereinabove (the "CLOSING").
1.5 DELIVERY. At the Closing, the Company will deliver to Investor the
Note in the principal amount of the Loan. The Company shall also deliver to
Investor at the Closing the Warrant.
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2. DEFINITIONS. For purposes of this Agreement:
"COMMON STOCK" shall mean the Company's common stock, $0.001 par value.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"GAAP" shall mean generally accepted accounting principles.
"MATERIAL ADVERSE EFFECT" shall mean any event, change or effect having
a consequence that is materially adverse as to the business, properties, assets,
liabilities or financial condition of the Company taken as a whole.
"RULE 144" shall mean Rules 144 and 144A promulgated by the Securities
and Exchange Commission under the Securities Act.
"SECURITIES" shall mean the Warrant and the Warrant Shares.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"TRANSACTIONAL AGREEMENTS" shall mean this Agreement, the Note, the
Warrant, and all other documents to be delivered pursuant to this Agreement.
"WARRANT SHARES" shall mean the Common Stock issuable upon exercise of
the Warrant.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY TO INVESTOR. Except as
otherwise set forth in the Schedule of Exceptions delivered to Investor by the
Company concurrently with the execution of this Agreement, the Company hereby
represents and warrants to Investor that:
3.1 CORPORATE ORGANIZATION AND AUTHORITY. The Company is a corporation
duly organized, validly existing and in good standing in the State of Delaware;
and has the corporate power and corporate authority to own and operate its
properties and to carry on its business as now conducted and as proposed to be
conducted. The Company is qualified to do business in the states set forth in
Section 3.1 of the Schedule of Exceptions.
3.2 CAPITALIZATION. The authorized capital of the Company consists of
(i) 25,000,000 shares of Common Stock $0.001 par value, and (ii) 5,000,000
shares of Preferred Stock, $0.001 par value (the "PREFERRED STOCK") of which
there were issued and outstanding as of the close of business on July 31, 2001,
5,852,593 shares of Common Stock and no shares of Preferred Stock, and since
that date, fewer than 25,000 additional shares of Common Stock and no shares of
Preferred Stock have been issued.
3.3 CORPORATE POWER. The Company has all requisite corporate power and
authority to execute and deliver the Transactional Agreements, to sell and issue
the Warrant and the
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Warrant Shares, and to carry out and perform its obligations under the terms of
the Transactional Agreements.
3.4 AUTHORIZATION. All corporate action on the part of the Company
necessary for the authorization, execution, delivery and performance of all
obligations under this Agreement, and for the issuance and delivery of the
Warrant and the Warrant Shares has been taken, and assuming due and valid
authorization, execution and delivery by Investor, the Transactional Agreements
constitute legally binding and valid obligations of the Company enforceable in
accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other laws affecting
creditors' rights generally, or by general equitable principles.
3.5 VALIDITY OF WARRANT. The Warrant, when issued, sold and delivered in
accordance with the terms set forth in this Agreement, will be duly and validly
issued (including, without limitation, issued in compliance with applicable
federal and state securities laws), fully paid, and non-assessable and will be
free of any liens or encumbrances other than any liens or encumbrances created
by or imposed thereon by the holders. The Warrant Shares have been duly and
validly reserved and, assuming the Warrant Shares are issued to Investor, upon
issuance will be duly and validly issued (including, without limitation, issued
in compliance with all applicable federal and state securities laws), fully
paid, and non-assessable and will be free of any liens or encumbrances other
than any liens or encumbrances created by or imposed thereon by the holders. All
Securities shall be subject to restrictions on transfer under state and/or
federal securities laws. The Securities are not subject to any preemptive rights
or rights of first refusal, except as otherwise so agreed to by the holders
thereof.
3.6 NO CONFLICT WITH OTHER INSTRUMENTS. The execution, delivery, and
performance of the Transactional Agreements will not result in any violation of,
be in conflict with, or constitute a default under, with or without the passage
of time or the giving of notice: (i) any provision of the Company's Certificate
of Incorporation or Bylaws; (ii) any provision of any judgment, decree or order
to which the Company is a party or by which it is bound; (iii) any material
contract, obligation, or commitment to which the Company is a party or by which
it is bound; or (iv) to the Company's knowledge, any statute, rule, or
governmental regulation applicable to the Company.
3.7 SEC FILINGS; FINANCIAL STATEMENTS.
(a) The Company has made available to Investor a correct and
complete copy of each report, schedule, registration statement and definitive
proxy statement filed by the Company with the Securities and Exchange Commission
(the "SEC") on or after January 1, 2001 (the "COMPANY SEC REPORTS"), which are
all the forms, reports and documents required to be filed by the Company with
the SEC since January 1, 2001. The Company SEC Reports (i) were prepared in
accordance with the requirements of the Exchange Act and (ii) did not at the
time they were filed (or if amended or superseded by a filing prior to the date
of this Agreement, then on the date of such filing) contain any untrue statement
of a material fact or omit to state a
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material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of the Company's subsidiaries is required to file any
reports or other documents with the SEC. None of the statements made in any such
SEC Documents is currently required to be updated or amended under applicable
law (except for such statements as have been amended or updated by subsequently
filed documents prior to the date of this Agreement); provided that the parties
understand that the Company may be obligated under the securities laws to make
certain disclosures in its next report on Form 10-Q to be filed under the
Exchange Act relating to certain matters set forth in the Schedule of
Exceptions.
(b) Each set of financial statements (including, in each case, any
related notes thereto) contained in the Company SEC Reports was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited statements, do not contain footnotes as permitted by the SEC rules)
and each fairly presents the consolidated financial position of Company and its
subsidiaries at the respective dates thereof and the consolidated results of its
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal year-end adjustments.
(c) The Company is currently eligible to register the resale of the
Common Stock issuable on exercise of the Warrant on a registration statement on
Form S-3 under the Securities Act.
3.8 NO UNDISCLOSED LIABILITIES. The Company has no indebtedness or
liability that would be required to be reflected in financial statements
prepared in accordance with GAAP except (i) liabilities reflected, reserved
against or otherwise disclosed in the Company SEC Reports and (ii) liabilities
incurred since June 30, 2001 in the ordinary course of business.
3.9 NO DEFAULTS, VIOLATIONS, OR CONFLICTS. The Company is not in
violation in any material respect of any term or provision of any charter,
bylaw, or any material term or provision of any indebtedness, mortgage,
indenture, contract, agreement, judgment, or, to the Company's knowledge, any
decree, order, statute, rule, or regulation applicable to the Company, and, in
particular, there is no Event of Default (as such term is defined in the Loan
Agreement) that has occurred and is continuing under that certain Amended and
Restated Loan and Security Agreement dated as of May 15, 2000, between the
Company and Comerica Bank -- California, as amended (as amended, the "LOAN
AGREEMENT").
3.10 BROKERS AND FINDERS. The Company has not retained or agreed to pay
any compensation to any investment banker, broker or finder in connection with
the transactions contemplated by this Agreement.
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3.11 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 30, 2001 the
Company has conducted its business in the ordinary course consistent with past
practices and there has not been any Material Adverse Effect.
3.12 GOVERNMENTAL CONSENTS. Subject to the accuracy of Investor's
representations in Section 4 of this Agreement, no consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for the filing pursuant to Regulation D,
promulgated under Rule 501 of the Securities Act, and any other applicable state
securities laws, which filings and qualifications, if required, will be effected
in a timely manner.
3.13 LITIGATION. There is no action, proceeding, or investigation
pending against the Company or, to the knowledge of the Company, threatened, and
no judgment, decree or order of any court in effect against the Company, that
would prevent, enjoin, alter or materially delay any of the transactions
contemplated by this Agreement.
3.14 REGISTRATION AND SEC DOCUMENTS. The Common Stock is registered
under the Exchange Act and has been so registered since 1991. The Company has
timely filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC since January 1, 2000 pursuant to the
reporting requirements of the Exchange Act.
3.15 ACKNOWLEDGMENT REGARDING INVESTOR'S PURCHASE OF THE SECURITIES. The
Company acknowledges and agrees that Investor is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to
this Agreement or the transactions contemplated hereby, that this Agreement and
the transactions contemplated hereby, and the relationship between Investor and
the Company, are "arms-length", and that any statement made by Investor, or any
of its representatives or agents, in connection with this Agreement or the
transactions contemplated hereby is not advice or a recommendation, is merely
incidental to Investor's purchase of the Securities and has not been relied upon
in any way by the Company, its officers, directors or other representatives. The
Company further represents to Investor that the Company's decision to enter into
this Agreement and the transactions contemplated hereby has been based solely on
an independent evaluation by the Company and its representatives.
3.16 NO GENERAL SOLICITATION. Neither the Company nor any person acting
on behalf of the Company has conducted any "general solicitation," as described
in Rule 502(c) under Regulation D, with respect to any of the Securities.
3.17 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 security or solicited any offers to
buy any security under circumstances that would prevent the parties hereto from
consummating the transactions contemplated hereby pursuant to an exemption from
registration under the Securities Act pursuant to the provisions of Section 4(2)
or Regulation D promulgated thereunder. The transactions contemplated hereby are
exempt from
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the registration requirements of the Securities Act, assuming the accuracy of
the representations and warranties herein contained of Investor to the extent
relevant for such determination.
3.18 INTELLECTUAL PROPERTY. The Company owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) and other similar rights and proprietary knowledge (collectively,
"INTANGIBLES") used or necessary for the conduct of its business as now being
conducted and as previously described in the Company's Annual Report on Form
10-K for its most recently ended fiscal year for which an Annual Report on Form
10-K was filed. To the knowledge of the Company, neither the Company nor any
subsidiary of the Company has taken any action that infringes on or is in
conflict with any right of any other person with respect to any Intangibles nor
is there any claim of infringement made by a third party against or involving
the Company or any of its subsidiaries, which infringement, conflict or claim,
individually or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a Material Adverse Effect.
3.19 FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended; or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or
employee. Without limiting the generality of the foregoing, the Company and its
subsidiaries have not directly or indirectly made or agreed to make (whether or
not said payment is lawful) any payment to obtain, or with respect to, sales
other than usual and regular compensation to its or their employees and sales
representatives with respect to such sales.
3.20 NO IMPLIED REPRESENTATION. Notwithstanding anything else contained
in this Section 3 or any other provision of this Agreement, it is the explicit
intent of each party hereto that the Company is making no representation or
warranty whatsoever, express or implied, beyond those expressly given in this
Agreement.
4. REPRESENTATIONS AND WARRANTIES OF INVESTOR. Investor represents and warrants
to the Company as follows:
4.1 AUTHORIZATION. When executed and delivered by Investor, and assuming
due and valid authorization, execution and delivery by the Company, the
Transactional Agreements constitute legally binding and valid obligations of
Investor enforceable in accordance with their terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization,
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moratorium and other laws affecting creditors' rights generally, or by general
equitable principles.
4.2 BROKERS AND FINDERS. Investor has not retained any investment
banker, broker, or finder in connection with the transactions contemplated by
this Agreement.
4.3 INVESTMENT. This Agreement is made with Investor in reliance upon
Investor's representation to the Company, which by Investor's execution of this
Agreement Investor hereby confirms, that the Securities to be received by
Investor will be acquired for investment for Investor's own account, not as a
nominee or agent, and not with a view to the sale or distribution of any part
thereof, and that Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same.
4.4 NO PUBLIC MARKET. Investor understands and acknowledges that the
offering of the Securities pursuant to this Agreement will not be registered
under the Securities Act on the grounds that the offering and sale of securities
contemplated by this Agreement are exempt from registration pursuant to Section
4(2) of the Securities Act, and that the Company's reliance upon such exemption
is predicated upon Investor's representations set forth in this Agreement.
4.5 LIMITATIONS ON TRANSFERABILITY. Investor covenants that in no event
will Investor dispose of any of the Securities (other than pursuant to Rule 144
or any similar or analogous rule) unless and until (i) Investor shall have
notified the Company of the proposed disposition and shall have furnished the
Company with a statement of the circumstances surrounding the proposed
disposition, and (ii), if requested by the Company, Investor shall have
furnished the Company with an opinion of counsel satisfactory in form and
substance to the Company and the Company's counsel to the effect that (x) such
disposition will not require registration under the Securities Act and (y)
appropriate action necessary for compliance with the Securities Act and any
applicable state, local or foreign law has been taken. Notwithstanding the
limitations set forth in the foregoing sentence, each Investor may transfer
Securities to its affiliates, constituent partners or a retired partner, or to
the estate of any such partner or retired partner or transfer by gift, will or
intestate succession to any such partner's spouse or lineal descendants or
ancestors without the necessity of registration or opinion of counsel if the
transferee agrees in writing to be subject to the terms of this Agreement to the
same extent as if such transferee were an Investor; provided, however, that
Investor hereby covenants not to effect such transfer if such transfer either
would invalidate the securities laws exemptions pursuant to which the Securities
were originally offered and sold or would itself require registration under the
Securities Act or applicable state securities laws. Each certificate evidencing
the Securities transferred as above provided shall bear the appropriate
restrictive legend set forth in Section 4.7, except that such certificate shall
not bear such legend if the transfer was made in compliance with Rule 144 or if
the opinion of counsel referred to above is to the further effect that such
legend is not required in order to establish compliance with any provisions of
the Securities Act.
4.6 EXPERIENCE. Investor represents that: (i) Investor has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of
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Investor's prospective investment in the Securities; (ii) Investor has received
all the information it has requested from the Company and considers necessary or
appropriate for deciding whether to purchase the Securities; (iii) Investor has
had the opportunity to discuss the Company's business, management, and financial
affairs with its management; (iv) Investor has the ability to bear the economic
risks of Investor's investment in the Securities; and (v) Investor is able,
without materially impairing its financial condition, to hold the Securities for
an indefinite period of time and to suffer a complete loss on of its investment.
The foregoing, however, does not limit or modify the representations or
warranties of the Company in Section 3 of this Agreement or the right of
Investor to rely thereon.
4.7 LEGENDS. All Certificates for Securities shall bear substantially
the following legend:
THE SECURITIES REPRESENTED HEREBY (THE "SECURITIES") HAVE
NOT BEEN REGISTERED UNDER THE FEDERAL SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR QUALIFIED UNDER
APPLICABLE SECURITIES LAWS OF ANY STATE ("STATE LAWS").
THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD OR
TRANSFERRED IN THE ABSENCE OF EITHER: (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE ACT
AND QUALIFICATION OF THE SECURITIES UNDER APPLICABLE STATE
LAWS, OR (B) THE AVAILABILITY OF AN EXEMPTION FROM SUCH
REGISTRATION AND QUALIFICATION. IF SUCH AN EXEMPTION IS
BEING RELIED UPON REGARDING ANY PROPOSED TRANSFER OF THE
SECURITIES, PHARMCHEM, INC., AS A CONDITION TO RECORDING
SUCH TRANSFER IN ITS STOCK TRANSFER RECORDS, MAY REQUIRE A
REASONABLY SATISFACTORY WRITTEN OPINION OF COUNSEL TO THE
EFFECT THAT SUCH EXEMPTION IS AVAILABLE FOR SUCH TRANSFER.
4.8 ACCREDITED INVESTOR. Investor presently qualifies, and will as of
the Closing Date qualify, as an "accredited investor" within the meaning of
Regulation D of the rules and regulations promulgated under the Securities Act.
Attached as Schedule 4.8 is a copy of Securities and Exchange Commission Rule
501, containing the definition of an "Accredited Investor."
4.9 CONFIDENTIALITY. The parties agree that the Confidential Information
Letter Agreement between the Company and Investor dated July 12, 2001 (the
"CONFIDENTIAL INFORMATION AGREEMENT") shall be incorporated into this Agreement
by this reference.
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Notwithstanding the termination of this Agreement for any reason, the
Confidential Information Agreement shall continue in full force and effect.
5. SUBORDINATION OF NOTE. The Company's obligation under the Note shall be
subordinate in payment and priority to the indebtedness of the Company due and
owing to Comerica Bank -- California (the "BANK") evidenced by the Loan
Agreement, and any other instruments evidencing indebtedness or obligations of
the Company to Comerica Bank -- California (the "SENIOR DEBT") as provided in
that certain Subordination Agreement between the Bank and Investor to be entered
into prior to the Closing.
6. REGISTRATION RIGHTS.
6.1 DEFINITIONS. For purposes of this Section 6:
(a) The term "FORM S-3" means such form under the Securities Act as
in effect on the date hereof or any registration form under the Securities Act
subsequently adopted by the SEC that permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
(b) The term "HOLDER" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof. Investor recognizes
that, substantially at or about the time of the Closing, the Company intends to
issue to another investor, on terms substantially similar to those set forth
herein, a warrant for shares of the Company's Common Stock. For purposes of this
Section 6, the term "HOLDERS" shall mean Investor and the holder or holders of
such warrant, provided, however, that such holder or holders of such warrant
shall not be authorized to initiate a demand for registration pursuant to
Section 6.3 hereof, but the parties recognize that such holder or holders will
have registration rights substantially similar to those set forth in this
Agreement.
(c) The term "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document.
(d) The term "REGISTRABLE SECURITIES" means (i) the Warrant Shares,
(ii) Common Stock of the Company now owned or hereafter acquired by Investor,
(iii) Common Stock of the Company issuable or issued upon conversion or exercise
of any convertible stock, warrant, option or other security now owned or
hereafter acquired by Investor, and (iv) any Common Stock of the Company issued
as (or issuable upon the conversion or exercise of any warrant, right or other
security that is issued as) a dividend or other distribution with respect to, or
in exchange for, or in replacement of, the shares referenced in (i), (ii) and
(iii) above, excluding in all cases, however, any Registrable Securities sold by
a person in a transaction in which his rights under this Section 6 are not
assigned.
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(e) The number of shares of "REGISTRABLE SECURITIES" outstanding
shall be determined by the number of shares of Common Stock outstanding that
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities that are, Registrable Securities.
(f) The term "SEC" shall mean the Securities and Exchange
Commission.
6.2 COMPANY REGISTRATION.
(a) If (but without any obligation to do so) the Company proposes to
register (including for this purpose a registration effected by the Company for
stockholders other than Investor) any of its stock or other securities under the
Securities Act in connection with the public offering of such securities (other
than a registration relating solely to the sale of securities to participants in
a Company stock plan or employee benefit plan, a registration relating to a
corporate reorganization or other transaction under Rule 145 of the Securities
Act, a registration on any form that does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities, or a registration in which the
only Common Stock being registered is Common Stock issuable upon conversion of
debt securities that are also being registered), the Company shall, at such
time, promptly give the Holders written notice of such registration. Upon the
written request of the Holders given within fifteen (15) days after mailing of
such notice by the Company in accordance with Section 9.4, the Company shall,
subject to the provisions of Section 6.2(c), use its best efforts to cause to be
registered under the Securities Act all of the Registrable Securities that the
Holders have requested to be registered.
(b) The Company shall have the right to terminate or withdraw any
registration initiated by it under this Section 6.2 prior to the effectiveness
of such registration whether or not Investor has elected to include securities
in such registration. The expenses of such withdrawn registration shall be borne
by the Company.
(c) In connection with any offering involving an underwriting of
shares of the Company's capital stock, the Company shall not be required under
this Section 6.2 to include any of a Holder's Registrable Securities in such
underwriting unless such Holder accepts the terms of the underwriting as agreed
upon between the Company and the underwriters selected by it (or by other
persons entitled to select the underwriters) and enter into an underwriting
agreement in customary form with an underwriter or underwriters selected by the
Company or other such persons, and then only in such quantity as the
underwriters determine in their sole discretion will not jeopardize the success
of the offering by the Company. If the total amount of securities, including
Registrable Securities, requested by Investor and by other security holders of
the Company to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters determine in their sole
discretion is compatible with the success of the offering, then the Company
shall be required to include in the offering only that number of such
securities, including Registrable Securities, that the underwriters determine in
their sole discretion will not jeopardize the success of the offering (the
securities so included to be
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apportioned pro rata among the Holders and other selling security holders
according to the total amount of securities entitled to be included therein
owned by the Holders and such other selling security holders or in such other
proportions as shall mutually be agreed to by such selling persons), but in no
event shall the amount of securities of the selling Holders and other selling
security holders be reduced below 30% of the total amount of securities included
in such offering. For purposes of the preceding parenthetical concerning
apportionment, for a Holder and any other selling security holder that is a
partnership or corporation, the partners, retired partners and stockholders of
such Holder or other selling security holder, or the estates and family members
of any such partners and retired partners and any trusts for the benefit of any
of the foregoing persons shall be deemed to be a single selling Holder or other
security holder, and any pro rata reduction with respect thereto shall be based
upon the aggregate amount of Registrable Securities owned by all such related
entities and individuals.
6.3 FORM S-3 REGISTRATION.
(a) In case the Company shall receive from Investor a written
request or requests that the Company effect a registration on Form S-3 and any
related qualification or compliance with respect to all or a part of the
Registrable Securities owned by Investor, the Company shall:
(i) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(ii) use best efforts to effect, as soon as possible, but in no
event greater than ninety (90) days from the date of such request, such
registration and all such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of Investor's Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holders joining in such request as are specified in a written request given
within fifteen (15) days after receipt of such written notice from the Company,
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 6.3:
(A) if Form S-3 is not available for such offering by Investor;
(B) if Investor, together with the other Holders, propose to
sell Registrable Securities and such other securities (if any) at an aggregate
price to the public (net of any underwriters' discounts or commissions) of less
than $500,000;
(C) if the Company shall furnish to the Holders a certificate
signed by the Chief Executive Officer or Chairman of the Board of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such Form S-3 Registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
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statement for a period of not more than ninety (90) days after receipt of the
request of the Investor under this Section 6.3; provided, however, that the
Company shall not utilize this right more than once in any twelve (12)-month
period;
(D) if the Company has, within the twelve (12)-month period
preceding the date of such request, already effected one (1) registration on
Form S-3 for the Investor pursuant to this Section 6.3;
(E) if the Company has already effected two (2) registrations on
Form S-3 for the Investor pursuant to this Section 6.3;
(F) in any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general consent to service of
process in effecting such registration, qualification or compliance; or
(G) following the expiration of five (5) years from the Closing,
provided, however, such five (5) year period shall be extended for any period
that the Company does not or cannot file a registration statement in reliance on
Section 6.3(a)(ii)(A) or 6.3(a)(ii)(C) hereof or is subject to a backout
pursuant to Section 6.4(f) hereof.
(b) Notwithstanding anything to the contrary contained in this
Section 6, the Company shall have the right, in lieu of effecting a registration
under this Section 6.3, to purchase from the Holders the Registerable Securities
which were the subject of a Holder's request. If the Company desires to exercise
such right, it shall so notify Holders within thirty (30) days following receipt
of a Holder's request that the Company effect a registration pursuant to this
Section 6.3. If the Company desires to exercise such right and if a Holder
desires to sell the Registrable Securities to the Company, on such date as shall
be agreed upon by such Holders and the Company, which date shall be no more than
thirty (30) days following the date on which the Company notifies Holders that
it desires to exercise its purchase right, such Holder shall deliver to the
Company certificates representing the Registrable Securities which were the
subject of such Holder's request, duly endorsed for transfer or accompanied by
duly executed appropriate stock powers, and the Company shall pay to such Holder
the Fair Market Value (as such term is defined in the Warrant) of such
Registrable Securities as of the date of a Holder's request that the Company
effect a registration. If the Company exercises such right and a Holder
determines not to sell the Registrable Securities to the Company, then such
Holder shall have no right to request a further registration for the twelve (12)
month period following the date of the Holder's request pursuant to Section
6.3(a).
6.4 OBLIGATIONS OF THE COMPANY. Whenever required under this Section 6
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably practicable:
(a) prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become
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effective, and, upon the request of Investor, keep such registration statement
effective for a period of up to one hundred twenty (120) days or, if earlier,
until the distribution contemplated in the registration statement has been
completed; provided that if, in the Company's reasonable discretion, maintaining
such registration statement in effect for longer than one hundred twenty (120)
days would not in any way adversely affect the Company or its stockholders, if
Investor so requests, the Company will use commercially reasonable efforts to do
so;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement;
(c) furnish to Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by Holders;
(d) use best efforts to register and qualify the securities covered
by such registration statement under such other securities or Blue Sky laws of
such jurisdictions as shall be reasonably requested by Investor, provided that
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions;
(e) in the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering;
(f) notify Holders at any time when a prospectus relating to the
Registrable Securities covered by such registration statement is required to be
delivered under the Securities Act of the happening of any event as a result of
which the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing, and, upon
receipt of such notice and until the earlier of (i) the date the Company makes
available to Holders a supplemented or amended prospectus meeting the
requirements of the Securities Act and relevant blue sky laws, or (ii) the date
the Company notifies Holders that Holders may resume offers and sales using the
prior prospectus, Holders shall not offer or sell any Warrant Shares pursuant to
the Registration Statement (and shall return all copies of such prior prospectus
to the Company if requested to do so by it). Notwithstanding Section 6.3(a), the
Company may continue such "blackout" period or periods for such period of time
as the Company considers reasonably necessary and in its best interest due to
circumstances then existing, or simply due to the fact that amendments/
supplements of a Registration Statement/prospectus have not yet been prepared;
but in no event may the Company impose "blackouts" on Holders for any period of
thirty (30) or more
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consecutive business days or totaling more than ninety (90) days in any twelve
(12) month period.
(g) cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed; and
(h) provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
6.5 INFORMATION FROM HOLDERS. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 6 with
respect to Registrable Securities that each Holder shall furnish to the Company
such information regarding itself, the Registrable Securities held by it, and
the intended method of disposition of such securities as shall be required to
effect the registration of Holder's Registrable Securities.
6.6 EXPENSES OF REGISTRATION. All expenses other than underwriting
discounts and commissions incurred in connection with registrations, filings or
qualifications pursuant to Sections 6.2 and 6.3, including (without limitation)
all registration, filing and qualification fees, printers' and accounting fees,
fees and disbursements of counsel for the Company and the reasonable fees and
disbursements of one counsel for the selling Holders shall be borne by the
Company.
6.7 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 6:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the partners or officers, directors and stockholders
of each Holder, legal counsel and accountants for each Investor, any underwriter
(as defined in the Securities Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the Securities Act or
the Exchange Act, against any losses, claims, damages or liabilities (joint or
several) to which they may become subject under the Securities Act, the Exchange
Act or any state securities laws, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"VIOLATION"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any state securities laws or
any rule or regulation promulgated under the Securities Act, the Exchange Act or
any state securities laws; and the Company will reimburse each such Holder,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with
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investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this Section 6.7(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon a Violation that
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
underwriter or controlling person; provided further, however, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not inure
to the benefit of any Holder or underwriter, or any person controlling such
Holder or underwriter, from whom the person asserting any such losses, claims,
damages or liabilities purchased shares in the offering, if a copy of the
prospectus (as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) was not sent or given by or on behalf of
such Holder or underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the shares to
such person, and if the prospectus (as so amended or supplemented) would have
cured the defect giving rise to such loss, claim, damage or liability.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, legal counsel and
accountants for the Company, any underwriter, any other Investor selling
securities in such registration statement and any controlling person of any such
underwriter or other Holder, against any losses, claims, damages or liabilities
(joint or several) to which any of the foregoing persons may become subject,
under the Securities Act, the Exchange Act or any state securities laws, insofar
as such losses, claims, damages or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder expressly for use
in connection with such registration; and each such Holder will reimburse any
person intended to be indemnified pursuant to this Section 6.7(b), for any legal
or other expenses reasonably incurred by such person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this Section 6.7(b)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Holder (which consent shall not be unreasonably withheld), provided that in no
event shall any indemnity under this Section 6.7(b) exceed the net proceeds from
the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 6.7 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 6.7, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to
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assume the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party (together with all other
indemnified parties that may be represented without conflict by one counsel)
shall have the right to retain one separate counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential differing interests between such indemnified party
and any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 6.7, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 6.7.
(d) If the indemnification provided for in this Section 6.7 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage or expense referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations, provided that in no event shall any indemnity under this Section
6.7(d) exceed the net proceeds from the offering received by such indemnifying
party. The relative fault of the indemnifying party and of the indemnified party
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a material
fact relates to information supplied by the indemnifying party or by the
indemnified party and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
(f) The obligations of the Company and Holders under this Section
6.7 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 6, and otherwise.
6.8 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
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(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to any Holder, so long as such Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of the Exchange
Act, or that it qualifies as a registrant whose securities may be resold
pursuant to Form S-3, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company, and
(iii) such other information as may be reasonably requested in availing such
Holder of any rule or regulation of the SEC that permits the selling of any such
securities without registration or pursuant to such form.
6.9 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Section 6 may be assigned
(but only with all related obligations) by a Holder to a transferee or assignee
of such securities that (i) is a subsidiary, parent, partner, limited partner,
retired partner or stockholder of such Holder, (ii) is such Holder's family
member or trust for the benefit of an individual Holder, or (iii) after such
assignment or transfer, holds at least two hundred fifty thousand (250,000)
shares of Registrable Securities (subject to appropriate adjustment for stock
splits, stock dividends, combinations and other recapitalizations), provided:
(a) the Company is, within a reasonable time after such transfer, furnished with
written notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned;
and (b) such assignment shall be effective only upon delivery of the written
notice referred to in the preceding clause (a) and if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act.
6.10 ADDITIONAL RIGHTS. If the Registrable Securities have not been
registered within the time limits set forth in Section 6.3 hereof, as such time
limits may be extended pursuant to the terms of Section 6.3 (the "PENALTY
DATE"), or if Investor is unable to sell Registrable Securities because the
Company has imposed a "blackout" for longer than provided in Section 6.4(f)
hereof, the Company shall pay Investor (on behalf of Investor and its assignees,
if any) the sum of $50,000. For each month (or partial month) thereafter that
the Registrable Securities are not registered, the Company shall pay Investor
(on behalf of Investor and its assignees, if any) an additional $10,000. For the
purposes of this Section 6.10, a "month" shall be deemed to begin on the same
numbered day in each calendar month as the numbered day of the month on which
the Closing occurs.
6.11 TERMINATION OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Section 6 shall terminate at
such time at which all
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Registrable Securities held by Investor can be sold in any ninety (90)-day
period without registration in compliance with SEC Rule 144.
7. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING. The obligation of Investor
to loan funds to the Company pursuant to this Agreement is subject to the
fulfillment at or before the Closing of each of the following conditions, any of
which may be waived in writing by Investor:
7.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in Section 3 shall be true in all material respects on
and as of the Closing with the same effect as if made on and as of the Closing.
7.2 PERFORMANCE. The Company shall have performed or fulfilled in all
material respects all agreements, obligations, and conditions contained herein
required to be performed or fulfilled by the Company before the Closing.
7.3 LEGAL OPINION. The Company shall deliver to Investor an opinion of
Xxxxxxxxxxxx Xxxx & Xxxxxxxxx, counsel to the Company, in a form reasonably
satisfactory to Investor.
7.4 BANK WAIVER. The Bank shall have waived the covenant defaults under
the Loan Agreement referred to in the Schedule of Exceptions, in a manner
reasonably acceptable to the Company and Investor.
8. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of the
Company under this Agreement are subject to the fulfillment at or before the
Closing of each of the following conditions, any of which may be waived in
writing by the Company:
8.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Investor contained in Section 4 shall be true in all material respects on and
as of the Closing with the same effect as if made on and as of the Closing.
8.2 PERFORMANCE. Investor shall have performed or fulfilled in all
material respects all agreements, obligations, and conditions contained herein
required to be performed or fulfilled by Investor before the Closing.
9. MISCELLANEOUS.
9.1 GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware, excluding those laws that
direct the application of another jurisdiction's laws.
9.2 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
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9.3 CAPTIONS. All captions and headings herein are for convenience and
ease of reference only, and shall not be used or referred to in any way in
connection with the interpretation or enforcement of this Agreement. All
references herein to sections or paragraphs shall, unless otherwise expressly
stated, mean sections or paragraphs of this Agreement.
9.4 NOTICES. Any and all notices or other communications or deliveries
hereunder shall be in writing and shall be deemed given and effective on the
earliest of (a) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 4:30 p.m. (Pacific Time) in the case of notices to Investor or
4:30 p.m. (Central time) in the case of notices to the Company, in each case on
a business day, (b) the business day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified in this Section later than 4:30 p.m. (Pacific Time) in the case
of notices to Investor or 4:30 p.m. (Central time) in the case of notices to the
Company, in each case on any date, and earlier than 11:59 p.m. (Pacific Time) in
the case of notices to Investor or 11:59 p.m. (Central time) in the case of
notices to the Company on such date, (c) the business day following the date of
mailing, if sent by nationally recognized overnight courier service, or (d) upon
actual receipt by the party to whom such notice is required to be given. The
addresses for such communications shall be:
If to the Company:
PharmChem, Inc.
0000 Xxxxx Xxxxxx
Xxxxxx Xxxx, Xxxxx 00000
Attention: Chief Financial Officer
Facsimile: 000-000-0000
with a copy to:
Xxxxx X. Xxxxxxx
Xxxxxxxxxxxx Xxxx & Xxxxxxxxx
000 Xxxxxx Xxxxxx, Xxxxx Xxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
If to Investor:
Micro Cap Partners, L.P.
c/o Palo Alto Investors LLC
000 Xxxxxxxxxx Xxxxxx
Xxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
with a copy to:
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Xxxxxx X. Xxxxxx
Shartsis, Xxxxxx & Xxxxxxxx LLP
Xxx Xxxxxxxx Xxxxx, 00xx Xxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
or to such other address or facsimile number as one party may provide to the
other in accordance with this Section 9.4.
9.5 SURVIVAL OF WARRANTIES. The warranties and representations of the
Company contained in or made pursuant to this Agreement with respect to the
Closing shall survive the execution and delivery of this Agreement and the
Closing until such time as the Note has been paid in full.
9.6 BROKERS FEES. Each of the Company and Investor will indemnify the
other against all liabilities incurred by the indemnified party with respect to
claims related to investment banking, brokers or finders fees in connection with
the transactions contemplated by this Agreement, arising out of arrangements
between the party asserting such claims and the indemnifying party, and all
costs and expenses (including reasonable fees of counsel) of investigating and
defending such claims.
9.7 EXPENSES. The Company will bear its legal and other fees and
expenses in connection with the transactions contemplated in this Agreement, and
will reimburse Investor for its legal fees at the Closing, provided that such
legal fees to be reimbursed shall not exceed $10,000.
9.8 ENTIRE AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement, including
the Exhibits and Schedules hereto, constitutes the entire contract between the
Company and Investor relative to the subject matter hereof. Any previous
agreement between the Company and Investor is superseded by this Agreement.
Subject to the restrictions on transfer set forth in this Agreement, the terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the respective executors, administrators, heirs, successors, and assigns of
the parties.
9.9 MODIFICATION. This Agreement may not be modified, terminated, or
amended in any respect, except pursuant to an instrument in writing duly
executed by all of the parties hereto.
[Signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Note and
Warrant Purchase Agreement as of the date and year first above written.
THE COMPANY: PHARMCHEM, INC.
By: /S/ XXX XXXXXXXX
----------------------------------------
Xxxxxx X. Xxxxxxxx, President
Address for Notices:
0000 Xxxxx Xxxxxx
Xxxxxx Xxxx, Xxxxx 00000
INVESTOR: MICRO CAP PARTNERS, L.P.
By:
Signature: /S/ XXXXXXX X. XXXXXXX
----------------------------
Title: PRESIDENT, PALO ALTO INVESTORS
--------------------------------
Printed Name: XXXXXXX X. XXXXXXX
-------------------------
Address for Notices:
c/o Palo Alto Investors LLC
000 Xxxxxxxxxx Xxxxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
[SIGNATURE PAGE FOR UNSECURED SUBORDINATED NOTE AND WARRANT PURCHASE AGREEMENT]
