EXHIBIT 4.1
EXECUTION COPY
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of June 8, 1998,
by and among CoCensys, Inc., a Delaware corporation, with headquarters located
at 000 Xxxxxxxxxx Xxxxx, Xxxxxx, Xxxxxxxxxx 00000 ("COMPANY"), and each of the
purchasers set forth on the signature pages hereto (the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
under Regulation D ("REGULATION D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 ACT");
B. The Company has authorized a new series of preferred stock, designated
as Series E Convertible Preferred Stock (the "PREFERRED STOCK"), having the
rights, preferences and privileges set forth in the Certificate of Designations,
Rights and Preferences attached hereto as EXHIBIT "A" (the "CERTIFICATE OF
DESIGNATION");
C. The Preferred Stock is convertible into shares of common stock, $.001
par value per share, of the Company (the "COMMON STOCK"), upon the terms and
subject to the limitations and conditions set forth in the Certificate of
Designation;
D. The Company has authorized the issuance to the Buyers of warrants, in
the form attached hereto as EXHIBIT "B", to purchase Three Hundred Fifty
Thousand (350,000) shares of Common Stock (the "INITIAL WARRANTS");
E. The Buyers desire to purchase and the Company desires to issue and
sell, upon the terms and conditions set forth in this Agreement, (i) an
aggregate of Ten Thousand (10,000) shares of Preferred Stock, and (ii) Initial
Warrants to purchase Three Hundred Fifty Thousand (350,000) shares of Common
Stock, for an aggregate purchase price of Ten Million Dollars ($10,000,000).
F. Each Buyer wishes to purchase, upon the terms and conditions stated in
this Agreement, the number of shares of Preferred Stock and number of Warrants
as is set forth immediately below its name on the signature pages hereto;
G. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as EXHIBIT "C" (the "REGISTRATION RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide certain registration rights
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws; and
H. Upon the satisfaction of certain conditions described herein, the
Buyers shall be entitled to receive from the Company on the date which is one
hundred fifty (150) days from each Closing Date (as defined below), warrants to
purchase an aggregate of an additional One Hundred Thousand (100,000) shares of
Common Stock, in the form attached hereto as EXHIBIT "E" (the "ADDITIONAL
WARRANTS" and, collectively with the Initial Warrants, the "WARRANTS").
NOW THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
a. PURCHASE OF PREFERRED SHARES AND WARRANTS. The Company
shall issue and sell to each Buyer and each Buyer severally agrees to purchase
from the Company such number of shares of Series E Preferred Stock
(collectively, together with any Preferred Stock issued in replacement thereof
or as a dividend thereon or otherwise with respect thereto in accordance with
the terms thereof, the "PREFERRED SHARES") and number of Warrants for the
aggregate purchase price with respect to the First Closing (as defined below)
and the Second Closing (as defined below) (each, a "PURCHASE PRICE" and
collectively, the "PURCHASES PRICES") as is set forth immediately below such
Buyer's name on the signature pages hereto. The issuance, sale and purchase of
the Preferred Shares and Warrants shall take place at two (2) closings, the
first of which is hereinafter referred to as the "First Closing" and the second
of which is referred to as the "SECOND CLOSING." The aggregate number of
Preferred Shares to be issued at the First Closing is Eight Thousand (8,000) and
the aggregate number of Initial Warrants to be issued at the First Closing is
Three Hundred Fifty Thousand (350,000) for an aggregate purchase price of Eight
Million Dollars ($8,000,000) and the aggregate number of Preferred Shares to be
issued at the Second Closing is Two Thousand (2,000) for an aggregate purchase
price of Two Million Dollars ($2,000,000). Subject to the satisfaction (or
waiver) of the conditions thereto set forth in Section 6 and Section 7 below,
(i) at the First Closing, the Company shall issue and sell to each Buyer and
each Buyer shall purchase from the Company the number of Preferred Shares and
Initial Warrants which such Buyer is purchasing hereunder and as set forth below
such Buyer's name on the signature pages hereto for a price equal to eighty
percent (80%) of the aggregate of the Purchase Prices and (ii) at the Second
Closing, the Company shall issue and sell to each Buyer and each Buyer shall
purchase from the Company the aggregate number of Preferred Shares which such
Buyer is purchasing hereunder and as set forth below such Buyer's name on the
signature pages hereto for a price equal to twenty percent (20%) of the
aggregate of the Purchase Prices.
b. FORM OF PAYMENT. On each Closing Date (as defined below),
(i) each Buyer shall pay the Purchase Price for the Preferred Shares and the
Initial Warrants to be issued and sold to it at the applicable Closing (as
defined below) by wire transfer of immediately available funds to the Company,
in accordance with the Company's written wiring instructions, against delivery
of duly executed certificates representing such number of Preferred Shares and
Initial Warrants which such Buyer is purchasing and (ii) the Company shall
deliver such certificates and Initial Warrants duly executed on behalf of the
Company, to the Buyer, against delivery of such Purchase Price.
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c. CLOSING DATE. Subject to the satisfaction (or waiver) of
the conditions thereto set forth in Section 6 and Section 7 below, the date and
time of the issuance and sale of the Preferred Shares and the Initial Warrants
pursuant to this Agreement (the "CLOSING DATE") shall be (i) in the case of the
First Closing, 12:00 noon Eastern Standard Time on June 8, 1998 and (ii) in the
case of Second Closing, 12:00 noon Eastern Standard Time as soon as practicable
(but no less than two (2) days) following the satisfaction (or waiver) of the
conditions to such closing set forth in Section 7(b) below or, in each case,
such other mutually agreed upon time. Each Closing shall occur on each Closing
Date at the offices of the Company, or at such other location as may be agreed
to be the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally
(and not jointly) represents and warrants to the Company solely as to such Buyer
that:
a. INVESTMENT PURPOSE. As of the date hereof, the Buyer is
purchasing the Preferred Shares and the shares of Common Stock issuable upon
conversion thereof (including any additional shares, if any, as are issuable as
a result of the events described in Article V, Article VI.D(b) or Article VI.E
of the Certificate of Designation) (the "CONVERSION SHARES") and the Warrants
and the shares of Common Stock issuable upon exercise thereof (the "WARRANT
SHARES" and, collectively with the Preferred Shares, Warrants and Conversion
Shares the "SECURITIES") for its own account for investment only and not with a
present view towards the public sale or distribution thereof, except pursuant to
sales registered or exempted from registration under the 1933 Act; PROVIDED,
HOWEVER, that by making the representation herein, the Buyer does not agree to
hold any of the Securities for any minimum or other specific term and reserves
the right to dispose of the Securities at any time in accordance with or
pursuant to a registration statement or an exemption under the 1933 Act.
b. ACCREDITED INVESTOR STATUS. The Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D.
c. RELIANCE ON EXEMPTIONS. The Buyer understands that the
Securities are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.
d. INFORMATION. The Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by the Buyer or its advisors. The Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company. Neither such inquiries nor any other due diligence investigation
conducted by Buyer or any of its advisors or representatives shall modify, amend
or affect Buyer's right to rely on the
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Company's representations and warranties contained in Section 3 below. The
Buyer understands that its investment in the Securities involves a significant
degree of risk.
e. GOVERNMENTAL REVIEW. The Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
f. TRANSFER OR RESALE. The Buyer understands that (i) except
as provided in the Registration Rights Agreement, the Securities have not been
and are not being registered under the 1933 Act or any applicable state
securities laws, and may not be transferred unless (a) subsequently included in
an effective registration statement under the 1933 Act, (b) the Buyer shall have
delivered to the Company an opinion of counsel (which opinion shall be
reasonably acceptable to the Company) to the effect that the Securities to be
sold or transferred may be sold or transferred pursuant to an exemption from
such registration, (c) sold or transferred to on "affiliate" (as defined in Rule
144 promulgated under the 1933 Act (or a successor rule) ("RULE 144")) so long
as the Buyer otherwise complies with applicable securities laws or (d) sold
pursuant to Rule 144; (ii) any sale of such Securities made in reliance on Rule
144 may be made only in accordance with the terms of said Rule and further, if
said Rule is not applicable, any resale of such Securities under circumstances
in which the seller (or the person through whom the sale is made) may be deemed
to be an underwriter (as that term is defined in the 0000 Xxx) may require
compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder (in each case, other than pursuant to the Registration
Rights Agreement). Notwithstanding the foregoing or anything else contained
herein to the contrary, the Securities may be pledged as collateral in
connection with a BONA FIDE margin account or other lending arrangement. Except
for transfers by a Buyer (i) to its "affiliates" (as defined in Rule 144) or
(ii) to the holders of interests in a Buyer upon a liquidation of a Buyer's
assets in accordance with its governing documents, the Preferred Shares and
Warrants may be transferred by a Buyer only with the prior written consent of
the Company, which consent will not be unreasonably withheld.
g. LEGENDS. The Buyer understands that the Preferred Shares
and the Warrants and, until such time as the Conversion Shares and Warrant
Shares have been registered under the 1933 Act as contemplated by the
Registration Rights Agreement, the Conversion Shares and Warrant Shares, may
bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the certificates for such
Securities):
"The securities represented by this certificate have not
been registered under the Securities Act of 1933, as
amended. The securities have been acquired for investment
and may not be sold, transferred or assigned in the absence
of an effective registration statement for the securities
under said Act, or an opinion of counsel, in form, substance
and scope reasonably acceptable to the Company, that
registration is not required under said Act or unless sold
pursuant to Rule 144 under said Act."
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The legend set forth above shall be removed and the Company shall
issue a certificate without such legend to the holder of any Security upon which
it is stamped, if, unless otherwise required by applicable state securities
laws, (a) such Security is registered for sale under an effective registration
statement filed under the 1933 Act, or (b) such holder provides the Company with
an opinion of counsel, in form, substance and scope reasonably acceptable to the
Company, to the effect that a public sale or transfer of such Security may be
made without registration under the 1933 Act and such sale or transfer is
effected or (c) such holder provides the Company with reasonable assurances that
such Security can be sold pursuant to Rule 144 under the 1933 Act (or a
successor rule thereto) without any restriction as to the number of Securities
acquired as of a particular date that can then be immediately sold. The Buyer
agrees to sell all Securities, including those represented by a certificate(s)
from which the legend has been removed, in compliance with applicable prospectus
delivery requirements, if any.
h. AUTHORIZATION; ENFORCEMENT. This Agreement and the
Registration Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of the Buyer and are valid and binding agreements of the
Buyer enforceable in accordance with their terms.
i. RESIDENCY. The Buyer is a resident of the jurisdiction set
forth immediately below such Buyer's name on the signature pages hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Buyer that:
a. ORGANIZATION AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction in which it is incorporated, with full power and authority
(corporate and other) to own, lease, use and operate its properties and to carry
on its business as and where now owned, leased, used, operated and conducted.
The Company currently has no Subsidiaries (as defined below). SCHEDULE 3(a)
sets forth a list of all Subsidiaries of the Company which have existed since
December 31, 1996. The Company is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which its ownership or
use of property or the nature of the business conducted by it makes such
qualification necessary except where the failure to be so qualified or in good
standing would not have a Material Adverse Effect. "MATERIAL ADVERSE EFFECT"
means any material adverse effect on the business, operations, assets, financial
condition or prospects of the Company taken as a whole, or on the transactions
contemplated hereby or by the agreements or instruments to be entered into in
connection herewith. "SUBSIDIARIES" means any corporation or other
organization, whether incorporated or unincorporated, in which the Company owns,
directly or indirectly, any equity or other ownership interest and in which such
ownership interest entitles the Company to elect a majority of the Board of
Directors or similar governing body.
b. AUTHORIZATION; ENFORCEMENT. (i) The Company has all
requisite corporate power and authority to file and perform its obligations
under the Certificate of Designation and to enter into and perform this
Agreement, the Registration Rights Agreement and the Warrants
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and to consummate the transactions contemplated hereby and thereby and to issue
the Securities, in accordance with the terms hereof and thereof, (ii) the
execution and delivery of this Agreement, the Registration Rights Agreement and
the Warrants by the Company and the consummation by it of the transactions
contemplated hereby and thereby (including without limitation, the issuance of
the Preferred Shares and the Warrants and the issuance and reservation for
issuance of the Conversion Shares and Warrant Shares issuable upon conversion or
exercise thereof) have been duly authorized by the Company's Board of Directors
and no further consent or authorization of the Company, its Board of Directors,
or its shareholders is required of the Company's stockholders other than
approvals, if required, of the Company's stockholders in accordance with the
rules of Nasdaq (as defined below), (iii) this Agreement has been duly executed
and delivered and the Certificate of Designation has been duly filed by the
Company, and (iv) each of this Agreement and the Certificate of Designation
constitutes, and upon execution and delivery by the Company of the Registration
Rights Agreement and the Warrants, each of such instruments will constitute, a
legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms.
c. CAPITALIZATION. As of the date hereof, the authorized
capital stock of the Company consists of (i) 75,000,000 shares of Common Stock
of which 24,594,700 shares are issued and outstanding, 5,987,583 shares are
reserved for issuance pursuant to the Company's stock plans, 5,145,086 shares
are reserved for issuance pursuant to securities (other than the Preferred
Shares and the Warrants) exercisable for, or convertible into or exchangeable
for shares of Common Stock and 7,000,000 shares are reserved for issuance upon
conversion of the Preferred Shares and exercise of the Warrants (subject to
adjustment pursuant to the Company's covenant set forth in Section 4(h) below);
and (ii) 5,000,000 shares of preferred stock, 200,000 of which shares are issued
and outstanding not including the Preferred Shares. All of such outstanding
shares of capital stock are, or upon issuance will be, duly authorized, validly
issued, fully paid and nonassessable. No shares of capital stock of the Company
are subject to preemptive rights or any other similar rights of the stockholders
of the Company or any liens or encumbrances imposed through the actions or
failure to act of the Company. Except as disclosed in SCHEDULE 3(c), as of the
effective date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of any
character whatsoever relating to, or securities or rights convertible into or
exchangeable for any shares of capital stock of the Company or any of its
Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its Subsidiaries, (ii) there are no agreements or arrangements under
which the Company or any of its Subsidiaries is obligated to register the sale
of any of its or their securities under the 1933 Act (except the Registration
Rights Agreement) and (iii) there are no anti-dilution or price adjustment
provisions contained in any security issued by the Company (or in any agreement
providing rights to security holders) that will be triggered by the issuance of
the Preferred Shares, the Warrants, the Conversion Shares or Warrant Shares.
The Company has furnished to the Buyer true and correct copies of the Company's
Certificate of Incorporation, as amended, as in effect on the date hereof
("CERTIFICATE OF INCORPORATION"), the Company's By-laws, as in effect on the
date hereof (the "BY-LAWS"), and the terms of all securities convertible into or
exercisable for Common Stock of the Company and the material rights of the
holders thereof in respect thereto excluding those securities issued pursuant to
the Company's stock plans. The Company shall provide the
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Buyer with a written update of this representation signed by the Company's Chief
Executive or Chief Financial Officer on behalf of the Company as of the Closing
Date.
d. ISSUANCE OF SHARES. The Preferred Shares, Conversion Shares
and Warrant Shares are duly authorized and, upon issuance in accordance with the
terms of this Agreement (including the issuance of the Conversion Shares upon
conversion of the Preferred Shares in accordance with the Certificate of
Designation and the Warrant Shares upon exercise of the Warrants in accordance
with the terms thereof) will be validly issued, fully paid and non-assessable,
and free from all taxes, liens and charges with respect to the issue thereof and
shall not be subject to preemptive rights or other similar rights of
stockholders of the Company. The Company understands and acknowledges the
potentially dilutive effect to the Common Stock upon the issuance of the
Conversion Shares and Warrant Shares upon conversion or exercise of the
Preferred Shares or Warrants. The Company further acknowledges that its
obligation to issue Conversion Shares and Warrant Shares upon conversion of the
Preferred Shares or exercise of the Warrants in accordance with this Agreement,
the Certificate of Designation and the Warrants is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Company.
e. SERIES OF PREFERRED STOCK. The terms, designations, powers,
preferences and relative, participating and optional or special rights, and the
qualifications, limitations and restrictions of each series of preferred stock
of the Company (other than the Preferred Stock) are as stated in the Certificate
of Incorporation, filed on or prior to the date hereof, and the Bylaws. The
terms, designations, powers, preferences and relative, participating and
optional or special rights, and the qualifications, limitations and restrictions
of the Preferred Stock are as stated in the Certificate of Designation.
f. NO CONFLICTS. The execution, delivery and performance of
this Agreement, the Registration Rights Agreement and the Warrants by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the filing of the Certificate
of Designation and the issuance and reservation for issuance of the Conversion
Shares and Warrant Shares) will not (i) conflict with or result in a violation
of any provision of the Certificate of Incorporation or By-laws or (ii) violate
or conflict with, or result in a breach of any provision of, or constitute a
default (or an event which with notice or lapse of time or both could become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or by which any property or asset of the
Company is bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). The Company
is not in violation of its Certificate of Incorporation, By-laws or other
organizational documents and the Company is not in default (and no event has
occurred which with notice or lapse of time or both could put the Company or any
of its Subsidiaries in default) under, and neither the Company nor any of its
Subsidiaries has taken any action or failed to take any action that would give
to others any rights of termination, amendment,
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acceleration or cancellation of, any agreement, indenture or instrument to which
the Company is a party or by which any property or assets of the Company is
bound or affected, except for possible defaults as would not, individually or in
the aggregate, have a Material Adverse Effect. To the knowledge of the Company,
the business of the Company is not being conducted, and shall not be conducted
so long as a Buyer owns any of the Securities, in violation of any law,
ordinance or regulation of any governmental entity. Except as specifically
contemplated by this Agreement and as required under the 1933 Act and any
applicable state securities laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or any regulatory or self regulatory agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement, the Registration Rights Agreement or the Warrants in accordance with
the terms hereof or thereof. Except as disclosed in SCHEDULE 3(f), all
consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof. The Company is not in violation of the
listing requirements of the Nasdaq National Market ("NASDAQ") and does not
reasonably anticipate that the Common Stock will be delisted by the Nasdaq in
the foreseeable future. The Company is unaware of any facts or circumstances
which might give rise to any of the foregoing.
g. SEC DOCUMENTS; FINANCIAL STATEMENTS. Since December 31,
1996, the Company has timely filed all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Exchange Act of 1934, as amended (the "1934 ACT")
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents (other than
exhibits) incorporated by reference therein, being hereinafter referred to
herein as the "SEC DOCUMENTS"). The Company has delivered to each Buyer true
and complete copies of the SEC Documents, except for such exhibits and
incorporated documents. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the 1934 Act and the
rules and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of a material fact or omitted to state a
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. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have
been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Except as
set forth in the financial statements of the Company included in the SEC
Documents, the Company has no material liabilities, contingent or otherwise,
other than (i) liabilities incurred in the ordinary course of business
subsequent to December 31, 1997 and (ii) obligations under contracts and
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commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in such financial
statements, which, individually or in the aggregate, are not material to the
financial condition or operating results of the Company.
h. ABSENCE OF CERTAIN CHANGES. Since December 31, 1997, there
has been no adverse change and no adverse development in the assets,
liabilities, business, properties, operations, financial condition, results of
operations or prospects of the Company which could reasonably be expected to
have a Material Adverse Effect.
i. ABSENCE OF LITIGATION. To the Company's knowledge, there is
no action, suit, claim, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company or any of its Subsidiaries,
threatened against or affecting the Company or any of its Subsidiaries, or their
officers or directors in their capacity as such, that could have a Material
Adverse Effect. The Company is unaware of any facts or circumstances which
reasonably be expected to give rise to any of the foregoing. SCHEDULE 3(i)
contains a complete list and summary description of any known pending or
threatened proceeding against or affecting the Company or any of its
Subsidiaries, without regard to whether it would have a Material Adverse Effect.
j. PATENTS, COPYRIGHTS, ETC. To the Company's knowledge, the
Company owns or possesses the requisite licenses or rights to use all patents,
patent rights, inventions, know-how, trade secrets, trademarks, service marks,
service names, trade names and copyrights ("INTELLECTUAL PROPERTY") necessary to
enable it to conduct its business as now operated (and, except as set forth in
SCHEDULE 3(j) hereof, to the best of the Company's knowledge, as presently
contemplated to be operated in the future); to the Company's knowledge, there is
no claim or action by any person pertaining to, or proceeding pending or
threatened which challenges the right of the Company with respect to any
Intellectual Property necessary to enable it to conduct its business as now
operated (and, except as set forth in SCHEDULE 3(j) hereof, to the best of the
Company's knowledge, as presently contemplated to be operated in the future); to
the best of the Company's knowledge, the Company's current and intended
products, services and processes do not infringe on any Intellectual Property or
other rights held by any person; and the Company is unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company has
taken reasonable security measures to protect the secrecy, confidentiality and
value of their Intellectual Property.
k. NO MATERIALLY ADVERSE CONTRACTS, ETC. The Company is not
subject to any charter, corporate or other legal restriction, or any judgment,
decree, order, rule or regulation which in the judgment of the Company's
officers has or is expected in the future to have a Material Adverse Effect.
The Company is not a party to any contract or agreement which in the judgment of
the Company's officers has or is expected to have a Material Adverse Effect.
l. TAX STATUS. Except as set forth on SCHEDULE 3(l), the
Company and each of its Subsidiaries has made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the
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extent that the Company and each of its Subsidiaries has set aside on its books
provisions reasonably adequate for the payment of all unpaid and unreported
taxes) and has paid all taxes and other governmental assessments and charges
that are material in amount, shown or determined to be due on such returns,
reports and declarations, except those being contested in good faith and has set
aside on its books provisions reasonably adequate for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or
declarations apply. To the Company's knowledge, there are no unpaid taxes in
any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim.
m. CERTAIN TRANSACTIONS. Except as set forth on SCHEDULE 3(m)
and in the SEC Documents and except for arm's length transactions pursuant to
which the Company or any of its Subsidiaries makes payments in the ordinary
course of business upon terms no less favorable than the Company or any of its
Subsidiaries could obtain from third parties and other than the grant of stock
options disclosed on SCHEDULE 3(c), none of the officers, directors, or
employees of the Company is presently a party to any transaction with the
Company or any of its Subsidiaries (other than 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 knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
n. DISCLOSURE. All information relating to or concerning the
Company set forth in this Agreement and provided to the Buyers pursuant to
Section 2(d) hereof and otherwise in connection with the transactions
contemplated hereby is true and correct in all material respects and the Company
has not omitted to state any material fact necessary in order to make the
statements made herein or therein, in light of the circumstances under which
they were made, not misleading. No event or circumstance has occurred or exists
with respect to the Company or any of its Subsidiaries or its or their business,
properties, prospects, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed
(assuming for this purposes that the Company's reports filed under the 1934 Act
are being incorporated into an effective registration statement filed by the
Company under the 1933 Act).
o. ACKNOWLEDGMENT REGARDING BUYERS' PURCHASE OF SECURITIES.
The Company acknowledges and agrees that the Buyers are acting solely in the
capacity of arm's length purchasers with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no
Buyer is acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any advice given by any Buyer or any of their respective
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is merely incidental to the Buyers' purchase of the
Securities. The Company further represents to each Buyer that the Company's
decision to enter into this Agreement has been based solely on the independent
evaluation of the Company and its representatives.
10
p. 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 in any security or solicited any offers to
buy any security under circumstances that would require registration under the
1933 Act of the issuance of the Securities to the Buyers.
q. NO BROKERS. The Company has taken no action which would
give rise to any claim by any person for brokerage commissions, finder's fees or
similar payments relating to this Agreement or the transactions contemplated
hereby, except for dealings with AFO Capital Advisors, LLC, whose commissions
and fees will be paid for by the Buyer.
r. PERMITS; COMPLIANCE. The Company is in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exemptions, consents, certificates, approvals and orders necessary to own, lease
and operate its properties and to carry on its business as it is now being
conducted (collectively, the "COMPANY PERMITS") except for any such which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect, and to the Company's knowledge, there is no action
pending or threatened regarding suspension or cancellation of any of the Company
Permits. The Company is not in conflict with, or in default or violation of,
any of the Company Permits, except for any such conflicts, defaults or
violations which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect. Since December 31, 1997, the
Company has not received any notification with respect to possible conflicts,
defaults or violations of applicable laws, except for notices relating to
possible conflicts, defaults or violations, which conflicts, defaults or
violations would not have a Material Adverse Effect.
s. ENVIRONMENTAL MATTERS.
(i) Except as set forth in SCHEDULE 3(s), there are, to the
Company's knowledge, with respect to the Company or any of its Subsidiaries or
any predecessor of the Company, no past or present violations of Environmental
Laws (as defined below), releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental liability or any
liability under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 or similar federal, state, local or foreign laws and
neither the Company nor any of its Subsidiaries has received any notice with
respect to any of the foregoing, nor is any action pending or, to the Company's
knowledge, threatened in connection with any of the foregoing. The term
"ENVIRONMENTAL LAWS" means all federal, state, local or foreign laws relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), including, without limitation, laws relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants contaminants, or toxic
or hazardous substances or wastes (collectively, "HAZARDOUS MATERIALS") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes,
11
decrees, demands or demand letters, injunctions, judgments, licenses, notices or
notice letters, orders, permits, plans or regulations issued, entered,
promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or
disposed of in compliance with applicable law, no Hazardous Materials are
contained on or about any real property currently owned, leased or used by the
Company or any of its Subsidiaries, and no Hazardous Materials were released on
or about any real property previously owned, leased or used by the Company or
any of its Subsidiaries during the period the property was owned, leased or used
by the Company or any of its Subsidiaries, except in the normal course of the
Company's or any of its Subsidiaries' business.
(iii) To the Company's knowledge, there are no
underground storage tanks on or under any real property owned, leased or used by
the Company or any of its Subsidiaries that are not in compliance with
applicable law.
t. TITLE TO PROPERTY. The Company has good and marketable
title in fee simple to all real property, if any, and good and marketable title
to all personal property owned by them which is material to the business of the
Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in SCHEDULE 3(t) or such
as would not have a Material Adverse Effect. Any real property, personal
property and facilities held under lease by the Company and its Subsidiaries are
held by them under valid, subsisting and enforceable leases with such exceptions
as would not have a Material Adverse Effect.
u. INSURANCE. The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses
in which the Company is engaged. The Company has no reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a Material
Adverse Effect.
v. FOREIGN CORRUPT PRACTICES. To its knowledge, 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; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
4. COVENANTS.
a. BEST EFFORTS. The parties shall use their best efforts to
satisfy timely each of the conditions described in Section 6 and 7 of this
Agreement.
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b. FORM D; BLUE SKY LAWS. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Buyers at the
applicable closing pursuant to this Agreement under applicable securities or
"blue sky" laws of the states of the United States (or to obtain an exemption
from such qualification), and shall provide evidence of any such action so taken
to each Buyer on or prior to the Closing Date.
c. REPORTING STATUS; ELIGIBILITY TO USE FORM S-3. The
Company's Common Stock is registered under Section 12(g) of the 1934 Act. So
long as any Buyer beneficially owns any of the Securities, the Company shall
timely file all reports required to be filed with the SEC pursuant to the 1934
Act, and the Company shall not terminate its status as an issuer required to
file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would permit such termination. The Company currently
meets, and will take all necessary action to continue to meet, the "registrant
eligibility" requirements set forth in the general instructions to Form S-3.
d. USE OF PROCEEDS. The Company shall use the proceeds from
the sale of the Preferred Shares and the Warrants for working capital and
general corporate purposes.
e. RIGHT OF FIRST REFUSAL. Subject to the exceptions described
below, the Company will not conduct any equity financing (including debt with an
equity component) ("FUTURE OFFERINGS") during the period beginning on the
Closing Date and ending one year from the Closing Date, unless it shall have
first delivered to each Buyer, at least fifteen (15) business days prior to the
anticipated closing of such Future Offering, written notice describing the
proposed Future Offering, including the terms and conditions thereof and
definitive term sheet or letter of intent to be entered into in connection
therewith, and providing each Buyer an option during the ten (10) day period
following delivery of such notice to purchase its pro rata share (based on the
ratio that the number of Preferred Shares purchased by it hereunder bears to the
aggregate number of Preferred Shares purchased hereunder) of the securities
being offered in the Future Offering on the same terms as contemplated by such
Future Offering and provide notice of its intent to purchase any portion of any
other Buyer's pro rata share should any Buyer elect not to purchase its pro rata
share (the limitations referred to in this sentence are collectively referred to
as the "CAPITAL RAISING LIMITATIONS"). In the event that any Buyer elects not
to purchase its pro rata share of the securities being offered in the Future
Offering, the remaining Buyers shall have the option to purchase such Buyer's
pro rata share. In the event the terms and conditions of a proposed Future
Offering are amended in any material respect after delivery of the notice to the
Buyers concerning the proposed Future Offering, the Company shall deliver a new
notice to each Buyer describing the amended terms and conditions of the proposed
Future Offering and each Buyer thereafter shall have an option during the ten
(10) day period following delivery of such new notice to purchase its pro rata
share of the securities being offered on the same terms as contemplated by such
proposed Future Offering, as amended. The foregoing sentence shall apply to
successive amendments to the terms and conditions of any proposed Future
Offering. The Capital Raising Limitations shall not apply to any transaction
involving (i) issuances of securities in a firm commitment underwritten public
offering (excluding
13
a continuous offering pursuant to Rule 415 under the 0000 Xxx) or (ii) issuances
of securities as consideration for a merger, consolidation or purchase of
assets, or in connection with any strategic partnership or joint venture (the
primary purpose of which is not to raise equity capital), or in connection with
the disposition or acquisition of a business, product or license by the Company.
The Capital Raising Limitations also shall not apply to (i) the issuance of
securities upon exercise or conversion of the Company's options, warrants or
other convertible securities outstanding as of the date hereof or to the grant
of additional options or warrants, or the issuance of additional securities,
under any Company stock plan approved by a majority of the Company's
disinterested directors, (ii) the issuance of securities in connection with
equipment financing, (iii) the issuance of securities in connection with any
commercial bank financing or (iv) the issuance of securities in connection with
a real property lease.
f. EXPENSES. The Company shall reimburse Xxxx Xxxx Capital
Management, L.P. ("RGC") for all expenses incurred by the Buyers in connection
with the negotiation, preparation, execution, delivery and performance of this
Agreement and the other agreements to be executed in connection herewith,
including, without limitation, attorneys' and consultants' fees and expenses in
each case, against invoices therefor. The Company's aggregate obligation to
reimburse RGC for all expenses incurred by the Buyers under this Section 4(f)
and pursuant to the Registration Rights Agreement shall be limited to Thirty
Thousand Dollars ($30,000).
g. FINANCIAL INFORMATION. The Company agrees to send the
following reports to each Buyer until such Buyer transfers, assigns, converts,
exercises or sells all of the Preferred Shares and Warrants: (i) within ten (10)
days after the filing with the SEC, a copy of its Annual Report on Form 10-K,
its Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K; (ii)
within two (2) business days after release, copies of all press releases issued
by the Company or any of its Subsidiaries; and (iii) contemporaneously with the
making available or giving to the stockholders of the Company, copies of any
notices or other information the Company makes available or gives to such
stockholders.
h. RESERVATION OF SHARES. The Company shall at all times have
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion or exercise of the
outstanding Preferred Shares and Warrants and issuance of the Conversion Shares
and Warrant Shares in connection therewith (based on the Conversion Price of the
Preferred Shares or Exercise Price of the Warrants in effect from time to time).
The Company shall not reduce the number of shares of Common Stock reserved for
issuance upon conversion of Preferred Shares and exercise of the Warrants
without the consent of each Buyer, which consent shall not be unreasonably
withheld. The Company shall use its best efforts at all times to maintain the
number of shares of Common Stock so reserved for issuance at no less than two
(2) times the number that is then actually issuable upon full conversion of the
then outstanding Preferred Shares and exercise of the then outstanding Warrants
(based on the Conversion Price of the Preferred Shares or Exercise Price of the
Warrants in effect from time to time). If at any time the number of shares of
Common Stock authorized and reserved for issuance is below the number of
Conversion Shares and Warrant Shares issued and issuable upon conversion of the
Preferred
14
Shares and exercise of the Warrants (based on the Conversion Price of the
Preferred Shares or Exercise price of the Warrants then in effect), the Company
will promptly take all corporate action necessary to authorize and reserve a
sufficient number of shares, including, without limitation, calling a special
meeting of shareholders to authorize additional shares to meet the Company's
obligations under this Section 4(h), in the case of an insufficient number of
authorized shares, and using its best efforts to obtain shareholder approval of
an increase in such authorized number of shares.
i. LISTING. The Company shall promptly secure the listing of
the Conversion Shares and Warrant Shares upon each national securities exchange
or automated quotation system, if any, upon which shares of Common Stock are
then listed (subject to official notice of issuance) and shall maintain, so long
as any other shares of Common Stock shall be so listed, such listing of all
Conversion Shares and Warrant Shares from time to time issuable upon conversion
of the Preferred Shares or exercise of the Warrants. The Company will obtain
and maintain the listing and trading of its Common Stock on Nasdaq, the Nasdaq
SmallCap Market ("NASDAQ SMALLCAP"), the New York Stock Exchange ("NYSE"), or
the American Stock Exchange ("AMEX") and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the National Association of Securities Dealers ("NASD") and such exchanges, as
applicable. The Company shall promptly provide to each Buyer copies of any
notices it receives from Nasdaq and any other exchanges or quotation systems on
which the Common Stock is then listed regarding the continued eligibility of the
Common Stock for listing on such exchanges and quotation systems.
j. CORPORATE EXISTENCE. So long as a Buyer beneficially owns
any Preferred Shares or Warrants, the Company shall maintain its corporate
existence and shall not sell all or substantially all of the Company's assets,
unless the Company redeems the Preferred Shares immediately prior to the
consummation of any such transaction in accordance with Article IV.B of the
Certificate of Designation or except in the event of a merger or consolidation
or sale of all or substantially all of the Company's assets, where the surviving
or successor entity in such transaction (i) assumes the Company's obligations
hereunder and under the agreements and instruments entered into in connection
herewith and (ii) is a publicly traded corporation whose Common Stock is listed
for trading on Nasdaq, Nasdaq SmallCap, NYSE or AMEX.
k. NO INTEGRATION. The issuance of the Securities to the
Buyers will not be integrated with any other issuance of the Company's
securities (past, current or future) which requires stockholder approval under
the rules of Nasdaq. The Company will not conduct any future offering that will
be integrated with the issuance of the Securities solely for purposes of
Rule 4460(i) of the Nasdaq Stock Market.
l. SOLVENCY. The Company (both before and after giving effect
to the transactions contemplated by this Agreement) is solvent (I.E., its assets
have a fair market value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured) and
currently the Company has no information that would lead it to reasonably
conclude that the Company would not have, nor does it intend to take any action
that
15
would impair, its ability to pay its debts from time to time incurred in
connection therewith as such debts mature. The Company did not receive a
qualified opinion from its auditors with respect to its most recent fiscal year
end and does not anticipate or know of any basis upon which its auditors might
issue a qualified opinion in respect of its current fiscal year.
m. TRADING RESTRICTIONS. Each Buyer covenants and agrees that,
during any Pricing Period (as defined in the Certificate of Designation) during
which a Conversion Price (as defined in the Certificate of Designation) is
computed, if a Buyer (or others acting on its behalf) engages in short sale
transactions or other hedging activities which involve, among other things,
sales of shares of Common Stock, such Buyer will place its sale orders for
Common Stock in the course of such activities so as not to complete or effect
any such sale on any trading day during such period at a price which is lower
than the lowest sale effected on such day by persons other than the Buyers (or
others acting on their behalf). In order to insure compliance with the
provisions hereof, so long as the Buyer holds any Preferred Shares, upon request
of the Company, each Buyer shall deliver a compliance certificate, signed by an
executive officer thereof, certifying that the limitations set forth in this
Section 4(m) have not been breached.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue
irrevocable instructions to its transfer agent to issue certificates, registered
in the name of each Buyer or its nominee, for the Conversion Shares and Warrant
Shares in such amounts as specified from time to time by each Buyer to the
Company upon conversion of the Preferred Shares or exercise of the Warrants in
accordance with the terms thereof (the "IRREVOCABLE TRANSFER AGENT
INSTRUCTIONS"). Prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act, all such certificates shall bear the restrictive
legend specified in Section 2(g) of this Agreement. The Company warrants that
no instruction other than the Irrevocable Transfer Agent Instructions referred
to in this Section 5, and stop transfer instructions to give effect to Section
2(f) hereof (in the case of the Conversion Shares and Warrant Shares, prior to
registration of the Conversion Shares and Warrant Shares under the 1933 Act),
will be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration Rights Agreement.
Nothing in this Section shall affect in any way the Buyer's obligations and
agreement set forth in Section 2(g) hereof to comply with all applicable
prospectus delivery requirements, if any, upon resale of the Securities. If a
Buyer provides the Company with an opinion of counsel, reasonably satisfactory
to the Company in form, substance and scope, that registration of a resale by
such Buyer of any of the Securities is not required under the 1933 Act, the
Company shall permit the transfer, and, in the case of the Conversion Shares and
Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such Buyer.
The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Buyers, by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section, that the Buyers shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach and requiring immediae transfer, without the necessity of showing
economic loss and without any bond or other security being required.
16
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation
of the Company hereunder to issue and sell the Preferred Shares and Warrants to
the Buyers at each of the First Closing and Second Closing, as applicable, is
subject to the satisfaction, at or before the Closing Date in respect of such
closing, of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion:
a. With respect to the First Closing and Second Closing:
(i) Each Buyer shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to the Company.
(ii) Each Buyer shall have delivered the Purchase Price
in accordance with Section 1(b) above.
(iii) The Certificate of Designation shall have been
accepted for filing with the Secretary of State of the State of Delaware.
(iv) The representations and warranties of each Buyer
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and the applicable Buyer shall
have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the applicable Buyer at or prior to the Closing
Date.
(v) No litigation, statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by or in any court or governmental authority of
competent jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
b. With respect to the First Closing:
(i) The aggregate amount of the Purchase Prices received
by the Company from all Buyers shall be Eight Million Dollars ($8,000,000) and,
in the event that subscriptions for less than $8,000,000 are received by the
Company for the purchase of the Preferred Shares and Warrants to be received at
the First Closing, the Company will return to the Initial Investors who have
wired funds to the Company all of the funds received.
c. With respect to the Second Closing:
(i) During the period beginning ninety (90) days after
the Registration Statement (as defined in the Registration Rights Agreement) is
declared effective by
17
the SEC and ending three hundred sixty (360) days after the Registration
Statement is declared effective by the SEC, the closing price of the Common
Stock on the Nasdaq Stock Market or the principal securities exchange or
quotation system on which the Common Stock is traded is greater than $3.75 for
ten (10) consecutive Trading days (as defined in the Certificate of Designation)
during such period.
(ii) The number of shares of Common Stock issued or
issuable upon conversion or exercise of the Preferred Shares and Warrants issued
or to be issued at both the First Closing and the Second Closing shall not
exceed 4,912,082 unless the Company has received stockholder approval for such
issuance.
(iii) The aggregate amount of the Purchase Prices received
by the Company from all Buyers shall be Two Million Dollars ($2,000,000) and, in
the event that subscriptions for less than $2,000,000 are received by the
Company for the purchase of the Preferred Shares to be received at the Second
Closing, the Company will return to the Initial Investors who have wired funds
to the Company all of the funds received.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The
obligation of each Buyer hereunder to purchase the Preferred Shares and Warrants
at the Closing is subject to the satisfaction, at or before the Closing Date of
each of the following conditions, provided that these conditions are for such
Buyer's sole benefit and may be waived by such Buyer at any time in its sole
discretion:
a. With respect to the First Closing and the Second Closing:
(i) The Company shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to the Buyer.
(ii) The Company shall have delivered to such Buyer duly
executed certificates (in such denominations as the Buyer shall request)
representing the Preferred Shares and Warrants in accordance with Section 1(b)
above.
(iii) The Certificate of Designation shall have been
accepted for filing with the Secretary of Sate of the State of Delaware, and a
copy thereof certified by such Secretary of State shall have been delivered to
such Buyer.
(iv) The Irrevocable Transfer Agent Instructions, in form
and substance satisfactory to a majority-in-interest of the Buyers, shall have
been delivered to and acknowledged in writing by the Company's Transfer Agent.
(v) The representations and warranties of the Company
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at such time (except for representations
and warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the
18
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Closing Date. The
Buyer shall have received a certificate or certificates, executed by the chief
executive officer of the Company, dated as of the Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by such Buyer
including, but not limited to certificates with respect to the Company's
Certificate of Incorporation, By-laws and Board of Directors' resolutions
relating to the transactions contemplated hereby.
(vi) No litigation, statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by or in any court or governmental authority of
competent jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(vii) The Conversion Shares and the Warrant Shares shall
have been authorized for quotation on Nasdaq and trading in the Common Stock on
Nasdaq shall not have been suspended by the SEC or Nasdaq.
(viii) The Buyer shall have received an opinion of the
Company's counsel, dated as of the Closing Date, in form, scope and substance
reasonably satisfactory to the Buyer and in substantially the same form as
EXHIBIT "D" attached hereto.
(ix) The Buyer shall have received an officer's
certificate described in Section 3(c) above, dated as of the Closing Date.
b. With respect to the Second Closing:
(i) During the period beginning ninety (90) days after
the Registration Statement (as defined in the Registration Rights Agreement) is
declared effective by the SEC and ending three hundred sixty (360) days after
the Registration Statement is declared effective by the SEC, the closing price
of the Common Stock on the Nasdaq Stock Market or the principal securities
exchange or quotation system on which the Common Stock is traded is greater than
$3.75 for ten (10) consecutive Trading Days (as defined in the Certificate of
Designation) during such period.
(ii) The number of shares of Common Stock issued or
issuable upon conversion or exercise of the Preferred Shares and Warrants issued
or to be issued at both the First Closing and the Second Closing shall not
exceed 4,912,082 unless the Company has received stockholder approval for such
issuance.
(iii) The registration statement(s) filed by the Company
pursuant to Section 2(a) of the Registration Rights Agreement covering the
resale of the Registerable Securities (as defined in the Registration Rights
Agreement) underlying the Preferred Shares and Warrants issued or issuable at
the First Closing and the Second Closing and shall be effective and no stop
order shall have been issued in respect thereof.
19
(iv) Since the Closing Date in respect of the First
Closing, there has been no material adverse change and no material adverse
development in the assets, liabilities, business, properties, operations,
financial condition, results of operations or prospects of the cover) Company or
any of its Subsidiaries.
(v) At least ninety (90) days shall have elapsed since
the date the Registration Statement was declared effective by the SEC and no
more than three hundred sixty (360) days shall have elapsed since the date the
Registration Statement was declared effective by the SEC.
8. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Delaware without regard
to the principles of conflict of laws. The parties hereto hereby submit to the
exclusive jurisdiction of the United States Federal Courts located in Delaware
with respect to any dispute arising under this Agreement, the agreements entered
into in connection herewith or the transactions contemplated hereby or thereby.
b. COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement may
be executed in two or more counterparts, all of which shall be considered one
and the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party. This Agreement, once
executed by a party, may be delivered to the other party hereto by facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
c. HEADINGS. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
e. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.
f. NOTICES. Any notices required or permitted to be given
under the terms of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile
20
and shall be effective five days after being placed in the mail, if mailed by
certified or registered U.S. mail, or upon receipt, if delivered by any other
means, including personal delivery, or by courier (including a recognized
overnight delivery service) or by facsimile, in each case addressed to a party.
The addresses for such communications shall be:
If to the Company:
CoCensys, Inc.
000 Xxxxxxxxxx Xxxxx
Xxxxxx, XX 00000
Attention: Chief Executive Officer
Facsimile: (000) 000-0000
With copy to:
CoCensys, Inc.
000 Xxxxxxxxxx Xxxxx
Xxxxxx, XX 00000
Attention: General Counsel
Facsimile: (000) 000-0000
If to a Buyer: To the address set forth immediately below such
Buyer's name on the signature pages hereto.
Each party shall provide notice to the other party of any change in
address.
g. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its
rights hereunder to any person that purchases Securities in a private
transaction from a Buyer and assumes Buyer's obligation hereunder or to any of
its "affiliates," as that term is defined under the 1934 Act, without the
consent of the Company.
h. THIRD PARTY BENEFICIARIES. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. SURVIVAL. The representations and warranties of the Company
and the agreements and covenants set forth in Sections 3, 4, 5 and 8 shall
survive the closing hereunder notwithstanding any due diligence investigation
conducted by or on behalf of the Buyers.
j. PUBLICITY. The Company and each of the Buyers shall have
the right to review a reasonable period of time before issuance of any press
releases, SEC, Nasdaq or NASD filings, or any other public statements but only
with respect to, and expressly limited to those
21
portions of such releases relating to, the transactions contemplated hereby;
PROVIDED, HOWEVER, that the Company shall be entitled, without the prior
approval of each of the Buyers, to make any press release or SEC, Nasdaq or NASD
filings with respect to such transactions as is required by applicable law and
regulations (although each of the Buyers shall be consulted by the Company in
connection with any such press release prior to its release and shall be
provided with a copy thereof and be given an opportunity to comment thereon).
k. FURTHER ASSURANCES. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. ADDITIONAL WARRANTS. On November 8, 1998, so long as 65% of
the number of Preferred Shares a Buyer received on the Closing Date with respect
to the First Closing are outstanding, such Buyer shall receive its pro rata
portion (based on the ratio that the number of Preferred Shares purchased by it
hereunder bears to the aggregate number of Preferred Shares purchased hereunder)
of 100,000 Additional Warrants, in the form attached hereto as EXHIBIT "E." The
issuance of the Additional Warrants has been duly authorized by the Company and
a number of shares sufficient to satisfy the exercise thereof has been duly
reserved.
m. NO STRICT CONSTRUCTION. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused
this Agreement to be duly executed as of the date first above written.
COCENSYS, INC.
By: /s/
-----------------------------------
F. Xxxxxxx Xxxxxx, Ph.D.
President and Chief Executive Officer
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
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RGC INTERNATIONAL INVESTORS, LDC
By: Xxxx Xxxx Capital Management, L.P., Investment Manager
By: RGC General Partner Corp., as General Partner
By: /s/
-----------------------------------
Xxxxx X. Xxxxx
Managing Director
RESIDENCE: Cayman Islands
ADDRESS:
c/o Xxxx Xxxx Capital Management, L.P.
0 Xxxx Xxxxx Xxxx, Xxxxx 000
000 Xx. Xxxxxx Xxxx
Xxxx Xxxxxx, XX 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
FIRST CLOSING
Number of Shares of Preferred Stock: 5,000
Number of Initial Warrants: 218,750
Number of Additional Warrants: 62,500
Aggregate Purchase Price: $5,000,000
SECOND CLOSING
Number of Shares of Preferred Stock: 1,250
Aggregate Purchase Price: $1,250,000
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
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THEMIS PARTNERS L.P.
By: Promethean Investment Group L.L.C.
Its: General Partner
By: /s/
-----------------------------------
E. Xxxx Xxx
Duly Authorized Signatory
RESIDENCE: Delaware
ADDRESS:
c/o Promethean Investment Group, L.L.C.
00 Xxxx 00xx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Attention: Xxxxx X. X'Xxxxx, Xx.
E. Xxxx Xxx
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
FIRST CLOSING
Number of Shares of Preferred Stock: 1,200
Number of Initial Warrants: 52,500
Number of Additional Warrants: 15,000
Aggregate Purchase Price: $1,200,000
SECOND CLOSING
Number of Shares of Preferred Stock: 300
Aggregate Purchase Price: $300,000
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
25
HERACLES FUND
By: Promethean Investment Group L.L.C.
Its: Investment Advisor
By: /s/
-----------------------------------
E. Xxxx Xxx
Duly Authorized Signatory
RESIDENCE: CAYMAN ISLANDS
ADDRESS:
c/o Promethean Investment Group, L.L.C.
00 Xxxx 00xx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Attention: Xxxxx X. X'Xxxxx, Xx.
E. Xxxx Xxx
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
FIRST CLOSING
Number of Shares of Preferred Stock: 1,800
Number of Initial Warrants: 78,750
Number of Additional Warrants: 22,500
Aggregate Purchase Price: $1,800,000
SECOND CLOSING
Number of Shares of Preferred Stock: 450
Aggregate Purchase Price: $450,000
26