EXHIBIT 10.1
NOTE AND WARRANT PURCHASE AGREEMENT
PURCHASE AGREEMENT (this "Agreement") dated as of January 28, 1997, by
and among GENTA INCORPORATED., a Delaware corporation (the "Company"), THE ARIES
FUND, A CAYMAN ISLAND TRUST (the "Trust"), and THE ARIES DOMESTIC FUND, L.P., a
Delaware limited partnership (the "Partnership") (collectively with the Trust,
the "Purchasers").
The Company desires to issue and sell to Purchasers, and Purchasers
desire to purchase from the Company, $3,000,000 aggregate face amount of Senior
Secured Bridge Notes (the "Bridge Notes") in the form attached hereto as Exhibit
A, 7,800,000 Class A Bridge Warrants (the "Class A Warrants") to purchase one
share of the Common Stock, par value $.001 per share, of the Company (the
"Common Stock") in the form attached as Exhibit B hereto, and 12,200,000 Class B
Bridge Warrants to purchase one share of the Common Stock of the Company (the
"Class B Warrants", and collectively with the Class A Warrants, the "Warrants")
in the form attached hereto as Exhibit C, upon and subject to the terms and
conditions hereinafter set forth. Accordingly, in consideration of the premises
and the mutual agreements contained herein, Purchasers and the Company hereby
agree as follows:
1. Purchase of Company Securities.
1.1. Purchase and Sale of the Notes and the Warrants. Subject to the
terms and conditions set forth herein, the Company hereby agrees to issue and
sell to Purchasers, and Purchasers, severally and not jointly, hereby agree to
purchase from the Company, the Bridge Notes and the Warrants (allocated amongst
the Purchasers as set forth on Exhibit D hereof), at the Closing (as such term
is defined in Section 2.1 hereof). The aggregate purchase price for the Bridge
Notes and the Warrants sold pursuant to this Agreement (including any additional
shares of Common Stock issuable pursuant to Section 8.6) shall be $3,000,000
(the "Purchase Price") (allocated amongst the Purchasers as set forth on Exhibit
D hereof). "Operative Documents" as used herein shall mean this Agreement, the
Bridge Notes, the Warrants, the Security Agreement and the Certificate of
Designations for the Series D Preferred Stock.
2. Closing.
2.1. Closing. The closing of the purchase and sale of the Bridge Notes
and the Warrants will take place at the offices of Paramount Capital, Inc. at
000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx, 00000. Such closing (the "Closing") will
take place at 10:00 A.M., local time, on January 30, 1997; provided that the
Closing may take place at such other time, place or later date as may be
mutually agreed upon by the Company and Purchasers. The date of the Closing is
referred to herein as the "Closing Date." At the Closing, the Company will
deliver to Purchasers the Bridge Notes and the Warrants purchased as set forth
in Section 1 hereof, against payment of the Purchase Price by Purchasers, by
wire transfer payable to the Company. The Bridge Notes and the Warrants shall be
registered in Purchasers' name or the name of the nominee(s) of Purchasers in
such denominations as Purchasers shall request pursuant to instructions
delivered to the Company not less than two days prior to the Closing Date.
3. Conditions to the Obligations of Purchasers at the Closing. The
obligation of Purchasers to purchase and pay for the Bridge Notes and the
Warrants to be purchased by Purchasers at the Closing is subject to the
satisfaction on or prior to the Closing Date of the following conditions, which
may only be waived by written consent of Purchasers:
3.1. Opinion of Counsel to the Company. Purchasers shall have received
from Pillsbury Madison & Sutro LLP, counsel for the Company, its opinion dated
the Closing Date in the form of Exhibit D hereto.
3.2. Representations and Warranties. All of the representations and
warranties of the Company contained in this Agreement shall be true and correct
at and as of the Closing Date, except to the extent of changes caused by the
transactions contemplated hereby.
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3.3. Performance of Covenants. All of the covenants and agreements of
the Company contained in this Agreement and required to be performed on or prior
to the Closing Date shall have been performed in a manner satisfactory in all
respects to Purchasers.
3.4. Legal Action. No injunction, order, investigation, claim, action
or proceeding before any court or governmental body shall be pending or
threatened wherein an unfavorable judgment, decree or order would restrain,
impair or prevent the carrying out of this Agreement or any of the transactions
contemplated hereby, declare unlawful the transactions contemplated by this
Agreement or cause any such transaction to be rescinded.
3.5. Consents. The Company shall have obtained in writing or made all
consents, waivers, approvals, orders, permits, licenses and authorizations of,
and registrations, declarations, notices to and filings and applications with,
any governmental authority or any other person or entity (including, without
limitation, securityholders and creditors of the Company) required to be
obtained or made in order to enable the Company to observe and comply with all
its obligations under this Agreement and to consummate the transactions
contemplated hereby.
3.6. Closing Documents. The Company shall have delivered to Purchasers
the following:
(a) a certificate executed by the President or Chief Executive Officer
of the Company dated the Closing Date stating that the conditions set forth in
Sections 3.2 through 3.5 have been satisfied;
(b) an incumbency certificate dated the Closing Date for the officers
of the Company executing this Agreement, the Bridge Notes and the Warrants and
any other documents or instruments delivered in connection with this Agreement
at the Closing;
(c) a certificate of the Secretary or Assistant Secretary of the
Company, dated the Closing Date, as to the continued and valid existence of the
Company, certifying the attached copy of the By-laws of the Company, the
authorization of the execution, delivery and performance of this Agreement, and
the resolutions adopted by the Board of Directors of the Company authorizing the
actions to be taken by the Company under this Agreement;
(d) a certificate of the Secretary of State of the State of Delaware,
dated a recent date, to the effect that the Company is in good standing in the
State of Delaware and that all annual reports, if any, have been filed as
required and that all taxes and fees have been paid in connection therewith;
(e) a certified copy of the Certificate of Incorporation of the Company
as filed with the Secretary of State of the State of Delaware and any amendments
thereto; and
(f) such certificates, other documents and instruments as Purchasers
and their counsel may reasonably request in connection with, and to effect, the
transactions contemplated by this Agreement.
3.7. Proceedings. All corporate and other proceedings taken or to be
taken in connection with the transactions contemplated hereby to be consummated
at the Closing and all documents incident thereto shall be satisfactory in form
and substance to Purchasers.
3.8. Due Diligence. Prior to the Closing Date, Purchasers and their
counsel shall have completed their due diligence and business review of the
Company, its business, assets, liabilities, corporate and legal status and
intellectual property, including patents, licenses and technical processes, all
of which shall be satisfactory in form and substance to each Purchaser and their
counsel in each Purchaser's sole discretion.
3.9. Closing Financial Statements; Absence of Changes. (a) The Company
shall have provided to Purchasers (i) the unaudited balance sheet of the Company
as of September 30, 1996, and the related unaudited statement of operations for
the three-month (and nine-month) periods then ended, as well as the related
unaudited statements of stockholders' equity (deficit) and cash flows for the
nine-month period then ended, accompanied by the unqualified certification
thereon of the Chief Financial Officer or Vice President--Finance of the Company
(together with any notes thereto, the "September 30
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Financial Statements") and (ii) a "bring-down" certificate of the Chief
Executive Officer of the Company and the Chief Financial Officer or Vice
President--Finance of the Company with respect to the financial position of the
Company as of the Closing Date and as to results for the period from the date of
the September 30 Financial Statements to the Closing Date, in form and substance
satisfactory to Purchaser and its counsel.
(b) Except as set forth on the schedules hereto of the Company
delivered to Purchaser as of the date hereof, there shall have been no material
adverse change in the financial condition, operating results, employee or
customer relations or prospects of, or otherwise with respect to, the Company
from the date of the September 30 Financial Statements to the Closing Date.
3.10. Security Agreement. The Company shall have entered into a
security agreement (the "Security Agreement") with Paramount Capital, Inc., as
collateral agent, reasonably acceptable to the Partnership and the Trust
pursuant to which the Company shall grant the holders of the Bridge Notes a
first lien security interest in all of the assets of the Company which the
Company is not otherwise restricted from granting such a security interest and
the Company shall have taken all steps necessary to perfect such security
interest.
3.11. Schedules. The Company shall have provided to the Purchasers all
schedules required pursuant to this Agreement, which schedules shall be
satisfactory to Purchasers in their sole discretion.
4. Conditions to the Obligations of the Company at the Closing. The
obligation of the Company to issue and sell the Notes and the Warrants to
Purchasers at the Closing is subject to the satisfaction on or prior to the
Closing Date of the following conditions, any of which may be waived by the
Company:
4.1. Representations and Warranties. The representations and warranties
of Purchasers contained in this Agreement shall be true and correct at and as of
the Closing Date.
4.2. Legal Action. No injunction, order, investigation, claim, action
or proceeding before any court or governmental body shall be pending or
threatened wherein an unfavorable judgment, decree or order would restrain,
impair or prevent the carrying out of this Agreement or any of the transactions
contemplated hereby, declare unlawful the transactions contemplated by this
Agreement or cause any such transaction to be rescinded.
5. Representations and Warranties of the Company. The Company hereby
represents and warrants to Purchasers as follows:
5.1. Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. The
Company has all requisite corporate power and authority, and holds all licenses,
permits and other required authorizations from governmental authorities,
necessary to conduct its business as it is now being conducted or proposed to be
conducted and to own or lease the properties and assets it now owns or holds
under lease (except that the Company may in the future be required to obtain
certain approvals of the U.S. Food and Drug Administration in connection with
its business as proposed to be conducted). The Company is duly qualified or
licensed and in good standing as a foreign corporation in each jurisdiction
wherein the character of its properties or the nature of the activities
conducted by it makes such qualification or licensing necessary.
5.2. Charter Documents. The Company has heretofore delivered to
Purchasers true, correct and complete copies of the Company's Certificate of
Incorporation and By-Laws as in full force and effect on the date hereof.
5.3. Capitalization. As of the date hereof, the Company's authorized
capitalization consists of: 150,000,000 shares of Common Stock, of which
39,991,626 shares are presently issued and outstanding; 5,000,000 shares of
preferred stock, par value $.001 per share, of which 600,000 shares are
designated as Series A Convertible Preferred Stock (528,100 of which are issued
and outstanding), 3,000 of which are designated as Series B Convertible
Preferred Stock (none of which are issued and outstanding) and 7100 of which are
designated as Series C Convertible Preferred Stock (1424 of which are issued and
outstanding) and 20,000 of which are designated as Series F Convertible
Preferred Stock (none of which are issued and outstanding); and 18,423,610
shares of Common Stock are
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reserved for issuance upon the conversion or exercise of presently outstanding
convertible securities, options, warrants or other rights to purchase Common
Stock. All outstanding securities of the Company are validly issued, fully paid
and nonassessable. No stockholder of the Company is entitled to any preemptive
rights with respect to the purchase or sale of any securities by the Company.
Except as has been set forth in Schedule 5.3 hereto, there are no outstanding
options, warrants or other rights, commitments or arrangements, written or oral,
to purchase or otherwise acquire any authorized but unissued shares of capital
stock of the Company or any security directly or indirectly convertible into or
exchangeable for any capital stock of the Company or under which any such
option, warrant or convertible security may be issued in the future, and there
are no voting trusts or agreements, stockholders' agreements, pledge agreements,
buy-sell, rights of first offer, negotiation or refusal or proxies or similar
arrangements relating to any securities of the Company to which the Company is a
party, and to the best knowledge of the Company after due investigation there
are no such trusts, agreement, rights, proxies or similar arrangements as to
which the Company is not a party. Except as set forth on Schedule 5.3 and as
contemplated herein, none of the shares of capital stock of the Company is
reserved for any purpose, and the Company is neither subject to any obligation
(contingent or otherwise), nor has any option to repurchase or otherwise acquire
or retire any shares of its capital stock. Schedule 5.3 sets forth (i) the
number of shares of Common Stock authorized for issuance under the Company's
1991 Stock Option Plan, as amended and restated, and the Company's Non- Employee
Director Stock Option Plan; (ii) the number of shares of Common Stock as to
which options under such plan have been (a) reserved for issuance and (b)
exercised; and (iii) the exercise prices for all outstanding options under such
plan. Except as set forth on Schedule 5.3, no antidilution adjustments with
respect to the outstanding securities of the Company will be triggered by the
issuance of the securities contemplated hereby.
5.4 Due Authorization, Valid Issuance, Etc.. The Notes have been duly
authorized and, when issued in accordance with this Agreement upon the Closing
Date, will be free and clear of all liens imposed by or through the Company. The
Warrants have been duly authorized and, when issued in accordance with this
Agreement upon the Closing Date, will be validly issued and free and clear of
all liens imposed by or through the Company. The Common Stock issuable upon the
exercise of the Warrants have been duly authorized and reserved, and upon the
exercise of the Warrants in accordance with the terms and conditions thereof and
this Agreement, will be validly issued, fully paid and nonassessable shares of
Common Stock and will be free and clear of all liens imposed by or through the
Company. The issuance, sale and clear delivery of the Notes, the Warrants and
the Common Stock issuable upon the exercise of the Warrants will not be subject
to any preemptive right of stockholders of the Company or to any right of first
refusal or other right in favor of any person.
5.5. Subsidiaries. The Company has no wholly or partially owned
Subsidiaries (as defined in Section 9.10) and does not control, directly or
indirectly, any other corporation, business trust, firm, partnership,
association, joint venture, entity or organization. The Company does not own any
shares of stock, partnership interest, joint venture interest or any other
security, equity or interest in any other corporation or other organization or
entity.
5.6. Authorization; No Breach. The Company has the full corporate power
and authority to execute, deliver and enter into this Agreement and to perform
its obligations hereunder, and the execution, delivery and performance of this
Agreement, the Notes, the Warrants, the Security Agreement and any related
financing statement and the Certificate of Designations and all other
transactions contemplated hereby have been duly authorized by the Company, and
this Agreement constitutes a legal, valid and binding obligation of the Company,
enforceable in accordance with its terms except as the enforceability hereof may
be limited by (a) bankruptcy, insolvency, moratorium and similar laws affecting
creditors' rights generally and (b) the availability of remedies under general
equitable principles and (c) to the extent the indemnification provisions
contained in section 8.5 hereof may be limited by applicable federal or state
securities laws. Except as set forth on Schedule 5.6 hereto, the execution and
delivery by the Company of this Agreement, the offering, sale and issuance of
the Notes and the Warrants pursuant to this Agreement, and the performance and
fulfillment of the Company of its obligations under this Agreement, the Notes
and the Warrants, do not and will not (i) conflict with or result in a breach of
the terms, conditions or provisions of, (ii) constitute a default under, or
event which, with notice or lapse of time or both, would constitute a breach of
or default under, (iii) result in the creation of any lien, security
interest, adverse claim, charge or encumbrance upon the capital stock or assets
of the Company pursuant to, (iv) give any
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third party the right to accelerate any obligation under or terminate, (v)
result in a violation of, (vi) result in the loss of any license, certificate,
legal privilege or legal right enjoyed or possessed by the Company under, or
(vii) require any authorization, consent, approval, exemption or other action by
or notice to any court or administrative or governmental body pursuant to or
require the consent of any other person under, the Certificate of Incorporation
or By-Laws of the Company or any law, statute, rule or regulation to which the
Company is subject or by which any of its properties are bound, or any
agreement, instrument, order, judgment or decree to which the Company is subject
or by which its properties are bound.
5.7. Financial Statements and SEC Documents. (a) Attached hereto as
Schedule 5.7 are (i) the audited financial statements of the Company for the
fiscal year ended December 31, 1995, including the balance sheet as at the end
of such fiscal year and the related statements of operations, stockholders'
equity (deficit) and cash flows for such fiscal year, certified by Ernst & Young
L.L.P. and (ii) the September 30 Financial Statements (the financial statements
referred to in clauses (i) and (ii) are referred to herein collectively as the
"Financial Statements"). For purposes of this Agreement, September 30. 1996,
shall be hereinafter referred to as the "Balance Sheet Date." The Financial
Statements have been prepared in accordance with the books and records of the
Company and generally accepted accounting principles, applied consistently with
the past practices of the Company (except as otherwise noted in such Financial
Statements), reflect all liabilities and obligations of the Company, as of their
respective dates, and present fairly the financial position of the Company and
the results of its operations as of the time and for the periods indicated
therein.
(b) The Company has made available to Purchasers a true and complete copy of
each report, schedule, registration statement and definitive proxy statement
filed by the Company with the Securities and Exchange Commission since January
1, 1993 (as such documents have since the time of their filing been amended, the
"SEC Documents") which are all the documents (other than preliminary material)
that the Company was required to file with the Securities and Exchange
Commission since such date. As of their respective dates, the SEC Documents
complied in all respects with the requirements of the Securities Act (as defined
in Section 9.7) and/or the Exchange Act (as defined in Section 9.8) as the case
may be, and the rules and regulations of the Securities and Exchange Commission
thereunder applicable to such SEC Documents and none of the SEC Documents
contained any untrue statement of a material fact or omitted to statement of
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the Securities and
Exchange Commission with respect thereto, have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited statements, as permitted by Form 10-Q of the Securities
and Exchange Commission) and fairly present (subject, in the case of the
unaudited statements, to normal, recurring audit adjustments) the financial
position of the Company as at the dates thereof and the consolidated results of
their operations and cash flows for the periods then ended.
5.8. No Material Adverse Changes. Except as set forth on Schedule 5.8
hereto, since the Balance Sheet Date there has not at any time been (a) any
material adverse change in the financial condition, operating results, business
prospects, employee relations or customer relations of the Company, or (b) other
adverse changes, which in the aggregate have been materially adverse to the
Company.
5.9. Absence of Certain Developments. Except as contemplated by this
Agreement, and except as set forth in Schedule 5.9 hereto, since the Balance
Sheet Date, the Company has not, nor will have prior to the Closing: (a) issued
any securities; (b) borrowed any amount or incurred or became subject to any
liabilities (absolute or contingent), other than liabilities incurred in the
ordinary course of business and liabilities under contracts entered into in the
ordinary course of business, none of which are or shall be material and which
are less than $75,000; (c) discharged or satisfied any lien, adverse claim or
encumbrance or paid any obligation or liability (absolute or contingent), other
than current liabilities paid in the ordinary course of business; (d) declared
or made any payment or distribution of cash or other property to the
stockholders of the Company with respect to the Common Stock or purchased or
redeemed any shares of Common Stock; (e) mortgaged, pledged or subjected to any
lien, adverse claim, charge or any other encumbrance, any of its properties or
assets, except for liens for taxes not yet
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due and payable; (f) sold, assigned or transferred any of its assets, tangible
or intangible, except in the ordinary course of business and in an amount less
than $75,000, or disclosed to any person, firm or entity not party to a
confidentiality agreement with the Company any proprietary confidential
information; (g) suffered any extraordinary losses or waived any rights of
material value; (h) made any capital expenditures or commitments therefor; (i)
entered into any other transaction other than in the ordinary course of business
in an amount less than $75,000 or entered into any material transaction, whether
or not in the ordinary course of business; (j) made any charitable contributions
or pledges; (k) suffered damages, destruction or casualty loss, whether or not
covered by insurance, affecting any of the properties or assets of the Company
or any other properties or assets of the Company which could have a material
adverse effect on the business or operations of the Company; (l) made any change
in the nature or operations of the business of the Company; or (m) resolved or
entered into any agreement or understanding with respect to any of the
foregoing.
5.10. Properties. The Company has good and marketable title to all of
the real property and good title to all of the personal property and assets it
purports to own, including those reflected as owned on the Company Balance Sheet
or acquired thereafter, and a good and valid leasehold interest in all property
indicated as leased on the Company Balance Sheet, whether such property is real
or personal, free and clear of all liens, adverse claims, charges, encumbrances
or restrictions of any nature whatsoever, except (a) such as are reflected on
the Company Balance Sheet or described in Schedule 5.10 hereto and (b) for
receivables and charges collected in the ordinary course of business. Except as
disclosed in Schedule 5.10 hereto, the Company owns or leases all such
properties as are necessary to its operations as now conducted and as presently
proposed to be conducted and all such properties are, in all material respects,
in good operating condition and repair.
5.11. Taxes. Except as referred to in Schedule 5.11 hereto, the Company
has timely filed all federal, state, local and foreign tax returns and reports
required to be filed, and all taxes, fees, assessments and governmental charges
of any nature shown by such returns and reports to be due and payable have been
timely paid except for those amounts being contested in good faith and for which
appropriate amounts have been reserved in accordance with generally accepted
accounting principles and are reflected on the Company Balance Sheet. There is
no tax deficiency which has been, or, to the knowledge of the Company might be,
asserted against the Company which would adversely affect the business or
operations, or proposed business or operations, of the Company. All such tax
returns and reports were prepared in accordance with the relevant rules and
regulations of each taxing authority having jurisdiction over the Company and
are true and correct. The Company has neither given nor been requested to give
any waiver of any statute of limitations relating to the payment of federal,
state, local or foreign taxes. The Company has not been, nor is it now being,
audited by any federal, state, local or foreign tax authorities. The Company has
made all required deposits for taxes applicable to the current tax year. The
Company is not, and has never been, a member of any "affiliated group" within
the meaning of Section 1504 of the Internal Revenue Code, as in effect from time
to time.
5.12. Litigation. Except as set forth on Schedule 5.12 hereto, there
are no actions, suits, proceedings, orders, investigations or claims pending or,
to the Company's knowledge, threatened against or affecting the Company, at law
or in equity or before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality; there are no
arbitration proceedings pending under collective bargaining agreements or
otherwise; and, to the knowledge of the Company, there is no basis for any of
the foregoing.
5.13. Compliance with Law. The Company has complied in all respects
with all applicable statutes and regulations of the United States and of all
states, municipalities and applicable agencies and foreign jurisdictions or
bodies in respect of the conduct of its business and operations, and the
failure, if any, by the Company to have fully complied with any such statute or
regulation does not and will not materially adversely affect the business or
operations of the Company.
5.14. Trademarks and Patents. Schedule 5.14 annexed hereto contains a
true, complete and correct list of all trademarks, trade names, patents and
copyrights (and applications therefor) if any, heretofore or presently owned or
licensed or used or required to be used by the Company in connection with its
business; and, except as set forth on Schedule 5.14, each such trademark, trade
name, patent and copyright (and
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application therefor) listed in Schedule 5.14 as being owned by the Company is
not subject to any license, royalty arrangement, option or dispute and is free
and clear of all liens. To the best knowledge of the Company, none of the
trademarks, trade names, patents or copyrights used by the Company in connection
with its business infringe any trademark, trade name, patent or copyright of
others in the United States or in any other country, in any way which adversely
affects or which in the future may adversely affect the business or operations
of the Company. Except as set forth in Schedule 5.14, no stockholder, officer or
director of the Company or any other person owns or has any interest in any
trademark, trade name, service xxxx, patent, copyright or application therefor,
or trade secret, licenses, invention, information or proprietary right or
process, if any, used by the Company in connection with its business. The
Company has no notice or knowledge of any objection or claim being asserted by
any person with respect to the ownership, validity enforceability or use of any
such trademarks, trade names, patents and copyrights (and applications therefor)
listed on Schedule 5.14 or challenging or questioning the validity or
effectiveness of any license relating thereto. There are no unresolved conflicts
with, or pending claims of, any other person, whether in litigation or
otherwise, involving the trademarks, trade names, patents and copyrights (and
applications therefor), and there are no liens, encumbrances, adverse claims, or
rights of any other person which would prevent the Company form fulfilling its
obligations under this Agreement. To the best knowledge of the Company, the
business of the Company, as presently conducted and as proposed to be conducted
does not and will not cause the Company to violate any trademark, trade name,
patent, copyright, trade secret, license or proprietary interest of any other
person or entity, in any way which adversely affects or which in the future may
adversely affect the business or operations of the Company. Except as disclosed
in Schedule 5.14 hereto, the Company possesses all proprietary technology
necessary for the conduct of business by the Company, both as presently
conducted and as presently proposed to be conducted.
5.15. Insurance. Schedule 5.15 annexed hereto contains a brief
description of each insurance policy maintained by the Company with respect to
its properties, assets and business; each such policy is in full force and
effect; and the Company is not in default with respect to its obligations under
any of such insurance policies. The insurance coverage of the Company is in
amounts not less than is customarily maintained by corporations engaged in the
same or similar business and similarly situated, including, without limitation,
insurance against loss, damage, fire, theft, public liability and other risks.
The activities and operations of the Company have been conducted in a manner so
as to conform to all applicable provisions of these insurance policies and the
Company has not taken or failed to take any action which would cause any such
insurance policy to lapse.
5.16. Agreements. Except as set forth in Schedule 5.16 hereto, the
Company is neither a party to nor bound by any agreement or commitment, written
or oral, which obligates the Company to make payments to any person, or which
obligates any person to make payments to the Company, in the case of each such
agreement in an amount exceeding $75,000, or which is otherwise material to the
conduct and operation of the Company's business or proposed business or any of
its properties or assets, including, without limitation, all shareholder,
employment, non-competition and consulting agreements and employee benefit plans
and arrangements and collective bargaining agreements to which the Company is a
party or by which it is bound. All such agreements are legal, valid and binding
obligations of the Company, in full force and effect, and enforceable in
accordance with their respective terms, except as the enforceability thereof may
be limited by (a) bankruptcy, insolvency, moratorium, and similar laws affecting
creditors' rights generally and (b) the availability of remedies under general
equitable principles. The Company has performed all obligations required to be
performed by it, and is not in default, or in receipt of any claim, under any
such agreement or commitment, and the Company has no present expectation or
intention of not fully performing all of such obligations, nor does the Company
have any knowledge of any breach or anticipated breach by the other parties to
any such agreement or commitment. The Company is not a party to any contract,
agreement, instrument or understanding which materially adversely affects the
business, properties, operations, assets or condition (financial or otherwise)
of the Company. Purchasers have been furnished with, or the Company has made
available for the Purchaser's review, a true and correct copy of each written
agreement referred to in Schedule 5.16, together with all amendments, waivers or
other changes thereto.
5.17. Undisclosed Liabilities. Except as set forth on Schedule 5.17
hereto, the Company has no obligation or liability (whether accrued, absolute,
contingent, unliquidated, or otherwise, whether or not known to the Company,
whether due or to become
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due) arising out of transactions entered into at or prior to the Closing of this
Agreement, or any action or inaction at or prior to the Closing of this
Agreement, or any state of facts existing at or prior to the Closing of this
Agreement, except (a) liabilities reflected on the Company Balance Sheet; (b)
liabilities in an amount less than $75,000 incurred in the ordinary course of
business since the Balance Sheet Date (none of which is a liability for breach
of contract, breach of warranty, torts, infringements, claims or lawsuits); and
(c) liabilities or obligations disclosed in the schedules hereto.
5.18. Employees; Conflicting Agreements. (a) The Company shall cause
all members of management and all professional employees of and consultants and
advisors to the Company, including all employees and consultants and advisors
involved in its research and development, to be subject to agreements with
respect to (i) nondisclosure of confidential information, (ii) assignment of
patents, trademarks, copyrights and proprietary rights to the Company and (iii)
disclosure to the Company of inventions.
(b) Except as set forth on Schedule 5.18, to the best of the Company's
knowledge, no stockholder, director, officer or key employee of the Company is a
party to or bound by any agreement, contract or commitment, or subject to any
restrictions in connection with any previous or current employment of any such
person, which adversely affects, or which in the future may adversely affect,
the business or the proposed business of the Company or the rights of Purchasers
under this Agreement and in respect of its rights as a holder of the Notes and
the Warrants.
5.19. Disclosure. Neither this Agreement nor any of the schedules,
exhibits, written statements, documents or certificates prepared or supplied by
the Company with respect to the transactions contemplated hereby contain any
untrue statement of a material fact or omit a material fact necessary to make
the statements contained herein or therein not misleading in light of the
circumstances under which made. Except as disclosed in Schedule 5.19 hereto,
there exists no fact or circumstance which, to the knowledge of the Company upon
due inquiry, materially adversely affects, or which could reasonably be
anticipated to have a material adverse effect on, the existing or expected
financial condition, operating results, assets, customer relations, employee
relations or business prospects of the Company.
5.20. Compliance with the Securities Laws. Except as set forth on
Schedule 5.20 hereto, neither the Company nor anyone acting on its behalf has
directly or indirectly offered the Notes and the Warrants or any part thereof or
any similar security of the Company (or any other securities convertible or
exchangeable for the Notes and the Warrants or any similar security), for sale
to, or solicited any offer to buy the same from, anyone other than Purchasers.
Assuming the accuracy and truth of each of the Purchasers' representations set
forth in Section 6 of this Agreement, all securities of the Company heretofore
sold and issued by it were sold and issued, and the Notes and the Warrants were
offered and will be sold and issued, in compliance with all applicable federal
and state securities laws.
5.21. Brokers. Except as set forth on Schedule 5.21, no finder, broker,
agent, financial person or other intermediary has acted on behalf of the Company
in connection with the offering of the Notes and the Warrants or the
consummation of this Agreement or any of the transactions contemplated hereby.
5.22. Transactions with Affiliates. Except as set forth in Schedule
5.22, no director, officer, employee, consultant or agent of the Company, or
member of the family of any such person or any corporation, partnership, trust
or other entity in which any such person, or any member of the family of any
such person, has a substantial interest in or is an officer, director, trustee,
partner or holder of more than 5% of the outstanding capital stock thereof, is a
party to any transaction with the Company, including any contract, agreement or
other arrangement providing for the employment of, furnishing of services by or
requiring payments to any such person or firm.
5.23. Environmental Matters (a) The Company and all properties owned,
operated or leased by the Company have obtained and currently maintain all
environmental permits required for their business and operations and are in
compliance with all such environmental permits; (ii) there are no legal
proceedings pending nor, to the best knowledge of the Company, threatened to
modify or revoke any such environmental permits; and (iii) neither Company nor
any property owned, operated or leased by the Company has received any notice
from any source that there is lacking any environmental permit
-8-
required for the current use or operation of the business of the Company, or any
property owned, operated or leased by the Company.
(b) Except as set forth in Schedule 5.23 hereto, (i) all real property
owned, operated or leased by the Company, and, to the best knowledge of the
Company, all property adjacent to such properties, are free from contamination
by any hazardous material; and the Company is not subject to environmental costs
and liabilities with respect to hazardous materials, and no facts or
circumstances exist which could give rise to environmental costs and liabilities
with respect to hazardous materials.
(c) Except as set forth in Schedule 5.23 hereto, there is not now, nor
has there been in the past, on, in, or under any real property owned, leased, or
operated by the Company, or by any of its predecessors (i) any
asbestos-containing materials, (ii) any underground storage tanks, (iii)
above-ground storage tanks, (iv) impoundments, (v) poly- chlorinated biphenyls
or (vi) radioactive substances.
(d) The Company has provided or made available to Buyer drafts and
final versions of all environmental site assessments (including, but not limited
to Phase I and Phase II reports), risk management studies and internal
environmental audits that have been conducted by or on behalf of the Company
("Environmental Studies"), with respect to any real property that now or in the
past has been owned, operated or leased by the Company, or any of its
predecessors.
(e) Except as set forth in Schedule 5.23 hereto, the Company and all
properties owned, operated or leased by the Company are in compliance with
environmental law.
(f) Except as set forth in Schedule 5.23 hereto, neither the Company
nor any property owned, leased or operated by the Company has received or been
issued any written request for information, or has been notified that it is a
potentially responsible party under the environmental laws with respect to any
on-site or off-site for which environmental costs and liabilities are asserted.
6. Representations and Warranties of Purchasers. Purchasers hereby
severally represent and warrant to the Company as follows:
6.1. Investment Intent. Each of the Purchasers is an "accredited
investor" within the meaning of Regulation D under the Securities Act. Each of
the Purchasers has experience in making investments in development stage
biotechnology companies and is acquiring the Notes and the Warrants for its own
account and not with a present view to, or for sale in connection with, any
distribution thereof in violation of the registration requirements of the
Securities Act. Purchasers consent to the placing of a legend on the
certificates representing the Notes and the Warrants to the effect that the
shares of Common Stock issuable upon exercise or conversion, as the case may be,
of the Warrants, and the Purchase Option have not been registered under the
Securities Act and may not be transferred except in accordance with applicable
securities laws or an exception therefrom.
6.2. Authorization. Each of Purchasers has the power and authority to
execute and deliver this Agreement and to perform its obligations hereunder,
having obtained all required consents, if any, and this Agreement, when executed
and delivered, will constitute a legal valid and binding obligation of such
Purchaser.
6.3. Brokers. No finder, broker, agent, financial person or other
intermediary has acted on behalf of Purchasers in connection with the offering
of the Notes and the Warrants or the consummation of this Agreement or any of
the transactions contemplated hereby.
7. Covenants of the Company. Until such time as Purchasers and their
affiliates beneficially own less than one percent (1%) of the Common Stock after
giving effect to the conversion or exercise of all securities of the Company
beneficially owned by Purchasers and their affiliates, the Company covenants and
agrees with Purchasers as follows:
7.1. Books and Accounts. The Company will: (a) make and keep books,
records and accounts, which, in reasonable detail, accurately and fairly reflect
its transactions,
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including without limitation, dispositions of its assets; and (b) devise and
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management's general or specific authorization, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and in accordance with the Company's
past practices or any other criteria applicable to such statements, and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
7.2. Periodic Reports. (a) The Company will furnish to Purchasers as
soon as practicable, and in any event within 90 days after the end of each
fiscal year of the Company (commencing with the fiscal year ended December 31,
1996, an annual report of the Company, including a balance sheet as at the end
of such fiscal year and statement of operations, stockholders' equity (deficit)
and cash flows for such fiscal year, together with the related notes thereto,
setting forth in each case in comparative form corresponding figures for the
preceding fiscal year, all of which will be correct and complete and will
present fairly the financial position of the Company and the results of its
operations and changes in its financial position as of the time and for the
period then ended. Such financial statements shall be accompanied by an
unqualified report (other than qualifications contingent upon the Company's
ability to obtain additional financing), in form and substance reasonably
satisfactory to Purchasers, of independent public accountants reasonably
satisfactory to Purchasers to the effect that such financial statements have
been prepared in accordance with the books and records of the Company and
generally accepted accounting principles applied on a basis consistent with
prior years (except as otherwise specified in such report), and present fairly
the financial position of the Company and the results of its operations and
changes in their financial position as of the time and for the period then
ended. The Company will use its best efforts to conduct its business so that
such report of the independent public accountants will not contain any
qualifications as to the scope of the audit, the continuance of the Company, or
with respect to the Company's compliance with generally accepted accounting
principles consistently applied, except for changes in methods of accounting in
which such accountants concur.
(b) The Company will furnish to Purchasers, as soon as practicable and
in any event within 45 days after the end of each of the first three fiscal
quarters of the Company during each fiscal year, a quarterly report of the
Company consisting of an unaudited balance sheet as at the end of such quarter
and an unaudited statement of operations, stockholders' equity (deficit) and
cash flows for such quarter and the portion of the fiscal year then ended,
setting forth in each case in comparative form corresponding figures for the
preceding fiscal year. All such reports shall be certified by the Chief
Financial Officer or Vice President-- Finance of the Company to be correct and
complete, to present fairly the financial position of the Company and the
consolidated results of its operations and changes in its financial position as
of the time and for the period then ended and to have been prepared in
accordance with generally accepted accounting principles.
(c) The Company shall furnish to Purchasers, within 30 days after the
end of each calendar month, an unaudited balance sheet of the Company as of the
end of such month and the related unaudited statement of operations,
stockholders' equity (deficit) and cash flows for such month and for the fiscal
year to date, setting forth in each case comparative form the corresponding
figures for the budget for the current fiscal year, or such other financial
information as otherwise agreed to by the parties hereto. All such statements
shall be certified by the Chief Financial Officer or Vice President--Finance of
the Company to the effect that such statements fairly present the financial
condition of the Company as of the dates shown and the results of its operations
for the periods then ended and that such statements have been prepared in
conformity with generally accepted accounting principles consistently applied
except for normal, recurring, year-end audit adjustments and the absence of
footnotes.
(d) Commencing with the Company's fiscal year commencing January 1,
1997, the Company shall furnish to Purchasers, as soon as practicable and in any
event not less than 60 days prior to the end of each fiscal year of the Company,
(i) an annual operating budget for the Company, for the succeeding fiscal year,
containing projections of profit and loss, cash flow and ending balance sheets
for each month of such fiscal year and (ii)
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a business plan for the Company as specified in Section 7.19. The Company shall
furnish to Purchasers within five days after the date the Board of Directors has
approved the annual operating budget and business plan referred to above, which
shall be no later than 60 days after the beginning of each fiscal year, such
operating budget and business plan as approved by the Board of Directors.
Promptly upon preparation thereof, the Company shall furnish to Purchasers any
other operating budgets or business plans that the Company may prepare and any
revisions or modifications of such previously furnished budgets or business
plans.
(e) The annual statements and quarterly statements furnished pursuant
to Sections 7.02(a) and (b) shall include a narrative discussion prepared by the
Company describing the business operations of the Company during the period
covered by such statements. The monthly statements furnished pursuant to Section
7.02(c) shall be accompanied by a statement describing any material events,
transactions or deviations from the Company's Business Plan (as defined below)
contemplated by Section 7.19 and containing an explanation of the causes and
circumstances thereof.
7.3. Certificates of Compliance. The Company covenants that promptly
after the occurrence of any default hereunder or any default under or breach of
any material agreement, or any other material adverse event or circumstance
affecting the Company, it will deliver to Purchasers an Officers' Certificate
specifying in reasonable detail the nature and period of existence thereof, and
what actions the Company has taken and proposes to take with respect thereto.
7.4. Other Reports and Inspection. (a) The Company will furnish to
Purchasers (a) as soon as practicable after issuance, copies of any financial
statements or reports prepared by the Company for, or otherwise furnished to,
its stockholders or the Securities and Exchange Commission and (b) promptly,
such other documents, reports and financial data as Purchasers may reasonably
request. In addition the Company will, upon reasonable prior notice, make
available to Purchasers or its representatives or designees (a) all assets,
properties and business records of the Company for inspection and/or copying and
(b) the directors, officers and employees of the Company for interviews
concerning the business, affairs and finances of the Company.
7.5. [Intentionally Omitted.]
7.6. Insurance. The Company will at all times maintain valid policies
of worker's compensation and such other insurance with respect to its properties
and business of the kinds and in amounts not less than is customarily maintained
by corporations engaged in the same or similar business and similarly situated,
including, without limitation, insurance against fire, loss, damage, theft,
public liability and other risks. The activities and operations of the Company
shall be conducted in a manner to as to conform in all material respects to all
applicable provisions of such policies.
7.7. Use of Proceeds; Restriction on Payments. The Company shall use
the net proceeds from the sale of the Bridge Notes and Warrants to bridge its
working capital needs through such time as it can consummate an offering of its
securities. The Company covenants and agrees that it will not directly or
indirectly use any of the proceeds to (i) repay any indebtedness of the Company,
including but not limited to any indebtedness to officers, employees, directors
or principal stockholders of the Company, but excluding accounts payable
incurred in the ordinary course of business or (ii) redeem, repurchase or
otherwise acquire any equity security of the Company. Notwithstanding the
foregoing, the Company shall not make any payments to any parties which exceed
$10,000 without the prior written consent of the Partnership and the Trust.
7.8. Material Changes. The Company will promptly notify Purchasers of
any material adverse change in the business, properties, assets or condition,
financial or otherwise, of the Company, or any other material adverse event or
circumstance affecting the Company, and of any litigation or governmental
proceeding pending or, to the knowledge of the Company, threatened against the
Company or against any director or officer of the Company.
7.9. Transactions with Affiliates. Except for the transactions
contemplated by this Agreement, the Company shall not (a) engage in any
transaction with, (b) make any loans to, nor (c) enter into any contract,
agreement or other arrangement (i) providing for (x) the employment of, (y) the
furnishing of services by, or (z) the rental of real or personal property from,
or (ii) otherwise requiring payments to, any officer, director or
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key employee of the Company or any relative of such persons or any other
"affiliate" or "associate" of such persons (as such terms are defined in the
rules and regulations promulgated under the Securities Act), without the prior
written approval of the Partnership and the Trust.
7.10. Corporate Existence, Licenses and Permits; Maintenance of
Properties; New Businesses. The Company will at all times conduct its business
in the ordinary course and cause to be done all things necessary to maintain,
preserve and renew its existence and will preserve and keep in force and effect,
all licenses, permits and authorizations necessary to the conduct of its and
their respective businesses. The Company will also maintain and keep its
properties in good repair, working order and condition, and from time to time,
to make all needful and proper repairs, renewals and replacements, so that the
business carried on in connection therewith may be properly conducted at all
times.
7.11. Other Material Obligations. The Company will comply with, (a) all
material obligations which it is subject to, or becomes subject to, pursuant to
any contract or agreement, whether oral or written, as such obligations are
required to be observed or performed, unless and to the extent that the same are
being contested in good faith and by appropriate proceedings and the Company has
set aside on its books adequate reserves with respect thereto, and (b) all
applicable laws, rules, and regulations of all governmental authorities, the
violation of which could have a material adverse effect upon the business of the
Company.
7.12. Amendment to the Certificate of Incorporation and the By-Laws.
The Company will perform and be in compliance with and observe all of the
provisions set forth in its Certificate of Incorporation and By-Laws to the
extent that the performance of such obligations is legally permissible; provided
that the fact that performance is not legally permissible will not prevent such
nonperformance from constituting an event of default under this Agreement. The
Company will not amend its Certificate of Incorporation or By-Laws or any
Certificate of Designations for any other series of Preferred Stock of the
Company so as to adversely affect the rights of Purchasers under this Agreement,
the Certificate of Incorporation, the By-Laws, the Warrants, the Notes, the
Security Agreement or the Series D Preferred Stock Certificate of Designations.
7.13. Merger; Sale of Assets. The Company will not become a party to
any merger, consolidation or reorganization, or sell, lease, license, sublicense
or otherwise dispose of all or substantially all of its assets, without the
prior approval of Purchasers.
7.14. Acquisition. The Company will not acquire any interest in any
business from any person, firm or entity (whether by a purchase of assets,
purchase of stock, merger or otherwise) without the prior approval of
Purchasers, except the acquisition of 1% or less of any class of outstanding
securities of a company whose securities are listed on a national securities
exchange or which has not fewer than 1,000 stockholders and except as otherwise
specifically permitted pursuant to the provisions of this Agreement.
7.15. Dividends; Distributions; Repurchases of Common Stock; Treasury
Stock. The Company shall not declare or pay any dividends on, or make any other
distribution with respect to, its capital stock, whether now or hereafter
outstanding, or purchase, acquire, redeem or retire any shares of its capital
stock, without the consent of Purchasers, provided, however, the foregoing shall
not prohibit the Company from repurchasing any shares of its Common Stock from
any present or former officer, Director or employee of the Company, or complying
with the terms and provisions of the Series A Preferred Stock and Series C
Preferred Stock.
7.16. Consents and Waivers. (a) Except as set forth on Schedule 7.16,
the Company has obtained all consents and waivers needed to enable it to perform
all of its obligations under this Agreement and the transactions contemplated
hereby.
(b) Except as set forth on Schedule 7.16, the Company has obtained from
all holders of options, warrants and other securities of the Company having any
right of first refusal, offer, sale, negotiation or similar rights or
antidilution or other rights to have the terms (including, without limitation,
conversion or exercise prices or rates) of such instruments adjusted by virtue
of the purchase and sale of the Notes and the Warrants or the other transactions
contemplated by this Agreement, a written waiver in form and substance
satisfactory to Purchasers and their counsel.
-12-
7.17. Taxes and Liens. The Company will duly pay and discharge when
payable, all taxes, assessments and governmental charges imposed upon or against
the Company or its properties, or any part thereof or upon the income or profits
therefrom, in each case before the same become delinquent and before penalties
accrue thereon, as well as all claims for labor, materials or supplies which if
unpaid might by law become a lien upon any of its property, unless and to the
extent that the same are being contested in good faith and by appropriate
proceedings and the Company has set aside on its books adequate reserves with
respect thereto.
7.18. Restrictive Agreement. The Company covenants and agrees that
subsequent to the Closing, it will not be a party to any agreement or instrument
which by its terms would restrict the Company's performance of its obligations
pursuant to this Agreement, the Certificate of Incorporation, By-laws, the
Warrants or the Notes.
7.19. Business Plan. Commencing with the Company's fiscal year
commencing January 1, 1997, the Company's Chief Financial Officer or Vice
President-- Finance shall prepare or have prepared and submit to the Board of
Directors not less than 60 days prior to the beginning of each fiscal year of
the Company, an updated business plan (the "Business Plan") for such year which
shall set forth the Company's product development, marketing and servicing
plans, capital expenditures and expense budgets and shall encompass a statement
of long range strategy over a five-year period and short-range tactics over a
two-year period. The Business Plan shall specify quantitative and qualitative
goals for the Company and relate the attainment of those goals to the Company's
strategic objectives.
7.20. Director and Observer. (a) For a period of five years after the
Closing Date, the Partnership and the Trust shall be entitled to designate a
majority of the voting Directors of the Company provided, however, that in the
event that the Company has not obtained Future Financings (as defined below) in
excess of $3,500,000 on or before the date which is 6 months after the Bridge
Closing Date (as defined in Exhibit B), then the Partnership and the Trust shall
have the right to appoint only 2 Directors or observers and the remainder of the
Partnership and the Trust's designated Directors shall resign. In addition, if
the holders of the Series A Preferred Stock exercise their right to appoint up
to 2 additional Directors pursuant to Section 9(c) of the Restated Certificate
of Incorporation of the Company (the "Restated Certificate"), then the
Partnership and the Trust shall have the right to appoint up to 2 additional
Directors per Director appointed by the Series A Preferred Stock. "Future
Financings" shall mean the aggregate gross proceeds of any sales of equity
securities of the Company (including the Notes or any other securities
convertible into equity securities of the Company), and the aggregate gross
proceeds of any corporate partnering or corporate licensing transactions, but
shall exclude the sale of products in the ordinary course of business and
revenues resulting from any agreement in effect as of the Closing Date. Without
limiting the generality of the foregoing, such Future Financing includes: (a)
all payments made for equity securities, equity security rights or similar
rights, (b) technology acquisition or access fees or similar up-front payments,
(c) other future payments to be made to the Company, any of its affiliates or
its employees for the benefit of the Company, for which the payor is obligated
either absolutely or upon the attainment of milestones, (d) funding provided by
any investor (through reimbursement or otherwise) relative to research and
development, clinical trials and related expenditures, provided that such work
is performed or managed by the Company or any of its affiliates and (e) the
repayment or assumption by any party of obligations of the Company or any of its
affiliates, including indebtedness for money borrowed or amounts owed by the
Company or any of its affiliates to inventors or owners of technology. It is
further understood that Future Financings shall not be reduced by the amount of
any expenses, fees, discounts or commissions incurred during the undertaking of
such financing. If necessary, the Directors of the Company will elect each such
person to the Board of Directors of the Company by creating a new position on
the Board of Directors promptly following such person's nomination by Purchasers
and shall nominate such person for election in connection with any stockholder
vote for Directors, and the Company will use its best efforts to ensure that the
stockholders of the Company agree to vote all their securities in favor of such
person's election. The Company agrees to vote all voting securities for which
the Company holds proxies, granting it voting discretion, or is otherwise
entitled to vote, in favor of, and to use its best efforts in all respect to
cause, the election of each such individual proposed by the Partnership and the
Trust. In the event that a vacancy is created on the Board of Directors at any
time by the death, disability, resignation or removal (with or without cause) of
any such individual proposed and nominated by the Partnership and the Trust,
pursuant to this Agreement, the Company will, and will use its best efforts to
ensure that the stockholders of the Company, vote
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all its voting securities to elect each individual proposed by the Partnership
and the Trust and approved by the Company and nominated for election by the
Partnership and the Trusts to fill such vacancy and serve as a voting Director.
(b) In addition to the rights set forth in Section 7.20(a), from and
after the Closing Date, until such time as Purchasers or their affiliates shall
not beneficially own any securities of the Company, the Partnership and the
Trust shall be entitled to designate nonvoting observers who shall be entitled
to attend all meetings of the Board of Directors and any of its committees and
who shall be provided (i) reasonable prior notice of all meetings of the Board
of Directors and any of its committees, (ii) reasonable prior notice of any
action that the Board of Directors or any of its committees may take by written
consent, (iii) promptly delivered copies of all minutes and other records of
action by, and all written information furnished to, the Board of Directors or
any of its committees and (iv) any other information requested by such observer
which a member of the Board of Directors would be entitled to request to
discharge his or her duties. Such observers shall be entitled to the same rights
to reimbursement for the expense of attendance at meeting as any outside
Director.
(c) If the Partnership and the Trust give notice to the Company that
the Partnership and the Trust desire to remove a Director proposed by the
Partnership and the Trust pursuant to this Agreement, the Company shall, and
shall use its best effort to ensure that the stockholders of the Company shall,
vote all its voting securities in favor of removing such Director if a vote of
holders of such securities shall be required to remove the Director, and the
Company agrees to take any action necessary to facilitate such removal.
(d) Each Director nominated by the Partnership and the Trust shall be
entitled to the same type and an amount of compensation at least equal to the
highest amount payable to any other Director for serving in such capacity.
(e) Concurrently with the Closing Date, if requested by the Partnership
and the Trust, the Company shall have caused the appointment of the initial
Directors nominated by the Partnership and the Trust, to its Board of Directors
in accordance with the provisions of this Section 7.20, which individuals shall
be identified in writing to the Company by such time.
(f) At any time that a designee or designees of the Partnership and the
Trust serve on the Company's Board of Directors, the Partnership and the Trust
shall be entitled to representation on any committee of the Board of Directors
proportionate with their representation of the Board as a whole.
7.21. Board of Directors. (a) The Company shall promptly reimburse each
director or observer of the Company designated by the Partnership and the Trust
who is not an employee of the Company for all of his reasonable expenses
incurred in attending each meeting of the Board of Directors of the Company or
any committee thereof.
(b) The Company shall at all times maintain provisions in its By-laws
and/or Certificate of Incorporation indemnifying all directors against liability
and absolving all directors from liability to the Company and its stockholders
to the maximum extent permitted under the laws of the State of Delaware.
(c) The By-laws of the Company shall always contain provisions
consistent with the provisions of this Section 7.21 except to the extent this
Section 7.21 deals with the possible observer.
(d) For so long as any designee of Purchasers is a director of the
Company, procure and maintain Director and Officer Liability Insurance with a
reputable insurance carrier.
7.22. No Subsidiaries. The Company will not create or acquire any
entity that would be a Subsidiary (as defined in Section 9.10) without the
Partnership's and the Trust's consents.
7.23. Publicity. (a) The Company shall not issue any press release or
make any other public announcement with respect to this Agreement or the
transactions contemplated hereby or utilizing the names of Purchasers or their
officers, directors, employees, agents or affiliates without obtaining the prior
approval of Purchaser, except
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as may be required by law or the regulations of any securities exchange or the
Nasdaq National Market.
(b) Except as may be required by law or the regulations of any
securities exchange or the Nasdaq National Market, the Company shall not
disclose the names, identity, addresses or any other information regarding each
of the Purchasers or any of its officers, directors, employees, shareholders,
nominees and/or designees without such Purchaser's prior written consent;
provided, however, each of the names of Purchasers (but not its addresses) may
be disclosed in the Shelf Registration Statement.
(c) After the Closing Date, upon request of the Partnership and the
Trust, the Company shall cause, at its sole expense, the immediate publication
of a "tombstone" advertisement in the Wall Street Journal (National Edition)
announcing the consummation of this Agreement and the transactions contemplated
herein, the exact form and substance of which shall be mutually agreed upon by
the Company and the Partnership and the Trust.
7.24. Restriction on Securities. (a) During the 18 months following the
Closing Date, the Company shall not without prior written consent of the
Partnership and the Trust, issue, offer or sell any of its equity or debt
securities (including, without limitation, any securities convertible into or
exercisable for such securities); provided that the Company may issue shares of
Common Stock upon conversion or exercise of the Company's outstanding securities
and pursuant to exercise of options under the Company's Stock Option Plan in
accordance with the terms of such plan (it being agreed that the issuance of any
additional options under such plan may be effected only with the prior written
consent of the Partnership and the Trust; provided, further, that the Company
without the consent of the Partnership and the Trust may issue options under the
Company's Non-Employee Director Stock Option Plan in accordance with the terms
of such plan which will not be amended without the consents of the Partnership
and the Trust); provided, further, that this Section 7.24 shall not apply to the
offerings to be conducted by the Company with Paramount Capital, Inc. acting as
placement agent as contemplated in the Letter Agreement between the Company and
Paramount Capital, Inc. dated as of January 28, 1997. During the 18-months
following the Closing Date, the Company shall not, without the prior written
consents of the Partnership and the Trust, offer or sell any of its debt or
equity securities in reliance on Regulation S of the Securities Act. During the
36-month period following the Closing Date, the Company will not extend the
expiration date or lower the exercise price of any options or warrants, or take
any similar action with respect to any convertible securities of the Company,
without the prior written consents of the Partnership and the Trust.
(b) Prior to the Closing Date, the Company shall obtain the written
agreement of all executive officers and directors of the Company (and shall use
its best efforts to obtain a wrtten agreement from all 5% or greater
stockholders of the Company) to "lock-up" all of the shares of Common Stock
owned by each of them at any time until 24 months following the Closing Date,
and to agree not to directly or indirectly, issue, agree or offer to sell, grant
an option for the purchase or sale, assign, sell, contract to sell, sell "short"
or "short against the box" (as those terms are generally understood), pledge,
hypothecate, distribute or otherwise encumber or dispose of, any such shares
(including options, rights, warrants or other securities convertible into,
exchangeable, exercisable for or evidencing any right to purchase or subscribe
for shares of capital stock of the Company (whether or not beneficially owned by
the undersigned) or any beneficial interest therein of any shares of the Common
Stock, all in form and substance satisfactory to the Partnership and the Trust
and their counsel.
7.25. Restriction on Liens. The Company shall not create or permit the
imposition of any liens on any of its assets from and after the Closing Date
without the prior written consent of the Partnership and the Trust.
7.27. Restrictions on Indebtedness. The Company shall not incur,
create, assume or permit to exist any indebtedness except (i) indebtedness
represented by the Notes, (ii) indebtedness which by its terms is subordinated
to the Notes in an amount less than $25,000 in the aggregate (iii) indebtedness
in an amount less than fifty thousand dollars ($50,000) incurred in the ordinary
course of business, and (iv) indebtedness for borrowed money existing on the
date hereof and disclosed in writing to the Holder, but not any extensions,
renewals or replacements of such indebtedness.
7.28. Repayment Upon Certain Events. In the event that the Company does
not obtain the Required Shareholder Approvals (as hereafter defined), the
Company shall, on
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the date that the Required Shareholder Approvals are denied, immediately pay to
the Purchasers by wire transfer $3,000,000 or in the event that the Company does
not have $3,000,000, the remainder of the money that the Company has as a result
of the investment made by Purchasers in the Company pursuant to the terms
hereof. The "Required Shareholder Approvals" shall mean the authorization and
approval by the holders of Common Stock of the Company of the issuance of the
Notes, the issuance of the shares of Series D Preferred Stock underlying these
Notes, the Bridge Warrants or the New Warrants (as defined in the Bridge
Warrants), or any Common Stock underlying the foregoing to the extent such
authorization is necessary pursuant to the rules of the Nasdaq National Market
or any other applicable law, rule or regulation.
8. Registration of Common Stock.
8.1. Registration. (i) Not later than 30 days after consummation of a
Qualified Offering (as defined below) or, (ii) in the event that a Qualified
Offering (as defined below) has not been consummated by the date which is 180
days after the Closing Date, immediately thereafter and in no event later than
the date which is 195 days from the Closing Date, the Company will file a shelf
registration statement (the "Shelf Registration Statement") with respect to the
resale of the Registrable Securities with the Securities and Exchange
Commission. The Company will use its best efforts to effect the registrations,
qualifications or compliances (including, without limitation, the execution of
any required undertaking to file post-effective amendments, appropriate
qualifications under applicable blue sky or other state securities laws and
appropriate compliance with applicable securities laws, requirements or
regulations) as may be reasonably requested and as would permit or facilitate
that sale and distribution of all Registrable Securities until the distribution
thereof is complete. A "Qualified Offering" shall mean any equity offering or
series of Offerings with gross proceeds in excess of $2,500,000.
8.2. Registration Procedures. In connection with the registration of
any Registrable Securities under the Securities Act as provided in this Section
8, the Company will use its best efforts, as expeditiously as possible:
(a) Prepare and file with the Securities and Exchange Commission the
Shelf Registration Statement with respect to such Registrable Securities and use
its best efforts to cause such Shelf Registration Statement to become effective;
(b) Prepare and file with the Securities and Exchange Commission such
amendments and supplements to such Shelf Registration Statement and the
prospectus used in connection therewith as may be necessary to keep such Shelf
Registration Statement effective until the disposition of all securities in
accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such Shelf Registration Statement shall be completed, and
to comply with the provisions of the Securities Act (to the extent applicable to
the Company) with respect to such dispositions;
(c) Furnish to each seller of such Registrable Securities such number
of copies of such Shelf Registration Statement and of each such amendment and
supplement thereto (in each case including all exhibits), such number of copies
of the prospectus included in such Shelf Registration Statement (including each
preliminary prospectus), in conformity with the requirements of the Securities
Act, and such other documents, as such seller may reasonably request, in order
to facilitate the disposition of the Registrable Securities owned by such
seller;
(d) Use its best efforts to register or qualify such Registrable
Securities covered by such Shelf Registration Statement under such other
securities or blue sky laws of such jurisdictions as any seller reasonably
requests, and do any and all other acts and things which may be reasonably
necessary or advisable to enable such seller to consummate the disposition in
such jurisdictions of the Registrable Securities owned by such seller, except
that the Company will not for any such purpose be required to qualify generally
to do business as a foreign corporation in any jurisdiction wherein it would
not, but for the requirements of this Section 8.2(d) be obligated to be
qualified, to subject itself to taxation in any such jurisdiction, or to consent
to general service of process in any such jurisdiction;
(e) Provide a transfer agent and registrar for all such Registrable
Securities covered by such Shelf Registration Statement not later than the
effective date of such Shelf Registration Statement;
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(f) Notify each seller of such Registrable Securities at any time when
a prospectus relating thereto 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 Shelf Registration Statement contains an untrue statement of a material
fact or omits any fact necessary to make the statements therein not misleading,
and, at the request of any such seller, the Company will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any fact necessary to make the
statements therein not misleading;
(g) Cause all such Registrable Securities to be listed on each
securities exchange or automated over-the-counter trading system on which
similar securities issued by the Company are then listed;
(h) Enter into such customary agreements and take all such other
actions as reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities; and
(i) Make available for inspection by any seller of Registrable
Securities, all financial and other records, pertinent corporation documents and
properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such seller in
connection with the Shelf Registration Statement pursuant to Section 8.1.
8.3 Registration and Selling Expenses. (a) All expenses incurred by the
Company in connection with the Company's performance of or compliance with this
Section 8, including, without limitation (i) all registration and filing fees
(including all expenses incident to filing with the National Association of
Securities Dealers, Inc.), (ii) blue sky fees and expenses, (iii) all necessary
printing and duplicating expenses and (iv) all fees and disbursements of counsel
and accountants for the Company (including the expenses of any audit of
financial statements), retained by the Company (all such expenses being herein
called "Registration Expenses"), will be paid by the Company except as otherwise
expressly provided in this Section 8.3.
(b) The Company will, in any event, in connection with any registration
statement, pay its internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal, accounting
or other duties in connection therewith and expenses of audits of year-end
financial statements), the expense of liability insurance and the expenses and
fees for listing the securities to be registered on one or more securities
exchanges or automated over-the-counter trading systems on which similar
securities issued by the Company are then listed.
(c) Nothing herein shall be construed to prevent any holder or holders
of Registrable Securities from retaining such counsel (the Trust and the
Partnership to be limited to one counsel representing them both and any other
purchasers to be represented by one counsel separately from the Trust and the
Partnership) as they shall choose, the expenses of which shall be borne by the
Company.
8.4. Other Public Sales and Registrations. The Company agrees that it
will not, on its own behalf, file or cause to become effective any other
registration of any of its securities under the Securities Act or otherwise
effect a public sale or distribution of its securities (except pursuant to
registration on Form S-8 or any successor form relating to a special offering to
the employees or security holders of the Company) until at least 180 days have
elapsed after the effective date of the Shelf Registration Statement. In
addition, the Company agrees that it will use its best efforts to obtain prior
to the filing of the Shelf Registration Statement an agreement in form and
substance satisfactory to Purchasers and their counsel in their sole and
absolute discretion from each person that has the right to have the Company file
or cause to become effective any other registration of any of its securities
under the Securities Act or otherwise effect a public sale or distribution of
its securities (except pursuant to registration on Form S-8 or any successor
form relating to a special offering to the employees or security holders of the
Company), pursuant to which each such person will agree for the benefit of the
Company and Purchasers to waive any and all such rights until at least 180 days
have elapsed after the effective date of the Shelf Registration Statement.
8.5. Indemnification. (a) The Company hereby agrees to indemnify, to
the extent permitted by law, each holder of Registrable Securities, its officers
and
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directors, if any, and each person, if any, who controls such holder within the
meaning of the Securities Act, against all losses, claims, damages, liabilities
and expenses (under the Securities Act or common law or otherwise) caused by any
untrue statement or alleged untrue statement of a material fact contained in any
registration statement or prospectus (and as amended or supplemented if the
Company has furnished any amendments or supplements thereto) or any preliminary
prospectus, which registration statement, prospectus or preliminary prospectus
shall be prepared in connection with the registration contemplated by this
Section 8, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or expenses are caused by any untrue statement or alleged untrue
statement contained in or by any omission or alleged omission from information
furnished in writing by such holder to the Company in connection with the
registration contemplated by this Section 8, provided the Company will not be
liable pursuant to this Section 8.5 if such losses, claims, damages, liabilities
or expenses have been caused by any selling security holder's failure to deliver
a copy of the registration statement or prospectus, or any amendments or
supplements thereto, after the Company has furnished such holder with the number
of copies required by Section 8.2(c).
(b) In connection with any registration statement in which a holder of
Registrable Securities is participating, each such holder shall furnish to the
Company in writing such information as is reasonably requested by the Company
for use in any such registration statement or prospectus and shall severally,
but not jointly, indemnify, to the extent permitted by law, the Company, its
directors and officers and each person, if any, who controls the Company within
the meaning of the Securities Act, against any losses, claims, damages,
liabilities and expenses resulting from any untrue statement or alleged untrue
statement of a material fact or any omission or alleged omission of a material
fact required to be stated in the registration statement or prospectus or any
amendment thereof or supplement thereto or necessary to make the statements
therein not misleading, but only to the extent such losses, claims, damages,
liabilities or expenses are caused by an untrue statement or alleged untrue
statement contained in or by an omission or alleged omission from information so
furnished in writing by such holder in connection with the registration
contemplated by this Section 8. If the offering pursuant to any such
registration is made through underwriters, each such holder agrees to enter into
an underwriting agreement in customary form with such underwriters and to
indemnify such underwriters, their officers and directors, if any, and each
person who controls such underwriters within the meaning of the Securities Act
to the same extent as hereinabove provided with respect to indemnification by
such holder of the Company. Notwithstanding the foregoing or any other provision
of this Agreement, in no event shall a holder of Registrable Securities be
liable for any such losses, claims, damages, liabilities or expenses in excess
of the lesser of (a) the net proceeds received by such holder in the offering or
(b) $1,000,000.
(c) Promptly after receipt by an indemnified party under Section 8.5
(a) or (b) of notice of the commencement of any action or proceeding, such
indemnified party will, if a claim in respect thereof is made against the
indemnifying party under such Section, notify the indemnifying party in writing
of the commencement thereof; but the omission so to notify the indemnifying
party will not relieve it from any liability which it may have to any
indemnified party otherwise than under such Section. In case any such action or
proceeding is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein, and, to the extent that it wishes, jointly with
any other indemnifying party similarly notified, to assume the defense thereof,
with counsel approved by such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under such Section for any legal or any other expenses subsequently
incurred by such indemnified party in connection with the defense thereof (other
than reasonable costs of investigation) unless incurred at the written request
of the indemnifying party. Notwithstanding the above, the indemnified party will
have the right to employ counsel of its own choice in any such action or
proceeding if the indemnified party has reasonably concluded that there may be
defenses available to it which are different from or additional to those of the
indemnifying party, or counsel to the indemnified party is of the opinion that
it would not be desirable for the same counsel to represent both the
indemnifying party and the indemnified party because such representation might
result in a conflict of interest (in either of which cases the indemnifying
party will not have the right to assume the defense of any such action or
proceeding on behalf of the indemnified party or parties and such legal and
other expenses
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will be borne by the indemnifying party). An indemnifying party will not be
liable to any indemnified party for any settlement of any such action or
proceeding effected without the consent of such indemnifying party.
(d) If the indemnification provided for in Section 8.5(a) or (b) is
unavailable under applicable law to an indemnified party in respect of any
losses, claims, damages or liabilities referred to therein, then each applicable
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and of
the holders of Registrable Securities on the other in connection with the
statements or omissions which resulted in such losses, claims, damages, or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and of the holders of Registrable
Securities on the other 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 Company
or by the holders of Registrable Securities and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as a result of the
losses, claims, damages and liabilities referred to above shall be deemed to
include, subject to the limitations set forth in Section 8.5(c), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation.
(e) Promptly after receipt by the Company or any holder of Securities
of notice of the commencement of any action or proceeding, such party will, if a
claim for contribution in respect thereof is to be made against another party
(the "contributing party"), notify the contributing party of the commencement
thereof; but the omission so to notify the contributing party will not relieve
it from any liability which it may have to any other party other than for
contribution hereunder. In case any such action, suit, or proceeding is brought
against any party, and such party notifies a contributing party of the
commencement thereof, the contributing party will be entitled to participate
therein with the notifying party and any other contributing party similarly
notified.
8.6. Additional Common Stock Issuable Upon Delay of Registration. (a)
Except to the extent any delay is due to the failure of a holder to reasonably
cooperate in providing to the Company such information as shall be reasonably
requested by the Company in writing for use in the Shelf Registration Statement,
if the Shelf Registration Statement is not filed with the Securities and
Exchange Commission within the target dates set forth in the first sentence of
Section 8.1 (the "Outside Target Date"), the Company shall declare and pay for
no additional consideration to Purchasers additional Bridge Warrants or New
Warrants, as the case may be, equal to 1.5% of the Bridge Warrants or the New
Warrants, as the case may be, then held by Purchasers for each day after the
Outside Target Date that the Registration Statement remains unfiled.
(b) If the Shelf Registration Statement is not declared effective by
the Securities and Exchange Commission within 210 days following the Closing
Date (the "Targeted Effective Date"), the Company shall declare and pay for no
additional consideration to Purchasers additional Bridge Warrants or New
Warrants, as the case may be, equal to 1.5% of the Bridge Warrants or the New
Warrants, as the case may be, then held by Purchasers for each day the Shelf
Registration Statement is not declared effective by the Securities and Exchange
Commission following the occurrence of the Targeted Effective Date.
(c) All shares of Common Stock issuable pursuant to Section 8.6(a) and
(b) shall be duly authorized, fully paid and nonassessable shares of Common
Stock and shall be included in the Shelf Registration Statement contemplated by
Section 8.1. Such shares shall be registered in Purchasers' names or the name of
the nominee(s) of Purchasers in such denominations as Purchasers shall request
pursuant to instructions delivered to the Company.
9. Certain Definitions. For the purposes of this Agreement the
following terms have the respective meanings set forth below:
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9.1. "Affiliate" means any person, corporation, firm or entity which
directly or indirectly controls, is controlled by, or is under common control
with the indicated person, corporation, firm or entity.
9.2. "Common Stock" means the Company's Common Stock.
9.3. "Generally Accepted Accounting Principles" means generally
accepted accounting principles consistently applied.
9.4. "Officers' Certificate" means a certificate executed on behalf of
the Company by its President, Chairman of the Board, Chief Executive Officer,
Chief Financial Officer, Vice President--Finance, Secretary and/or one of its
other Vice- Presidents.
9.5. "Registrable Securities" means (i) the Common Stock issuable upon
conversion of the Series D Preferred Stock underlying the Notes and exercise of
the Warrants purchased pursuant to Section 1.1 or (ii) any other shares of
Common Stock now owned or hereafter acquired by Purchasers (whether Common Stock
owned directly or underlying convertible securities of the Company). For
purposes of this Agreement, any shares of Common Stock issued pursuant to
Section 8.6 shall be deemed to be Registrable Securities and shall be included
in the Shelf Registration Statement contemplated by Section 8.1.
9.6. "Securities" means the Notes, the Warrants and any Preferred Stock
or Common Stock underlying the foregoing whether issued at the Closing or
thereafter.
9.7. "Securities Act" means, as of any given time, the Securities Act
of 1933, as amended, or any similar federal law then in force.
9.8. "Securities Exchange Act" means, as of any given time, the
Securities Exchange Act of 1934, as amended, or any similar federal law then in
force.
9.9. "Securities and Exchange Commission" includes any governmental
body or agency succeeding to the functions thereof.
9.10. "Subsidiary" means any person, corporation, firm or entity at
least the majority of the equity securities (or equivalent interest) of which
are, at the time as of which any determination is being made, owned of record or
beneficially by the Company, directly or indirectly, through any Subsidiary or
otherwise.
10.1 Company Indemnities. (a) The Company agrees to indemnify, defend
and hold Purchasers and their officers, directors, partners, employees,
consultants and agents (the "Purchasers' Indemnitees") harmless from and against
any liability, obligation, claim, cost, loss, judgment, damage or expense
(including reasonable legal fees and expenses) (collectively, "Liabilities")
incurred or suffered by any of Purchasers' Indemnitees as a result of or arising
out of or in connection with the Company's breach of any representation,
warranty, covenant or agreement of the Company contained herein.
11. Miscellaneous.
11.1. Termination; Survival of Representations, Warranties and
Covenants. Except as otherwise provided for in this Agreement all
representations, warranties, covenants and agreements contained in this
Agreement, or in any document, exhibit, schedule or certificate by any party
delivered in connection herewith shall survive the execution and delivery of
this Agreement and the Closing Date and the consummation of the transactions
contemplated hereby, regardless of any investigation made by Purchasers or on
their behalf.
11.2. Expenses. The Company shall pay all its own expenses in
connection with this Agreement and the transactions contemplated herein. The
Company agrees to pay promptly and save the Partnership and the Trust harmless
against liability for the payment all expenses incurred by the Company and the
Partnership and the Trust in connection with the preparation and consummation of
the Agreement and the transactions contemplated herein, including but not
limited to: all costs and expenses under Section 8, including without
limitation, the costs of preparing, printing and filing with the Securities and
Exchange Commission the Shelf Registration Statement and amendments,
post-effective amendments, and supplements thereto; preparing, printing and
delivering exhibits thereto and copies of the preliminary, final and
supplemental prospectuses; preparing,
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printing and delivering all selling documents, including but not limited to the
subscription agreement, the warrant agreement and stock and warrant
certificates; legal fees and disbursements of the Partnership and the Trusts'
counsel (which amount shall be offset against payment of the purchase price for
legal fees that have been accrued up to such date and the remainder of which
shall be paid within 30 days of submission of any statements therefor) in
connection with the preparation and consummation of this Agreement and the
transactions contemplated herein, including the legal fees and costs of
negotiating and drafting any transaction documents, due diligence and any
necessary regulatory filings (including, without limitation, the Shelf
Registration Statement, Forms 3, 4 and 5 and Schedule 13-D filings); the cost of
a total of two sets of bound closing volumes for the Partnership and the Trust
and their counsel; and the cost of the tombstone advertisement in the Wall
Street Journal (National Edition) pursuant to Section 7.23(c), provided,
however, that with respect to costs incurred as a result of the actual Bridge
Loan transaction (the "Bridge Loan Costs"), the Company shall only be obligated
to reimburse the Partnership and the Trust in an amount not to exceed $35,000.
The "Bridge Loan Costs" shall not include any costs and expenses under Section
8, including without limitation, the costs of preparing, printing and filing
with the Securities and Exchange Commission the Shelf Registration Statement and
amendments, post-effective amendments, and supplements thereto and preparing,
printing and delivering exhibits thereto and copies of the preliminary, final
and supplemental prospectuses which such costs shall in all cases be paid by the
Company. The provisions of this Section shall survive any termination of this
Agreement in all instances, including without limitation, (i) if the
transactions contemplated by this Agreement have not been consummated or (ii) if
the transactions have been terminated by Purchasers for any reason.
11.3. Amendments and Waivers. Except for the letter agreement between
the parties hereto and Paramount Capital, Inc. dated as of January 28, 1997 and
the Operative Documents, this Agreement and all exhibits and schedules hereto
set forth the entire agreement and understanding among the parties as to the
subject matter hereof and merges and supersedes all prior discussions,
agreements and understandings of any and every nature among them. This Agreement
may be amended only by mutual written agreement of the Company and the holders
of a majority of principal amount of the Notes, and the Company may take any
action herein prohibited or omit to take any action herein required to be
performed by it, and any breach of any covenant, agreement, warranty or
representation may be waived, only if the Company has obtained the written
consent or waiver of the holders of a majority of principal value of the Notes.
No course of dealing between or among any persons having any interest in this
Agreement will be deemed effective to modify, amend or discharge any part of
this Agreement or any rights or obligations of any person under or by reason of
this Agreement.
11.4. Successors and Assigns. This Agreement may not be assigned by the
Company except with the prior written consent of the holders of a majority of
principal value of the Notes. This Agreement shall be binding upon and inure to
the benefit of the Company and its permitted successors and assigns and
Purchasers and their successors and assigns. The provisions hereof which are for
Purchasers' benefit as purchasers or holders of the Notes and the Warrants are
also for the benefit of, and enforceable by, any subsequent holder of such Notes
and Warrants.
11.5. Notices. All notices, demands and other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given personally or when mailed
by certified or registered mail, return receipt requested and postage prepaid,
and addressed to the addresses of the respective parties set forth below or to
such changed addresses as such parties may have fixed by notice; provided,
however, that any notice of change of address shall be effective only upon
receipt:
If to the Company:
Genta Incorporated.
3550 General Atomics Court
Building 9, 2nd Floor
Xxx Xxxxx, XX 00000
Attn: Xxxxxx Xxxxx
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With a Copy to:
Pillsbury Madison & Sutro, LLP
000 Xxxxxxxxxx Xxxxxx
Xxx Xxxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxx, Xx.
If to the Partnership or the Trust:
Paramount Capital Asset Management, Inc.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxx Xxxxxx
With a Copy to:
Kramer, Levin, Naftalis & Xxxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxxx
11.6. Governing Law. The validity, performance, construction and effect
of this Agreement shall be governed by the internal laws of the State of New
York without giving effect to such State's principles of conflict of laws.
11.7. Counterparts. This Agreement may be executed in any number of
counterparts and, notwithstanding that any of the parties did not execute the
same counterpart, each of such counterparts shall, for all purposes, be deemed
an original, and all such counterparts shall constitute one and the same
instrument binding on all of the parties thereto.
11.8. Headings. The headings of the Sections hereof are inserted as a
matter of convenience and for reference only and in no way define, limit or
describe the scope of this Agreement or the meaning of any provision hereof.
11.9. Severability. In the event that any provision of this Agreement
or the application of any provision hereof is declared to be illegal, invalid or
otherwise unenforceable by a court of competent jurisdiction, the remainder of
this Agreement shall not be affected except to the extent necessary to delete
such illegal, invalid or unenforceable provision unless the provision held
invalid shall substantially impair the benefit of the remaining portion of this
Agreement.
11.10. Freedom of Action. (a) The Partnership and the Trust and their
affiliates shall not have any obligation to the Company not to (i) engage in the
same or similar activities or lines of business as the Company or develop or
market any products, services or technologies that does or may in the future
compete, directly or indirectly, with those of the Company, (ii) invest or own
any interest publicly or privately in, or develop a business relationship with,
any corporation, partnership or other person or entity engaged in the same or
similar activities or lines or business as, or otherwise in competition with,
the Company or (iii) do business with any client, collaborator, licensor,
consultant, vendor or customer of the Company. The Partnership and the Trust and
its officers, directors, employees or former employees and affiliates shall not
have any obligation, or be liable, to the Company solely on account of the
conduct described in the preceding sentence. In the event that either of the
Partnership or the Trust and any officer, director, employee or former employee
or affiliate thereof acquires knowledge of a potential transaction, agreement,
arrangement or other matter which may be a corporate opportunity for both the
Partnership and the Trust and the Company, neither of the Partnership and the
Trust nor their officers, directors, employees or former employees or affiliates
shall have any duty to communicate or offer such corporate opportunity to the
Company and neither of the Partnership and the Trust nor their officers,
directors, employees or former employees or affiliates shall be liable to the
Company for breach of any fiduciary duty, as a stockholder or otherwise, solely
by reason of the fact that Partnership and the Trust or any of their officers,
directors, employees or former employees or affiliates pursue or acquire such
corporate opportunity for either of the Partnership or the Trust, direct such
corporate opportunity to another person or entity or communicate or fail to
communicate such corporate opportunity or entity to the Company. As used in this
Section, the Partnership and the Trust shall mean either and both of the
Partnership and the Trust and their affiliates (excluding the Company as an
affiliate of the Partnership and the Trust).
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(b) The provisions of this Section 11.10 shall be enforceable to the
fullest extent permitted by law.
11.11. Rights of Holders Inter Se. Each Holder of securities shall have
the absolute right to exercise or refrain from exercising any right or rights
which such Holder may have by reason of this Agreement or any security
including, without limitation, the right to consent to the waiver of any
obligation of the Company under this Agreement and to enter into an agreement
with the Company for the purpose of modifying this Agreement or any agreement
effecting such modification, and such Holder shall not incur any liability to
any other Holder or Holders of securities with respect to exercising or
refraining from exercising any such right or rights.
11.12. Exculpation Among Purchasers and Holders. Each Purchaser
acknowledges and agrees that it is not relying upon any other Purchaser, or any
officer, director, employee partner or affiliate of any such other Purchaser, in
making its investment or decision to invest in the Company or in monitoring such
investment. Each Purchaser agrees that no Purchaser nor any controlling person,
officer, director, stockholder, partner, agent or employee of any Purchaser
shall be liable for any action heretofore or hereafter taken or omitted to be
taken by any of them relating to or in connection with the Company or the
securities, or both.
11.13. Actions by Purchasers. Any actions permitted to be taken by
holders or Purchasers of Notes and/or Warrants or the Partnership or the Trust
and any consents required to be obtained from the same under this Agreement, may
be taken or given only by, in the case of consents or actions requiring approval
of the Partnership or the Trust, by the Partnership or the Trust, and in all
other cases, only by holders of a majority of (i) in the case of the Notes, the
face amount of the principal and (ii) in the case of the Warrants, the number of
underlying shares of Common Stock, and if such holders or Purchasers
constituting a majority the ("Majority Holders") as set forth in (i) or (ii)
above or the Partnership or Trust take any action or grant any consent, such
action or consent shall be deemed given or taken by all holders or Purchasers'
who shall be bound by the decision or action taken by the Majority Holders or
the Partnership or the Trust without any liability on the part of the Majority
Holders or the Partnership or the Trust to any other holder or Purchasers of
securities hereto.
11.14. Secured Party. The Purchasers hereby acknowledge and agree that
Paramount Capital, Inc. shall act as the secured party (the "Secured Party")
under and for all purposes of the Security Agreement. Without giving notice to
any holder of Notes, the Secured Party shall have full and irrevocable authority
on behalf of the undersigned and all other holders of Notes, with respect to the
Security Agreement, Financing Statements, to (i) deal with the Company, (ii)
accept and give notices and other communications, (iii) settle any disputes
relating to the terms thereof, (iv) waive any conditions, (v) modify or amend
the Security Agreement or the Subordination Agreement (but not the Notes), (vi)
execute any instrument or document that the Secured Party may determine is
necessary or desirable in the exercise of its authority under this Section
11.14, and (vii) act in connection with all other matters relating to the
Security Agreement. The Secured Party shall be authorized to act on behalf of
the Purchasers as provided in the Security Agreement, and the Company shall be
entitled to act and rely upon any request, notice, consent, waiver or agreement
given on behalf of the undersigned when the same shall have been given by
Paramount Capital, Inc. on such behalf pursuant to the terms of such Security
Agreement or this Agreement. Paramount Capital, Inc. may act in reliance upon
the advice of counsel in reference to any matter relating hereto and shall not
be liable for any acts or omissions of any kind.
11.15 Consent to Jurisdiction. The parties hereto irrevocably consent
to the jurisdiction of the courts of the State of New York and of any federal
court located in such State in connection with any action or proceeding arising
out of or relating to this Agreement, any document or instrument delivered
pursuant to, in connection with or simultaneously with this Agreement, or a
breach of this Agreement or any such document or instrument. In any such action
or proceeding, each party hereto waives personal service of any summons,
complaint or other process and agrees that service thereof may be made in
accordance with Section 11.15. Within 30 days after such service, or such other
time as may be mutually agreed upon in writing by the attorneys for the parties
to such action or proceeding, the party so served shall appear or answer such
summons, complaint or other process.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
GENTA INCORPORATED.
By: /s/ Xxxxxx X. Xxxxx
---------------------------
Name: Xx. Xxxxxx X. Xxxxx
Title: President and Chief
Executive Officer
THE ARIES FUND, A CAYMAN
ISLAND TRUST
By: its Investment Manager,
PARAMOUNT CAPITAL ASSET
MANAGEMENT, INC.
By: /s/Xxxxxxx X. Xxxxxxxxx
---------------------------------
Name: Xxxxxxx X. Xxxxxxxxx, M.D.
Title: President
THE ARIES DOMESTIC FUND, L.P.
By: its General Partner, PARAMOUNT
CAPITAL ASSET MANAGEMENT, INC..
By: /s/Xxxxxxx X. Xxxxxxxxx
---------------------------------
Name: Xxxxxxx X. Xxxxxxxxx, M.D.
Title: President
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