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EXHIBIT 10.69
Dated as of February 25, 1998
BRIDGE FINANCING AGREEMENT
THE BAY CITY CAPITAL FUND I, L.P.,
a Delaware limited partnership
c/o Bay City Capital LLC
000 Xxxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Gentlemen:
The undersigned, EPOCH PHARMACEUTICALS, INC., a Delaware corporation
(the "Company") hereby agrees with you ("BCC") with respect to this Bridge
Financing Agreement (this "Agreement") as follows:
1. Authorization. The Company has authorized the issuance and sale to
BCC of a $3,000,000 principal amount secured note in the form attached hereto as
Exhibit A (the "Note") and a warrant in the form attached hereto as Exhibit B
(the "Warrant") to purchase shares of Common Stock of the Company. The Note, the
Warrant and the Common Stock purchasable under the Warrant are sometimes
collectively referred to herein as the "Securities."
2. Sale and Purchase of the Note and Warrant. Upon the terms and
conditions contained herein, the Company agrees to sell to BCC, and BCC agrees
to purchase from the Company, at the Closing (as hereinafter defined): (a) the
Note at a purchase price equal to the full principal amount of such Note; and
(b) the Warrant to purchase 2,000,000 shares of Common Stock. The purchase price
for the Warrant shall be equal to $0.0001 times the number of shares of Common
Stock which would be initially covered by such Warrant.
3. Closing. The closing of the sale to and purchase by BCC of the Note
and Warrant (the "Closing") shall occur at the offices of the Company at 0000
000xx Xxxxxx, X.X., Xxxxx 000, Xxxxxxx, Xxxxxxxxxx 00000, at the hour of 10:00
a.m., P.S.T., on February 25, 1998 or as soon thereafter as all of the
conditions to Closing set forth in Section 8 have been satisfied (the "Closing
Date"). At the Closing, the Company shall deliver to BCC or its representative
the Note and Warrant, issued in the name of BCC or its nominee, against delivery
to the Company of payment, by check or by wire transfer in the aggregate amount
of $3,000,200.
4. Company Representations and Warranties. The Company represents and
warrants to BCC as follows:
(a) Organization and Standing; Articles and Bylaws. The Company
is a corporation duly organized, validly existing, and in good standing under
the laws of the State of Delaware, and has full power and authority and all
material licenses and approvals to own and operate its properties and assets and
to carry on its business as presently conducted. The Company is
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duly qualified and authorized to do business, and is in good standing as a
foreign corporation, in each jurisdiction where the nature of its activities and
of its properties (both owned and leased) makes such qualification necessary,
except where the failure to so qualify would not have a material adverse effect
upon the business and operations of the Company.
(b) Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the Security Agreement
(as defined in Section 7(a) below), the Note, the Warrant, the Registration
Rights Agreement (as defined in Section 7(a) below) and related documents
(collectively, the "Transaction Documents"), the performance of all the
Company's obligations hereunder and thereunder, and for the authorization,
issuance, sale and delivery of the Securities has been taken or will be taken
prior to the Closing. The Transaction Documents, when executed and delivered,
shall constitute valid and legally binding obligations of the Company
enforceable in accordance with their terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
subject to the availability of equitable remedies.
(c) Capitalization; Validity of Securities. The authorized
capital stock of the Company consists of thirty million (30,000,000) shares of
Common Stock, par value $.01 per share (the "Common Stock"), of which, as of
December 31, 1997, there were 14,814,793 shares of Common Stock outstanding, and
ten million (10,000,000) shares of Preferred Stock, par value $.01 per share
(the "Preferred Stock"), of which no shares are outstanding. The sale of the
Securities is not and will not be subject to any preemptive rights or rights of
first refusal that have not been waived; provided, however, that the Securities
may be subject to restrictions on transfer under state and/or federal securities
laws as set forth herein or therein or as otherwise required by such laws at the
time a transfer is proposed. The Common Stock issuable upon exercise of the
Warrant has been duly authorized and reserved for issuance and when issued and
delivered and upon payment therefor in accordance with the terms of the Warrant,
will be validly issued, fully paid and nonassessable, and will be free of any
liens or encumbrances. Except as set forth on Schedule 4(c) hereto, there are no
outstanding warrants, options, conversion privileges, or other rights or
agreements to purchase or otherwise acquire or issue any equity securities of
the Company.
(d) Reports of the Company; Changes. The Company has furnished
BCC with copies of its Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996 and its Quarterly Reports on Form 10-QSB and Current Reports
on Form 8-K filed by the Company with the Securities and Exchange Commission
("SEC") since the filing of such Form 10-KSB. Said reports, as of their
respective dates, were accurate and complete in all material respects and did
not omit any material information required to be set forth therein. The Company
has filed with the SEC all reports required to be filed by it since January 1,
1997, including, without limitation, all Current Reports on Form 8-K. To the
best of the Company's knowledge, since September 30, 1997, there has not been
any change in the assets, liabilities, financial condition or operating results
of the Company from that reflected in the SEC Filings, except (i) changes in the
ordinary course of business that have not been, in the aggregate, materially
adverse, and (ii) the Company's building lease expired on November 30, 1997 and
the Company is currently subleasing its premises on a month to month basis from
the new lessee of the premises, Darwin Molecular, and is in negotiations with
Darwin Molecular concerning the Company's right to continue to lease an
expansion portion of the premises and a part of the premises constituting the
lab, both of which portions the Company does not believe to be significant.
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(e) Intellectual Property Rights.
(i) To the best of its knowledge (but without having
conducted any special investigation or patent search), the Company has
sufficient title and ownership of all patents, trademarks, service marks, trade
names, copyrights, trade secrets, information, proprietary rights, and processes
(collectively, "Intellectual Property") necessary for its business as now
conducted and as proposed to be conducted to the Company's knowledge, without
any conflict with or infringement of the rights of others;
(ii) Except for agreements with its own employees or
consultants, there are not outstanding options, licenses, or agreements of any
kind relating to the matters listed in subsection (a) above or that grant rights
to any other person to manufacture, license, produce, assemble, market or sell
the Company's products, nor is the Company bound by or a party to any options,
licenses, or agreements of any kind with respect to the Intellectual Property of
any other person or entity;
(iii) the Company has not received any communications
alleging that the Company or its employees has violated or infringed or, by
conducting its business as proposed, would violate or infringe any of the
Intellectual Property of any other person or entity; and
(iv) the Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants, or commitments of
any nature) or other agreement, or subject to any judgment, decree, or order of
any court or administrative agency, that would interfere with the use of such
employee's best efforts to promote the interests of the Company with respect to
the Intellectual Property of the Company or otherwise or that would conflict
with the Company's business as proposed to be conducted.
(f) Security Documents. The Security Agreement, when executed
(and the filings required under the Uniform Commercial Code of the State of
Washington and U.S. Patent and Trademark Office, when completed), creates a
valid, binding, and effective first-priority security interest in the Collateral
(as defined in the Security Agreement) free from any other liens and
encumbrances.
(g) Compliance With Other Instruments and Laws. The Company in
not in violation or default in any material respect of any provision of its
certificate of incorporation or bylaws or in any material respect of any
provision of any material mortgage, indenture, agreement, instrument, or
contract to which it is a party of by which it is bound, or of any federal or
state judgment, order, writ, decree, or any federal or state statute, rule,
regulation or restriction applicable to the Company. The execution, delivery,
and performance by the Company of the Transaction Documents, and the
consummation of the transactions contemplated hereby and thereby, will not
result in any such violation or be in material conflict with or constitute, with
or without the passage of time or giving of notice, either a material default
under any such provision or an event that results in the creation of any
material lien, charge or encumbrance upon any assets of the Company or the
suspension, revocation, impairment, forfeiture or nonrenewal of any material
permit, license,
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authorization, or approval applicable to the Company, its business or
operations, or any of its assets or properties.
(h) Litigation. There is no action, suit, proceeding, or
investigation pending or, to the best knowledge of the Company, threatened
against the Company that questions the validity of the Transaction Documents, or
the right of the Company to enter into such agreements, or to consummate the
transactions contemplated hereby or thereby, or that might result, either
individually or in the aggregate, in any material adverse change in the assets,
business properties, prospects or financial condition of the Company.
(i) Taxes. The Company has no material liability for any federal,
state or local taxes, except for taxes which have accrued and are not yet
payable or are being contested by the Company in good faith. The Company has
paid all payroll taxes required to be paid by it.
(j) Offering. Assuming the accuracy of the representations and
warranties of BCC contained in Section 5 hereof, the offer, issue, and sale of
the Securities is and will be exempt from the registration and prospectus
delivery requirements of the Securities Act of 1933, as amended (the "1933
Act"), and has been registered or qualified (or are exempt from registration and
qualification) under the registration, permit, or qualification requirements of
all applicable state securities laws.
5. Representations and Warranties of BCC. BCC hereby represents and
warrants to the Company as follows:
(a) Legal Power. It has the requisite legal power to enter into
this Agreement, to purchase the Securities hereunder, to convert the Note and
exercise the Warrant, and to carry out and perform its obligations under the
terms of this Agreement.
(b) Due Execution. This Agreement has been duly authorized,
executed and delivered by it, and, upon due execution and delivery by the
Company, this Agreement will be a valid and binding agreement of it.
(c) Investment Representations.
(i) It is acquiring the Securities and will acquire any
security issued upon exercise thereof for its own account, not as nominee or
agent, for investment and not with a view to, or for resale in connection with,
any distribution or public offering thereof within the meaning of the 1933 Act.
(ii) It understands that (A) the Securities have not been
registered under the 1933 Act by reason of a specific exemption therefrom, that
the Securities must be held by it indefinitely, and that it must, therefore,
bear the economic risk of such investment indefinitely, unless a subsequent
disposition thereof is registered under the 1933 Act or is exempt form such
registration; (B) the Securities will be endorsed with the following legend:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR
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HYPOTHECATED UNLESS PURSUANT TO SEC RULE 144 OR THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT COVERING
SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL
FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO
THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF THE 1933 ACT."
and (C) the Company will instruct any transfer agent not to register the
transfer of any of the Securities unless the conditions specified in the
foregoing legend are satisfied; provided, however, that no such opinion of
counsel shall be necessary if the sale, transfer or assignment is made pursuant
to SEC Rule 144 and BCC provides the Company with evidence reasonably
satisfactory to the Company and its counsel that the proposed transaction
satisfies the requirements of Rule 144. The Company agrees to remove the
foregoing legend from any securities if the requirements of SEC Rule 144(k) (or
any successor rule or regulation) apply with respect to such securities and the
Company and its counsel are provided with reasonably satisfactory evidence that
the requirements of Rule 144(k) apply.
(iii) It is an investor in securities of companies in the
development stage and acknowledges that it is able to fend for itself, can bear
the economic risk of its investment and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Securities.
(iv) It is an "accredited investor" within the meaning of
SEC Rule 501 of Regulation D, as presently in effect.
(v) It understands that the Securities it is purchasing
are characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the 1933 Act, only in
certain limited circumstances, and it represents that it is familiar with SEC
Rule 144, as presently in effect, and understands the resale limitations imposed
thereby and by the 1933 Act.
(vi) BCC was not formed for the specific purpose of
acquiring the Securities offered hereunder.
(vii) Its principal business address is as set forth below
its name on the signature pages hereto and it does not reside in any state of
the United States other than the state so specified.
6. Warrant Separate. The Warrant will not be affected by payment of the
Note.
7. Conditions to Closing. The Closing shall be subject to the following
conditions:
(a) BCC shall have received the following documents, each
executed by a duly authorized officer of the Company, and each dated the date of
this Agreement and in form and substance satisfactory to BCC:
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(i) This Agreement;
(ii) The Note;
(iii) The Warrant;
(iv) A Security Agreement in the form attached hereto as
Exhibit C (the "Security Agreement") and the Confirmation and Grant of Security
Interests in Patents in the form attached hereto as Exhibit F;
(v) A Registration Rights Agreement in the form attached
hereto as Exhibit D;
(vi) Copies of employment agreements between the Company
and each of Xxxxxxxxx X. Craves, Ph.D. and Xxxxxxx X. Xxxxxxxx, extending the
term of their employment in accordance with Section 8(b) below; and
(vii) An opinion from Xxxxxxxxx Xxxxx Xxxxxxx & Xxxxx, a
Professional Corporation, counsel for the Company, in substantially the form
attached hereto as Exhibit E.
(b) The Company shall have received the purchase price for the
Note and Warrant upon the terms and conditions set forth in this Agreement.
8. Covenants of the Company and of BCC.
(a) Rights Offering.
(i) The Company shall use its best efforts to complete a
shareholders' rights offering by May 30, 1998. The rights shall be priced at a
thirty percent (30%) discount to the then current market price, which price
shall be the average closing bid price of the Common Stock over the twenty
trading days ending on the day prior to the closing of the rights offering.
(ii) In the event the rights offering is not fully
subscribed, BCC agrees to subscribe for up to one hundred percent (100%) of the
remaining unsubscribed shares, and shall pay for such remaining shares by
reducing the principal amount due under the Note by an amount equal to the price
it would otherwise pay for such remaining shares; provided that, as a condition
precedent to BCC's obligation to purchase any remaining unsubscribed shares, no
material adverse change in the assets, business, properties, prospects or
financial condition of the Company, shall have occurred since the Closing Date;
and provided further, that BCC's obligation to purchase the remaining shares
shall be capped at that number of remaining shares whose purchase price is equal
to the outstanding principal balance due under the Note at the time of the
completion of rights offering.
(b) Management Continuity. The Company shall enter into
agreements with Xxxxxxxxx X. Craves, Ph.D., currently the Chief Executive
Officer of the Company, and Xxxxxxx X. Xxxxxxxx, currently the President and
Chief Financial Officer of the Company, extending the term of their employment
with Company in their respective capacities at least until the earlier of (i)
two years from the date hereof, or (ii) the closing of the acquisition of the
Company (whether by merger, purchase of all or a controlling interest in stock,
purchase of substantially all assets or otherwise);
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provided, that the parties hereto agree to negotiate in good faith the hiring of
permanent senior management to replace Dr. Craves and Xx. Xxxxxxxx if an
opportunity to do so is presented to the Company.
9. Miscellaneous.
(a) This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns.
(b) This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all prior and
contemporaneous agreements, whether written or oral, and shall not be modified
except by a writing signed by the Company and BCC.
(c) This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington.
(d) The headings in this Agreement are for convenience only and
shall not alter or otherwise affect the meaning hereof.
(e) No waiver of any of the provisions contained in this
Agreement shall be valid unless made in writing and executed by the waiving
party. It is expressly understood that in the event any party shall on any
occasion fail to perform any term of this Agreement and the other party shall
not enforce that term, the failure to enforce on that occasion shall not prevent
enforcement of that or any other term hereof on any other occasion.
(f) If any section of this Agreement is held invalid by any law,
rule, order, regulation, or promulgation of any jurisdiction, such invalidity
shall not affect the enforceability of any other sections not held to be
invalid.
(g) This Agreement and any amendment thereof may be executed in
two or more counterparts, each of which shall be deemed an original for all
purposes.
(h) The Company agrees to execute and deliver such further acts
and documents as BCC from time to time reasonably requires for the assuring and
confirming of its rights hereby created or intended now or hereafter to be
created.
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If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this Agreement and return the same to
the undersigned, whereupon this Agreement shall become a valid and binding
contract between you and the undersigned.
Very truly yours,
EPOCH PHARMACEUTICALS, INC.,
a Delaware corporation
By:
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Its:
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The foregoing Agreement is hereby accepted as of the date first written
above:
THE BAY CITY CAPITAL FUND I, L.P.
a Delaware limited partnership
By: Bay City Capital Management LLC
Its: General Partner
By:
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Its:
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EXHIBIT A
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THE SECURITIES EVIDENCED BY THIS PROMISSORY NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR OTHERWISE DISPOSED
OF UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT COVERING SUCH SECURITIES OR THE ISSUER RECEIVES AN OPINION OF
COUNSEL STATING THAT SUCH DISPOSITION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
SECURED PROMISSORY NOTE
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$3,000,000 February 25, 1998
FOR VALUE RECEIVED, receipt of which is hereby acknowledged, EPOCH
PHARMACEUTICALS, INC., a Delaware corporation (the "Company") hereby promises to
pay to the order of THE BAY CITY CAPITAL FUND I, L.P., a Delaware limited
partnership (the "Lender"), the principal sum of Three Million Dollars
($3,000,000), in cash in lawful money of the United States of America, together
with interest at the rate of eight percent (8%) per annum from the date hereof
on all unpaid principal of this Note. Interest shall accrue and be payable on
the Maturity Date.
This Note is issued pursuant to that certain Bridge Financing Agreement
dated as of February 25, 1998 (the "Agreement") by and among the Company and the
Lender and is subject to and entitled to the benefits of the Agreement.
Principal and all accrued interest on this Note shall become due and payable
upon the earliest date (the "Maturity Date") upon which any of the following
events occurs: (i) the closing of the acquisition of the Company (whether by
merger, purchase of all or a controlling interest in stock, purchase of
substantially all assets or otherwise), (ii) the completion of a shareholder
rights offering or other equity offering, the net proceeds of which exceed $4
million and (iii) the second anniversary of the date of this Note.
1. Prepayment. The Company shall be entitled at any time to prepay any
portion or all of the indebtedness owed hereunder without penalty. Each
prepayment hereunder shall be credited first to accrued interest and then to
principal. Interest shall thereupon cease to accrue upon the principal so paid.
2. Security Agreement. The obligations of the Company under this Note
are secured pursuant to and this Note is entitled to the benefits and subject to
the conditions of that certain Security Agreement of even date herewith, among
the Company and Lender, as the same may be amended from time to time (the
"Security Agreement"), and Lender, and its successors and assigns, by its
acceptance hereof, agrees to be bound by the provisions of the Security
Agreement.
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3. Default. If any of the following events (hereafter called "Events of
Default") shall occur:
(a) If the Company shall default in the payment of any principal
or interest due under this Note when the same shall become due and payable,
whether at maturity or by acceleration or upon demand or otherwise; or
(b) If the Company shall fail to pay any principal of, premium,
fee or interest on, or any amount payable in respect of, any debt of the Company
(other than with respect to the Note) and if the effect of such failure is to
accelerate the maturity of such debt; or
(c) If the Company shall make a general assignment for the
benefit of creditors; or
(d) If the Company should breach any of the covenants,
representations, warranties, terms or conditions of this Note, Security
Agreement, or the Agreement or contained in any statement or certificate at any
time given or made to Lender pursuant thereto or in connection therewith;
(e) If the Company shall file a voluntary petition in bankruptcy,
or shall be adjudicated a bankrupt or insolvent, or shall file any petition or
answer seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under the present or any future
Federal Bankruptcy Act or other applicable federal, state or other statute, law
or regulation, or shall file any answer admitting the material allegation of a
petition filed against the Company in such proceeding, or shall seek or consent
to or acquiesce in the appointment of any trustee, receiver or liquidator of the
Company of all or any substantial part of the properties of the Company, or the
Company shall commence the winding up or the dissolution or liquidation of the
Company; or
(f) If, within sixty (60) days after a court of competent
jurisdiction shall have entered an order, judgment or decree approving any
complaint or petition against the Company seeking reorganization, dissolution or
similar relief under the present or any future Federal Bankruptcy Act or other
applicable federal, state or other statute, law or regulation, such order,
judgment or decree shall not have been dismissed or stayed pending appeal, or
if, within sixty (60) days after the appointment, without the consent or
acquiescence of the Company, of any trustee, receiver or liquidator of the
Company or of all or any substantial part of the properties of the Company, such
appointment shall not have been vacated or stayed pending appeal, or if, within
sixty (60) days after the expiration of any such stay, shall not have been
vacated;
then, in the case of (a), (b), (c), or (d) above, the Lender may by notice in
writing to the Company declare all amounts under this Note to be forthwith due
and payable and thereupon the balance shall become so due and payable, without
presentment, protest or further demand or notice of any kind, all of which are
hereby expressly waived, and, in the case of (e) or (f) above, all amounts under
this Note shall automatically be due and payable and thereupon the balance shall
become so due and payable, without presentment, protest or further demand or
notice of any kind, all of which are expressly waived.
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If an action is brought for collection under this Note, the holder
hereof shall be entitled to receive all costs of collection, including, without
limitation, its reasonable attorneys' fees.
This Note shall be construed in accordance with and governed by the
internal laws of the State of Washington, and where applicable and except as
otherwise defined herein, terms used herein shall have the meanings given them
in the Washington Uniform Commercial Code.
EPOCH PHARMACEUTICALS, INC.
By:
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Its:
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EXHIBIT B
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THE SECURITIES EVIDENCED BY THIS WARRANT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR OTHERWISE DISPOSED OF
UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT COVERING SUCH SECURITIES OR THE ISSUER RECEIVES AN OPINION OF
COUNSEL STATING THAT SUCH DISPOSITION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
Warrant No. ______ February 25, 1998
WARRANT TO PURCHASE COMMON STOCK
OF EPOCH PHARMACEUTICALS, INC.
This certifies that The Bay City Capital Fund I, L.P. (the "Holder") and
the Holder's registered successors and assigns are entitled, subject to the
terms and conditions set forth below, to subscribe for and purchase from Epoch
Pharmaceuticals, Inc. (the "Company") Two Million (2,000,000) shares of the
Common Stock of the Company.
The "Exercise Price" per Warrant Share (as hereinafter defined) shall be
$0.90 per share. The Exercise Price and the character of the Warrant Shares are
subject to adjustment as provided herein. The term "Warrant Shares" as used
herein includes the shares of the Company's Common Stock (and such other
securities or property into which such shares of Common Stock may hereafter be
changed) which are at the time receivable by the Holder upon exercise of this
Warrant. This Warrant (as hereinafter defined) is being issued under that
certain Bridge Financing Agreement between Company and Holder of even date
herewith and is subject to the provisions thereof. A copy of such Bridge
Financing Agreement may be obtained from the Company at the address given below.
The term "Warrant" as used herein shall include this Warrant and any Warrant
delivered in substitution or exchange herefor, as provided herein.
1. Exercise and Expiration. This Warrant may be exercised in whole or in
part at any time or times, but must be exercised prior to the fifth anniversary
of the date hereof, at which time this Warrant shall expire. This Warrant shall
be exercised by surrender hereof together with delivery of a signed Subscription
Agreement in the form attached hereto as Annex I specifying the number of shares
to be purchased. Payment of the purchase price for the shares to be purchased
shall be made upon the delivery of certificates evidencing the shares to be
purchased, and shall be made in cash, or by wire transfer or certified check, or
by cancellation of all or part of the amounts owing under that certain Secured
Promissory Note, including accrued but unpaid interest, issued to the original
holder of this Warrant pursuant to the Bridge Financing Agreement.
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2. Adjustment of Exercise Price and Number of Shares.
The Exercise Price and the number of shares purchasable upon the
exercise of this Warrant shall be subject to adjustment from time to time upon
the occurrence of certain events described in this Section 2 below.
(a) Stock Dividends, Splits. If the Company shall (i) pay a
dividend or make a distribution in shares of capital stock (whether shares of
Common Stock or capital stock of any other class), (ii) effect a stock split or
subdivide its outstanding Common Stock, (iii) effect a reverse stock split or
combine its outstanding Common Stock into a smaller number of shares, or (iv)
effect any other reclassification or recapitalization, the Exercise Price in
effect immediately prior thereto shall be adjusted so that upon the subsequent
exercise of this Warrant the Holder hereof shall be entitled to receive the
number of shares of capital stock of the Company which the Holder hereof would
have owned or have been entitled to receive after the happening of any of the
events described above had such Warrant been exercised immediately prior to the
happening of such event. An adjustment made pursuant to this Section 2(a) shall
become effective immediately after the record date for any event requiring such
adjustment or shall become effective immediately after the effective date of
such event if no record date is set.
(b) Distribution of Assets. In case the Company shall distribute
to all holders of its Common Stock evidences of its indebtedness or assets
(including cash dividends or distributions paid from retained earnings of the
Company in respect of its Common Stock) or rights or warrants to subscribe or
purchase (excluding those referred to in Section 2(c) below), then in each such
case the Exercise Price shall be adjusted so that the Exercise Price shall equal
the price determined by multiplying the Exercise Price in effect immediately
prior to the record date for such distribution by a fraction of which the
numerator shall be the then current market price per share (as defined in
Section 2(d) below) of the Common Stock on the record date for such event less
the then fair market value (as reasonably determined by the Board of Directors
of the Company, which determination shall be conclusive) of the portion of the
assets or evidences of indebtedness so distributed or of such rights or warrants
applicable to one share of the Common Stock outstanding as of such record date,
and the denominator shall be the then current market price per share (as defined
in Section 2(d) below) of the Common Stock. Such adjustment shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such distribution.
(c) Dilutive Issuances. In case the Company shall sell or issue
shares of Common Stock (other than Excluded Stock, as defined hereinafter) for a
consideration per share less than the Exercise Price then in effect, then, upon
such sale or issuance, the Exercise Price shall be adjusted downward so that the
Exercise Price shall equal the price determined by dividing the aggregate amount
of consideration, if any, received, or to be received, by the Company upon such
issuance or sale by the number of shares sold, issued or issuable.
(i) For purposes of this Section 2(c)(i), the sale or
issuance by the Company of rights, warrants or options to purchase Common Stock
or securities convertible into Common Stock shall be deemed to be the sale or
issuance of shares of Common Stock (in which event the subsequent exercise
thereof shall not be deemed to be a separate sale or issuance for
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purposes of this Section 2(c)), and the consideration therefor shall (i) in the
case of rights, warrants or options, consist of the consideration received by
the Company upon such issuance plus any consideration to be received upon the
exercise thereof, and (ii) in the case of convertible securities, consist of the
stock purchase price per share.
(ii) For purposes of this Section 2(c)(ii), "Excluded Stock"
shall mean (i) all shares issuable upon the exercise of currently outstanding
warrants, (ii) all shares issued or issuable pursuant to any incentive plan or
arrangement approved by the Board of Directors for the benefit of the Company's
employees, officers, directors, consultants or others with important business
relationships with the Company, and (iii) all shares issued in connection with
the rights offering as contemplated in Section 8 of the Bridge Financing
Agreement.
(iii) In the event of any change in the Exercise Price as a
result of the issuance of such rights, warrants or options or such convertible
securities, the Exercise Price shall be recomputed to reflect such change, but
no further adjustment shall be made for the actual issuance of Common Stock or
any payment of such consideration upon the exercise of any such rights, warrants
or options or the conversion of such securities.
(iv) Upon the expiration of any such rights, warrants or
options or the termination of any such rights to convert convertible the
Exercise Price, to the extent in any way affected by or computed using such
rights, warrants or options or convertible securities, shall be recomputed to
reflect the issuance of only the number of shares of Common Stock actually
issued upon the exercise of such rights, warrants or options or upon the
conversion of such securities.
(d) Definitions. For the purposes of any computation under
Section 2(b) above:
(i) The current market price per share on any record date or
other date for determination of value shall be deemed to be the average of the
closing price per share on the ten (10) trading days before such record or
determination date. For the purpose of all relevant provisions of this Warrant,
the closing price for each day shall be the last sale price regular way or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices regular way, in either case on the New York Stock Exchange, or, if
the shares are not listed or admitted to trading on such exchange, on the
principal national securities exchange on which the shares are listed or
admitted to trading, or if the shares are not listed or admitted to trading on
any national securities exchange, the last reported sale price as reported by
NASDAQ, or if no such sales are then being reported, the average of the highest
reported bid and lowest reported asked prices as furnished by the National
Association of Securities Dealers, Inc., through NASDAQ or a other organization
if NASDAQ is no longer reporting such information. If no price is determinable
as described above for the purposes required herein, the fair value of such
shares, as reasonably determined by the Board of Directors of the Company, shall
be used.
(ii) Shares outstanding shall mean the aggregate of all
shares of Common Stock of the Company outstanding and all shares of Common Stock
issuable upon the exercise of all outstanding rights, warrants or options to
subscribe for or purchase Common Stock (or securities convertible into Common
Stock) and the conversion of all outstanding indebtedness or equity securities
convertible into or exchangeable for shares of Common Stock.
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15
(e) De Minimis Change. No adjustment in the Exercise Price shall
be required unless such adjustment would require an increase or decrease of at
least one cent ($0.01) in such price; provided, however, that any adjustments
which by reason of this Section 2 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 2 shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be. Anything in this Section 2 to the
contrary notwithstanding, the Company shall be entitled to make such reductions
in the Exercise Price, in addition to those required by this Section 2, as it in
its discretion shall determine to be advisable.
(f) Adjustment of Warrant Shares. Upon each adjustment of the
Exercise Price pursuant to this Section 2, the holder of this Warrant shall
thereafter be entitled to purchase, at the Exercise Price resulting from such
adjustment, the number of Warrant Shares obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of Warrant
Shares purchasable pursuant hereto immediately prior to such adjustment; and
dividing the product thereof by the Exercise Price resulting from such
adjustment.
(g) Notice. Whenever the Exercise Price is adjusted, as herein
provided, the Company shall promptly prepare a notice of such adjustment of the
Exercise Price setting forth the adjusted Exercise Price, the number of shares
issuable upon exercise of the Warrant and the date on which such adjustment
becomes effective and shall mail such notice of such adjustment of the Exercise
Price to the holder of this Warrant at the address of such Holder as in the
records of the Company.
(h) Deferrals. In any case in which this Section 2 provides that
an adjustment shall become effective immediately after a record date for an
event, the Company may elect to defer until the occurrence of such event (i)
issuing to the Holder of this Warrant exercised after such record date and
before the occurrence of such event the additional shares of Common Stock
issuable upon such exercise before giving effect to such adjustment and (ii)
paying to the Holder any amount in cash in lieu of any fractional share.
(i) Effect of Reclassification, Consolidation, Merger or Sale. If
any of the following events occur, namely (i) any reclassification or change of
outstanding shares of Common Stock issuable upon exercise of this Warrant (other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination), (ii) any
consolidation or merger to which the Company is a party other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification or change (other than a change in
par value, or from par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination) in outstanding shares of Common
Stock, or (iii) any sale or conveyance of the properties and assets of the
Company as, or substantially as, an entirety; then the Company or such successor
or purchaser, as the case may be, shall execute a new Warrant providing that the
new Warrant shall be convertible only into the kind and amount of shares of
stock and other securities, cash or property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of shares of Common Stock issuable upon conversion of such Warrant
immediately prior to such reclassification, change, consolidation, merger, sale
or conveyance. The above provisions of this Section shall similarly apply to
successive reclassifications, consolidations, mergers and sales.
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(j) No Impairment. The Company will not, by amendment of its
Certificate of Incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms herein, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate in order to protect the rights of the Holders of this
Warrant against dilution or other impairment.
3. Registration Rights. The Holders may request registration of the
Warrant Shares under that certain Registration Rights Agreement dated as of the
date hereof by and between the Company and the Holder, and any and all
amendments thereto shall apply to the Warrant Shares issued or issuable upon
exercise of this Warrant.
4. Transfer of Warrant. This Warrant shall be registered on the books of
the Company and shall be transferable in whole or in part on such books by the
registered Holder hereof in person or by duly authorized attorney separately
from any transfer of the Secured Promissory Note issued in connection with the
Bridge Financing Agreement.
5. Reservation of Common Stock. The Company hereby covenants and agrees
that it shall at all times reserve and keep authorized and available for
issuance, free of any preemptive rights or rights of first refusal, a sufficient
number of Warrant Shares for the purpose of issuance upon exercise of this
Warrant to permit the exercise of this Warrant in whole.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and delivered by its duly authorized officers as of the __ day of
February, 1998.
EPOCH PHARMACEUTICALS, INC.
By:
----------------------------------------
Its:
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ANNEX I TO WARRANT
SUBSCRIPTION AGREEMENT
The undersigned holder of the Warrant to which this Subscription
Agreement is attached as Annex I hereby (i) subscribes for ___________________
Warrant Shares (as defined in the Warrant) which the undersigned is entitled to
purchase pursuant to the terms of the Warrant, and (ii) directs that the
certificates evidencing such shares of Common Stock be issued and delivered to
_______________________________. Payment of the Exercise Price will be made upon
delivery of such certificates.
Date: ________________
Signature:
---------------------------------
Type or Print Name:
---------------------------------
Street Address:
---------------------------------
City, State & Zip Code:
---------------------------------
