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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 22, 1999
REGISTRATION NO. 333-90811
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ISIS PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0336973
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
2292 FARADAY AVENUE
CARLSBAD, CALIFORNIA 92008
(760) 931-9200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
B. LYNNE PARSHALL, ESQ.
EXECUTIVE VICE PRESIDENT
ISIS PHARMACEUTICALS, INC.
2292 FARADAY AVENUE
CARLSBAD, CALIFORNIA 92008
(760) 931-9200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
JULIE M. ROBINSON, ESQ.
SCOTT R. CUTLER, ESQ.
COOLEY GODWARD LLP
4365 EXECUTIVE DRIVE, SUITE 1100
SAN DIEGO, CA 92121
(619) 550-6000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD TO YOU UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED NOVEMBER 22, 1999
PROSPECTUS
4,000,000 Shares
ISIS PHARMACEUTICALS, INC.
Common Stock
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Isis plans to enter into a common stock purchase agreement with Ridgeway
Investment Limited. Under the purchase agreement, Isis may issue and sell to
Ridgeway, from time to time, shares of its common stock for cash consideration
up to an aggregate of $120 million at a per share purchase price equal to the
average price of the common stock over a period of time less a discount from
4.5% to 5.875%. Pursuant to the terms of the purchase agreement, none of the
shares will be sold until at least January 1, 2000.
Isis' common stock is traded on the Nasdaq National Market under the symbol
"ISIP". On November 19, 1999, the last reported sale price for our common stock
on the Nasdaq National Market was $14.1875 per share.
INVESTING IN OUR COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is , 1999
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TABLE OF CONTENTS
PAGE
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Prospectus Summary.......................................... 3
The Company................................................. 3
The Offering................................................ 4
Risk Factors................................................ 5
Where You Can Get More Information.......................... 10
Use of Proceeds............................................. 11
Dilution.................................................... 12
Plan of Distribution........................................ 12
Legal Matters............................................... 14
Experts..................................................... 14
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and consolidated financial statements appearing elsewhere
or incorporated by reference in this prospectus.
THE COMPANY
Isis was incorporated in California in January 1989 and in April 1991
changed its state of incorporation to Delaware. Our executive offices are
located at 2292 Faraday Avenue, Carlsbad, California 92008, and our telephone
number is (760) 931-9200. Isis' world wide web address is http://www.isip.com.
Information contained in our world wide web site should not be considered to be
part of this prospectus.
Isis Pharmaceuticals is a trademark of Isis. Vitravene(TM) is a trademark
of CIBA Vision Corporation. All other brand names or trademarks appearing in
this prospectus are the property of their respective holders.
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THE OFFERING
Common stock offered in this
prospectus...................... 4,000,000 shares
Common stock outstanding after
the offering.................... 34,708,001 shares(1)
Use of proceeds................. For research, drug discovery and development
activities, including preclinical and
clinical studies, production of compounds
for such studies and capital expenditures,
and other general corporate purposes. See
"Use of Proceeds."
Nasdaq National Market symbol... ISIP
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(1) Based on shares outstanding as of November 10, 1999. Does not include
7,850,253 shares of common stock issuable upon exercise of outstanding
options or 1,015,000 shares of common stock issuable upon exercise of
outstanding warrants as of November 10, 1999.
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RISK FACTORS
Please consider the following risk factors carefully in addition to the
other information contained in this prospectus and in any other documents
incorporated by reference into this prospectus from our other SEC filings.
OUR BUSINESS WILL SUFFER IF WE FAIL TO OBTAIN REGULATORY APPROVAL FOR OUR
PRODUCTS.
We must conduct time-consuming, extensive and costly clinical trials, in
compliance with U.S. Food and Drug Administration regulations, to show the
safety and efficacy of each of our drug candidates, as well as the optimum
dosage for each, before the FDA can approve a drug candidate for sale. We cannot
guarantee that we will be able to obtain necessary regulatory approvals on a
timely basis, if at all, for any of our products under development. Delays in
receiving these approvals, failure by us or our partners to receive these
approvals at all or failure to comply with existing or future regulatory
requirements could have a material adverse effect on our business, financial
condition and results of operations.
While limited trials of our products have to date produced favorable
results, significant additional trials may be required, and we may not be able
to demonstrate that our drug candidates are safe or effective. We have only
introduced one commercial product, Vitravene. We cannot guarantee that any of
our other product candidates will obtain required government approvals or that
we can successfully commercialize any products. We expect to have ongoing
discussions with the FDA and foreign regulatory agencies with respect to all of
our drugs in clinical development.
OUR BUSINESS WILL SUFFER IF OUR PRODUCTS ARE NOT USED BY DOCTORS TO TREAT
PATIENTS.
We cannot guarantee that any of our products in development, if approved
for marketing, will be used by doctors to treat patients. We currently have one
product, Vitravene, a treatment for CMV retinitis in AIDS patients, which
addresses a small commercial market with significant competition. We delivered
our first commercial shipment of Vitravene to our partner CIBA Vision in 1998,
earning product revenue of $560,000.
The degree of market acceptance for any of our products depends upon a
number of factors, including:
- the receipt and scope of regulatory approvals,
- the establishment and demonstration in the medical and patient community
of the clinical efficacy and safety of our product candidates and their
potential advantages over competitive products, and
- reimbursement policies of government and third-party payors.
In addition, we cannot guarantee that physicians, patients, patient
advocates, payors or the medical community in general will accept and use any
products that we may develop.
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OUR BUSINESS WILL SUFFER IF ANY OF OUR COLLABORATIVE PARTNERS FAIL TO DEVELOP,
FUND OR SELL ANY OF OUR PRODUCTS UNDER DEVELOPMENT.
If any collaborative partner fails to develop or sell any product in which
we have rights, our business may be negatively affected. While we believe that
our collaborative partners will have sufficient motivation to continue their
funding, development and commercialization activities, we cannot be sure that
any of these collaborations will be continued or result in commercialized
products. The failure of a corporate partner to continue funding any particular
program could delay or stop the development or commercialization of any products
resulting from such program.
Collaborative partners may be pursuing other technologies or developing
other drug candidates either on their own or in collaboration with others,
including our competitors, to develop treatments for the same diseases targeted
by our own collaborative programs.
We also may wish to rely on additional collaborative arrangements to
develop and commercialize our products in the future. However, we may not be
able to negotiate acceptable collaborative arrangements in the future, and, even
if successfully negotiated, the collaborative arrangements themselves may not be
successful.
OUR BUSINESS COULD SUFFER IF THE RESULTS OF FURTHER CLINICAL TESTING INDICATE
THAT ANY OF OUR PRODUCTS UNDER DEVELOPMENT ARE NOT SUITABLE FOR COMMERCIAL USE.
Drug discovery and development involves inherent risks, including the risk
that molecular targets prove unsuccessful and the risk that compounds that
demonstrate attractive activity in preclinical studies do not demonstrate
similar activity in human beings or have undesirable side effects. Most of our
resources are dedicated to applying molecular biology and medicinal chemistry to
the discovery and development of drug candidates based upon antisense
technology, a novel drug discovery tool in designing drugs that work at the
genetic level to block the production of disease-causing proteins.
WE HAVE INCURRED LOSSES AND OUR BUSINESS WILL SUFFER IF WE FAIL TO ACHIEVE
PROFITABILITY IN THE FUTURE.
Because of the nature of the business of drug discovery and development,
our expenses have exceeded our revenues since Isis was founded in January 1989.
As of September 30, 1999, our accumulated losses were approximately $239
million. Most of the losses have resulted from costs incurred in connection with
our research and development programs and from general and administrative costs
associated with our growth and operations. These costs have exceeded our
revenues, most of which have come from collaborative arrangements, interest
income and research grants. Our current product revenues are derived solely from
sales of Vitravene. This product has limited sales potential relative to most
pharmaceutical products. We expect to incur additional operating losses over the
next several years and we expect losses to increase as our preclinical testing
and clinical trial efforts continue to expand. We cannot guarantee that we will
successfully develop, receive regulatory approval for, commercialize,
manufacture, market or sell any additional products, or achieve or sustain
future profitability.
OUR BUSINESS WILL SUFFER IF WE FAIL TO OBTAIN TIMELY FUNDING.
Based on our current operating plan, we believe that our available cash and
existing sources of revenue and credit, together with the proceeds of this
offering and interest
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earned thereon, will be adequate to satisfy our capital needs until at least the
end of 2000. We expect that we will need substantial additional funding in the
future. Our future capital requirements will depend on many factors, such as the
following:
- continued scientific progress in our research, drug discovery and
development programs;
- the size of these programs and progress with preclinical and clinical
trials;
- the time and costs involved in obtaining regulatory approvals;
- the market acceptance of Vitravene;
- the costs involved in filing, prosecuting and enforcing patent claims;
- competing technological and market developments, including the
introduction of new therapies that address our markets; and
- changes in existing collaborative relationships and our ability to
establish and maintain additional collaborative arrangements.
If we are unable to raise the total amount of proceeds covered by this
prospectus, we will need to raise additional funds to finance our research and
development and other operating activities. If we find that we do not have
enough money, additional funds will need to be raised, including through public
or private financing. Additional financing may not be available, or, if
available, may not be on acceptable terms. If additional funds are raised by
issuing equity securities, the shares of existing stockholders will be subject
to further dilution and share prices may decline. If adequate funds are not
available, we may be required to cut back on one or more of our research, drug
discovery or development programs or obtain funds through arrangements with
collaborative partners or others. These arrangements may require us to give up
rights to certain of our technologies, product candidates or products.
OUR BUSINESS WILL SUFFER IF WE CANNOT MANUFACTURE OUR PRODUCTS OR HAVE A THIRD
PARTY MANUFACTURE OUR PRODUCTS AT LOW COSTS SO AS TO ENABLE US TO CHARGE
COMPETITIVE PRICES TO BUYERS.
To establish additional commercial manufacturing capability on a large
scale, we must improve our manufacturing processes and reduce our product costs.
The manufacture of sufficient quantities of new drugs is typically a
time-consuming and complex process. Pharmaceutical products based on chemically
modified oligonucleotides have never been manufactured on a large commercial
scale. There are a limited number of suppliers for certain capital equipment and
raw materials that we use to manufacture our drugs, and some of these suppliers
will need to increase their scale of production to meet our projected needs for
commercial manufacturing. We may not be able to manufacture at a cost or in
quantities necessary to make commercially successful products.
In 1998, we entered into an antisense oligonucleotide manufacturing
collaboration with Avecia Life Science Molecules of Manchester, England,
pursuant to which Avecia LSM will supply a portion of our requirements of drugs
for clinical trials. As of the date of this prospectus, we have not received any
supply of drugs under this arrangement, and we cannot guarantee that Avecia LSM
will prove to be an acceptable alternative supplier.
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OUR BUSINESS WILL SUFFER IF WE FAIL TO COMPETE EFFECTIVELY WITH OUR COMPETITORS.
Our competitors are engaged in all areas of drug discovery in the United
States and other countries, are numerous, and include, among others, major
pharmaceutical and chemical companies, specialized biopharmaceutical firms,
universities and other research institutions. Our competitors may succeed in
developing other new therapeutic drug candidates that are more effective than
any drug candidates that we have been developing. These competitive developments
could make our technology and products obsolete or non-competitive before we
have had enough time to recover our research, development or commercialization
expenses.
Many of our competitors have substantially greater financial, technical and
human resources than we do. In addition, many of these competitors have
significantly greater experience than we do in conducting preclinical testing
and human clinical trials of new pharmaceutical products and in obtaining FDA
and other regulatory approvals of products for use in health care. Accordingly,
our competitors may succeed in obtaining regulatory approval for products
earlier than we do. We will also compete with respect to manufacturing
efficiency and marketing capabilities, areas in which we have limited or no
experience.
OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO PROTECT OUR PATENTS OR OUR
PROPRIETARY RIGHTS.
Our success depends to a significant degree upon our ability to develop
proprietary products. However, we cannot assure you that patents will be granted
on any of our patent applications in the United States or in other countries. We
also cannot assure you that the scope of any of our issued patents will be
sufficiently broad to offer meaningful protection. In addition, our issued
patents or patents licensed to us could potentially be successfully challenged,
invalidated or circumvented so that our patent rights would not create an
effective competitive barrier.
INTELLECTUAL PROPERTY LITIGATION COULD HARM OUR BUSINESS.
To date, we have not experienced any patent or other intellectual property
litigation. However, we cannot guarantee that we will not have to defend our
intellectual property rights in the future. In the event of an intellectual
property dispute, we may be forced to litigate or otherwise defend our
intellectual property assets. Such disputes could involve litigation or
proceedings declared by the U.S. Patent and Trademark Office or the
International Trade Commission. Intellectual property litigation can be
extremely expensive, and such expense, as well as the consequences should we not
prevail, could seriously harm our business.
If a third party claimed an intellectual property right to technology we
use, we might be forced to discontinue an important product or product line,
alter our products and processes, pay license fees or cease certain activities.
Although we might under those circumstances attempt to obtain a license to such
intellectual property, we may not be able to do so on favorable terms, if at
all.
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THE LOSS OF KEY PERSONNEL, OR THE INABILITY TO ATTRACT AND RETAIN HIGHLY SKILLED
PERSONNEL, COULD ADVERSELY AFFECT OUR BUSINESS.
We are dependent on the principal members of our management and scientific
staff. We do not have employment agreements with any of our management. The loss
of our management and key scientific employees might slow the achievement of
important research and development goals. It is also critical to our success to
recruit and retain qualified scientific personnel to perform research and
development work. Although we believe we will be successful in attracting and
retaining skilled and experienced scientific personnel, we may not be able to do
so on acceptable terms, because of stiff competition for experienced scientists
among many pharmaceutical and health care companies, universities and non-profit
research institutions.
OUR STOCK PRICE MAY CONTINUE TO BE HIGHLY VOLATILE.
The market price of our common stock, like that of the securities of many
other biopharmaceutical companies, has been and is likely to continue to be
highly volatile. During the last twelve months, the market price of our common
stock has ranged from $9 to $16. The market price can be affected by many
factors, including, for example, fluctuation in our operating results,
announcements of technological innovations or new drug products being developed
by us or our competitors, governmental regulation, regulatory approval,
developments in patent or other proprietary rights, public concern regarding the
safety of our drugs and general market conditions.
PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND DELAWARE LAW MAY PREVENT
STOCKHOLDERS FROM RECEIVING A PREMIUM FOR THEIR SHARES.
Our certificate of incorporation provides for classified terms for the
members of the board of directors. Our certificate also includes a provision
that requires at least 66 2/3% of our voting stockholders to approve a merger or
certain other business transactions with, or proposed by, 15% or more of our
voting stockholders, except in cases where certain directors approve the
transaction or certain minimum price criteria and other procedural requirements
are met.
Our certificate of incorporation also requires that any action required or
permitted to be taken by our stockholders must be taken at a duly called annual
or special meeting of stockholders and may not be taken by written consent. In
addition, special meetings of our stockholders may be called only by the board
of directors, the chairman of the board or the president, or by any holder of
10% or more of our outstanding common stock. These provisions may discourage
certain types of transactions in which our stockholders might otherwise receive
a premium for their shares over then current market prices, and may limit the
ability of our stockholders to approve transactions that they think may be in
their best interests. In addition, the board of directors has the authority to
fix the rights and preferences of and issue shares of preferred stock, which may
have the effect of delaying or preventing a change in control of Isis without
action by the stockholders.
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WHERE YOU CAN GET MORE INFORMATION
We are a reporting company and file annual, quarterly and current reports,
proxy statements and other information with the SEC. You may read and copy these
reports, proxy statements and other information at the SEC's public reference
rooms in Washington, D.C., New York, NY and Chicago, IL. You can request copies
of these documents by writing to the SEC and paying a fee for the copying cost.
Please call the SEC at 1-800-SEC-0330 for more information about the operation
of the public reference rooms. Our SEC filings are also available at the SEC's
Web site at "http://www.sec.gov". In addition, you can read and copy our SEC
filings at the office of the National Association of Securities Dealers, Inc. at
1735 K Street, Washington, D.C. 20006.
The SEC allows us to "incorporate by reference" information that we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings we will make with
the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934:
- Annual Report on Form 10-K for the year ended December 31, 1998, as
amended on June 8, 1999 and June 14, 1999;
- Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999,
June 30, 1999 and September 30, 1999;
- Proxy Statement for the 1999 Annual Meeting of Stockholders;
- Current Reports on Form 8-K dated as of April 20, 1999, as amended on
June 8, 1999 and June 14, 1999, and dated as of September 2, 1999; and
- Isis' registration statement on Form 8-A filed on April 2, 1991, which
includes a description of our common stock.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address or telephone number:
Isis Pharmaceuticals, Inc.
Attn: Vice President of Finance
2292 Faraday Avenue
Carlsbad, CA 92008
Telephone Number (760) 931-9200
This prospectus is part of a larger registration statement we filed with
the SEC. You should rely only on the information incorporated by reference or
provided in this prospectus. We have not authorized anyone else to provide you
with different information. We are not making an offer of these securities in
any state where the offer is not permitted. You should not assume that the
information in this prospectus is accurate as of any date other than the date on
the front of the document.
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USE OF PROCEEDS
We cannot guarantee that we will receive any proceeds in connection with
this offering.
Companies in the biopharmaceutical industry generally expend significant
capital resources in product research and development. We anticipate that we
will be required to raise substantial additional capital over a period of
several years in order to finance our research and development programs.
Additional capital may be raised through additional public or private
financings, as well as collaborative relationships, borrowings and other
available sources.
We intend to use the net proceeds of this offering, if any, for our
research, drug discovery and development programs and for other general
corporate purposes. Expenses to be funded with the offering proceeds include
costs of preclinical and clinical studies, the production of compounds for such
studies and capital expenditures. We have not identified precisely the amounts
we plan to spend on each research, drug discovery and development program or the
timing of such expenditures. Isis, however, currently plans that the proceeds,
if any, will be used to support the continued development of ISIS 2302, an
antisense anti-inflammatory drug that recently completed pivotal trials in
Crohn's disease, and additional planned research and development efforts,
including Phase III clinical trials of ISIS 3521 in non-small cell lung cancer,
and other drugs in Isis' clinical programs. The remaining proceeds, if any, will
be used for general corporate purposes. The amounts actually expended for each
purpose may vary significantly depending upon numerous factors, including the
amount and timing of the proceeds from this offering, progress of our research,
drug discovery and development programs, the results of preclinical and clinical
studies, the timing of regulatory approvals, technological advances,
determinations as to commercial potential of our compounds and the status of
competitive products. In addition, expenditures will also depend upon the
establishment of collaborative research arrangements with other companies, the
availability of other financing and other factors.
Other methods of financing our operations, including the acquisition of
tenant improvements and capital equipment, such as mortgage or lease financing,
may be used by us if available on attractive terms. In the past, Isis has made a
practice of using lease financing for equipment purchases and intends to
continue to do so in the future to the extent the terms of this type of
financing remain commercially attractive. To the extent this type of financing
is used, proceeds of this offering will be reallocated to working capital.
Based upon our current operating plan, we believe that our available cash
and existing sources of revenue and credit, together with the proceeds of this
offering, if any, and interest earned thereon, will be adequate to satisfy our
capital needs until at least the end of 2000.
Proceeds of this offering, if any, may also be used to acquire companies or
products that complement the business of Isis. We are not planning or
negotiating any such transactions as of the date of this prospectus.
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DILUTION
The net tangible deficit of Isis at September 30, 1999 was $20,770,000 or
approximately $.71 per share of common stock. Net tangible deficit per share
represents the amount of our tangible assets less total liabilities, divided by
29,198,000 shares of common stock.
Net tangible book value dilution per share represents the difference
between the amount per share paid by purchasers of shares of common stock in the
offering made hereby and the pro forma net tangible book value per share of
common stock immediately after completion of the offering. After giving effect
to the sale of 4,000,000 shares of common stock in this offering at an assumed
offering price of $13.00 per share and the application of the estimated net
proceeds therefrom (after deducting estimated offering expenses) the pro forma
net tangible book value of Isis as of September 30, 1999 would have been
$31,130,000 or $.94 per share, an immediate increase in net tangible book value
of $1.65 per share to existing stockholders and an immediate dilution in net
tangible book value of $12.06 per share to purchasers of common stock in the
offering, as illustrated in the following table:
Assumed public offering price per share..................... $13.00
Net tangible book value per share at September 30, 1999..... $ (.71)
Increase per share attributable to new investors............ $ 1.65
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Pro forma net tangible book value per share after
offering.................................................. $ .94
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Net tangible book value dilution per share to new
investors................................................. $12.06
------
To the extent that outstanding options and warrants are exercised, there
will be further dilution to new investors.
PLAN OF DISTRIBUTION
We plan to enter into a common stock purchase agreement with Ridgeway. From
a period of 14 months following the later of the effective date of the
registration statement of which this prospectus forms a part or January 1, 2000,
Isis may, from time to time and at its sole discretion, present Ridgeway with
draw down requests to sell up to $5,000,000, or such other amount mutually
agreed upon by the parties, worth of shares of Isis' common stock. Isis will
issue and sell the shares to Ridgeway at a per share purchase price equal to the
average price of Isis' common stock over a period of time less a discount from
4.5% to 5.875% subject to a minimum price as set forth in the purchase
agreement. Isis may present Ridgeway with up to 12 draw down notices during the
term of the purchase agreement.
Upon the receipt of a draw down request, Ridgeway may exercise a call
option to purchase up to an additional $5,000,000, or such other amount mutually
agreed upon by the parties, worth of shares of Isis' common stock for a purchase
price equal to the average price of the common stock over a period specified in
the purchase agreement less a discount from 4.5% to 5.75% subject to a minimum
price as set forth in the purchase agreement.
Isis will pay Ridgeway a fee equal to .25% of each draw down amount and
each call option amount.
Pursuant to the terms of the purchase agreement, none of the shares will be
sold until at least January 1, 2000.
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Ridgeway and its pledgees, donees, transferees and other subsequent owners,
may offer their shares at various times in one or more of the following
transactions:
- in the over-the-counter market; or
- in privately negotiated transactions
at prevailing market prices at the time of sale, at prices related to those
prevailing market prices, at negotiated prices or at fixed prices.
Ridgeway may also sell its shares under Rule 144 instead of under this
prospectus, if Rule 144 is available for those sales.
The transactions in the shares may be effected by one or more of the
following methods:
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
- purchases by a broker or dealer as principal, and the resale by that
broker or dealer for its account under this prospectus, including resale
to another broker or dealer;
- block trades in which the broker or dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal in order to facilitate the transaction; or
- negotiated transactions between selling stockholders and purchasers
without a broker or dealer.
Ridgeway is an "underwriter" within the meaning of the Securities Act in
connection with its sale of the shares purchased under the purchase agreement
with Isis. Broker-dealers or other persons acting on behalf of parties that
participate in the distribution of the shares may also be deemed to be
underwriters. Any commissions or profits they receive on the resale of the
shares may be deemed to be underwriting discounts and commissions under the
Securities Act.
During the time Ridgeway is engaged in distributing shares covered by this
prospectus, Ridgeway will comply with the requirements of the Securities Act and
Rule 10b-5 and Regulation M under the Exchange Act. Under those rules and
regulations, they:
- may not engage in any stabilization activity in connection with our
securities;
- must furnish each broker which offers shares of common stock covered by
this prospectus with the number of copies of this prospectus which are
required by each broker; and
- may not bid for or purchase any of our securities or attempt to induce
any person to purchase any of our securities other than as permitted
under the Exchange Act.
In the purchase agreement with Ridgeway, we will agree to indemnify and
hold harmless Ridgeway and each person who controls Ridgeway against certain
liabilities, including liabilities under the Securities Act, which may be based
upon, among other things, any untrue statement or alleged untrue statement of a
material fact or any omission or alleged omission of a material fact contained
in any prospectus or prospectus supplement, unless made or omitted in reliance
upon written information provided to us by Ridgeway.
We have agreed to bear the expenses incident to the registration of the
shares, other than selling discounts and commissions. These expenses are
estimated to be $85,000.
13
15
LEGAL MATTERS
The validity of the issuance of the common stock offered in this prospectus
will be passed upon for Isis by Grantland E. Bryce, Vice President and General
Counsel of Isis. Mr. Bryce does not beneficially own any shares of common stock
as of the date of this prospectus.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements included in our Annual Report on Form 10-K, as amended, for the year
ended December 31, 1998, as set forth in their report, which is incorporated by
reference in this prospectus and elsewhere in the registration statement. Our
financial statements are incorporated by reference in reliance on Ernst & Young
LLP's report, given upon their authority as experts in accounting and auditing.
14
16
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses payable by Isis in connection
with the sale of the 4,000,000 shares of common stock being registered. All the
amounts shown are estimates except for the registration fee.
SEC registration fee................................. $ 13,689
Legal fees and expenses.............................. $ 40,000
Accounting fees and expenses......................... $ 5,000
Nasdaq fees for newly issued shares.................. $ 17,500
Miscellaneous........................................ $ 8,811
--------
Total.............................................. $ 85,000
========
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Section 145 of the Delaware General Corporation Law, Isis has broad
powers to indemnify its directors and officers against liabilities they may
incur in such capacities, including liabilities under the Securities Act of
1933.
Isis' certificate of incorporation and by-laws include provisions to (i)
eliminate the personal liability of its directors for monetary damages resulting
from breaches of their fiduciary duty to the extent permitted by Section
102(b)(7) of the General Corporation Law of Delaware and (ii) require Isis to
indemnify its directors and officers to the fullest extent permitted by Section
145 of the Delaware Law, including circumstances in which indemnification is
otherwise discretionary. Pursuant to Section 145 of the Delaware Law, a
corporation generally has the power to indemnify its present and former
directors, officers, employees and agents against expenses incurred by them in
connection with any suit to which they are, or are threatened to be made, a
party by reason of their serving in such positions so long as they acted in good
faith and in a manner they reasonably believed to be in, or not opposed to, the
best interest of the corporation, and with respect to any criminal action, they
had no reasonable cause to believe their conduct was unlawful. Isis believes
that these provisions are necessary to attract and retain qualified persons as
directors and officers. These provisions do not eliminate the directors' duty of
care, and, in appropriate circumstances, equitable remedies such as injunctive
or other forms of non-monetary relief will remain available under Delaware law.
In addition, each director will continue to be subject to liability for breach
of the directors' duty of loyalty to Isis, for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
acts or omissions that the director believes to be contrary to the best
interests of Isis or its stockholders, for any transaction from which the
director derived an improper personal benefit, for acts or omissions involving a
reckless disregard for the directors' duty to Isis or its stockholders when the
director was aware or should have been aware of a risk of serious injury to Isis
or its stockholders, for acts or omissions that constitute an unexcused pattern
of inattention that amounts to an abdication of the director's duty to Isis or
its stockholders, for improper transactions between the director and Isis and
for improper distributions to stockholders and loans to directors and officers.
The provision also does not affect a director's responsibilities under any other
law, such as the federal securities law or state or federal environmental laws.
II-1
17
The Registrant has entered into indemnity agreements with each of its
directors and executive officers that require Isis to indemnify such persons
against expenses, judgments, fines, settlements and other amounts incurred
(including expenses of a derivative action) in connection with any proceeding,
whether actual or threatened, to which any such person may be made a party by
reason of the fact that such person is or was a director or an executive officer
of Isis or any of its affiliated enterprises, provided such person acted in good
faith and in a manner such persons reasonably believed to be in, or not opposed
to, the best interests of Isis and, with respect to any criminal proceeding, has
no reasonable cause to believe his conduct was unlawful. The indemnification
agreements also set forth procedures that will apply in the event of a claim for
indemnification thereunder.
At present, there is no pending litigation or proceeding involving a
director or officer of Isis as to which indemnification is being sought, nor is
Isis aware of any threatened litigation that may result in claims for
indemnification by any officer or director.
Isis has an insurance policy covering the officers and directors of Isis
with respect to certain liabilities, including liabilities arising under the
Securities Act or otherwise.
ITEM 16. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
1.1 Form of Common Stock Purchase Agreement between Isis
and Ridgeway Investment Limited.
4.1 Amended and Restated Certificate of Incorporation.(1)
4.2 By-laws.(1)
4.3 Certificate of Designation of the Series A Convertible
Preferred Stock.(2)
5.1 Opinion of Grantland E. Bryce.*
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Grantland E. Bryce. Reference is made to
Exhibit 5.1.
24.1 Power of Attorney. Reference is made to page II-4.
99.1 Form of Confidentiality Agreement.(2)
- -------------------------
(1) Filed as an exhibit to the Registration Statement on Form S-1 (No. 33-39649)
or amendments thereto and incorporated herein by reference.
(2) Filed as an exhibit to the Registration Statement on Form S-3 (No.
333-71911) or amendments thereto and incorporated herein by reference.
* Previously filed.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 15 or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action suit, or
proceeding) is asserted by such director,
II-2
18
officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made
pursuant to this registration statement, a post-effective amendment to this
registration statement to include any material information with respect to
the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) of Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant undertakes that; (1) for purpose of determining
any liability under the Securities Act of 1933, the information omitted from the
form of prospectus filed as part of the registration statement in reliance upon
Rule 430A and contained in the form of prospectus filed by the Registrant
pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of the registration statement as of the time it was declared
effective; and (2) for the purpose of determining any liability under the
Securities act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, in the city of Carlsbad, County of San Diego, State of
California, on the 22nd day of November, 1999.
ISIS PHARMACEUTICALS, INC.
By: /s/ B. LYNNE PARSHALL
--------------------------------------
B. Lynne Parshall
Executive Vice President
and Chief Financial Officer
(Principal financial and accounting
officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints STANLEY T. CROOKE and B. LYNNE PARSHALL,
and each of them, as his or her true and lawful attorney-in-fact and agents,
with full power of substitution and resubstitution, for the undersigned and in
his or her name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the Registration Statement
and to file the same, with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange commission, granting unto said
attorneys-in-fact and agents, and each of them, full power of authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, each acting alone, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed below by the following persons
in the capacities indicated and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ STANLEY T. CROOKE Chairman of the Board November 22, 1999
- ------------------------------------------------ and Chief Executive
Stanley T. Crooke, M.D., Ph.D. Officer (Principal
executive officer)
/s/ B. LYNNE PARSHALL Executive Vice November 22, 1999
- ------------------------------------------------ President and Chief
B. Lynne Parshall Financial Officer
(Principal financial
and accounting
officer)
II-4
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SIGNATURES TITLE DATE
---------- ----- ----
* Director November 22, 1999
- ------------------------------------------------
Alan C. Mendelson
* Director November 22, 1999
- ------------------------------------------------
Christopher F.O. Gabrieli
* Director November 22, 1999
- ------------------------------------------------
William R. Miller
* Director November 22, 1999
- ------------------------------------------------
Mark B. Skaletsky
* Director November 22, 1999
- ------------------------------------------------
Larry Soll, Ph.D.
Director November 22, 1999
- ------------------------------------------------
Joseph H. Wender
By: /s/ STANLEY T. CROOKE
- -----------------------------------------------
Stanley T. Crooke, M.D., Ph.D.
Attorney-In-Fact
II-5
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EXHIBIT INDEX
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- ----------
1.1 Form of Common Stock Purchase Agreement between Isis and
Ridgeway Investment Limited.
4.1 Amended and Restated Certificate of Incorporation.(1)......
4.2 By-laws.(1)................................................
4.3 Certificate of Designation of the Series A Convertible
Preferred Stock.(2)........................................
5.1 Opinion of Grantland E. Bryce.*............................
23.1 Consent of Ernst & Young LLP, Independent Auditors.........
23.2 Consent of Grantland E. Bryce. Reference is made to Exhibit
5.1........................................................
24.1 Power of Attorney. Reference is made to page II-4..........
99.1 Form of Confidentiality Agreement.(2)......................
- -------------------------
(1) Filed as an exhibit to the Registration Statement on Form S-1 (No. 33-39649)
or amendments thereto and incorporated herein by reference.
(2) Filed as an exhibit to the Registration Statement on Forms S-3 (No.
333-71911) or amendments thereto and incorporated herein by reference.
* Previously filed
1
EXHIBIT 1.1
COMMON STOCK PURCHASE AGREEMENT
DATED AS OF _____________, 1999
BY AND BETWEEN
ISIS PHARMACEUTICALS, INC.
AND
RIDGEWAY INVESTMENT LIMITED
2
TABLE OF CONTENTS
PAGE
----
ARTICLE I
DEFINITIONS...................................................................... 1
Section 1.1 Definitions........................................................ 1
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK................................................ 3
Section 2.1 Purchase and Sale of Stock......................................... 3
Section 2.2 The Shares......................................................... 3
Section 2.3 Registration Statement and Prospectus.............................. 3
Section 2.4 Purchase Price and Closing......................................... 3
ARTICLE III
REPRESENTATIONS AND WARRANTIES................................................... 4
Section 3.1 Representation and Warranties of the Company....................... 4
Section 3.2 Representations and Warranties of the Purchaser.................... 12
ARTICLE IV
COVENANTS........................................................................ 13
Section 4.1 Securities Compliance.............................................. 13
Section 4.2 Registration and Listing........................................... 13
Section 4.3 Registration Statement............................................. 14
Section 4.4 Distribution of Common Stock....................................... 14
Section 4.5 Compliance with Laws............................................... 14
Section 4.6 Keeping of Records and Books of Account............................ 14
Section 4.7 Reporting Requirements............................................. 14
Section 4.8 Intentionally Omitted.............................................. 15
Section 4.9 Other Agreements................................................... 15
Section 4.10 Effective Registration Statement................................... 15
Section 4.11 No Stop Orders.................................................... 15
Section 4.12 Intentionally Omitted.............................................. 16
Section 4.13 Amendments to the Registration Statement........................... 16
Section 4.14 Prospectus Delivery................................................ 16
Section 4.15 No Shorting...................................................... 16
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ARTICLE V
CONDITIONS TO CLOSING AND DRAW DOWNS............................................. 17
Section 5.1 Conditions Precedent to the Obligation of the Company to
Sell the Shares................................................ 17
Section 5.2 Conditions Precedent to the Obligation of the Purchaser
to Close....................................................... 18
Section 5.3 Conditions Precedent to the Obligation of the Purchaser
to Accept a Draw Down and Purchase the Shares.................. 19
Section 5.4 Conditions Precedent to the Obligation of the Company to
Issue Shares Upon Exercise of a Call Option.................... 20
ARTICLE VI
DRAW DOWN TERMS; CALL OPTION..................................................... 20
Section 6.1 Draw Down Terms.................................................... 20
Section 6.2 Purchaser's Call Option............................................ 22
ARTICLE VII
TERMINATION...................................................................... 23
Section 7.1 Termination by Mutual Consent...................................... 23
Section 7.2 Other Termination.................................................. 23
Section 7.3 Effect of Termination.............................................. 23
ARTICLE VIII
INDEMNIFICATION.................................................................. 24
Section 8.1 General Indemnity.................................................. 24
Section 8.2 Indemnification Procedures......................................... 25
ARTICLE IX
MISCELLANEOUS.................................................................... 26
Section 9.1 Fees and Expenses.................................................. 26
Section 9.2 Specific Enforcement, Consent to Jurisdiction...................... 26
Section 9.3 Entire Agreement; Amendment........................................ 27
Section 9.4 Notices............................................................ 27
Section 9.5 Waivers............................................................ 28
Section 9.6 Headings........................................................... 28
Section 9.7 Successors and Assigns............................................. 28
Section 9.8 Governing Law...................................................... 29
Section 9.9 Survival........................................................... 29
Section 9.10 Counterparts....................................................... 29
Section 9.11 Publicity.......................................................... 29
Section 9.12 Severability....................................................... 29
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Section 9.13 Further Assurances................................................. 30
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5
COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of
______________, 1999 by and among between Isis Pharmaceuticals, Inc., a Delaware
corporation (the "Company") and Ridgeway Investment Limited, a corporation
incorporated in the Commonwealth of The Bahamas as an International Business
Company (the "Purchaser").
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions.
(a) "Call Option" shall have the meaning assigned to such term in
Section 6.2 hereof.
(b) "Call Option Notice" shall mean a notice sent to the Company
on the trading day the Purchaser elects to exercise a Call Option.
(c) "Commission Documents" shall have the meaning assigned to
such term in Section 3.1(f) hereof.
(d) "Commission Filings" means the Company's Form 10-K for the
fiscal year ended December 31, 1998, Registration Statement on Form S-3 No.
333-90811, and all other filings made by the Company with the Securities and
Exchange Commission after the date hereof pursuant to the Securities Exchange
Act of 1934.
(e) "Draw Down Amount" means the actual amount of a Draw Down up
to $5,000,000, except as otherwise provided in Section 6.1(k) hereof, or such
other amount mutually agreed upon by the Company and the Purchaser.
(f) "Draw Down Notice" shall have the meaning assigned to such
term in Section 6.1(k) hereof.
(g) "Draw Down Pricing Period" shall mean a period of eighteen
(18) consecutive trading days following a Draw Down Notice.
(h) "Effective Date" shall mean the later of the date the
Registration Statement of the Company covering the Shares being subscribed for
hereby is declared effective, or January 1, 2000.
6
(i) "Material Adverse Effect" shall mean any effect on the
business, operations, properties or financial condition of the Company that is
material and adverse to the Company and its subsidiaries, taken as a whole
and/or any condition, circumstance, or situation that would prohibit the Company
from entering into and performing any of its obligations under this Agreement in
any material respect.
(j) "Material Change in Ownership" shall mean that the officers
and directors of the Company shall beneficially own in the aggregate less than
2% of the outstanding Common Stock of the Company that the officers and
directors beneficially own as of the date hereof.
(k) "Prospectus" as used in this Agreement means the prospectus
in the form included in the Registration Statement, or, if the prospectus
included in the Registration Statement omits information in reliance on Rule
430A under the Securities Act of 1933, as amended, and the rules and regulations
of the Commission thereunder (collectively, the "Securities Act"), and such
information is included in a prospectus filed with the Commission pursuant to
Rule 424(b) under the Securities Act, the term "Prospectus" as used in this
Agreement means the prospectus in the form included in the Registration
Statement as supplemented by the addition of the Rule 430A information contained
in the prospectus filed with the Commission pursuant to Rule 424(b).
(l) "Registration Statement" shall mean the registration
statement on Form S-3, Commission File Number 333-90811 under the Securities
Act, filed with the Securities and Exchange Commission for the registration of
the Shares, as such Registration Statement may be amended from time to time.
(m) "Settlement Date" shall have the meaning assigned to such
term in Section 6.1(b) hereof.
(n) "Shares" shall mean, collectively, the shares of Common Stock
of the Company being subscribed for hereunder and those shares of Common Stock
issuable to the Purchaser upon exercise of the Call Option.
(o) "Threshold Price" is the lowest VWAP at which the Company
will sell Shares during each Draw Down Pricing Period.
(p) "Total Value" shall mean the product of the VWAP and the
total volume of the shares of Common Stock traded on NASDAQ on the day the Call
Option Notice is issued as reported by Bloomberg Financial LP using the AQR
function.
(q) "VWAP" shall mean the daily volume weighted average price
(based on a trading day from 9:30 a.m. to 4:00 p.m.) of the Company on the
Nasdaq National Market
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7
("Nasdaq") (or any successor thereto) as reported by Bloomberg Financial LP
using the AQR function.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.1 Purchase and Sale of Stock. Subject to the terms and
conditions of this Agreement, the Company shall issue and sell to the Purchaser
and the Purchaser shall purchase from the Company up to $120,000,000 of the
Company's common stock, $.001 par value per share (the "Common Stock"), based on
up to twelve (12) Draw Downs of up to $5,000,000 per Draw Down, except as
otherwise provided in Section 6.1(k) hereof, or such other amount mutually
agreed upon by the Company and the Purchaser, and Call Options which may be
exercised during any Draw Down Pricing Period of up to $5,000,000, except
otherwise provided in Section 6.2(b) hereof, or such other amount mutually
agreed upon by the Company and the Purchaser, per Call Option.
Section 2.2 The Shares. The Company has authorized and has reserved
and covenants to continue to reserve, subject to Section 4.5(b) hereof, free of
preemptive rights and other similar contractual rights of stockholders, a
sufficient number of its authorized but unissued shares of its Common Stock to
cover the Shares to be issued in connection with all Draw Downs and Call Options
requested under this Agreement.
Section 2.3 Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act, the
Registration Statement, including a prospectus subject to completion relating to
the Shares.
Section 2.4 Purchase Price and Closing. The Company agrees to issue
and sell to the Purchaser and, in consideration of and in express reliance upon
the representations, warranties, covenants, terms and conditions of this
Agreement, the Purchaser, agrees to purchase that number of the Shares to be
issued in connection with each Draw Down and exercise of each Call Option. The
closing under this Agreement shall take place at the offices of Parker Chapin
Flattau & Klimpl, LLP 1211 Avenue of the Americas, New York, NY 10036 (the
"Closing") at 10:00 a.m. E.S.T. on (i) November __, 1999, or (ii) such other
time and place or on such date as the Purchaser and the Company may agree upon
(the "Closing Date"). Each party shall deliver all documents, instruments and
writings required to be delivered by such party pursuant to this Agreement at or
prior to the Closing.
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8
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representation and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Purchaser:
(a) Organization, Good Standing and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of Delaware and has the requisite corporate power to own, lease and operate
its properties and assets and to conduct its business as it is now being
conducted. As of the date hereof, the Company does not have any subsidiaries (as
defined in Section 3.1(g)) except as set forth in the Registration Statement and
in the Company's most recent Form 10-K, including the accompanying financial
statements (the "Form 10-K"), or in the Company's most recent Form 10-Q (the
"Form 10-Q"), or on Schedule 3.1(a) attached hereto. The Company and each such
subsidiary is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary except for
any jurisdiction in which the failure to be so qualified will not have a
material adverse effect on the Company's financial condition.
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and perform this Agreement and to
issue and sell the Shares in accordance with the terms hereof. The execution,
delivery and performance of this Agreement by the Company and the consummation
by it of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action, and, except as contemplated by
Section 4.5(b), no further consent or authorization of the Company or its Board
of Directors or stockholders is required. This Agreement has been duly executed
and delivered by the Company. This Agreement constitutes, or shall constitute
when executed and delivered, a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor's
rights and remedies or by other equitable principles of general application.
(c) Capitalization. The authorized capital stock of the Company
and the shares thereof issued and outstanding as of the date hereof are set
forth in the Registration Statement or on Schedule 3.1(c) attached hereto. All
of the outstanding shares of the Company's Common Stock have been duly and
validly authorized, and are fully paid and nonassessable. Except as set forth in
this Agreement or as set forth in the Registration Statement, the Commission
Documents or the Commission Filings or on Schedule 3.1(c) attached hereto, as of
the date hereof, no shares of
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9
Common Stock are entitled to preemptive rights or registration rights and there
are no outstanding options, warrants, scrip, rights to subscribe to, call or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company. Furthermore,
except as set forth in this Agreement, the Registration Statement, the
Commission Documents or the Commission Filings or on Schedule 3.1(c) attached
hereto, as of the date hereof, there are no contracts, commitments,
understandings, or arrangements by which the Company is or may become bound to
issue additional shares of the capital stock of the Company or options,
securities or rights convertible into shares of capital stock of the Company.
Except as set forth in the Registration Statement, the Commission Documents or
the Commission Filings or on Schedule 3.1(c) attached hereto, as of the date
hereof, the Company is not a party to, and it has no knowledge of, any agreement
restricting the voting or transfer of any shares of the capital stock of the
Company. Except as set forth in the Registration Statement, the Commission
Documents or the Commission Filings or on Schedule 3.1(c) attached hereto, the
offer and sale of all capital stock, convertible securities, rights, warrants,
or options of the Company issued prior to the Closing complied with all
applicable federal and state securities laws, and no stockholder has a right of
rescission or damages with respect thereto which would have a Material Adverse
Effect on the Company's financial condition or operating results. The Company
has furnished or made available to the Purchaser true and correct copies of the
Company's Certificate of Incorporation as in effect on the date hereof (the
"Articles"), and the Company's Bylaws as in effect on the date hereof (the
"Bylaws").
(d) Issuance of Shares. The Shares to be issued under this
Agreement have been duly authorized by all necessary corporate action and, when
paid for or issued in accordance with the terms hereof, the Shares shall be
validly issued and outstanding, fully paid and nonassessable, and the Purchaser
shall be entitled to all rights accorded to a holder of Common Stock.
(e) No Conflicts. Except as disclosed on Schedule 3.1(e) attached
hereto, the execution, delivery and performance of this Agreement by the Company
and the consummation by the Company of the transactions contemplated therein do
not (i) violate any provision of the Company's Articles or Bylaws, (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, mortgage,
deed of trust, indenture, note, bond, license, lease agreement, instrument or
obligation to which the Company is a party, (iii) create or impose a lien,
charge or encumbrance on any property of the Company under any agreement or any
commitment to which the Company is a party or by which the Company is bound or
by which any of its respective properties or assets are bound, or (iv) result in
a violation of any federal, state, local or foreign statute, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or any of its subsidiaries or by which
any property or asset of the Company or any of its subsidiaries are bound or
affected, except, in all cases, for such conflicts, defaults, terminations,
amendments,
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10
acceleration, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect. The Company is not required under
federal, state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement, or issue and sell the Shares in accordance
with the terms hereof (other than any filings which may be required to be made
by the Company with the Commission, or Nasdaq subsequent to the Closing, and,
any registration statement which may be filed pursuant hereto); provided that,
for purpose of the representation made in this sentence, the Company is assuming
and relying upon the accuracy of the relevant representations and agreements of
the Purchaser herein.
(f) Commission Documents, Financial Statements. The Common Stock
of the Company is registered pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, except as
disclosed in the Registration Statement, or the Commission Documents, as defined
below, or the Commission Filings or on Schedule 3.1(f) attached hereto, as of
the date hereof, the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the Commission
pursuant to the reporting requirements of the Exchange Act, including material
filed pursuant to Section 13(a) or 15(d) of the Exchange Act (all of the
foregoing including filings incorporated by reference therein being referred to
herein as the "Commission Documents"). The Company has delivered or made
available to the Purchaser true and complete copies of the Commission Documents
filed with the Commission since December 31, 1998 and prior to the Closing Date.
The Company has not provided to the Purchaser any information which, according
to applicable law, rule or regulation, should have been disclosed publicly by
the Company but which has not been so disclosed, other than with respect to the
transactions contemplated by this Agreement. As of its date, the Form 10-K/A for
the year ended December 31, 1998 complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to it, and, as of its date, such Form 10-K/A did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the Commission
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission or other
applicable rules and regulations with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements), and fairly present
in all material respects the financial position of the Company and its
subsidiaries as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments).
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(g) Subsidiaries. The Commission Documents or Schedule 3.1(g)
attached hereto set forth each subsidiary of the Company as of the date hereof,
showing the jurisdiction of its incorporation or organization and showing the
percentage of the Company's ownership of the outstanding stock or other
interests of such subsidiary. For the purposes of this Agreement, "subsidiary"
shall mean any corporation or other entity of which at least a majority of the
securities or other ownership interest having ordinary voting power (absolutely
or contingently) for the election of directors or other persons performing
similar functions are at the time owned directly or indirectly by the Company
and/or any of its other subsidiaries. Except as set forth in the Commission
Documents or the Commission Filings, none of such subsidiaries is a "significant
subsidiary" as defined in Regulation S-X.
(h) No Material Adverse Change. Since December 31, 1998, the
Company has not experienced or suffered any Material Adverse Effect.
(i) No Undisclosed Liabilities. Except as disclosed in the
Commission Documents or the Commission Filings or on Schedule 3.1(i) attached
hereto, neither the Company nor any of its subsidiaries has any liabilities,
obligations, claims or losses (whether liquidated or unliquidated, secured or
unsecured, absolute, accrued, contingent or otherwise) that would be required to
be disclosed on a balance sheet of the Company or any subsidiary (including the
notes thereto) in conformity with GAAP not disclosed in the Commission Documents
or Commission Filings, other than those incurred in the ordinary course of the
Company's or its subsidiaries respective businesses since September 30, 1999 and
which, individually or in the aggregate, do not or would not have a Material
Adverse Effect on the Company or its subsidiaries.
(j) No Undisclosed Events or Circumstances. No event or
circumstance has occurred or exists with respect to the Company or its
subsidiaries or their respective businesses, properties, prospects, operations
or financial condition, which, under applicable law, rule or regulation,
requires public disclosure or announcement by the Company but which has not been
so publicly announced or disclosed and which, individually or in the aggregate,
do not or would not have a Material Adverse Effect on the Company or its
subsidiaries.
(k) Indebtedness. The Commission Filings set forth as of
September 30, 1999 all outstanding secured and unsecured Indebtedness of the
Company or any subsidiary, or for which the Company or any subsidiary has
commitments. For the purposes of this Agreement, "Indebtedness" shall mean (a)
any liabilities for borrowed money or amounts owed in excess of $100,000 (other
than trade accounts payable incurred in the ordinary course of business), (b)
all guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected in
the Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value of
any lease
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payments in excess of $100,000 due under leases required to be capitalized in
accordance with GAAP. Neither the Company nor any subsidiary is in default with
respect to any Indebtedness.
(l) Title to Assets. Each of the Company and its subsidiaries has
good and marketable title to all of their respective real and personal property
reflected in the Commission Documents, free of any mortgages, pledges, charges,
liens, security interests or other encumbrances, except for those indicated in
the Commission Documents or the Commission Filings or on Schedule 3.1(l)
attached hereto or such that could not reasonably be expected to cause a
Material Adverse Effect on the Company's financial condition or operating
results. All said leases of the Company and each of its subsidiaries are valid
and subsisting and in full force and effect in all material respects.
(m) Actions Pending. There is no action, suit, claim,
investigation or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any subsidiary which questions the validity of
this Agreement or the transactions contemplated hereby or any action taken or to
be taken pursuant hereto or thereto. Except as set forth in the Commission
Documents or the Commission Filings or on Schedule 3.1(m) attached hereto, there
is no action, suit, claim, investigation or proceeding pending or, to the
knowledge of the Company, threatened, against or involving the Company, any
subsidiary or any of their respective properties or assets and which, if
adversely determined, is reasonably likely to result in a Material Adverse
Effect.
(n) Compliance with Law. The business of the Company and the
subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth in the Commission Documents or the Commission
Filings or on Schedule 3.1(n) attached hereto or such that do not cause a
Material Adverse Effect. The Company and each of its subsidiaries have all
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals necessary for the conduct of its business as now
being conducted by it unless the failure to possess such franchises, permits,
licenses, consents and other governmental or regulatory authorizations and
approvals, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.
(o) Certain Fees. Except as set forth on Schedule 3.1(o) attached
hereto, no brokers, finders or financial advisory fees or commissions will be
payable by the Company or any subsidiary with respect to the transactions
contemplated by this Agreement.
(p) Disclosure. To the best of the Company's knowledge, neither
this Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchaser by or on behalf of the Company or any
subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omits to state a
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material fact necessary in order to make the statements made herein or therein,
in the light of the circumstances under which they were made herein or therein,
not misleading.
(q) Operation of Business. The Company or one of its subsidiaries
owns or possesses all patents, trademarks, service marks, trade names,
copyrights, licenses and authorizations as set forth in the Commission Documents
or the Commission Filings or on Schedule 3.1(q) attached hereto and all rights
with respect to the foregoing, which are necessary for the conduct of its
business as now conducted without any conflict with the rights of others, except
to the extent set forth in the Commission Documents or that a Material Adverse
Effect could not reasonably be expected to result from such conflict.
(r) Environmental Compliance. Except as disclosed in the
Commission Filings or on Schedule 3.1(r) attached hereto, the Company and each
of its subsidiaries have obtained all material approvals, authorization,
certificates, consents, licenses, orders and permits or other similar
authorizations of all governmental authorities, or from any other person, that
are required under any Environmental Laws. "Environmental Laws" shall mean all
applicable laws relating to the protection of the environment including, without
limitation, all requirements pertaining to reporting, licensing, permitting,
controlling, investigating or remediating emissions, discharges, releases or
threatened releases of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, materials or wastes, whether solid, liquid or
gaseous in nature, into the air, surface water, groundwater or land, or relating
to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, material or wastes, whether solid, liquid or
gaseous in nature. Except for such instances as would not individually or in the
aggregate have a Material Adverse Effect, to the best of the Company's
knowledge, there are no past or present events, conditions, circumstances,
incidents, actions or omissions relating to or in any way affecting the Company
or its subsidiaries that violate or could reasonably be expected to violate any
Environmental Law after the Closing or that could reasonably be expected to give
rise to any environmental liability, or otherwise form the basis of any claim,
action, demand, suit, proceeding, hearing, study or investigation (i) under any
Environmental Law, or (ii) based on or related to the manufacture, processing,
distribution, use, treatment, storage (including without limitation underground
storage tanks), disposal, transport or handling, or the emission, discharge,
release or threatened release of any hazardous substance.
(s) Material Agreements. Except as set forth in the Commission
Documents or on Schedule 3.1(s) attached hereto, neither the Company nor any
subsidiary of the Company is a party to any written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement, a copy of
which would be required to be filed with the Commission as an exhibit to a
registration statement on Form S-3 or applicable form (collectively, "Material
Agreements") if the Company or any subsidiary were registering securities under
the Securities Act. The Company and
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each of its subsidiaries has in all material respects performed all the
obligations required to be performed by them to date under the foregoing
agreements, have received no notice of default and, to the best of the Company's
knowledge are not in default under any Material Agreement now in effect, the
result of which could reasonably be expected to cause a Material Adverse Effect.
(t) Transactions with Affiliates. Except as set forth in the
Commission Documents or the Commission Filings or on Schedule 3.1(t) attached
hereto, there are no loans, leases, agreements, contracts, royalty agreements,
management contracts or arrangements or other continuing transactions exceeding
$100,000 between (a) the Company, any subsidiary or any of their respective
customers (excluding agreements related to the purchase or lease of the
Company's products) or suppliers on the one hand, and (b) on the other hand, any
officer, employee, consultant or director of the Company, or any of its
subsidiaries, or any person who would be covered by Item 404(a) of Regulation
S-K or any corporation or other entity controlled by such officer, employee,
consultant, director or person.
(u) Securities Act of 1933. The Company has complied in all
material respects with all applicable federal and state securities laws in
connection with the offer, issuance and sale of the Shares hereunder.
(i) Each Prospectus included as part of the Registration
Statement as originally filed or as part of any amendment or supplement
thereto, or filed pursuant to Rule 424 under the Securities Act,
complied when so filed in all material respects with the provisions of
the Securities Act. The Commission has not issued any order preventing
or suspending the use of any Prospectus.
(ii) The Company meets the requirements for the use of Form
S-3 under the Securities Act. The Registration Statement in the form in
which it became effective and also in such form as it may be amended or
supplemented from time to time, and the Prospectus and any supplement or
amendment thereto when filed with the Commission under Rule 424(b) under
the Securities Act, complied or will comply, as the case may be, in all
material respects with the provisions of the Securities Act and did not
at any such times contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to
make the statements therein in the light of the circumstances under
which they made, not misleading, except that this representation and
warranty does not apply to statements in or omissions from the
Registration Statement or the Prospectus made in reliance upon and in
conformity with information relating to the Purchaser furnished to the
Company in writing by or on behalf of the Purchaser expressly for use
therein.
(iii) The Company has not distributed and, prior to the
completion of the distribution of the Shares, will not distribute any
offering material in connection with the
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offering and sale of the Shares other than the Registration Statement,
the Prospectus or other materials, if any, permitted by the Securities
Act.
(v) Employees. As of the date hereof, neither the Company nor any
subsidiary of the Company has any collective bargaining arrangements or
agreements covering any of its employees, except as set forth in the Commission
Documents or the Commission Filings or on Schedule 3.1(v) attached hereto. As of
the date hereof, except as set forth in the Commission Documents or the
Commission Filings or on Schedule 3.1(v) attached hereto, neither the Company
nor any subsidiary has any employment contract, agreement regarding proprietary
information, noncompetition agreement, nonsolicitation agreement,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, employee or consultant to be
employed or engaged by the Company or such subsidiary. As of the date hereof,
except as disclosed in the Registration Statement, the Commission Documents or
the Commission Filings or Schedule 3.1(v), no officer, consultant or key
employee of the Company or any subsidiary whose termination, either individually
or in the aggregate, could reasonably be expected to have a Material Adverse
Effect, has terminated or, to the knowledge of the Company, has any present
intention of terminating his or her employment or engagement with the Company or
any subsidiary.
(w) Use of Proceeds. The proceeds from the sale of the Shares
will be used by the Company and its subsidiaries as set forth in the
Registration Statement.
(x) Public Utility Holding Company Act and Investment Company Act
Status. The Company is not a "holding company" or a "public utility company" as
such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
(y) ERISA. No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan by the Company or any of
its subsidiaries which is or would have a Material Adverse Effect. The execution
and delivery of this Agreement and the issue and sale of the Shares will not
involve any transaction which is subject to the prohibitions of Section 406 of
ERISA or in connection with which a tax could be imposed pursuant to Section
4975 of the Internal Revenue Code of 1986, as amended, provided that, if any of
the Purchaser, or any person or entity that owns a beneficial interest in any of
the Purchaser, is an "employee pension benefit plan" (within the meaning of
Section 3(2) of ERISA) with respect to which the Company is a "party in
interest" (within the meaning of Section 3(14) of ERISA), the requirements of
Sections 407(d)(5) and 408(e) of ERISA, if applicable, are met. As used in this
Section 2.1(ac), the term "Plan" shall mean an "employee pension benefit plan"
(as defined in Section 3 of ERISA) which is or has been established or
maintained, or to which contributions are or have been made, by the Company or
any
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subsidiary or by any trade or business, whether or not incorporated, which,
together with the Company or any subsidiary, is under common control, as
described in Section 414(b) or (c) of the Code.
(z) Acknowledgment Regarding Purchaser's Purchase of Shares. The
Company acknowledges and agrees that the Purchaser is acting solely in the
capacity of arm's length purchaser with respect to this Agreement and the
transactions contemplated hereunder. The Company further acknowledges that the
Purchaser is not acting as a financial advisor or fiduciary of the Company (or
in any similar capacity) with respect to this Agreement and the transactions
contemplated hereunder and any advice given by the Purchaser or any of its
representatives or agents in connection with this Agreement and the transactions
contemplated hereunder is merely incidental to the Purchaser's purchase of the
Shares.
Section 3.2 Representations and Warranties of the Purchaser. The
Purchaser hereby makes the following representations and warranties to the
Company:
(a) Organization and Standing of the Purchaser. The Purchaser is
a corporation duly incorporated, validly existing and in good standing under the
laws of the Commonwealth of the Bahamas.
(b) Authorization and Power. The Purchaser has the requisite
corporate power and authority to enter into and perform this Agreement and to
purchase the Shares in accordance with the terms hereof. The execution, delivery
and performance of this Agreement by Purchaser and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action, and no further consent or authorization of the Purchaser, its
Board of Directors or stockholders is required. This Agreement constitutes, or
shall constitute when executed and delivered, a valid and binding obligation of
the Purchaser enforceable against the Purchaser in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation, conservatorship,
receivership, or similar laws relating to, or affecting generally the
enforcement of, creditor's rights and remedies or by other equitable principles
of general application.
(c) No Conflicts. The execution, delivery and performance of this
Agreement and the consummation by the Purchaser of the transactions contemplated
hereby and thereby or relating hereto do not and will not (i) result in a
violation of such Purchaser's charter documents or bylaws or (ii) conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of any material agreement, mortgage,
deed of trust, indenture, note, bond, license, lease agreement, instrument or
obligation to which the Purchaser is a party, (iii) create or impose or lien,
charge or encumbrance on any property of the Purchaser under any agreement or
any commitment to which the Purchaser is party or by which the Purchaser is on
or by which any of
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its respective properties or assets are bound or (iv) result in a violation of
any law, rule, or regulation, or any order, judgment or decree of any court or
governmental agency applicable to the Purchaser or its properties, except for
such conflicts, defaults and violations as would not, individually or in the
aggregate, prohibit or otherwise interfere with the ability of the Purchaser to
enter into and perform its obligations under this Agreement in any material
respect. The Purchaser is not required to obtain any consent, authorization or
order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement or to purchase the Shares in accordance with the terms
hereof, provided that for purposes of the representation made in this sentence,
the Purchaser is assuming and relying upon the accuracy of the relevant
representations and agreements of the Company herein.
(d) Information. The Purchaser and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Shares which have been requested by the Purchaser. The Purchaser and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company. The Purchaser has sought such accounting, legal and tax advice as it
has considered necessary to make an informed investment decision with respect to
its acquisition of the Shares. Investor understands that it (and not the
Company) shall be responsible for its own tax liabilities that may arise as a
result of this investment or the transactions contemplated by this Agreement.
ARTICLE IV
COVENANTS
The Company covenants with the Purchaser as follows, which covenants are
for the benefit of the Purchaser and its permitted assignees (as defined
herein).
Section 4.1 Securities Compliance. The Company shall notify the
Commission and NASD, if applicable, in accordance with their rules and
regulations, of the transactions contemplated by this Agreement, and shall take
all other necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of the
Shares to the Purchaser or subsequent holders.
Section 4.2 Registration and Listing. The Company will take all action
necessary to cause its Common Stock to continue to be registered under Sections
12(b) or 12(g) of the Exchange Act, will comply in all respects with its
reporting and filing obligations under the Exchange Act, and will not take any
action or file any document (whether or not permitted by the Securities Act or
the rules promulgated thereunder) to terminate or suspend such registration or
to terminate or suspend its reporting and filing obligations under the Exchange
Act or Securities Act, except as permitted
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herein. The Company will take all action necessary to continue the listing or
trading of its Common Stock and the listing of the Shares purchased by Purchaser
hereunder on Nasdaq or any relevant market or system, if applicable, and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the NASD or any relevant market or
system.
Section 4.3 Registration Statement. Before the Purchaser shall be
obligated to accept a Draw Down request from the Company, the Company shall have
caused a sufficient number of shares of Common Stock to be registered to cover
the Shares to be issued in connection with this Agreement.
Section 4.4 Distribution of Common Stock. The Company and the Purchaser
agree that the Purchaser shall sell the shares of Common Stock purchased
hereunder only to institutional investors.
Section 4.5 Compliance with Laws.
(a) The Company shall comply, and cause each subsidiary to
comply, with all applicable laws, rules, regulations and orders, noncompliance
with which could have a Material Adverse Effect.
(b) The Company will not be obligated to issue and the Purchaser
will not be obligated to purchase any shares of the Company's Common Stock which
would result in the issuance under this Agreement of more than [_______ shares
of the Company's Common Stock (i.e., ] nineteen and nine-tenths percent (19.9%)
of the [then] issued and outstanding shares of the Company's Common Stock [on
the date hereof)].
Section 4.6 Keeping of Records and Books of Account. The Company shall
keep and cause each subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 4.7 Reporting Requirements. Upon request, the Company shall
furnish the following to the Purchaser so long as such Purchaser shall be
obligated hereunder to purchase Shares:
(a) Quarterly Reports filed with the Commission on Form 10-Q as
soon as available, and in any event within 47 days after the end of each of the
first three fiscal quarters of the Company; and
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(b) Annual Reports filed with the Commission on Form 10-K as soon
as available, and in any event within 92 days after the end of each fiscal year
of the Company.
Section 4.8 Intentionally Omitted.
Section 4.9 Other Agreements. The Company shall not enter into any
agreement in which the terms of such agreement would (i) restrict or impair the
right to perform of the Company or any subsidiary under this Agreement or the
Articles of the Company, or (ii) cause the Company to issue any Common Stock or
securities convertible into Common Stock during a Draw Down Pricing Period under
this Agreement, except under the terms of existing stock option plans, or
employee stock purchase plans. If, the Company enters into any equity financing
facility which will result in the issuance of the Company's Common Stock,
excluding any equity financing facility (including securities convertible into
common stock) in conjunction with a strategic corporate partnering transaction,
without the Purchaser's prior written consent, which consent shall not be
unreasonably withheld, the Purchaser may, at its option, terminate this
Agreement or abstain from accepting a Draw Down Request under this Agreement for
a period of three consecutive months.
Section 4.10 Effective Registration Statement. If, at the time this
Agreement is executed and delivered, it is necessary for the Registration
Statement or a post-effective amendment thereto to be declared effective before
the offering of the Shares may commence, the Company will endeavor to cause the
Registration Statement or such post-effective amendment to become effective as
soon as reasonably practicable and will advise the Purchaser promptly and, if
requested by the Purchaser, will confirm such advice in writing, when the
Company receives notice that the Registration Statement or such post-effective
amendment has become effective.
Section 4.11 No Stop Orders. The Company will advise the Purchaser
promptly and, if requested by the Purchaser, will confirm such advice in
writing: (i) of its receipt of notice of any request by the Commission for
amendment of or a supplement to the Registration Statement, any Prospectus or
for additional information; (ii) of its receipt of notice of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or of the suspension of qualification of the Shares for offering or
sale in any jurisdiction or the initiation of any proceeding for such purpose;
and (iii) of its becoming aware of the happening of any event, which makes any
statement of a material fact made in the Registration Statement or the
Prospectus (as then amended or supplemented) untrue or which requires the making
of any additions to or changes in the Registration Statement or the Prospectus
(as then amended or supplemented) in order to state a material fact required by
the Securities Act or the regulations thereunder to be stated therein or
necessary in order to make the statements therein not misleading, or of the
necessity to amend or supplement the Prospectus (as then amended or
supplemented) to comply with the Securities Act or any other law. If at any time
the Commission shall issue any stop order
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suspending the effectiveness of the Registration Statement, the Company will
make commercially reasonable efforts to obtain the withdrawal of such order at
the earliest possible time.
Section 4.12 Intentionally Omitted.
Section 4.13 Amendments to the Registration Statement. The Company will
not (i) file any amendment to the Registration Statement or make any amendment
or supplement to the Prospectus of which the Purchaser shall not previously have
been advised or to which the Purchaser shall reasonably object after being so
advised or (ii) so long as, in the reasonable opinion of counsel for the
Purchaser, a Prospectus is required to be delivered in connection with sales by
any Purchaser or dealer, file any information, documents or reports pursuant to
the Exchange Act without delivering a copy of such information, documents or
reports to the Purchaser, promptly following such filing.
Section 4.14 Prospectus Delivery. Prior to the execution and delivery of
this Agreement, the Company will deliver to the Purchaser, without charge, in
such quantities as reasonably requested by the Purchaser, copies of each form of
Prospectus. As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the opinion of
counsel for the Purchasers a prospectus is required by the Securities Act to be
delivered in connection with sales by the Purchaser, the Company will
expeditiously deliver to the Purchaser, without charge, as many copies of the
Prospectus (and of any amendment or supplement thereto) as the Purchaser may
reasonably request. The Company consents to the use of the Prospectus (and of
any amendment or supplement thereto) in accordance with the provisions of the
Securities Act and with the securities or Blue Sky laws of the jurisdictions in
which the Shares may be sold by the Purchaser, in connection with the offering
and sale of the Shares and for such period of time thereafter as the Prospectus
is required by the Securities Act to be delivered in connection with sales of
the Shares. If during such period of time any event shall occur that in the
judgment of the Company or in the opinion of counsel for the Purchasers is
required to be set forth in the Prospectus (as then amended or supplemented) or
should be set forth therein in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or if it
is necessary to supplement or amend the Prospectus to comply with the Securities
Act or any other law, the Company will forthwith prepare and, subject to the
provisions of paragraph (d) above, file with the Commission an appropriate
supplement or amendment thereto, and will expeditiously furnish to the Purchaser
a reasonable number of copies thereof.
Section 4.15 No Shorting. During the term of this Agreement, neither the
Purchaser nor any affiliates of the Purchaser will ever be in a net short
position with regard to shares of the Company's Common Stock in any account
directly or indirectly managed by the Purchaser or by any affiliate of the
Purchaser.
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ARTICLE V
CONDITIONS TO CLOSING AND DRAW DOWNS
Section 5.1 Conditions Precedent to the Obligation of the Company to
Sell the Shares. The obligation hereunder of the Company to issue and sell the
Shares to the Purchaser is subject to the satisfaction or waiver, at or before
the Closing and with respect to each Draw Down and Call Option, of each of the
conditions set forth below. These conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion.
(a) Accuracy of the Purchaser's Representations and Warranties.
The representations and warranties of the Purchaser shall be true and correct in
all material respects as of the date when made and as of the Closing as though
made at that time, except for representations and warranties that are expressly
made as of a particular date.
(b) Effective Registration Statement. The Registration Statement
registering the Shares shall have been declared effective by the Commission and
shall have been amended or supplemented, as required, to disclose the sale of
the Shares prior to the Closing Date or each Settlement Date, as applicable.
(c) Performance by the Purchaser. The Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Purchaser at or prior to the Closing.
(d) No Injunction. No statute, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) No Suspension, Etc. Trading in the Company's Common Stock
shall not have been suspended by the Commission or the NASD (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to Closing), and, at any time prior to the
Closing, trading in securities generally as reported on Nasdaq shall not have
been suspended or limited, or minimum prices shall not have been established on
securities whose trades are reported by the American Stock Exchange, or on the
New York Stock Exchange, nor shall a banking moratorium have been declared
either by the United States or New York State authorities, nor shall there have
occurred any material outbreak or escalation of hostilities or other national or
international calamity or crisis of such magnitude in its effect on, or any
material adverse change in, any financial market which, in each case, in the
judgment of the Company, makes it impracticable or inadvisable to issue the
Shares.
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(f) No Proceedings or Litigation. No action, suit or proceeding
before any arbitrator or any governmental authority shall have been commenced,
and no investigation by any governmental authority shall have been threatened,
against the Company or any subsidiary, or any of the officers, directors or
affiliates of the Company or any subsidiary seeking to restrain, prevent or
change the transactions contemplated by this Agreement, or seeking damages in
connection with such transactions.
Section 5.2 Conditions Precedent to the Obligation of the Purchaser to
Close. The obligation hereunder of the Purchaser to enter this Agreement is
subject to the satisfaction or waiver, at or before the Closing, of each of the
conditions set forth below. These conditions are for the Purchaser's sole
benefit and may be waived by the Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties.
Each of the representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of the Closing
as though made at that time (except for representations and warranties that
speak as of a particular date).
(b) Effective Registration Statement. The Registration Statement
registering the Shares shall have been declared effective by the Commission and
shall have been amended or supplemented, as required, to disclose the sale of
the Shares prior to the Closing Date or each Settlement Date, as applicable.
(c) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing.
(d) No Suspension, Etc. Trading in the Company's Common Stock
shall not have been suspended by the Commission or the NASD (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to Closing), and, at any time prior to the
Closing, trading in securities generally as reported on Nasdaq shall not have
been suspended or limited, or minimum prices shall not have been established on
securities whose trades are reported by the American Stock Exchange, or on the
New York Stock Exchange, nor shall a banking moratorium have been declared
either by the United States or New York State authorities, nor shall there have
occurred any material outbreak or escalation of hostilities or other national or
international calamity or crisis of such magnitude in its effect on, or any
material adverse change in any financial market which, in each case, in the
judgment of the Purchaser, makes it impracticable or inadvisable to purchase the
Shares.
(e) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental
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authority of competent jurisdiction which prohibits the consummation of any of
the transactions contemplated by this Agreement.
(f) No Proceedings or Litigation. No action, suit or proceeding
before any arbitrator or any governmental authority shall have been commenced,
and no investigation by any governmental authority shall have been threatened,
against the Company or any subsidiary, or any of the officers, directors or
affiliates of the Company or any subsidiary seeking to restrain, prevent or
change the transactions contemplated by this Agreement, or seeking damages in
connection with such transactions.
(g) Opinion of Counsel, Etc. At the Closing, the Purchaser shall
have received an opinion of counsel to the Company, dated the date of Closing,
in the form of Exhibit B hereto, and such other certificates and documents as
the Purchaser or its counsel shall reasonably require incident to the Closing.
Section 5.3 Conditions Precedent to the Obligation of the Purchaser to
Accept a Draw Down and Purchase the Shares. The obligation hereunder of the
Purchaser to accept a Draw Down request and to acquire and pay for the Shares is
subject to the satisfaction or waiver, at or before each Draw Down Exercise
Date, of each of the conditions set forth below. The conditions are for the
Purchaser's sole benefit and may be waived by the Purchaser at any time in its
sole discretion.
(a) Accuracy of the Company's Representations and Warranties.
Each of the representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of the Draw
Down Exercise Date as though made at that time (except for representations and
warranties that speak as of a particular date).
(b) Effective Registration Statement. The Registration Statement
registering the Shares shall have been declared effective by the Commission and
shall have been amended or supplemented, as required, to disclose the sale of
the Shares prior to the Closing Date or each Settlement Date, as applicable.
(c) No Suspension. Trading in the Company's Common Stock shall
not have been suspended by the Commission or the NASD (except for any suspension
of trading of limited duration agreed to by the Company, which suspension shall
be terminated prior to each Draw Down request), and, at any time prior to such
request, trading in securities generally as reported by the American Stock
Exchange shall not have been suspended or limited, or minimum prices shall not
have been established on securities whose trades are reported by the American
Stock Exchange.
(d) Material Adverse Effect; Material Change in Ownership. No
Material Adverse Effect and no Material Change in Ownership shall have occurred.
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Section 5.4 Conditions Precedent to the Obligation of the Company to
Issue Shares Upon Exercise of a Call Option. The obligation hereunder of the
Company to issue Shares upon the exercise of a Call Option by the Purchaser is
subject to the satisfaction or waiver, at or before each Settlement Date, of
each of the conditions set forth below. The conditions are for the Company's
sole benefit and may be waived by the Company at any time in its sole
discretion.
(a) Accuracy of the Purchaser's Representations and Warranties.
Each of the representations and warranties of the Purchaser shall be true and
correct in all material respects as of the date when made and as of the Draw
Down Exercise Date as though made at that time (except for representations and
warranties that speak as of a particular date).
(b) Effective Registration Statement. The Registration Statement
registering the Shares shall have been declared effective by the Commission and
shall have been amended or supplemented, as required, to disclose the sale of
the Shares prior to each Settlement Date.
ARTICLE VI
DRAW DOWN TERMS; CALL OPTION
Section 6.1 Draw Down Terms. Subject to the satisfaction of the
conditions set forth in this Agreement, the parties agree as follows:
(a) The Company, may, in its sole discretion, issue and exercise
a draw down of up to $5,000,000, except as otherwise provided in Section 6.1(k)
hereof, or such other amount mutually agreed upon by the Purchaser and the
Company, (a "Draw Down") during each Draw Down Pricing Period, which Draw Down
the Purchaser will be obligated to accept.
(b) The number of Shares to be issued in connection with each
Draw Down shall be equal to the sum of the quotients (for each trading day of
the Draw Down Pricing Period for which the VWAP equals or exceeds the Threshold
Price) of (x) 1/18th of the Draw Down Amount divided by (y) 94.50% of the VWAP,
except as otherwise provided in Section 6.1(k) hereof (the "Draw Down Discount
Price") of the Common Stock.
(c) Only one Draw Down shall be allowed in each Draw Down Pricing
Period.
(d) The number of Shares purchased by the Purchaser with respect
to each Draw Down shall be determined on a daily basis during each Draw Down
Pricing Period and settled at the end of each Draw Down Pricing Period (the
"Settlement Date"). If the VWAP is less than $5.00 per share on any Settlement
Date, the Purchaser shall not be obligated to fund its Draw Down obligation for
the current Draw Down Pricing Period.
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(e) There shall be a minimum of five (5) trading days between
Draw Downs.
(f) There shall be a maximum of twelve (12) Draw Downs during the
term of this Agreement.
(g) At the end of each Draw Down Pricing Period, the Purchaser's
total Draw Down commitment shall be reduced by the greater of $5,000,000 or such
other amount mutually agreed upon by the Purchaser and the Company, regardless
of the Draw Down Amount requested by the Company.
(h) Each Draw Down will expire on the last trading day of each
Draw Down Pricing Period.
(i) If the VWAP on a given trading day is less than the Threshold
Price, then the total amount of the Draw Down will be reduced by 1/18th and no
Shares will be purchased or sold with respect to such trading day. At no time
shall the Threshold Price be set below $5.00 unless agreed upon by the Company
and the Purchaser. If trading in the Company's Common Stock is suspended for any
reason for more than three (3) hours in any trading day, the price of the Common
Stock shall be deemed to be below the Threshold Price for that trading day.
(j) The Company must inform the Purchaser via facsimile
transmission as to the Draw Down Amount the Company wishes to exercise before
commencement of trading on the first trading day of the Draw Down Pricing Period
(the "Draw Down Notice"). In addition to the Draw Down Amount, the Company shall
set the Threshold Price with each Draw Down Notice and shall designate the first
trading day of the Draw Down Pricing Period. Unless the Company and the
Purchaser mutually agree otherwise, at no time shall the Purchaser be required
to purchase more than $5,000,000 of the Company's Common Stock for a given Draw
Down Pricing Period (excluding the Company's Common Stock purchased pursuant to
a Call Option) so that if the Company chooses not to exercise the Draw Down in a
given Draw Down Pricing Period the Purchaser is not obligated to purchase more
than $5,000,000 in a subsequent Draw Down Pricing Period.
(k) With respect to any Draw Down, if the Threshold Price is
equal to or above $13.50, the Draw Down Amount shall be $5,000,000 and the Draw
Down Discount Price shall be 94.50% of the VWAP. If the Threshold Price is below
$13.50 and equal to or above $11.50, the Draw Down Amount shall be $4,000,000
and the Discount Price shall be 94.50% of the VWAP. If the Threshold price is
below $11.50 and equal to or above $9.50, the Draw Down Amount shall be
$3,000,000 and the Draw Down Discount Price shall be 94.50% of the VWAP. If the
Threshold Price is set below $9.50 and equal to or above $7.50, the Draw Down
Amount shall be $3,000,000 and the Draw Down Discount Price shall be reduced to
94.125% of the VWAP. If the Threshold
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Price is set below $7.50 and equal to or above $5.00, the Draw Down Amount shall
not exceed $2,000,000 and the Draw Down discount Price shall be 94.125%.
(l) On each Settlement Date, the Company shall deliver the Shares
purchased by the Purchaser to the Purchaser or to The Depositary Trust Company
("DTC") on the Purchaser's behalf. The Company and the Purchaser shall cause
such Shares to be credited to the DTC account designated by the Purchaser upon
receipt by the Company of payment for the Draw Down into an account designated
by the Company. The delivery of the shares of Common Stock into the Purchaser's
DTC account in exchange for payment therefor shall be referred to herein as
"Settlement". The Purchaser shall coordinate Settlement with the Company through
DTC.
Section 6.2 Purchaser's Call Option.
(a) The Purchaser shall have the right to exercise multiple call
options during each Draw Down Pricing Period (a "Call Option"); provided, that
each Call Option shall be for a minimum of $50,000 and all Call Options
exercised during a Draw Down Pricing Period may not exceed $5,000,000, or such
other amount mutually agreed upon by the Company and the Purchaser; provided,
further, that in no event shall the Purchaser exercise a Call Option for an
amount which will exceed twenty percent (20%) of the Total Value on the day the
applicable Call Option Notice is issued.
(b) The number of shares of Common Stock to be issued in
connection each Call Option shall be based on a price of 95.50% of the VWAP,
except as otherwise provided in this Section 6.2(b) (the "Call Option Discount
Price") for the Common Stock on the day the Purchaser issues its Call Option
Notice and shall be determined in accordance with Section 6.1(b) and shall not
be less than the Threshold Price. If the Threshold Price is equal to or above
$13.50, the Call Option amount shall be $5,000,000 and the Call Option Discount
Price shall be 95.50% of the VWAP. If the Threshold Price is below $13.50 and
equal to or above $11.50, the Call Option amount shall be $4,000,000 and the
Call Option discount Price shall be 95.50% of the VWAP. If the Threshold Price
is below $11.50 and equal to or above $9.50, the Call Option amount shall be
$3,000,000 and the Call Option Discount Price shall be 95.50% of the VWAP. If
the Threshold Price is set below $9.50 and equal to or above $7.50, the Call
Option amount shall be $3,000,000 and the Call Option Discount Price shall be
reduced to 95.125% of the VWAP. If the Threshold Price is set below $7.50 and
equal to or above $5.00, the Call Option amount shall each not exceed $2,000,000
and the Call Option Discount Price shall be reduced to 94.25% of the VWAP.
(c) Each Call Option exercised shall be settled on the next
Settlement Date. If the VWAP is less than $5.00 per share on any Settlement
Date, the Purchaser shall not be obligated to fund its Call Option obligation
for such preceding Draw Down Pricing Period.
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(d) The Threshold Price designated by the Company in its Draw
Down Notice shall apply to each Call Option.
(e) For each Call Option that the Purchaser exercises pursuant to
this Section, the Purchaser must issue a Call Option Notice to the Company no
later than 5:00 p.m. (New York time) on the day such Call Option is exercised.
If the Purchaser does not exercise a Call Option by 5:00 p.m. (New York time) on
the last day of the applicable Draw Down Pricing Period, the Purchaser's Call
Options with respect to that Draw Down Pricing Period shall terminate.
(f) During the period from the Effective Date and the date which
is the fourteenth (14th) month anniversary of the Effective Date (the "Call
Option Period"), the Purchaser will exercise Call Options for an aggregate
amount equal to at least the product of (i) $16,000,000 multiplied by (ii) the
fraction, the numerator of which is the total of all Draw Down Amounts during
the Call Option Period and the denominator of which is $60,000,000.
ARTICLE VII
TERMINATION
Section 7.1 Termination by Mutual Consent. The term of this Agreement
shall be the earlier of the completion of twelve Draw Down Pricing Periods or
fourteen (14) months from the Effective Date. This Agreement may be terminated
at any time by mutual consent of the parties.
Section 7.2 Other Termination. The Purchaser may terminate this
Agreement upon (x) one (1) day's notice if the Company issues convertible
debentures or enters an equity financing facility as set forth in Section 4.9
without the Purchaser's prior written consent, or (y) ten (10) days' notice if
an event resulting in a Material Adverse Effect or a Material Change of Control
in Ownership has occurred.
Section 7.3 Effect of Termination. In the event of termination by the
Company or the Purchaser, written notice thereof shall forthwith be given to the
other party and the transactions contemplated by this Agreement shall be
terminated without further action by either party. If this Agreement is
terminated as provided in Section 7.1 or 7.2 herein, this Agreement shall become
void and of no further force and effect, except as provided in Section 9.10.
Nothing in this Section 7.3 shall be deemed to release the Company or the
Purchaser from any liability for any breach under this Agreement, or to impair
the rights of the Company and the Purchaser to compel specific performance by
the other party of its obligations under this Agreement.
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ARTICLE VIII
INDEMNIFICATION
Section 8.1 General Indemnity.
(a) Indemnification by the Company. The Company will indemnify
and hold harmless the Purchaser and each person, if any, who controls the
Purchaser within the meaning of Section 15 of the Securities Act or Section
20(a) of the Exchange Act from and against any losses, claims, damages,
liabilities and expenses (including reasonable costs of defense and
investigation and all attorney's fees) to which the Purchaser and each person,
if any, who controls the Purchaser may become subject, under the Securities Act
or otherwise, insofar as such losses, claims, damages, liabilities and expenses
(or actions in respect thereof) arise out of or are based upon, (i) any untrue
statement or alleged untrue statement of a material fact contained, or
incorporated by reference, in the Registration Statement relating to Common
Stock being sold to the Purchaser (including any Prospectus or any supplement or
amendment thereto (the "Prospectus Supplement") which are a part of it), or any
amendment or supplement to it, or (ii) the omission or alleged omission to state
in that Registration Statement or any document incorporated by reference in the
Registration Statement, a material fact required to be stated therein or
necessary to make the statements therein not misleading.
The Company will reimburse the Purchaser and each such
controlling person promptly upon demand for any legal or other costs or expenses
reasonably incurred by or the controlling person in investigating, defending
against, or preparing to defend against any such claim, action, suit or
proceeding, except that the Company will not be liable to the extent a claim or
action which results in a loss, claim, damage, liability or expense arises out
of, or is based upon, an untrue statement, alleged untrue statement, omission or
alleged omission, included in any Prospectus or Prospectus Supplement or any
amendment or supplement to the Prospectus or Prospectus Supplement in reliance
upon, and in conformity with, written information furnished by the Purchase to
the Company for inclusion in the Prospectus or Prospectus Supplement.
(b) Indemnification by the Purchaser. The Purchaser will
indemnify and hold harmless the Company, each of its directors and officers, and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20(a) of the Exchange Act from and against any
expenses (including reasonable costs of defense and investigation and all
attorneys fees) to which the Purchaser and each person, if any, who controls the
Purchaser may become subject, under the Securities Act or otherwise, insofar as
such losses, claims, damages, liabilities and expenses (or actions in respect
thereof) arise out of or are based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained in any Prospectus or Prospectus
Supplement or any amendment or supplement to it or (ii) the omission or alleged
omission to state
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in any Prospectus or Prospectus Supplement or any amendment or supplement to it
a material fact required to be stated therein or necessary to make the
statements therein not misleading, to the extent, but only to the extent, the
untrue statement, alleged untrue statement, omission or alleged omission was
made in reliance upon, and in conformity with, written information furnished by
the Purchaser to the Company for inclusion in the Prospectus or Prospectus
Supplement or an amendment or supplement to it, and the Purchaser will reimburse
the Company and each such director, officer or controlling person promptly upon
demand for any legal or other costs or expenses reasonably incurred by the
Company or the other person in investigating, defending against, or preparing to
defend against any such claim, action, suit or proceeding.
Section 8.2 Indemnification Procedures. Promptly after a person receives
notice of a claim or the commencement of an action for which the person intends
to seek indemnification under paragraph (a) or (b) of Section 8.1, the person
will notify the indemnifying party in writing of the claim or commencement of
the action, suit or proceeding, but failure to notify the indemnifying party
will not relieve the indemnifying party from liability under paragraph (a) or
(b) of Section 8.1, except to the extent it has been materially prejudiced by
the failure to give notice. The indemnifying party will be entitled to
participate in the defense of any claim, action, suit or proceeding as to which
indemnification is being sought, and if the indemnifying party acknowledges in
writing the obligation to indemnify the party against whom the claim or action
is brought, the indemnifying party may (but will not be required to) assume the
defense against the claim, action, suit or proceeding with counsel satisfactory
to it. After an indemnifying party notifies an indemnified party that the
indemnifying party wishes to assume the defense of a claim, action, suit or
proceeding the indemnifying party will not be liable for any legal or other
expenses incurred by the indemnified party in connection with the defense
against the claim, action, suit or proceeding except that if, in the opinion of
counsel to the indemnifying party, one or more of the indemnified parties should
be separately represented in connection with a claim, action, suit or proceeding
the indemnifying party will pay the reasonable fees and expenses of one separate
counsel for the indemnified parties. Each indemnified party, as a condition to
receiving indemnification as provided in Paragraph (a) or (b) or Section 8.1,
will cooperate in all reasonable respects with the indemnifying party in the
defense of any action or claim as to which indemnification is sought. No
indemnifying party will be liable for any settlement of any action effected
without its prior written consent. No indemnifying party will, without the prior
written consent of the indemnified party, effect any settlement of a pending or
threatened action with respect to which an indemnified party is, or is informed
that it may be, made a party and for which it would be entitled to
indemnification, unless the settlement includes an unconditional release of the
indemnified party from all liability and claims which are the subject matter of
the pending or threatened action.
If for any reason the indemnification provided for in this
Agreement is not available to, or is not sufficient to hold harmless, an
indemnified party in respect of any loss or liability referred to in paragraph
(a) or (b) of Section 8.1, each indemnifying party will, in lieu of
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indemnifying the indemnified party, contribute to the amount paid or payable by
the indemnified party, contribute to the amount paid or payable by the
indemnified party as a result of the loss or liability, (i) in the proportion
which is appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and by the indemnified party on the other
from the sale of stock which is the subject of the claim, action, suit or
proceeding which resulted in the loss or liability or (ii) if that allocation is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits of the sale of stock, but also the relative fault
of the indemnifying party and the indemnified party with respect to the
statements or omissions which are the subject of the claim, action, suit or
proceeding that resulted in the loss or liability, as well as any other relevant
equitable considerations.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Fees and Expenses.
(a) The Company shall pay the Purchaser a fee equal to
one-quarter of one percent (0.25%) of each Draw Down Amount and the amount of
each Call Option, which fee shall be paid on each Settlement Date.
(b) The Company shall pay all reasonable fees and expenses
related to the transactions contemplated by this Agreement; provided, that the
Company shall pay, at the Closing, all reasonable attorneys fees and expenses
(exclusive of disbursements and out-of-pocket expenses) incurred by the
Purchaser up to $35,000 in connection with the preparation, negotiation,
execution and delivery of this Agreement. In addition, the Company shall pay all
reasonable fees and expenses incurred by the Purchaser in connection with any
amendments, modifications or waivers of this Agreement or incurred in connection
with the enforcement of this Agreement, including, without limitation, all
reasonable attorneys fees and expenses. The Company shall pay all stamp or other
similar taxes and duties levied in connection with issuance of the Shares
pursuant hereto.
(c) If the Company issues a Draw Down Notice and fails to deliver
the Shares on the applicable Settlement Date, the Company shall pay the
Purchaser as liquidated damages for such failure and not as a penalty an amount
equal to five percent (5%) of the payment required to be paid by the Purchaser
on such Settlement Date (i.e., the sum of the Draw Down Amount and the Call
Option amount) per week until the Shares have been delivered, which shall be
prorated for such periods less than seven (7) days. The liquidated damages shall
be paid by the Company in cash upon demand.
Section 9.2 Specific Enforcement, Consent to Jurisdiction.
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(a) The Company and the Purchaser acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
(b) Each of the Company and the Purchaser (i) hereby irrevocably
submits to the jurisdiction of the United States District Court and other courts
of the United States sitting in the State of Delaware for the purposes of any
suit, action or proceeding arising out of or relating to this Agreement and (ii)
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Each of the Company and
the Purchaser consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing in this
Section shall affect or limit any right to serve process in any other manner
permitted by law.
Section 9.3 Entire Agreement; Amendment. This Agreement contains the
entire understanding of the parties with respect to the matters covered hereby
and, except as specifically set forth herein, neither the Company nor the
Purchaser makes any representations, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be waived or amended
other than by a written instrument signed by the party against whom enforcement
of any such amendment or waiver is sought.
Section 9.4 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery, by telex (with correct answer
back received), telecopy or facsimile at the address or number designated below
(if delivered on a business day during normal business hours where such notice
is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second business day following the date
of mailing by express courier service, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be:
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If to the Company: Isis Pharmaceuticals, Inc.
2292 Faraday Avenue
Carlsbad, CA 92008
Telephone Number: (760) 603-2460
Fax: (760) 603-3861
Attention: B. Lynne Parshall
Executive Vice President
With copies to: Cooley Godward LLP
4365 Executive Drive Suite 1100
San Diego, California 92121
Telephone Number: (619) 550-6012
Fax: (619) 453-3555
Attention: D.B. Peck
If to the Purchaser: Ridgeway Investment Limited
Charlotte House, Charlotte Street
P.O. Box N 9204
Nassau, Bahamas
Telephone Number:
Fax: (242) 323-7918
Attention: Mr. Anthony L. M. Inder Rieden
Director and President
Any party hereto may from time to time change its address for notices by
giving at least ten (10) days written notice of such changed address to the
other party hereto.
Section 9.5 Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
Section 9.6 Headings. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 9.7 Successors and Assigns. The Purchaser may not assign this
Agreement to any person without the prior consent of the Company, which consent
will not be unreasonably withheld. This Agreement shall be binding upon and
inure to the benefit of the parties and their
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successors and assigns. The parties hereto may not amend this Agreement or any
rights or obligations hereunder without the prior written consent of the Company
and each Purchaser to be affected by the amendment. After Closing, the
assignment by a party to this Agreement of any rights hereunder shall not affect
the obligations of such party under this Agreement.
Section 9.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware, without
giving effect to the choice of law provisions.
Section 9.9 Survival. The representations and warranties of the Company
and the Purchaser contained in Article III and the covenants contained in
Article IV shall survive the execution and delivery hereof and the Closing until
the termination of this Agreement, and the agreements and covenants set forth in
Article VIII of this Agreement shall survive the execution and delivery hereof
and the Closing hereunder.
Section 9.10 Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. In the event any signature is
delivered by facsimile transmission, the party using such means of delivery
shall cause four additional executed signature pages to be physically delivered
to the other parties within five days of the execution and delivery hereof.
Section 9.11 Publicity. Prior to the Closing, neither the Company nor
the Purchaser shall issue any press release or otherwise make any public
statement or announcement with respect to this Agreement or the transactions
contemplated hereby or the existence of this Agreement. In the event the Company
is required by law, based upon an opinion of the Company's counsel, that the
Company must issue a press release or otherwise make a public statement or
announcement with respect to this Agreement prior to the Closing, the Company
shall consult with the Purchaser on the form and substance of such press
release. After the Closing, the Company may issue a press release or otherwise
make a public statement or announcement with respect to this Agreement or the
transactions contemplated hereby or the existence of this Agreement; provided,
that prior to issuing any such press release, making any such public statement
or announcement, the Company obtains the prior consent of the Purchaser, which
consent shall not be unreasonably withheld or delayed.
Section 9.12 Severability. The provisions of this Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement, and this Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of such provision, had
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34
never been contained herein, so that such provisions would be valid, legal and
enforceable to the maximum extent possible.
Section 9.13 Further Assurances. From and after the date of this
Agreement, upon the request of the Purchaser or the Company, each of the Company
and the Purchaser shall execute and deliver such instrument, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorize officer as of the date first above
written.
ISIS PHARMACEUTICALS, INC.
By:
---------------------------------
Name:
Title
RIDGEWAY INVESTMENT LIMITED
By:
---------------------------------
Name:
Title::
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1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Amendment No. 1 to the Registration Statement (Form S-3 No. 333-90811) and
related Prospectus of Isis Pharmaceuticals, Inc. for the registration of
4,000,000 shares of its common stock and to the incorporation by reference
therein of our report dated January 30, 1999, with respect to the financial
statements of Isis Pharmaceuticals, Inc. included in its Annual Report (Form
10-K/A) for the year ended December 31, 1998, filed with the Securities and
Exchange Commission.
/s/ ERNST & YOUNG LLP
---------------------
ERNST & YOUNG LLP
San Diego, California
November 19, 1999
