-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HCPCpKSW5Ah3bPYJsSa1bKHSZoFO1mQIDoF4ouJy8yWPI8FnbqTmbLTs5ZSpEZXU jInCQhKAX/6t/3LEVHrEnw== 0001095811-01-503049.txt : 20010703 0001095811-01-503049.hdr.sgml : 20010703 ACCESSION NUMBER: 0001095811-01-503049 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20010702 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEOTHERAPEUTICS INC CENTRAL INDEX KEY: 0000831547 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 930979187 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-64444 FILM NUMBER: 1674129 BUSINESS ADDRESS: STREET 1: 157 TECHNOLOGY DR STREET 2: STE J-821 CITY: IRVINE STATE: CA ZIP: 92618 BUSINESS PHONE: 9497886700 MAIL ADDRESS: STREET 1: 157 TECHNOLOGY DR STREET 2: STE J-821 CITY: IRVINE STATE: CA ZIP: 92618 FORMER COMPANY: FORMER CONFORMED NAME: AMERICUS FUNDING CORP DATE OF NAME CHANGE: 19920703 S-3 1 a73898ors-3.txt FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 2001 REGISTRATION NO. ___-_____ ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------- NEOTHERAPEUTICS, INC. (Exact Name of Registrant as Specified in Its Charter) ---------- DELAWARE 93-079187 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) ---------- 157 TECHNOLOGY DRIVE IRVINE, CALIFORNIA 92618 (949) 788-6700 (Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) ---------- ALVIN J. GLASKY, PH.D. CHIEF EXECUTIVE OFFICER 157 TECHNOLOGY DRIVE IRVINE, CALIFORNIA 92618 (949) 788-6700 (Name, Address, Including Zip Code and Telephone Number, Including Area Code, of Agent for Service) ---------- Copies to: ---------- Alan W. Pettis, Esq. Latham & Watkins 650 Town Center Drive, Twentieth Floor Costa Mesa, California 92626 (714) 540-1235 ---------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after the effective date of this Registration Statement as determined by market conditions. ---------- 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 of 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. [ ] ---------- CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------- PROPOSED MAXIMUM AGGREGATE AMOUNT TO BE OFFERING AMOUNT OF TITLE OF SECURITIES TO BE REGISTERED REGISTERED (1) PRICE (2) REGISTRATION FEE - ---------------------------------------------------------------------------------------------- Common Stock, $.001 par value per share (2) $8,400,000 $8,400,000 $2,100 (3) - ----------------------------------------------------------------------------------------------
(1) Subject to footnote (2), there are being registered hereunder shares of Common Stock as may be sold, from time to time, by NeoTherapeutics, Inc through an underwriter. (2) In no event will the aggregate maximum offering price of all securities registered under this Registration Statement exceed $8,400,000. (3) Calculated pursuant to Rule 457(o) of the rules and regulations under the Securities Act of 1933, as amended. ---------- 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 WHICH 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. ================================================================================ 2 SUBJECT TO COMPLETION, DATED JULY 2, 2001 INFORMATION CONTAINED IN THIS PROSPECTUS IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. PROSPECTUS $8,400,000 OF NEOTHERAPEUTICS, INC. Common Stock We may from time to time offer shares of our common stock having a maximum aggregate public offering price of $8,400,000. The securities will be offered through Cantor Fitzgerald & Co. as underwriter as part of a Controlled Equity Offering, or CEO(sm). Upon agreement between us and Cantor Fitzgerald to sell securities on certain terms, Cantor Fitzgerald will use its commercially reasonable efforts to sell the securities up to the amount agreed upon, but will not be required to sell any specific number or dollar amount of securities. The net proceeds from the sale will be the aggregate sales price at which the securities were sold after deduction for Cantor Fitzgerald's 4% commission/discount on the aggregate sales price of the securities. Additional information on the CEO(sm) arrangement is set forth in the prospectus. Our common stock is traded on the Nasdaq National Market under the symbol "NEOT." ---------------------- INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 3. ---------------------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of the prospectus. Any representation to the contrary is a criminal offense. ---------------------- THE DATE OF THIS PROSPECTUS IS JULY ___, 2001. 3 NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY NEOTHERAPEUTICS, INC. OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF NEOTHERAPEUTICS SINCE THE DATE HEREOF. TABLE OF CONTENTS
PAGE ---- FORWARD-LOOKING STATEMENTS.................................................1 WHERE YOU CAN FIND MORE INFORMATION........................................1 ABOUT NEOTHERAPEUTICS......................................................3 RISK FACTORS...............................................................3 USE OF PROCEEDS...........................................................11 PLAN OF DISTRIBUTION......................................................11 VALIDITY OF common stock..................................................13 EXPERTS.................................................................. 13 LIMITATION ON LIABILITY AND DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES......................13
4 FORWARD-LOOKING STATEMENTS This prospectus and the documents incorporated by reference into this prospectus contain forward-looking statements that are based on current expectations, estimates and projections about our industry, management's beliefs, and assumptions made by management. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any forward-looking statements. The risks and uncertainties include those noted in "Risk Factors" above and in the documents incorporated by reference. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent that we are required to do so by law. We also may make additional disclosures in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that we may file from time to time with the Securities and Exchange Commission. Please also note that we provide a cautionary discussion of risks and uncertainties under the section entitled "Risk Factors" in our Annual Report on Form 10-K. These are factors that we think could cause our actual results to differ materially from expected results. Other factors besides those listed here could also adversely affect us. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995. WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document we file at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C., 20549, and in the SEC's public reference rooms in New York, and Chicago. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information we file with them which means that we can disclose important information to you by referring you to those documents instead of having to repeat the information in this prospectus. The information incorporated by reference is considered to be part of this prospectus, and later information that we file with the SEC will automatically update and supersede this information. We incorporate by reference the documents listed below and any future filings made with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 until the selling stockholders sell all the shares: - Our annual report on Form 10-K for the fiscal year ended December 31, 2000, as amended by Form 10-K/A filed on April 25, 2001; - Our quarterly report on Form 10-Q for the quarter ended March 31, 2001, filed on May 14, 2001; - Our current reports on Form 8-K filed on February 16, 2001, March 14, 2001 and May 21, 2001; - Our definitive proxy statement filed on April 30, 2001, pursuant to Section 14 of the Exchange Act in connection with our 2001 Annual Meeting of Stockholders; and - The description of our common stock contained in the Registration of Securities of Certain Successor Issuers filed pursuant to Section 12(g) of the Exchange Act on Form 8-B on June 27, 1997, including any amendment or reports filed for the purpose of updating such description. You can request a copy of these filings, at no cost, by writing or telephoning us at the following address: NeoTherapeutics, Inc. Attn: Investor Relations 157 Technology Drive Irvine, California 92618 (949) 788-6700 1 5 You should rely only on the information contained in this prospectus or any supplement and in the documents incorporated by reference. We have not authorized anyone else to provide you with different information. The selling stockholders will not make an offer of these shares in any state where the offer is not permitted. You should not assume that the information in this prospectus or any supplement or in the documents incorporated by reference is accurate on any date other than the date on the front of those documents. This prospectus is part of a registration statement we filed with the SEC (Registration No. ___-_____). That registration statement and the exhibits filed along with the registration statement contain more information about the shares sold by the selling stockholders. Because information about contracts referred to in this prospectus is not always complete, you should read the full contracts which are filed as exhibits to the registration statement. You may read and copy the full registration statement and its exhibits at the SEC's public reference rooms or their web site. 2 6 ABOUT NEOTHERAPEUTICS NeoTherapeutics, Inc. is a development stage biopharmaceutical company engaged in the discovery and development of novel therapeutic drugs intended to treat neurological diseases and conditions, such as memory deficits associated with Alzheimer's disease and aging, spinal cord injuries, Parkinson's disease, other degenerative diseases that affect the nervous system and psychiatric diseases. We have also recently become engaged in research involving functional genomics, or the study of how genes function in the body, and the development of drugs for the treatment of cancer. Our lead product candidate, Neotrofin(TM) (also known as AIT-082 or leteprinim potassium), and other compounds under development, are based on our patented technology. This technology uses small synthetic molecules to create non-toxic compounds, intended to be administered orally or by injection, that are capable of passing through the blood-brain barrier, which is a layer of cells which prevents some molecules that may be harmful from entering the brain, to rapidly act upon specific target cells in specific locations in the central nervous system, including the brain. Animal and laboratory tests have shown that Neotrofin(TM) appears to selectively increase the production of certain neurotrophic factors, a type of large protein involved in nerve cell proliferation, differential and survival, in selected areas of the brain and in the spinal cord. These neurotrophic factors regulate nerve cell growth and function. Our technology has been developed to capitalize on the beneficial effects of these proteins, which have been widely acknowledged to be closely involved in the early formation and differentiation of the central nervous system. We believe that Neotrofin(TM) could have therapeutic and regenerative effects. We have observed no serious negative side effects in patients receiving Neotrofin(TM) in our clinical trials, however, patients have reported experiencing fatigue, headache, nausea, confusion and depression at rates consistent with those normally seen in the elderly Alzheimer's disease test population. NeoGene Technologies, Inc., a subsidiary of NeoTherapeutics, Inc., is engaged in functional genomics research. On November 16, 2000, we formed another subsidiary, NeoOncoRx, Inc., for the purpose of in-licensing anti-cancer compounds which are in the clinical trial stages of development. We currently have no marketable products, and do not expect to have any products commercially available for at least two years, if at all. We have incurred substantial losses since our inception, and expect our losses to continue for at least the next several years. The pharmaceutical marketplace in which we operate is highly competitive, and includes many large, well-established companies pursuing treatments for Alzheimer's disease and some of the other applications we are pursuing. See "Risk Factors" below. We were incorporated in Colorado in December 1987 and reincorporated in Delaware in June 1997. Our executive offices are located at 157 Technology Drive, Irvine, California 92618. Our telephone number is (949) 788-6700. Our web site address is www.neotherapeutics.com. Information contained in our web site does not constitute part of this prospectus. RISK FACTORS Your investment in our common stock involves a high degree of risk. You should consider the risks described below and the other information contained in this prospectus carefully before deciding to invest in our common stock. If any of the following risks actually occur, our business, financial condition and operating results would be harmed. As a result, the trading price of our common stock could decline, and you could lose a part or all of your investment. OUR LOSSES WILL CONTINUE TO INCREASE AS WE EXPAND OUR DEVELOPMENT EFFORTS, AND OUR EFFORTS MAY NEVER RESULT IN PROFITABILITY. Our cumulative losses during the period from our inception in 1987 through March 31, 2001 were approximately $101.7 million, almost all of which consisted of research and development and general and administrative expenses. We lost approximately $11.6 million in 1998, $26.0 million in 1999, approximately $46.4 million in 2000 and approximately $5.5 million in the three months ended March 31, 2001. We expect our losses to decrease in the year 2001 as compared to the year 2000 due to anticipated savings from our transition to managing our clinical trials ourselves rather than contracting with third parties for this function. However, we expect our losses to increase in the future as we expand our clinical trials and increase our research and development activities. We currently do not sell any products and we may never achieve significant revenues or become profitable. Even if we eventually generate revenues from sales, we nevertheless expect to incur significant operating losses over the next several years. 3 7 OUR POTENTIAL DRUG PRODUCTS ARE IN AN EARLY STAGE OF CLINICAL AND PRECLINICAL DEVELOPMENT AND MAY NOT PROVE SAFE OR EFFECTIVE ENOUGH TO OBTAIN REGULATORY APPROVAL TO SELL ANY OF THEM. We currently are testing our first potential drug product, Neotrofin(TM), in human clinical trials. We are currently conducting three trials of Neotrofin(TM) for Alzheimer's disease, spinal cord injury and Parkinson's disease, and we expect to complete these trials before the end of the first quarter of 2002. We expect that we will need to complete additional trials before we will be able to apply for regulatory approval to sell Neotrofin(TM). Our other proposed products are in preclinical development. We cannot be certain that any of our potential or proposed products will prove to be safe or effective in treating disorders of the central nervous system or any other diseases. All of our potential drugs will require additional research and development, testing and regulatory clearance before we can sell them. We cannot be certain that we will receive regulatory approval to sell any of our potential drugs. We do not expect to have any products commercially available for at least two years, if at all. IF WE ARE UNABLE TO OBTAIN SUBSTANTIAL ADDITIONAL FUNDING ON ACCEPTABLE TERMS, WE MAY HAVE TO DELAY OR ELIMINATE ONE OR MORE OF OUR DEVELOPMENT PROGRAMS. We currently are spending cash at a rate in excess of approximately $2.3 million per month, and we expect this rate of spending to continue for at least the following 12 months. On April 17, 2001, we entered into an agreement with two investors which provided for a sale of common stock by us to the investors for proceeds of $6.0 million, obligated the investors to buy from us convertible debentures, or debt obligations convertible into shares of our common stock, in two blocks, one of $10 million in May 2001 and a second one of $8 million in November 2001. The agreement provided for a penalty payment by us of up to $1 million if we declined to sell the convertible debentures (see Note 15 to the audited financial statements in our Amendment No. 1 on Form 10-K/A our Annual Report on Form 10-K filed on April 25, 2001). In May 2001 we declined to sell the first $10 million block of convertible debentures, and instead agreed to sell common stock and warrants to the investors for proceeds of $5.95 million and to reduce the penalty payment to $405,000. We believe that, together with periodic sales of common stock such as the four sales totaling approximately $20.5 million in February through May 2001, and assuming that the holders of our Class B Warrants continue to exercise our Class B Warrants in response to our call notices, our cash and capital resources will satisfy our current funding requirements for at least the next twelve months. If the market price of our common stock is less than $2.00 per share, we may not be able to use our Class B Warrants as a financing source. As of June 21, 2001, Class B Warrants have been exercised for 586,400 shares and gross proceeds of approximately $5.1 million. We have not issued any call notices under our Class B Warrants since November 2000. Should we not be able to continue periodic sales of our common stock or utilize our Class B Warrants, we may have to seek additional funding. We may not be able to obtain additional funds on acceptable terms or at all. If adequate funds are not available, we will have to delay or eliminate one or more of our development programs. We expect that we will need substantial additional funds to complete development and clinical trials of Neotrofin(TM), our lead drug candidate, before we will be able to submit it to the FDA for approval for commercial sale, and to support the continued development of our other potential products. Since we currently have no products available for commercial sale and essentially no revenues, we must use capital to fund our operating expenses. Our operating expenses, and consequently our capital requirements, will depend on many factors, including: - - continued scientific progress in research and development to identify and develop additional product candidates beyond our lead compound Neotrofin(TM); - - the costs and progress of preclinical and clinical testing of Neotrofin(TM)and additional drug candidates; - - the cost involved in filing, prosecuting and enforcing patent claims; and - - the time and cost involved in obtaining regulatory approvals for our potential products. In addition, if we are successful in obtaining regulatory approval of one or more of our potential products, we will require additional capital to cover costs associated with commercializing our products. We expect to seek additional funding through public or private financings or collaborative or other arrangements with third parties. We may not obtain additional funds on acceptable terms, if at all. If adequate funds are not available, we will have to delay or eliminate one or more of our development programs. 4 8 COMPETITION FOR PATIENTS IN CONDUCTING CLINICAL TRIALS AND EXTENSIVE REGULATIONS GOVERNING THE CONDUCT OF CLINICAL TRIALS MAY PREVENT OR DELAY APPROVAL OF A DRUG CANDIDATE AND STRAIN OUR LIMITED FINANCIAL RESOURCES. Many pharmaceutical companies are conducting clinical trials in patients with Alzheimer's disease. As a result, we must compete with them for clinical sites, physicians and the limited number of patients with Alzheimer's disease who fulfill the stringent requirements for participation in clinical trials. Due to a lack of available information about the condition of Alzheimer's disease sufferers in the United States, we cannot be certain how many of the over 4 million patients with Alzheimer's disease in the United States would meet the requirements for participating in our clinical trials. In addition, due to the confidential nature of clinical trials, we cannot be certain how many of these patients may be enrolled in competing studies and consequently not available to us. This competition may increase costs of our clinical trials and delay the introduction of our potential products. ANY FAILURE TO COMPLY WITH EXTENSIVE GOVERNMENTAL REGULATION COULD PREVENT OR DELAY PRODUCT APPROVAL OR CAUSE GOVERNMENTAL AUTHORITIES TO DISALLOW OUR PRODUCTS AFTER APPROVAL AND SUBJECT US TO CRIMINAL OR CIVIL LIABILITIES. The U.S. Food and Drug Administration, or FDA, and comparable agencies in foreign countries impose many requirements on the introduction of new drugs through lengthy and detailed clinical testing procedures, and other costly and time consuming compliance procedures. These requirements apply to every stage of the clinical trial process and make it difficult to estimate when Neotrofin(TM) or any other potential product will be available commercially, if at all. Our proprietary compounds will require substantial clinical trials and FDA review as new drugs. Even if we successfully enroll patients in our clinical trials, patients may not respond to our potential drug products. We think it is prudent to expect setbacks. While we believe that we are currently in compliance with applicable FDA regulations, if we fail to comply with the regulations applicable to our clinical testing, the FDA may delay, suspend or cancel our clinical trials, or the FDA might not accept the test results. The FDA, or any comparable regulatory agency in another country, may suspend clinical trials at any time if it concludes that the trials expose subjects participating in such trials to unacceptable health risks. Further, human clinical testing may not show any current or future product candidate to be safe and effective to the satisfaction of the FDA or comparable regulatory agencies or the data derived therefrom may be unsuitable for submission to the FDA or other regulatory agencies. We cannot predict with certainty when we might submit any of our proposed products currently under development for the regulatory approval required in order to commercially sell the products. Once we submit a proposed product for commercial sale approval, the FDA or other regulatory agencies may not issue their approvals on a timely basis, if at all. If we are delayed or fail to obtain these approvals, our business may be damaged. If we fail to comply with regulatory requirements, either prior to seeking approval or in marketing our products after approval, we could be subject to regulatory or judicial enforcement actions. These actions could result in: - - product recalls or seizures; - - injunctions; - - civil penalties; - - criminal prosecution; - - refusals to approve new products and withdrawal of existing approvals; and - - enhanced exposure to product liabilities. THE LOSS OF KEY RESEARCHERS OR MANAGERS COULD HINDER OUR DRUG DEVELOPMENT PROCESS SIGNIFICANTLY AND MIGHT CAUSE OUR BUSINESS TO FAIL. Our success depends upon the contributions of our key management and scientific personnel, especially Dr. Alvin Glasky, our Chief Executive Officer and Chief Scientific Officer. Dr. Glasky has led our research and business developments since founding our business in 1987 and is the inventor on several of our patents. Our loss of the services of Dr. Glasky or any other key personnel could delay or preclude us from achieving our business 5 9 objectives. Although we currently have key-man life insurance on Dr. Glasky in the face amount of $2 million, we believe that the loss of Dr. Glasky's services would damage our research and development efforts substantially. Dr. Glasky is party to an employment agreement with us which provides for a three year term expiring December 31, 2003, with automatic renewals thereafter unless we or Dr. Glasky gives notice of intent not to renew at lease 90 days in advance of the renewal date. In addition to Dr. Glasky, the loss of Dr. Luigi Lenaz, our Vice President, Oncology Division and President of our subsidiary NeoOncoRx, Inc., would damage the development of our anti-cancer business substantially, and the loss of the services of Dr. Olivier Civelli, consultant to our subsidiary NeoGene, Inc., would harm the development of our functional genomics business substantially. We also will need substantial additional expertise in finance and marketing and other areas in order to achieve our business objectives. Competition for qualified personnel among pharmaceutical companies is intense, and the loss of key personnel, or the inability to attract and retain the additional skilled personnel required for the expansion of our business, could damage our business. IF WE CANNOT PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS ADEQUATELY, THE VALUE OF OUR RESEARCH COULD DECLINE AS OUR COMPETITORS APPROPRIATE PORTIONS OF OUR RESEARCH. We actively pursue patent protection for our proprietary products and technologies. We hold four U.S. patents and currently have sixteen U.S. patent applications pending, including three which have been allowed. Our issued patents expire between 2009 and 2014. In addition, we have numerous foreign patents issued and patent applications pending corresponding to our U.S. patents. However, our patents may not protect us against our competitors. We may have to file suit to protect our patents or to defend our use of our patents against infringement claims brought by others. Because we have limited cash resources, we may not be able to afford to pursue or defend against litigation in order to protect our patent rights. We also rely on trade secret protection for our unpatented proprietary technology. However, trade secrets are difficult to protect. While we enter into proprietary information agreements with our employees and consultants, these agreements may not successfully protect our trade secrets or other proprietary information. WE ARE A SMALL COMPANY RELATIVE TO OUR PRINCIPAL COMPETITORS AND OUR LIMITED FINANCIAL AND RESEARCH RESOURCES MAY LIMIT OUR ABILITY TO DEVELOP AND MARKET NEW PRODUCTS. Many companies, both public and private, including well-known pharmaceutical companies such as Amgen, Inc. Bayer AG, Eli Lilly and Co., Novartis, Bristol-Meyers Squibb Company, Pfizer, Inc., and Janssen and Shire, are developing products to treat Alzheimer's disease and certain of the other applications we are pursuing. Most of these companies have substantially greater financial, research and development, manufacturing and marketing experience and resources than we do. As a result, our competitors may be more successful than us in developing their products and obtaining regulatory approvals. While we believe, based on recent industry publications, that Neotrofin(TM) is more advanced in the drug development process than most other drugs seeking to use neurotrophic factors to treat Alzheimer's disease, we cannot be certain that Neotrofin(TM) will be the first of these drugs to receive FDA approval, if it receives approval at all. In addition, there are four drugs currently approved for the treatment of Alzheimer's disease in the United States, all of which use a different approach to the disease than Neotrofin(TM). If these treatments are successful, or if other drugs using the neurotrophic factor approach are approved before Neotrofin(TM), the market for our products could be reduced or eliminated. OUR LACK OF EXPERIENCE AT CONDUCTING CLINICAL TRIALS OURSELVES MAY DELAY THE TRIALS AND INCREASE OUR COSTS. We have begun to conduct, and intend to conduct in the future, some clinical trials ourselves rather than hiring outside contractors. We believe this conversion may reduce the costs associated with the trials and give us more control over the trials. However, while some of our management has had experience at conducting clinical trials, we have never done so as a company. While we have not experienced significant delays or increased costs to date due to this conversion, as we move forward with our first self-conducted clinical trials, our lack of experience may delay the trials and increase our costs. We think it is prudent to expect setbacks as we make this transition. OUR MANAGEMENT HAS LIMITED MANUFACTURING AND MARKETING EXPERIENCE AND MAY BE UNABLE TO MANAGE OUR GROWTH OR MANUFACTURE AND MARKET OUR PRODUCTS SUCCESSFULLY. To date, we have engaged exclusively in the development of pharmaceutical technology and products. In order to commercially exploit our products and achieve our business goals, assuming we receive FDA approval of 6 10 one or more of our potential products, we will have to establish strategic relationships with other companies that have manufacturing and marketing capabilities or develop these capabilities ourselves. Our management has substantial experience in pharmaceutical company operations, but has limited experience in manufacturing or procuring products in commercial quantities or in marketing pharmaceutical products. Our management has only limited experience in negotiating, establishing and maintaining strategic relationships, conducting clinical trials and other later-stage phases of the regulatory approval process. If we receive FDA approval of any of our potential products, and if we are not able to establish satisfactory relationships with other companies that can meet our resulting manufacturing needs, we may decide to establish a commercial-scale manufacturing facility for our products. The establishment of such a facility will require substantial additional funds and personnel, and we will need to comply with extensive regulations applicable to such a facility. These requirements and the associated growth would strain our existing management and operations. Our ability to manage such growth depends upon the ability of our officers and key employees to: - - broaden our management team; - - develop additional expertise among existing management personnel; - - attract, hire and retain skilled employees; and - - implement and improve our operational, management information and financial control systems. HOLDERS OF OUR CONVERTIBLE PREFERRED STOCK, DEBENTURES AND WARRANTS COULD ENGAGE IN SHORT SELLING TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OR EXERCISE OF THE SECURITIES AND DECREASE THE EXERCISE PRICE OF THE WARRANTS. IF THIS OCCURS, THE MARKET PRICE OF OUR COMMON STOCK MAY DECLINE. Short selling is a practice in which an investor borrows shares from a stockholder to sell in the trading market, with an obligation to deliver the same number of shares back to the lending stockholder at a future date. Short sellers make a profit if the price of our common stock declines, allowing the short sellers to sell the borrowed shares at a higher price than they have to pay for shares delivered to the lending stockholder. Short selling increases the number of shares of our common stock available for sale in the trading market, putting downward pressure on the market price of our common stock. We have issued a number of securities that may be converted into or exercised for shares of our common stock based on a floating conversion or exercise price related to the market price of our common stock. The holders of these securities may benefit from the downward price pressures caused by short selling due to the increased number of shares of common stock issuable upon conversion of convertible securities at a lower conversion price, or the reduced exercise price that must be paid to obtain shares of common stock upon exercise. The holders of our Series C Preferred Stock have the right to convert those shares into shares of our common stock at a rate that varies with the market price of our common stock. The shares of our Series C Preferred Stock are convertible into common stock at a conversion price equal to 100% of the average of the lowest seven closing bid prices of our common stock in the previous 30 trading days, subject to a cap of $5.97. The holders of shares of Series A Preferred Stock issued by our subsidiary, NeoGene Technologies, Inc., have rights to exchange those shares for shares of our convertible preferred stock. If we hold less than $5 million in cash and cash equivalents at the time of the exchanges, these holders also have the right to exchange those shares into our convertible debentures. If those exchange rights are exercised, the resulting shares of our convertible preferred stock or debentures will generally be convertible into common stock at a conversion price equal to 101% of the average of the lowest ten closing bid prices of our common stock in the previous 30 trading days, subject to a cap of 120% of the market price of our common stock at the time of the exchange. In addition, on April 17, 2001, we entered into an agreement with the holders of NeoGene's Series A Preferred Stock that commit these investors to purchase convertible debentures of NeoTherapeutics. If issued, the convertible debentures will generally be convertible into common stock at a conversion price equal to an initial conversion price of 120% of the average per share market value of our common stock over the five trading days preceding the date of issuance or, after 90 days from the date of issuance, the lesser of the initial conversion price or 101% of the average of the ten lowest closing bids of our common stock in the previous 30 trading days from the date of conversion. 7 11 As a result of the terms of these securities, the number of shares of common stock issuable upon conversion of the convertible preferred stock or debentures will vary with the market price of our stock. The number of shares of our common stock that are issuable upon conversion of any of these securities increases as the price of our common stock decreases. Increased sales volume of our common stock could put downward pressure on the market price of the shares. This fact could encourage holders of the securities to sell short our common stock prior to conversion of the securities, thereby potentially causing the market price to decline and a greater number of shares to become issuable upon conversion of the preferred stock or debentures. The holders of the securities could then convert their securities and use the shares of common stock received upon conversion to replace the shares sold short. The holders of the securities could thereby profit by the decline in the market price of the common stock caused by their short selling. Similarly, the exercise price of our outstanding Class B Warrants, if we deliver a redemption notice, is equal to the lesser of $33.75 per share (subject to adjustment for stock splits, reverse splits and combinations) and 97% (or 95% if the market price of our common stock is less than $5.00 per share) of the closing bid price of our common stock on the trading day after the redemption notice is delivered. This fact could give the holders of our Class B Warrants incentive to sell short our common stock after receipt of a redemption notice, which could cause the market price to decline. The holders of the Class B Warrants could then exercise their Class B Warrants and use the shares of common stock received upon exercise to replace the shares sold short and thereby profit by the decline in the market price of the common stock caused by their short selling. There are currently outstanding Class B Warrants exercisable for 3,413,600 shares of common stock. Montrose Investments Ltd. and Strong River Investments, Inc. each hold Class B Warrants to purchase 1,706,800 shares of our common stock and $2.5 million worth of NeoGene Series A Preferred Stock. Societe Generale holds $2.0 million worth of our Series C Preferred Stock. No other investors hold NeoGene Preferred Stock, NeoTherapeutics Preferred Stock or Class B Warrants. In addition, Montrose Investments Ltd. and Strong River Investments, Inc. are the investors under our April 17, 2001 agreement for the purchase of convertible debentures. These facts give these three investors greater influence over the market price of our stock, however, each of these investors make independent investment decisions, and each has agreed to vote any and all shares of our common stock that they own as recommended by our board of directors in any meeting of our stockholders. THE TRADING PRICE OF OUR COMMON STOCK AND THE TERMS OF OUR CONVERTIBLE SECURITIES AND WARRANTS MUST COMPLY WITH THE LISTING REQUIREMENTS OF THE NASDAQ NATIONAL MARKET OR WE COULD BE DELISTED AND THE LIQUIDITY OF OUR COMMON STOCK WOULD DECLINE. Our common stock is listed on the Nasdaq National Market. To remain listed on this market, we must meet Nasdaq's listing maintenance standards and abide by Nasdaq's rules governing listed companies. If the price of our common stock falls below $1.00 per share for an extended period, or if we fail to meet other Nasdaq standards, including minimum market capitalization and minimum total assets, or violate Nasdaq rules, our common stock could be delisted from the Nasdaq National Market. Nasdaq has established rules regarding the issuance of "future priced securities" or securities convertible into common stock based on a floating conversion price, so that the number of shares of common stock issuable upon conversion of the securities is not known when the securities are sold. These rules may apply to our Series C Preferred Stock, the preferred stock or debentures we may issue in exchange for NeoGene preferred stock or the convertible debentures we may issue pursuant to the April 17, 2001 agreement, because the number of shares of our common stock issuable upon conversion of these securities is based upon a future price of our common stock. Nasdaq's concerns regarding these securities include the potential dilution to our existing stockholders if the price of our common stock goes down causing a large number of shares to be issued upon conversion of the securities, and the corresponding potential for excessive return on investment for the purchaser of the convertible securities. In addition, since the holders of future priced securities may benefit from a decrease in the market price of our common stock, those holders may have greater incentive to engage in manipulative practices. In light of these concerns, Nasdaq has indicated that the following rules may be implicated by future priced securities: Stockholders must approve significant issuances of listed securities at a discount to market or book value. Nasdaq rules prohibit an issuer of listed securities from issuing 20% or more of its outstanding capital stock at less than the greater of book value or the then current market value without obtaining prior stockholder consent. We did not obtain stockholder consent prior to issuing the NeoGene preferred stock and granting the exchange right to the 8 12 holders of the NeoGene preferred stock or prior to signing the April 17, 2001 agreement. Prior to obtaining stockholder approval, the securities issued in these transactions by their terms could not be converted into 20% or more of the number of shares of our common stock outstanding at the time the securities are issued. We obtained this approval at our Annual Meeting of Stockholders to be held on June 11, 2001. Public interest concerns. Nasdaq may terminate the listing of a security if necessary to prevent fraudulent and manipulative acts and practices or to protect investors and the public interest. With respect to future priced securities, Nasdaq has indicated that it may delist a security if the returns with respect to the future priced security become excessive compared to the returns being earned by public investors in the issuer's securities. Furthermore, some requirements for continued listing, such as the $1.00 minimum bid price requirement, are outside of our control. Accordingly, there is a risk that Nasdaq may delist our common stock. If our common stock is delisted, we likely would seek to list our common stock on the Nasdaq SmallCap Market or for quotation on the American Stock Exchange or a regional stock exchange. However, listing or quotation on such market or exchange could reduce the market liquidity for our common stock. If our common stock were not listed or quoted on another market or exchange, trading of our common stock would be conducted in the over-the-counter market on an electronic bulletin board established for unlisted securities or in what are commonly referred to as the "pink sheets." As a result, an investor would find it more difficult to dispose of, or to obtain accurate quotations for the price of, our common stock. In addition, delisting from the Nasdaq National Market and failure to obtain listing or quotation on such other market or exchange would subject our common stock to so-called "penny stock" rules. These rules impose additional sales practice and market-making requirements on broker-dealers who sell and/or make a market in such securities. Consequently, if our common stock is delisted from the Nasdaq National Market and we fail to obtain listing or quotation on another market or exchange, broker-dealers may be less willing or able to sell and/or make a market in our common stock and purchasers of our common stock may have more difficulty selling such common stock in the secondary market. In either case, the market liquidity of our common stock would decline. THERE ARE A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK ELIGIBLE FOR FUTURE SALE IN THE PUBLIC MARKET. THE SALE OF THESE SHARES COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO FALL. ANY FUTURE EQUITY ISSUANCES BY US MAY HAVE DILUTIVE AND OTHER EFFECTS ON OUR EXISTING STOCKHOLDERS. There were 20,777,181 shares of our common stock outstanding as of June 22, 2001. In addition, security holders held options and warrants as of June 22, 2001 which, if exercised, would obligate us to issue up to an additional 11,662,018 shares of common stock as of June 22, of which 5,165,385 shares are subject to options or warrants which are currently exercisable at the sole election of the holder. Many of these shares, if issued, would likely be issued at a discount to the prevailing market price. A substantial number of those shares, when we issue them upon exercise, will be available for immediate resale in the public market. In addition, we have the ability to sell up to approximately $27 million of our common stock pursuant to a shelf registration that will be eligible for immediate resale in the market. Furthermore, these numbers do not include the number of shares of common stock that may become issuable upon conversion of our Series C Preferred Stock or the securities that we may be required to issue in exchange for shares of NeoGene preferred stock. While this number of shares cannot be accurately determined at this time, assuming an average conversion price of $5.00 per share and payment of all dividends in shares, up to 1,790,000 shares could be issuable and available for resale upon conversion of these securities. The market price of our common stock could fall as a result of such resales, due to the increased number of shares available for sale in the market. If all 13,452,018 shares were issued without any increase in our market capitalization, the market price per share of our common stock may be reduced by approximately 40%. We have financed our operations, and we expect to continue to finance our operations, by issuing and selling equity securities. Any issuances by us of equity securities may be at or below the prevailing market price of our common stock and may have a dilutive impact on our other stockholders. These issuances would also cause our net income or loss per share to decrease in future periods. As a result, the market price of our common stock could drop. 9 13 WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS, AND MAY NOT HAVE SUFFICIENT PRODUCT LIABILITY INSURANCE TO COVER ANY CLAIMS, WHICH MAY EXPOSE US TO SUBSTANTIAL LIABILITIES. We may be exposed to product liability claims from patients who participate in our clinical trials, or, if we are able to obtain FDA approval for one or more of our potential products, from consumers of our products. Although we currently carry product liability insurance in the amount of $5 million per occurrence, it is possible that the amounts of this coverage will be insufficient to protect us from future claims. Further, we cannot be certain that we will be able to obtain or maintain additional insurance on acceptable terms for our clinical and commercial activities or that such additional insurance would be sufficient to cover any potential product liability claim or recall. Failure to maintain sufficient insurance coverage could have a material adverse effect on our business and results of operations if claims are made that exceed our coverage. THE USE OF HAZARDOUS MATERIALS IN OUR RESEARCH AND DEVELOPMENT EFFORTS IMPOSES CERTAIN COMPLIANCE COSTS ON US AND MAY SUBJECT US TO LIABILITY FOR CLAIMS ARISING FROM THE USE OR MISUSE OF THESE MATERIALS. Our research and development efforts involve the use of hazardous materials, including biological materials, chemicals and radioactive materials. We are subject to federal, state and local laws and regulations governing the storage, use and disposal of these materials and some waste products. We believe that our safety procedures for handling and disposing of these materials comply with the standards prescribed by federal, state and local regulations. However, we cannot completely eliminate the risk of accidental contamination or injury from these materials. If there was an accident, we could be held liable for any damages that result, which could exceed our resources. Currently the costs of complying with federal, state and local regulations are not significant, and consist primarily of waste disposal expenses. We may incur substantially increased costs to comply with regulations, particularly environmental regulations if we develop our own commercial manufacturing facility. THE MARKET PRICE AND VOLUME OF OUR COMMON STOCK FLUCTUATE SIGNIFICANTLY AND COULD RESULT IN SUBSTANTIAL LOSSES FOR INDIVIDUAL INVESTORS. The stock market from time to time experiences significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These broad market fluctuations may cause the market price of our common stock to drop. In addition, the market price of our common stock is highly volatile. Factors that may cause the market price of our common stock to drop include fluctuations in our results of operations, timing and announcements of our technological innovations or new products or those of our competitors, FDA and foreign regulatory actions, developments with respect to patents and proprietary rights, public concern as to the safety of products developed by us or others, changes in health care policy in the United States and in foreign countries, changes in stock market analyst recommendations regarding our common stock, the pharmaceutical industry generally and general market conditions. In addition, the market price of our common stock may drop if our results of operations fail to meet the expectations of stock market analysts and investors. During the last year, the price of our common stock has ranged between $13.50 and $2.22, and the daily trading volume has been as high as 2,006,000 shares and as low as 10,600 shares, with a recent average of approximately 112,000 shares. OUR DIRECTORS AND EXECUTIVE OFFICERS OWN A SUBSTANTIAL PERCENTAGE OF OUR COMMON STOCK. THEIR OWNERSHIP COULD ALLOW THEM TO EXERCISE SIGNIFICANT CONTROL OVER CORPORATE DECISIONS AND TO IMPLEMENT CORPORATE ACTS THAT ARE NOT IN THE BEST INTERESTS OF OUR STOCKHOLDERS AS A GROUP. Our directors and executive officers beneficially own approximately 11.6% of our outstanding common stock as of June 21, 2001. In addition, several of our stockholders, including Montrose Investments Ltd. and Strong River Investments, Inc. and Societe Generale have agreed that they will vote any and all shares of our common stock that they own as recommended by our board of directors in any meeting of our stockholders. As of June 21, 2001, these stockholders collectively held 1,649,157 shares of our common stock, or approximately 8.0% of the number of shares outstanding, and held warrants and convertible securities which could result in the issuance of up to 6,823,146 additional shares, for a total of 8,092,303 shares or 29.8% of the total number outstanding if all of those securities were converted or exercised, assuming a conversion price of $4.00 per share for all floating price securities. Of the additional shares, only 1,780,000, or approximately 7.9%, could be issued at the option of the holder within 60 days of June 21, 2001. As a result of these holdings, our directors and executive officers, if they acted together, could exert substantial influence over matters requiring approval by our stockholders. These matters would include the election of directors and the approval of mergers or other business combination transactions. This concentration of ownership and voting power may discourage or prevent someone from acquiring our business. 10 14 CERTAIN CHARTER AND BYLAWS PROVISIONS AND STOCKHOLDER RIGHTS PLAN MAY MAKE IT MORE DIFFICULT FOR SOMEONE TO ACQUIRE CONTROL OF US OR REPLACE CURRENT MANAGEMENT. Certain provisions of our Certificate of Incorporation and Bylaws may make it more difficult for someone to acquire control of us or replace our current management. These provisions may make it more difficult for stockholders to take certain corporate actions and could delay or discourage prevent someone from acquiring our business or replacing our current management, even if doing so would benefit our stockholders. These provisions could limit the price that certain investors might be willing to pay for shares of our common stock. On December 13, 2000, we adopted a Stockholder Rights Plan pursuant to which we have distributed rights to purchase units of our capital Series B Junior Participating Preferred Stock. The rights become exercisable upon the earlier of ten days after a person or group of affiliated or associated persons has acquired 20% or more of the outstanding shares of our common stock or ten days after a tender offer has commenced that would result in a person or group beneficially owning 20% or more of our outstanding common stock. These rights could delay or discourage someone from acquiring our business, even if doing so would benefit our stockholders. USE OF PROCEEDS Unless otherwise indicated in a supplement to this prospectus, we anticipate that any net proceeds from the sale of the securities will be used for general corporate purposes which may include but are not limited to working capital, capital expenditures, research and development and general and administrative expenses. Net proceeds from the sale of the offered securities initially may be temporarily invested in short-term interest-bearing securities. PLAN OF DISTRIBUTION On June 12, 2001, we entered into a Sales Agreement (the "Sales Agreement") with Cantor Fitzgerald & Co. ("Cantor") to act as underwriter for an offering from time to time of up to $8.4 million worth of our common stock in one or more placements. As part of this offering, Cantor may make sales "at the market" or directly into the Nasdaq National Market, the existing trading market for our common stock, including sales made to or through a market maker or through an electronic communications network, at the prevailing market price at the time of sale or at prices related to those prevailing market prices or at negotiated prices. The transactions in the shares may be effected during or after regular trading hours by one or more of the following methods: ordinary brokerage transactions and transactions in which the broker solicits purchasers; block trades in which the broker or dealer will attempt to sell the shares as agent but may position and attempt to resell a portion of the block as principal in order to facilitate the transaction; purchases by a broker or dealer as principal; privately negotiated transactions; and any other method permitted by law. The brokers or dealers may receive compensation in the form of discounts, concessions or commissions. We will provide a prospectus supplement to describe any transaction to the extent required by the federal securities laws. Pursuant to the Sales Agreement, we may, but we are under no obligation to, elect to notify Cantor that we want to sell shares of common stock and the proposed terms under which we would make the sale. Cantor may, but is under no obligation to, accept the offer from us. If we agree with Cantor on the terms of a proposed placement, including the number of shares of common stock to be offered in the placement and any minimum price below which sales may not be made, Cantor has agreed to use its commercially reasonable efforts, consistent with its normal trading and sales practices, to try to sell such shares in accordance with such terms. In the event that sales are made, Cantor will provide written notice to us and we will deliver such shares on the third business day following the date of such sale, unless otherwise specified by the parties. The Sales Agreement is terminable by either Cantor or us after one year, provided that Cantor may terminate the Sales Agreement earlier upon the occurrence of certain events. Cantor, and any broker or dealer that participates in the distribution (collectively, "Distribution Participants"), is an underwriter within the meaning of Section 2 (a) (11) of the Securities Act, and any commissions received by these brokers or dealers and any profit realized on the resale of the securities sold by them while acting as principal might be deemed to be underwriting discounts or commissions under the Securities Act. As underwriters they would be required to comply with the requirements of the Securities Act and the Securities Exchange Act of 1934, as amended, or the Exchange Act, including, without limitation, Rule 415 (a) (4) under the Securities Act and Rule 10b-5 and Regulation M under the Exchange Act. These rules and regulations may limit the timing of purchases and sales of shares of common stock by "Distribution Participants". Under these rules and regulations, Distribution Participants: - - may not engage in any stabilization activity in connection with our securities; and 11 15 - - 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, until such Distribution Participant has completed its participation in the distribution. Cantor has informed us that if permitted under the federal securities laws it may purchase and sell shares of our common stock for its own account, as market makes or otherwise, at the same time as it is making sales of shares of our common stock under the Sales Agreement. We have agreed that, without the written consent of Cantor, we will not, directly or indirectly, offer to sell, sell, contract to sell, grant any option to sell or otherwise dispose of any shares of our common stock, securities convertible into or exchangeable for our common stock, warrants or any rights to acquire our common stock during the period beginning on the fifth trading day preceding the date on which we and Cantor agree to the terms of a placement under the Sales Agreement and ending on the fifth trading day after the settlement of the final sale made as part of that placement. In connection with any sales made pursuant to the Sales Agreement, Cantor is to receive compensation of 4% of the gross proceeds and warrants to purchase shares of common stock in an amount equal to 10% of the number of shares sold by Cantor at an exercise price equal to 130% of the volume weighted average sales price of the shares of common stock sold by Cantor. The warrants are exercisable for five years and contain a cashless exercise provision commencing one year after issuance. We have also granted Cantor limited demand and piggyback registration rights with respect to the common stock underlying the warrants, which registration rights also commence one year after the issuance of the warrants. Simultaneous with entering into the Sales Agreement, we entered into another agreement with Cantor on a similar basis (the "Other Agreement") for up to $25 million worth of our common stock that is currently registered under our Registration Statement on Form S-3, registration number 333-53108. As with the Sales Agreement, any sales under the Other Agreement shall be subject to our agreeing with Cantor, in each instance, as to the terms and conditions of such sale. However, unlike the Sales Agreement, Cantor may not make sales pursuant to the Other Agreement directly into the Nasdaq National Market or otherwise in a manner that may be deemed to be an "at the market" offering as defined in Rule 415 under the Securities Act. In connection with any sales under the Other Agreement, Cantor is to receive compensation of 4.00% on the first $10 million gross proceeds, 3.50% on the next $10 million gross proceeds and 3.00% on the next $5 million. In addition, whenever Cantor receives cash compensation pursuant to the Other Agreement in connection with sales actually effected by Cantor thereunder or pursuant to Alternative Sales (as defined below), we will issue warrants to Cantor upon the same terms and conditions upon which warrants are issued to Cantor pursuant to the Sales Agreement. Until Cantor receives aggregate cash compensation of $336,000 (or 4% of $8.4 million gross proceeds) for sales made under the Sales Agreement and the Other Agreement, Cantor, subject to certain exceptions, is to receive 2% of the gross proceeds in any transaction in which we sell or issue our common stock for cash to or through a party or parties other than Cantor or its affiliates ("Alternative Sales"). We have also agreed to reimburse Cantor for its out-of-pocket expenses incurred in connection with the sales agreements and the agreement referred to below, including up to an aggregate of $100,000 incurred in connection with entering into the sales agreements, and we are required to advance Cantor $40,000 with respect to certain expenses that may be incurred under the Other Agreement, all or part of which may be refundable. In addition, we have entered into an agreement with Cantor, pursuant to which Cantor has been engaged to provide investment banking and other financial services. The agreement is terminable at the will of either party. The agreement provides that Cantor is to receive an annual retainer of $75,000 and reimbursement of its out-of-pocket expenses incurred in connection with services rendered thereunder. Upon execution of the agreement, we paid Cantor a $75,000 annual retainer and $50,000 as a non-refundable deposit against our reimbursement obligation. We have agreed to indemnify Cantor against certain liabilities, including liabilities under the Securities Act, or to contribute to payments Cantor may be required to make in respect thereof. 12 16 VALIDITY OF COMMON STOCK Latham & Watkins, Costa Mesa, California, will pass on the validity of the issuance of the common stock offered by this prospectus. EXPERTS The financial statements incorporated by reference in this registration statement, to the extent and for the periods indicated in their report, have been audited by Arthur Andersen LLP, independent public accountants, and are included herein in reliance upon the authority of said firm as experts in giving said report. Reference is made to said report which states that the Company is in the development stage, as described in Note 1 to the consolidated financial statements. LIMITATION ON LIABILITY AND DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES Our bylaws provide for indemnification of our directors and officers to the fullest extent permitted by law. Insofar as indemnification for liabilities under the Securities Act may be permitted to directors, officers or controlling persons of the Company pursuant to the Company's Certificate of Incorporation, as amended, bylaws and the Delaware General Corporation Law, the Company has been informed that in the opinion of the Commission such indemnification is against public policy as expressed in such Act and is therefore unenforceable. 13 17 ================================================================================ SHARES OF COMMON STOCK NEOTHERAPEUTICS, INC. PROSPECTUS JULY __, 2001 NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. ================================================================================ 18 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following sets forth the costs and expenses, all of which shall be borne by the Registrant, in connection with the offering of the securities pursuant to this Registration Statement: Registration Fee $ 2,100.00 Accounting Fees and Expenses $ 6,000.00* Legal Fees and Expenses $ 20,000.00* Miscellaneous $ 5,000.00* ------------ Total $ 33,100.00* =============
* Estimated ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The bylaws of the Registrant provide for indemnification of the Registrant's directors and officers to the fullest extent permitted by law. Insofar as indemnification for liabilities under the Securities Act may be permitted to directors, officers or controlling persons of the Registrant pursuant to the Registrant's Certificate of Incorporation, bylaws and the Delaware General Corporation Law (the "DGCL"), the Registrant has been informed that in the opinion of the Commission such indemnification is against public policy as expressed in such Act and is therefore unenforceable. Section 102(b)(7) of the DGCL provides that a certificate of incorporation may include a provision which eliminates or limits the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, relating to prohibited dividends or distributions or the repurchase or redemption of stock or (iv) for any transaction from which the director derives an improper personal benefit. The Registrant's Certificate of Incorporation includes such a provision. As a result of this provision, the Registrant and its stockholders may be unable to obtain monetary damages from a director for breach of his or her duty of care. ITEM 16. EXHIBITS 1.1 Sales Agreement, dated as of June 12, 2001, by and between the Company and Cantor Fitzgerald & Co. 1.2 Sales Agreement, dated as of June 12, 2001, by and between the Company and Cantor Fitzgerald & Co. 4.1 Advisory Agreement, dated as of April 11, 2001, by and between the Company and Cantor Fitzgerald & Co. 4.2 Amendment to Advisory Agreement, dated as of June 12, 2001, by and between the Company and Cantor Fitzgerald & Co. 5.1 Opinion of Latham & Watkins regarding the validity of the common stock being registered. 23.1 Consent of Arthur Andersen LLP. 23.2 Consent of Latham & Watkins (included in Exhibit 5.1). 24.1 Power of Attorney (included on the signature page to this registration statement).
II-1 19 ITEM 17. UNDERTAKINGS. (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which it offers or sells securities, a post-effective amendment to this registration statement: (iii) 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, each post-effective amendment shall be treated as a new registration statement of the securities offered, and the offering of the securities at that time to be deemed the initial bona fide offering. (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. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to 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. (c) 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 foregoing provisions, 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, 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 Act and will be governed by the final adjudication of such issue. II-2 20 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 Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Irvine, State of California, on June 29, 2001. NEOTHERAPEUTICS, INC. By: /s/ Samuel Gulko ------------------------------------------ Samuel Gulko Senior Vice President, Finance, Chief Financial Officer, Secretary and Treasurer POWER OF ATTORNEY We, the undersigned directors and officers of NeoTherapeutics, Inc., do hereby constitute and appoint Alvin J. Glasky, Ph.D. and Samuel Gulko, or either of them, our true and lawful attorneys-in-fact and agents, each with full power to sign for us or any of us in our names and in any and all capacities, any and all amendments (including post-effective amendments) to this Registration Statement, or any related registration statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto and other documents required in connection therewith, and each of them with full power to do any and all acts and things in our names and in any and all capacities, which such attorneys-in-fact and agents, or either of them, may deem necessary or advisable to enable NeoTherapeutics, Inc. to comply with the Securities Act of 1933, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission, in connection with this Registration Statement; and we hereby do ratify and confirm all that the such attorneys-in-fact and agents, or either of them, shall do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ----------------------------------- --------------------------------- ------------- June 29, 2001 /s/ Alvin J. Glasky Chief Executive Officer, Director - ---------------------------------- (principal executive officer) Alvin J. Glasky, Ph.D. /s/ Rajesh C. Shrotriya President, Chief Operating June 29, 2001 - ---------------------------------- Officer and Director Rajesh C. Shrotriya, M.D. /s/ Samuel Gulko Senior Vice President, Finance, June 29, 2001 - ---------------------------------- Chief Financial Officer, Samuel Gulko Secretary, Treasurer and Director (principal financial and accounting officer) /s/ Mark J. Glasky Director June 29, 2001 - ---------------------------------- Mark J. Glasky /s/ Ann C. Kessler Director June 29, 2001 - ---------------------------------- Ann C. Kessler, Ph.D. /s/ Armin M. Kessler Director June 29, 2001 - ---------------------------------- Armin M. Kessler
II-1 21 /s/ Eric L. Nelson Director June 29, 2001 - ---------------------------------- Eric L. Nelson, Ph.D. /s/ Carol O'Cleiracain Director June 29, 2001 - ---------------------------------- Carol O'Cleiracain, Ph.D. /s/ Paul H. Silverman Director June 29, 2001 - ---------------------------------- Paul H. Silverman, Ph.D., D.Sc.
II-2 22 EXHIBIT INDEX
Exhibit - ------- 1.1 Sales Agreement, dated as of June 12, 2001, by and between the Company and Cantor Fitzgerald & Co. 1.2 Sales Agreement, dated as of June 12, 2001, by and between the Company and Cantor Fitzgerald & Co. 4.1 Advisory Agreement, dated as of April 11, 2001, by and between the Company and Cantor Fitzgerald & Co. 4.2 Amendment to Advisory Agreement, dated as of June 12, 2001, by and between the Company and Cantor Fitzgerald & Co. 5.1 Opinion of Latham & Watkins regarding the validity of the common stock being registered. 23.1 Consent of Arthur Andersen LLP. 23.2 Consent of Latham & Watkins (included in Exhibit 5.1). 24.1 Power of Attorney (included on the signature page to this Registration Statement).
EX-1.1 2 a73898orex1-1.txt EXHIBIT 1.1 1 EXHIBIT 1.1 NEOTHERAPEUTICS, INC. COMMON STOCK SALES AGREEMENT JUNE 12, 2001 CANTOR FITZGERALD & CO. One World Trade Center New York, New York 10048 Dear Sirs/Ladies: NeoTherapeutics, Inc., a Delaware corporation (the "Company"), confirms its agreement ("Agreement") with Cantor Fitzgerald & Co. ("CF&Co"), as follows: 1. Issuance and Sale of Shares. The Company agrees that, from time to time during the term of this Agreement, on the terms and subject to the conditions set forth herein, it will issue and sell through CF&Co, acting as agent and/or principal, shares (the "Shares") of the Company's common stock, par value $.001 per share ("Common Stock") having an aggregate sale price of up to $8,400,000; provided, however, that unless and until the Company obtains the approval of the holders of its Common Stock in accordance with the laws of the State of Delaware, in no event shall the number of shares issued hereunder exceed 19.99% of the number of shares of Common Stock outstanding on the date hereof (the "Maximum Amount"). Notwithstanding anything to the contrary contained herein, the parties hereto agree that compliance with the limitations set forth in this Section 1 on the number and aggregate sale price of Shares issued and sold under this Agreement shall be the sole responsibility of the Company, and CF&Co shall have no obligation in connection with such compliance. The issuance and sale of Shares through CF&Co will be effected pursuant to a registration statement on Form S-3 filed by the Company and declared effective by the Securities and Exchange Commission (the "Commission"). 2. Placements. Each time that the Company wishes to issue and sell Shares hereunder (each, a "Placement"), it will notify CF&Co of the proposed terms of such Placement. If CF&Co wishes to accept such proposed terms (which it may decline to do for any reason in its sole discretion) or, following discussions with the Company, wishes to accept amended terms, CF&Co will issue to the Company a written notice setting forth the terms that CF&Co is willing to accept, including without limitation the number of Shares ("Placement Shares") to be issued, the date or dates on which such sales are anticipated to be made, any minimum price below which sales may not be made, and the capacity in which CF&Co may act in selling Shares hereunder (as principal, agent or both) (a "Placement Notice"). The amount of any discount, commission or other compensation to be paid by the Company to CF&Co for effecting such sales shall be as set forth in Schedule 1 attached hereto, as such Schedule may be amended pursuant to the written agreement of the Company and CF&Co. The terms set forth in a 2 Placement Notice will not be binding on the Company or CF&Co unless and until the Company delivers written notice of its acceptance of all of the terms of such Placement Notice (an "Acceptance"); provided, however, that neither the Company nor CF&Co will be bound by the terms of a Placement Notice unless the Company delivers to CF&Co an Acceptance with respect thereto prior to 4:30 p.m. (eastern time) on the Business Day following the Business Day on which such Placement Notice is delivered to the Company. It is expressly acknowledged and agreed that neither the Company nor CF&Co will have any obligation whatsoever with respect to a Placement or any Placement Shares unless and until CF&Co delivers a Placement Notice to the Company, and then only upon the terms specified therein and herein. In the event of a conflict between the terms of this Agreement and the terms of a Placement Notice, the terms of the Placement Notice will control. 3. Sale of Placement Shares by CF&Co. Subject to the terms and conditions of this Agreement, upon the Acceptance of a Placement Notice, and unless the sale of the Placement Shares described therein has been suspended or otherwise terminated in accordance with the terms of this Agreement, CF&Co will use its commercially reasonable efforts consistent with its normal trading and sales practices to sell such Placement Shares up to the amount specified, and otherwise in accordance with the terms of such Placement Notice. CF&Co will provide written confirmation to the Company no later than the opening of the Trading Day next following the Trading Day on which it has made sales of Placement Shares hereunder setting forth the number of Placement Shares sold on such day, the compensation payable by the Company to CF&Co with respect to such sales, and the Net Proceeds (as defined below) payable to the Company. CF&Co may sell any Placement Shares into an existing trading market for the Company's Common Stock on or through the facilities of a national securities exchange or to or through a market maker, subject to the volume limitations set forth in Rule 415(a)(4)(ii) of the Securities Act of 1933, as amended (the "Act"). The Company acknowledges and agrees that (i) there can be no assurance that CF&Co will be successful in selling Placement Shares, and (ii) CF&Co will incur no liability or obligation to the Company or any other person or entity if it does not sell Placement Shares for any reason other than a failure by CF&Co to use its commercially reasonable efforts consistent with its normal trading and sales practices to sell such Placement Shares as required under this Section 3. For the purposes hereof, "Trading Day" means any day on which Common Stock is purchased and sold on the principal market on which the Common Stock is listed or quoted. 4. Suspension of Sales. The Company or CF&Co may, upon notice to the other party in writing or by telephone (confirmed immediately by verifiable facsimile transmission), suspend any sale of Placement Shares; provided, however, that such suspension shall not affect or impair either party's obligations with respect to any Placement Shares sold hereunder prior to the receipt of such notice. The Company agrees that no such notice shall be effective against CF&Co unless it is made to one of the individuals named on Schedule 4 hereto, as such Schedule may be amended from time to time. 5. Settlement. (a) Settlement of Placement Shares. Unless otherwise specified in the applicable Placement Notice, settlement for sales of Placement Shares will occur on the third (3rd) Business Day (or such earlier day as is industry practice for regular-way trading) following the date on -2- 3 which such sales are made (each a "Settlement Date"). The amount of proceeds to be delivered to the Company on a Settlement Date against the receipt of the Placement Shares sold ("Net Proceeds") will be equal to the aggregate sales price at which such Shares were sold, after deduction for (i) CF&Co's commission, discount, or other compensation for such sales payable by the Company, (ii) any other amounts due and payable by the Company to CF&Co hereunder, and (iii) any transaction fees imposed by any governmental or self-regulatory organization in respect of such sales. (b) Delivery of Shares. On or before each Settlement Date, the Company will, or will cause its transfer agent to, electronically transfer the Placement Shares being sold by crediting CF&Co's or its designee's account at The Depository Trust Company through its Deposit Withdrawal Agent Commission System or by such other means of delivery as may be mutually agreed upon by the parties hereto and, upon receipt of such Shares, which in all cases shall be freely tradeable, transferable, registered shares in good deliverable form, CF&Co will deliver the related Net Proceeds in same day funds delivered to an account designated by the Company prior to the Settlement Date. If the Company defaults in its obligation to deliver Shares on a Settlement Date, the Company agrees that in addition to and in no way limiting the rights and obligations set forth in Section 9(a) hereto, it will (i) hold CF&Co harmless against any loss, claim, damage, or expense (including reasonable legal fees and expenses), as incurred, arising out of or in connection with such default by the Company and (ii) pay to CF&Co any commission, discount, or other compensation to which it would otherwise have been entitled absent such default. 6. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, CF&Co that: (a) The Company meets the requirements of Form S-3 under the Act and the rules and regulations thereunder ("Rules and Regulations"). A registration statement on Form S-3 with respect to the Shares (as amended or supplemented, the "Registration Statement"), including the form of prospectus contained therein (as amended or supplemented, the "Prospectus"), will be prepared by the Company in conformity with the requirements of the Act and the Rules and Regulations and will be filed with the Commission, and the Company will use its best efforts to cause it to become effective as soon as reasonably practicable. Any amendment or supplement to the Registration Statement or Prospectus required by this Agreement will be so prepared and filed by the Company, and the Company will use its best efforts to cause it to become effective as soon as reasonably practicable. No stop order suspending the effectiveness of the Registration Statement has been issued, and no proceeding for that purpose has been instituted or threatened by the Commission. Copies of the Registration Statement and Prospectus, any such amendment or supplement and all documents incorporated by reference therein that were filed with the Commission on or prior to the date of this Agreement have been delivered to CF&Co. Any reference herein to the Registration Statement, the Prospectus, or any amendment or supplement thereto shall be deemed to refer to and include the documents incorporated (or deemed to be incorporated) by reference therein, and any reference herein to the terms "amend," "amendment" or "supplement" with respect to the Registration Statement or Prospectus shall be deemed to refer to and include the filing after the execution hereof of any document with the Commission deemed to be incorporated by reference therein. -3- 4 (b) Each part of the Registration Statement, when such part became or becomes effective, and the Prospectus, on the date of filing thereof with the Commission and at each Settlement Date, conformed or will conform with the requirements of the Act and the Rules and Regulations; each part of the Registration Statement, when such part became or becomes effective, did not or will not 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 not misleading; and the Prospectus, on the date of filing thereof with the Commission and at each Settlement Date, did not or will not include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; except that the foregoing shall not apply to statements or omissions in any such document made in reliance on information furnished to the Company by CF&Co specifically stating that it is intended for use in the Registration Statement, the Prospectus, or any amendment or supplement thereto. (c) The documents incorporated by reference in the Registration Statement or the Prospectus, or any amendment or supplement thereto (the "Disclosure Documents"), when they became effective under the Act or were filed with the Commission under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as the case may be, conformed with the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder, and none of such documents contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and any further documents so filed and incorporated by reference in the Prospectus or any further amendment or supplement thereto, when such documents become effective or are filed with the Commission, as the case may be, will conform to the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder and will not 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 not misleading; except that the foregoing will not apply to statements or omissions in any such document made in reliance on information furnished to the Company by CF&Co specifically stating that it is intended for use in any such document. (d) The consolidated financial statements and financial schedules of the Company and its subsidiaries, together with the related notes set forth or incorporated by reference in the Registration Statement and Prospectus, have been and will be prepared in accordance with Regulation S-X under the Act and with generally accepted accounting principles consistently applied at the times and 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 exclude footnotes or may be condensed or summary statements) and fairly present and will fairly present the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end adjustments). (e) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the state of Delaware with full power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and Prospectus; and the Company is duly qualified as a foreign entity to transact business and is in good standing in each jurisdiction in which such qualification is required, -4- 5 whether by reason of the ownership or leasing of property or the conduct of business, except where the failure, individually or in the aggregate, to be so qualified and be in good standing would not have a material adverse effect on (i) the consolidated business, operations, properties, financial condition, reputation, prospects or results of operations of the Company and its subsidiaries taken as a whole, (ii) the transactions contemplated hereby, (iii) the Shares or (iv) the ability of the Company to perform its obligations under this Agreement (collectively, a "Material Adverse Effect"). (f) Each subsidiary of the Company, if any, has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has corporate power and authority to own, lease and operate its properties and conduct its business as described in the Registration Statement and Prospectus and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to be so qualified would not have a Material Adverse Effect. (g) Each of the Company and its subsidiaries has (i) good and marketable title to all of the properties and assets owned by it, free and clear of all liens, charges, claims, security interests or encumbrances (collectively, "Encumbrances"), other than Encumbrances that would not have a Material Adverse Effect, and (ii) possession under all leases to which it is party as lessee. All leases to which the Company or any of its subsidiaries is a party are valid and binding and no material default has occurred and is continuing thereunder, and no event or circumstance that with the passage of time or giving of notice, or both, would constitute such a material default has occurred and is continuing, and, to the best knowledge of the Company, no defaults by the landlord exist under any such leases. (h) The Company has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable and have been issued in compliance with all applicable federal and state securities laws; and all of the issued shares of capital stock of each subsidiary, if any, of the Company have been duly and validly authorized and issued and are fully paid and non-assessable and the shares of such subsidiary are owned directly or indirectly by the Company, are held free and clear of all Encumbrances. The Common Stock is currently listed on the Nasdaq National Market under the symbol "NEOT". (i) The Shares have been duly authorized and, when issued, delivered and paid for pursuant to this Agreement, will be validly issued and fully paid and non-assessable, free and clear of all Encumbrances and will be issued in compliance with all applicable federal and state securities laws; the capital stock of the Company, including the Shares, conforms to the description thereof contained in the Registration Statement and the Shares will conform to the description thereof contained in the Prospectus as amended or supplemented. Other than as set forth on Schedule 6(i), as such Schedule may be amended from time to time upon written notice to such effect delivered to CF&Co, neither the stockholders of the Company, nor any other person or entity have any preemptive rights or rights of first refusal with respect to the Shares or other rights to purchase or receive any of the Shares or any other securities or assets of the Company, and no person has the right, contractual or otherwise, to cause the Company to issue -5- 6 to it, or register pursuant to the Act, any shares of capital stock or other securities or assets of the Company upon the issuance or sale of the Shares. (j) Neither the Company nor any of its subsidiaries has sustained since the date of the latest audited financial statements included or incorporated by reference in the Prospectus any material loss (other than operating losses incurred in the ordinary course of the Company's business and which have been disclosed in writing to CF&Co or specifically described in a Disclosure Document) or interference with the business of the Company and its subsidiaries, taken as a whole, including without limitation, from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth in the Prospectus; subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, (i) neither the Company nor any of its subsidiaries has incurred any liabilities or obligations, direct or contingent, or entered into any transactions, not in the ordinary course of business, that are material to the Company and its subsidiaries taken as a whole, and (ii) except as set forth on Schedule 6(j), as such Schedule may be amended from time to time upon written notice to such effect delivered to CF&Co, since the date of the latest audited financial statements included or incorporated by reference in the Prospectus there has not been any material change, on a consolidated basis, in the authorized capital stock of the Company and its subsidiaries, any material increase in the short-term debt or long-term debt of the Company and its subsidiaries, on a consolidated basis, or any material adverse change, or any development involving a prospective material adverse change, in the consolidated business, operations, properties, financial condition, reputation, prospects or results of operations of the Company and its subsidiaries taken as a whole. (k) Except as set forth in the Prospectus, there is no claim, litigation or administrative proceeding or inquiry pending, or, to the Company's knowledge, threatened against the Company or any of its subsidiaries, or, to the Company's knowledge, against any officer, director or employee of the Company or any such subsidiary in connection with such person's employment therewith that, individually or in the aggregate, could have a Material Adverse Effect. Neither the Company nor any of its subsidiaries is a party to or subject to the provisions of, any order, writ, injunction, judgment or decree of any court or government agency or instrumentality which could have a Material Adverse Effect. (l) There are no legal or governmental proceedings, contracts or documents of the Company or any of its subsidiaries that are required to be described in or filed as exhibits to the Registration Statement or any of the documents incorporated by reference therein by the Act or the Exchange Act or by the rules and regulations of the Commission thereunder that have not been so described or filed as required. (m) Subject to approval of the terms of each Placement Notice by the Company's Board of Directors, all necessary action has been duly and validly taken by the Company to authorize the execution, delivery and performance of this Agreement. This Agreement has been duly and validly authorized, executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, -6- 7 reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether applied in a proceeding in law or equity). (n) Neither the Company nor any of its subsidiaries is in violation of any provisions of its charter, bylaws or any other governing document as amended and in effect on and as of the date hereof or in default (and no event has occurred which, with notice or lapse of time or both, would constitute a default) under any indenture, mortgage, deed of trust, loan or credit agreement or any provision of any instrument or contract to which it is a party or by which it is bound. (o) Executing and delivering this Agreement and the issuance and sale of the Shares and the compliance by the Company with all of the provisions of this Agreement and the consummation of the transactions contemplated herein will not result in (i) a breach or violation of any of the terms and provisions of, or constitute a default under, any obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan or credit agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which any of them is bound or to which any of the property of the Company or any of its subsidiaries is subject, (ii) a violation of the Company's charter or by-laws, or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of its properties or (iii) the creation of any Encumbrance upon any assets of the Company or of any of its subsidiaries or the triggering of any preemptive or anti-dilution rights or rights of first refusal or first offer, or any similar rights (whether pursuant to a "poison pill" provision or otherwise), on the part of holders of the Company's securities or any other person, other than the right of first refusal granted to Montrose Investments Ltd. and Strong River Investments, Inc. pursuant to that certain letter agreement dated as of April 17, 2001, by and among the Company, Montrose Investments Ltd., HBK Master Fund L.P. and Strong River Investments, Inc. (the "April 17 Letter"). Neither the Company nor any of its subsidiaries or affiliates, nor any person acting on its or their behalf, has issued or sold any shares of Common Stock or securities or instruments convertible into, exchangeable for and/or otherwise entitling the holder thereof to acquire shares of Common Stock which would be integrated with the offer and sale of the Shares hereunder, including, without limitation, for purposes of any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated. (p) The Company and its subsidiaries have not violated and are in compliance with all laws, statutes, ordinances, regulations, rules and orders of any foreign, federal, state or local government and any other governmental department or agency, and any judgment, decision, decree or order of any court or governmental agency, department or authority, except for such violations or noncompliance which, individually or in the aggregate, would not have a Material Adverse Effect. (q) The Company and its subsidiaries possess such licenses, permits, consents, orders, certificates or authorizations issued by the appropriate federal, state, foreign or local regulatory agencies or bodies necessary to conduct their business as described in the Prospectus except for licenses, permits, consents, orders, certificates, authorizations, approvals, franchises or rights, the absence of which, individually or in the aggregate, would not have a Material Adverse Effect; the Company and its subsidiaries have not received any notice of proceedings or investigations -7- 8 relating to the revocation or modification of any such licenses, permits, consents, orders, certificates, authorizations, approvals, franchises or rights which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a Material Adverse Effect. No consent, approval, authorization or order of, or filing with, any court or governmental agency or body is required for the issue and sale of the Shares and the consummation by the Company of the transactions contemplated by this Agreement, except the filing with the Commission of Prospectus Supplements or amendments to the Registration Statement related to the issue and sale of the Shares and such consents, approvals, authorizations, registrations or qualifications as have already been obtained or made or as may be required under state securities or Blue Sky laws. (r) Other than as set forth in the Prospectus, to the best of the Company's knowledge, the Company carries, or is covered by, insurance in such amounts and covering such risks as is prudent, reasonable and customary for companies engaged in similar businesses in similar industries. (s) Other than as set forth in the Prospectus, the Company and each of its subsidiaries have obtained all material environmental permits, licenses and other authorizations required by federal, state, foreign and local law in order to conduct their businesses as described in the Prospectus; the Company and each of its subsidiaries are conducting their businesses in substantial compliance with such permits, licenses and authorizations and with applicable environmental laws, except where the failure to be in compliance would not have a Material Adverse Effect; and, except as described in the Prospectus, the Company is not in violation of any federal, state, foreign or local law or regulation relating to the storage, handling, disposal, release or transportation of hazardous or toxic materials except for such violations or noncompliance which, individually or in the aggregate, would not have a Material Adverse Effect. (t) Arthur Andersen, which has audited the financial statements of the Company and its subsidiaries included in the Prospectus, is an independent public accountant as required by the Act and the Rules and Regulations. (u) No forward looking statement within the meaning of Section 27A of the Act and Section 21E of the Exchange Act contained in the Registration Statement has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith. (v) The Company and each of its subsidiaries owns or possesses sufficient legal rights to all patents, trademarks, service marks, tradenames, copyrights, trade secrets, licenses, information and proprietary rights and processes necessary for its business as now conducted (collectively, the "Company Intellectual Property Rights") without any conflict with, or infringement of, the rights of others. Neither Company nor any of its subsidiaries has received any written communications alleging that the Company or any of its subsidiaries has violated or, by conducting its business, would violate any of the patents, trademarks, service marks, tradenames, copyrights, trade secrets or other proprietary rights or processes of any other person or entity. To the Company's and each of its subsidiary's knowledge, all Company Intellectual Property Rights are enforceable and there is no existing infringement by any person of such Company Intellectual Property Rights. All patent applications that have been filed by the -8- 9 Company or any of its subsidiaries with the Patent and Trademark Office have been duly filed by the Company or such subsidiary, as applicable, and the Company or such subsidiary, as applicable, has taken all actions reasonably necessary to maintain the prosecution of such patent applications. (w) The Company, on behalf of Dr. Alvin Glasky, represents and warrants that at all times since the respective dates of application of the Re-Assigned Patents (as defined below) until their assignment to Advanced Immunotherapeutics, Inc., a California corporation, pursuant to the Assignment dated April 12, 2001, by and between Dr. Glasky and Advanced Immunotherapeutics, Inc., Dr. Glasky, in his individual capacity, has been and will be the sole and exclusive legal and beneficial owner of the Re-Assigned Patents and at all times has held and will hold good and marketable title to the Re-Assigned Patents, free and clear of all liens, claims, charges, defenses, counterclaims, offsets, encumbrances and security interests of any kind or nature. Prior to such assignment to Advanced Immunotherapeutics, Inc., Dr. Glasky has not sold, assigned, transferred, pledged or otherwise encumbered or disposed of, and will not sell, assign, transfer, pledge or otherwise encumber or dispose of, the Re-Assigned Patents or any interest therein. Dr. Glasky owns and has the full right and authority to assign the Re-Assigned Patents. For the purposes of this Agreement, "Re-Assigned Patents" means, individually and collectively, the following patents and the inventions included therein, together with the applications to the United States Patent and Trademark Office therefor and any continuations, continuations in part, divisions, reissues, extensions, revisions, substitutions, re-registrations, examinations, reexamination certificates, re-validations and patents of additions with respect thereto, as well as any foreign patents covering any claims described in the patents: (i) U.S. Patent No. 5,091,432, entitled "9-Substituted Hypoxanthine Bi-Functional Compounds and Their Neuroimmunological Methods of Use," issued February 25, 1992 and (ii) U.S. Patent No. 5,447,939, entitled "Carbon Monoxide Dependent Guanylyl Cyclase Modifiers and Methods of Use," issued September 5, 1995. (x) On each Settlement Date and each Filing Date (as defined in paragraph 7(m) below), the Company shall be deemed to have confirmed (i) the accuracy and completeness, as of such date, of each representation and warranty made by it in this Agreement and (ii) that the Company has complied with all of the agreements to be performed by it hereunder at or prior to such date. 7. Covenants of the Company. The Company covenants and agrees with CF&Co that: (a) During the period in which a prospectus relating to the Shares is required to be delivered by CF&Co under the Act, the Company will notify CF&Co promptly of the time when any subsequent amendment to the Registration Statement has been filed with the Commission and has become effective or any subsequent supplement to the Prospectus has been filed and of any request by the Commission for any amendment or supplement to the Registration Statement or Prospectus or for additional information; it will prepare and file with the Commission, promptly upon CF&Co's request, any amendments or supplements to the Registration Statement or Prospectus that, in CF&Co's opinion, may be necessary or advisable in connection with the distribution of the Shares by CF&Co (provided, however that the failure of CF&Co to make such request shall not relieve the Company of any obligation or liability hereunder, or affect CF&Co's -9- 10 right to rely on the representations and warranties made by the Company in this Agreement); the Company will not file any amendment or supplement to the Registration Statement or Prospectus unless a copy thereof has been submitted to CF&Co a reasonable period of time before the filing and CF&Co has not reasonably objected thereto (provided, however that the failure of CF&Co to make such objection shall not relieve the Company of any obligation or liability hereunder, or affect CF&Co's right to rely on the representations and warranties made by the Company in this Agreement); and it will furnish to CF&Co at the time of filing thereof a copy of any document that upon filing is deemed to be incorporated by reference in the Registration Statement or Prospectus; and the Company will cause each amendment or supplement to the Prospectus to be filed with the Commission as required pursuant to the applicable paragraph of Rule 424(b) of the Rules and Regulations or, in the case of any document to be incorporated therein by reference, to be filed with the Commission as required pursuant to the Exchange Act, within the time period prescribed. (b) The Company will advise CF&Co, promptly after it receives notice or obtains knowledge thereof, of the issuance or threatened issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement, of the suspension of the qualification of the Shares for offering or sale in any jurisdiction, or of the initiation or threatening of any proceeding for any such purpose; and it will promptly use its commercially reasonable efforts to prevent the issuance of any stop order or to obtain its withdrawal if such a stop order should be issued. (c) Within the time during which a prospectus relating to the Shares is required to be delivered by CF&Co under the Act, the Company will comply with all requirements imposed upon it by the Act and by the Rules and Regulations, as from time to time in force, and will file on or before their respective due dates all reports and any definitive proxy or information statements required to be filed by the Company with the Commission pursuant to Sections 13(a), 13(c), 14, 15(d) or any other provision of or under the Exchange Act. If during such period any event occurs as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances then existing, not misleading, or if during such period it is necessary to amend or supplement the Registration Statement or Prospectus to comply with the Act, the Company will promptly notify CF&Co to suspend the offering of Shares during such period and the Company will promptly amend or supplement the Registration Statement or Prospectus (at the expense of the Company) so as to correct such statement or omission or effect such compliance. (d) The Company will use its best efforts to cause the Shares to be listed on the Nasdaq National Market and to qualify the Shares for sale under the securities laws of such jurisdictions as CF&Co designates and to continue such qualifications in effect so long as required for the distribution of the Shares; provided that the Company shall not be required in connection therewith to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction. (e) The Company will furnish to CF&Co and its counsel (at the expense of the Company) copies of the Registration Statement, the Prospectus (including all documents incorporated by reference therein) and all amendments and supplements to the Registration -10- 11 Statement or Prospectus that are filed with the Commission during the period in which a prospectus relating to the Shares is required to be delivered under the Act (including all documents filed with the Commission during such period that are deemed to be incorporated by reference therein), in each case as soon as reasonably practicable and in such quantities as CF&Co may from time to time reasonably request and, at CF&Co's request, will also furnish copies of the Prospectus to each exchange or market on which sales of Shares may be made. (f) The Company will furnish to CF&Co for a period of five years from the date of this Agreement such information as reasonably requested by CF&Co regarding the Company or its subsidiaries. (g) The Company will make generally available to its security holders as soon as practicable, but in any event not later than 15 months after the end of the Company's current fiscal quarter, an earnings statement covering a 12-month period that satisfies the provisions of Section 11(a) of the Act and Rule 158 of the Rules and Regulations. (h) The Company, whether or not the transactions contemplated hereunder are consummated or this Agreement is terminated, will pay all expenses incident to the performance of its obligations hereunder, including, but not limited to, expenses relating to (i) the preparation, printing and filing of the Registration Statement as originally filed, of each Prospectus and of each amendment and supplement thereto, (ii) the preparation, issuance and delivery of the Shares, (iii) the fees and disbursements of the Company's counsel and accountants, (iv) the qualification of the Shares under securities laws in accordance with the provisions of Section 7(d) of this Agreement, including filing fees and any reasonable fees or disbursements of counsel for CF&Co in connection therewith, (v) the printing and delivery to CF&Co of copies of the Prospectus and any amendments or supplements thereto, and of this Agreement, (vi) the fees and expenses incurred in connection with the listing or qualification of the Shares for trading on the Nasdaq National Market and (vii) filing fees, if any, of the Commission and the National Association of Securities Dealers, Inc. (i) The Company will use the Net Proceeds as described in the Prospectus and, in any case, for general corporate purposes only, in the ordinary course of its business and consistent with past practice and, without limiting the generality of the foregoing, shall not use such proceeds to make a loan to any employee, officer, director or stockholder of the Company (other than loans made to new employees as a condition of employment), to repay any loan or other obligation of the Company to any such person or to repurchase or pay a dividend on shares of Common Stock or other securities of the Company (in any such case, regardless of whether such loan or payment was authorized by the Company's Board of Directors prior to the date hereof). (j) Without the written consent of CF&Co, the Company will not, directly or indirectly, offer to sell, sell, contract to sell, grant any option to sell or otherwise dispose of any shares of Common Stock (other than the Shares offered pursuant to the provisions of this Agreement) or securities convertible into or exchangeable for Common Stock, warrants or any rights to purchase or acquire, Common Stock during the period beginning on the fifth (5th) Trading Day immediately prior to the date on which any Acceptance of a Placement Notice is delivered to CF&Co hereunder and ending on the fifth (5th) Trading Day immediately following the final Settlement Date with respect to Shares sold pursuant to such Placement Notice; -11- 12 provided, however, that such restriction will not be required in connection with the Company's issuance or sale of (i) Common Stock, options to purchase shares of Common Stock or Common Stock issuable upon the exercise of options, pursuant to any employee or director stock option or benefits plan, stock ownership plan or dividend reinvestment plan (but not shares subject to a waiver to exceed plan limits in its stock purchase plan) of the Company now in effect, and (ii) Common Stock issuable upon conversion of securities or the exercise of warrants, options or other rights in effect or outstanding, and disclosed in writing to CF&Co. (k) The Company will, at any time during the term of this Agreement, as supplemented from time to time, advise CF&Co immediately after it shall have received notice or obtain knowledge thereof, of any information or fact that would alter or affect any opinion, certificate, letter or other document provided to CF&Co pursuant to this Agreement. (l) The Company will cooperate with any due diligence review conducted by CF&Co or its agents, including, without limitation, providing information and making available documents and senior corporate officers, as CF&Co may reasonably request; provided, however, that the Company shall be required to make available documents and senior corporate officers only (i) at the Company's principal offices and (ii) during the Company's ordinary business hours. (m) The Company agrees that on or prior to the Business Day after the end of each calendar week during which sales of Shares were made by CF&Co (each such week, a "Reporting Period") or on such earlier date as the Rules and Regulations shall require, the Company will (i) file a prospectus supplement with the Commission under the applicable paragraph of Rule 424(b) under the Act (each a "Filing Date"), which prospectus supplement will set forth, with regard to such sales, the dates included within the Reporting Period, the amount of Shares sold through CF&Co, the Net Proceeds to the Company and the compensation payable by the Company to CF&Co and (ii) deliver such number of copies of each such prospectus supplement to each exchange or market on which such sales were effected as may be required by the rules or regulations of such exchange or market. (n) On the date that the Registration Statement is declared effective, on each Filing Date and each time that (i) the Registration Statement shall be amended or the Prospectus supplemented (other than a supplement filed (1) pursuant Rule 424(b) under the Act that contains solely the information confirmed to the Company by CF&Co pursuant to Section 3 above or (2) paragraph (m) above) or (ii) there is filed with the Commission any document incorporated by reference into the Prospectus, the Company shall furnish or cause to be furnished to CF&Co forthwith a certificate dated the date of filing with the Commission of such supplement, or other document, or the date of the effectiveness of the Registration Statement or such amendment, as the case may be, in the form attached hereto as Exhibit 8(h) to the effect that the representations and warranties made by the Company in this Agreement are true and correct on such date as though made at and as of such date (except that such statements shall be deemed to relate to the Registration Statement and the Prospectus as amended and supplemented to such time) and that the Company has complied with all of the agreements to be performed by it at or prior to such date. -12- 13 (o) On the date that the Registration Statement is declared effective and each time that (i) the Registration Statement is amended or the Prospectus supplemented (other than a supplement filed (1) pursuant Rule 424(b) under the Act that contains solely the information confirmed to the Company by CF&Co pursuant to Section 3 above or (2) paragraph (m) above) or (ii) there is filed with the Commission any document incorporated by reference into the Prospectus, the Company shall furnish or cause to be furnished forthwith to CF&Co and to counsel to CF&Co a written opinion of Latham & Watkins, counsel to the Company ("Company Counsel") and a written opinion of Oppenheimer Wolff & Donnelly LLP ("Special Counsel"), or other counsels satisfactory to CF&Co, dated the date of effectiveness of the Registration Statement or amendment, or the date of filing with the Commission of such supplement or other document, as the case may be, in form and substance satisfactory to CF&Co and its counsel, in substantially the forms attached hereto as Exhibits 8(e)(1) and 8(f)(1) respectively (for the date of effectiveness of the Registration Statement) and Exhibits 8(e)(2) and 8(f)(2) respectively (for subsequent dates), but modified as necessary to relate to the Registration Statement and the Prospectus as amended and supplemented to the time of delivery of such opinion. (p) On the date that the Registration Statement is declared effective and each time that the Registration Statement is amended or the Prospectus supplemented to include additional amended financial information or there is filed with the Commission any document incorporated by reference into the Prospectus which contains additional amended financial information, the Company shall cause its independent accountants reasonably satisfactory to CF&Co, forthwith to furnish CF&Co letters (the "Comfort Letters"), dated the date of effectiveness of the Registration Statement or such amendment, or the date of filing of such supplement or other document with the Commission, as the case may be, in form and substance satisfactory to CF&Co, (i) confirming that they are independent public accountants within the meaning of the Act and are in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as of such date, the conclusions and findings of such firm with respect to the financial information and other matters ordinarily covered by accountants' "comfort letters" to underwriters in connection with registered public offerings (the first such letter, the "Initial Comfort Letter") and (iii) updating the Initial Comfort Letter with any information which would have been included in the Initial Comfort Letter had it been given on such date and modified as necessary to relate to the Registration Statement and the Prospectus, as amended and supplemented to the date of such letter. (q) The Company will not, directly or indirectly, (i) take any action designed to cause or result in, or that constitutes or might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares or (ii) sell, bid for, or purchase the Shares, or pay anyone any compensation for soliciting purchases of the Shares other than CF&Co. (r) The Company acknowledges and agrees that CF&Co has informed the Company that CF&Co may purchase and sell shares of Common Stock for its own account at the same time as Shares are being sold by the Company pursuant to this Agreement, provided that the Company shall not be deemed to have authorized or consented to any such purchases or sales by CF&Co. -13- 14 (s) Upon Acceptance of each Placement Notice hereunder, the Company shall furnish or cause to be furnished to CF&Co and to counsel to CF&Co a written opinion of Company Counsel dated the date of such Acceptance in form and substance satisfactory to CF&Co and its counsel, in substantially the form attached hereto as Exhibits 8(e)(3) with respect to the Placement Shares to be sold pursuant to the applicable Placement Notice. 8. Conditions to CF&Co's Obligations. The obligations of CF&Co hereunder with respect to a Placement will be subject to the continuing accuracy and completeness of the representations and warranties made by the Company herein, to the due performance by the Company of its obligations hereunder, to the completion by CF&Co of a due diligence review satisfactory to CF&Co in its reasonable judgment, and to the continuing satisfaction (or waiver by CF&Co in its sole discretion) of the following additional conditions: (a) The Registration Statement shall have become effective and shall be available for the resale of (i) all Placement Shares issued pursuant to all prior Placements and not yet sold by CF&Co and (ii) all Placement Shares contemplated to be issued by the Placement Notice relating to such Placement. (b) None of the following events shall have occurred: (i) receipt by the Company of any request for additional information from the Commission or any other federal or state governmental authority during the period of effectiveness of the Registration Statement, the response to which would require any amendments or supplements to the Registration Statement or the Prospectus; (ii) the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iii) receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; (iv) the occurrence of any event that makes any statement made in the Registration Statement or the Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in the Registration Statement, related prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (v) the Company's reasonable determination that a post-effective amendment to the Registration Statement would be appropriate. (c) CF&Co shall not have advised the Company that the Registration Statement or Prospectus, or any amendment or supplement thereto, contains an untrue statement of fact that in CF&Co's opinion is material, or omits to state a fact that in CF&Co's opinion is material and is required to be stated therein or is necessary to make the statements therein not misleading. (d) Except as contemplated in the Prospectus, or disclosed in the Company's reports filed with the Commission prior to the date of this Agreement, subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, there shall not -14- 15 have been any material change, on a consolidated basis, in the authorized capital stock of the Company and its subsidiaries, or any Material Adverse Effect, or any development that may reasonably be expected to cause a Material Adverse Effect, or a downgrading in or withdrawal of the rating assigned to any of the Company's securities by any rating organization or a public announcement by any rating organization that it has under surveillance or review its rating of any of the Company's securities, the effect of which, in the case of any such action by a rating organization described above, in the sole judgment of CF&Co (without relieving the Company of any obligation or liability it may otherwise have), is so material as to make it impracticable or inadvisable to proceed with the offering of the Shares on the terms and in the manner contemplated in the Prospectus. (e) CF&Co shall have received the opinions of Company Counsel required to be delivered pursuant Section 7(o) and 7(s) on or before the date on which satisfaction of this condition is determined. (f) CF&Co shall have received the opinions of Special Counsel required to be delivered pursuant Section 7(o) on or before the date on which satisfaction of this condition is determined. (g) CF&Co shall have received the Comfort Letters required to be delivered pursuant Section 7(p) on or before the date on which satisfaction of this condition is determined. (h) CF&Co shall have received the certificates required to be delivered pursuant to Section 7(n) on or before the date on which satisfaction of this condition is determined. (i) The Shares shall have been duly listed, subject to notice of issuance, on the Nasdaq National Market, and trading in the Common Stock shall not have been suspended on such market. (j) On each date on which the Company is required to deliver a certificate pursuant to Section 7(n), the Company shall have furnished to CF&Co such appropriate further information, certificates and documents as CF&Co may reasonably request. All such opinions, certificates, letters and other documents will be in compliance with the provisions hereof. The Company will furnish CF&Co with such conformed copies of such opinions, certificates, letters and other documents as CF&Co shall reasonably request. (k) CF&Co shall have received a copy of a written waiver, in form and substance reasonably satisfactory to CF&Co, executed by Montrose Investments Ltd. and Strong River Investments, Inc., waiving the right of first refusal set forth in the April 17 Letter with respect to all Placement Shares which may be sold pursuant to this Agreement, which waiver shall be in full force and effect as of such date. (l) There shall not have occurred any event that would permit CF&Co to terminate this Agreement pursuant to Section 11(a). -15- 16 9. Indemnification and Contribution. (a) The Company agrees to indemnify and hold harmless CF&Co, the directors, officers, partners, employees and agents of CF&Co and each person, if any, who (i) controls CF&Co within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, or (ii) is controlled by or is under common control with CF&Co (a "CF&Co Affiliate") from and against any and all losses, claims, liabilities, expenses and damages (including, but not limited to, any and all investigative, legal and other expenses reasonably incurred in connection with, and any and all amounts paid in settlement of, any action, suit or proceeding between any of the indemnified parties and any indemnifying parties or between any indemnified party and any third party, or otherwise, or any claim asserted), as and when incurred, to which CF&Co, or any such person, may become subject under the Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, liabilities, expenses or damages arise out of or are based, directly or indirectly, on (i) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, the Registration Statement or the Prospectus or any amendment or supplement to the Registration Statement or the Prospectus, or in any application or other document executed by or on behalf of the Company or based on written information furnished by or on behalf of the Company filed in any jurisdiction in order to qualify the Shares under the securities laws thereof or filed with the Commission, (ii) the omission or alleged omission to state in such document a material fact required to be stated in it or necessary to make the statements in it not misleading or (iii) any breach by any of the indemnifying parties of any of their respective representations, warranties and agreements contained in this Agreement; provided that this indemnity agreement shall not apply to the extent that such loss, claim, liability, expense or damage arises from the sale of the Shares pursuant to this Agreement and is caused directly by an untrue statement or omission made in reliance on and in conformity with information relating to CF&Co and furnished in writing to the Company by CF&Co expressly stating that such information is intended for inclusion in any document described in clause (a)(i) above. This indemnity agreement will be in addition to any liability that the Company might otherwise have. (b) CF&Co agrees to indemnify and hold harmless the Company and its directors and each officer of the Company who signed the Registration Statement, and each person, if any, who (i) controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act or (ii) is controlled by or is under common control with Company (a "Company Affiliate") against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendments thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information and relating to CF&Co furnished to the Company by CF&Co expressly stating that such information is intended for use in the Registration Statement (or any amendment thereto) or such preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (c) Any party that proposes to assert the right to be indemnified under this Section 9 will, promptly after receipt of notice of commencement of any action against such party in respect of which a claim is to be made against an indemnifying party or parties under this Section 9, notify each such indemnifying party of the commencement of such action, enclosing a -16- 17 copy of all papers served, but the omission so to notify such indemnifying party will not relieve the indemnifying party from (i) any liability that it might have to any indemnified party otherwise than under this Section 9 and (ii) any liability that it may have to any indemnified party under the foregoing provision of this Section 9 unless, and only to the extent that, such omission results in the forfeiture of substantive rights or defenses by the indemnifying party. If any such action is brought against any indemnified party and it notifies the indemnifying party of its commencement, the indemnifying party will be entitled to participate in and, to the extent that it elects by delivering written notice to the indemnified party promptly after receiving notice of the commencement of the action from the indemnified party, jointly with any other indemnifying party similarly notified, to assume the defense of the action, with counsel reasonably satisfactory to the indemnified party, and after notice from the indemnifying party to the indemnified party of its election to assume the defense, the indemnifying party will not be liable to the indemnified party for any legal or other expenses except as provided below and except for the reasonable costs of investigation subsequently incurred by the indemnified party in connection with the defense. The indemnified party will have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel will be at the expense of such indemnified party unless (1) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified party has reasonably concluded (based on advice of counsel) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (3) a conflict or potential conflict exists (based on advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (4) the indemnifying party has not in fact employed counsel to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm admitted to practice in such jurisdiction at any one time for all such indemnified party or parties. All such fees, disbursements and other charges will be reimbursed by the indemnifying party promptly as they are incurred. An indemnifying party will not be liable for any settlement of any action or claim effected without its written consent. No indemnifying party shall, without the prior written consent of each indemnified party, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding relating to the matters contemplated by this Section 9 (whether or not any indemnified party is a party thereto), unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising or that may arise out of such claim, action or proceeding. Notwithstanding any other provision of this Section 9(c), if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel for which it is entitled to reimbursement pursuant to this Section 9(c), such indemnifying party agrees that it shall be liable for any settlement effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into, and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement; provided -17- 18 that an indemnifying party shall not be liable for any such settlement effected without its consent if such indemnifying party, at least five days prior to the date of such settlement, (1) reimburses such indemnified party in accordance with such request for the amount of such fees and expenses of counsel as the indemnifying party believes in good faith to be reasonable and (2) provides written notice to the indemnified party that the indemnifying party disputes in good faith the reasonableness of the unpaid balance of such fees and expenses. (d) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in the foregoing paragraphs of this Section 9 is applicable in accordance with its terms but for any reason is held to be unavailable from the Company or CF&Co, the Company and CF&Co will contribute to the total losses, claims, liabilities, expenses and damages (including any investigative, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted, but after deducting any contribution received by the Company from persons other than CF&Co, such as persons who control the Company within the meaning of the Act, officers of the Company who signed the Registration Statement and directors of the Company, who also may be liable for contribution) to which the Company and CF&Co may be subject in such proportion as shall be appropriate to reflect the relative benefits received by the Company on the one hand and CF&Co on the other. The relative benefits received by the Company on the one hand and CF&Co on the other hand shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total compensation (before deducting expenses) received by CF&Co from the sale of Shares on behalf of the Company. If, but only if, the allocation provided by the foregoing sentence is not permitted by applicable law, the allocation of contribution shall be made in such proportion as is appropriate to reflect not only the relative benefits referred to in the foregoing sentence but also the relative fault of the Company, on the one hand, and CF&Co, on the other, with respect to the statements or omission which resulted in such loss, claim, liability, expense or damage, or action in respect thereof, as well as any other relevant equitable considerations with respect to such offering. Such relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or CF&Co, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and CF&Co agree that it would not be just and equitable if contributions pursuant to this Section 9(d) were to be determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, liability, expense, or damage, or action in respect thereof, referred to above in this Section 9(d) shall be deemed to include, for the purpose of this Section 9(d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim to the extent consistent with Section 9(c) hereof. Notwithstanding the foregoing provisions of this Section 9(d), CF&Co shall not be required to contribute any amount in excess of the commissions received by it under this Agreement and no person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) will be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 9(d), any person who controls a party to this Agreement within the meaning of the Act, and any officers, directors, partners, employees or agents of CF&Co, will have the same rights to contribution as that party, and each officer of the Company who signed -18- 19 the Registration Statement will have the same rights to contribution as the Company, subject in each case to the provisions hereof. Any party entitled to contribution, promptly after receipt of notice of commencement of any action against such party in respect of which a claim for contribution may be made under this Section 9(d), will notify any such party or parties from whom contribution may be sought, but the omission to so notify will not relieve that party or parties from whom contribution may be sought from any other obligation it or they may have under this Section 9(d). Except for a settlement entered into pursuant to the last sentence of Section 9(c) hereof, no party will be liable for contribution with respect to any action or claim settled without its written consent if such consent is required pursuant to Section 9(c) hereof. 10. Representations and Agreements to Survive Delivery. All representations and warranties of the Company herein or in certificates delivered pursuant hereto shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of CF&Co, any controlling persons, or the Company (or any of their respective officers, directors or controlling persons), (ii) delivery and acceptance of the Shares and payment therefor or (iii) any termination of this Agreement. 11. Termination. (a) CF&Co shall have the right by giving notice as hereinafter specified at any time to terminate this Agreement if (i) any Material Adverse Effect, or any development that has actually occurred and that is reasonably expected to cause a Material Adverse Effect has occurred which, in the reasonable judgment of CF&Co, may materially impair the investment quality of the Shares, (ii) the Company shall have failed, refused or been unable, at or prior to any Settlement Date, to perform any agreement on its part to be performed hereunder, (iii) any other condition of CF&Co's obligations hereunder is not fulfilled, (iv) any suspension or limitation of trading in the Shares or in securities generally on the Nasdaq National Market , or any setting of minimum prices for trading of the Shares or in securities generally on such exchange, shall have occurred, (v) any banking moratorium shall have been declared by federal or New York authorities or (vi) an outbreak or material escalation of major hostilities in which the United States is involved, a declaration of war by Congress, any other substantial national or international calamity or any other event or occurrence of a similar character shall have occurred since the execution of this Agreement that, in the sole judgment of CF&Co, makes it impractical or inadvisable to proceed with the completion of the sale of and payment for the Shares to be sold by CF&Co on behalf of the Company. Any such termination shall be without liability of any party to any other party except that the provisions of Section 7(f), 7(h), Section 9, Section 10, Section 16 and Section 17 hereof shall remain in full force and effect notwithstanding such termination. If CF&Co elects to terminate this Agreement as provided in this Section, CF&Co shall provide the required notice as specified herein. (b) The Company shall have the right, by giving notice as hereinafter specified, to terminate this Agreement in its sole discretion at any time following the period of twelve (12) months after the date of this Agreement. Any such termination shall be without liability of any party to any other party except that the provisions of Section 7(f), 7(h), Section 9, Section 10, Section 16 and Section 17 hereof shall remain in full force and effect notwithstanding such termination. -19- 20 (c) At any time following the period of twelve (12) months from the date of this Agreement, CF&Co shall have the right, by giving notice as hereinafter specified, to terminate this Agreement in its sole discretion. Any such termination shall be without liability of any party to any other party except that the provisions of Section 7(f), 7(h), Section 9, Section 10, Section 16 and Section 17 hereof shall remain in full force and effect notwithstanding such termination. (d) This Agreement shall remain in full force and effect unless terminated pursuant to Sections 11(a), (b) or (c) above or otherwise by mutual agreement of the parties; provided that any such termination by mutual agreement shall in all cases be deemed to provide that Section 7(f), 7(h), Section 9, Section 10, Section 16 and Section 17 shall remain in full force and effect. (e) Any termination of this Agreement shall be effective on the date specified in such notice of termination; provided that such termination shall not be effective until the close of business on the date of receipt of such notice by CF&Co or the Company, as the case may be. If such termination shall occur prior to the Settlement Date for any sale of Shares, such Shares shall settle in accordance with the provisions of this Agreement. 12. Notices. All notices or other communications required or permitted to be given by any party to any other party pursuant to the terms of this Agreement shall be in writing and if sent to CF&Co, shall be delivered to CF&Co at Cantor Fitzgerald & Co., 1 World Trade Center, New York, New York 10048, fax no. (212) 938-8860, Attention: ITD-Investment Banking, with a copy to General Counsel at the same address, with a copy to Zukerman Gore & Brandeis, LLP, 900 Third Avenue, New York, New York 10022, fax no. (212) 223-6433, Attention Clifford A. Brandeis, Esq.; or if sent to the Company, shall be delivered to NeoTherapeutics, Inc., 157 Technology Drive, Irvine, California 92618, fax no. (949) 788-6706, attn: Chief Financial Officer, with a copy to Latham & Watkins, 650 Town Center Drive, Twentieth Floor, Costa Mesa, California 92626-1925, attn: Alan W. Pettis, Esq. Each party to this Agreement may change such address for notices by sending to the parties to this Agreement written notice of a new address for such purpose. Each such notice or other communication shall be deemed given (i) when delivered personally or by verifiable facsimile transmission (with an original to follow) on or before 5:00 p.m., eastern time, on a Business Day or, if such day is not a Business Day, on the next succeeding Business Day, (ii) on the next Business Day after timely delivery to a nationally-recognized overnight courier and (iii) on the Business Day actually received if deposited in the U.S. mail (certified or registered mail, return receipt requested, postage prepaid). For purposes of this Agreement, "Business Day" shall mean any day on which the New York Stock Exchange and commercial banks in the city of New York are open for business. 13. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the Company and CF&Co and their respective successors and the affiliates, controlling persons, officers and directors referred to in Section 9 hereof. References to any of the parties contained in this Agreement shall be deemed to include the successors and permitted assigns of such party. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. Neither party may assign it rights or obligations under this Agreement without the prior written consent of the other party, provided, however, that CF&Co may assign its rights and obligations hereunder to an affiliate of CF&Co without obtaining the Company's consent, -20- 21 provided, further, that the Company may terminate this Agreement at any time following any such assignment by CF&Co. 14. Adjustments for Stock Splits. The parties acknowledge and agree that all share related numbers contained in this Agreement (including, without limitation, the Maximum Amount) shall be adjusted to take into account any stock split, stock dividend or similar event effected with respect to the Shares. 15. Entire Agreement; Amendment; Severability. This Agreement constitutes the entire agreement and supersedes all other prior and contemporaneous agreements and undertakings, both written and oral, among the parties hereto with regard to the subject matter hereof. Neither this Agreement nor any term hereof may be amended except pursuant to a written instrument executed by the Company and CF&Co. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. 16. Applicable Law; Consent to Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to the principles of conflicts of laws. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan, for the adjudication of any dispute hereunder or in connection with any transaction contemplated hereby, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof (certified or registered mail, return receipt requested) 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 contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. 17. Waiver of Jury Trial. The Company and CF&Co each hereby irrevocably waives any right it may have to a trial by jury in respect of any claim based upon or arising out of this agreement or any transaction contemplated hereby. 18. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Delivery of an executed Agreement by one party to the other may be made by facsimile transmission. -21- 22 If the foregoing correctly sets forth the understanding between the Company and CF&Co, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between the Company and CF&Co. Very truly yours, NEOTHERAPEUTICS, INC. By: ---------------------------------------- Name: Title: ACCEPTED as of the date first-above written: CANTOR FITZGERALD & CO. By: ---------------------------------------- Managing Director -22- 23 SCHEDULE 1 COMPENSATION The amount of any discount, commission or other compensation to be paid by the Company to CF&Co for effecting sales of Placement Shares shall be as follows:
Commission/Discount Proceeds - ------------------- -------- 4.00% $0-$ 10,000,000 3.5% of proceeds on the next: $10,000,001-$20,000,000 3.00% of proceeds on the next: $20,000,001-$40,000,000 2.75% of proceeds on the next: $40,000,001 +
EX-1.2 3 a73898orex1-2.txt EXHIBIT 1.2 1 EXHIBIT 1.2 NEOTHERAPEUTICS, INC. COMMON STOCK SALES AGREEMENT JUNE 12, 2001 CANTOR FITZGERALD & CO. One World Trade Center New York, New York 10048 Dear Sirs/Ladies: NeoTherapeutics, Inc., a Delaware corporation (the "Company"), confirms its agreement ("Agreement") with Cantor Fitzgerald & Co. ("CF&Co"), as follows: 1. Issuance and Sale of Shares. The Company agrees that, from time to time during the term of this Agreement, on the terms and subject to the conditions set forth herein, it will issue and sell through CF&Co, acting as agent and/or principal, shares (the "Shares") of the Company's common stock, par value $.001 per share ("Common Stock") having an aggregate sale price of up to $25,000,000; provided, however, that unless and until the Company obtains the approval of the holders of its Common Stock in accordance with the laws of the State of Delaware, in no event shall the number of shares issued hereunder exceed 19.99% of the number of shares of Common Stock outstanding on the date hereof (the "Maximum Amount"). Notwithstanding anything to the contrary contained herein, the parties hereto agree that compliance with the limitations set forth in this Section 1 on the number and aggregate sale price of Shares issued and sold under this Agreement shall be the sole responsibility of the Company, and CF&Co shall have no obligation in connection with such compliance. The issuance and sale of Shares through CF&Co will be effected pursuant to a registration statement on Form S-3 filed by the Company and declared effective by the Securities and Exchange Commission (the "Commission"). 2. Placements. Each time that the Company wishes to issue and sell Shares hereunder (each, a "Placement"), it will notify CF&Co of the proposed terms of such Placement. If CF&Co wishes to accept such proposed terms (which it may decline to do for any reason in its sole discretion) or, following discussions with the Company, wishes to accept amended terms, CF&Co will issue to the Company a written notice setting forth the terms that CF&Co is willing to accept, including without limitation the number of Shares ("Placement Shares") to be issued, the date or dates on which such sales are anticipated to be made, any minimum price below which sales may not be made, and the capacity in which CF&Co may act in selling Shares hereunder (as principal, agent or both) (a "Placement Notice"). The amount of any discount, commission or other compensation to be paid by the Company to CF&Co for effecting such sales shall be as set forth in Schedule 1 attached hereto, as such Schedule may be amended pursuant to the written agreement of the Company and CF&Co. The terms set forth in a 2 Placement Notice will not be binding on the Company or CF&Co unless and until the Company delivers written notice of its acceptance of all of the terms of such Placement Notice (an "Acceptance"); provided, however, that neither the Company nor CF&Co will be bound by the terms of a Placement Notice unless the Company delivers to CF&Co an Acceptance with respect thereto prior to 4:30 p.m. (eastern time) on the Business Day following the Business Day on which such Placement Notice is delivered to the Company. It is expressly acknowledged and agreed that neither the Company nor CF&Co will have any obligation whatsoever with respect to a Placement or any Placement Shares unless and until CF&Co delivers a Placement Notice to the Company, and then only upon the terms specified therein and herein. In the event of a conflict between the terms of this Agreement and the terms of a Placement Notice, the terms of the Placement Notice will control. 3. Sale of Placement Shares by CF&Co. Subject to the terms and conditions of this Agreement, upon the Acceptance of a Placement Notice, and unless the sale of the Placement Shares described therein has been suspended or otherwise terminated in accordance with the terms of this Agreement, CF&Co will use its commercially reasonable efforts consistent with its normal trading and sales practices to sell such Placement Shares up to the amount specified, and otherwise in accordance with the terms of such Placement Notice. CF&Co will provide written confirmation to the Company no later than the opening of the Trading Day next following the Trading Day on which it has made sales of Placement Shares hereunder setting forth the number of Placement Shares sold on such day, the compensation payable by the Company to CF&Co with respect to such sales, and the Net Proceeds (as defined below) payable to the Company. CF&Co shall not sell any Placement Shares into an existing trading market for the Company's Common Stock on or through the facilities of a national securities exchange or to or through a market maker. The Company acknowledges and agrees that (i) there can be no assurance that CF&Co will be successful in selling Placement Shares, (ii) CF&Co has not represented to the Company that CF&Co can sell any or all of the Placement Shares pursuant to the terms of this Agreement, and (iii) CF&Co will incur no liability or obligation to the Company or any other person or entity if it does not sell Placement Shares for any reason other than a failure by CF&Co to use its commercially reasonable efforts consistent with its normal trading and sales practices to sell such Placement Shares as required under this Section 3. For the purposes hereof, "Trading Day" means any day on which Common Stock is purchased and sold on the principal market on which the Common Stock is listed or quoted. 4. Suspension of Sales. The Company or CF&Co may, upon notice to the other party in writing or by telephone (confirmed immediately by verifiable facsimile transmission), suspend any sale of Placement Shares; provided, however, that such suspension shall not affect or impair either party's obligations with respect to any Placement Shares sold hereunder prior to the receipt of such notice. The Company agrees that no such notice shall be effective against CF&Co unless it is made to one of the individuals named on Schedule 4 hereto, as such Schedule may be amended from time to time. 5. Settlement. (a) Settlement of Placement Shares. Unless otherwise specified in the applicable Placement Notice, settlement for sales of Placement Shares will occur on the third (3rd) Business Day (or such earlier day as is industry practice for regular-way trading) following the date on -2- 3 which such sales are made (each a "Settlement Date"). The amount of proceeds to be delivered to the Company on a Settlement Date against the receipt of the Placement Shares sold ("Net Proceeds") will be equal to the aggregate sales price at which such Shares were sold, after deduction for (i) CF&Co's commission, discount, or other compensation for such sales payable by the Company, (ii) any other amounts due and payable by the Company to CF&Co hereunder, and (iii) any transaction fees imposed by any governmental or self-regulatory organization in respect of such sales. (b) Delivery of Shares. On or before each Settlement Date, the Company will, or will cause its transfer agent to, electronically transfer the Placement Shares being sold by crediting CF&Co's or its designee's account at The Depository Trust Company through its Deposit Withdrawal Agent Commission System or by such other means of delivery as may be mutually agreed upon by the parties hereto and, upon receipt of such Shares, which in all cases shall be freely tradeable, transferable, registered shares in good deliverable form, CF&Co will deliver the related Net Proceeds in same day funds delivered to an account designated by the Company prior to the Settlement Date. If the Company defaults in its obligation to deliver Shares on a Settlement Date, the Company agrees that in addition to and in no way limiting the rights and obligations set forth in Section 9(a) hereto, it will (i) hold CF&Co harmless against any loss, claim, damage, or expense (including reasonable legal fees and expenses), as incurred, arising out of or in connection with such default by the Company and (ii) pay to CF&Co any commission, discount, or other compensation to which it would otherwise have been entitled absent such default. 6. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, CF&Co that: (a) The Company meets the requirements of Form S-3 under the Securities Act of 1933 (the "Act") and the rules and regulations thereunder ("Rules and Regulations"). A registration statement on Form S-3 (Registration No.333-53108) with respect to the Shares (as amended or supplemented, the "Registration Statement"), including the form of prospectus contained therein (as amended or supplemented, the "Prospectus"), has been prepared by the Company in conformity with the requirements of the Act and the Rules and Regulations, has been filed with the Commission and has been declared effective by the Commission. Any amendment or supplement to the Registration Statement or Prospectus required by this Agreement will be so prepared and filed by the Company, and the Company will use its best efforts to cause it to become effective as soon as reasonably practicable. No stop order suspending the effectiveness of the Registration Statement has been issued, and no proceeding for that purpose has been instituted or threatened by the Commission. Copies of the Registration Statement and Prospectus, any such amendment or supplement and all documents incorporated by reference therein that were filed with the Commission on or prior to the date of this Agreement have been delivered to CF&Co. Any reference herein to the Registration Statement, the Prospectus, or any amendment or supplement thereto shall be deemed to refer to and include the documents incorporated (or deemed to be incorporated) by reference therein, and any reference herein to the terms "amend," "amendment" or "supplement" with respect to the Registration Statement or Prospectus shall be deemed to refer to and include the filing after the execution hereof of any document with the Commission deemed to be incorporated by reference therein. -3- 4 (b) Each part of the Registration Statement, when such part became or becomes effective, and the Prospectus, on the date of filing thereof with the Commission and at each Settlement Date, conformed or will conform with the requirements of the Act and the Rules and Regulations; each part of the Registration Statement, when such part became or becomes effective, did not or will not 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 not misleading; and the Prospectus, on the date of filing thereof with the Commission and at each Settlement Date, did not or will not include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; except that the foregoing shall not apply to statements or omissions in any such document made in reliance on information furnished to the Company by CF&Co specifically stating that it is intended for use in the Registration Statement, the Prospectus, or any amendment or supplement thereto. (c) The documents incorporated by reference in the Registration Statement or the Prospectus, or any amendment or supplement thereto (the "Disclosure Documents"), when they became effective under the Act or were filed with the Commission under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as the case may be, conformed with the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder, and none of such documents contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and any further documents so filed and incorporated by reference in the Prospectus or any further amendment or supplement thereto, when such documents become effective or are filed with the Commission, as the case may be, will conform to the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder and will not 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 not misleading; except that the foregoing will not apply to statements or omissions in any such document made in reliance on information furnished to the Company by CF&Co specifically stating that it is intended for use in any such document. (d) The consolidated financial statements and financial schedules of the Company and its subsidiaries, together with the related notes set forth or incorporated by reference in the Registration Statement and Prospectus, have been and will be prepared in accordance with Regulation S-X under the Act and with generally accepted accounting principles consistently applied at the times and 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 exclude footnotes or may be condensed or summary statements) and fairly present and will fairly present the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end adjustments). (e) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the state of Delaware with full power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and Prospectus; and the Company is duly qualified as a foreign entity to transact business and is in good standing in each jurisdiction in which such qualification is required, -4- 5 whether by reason of the ownership or leasing of property or the conduct of business, except where the failure, individually or in the aggregate, to be so qualified and be in good standing would not have a material adverse effect on (i) the consolidated business, operations, properties, financial condition, reputation, prospects or results of operations of the Company and its subsidiaries taken as a whole, (ii) the transactions contemplated hereby, (iii) the Shares or (iv) the ability of the Company to perform its obligations under this Agreement (collectively, a "Material Adverse Effect"). (f) Each subsidiary of the Company, if any, has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has corporate power and authority to own, lease and operate its properties and conduct its business as described in the Registration Statement and Prospectus and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to be so qualified would not have a Material Adverse Effect. (g) Each of the Company and its subsidiaries has (i) good and marketable title to all of the properties and assets owned by it, free and clear of all liens, charges, claims, security interests or encumbrances (collectively, "Encumbrances"), other than Encumbrances that would not have a Material Adverse Effect, and (ii) possession under all leases to which it is party as lessee. All leases to which the Company or any of its subsidiaries is a party are valid and binding and no material default has occurred and is continuing thereunder, and no event or circumstance that with the passage of time or giving of notice, or both, would constitute such a material default has occurred and is continuing, and, to the best knowledge of the Company, no defaults by the landlord exist under any such leases. (h) The Company has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable and have been issued in compliance with all applicable federal and state securities laws; and all of the issued shares of capital stock of each subsidiary, if any, of the Company have been duly and validly authorized and issued and are fully paid and non-assessable and the shares of such subsidiary are owned directly or indirectly by the Company, are held free and clear of all Encumbrances. The Common Stock is currently listed on the Nasdaq National Market under the symbol "NEOT". (i) The Shares have been duly authorized and, when issued, delivered and paid for pursuant to this Agreement, will be validly issued and fully paid and non-assessable, free and clear of all Encumbrances and will be issued in compliance with all applicable federal and state securities laws; the capital stock of the Company, including the Shares, conforms to the description thereof contained in the Registration Statement and the Shares will conform to the description thereof contained in the Prospectus as amended or supplemented. Other than as set forth on Schedule 6(i), as such Schedule may be amended from time to time upon written notice to such effect delivered to CF&Co, neither the stockholders of the Company, nor any other person or entity have any preemptive rights or rights of first refusal with respect to the Shares or other rights to purchase or receive any of the Shares or any other securities or assets of the Company, and no person has the right, contractual or otherwise, to cause the Company to issue -5- 6 to it, or register pursuant to the Act, any shares of capital stock or other securities or assets of the Company upon the issuance or sale of the Shares. (j) Neither the Company nor any of its subsidiaries has sustained since the date of the latest audited financial statements included or incorporated by reference in the Prospectus any material loss (other than operating losses incurred in the ordinary course of the Company's business and which have been disclosed in writing to CF&Co or specifically described in a Disclosure Document) or interference with the business of the Company and its subsidiaries, taken as a whole, including without limitation, from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth in the Prospectus; subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, (i) neither the Company nor any of its subsidiaries has incurred any liabilities or obligations, direct or contingent, or entered into any transactions, not in the ordinary course of business, that are material to the Company and its subsidiaries taken as a whole, and (ii) except as set forth on Schedule 6(j), as such Schedule may be amended from time to time upon written notice to such effect delivered to CF&Co, since the date of the latest audited financial statements included or incorporated by reference in the Prospectus there has not been any material change, on a consolidated basis, in the authorized capital stock of the Company and its subsidiaries, any material increase in the short-term debt or long-term debt of the Company and its subsidiaries, on a consolidated basis, or any material adverse change, or any development involving a prospective material adverse change, in the consolidated business, operations, properties, financial condition, reputation, prospects or results of operations of the Company and its subsidiaries taken as a whole. (k) Except as set forth in the Prospectus, there is no claim, litigation or administrative proceeding or inquiry pending, or, to the Company's knowledge, threatened against the Company or any of its subsidiaries, or, to the Company's knowledge, against any officer, director or employee of the Company or any such subsidiary in connection with such person's employment therewith that, individually or in the aggregate, could have a Material Adverse Effect. Neither the Company nor any of its subsidiaries is a party to or subject to the provisions of, any order, writ, injunction, judgment or decree of any court or government agency or instrumentality which could have a Material Adverse Effect. (l) There are no legal or governmental proceedings, contracts or documents of the Company or any of its subsidiaries that are required to be described in or filed as exhibits to the Registration Statement or any of the documents incorporated by reference therein by the Act or the Exchange Act or by the rules and regulations of the Commission thereunder that have not been so described or filed as required. (m) Subject to approval of the terms of each Placement Notice by the Company's Board of Directors, all necessary action has been duly and validly taken by the Company to authorize the execution, delivery and performance of this Agreement. This Agreement has been duly and validly authorized, executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, -6- 7 reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether applied in a proceeding in law or equity). (n) Neither the Company nor any of its subsidiaries is in violation of any provisions of its charter, bylaws or any other governing document as amended and in effect on and as of the date hereof or in default (and no event has occurred which, with notice or lapse of time or both, would constitute a default) under any indenture, mortgage, deed of trust, loan or credit agreement or any provision of any instrument or contract to which it is a party or by which it is bound. (o) Executing and delivering this Agreement and the issuance and sale of the Shares and the compliance by the Company with all of the provisions of this Agreement and the consummation of the transactions contemplated herein will not result in (i) a breach or violation of any of the terms and provisions of, or constitute a default under, any obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan or credit agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which any of them is bound or to which any of the property of the Company or any of its subsidiaries is subject, (ii) a violation of the Company's charter or by-laws, or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of its properties or (iii) the creation of any Encumbrance upon any assets of the Company or of any of its subsidiaries or the triggering of any preemptive or anti-dilution rights or rights of first refusal or first offer, or any similar rights (whether pursuant to a "poison pill" provision or otherwise), on the part of holders of the Company's securities or any other person, other than the right of first refusal granted to Montrose Investments Ltd. and Strong River Investments, Inc. pursuant to that certain letter agreement dated as of April 17, 2001, by and among the Company, Montrose Investments Ltd., HBK Master Fund L.P. and Strong River Investments, Inc. (the "April 17 Letter"). Neither the Company nor any of its subsidiaries or affiliates, nor any person acting on its or their behalf, has issued or sold any shares of Common Stock or securities or instruments convertible into, exchangeable for and/or otherwise entitling the holder thereof to acquire shares of Common Stock which would be integrated with the offer and sale of the Shares hereunder, including, without limitation, for purposes of any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated. (p) The Company and its subsidiaries have not violated and are in compliance with all laws, statutes, ordinances, regulations, rules and orders of any foreign, federal, state or local government and any other governmental department or agency, and any judgment, decision, decree or order of any court or governmental agency, department or authority, except for such violations or noncompliance which, individually or in the aggregate, would not have a Material Adverse Effect. (q) The Company and its subsidiaries possess such licenses, permits, consents, orders, certificates or authorizations issued by the appropriate federal, state, foreign or local regulatory agencies or bodies necessary to conduct their business as described in the Prospectus except for licenses, permits, consents, orders, certificates, authorizations, approvals, franchises or rights, the absence of which, individually or in the aggregate, would not have a Material Adverse Effect; the Company and its subsidiaries have not received any notice of proceedings or investigations -7- 8 relating to the revocation or modification of any such licenses, permits, consents, orders, certificates, authorizations, approvals, franchises or rights which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a Material Adverse Effect. No consent, approval, authorization or order of, or filing with, any court or governmental agency or body is required for the issue and sale of the Shares and the consummation by the Company of the transactions contemplated by this Agreement, except the filing with the Commission of Prospectus Supplements or amendments to the Registration Statement related to the issue and sale of the Shares and such consents, approvals, authorizations, registrations or qualifications as have already been obtained or made or as may be required under state securities or Blue Sky laws. (r) Other than as set forth in the Prospectus, to the best of the Company's knowledge, the Company carries, or is covered by, insurance in such amounts and covering such risks as is prudent, reasonable and customary for companies engaged in similar businesses in similar industries. (s) Other than as set forth in the Prospectus, the Company and each of its subsidiaries have obtained all material environmental permits, licenses and other authorizations required by federal, state, foreign and local law in order to conduct their businesses as described in the Prospectus; the Company and each of its subsidiaries are conducting their businesses in substantial compliance with such permits, licenses and authorizations and with applicable environmental laws, except where the failure to be in compliance would not have a Material Adverse Effect; and, except as described in the Prospectus, the Company is not in violation of any federal, state, foreign or local law or regulation relating to the storage, handling, disposal, release or transportation of hazardous or toxic materials except for such violations or noncompliance which, individually or in the aggregate, would not have a Material Adverse Effect. (t) Arthur Andersen, which has audited the financial statements of the Company and its subsidiaries included in the Prospectus, is an independent public accountant as required by the Act and the Rules and Regulations. (u) No forward looking statement within the meaning of Section 27A of the Act and Section 21E of the Exchange Act contained in the Registration Statement has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith. (v) The Company and each of its subsidiaries owns or possesses sufficient legal rights to all patents, trademarks, service marks, tradenames, copyrights, trade secrets, licenses, information and proprietary rights and processes necessary for its business as now conducted (collectively, the "Company Intellectual Property Rights") without any conflict with, or infringement of, the rights of others. Neither Company nor any of its subsidiaries has received any written communications alleging that the Company or any of its subsidiaries has violated or, by conducting its business, would violate any of the patents, trademarks, service marks, tradenames, copyrights, trade secrets or other proprietary rights or processes of any other person or entity. To the Company's and each of its subsidiary's knowledge, all Company Intellectual Property Rights are enforceable and there is no existing infringement by any person of such Company Intellectual Property Rights. All patent applications that have been filed by the -8- 9 Company or any of its subsidiaries with the Patent and Trademark Office have been duly filed by the Company or such subsidiary, as applicable, and the Company or such subsidiary, as applicable, has taken all actions reasonably necessary to maintain the prosecution of such patent applications. (w) The Company, on behalf of Dr. Alvin Glasky, represents and warrants that at all times since the respective dates of application of the Re-Assigned Patents (as defined below) until their assignment to Advanced Immunotherapeutics, Inc., a California corporation, pursuant to the Assignment dated April 12, 2001, by and between Dr. Glasky and Advanced Immunotherapeutics, Inc., Dr. Glasky, in his individual capacity, has been and will be the sole and exclusive legal and beneficial owner of the Re-Assigned Patents and at all times has held and will hold good and marketable title to the Re-Assigned Patents, free and clear of all liens, claims, charges, defenses, counterclaims, offsets, encumbrances and security interests of any kind or nature. Prior to such assignment to Advanced Immunotherapeutics, Inc., Dr. Glasky has not sold, assigned, transferred, pledged or otherwise encumbered or disposed of, and will not sell, assign, transfer, pledge or otherwise encumber or dispose of, the Re-Assigned Patents or any interest therein. Dr. Glasky owns and has the full right and authority to assign the Re-Assigned Patents. For the purposes of this Agreement, "Re-Assigned Patents" means, individually and collectively, the following patents and the inventions included therein, together with the applications to the United States Patent and Trademark Office therefor and any continuations, continuations in part, divisions, reissues, extensions, revisions, substitutions, re-registrations, examinations, reexamination certificates, re-validations and patents of additions with respect thereto, as well as any foreign patents covering any claims described in the patents: (i) U.S. Patent No. 5,091,432, entitled "9-Substituted Hypoxanthine Bi-Functional Compounds and Their Neuroimmunological Methods of Use," issued February 25, 1992 and (ii) U.S. Patent No. 5,447,939, entitled "Carbon Monoxide Dependent Guanylyl Cyclase Modifiers and Methods of Use," issued September 5, 1995. (x) On each Settlement Date and each Filing Date (as defined in paragraph 7(m) below), the Company shall be deemed to have confirmed (i) the accuracy and completeness, as of such date, of each representation and warranty made by it in this Agreement and (ii) that the Company has complied with all of the agreements to be performed by it hereunder at or prior to such date. 7. Covenants of the Company. The Company covenants and agrees with CF&Co that: (a) During the period in which a prospectus relating to the Shares is required to be delivered by CF&Co under the Act, the Company will notify CF&Co promptly of the time when any subsequent amendment to the Registration Statement has been filed with the Commission and has become effective or any subsequent supplement to the Prospectus has been filed and of any request by the Commission for any amendment or supplement to the Registration Statement or Prospectus or for additional information; it will prepare and file with the Commission, promptly upon CF&Co's request, any amendments or supplements to the Registration Statement or Prospectus that, in CF&Co's opinion, may be necessary or advisable in connection with the distribution of the Shares by CF&Co (provided, however that the failure of CF&Co to make such request shall not relieve the Company of any obligation or liability hereunder, or affect CF&Co's -9- 10 right to rely on the representations and warranties made by the Company in this Agreement); the Company will not file any amendment or supplement to the Registration Statement or Prospectus unless a copy thereof has been submitted to CF&Co a reasonable period of time before the filing and CF&Co has not reasonably objected thereto (provided, however that the failure of CF&Co to make such objection shall not relieve the Company of any obligation or liability hereunder, or affect CF&Co's right to rely on the representations and warranties made by the Company in this Agreement); and it will furnish to CF&Co at the time of filing thereof a copy of any document that upon filing is deemed to be incorporated by reference in the Registration Statement or Prospectus; and the Company will cause each amendment or supplement to the Prospectus to be filed with the Commission as required pursuant to the applicable paragraph of Rule 424(b) of the Rules and Regulations or, in the case of any document to be incorporated therein by reference, to be filed with the Commission as required pursuant to the Exchange Act, within the time period prescribed. (b) The Company will advise CF&Co, promptly after it receives notice or obtains knowledge thereof, of the issuance or threatened issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement, of the suspension of the qualification of the Shares for offering or sale in any jurisdiction, or of the initiation or threatening of any proceeding for any such purpose; and it will promptly use its commercially reasonable efforts to prevent the issuance of any stop order or to obtain its withdrawal if such a stop order should be issued. (c) Within the time during which a prospectus relating to the Shares is required to be delivered by CF&Co under the Act, the Company will comply with all requirements imposed upon it by the Act and by the Rules and Regulations, as from time to time in force, and will file on or before their respective due dates all reports and any definitive proxy or information statements required to be filed by the Company with the Commission pursuant to Sections 13(a), 13(c), 14, 15(d) or any other provision of or under the Exchange Act. If during such period any event occurs as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances then existing, not misleading, or if during such period it is necessary to amend or supplement the Registration Statement or Prospectus to comply with the Act, the Company will promptly notify CF&Co to suspend the offering of Shares during such period and the Company will promptly amend or supplement the Registration Statement or Prospectus (at the expense of the Company) so as to correct such statement or omission or effect such compliance. (d) The Company will use its best efforts to cause the Shares to be listed on the Nasdaq National Market and to qualify the Shares for sale under the securities laws of such jurisdictions as CF&Co designates and to continue such qualifications in effect so long as required for the distribution of the Shares; provided that the Company shall not be required in connection therewith to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction. (e) The Company will furnish to CF&Co and its counsel (at the expense of the Company) copies of the Registration Statement, the Prospectus (including all documents incorporated by reference therein) and all amendments and supplements to the Registration -10- 11 Statement or Prospectus that are filed with the Commission during the period in which a prospectus relating to the Shares is required to be delivered under the Act (including all documents filed with the Commission during such period that are deemed to be incorporated by reference therein), in each case as soon as reasonably practicable and in such quantities as CF&Co may from time to time reasonably request and, at CF&Co's request, will also furnish copies of the Prospectus to each exchange or market on which sales of Shares may be made. (f) The Company will furnish to CF&Co for a period of five years from the date of this Agreement such information as reasonably requested by CF&Co regarding the Company or its subsidiaries. (g) The Company will make generally available to its security holders as soon as practicable, but in any event not later than 15 months after the end of the Company's current fiscal quarter, an earnings statement covering a 12-month period that satisfies the provisions of Section 11(a) of the Act and Rule 158 of the Rules and Regulations. (h) The Company, whether or not the transactions contemplated hereunder are consummated or this Agreement is terminated, will pay all expenses incident to the performance of its obligations hereunder, including, but not limited to, expenses relating to (i) the preparation, printing and filing of the Registration Statement as originally filed, of each Prospectus and of each amendment and supplement thereto, (ii) the preparation, issuance and delivery of the Shares, (iii) the fees and disbursements of the Company's counsel and accountants, (iv) the qualification of the Shares under securities laws in accordance with the provisions of Section 7(d) of this Agreement, including filing fees and any reasonable fees or disbursements of counsel for CF&Co in connection therewith, (v) the printing and delivery to CF&Co of copies of the Prospectus and any amendments or supplements thereto, and of this Agreement, (vi) the fees and expenses incurred in connection with the listing or qualification of the Shares for trading on the Nasdaq National Market and (vii) filing fees, if any, of the Commission and the National Association of Securities Dealers, Inc. In addition to any fees that may be payable to CF&Co under this Agreement, the Company will reimburse CF&Co, upon the execution and delivery of this Agreement by both parties, all of its out-of-pocket expenses (including legal fees and disbursements) incurred in connection with the negotiation and preparation of this Agreement up to an aggregate maximum of $100,000. Further, during the term of the Agreement, the Company shall pay CF&Co $2,500 per diem for arranging any meetings with potential or current investors in connection with an offering under this Agreement, and the Company will reimburse CF&Co its expenses related to such activities, including, but not limited to, travel, lodging, meals, telephone and telecopy charges. CF&Co will waive the per diem fee, but not its right to reimbursement for expenses, if the Company has previously raised through CF&Co pursuant to this and any other agreement, collectively, in excess of $100,000,000. The Company agrees that, upon the execution and delivery of this Agreement by both parties, it will remit to CF&Co the amount of forty thousand dollars ($40,000) to be held as a deposit against which such per diem and related expenses described in the immediately preceding two sentences will be deducted, provided that upon the termination or expiration of this Agreement, CF&Co will return such amount less any such expenses, and provided, further, that the Company will remain obligated to reimburse CF&Co for any such expenses that exceed such amount. -11- 12 (i) The Company will use the Net Proceeds as described in the Prospectus and, in any case, for general corporate purposes only, in the ordinary course of its business and consistent with past practice and, without limiting the generality of the foregoing, shall not use such proceeds to make a loan to any employee, officer, director or stockholder of the Company (other than loans made to new employees as a condition of employment), to repay any loan or other obligation of the Company to any such person or to repurchase or pay a dividend on shares of Common Stock or other securities of the Company (in any such case, regardless of whether such loan or payment was authorized by the Company's Board of Directors prior to the date hereof). (j) Without the written consent of CF&Co, the Company will not, directly or indirectly, offer to sell, sell, contract to sell, grant any option to sell or otherwise dispose of any shares of Common Stock (other than the Shares offered pursuant to the provisions of this Agreement) or securities convertible into or exchangeable for Common Stock, warrants or any rights to purchase or acquire, Common Stock during the period beginning on the fifth (5th) Trading Day immediately prior to the date on which any Acceptance of a Placement Notice is delivered to CF&Co hereunder and ending on the fifth (5th) Trading Day immediately following the final Settlement Date with respect to Shares sold pursuant to such Placement Notice; provided, however, that such restriction will not be required in connection with the Company's issuance or sale of (i) Common Stock, options to purchase shares of Common Stock or Common Stock issuable upon the exercise of options, pursuant to any employee or director stock option or benefits plan, stock ownership plan or dividend reinvestment plan (but not shares subject to a waiver to exceed plan limits in its stock purchase plan) of the Company now in effect, and (ii) Common Stock issuable upon conversion of securities or the exercise of warrants, options or other rights in effect or outstanding, and disclosed in writing to CF&Co. (k) The Company will, at any time during the term of this Agreement, as supplemented from time to time, advise CF&Co immediately after it shall have received notice or obtain knowledge thereof, of any information or fact that would alter or affect any opinion, certificate, letter or other document provided to CF&Co pursuant to this Agreement. (l) The Company will cooperate with any due diligence review conducted by CF&Co or its agents, including, without limitation, providing information and making available documents and senior corporate officers, as CF&Co may reasonably request; provided, however, that the Company shall be required to make available documents and senior corporate officers only (i) at the Company's principal offices and (ii) during the Company's ordinary business hours. (m) The Company agrees that on or prior to the Business Day after the end of each calendar week during which sales of Shares were made by CF&Co (each such week, a "Reporting Period") or on such earlier date as the Rules and Regulations shall require, the Company will (i) file a prospectus supplement with the Commission under the applicable paragraph of Rule 424(b) under the Act (each a "Filing Date"), which prospectus supplement will set forth, with regard to such sales, the dates included within the Reporting Period, the amount of Shares sold through CF&Co, the Net Proceeds to the Company and the compensation payable by the Company to CF&Co and (ii) deliver such number of copies of each such prospectus supplement to each exchange or market on which such sales were effected as may be required by the rules or regulations of such exchange or market. -12- 13 (n) On each Filing Date and each time that (i) the Registration Statement shall be amended or the Prospectus supplemented (other than a supplement filed (1) pursuant Rule 424(b) under the Act that contains solely the information confirmed to the Company by CF&Co pursuant to Section 3 above or (2) paragraph (m) above), but in any event on or before the Settlement Date in respect of the first sale of Shares hereunder, or (ii) after the first such amendment or supplement, there is filed with the Commission any document incorporated by reference into the Prospectus, the Company shall furnish or cause to be furnished to CF&Co forthwith a certificate dated the date of filing with the Commission of such supplement, or other document, or the date of the effectiveness of the Registration Statement or such amendment, as the case may be, in the form attached hereto as Exhibit 8(h) to the effect that the representations and warranties made by the Company in this Agreement are true and correct on such date as though made at and as of such date (except that such statements shall be deemed to relate to the Registration Statement and the Prospectus as amended and supplemented to such time) and that the Company has complied with all of the agreements to be performed by it at or prior to such date. (o) On the date that the first amendment to the Registration Statement or supplement to the Prospectus after the date of this Agreement is declared effective or is filed, respectively, but in any event on or before the Settlement Date in respect of the first sale of Shares hereunder, and each time that (i) the Registration Statement is amended or the Prospectus supplemented (other than a supplement filed (1) pursuant Rule 424(b) under the Act that contains solely the information confirmed to the Company by CF&Co pursuant to Section 3 above or (2) paragraph (m) above) or (ii) after the first such amendment or supplement, there is filed with the Commission any document incorporated by reference into the Prospectus, the Company shall furnish or cause to be furnished forthwith to CF&Co and to counsel to CF&Co a written opinion of Latham & Watkins, counsel to the Company ("Company Counsel") and a written opinion of Oppenheimer Wolff & Donnelly LLP ("Special Counsel"), or other counsels satisfactory to CF&Co, dated the date of effectiveness of such amendment, or the date of filing with the Commission of such supplement or other document, as the case may be, in form and substance satisfactory to CF&Co and its counsel, in substantially the forms attached hereto as Exhibits 8(e)(1) and 8(f)(1) respectively (for the first such opinion) and Exhibits 8(e)(2) and 8(f)(2) respectively (for subsequent dates), but modified as necessary to relate to the Registration Statement and the Prospectus as amended and supplemented to the time of delivery of such opinion. (p) On the date that the first amendment to the Registration Statement or supplement to the Prospectus after the date of this Agreement is declared effective or is filed, respectively, and each time after the date of the first such amendment or supplement that the Registration Statement is amended or the Prospectus supplemented to include additional amended financial information or there is filed with the Commission any document incorporated by reference into the Prospectus which contains additional amended financial information, but in any event on or before the Settlement Date in respect of the first sale of Shares hereunder, the Company shall cause its independent accountants reasonably satisfactory to CF&Co, forthwith to furnish CF&Co letters (the "Comfort Letters"), dated the date of effectiveness of such amendment, or the date of filing of such supplement or other document with the Commission, as the case may be, in form and substance satisfactory to CF&Co, (i) confirming that they are independent public accountants within the meaning of the Act and are in compliance with the applicable -13- 14 requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as of such date, the conclusions and findings of such firm with respect to the financial information and other matters ordinarily covered by accountants' "comfort letters" to underwriters in connection with registered public offerings (the first such letter, the "Initial Comfort Letter") and (iii) updating the Initial Comfort Letter with any information which would have been included in the Initial Comfort Letter had it been given on such date and modified as necessary to relate to the Registration Statement and the Prospectus, as amended and supplemented to the date of such letter. (q) The Company will not, directly or indirectly, (i) take any action designed to cause or result in, or that constitutes or might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares or (ii) sell, bid for, or purchase the Shares, or pay anyone any compensation for soliciting purchases of the Shares other than CF&Co. (r) The Company acknowledges and agrees that CF&Co has informed the Company that CF&Co may purchase and sell shares of Common Stock for its own account at the same time as Shares are being sold by the Company pursuant to this Agreement, provided that the Company shall not be deemed to have authorized or consented to any such purchases or sales by CF&Co. (s) Upon Acceptance of each Placement Notice hereunder, the Company shall furnish or cause to be furnished to CF&Co and to counsel to CF&Co a written opinion of Company Counsel dated the date of such Acceptance in form and substance satisfactory to CF&Co and its counsel, in substantially the form attached hereto as Exhibits 8(e)(3) with respect to the Placement Shares to be sold pursuant to the applicable Placement Notice. 8. Conditions to CF&Co's Obligations. The obligations of CF&Co hereunder with respect to a Placement will be subject to the continuing accuracy and completeness of the representations and warranties made by the Company herein, to the due performance by the Company of its obligations hereunder, to the completion by CF&Co of a due diligence review satisfactory to CF&Co in its reasonable judgment, and to the continuing satisfaction (or waiver by CF&Co in its sole discretion) of the following additional conditions: (a) The Registration Statement shall have become effective and shall be available for the resale of (i) all Placement Shares issued pursuant to all prior Placements and not yet sold by CF&Co and (ii) all Placement Shares contemplated to be issued by the Placement Notice relating to such Placement. (b) None of the following events shall have occurred: (i) receipt by the Company of any request for additional information from the Commission or any other federal or state governmental authority during the period of effectiveness of the Registration Statement, the response to which would require any amendments or supplements to the Registration Statement or the Prospectus; (ii) the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iii) receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such -14- 15 purpose; (iv) the occurrence of any event that makes any statement made in the Registration Statement or the Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in the Registration Statement, related prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (v) the Company's reasonable determination that a post-effective amendment to the Registration Statement would be appropriate. (c) CF&Co shall not have advised the Company that the Registration Statement or Prospectus, or any amendment or supplement thereto, contains an untrue statement of fact that in CF&Co's opinion is material, or omits to state a fact that in CF&Co's opinion is material and is required to be stated therein or is necessary to make the statements therein not misleading. (d) Except as contemplated in the Prospectus, or disclosed in the Company's reports filed with the Commission prior to the date of this Agreement, subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, there shall not have been any material change, on a consolidated basis, in the authorized capital stock of the Company and its subsidiaries, or any Material Adverse Effect, or any development that may reasonably be expected to cause a Material Adverse Effect, or a downgrading in or withdrawal of the rating assigned to any of the Company's securities by any rating organization or a public announcement by any rating organization that it has under surveillance or review its rating of any of the Company's securities, the effect of which, in the case of any such action by a rating organization described above, in the sole judgment of CF&Co (without relieving the Company of any obligation or liability it may otherwise have), is so material as to make it impracticable or inadvisable to proceed with the offering of the Shares on the terms and in the manner contemplated in the Prospectus. (e) CF&Co shall have received the opinions of Company Counsel required to be delivered pursuant Section 7(o) and 7(s) on or before the date on which satisfaction of this condition is determined. (f) CF&Co shall have received the opinions of Special Counsel required to be delivered pursuant Section 7(o) on or before the date on which satisfaction of this condition is determined. (g) CF&Co shall have received the Comfort Letters required to be delivered pursuant Section 7(p) on or before the date on which satisfaction of this condition is determined. (h) CF&Co shall have received the certificates required to be delivered pursuant to Section 7(n) on or before the date on which satisfaction of this condition is determined. (i) The Shares shall have been duly listed, subject to notice of issuance, on the Nasdaq National Market, and trading in the Common Stock shall not have been suspended on such market. -15- 16 (j) On each date on which the Company is required to deliver a certificate pursuant to Section 7(n), the Company shall have furnished to CF&Co such appropriate further information, certificates and documents as CF&Co may reasonably request. All such opinions, certificates, letters and other documents will be in compliance with the provisions hereof. The Company will furnish CF&Co with such conformed copies of such opinions, certificates, letters and other documents as CF&Co shall reasonably request. (k) CF&Co shall have received a copy of a written waiver, in form and substance reasonably satisfactory to CF&Co, executed by Montrose Investments Ltd. and Strong River Investments, Inc., waiving the right of first refusal set forth in the April 17 Letter with respect to all Placement Shares which may be sold pursuant to this Agreement, which waiver shall be in full force and effect as of such date. (l) There shall not have occurred any event that would permit CF&Co to terminate this Agreement pursuant to Section 11(a). 9. Indemnification and Contribution. (a) The Company agrees to indemnify and hold harmless CF&Co, the directors, officers, partners, employees and agents of CF&Co and each person, if any, who (i) controls CF&Co within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, or (ii) is controlled by or is under common control with CF&Co (a "CF&Co Affiliate") from and against any and all losses, claims, liabilities, expenses and damages (including, but not limited to, any and all investigative, legal and other expenses reasonably incurred in connection with, and any and all amounts paid in settlement of, any action, suit or proceeding between any of the indemnified parties and any indemnifying parties or between any indemnified party and any third party, or otherwise, or any claim asserted), as and when incurred, to which CF&Co, or any such person, may become subject under the Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, liabilities, expenses or damages arise out of or are based, directly or indirectly, on (i) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, the Registration Statement or the Prospectus or any amendment or supplement to the Registration Statement or the Prospectus, or in any application or other document executed by or on behalf of the Company or based on written information furnished by or on behalf of the Company filed in any jurisdiction in order to qualify the Shares under the securities laws thereof or filed with the Commission, (ii) the omission or alleged omission to state in such document a material fact required to be stated in it or necessary to make the statements in it not misleading or (iii) any breach by any of the indemnifying parties of any of their respective representations, warranties and agreements contained in this Agreement; provided that this indemnity agreement shall not apply to the extent that such loss, claim, liability, expense or damage arises from the sale of the Shares pursuant to this Agreement and is caused directly by an untrue statement or omission made in reliance on and in conformity with information relating to CF&Co and furnished in writing to the Company by CF&Co expressly stating that such information is intended for inclusion in any document described in clause (a)(i) above. This indemnity agreement will be in addition to any liability that the Company might otherwise have. -16- 17 (b) CF&Co agrees to indemnify and hold harmless the Company and its directors and each officer of the Company who signed the Registration Statement, and each person, if any, who (i) controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act or (ii) is controlled by or is under common control with Company (a "Company Affiliate") against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendments thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information and relating to CF&Co furnished to the Company by CF&Co expressly stating that such information is intended for use in the Registration Statement (or any amendment thereto) or such preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (c) Any party that proposes to assert the right to be indemnified under this Section 9 will, promptly after receipt of notice of commencement of any action against such party in respect of which a claim is to be made against an indemnifying party or parties under this Section 9, notify each such indemnifying party of the commencement of such action, enclosing a copy of all papers served, but the omission so to notify such indemnifying party will not relieve the indemnifying party from (i) any liability that it might have to any indemnified party otherwise than under this Section 9 and (ii) any liability that it may have to any indemnified party under the foregoing provision of this Section 9 unless, and only to the extent that, such omission results in the forfeiture of substantive rights or defenses by the indemnifying party. If any such action is brought against any indemnified party and it notifies the indemnifying party of its commencement, the indemnifying party will be entitled to participate in and, to the extent that it elects by delivering written notice to the indemnified party promptly after receiving notice of the commencement of the action from the indemnified party, jointly with any other indemnifying party similarly notified, to assume the defense of the action, with counsel reasonably satisfactory to the indemnified party, and after notice from the indemnifying party to the indemnified party of its election to assume the defense, the indemnifying party will not be liable to the indemnified party for any legal or other expenses except as provided below and except for the reasonable costs of investigation subsequently incurred by the indemnified party in connection with the defense. The indemnified party will have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel will be at the expense of such indemnified party unless (1) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified party has reasonably concluded (based on advice of counsel) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (3) a conflict or potential conflict exists (based on advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (4) the indemnifying party has not in fact employed counsel to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm admitted to practice in such jurisdiction at any one time for all such -17- 18 indemnified party or parties. All such fees, disbursements and other charges will be reimbursed by the indemnifying party promptly as they are incurred. An indemnifying party will not be liable for any settlement of any action or claim effected without its written consent. No indemnifying party shall, without the prior written consent of each indemnified party, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding relating to the matters contemplated by this Section 9 (whether or not any indemnified party is a party thereto), unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising or that may arise out of such claim, action or proceeding. Notwithstanding any other provision of this Section 9(c), if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel for which it is entitled to reimbursement pursuant to this Section 9(c), such indemnifying party agrees that it shall be liable for any settlement effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into, and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement; provided that an indemnifying party shall not be liable for any such settlement effected without its consent if such indemnifying party, at least five days prior to the date of such settlement, (1) reimburses such indemnified party in accordance with such request for the amount of such fees and expenses of counsel as the indemnifying party believes in good faith to be reasonable and (2) provides written notice to the indemnified party that the indemnifying party disputes in good faith the reasonableness of the unpaid balance of such fees and expenses. (d) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in the foregoing paragraphs of this Section 9 is applicable in accordance with its terms but for any reason is held to be unavailable from the Company or CF&Co, the Company and CF&Co will contribute to the total losses, claims, liabilities, expenses and damages (including any investigative, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted, but after deducting any contribution received by the Company from persons other than CF&Co, such as persons who control the Company within the meaning of the Act, officers of the Company who signed the Registration Statement and directors of the Company, who also may be liable for contribution) to which the Company and CF&Co may be subject in such proportion as shall be appropriate to reflect the relative benefits received by the Company on the one hand and CF&Co on the other. The relative benefits received by the Company on the one hand and CF&Co on the other hand shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total compensation (before deducting expenses) received by CF&Co from the sale of Shares on behalf of the Company. If, but only if, the allocation provided by the foregoing sentence is not permitted by applicable law, the allocation of contribution shall be made in such proportion as is appropriate to reflect not only the relative benefits referred to in the foregoing sentence but also the relative fault of the Company, on the one hand, and CF&Co, on the other, with respect to the statements or omission which resulted in such loss, claim, liability, expense or damage, or action in respect thereof, as well as any other relevant equitable considerations with respect to such offering. Such relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a -18- 19 material fact relates to information supplied by the Company or CF&Co, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and CF&Co agree that it would not be just and equitable if contributions pursuant to this Section 9(d) were to be determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, liability, expense, or damage, or action in respect thereof, referred to above in this Section 9(d) shall be deemed to include, for the purpose of this Section 9(d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim to the extent consistent with Section 9(c) hereof. Notwithstanding the foregoing provisions of this Section 9(d), CF&Co shall not be required to contribute any amount in excess of the commissions received by it under this Agreement and no person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) will be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 9(d), any person who controls a party to this Agreement within the meaning of the Act, and any officers, directors, partners, employees or agents of CF&Co, will have the same rights to contribution as that party, and each officer of the Company who signed the Registration Statement will have the same rights to contribution as the Company, subject in each case to the provisions hereof. Any party entitled to contribution, promptly after receipt of notice of commencement of any action against such party in respect of which a claim for contribution may be made under this Section 9(d), will notify any such party or parties from whom contribution may be sought, but the omission to so notify will not relieve that party or parties from whom contribution may be sought from any other obligation it or they may have under this Section 9(d). Except for a settlement entered into pursuant to the last sentence of Section 9(c) hereof, no party will be liable for contribution with respect to any action or claim settled without its written consent if such consent is required pursuant to Section 9(c) hereof. 10. Representations and Agreements to Survive Delivery. All representations and warranties of the Company herein or in certificates delivered pursuant hereto shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of CF&Co, any controlling persons, or the Company (or any of their respective officers, directors or controlling persons), (ii) delivery and acceptance of the Shares and payment therefor or (iii) any termination of this Agreement. 11. Termination. (a) CF&Co shall have the right by giving notice as hereinafter specified at any time to terminate this Agreement if (i) any Material Adverse Effect, or any development that has actually occurred and that is reasonably expected to cause a Material Adverse Effect has occurred which, in the reasonable judgment of CF&Co, may materially impair the investment quality of the Shares, (ii) the Company shall have failed, refused or been unable, at or prior to any Settlement Date, to perform any agreement on its part to be performed hereunder, (iii) any other condition of CF&Co's obligations hereunder is not fulfilled, (iv) any suspension or limitation of trading in the Shares or in securities generally on the Nasdaq National Market , or any setting of minimum prices for trading of the Shares or in securities generally on such exchange, shall have occurred, (v) any banking moratorium shall have been declared by federal or New York authorities or (vi) an outbreak or material escalation of major hostilities in which -19- 20 the United States is involved, a declaration of war by Congress, any other substantial national or international calamity or any other event or occurrence of a similar character shall have occurred since the execution of this Agreement that, in the sole judgment of CF&Co, makes it impractical or inadvisable to proceed with the completion of the sale of and payment for the Shares to be sold by CF&Co on behalf of the Company. Any such termination shall be without liability of any party to any other party except that the provisions of Section 7(f), 7(h), Section 9, Section 10, Section 16 and Section 17 hereof shall remain in full force and effect notwithstanding such termination. If CF&Co elects to terminate this Agreement as provided in this Section, CF&Co shall provide the required notice as specified herein. (b) The Company shall have the right, by giving notice as hereinafter specified, to terminate this Agreement in its sole discretion at any time following the period of twelve (12) months after the date of this Agreement. Any such termination shall be without liability of any party to any other party except that the provisions of Section 7(f), 7(h), Section 9, Section 10, Section 16 and Section 17 hereof shall remain in full force and effect notwithstanding such termination. (c) At any time following the period of twelve (12) months from the date of this Agreement, CF&Co shall have the right, by giving notice as hereinafter specified, to terminate this Agreement in its sole discretion. Any such termination shall be without liability of any party to any other party except that the provisions of Section 7(f), 7(h), Section 9, Section 10, Section 16 and Section 17 hereof shall remain in full force and effect notwithstanding such termination. (d) This Agreement shall remain in full force and effect unless terminated pursuant to Sections 11(a), (b) or (c) above or otherwise by mutual agreement of the parties; provided that any such termination by mutual agreement shall in all cases be deemed to provide that Section 7(f), 7(h), Section 9, Section 10, Section 16 and Section 17 shall remain in full force and effect. (e) Any termination of this Agreement shall be effective on the date specified in such notice of termination; provided that such termination shall not be effective until the close of business on the date of receipt of such notice by CF&Co or the Company, as the case may be. If such termination shall occur prior to the Settlement Date for any sale of Shares, such Shares shall settle in accordance with the provisions of this Agreement. 12. Notices. All notices or other communications required or permitted to be given by any party to any other party pursuant to the terms of this Agreement shall be in writing and if sent to CF&Co, shall be delivered to CF&Co at Cantor Fitzgerald & Co., 1 World Trade Center, New York, New York 10048, fax no. (212) 938-8860, Attention: ITD-Investment Banking, with a copy to General Counsel at the same address, with a copy to Zukerman Gore & Brandeis, LLP, 900 Third Avenue, New York, New York 10022, fax no. (212) 223-6433, Attention Clifford A. Brandeis, Esq.; or if sent to the Company, shall be delivered to NeoTherapeutics, Inc., 157 Technology Drive, Irvine, California 92618, fax no. (949) 788-6706, attn: Chief Financial Officer, with a copy to Latham & Watkins, 650 Town Center Drive, Twentieth Floor, Costa Mesa, California 92626-1925, attn: Alan W. Pettis, Esq. Each party to this Agreement may change such address for notices by sending to the parties to this Agreement written notice of a new address for such purpose. Each such notice or other communication shall be deemed given (i) when delivered personally or by verifiable facsimile transmission (with an original to follow) on or -20- 21 before 5:00 p.m., eastern time, on a Business Day or, if such day is not a Business Day, on the next succeeding Business Day, (ii) on the next Business Day after timely delivery to a nationally-recognized overnight courier and (iii) on the Business Day actually received if deposited in the U.S. mail (certified or registered mail, return receipt requested, postage prepaid). For purposes of this Agreement, "Business Day" shall mean any day on which the New York Stock Exchange and commercial banks in the city of New York are open for business. 13. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the Company and CF&Co and their respective successors and the affiliates, controlling persons, officers and directors referred to in Section 9 hereof. References to any of the parties contained in this Agreement shall be deemed to include the successors and permitted assigns of such party. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. Neither party may assign it rights or obligations under this Agreement without the prior written consent of the other party, provided, however, that CF&Co may assign its rights and obligations hereunder to an affiliate of CF&Co without obtaining the Company's consent, provided, further, that the Company may terminate this Agreement at any time following any such assignment by CF&Co. 14. Adjustments for Stock Splits. The parties acknowledge and agree that all share related numbers contained in this Agreement (including, without limitation, the Maximum Amount) shall be adjusted to take into account any stock split, stock dividend or similar event effected with respect to the Shares. 15. Entire Agreement; Amendment; Severability. This Agreement constitutes the entire agreement and supersedes all other prior and contemporaneous agreements and undertakings, both written and oral, among the parties hereto with regard to the subject matter hereof. Neither this Agreement nor any term hereof may be amended except pursuant to a written instrument executed by the Company and CF&Co. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. 16. Applicable Law; Consent to Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to the principles of conflicts of laws. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan, for the adjudication of any dispute hereunder or in connection with any transaction contemplated hereby, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof (certified or registered mail, return receipt requested) 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 -21- 22 service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. 17. Waiver of Jury Trial. The Company and CF&Co each hereby irrevocably waives any right it may have to a trial by jury in respect of any claim based upon or arising out of this agreement or any transaction contemplated hereby. 18. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Delivery of an executed Agreement by one party to the other may be made by facsimile transmission. -22- 23 If the foregoing correctly sets forth the understanding between the Company and CF&Co, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between the Company and CF&Co. Very truly yours, NEOTHERAPEUTICS, INC. By: __________________________ Name: Title: ACCEPTED as of the date first-above written: CANTOR FITZGERALD & CO. By: __________________________ Managing Director -23- 24 SCHEDULE 1 COMPENSATION The amount of any discount, commission or other compensation to be paid by the Company to CF&Co for effecting sales of Placement Shares shall be as follows:
Commission/Discount Proceeds - -------------------------------------------------------------------------------- 4.00% $0-$ 10,000,000 3.5% of proceeds on the next: $10,000,001-$20,000,000 3.00% of proceeds on the next: $20,000,001-$40,000,000 2.75% of proceeds on the next: $40,000,001+
EX-4.1 4 a73898orex4-1.txt EXHIBIT 4.1 1 EXHIBIT 4.1 April 11, 2001 CANTOR FITZGERALD & CO. One World Trade Center New York, New York 10048 Dear Sirs/Ladies: This letter confirms the agreement pursuant to which Cantor Fitzgerald & Co. ("CF&Co") will, subject to further agreement, provide, or at CF&Co's election, provide advice with respect to engaging a third party to provide services to Neotherapeutics, Inc. (the "Company"), as follows: 1. Engagement. The Company hereby engages CF&Co, and CF&Co hereby accepts such engagement, to provide, or provide advice with respect to engaging a third party to provide, the following services to the Company, as requested by the Company subject to terms and conditions, including without limitation, fees and reimbursable expenses, to be agreed between the Company and CF&Co during the term of this agreement: o providing investment banking services, which may include, among other things, acting as managing underwriter/placement agent with respect to financings for the Company and its current and future subsidiaries and affiliates; o selecting co-managers for follow-on offerings by the Company and its current and future subsidiaries and affiliates; o providing advice with respect to the retention of proxy solicitation firms and shareholder ownership advice; o providing peer group analysis. 2. CF&Co and the Company agree that nothing herein shall obligate CF&Co to provide any of the services set forth in Section 1 above to the extent that the parties hereto are unable to agree upon the terms and conditions pursuant to which any such service shall be provided. It is further understood and agreed by the parties hereto that nothing herein shall obligate CF&Co to execute any agreement to provide financing or other investment banking service that has been proposed to date or thereafter by the Company or CF&Co. The Company represents that it is not executing this agreement in reliance upon CF&Co executing any other agreement. CF&Co and the Company agree that CF&Co, at its sole discretion, may retain third parties to provide the services described in Section 1, above. 2 3. Compensation. CF&Co will be entitled to receive compensation for the services provided to the Company hereunder as follows notwithstanding the parties' inability to reach agreement on the terms and conditions pursuant to which services will be rendered. The Company acknowledges that the compensation set forth in this Section 3 is for good and valuable consideration, the sufficiency of which the parties hereby acknowledge, including without limitation, in order to induce CF&Co to enter into this agreement: A. The Company will pay to CF&Co an annual retainer in the amount of $75,000, such retainer to be payable on the date of this agreement and on each annual anniversary of such date during the term of this agreement. The Company acknowledges that CF&Co has rendered certain services to date in connection with exploring the feasibility of providing certain of the services set forth above. The retainer will be non-refundable, provided, however, that any cash fees payable to CF&Co pursuant to this Section 2 will be credited against the retainer. The fees for transactions and services specified in section one shall be negotiated in connection with such services or transactions B. The Company will reimburse CF&Co for all reasonable out-of-pocket expenses incurred by CF&Co in connection with providing services hereunder (including without limitation all due diligence and legal expenses), it being understood that CF&Co has incurred certain expenses to date in connection with exploring the feasibility of providing certain of the services set forth above The parties acknowledge and agree that CF&Co will be entitled to such reimbursement regardless of whether any transaction for which the Company has requested CF&Co to provide services hereunder is consummated. The Company agrees to make such reimbursement within fifteen days of the presentation of an invoice indicating such expenses with reasonable specificity. The Company further agrees that, on the date of this agreement, it will pay to CF&Co the sum of $50,000 as a non-refundable deposit. C. The payments set forth in Paragraph 3A and 3B above shall be payable by wire transfer to the account of CF&Co within 24 hours of the execution of this agreement. 4. Commitment. The Company agrees that it will offer to CF&Co the opportunity to be the lead or, with CF&Co's consent, co-lead underwriter/placement agent with no less than equal economic terms than any other underwriter on any offering of securities made by the Company or by any of its current or future subsidiaries or affiliates during the period of two (2) years from the date of this agreement. In each such case, such offer will be made to CF&Co in writing and will be deemed to be declined by CF&Co if no response to such offer is received by the Company within ten (10) business days following delivery thereof to CF&Co. 5. Indemnification. The Company shall indemnify, defend and hold harmless CF&Co and its control persons, partners, shareholders, directors, officers, employees, agents, affiliates, successors and assigns from and against any loss, liability, damage, claim, cost or expense (including, but not limited to, legal fees and expenses), in each case as incurred, arising directly or indirectly from this Agreement or the provision of services by CF&Co or such third parties as CF&Co may retain to provide such services hereunder. The Federal and state securities laws impose liabilities on persons who act in good faith and therefore nothing herein -2- 3 shall be construed as a waiver of any such rights. The rights accorded to CF&Co pursuant to this provision shall be in addition to any rights that CF&Co may have at common law, by separate agreement, or otherwise. This provision shall survive termination of this Agreement. 6. In no event, including negligence, shall CF&Co or any of its affiliates be liable for any indirect, consequential, punitive or compensatory damages, including but not limited to, lost profits or loss of goodwill arising directly or indirectly from this agreement or the provision by CF&Co or such third parties as CF&Co may retain to provide such services, even if the Company has been advised of the possibility of such damages. The total liability, if any, of CF&Co and its affiliates, including but not limited to liability arising out of contract, tort, breach of warranty, infringement or otherwise shall not in any even exceed the fee paid by the Company pursuant to Section 3A above. 7. Termination. Either party may terminate this Agreement at any time on one (1) business days' prior written notice to the other party. Upon such termination, neither party will have any obligation to the other party, except that (i) CF&Co will remain entitled to receive any compensation and/or expenses which may be payable to it hereunder through the date of such termination and (ii) the Company's agreement to indemnify CF&Co pursuant to paragraph 4 above shall survive such termination. 8. Assignment. Neither party may assign this Agreement without the prior written consent of the other party, provided that CF&Co may assign this Agreement, or any of its rights or obligations hereunder, to any affiliate of CF&Co without the Company's prior consent. Any assignment by CF&Co shall be without recourse by the Company against CF&Co. 9. Publication. The Company shall not, without the prior written approval of CF&Co, refer to this agreement or its relationship with CF&Co in any public or private announcement or filing with any regulatory organization. 10. Miscellaneous. This Agreement constitutes the entire understanding of the parties superseding all prior agreements, written or oral, with respect to the subject matter hereof and may be modified only by writing signed by both parties to this Agreement. The failure of either party to require the performance of any term of this Agreement, or the waiver by either party of any breach under this Agreement, shall not prevent a subsequent enforcement of such term, nor be deemed a waiver of any subsequent breach. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to its conflict of laws principles. The parties irrevocably submit to the jurisdiction of the courts located in the city of New York, borough of Manhattan for the purpose of any suit, action or other proceeding arising out of this Agreement or any introduction made hereunder. The invalidity or unenforceability of any provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if any invalid or unenforceable provision was omitted. 11. Notices. Any notice, demand or request required or permitted to be given by either party to the other party pursuant to the terms of this Agreement shall be in writing and shall be deemed given (i) when delivered personally on or before 5:00 p.m., eastern time, on a -3- 4 business day, (ii) on the next business day after timely delivery to a nationally-recognized overnight courier and (iii) on the business day actually received if deposited in the U.S. mail (certified or registered mail, return receipt requested, postage prepaid), addressed to the respective parties at the addresses set forth above. Please confirm that the foregoing correctly sets forth our understanding by executing the enclosed copy of this letter and returning it to us, upon which this letter will become a binding agreement between us. By signing below, the company acknowledges receipt of CF&Co.'s Form ADV, Part II. Very truly yours, NEOTHERAPEUTICS, INC. By: --------------------------------- Name: Alvin J. Glasky, Ph.D. ------------------------------- Title: Chief Executive Officer ------------------------------ Accepted as of the date first-above written. CANTOR FITZGERALD & CO. By: ----------------------------------- Name: Title: -4- EX-4.2 5 a73898orex4-2.txt EXHIBIT 4.2 1 EXHIBIT 4.2 [NEOTHERAPEUTICS LOGO] June 12, 2001 CANTOR FITZGERALD & CO. One World Trade Center New York, NY 10048 Dear Sirs/Ladies: Pursuant to the terms of that certain Letter Agreement dated April 11, 2001, by and between Cantor Fitzgerald & Co. and NeoTherapeutics, Inc. (the "Letter Agreement"), the parties to the Letter Agreement hereby agree to amend the Letter Agreement as follows: (1) Add subsections D and E to Section 3 of the Letter Agreement to read in their entirety as follows: "D. With respect to each accepted Placement Notice under either Sales Agreement dated June 12, 2001 (collectively, the "Sales Agreements"), by and between the Company and CF&Co, the Company will issue to CF&Co a five year warrant to purchase shares of Common Stock of the Company in an amount equal to 10% of the number of shares of Common Stock sold by the Company pursuant to such Placement Notice. Each such warrant will have an exercise price equal to 130% of the volume weighted average sale price of the shares of Common Stock sold pursuant to the applicable Placement Notice, will be dated as of the last Settlement Date (as defined in the Sales Agreements) for sales of Common Stock made under the applicable Placement Notice and will otherwise be in substantially the form attached hereto as Exhibit A. Each such warrant shall be delivered to CF&Co within seven days after the later of: (i) the last Settlement Date for sales of Common Stock made under the applicable Placement Notice, or (ii) the date on which the Company receives written notice from CF&Co that no further sales will be made pursuant to such Placement Notice. E. (i) Until the aggregate cash fees paid, or deemed paid pursuant to paragraph (vi) below, to CF&Co under the Sales Agreements and this subsection E equals or exceeds $336,000, promptly after the closing of each sale or deemed sale by the Company of shares of the Company's common stock, par value $.001 per share (the "Common Stock"), made as part of a Financing Transaction (as defined below), subject to the exceptions set forth below, the Company shall pay to CF&Co a cash fee equal to 2% of the Company's gross proceeds received at such closing. In addition, until the Company has issued, including warrants deemed issued pursuant to paragraph (vi) below, warrants to CF&Co under subsections D and E hereof with respect to sales or deemed sales of shares of Common Stock, including Initial Payments (as defined below), having aggregate gross proceeds of $8,400,000, promptly after the closing of each sale or deemed sale by the Company of shares of Common Stock made as part of a 2 Financing Transaction, subject to the exceptions set forth below, the Company shall issue to CF&Co a warrant to purchase a number of shares of Common Stock equal to 10% of the number of shares of Common Stock sold by the Company in such closing, dated as of the date of such closing, with an exercise price per share equal to 130% of the volume weighted average price per share of the Common Stock sold or deemed to be sold in such closing, which warrant shall otherwise be in the form attached hereto as Exhibit A. The cash fee payable and warrants issuable pursuant to this paragraph (i) with respect to any sale or deemed sale of Common Stock shall be referred to collectively as the "Alternative Financing Fee". For the purposes of this subsection E, a "Financing Transaction" shall mean any transaction in which the Company sells or issues securities to or through a party or parties other than CF&Co or its affiliates, prior to such time as both Sales Agreements have been terminated by either party thereto, in return for cash consideration, other than (x) sales or issuances upon the exercise of options, warrants or other rights to acquire securities of the Company issued to employees of or consultants to the Company or any of its subsidiaries or (y) sales or issuances made to an entity which is, itself or through its subsidiaries or affiliates, an operating company in a business related to the business of the Company and in connection with which the Company receives material benefits in addition to the investment of funds. (ii) The Company shall not be required to pay the Alternative Financing Fee for sales or deemed sales of Common Stock made to or through a party or parties other than CF&Co if such sale meets any of the following conditions (each such sale, an "Exempt Sale"): (a) CF&Co fails to sell shares of Common Stock for gross proceeds of at least $3,000,000 pursuant to an accepted Placement Notice under either Sales Agreement within 30 days after the date of acceptance at such Placement Notice, where (x) such Placement Notice permits sales of Common Stock having proceeds of at least $3,000,000 over a period of at least 30 days, and (y) the Company does not suspend sales under such Placement Notice pursuant to the terms of the applicable Sales Agreement or sell or offer to sell shares of Common Stock in violation of Section 7(j) of the applicable Sales Agreement, and the closing of the Exempt Sale occurs within 90 days after the end of such 30 day period at a sale price per share not less than the product of: (x) the volume weighted average price of the Common Stock for sales made through the Nasdaq National Market, as reported by Bloomberg, L.P. (the "VWAP"), on the date on which the definitive written purchase agreement related to such Exempt Sale is entered into, unless such written agreement specifies another date or period for determining the purchase price for such Exempt Sale, in which case, the applicable VWAP shall be that reported for such specified date or, if applicable, the last date of the specified period; multiplied by (y) a fraction, the numerator of which is the minimum price at which CF&Co was permitted to make sales under the applicable Placement Notice, and the denominator of which is the VWAP for the first 30 days of the period covered by such Placement Notice. (b) CF&Co has declined to issue a Placement Notice under either Sales Agreement within five trading days after receiving written notice of proposed placement terms from the Company, and the closing for the Exempt Sale occurs within 90 days after the end of such five trading day period at a sale price per share not less than the product of: (x) the VWAP on the date on which the definitive written purchase 2 3 agreement related to such Exempt Sale is entered into, unless such written agreement specifies another date or period for determining the purchase price for such Exempt Sale, in which case, the applicable VWAP shall be that reported for such specified date or, if applicable, the last date of the specified period; multiplied by (y) a fraction, the numerator of which is the minimum price at which CF&Co was permitted to make sales under the proposed placement terms, and the denominator of which is the VWAP for the five trading days immediately preceding the date of such written notice from the Company. (iii) Sales of securities of a subsidiary of the Company which are either convertible into or exchangeable for shares of Common Stock or securities of the Company convertible into Common Stock shall be deemed to be a sale by the Company of a security convertible into Common Stock subject to the application paragraph (iv) below; provided, that under no circumstances shall a sale of securities by any subsidiary of the Company be deemed to be a sale of securities by the Company if (x) the purchaser(s) of such securities are not granted a right to exchange such securities for Common Stock or securities of the Company convertible into Common Stock, or (y) the purchaser(s) of such securities must hold such securities for not less than 6 months before exercising any right to exchange such securities for Common Stock or securities of the Company convertible into Common Stock, in which case the sale of such securities by the subsidiary and the issuance of Common Stock or other securities by the Company upon the exercise of such exchange or conversion rights, including the issuance of Common Stock upon conversion or exercise or in exchange for such other securities of the Company, shall be deemed to be an Exempt Sale not subject to the payment of Alternative Financing Fees. (iv) For the purposes of this subsection E, the sale by the Company of a security convertible into Common Stock without the payment of additional consideration to the Company upon such conversion shall be deemed to be the sale by the Company on the date of such sale of the number of shares of Common Stock into which such convertible securities would be convertible if converted on the date of the sale of such convertible securities, for the aggregate gross cash consideration received by the Company upon issuance of such convertible securities. (v) If the Company issues, in return for cash consideration (each, an "Initial Payment"), as part of a Financing Transaction, securities ("Cash Securities") exercisable, convertible or exchangeable (collectively, "Exercisable", and the exercise, conversion or exchange thereof collectively, "Exercise") into Common Stock upon the payment of additional consideration, the Company shall pay to CF&Co a cash fee equal to 2% of such Initial Payment, and shall issue to CF&Co a warrant to purchase a number of shares of Common Stock equal to 10% of the quotient obtained by dividing the Initial Payment by the VWAP on the date on which the Company received the Initial Payment, rounded to the nearest whole number, dated as of such date, with an exercise price per share equal to 130% of the VWAP on such date, which warrant shall otherwise be in the form attached hereto as Exhibit A, and such cash fee and warrant shall be deemed to be an Alternative Financing Fee for all purposes under this Agreement. For the purposes only of determining the exercise price of the warrant component of any Alternative Financing Fee payable with respect to the Exercise of Cash Securities, the applicable Initial Payment shall be deemed to be received by the Company upon such Exercise as gross proceeds from the issuance of the corresponding Common Stock, and a pro rata portion of such Initial Payment shall be included in calculating the per share purchase price of such Common Stock, based upon the number of shares of Common Stock issued upon such Exercise; 3 4 provided, however, that in the case of a partial Exercise of any Cash Securities, only such portion (the "Exercised Portion") of the Initial Payment applicable to such portion of such securities as are Exercised shall be deemed to be received by the Company upon such Exercise, determined by comparing the number of shares of Common Stock issued upon such Exercise to the maximum number of shares of Common Stock issuable upon full Exercise of the Cash Securities issued in return for such Initial Payment, if there is such a maximum number, or if there is no such maximum number, determined on the basis of the number or principal amount of securities Exercised. In addition, no warrants shall be issued as the warrant component of any Alternative Financing Fee payable with respect to the Exercise of Cash Securities except to the extent that, and in an amount equal to the amount by which, the aggregate number of shares which would otherwise be issuable upon exercise of such warrants exceeds the number of shares issuable upon exercise of warrants issued with respect to the corresponding Initial Payment (or the Exercised Portion thereof if less than all of the applicable Cash Securities are Exercised at such time). (vi) For the purposes of paragraph (i) above, the Company shall be deemed to have paid to CF&Co the Alternative Financing Fee (including warrants) that would have been payable with respect to any Exempt Sale (other than transactions deemed to be Exempt Sales pursuant to paragraph (iii) above) but for the application of paragraph (ii) above. (vii) Notwithstanding anything to the contrary contained in this Agreement, in no event shall any Alternative Financing Fee be payable under this Section E to the extent that the cash portion of such Alternative Financing Fee would cause the aggregate cash fees paid, or deemed paid pursuant to paragraph (vi) above, to CF&Co under the Sales Agreements and this subsection E to exceed $336,000, or to the extent that immediately after the issuance the warrant portion of such Alternative Financing Fee, the Company would have issued, including warrants deemed issued pursuant to paragraph (vi) above, warrants to CF&Co under subsections D and E hereof with respect to sales or deemed sales of shares of Common Stock, including Initial Payments, having aggregate gross proceeds of $8,400,000." (2) Add a new Section 4 to the Letter Agreement, and to renumber the subsequent sections accordingly, such new Section 4 to read in its entirety as follows: "4. Registration Rights. A. DEFINITIONS. For purposes of this Section 4: (i) "Board" means the Board of Directors of the Company, as the same shall be constituted from time to time. (ii) "Exempt Registration" means a registration statement relating to the sale of securities by the Company pursuant to a stock option, stock purchase or similar benefit plan or an SEC Rule 145 transaction or any other registration statement that would not customarily provide for the secondary sale of equity shares for cash. (iii) "Form S-3" means such form under the Securities Act as in effect on the date hereof or any successor form under the Securities Act that is intended to be used as a short form for the registration of distributions of secondary shares. 4 5 (iv) "Holder" means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with the provisions of this Agreement. (v) "person" means any individual, corporation, partnership, limited liability company, trust, business, association or government or political subdivision thereof, governmental agency or other entity. (vi) "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act and the declaration or ordering of effectiveness of such registration statement or document. (vii) The term "Registrable Securities" means as of any given date, shares of Common Stock issuable or issued upon exercise of warrants issued to CF&Co pursuant to this Agreement which warrants are or were issued as of a date not less than one year prior to such date; provided, however, that the foregoing definition shall exclude in all cases (x) any securities sold or transferred by a Holder in a transaction in which such Holder's rights under this Section 4 are not assigned, and (y) any securities that may be sold by the Holder thereof pursuant to Rule 144 under the Securities Act. (viii) "SEC" means the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. (ix) "Securities Act" means the Securities Act of 1933, as amended. B. FORM S-3 REGISTRATION. In case the Company shall receive from any Holder or Holders then holding not less than 100,000 Registrable Securities, including Registrable Securities issuable upon the exercise of warrants then held by such Holder or Holders, a written request or requests that the Company effect a resale registration statement on Form S-3 and any related qualification or compliance with respect to not less than 100,000 Registrable Securities held by such Holder or Holders, the Company will: (i) Promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders, if any; and (ii) As soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within 15 days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this subsection B: (w) if Form S-3 is not available for such offering by the Holders; (x) if the Company shall furnish to the Holders a certificate signed by the Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such Form S-3 5 6 registration statement to be filed or declared effective at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than 60 days after receipt of the request of the Holder or Holders under this subsection B; provided, however, that the Company shall not utilize this right more than once in any twelve month period; (y) if the Company has, within the twelve (12) month period preceding the date of such request, already effected two registrations on Form S-3 for the Holders pursuant to this subsection B; or (z) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. (iii) Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after, and in any event within 45 days after (the "Filing Deadline"), receipt of any request or requests of the Holders and use its commercially reasonable efforts to cause such filed registration statement to become effective by the Effectiveness Date. "Effectiveness Date" means the 90th day following receipt by the Company of any request or requests of their Holders. C. COMPANY REGISTRATION. (i) Initiation. If the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its stock in connection with the public offering of such securities solely for cash (other than an Exempt Registration), the Company shall, at such time, promptly give each Holder notice of such proposed registration. Upon the written request of each Holder given within 20 days after receipt by such Holder of the Company's notice, the Company shall, subject to the provisions of the remainder of this Section C, cause to be included in such registration statement all of the Registrable Securities that each such Holder has requested to be registered. (ii) Underwritten Offering. In connection with any offering involving an underwriting of shares of the Company's capital stock, the Company shall not be required under paragraph C(i) to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters), and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company. (iii) Demand Registration. If the registration referred to in paragraph C(i) is being made by the Company to satisfy demand registration rights (a "Demand Registration") held by any person or entity (a "Demanding Holder"), the Company shall not be required under paragraph C(i) to include any of the Holders' securities in such registration, except in such quantity as the Demanding Holder shall determine in its sole discretion, subject to the provisions of paragraph C(iv) below. (iv) Cutbacks. If the total amount of securities, including Registrable Securities, requested by stockholders to be included in an underwritten 6 7 offering or a Demand Registration exceeds the amount of securities sold other than by the Company or the Demanding Holder, respectively, that the underwriters or Demanding Holder, respectively, determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters or Demanding Holder, respectively, determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata (to the nearest 100 shares) among the selling stockholders according to the total amount of securities entitled to be included therein owned by each selling stockholder or in such other proportions as shall mutually be agreed to by such selling stockholders). For purposes of the preceding apportionment, for any participating Holder that is a partnership, limited liability company or corporation, the partners, retired partners, members, retired members and stockholders of such Holder, or the estates and family members of any such partners, members, retired partners or members and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "selling stockholder," and any pro-rata reduction with respect to such "selling stockholder" shall be based upon the aggregate amount of shares carrying registration rights owned by all Persons included in such "selling stockholder," as defined in this sentence. (v) Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this subsection C prior to the effectiveness of such registration whether or not any Holder has elected to include Registrable Securities in such registration. D. OBLIGATIONS OF THE COMPANY. Whenever required under this Section 4 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (i) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective. (ii) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act. (iii) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of such Registrable Securities. (iv) Use its reasonable best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. 7 8 (v) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement with the managing underwriter of such offering in usual and customary form and consistent with the other provisions of this Agreement. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (vi) Promptly notify each Holder covered by the registration statement at any time when the Company becomes aware of the happening of any event as a result of which the registration statement or the prospectus included in such registration statement or any supplement to the prospectus (as then in effect) contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements there in (in the case of the prospectus, in light of the circumstances under which they were made) not misleading or, if for any other reason it shall be necessary during such time period to amend or supplement the registration statement or the prospectus in order to comply with the Securities Act, whereupon, in either case, each Holder shall immediately cease to use such registration statement or prospectus for any purpose and, as promptly as practicable thereafter, the Company shall prepare and file with the SEC, and furnish without charge to the appropriate Holders and managing underwriters, if any, a supplement or amendment to such registration statement or prospectus which will correct such statement or omission or effect such compliance and such copies thereof as the Holders and any underwriters may reasonably request. (vii) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange or market on which similar securities issued by the Company are then listed or traded, if applicable. (viii) Provide a transfer agent and registrar for such Registrable Securities not later than the effective date of such registration. (ix) Use its reasonable best efforts to furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 4, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 4, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities (to the extent the then applicable standards of professional conduct permit said letter to be addressed to the Holders). E. FURNISH INFORMATION. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 4 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such 8 9 information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities. F. EXPENSES OF REGISTRATION. All expenses incurred in connection with a registration requested pursuant to this Section 4, including (without limitation) all registration, filing, qualification, printers' and accounting fees and the reasonable fees and disbursements of one counsel for the selling Holder or Holders selected by Holders selling a majority of the subject Registrable Securities, such fees and disbursements not to exceed $10,000 for each requested registration, and counsel for the Company shall be borne by the Company, and any underwriters' discounts or commissions associated with Registrable Securities shall be borne pro rata by the Holder or Holders participating in the Form S-3 Registration. G. INDEMNIFICATION. In the event any Registrable Securities are included in a registration statement under this Section 4: (i) The Company agrees to indemnify and hold harmless each Holder and each person, if any, who (i) controls such Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or (ii) is controlled by or is under common control with a Holder from and against any and all losses, claims, liabilities, expenses and damages (including, but not limited to, any and all investigative, legal and other expenses reasonably incurred in connection with, and any and all amounts paid in settlement of, any action, suit or proceeding between any of the indemnified parties and any indemnifying parties or between any indemnified party and any third party, or otherwise, or any claim asserted), as and when incurred, to which the Holder, or any such person, may become subject under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, liabilities, expenses or damages arise out of or are based, directly or indirectly, on (x) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, registration statement or final prospectus filed with the SEC pursuant to this Section 4, or any amendment or supplement to any such registration statement or prospectus, or in any application or other document executed by or on behalf of the Company or based on written information furnished by or on behalf of the Company filed in any jurisdiction in order to qualify the Registrable Securities under the securities laws thereof or filed with the SEC, or (y) the omission or alleged omission to state in such document a material fact required to be stated in it or necessary to make the statements in it not misleading; provided that this indemnity agreement shall not apply to the extent that such loss, claim, liability, expense or damage is caused directly by an untrue statement or omission made in reliance on and in conformity with information relating to the Holder and furnished in writing to the Company by the Holder expressly stating that such information is intended for inclusion in any document described in clause (i)(x) above. Any reference in this subsection G to a registration statement, prospectus or any amendment or supplement thereto shall be deemed to refer to and include any documents incorporated or deemed to be incorporated by reference 9 10 therein, and any reference to the terms "amend," "amendment" or "supplement" with respect to such registration statement or prospectus shall be deemed to refer to and include filing with the SEC of any document incorporated or deemed to be incorporated by reference therein. This indemnity agreement will be in addition to any liability that the Company might otherwise have. (ii) Each Holder agrees to indemnify and hold harmless the Company and its directors and each officer of the Company who signed a registration statement in which Registrable Securities are included, and each person, if any, who (x) controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act or (y) is controlled by or is under common control with Company against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (i) of this subsection, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in such registration statement (or any amendments thereto) or any preliminary or final prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information and relating to such Holder furnished to the Company by such Holder expressly stating that such information is intended for use in such registration statement (or any amendment thereto) or such preliminary or final prospectus (or any amendment or supplement thereto). (iii) Any party that proposes to assert the right to be indemnified under this subsection G will, promptly after receipt of notice of commencement of any action against such party in respect of which a claim is to be made against an indemnifying party or parties under this subsection G, notify each such indemnifying party of the commencement of such action, enclosing a copy of all papers served, but the omission so to notify such indemnifying party will not relieve the indemnifying party from (x) any liability that it might have to any indemnified party otherwise than under this subsection G and (y) any liability that it may have to any indemnified party under the foregoing provision of this subsection G unless, and only to the extent that, such omission results in the forfeiture of substantive rights or defenses by the indemnifying party. If any such action is brought against any indemnified party and it notifies the indemnifying party of its commencement, the indemnifying party will be entitled to participate in and, to the extent that it elects by delivering written notice to the indemnified party promptly after receiving notice of the commencement of the action from the indemnified party, jointly with any other indemnifying party similarly notified, to assume the defense of the action, with counsel reasonably satisfactory to the indemnified party, and after notice from the indemnifying party to the indemnified party of its election to assume the defense, the indemnifying party will not be liable to the indemnified party for any legal or other expenses except as provided below and except for the reasonable costs of investigation subsequently incurred by the indemnified party in connection with the defense. The indemnified party will have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel will be at the expense of such indemnified party unless (w) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (x) the indemnified party has reasonably concluded (based on advice of counsel) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (y) a conflict or potential conflict exists (based on advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (z) the 10 11 indemnifying party has not in fact employed counsel to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm admitted to practice in such jurisdiction at any one time for all such indemnified party or parties. All such fees, disbursements and other charges will be reimbursed by the indemnifying party promptly as they are incurred. An indemnifying party will not be liable for any settlement of any action or claim effected without its written consent. No indemnifying party shall, without the prior written consent of each indemnified party, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding relating to the matters contemplated by this subsection G (whether or not any indemnified party is a party thereto), unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising or that may arise out of such claim, action or proceeding. Notwithstanding any other provision of this subsection G, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel for which it is entitled to reimbursement pursuant to this subsection G, such indemnifying party agrees that it shall be liable for any settlement effected without its written consent if (x) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (y) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into, and (z) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement; provided that an indemnifying party shall not be liable for any such settlement effected without its consent if such indemnifying party, at least five days prior to the date of such settlement, (x) reimburses such indemnified party in accordance with such request for the amount of such fees and expenses of counsel as the indemnifying party believes in good faith to be reasonable and (y) provides written notice to the indemnified party that the indemnifying party disputes in good faith the reasonableness of the unpaid balance of such fees and expenses. (iv) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in the foregoing paragraphs of this subsection G is applicable in accordance with its terms but for any reason is held to be unavailable from the Company or any Holder, the Company and the applicable Holders will contribute to the total losses, claims, liabilities, expenses and damages (including any investigative, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted, but after deducting any contribution received by the Company from persons other than the applicable Holders, such as persons who control the Company within the meaning of the Securities Act, officers of the Company who signed the applicable registration statement and directors of the Company, who also may be liable for contribution) to which the Company and the applicable Holders may be subject in such proportion as shall be appropriate to reflect the relative fault of the Company, on the one hand, and the applicable Holders, on the other, with respect to the statements or omission which resulted in such loss, claim, liability, expense or damage, or action in respect 11 12 thereof, as well as any other relevant equitable considerations with respect to such offering. Such relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or the applicable Holders, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Holders agree that it would not be just and equitable if contributions pursuant to this subsection G(iv) were to be determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, liability, expense, or damage, or action in respect thereof, referred to above in this subsection G(iv) shall be deemed to include, for the purpose of this subsection G(iv), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim to the extent consistent with subsection G(iii) hereof. Notwithstanding the foregoing provisions of this subsection G(iv), each Holder shall not be required to contribute any amount in excess of the net proceeds received by it from the offering and no person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this subsection G(iv), any person who controls a party to this Agreement within the meaning of the Securities Act, and any officers, directors, partners, employees or agents of a Holder, will have the same rights to contribution as that party, and each officer of the Company who signed the applicable registration statement will have the same rights to contribution as the Company, subject in each case to the provisions hereof. Any party entitled to contribution, promptly after receipt of notice of commencement of any action against such party in respect of which a claim for contribution may be made under this subsection G(iv), will notify any such party or parties from whom contribution may be sought, but the omission to so notify will not relieve that party or parties from whom contribution may be sought from any other obligation it or they may have under this subsection G(iv). Except for a settlement entered into pursuant to the last sentence of subsection G(iii) hereof, no party will be liable for contribution with respect to any action or claim settled without its written consent if such consent is required pursuant to subsection G(iii) hereof." (3) Amend Section 7 (renumbered by this Amendment to be Section 8) to read in its entirety as follows: "8. Termination. Either party may terminate this Agreement at any time on one business day's prior written notice to the other party. Upon such termination, neither party will have any obligation to the other party, except that the provisions of Sections 3B (with respect to expenses incurred prior to such termination), 3D, 3E, 4, 6 and 11 hereof shall remain in full force and effect notwithstanding such termination." (4) Add an Exhibit A the form of which is attached hereto as Exhibit A. (5) Amend Section 3A by replacing the phrase "Section 2" in the second last sentence with the phrase "Section 3, other than pursuant to Section 3E," so that the second last sentence of Section 3A shall read in its entirety as follows: 12 13 "The retainer will be non-refundable, provided, however, that any cash fees payable to CF&Co pursuant to this Section 3, other than pursuant to Section 3E, will be credited against the retainer." Except as provided herein, all other provisions of the Letter Agreement will remain in full force and effect. 13 14 Please indicate your agreement with the foregoing by signing where indicated below and returning a signed copy to us, upon which this letter will become a binding agreement between us. Very truly yours, NEOTHERAPEUTICS, INC. By: ---------------------------------- Name: Title: Agreed and Accepted as of June 12, 2001 CANTOR FITZGERALD & CO. By: ---------------------------------- Name: Title: EX-5.1 6 a73898orex5-1.txt EXHIBIT 5.1 1 [LATHAM & WATKINS LETTERHEAD] July 2, 2001 NeoTherapeutics, Inc. 157 Technology Drive Irvine, California 92612 Re: $8,400,000 Aggregate Offering Price of Securities of NeoTherapeutics, Inc. ------------------------------------------------- Ladies and Gentlemen: At your request, we have examined the registration statement on Form S-3 (the "Registration Statement") filed by NeoTherapeutics, Inc. (the "Company") on July 2, 2001 with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"), relating to the offering from time to time, as set forth in the prospectus contained in the Registration Statement (the "Prospectus") and as shall be set forth in one or more supplements to the Prospectus (each, a "Prospectus Supplement"), by the Company of up to $8,400,000 aggregate offering price (as such amount may be increased pursuant to a registration statement filed with the Commission under Rule 462(b) in connection with the Registration Statement) of shares of common stock, par value $.001 per share (the "Common Stock"). In our capacity as your counsel in connection with such registration, we are familiar with the proceedings taken and proposed to be taken by the Company in connection with the authorization and issuance of the Common Stock and, for the purposes of this opinion, have assumed such proceedings will be timely completed in the manner presently proposed and that the terms of each issuance will otherwise be in compliance with law. As such counsel, we have examined such matters of fact and questions of law considered appropriate for purposes of rendering the opinions expressed below. In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, and the conformity to authentic original documents of all documents submitted to us as copies. We have been furnished with, and with your consent have relied upon, certificates of officers of the Company with respect to certain factual matters. In addition, we have obtained and relied upon such certificates and assurances from public officials as we have deemed necessary. 2 LATHAM & WATKINS July 2, 2001 Page 2 We are opining herein as to the effect on the subject transaction only of the General Corporation Law of the State of Delaware (the "Delaware GCL"), and we express no opinion with respect to the applicability thereto, or the effect thereon, of the laws of any other jurisdiction or, in the case of Delaware, any other laws or as to any matters of municipal law or the laws of any local agencies within any state. Subject to the foregoing and the other matters set forth herein, it is our opinion that, as of the date hereof: The Company has the authority pursuant to its Certificate, to issue up to 50,000,000 shares of Common Stock. Upon adoption by the Board of Directors or a duly authorized committee of the Board of Directors of the Company of a resolution in form and content as required by the Delaware GCL approving the issuance and offering price of the shares of Common Stock offered pursuant to the Registration Statement, the Prospectus and the related Prospectus Supplement(s), and upon issuance and delivery of and receipt of full payment of legal consideration in excess of the par value thereof for such shares in the manner contemplated by the Registration Statement, the Prospectus and the related Prospectus Supplement(s) and by such resolution, and when the Registration Statement and any required post-effective amendment thereto have all become effective and any and all Prospectus Supplement(s) required by applicable laws have been filed under the Securities Act, and assuming that (i) the Company has a sufficient number of authorized but unissued shares under the Certificate at the time of issuance, (ii) such shares as delivered do not violate any law applicable to the Company or result in a default under or breach of any agreement or instrument binding upon the Company and (iii) such shares as delivered comply with all requirements and restrictions, if any, applicable to the Company, whether imposed by any court or governmental or regulatory body having jurisdiction over the Company, such shares of Common Stock will be validly issued, fully paid and nonassessable. We consent to your filing this opinion as an exhibit to the Registration Statement, to the incorporation by reference of this opinion into any registration statement of the Company filed pursuant to Rule 462(b) of the Securities Act in relation to the Registration Statement, and to the reference to our firm under the caption "Validity of Common Stock" in the prospectus included therein. Very truly yours, /s/ LATHAM & WATKINS EX-23.1 7 a73898orex23-1.txt EXHIBIT 23.1 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this registration statement (File No. ___-_____) of our report dated April 17, 2001 included in Amendment No. 1 on Form 10-K/A to NeoTherapeutics, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2000 and to all references to our Firm included in this registration statement. /s/ARTHUR ANDERSEN LLP Orange County, California June 28, 2001 -----END PRIVACY-ENHANCED MESSAGE-----