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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: March 22, 1999
(Date of earliest event reported)
AVANIR PHARMACEUTICALS
(Exact name of registrant as specified in its charter)
CALIFORNIA
(State or other jurisdiction of incorporation)
0-18734 33-0314804
(Commission File Number) (IRS Employer Identification No.)
9393 Towne Centre Drive, Suite 200, San Diego, California 92121
(Address of principal executive offices) (Zip code)
(619) 558-0364
(Registrants telephone number, including area code)
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Item 5. OTHER EVENTS
On March 22, 1999, the Company entered into an agreement with several
accredited investors to obtain up to $5 million in financing through the sale of
up to 500 shares of Series D Convertible Preferred Stock ("Series D Shares") and
related Class J Stock Purchase Warrants ("Class J Warrants"). The Company
received $2 million at the initial closing on March 31, 1999 in exchange for its
sale to the investors of 200 Series D Shares and related Class J Warrants to
purchase an aggregate of 100,000 shares of Class A Common Stock. The Company
will receive an additional $1 million through the sale of 100 Series D Shares
and related Class J Warrants, subject to satisfying certain conditions over the
next two months, including obtaining shareholder approval for the potential
issuance of over 20% of the currently outstanding shares of Class A Common
Stock, registering the underlying Shares of Class A Common Stock for resale and
maintaining the listing of the Company's Class A Common Stock on the Nasdaq
National Market. The investors also have the option to purchase an additional $2
million in Series D Shares and related Class J Warrants under similar terms.
The Series D Shares carry a 5% dividend, payable quarterly in cash or,
at the Company's option, in stock at the applicable conversion rate. The
investors have the option to convert the Series D Shares into shares of Class A
Common Stock at a price per share which is the lesser of a fixed conversion
price or a variable conversion price based on the market prices of the Class A
Common Stock or about the date of conversion. The initial fixed conversion price
is set at $1.05 per share, with a provision for reset higher or lower based on
the market prices for the five (5) consecutive trading days immediately
preceeding July 29, 1999. The ability to achieve a higher reset price is
contingent upon the Company obtaining a commercial line of credit with a
nationally recognized financial institution for at least $2 Million by July 19,
1999.
The Class J Warrants are exercisable into 500 shares of Class A Common
Stock for each corresponding Series D Share sold to the investors, at an
exercise price per share as established in the Class J Warrant. The Class J
Warrants expires five years from their respective dates of issuance.
The above summary is qualified in its entirety by the terms and
provisions of the exhibits attached herein to this Current Report on Form 8-K.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
4.1 Certificate of Determination dated March 26, 1999
4.2 Form of Series D Convertible Preferred Stock Certificate
4.3 Form of Class J Stock Purchase Warrant
10.1 Securities Purchase Agreement dated as of March 22, 1999
10.2 Registration Rights Agreement dated as of March 22, 1999
99 Press Release dated April 1, 1999
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
AVANIR PHARMACEUTICALS
Date: April 1, 1999 By: /s/ Gregory P. Hanson
-------------------------
Gregory P. Hanson
Vice President, Finance and
Chief Financial Officer
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EXHIBIT 4.1
CERTIFICATE OF DETERMINATION
OF
AVANIR PHARMACEUTICALS
PURSUANT TO SECTION 401 OF THE
CALIFORNIA CORPORATIONS CODE
The undersigned, Gerald J. Yakatan and Cynthia E. Moore, certify that:
1. They are the duly elected and acting President and Chief Executive
Officer, and Assistant Secretary, respectively, of AVANIR Pharmaceuticals,
a California corporation (the "COMPANY").
2. The authorized number of shares of Preferred Stock of the Company, is ten
million (10,000,000) shares, and the number of shares constituting the
series A preferred Stock in three hundred thousand (300,000) none of which
have been issued, and the number of shares constituting the Series D
Convertible Preferred Stock is five hundred (500), none of which have been
issued.
3. Pursuant to the authority given by the Company's Articles of Incorporation
(the "ARTICLES OF INCORPORATION"), the Company's Board of Directors (the
"BOARD OF DIRECTORS") has duly adopted the following recitals and
resolutions:
WHEREAS, the Articles of Incorporation provide for a class of shares known
as Preferred Stock, issuable from time to time in one or more series; and
WHEREAS, the Board of Directors is authorized, within the limitations and
restrictions stated in the Articles of Incorporation, to determine or
alter the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock, to fix the
number of shares constituting any such series, and to determine the
designation thereof; and
WHEREAS, the Company has not issued any shares of Preferred Stock, and the
Board of Directors desires, pursuant to its authority, to determine and
fix the rights, preferences, privileges and restrictions of the Series D
Convertible Preferred Stock to fix the number of shares constituting such
series, and to determine the designation of such series:
NOW THEREFORE, BE IT RESOLVED, that the Company is authorized to issue
five hundred (500) shares of Series D Convertible Preferred Stock, no par
value per share (the "PREFERRED SHARES"); and
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RESOLVED FURTHER, that the Board of Directors hereby establishes,
determines and fixes the rights, preferences, privileges and restrictions
relating to the Preferred Shares, as follows:
(1) Dividends. Each of the Preferred Shares shall bear dividends
("DIVIDENDS") at a rate of $500 per annum (as adjusted by any stock split,
reverse stock split, stock dividend, recapitalization, combination or
otherwise), which Dividends shall be cumulative, accrue daily from the Issuance
Date (as defined below) and be payable, at the option of the Company, either (i)
in shares of the Company's Class A Common Stock, no par value per share ("Common
Stock"), upon conversion of the Preferred Shares or (ii) in cash, on the first
day of each Calendar Quarter (as defined below) beginning on the first day of
the Calendar Quarter immediately following the Issuance Date (each a "DIVIDEND
DATE"). If a Dividend Date is not a Business Day (as defined below), then the
Dividend shall be due and payable on the Business Day immediately following the
Dividend Date. Dividends which accrue during any period shall be payable in cash
only if the Company provides written notice ("DIVIDEND ELECTION NOTICE") to each
holder of Preferred Shares at least 30 days prior to the Dividend Date
specifying the per share dividend amount to be paid (the "CASH DIVIDEND
AMOUNT"). Any Dividends for which the Company has given a Dividend Election
Notice and which are not paid on the corresponding Dividend Date shall bear
interest at the rate of 18.0% per annum (or the maximum rate allowable under
California law, whichever is lower) from such Dividend Date until the same is
paid (the "DEFAULT INTEREST"). "CALENDAR QUARTER" means each of the three-month
periods ending on March 31, June 30, September 30 and December 31, respectively.
(2) Holder's Conversion of Preferred Shares. A holder of Preferred Shares
shall have the right, at such holder's option, to convert such Preferred Shares
into shares of Common Stock on the following terms and conditions:
(a) Conversion Right. At any time or times on or after the
Issuance Date (as defined below), any holder of Preferred Shares shall be
entitled to convert any whole number of Preferred Shares into fully paid and
nonassessable shares (rounded to the nearest whole share in accordance with
Section 2(h)) of Common Stock, at the Conversion Rate (as defined below);
provided, however, that in no event shall any holder be entitled to convert
Preferred Shares in excess of that number of Preferred Shares which, upon giving
effect to such conversion, would cause the aggregate number of shares of Common
Stock beneficially owned by the holder and its affiliates to exceed 4.99% of the
total outstanding shares of Common Stock following such conversion. For purposes
of the foregoing proviso, the aggregate number of shares of Common Stock
beneficially owned by such holder and its affiliates shall include the number of
shares of Common Stock issuable upon conversion of the Preferred Shares with
respect to which the determination of such proviso is being made, but shall
exclude the number of shares of Common Stock which would be issuable upon (i)
conversion of the remaining, nonconverted Preferred Shares beneficially owned by
such holder and its affiliates, and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company
(including, without
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limitation, any warrants) subject to a limitation on exercise or conversion
analogous to the limitation contained herein beneficially owned by such holder
and its affiliates. Except as set forth in the preceding sentence, for purposes
of this Section 2(a), beneficial ownership shall be calculated in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended.
(b) Conversion Rate. The number of shares of Common Stock
issuable upon conversion of each of the Preferred Shares pursuant to Sections
(2)(a) and 2(g) and Section 5 and for purposes of calculating the Redemption
Price of Company Redemption in Lieu of Conversion in Section 6(a) shall be
determined according to the following formula (the "CONVERSION RATE"):
Conversion Amount
-----------------
Conversion Price
For purposes of this Certificate of Determination, the following terms
shall have the following meanings:
(i) "CONVERSION PRICE" means, on a per share basis, as of the
Conversion Date (as defined below) or other date of determination of the
applicable Preferred Shares the lesser of (A) the Variable Conversion Price (as
defined below) and (B) the Fixed Conversion Price (as defined below).
(ii) "VARIABLE CONVERSION PRICE" means, as of any date of
determination, the product of the (A) Conversion Percentage (as defined below)
and (B) the Market Price (as defined below);
(iii) "CONVERSION PERCENTAGE" means, (A) as of any date of
determination on or prior to the date which is 75 days after the Initial
Issuance Date (as defined below), 100% or (B) on any date of determination after
the date which is 75 days after the Initial Issuance Date, 86%, each subject to
adjustment as provided herein;
(iv) "MARKET PRICE" means the lesser of (A) the average of the five
(5) lowest Closing Bid Prices (as defined below) of the Common Stock during the
25 consecutive trading days immediately preceding a date of determination, and
(B) the Closing Bid Price of the Common Stock on a date of determination;
(v) "CONVERSION AMOUNT" means, on a per share basis, the sum of (A)
the Additional Amount (as defined below) and (B) $10,000;
(vi) "ADDITIONAL AMOUNT" means, on a per share basis, the difference
of (A) the sum of (I) unpaid Default Interest through the date of determination
plus (II) (0.05) (N/365)
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($10,000), minus (B) the sum of all Cash Dividend Amounts paid in full prior to
the date of determination.
(vii) "FIXED CONVERSION PRICE" means, with respect to (I) Preferred
Shares issued prior to the Fixed Conversion Price Trigger Date (A) on any date
on or prior to the Fixed Conversion Price Trigger Date, $1.05 and (B) on any
date after the Fixed Conversion Price Trigger Date, 120% of the average of the
Closing Bid Prices for the Common Stock during the five (5) consecutive trading
days immediately preceding the Fixed Conversion Price Trigger Date (the "TRIGGER
DATE PRICE") (provided, however, that if a line of credit for at least
$2,000,000 in immediately available funds has not been executed by the Company
and a reputable financial institution on or prior to the date which is 110 days
after the Initial Issuance Date, then on any date after the Fixed Conversion
Price Trigger Date, the Fixed Conversion Price shall be the lesser of the Fixed
Conversion Price in effect immediately prior to the Fixed Conversion Price
Trigger Date and the Trigger Date Price) or (II) Preferred Shares issued on or
after the Fixed Conversion Price Trigger Date, 120% of the average of the
Closing Bid Prices of the Common Stock during the five (5) consecutive trading
days immediately preceding the Issuance Date of such Preferred Share, subject in
each case to adjustment as provided herein;
(viii) "FIXED CONVERSION PRICE TRIGGER DATE" means the date which is
120 days after the Initial Issuance Date;
(ix) "N" means, the number of days from, but excluding, the Issuance
Date of the applicable Preferred Share through and including the Conversion Date
or the Maturity Date for the Preferred Shares for which conversion and/or
redemption is being elected, as the case may be;
(x) "ISSUANCE DATE" means, with respect to each Preferred Share, the
date of issuance of such Preferred Share;
(xi) "INITIAL ISSUANCE DATE" means the first date on which any
Preferred Shares are issued by the Company;
(xii) "BUSINESS DAY" means any day other than Saturday, Sunday or
other day on which commercial banks in the City of New York are authorized or
required by law to remain closed;
(xiii) "SECURITIES PURCHASE AGREEMENT" means that certain securities
purchase agreement between the Company and the initial holders of the Preferred
Shares;
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(xiv) "REGISTRATION RIGHTS AGREEMENT" means that certain registration
rights agreement between the Company and the initial holders of the Preferred
Shares relating to the filing of a registration statement covering the resale of
the Conversion Shares;
(xv) "CONVERSION SHARES" means shares of Common Stock issuable upon
conversion of Preferred Shares;
(xvi) "WARRANTS" means the warrants to purchase shares of Common
Stock issued by the Company in accordance with the Securities Purchase
Agreement;
(xvii) "CLOSING BID PRICE" means, for any security as of any date,
the last closing bid price for such security on the Nasdaq National Market (as
reported by Bloomberg Financial Markets ("BLOOMBERG")), or, if the Nasdaq
National Market is not the principal trading market for such security, the
average of the high and low trading prices on such date of such security on the
principal securities exchange or trading market where such security is listed or
traded (as reported by Bloomberg), or if the foregoing do not apply, the average
of the high and low trading prices on such date of such security in the
over-the-counter market on the electronic bulletin board for such security (as
reported by Bloomberg). If the Closing Bid Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Bid Price of
such security on such date shall be the fair market value as mutually determined
by the Company and the holders of a majority of the outstanding Preferred Shares
(including, for purposes of this determination, any Preferred Shares with
respect to which the Closing Bid Price is being determined). If the Company and
the holders of a majority of the outstanding Preferred Shares are unable to
agree upon the fair market value of the Common Stock, then such dispute shall be
resolved pursuant to Section 2(f)(iii). All such determinations shall be
appropriately adjusted for any stock dividend, stock split or other similar
transaction during such period.
(c) Adjustment of Conversion Price for Failure to File or to
Obtain and Maintain Effectiveness of Registration Statement. If (i) the
registration statement (the "REGISTRATION STATEMENT") covering the resale of all
the applicable Registrable Securities (as defined in the Registration Rights
Agreement) and required to be filed by the Company pursuant to the Registration
Rights Agreement is not declared effective by the Securities and Exchange
Commission (the "SEC") on or before the applicable Effectiveness Deadline (as
defined in the Registration Rights Agreement) or (ii) on any day after the
Registration Statement has been declared effective by the SEC, sales of all the
Registrable Securities required to be included in a Registration Statement
cannot be made pursuant to the respective Registration Statement (whether
because of a failure to keep the Registration Statement effective, to disclose
such information as is necessary for sales to be made pursuant to the
Registration Statement, to register sufficient shares of Common Stock or
otherwise), then, as partial relief for the damages to any holder of Preferred
Shares by reason of any such delay in or reduction of its ability to sell the
underlying shares of Common Stock (which remedy shall not be exclusive of any
other remedies available
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at law or in equity), the Conversion Percentage and the Fixed Conversion Price
shall be adjusted as follows:
(I) Conversion Percentage. The Conversion Percentage in
effect at such time shall be reduced by a number of percentage points
equal to the sum of (A) 1.5, if the Registration Statement is not declared
effective by the Effectiveness Deadline, plus (B) the product of (I) 0.05
multiplied by (II) the sum of (x) the number of days after the
Effectiveness Deadline that the relevant Registration Statement has not
been declared effective by the SEC and (y) the number of days that sales
cannot be made pursuant to the relevant Registration Statement in
accordance with the Registration Rights Agreement after such Registration
Statement has been declared effective (such number of days being
collectively referred to as the "REGISTRATION STATEMENT DEFAULT DAYS");
and
(II) Fixed Conversion Price. The Fixed Conversion Price in
effect at such time shall be reduced by an amount equal to the product of
(A) the Fixed Conversion Price in effect as of the Issuance Date
multiplied by (B) the sum of (I) 0.015, if the Registration Statement is
not declared effective by the Effectiveness Deadline, plus (II) the
product of (x) 0.0005 multiplied by (y) the sum of the Registration
Statement Default Days.
(d) Adjustment to Conversion Price, Dilution and Other Events.
In order to prevent dilution of the rights granted under this Certificate of
Determination, the Fixed Conversion Price, the Variable Conversion Price and the
Conversion Price will be subject to adjustment from time to time as provided in
this Section 2(d).
(i) Adjustment of Fixed Conversion Price upon Issuance of
Common Stock. Except as provided in Section 2(d)(iv), if and whenever on or
after the Initial Issuance Date, the Company issues or sells, or is deemed to
have issued or sold, any shares of Common Stock (other than (i) Preferred Shares
or shares of Common Stock issued upon conversion of Preferred Shares, (ii)
shares of Common Stock issued pursuant to the Class A Common Stock Investment
Agreement dated January 22, 1999 between the Company and Promethean Investment
Group L.L.C. (the "EQUITY LINE"), (iii) shares of Common Stock issued upon the
conversion or exercise of any options and/or convertible securities of the
Company, which options and/or convertible securities are issued or outstanding
prior to the Initial Issuance Date, or (iv) shares of Common Stock deemed to
have been issued by the Company in connection with an Approved Stock Plan (as
defined below)) for a consideration per share less than the price (the
"APPLICABLE PRICE") equal to the Fixed Conversion Price in effect immediately
prior to such issuance or sale, then immediately after such issue or sale, the
Fixed Conversion Price then in effect shall be reduced to an amount equal to
such consideration per share received. For purposes of determining the adjusted
Fixed Conversion Price under this Section 2(d)(i), the following shall be
applicable:
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(A) Issuance of Options. If and whenever on or after
the Initial Issuance Date, the Company in any manner grants any rights or
options to subscribe for or to purchase Common Stock or any stock or other
securities convertible into or exchangeable for Common Stock (other than (i)
pursuant to an Approved Stock Plan, (ii) upon conversion of the Preferred
Shares, (iii) pursuant to the Equity Line, or (iv) upon the conversion or
exercise of options and/or convertible securities issued or outstanding prior to
the Initial Issuance Date) or any stock or other securities convertible into or
exchangeable for Common Stock (such rights or options being herein called
"OPTIONS" and such convertible or exchangeable stock or securities being herein
called "CONVERTIBLE SECURITIES"), and the price per share for which Common Stock
is issuable upon the exercise of such Options or upon conversion or exchange of
such Convertible Securities is less than the Applicable Price, then the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options, at the time
of issuance of such Options (without regard to limitations on exercise,
conversion or exchange), shall be deemed to be outstanding and to have been
issued and sold by the Company for such price per share. For purposes of this
Section 2(d)(i)(A), the "price per share for which Common Stock is issuable upon
exercise of such Options or upon conversion or exchange of such Convertible
Securities" is determined by dividing (I) the total amount, if any, received or
receivable by the Company as consideration for the granting of such Options,
plus the minimum aggregate amount of additional consideration payable to the
Company upon the exercise of all such Options at the time of issuance of such
Options (without regard to limitations on exercise, conversion or exchange),
plus in the case of such Options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable to the
Company upon the issuance or sale of such Convertible Securities and the
conversion or exchange thereof, by (II) the total maximum number of shares of
Common Stock issuable upon exercise of such Options at the time of issuance of
such Options (without regard to limitations on exercise, conversion or exchange)
or upon the conversion or exchange of all such Convertible Securities issuable
upon the exercise of such Options. Except as set forth in Section 2(d)(i)(C)
below, no adjustment of the Fixed Conversion Prices shall be made upon the
actual issuance of such Common Stock or of such Convertible Securities upon the
exercise of such Options or upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
(B) Issuance of Convertible Securities. If and
whenever on or after the Initial Issuance Date, the Company in any manner issues
or sells any Convertible Securities and the price per share for which Common
Stock is issuable upon such conversion or exchange is less than the Applicable
Price, then the maximum number of shares of Common Stock issuable upon
conversion or exchange of such Convertible Securities at the time of issuance of
such Convertible Securities (without regard to limitations on exercise,
conversion or exchange) shall be deemed to be outstanding and to have been
issued and sold by the Company for such price per share. For the purposes of
this Section 2(d)(i)(B), the "price per share for which Common Stock is issuable
upon such conversion or exchange" is determined by dividing (I) the total amount
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received or receivable by the Company as consideration for the issue or sale of
such Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof at the time of issuance of such Convertible Securities (without regard
to limitations on exercise, conversion or exchange), by (II) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities at the time of issuance of such Convertible
Securities (without regard to limitations on exercise, conversion or exchange).
Except as set forth in Section 2(d)(i)(C) below, no adjustment of the Fixed
Conversion Prices shall be made upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustment of the Fixed Conversion Prices had been or are to be made
pursuant to other provisions of this Section 2(d)(i), no further adjustment of
such Fixed Conversion Prices shall be made by reason of such issue or sale.
(C) Change in Option Price or Rate of Conversion. If
the purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock change at any time, the Fixed Conversion Price
of any Preferred Shares in effect at the time of such change shall be readjusted
to the Fixed Conversion Price which would have been in effect at such time had
such Options or Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or changed conversion rate, as
the case may be, at the time initially granted, issued or sold; provided that no
adjustment shall be made if such adjustment would result in an increase of such
Fixed Conversion Price then in effect.
(D) Certain Definitions. For purposes of determining
the adjusted Fixed Conversion Price under this Section 2(d)(i), the following
terms have the meanings set forth below:
(I) "APPROVED STOCK PLAN" shall mean (i) any stock option or
similar plan which has been approved by the Company's Board of Directors
pursuant to which the Company's securities may be issued to any employee,
officer or director; (ii) the Company's shareholder rights plan disclosed in its
Current Report on Form 8-K dated March 25, 1999 and filed with the SEC on March
11, 1999; (iii) the Company's Class I Warrants and Class K Warrants; (iv) the
issuance of up to 300,000 shares of Common Stock in the aggregate to IriSys
Research & Development, LLC, provided that the price per share for which such
Common Stock is issued is not less than the Closing Bid Price on the date of
such issuance; and (v) any grant of options, warrants or similar securities of
the Company to scientific and/or technical advisors and consultants of the
Company, provided that (x) such grant has been approved by the Company's Board
of Directors, (y) such grants relate to the right to purchase, in the aggregate,
no more than 500,000 shares of Common Stock, and (z) the price per share for
which
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Common Stock is issuable upon exercise of such options, warrants or similar
securities is not less than the Closing Bid Price on the date of such grant.
(E) Effect on Fixed Conversion Price of Certain
Events. For purposes of determining the adjusted Fixed Conversion Price under
this Section 2(d)(i), the following shall be applicable:
(I) Calculation of Consideration Received. If any
Common Stock, Options or Convertible Securities are issued or sold or deemed to
have been issued or sold for cash, the consideration received therefor will be
deemed to be the net amount received by the Company therefor. In case any Common
Stock, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by the
Company will be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company will be the average of the Closing Bid Prices of such
securities for the five (5) consecutive trading days immediately preceding the
date of receipt. In case any Common Stock, Options or Convertible Securities are
issued to the owners of the non-surviving entity in connection with any merger
in which the Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair value of such portion of the net assets
and business of the non-surviving entity as is attributable to such Common
Stock, Options or Convertible Securities, as the case may be. The fair value of
any consideration other than cash or securities will be determined jointly by
the Company and the holders of a majority of the Preferred Shares then
outstanding. If such parties are unable to reach agreement within ten (10) days
after the occurrence of an event requiring valuation (the "VALUATION EVENT"),
the Company shall use its best efforts to cause the fair value of such
consideration to be determined within 48 hours of the tenth (10th) day following
the Valuation Event by an independent, reputable appraiser selected by the
Company, which appraiser shall be reasonably acceptable to two-thirds (2/3) of
the holders of the Preferred Shares. In the event that such appraiser is not
reasonably acceptable to two-thirds (2/3) of the holders of the Preferred
Shares, the Company shall select an independent, reputable appraiser, a majority
of the holders of the Preferred Shares shall select a similar appraiser and such
appraisers shall select a third appraiser. These three (3) appraisers shall
determine the fair value of such consideration within 48 hours after the
selection of such third appraiser. The determination of such appraiser shall be
binding upon all parties absent manifest error.
(II) Integrated Transactions. In case any Options are
issued in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $0.01 and the
aggregate consideration received by the Company in such integrated transaction
shall be included in the adjustment calculation in Section 2(d)(i) above.
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(III) Treasury Shares. The number of shares of Common
Stock outstanding at any given time does not include shares owned or held by or
for the account of the Company, and the disposition of any shares so owned or
held will be considered an issue or sale of Common Stock.
(IV) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (1) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities, or (2) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date will be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(ii) Adjustment of Fixed Conversion Price upon Subdivision
or Combination of Common Stock. If the Company at any time subdivides (by any
stock split, stock dividend, recapitalization or otherwise) one or more classes
of its outstanding shares of Common Stock into a greater number of shares, each
Fixed Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company at any time combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, each Fixed Conversion Price in
effect immediately prior to such combination will be proportionately increased.
(iii) Reorganization, Reclassification, Consolidation,
Merger or Sale. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person (as defined below) or other transaction which is effected in
such a way that holders of Common Stock are entitled to receive (either directly
or upon subsequent liquidation) stock, securities or assets with respect to or
in exchange for Common Stock is referred to herein as "ORGANIC CHANGE." Prior to
the consummation of any Organic Change, the Company will make appropriate
provision (in form and substance satisfactory to the holders of a majority of
the Preferred Shares then outstanding) to insure that each of the holders of the
Preferred Shares will thereafter have the right to acquire and receive in lieu
of or in addition to (as the case may be) the shares of Common Stock otherwise
acquirable and receivable upon the conversion of such holder's Preferred Shares,
such shares of stock, securities or assets that would have been issued or
payable in such Organic Change with respect to or in exchange for the number of
shares of Common Stock which would have been acquirable and receivable upon the
conversion of such holder's Preferred Shares had such Organic Change not taken
place (without taking into account any limitations or restrictions on the timing
or amount of conversions). In any such case, the Company will make appropriate
provision (in form and substance satisfactory to the holders of a majority of
the Preferred Shares then outstanding) with respect to such holders' rights and
interests to insure that the provisions of this Section 2(d) and Section 2(e)
will thereafter be applicable to the Preferred Shares (including, in the case of
any such
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<PAGE> 11
consolidation, merger or sale in which the successor entity or purchasing
entity is other than the Company, an immediate adjustment of each of the Fixed
Conversion Prices to the value for the Common Stock reflected by the terms of
such consolidation, merger or sale, if the value so reflected is less than such
Fixed Conversion Price in effect immediately prior to such consolidation, merger
or sale and an immediate revision to the Fixed Conversion Prices to reflect the
price of the common stock of the surviving entity and the market in which such
common stock is traded). The Company will not effect any such consolidation,
merger or sale, unless prior to the consummation thereof, the successor entity
(if other than the Company) resulting from consolidation or merger or the entity
purchasing such assets assumes, by written instrument (in form and substance
satisfactory to the holders of a majority of the Preferred Shares then
outstanding), the obligation to deliver to each holder of Preferred Shares such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire. "PERSON" shall mean an
individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
(iv) Adjustment of Variable Conversion Price upon Issuance
of Convertible Securities. If and whenever after the Issuance Date, except in
connection with an Approved Stock Plan or the Equity Line, the Company in any
manner issues or sells Convertible Securities that are convertible into or
exercisable or exchangeable for Common Stock at a price which may vary with the
market price of the Common Stock (the formulation for such variable price being
herein referred to as, the "VARIABLE PRICE") and such Variable Price is not
calculated using the same formula used to calculate the Variable Conversion
Price in effect immediately prior to the time of such issue or sale, the Company
shall provide written notice thereof via facsimile and overnight courier to each
holder of the Preferred Shares ("VARIABLE NOTICE") on the date of issuance of
such Convertible Securities. If the holders of Preferred Shares representing at
least two-thirds (2/3) of the Preferred Shares then outstanding provide written
notice via facsimile and overnight courier (the "VARIABLE PRICE ELECTION
NOTICE") to the Company within five (5) Business Days of receiving a Variable
Notice that such holders desire to replace the Variable Conversion Price then in
effect with the Variable Price described in such Variable Notice, then from and
after the date of the Company's receipt of the Variable Price Election Notice
the Variable Conversion Price will automatically be replaced with the Variable
Price (together with such modifications to this Certificate of Determination as
may be required to give full effect to the substitution of the Variable Price
for the Variable Conversion Price), subject to further adjustments as provided
in this Certificate of Determination. A holder's delivery of a Variable Price
Election Notice shall serve as the consent required to amend this Certificate of
Determination pursuant to Section 15 below. In the event that a holder delivers
a Conversion Notice at any time after the Company's issuance of Convertible
Securities with a Variable Price but before such holder's receipt of the
Company's Variable Notice, then such holder shall have the option by written
notice to the Company to rescind such Conversion Notice or to have the
Conversion Price be equal to such Variable Price for the conversion effected by
such Conversion Notice, provided that the holders
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<PAGE> 12
of Preferred Shares representing at least two-thirds of the Preferred Shares
then outstanding have elected such Variable Price to replace the existing
Variable Conversion Price.
(v) Certain Events. If any event occurs of the type
contemplated by the provisions of this Section 2(d) but not expressly provided
for by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company's Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holders of the Preferred
Shares; provided, however, that no such adjustment will increase the Conversion
Price as otherwise determined pursuant to this Section 2(d).
(vi) Adjustment of Fixed Conversion Price Upon Major
Corporate Event Announcement. In the event (A) the Company makes a public
announcement that it intends to consolidate or merge with or into another Person
or engage in a business combination involving the issuance or exchange of more
than 50% of the Company's outstanding shares of Common Stock, (B) the Company
makes a public announcement that it intends to sell or transfer all or
substantially all of the Company's assets, or (C) any Person (including the
Company) publicly announces a purchase, tender or exchange offer for more than
50% of the Company's outstanding shares of Common Stock (the transactions
described in clauses (A), (B) and (C) above are hereinafter referred to as
"MAJOR CORPORATE EVENTS" and the date of the announcement referred to in clause
(A), (B) or (C) is hereinafter referred to as the "ANNOUNCEMENT DATE"), then the
Fixed Conversion Prices shall, effective upon the Announcement Date and
continuing through and including the Adjusted Conversion Price Termination Date
(as defined below), be equal to the Conversion Price which would have been
applicable for a conversion by the holder on the Announcement Date. From and
after the Adjusted Conversion Price Termination Date, the Conversion Price shall
be determined as set forth in Section 2(b). For purposes hereof, "ADJUSTED
CONVERSION PRICE TERMINATION DATE" shall mean, with respect to any proposed
Major Corporate Event for which a public announcement as contemplated by this
Section 2(c)(vi) has been made, the date upon which the Company or other Person
(in the case of clause (C) above) consummates or publicly announces the
termination or abandonment of the proposed Major Corporate Event which was the
subject of the previous public announcement.
(vii) Notices.
(A) As soon as practicable, but in no event later
than one (1) Business Day after any adjustment of the Conversion Price, the
Company will give written notice thereof to each holder of the Preferred Shares,
setting forth in reasonable detail and certifying the calculation of such
adjustment.
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<PAGE> 13
(B) The Company will give written notice to each
holder of the Preferred Shares at least ten (10) days prior to the date on which
the Company closes its books or takes a record (I) with respect to any dividend
or distribution upon the Common Stock, (II) with respect to any pro rata
subscription offer to holders of Common Stock, or (III) for determining rights
to vote with respect to any Organic Change, dissolution or liquidation and in no
event shall such notice be provided to such holder prior to such information
being made known to the public.
(C) The Company will also give written notice to each
holder of the Preferred Shares at least ten (10) days prior to the date on which
any Organic Change, dissolution or liquidation will take place and in no event
shall such notice be provided to such holder prior to such information being
made known to the public.
(e) Purchase Rights. In addition to any adjustments of the
Conversion Price pursuant to Section 2(d), if at any time after the Initial
Issuance Date the Company grants, issues or sells any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
pro rata to the record holders of any class of common stock of the Company (the
"PURCHASE RIGHTS"), then the holders of the Preferred Shares will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of shares of Common Stock acquirable upon complete conversion of the
Preferred Shares (without taking into account any limitations or restrictions on
the timing or amount of conversions) immediately before the date on which a
record is taken for the grant, issuance or sale of such Purchase Rights, or, if
no such record is taken, the date as of which the record holders of the Common
Stock are to be determined for the grant, issue or sale of such Purchase Rights.
(f) Mechanics of Conversion. Subject to the Company's inability
to fully satisfy its obligations under a Conversion Notice (as defined below) as
provided for in Section 4:
(i) Holder's Delivery Requirements. To convert Preferred
Shares into full shares of Common Stock on any date (the "CONVERSION DATE"), the
holder thereof shall (A) transmit by facsimile (or otherwise deliver), for
receipt on or prior to 11:59 p.m. Eastern Time, on such date, a copy of a fully
executed notice of conversion in the form attached hereto as Exhibit I (the
"CONVERSION NOTICE") to the Company or its designated transfer agent (the
"TRANSFER AGENT"), and (B) if required by Section 2(f)(vii), surrender to a
common carrier, for delivery to the Company as soon as practicable following
such date, the original certificate(s) representing the Preferred Shares being
converted (or an indemnification undertaking with respect to such shares in the
case of their loss, theft or destruction) (the "PREFERRED STOCK
CERTIFICATE(S)").
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<PAGE> 14
(ii) Company's Response. Upon receipt by the Company of a
facsimile copy of a Conversion Notice, the Company shall (A) promptly, but in no
event later than 24 hours after such receipt, send, via facsimile, a
confirmation of receipt of such Conversion Notice to such holder and (B) on the
second Business Day following the date of receipt, credit such aggregate number
of shares of Common Stock to which the holder shall be entitled to the holder's
or its designee's balance account with The Depository Trust Company; provided,
however, that if the holder who submitted the Conversion Notice requested
physical delivery of any or all of the Conversion Shares, then the Company
shall, on or before the third Business Day following receipt of the Conversion
Notice issue and surrender to a common carrier for overnight delivery to the
address specified in the Conversion Notice, a certificate, registered in the
name of the holder or its designee, for the number of shares of Common Stock to
which the holder shall be entitled pursuant to such request. If the number of
Preferred Shares represented by the Preferred Stock Certificate(s) submitted for
conversion is greater than the number of Preferred Shares being converted, then
the Company shall, as soon as practicable and in no event later than two (2)
Business Days after receipt of the Preferred Stock Certificate(s) and at its own
expense, issue and deliver to the holder a new Preferred Stock Certificate
representing the number of Preferred Shares not converted.
(iii) Dispute Resolution. In the case of a dispute as to
the determination of the Closing Bid Price or the arithmetic calculation of the
Conversion Rate, the Company shall promptly issue to the holder the number of
shares of Common Stock that is not disputed and shall submit the disputed
determinations or arithmetic calculations to the holder via facsimile within one
(1) Business Day of receipt of such holder's Conversion Notice. If such holder
and the Company are unable to agree upon the determination of the Closing Bid
Price or arithmetic calculation of the Conversion Rate within one (1) Business
Day of such disputed determination or arithmetic calculation being submitted to
the holder, then the Company shall within one (1) Business Day submit via
facsimile (A) the disputed determination of the Closing Bid Price to an
independent, reputable investment bank (which investment bank has been approved
by the holders of at least two-thirds (2/3) of the Preferred Shares then
outstanding, which approval shall not be unreasonably withheld), or (B) the
disputed arithmetic calculation of the Conversion Rate to its independent,
outside accountant. The Company shall use its best efforts to cause the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the holder of the
results no later than forty-eight (48) hours from the time it receives the
disputed determinations or calculations. Such investment bank's or accountant's
determination or calculation, as the case may be, shall be binding upon all
parties absent manifest error.
(iv) Record Holder. The person or persons entitled to
receive the shares of Common Stock issuable upon a conversion of Preferred
Shares shall be treated for all purposes as the record holder or holders of such
shares of Common Stock on the Conversion Date.
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<PAGE> 15
(v) Company's Failure to Timely Convert. If within five (5)
Business Days after the Company's or the Transfer Agent's (as applicable)
receipt of a facsimile copy of a Conversion Notice, the Company shall fail to
issue a certificate for the number of shares of Common Stock to which a holder
is entitled or to credit the holder's balance account with The Depository Trust
Company for such number of shares of Common Stock to which the holder is
entitled upon such holder's conversion of the Preferred Shares, pursuant to
Section 2(f)(ii), in addition to all other available remedies which such holder
may pursue hereunder and under the Securities Purchase Agreement (including
indemnification pursuant to Section 8 thereof), then the Company shall pay
additional damages to such holder on each date after such fifth (5th) Business
Day that such conversion is not timely effected in an amount equal to 0.5% of
the product of (A) the sum of the number of shares of Common Stock not issued to
the holder on a timely basis pursuant to Section 2(f)(ii) and to which such
holder is entitled and (B) the Closing Bid Price of the Common Stock on the last
possible date which the Company could have issued such shares of Common Stock to
such holder without violating Section 2(f)(ii).
(vi) Company's Failure to Issue Certificates. If within ten
(10) Business Days after the Company's receipt of the Preferred Stock
Certificates to be converted and the Conversion Notice the Company shall fail to
issue a new Preferred Stock Certificate representing the number of Preferred
Shares to which such holder is entitled, pursuant to Section 2(f)(ii), in
addition to all other available remedies which such holder may pursue hereunder
and under the Securities Purchase Agreement (including indemnification pursuant
to Section 8 thereof), the Company shall pay additional damages to such holder
on each date after such tenth (10th) Business Day that such delivery of such
Preferred Stock Certificates is not timely effected in an amount equal to 0.5%
of the product of (A) the number of shares of Common Stock issuable upon
conversion of the Preferred Shares represented by such Preferred Stock
Certificate as of the last possible date which the Company could have issued
such Preferred Stock Certificate to such holder without violating Section
2(f)(ii) and (B) the Closing Bid Price of the Common Stock on the last possible
date which the Company could have issued such Preferred Stock Certificate to
such holder without violating Section 2(f)(ii).
(vii) Book-Entry. Notwithstanding anything to the contrary
set forth herein, upon conversion of Preferred Shares in accordance with the
terms hereof, the holder thereof shall not be required to physically surrender
the certificate representing the Preferred Shares to the Company unless the full
number of Preferred Shares represented by the certificate are being converted.
The holder and the Company shall maintain records showing the number of
Preferred Shares so converted and the dates of such conversions or shall use
such other method, reasonably satisfactory to the holder and the Company, so as
not to require physical surrender of the certificate representing the Preferred
Shares upon each such conversion. In the event of any dispute or discrepancy,
such records of the Company shall be controlling and determinative in the
absence of manifest error. Notwithstanding the foregoing, if Preferred Shares
represented by a certificate are converted as aforesaid, the holder may not
transfer the certificate representing the
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<PAGE> 16
Preferred Shares unless the holder first physically surrenders the certificate
representing the Preferred Shares to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the holder a new certificate of
like tenor, registered as the holder may request, representing in the aggregate
the remaining number of Preferred Shares represented by such certificate. The
holder and any assignee, by acceptance of a certificate, acknowledge and agree
that, by reason of the provisions of this paragraph, following conversion of any
Preferred Shares, the number of Preferred Shares represented by such certificate
may be less than the number of Preferred Shares stated of the face thereof. Each
certificate for Preferred Shares shall bear the following legend:
ANY TRANSFEREE OF THIS CERTIFICATE SHOULD CAREFULLY REVIEW THE TERMS
OF THE COMPANY'S CERTIFICATE OF DETERMINATION OF THE PREFERRED SHARES
REPRESENTED BY THIS CERTIFICATE, INCLUDING SECTION 2(f)(vii) THEREOF.
THE NUMBER OF PREFERRED SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
LESS THAN THE NUMBER OF PREFERRED SHARES STATED ON THE FACE HEREOF
PURSUANT TO SECTION 2(f)(vii) OF THE CERTIFICATE OF DETERMINATION.
(g) Mandatory Conversion. If any Preferred Shares remain outstanding
on the Maturity Date (as defined below), then all such Preferred Shares shall be
converted as of such date in accordance with this Section 2 as if the holders of
such Preferred Shares had given the Conversion Notice on the Maturity Date;
provided, however, that if a Triggering Event (as defined below) has occurred
and is continuing on the Maturity Date, then the Company shall, within five (5)
Business Days following the Maturity Date (unless otherwise notified in writing
by the holder of such holder's request to have the Preferred Shares converted
into shares of Common Stock), pay to each holder of Preferred Shares then
outstanding, in immediately available funds, an amount equal to the Triggering
Event Redemption Price (as defined below). All holders of Preferred Shares
shall, on the Maturity Date, surrender all Preferred Stock Certificates, duly
endorsed for cancellation, to the Company, provided that the Company has
complied with its obligations under this Section 2(g) and 2(f). Notwithstanding
the foregoing, if the Common Stock is not authorized for quotation on the Nasdaq
National Market or listed on the American Stock Exchange or the New York Stock
Exchange, Inc. but such events do not constitute a Triggering Event, then the
Maturity Date shall be extended until the Common Stock is so authorized or
listed. "MATURITY DATE" means the date which is five (5) years after the
applicable Issuance Date, subject to extension as described in the immediately
preceding sentence.
(h) Fractional Shares. The Company shall not issue any fraction of a
share of Common Stock upon any conversion. All shares of Common Stock (including
fractions thereof)
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<PAGE> 17
issuable upon conversion of more than one Preferred Share by a holder thereof
shall be aggregated for purposes of determining whether the conversion would
result in the issuance of a fraction of a share of Common Stock. If, after the
aforementioned aggregation, the issuance would result in the issuance of a
fraction of a share of Common Stock, the Company shall round such fraction of a
share of Common Stock up or down to the nearest whole share.
(i) Taxes. The Company shall pay any and all taxes which may be
imposed upon it with respect to the issuance and delivery of shares of Common
Stock upon the conversion of the Preferred Shares.
(3) Redemption at Option of Holders.
(a) Redemption Option Upon Major Transaction. In addition to all
other rights of the holders of Preferred Shares contained herein, simultaneous
with or after the occurrence of a Major Transaction (as defined below), each
holder of Preferred Shares shall have the right, at such holder's option, to
require the Company to redeem all or a portion of such holder's Preferred Shares
at a price per Preferred Share equal to the greater of (i) 125% of the
Liquidation Value (as defined in Section 11); and (ii) the product of (A) the
Conversion Rate at such time, and (B) the Closing Bid Price on the date of the
public announcement of such Major Transaction or the next date on which the
exchange or market on which the Common Stock is traded is open if such public
announcement is made (X) after 12:00 p.m. Eastern Time, on such date or (Y) on a
date on which the exchange or market on which the Common Stock is traded is
closed (the "MAJOR TRANSACTION REDEMPTION PRICE").
(b) Redemption Option Upon Triggering Event. In addition to all other
rights of the holders of Preferred Shares contained herein, simultaneous with or
after the occurrence of a Triggering Event (as defined below), each holder of
Preferred Shares shall have the right, at such holder's option, to require the
Company to redeem all or a portion of such holder's Preferred Shares at a price
per Preferred Share equal to the greater of (i) (X) with respect to a Triggering
Event described in Section 3(d)(i), 118% of the Liquidation Value and (Y) with
respect to Triggering Events other than the instance described in the
immediately preceding clause (X), 125% of the Liquidation Value; and (ii) the
product of (A) the Conversion Rate at such time, and (B) the greater of (I) the
Closing Bid Price on the trading day immediately preceding such Triggering Event
or (II) the Closing Bid Price on the date of the holder's delivery to the
Company of a Notice of Redemption at Option of Buyer Upon Triggering Event (as
defined below) or, if such date of delivery is not a trading day, the next date
on which the exchange or market on which the Common Stock is traded is open (the
"TRIGGERING EVENT REDEMPTION PRICE" and, collectively with the Major Transaction
Redemption Price, the "REDEMPTION PRICE").
(c) Major Transaction. A "MAJOR TRANSACTION" shall be deemed to have
occurred at such time as any of the following events:
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<PAGE> 18
(i) the consolidation, merger or other business combination of
the Company with or into another Person (other than (A) a consolidation, merger
or other business combination in which holders of the Company's voting power
immediately prior to the transaction continue after the transaction to hold,
directly or indirectly, the voting power of the surviving entity or entities
necessary to elect a majority of the members of the board of directors (or their
equivalent if other than a corporation) of such entity or entities, or (B)
pursuant to a migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Company);
(ii) the sale or transfer of all or substantially all of the
Company's assets; or
(iii) a purchase, tender or exchange offer made to and accepted
by the holders of more than 50% of the outstanding shares of Common Stock.
(d) Triggering Event. A "TRIGGERING EVENT" shall be deemed to have
occurred at such time as any of the following events:
(i) the failure of the Registration Statement (as defined in the
Registration Rights Agreement) to be declared effective by the SEC on or prior
to the date that is 180 days after the Initial Issuance Date;
(ii) while the Registration Statement is required to be
maintained effective pursuant to the terms of the Registration Rights Agreement,
the effectiveness of the Registration Statement lapses for any reason
(including, without limitation, the issuance of a stop order) or is unavailable
to the holder of the Preferred Shares for sale of the Registrable Securities (as
defined in the Registration Rights Agreement) in accordance with the terms of
the Registration Rights Agreement, and such lapse or unavailability continues
for a period of ten (10) consecutive trading days;
(iii) suspension from listing or delisting of the Common Stock
from the Nasdaq National Market, the American Stock Exchange or the New York
Stock Exchange, Inc. for a period of five (5) consecutive days, except for a
delisting pursuant to Section 4(e);
(iv) the Company's notice to any holder of Preferred Shares,
including by way of public announcement, at any time, of its intention not to
comply with proper requests for conversion of any Preferred Shares into shares
of Common Stock, including due to any of the reasons set forth in Section 4(a)
below; or
(v) the Company breaches any representation, warranty, covenant
or other term or condition of the Securities Purchase Agreement, the
Registration Rights Agreement,
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<PAGE> 19
this Certificate of Determination or any other agreement, document, certificate
or other instrument delivered in connection with the transactions contemplated
thereby or hereby, except to the extent that such breach would not have a
Material Adverse Effect (as defined in Section 3(a) of the Securities Purchase
Agreement) and except, in the case of a breach of a covenant which is curable,
only if such breach continues for a period of at least ten days.
(e) Mechanics of Redemption at Option of Buyer Upon Major
Transaction. No sooner than 15 days nor later than ten (10) days prior to the
consummation of a Major Transaction, but not prior to the public announcement of
such Major Transaction, the Company shall deliver written notice thereof via
facsimile and overnight courier (a "NOTICE OF MAJOR TRANSACTION") to each holder
of Preferred Shares. At any time after receipt of a Notice of Major Transaction
(or, in the event a Notice of Major Transaction is not delivered at least ten
(10) days prior to a Major Transaction, at any time on or after the date which
is ten (10) days prior to a Major Transaction), any holder of the Preferred
Shares then outstanding may require the Company to redeem all or a portion of
the holder's Preferred Shares then outstanding by delivering written notice
thereof via facsimile and overnight courier (a "NOTICE OF REDEMPTION AT OPTION
OF BUYER UPON MAJOR TRANSACTION") to the Company, which Notice of Redemption at
Option of Buyer Upon Major Transaction shall indicate (i) the number of
Preferred Shares that such holder is submitting for redemption, and (ii) the
applicable Major Transaction Redemption Price, as calculated pursuant to Section
3(a).
(f) Mechanics of Redemption at Option of Buyer Upon Triggering Event.
Within one (1) Business Day after the occurrence of a Triggering Event, the
Company shall deliver written notice thereof via facsimile and overnight courier
(a "NOTICE OF TRIGGERING EVENT") to each holder of Preferred Shares. At any time
after the earlier of such holder's receipt of a Notice of Triggering Event and
such holder becoming aware of a Triggering Event and ending on the date which is
the later of (A) thirty (30) days after such holder's receipt of a Notice of
Triggering Event and (B) five (5) Business Days after such holder's receipt of
notice that the Triggering Event has been cured, such holder of Preferred Shares
then outstanding may require the Company to redeem all or a portion of such
holder's Preferred Shares then outstanding by delivering written notice thereof
via facsimile and overnight courier (a "NOTICE OF REDEMPTION AT OPTION OF BUYER
UPON TRIGGERING EVENT") to the Company, which Notice of Redemption at Option of
Buyer Upon Triggering Event shall indicate (i) the number of Preferred Shares
that such holder is submitting for redemption, and (ii) the applicable
Triggering Event Redemption Price, as calculated pursuant to Section 3(b).
(g) Payment of Redemption Price. Upon the Company's receipt of a
Notice(s) of Redemption at Option of Buyer Upon Triggering Event or a Notice(s)
of Redemption at Option of Buyer Upon Major Transaction from any holder of
Preferred Shares, the Company shall, promptly, but in no event later than one
(1) Business Day following such receipt, notify each holder of Preferred Shares
by facsimile of the Company's receipt of such Notice(s) of Redemption
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<PAGE> 20
at Option of Buyer Upon Triggering Event or Notice(s) of Redemption at Option of
Buyer Upon Major Transaction and each holder which has sent such a notice shall
promptly submit, if required by Section(2)(f)(vii), to the Company or its
Transfer Agent such holder's Preferred Stock Certificates which such holder has
elected to have redeemed. The Company shall deliver the applicable Triggering
Event Redemption Price, in the case of a redemption pursuant to Section 3(f), to
such holder within five (5) Business Days after the Company's receipt of a
Notice of Redemption at Option of Buyer Upon Triggering Event and, in the case
of a redemption pursuant to Section 3(e), the Company shall deliver the
applicable Major Transaction Redemption Price simultaneous with the consummation
of the Major Transaction; provided that, if required by Section 2(f)(vii), a
holder's Preferred Stock Certificates shall have been so delivered to the
Company; provided further that if the Company is unable to redeem all of the
Preferred Shares to be redeemed, the Company shall redeem an amount from each
holder of Preferred Shares being redeemed equal to such holder's pro-rata amount
(based on the number of Preferred Shares held by such holder relative to the
number of Preferred Shares outstanding) of all Preferred Shares being redeemed.
If the Company shall fail to redeem all of the Preferred Shares submitted for
redemption (other than pursuant to a dispute as to the arithmetic calculation of
the Redemption Price), in addition to any remedy such holder of Preferred Shares
may have under this Certificate of Determination, the Securities Purchase
Agreement and the Registration Rights Agreement, the applicable Redemption Price
payable in respect of such unredeemed Preferred Shares shall bear interest at
the rate of (2.0% per month (or the maximum rate allowable under California law,
whichever is lower, the "MONTHLY INTEREST RATE"), prorated for partial months,
until paid in full. Until the Company pays such unpaid applicable Redemption
Price in full to a holder of Preferred Shares submitted for redemption, such
holder shall have the option (the "VOID OPTIONAL REDEMPTION OPTION") to, in lieu
of redemption, require the Company to promptly return to such holder(s) all of
the Preferred Shares that were submitted for redemption by such holder(s) under
this Section 3 and for which the applicable Redemption Price has not been paid,
by sending written notice thereof to the Company via facsimile (the "VOID
OPTIONAL REDEMPTION NOTICE"). Upon the Company's receipt of such Void Optional
Redemption Notice(s) prior to payment of the full applicable Redemption Price to
such holder, (i) the Notice(s) of Redemption at Option of Buyer Upon Triggering
Event or the Notice(s) of Redemption at Option of Buyer Upon Major Transaction,
as the case may be, shall be null and void with respect to those Preferred
Shares submitted for redemption and for which the applicable Redemption Price
has not been paid, (ii) the Company shall, promptly, but in no event later than
one (1) Business Day after such receipt, return any Preferred Shares submitted
to the Company by each holder for redemption under this Section 3(g) and for
which the applicable Redemption Price has not been paid and (iii) the Fixed
Conversion Price of such returned Preferred Shares shall be adjusted to the
lesser of (A) the Fixed Conversion Price as in effect on the date on which the
Void Optional Redemption Notice(s) is delivered to the Company and (B) the
lowest Closing Bid Price during the period beginning on the date on which the
Notice(s) of Redemption of Option of Buyer Upon Major Transaction or the
Notice(s) of Redemption at Option of Buyer Upon Triggering event, as the case
may be, is delivered to the Company and ending on the date on which the Void
Optional Redemption
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<PAGE> 21
Notice(s) is delivered to the Company; provided that no adjustment shall be made
if such adjustment would result in an increase of the Fixed Conversion Price
then in effect. Notwithstanding the foregoing, in the event of a dispute as to
the determination of the Closing Bid Price or the arithmetic calculation of the
Redemption Price, such dispute shall be resolved pursuant to Section 2(f)(iii)
above with the term "Redemption Price" being substituted for the term
"Conversion Rate". A holder's delivery of a Void Optional Redemption Notice and
exercise of its rights following such notice shall not affect the Company's
obligations to make any payments which have accrued prior to the date of such
notice. Payments provided for in this Section 3 shall have priority to payments
to other stockholders in connection with a Major Transaction.
(4) Inability to Fully Convert.
(a) Holder's Option if Company Cannot Fully Convert. If, upon the
Company's receipt of a Conversion Notice or on the Maturity Date, the Company
can not issue shares of Common Stock registered for resale under the
Registration Statement for any reason, including, without limitation, because
the Company (I) does not have a sufficient number of shares of Common Stock
authorized and available, (II) is otherwise prohibited by applicable law or by
the rules or regulations of any stock exchange, interdealer quotation system or
other self-regulatory organization with jurisdiction over the Company or its
securities, including without limitation the Exchange Cap (as defined in Section
14 below), from issuing all of the shares of Common Stock which are to be issued
to a holder of Preferred Shares pursuant to a Conversion Notice or (III) fails
to have a sufficient number of shares of Common Stock registered for resale
under the Registration Statement, then the Company shall issue as many shares of
Common Stock as it is able to issue in accordance with such holder's Conversion
Notice and pursuant to Section 2(f) and, with respect to the unconverted
Preferred Shares, the holder, solely at such holder's option, can elect to:
(i) require the Company to redeem from such holder those
Preferred Shares for which the Company is unable to issue Common Stock in
accordance with such holder's Conversion Notice ("MANDATORY REDEMPTION") at a
price per Preferred Share (the "MANDATORY REDEMPTION PRICE") equal to the
product of (A) the Conversion Rate and (B) the Closing Bid Price as of such
Conversion Date;
(ii) if the Company's inability to fully convert Preferred
Shares is pursuant to Section 4(a)(III), require the Company to issue restricted
shares of Common Stock in accordance with such holder's Conversion Notice and
pursuant to Section 2(f);
(iii) void its Conversion Notice and retain or have returned, as
the case may be, the nonconverted Preferred Shares that were to be converted
pursuant to such holder's Conversion Notice (provided that a holder's voiding
its Conversion Notice shall not effect the
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Company's obligations to make any payments which have accrued prior to the date
of such notice); or
(iv) if the Company's inability to fully convert Preferred
Shares is pursuant to the Exchange Cap described in Section 4(a)(II), require
the Company to issue shares of Common Stock in accordance with such holder's
Conversion Notice and pursuant to Section 2(f) at a Conversion Price equal to
the average of Closing Bid Prices of the Common Stock for the five (5)
consecutive trading days preceding such holder's Notice in Response to Inability
to Convert (as defined below) or such other market price that satisfies the
applicable exchange or trading market.
(b) Mechanics of Fulfilling Holder's Election. Upon receipt of a
facsimile copy of a Conversion Notice from such holder which cannot be fully
satisfied as described in Section 4(a), the Company shall, promptly, but in no
event later than one (1) Business Day following such receipt, send via facsimile
to a holder of Preferred Shares, a notice of the Company's inability to fully
satisfy such holder's Conversion Notice (the "INABILITY TO FULLY CONVERT
NOTICE"). Such Inability to Fully Convert Notice shall indicate (i) the reason
why the Company is unable to fully satisfy such holder's Conversion Notice, (ii)
the number of Preferred Shares which cannot be converted and (iii) the
applicable Mandatory Redemption Price. Such holder shall notify the Company of
its election pursuant to Section 4(a) above by delivering written notice via
facsimile to the Company ("NOTICE IN RESPONSE TO INABILITY TO CONVERT"), by the
later of (A) the date which is 30 days after such holder's receipt of the
Inability to Fully Convert Notice and (B) the fifth (5th) Business Day following
the date on which the Company provides such holder written notice that it has
cured its inability to fully convert.
(c) Payment of Mandatory Redemption Price. If such holder shall elect
to have its Preferred Shares redeemed pursuant to Section 4(a)(i), the Company
shall pay the Mandatory Redemption Price in cash to such holder within ten (10)
Business Days of the Company's receipt of the holder's Notice in Response to
Inability to Convert. If the Company shall fail to pay the applicable Mandatory
Redemption Price to such holder on a timely basis as described in this Section
4(c) (other than pursuant to a dispute as to the determination of the arithmetic
calculation of the Redemption Price), in addition to any remedy such holder of
Preferred Shares may have under this Certificate of Determination, the
Securities Purchase Agreement and the Registration Rights Agreement, such unpaid
amount shall bear interest at the Monthly Interest Rate, prorated for partial
months until paid in full. Until the full Mandatory Redemption Price is paid in
full to such holder, such holder may void the Mandatory Redemption with respect
to those Preferred Shares for which the full Mandatory Redemption Price has not
been paid and (i) receive back such Preferred Shares and (ii) the Fixed
Conversion Price of such returned Preferred Shares shall be adjusted to the
lesser of (A) the Fixed Conversion Price in effect on the date on which the
holder voided the Mandatory Redemption and (B) the lowest Closing Bid Price
during the period beginning on the Conversion Date and ending on the date the
holder voided the Mandatory
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<PAGE> 23
Redemption. Notwithstanding the foregoing, if the Company fails to pay the
applicable Mandatory Redemption Price within such ten-day period due to a
dispute as to the determination of the arithmetic calculation of the Redemption
Price, such dispute shall be resolved pursuant to Section 2(f)(iii) with the
term "Redemption Price" being substituted for the term "Conversion Rate".
(d) Pro-rata Conversion and Redemption. In the event the Company
receives a Conversion Notice, Notice of Redemption at Option of Buyer Upon Major
Transaction or Notice of Redemption at Option of Buyer Upon Triggering Event
from more than one holder of Preferred Shares on the same day and the Company
can convert and/or redeem some, but not all, of the Preferred Shares pursuant to
this Section 4, the Company shall convert and redeem from each holder of
Preferred Shares electing to have Preferred Shares converted and redeemed at
such time an amount equal to such holder's pro-rata amount (based on the number
of Preferred Shares held by such holder relative to the number of Preferred
Shares then outstanding) of all Preferred Shares being converted and redeemed at
such time.
(e) Forced Delisting. If the Company's inability to fully convert
Preferred Shares is pursuant to the Exchange Cap and the Company's shareholders
have not voted to approve issuances in excess of the Exchange Cap, and if so
directed by the holders of at least two-thirds (2/3) of the Preferred Shares
then outstanding, the Company shall, promptly, but in no event later than one
(1) Business Day after receiving such direction, delist the Common Stock from
the exchange or automated quotation system on which the Common Stock is traded
and have the Common Stock, at such holders' option, traded on the electronic
bulletin board or the "pink sheets."
(5) Conversion at the Company's Election. On any day immediately following
at least thirty (30) consecutive trading days during which the Closing Bid Price
of the Common Stock on each trading day during such thirty (30) consecutive
trading days is not less than 200% of the applicable Fixed Conversion Price in
effect on the first day of such thirty (30) consecutive trading days, the
Company shall have the right, in its sole discretion, to require that any or all
of such outstanding Preferred Shares be converted ("CONVERSION AT COMPANY'S
ELECTION") at the Conversion Rate; provided that the Conditions to Conversion at
the Company's Election (as set forth below) and the other terms of this Section
5 are satisfied. The Company shall exercise its right to Conversion at Company's
Election by providing each holder of Preferred Shares written notice ("NOTICE OF
CONVERSION AT COMPANY'S ELECTION") at least 30 trading days prior to the date
selected by the Company for conversion ("COMPANY'S ELECTION CONVERSION DATE").
If the Company elects to require conversion of some, but not all, of such
Preferred Shares, the Company shall convert an amount from each holder of
Preferred Shares equal to such holder's pro rata amount (based on the number of
such Preferred Shares held by such holder relative to the number of such
Preferred Shares outstanding on date of the Company's delivery of the Notice of
Conversion at Company's Election) of all Preferred Shares the Company is
requiring to be
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<PAGE> 24
converted. The Notice of Conversion at Company's Election shall indicate (x) the
number of Preferred Shares the Company has selected for conversion, (y) the
Company's Election Conversion Date, which date shall be not less than 30 or more
than 40 trading days after each holder's receipt of such notice, and (z) each
holder's pro rata share of outstanding Preferred Shares the Company is requiring
to be converted. All Preferred Shares selected for conversion in accordance with
the provision of this Section 5 and which have not been converted prior to the
Company's Election Conversion Date shall be converted as of the Company's
Election Conversion Date in accordance with Section 2 as if the holders of such
Preferred Shares selected by the Company to be converted had given the
Conversion Notice on the Company's Election Conversion Date. If required by
Section 2(f)(vii), all holders of Preferred Shares shall thereupon and in no
event later than two (2) Business Days after the Company's Election Conversion
Date surrender all Preferred Stock Certificates selected for conversion, duly
endorsed for cancellation, to the Company. "CONDITIONS TO CONVERSION AT THE
COMPANY'S ELECTION" means the following conditions: (i) on each day during the
period beginning 90 days prior to the date of the Company's Notice of Conversion
at Company's Election and ending on and including the Company's Election
Conversion Date, the Registration Statement shall be effective and available for
the sale of no less than 125% of the sum of (A) the number of Conversion Shares
then issuable upon the conversion of all outstanding Preferred Shares and
exercise of all outstanding Warrants (in each case, without regard to any
limitations on conversion or exercise herein or elsewhere), including the
Conversion Shares to be issued pursuant to this Conversion at the Company's
Election, and (B) the number of Conversion Shares that are then held by the
holders of the Preferred Shares; (ii) on the Issuance Date and on each day
during the period beginning on and including the date which is 30 trading days
prior to the date of the Company's Notice of Conversion at Company's Election
and ending on and including the Company's Election Conversion Date, the Common
Stock is/was authorized for quotation on the Nasdaq National Market or listed on
the American Stock Exchange or the New York Stock Exchange, Inc. and was/is not
suspended from trading (excluding suspensions of not more than one day resulting
from business announcements); (iii) on each day during the 30 consecutive
trading days immediately preceding the date of the receipt by the holders of
Preferred Shares of the Notice of Conversion at Company's Election, the Closing
Bid Price of the Common Stock is at least 200% of the Fixed Conversion Price in
effect on the first day of such 30 consecutive trading days; (iv) on each day
during the period beginning on and including the date of the receipt by the
holders of Preferred Shares of the Notice of Conversion at Company's Election
and ending on and including the Company's Election Conversion Date, the Closing
Bid Price of the Common Stock is at least 85% of the Closing Bid Price on the
trading day immediately preceding the date of the receipt by the holders of
Preferred Shares of the Notice of Conversion at Company's Election; (v) during
the period beginning on the Initial Issuance Date and ending on and including
the Company's Election Conversion Date, the Company shall have delivered all
Conversion Shares upon conversion of the Preferred Shares to the holders of
Preferred Shares on a timely basis as set forth in Section 2(f)(ii) of this
Certificate of Determination; (vi) neither a Triggering Event nor any event that
with the passage of time would constitute a Triggering Event (assuming it was
not cured) shall have occurred; (vii) during the
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<PAGE> 25
period beginning on the Initial Issuance Date and ending on and including the
Company's Election Conversion Date, there shall not have occurred the
consummation of a Major Transaction or a public announcement of a pending Major
Transaction which has not been abandoned or terminated; (viii) the Company shall
not have completed more than four (4) prior Conversion at the Company's
Elections; and (ix) the Company otherwise has satisfied its obligations and is
not in default under this Certificate of Determination, the Securities Purchase
Agreement and the Registration Rights Agreement. Notwithstanding the above, any
holder of Preferred Shares may convert such shares (including Preferred Shares
selected for conversion) into Common Stock pursuant to Section 2(a) on or prior
to the date immediately preceding the Company's Election Conversion Date.
(6) Company's Right to Redeem in Lieu of Conversion. Subject to the terms
and conditions of this Section 6, at any time after the Initial Issuance Date,
and so long as the Company has provided appropriate notice as described below,
the Company may elect to redeem Preferred Shares submitted for conversion in
lieu of converting such Preferred Shares, provided that the Conversion Price for
such Preferred Shares on the Conversion Date is less than a price (the
"REDEMPTION IN LIEU OF CONVERSION TRIGGER PRICE") equal to $1.00 (appropriately
adjusted for any stock split, stock dividend, combination or other similar
transaction) (a "COMPANY REDEMPTION IN LIEU OF CONVERSION"). If the Company
elects to redeem some, but not all, of the Preferred Shares submitted for
conversion, the Company shall redeem a number of Preferred Shares from each
holder of Preferred Shares submitted for conversion on the applicable date equal
to such holder's pro-rata amount (based on the number of Preferred Shares held
by such holder relative to the number of Preferred Shares then outstanding) of
all Preferred Shares submitted for conversion which the Company elects to
redeem.
(a) Redemption Price of Company Redemption in Lieu of Conversion. The
"REDEMPTION PRICE OF COMPANY REDEMPTION IN LIEU OF CONVERSION" shall be an
amount per Preferred Share equal to the product of (i) the Conversion Rate on
the applicable Conversion Date and (ii) the Closing Bid Price on the Conversion
Date.
(b) Mechanics of Company Redemption in Lieu of Conversion. The
Company shall exercise its right to redeem by delivering written notice by
facsimile and overnight courier ("NOTICE OF COMPANY REDEMPTION IN LIEU OF
CONVERSION") to (i) each holder of the Preferred Shares and (ii) the Transfer
Agent. Such Notice of Company Redemption in Lieu of Conversion shall indicate
(A) the maximum, if any, aggregate number of Preferred Shares which the Company
will redeem for Company Redemption in Lieu of Conversion and (B) confirm the
time period during which the Company may effect Company Redemption in Lieu of
Conversion, which period shall begin on and include the date which is five (5)
Business Days after the date of receipt by all of the holders' of the Notice of
Redemption in Lieu of Conversion and shall end on and include the date which is
30 calendar days after the fifth Business Day following the date of receipt by
all of the holders of the Notice of Redemption in Lieu of Conversion (the
"REDEMPTION IN LIEU OF
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<PAGE> 26
CONVERSION PERIOD"). If the Company elects to limit the number of Preferred
Shares which it will redeem during the Redemption in Lieu of Conversion Period,
the Company shall allocate for redemption from each holder of Preferred Shares a
number of Preferred Shares equal to such holder's pro-rata amount (based on the
number of Preferred Shares held by such holder on the date of the Notice of
Company Redemption in Lieu of Conversion relative to the total number of
Preferred Shares outstanding on such date). The Company may terminate a
Redemption in Lieu of Conversion Period at any time with respect to Preferred
Shares which have not been submitted for conversion by delivering written notice
of such termination to each holder of Preferred Shares by facsimile and
overnight courier at least five (5) Business Days prior to the effective date of
such termination. Notwithstanding anything to the contrary in this Section 6,
the Company shall convert Preferred Shares pursuant to Section 2 if such
Preferred Shares are submitted for conversion (i) before the beginning, or after
the effective date of the termination, of the Redemption in Lieu of Conversion
Period, (ii) for a Conversion Price greater than or equal to the Redemption in
Lieu of Conversion Trigger Price or (iii) are in excess of such holder's pro
rata allocation of the maximum number of Preferred Shares the Company indicated
that it would redeem in its Notice of Company Redemption in Lieu of Conversion.
(c) Payment of Redemption Price. The Company shall pay the applicable
Redemption Price of Company Redemption in Lieu of Conversion to the holder of
the Preferred Shares being redeemed in cash by wire transfer within five (5)
Business Days after the applicable Conversion Date on which such Preferred
Shares are submitted for conversion. If the Company shall fail to pay the
applicable Redemption Price of Company Redemption in Lieu of Conversion to such
holder on a timely basis as described in this Section 6(c), in addition to any
remedy such holder of Preferred Shares may have under this Certificate of
Determination and the Securities Purchase Agreement, such unpaid amount shall
bear interest at the Monthly Interest Rate, prorated for partial months, until
paid in full. Until the Company pays such unpaid applicable Redemption Price of
Company Redemption in Lieu of Conversion in full to each holder, each holder of
Preferred Shares submitted for redemption pursuant to this Section 6 and for
which the applicable Redemption Price of Company Redemption in Lieu of
Conversion has not been paid, shall have the option to, in lieu of redemption,
(A) to require the Company to promptly return to each holder all of the
Preferred Shares that were submitted for redemption by such holder under this
Section 6 and for which the applicable Redemption Price of Company Redemption in
Lieu of Conversion has not been paid or (B) to convert those Preferred Shares
for which the applicable Redemption Price of the Company Redemption in Lieu of
Conversion has not been paid at a Conversion Price equal to the lesser of (I)
the Conversion Price applicable to such conversion on the date on which such
Preferred Shares were originally presented for conversion and (II) the
Conversion Price which would have been in effect if such Preferred Shares were
presented for conversion on the Business Day immediately following the last day
on which the Company could have effected a timely Company Redemption in Lieu of
Conversion, by sending written notice thereof to the Company via facsimile (the
"VOID COMPANY REDEMPTION NOTICE"). Upon the Company's receipt of such Void
Company Redemption Notice(s), requesting the return of the Preferred Shares,
prior
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<PAGE> 27
to payment of the full applicable redemption price to each holder, (i) the
Company's Redemption in Lieu of Conversion shall be null and void with respect
to those Preferred Shares submitted for redemption and for which the applicable
redemption price has not been paid and with respect to any Preferred Shares
submitted in the future for conversion in the same Redemption in Lieu of
Conversion Period, (ii) the Company shall, promptly, but in no event later than
one (1) Business Day following such receipt, return any Preferred Shares
submitted to the Company by each holder for redemption under this Section 6 and
for which the applicable Redemption Price of Company Redemption in Lieu of
Conversion has not been paid and (iii) the Fixed Conversion Price of such
returned Preferred Shares shall be adjusted to the lesser of (I) the Conversion
Price applicable to such conversion on the date on which such Preferred Shares
were originally presented for conversion and (II) the lowest Conversion Price
which would have been in effect if such Preferred Shares were presented for
conversion on any Business Day during the period beginning on the Business Day
immediately following the last day on which the Company could have effected a
timely Company Redemption in Lieu of Conversion and ending on the date of the
Company's receipt of the applicable Void Company Redemption Notice.
Notwithstanding the foregoing, if the Company fails to pay the applicable
Redemption Price of Company Redemption in Lieu of Conversion to a holder within
the time period described in this Section 6(d) due to a dispute as to the
arithmetic calculation of the Redemption Price of Company Redemption in Lieu of
Conversion, such dispute shall be resolved pursuant to Section 2(f)(iii) above
with the term "Redemption Price of Company Redemption in Lieu of Conversion"
being substituted for the term "Conversion Rate." If the Company fails to timely
effect a Company Redemption in Lieu of Conversion in accordance with this
Section 6, the Company shall not be allowed to submit another Notice of Company
Redemption in Lieu of Conversion without the prior written consent of the
holders of at least two-thirds (2/3) of the Preferred Shares then outstanding.
(d) Company Must Have Immediately Available Funds or Credit
Facilities. The Company shall not be entitled to send any Notice of Company
Redemption in Lieu of Conversion pursuant to Section 6(b) above and begin the
redemption procedure under this Section 6, unless it has:
(i) the full amount of the Redemption Price of Company
Redemption in Lieu of Conversion in cash, available in a demand or other
immediately available account in a bank or similar financial institution;
(ii) credit facilities, with a bank or similar financial
institutions that are immediately available and unrestricted for use in
redeeming the Preferred Shares, in the full amount of the Redemption Price of
Company Redemption in Lieu of Conversion;
(iii) a binding, irrevocable written agreement with a standby
underwriter ready, willing and able to purchase from the Company a sufficient
number of shares of stock to
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<PAGE> 28
provide proceeds necessary to redeem any Preferred Shares that are not converted
prior to a Company Redemption in Lieu of Conversion; or
(iv) a combination of the items set forth in the preceding
clauses (i), (ii) and (iii), aggregating the full amount of the Redemption Price
of Company Redemption in Lieu of Conversion.
(7) Redemption at the Company's Election. On the third anniversary of the
date on which the SEC shall have declared the Registration Statement effective
(or if such date is not a trading day then or the first trading day thereafter)
(the "COMPANY'S ELECTION REDEMPTION DATE"), the Company shall have the right, in
its sole discretion, to require that all, but not less than all, of the
outstanding Preferred Shares, which are convertible into the Conversion Shares
covered by the Registration Statement (the "REDEEMABLE PREFERRED SHARES") be
redeemed ("REDEMPTION AT COMPANY'S ELECTION") at a price per share equal to 120%
of the Liquidation Value ("COMPANY'S ELECTION REDEMPTION PRICE"); provided that
the Conditions to Redemption at the Company's Election (as set forth below) and
the other terms of this Section 7 are satisfied. The Company shall exercise its
right to Redemption at Company's Election by providing each holder of Preferred
Shares written notice ("NOTICE OF REDEMPTION AT COMPANY'S ELECTION") at least 20
trading days prior to the Company's Election Redemption Date. The Notice of
Redemption at Company's Election shall indicate the Company's Election
Redemption Date. If the Company has exercised its right of Redemption at
Company's Election and the conditions to such Redemption at Company's Election
have been satisfied, then all Redeemable Preferred Shares outstanding at the
Company's Election Redemption Date shall be redeemed as of the Company's
Election Redemption Date by payment by the Company to each holder of Redeemable
Preferred Shares of the Company's Election Redemption Price. If required by
Section 2(f)(vii), all holders of Redeemable Preferred Shares shall thereupon
and within two (2) Business Days after the Company's Election Redemption Date,
or such earlier date as the Company and each holder of Redeemable Preferred
Shares mutually agree, surrender all outstanding Preferred Stock Certificates,
duly endorsed for cancellation, to the Company. If the Company fails to pay the
full Company's Election Redemption Price with respect to any Redeemable
Preferred Shares then the Redemption at Company's Election shall be null and
void with respect to such Preferred Shares and the holder of such Preferred
Shares shall be entitled to all the rights of a holder of outstanding Preferred
Shares set forth in this Certificate of Determination. "CONDITIONS TO REDEMPTION
AT THE COMPANY'S ELECTION" means the following conditions: (i) during the period
beginning on the Initial Issuance Date and ending on and including the Company's
Election Redemption Date, the Company shall have delivered Conversion Shares
upon conversion of such Preferred Shares to the holders of the Preferred Shares
on a timely basis as set forth in Section 2(f)(ii) of this Certificate of
Determination (ii) on each day during the period beginning 30 trading days prior
to the date of Notice of Redemption at Company's Election and ending on and
including the Company's Election Redemption Date, the Registration Statement for
the Conversion Shares relating to the Redeemable Preferred Shares shall be
effective and available for the sale of no less than 125% of the sum of
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<PAGE> 29
(A) the number of Conversion Shares then issuable upon the conversion of all
outstanding Redeemable Preferred Shares (without regard to any limitations on
conversion herein or elsewhere), including the Conversion Shares to be issued
pursuant to this Redemption at the Company's Election, and (B) the number of
Conversion Shares that are then held by the holders of the Preferred Shares;
(iii) on each day during the period beginning 30 trading days prior to the date
of Notice of Redemption at Company's Election and ending on and including the
Company's Election Redemption Date, the Common Stock is authorized for quotation
on the Nasdaq National Market or listed on the American Stock Exchange or the
New York Stock Exchange, Inc. and is not suspended from trading (excluding
suspensions of not more than one day resulting from business announcements);
(iv) during the period beginning on the Initial Issuance Date and ending on and
including the Company's Election Redemption Date, the Company shall have
delivered all Conversion Shares upon conversion of the Preferred Shares to the
holders of Preferred Shares on a timely basis as set forth in Section 2(f)(ii)
of this Certificate of Determination; (v) during the period beginning on the
Initial Issuance Date and ending on and including the Company's Election
Redemption Date, there shall not have occurred either (A) the consummation of a
Major Transaction or a public announcement of a pending Major Transaction which
has not been abandoned or terminated or (B) a Triggering Event; and (vi) the
Company otherwise has satisfied its obligations and is not in default under this
Certificate of Determination, the Securities Purchase Agreement and the
Registration Rights Agreement. Notwithstanding the above, any holder of
Preferred Shares may convert such shares (including Preferred Shares selected
for redemption) into Common Stock pursuant to Section 2(a) on or prior to the
date immediately preceding the Company's Election Redemption Date.
(8) Reissuance of Certificates. Subject to Section 2(f)(vii), in the event
of a conversion or redemption pursuant to this Certificate of Determination of
less than all of the Preferred Shares represented by a particular Preferred
Stock Certificate, the Company shall promptly cause to be issued and delivered
to the holder of such Preferred Shares a Preferred Stock Certificate
representing the remaining Preferred Shares which have not been so converted or
redeemed.
(9) Reservation of Shares. The Company shall, so long as any of the
Preferred Shares are outstanding, reserve and keep available out of its
authorized and unissued shares Common Stock, solely for the purpose of effecting
the conversion of the Preferred Shares, such number of shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all of the
Preferred Shares then outstanding (without regard to any limitations on
conversions); provided that the number of shares of Common Stock so reserved
shall at no time be less than 200% of the number of shares of Common Stock for
which the Preferred Shares are at any time convertible. The initial number of
shares of Common Stock reserved for conversions of the Preferred Shares and each
increase in the number of shares so reserved shall be allocated pro rata among
the holders of the Preferred Shares based on the number of Preferred Shares held
by each holder at the time of issuance of the Preferred Shares or increase in
the number of reserved shares, as the case may be. In the event a holder shall
sell or otherwise transfer any of such holder's Preferred Shares,
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<PAGE> 30
each transferee shall be allocated a pro rata portion of the number of
reserved shares of Common Stock reserved for such transferor. Any shares of
Common Stock reserved and which remain allocated to any person or entity which
does not hold any Preferred Shares shall be allocated to the remaining holders
of Preferred Shares, pro rata based on the number of Preferred Shares then held
by such holder.
(10) Voting Rights. Holders of Preferred Shares shall have no voting
rights, except as required by law, including but not limited to the General
Corporation Law of the State of California, and as expressly provided in this
Certificate of Determination.
(11) Liquidation, Dissolution, Winding-Up. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the Company, the
holders of the Preferred Shares shall be entitled to receive in cash out of the
assets of the Company, whether from capital or from earnings available for
distribution to its stockholders (the "PREFERRED FUNDS"), before any amount
shall be paid to the holders of any of the capital stock of the Company of any
class junior in rank to the Preferred Shares in respect of the preferences as to
the distributions and payments on the liquidation, dissolution and winding up of
the Company, an amount per Preferred Share equal to the sum of (i) $10,000 and
(ii) the Additional Amount (such sum being referred to as the "LIQUIDATION
VALUE"); provided that, if the Preferred Funds are insufficient to pay the full
amount due to the holders of Preferred Shares and holders of shares of other
classes or series of preferred stock of the Company that are of equal rank with
the Preferred Shares as to payments of Preferred Funds (the "PARI PASSU
SHARES"), then each holder of Preferred Shares and Pari Passu Shares shall
receive a percentage of the Preferred Funds equal to the full amount of
Preferred Funds payable to such holder as a liquidation preference, in
accordance with their respective Certificate of Determination, as a percentage
of the full amount of Preferred Funds payable to all holders of Preferred Shares
and Pari Passu Shares. For purposes of this Section 11, the Preferred Shares
shall rank senior to the Series A Preferred Stock in respect of the preferences
as to the distribution and payments on the liquidation, dissolution and winding
up of the Company. The purchase or redemption by the Company of stock of any
class, in any manner permitted by law, shall not, for the purposes hereof, be
regarded as a liquidation, dissolution or winding up of the Company. Neither the
consolidation or merger of the Company with or into any other Person, nor the
sale or transfer by the Company of all or substantially all of its assets,
shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Company. No holder of Preferred Shares shall be entitled to
receive any amounts with respect thereto upon any liquidation, dissolution or
winding up of the Company other than the amounts provided for herein; provided
that a holder of Preferred Shares shall be entitled to all amounts previously
accrued with respect to amounts owed hereunder.
(12) Preferred Rank; Participation.
All shares of Common Stock shall be of junior rank to all Preferred
Shares in respect to the preferences as to distributions and payments upon the
liquidation, dissolution and winding up of the Company. The rights of the shares
of Common Stock shall be subject to the preferences and relative rights of the
Preferred Shares. Without the prior express written consent
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<PAGE> 31
of the holders of not less than two-thirds (2/3) of the then outstanding
Preferred Shares, the Company shall not hereafter authorize or issue additional
or other capital stock that is of rank senior to or pari passu with to the
Preferred Shares in respect of the preferences as to distributions and payments
upon the liquidation, dissolution and winding up of the Company. Without the
prior express written consent of the holders of not less than two-thirds (2/3)
of the then outstanding Preferred Shares, the Company shall not hereafter
authorize or make any amendment to the Company's Articles of Incorporation or
bylaws, or file any resolution of the Board of Directors of the Company with the
Secretary of State of the State of California containing any provisions, which
would adversely affect or otherwise impair the rights or relative priority of
the holders of the Preferred Shares relative to the holders of the Common Stock
or the holders of any other class of capital stock. In the event of the merger
or consolidation of the Company with or into another corporation, the Preferred
Shares shall maintain their relative powers, designations and preferences
provided for herein and no merger shall result inconsistent therewith.
Subject to the rights of the holders, if any, of the Pari Passu
Shares, the holders of the Preferred Shares shall, as holders of Preferred
Stock, be entitled to such dividends paid and distributions made to the holders
of Common Stock to the same extent as if such holders of Preferred Shares had
converted the Preferred Shares into Common Stock (without regard to any
limitations on conversion herein or elsewhere) and had held such shares of
Common Stock on the record date for such dividends and distributions. Payments
under the preceding sentence shall be made concurrently with the dividend or
distribution to the holders of Common Stock.
(13) Restriction on Redemption and Cash Dividends with respect to Other
Capital Stock. Until all of the Preferred Shares have been converted or redeemed
as provided herein, the Company shall not, directly or indirectly, redeem, or
declare or pay any cash dividend or distribution on, its Common Stock without
the prior express written consent of the holders of not less than two-thirds
(2/3) of the then outstanding Preferred Shares.
(14) Limitation on Number of Conversion Shares. Notwithstanding any other
provision herein, the Company shall not be obligated to issue any shares of
Common Stock upon conversion of the Preferred Shares if the issuance of such
shares of Common Stock would exceed that number of shares of Common Stock which
the Company may issue upon Conversion of the Preferred Shares (the "EXCHANGE
CAP") without breaching the Company's obligations, if any, under the rules or
regulations of the Nasdaq Stock Market or such exchange on which the stock is
then traded except that such limitation shall not apply in the event that (a)
the Company obtains the approval of its shareholders as required by applicable
rules and regulations of the Nasdaq Stock Market or such other exchange on which
the stock is then traded for issuances of shares of Common Stock in excess of
such amount, (b) the Company obtains a written opinion from outside counsel to
the Company that such approval is not required, which opinion shall be
reasonably satisfactory to the holders of a majority of the Preferred Shares
then outstanding or (c) the required number of holders of the Preferred Shares
exercised their rights pursuant to Section 4(e) to have
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<PAGE> 32
the Company remove the Common Stock from quotation on the Nasdaq National
Market. Until such approval or written opinion is obtained or such action has
been taken by the required number of holders, no purchaser of Preferred Shares
pursuant to the Securities Purchase Agreement (the "PURCHASERS") shall be
issued, upon conversion of Preferred Shares, shares of Common Stock in an amount
greater than the product of (i) the Exchange Cap amount multiplied by (ii) a
fraction, the numerator of which is the number of Preferred Shares issued to
such Purchaser pursuant to the Securities Purchase Agreement and the denominator
of which is the aggregate amount of all the Preferred Shares issued to the
Purchasers pursuant to the Securities Purchase Agreement ("CAP ALLOCATION
AMOUNT"). In the event that any Purchaser shall sell or otherwise transfer any
of such Purchaser's Preferred Shares, the transferee shall be allocated a pro
rata portion of such Purchaser's Cap Allocation Amount. In the event that any
holder of Preferred Shares shall convert all of such holder's Preferred Shares
into a number of shares of Common Stock which, in the aggregate, is less than
such holder's Cap Allocation Amount, then the difference between such holder's
Cap Allocation Amount and the number of shares of Common Stock actually issued
to such holder shall be allocated to the respective Cap Allocation Amounts of
the remaining holders of Preferred Shares on a pro rata basis in proportion to
the number of Preferred Shares then held by each such holder.
(15) Vote to Change the Terms of or Issue Preferred Shares. The
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of not less than two-thirds (2/3) of
the then outstanding Preferred Shares, shall be required for (a) any change to
this Certificate of Determination or the Company's Articles of Incorporation
which would amend, alter, change or repeal any of the powers, designations,
preferences and rights of the Preferred Shares, or (b) any issuance of Preferred
Shares other than pursuant to the Securities Purchase Agreement.
(16) Lost or Stolen Certificates. Upon receipt by the Company of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing the Preferred Shares, and, in the case
of loss, theft or destruction, of an indemnification undertaking by the holder
to the Company and, in the case of mutilation, upon surrender and cancellation
of the Preferred Stock Certificate(s), the Company shall execute and deliver new
Preferred Stock Certificate(s) of like tenor and date; provided, however, the
Company shall not be obligated to re-issue Preferred Stock Certificates if the
holder contemporaneously requests the Company to convert such Preferred Shares
into shares of Common Stock.
(17) Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this Certificate of Determination
shall be cumulative and in addition to all other remedies available under this
Certificate of Determination, at law or in equity (including a decree of
specific performance and/or other injunctive relief), no remedy contained herein
shall be deemed a waiver of compliance with the provisions giving rise to such
remedy and nothing herein shall limit a holder's right to pursue actual damages
for any failure by the Company to
32
<PAGE> 33
comply with the terms of this Certificate of Determination. The Company
covenants to each holder of Preferred Shares that there shall be no
characterization concerning this instrument other than as expressly described
herein. Amounts set forth or provided for herein with respect to payments,
conversion and the like (and the computation thereof) shall be the amounts to be
received by the holder thereof and shall not, except as expressly provided
herein, be subject to any other obligation of the Company (or the performance
thereof). The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the holders of the Preferred Shares and
that the remedy at law for any such breach may be inadequate. The Company
therefore agrees that, in the event of any such breach or threatened breach, the
holders of the Preferred Shares shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.
(18) Specific Shall Not Limit General; Construction. No specific provision
contained in this Certificate of Determination shall limit or modify any more
general provision contained herein. This Certificate of Determination shall be
deemed to be jointly drafted by the Company and all holders of Preferred Shares
and shall not be construed against any person as the drafter hereof.
(19) Failure or Indulgence Not Waiver. No failure or delay on the part of
a holder of Preferred Shares in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.
(20) Notice. Whenever notice is required to be given, it shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement.
* * * * * *
33
<PAGE> 34
RESOLVED FURTHER, that the officers of the Company be, and each of them
hereby is, authorized and empowered on behalf of the Company to execute,
verify and file a Certificate of Determination in accordance with
California law.
We declare under penalty of perjury under the laws of the State of
California that the matters set forth in this Certificate of Determination are
true and correct of our own knowledge.
Executed at San Diego, California, on March 26, 1999.
By: /s/ Gerald J. Yakatan,
----------------------------------------------
Gerald J. Yakatan, President and Chief
Executive Officer
By: /s/ Cynthia E. Moore
----------------------------------------------
Cynthia E. Moore
Assistant Secretary
34
<PAGE> 35
EXHIBIT I
AVANIR PHARMACEUTICALS
CONVERSION NOTICE
Reference is made to the Certificate of Determination, of Series D Convertible
Preferred Stock (the "CERTIFICATE OF DETERMINATION"). In accordance with and
pursuant to the Certificate of Determination, the undersigned hereby elects to
convert the number of shares of Series D Convertible Preferred Stock, no par
value per share (the "PREFERRED SHARES"), of AVANIR Pharmaceuticals, a
California corporation (the "COMPANY"), indicated below into shares of Class A
Common Stock, no par value per share (the "COMMON STOCK"), of the Company, by
tendering the stock certificate(s) representing the Preferred Shares specified
below as of the date specified below.
Date of Conversion:_______________________________________________________
Number of Preferred Shares to be converted:_______________________________
Stock certificate no(s). of Preferred Shares to be converted:_____________
Please confirm the following information:
Conversion Price:_________________________________________________________
Number of shares of Common Stock
to be issued:_____________________________________________________________
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
Facsimile Number:_________________________________________________________
Authorization:____________________________________________________________
By:______________________________________________
Title:___________________________________________
Dated:____________________________________________________________________
Account Number:
(if electronic book entry transfer):____________________________________
Transaction Code Number
(if electronic book entry transfer):____________________________________
35
<PAGE> 36
ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and hereby directs
American Stock Transfer and Trust Company to issue the above indicated number of
shares of Common Stock in accordance with the Transfer Agent Instructions dated
________________, 1999 from the Company and acknowledged and agreed to by
American Stock Transfer and Trust Company.
AVANIR PHARMACEUTICALS
By:________________________________________
Name:______________________________________
Title:_____________________________________
36
<PAGE> 1
EXHIBIT 4.2
(logo)
AVANIR PHARMACEUTICALS
INCORPORATED UNDER THE LAWS
OF THE STATE OF CALIFORNIA
NUMBER:______ SHARES:______
This Certifies that _________________ is the record holder of __________ Shares
of the Series D Convertible Preferred Stock of
AVANIR PHARMACEUTICALS
transferrable only on the share register of said Corporation, in person or by
duly authorized Attorney, upon surrender of this Certificate properly endorsed
or assigned.
This Certificate and shares represented hereby are issued and shall be
held subject to all the provisions of the Articles of Incorporation, the
relevant Certificate of Determination, and the By-Laws of said Corporation and
any amendments thereof, to all of which the holder of this Certificate, by
acceptance hereof, assents.
Witness the Seal of the Corporation and the signatures of its duly
authorized officers this ____ day of ________, 1999.
_____________________________ ____________________________________
Gregory P. Hanson, Secretary Gerald J. Yakatan, Ph.D., President
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED FOR
RESALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE RESALE OF THE SECURITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF
COUNSEL, IN FORM, SCOPE AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY OR
ITS COUNSEL, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT.
<PAGE> 2
(BACK OF CERTIFICATE)
A statement of the rights, preferences, privileges and restrictions granted to
or imposed upon the respective classes or series of shares and upon the holders
thereof as established by the Articles of Incorporation of the Corporation and
by the related Certificate of Determination, and the number of shares
constituting each class or series and the designations thereof, may be obtained
by any shareholder of the Corporation upon written request and without charge
from the Secretary of the Corporation at its corporate headquarters.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED THE
CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A
REPLACEMENT CERTIFICATE.
FOR VALUE RECEIVED, ________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the capital stock represented by within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated: ________________________________________________________________________
NOTICE: The signature(s) to this assignment must correspond with the name(s) as
written upon the face of the certificate in every particular, without alteration
or enlargement or any change whatsoever.
Signature(s) Guaranteed
By _____________________________________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 4.3
FORM OF WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED FOR RESALE
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE RESALE OF THE SECURITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF
COUNSEL IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE ISSUER THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS
OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. ANY SUCH OFFER, SALE,
ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH THE APPLICABLE STATE SECURITIES
LAWS. NOTWITHSTANDING THE FOREGOING, THIS SECURITY MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT.
AVANIR PHARMACEUTICALS
CLASS J STOCK PURCHASE WARRANT
TO PURCHASE CLASS A COMMON STOCK
Warrant No.:__________ Number of Shares:___________
Date of Issuance: _____________ __, ______
AVANIR Pharmaceuticals, a California corporation (the "COMPANY"), hereby
certifies that, for Ten United States Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, ____________________, the registered holder hereof or its
permitted assigns, is entitled, subject to the terms set forth below, to
purchase from the Company upon surrender of this Warrant, at any time or times
on or after the date hereof, but not after 11:59 P.M. Central Time on the
Expiration Date (as defined herein) [INSERT 500 SHARES FOR EACH PREFERRED SHARE]
( ) fully paid nonassessable shares of Common Stock (as defined herein) of the
Company (the "WARRANT SHARES") at the purchase price per share provided in
Section 1(b) below; provided, however, that in no event shall the holder be
entitled to exercise this Warrant for a number of Warrant Shares in excess of
that number of Warrant Shares which, upon giving effect to such exercise, would
<PAGE> 2
cause the aggregate number of shares of Common Stock beneficially owned by the
holder and its affiliates to exceed 4.99% of the outstanding shares of the
Common Stock following such exercise. For purposes of the foregoing proviso, the
aggregate number of shares of Common Stock beneficially owned by the holder and
its affiliates shall include the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to which the determination of such proviso
is being made, but shall exclude shares of Common Stock which would be issuable
upon (i) exercise of the remaining, unexercised Warrants beneficially owned by
the holder and its affiliates and (ii) exercise or conversion of the unexercised
or unconverted portion of any other securities of the Company beneficially owned
by the holder and its affiliates (including, without limitation, any convertible
notes, convertible preferred stock, warrants or rights to receive shares of
Common Stock) subject to a limitation on conversion or exercise analogous to the
limitation contained herein. Except as set forth in the preceding sentence, for
purposes of this paragraph, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended.
Section 1.
(a) Securities Purchase Agreement. This Warrant is one of the
warrants (the "PREFERRED SHARE WARRANTS") issued pursuant to the terms of that
certain Securities Purchase Agreement dated as of March 22, 1999, among the
Company and the Buyers referred to therein (the "SECURITIES PURCHASE
AGREEMENT").
(b) Definitions. The following words and terms as used in this
Warrant shall have the following meanings:
(i) "APPROVED STOCK PLAN" shall mean (i) any stock option or
similar plan which has been approved by the Company's Board of Directors
pursuant to which the Company's securities may be issued to any employee,
officer or director; (ii) the Company's shareholder rights plan disclosed in its
Current Report on Form 8-K dated March 25, 1999 and filed with the Securities
and Exchange Commission ("SEC") on March 11, 1999; (iii) the Company's Class I
Warrants and Class K Warrants; (iv) the issuance of up to 300,000 shares of
Common Stock in the aggregate to IriSys Research & Development, LLC, provided
that the price per share for which such Common Stock is issued is not less than
the Closing Bid Price on the date of such issuance; and (v) any grant of
options, warrants or similar securities of the Company to scientific and/or
technical advisors and consultants of the Company, provided that (x) such grant
has been approved by the Company's Board of Directors, (y) such grants relate to
the right to purchase, in the aggregate, no more than 500,000 shares of Common
Stock, and (z) the price per share for which Common Stock is issuable upon
exercise of such options, warrants or similar securities is not less than the
Closing Bid Price on the date of such grant.
(ii) "CERTIFICATE OF DETERMINATION" means the Company's
Certificate of Determination of the Preferred Shares.
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<PAGE> 3
(iii) "CLOSING BID PRICE" means, for any security as of any
date, the last closing bid price for such security on the Principal Market (as
defined below) as reported by Bloomberg Financial Markets ("BLOOMBERG"), or, if
the Principal Market is not the principal trading market for such security, the
average of the high and low trading prices on such date of such security on the
principal securities exchange or trading market where such security is listed or
traded as reported by Bloomberg, or if the foregoing do not apply, the average
of the high and low trading prices on such date of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg. If the Closing Bid Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Bid Price of
such security on such date shall be the fair market value as mutually determined
by the Company and the holders of a majority of the outstanding Preferred Shares
(including, for purposes of this determination, any Preferred Shares with
respect to which the Closing Bid Price is being determined). If the Company and
the holders of a majority of the outstanding Preferred Shares are unable to
agree upon the fair market value of the Common Stock, then such dispute shall be
resolved pursuant to Section 2(a) of this Warrant with the term "Closing Bid
Price" being substituted for the term "Market Price." All such determinations
shall be appropriately adjusted for any stock dividend, stock split or other
similar transaction during such period.
(iv) "COMMON STOCK" means (i) the Company's Class A Common
Stock, no par value per share, and (ii) any capital stock into which such common
stock shall have been changed or any capital stock resulting from a
reclassification of such common stock.
(v) "COMMON STOCK DEEMED OUTSTANDING" means, at any given time,
the number of shares of Common Stock actually outstanding at such time, plus the
number of shares of Common Stock deemed to be outstanding pursuant to Sections
8(b)(i) and 8(b)(ii) hereof regardless of whether the Options (as defined below)
or Convertible Securities (as defined below) are actually exercisable or
convertible at such time, but excluding any shares of Common Stock owned or held
by or for the account of the Company or issuable upon exercise of the Preferred
Share Warrants.
(vi) "CONVERTIBLE SECURITIES" means any stock or securities
(other than Options) directly or indirectly convertible into or exchangeable for
Common Stock.
(vii) "EXPIRATION DATE" means the date five (5) years from the
date of this Warrant or, if such date falls on a Saturday, Sunday or other day
on which banks are required or authorized to be closed in the City of Chicago or
the State of Illinois or on which trading does not take place on the principal
exchange or automated quotation system on which the Common Stock is traded (a
"HOLIDAY"), the next date that is not a Holiday.
(viii) "MARKET PRICE" means, with respect to any security, the
arithmetic average of the Closing Bid Prices for such security for the five (5)
consecutive trading days immediately preceding a date of determination.
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<PAGE> 4
(ix) "OPTIONS" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.
(x) "OTHER SECURITIES" means (i) those warrants of the Company
issued prior to, and outstanding on, the date of issuance of this Warrant, (ii)
the Preferred Shares and (iii) the shares of Common Stock issued upon conversion
of the Preferred Shares.
(xi) "PERSON" means an individual, a limited liability company,
a partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
(xii) "PREFERRED SHARES" means the shares of the Company's
Series D Convertible Preferred Stock issued pursuant to the Securities Purchase
Agreement.
(xiii) "PRINCIPAL MARKET" means the Nasdaq National Market.
(xiv) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(xv) "WARRANT" means this Warrant and all Warrants issued in
exchange, transfer or replacement of any thereof.
(xvi) "WARRANT EXERCISE PRICE" means, with respect to (I)
Preferred Share Warrants issued prior to the Warrant Exercise Price Trigger Date
(A) on any date prior to the Warrant Exercise Price Trigger Date, $1.05 (subject
to equitable adjustment for stock splits, stock dividends, stock combinations
and similar transactions) and (B) on any date on or after the Warrant Exercise
Price Trigger Date, 120% of the average of the Closing Bid Prices for the Common
Stock during the five (5) consecutive trading days immediately preceding the
Warrant Exercise Price Trigger Date (the "TRIGGER DATE PRICE") (provided,
however, that if a line of credit for at least $2,000,000 in immediately
available funds has not been executed by the Company and a reputable financial
institution on or prior to the date which is 110 days after the Initial Issuance
Date (as defined in the Certificate of Determination), then on any date after
the Warrant Exercise Price Trigger Date, the Warrant Exercise Price shall be the
lesser of the Warrant Exercise Price in effect immediately prior to the Warrant
Exercise Price Trigger Date and the Trigger Date Price) or (II) Preferred Share
Warrants issued on or after the Warrant Exercise Price Trigger Date, 120% of the
average of the Closing Bid Prices of the Common Stock during the five (5)
consecutive trading days immediately preceding the date of this Warrant, subject
in each case to adjustment as provided herein.
(xvii) "WARRANT EXERCISE PRICE TRIGGER DATE" means the date
which is 120 days after the Initial Issuance Date (as defined in the Certificate
of Determination).
Section 2. Exercise of Warrant.
-4-
<PAGE> 5
(a) Subject to the terms and conditions hereof, this Warrant may be
exercised by the holder hereof then registered on the books of the Company, in
whole or in part, at any time on any business day on or after the opening of
business on the date hereof and prior to 11:59 P.M. Central Time on the
Expiration Date by (i) delivery of a written notice, in the form of the
subscription notice attached as Exhibit A hereto (the "EXERCISE NOTICE"), of
such holder's election to exercise this Warrant, which notice shall specify the
number of Warrant Shares to be purchased, (ii) (A) payment to the Company of an
amount equal to the Warrant Exercise Price multiplied by the number of Warrant
Shares as to which this Warrant is being exercised (plus any applicable issue or
transfer taxes) (the "AGGREGATE EXERCISE PRICE") in cash or by check or wire
transfer or (B) by notifying the Company that this Warrant is being exercised
pursuant to a Cashless Exercise (as defined in Section 2(f)), and (iii) the
surrender to a common carrier for delivery to the Company as soon as practicable
following such date, this Warrant (or an indemnification undertaking with
respect to this Warrant in the case of its loss, theft or destruction);
provided, that if such Warrant Shares are to be issued in any name other than
that of the registered holder of this Warrant, such issuance shall be deemed a
transfer and the provisions of Section 7 shall be applicable. In the event of
any exercise of the rights represented by this Warrant in compliance with this
Section 2(a), a certificate or certificates for the Warrant Shares so purchased,
in such denominations as may be requested by the holder hereof and registered in
the name of, or as directed by, the holder, shall be delivered at the Company's
expense to, or as directed by, such holder as soon as practicable, and in no
event later than two business days, after the Company's receipt of the Exercise
Notice, the Aggregate Exercise Price and this Warrant (or an indemnification
undertaking with respect to this Warrant in the case of its loss, theft or
destruction). Upon delivery of the Exercise Notice and Aggregate Exercise Price
referred to in clause (ii)(A) above or notification to the Company of a Cashless
Exercise referred to in Section 2(f), the holder of this Warrant shall be deemed
for all corporate purposes to have become the holder of record of the Warrant
Shares with respect to which this Warrant has been exercised, irrespective of
the date of delivery of this Warrant as required by clause (iii) above or the
certificates evidencing such Warrant Shares. In the case of a dispute as to the
determination of the Warrant Exercise Price, the last reported sale price (as
reported by Bloomberg) or the Market Price of a security or the arithmetic
calculation of the Warrant Shares, the Company shall promptly issue to the
holder the number of shares of Common Stock that is not disputed and shall
submit the disputed determinations or arithmetic calculations to the holder via
facsimile within three (3) business days of receipt of the holder's subscription
notice. If the holder and the Company are unable to agree upon the determination
of the Warrant Exercise Price, the last reported sale price (as reported by
Bloomberg) or Market Price or arithmetic calculation of the Warrant Shares
within one day of such disputed determination or arithmetic calculation being
submitted to the holder, then the Company shall immediately submit via facsimile
(i) the disputed determination of the Warrant Exercise Price, the last reported
sale price (as reported by Bloomberg) or the Market Price to an independent,
reputable investment banking firm or (ii) the disputed arithmetic calculation of
the Warrant Shares to its independent, outside accountant. The Company shall use
its best efforts to cause the investment banking firm or the accountant, as the
case may be, to perform the determinations or calculations and notify the
Company and the holder of the results no later than forty-eight (48) hours from
the time it receives the disputed
-5-
<PAGE> 6
determinations or calculations. Such investment banking firm's or accountant's
determination or calculation, as the case may be, shall be deemed conclusive
absent manifest error.
(b) Unless the rights represented by this Warrant shall have expired
or shall have been fully exercised, the Company shall, as soon as practicable
and in no event later than five (5) business days after any exercise and at its
own expense, issue a new Warrant identical in all respects to this Warrant
exercised, except that it shall represent rights to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this Warrant
exercised, less the number of Warrant Shares with respect to which such Warrant
was exercised.
(c) No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock issued
upon exercise of this Warrant shall be rounded up or down to the nearest whole
number.
(d) If the Company shall fail for any reason or for no reason to
issue to the holder on a timely basis as described in this Section 2, a
certificate for the number of shares of Common Stock to which the holder is
entitled upon the holder's exercise of this Warrant or a new Warrant for the
number of shares of Common Stock to which such holder is entitled pursuant to
Section 2(b) hereof, the Company shall, in addition to any other remedies under
this Warrant or the Securities Purchase Agreement or otherwise available to such
holder, including any indemnification under Section 8 of the Securities Purchase
Agreement, pay as additional damages in cash to such holder on each day the
issuance of such Common Stock certificate or new Warrant, as the case may be, is
not timely effected, an amount equal to 0.5% of the product of (A) the sum of
the number of shares of Common Stock not issued to the holder on a timely basis
and to which the holder is entitled and/or, the number of shares represented by
the portion of this Warrant which is not being converted, as the case may be,
and (B) the average of the Closing Bid Prices of the Common Stock for the three
(3) consecutive trading days immediately preceding the last possible date which
the Company could have issued such Common Stock or Warrant, as the case may be,
to the holder without violating this Section 2.
(e) If the registration statement (the "REGISTRATION STATEMENT")
covering the resale of the Warrant Shares issuable upon conversion of this
Warrant required to be filed by the Company pursuant to the Registration Rights
Agreement between the Company and the original purchasers of the Preferred Share
Warrants (the "REGISTRATION RIGHTS AGREEMENT") is not (A) declared effective by
the SEC on or before the Effectiveness Deadline (as defined in the Registration
Rights Agreement), or (B) if after the Registration Statement has been declared
effective by the SEC, sales cannot be made pursuant to the Registration
Statement (whether because of a failure to keep the Registration Statement
effective, to disclose such information as is necessary for sales to be made
pursuant to the Registration Statement, to register sufficient shares of Common
Stock or otherwise), then, as partial relief for the damages to the holder of
this Warrant by reason of any such delay in or reduction of its ability to sell
the underlying shares of Common Stock (which remedy shall not be exclusive of
any other remedies available at law or in equity), the Warrant Exercise Price
shall be adjusted as follows: the Warrant Exercise Price
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in effect at such time shall be reduced by an amount equal to the product of (A)
the Warrant Exercise Price in effect as of the original issuance date of this
Warrant multiplied by (B) the sum of (I) 0.015, if the Registration Statement is
not declared effective by the Effectiveness Deadline, plus (II) the product of
(x) 0.0005 multiplied by (y) the sum of (i) the number of days after the
Effectiveness Deadline that the Registration Statement has not been declared
effective by the SEC and (ii) the number of days that sales cannot be made
pursuant to the Registration Statement in accordance with the Registration
Rights Agreement after the Registration Statement has been declared effective.
(f) Notwithstanding anything contained herein to the contrary, the
holder of this Warrant may, at its election exercised in its sole discretion,
exercise this Warrant in whole or in part and, in lieu of making the cash
payment otherwise contemplated to be made to the Company upon such exercise in
payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined according to the
following formula (a "CASHLESS EXERCISE"):
Net Number = (A x B) - (A x C)
-----------------
B
For purposes of the foregoing formula:
A= the total number shares with respect to which this Warrant is
then being exercised.
B= the last reported sale price (as reported by Bloomberg) of
the Common Stock on the date immediately preceding the date of
the subscription notice.
C= the Warrant Exercise Price then in effect at the time of such
exercise.
Section 3. Covenants as to Common Stock. The Company hereby covenants and
agrees as follows:
(a) This Warrant is, and any Preferred Share Warrants issued in
substitution for or replacement of this Warrant will upon issuance be, duly
authorized and validly issued.
(b) All Warrant Shares which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof.
(c) During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved at least 100% of the
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<PAGE> 8
number of shares of Common Stock needed to provide for the exercise of the
rights then represented by this Warrant and the par value of said shares will at
all times be less than or equal to the applicable Warrant Exercise Price.
(d) The Company shall promptly secure the listing of the shares of
Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation system, as
the case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
(e) The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. No impairment of the designations, preferences and rights of the
Preferred Shares contained in the Certificate of Determination or any waiver
thereof which has an adverse effect on the rights granted hereunder shall be
given effect until the Company has taken appropriate action (satisfactory to the
holders of Preferred Share Warrants representing a majority of the shares of
Common Stock issuable upon the exercise of such Preferred Share Warrants then
outstanding) to avoid such adverse effect with respect to this Warrant. Without
limiting the generality of the foregoing, the Company (i) will not increase the
par value of any shares of Common Stock receivable upon the exercise of this
Warrant above the Warrant Exercise Price then in effect, and (ii) will take all
such actions as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant.
(f) This Warrant will be binding upon any entity succeeding to the
Company by merger, consolidation or acquisition of all or substantially all of
the Company's assets.
Section 4. Taxes. The Company shall pay any and all taxes which may be
payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant.
Section 5. Warrant Holder Not Deemed a Stockholder. Except as otherwise
specifically provided herein, no holder of this Warrant shall be entitled to
vote or receive dividends or be deemed the holder of shares of Common Stock for
any purpose, nor shall anything
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<PAGE> 9
contained in this Warrant be construed to confer upon the holder hereof, as
such, any of the rights of a shareholder of the Company or any right to vote,
give or withhold consent to any corporate action (whether any reorganization,
issue of stock, reclassification of stock, consolidation, merger, conveyance or
otherwise), receive notice of meetings, receive dividends or subscription
rights, or otherwise, prior to the issuance to the holder of this Warrant of the
Warrant Shares which such holder is then entitled to receive upon the due
exercise of this Warrant. In addition, nothing contained in this Warrant shall
be construed as imposing any liabilities on such holder to purchase any
securities (upon exercise of this Warrant or otherwise) or as a shareholder of
the Company, whether such liabilities are asserted by the Company or by
creditors of the Company. Notwithstanding this Section 5, the Company will
provide the holder of this Warrant with copies of the same notices and other
information given to the shareholders of the Company generally,
contemporaneously with the giving thereof to the shareholders.
Section 6. Representations of Holder. The holder of this Warrant, by the
acceptance hereof, represents that it is acquiring this Warrant and the Warrant
Shares for its own account for investment only and not with a view towards, or
for resale in connection with, the public sale or distribution of this Warrant
or the Warrant Shares, except pursuant to sales registered or exempted under the
Securities Act; provided, however, that by making the representations herein,
the holder does not agree to hold this Warrant or any of the Warrant Shares for
any minimum or other specific term and reserves the right to dispose of this
Warrant and the Warrant Shares at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act. The holder of
this Warrant further represents, by acceptance hereof, that, as of the date of
this Warrant, such holder is an "accredited investor" as such term is defined in
Rule 501(a)(1) of Regulation D promulgated by the Securities and Exchange
Commission under the Securities Act (an "ACCREDITED INVESTOR"). Upon exercise of
this Warrant, the holder shall, if requested by the Company, confirm in writing,
in a form, scope and substance reasonably satisfactory to the Company, that the
Warrant Shares so purchased are being acquired solely for the holder's own
account and not as a nominee for any other party, for investment, and not with a
view toward distribution or resale and that such holder is an Accredited
Investor. If such holder cannot make such representations because they would be
factually incorrect, it shall be a condition to such holder's exercise of this
Warrant that the Company receive such other representations as the Company
considers reasonably necessary to assure the Company that the issuance of its
securities upon exercise of this Warrant shall not violate any United States or
state securities laws.
Section 7. Ownership and Transfer.
(a) The Company shall maintain at its principal executive offices (or
such other office or agency of the Company as it may designate by notice to the
holder hereof), a register for this Warrant, in which the Company shall record
the name and address of the person in whose name this Warrant has been issued,
as well as the name and address of each transferee. The Company may treat the
person in whose name any Warrant is registered on such register as the owner and
holder thereof for all purposes, notwithstanding any notice to the contrary, but
in all events recognizing any transfers made in accordance with the terms of
this Warrant.
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<PAGE> 10
(b) This Warrant and the rights granted to the holder hereof are
transferable, in whole or in part, upon surrender of this Warrant, together with
a properly executed warrant power in the form of Exhibit B attached hereto;
provided, however, that any transfer or assignment shall be subject to the
conditions set forth in Section 7(c) below.
(c) The holder of this Warrant understands that this Warrant has not
been and is not expected to be, registered under the Securities Act or any state
securities laws, and may not be offered for sale, sold, assigned or transferred
unless (a) subsequently registered thereunder, or (b) such holder shall have
delivered to the Company an opinion of counsel, in generally acceptable form, to
the effect that the securities to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration;
provided that (i) any sale of such securities made in reliance on Rule 144
promulgated under the Securities Act may be made only in accordance with the
terms of said Rule and further, if said Rule is not applicable, any resale of
such securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the Securities Act) may require compliance with some other exemption
under the Securities Act or the rules and regulations of the Securities and
Exchange Commission thereunder; and (ii) neither the Company nor any other
person is under any obligation to register the Preferred Share Warrants under
the Securities Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder.
(d) The Company is obligated to register the Warrant Shares for
resale under the Securities Act pursuant to the Registration Rights Agreement
dated March 22, 1999 by and between the Company and the Buyers listed on the
signature page thereto (the "REGISTRATION RIGHTS AGREEMENT") and the initial
holder of this Warrant (and certain assignees thereof) is entitled to the
registration rights in respect of the Warrant Shares as set forth in the
Registration Rights Agreement.
Section 8. Adjustment of Warrant Exercise Price and Number of Shares. The
Warrant Exercise Price and the number of shares of Common Stock issuable upon
exercise of this Warrant shall be adjusted from time to time as follows:
(a) Adjustment of Warrant Exercise Price and Number of Shares upon
Issuance of Common Stock. If and whenever on or after the date of issuance of
this Warrant, the Company issues or sells, or in accordance with Section 8(b) is
deemed to have issued or sold, any shares of Common Stock (including the
issuance or sale of shares of Common Stock owned or held by or for the account
of the Company, but excluding shares of Common Stock deemed to have been issued
by the Company in connection with an Approved Stock Plan or upon exercise or
conversion of the Other Securities) for a consideration per share less than the
Warrant Exercise Price in effect immediately prior to such time (the "APPLICABLE
PRICE"), then immediately after such issue or sale the Warrant Exercise Price
then in effect shall be reduced to an amount equal to the product of (x) the
Warrant Exercise Price in effect immediately prior to such issue or sale and (y)
the quotient determined by dividing (1) the sum of (I) the product derived by
multiplying the
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<PAGE> 11
Applicable Price by the number of shares of Common Stock Deemed Outstanding
immediately prior to such issue or sale, plus (II) the consideration, if any,
received by the Company upon such issue or sale, by (2) the product derived by
multiplying the (I) Applicable Price by (II) the number of shares of Common
Stock Deemed Outstanding immediately after such issue or sale. Upon each such
adjustment of the Warrant Exercise Price hereunder, the number of shares of
Common Stock acquirable upon exercise of this Warrant shall be adjusted to the
number of shares determined by multiplying the Warrant Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
acquirable upon exercise of this Warrant immediately prior to such adjustment
and dividing the product thereof by the Warrant Exercise Price resulting from
such adjustment.
(b) Effect on Warrant Exercise Price of Certain Events. For purposes
of determining the adjusted Warrant Exercise Price under Section 8(a) above, the
following shall be applicable:
(i) Issuance of Options. If the Company in any manner grants any
Options and the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion or exchange of
any Convertible Securities issuable upon exercise of any such Option is less
than the Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share. For purposes of this
Section 8(b)(i), the "lowest price per share for which one share of Common Stock
is issuable upon exercise of such Options or upon conversion or exchange of such
Convertible Securities" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any
one share of Common Stock upon the granting or sale of the Option, upon exercise
of the Option and upon conversion or exchange of any Convertible Security
issuable upon exercise of such Option. No further adjustment of the Warrant
Exercise Price shall be made upon the actual issuance of such Common Stock or of
such Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such Convertible
Securities. Notwithstanding the foregoing, no adjustment shall be made pursuant
to this Section 8(b)(i) to the extent that such adjustment is based solely on
the fact that the Convertible Securities issuable upon exercise of such Option
are convertible into or exchangeable for Common Stock at a price which varies
with the market price of the Common Stock.
(ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities and the lowest price per share
for which one share of Common Stock is issuable upon such conversion or exchange
thereof is less than the Applicable Price, then such share of Common Stock shall
be deemed to be outstanding and to have been issued and sold by the Company at
the time of the issuance or sale of such Convertible Securities for such price
per share. For the purposes of this Section 8(b)(ii), the "lowest price per
share for which one share of Common Stock is issuable upon such conversion or
exchange" shall be equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company
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<PAGE> 12
with respect to one share of Common Stock upon the issuance or sale of the
Convertible Security and upon conversion or exchange of such Convertible
Security. No further adjustment of the Warrant Exercise Price shall be made upon
the actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of the
Warrant Exercise Price had been or are to be made pursuant to other provisions
of this Section 8(b), no further adjustment of the Warrant Exercise Price shall
be made by reason of such issue or sale. Notwithstanding the foregoing, no
adjustment shall be made pursuant to this Section 8(b)(ii) to the extent that
such adjustment is based solely on the fact that such Convertible Securities are
convertible into or exchangeable for Common Stock at a price which varies with
the market price of the Common Stock.
(iii) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock changes at any time, the Warrant Exercise Price
in effect at the time of such change shall be adjusted to the Warrant Exercise
Price which would have been in effect at such time had such Options or
Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold and the number of shares of Common Stock
acquirable hereunder shall be correspondingly readjusted. For purposes of this
Section 8(b)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the date of issuance of this Warrant are changed in the manner
described in the immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such
change. No adjustment shall be made if such adjustment would result in an
increase of the Warrant Exercise Price then in effect.
(c) Effect on Warrant Exercise Price of Certain Events. For purposes
of determining the adjusted Warrant Exercise Price under Sections 8(a) and 8(b),
the following shall be applicable:
(i) Calculation of Consideration Received. In case any Option is
issued in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $.01. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the net amount received by the Company therefor. If any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of such consideration received by the Company will be the
fair value of such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by the Company
will be the Market Price of such securities for the twenty (20) consecutive
trading days immediately preceding
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<PAGE> 13
the date of receipt. If any Common Stock, Options or Convertible Securities are
issued to the owners of the non-surviving entity in connection with any merger
in which the Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair value of such portion of the net assets
and business of the non-surviving entity as is attributable to such Common
Stock, Options or Convertible Securities, as the case may be. The fair value of
any consideration other than cash or securities will be determined jointly by
the Company and the holders of Preferred Share Warrants representing a majority
of the shares of Common Stock obtainable upon exercise of the Preferred Share
Warrants then outstanding. If such parties are unable to reach agreement within
ten (10) days after the occurrence of an event requiring valuation (the
"VALUATION EVENT"), the fair value of such consideration will be determined
within five business days after the tenth (10th) day following the Valuation
Event by an independent, reputable appraiser jointly selected by the Company and
the holders of Preferred Share Warrants representing a majority of the shares of
Common Stock obtainable upon exercise of the Preferred Share Warrants then
outstanding. The determination of such appraiser shall be final and binding upon
all parties and the fees and expenses of such appraiser shall be borne by the
Company.
(ii) Record Date. If the Company takes a record of the holders
of Common Stock for the purpose of entitling them (1) to receive a dividend or
other distribution payable in Common Stock, Options or Convertible Securities or
(2) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(d) Adjustment of Warrant Exercise Price upon Subdivision or
Combination of Common Stock. If the Company at any time after the date of
issuance of this Warrant subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Warrant Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced and
the number of shares of Common Stock obtainable upon exercise of this Warrant
will be proportionately increased. If the Company at any time after the date of
issuance of this Warrant combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Warrant Exercise Price in effect immediately prior
to such combination will be proportionately increased and the number of shares
of Common Stock obtainable upon exercise of this Warrant will be proportionately
decreased.
(e) Distribution of Assets. If the Company shall declare or make any
dividend or other distribution of its assets (or rights to acquire its assets)
to holders of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off, reclassification, corporate
rearrangement or other transaction) (a "DISTRIBUTION"), at any time after the
issuance of this Warrant, then, in each such case:
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<PAGE> 14
(i) the Warrant Exercise Price in effect immediately prior to
the close of business on the record date fixed for the determination of holders
of Common Stock entitled to receive the Distribution shall be reduced, effective
as of the close of business on such record date, to a price determined by
multiplying such Warrant Exercise Price by a fraction of which (A) the numerator
shall be the Closing Bid Price on the trading day immediately preceding such
record date minus the value of the Distribution (as determined in good faith by
the Company's Board of Directors) applicable to one share of Common Stock, and
(B) the denominator shall be the Closing Bid Price on the trading day
immediately preceding such record date; and
(ii) either (A) the number of Warrant Shares obtainable upon
exercise of this Warrant shall be increased to a number of shares equal to the
number of shares of Common Stock obtainable immediately prior to the close of
business on the record date fixed for the determination of holders of Common
Stock entitled to receive the Distribution multiplied by the reciprocal of the
fraction set forth in the immediately preceding clause (i), or (B) in the event
that the Distribution is of common stock of a company whose common stock is
traded on a national securities exchange or a national automated quotation
system, then the holder of this Warrant shall receive an additional warrant to
purchase Common Stock, the terms of which shall be identical to those of this
Warrant, except that such warrant shall be exercisable into the amount of the
assets that would have been payable to the holder of this Warrant pursuant to
the Distribution had the holder exercised this Warrant immediately prior to such
record date and with an exercise price equal to the amount by which the exercise
price of this Warrant was decreased with respect to the Distribution pursuant to
the terms of the immediately preceding clause (i).
(f) Certain Events. If any event occurs of the type contemplated by
the provisions of this Section 8 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the Warrant
Exercise Price and the number of shares of Common Stock obtainable upon exercise
of this Warrant so as to protect the rights of the holders of the Preferred
Share Warrants; provided that no such adjustment will increase the Warrant
Exercise Price or decrease the number of shares of Common Stock obtainable as
otherwise determined pursuant to this Section 8.
(g) Notices.
(i) Immediately upon any adjustment of the Warrant Exercise
Price, the Company will give written notice thereof to the holder of this
Warrant, setting forth in reasonable detail, and certifying, the calculation of
such adjustment.
(ii) The Company will give written notice to the holder of this
Warrant at least twenty (20) days prior to the date on which the Company closes
its books or takes a record (A) with respect to any dividend or distribution
upon the Common Stock, (B) with respect to any pro rata subscription offer to
holders of Common Stock or (C) for determining rights to vote with
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respect to any Organic Change (as defined below), dissolution or liquidation,
provided that such information shall be made known to the public prior to or in
conjunction with such notice being provided to such holder.
(iii) The Company will also give written notice to the holder of
this Warrant at least twenty (20) days prior to the date on which any Organic
Change, dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such holder.
Section 9. Purchase Rights; Reorganization, Reclassification,
Consolidation, Merger or Sale.
(a) In addition to any adjustments pursuant to Section 8 above,
if at any time the Company grants, issues or sells any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
pro rata to the record holders of any class of Common Stock (the "PURCHASE
RIGHTS"), then the holder of this Warrant will be entitled to acquire, upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights which
such holder could have acquired if such holder had held the number of shares of
Common Stock acquirable upon complete exercise of this Warrant immediately
before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights.
(b) Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "ORGANIC CHANGE." Prior to
the consummation of any (i) sale of all or substantially all of the Company's
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will secure from the Person
purchasing such assets or the successor resulting from such Organic Change (in
each case, the "ACQUIRING ENTITY") written agreement (in form and substance
reasonably satisfactory to the holders of Preferred Share Warrants representing
a majority of the shares of Common Stock obtainable upon exercise of the
Preferred Share Warrants then outstanding) to deliver to each holder of
Preferred Share Warrants in exchange for such Warrants, a security of the
Acquiring Entity evidenced by a written instrument substantially similar in form
and substance to this Warrant and satisfactory to the holders of the Preferred
Share Warrants (including, an adjusted warrant exercise price equal to the value
for the Common Stock reflected by the terms of such consolidation, merger or
sale, and exercisable for a corresponding number of shares of Common Stock
acquirable and receivable upon exercise of the Preferred Share Warrants, if the
value so reflected is less than the Warrant Exercise Price in effect immediately
prior to such consolidation, merger or sale). Prior to the consummation of any
other Organic Change, the Company shall make appropriate provision (in form and
substance reasonably
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satisfactory to the holders of Preferred Share Warrants representing a majority
of the shares of Common Stock obtainable upon exercise of the Preferred Share
Warrants then outstanding) to insure that each of the holders of the Preferred
Share Warrants will thereafter have the right to acquire and receive in lieu of
or in addition to (as the case may be) the shares of Common Stock immediately
theretofore acquirable and receivable upon the exercise of such holder's
Preferred Share Warrants, such shares of stock, securities or assets that would
have been issued or payable in such Organic Change with respect to or in
exchange for the number of shares of Common Stock which would have been
acquirable and receivable upon the exercise of such holder's Warrant as of the
date of such Organic Change (without taking into account any limitations or
restrictions on the exerciseability of this Warrant).
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant
is lost, stolen, mutilated or destroyed, the Company shall, on receipt of an
indemnification undertaking, issue a new Warrant of like denomination and tenor
as this Warrant so lost, stolen, mutilated or destroyed.
Section 11. Notice. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Warrant must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
AVANIR Pharmaceuticals
9393 Towne Centre Drive, Suite 200
San Diego, California 92121
Telephone: 619-558-0364
Facsimile: 619-455-8059
Attention: Gregory P. Hanson
With copy to:
Baker & McKenzie
101 West Broadway, 12th Floor
San Diego, California 92101
Telephone: 619-236-1441
Facsimile: 619-236-0429
Attention: John J. Hentrich, Esq.
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If to a holder of this Warrant, to it at the address and facsimile number set
forth on the Schedule of Buyers to the Securities Purchase Agreement, with
copies to such holder's representatives as set forth on such Schedule of Buyers,
or at such other address and facsimile as shall be delivered to the Company upon
the issuance or transfer of this Warrant. Each party shall provide five (5)
days' prior written notice to the other party of any change in address or
facsimile number. Written confirmation of receipt (A) given by the recipient of
such notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
Section 12. Amendments. This Warrant and any term hereof may be changed,
waived, discharged, or terminated only by an instrument in writing signed by the
party or holder hereof against which enforcement of such change, waiver,
discharge or termination is sought.
Section 13. Limitation on Number of Warrant Shares. The Company shall not
be obligated to issue any Warrant Shares upon exercise of this Warrant if the
issuance of such shares of Common Stock would cause the Company to exceed that
number of shares of Common Stock which the Company may issue upon exercise of
this Warrant (the "EXCHANGE CAP") without breaching the Company's obligations
under the rules or regulations of Principal Market, except that such limitation
shall not apply in the event that the Company (a) obtains the approval of its
shareholders as required by the Principal Market (or any successor rule or
regulation) for issuances of Common Stock in excess of such amount or (b)
obtains a written opinion from outside counsel to the Company that such approval
is not required, which opinion shall be reasonably satisfactory to the holders
of Warrants representing a majority of the Warrant Shares then issuable upon
exercise of outstanding Warrants. Until such approval or written opinion is
obtained, the holder of this Warrant shall not be issued, upon exercise of this
Warrant, Warrant Shares in an amount greater than such holder's Cap Allocation
Amount (as defined in the Certificate of Determination). In the event the
Company is prohibited from issuing Warrant Shares as a result of the operation
of this Section 13, the Company shall redeem for cash those Warrant Shares which
can not be issued, at a price equal to the difference between the Market Price
and the Exercise Price of such Warrant Shares as of the date of the attempted
exercise.
Section 14. Date. The date of this Warrant is set forth on the first page
hereof. This Warrant, in all events, shall be wholly void and of no effect after
the close of business on the Expiration Date, except that notwithstanding any
other provisions hereof, the provisions of Section 7 shall continue in full
force and effect after such date as to any Warrant Shares or other securities
issued upon the exercise of this Warrant.
Section 15. Amendment and Waiver. Except as otherwise provided herein, the
provisions of the Preferred Share Warrants may be amended and the Company may
take any
-17-
<PAGE> 18
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of Preferred Share Warrants representing a majority of the shares of
Common Stock obtainable upon exercise of the Preferred Share Warrants then
outstanding; provided that no such action may increase the Warrant Exercise
Price of the Preferred Share Warrants or decrease the number of shares or class
of stock obtainable upon exercise of any Preferred Share Warrants without the
written consent of the holder of such Preferred Share Warrant.
Section 16. Descriptive Headings; Governing Law. The descriptive headings
of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporate
laws of the State of California shall govern all issues concerning the relative
rights of the Company and its shareholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by the internal laws of the State of New York, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York.
[signature page follows]
<PAGE> 19
[signature page to Class J Stock Purchase Warrant]
AVANIR PHARMACEUTICALS
By: _________________________________________
Name: Gregory P. Hanson
Title: Chief Financial Officer
<PAGE> 20
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
AVANIR PHARMACEUTICALS
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("WARRANT SHARES") of AVANIR
Pharmaceuticals, a California corporation (the "COMPANY"), evidenced by the
attached Warrant (the "WARRANT"). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.
1. Form of Warrant Exercise Price. The Holder intends that payment of the
Warrant Exercise Price shall be made as:
____________ a "Cash Exercise" with respect to
____________ _________________ Warrant Shares; and/or
____________ a "Cashless Exercise" with respect to
___________________ Warrant Shares (to the extent
permitted by the terms of the Warrant).
2. Payment of Warrant Exercise Price. In the event that the holder has
elected a Cash Exercise with respect to some or all of the Warrant Shares to be
issued pursuant hereto, the holder shall pay the sum of $___________________ to
the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
Date: _______________ __, ______
________________________________
Name of Registered Holder
By:_____________________________
Name:
Title:
<PAGE> 21
EXHIBIT B TO WARRANT
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the Class A Common Stock of AVANIR Pharmaceuticals, a
California corporation, represented by warrant certificate no. _____, standing
in the name of the undersigned on the books of said corporation. The undersigned
does hereby irrevocably constitute and appoint ______________, attorney to
transfer the warrants of said corporation, with full power of substitution in
the premises.
Dated: _________, ______
________________________________________
By: ___________________________________
Its: ___________________________________
<PAGE> 1
EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT, dated as of March 22, 1999, (THIS
"AGREEMENT") by and among AVANIR Pharmaceuticals (formerly known as LIDAK
Pharmaceuticals), a California corporation with headquarters located at 9393
Towne Centre Drive, Suite 200, San Diego, California 92121 (the "COMPANY"), and
the investors listed on the Schedule of Buyers attached hereto (individually, a
"BUYER" and collectively, the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D ("REGULATION D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 ACT");
B. The Company has authorized the following new series of its
Preferred Stock, no par value per share, which shall be called the Company's
Series D Convertible Preferred Stock ("PREFERRED STOCK"), and which shall be
convertible into shares of the Company's Class A Common Stock, no par value per
share (the "COMMON STOCK") (as converted, the "CONVERSION SHARES"), in
accordance with the terms of the Company's Certificate of Determination of the
Preferred Shares, substantially in the form attached hereto as Exhibit A (the
"CERTIFICATE OF DETERMINATION");
C. The Buyers wish to purchase, upon the terms and conditions stated
in this Agreement, initially an aggregate of 200 shares of the Preferred Stock
(the "INITIAL PREFERRED SHARES") in the respective amounts set forth opposite
each Buyer's name on the Schedule of Buyers along with warrants to purchase up
to 500 shares of Common Stock (as exercised, collectively, the "WARRANT SHARES")
for each share of Preferred Stock purchased, such warrants to be substantially
in the form attached hereto as Exhibit E (the "WARRANTS");
D. Subject to the terms and conditions set forth in this Agreement,
the Buyers will be required to buy and the Company will be required to sell an
aggregate of 100 shares of Preferred Stock (pro rata based on the number of
Initial Preferred Shares each Buyer purchased in relation to the total number of
Initial Preferred Shares) (the "MANDATORY PREFERRED SHARES") along with the
related Warrants;
E. Subject to the terms and conditions set forth in this Agreement,
each Buyer may have the right to purchase up to a number of additional shares of
Preferred Stock (which aggregate number shall not exceed such Buyer's pro rata
portion of 200 shares) equal to the sum of (i) the product of .5 multiplied by
the number of Initial Preferred Shares purchased by such Buyer; (ii)
<PAGE> 2
the number of shares of Preferred Stock held by such Buyer on the date which is
365 days after the Initial Closing Date (as defined below); and (iii) the number
of shares of Preferred Stock converted by such Buyer on or before the date which
is 365 days after the Initial Closing Date at a Conversion Price (as defined in
the Certificate of Determination) equal to the Fixed Conversion Price (as
defined in the Certificate of Determination) of such shares of Preferred Stock
as in effect on the date of conversion (collectively, the "ADDITIONAL PREFERRED
SHARES"), along with the related Warrants (the Initial Preferred Shares, the
Mandatory Preferred Shares and the Additional Preferred Shares collectively are
referred to in this Agreement as the "PREFERRED SHARES");
F. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the form attached hereto as Exhibit B (the
"REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
a. Purchase of Preferred Shares. Subject to satisfaction
(or waiver) of the conditions set forth in Sections 6(a) and 7(a), the Company
shall issue and sell to the Buyers and the Buyers severally shall purchase from
the Company an aggregate of 200 Initial Preferred Shares, in the respective
amounts set forth opposite each Buyer's name on the Schedule of Buyers, along
with the related Warrants (the "INITIAL CLOSING"). Subject to the satisfaction
(or waiver) of the conditions set forth in Sections 1(c), 6(b) and 7(b) below,
each Buyer shall buy and the Company shall sell that number of Mandatory
Preferred Shares equal to such Buyer's pro rata portion of an aggregate of 100
Mandatory Preferred Shares (based on the number of Initial Preferred Shares such
Buyer purchased in relation to the total number of Initial Preferred Shares
issued and sold, along with the related Warrants (the "MANDATORY CLOSING").
Subject to the satisfaction (or waiver) of the conditions set forth in Sections
1(d), 6(c) and 7(c), at the option of each Buyer, the Company shall issue at
multiple closings, if applicable, and sell to such Buyer, and such Buyer may
purchase from the Company, up to that number of Additional Preferred Shares
(which aggregate number shall not exceed such Buyer's pro rata portion of 200
shares) equal to the sum of (i) the product of .5 multiplied by the number of
Initial Preferred Shares purchased by such Buyer, (ii) the number of Preferred
Shares held by such Buyer on the date which is 365 days after the Initial
Closing Date and (iii) the number of Preferred Shares converted by such Buyer,
on or before the date which is 365 days after the Initial Closing Date, at a
Conversion Price equal to the Fixed Conversion Price of such Preferred Shares as
in effect on the corresponding date of conversion, along with the related
Warrants (the "ADDITIONAL CLOSINGS"). (The Initial Closing, the Mandatory
Closing and the Additional Closings collectively are referred to in this
Agreement as the "CLOSINGS"). The aggregate purchase price (the "PURCHASE
PRICE") of each Preferred Share and related Warrant at each of the Closings
shall be $10,000.
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<PAGE> 3
b. The Initial Closing Date. The date and time of the
Initial Closing (the "INITIAL CLOSING DATE") shall be 10:00 a.m. Central Time,
within five (5) business days following the date hereof, subject to satisfaction
(or waiver) of the conditions to the Initial Closing set forth in Sections 6(a)
and 7(a) (or such later date as is mutually agreed to by the Company and the
Buyers). The Initial Closing shall occur on the Initial Closing Date at the
offices of Katten Muchin & Zavis, 525 West Monroe Street, Suite 1600, Chicago,
Illinois 60661-3693.
c. The Mandatory Closing Date. The date and time of the
Mandatory Closing (the "MANDATORY CLOSING DATE") shall be 10:00 a.m. Central
Time, on the tenth (10th) business day following the Mandatory Share Notice Date
(as defined below), subject to satisfaction (or waiver) of the conditions to the
Mandatory Closing set forth in Sections 6(b) and 7(b) and the conditions set
forth in this Section 1(c) (or such later date as is mutually agreed to by the
Company and the Buyers). The Company shall deliver written notice (the
"MANDATORY SHARE NOTICE") to each Buyer on a date (the "MANDATORY SHARE NOTICE
DATE") as soon as reasonably practicable, but in no event later than the first
business day, following the date that the Initial Registration Statement (as
defined in the Registration Rights Agreement) registering the Initial
Registrable Securities (as defined in the Registration Rights Agreement) has
been declared effective by the SEC in accordance with the terms of the
Registration Rights Agreement. The Mandatory Share Notice shall set forth (x)
each Buyer's pro rata portion (based on the number of Initial Preferred Shares
such Buyer purchased in relation to the total number of Initial Preferred Shares
purchased by all of the Buyers) of the aggregate number of the Mandatory
Preferred Shares (which aggregate number shall be 100 Preferred Shares), rounded
to the closest whole Preferred Share, which such Buyer is required to purchase
at such Mandatory Closing, (y) the aggregate Purchase Price for such Buyer's
Mandatory Preferred Shares and (z) the date of the Mandatory Closing Date.
Notwithstanding the foregoing, no Buyer shall be required to purchase the
Mandatory Preferred Shares unless each of the following conditions is satisfied:
(i) during the period beginning on the Mandatory Share Notice Date and ending on
and including the Mandatory Closing Date, the Initial Registration Statement
covering the resale of the Conversion Shares and the Warrant Shares at all times
has been effective and available for the sale of no less than the sum of (I)
200% of the sum of (A) the number of Conversion Shares then issuable upon the
conversion of the then outstanding Initial Preferred Shares and the Mandatory
Preferred Shares to be issued at the Mandatory Closing (as if converted at the
Conversion Price on the Mandatory Share Notice Date and as if the Mandatory
Preferred Shares were issued and outstanding) and (B) the number of Conversion
Shares outstanding as of the Mandatory Share Notice Date and (II) 100% of the
sum of (y) the number of Warrant Shares then issuable upon exercise of the
outstanding Warrants and (z) the number of Warrant Shares outstanding as of the
Mandatory Share Notice Date; (ii) no event constituting a Major Transaction (as
defined in Section 3(c) of the Certificate of Determination), including an
agreement to consummate a Major Transaction, or a Triggering Event (as defined
in Section 3(d) of the Certificate of Determination) shall have occurred nor
shall any pending event which would constitute a Major Transaction have been
publicly disclosed from the period beginning on and including the Initial
Closing Date and ending on and including the Mandatory Closing Date; (iii) at
all times during the period beginning on the date of this Agreement and ending
on and including the Mandatory Closing Date, the Common Stock shall
3
<PAGE> 4
have been authorized for quotation on the Nasdaq National Market or listed on
the American Stock Exchange ("AMEX") or the New York Stock Exchange, Inc.
("NYSE") and shall not have been suspended from trading on such exchanges
(except for a voluntary suspension of not more than one day due to a business
announcement by the Company), nor shall delisting or suspension by such
exchanges have been threatened (except as set forth in the letter to the Company
dated February 8, 1999 from the Nasdaq Stock Market, Inc., provided that the
Company has satisfied the requirements set forth in such letter) either (A) in
writing by such exchanges or (B) by falling below the minimum listing
maintenance requirements of such exchanges; (iv) during the period beginning on
the Initial Closing Date and ending on and including the Mandatory Closing Date,
the Company shall have delivered Conversion Shares upon conversion of the
Preferred Shares on a timely basis as set forth in Section 2(f)(ii) of the
Certificate of Determination and otherwise shall have been in compliance with
and shall not have breached any provision of the Transaction Documents (as
defined below) and the Certificate of Determination;(v) the Company shall have
received the approval of the Company's shareholders, pursuant to Section 4(l),
to issue the Conversion Shares upon the Conversion of the Preferred Shares and
the Warrant Shares upon exercise of the Warrants in excess of the Exchange Cap
(as defined in the Certificate of Determination); and (vi) the Company shall not
have previously delivered a Mandatory Share Notice. The Mandatory Closing shall
occur on the Mandatory Closing Date at the offices of Katten Muchin & Zavis, 525
West Monroe Street, Suite 1600, Chicago, Illinois 60661-3693.
d. The Additional Closing Date. The date and time of the
Additional Closings (the "ADDITIONAL CLOSING DATES") shall be 10:00 a.m. Central
time, on the date specified in the Additional Share Notice (as defined below),
subject to satisfaction (or waiver) of the conditions to each of the Additional
Closings set forth in Sections 6(c) and 7(c) and the conditions contained in
this Section 1(d) (or such later date as is mutually agreed to by the Company
and the Buyers). At any time during the period beginning on the Initial Closing
Date and ending on and including the Maturity Date (as defined in the
Certificate of Determination) of the Initial Preferred Shares, but subject to
the requirements of Sections 6(c) and 7(c) and the conditions contained in this
Section 1(d); each Buyer may purchase, at such Buyer's option, Additional
Preferred Shares by delivering written notice to the Company (an "ADDITIONAL
SHARE NOTICE") at least five (5) business days (the "ADDITIONAL SHARE NOTICE
DATE") prior to the Additional Closing Date set forth in the Additional Share
Notice; provided, however, that the aggregate purchase price of such Additional
Preferred Shares shall not be less than $250,000 for any Additional Closing;
and, provided further, that the aggregate number of Additional Preferred Shares
purchased by any Buyer shall not exceed such Buyer's pro rata portion (based on
the number of Initial Preferred Shares such Buyer purchased in relation to the
total number of Initial Preferred Shares purchased by all of the Buyers) of 200
Preferred Shares. The Additional Share Notice shall set forth (i) the number of
Additional Preferred Shares such Buyer will purchase (which number shall not (X)
exceed such Buyer's pro rata portion of 200 shares, or (Y) exceed the sum of (a)
the product of .5 multiplied by the number of Initial Preferred Shares purchased
by such Buyer, (b) the number of Preferred Shares held by such Buyer on the date
which is 365 days after the Initial Closing Date and (c) the number of Preferred
Shares converted by such Buyer on or before the date which is 365 days after the
Initial Closing Date at a Conversation Price equal to the Fixed Conversion Price
of such
4
<PAGE> 5
Preferred Shares as in effect on the date of conversion), (ii) the aggregate
Purchase Price for the Additional Preferred Shares and (iii) the date for the
Additional Closing Date. A Buyer shall only be allowed to deliver an Additional
Share Notice on a day on which the Closing Bid Price (as defined in the
Certificate of Determination) of the Common Stock is greater than the Market
Price (as defined in the Certificate of Determination) in effect on the Initial
Closing Date. The Additional Closing shall occur on the Additional Closing Date
at the offices of Katten Muchin & Zavis, 525 West Monroe Street, Suite 1600,
Chicago, Illinois 60661-3693. (The Initial Closing Date, the Mandatory Closing
Date, and the Additional Closing Dates collectively are referred to in this
Agreement as the "CLOSING DATES").
e. Form of Payment. On each of the Closing Dates, (i) each
Buyer shall pay the Purchase Price to the Company for the Preferred Shares and
the related Warrants to be issued and sold to such Buyer at the respective
Closing, by wire transfer of immediately available funds in accordance with the
Company's written wire instructions, and (ii) the Company shall deliver to each
Buyer, stock certificates (in the denominations as such Buyer shall request)
(the "STOCK CERTIFICATES") representing such number of the Preferred Shares
which such Buyer is then purchasing (as indicated opposite such Buyer's name on
the Schedule of Buyers or in the applicable notice), along with the related
Warrants, duly executed on behalf of the Company and registered in the name of
such Buyer or its designee. The Stock Certificates shall bear the restrictive
legends required pursuant to Section 2(g).
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only
itself that:
a. Investment Purpose. Such Buyer (i) is acquiring the
Preferred Shares and the Warrants, (ii) upon conversion of the Preferred Shares,
will acquire the Conversion Shares then issuable and (iii) upon exercise of the
Warrants, will acquire the Warrant Shares issuable upon exercise thereof (the
Preferred Shares, the Warrants, the Conversion Shares and the Warrant Shares,
collectively are referred to herein as the "SECURITIES"), for its own account
for investment only and not with a view towards, or for resale in connection
with, the public sale or distribution thereof, except pursuant to sales
registered or exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer does not agree to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D. Such Buyer has
such knowledge, sophistication and experience in business and financial matters
so as to be capable of evaluating the merits and risks of acquiring the
Preferred Shares and the Warrants.
5
<PAGE> 6
c. Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire such Securities.
d. Information. Such Buyer and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities which have been requested by such Buyer. Such Buyer and its advisors,
if any, have been afforded the opportunity to ask questions of the Company,
including the Company's management. Neither such inquiries nor any other due
diligence investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer's right to rely on the
Company's representations and warranties contained in Sections 3 and 9(m) below.
Such Buyer understands that its investment in the Securities involves a high
degree of risk. Such Buyer has sought such accounting, legal and tax advice as
it has considered necessary to make an informed investment decision with respect
to its acquisition of the Securities.
e. No Governmental Review. Such Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Securities
or the fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. Such Buyer understands that except
as provided in the Registration Rights Agreement: (i) the Securities have not
been and are not being registered under the 1933 Act or any state securities
laws, and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered for resale thereunder, (B) such Buyer shall have
delivered to the Company an opinion of counsel, in a form, scope and substance
reasonably acceptable to the Company or its counsel, to the effect that such
Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) such Buyer
provides the Company with assurance reasonably acceptable to the Company or its
counsel that such Securities can be sold, assigned or transferred pursuant to
Rule 144 promulgated under the 1933 Act (or a successor rule thereto)("RULE
144"); (ii) any sale of the Securities made in reliance on Rule 144 may be made
only in accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the person through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the 1933 Act) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder;
and (iii) neither the Company nor any other person is under any obligation to
register such Securities under
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<PAGE> 7
the 1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder.
g. Legends. Such Buyer understands that the certificates or
other instruments representing the Preferred Shares and the Warrants and, until
such time as the resale of the Conversion Shares and the Warrant Shares have
been registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Conversion Shares and the
Warrant Shares, except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED FOR RESALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE RESALE OF THE SECURITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS, OR AN
OPINION OF COUNSEL, IN FORM, SCOPE AND SUBSTANCE REASONABLY
ACCEPTABLE TO THE COMPANY OR ITS COUNSEL, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS
SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA
FIDE MARGIN ACCOUNT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if (i) such Securities are registered for resale under the 1933 Act,
(ii) in connection with a sale transaction, such holder provides the Company
with an opinion of counsel, in a form, scope and substance reasonably acceptable
to the Company or its counsel, to the effect that a public sale, assignment or
transfer of such Securities may be made without registration under the 1933 Act,
or (iii) such holder provides the Company with assurances reasonably acceptable
to the Company that such Securities can be sold pursuant to Rule 144. Each Buyer
acknowledges, covenants and agrees to sell the Securities represented by a
certificate(s) from which the legend has been removed, only pursuant to (i) a
registration statement effective under the 1933 Act, or (ii) advice of counsel
that such sale is exempt from registration required by Section 5 of the 1933
Act.
h. Authorization; Enforcement. This Agreement has been duly
and validly authorized, executed and delivered on behalf of such Buyer and is a
valid and binding agreement of such Buyer enforceable against such Buyer in
accordance with its terms, subject as to enforceability to general principles of
equity and to applicable bankruptcy, insolvency,
7
<PAGE> 8
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors' rights and
remedies. Such Buyer has the requisite corporate or other power and authority to
enter into and perform this Agreement and the Registration Rights Agreement. The
execution and delivery of this Agreement and the Registration Rights Agreement
by such Buyer and the consummation by such Buyer of the transactions
contemplated hereby and thereby, including, without limitation, the payment of
the Purchase Price for each Preferred Share purchased has been duly authorized
by such Buyer's board of directors or other person or body having the power to
authorize such actions by such Buyer.
i. Residency. Such Buyer is a resident of that jurisdiction
specified on the Schedule of Buyers.
j. Organization. Such Buyer is duly organized and validly
existing in good standing under the laws of the jurisdiction in which it is
organized.
k. No Conflicts. The execution, delivery and performance by
such Buyer of this Agreement and the Registration Rights Agreement does not (i)
result in a violation of such Buyer's organizational documents or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument to which such Buyer is a party.
l. Section 9 of the Securities Exchange Act. So long as a
Buyer holds any Preferred Shares, such Buyer will comply at all times with the
provisions of Section 9 of the Securities Exchange Act of 1934, as amended (the
"1934 ACT"), and the rules promulgated thereunder (including, without
limitation, Regulation M) with respect to transactions involving the securities
of the Company.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers
that:
a. Organization and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns capital stock or holds an equity or
similar interest) (a complete list of which is set forth in Schedule 3(a)) are
corporations duly organized and validly existing in good standing under the laws
of the jurisdiction in which they are incorporated, and have the requisite
corporate power and authorization to own their properties and to carry on their
business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect. As used in
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this Agreement, "MATERIAL ADVERSE EFFECT" means any material adverse effect on
the business, properties, assets, operations, results of operations, financial
condition or, insofar as can reasonably be foreseen, prospects of the Company
and its Subsidiaries, if any, taken as a whole, or on the transactions
contemplated hereby or by the agreements and instruments to be entered into in
connection herewith, or on the authority or ability of the Company to perform
its obligations under the Transaction Documents (as defined below) or the
Certificate of Determination.
b. Authorization; Enforcement; Compliance with Other
Instruments. (i) The Company has the requisite corporate power and authority to
enter into and perform this Agreement, the Registration Rights Agreement, the
Irrevocable Transfer Agent Instructions (as defined in Section 5), the Warrants
and each of the other agreements entered into by the parties hereto in
connection with the transactions contemplated by this Agreement (collectively,
the "TRANSACTION DOCUMENTS"), and to issue the Securities in accordance with the
terms hereof and thereof; (ii) the execution and delivery of the Transaction
Documents and the Certificate of Determination by the Company and the
consummation by it of the transactions contemplated hereby and thereby,
including without limitation the issuance of the Preferred Shares and the
Warrants and the reservation for issuance and the issuance of the Conversion
Shares and the Warrant Shares issuable upon conversion or exercise thereof, have
been duly authorized by the Company's Board of Directors and no further consent
or authorization is required by the Company, its Board of Directors or its
shareholders, (iii) the Transaction Documents have been duly executed and
delivered by the Company, (iv) the Transaction Documents constitute the valid
and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies, and (v)
prior to each of the Closing Dates, the Certificate of Determination will have
been filed with the Secretary of State of the State of California and will be in
full force and effect, enforceable against the Company in accordance with its
terms.
c. Capitalization. The authorized capital stock of the
Company consists of (i) 99,288,000 shares of Common Stock, of which as of March
19, 1999, 40,941,292 shares were issued and outstanding, 1,939,407 shares were
issuable and reserved for issuance pursuant to the Company's 1994 Stock Option
Plan, 1,875,000 shares were issuable and reserved for issuance under the
Company's 1998 Stock Option Plan, 8,137,388 shares were issuable and reserved
for issuance under the Class A Common Stock Investment Agreement dated as of
January 22, 1999 by and between Promethean Investment Group, L.L.C. and the
Company, and 8,853,794 shares were issuable and reserved for issuance pursuant
to securities (other than the shares issuable pursuant to this Agreement)
exercisable or exchangeable for, or convertible into, shares of Common Stock and
(ii) 712,000 shares of Class B Common Stock, no par value per share, of which as
of March 19, 1999, 49,000 shares were issued and outstanding and 419,000 shares
were reserved for issuance pursuant to stock options issued and outstanding
exercisable into shares of Class B Common Stock (iii) 10,000,000 shares of
preferred stock, no par value per share, of which as of March 19, 1999 no shares
were issued and outstanding. All of such outstanding shares have been, or upon
issuance will be, validly issued and are fully paid and nonassessable.
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Except as disclosed in Schedule 3(c), (i) no shares of the Company's capital
stock are subject to preemptive rights or any other similar rights or any liens
or encumbrances suffered or permitted by the Company; (ii) there are no
outstanding debt securities; (iii) there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its Subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries; (iv) there are no agreements or arrangements
under which the Company or any of its Subsidiaries is obligated to register the
sale of any of its securities under the 1933 Act (except the Registration Rights
Agreement); (v) there are no outstanding securities of the Company or any of its
Subsidiaries which contain any redemption or similar provisions, and there are
no contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to redeem a security of the
Company or any of its Subsidiaries; (vi) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities as described in this Agreement; and (vii) the Company
does not have any stock appreciation rights or "phantom stock" plans or
agreements or any similar plan or agreement. The Company has furnished to the
Buyers true and correct copies of the Company's Articles of Incorporation, as
amended and as in effect on the date hereof (the "ARTICLES OF INCORPORATION"),
and the Company's By-laws, as in effect on the date hereof (the "BY-LAWS"), and
the terms of all securities convertible into or exercisable for Common Stock and
the material rights of the holders thereof in respect thereto.
d. Issuance of Securities. The Preferred Shares are duly
authorized and, upon issuance in accordance with the terms hereof, shall be (i)
validly issued, fully paid and non-assessable, (ii) free from all taxes, liens
and charges with respect to the issue thereof and (iii) entitled to the rights
and preferences set forth in the Certificate of Determination. At least
8,137,388 shares of Common Stock (subject to adjustment pursuant to the
Company's covenant set forth in Section 4(f) below) have been duly authorized
and reserved for issuance upon conversion of the Preferred Shares and exercise
of the Warrants. Upon conversion or exercise in accordance with the Certificate
of Determination or the Warrants, as the case may be, the Conversion Shares and
the Warrant Shares will be validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issue thereof, with the
holders being entitled to all rights accorded to a holder of Common Stock. Based
in part upon the representations and warranties of the Buyers set forth in
Section 2, the issuance by the Company of the Securities is exempt from
registration under the 1933 Act.
e. No Conflicts. Except as disclosed in Schedule 3(e), the
execution, delivery and performance of the Transaction Documents by the Company,
the performance by the Company of its obligations under the Certificate of
Determination and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the reservation
for issuance and issuance of the Conversion Shares and the Warrant Shares) will
not
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result in a violation of the Articles of Incorporation, any Certificate of
Determination of any outstanding series of preferred stock of the Company or the
By-laws; (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
material agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party; or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including United States federal and state
securities laws and regulations and the rules and regulations of the principal
market or exchange on which the Common Stock is traded or listed) applicable to
the Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected. Except as disclosed in
Schedule 3(e), neither the Company nor any of its Subsidiaries is in violation
of any term of or in default under (i) its Articles of Incorporation, any
Certificate of Determination of any outstanding series of preferred stock or
By-laws, respectively, or (ii) any material contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order or any statute,
rule or regulation applicable to the Company or its Subsidiaries, except for
possible conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations that would not individually or in the aggregate
have a Material Adverse Effect. The business of the Company and its Subsidiaries
is not being conducted, and shall not be conducted, in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations the sanctions for which either individually or in the aggregate would
not have a Material Adverse Effect. Except as specifically contemplated by this
Agreement and as required under the 1933 Act, the Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or
self-regulatory agency in order for it to execute, deliver or perform any of its
obligations under or contemplated by the Transaction Documents or the
Certificate of Determination in accordance with the terms hereof or thereof.
Except as disclosed in Schedule 3(e), all consents, authorizations, orders,
filings and registrations which the Company is required to obtain pursuant to
the preceding sentence have been obtained or effected on or prior to the date
hereof. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing. Except as disclosed
in Schedule 3(e), the Company is not in violation of the listing requirements of
the Nasdaq National Market as in effect on the date that this representation is
made or deemed to have been made and is not aware of any facts which would
reasonably lead to delisting or suspension of the Common Stock by the Nasdaq
National Market in the foreseeable future.
f. SEC Documents; Financial Statements. Since September 30,
1997, the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the 1934 Act, (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements and schedules
thereto and documents incorporated by reference therein being hereinafter
referred to as the "SEC DOCUMENTS"). The Company has delivered to each Buyer or
its respective representatives true and complete copies of the SEC Documents. As
of their respective dates, the SEC Documents complied in all material respects
with the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and
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none of the SEC Documents, at the time they were filed with the SEC, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects 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 audit
adjustments). No other information provided by or on behalf of the Company to
the Buyers which is not included in the SEC Documents, including, without
limitation, information referred to in Section 2(d) of this Agreement, contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstance under which they are or were made, not misleading. Neither the
Company nor any of its Subsidiaries or any of their respective officers,
directors, employees or agents have provided the Buyers with any material,
nonpublic information, which was not publicly disclosed prior to the date hereof
and any material, nonpublic information provided to the Buyers by the Company or
its Subsidiaries or any of their respective officers, directors, employees or
agents prior to the Initial Closing Date shall be publicly disclosed by the
Company prior to the Initial Closing Date.
g. Absence of Certain Changes. Except as disclosed in
Schedule 3(g), since September 30, 1998 there has been no material adverse
change and no material adverse development in the business, properties,
operations, financial condition, liabilities, results of operations or prospects
of the Company or its Subsidiaries. The Company has not taken any steps, and
does not currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or any of its Subsidiaries have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings.
h. Absence of Litigation. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company, the Common Stock or any of the Company's Subsidiaries or
any of the Company's or the Company's Subsidiaries' officers or directors in
their capacities as such, except as expressly set forth in Schedule 3(h). Except
as set forth in Schedule 3(h), none of the directors or officers of the Company
have been involved in securities related litigation during the past five years.
i. Acknowledgment Regarding Buyers' Purchase of Preferred
Shares. The Company acknowledges and agrees that each of the Buyers is acting
solely in the capacity of arm's length purchaser with respect to the Transaction
Documents and the Certificate of Determination
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and the transactions contemplated hereby and thereby. The Company further
acknowledges that each Buyer is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to the Transaction
Documents and the Certificate of Determination and the transactions contemplated
hereby and thereby and any advice given by any of the Buyers or any of their
respective representatives or agents in connection with the Transaction
Documents and the Certificate of Determination and the transactions contemplated
hereby and thereby is merely incidental to such Buyer's purchase of the
Securities. The Company further represents to each Buyer that the Company's
decision to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives.
j. No Undisclosed Events, Liabilities, Developments or
Circumstances. Other than the transactions contemplated hereby, no event,
liability, development or circumstance has occurred or exists, or is
contemplated to occur, with respect to the Company or its Subsidiaries or their
respective business, properties, operations, financial condition, or, insofar as
can reasonably be foreseen, prospects, that would be required to be disclosed by
the Company under applicable securities laws on a registration statement
(including by way of incorporation by reference) filed with the SEC relating to
an issuance and sale by the Company of its Common Stock and which has not been
publicly disclosed.
k. No General Solicitation. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
l. No Integrated Offering. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable shareholder approval provisions, including, without limitation,
under the rules and regulations of The Nasdaq Stock Market, Inc. (except, for
purposes of any applicable shareholder approval provisions under the rules and
regulations of The Nasdaq Stock Market, Inc., possible integration with the
Equity Line (as defined in the Certificate of Determination)), nor will the
Company or any of its Subsidiaries take any action or steps that would require
registration of the Securities under the 1933 Act or cause the offering of the
Securities to be integrated with other offerings.
m. Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened. Neither the
Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that relations with
their employees are good. Except as set forth on Schedule 3(m), no executive
officer (as defined in Rule 501(f) of the 1933 Act) has notified the Company
that such officer intends to leave the Company or otherwise terminate such
officer's employment with the Company. No executive officer, to the best
knowledge of the Company and its Subsidiaries, is,
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or is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters.
n. Intellectual Property Rights. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service mark registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. Except as set forth on Schedule 3(n), none of the
Company's trademarks, trade names, service marks, service mark registrations,
service names, patents, patent rights, copyrights, inventions, licenses,
approvals, government authorizations, trade secrets or other intellectual
property rights necessary to conduct its business as now or as proposed to be
conducted have expired or terminated, or are expected to expire or terminate
within two years from the date of this Agreement, except where such expirations
or terminations would not, individually or in the aggregate, have a Material
Adverse Effect. The Company and its Subsidiaries do not have any knowledge of
any infringement by the Company or its Subsidiaries of trademarks, trade name
rights, patents, patent rights, copyrights, inventions, licenses, service names,
service marks, service mark registrations, trade secrets or other similar rights
of others, or of any such development of similar or identical trade secrets or
technical information by others and, except as set forth on Schedule 3(n), there
is no claim, action or proceeding being made or brought against or, to the
knowledge of the Company or any of its Subsidiaries, being threatened against,
the Company or its Subsidiaries regarding trademarks, trade name rights,
patents, patent rights, inventions, copyrights, licenses, service names, service
marks, service mark registrations, trade secrets or other infringement; and the
Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing which would have a Material Adverse
Effect. The Company and its Subsidiaries have taken reasonable security measures
to protect the secrecy, confidentiality and value of all of their intellectual
properties.
o. Environmental Laws. The Company and its Subsidiaries (i)
are in material compliance with any and all applicable foreign, federal, state
and local laws and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses
or other approvals required of them under applicable Environmental Laws to
conduct their respective businesses and (iii) are in material compliance with
all terms and conditions of any such permit, license or approval, except where,
in each of the three foregoing cases, the failure to so comply would not have,
individually or in the aggregate, a Material Adverse Effect.
p. Title. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(p) or such
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as do not have a material adverse effect on the value of such property and do
not interfere with the use made and proposed to be made of such property by the
Company or any of its Subsidiaries. Any real property and facilities held under
lease by the Company or any of its Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and
buildings by the Company and its Subsidiaries.
q. Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor
any such Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
r. Regulatory Permits. Except as set forth on Schedule
3(r), the Company and its Subsidiaries possess all certificates, authorizations
and permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses, except where the
failure to possess such items would not have, individually or in the aggregate,
a Material Adverse Effect; and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit, except for such certificates,
authorizations or permits which if not obtained, or such revocations or
modifications which, would have a Material Adverse Effect.
s. Internal Accounting Controls. The Company and each of
its Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
t. No Materially Adverse Contracts, Etc. Neither the
Company nor any of its Subsidiaries is subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or regulation
which in the judgment of the Company's officers has or is expected in the future
to have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is a party to any contract or agreement which in the judgment of
the Company's officers has or is expected to have a Material Adverse Effect.
u. Tax Status. Except as set forth on Schedule 3(u), the
Company and each of its Subsidiaries has made or filed all United States federal
and state income and all other tax
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returns, reports and declarations required by any jurisdiction to which it is
subject (unless and only to the extent that the Company and each of its
Subsidiaries has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.
v. Certain Transactions. Except as set forth on Schedule
3(v) or in the SEC Documents filed at least ten (10) days prior to the date
hereof and except for arms' length transactions pursuant to which the Company
makes payments in the ordinary course of business upon terms no less favorable
than the Company could obtain from third parties and other than the grant of
stock options disclosed on Schedule 3(c), none of the officers, directors or
employees of the Company is presently a party to any transaction with the
Company or any of its Subsidiaries (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
w. Dilutive Effect. The Company understands and
acknowledges that the number of Conversion Shares issuable upon conversion of
the Preferred Shares and Warrant Shares issued upon exercise of the Warrants
will increase in certain circumstances. The Company further acknowledges that,
subject to such limitations as are expressly set forth in the Transaction
Documents, its obligation to issue Conversion Shares upon conversion of the
Preferred Shares in accordance with this Agreement and the Certificate of
Determination and its obligation to issue the Warrant Shares in accordance with
this Agreement and the Warrants is, in each case, absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other shareholders of the Company.
x. No Other Agreements. The Company has not, directly or
indirectly, made any agreements with any Buyers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents.
y. Application of Takeover Protections. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Articles of Incorporation or the laws of the
state of its incorporation which is or could become applicable to the Buyers as
a result of the transactions contemplated by this Agreement, including, without
limitation, the Company's issuance of the Securities and the Buyer's ownership
of the Securities.
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z. Rights Agreement. The Company has not adopted a
shareholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company,
except for the shareholder rights plan disclosed in the Company's Current Report
on Form 8-K dated March 25, 1999 and filed with the SEC on March 11, 1999 (the
"RIGHTS PLAN"), which describes, among other things, beneficial ownership of 15%
of the Company's equity securities to trigger a rights distribution. Subject to
Section 2(a) of the Certificate of Determination which limits the beneficial
ownership of each Buyer and its affiliates to no more than 4.99% of the total
outstanding shares of Common Stock, the Company specifically represents,
warrants and agrees that none of the Buyers is intended to be or will be deemed
to be an Acquiring Person within the meaning of the Rights Plan because of the
acquisition of the Securities (including the Conversion Shares and the Warrant
Shares) pursuant to this Agreement, and the acquisition of the Securities
(including the Conversion Shares and the Warrant Shares) pursuant to this
Agreement, shall not, under any circumstances, trigger a Distribution Date
within the meaning of the Rights Plan.
aa. Foreign Corrupt Practices. Neither the Company, nor any
of its Subsidiaries, nor, to the knowledge of the Company or any of its
Subsidiaries, any director, officer, agent, employee or other person acting on
behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company: used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or made any unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts
timely to satisfy each of the conditions to be satisfied by it as provided in
Sections 6 and 7 of this Agreement.
b. Form D. The Company agrees to file a Form D with respect
to the Securities as required under Regulation D and to provide a copy thereof
to each Buyer promptly after such filing. The Company shall, on or before each
of the Closing Dates, take such action as the Company shall reasonably determine
is necessary to qualify the Securities for, or obtain exemption for the
Securities for, sale to the Buyers at each of the Closings pursuant to this
Agreement under applicable securities or "Blue Sky" laws of the states of the
United States, and shall provide evidence of any such action so taken to the
Buyers on or prior to the Closing Date. The Company shall make all filings and
reports relating to the offer and sale of the Securities required under
applicable securities or "Blue Sky" laws of the states of the United States
following each of the Closing Dates.
c. Reporting Status. Until the earlier of (i) the date
which is one year after the date on which the Investors (as that term is defined
in the Registration Rights Agreement) may sell
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all of the Conversion Shares and the Warrant Shares without restriction pursuant
to Rule 144(k) promulgated under the 1933 Act (or successor thereto) and (ii)
the date which is five (5) years from the last Closing Date to occur (the
"REPORTING PERIOD"), the Company shall file all reports required to be filed
with the SEC pursuant to the 1934 Act, and the Company shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the 1934
Act or the rules and regulations thereunder would otherwise permit such
termination.
d. Use of Proceeds. The Company will use the proceeds from
the sale of the Preferred Shares for general corporate and working capital
purposes.
e. Financial Information. The Company agrees to send the
following to each Investor (as defined in the Registration Rights Agreement)
during the Reporting Period: (i) within two (2) days after the filing thereof
with the SEC, a copy of its Annual Reports on Form 10-K, its Quarterly Reports
on Form 10-Q, any Current Reports on Form 8-K and any registration statements or
amendments (other than on Form S-8) filed pursuant to the 1933 Act; (ii) on the
same day as the release thereof, facsimile copies of all press releases issued
by the Company or any of its Subsidiaries and (iii) copies of any notices and
other information made available or given to the shareholders of the Company
generally, contemporaneously with the making available or giving thereof to the
shareholders.
f. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 200% of the number of shares of Common Stock needed to
provide for the issuance of the Conversion Shares (without regard to any
limitations on conversion) and 100% of the number of shares of Common Stock
needed to provide for the issuance of the Warrant Shares.
g. Additional Financing; Right of First Refusal. Subject to
the exceptions described below, the Company agrees that during the period
beginning on the date hereof and ending on the date which is 180 days after the
Initial Closing Date neither the Company nor its Subsidiaries will, without the
prior written consent of the holders of the Preferred Shares representing at
least two-thirds (2/3) of the Preferred Shares then outstanding, negotiate or
contract with any party for any equity financing (including any debt financing
with an equity component) or issue any equity securities of the Company or any
Subsidiary or securities convertible or exchangeable into or for equity
securities of the Company or any Subsidiary (including debt securities with an
equity component) in any form ("FUTURE OFFERINGS"). Subject to the exceptions
described below, the Company agrees that during the period beginning on the date
hereof and ending on the date which is 365 days after the Initial Closing Date,
neither the Company nor its Subsidiaries will, without the prior written consent
of the holders of the Preferred Shares representing at least two-thirds (2/3) of
the Preferred Shares then outstanding, negotiate or contract with any party for
any Future Offering, unless it shall have first delivered to each Buyer or a
designee appointed by such Buyer written notice (the "FUTURE OFFERING NOTICE")
describing the proposed Future Offering, including the terms and conditions
thereof, and providing each Buyer an option to purchase up to its Aggregate
Percentage (as defined below), as of the date of delivery of the Future Offering
Notice, in the Future Offering on the same terms
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<PAGE> 19
and conditions set forth in the Future Offering Notice. The limitations referred
to in the preceding two sentences are collectively referred to as the "CAPITAL
RAISING LIMITATIONS". For purposes of this Section 4(g), "AGGREGATE PERCENTAGE"
at any time with respect to any Buyer shall mean the percentage obtained by
dividing (i) the aggregate number of Preferred Shares purchased by such Buyer at
the Closings by (ii) the aggregate number of Preferred Shares purchased by all
Buyers at the Closings. A Buyer can exercise its option to participate in a
Future Offering by delivering written notice thereof to participate to the
Company within ten (10) business days of receipt of a Future Offering Notice,
which notice shall state the quantity of securities being offered in the Future
Offering that such Buyer will purchase, up to its Aggregate Percentage, and that
number of securities it is willing to purchase in excess of its Aggregate
Percentage. In the event that one or more Buyers fail to elect to purchase up to
each such Buyer's Aggregate Percentage then each Buyer which has indicated that
it is willing to purchase a number of securities in excess of its Aggregate
Percentage shall be entitled to purchase its pro rata portion (determined in the
same manner as described in the preceding sentence) of the securities in the
Future Offering which one or more Buyers have not elected to purchase. In the
event the Buyers fail to elect to fully participate in the Future Offering
within the periods described in this Section 4(g), the Company shall have 30
days thereafter to sell the securities of the Future Offering for which such
Buyers' rights were not exercised, upon the same terms and conditions (including
the amount thereof) specified in the Future Offering Notice. In the event the
Company has not sold such securities of the Future Offering within such 30 day
period, the Company shall not thereafter issue or sell such securities without
first offering such securities to the Buyers in the manner provided in this
Section 4(g). The Capital Raising Limitations shall not apply to (i) a loan from
a commercial bank without any equity component, (ii) any transaction involving
the Company's issuances of securities (A) as consideration in a merger or
consolidation, (B) in connection with any strategic partnership or joint venture
(the primary purpose of which is not to raise equity capital), or (C) as
consideration for the acquisition of a business, product or license or other
assets by the Company, (iii) the issuance of Common Stock in a firm commitment,
underwritten public offering with net proceeds of at least $15,000,000, (iv) the
issuance of securities upon exercise or conversion of the Company's options,
warrants or other convertible securities outstanding as of the date hereof, or
(v) the grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option plan, restricted stock plan or stock
purchase plan for the benefit of the Company's employees or directors. The
Buyers shall not be required to participate or exercise their right of first
refusal with respect to a particular Future Offering in order to exercise their
right of first refusal with respect to later Future Offerings.
h. Listing. The Company shall promptly secure the listing
of all of the Registrable Securities (as defined in the Registration Rights
Agreement) upon each national securities exchange and automated quotation system
(including the Nasdaq National Market), if any, upon which shares of Common
Stock are then listed (subject to official notice of issuance) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all Registrable Securities from time to time issuable under the terms
of the Transaction Documents and the Certificate of Determination. The Company
shall maintain the Common Stock's authorization for listing on the Nasdaq
National Market, AMEX or NYSE. Neither the Company nor any of its Subsidiaries
shall take any action which would be reasonably expected
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<PAGE> 20
to result in the delisting or suspension of the Common Stock on the Nasdaq
National Market, AMEX or NYSE (other than to switch listings from the Nasdaq
National Market to AMEX or NYSE). The Company shall promptly provide to each
Buyer copies of any notices it receives from the Nasdaq National Market, AMEX or
NYSE regarding the continued eligibility of the Common Stock for listing on such
automated quotation system or securities exchange. The Company shall pay all
fees and expenses in connection with satisfying its obligations under this
Section 4(h).
i. Expenses. Subject to Section 9(l) below and the receipt
of reasonable supporting documentation, following the Initial Closing, the
Company shall reimburse the Buyers for the Buyers' reasonable expenses
(including reasonable attorneys' fees and expenses) in connection with
negotiating and preparing the Transaction Documents and the Certificate of
Determination and consummating the transactions contemplated thereby and hereby
up to an aggregate of $40,000.
j. Transactions With Affiliates. So long as (i) any
Preferred Shares or Warrants are outstanding or (ii) any Buyer owns Conversion
Shares or Warrant Shares with a market value of greater than $500,000 the
Company shall not, and shall cause each of its Subsidiaries not to, enter into,
amend, modify or supplement, or permit any Subsidiary to enter into, amend,
modify or supplement, any agreement, transaction, commitment or arrangement with
any of its or any Subsidiary's officers, directors, persons who were officers or
directors at any time during the previous two years, shareholders who
beneficially own 5% or more of the outstanding shares of Common Stock, or
Affiliates or with any individual related by blood, marriage or adoption to any
such individual or with any entity in which any such entity or individual owns a
5% or more beneficial interest (each a "RELATED PARTY"), except for (a)
customary employment arrangements and benefit programs on reasonable terms or
(b) any agreement, transaction, commitment or arrangement which is approved by a
majority of the disinterested directors of the Company. For purposes hereof, any
director who is also an officer of the Company or any Subsidiary of the Company
shall not be a disinterested director with respect to any such agreement,
transaction, commitment or arrangement. "AFFILIATE" for purposes hereof means,
with respect to any person or entity, another person or entity that, directly or
indirectly, (i) has a 5% or more equity interest in that person or entity, (ii)
has 5% or more common ownership with that person or entity, (iii) controls that
person or entity, or (iv) shares common control with that person or entity.
"CONTROL" or "CONTROLS" for purposes hereof means that a person or entity has
the power, direct or indirect, to conduct or govern the policies of another
person or entity.
k. Filing of Form 8-K. On or before the first business day
following each of the Closing Dates, the Mandatory Share Notice Date and each
Additional Share Notice Date, the Company shall file a Current Report on Form
8-K with the SEC describing the terms of the transaction contemplated by the
Transaction Documents and consummated at such Closing, in each case in the form
required by the 1934 Act.
l. Proxy Statement. The Company shall provide to each
shareholder entitled to vote at the next meeting of shareholders of the Company,
which meeting shall occur on or
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<PAGE> 21
before May 31, 1999 (the "SHAREHOLDER MEETING DEADLINE"), a proxy statement,
which has been previously reviewed by the Buyers and a counsel of their choice,
soliciting each such shareholder's affirmative vote at such shareholder meeting
for approval of the Company's issuance of all of the Securities as described in
this Agreement, and the Company shall use its best efforts to solicit its
shareholders' approval of such issuance of the Securities and cause the Board of
Directors of the Company to recommend to the shareholders that they approve such
proposal. If the Company fails to hold a meeting of its shareholders by the
Shareholder Meeting Deadline, then, as partial relief (which remedy shall not be
exclusive of any other remedies available at law or in equity), the Company
shall pay to each holder of Preferred Shares an amount in cash per Preferred
Share equal to the product of (i) $10,000; multiplied by (ii) 0.02; multiplied
by (iii) the quotient of (x) the number of days after the Shareholder Meeting
Deadline that a meeting of the Company's shareholders is not held, divided by
(y) 30. The Company shall make the payments referred to in the immediately
preceding sentence within five (5) days of the earlier of (I) the holding of the
meeting of the Company's shareholders, the failure of which resulted in the
requirement to make such payments, and (II) the last day of each 30-day period
beginning on the Shareholder Meeting Deadline. In the event the Company fails to
make such payments in a timely manner, such payments shall bear interest at the
lower of the rate of 2.0% per month or the maximum rate allowable under
California law (pro rated for partial months) until paid in full.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its
transfer agent, and any subsequent transfer agent, to issue certificates,
registered in the name of each Buyer or its respective nominee(s), for the
Conversion Shares and the Warrant Shares in such amounts as specified from time
to time by each Buyer to the Company upon conversion of the Preferred Shares or
exercise of the Warrants (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). Prior
to registration of the Conversion Shares and the Warrant Shares under the 1933
Act, all such certificates shall bear the restrictive legend specified in
Section 2(g) of this Agreement. The Company warrants that no instruction other
than the Irrevocable Transfer Agent Instructions referred to in this Section 5,
and stop transfer instructions to give effect to Section 2(f) hereof (in the
case of the Conversion Shares and the Warrant Shares, prior to registration of
the Conversion Shares and the Warrant Shares under the 1933 Act) will be given
by the Company to its transfer agent and that the Securities shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section 5 shall affect in any way each Buyer's obligations and agreements
set forth in Section 2(g) to comply with all applicable prospectus delivery
requirements, if any, upon resale of the Securities. If a Buyer provides the
Company with an opinion of counsel, in form, scope and substance reasonable
acceptable to the Company or its counsel, that registration of a resale by such
Buyer of any of such Securities is not required under the 1933 Act, the Company
shall permit the transfer, and, in the case of the Conversion Shares and the
Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such Buyer
and, if appropriate given the basis for registration of such resale not being
required, without any restrictive legends. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
Buyers by vitiating the intent and
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<PAGE> 22
purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 5 will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Section 5, that the Buyers shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
a. Initial Closing Date. The obligation of the Company
hereunder to issue and sell the Initial Preferred Shares to each Buyer at the
Initial Closing is subject to the satisfaction, at or before the Initial Closing
Date, of each of the following conditions, provided that these conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion by providing each Buyer with prior written notice thereof:
(i) Such Buyer shall have executed each of the Transaction
Documents and delivered the same to the Company.
(ii) The Certificate of Determination shall have been filed
with the Secretary of State of the State of California.
(iii) Such Buyer shall have delivered to the Company the
Purchase Price for the Preferred Shares and the related Warrants
being purchased by such Buyer at the Initial Closing by wire transfer
of immediately available funds pursuant to the wire instructions
provided by the Company.
(iv) The representations and warranties of such Buyer shall
be true and correct as of the date when made and as of the Initial
Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and such Buyer
shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by such Buyer at or prior to
the Initial Closing Date.
(v) No statute, rule regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(vi) All 200 Initial Preferred Shares shall have been
purchased by one or more of the Buyers.
(vi) No legal action, suit or proceeding shall be pending
or threatened which seeks to restrain or prohibit the transactions
contemplated by this Agreement.
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<PAGE> 23
b. Mandatory Closing Date. The obligation of the Company
hereunder to issue and sell the Mandatory Preferred Shares to each Buyer at the
Mandatory Closing is subject to the satisfaction, at or before the Mandatory
Closing Date, of each of the following conditions, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion by providing each Buyer with prior written
notice thereof:
(i) Such Buyer shall have delivered to the Company the
Purchase Price for the Mandatory Preferred Shares and the related
Warrants being purchased by such Buyer at the Mandatory Closing by
wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
(ii) The representations and warranties of such Buyer shall
be true and correct as of the date when made and as of the Mandatory
Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and such Buyer
shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by such Buyer at or prior to
the Mandatory Closing Date.
(iii) No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(iv) No legal action, suit or proceeding shall be pending
or threatened which seeks to restrain or prohibit the transactions
contemplated by this Agreement.
c. Additional Closing Dates. The obligation of the Company
hereunder to issue and sell the Additional Preferred Shares to each Buyer at the
Additional Closings is subject to the satisfaction, at or before the applicable
Additional Closing Dates, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion by providing each Buyer with prior
written notice thereof:
(i) Such Buyer shall have delivered to the Company the
Purchase Price for the Additional Preferred Shares and the related
Warrants being purchased by such Buyer at the Additional Closing by
wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
(ii) The representations and warranties of such Buyer shall
be true and correct as of the date when made and as of the applicable
Additional Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and
such Buyer shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions
required by the Transaction Documents to be
23
<PAGE> 24
performed, satisfied or complied with by such Buyer at or prior to
the applicable Additional Closing Date.
(iii) No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(iv) No legal action, suit or proceeding shall be pending
or threatened which seeks to restrain or prohibit the transactions
contemplated by this Agreement.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
a. Initial Closing Date. The obligation of each Buyer
hereunder to purchase the Initial Preferred Shares at the Initial Closing is
subject to the satisfaction, at or before the Initial Closing Date, of each of
the following conditions, provided that these conditions are for each Buyer's
sole benefit and may be waived by such Buyer at any time in its sole discretion:
(i) The Company shall have executed each of the Transaction
Documents, and delivered the same to such Buyer.
(ii) The Certificate of Determination, shall have been
filed with the Secretary of State of the State of California, and a
copy thereof certified by such Secretary of State shall have been
delivered to such Buyer.
(iii) The Common Stock shall be authorized for quotation on
the Nasdaq National Market or listed on AMEX or NYSE, and shall not
have been suspended from trading on or delisted from such exchanges
(except for a voluntary suspension of not more than one day due to a
business announcement by the Company) nor shall delisting or
suspension by such exchanges have been threatened (except as set
forth in the letter to the Company dated February 8, 1999 from the
Nasdaq Stock Market, Inc.) either (A) in writing by such exchanges or
(B) by falling below the minimum listing maintenance requirements of
such exchanges and all of the Conversion Shares and the Warrant
Shares issuable upon conversion or exercise of the Initial Preferred
Shares and the related Warrants, as the case may be, to be sold at
the Initial Closing shall be listed upon the Nasdaq National Market,
AMEX or NYSE.
(iv) The representations and warranties of the Company
shall be true and correct as of the date when made and as of the
Initial Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and
the Company shall have performed, satisfied and complied with the
covenants, agreements and conditions required by the Transaction
Documents or the Certificate of Determination to be performed,
satisfied or complied with by the Company at or prior to the Initial
Closing Date. Such Buyer shall have received a certificate, executed
by the Chief Executive
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<PAGE> 25
Officer of the Company, dated as of the Initial Closing Date, to the
foregoing effect and as to such other matters as may be reasonably
requested by such Buyer including, without limitation, an update as
of the Initial Closing Date regarding the representation contained in
Section 3(c) above.
(v) Such Buyer shall have received the opinion of Baker &
McKenzie dated as of the Initial Closing Date, in form, scope and
substance reasonably satisfactory to such Buyer and in substantially
the form of Exhibit C attached hereto.
(vi) The Company shall have executed and delivered to such
Buyer the Warrants and the Stock Certificates (in such denominations
as such Buyer shall request) for the Initial Preferred Shares being
purchased by such Buyer at the Initial Closing.
(vii) The Board of Directors of the Company shall have
adopted resolutions consistent with Section 3(b)(ii) above and in a
form reasonably acceptable to such Buyer (the "RESOLUTIONS").
(viii) As of the Initial Closing Date, the Company shall
have reserved out of its authorized and unissued Common Stock, solely
for the purpose of effecting the conversion of the Preferred Shares
and exercise of the Warrants, at least 8,137,388 shares of Common
Stock.
(ix) The Irrevocable Transfer Agent Instructions, in the
form of Exhibit D attached hereto, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
(x) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the
Company and each Subsidiary in such corporation's state of
incorporation issued by the Secretary of State of such state of
incorporation as of a date within ten (10) days of the Initial
Closing Date.
(xi) The Company shall have delivered to such Buyer a
secretary's certificate certifying as to (A) the Resolutions, (B) the
Articles of Incorporation and (C) By-laws, each as in effect at the
Initial Closing Date.
(xii) The Company shall have delivered to such Buyer a
certified copy of its Articles of Incorporation as certified by the
Secretary of State of the State of California within ten (10) days of
the Initial Closing Date.
(xiii) The Company shall have delivered to such Buyer a
letter from the Company's transfer agent certifying the number of
shares of Common Stock outstanding as of a date within five (5) days
of the Initial Closing Date.
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<PAGE> 26
(xiv) The Company shall have executed and delivered to such
Buyer a copy of an amendment to the Class A Common Stock Investment
Agreement dated as of January 22, 1999 between the Company and
Promethean Investment Group L.L.C. in form and substance reasonably
satisfactory to such Buyer.
(xv) All 200 Initial Preferred Shares shall have been
purchased by one or more of the Buyers.
(xvi) No legal action, suit or proceeding shall be pending
or threatened which seeks to restrain or prohibit the transactions
contemplated by this Agreement.
(xvii) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by the
Transaction Documents as such Buyer or its counsel may reasonably
request upon reasonable advance notice.
b. Mandatory Closing Date. The obligation of each Buyer
hereunder to purchase the Mandatory Preferred Shares at the Mandatory Closing is
subject to the satisfaction, at or before the Mandatory Closing Date, of each of
the following conditions, provided that these conditions are for each Buyer's
sole benefit and may be waived by such Buyer at any time in its sole discretion:
(i) The Company shall have complied with and satisfied all
of the requirements of Section 1(c).
(ii) The Certificate of Determination, shall be in full
force and effect and shall not have been amended since the Initial
Closing Date, and a copy thereof certified by the Secretary of State
of the State of California shall have been delivered to such Buyer.
(iii) The Common Stock shall be authorized for quotation on
the Nasdaq National Market or listed on AMEX or NYSE, and shall not
have been suspended from trading on or delisted from such exchanges
nor shall delisting or suspension by such exchanges have been
threatened (except as set forth in the letter to the Company dated
February 8, 1999 from the Nasdaq Stock Market, Inc., provided that
the Company has satisfied the requirements set forth in such letter)
either (A) in writing by such exchanges or (B) by falling below the
minimum listing maintenance requirements of such exchanges and all of
the Conversion Shares and the Warrant Shares issuable upon conversion
or exercise of the Mandatory Preferred Shares and the related
Warrants, as the case may be, to be sold at the Mandatory Closing
shall be listed upon the Nasdaq National Market, AMEX or NYSE.
(iv) The representations and warranties of the Company
shall be true and correct as of the date when made and as of the
Mandatory Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and
the Company shall have performed, satisfied and complied with the
covenants, agreements and
26
<PAGE> 27
conditions required by the Transaction Documents or the Certificate
of Determination to be performed, satisfied or complied with by the
Company at or prior to the Mandatory Closing Dates. Such Buyer shall
have received a certificate, executed by the Chief Executive Officer
of the Company, dated as of the Mandatory Closing Date, to the
foregoing effect and as to such other matters as may be reasonably
requested by such Buyer including, without limitation, an update as
of the Mandatory Closing Date regarding the representation contained
in Section 3(c) above.
(v) Such Buyer shall have received the opinion of Baker &
McKenzie dated as of the Mandatory Closing Date, in form, scope and
substance reasonably satisfactory to such Buyer and in substantially
the form of Exhibit C attached hereto.
(vi) The Company shall have executed and delivered to such
Buyer the Warrants and the Stock Certificates (in such denominations
as such Buyer shall request) for the Mandatory Preferred Shares being
purchased by such Buyer at the Mandatory Closing.
(vii) The Board of Directors of the Company shall have
adopted, and shall not have amended, the Resolutions.
(viii) As of the Mandatory Closing Date, the Company shall
have reserved out of its authorized and unissued Common Stock, solely
for the purpose of effecting the conversion of the Preferred Shares,
a number of shares of Common Stock equal to at least 200% of the
number of shares of Common Stock which would be issuable upon
conversion in full of the then outstanding Preferred Shares (without
regard to any limitations on conversions) and 100% of the number of
shares of Common Stock which would be issuable upon conversion in
full of the then outstanding Warrants, including for such purposes
the Mandatory Preferred Shares and the related Warrants to be issued
at such Mandatory Closing.
(ix) The Irrevocable Transfer Agent Instructions, in the
form of Exhibit D attached hereto, shall have been delivered to and
acknowledged in writing by the Company's transfer agent and shall be
in effect as of the Mandatory Closing Date.
(x) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the
Company and each Subsidiary in the state of such corporation's state
of incorporation issued by the Secretary of State of such state of
incorporation as of a date within ten (10) days of the Mandatory
Closing Date.
(xi) The Company shall have delivered to such Buyer a
certified copy of its Articles of Incorporation as certified by the
Secretary of State of the State of California within ten days of the
Mandatory Closing Date.
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<PAGE> 28
(xii) The Company shall have delivered to such Buyer a
secretary's certificate certifying as to (A) the Resolutions, (B) the
Articles of Incorporation and (C) By-laws, each as in effect at the
Mandatory Closing Date.
(xiii) The Company shall have delivered to such Buyer a
letter from the Company's transfer agent certifying the number of
shares of Common Stock outstanding as of a date within five days of
the Mandatory Closing Date.
(xiv) During the period beginning on the Mandatory Share
Notice Date and ending on and including the Mandatory Closing Date,
the Registration Statement covering the resale of the Conversion
Shares and the Warrant Shares has been declared effective by the SEC
and at all times has been effective and available for the sale of no
less than the sum of (I) 200% of the sum of (A) the number of
Conversion Shares then issuable upon the conversion of the Initial
Preferred Shares and the Mandatory Preferred Shares as if converted
at the Conversion Price on the Mandatory Share Notice Date and (B)
the number of Conversion Shares outstanding as of the Mandatory Share
Notice Date and (II) 100% of the sum of (g) the number of Warrant
Shares then issuable upon exercise of the outstanding Warrants and
(z) the number of Warrant Shares outstanding as of the Mandatory
Share Notice Date.
(xv) The Initial Registration Statement has been declared
effective by the SEC in accordance with the terms of the Registration
Rights Agreement on or before the date which is 90 days after the
Initial Closing Date.
(xvi) No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(xvii) No legal action, suit or proceeding shall be pending
or threatened which seeks to restrain or prohibit the transactions
contemplated by this Agreement.
(xviii) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by this
Agreement as such Buyer or its counsel may reasonably request upon
reasonable advance notice.
c. Additional Closing Dates. The obligation of each Buyer
hereunder to purchase the Additional Preferred Shares at each of the Additional
Closings is subject to the satisfaction, at or before each of the Additional
Closing Dates, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion:
(i) The Company shall have complied with the requirements
of Section 1(f).
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<PAGE> 29
(ii) The Certificate of Determination, shall be in full
force and effect and shall not have been amended since the Initial
Closing Date, and a copy thereof certified by the Secretary of State
of the State of California shall have been delivered to such Buyer.
(iii) The Common Stock shall be authorized for quotation on
the Nasdaq National Market or listed on AMEX or NYSE, and shall not
have been suspended from trading on or delisted from such exchanges
nor shall delisting or suspension by such exchanges have been
threatened (except as set forth in the letter to the Company dated
February 8, 1999 from the Nasdaq Stock Market, Inc., provided that
the Company has satisfied the requirements set forth in such letter)
either (A) in writing by such exchanges or (B) by falling below the
minimum listing maintenance requirements of such exchanges and all of
the Conversion Shares and the Warrant Shares issuable upon conversion
or exercise of the Additional Preferred Shares and the related
Warrant, as the case may be, to be sold at the Additional Closing
shall be listed upon the Nasdaq National Market, AMEX or NYSE.
(iv) The representations and warranties of the Company
shall be true and correct as of the date when made and as of the
Additional Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and
the Company shall have performed, satisfied and complied with the
covenants, agreements and conditions required by the Transaction
Documents or the Certificate of Determination to be performed,
satisfied or complied with by the Company at or prior to the
Additional Closing Date. Such Buyer shall have received a
certificate, executed by the Chief Executive Officer of the Company,
dated as of the Additional Closing Date, to the foregoing effect and
as to such other matters as may be reasonably requested by such Buyer
including, without limitation, an update as of the Additional Closing
Date regarding the representation contained in Section 3(c) above.
(v) Such Buyer shall have received the opinion of Baker &
McKenzie dated as of the Additional Closing Date, in form, scope and
substance reasonably satisfactory to such Buyer and in substantially
the form of Exhibit C attached hereto.
(vi) The Company shall have executed and delivered to such
Buyer the Warrants and the Stock Certificates (in such denominations
as such Buyer shall request) for the Additional Preferred Shares
being purchased by such Buyer at the Additional Closing.
(vii) The Board of Directors of the Company shall have
adopted, and shall not have amended, the Resolutions.
(viii) As of the Additional Closing Date, the Company shall
have reserved out of its authorized and unissued Common Stock, solely
for the purpose of effecting the conversion of the Preferred Shares,
a number of shares of Common Stock equal to at least 200% of the
number of shares of Common Stock which would be issuable upon
conversion in full of the then outstanding Preferred Shares (without
regard to any limitations on
29
<PAGE> 30
conversions) and 100% of the number of shares of Common Stock which
would be issuable upon conversion in full of the then outstanding
Warrants, including for such purposes the Additional Preferred Shares
and related Warrants to be issued at such Additional Closing.
(ix) The Irrevocable Transfer Agent Instructions, in the
form of Exhibit D attached hereto, shall have been delivered to and
acknowledged in writing by the Company's transfer agent and shall be
in effect as of the Additional Closing.
(x) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the
Company and each Subsidiary in the state of such corporation's state
of incorporation issued by the Secretary of State of such state of
incorporation as of a date within ten (10) days of the Additional
Closing Date.
(xi) The Company shall have delivered to such Buyer a
certified copy of its Articles of Incorporation as certified by the
Secretary of State of the State of California within ten (10) days of
the Additional Closing Date.
(xii) The Company shall have delivered to such Buyer a
secretary's certificate certifying as to (A) the Resolutions, (B) the
Articles of Incorporation and (C) By-laws, each as in effect at the
Additional Closing Date.
(xiii) The Company shall have delivered to such Buyer a
letter from the Company's transfer agent certifying the number of
shares of Common Stock outstanding as of a date within five (5) days
of the Additional Closing Date.
(xiv) No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(xv) No legal action, suit or proceeding shall be pending
or threatened which seeks to restrain or prohibit the transactions
contemplated by this Agreement.
(xvi) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by this
Agreement as such Buyer or its counsel may reasonably request upon
reasonable advance notice.
8. INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents and the Certificate of Determination, the Company shall defend,
protect, indemnify and hold harmless each Buyer and each other holder of the
Securities and all of their shareholders, officers, directors, employees and
direct or indirect investors and any of the foregoing person's agents or other
representatives
30
<PAGE> 31
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "INDEMNITEES")
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"), incurred by
any Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or the Certificate of Determination or any
other certificate, instrument or document contemplated hereby or thereby, (b)
any breach of any covenant, agreement or obligation of the Company contained in
the Transaction Documents or the Certificate of Determination or any other
certificate, instrument or document contemplated hereby or thereby, or (c) any
cause of action, suit or claim brought or made against such Indemnitee (other
than a cause of action, suit or claim which (x) is brought or made by the
Company and (y) is not a shareholder derivative suit) and arising out of or
resulting from the execution, delivery, performance or enforcement of the
Transaction Documents or the Certificate of Determination (d) any transaction
financed or to be financed in whole or in part, directly or indirectly, with the
proceeds of the issuance of the Securities or (e) the status of such Buyer or
holder of the Securities as an investor in the Company. To the extent that the
foregoing undertaking by the Company may be unenforceable for any reason, the
Company shall make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable law.
Except as otherwise set forth herein, the mechanics and procedures with respect
to the rights and obligations under this Section 8 shall be the same as those
set forth in Sections 6(a) and 6(c) of the Registration Rights Agreement,
including, without limitation, those procedures with respect to the settlement
of claims and the Company's right to assume the defense of claims.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction; Jury Trial. The corporate
laws of the State of California shall govern all issues concerning the relative
rights of the Company and its shareholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York. 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, and, if the
Company's principal place of business is in San Diego, California, the City of
San Diego, State of California, for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein, 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 to such party at the address
31
<PAGE> 32
for such 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. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT
IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY
DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR
ANY TRANSACTION CONTEMPLATED HEREBY.
b. Counterparts. This Agreement may be executed in two or
more identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes
all other prior oral or written agreements between the Buyers, the Company,
their affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the Exhibits, Schedules and other
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor any Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be amended other than by an
instrument in writing signed by the Company and the holders of at least
two-thirds (2/3) of the Preferred Shares then outstanding, and no provision
hereof may be waived other than by an instrument in writing signed by the party
against whom enforcement is sought. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Preferred Shares
then outstanding. No consideration shall be offered or paid to any person to
amend or consent to a waiver or modification of any provision of any of the
Transaction Documents or the Certificate of Determination unless the same
consideration also is offered to all of the parties to the Transaction Documents
or holders of the Preferred Shares, as the case may be.
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated
32
<PAGE> 33
and kept on file by the sending party); or (iii) one (1) business day after
deposit with a nationally recognized overnight delivery service, in each case
properly addressed to the party to receive the same. The addresses and facsimile
numbers for such communications shall be:
If to the Company:
AVANIR Pharmaceuticals
9393 Towne Center Drive, Suite 200
San Diego, California 92121
Telephone: 619-558-0364
Facsimile: 619-455-8059
Attention: Gregory P. Hanson
With a copy to:
Baker & McKenzie
101 West Broadway, 12th Floor
San Diego, California 92101
Telephone: 619-236-1441
Facsimile: 619-236-0429
Attention: John J. Hentrich, Esq.
If to the Transfer Agent:
American Stock Transfer & Trust Company
6201 15th Avenue
Brooklyn, New York 11219
Telephone: 718-921-8254
Facsimile: 718-921-8328
Attention: Nydia Ramos
If to a Buyer, to it at the address and facsimile number set forth on
the Schedule of Buyers, with copies to such Buyer's representatives as set forth
on the Schedule of Buyers or at such other address and/or facsimile number
and/or to the attention of such other person as the recipient party has
specified by written notice given to each other party five days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a nationally recognized overnight
delivery service shall be rebuttable evidence of personal service, receipt by
facsimile or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.
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<PAGE> 34
g. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Preferred Shares. The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the holders of two-thirds (2/3) of the Preferred Shares then
outstanding including by merger or consolidation. A Buyer may assign some or all
of its rights hereunder without the consent of the Company; provided, however,
that any such assignment shall not release such Buyer from its obligations
hereunder unless such obligations are assumed by such assignee and the Company
has consented to such assignment and assumption, which consent shall not be
unreasonably withheld. Notwithstanding anything to the contrary contained in the
Transaction Documents or the Certificate of Determination, Buyer shall be
entitled to pledge the Securities in connection with a bona fide margin account.
h. No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
i. Survival. Unless this Agreement is terminated under
Section 9(l), the representations and warranties of the Company and the Buyers
contained in Sections 2 and 3, the agreements and covenants set forth in
Sections 4, 5 and 9, and the indemnification provisions set forth in Section 8,
shall survive each of the Closings. Each Buyer shall be responsible only for its
own representations, warranties, agreements and covenants hereunder.
j. Publicity. The Company and each Buyer shall have the
right to approve before issuance any press releases or any other public
statements with respect to the transactions contemplated hereby; provided,
however, that the Company shall be entitled, without the prior approval of any
Buyer, to make any press release or other public disclosure with respect to such
transactions as is required by applicable law and regulations (although each
Buyer shall be consulted by the Company in connection with any such press
release or other public disclosure prior to its release and shall be provided
with a copy thereof).
k. Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the Initial Closing shall
not have occurred with respect to a Buyer on or before five (5) business days
from the date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching party's
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the
34
<PAGE> 35
close of business on such date without liability of any party to any other
party; provided, however, that if this Agreement is terminated pursuant to this
Section 9(l), the Company shall remain obligated to reimburse the non-breaching
Buyers for expenses up to the amount described in Section 4(i) above.
m. Placement Agent. Each of the Company and the Buyers
acknowledges that it has not engaged any placement agent in connection with the
sale of the Preferred Shares and the related Warrants. Each party shall be
responsible for the payment of its own placement agent's fees or broker's
commissions in connection with the transactions contemplated hereby. The Company
shall pay, and hold each Buyer harmless against, any liability, loss or expense
(including, without limitation, reasonable attorneys' fees and out-of-pocket
expenses) arising in connection with any such claim relating to the Company's
placement agent or broker. Each Buyer shall, severally and not jointly, pay, and
hold the Company harmless against, any liability, loss or expense (including,
without limitation, reasonable attorneys' fees and out-of-pocket expenses)
arising in connection with any such claim relating to such Buyer's placement
agent or broker.
n. No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
o. Remedies. Each Buyer and each holder of the Securities
shall have all rights and remedies set forth in the Transaction Documents and
the Certificate of Determination and all rights and remedies which such holders
have been granted at any time under any other agreement or contract and all of
the rights which such holders have under any law. Any person having any rights
under any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
p. Payment Set Aside. To the extent that the Company makes
a payment or payments to the Buyers hereunder or pursuant to the Registration
Rights Agreement, the Certificate of Determination or the Warrants or the Buyers
enforce or exercise their rights hereunder or thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
* * * * * *
35
<PAGE> 36
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY: BUYERS:
AVANIR PHARMACEUTICALS HFTP INVESTMENT L.L.C.
By: Promethean Investment Group L.L.C.
Its: Investment Manager
By: /s/Gregory P. Hanson
-----------------------------
Name: Gregory P. Hanson
Its: Chief Financial Officer By:/s/ E. Kurt Kim
-----------------------------------------
Name: E. Kurt Kim
Its: Authorized Signatory
AG SUPER FUND INTERNATIONAL
PARTNERS, L.P.
By: ANGELO, GORDON & CO., L.P.
Its: General Partner
By:/s/ Michael L. Gordon
-----------------------------------------
Name: Michael L. Gordon
Its: Chief Operating Officer
GAM ARBITRAGE INVESTMENTS,
INC.
By: ANGELO, GORDON & CO., L.P.
Its: Investment Advisor
By:/s/ Michael L. Gordon
-----------------------------------------
Name: Michael L. Gordon
Its: Chief Operating Officer
LEONARDO, L.P.
By: ANGELO, GORDON & CO., L.P.
Its: General Partner
By:/s/ Michael L. Gordon
-----------------------------------------
Name: Michael L. Gordon
Its: Chief Operating Officer
<PAGE> 37
[SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT - P. 2 OF 2]
RAPHAEL, L.P.
By:/s/ Michael L. Gordon
-----------------------------------------
Name: Michael L. Gordon
Its: Chief Operating Officer
RAMIUS FUND, LTD.
By: AG RAMIUS PARTNERS, L.L.C.
Its: Investment Advisor
By:/s/ Michael L. Gordon
-----------------------------------------
Name: Michael L. Gordon
Its: Managing Officer
<PAGE> 38
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
NUMBER OF
INITIAL
INVESTOR ADDRESS PREFERRED INVESTOR'S REPRESENTATIVES' ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER SHARES AND FACSIMILE NUMBER
------------- -------------------- ------ --------------------
<S> <C> <C> <C>
HFTP Investment L.L.C. c/o Promethean Investment Group, L.L.C. 100 Promethean Investment Group, L.L.C.
750 Lexington Ave., 22nd Floor 750 Lexington Ave., 22nd Floor
New York, New York 10022 New York, New York 10022
Attn: James F. O'Brien, Jr. Attn: James F. O'Brien, Jr.
E. Kurt Kim E. Kurt Kim
Telephone: 212-702-5200 Telephone: 212-702-5200
Facsimile: 212-758-9334 Facsimile: 212-758-9334
Residence: New York
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Telephone: 312-902-5200
Facsimile: 312-902-1061
AG Super Fund International c/o Angelo, Gordon & Co., L.P. 5
Partners, L.P. 245 Park Avenue - 26th Floor
New York, New York 10167
Attention: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449
Telephone: (212) 692-2035
Residence: Cayman Islands
GAM Arbitrage Investments, c/o Angelo, Gordon & Co., L.P. 5
Inc. 245 Park Avenue - 26th Floor
New York, New York 10167
Attention: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449
Telephone: (212) 692-2035
Residence: British Virgin Islands
Leonardo, L.P. c/o Angelo, Gordon & Co., L.P. 60
245 Park Avenue - 26th Floor
New York, New York 10167
Attention: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449
Telephone: (212) 692-2035
Residence: Cayman Islands
Raphael, L.P. c/o Angelo, Gordon & Co., L.P. 10
245 Park Avenue - 26th Floor
New York, New York 10167
Attention: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449
Telephone: (212) 692-2035
Residence: Cayman Islands
</TABLE>
<PAGE> 39
<TABLE>
<CAPTION>
NUMBER OF
INITIAL
INVESTOR ADDRESS PREFERRED INVESTOR'S REPRESENTATIVES' ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER SHARES AND FACSIMILE NUMBER
------------- -------------------- ------ --------------------
<S> <C> <C> <C>
Ramius Fund, Ltd. c/o Angelo, Gordon & Co., L.P. 20
245 Park Avenue - 26th Floor
New York, New York 10167
Attention: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449
Telephone: (212) 692-2035
Residence: Bermuda
</TABLE>
<PAGE> 40
SCHEDULES
Schedule of Buyers
Schedule 3(a) - Subsidiaries
Schedule 3(c) - Capitalization
Schedule 3(e) - Conflicts
Schedule 3(g) - Material Changes
Schedule 3(h) - Litigation
Schedule 3(m) - Employee Relations
Schedule 3(n) - Intellectual Property
Schedule 3(p) - Liens
Schedule 3(r) - Regulatory Permits
Schedule 3(u) - Tax Status
Schedule 3(v) - Certain Transactions
EXHIBITS
Exhibit A - Form of Certificate of Determination
Exhibit B - Form of Registration Rights Agreement
Exhibit C - Form of Company Counsel Opinion
Exhibit D - Form of Irrevocable Transfer Agent Instructions
Exhibit E - Form of Class J Stock Purchase Warrant
<PAGE> 1
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of March
22, 1999, by and among AVANIR Pharmaceuticals (formerly known as LIDAK
Pharmaceuticals), a California corporation, with headquarters located at 9393
Towne Centre Drive, Suite 200, San Diego, California 92121 (the "COMPANY"), and
the undersigned buyers (each, a "BUYER" and collectively, the "BUYERS").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "SECURITIES PURCHASE AGREEMENT"),
the Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to (i) issue and sell to the Buyers (I) 200
shares of the Company's Series D Convertible Preferred Stock (the "INITIAL
PREFERRED SHARES"), which will be convertible into shares (as converted, the
"INITIAL CONVERSION SHARES") of the Company's Class A Common Stock, no par value
per share (the "COMMON STOCK"), in accordance with the terms of the Company's
Certificate of Determination, of the Series D Convertible Preferred Stock (the
"CERTIFICATE OF DETERMINATION"), and (II) a Warrant for each Initial Preferred
Share issued and sold (collectively, the "INITIAL WARRANTS") each of which
Initial Warrants will be exercisable to purchase 500 shares of Common Stock (as
exercised, the "INITIAL WARRANT SHARES"); and (ii) issue and sell to the Buyers
(I) 100 additional shares of the Company's Series D Convertible Preferred Stock
(the "MANDATORY PREFERRED SHARES"), which will be convertible into shares of
Common Stock (as converted, the "MANDATORY CONVERSION SHARES") in accordance
with the Certificate of Determination, and (II) a Warrant for each Mandatory
Preferred Share issued and sold (collectively, the "MANDATORY WARRANTS"), each
of which Mandatory Warrants will be exercisable to purchase 500 shares of Common
Stock (as exercised, the "MANDATORY WARRANT SHARES");
B. In connection with the Securities Purchase Agreement, the Buyers
may have the right, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to require the Company to issue and sell to the
Buyers (I) up to 200 additional shares of the Company's Series D Convertible
Preferred Stock (the "ADDITIONAL PREFERRED SHARES"), which will be convertible
into shares of Common Stock (as converted, the "ADDITIONAL CONVERSION SHARES"),
in accordance with the Certificate of Determination, and (II) a Warrant for each
Additional Preferred Share issued and sold (collectively, the "ADDITIONAL
WARRANTS"), each of which Additional Warrants will be exercisable to purchase
500 shares of Common Stock (as exercised, the "ADDITIONAL WARRANT SHARES") (the
Initial Preferred Shares, the Mandatory Preferred Shares and the Additional
Preferred Shares collectively are referred to as the "PREFERRED SHARES" and the
Initial Conversion Shares, the Mandatory Conversion Shares and the
1
<PAGE> 2
Additional Conversion Shares collectively are referred to as the "CONVERSION
SHARES"; and the Initial Warrants, the Mandatory Warrants and the Additional
Warrants collectively are referred to as the "WARRANTS" and the Initial Warrant
Shares, the Mandatory Warrant Shares and the Additional Warrant Shares
collectively are referred to as the "WARRANT SHARES");
C. To induce the Buyers to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 ACT"), and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Buyers hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have
the following meanings:
a. "INVESTOR" means a Buyer and any transferee or assignee
thereof to whom such Buyer assigns its rights under this Agreement and who
agrees to become bound by the provisions of this Agreement in accordance with
Section 9.
b. "PERSON" means a corporation, a limited liability
company, an association, a partnership, an organization, a business, an
individual, a governmental or political subdivision thereof or a governmental
agency.
c. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 under the 1933 Act or any successor rule providing for offering
securities on a continuous or delayed basis ("RULE 415"), and the declaration or
ordering of effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").
d. "REGISTRABLE SECURITIES" means (i) the Conversion Shares
issued or issuable upon conversion of the Preferred Shares, (ii) the Warrant
Shares issued or issuable upon exercise of the Warrants and (iii) any shares of
capital stock issued or issuable with respect to the Conversion Shares, the
Preferred Shares, the Warrant Shares or the Warrants as a result of any stock
split, stock dividend, recapitalization, exchange or similar event or otherwise,
without regard to any limitations on conversions of Preferred Shares or
exercises of Warrants.
2
<PAGE> 3
e. "INITIAL REGISTRATION STATEMENT" means a registration
statement or registration statements of the Company filed under the 1933 Act
covering Registrable Securities relating to the Initial Preferred Shares, the
Initial Warrants, the Mandatory Preferred Shares and the Mandatory Warrants.
f. "ADDITIONAL REGISTRATION STATEMENT" means a registration
statement or registration statements of the Company filed under the 1933 Act
covering Registrable Securities relating to the Additional Preferred Shares and
the Additional Warrants.
g. "REGISTRATION STATEMENT" means the Initial Registration
Statement and the Additional Registration Statement, as applicable.
h. "FILING DEADLINE" means the Initial Filing Deadline or
the Additional Filing Deadline, as applicable.
i. "EFFECTIVENESS DEADLINE" means the Initial Effectiveness
Deadline or the Additional Effectiveness Deadline, as applicable.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
a. Mandatory Registration.
(i) Initial Mandatory Registration. The
Company shall prepare, and, as soon as practicable but in no event later than 45
days after the Initial Closing Date (the "INITIAL FILING DEADLINE"), file with
the SEC the Initial Registration Statement on Form S-3 covering the resale of
all of the Registrable Securities relating to the Initial Preferred Shares, the
Initial Warrants, the Mandatory Preferred Shares and the Mandatory Warrants
(collectively, the "INITIAL REGISTRABLE SECURITIES"). In the event that Form S-3
is unavailable for such a registration, the Company shall use such other form as
is available for such a registration, subject to the provisions of Section 2(e).
The Initial Registration Statement prepared pursuant hereto shall register for
resale at least that number of shares of Common Stock equal to the product of
(x) 2.0 and (y) the number of Initial Registrable Securities as of the date
immediately preceding the date the Initial Registration Statement is initially
filed with the SEC (as if the Mandatory Preferred Shares and the Mandatory
Warrants were issued and outstanding on such date), subject to adjustment as
provided in Section 2(f). The Company shall use its best efforts to have the
Initial Registration Statement declared effective by the SEC as soon as
practicable, but in no event later than 75 days after the Initial Closing Date
(the "INITIAL EFFECTIVENESS DEADLINE").
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(ii) Additional Mandatory Registration. The
Company shall prepare, and, as soon as practicable but in no event later than 30
days after each Additional Closing Date (as defined in the Securities Purchase
Agreement) (the "ADDITIONAL FILING DEADLINE"), file with the SEC an Additional
Registration Statement or Additional Registration Statements (as necessary) on
Form S-3 covering the resale of all of the Registrable Securities relating to
the Additional Preferred Shares and the Additional Warrants which were issued on
the Additional Closing Date (collectively, the "ADDITIONAL REGISTRABLE
SECURITIES"). In the event that Form S-3 is unavailable for such a registration,
the Company shall use such other form as is available for such a registration,
subject to the provisions of Section 2(e). The Additional Registration Statement
prepared pursuant hereto shall register for resale at least that number of
shares of Common Stock equal to the product of (x) 2.0 and (y) the number of
Additional Registrable Securities, related to such Additional Closing Date, as
of the date immediately preceding the date the Additional Registration Statement
is initially filed with the SEC, subject to adjustment as provided in Section
2(f). The Company shall use its best efforts to have such Additional
Registration Statement declared effective by the SEC as soon as practicable, but
in no event later than 90 days after the Additional Closing Date (the
"ADDITIONAL EFFECTIVENESS DEADLINE").
b. Piggy-Back Registrations. If at any time prior to the
date on which the Registration Period (as hereinafter defined) with respect to
all Registration Statements shall have expired and no Preferred Shares, Warrants
or Registrable Securities remain outstanding, the number of shares of Common
Stock available for sale under the Registration Statements is insufficient to
cover all of the Registrable Securities and the Company proposes to file with
the SEC a Registration Statement relating to an offering for its own account or
the account of others under the 1933 Act of any of its securities (other than on
Form S-4 or Form S-8 (or their equivalents at such time) relating to securities
to be issued solely in connection with any acquisition of any entity or business
or equity securities issuable in connection with stock option or other employee
benefit plans), the Company shall promptly send to each Investor written notice
of the Company's intention to file a Registration Statement and of such
Investor's rights under this Section 2(b) and, if within ten (10) business days
after receipt of such notice, such Investor shall so request in writing, the
Company shall include in such Registration Statement all or any part of the
Registrable Securities such Investor requests to be registered, subject to the
priorities set forth below in this Section 2(b). No right to registration of
Registrable Securities under this Section 2(b) shall be construed to limit any
registration required under Section 2(a). The obligations of the Company under
this Section 2(b) may be waived by Investors holding a majority of the
Registrable Securities. If an offering in connection with which an Investor is
entitled to registration under this Section 2(b) is an underwritten offering,
then each Investor whose Registrable Securities are included in such
Registration Statement shall, unless otherwise agreed to by the Company, offer
and sell such Registrable Securities in an underwritten offering using the same
underwriter or underwriters and, subject to the provisions of this Agreement, on
the same terms and conditions as other shares of Common Stock included in such
underwritten offering. If a registration pursuant to this Section 2(b) is to be
an underwritten public offering and
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the managing underwriter(s) advise the Company in writing, that in their
reasonable good faith opinion, marketing or other factors dictate that a
limitation on the number of shares of Common Stock which may be included in the
Registration Statement is advisable to facilitate and not adversely affect the
proposed offering, then the Company shall include in such registration: (1)
first, all securities the Company proposes to sell for its own account, (2)
second, up to the full number of securities proposed to be registered for the
account of the holders of securities entitled to inclusion of their securities
in the Registration Statement by reason of demand registration rights, and (3)
third, the securities requested to be registered by the Investors and other
holders of securities entitled to participate in the registration, as of the
date hereof, drawn from them pro rata based on the number each has requested to
be included in such registration.
c. Allocation of Registrable Securities. The initial number
of Registrable Securities included in any Registration Statement and each
increase in the number of Registrable Securities included therein shall be
allocated pro rata among the Investors based on the number of Registrable
Securities held by each Investor at the time the Registration Statement covering
such initial number of Registrable Securities or increase thereof is declared
effective by the SEC. In the event that an Investor sells or otherwise transfers
any of such Investor's Registrable Securities, each transferee shall be
allocated a pro rata portion of the then remaining number of Registrable
Securities included in such Registration Statement for such transferor. Any
shares of Common Stock included in a Registration Statement and which remain
allocated to any Person which ceases to hold any Registrable Securities covered
by such Registration Statement shall be allocated to the remaining Investors,
pro rata based on the number of Registrable Securities then held by such
Investors which are covered by such Registration Statement.
d. Legal Counsel. Subject to Section 5 hereof, the Buyers
holding a majority of the Registrable Securities shall have the right to select
one legal counsel to review and oversee any offering pursuant to this Section 2
("LEGAL COUNSEL"), which shall be Katten Muchin & Zavis or such other counsel as
thereafter designated by the holders of a majority of the Registrable
Securities. The Company shall reasonably cooperate with Legal Counsel in
performing the Company's obligations under this Agreement.
e. Ineligibility for Form S-3. In the event that Form S-3
is not available for any registration of Registrable Securities hereunder, the
Company shall (i) register the sale of the Registrable Securities on another
appropriate form reasonably acceptable to the holders of a majority of the
Registrable Securities and (ii) undertake to register the Registrable Securities
on Form S-3 as soon as such form is available, provided that the Company shall
maintain the effectiveness of the Registration Statement then in effect until
such time as a Registration Statement on Form S-3 covering the Registrable
Securities has been declared effective by the SEC.
f. Sufficient Number of Shares Registered. In the event the
number of shares available under a Registration Statement filed pursuant to
Section 2(a) is insufficient to cover all
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of the Registrable Securities which such Registration Statement is required to
cover or an Investor's allocated portion of the Registrable Securities pursuant
to Section 2(c), the Company shall amend the Registration Statement, or file a
new Registration Statement (on the short form available therefor, if
applicable), or both, so as to cover at least 200% of such Registrable
Securities (based on the market price of the Common Stock on the trading day
immediately preceding the date of filing of such amendment or new Registration
Statement), in each case, as soon as practicable, but in any event not later
than fifteen (15) days after the necessity therefor arises. The Company shall
use it best efforts to cause such amendment and/or new Registration Statement to
become effective as soon as practicable following the filing thereof. For
purposes of the foregoing provision, the number of shares available under a
Registration Statement shall be deemed "insufficient to cover all of the
Registrable Securities" if at any time the number of Registrable Securities
issued or issuable upon conversion of the Preferred Shares and exercise of the
Warrants covered by such Registration Statement is greater than the quotient
determined by dividing (i) the number of shares of Common Stock available for
resale under such Registration Statement by (ii) 1.5. For purposes of the
calculation set forth in the foregoing sentence, any restrictions on the
convertibility of the Preferred Shares or exercise of the Warrants shall be
disregarded and such calculation shall assume that the Preferred Shares are then
convertible into, and the Warrants are then exercisable for, shares of Common
Stock at the then prevailing Conversion Rate (as defined in the Company's
Certificate of Determination) or Exercise Price (as defined in the Warrants),
respectively.
3. RELATED OBLIGATIONS.
Whenever an Investor has requested that any Registrable Securities be
registered pursuant to Section 2(b) or at such time as the Company is obligated
to file a Registration Statement with the SEC pursuant to Sections 2(a) or 2(f),
the Company will use its best efforts to effect the registration of the
Registrable Securities in accordance with the intended method of disposition
thereof and, pursuant thereto, the Company shall have the following obligations:
a. The Company shall promptly prepare and file with the SEC
a Registration Statement with respect to the sale by the Investors of
Registrable Securities (as soon as practicable but in no event later than the
Filing Deadline) and use its best efforts to cause such Registration Statement
relating to the Registrable Securities to become effective as soon as
practicable after such filing (but in no event later than the Effectiveness
Deadline). The Company shall keep each Registration Statement effective pursuant
to Rule 415 at all times until the earlier of (i) the date as of which the
Investors may sell all of the Registrable Securities covered by such
Registration Statement without restriction pursuant to Rule 144(k) (or successor
thereto) promulgated under the 1933 Act or (ii) the date on which the Investors
shall have sold all the Registrable Securities covered by such Registration
Statement (the "REGISTRATION PERIOD"), which Registration Statement (including
any amendments or supplements thereto and prospectuses contained therein) shall
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated
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therein, or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading. The term "best efforts"
shall mean, among other things, that the Company shall submit to the SEC, within
three (3) business days after the Company learns that no review of a particular
Registration Statement will be made by the staff of the SEC or that the staff
has no further comments on the Registration Statement, as the case may be, a
request for acceleration of effectiveness of such Registration Statement to a
time and date not later than 48 hours after the submission of such request.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement. In the case of amendments and supplements to a Registration Statement
which are required to be filed pursuant to this Agreement (including pursuant to
this Section 3(b)) by reason of the Company filing a report on Form 10-K, Form
10-Q or Form 8-K or any analogous report under the Securities Exchange Act of
1934, as amended (the "1934 ACT"), the Company shall have incorporated such
report by reference into the Registration Statement, if applicable, or shall
file such amendments or supplements with the SEC on the same day on which the
1934 Act report is filed which created the requirement for the Company to amend
or supplement the Registration Statement.
c. The Company shall (a) permit Legal Counsel to review and
comment upon (i) the Initial Registration Statement and the Additional
Registration Statement at least seven (7) days prior to its filing with the SEC
and (ii) all other Registration Statements and all amendments and supplements to
all Registration Statements (except for Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K and any similar or
successor reports) within a reasonable number of days prior to the their filing
with the SEC and (b) not file any document in a form to which Legal Counsel
reasonably objects. The Company shall not submit a request for acceleration of
the effectiveness of a Registration Statement or any amendment or supplement
thereto without the prior approval of Legal Counsel, which consent shall not be
unreasonably withheld. The Company shall furnish to Legal Counsel, without
charge, (i) any correspondence from the SEC or the staff of the SEC to the
Company or its representatives relating to any Registration Statement, (ii)
promptly after the same is prepared and filed with the SEC, one copy of any
Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference and
all exhibits and (iii)
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<PAGE> 8
upon the effectiveness of any Registration Statement, one copy of the prospectus
included in such Registration Statement and all amendments and supplements
thereto.
d. The Company shall furnish to each Investor whose
Registrable Securities are included in any Registration Statement, without
charge, (i) promptly after the same is prepared and filed with the SEC, at least
one copy of such Registration Statement and any amendment(s) thereto, including
financial statements and schedules, all documents incorporated therein by
reference, all exhibits and each preliminary prospectus, (ii) upon the
effectiveness of any Registration Statement, ten (10) copies of the prospectus
included in such Registration Statement and all amendments and supplements
thereto (or such other number of copies as such Investor may reasonably request)
and (iii) such other documents, including copies of any preliminary or final
prospectus, as such Investor may reasonably request from time to time in order
to facilitate the disposition of the Registrable Securities owned by such
Investor.
e. The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by a Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as Legal Counsel or any Investor reasonably requests, (ii) prepare and
file in those jurisdictions, such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the Registration Period,
(iii) take such other actions as may be necessary to maintain such registrations
and qualifications in effect at all times during the Registration Period, and
(iv) take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
Legal Counsel and each Investor who holds Registrable Securities of the receipt
by the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or "blue sky" laws of any jurisdiction in the United States
or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.
f. As promptly as practicable after becoming aware of such
event or development, the Company shall notify Legal Counsel and each Investor
in writing of the happening of any event as a result of which the prospectus
included in a Registration Statement, as then in effect, includes an untrue
statement of a material fact or omission to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and promptly prepare a
supplement or amendment to such Registration Statement (which, if such
Registration Statement is on Form S-3, may consist of a document to be filed by
the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act and to
be incorporated by reference in the prospectus) to correct such
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<PAGE> 9
untrue statement or omission, and deliver ten (10) copies of such supplement or
amendment to Legal Counsel and each Investor (or such other number of copies as
Legal Counsel or such Investor may reasonably request). The Company shall also
promptly notify Legal Counsel and each Investor in writing (i) when a prospectus
or any prospectus supplement or post-effective amendment has been filed, and
when a Registration Statement or any post-effective amendment has become
effective (notification of such effectiveness shall be delivered to Legal
Counsel and each Investor by facsimile on the same day of such effectiveness and
by overnight mail), (ii) of any request by the SEC for amendments or supplements
to a Registration Statement or related prospectus or related information, and
(iii) of the Company's reasonable determination that a post-effective amendment
to a Registration Statement would be appropriate.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify Legal Counsel and each Investor who
holds Registrable Securities being sold of the issuance of such order and the
resolution thereof or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.
h. The Company shall make available for inspection by (i)
any Investor, (ii) Legal Counsel and (iii) one firm of accountants or other
agents retained by the Investors, (collectively, the "INSPECTORS"), all
pertinent financial and other records, and pertinent corporate documents and
properties of the Company (collectively, the "RECORDS"), as shall be reasonably
deemed necessary by each Inspector, and cause the Company's officers, directors
and employees to supply all information which any Inspector may reasonably
request; provided, however, that each Inspector shall agree, and each Investor
hereby agrees, to hold in strict confidence and shall not make any disclosure
(except to an Investor) or use of any Record or other information which the
Company determines in good faith to be confidential, and of which determination
the Inspectors and Investors are so notified, unless (a) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in any
Registration Statement or is otherwise required under the 1933 Act, (b) the
release of such Records is ordered pursuant to a final, non-appealable subpoena
or order from a court or government body of competent jurisdiction, or (c) the
information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement of which
the relevant Inspector or Investor has knowledge. Each Investor agrees that it
shall, upon learning that disclosure of such Records is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt written notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, the Records deemed confidential.
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i. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement of which the Company has knowledge. The Company agrees that it shall,
upon learning that disclosure of such information concerning an Investor is
sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt written notice to such Investor and allow such
Investor, at the Investor's expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, such information.
j. The Company shall use its best efforts either to (i)
cause all the Registrable Securities covered by a Registration Statement to be
listed on each securities exchange on which securities of the same class or
series issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure designation and quotation of all the Registrable Securities covered
by the Registration Statement on the Nasdaq National Market, or (iii) if,
despite the Company's best efforts to satisfy the preceding clause (i) or (ii),
the Company is unsuccessful in satisfying the preceding clause (i) or (ii), to
secure the inclusion for quotation on The Nasdaq SmallCap Market or the
over-the-counter market on the electronic bulletin board for such Registrable
Securities and, without limiting the generality of the foregoing, to arrange for
at least two market makers to register with the National Association of
Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities. The Company shall pay all fees and expenses in connection with
satisfying its obligation under this Section 3(j).
k. The Company shall cooperate with the Investors who hold
Registrable Securities being offered to facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts, as the case may
be, as the Investors may reasonably request and registered in such names as the
Investors may request. Nothing in this Agreement shall affect in any way each
Investor's obligation to comply with all applicable prospectus delivery
requirements, if any, upon resale of the Registrable Securities.
l. The Company shall provide a transfer agent and registrar
for all such Registrable Securities not later than the effective date of the
corresponding Registration Statement.
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m. If requested by the Investors holding a majority of the
Registrable Securities, the Company shall (i) as soon as reasonably practicable
incorporate in a prospectus supplement or post-effective amendment such
information as such Investors reasonably determine should be included therein
relating to the sale and distribution of Registrable Securities, including,
without limitation, information with respect to the offering of the Registrable
Securities to be sold in such offering; (ii) as soon as reasonably practicable
make all required filings of such prospectus supplement or post-effective
amendment after being notified of the matters to be incorporated in such
prospectus supplement or post-effective amendment; and (iii) supplement or make
amendments to any Registration Statement if reasonably requested by such
Investors.
n. The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to consummate the disposition of such Registrable
Securities; provided, however, that the Company shall not be required to
register the Registrable Securities with any governmental agencies or
authorities outside the United States of America.
o. The Company shall make generally available to its
security holders as soon as reasonably practical, but not later than 90 days
after the close of the period covered thereby, an earnings statement (in form
complying with the provisions of Rule 158 under the 1933 Act) covering a
twelve-month period beginning not later than the first day of the Company's
fiscal quarter next following the effective date of the Registration Statement.
p. The Company shall otherwise use its best efforts to
comply with all applicable rules and regulations of the SEC in connection with
any registration hereunder.
q. Within two (2) business days after a Registration
Statement which covers applicable Registrable Securities is ordered effective by
the SEC, the Company shall deliver, and shall cause legal counsel for the
Company to deliver, to the transfer agent for such Registrable Securities (with
copies to the Investors whose Registrable Securities are included in such
Registration Statement) confirmation that such Registration Statement has been
declared effective by the SEC in the form attached hereto as Exhibit A.
r. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
s. For each calendar quarter beginning in the quarter in
which the Initial Registration Statement required to be filed pursuant to
Section 2(a) is declared effective and thereafter so long as any Preferred
Shares or Warrants are outstanding, the Company shall deliver (or cause its
transfer agent to deliver) to each Investor a written report notifying the
Investors of
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any occurrence which prohibits the Company from issuing Common Stock upon
conversion of the Preferred Shares or exercise of the Warrants. The report shall
also specify (i) the total number of Preferred Shares and Warrants outstanding
as of the end of the quarter, (ii) the total number of shares of Common Stock
issued upon all conversions of Preferred Shares and exercise of the Warrants
prior to the end of the quarter, (iii) the total number of shares of Common
Stock which are reserved for issuance upon conversion of the Preferred Shares
and exercise of the Warrants as of the end of the quarter, and (iv) the total
number of shares of Common Stock which may thereafter be listed or issued by the
Company upon conversion of the Preferred Shares and exercise of the Warrants
before the Company would exceed the Exchange Cap (as defined in the Certificate
of Determination). The Company (or its transfer agent) shall deliver the report
for each quarter to each Investor prior to the tenth day of the calendar month
following the quarter to which the report relates. In addition, the Company (or
its transfer agent) shall provide, within 15 days after delivery to the Company
of a written request by an Investor, any of the information enumerated in
clauses (i) - (iv) of this Section 3(s) as of the date of the request.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) days prior to the first anticipated
filing date of a Registration Statement, the Company shall notify each Investor
in writing of the information the Company requires from each such Investor if
such Investor elects to have any of such Investor's Registrable Securities
included in such Registration Statement. It shall be a condition precedent to
the obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of a particular Investor
that such Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request.
b. Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of any
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from such Registration Statement.
c. Each Investor agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
3(g), the first sentence of 3(f) or 3(s), such Investor will immediately
discontinue disposition of Registrable Securities pursuant to any Registration
Statement(s) covering such Registrable Securities until such Investor's receipt
of the copies of the supplemented or amended prospectus contemplated by Section
3(g) or the first sentence of 3(f) or receipt of notice that no supplement or
amendment is required. Notwithstanding anything to the contrary, the Company
shall cause its transfer agent to deliver
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unlegended shares of Common Stock to a transferee of an Investor in accordance
with the terms of the Securities Purchase Agreement in connection with any sale
of Registrable Securities with respect to which an Investor has entered into a
contract for sale prior to the Investor's receipt of a notice from the Company
of the happening of any event of the kind described in Section 3(g) or the first
sentence of 3(f) and for which the Investor has not yet settled.
d. Each Investor agrees not to take any action to cause
such Investor to become a registered broker-dealer as defined under the 1934
Act.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting and
brokerage discounts and commissions, incurred in connection with registrations,
filings or qualifications pursuant to Sections 2 and 3, including, without
limitation, all registration, listing and qualifications fees, printers and
accounting fees, and fees and disbursements of counsel for the Company and
reasonable fees and disbursements of Legal Counsel shall be paid by the Company;
provided, however, that such reasonable fees and disbursements of Legal Counsel,
when aggregated among all of the Registration Statements together with the fees
and expenses paid by the Company pursuant to Section 4(i) of the Securities
Purchase Agreement, shall not exceed $40,000.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company
will, and hereby does, indemnify, hold harmless and defend each Investor who
holds or held such Registrable Securities, the directors, officers, partners,
employees, agents, representatives of, and each Person, if any, who controls
such Investor within the meaning of the 1933 Act or the 1934 Act (each, an
"INDEMNIFIED PERSON"), against any losses, claims, damages, liabilities,
judgments, fines, penalties, charges, costs, reasonable attorneys' fees, amounts
paid in settlement or expenses, joint or several, (collectively, "CLAIMS")
incurred in investigating, preparing or defending any action, claim, suit,
inquiry, proceeding, investigation or appeal taken from the foregoing by or
before any court or governmental, administrative or other regulatory agency,
body or the SEC, whether pending or threatened, whether or not an indemnified
party is or may be a party thereto ("INDEMNIFIED DAMAGES"), to which any of them
may become subject insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon: (i)
any untrue statement or alleged untrue statement of a material fact in a
Registration Statement or any post-effective amendment thereto or in any filing
made in connection with the qualification of the offering under the securities
or other "blue sky" laws of any jurisdiction in which Registrable Securities are
offered ("BLUE SKY FILING"), or the omission
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or alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading or (iii) any violation or alleged violation by the Company
of the 1933 Act, the 1934 Act, any other law, including, without limitation, any
state securities law, or any rule or regulation thereunder relating to the offer
or sale of the Registrable Securities pursuant to a Registration Statement (the
matters in the foregoing clauses (i) through (iii) being, collectively,
"VIOLATIONS"). The Company shall reimburse the Investors and each such
controlling Person, promptly as such expenses are incurred and are due and
payable, for any reasonable legal fees or disbursements or other reasonable
expenses incurred by them in connection with investigating or defending any such
Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a): (i) shall not apply to
a Claim by an Indemnified Person arising out of or based upon a Violation which
occurs in reliance upon and in conformity with information furnished in writing
to the Company by such Indemnified Person expressly for use in connection with
the preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(d); (ii) shall not be available to the extent such Claim
is based on (A) a failure of the Investor to deliver or to cause to be delivered
the prospectus made available by the Company, if such prospectus was timely made
available by the Company pursuant to Section 3(d) or (B) the Indemnified
Person's use of an incorrect prospectus after the Indemnified Person's receipt
of a notice from the Company of the happening of any event described in Section
3(g) or the first sentence of Section 3(f) (except where the Indemnified Person
has entered into a contract for sale prior to the Indemnified Person's receipt
of such notice); and (iii) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Indemnified Person and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which
an Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement, each Person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act and each
of the Company's employees, agents and representatives (each an "INDEMNIFIED
PARTY"), against any Claim or Indemnified Damages to which any of them may
become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such
Claim or Indemnified Damages arise out of or are based upon any Violation, in
each case to the extent, and only to the extent, that such Violation occurs in
reliance upon and in conformity with written information furnished to the
Company by
14
<PAGE> 15
such Investor expressly for use in connection with such Registration Statement;
and, subject to Section 6(c), such Investor will reimburse any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution
contained in Section 7 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of such
Investor, which consent shall not be unreasonably withheld; provided, further,
however, that the Investor shall be liable under this Section 6(b) for only that
amount of a Claim or Indemnified Damages as does not exceed the net proceeds to
such Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding) involving
a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under this Section
6, deliver to the indemnifying party a written notice of the commencement
thereof, and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense thereof
with counsel mutually satisfactory to the indemnifying party and the Indemnified
Person or the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one counsel for such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. In the case of an
Indemnified Person, legal counsel referred to in the immediately preceding
sentence shall be selected by the Investors holding a majority in interest of
the Registrable Securities included in the Registration Statement to which the
Claim relates. The Indemnified Party or Indemnified Person shall cooperate fully
with the indemnifying party in connection with any negotiation or defense of any
such action or Claim by the indemnifying party and shall furnish to the
indemnifying party all information reasonably available to the Indemnified Party
or Indemnified Person which relates to such action or Claim. The indemnifying
party shall keep the Indemnified Party or Indemnified Person fully apprised at
all times as to the status of the defense or any settlement negotiations with
respect thereto. No
15
<PAGE> 16
indemnifying party shall be liable for any settlement of any action, claim or
proceeding effected without its prior written consent, provided, however, that
the indemnifying party shall not unreasonably withhold, delay or condition its
consent. No indemnifying party shall, without the prior written consent of the
Indemnified Party or Indemnified Person, consent to entry of any judgment or
enter into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party or Indemnified Person of a release from all liability in
respect to such Claim or litigation. Following indemnification as provided for
hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.
d. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified Damages
are incurred.
e. The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party
is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that: (i) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6; (ii) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any seller of Registrable Securities
who was not guilty of fraudulent misrepresentation; and (iii) contribution by
any seller of Registrable Securities shall be limited in amount to the net
amount of proceeds received by such seller from the sale of such Registrable
Securities.
16
<PAGE> 17
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the
benefits of Rule 144 promulgated under the 1933 Act or any other similar rule or
regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration ("RULE 144"), the
Company agrees to:
a. make and keep public information available, as those
terms are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and
other documents required of the Company under the 1933 Act and the 1934 Act so
long as the Company remains subject to such requirements (it being understood
that nothing herein shall limit the Company's obligations under Section 4(c) of
the Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically
assignable by the Investors to any transferee of all or any portion of
Registrable Securities if: (i) the Investor agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company within five business days after such assignment; (ii)
the Company is, within five business days after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee or
assignee, and (b) the Registrable Securities with respect to which such
registration rights are being transferred or assigned; (iii) immediately
following such transfer or assignment the further disposition of such
Registrable Securities by the transferee or assignee is restricted under the
1933 Act and applicable state securities laws; (iv) at or before the time the
Company receives the written notice contemplated by clause (ii) of this sentence
the transferee or assignee agrees in writing with the Company to be bound by all
of the provisions contained herein; and (v) such transfer shall have been made
in accordance with the applicable requirements of the Securities Purchase
Agreement.
17
<PAGE> 18
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the
observance thereof may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of the
Company and Investors who then hold at least two-thirds (2/3) of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company. No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Registrable Securities. No consideration shall be offered or paid to any Person
to amend or consent to a waiver or modification of any provision of any of this
Agreement unless the same consideration also is offered to all of the parties to
this Agreement.
11. MISCELLANEOUS.
a. A Person is deemed to be a holder of Registrable
Securities whenever such Person owns or is deemed to own of record such
Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more Persons with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
AVANIR Pharmaceuticals
9393 Towne Centre Drive, Suite 200
San Diego, California 92121
Telephone: 619-558-0364
Facsimile: 619-455-8059
Attention: Gregory P. Hanson
18
<PAGE> 19
With a copy to:
Baker & McKenzie
Wells Fargo Plaza, 12th Floor
101 West Broadway
San Diego, California 92101
Telephone: 619-236-1441
Facsimile: 619-236-0429
Attention: John J. Hentrich, Esq.
If to Legal Counsel:
Katten Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Telephone: 312-902-5200
Facsimile: 312-902-1061
Attention: Robert J. Brantman, Esq.
If to a Buyer, to its address and facsimile number on the Schedule of Buyers
attached hereto, with copies to such Buyer's representatives as set forth on the
Schedule of Buyers or to such other address and/or facsimile number and/or to
the attention of such other Person as the recipient party has specified by
written notice given to each other party five (5) days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a courier or overnight courier
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
c. Failure of any party to exercise any right or remedy
under this Agreement or otherwise, or delay by a party in exercising such right
or remedy, shall not operate as a waiver thereof.
d. The corporate laws of the State of California shall
govern all issues concerning the relative rights of the Company and the Buyers
as its stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any
19
<PAGE> 20
choice of law or conflict of law provision or rule (whether of the State of New
York or any other jurisdictions) that would cause the application of the laws of
any jurisdictions other than the State of New York. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and federal
courts sitting the City of New York, and if the Company's principal place of
business is in San Diego, California, the City of San Diego, State of
California, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, 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 to such party at the address for such 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.
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.
e. This Agreement, the Securities Purchase Agreement, the
Warrants and the Certificate of Determination constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein and therein. This Agreement, the
Securities Purchase Agreement, the Warrants and the Certificate of Determination
supersede all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement
shall inure to the benefit of and be binding upon the permitted successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in identical
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by facsimile
20
<PAGE> 21
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. All consents and other determinations to be made by the
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by Investors holding a majority of the Registrable
Securities, determined as if all of the Preferred Shares and the Warrants then
outstanding have been converted into or exercised for Registrable Securities
without regard to any limitation on conversion of the Preferred Shares or
exercise of the Warrants.
k. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent and no rules
of strict construction will be applied against any party.
l. This Agreement is intended for the benefit of the
parties hereto and their respective permitted successors and assigns, and is not
for the benefit of, nor may any provision hereof be enforced by, any other
Person.
* * * * * *
21
<PAGE> 22
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY:
AVANIR PHARMACEUTICALS HFTP INVESTMENT L.L.C.
By: Promethean Investment Group L.L.C.
Its: Investment Manager
By:/s/Gregory P. Hanson By:/s/E. Kurt Kim
--------------------------- -----------------------------------------
Name: Gregory P. Hanson Name: E. Kurt Kim
Its: Chief Financial Officer Its: Authorized Signatory
AG SUPER FUND INTERNATIONAL
PARTNERS, L.P.
By: ANGELO, GORDON & CO., L.P.
Its: General Partner
By:/s/ Michael L. Gordon
-----------------------------------------
Name: Michael L. Gordon
Its: Chief Operating Officer
GAM ARBITRAGE INVESTMENTS, INC.
By: ANGELO, GORDON & CO., L.P.
Its: Investment Advisor
By:/s/ Michael L. Gordon
-----------------------------------------
Name: Michael L. Gordon
Its: Chief Operating Officer
LEONARDO, L.P.
By: ANGELO, GORDON & CO., L.P.
Its: General Partner
By:/s/ Michael L. Gordon
-----------------------------------------
Name: Michael L. Gordon
Its: Chief Operating Officer
22
<PAGE> 23
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT - P. 2 OF 2]
RAPHAEL, L.P.
By:/s/ Michael L. Gordon
-----------------------------------------
Name: Michael L. Gordon
Its: Chief Operating Officer
RAMIUS FUND, LTD.
By: AG RAMIUS PARTNERS, L.L.C.
Its:Investment Advisor
By:/s/Michael L. Gordon
-----------------------------------------
Name: Michael L. Gordon
Its:Managing Officer
23
<PAGE> 24
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
INVESTOR ADDRESS INVESTOR'S REPRESENTATIVES' ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER AND FACSIMILE NUMBER
------------- -------------------- --------------------
<S> <C> <C>
HFTP Investment L.L.C. c/o Promethean Investment Group, L.L.C. Promethean Investment Group, L.L.C.
750 Lexington Ave., 22nd Floor 750 Lexington Ave., 22nd Floor
New York, New York 10022 New York, New York 10022
Attn: James F. O'Brien, Jr. Attn: James F. O'Brien, Jr.
E. Kurt Kim E. Kurt Kim
Facsimile: 212-758-9334 Facsimile: 212-758-9334
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Facsimile: 312-902-1061
AG Super Fund c/o Angelo, Gordon & Co., L.P.
International Partners, L.P. 245 Park Avenue - 26th Floor
New York, New York 10167
Attention: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449
Telephone: (212) 692-2035
Residence: Cayman Islands
GAM Arbitrage c/o Angelo, Gordon & Co., L.P.
Investments, Inc. 245 Park Avenue - 26th Floor
New York, New York 10167
Attention: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449
Telephone: (212) 692-2035
Residence: British Virgin Islands
Leonardo, L.P. c/o Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th Floor
New York, New York 10167
Attention: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449
Telephone: (212) 692-2035
Residence: Cayman Islands
Raphael, L.P. c/o Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th Floor
New York, New York 10167
Attention: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449
Telephone: (212) 692-2035
Residence: Cayman Islands
</TABLE>
24
<PAGE> 25
<TABLE>
<CAPTION>
INVESTOR ADDRESS INVESTOR'S REPRESENTATIVES' ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER AND FACSIMILE NUMBER
------------- -------------------- --------------------
<S> <C> <C>
Ramius Fund, Ltd. c/o Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th Floor
New York, New York 10167
Attention: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449
Telephone: (212) 692-2035
Residence: Bermuda
</TABLE>
25
<PAGE> 26
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
AMERICAN STOCK TRANSFER & TRUST COMPANY
6201 15TH AVENUE
BROOKLYN, NEW YORK 11219
ATTN: WILLIAM GALETTA
Re: AVANIR PHARMACEUTICALS
Ladies and Gentlemen:
We are counsel to AVANIR Pharmaceuticals, a California corporation
(the "COMPANY"), and have represented the Company in connection with that
certain Securities Purchase Agreement (the "PURCHASE AGREEMENT") entered into by
and among the Company and the buyers named therein (collectively, the
"HOLDERS"), pursuant to which the Company issued to the Holders shares of its
Series D Convertible Preferred Stock, no par value per share (the "PREFERRED
SHARES"), convertible into shares of the Company's Class A Common Stock, no par
value per share (the "COMMON STOCK"), and Warrants (the "WARRANTS") to acquire
shares of Common Stock. Pursuant to the Purchase Agreement, the Company also has
entered into that certain Registration Rights Agreement with the Holders (the
"REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Company agreed, among
other things, to register the Registrable Securities (as defined in the
Registration Rights Agreement), including the shares of Common Stock issuable
upon conversion of the Preferred Shares and exercise of the Warrants, under the
Securities Act of 1933, as amended (the "1933 ACT"). In connection with the
Company's obligations under the Registration Rights Agreement, on ____________
___, 1999, the Company filed a Registration Statement on Form S-3 (File No.
333-_____________) (the "REGISTRATION STATEMENT") with the Securities and
Exchange Commission (the "SEC"), relating to the Registrable Securities which
names each of the Holders as a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS], and to the best of our
knowledge after telephonic inquiry, no stop order suspending its effectiveness
has been issued and no proceedings for that purpose are pending before, or
threatened by, the SEC and the Registrable Securities are available for resale
under the 1933 Act pursuant to the Registration Statement.
Very truly yours,
[ISSUER'S COUNSEL]
By:
------------------------------------------
cc: [LIST NAMES OF HOLDERS]
26
<PAGE> 1
EXHIBIT 99
(logo)
AVANIR Pharmaceuticals
NEWS RELEASE
FOR IMMEDIATE RELEASE Company Contact:
Gregory Hanson, CFO
619/ 410 - 2670
Investor Contact: Media Contact:
Thomas Redington Bob Stone / Ray McNulty
Redington, Inc. The Dilenschneider Group
203/ 222 - 7399 212/ 922 - 0900
914/ 591 - 5534 Stone home
AVANIR PHARMACEUTICALS ARRANGES PREFERRED STOCK FINANCING
SUPPLEMENTS THE $10 MILLION EQUITY LINE SIGNED IN JANUARY
San Diego, April 1, 1999 -- AVANIR Pharmaceuticals (NASDAQ: AVNR) today
announced it has signed an agreement with several accredited investors to obtain
up to $5 million in financing in the form of convertible preferred stock and
warrants. The company received an initial $2 million at the closing on March 31,
1999. An additional $1 million is expected to be received upon the company
meeting certain conditions over the next two months. The investors have the
option to invest up to $2 million in additional capital under similar terms.
The convertible preferred stock carries a 5% dividend, payable quarterly
in cash or, at the company's option, in stock at the applicable conversion rate.
The investors also received a warrant to purchase 500 additional shares of
common stock under similar terms for each $10,000 invested. Conditions to
receiving additional funds under the financing agreements include obtaining
shareholder approval, registering the underlying common stock for resale and
maintaining the company's listing of shares on the Nasdaq National Market.
Gerald J. Yakatan, Ph.D., AVANIR's chief executive officer and president
said, "This financing will help us implement our product strategy following the
FDA's decision regarding the additional evidence of efficacy we recently
submitted on docosanol, our topical treatment for oral-facial herpes."
"The preferred stock financing is intended to give us more flexibility
in determining when to draw on the $10 million equity line announced in January
1999," added Gregory Hanson, AVANIR's vice president and chief financial
officer. "However, as a condition to obtaining all of the potential funds
available under both forms of financing, and due to the potential size of the
combined financings, Nasdaq market rules require us to obtain shareholder
approval to potentially issue over 20% of the currently outstanding shares of
common stock."
(more)
<PAGE> 2
Additional details regarding the terms of the financing agreements are
contained in the company's filings on Form 8-K with the Securities and Exchange
Commission to be filed later today. The company anticipates filing a proxy
statement with the SEC with respect to a special meeting of shareholders,
expected to be held in May 1999 to authorize the potential issuance of more than
20% of its common stock pursuant to these agreements.
In December 1998 the company delayed product launch plans for docosanol,
a topical treatment for oral-facial herpes (cold sores and fever blisters) when
it received a "not approvable" letter from the FDA. The company responded to the
FDA's action letter in early March 1999 by providing additional evidence of
effectiveness of docosanol and recently met with them to discuss the additional
evidence and other issues. The company recently reported that it expected the
FDA would require at least one additional meeting with the company before a
decision would be reached.
Separately, AVANIR said it retained Redington, Inc. to assist in
developing and managing communications programs aimed at broadening awareness of
the company among U.S. investors. The financial communications firm specializes
in working with emerging life sciences companies. It provides a number of
services to build relationships between its publicly traded clients and the
investment community. Programs for AVANIR are expected to include a series of
investor presentations in key U.S. cities and various services of the Redington
Investor Contact Unit.
AVANIR Pharmaceuticals develops novel therapeutic products for the
treatment of chronic diseases. Besides docosanol, the company's product
development pipeline includes a drug for the treatment of emotional lability in
ALS (Lou Gehrig's disease) patients, expected to enter Phase II clinical trials
by mid-year, and a drug research program in pre-clinical development for the
treatment of the underlying biological causes of allergy and asthma.
####
The information contained in this press release, including forward looking
statements contained herein, should be reviewed in conjunction with the
company's Annual Report on Form 10-K/A and other publicly available information
regarding the company, copies of which are available from the company upon
request. Readers are cautioned not to place undue reliance on these
forward-looking statements, which are only predictions and speak only as of the
date hereof. Forward-looking statements usually contain the words "anticipate,"
"expect," "intend," "believe" or similar expressions, and are subject to
numerous known and unknown risks and uncertainties. In evaluating such
statements, prospective investors should carefully review various risks and
uncertainties identified in Form 10-K/A. Such publicly available information
sets forth many risks and uncertainties related to the company's business.
Specific risks and uncertainties related to drug development and clinical trials
and decisions made by the FDA, which are outside the control of the company.
Further, the company's ability to obtain all of the financing contemplated by
the agreements is subject to certain conditions of the financing agreements as
well as review and approval by the SEC of the company's registration statements,
which are also outside the control of the company.
