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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: November 23, 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)
(858) 558-0364
(Registrants telephone number, including area code)
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Item 5. OTHER EVENTS
Loan Financing Arrangement
On November 23, 1999, AVANIR Pharmaceuticals ("AVANIR") entered into a
loan agreement for $1.5 million in financing from two international financial
lenders. On November 24, 1999 and November 29, 1999, respectively, AVANIR issued
to each lender an 18-month convertible debenture ("Convertible Debenture"), with
an interest rate of 11% payable quarterly in arrears. Under the loan agreement,
AVANIR may pay back the outstanding principal and accrued interest on each
Convertible Debenture within the first 100 days from its issuance date before
the lender is entitled to convert the Convertible Debenture into shares of Class
A Common Stock. After this 100-day period, the lender will have a right to
convert the outstanding principal and accrued interest into shares of Class A
Common Stock at a conversion rate of 90% of the market price (as defined in the
loan agreement) per share of Class A Common Stock.
In connection with this financing, AVANIR issued to each lender a stock
purchase warrant ("Stock Purchase Warrant") to purchase 292,056 shares of Class
A Common Stock at an exercise price of $1.284 per share. Two-thirds of the
shares of Class A Common Stock underlying each Stock Purchase Warrant vested on
November 24, 1999. The remaining one-third will become exercisable only if
AVANIR has not repaid in full the outstanding principal and accrued interest on
the Convertible Debentures within the first 100 days from the issuance date of
the Convertible Debentures. In addition, two investment banks received from
AVANIR an aggregate finder's fee of $120,000 and stock purchase warrants to
purchase an aggregate of 116,822 shares of Class A Common Stock at an exercise
price of $1.284 per share.
Amendment to Rights Agreement
Pursuant to the terms and conditions of the loan agreement, AVANIR
amended the Rights Agreement, dated as of March 5, 1999 (the "Rights
Agreement"), between AVANIR and American Stock Transfer & Trust Company, as
rights agent, to exclude each of the lenders from triggering the Rights
Agreement in the event of a conversion of the Convertible Debentures and/or
exercise of the Stock Purchase Warrants.
Under the Rights Agreement, either lender will be deemed to be an
"Acquiring Person" if it becomes the beneficial owner of 15% or more of AVANIR's
Class A Common Stock and Class B Common Stock. Because the beneficial ownership
of each lender could exceed this 15% threshold in the event of the conversion of
the Convertible Debentures at a price per share that is lower than the current
market price per share for Class A Common Stock and/or with the exercise of the
Stock Purchase Warrants, AVANIR amended the Rights Agreement to exclude each
lender from the definition of "Acquiring Person," unless the lender beneficially
owns or will beneficially own any shares of Class A Common Stock and Class B
Common Stock (collectively, "Common Shares"), other than:
- the lender's ownership of Convertible Debentures or Stock
Purchase Warrants or any Common Shares issuable upon the
conversion or exercise thereof; and
- any stock dividend or distribution paid or made on the
outstanding Common Shares or pursuant to a split or subdivision
of the outstanding Common Shares.
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Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
4.1 Loan Agreement, dated as of November 23, 1999, by and among (i)
AVANIR Pharmaceuticals, a California corporation, and (ii) AMRO
International, S.A., a Panama corporation, and The Endeavour
Capital Fund, S.A., a company formed under the laws of Israel.
4.2 Form of 11% Convertible Debenture.
4.3 Form of Stock Purchase Warrant.
4.4 Registration Rights Agreement, dated as of November 23, 1999, by
and among AVANIR Pharmaceuticals, AMRO International, S.A and
The Endeavour Capital Fund, S.A.
4.5 Amendment No. 1 to Rights Agreement, dated November 30, 1999, by
and between AVANIR and American Stock Transfer & Trust Company,
a New York corporation, as rights agent.
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: December 3, 1999 By: /s/ Gregory P. Hanson
-------------------------------------
Gregory P. Hanson
Vice President, Finance and
Chief Financial Officer
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EXHIBIT 4.1
LOAN AGREEMENT
BETWEEN
AVANIR PHARMACEUTICALS
AND
THE LENDERS SIGNATORY HERETO
LOAN AGREEMENT dated as of November 23, 1999 (the "Agreement"), between
the Lenders signatory hereto (each a "Lender" and together the "Lenders"), and
AVANIR Pharmaceuticals, a corporation organized and existing under the laws of
the State of California (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall borrow from the Lenders, and the
Lenders shall lend to the Company in the aggregate, $1,500,000 in exchange for
Convertible Debentures (as defined below) and Warrants (as defined below) to
purchase shares of the Common Stock (as defined below) as described herein.
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") and/or 4(6) of the United States Securities Act
of 1933, as amended and/or Regulation D ("Regulation D") and the other rules and
regulations promulgated thereunder (the "Securities Act"), and/or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments in securities to be
made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. "Capital Shares" shall mean the Common Stock and any shares of any
other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.
Section 1.2. "Capital Shares Equivalents" shall mean any securities, rights, or
obligations that are convertible into or exchangeable for or give any right to
subscribe for any Capital Shares of the Company or any warrants, options or
other rights to subscribe for or purchase Capital Shares or any such convertible
or exchangeable securities.
Section 1.3. "Closing" shall mean the closing of the purchase and sale of the
Convertible Debentures and Warrants pursuant to Section 2.1.
Section 1.4. "Closing Date" shall mean the date on which all conditions to the
Closing have been satisfied (as set forth in Section 2.1 (b) hereto) and the
Closing shall have occurred.
Section 1.5. "Common Stock" shall mean the Company's Class A common stock, no
par value per share.
Section 1.6. "Conversion Shares" shall mean the shares of Common Stock issuable
upon conversion of the Convertible Debentures.
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Section 1.7. "Convertible Debentures" shall mean the Company's 11% Convertible
Debentures in the form of Exhibit A hereto.
Section 1.8. "Damages" shall mean any loss, claim, damage, judgment, penalty,
deficiency, liability, costs and expenses (including, without limitation,
reasonable attorneys' fees and disbursements and reasonable costs and expenses
of expert witnesses and investigation).
Section 1.9. "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in the Registration Rights Agreement.
Section 1.10. "Escrow Agent" shall have the meaning set forth in the Escrow
Agreement.
Section 1.11. "Escrow Agreement" shall mean the Escrow Agreement in
substantially the form of Exhibit D hereto executed and delivered
contemporaneously with this Agreement.
Section 1.12. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
Section 1.13. "Legend" shall mean the legend set forth in Section 9.1.
Section 1.14. "Market Price" on any given date shall mean the lowest five
consecutive Trading Day average closing bid price on the Principal Market (as
reported by Bloomberg L.P.) of the Common Stock during the twenty-two Trading
Day period ending on the Trading Day immediately prior to the date for which the
Market Price is to be determined.
Section 1.15. "Material Adverse Effect" shall mean any effect on the business,
operations, properties, prospects, stock price or financial condition of the
Company that is material and adverse to the Company and its subsidiaries and
affiliates, taken as a whole, and/or any condition, circumstance, or situation
that would prohibit or otherwise interfere with the ability of the Company to
enter into and perform any of its obligations under this Agreement, the
Registration Rights Agreement, the Escrow Agreement, the Convertible Debentures
or the Warrants in any material respect.
Section 1.16. "Outstanding" when used with reference to Capital Shares
(collectively the "Shares"), shall mean, at any date as of which the number of
such Shares is to be determined, all issued and outstanding Shares, and shall
include all such Shares issuable in respect of outstanding scrip or any
certificates representing fractional interests in such Shares; provided,
however, that "Outstanding" shall not mean any such Shares then directly or
indirectly owned or held by or for the account of the Company.
Section 1.17. "Person" shall mean an individual, a corporation, a partnership, a
limited liability company, an association, a trust or other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
Section 1.18. "Principal Market" shall mean the American Stock Exchange, the New
York Stock Exchange, the NASDAQ National Market, or the NASDAQ Small-Cap Market
or the OTC Bulletin Board, whichever is at the time the principal trading
exchange or market for the Common Stock.
Section 1.19. "Purchase Price" shall mean the principal amount of the
Convertible Debentures.
Section 1.20. "Registrable Securities" shall mean the Conversion Shares and the
Warrant Shares until (i) the Registration Statement has been declared effective
by the SEC, and all Conversion Shares and Warrant Shares have been disposed of
pursuant to the Registration Statement, (ii) all Conversion Shares and Warrant
Shares have been sold under circumstances under which all of the applicable
conditions of Rule 144 (or any
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similar provision then in force) under the Securities Act ("Rule 144") are met,
(iii) all Conversion Shares and Warrant Shares have been otherwise transferred
to holders who may trade such shares without restriction under the Securities
Act, and the Company has delivered a new certificate or other evidence of
ownership for such securities not bearing a restrictive legend or (iv) such time
as, in the opinion of counsel to the Company, all Conversion Shares and Warrant
Shares may be sold without any time, volume or manner limitations pursuant to
Rule 144(k) (or any similar provision then in effect) under the Securities Act.
Section 1.21. "Registration Rights Agreement" shall mean the agreement regarding
the filing of the Registration Statement for the resale of the Registrable
Securities, entered into between the Company and the Lenders as of the Closing
Date in the form annexed hereto as Exhibit C.
Section 1.22. "Registration Statement" shall mean a registration statement on
Form S-3 (if use of such form is then available to the Company pursuant to the
rules of the SEC and, if not, on such other form promulgated by the SEC for
which the Company then qualifies and which counsel for the Company shall deem
appropriate, and which form shall be available for the resale by the Lenders of
the Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement, the Registration Rights Agreement and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Lender of the Registrable Securities under the
Securities Act.
Section 1.23. "Regulation D" shall have the meaning set forth in the recitals of
this Agreement.
Section 1.24. "SEC" shall mean the Securities and Exchange Commission.
Section 1.25. "Section 4(2)" and "Section 4(6)" shall have the meanings set
forth in the recitals of this Agreement.
Section 1.26. "Securities Act" shall have the meaning set forth in the recitals
of this Agreement.
Section 1.27. "SEC Documents" shall mean the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1998 and each report, proxy
statement or registration statement filed by the Company with the SEC pursuant
to the Exchange Act or the Securities Act since the filing of such Annual Report
through the date hereof.
Section 1.28. "Shares" shall have the meaning set forth in Section 1.16.
Section 1.29. "Trading Day" shall mean any day during which the Principal Market
shall be open for business.
Section 1.30. "Warrants" shall mean the Warrants substantially in the form of
Exhibit B to be issued to the Lenders hereunder.
Section 1.31. "Warrant Shares" shall mean all shares of Common Stock or other
securities issued or issuable pursuant to exercise of the Warrants.
ARTICLE II
PURCHASE AND SALE OF CONVERTIBLE DEBENTURES AND WARRANTS
Section 2.1. Investment.
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(a) Upon the terms and subject to the conditions set forth herein,
the Company agrees to sell, and the Lenders agree to purchase the Convertible
Debentures together with the Warrants at the Purchase Price on the Closing Date
as follows:
(i) Upon execution and delivery of this Agreement, each
Lender shall deliver to the Escrow Agent immediately
available funds in their proportionate amount of the
Purchase Price as set forth on the signature pages
hereto, and the Company shall deliver the Convertible
Debentures and the Warrants to the Escrow Agent, in each
case to be held by the Escrow Agent pursuant to the
Escrow Agreement.
(ii) Upon satisfaction of the conditions set forth in Section
2.1(b), the Closing ("Closing") shall occur at the
offices of the Escrow Agent at which the Escrow Agent
(x) shall release the Convertible Debentures and the
Warrants to the Lenders and (y) shall release the
Purchase Price (after all fees have been paid as set
forth in the Escrow Agreement), pursuant to the terms of
the Escrow Agreement.
(b) The Closing is subject to the satisfaction or waiver by the
party sought to be benefited thereby of the following conditions:
(i) acceptance and execution by the Company and by the
Lenders, of this Agreement and all Exhibits hereto;
(ii) delivery into escrow by each Lender of immediately
available funds in the amount of the Purchase Price of
the Convertible Debentures and the Warrants, as more
fully set forth in the Escrow Agreement;
(iii) all representations and warranties of the Lenders
contained herein shall remain true and correct as of the
Closing Date (as a condition to the Company's
obligations);
(iv) all representations and warranties of the Company
contained herein shall remain true and correct as of the
Closing Date (as a condition to the Lenders'
obligations);
(v) the Company shall have obtained all permits and
qualifications required by any state for the offer and
sale of the Convertible Debentures and Warrants, or
shall have the availability of exemptions therefrom;
(vi) the sale and issuance of the Convertible Debentures and
the Warrants hereunder, and the proposed issuance by the
Company to the Lenders of the Common Stock underlying
the Convertible Debentures and the Warrants upon the
conversion or exercise thereof shall be legally
permitted by all laws and regulations to which the
Lenders and the Company are subject and there shall be
no ruling, judgment or writ of any court prohibiting the
transactions contemplated by this Agreement;
(vii) delivery of the original fully executed Convertible
Debentures and Warrants certificates to the Escrow
Agent;
(viii) delivery to the Escrow Agent of an opinion of Baker &
McKenzie, counsel to the Company, in the form of Exhibit
E hereto;
(ix) delivery to the Escrow Agent of the Irrevocable
Instructions to Transfer Agent in the form attached
hereto as Exhibit F; and
(x) delivery to the Escrow Agent of the Registration Rights
Agreement.
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Section 2.2. The Warrants. The number of Warrants to be issued shall equal
one-half of (i) the principal amount of the Convertible Debentures issued at
Closing divided by (ii) the [exercise price] on the Trading Day immediately
prior to the Closing Date. The exercise price of such Warrants shall be 115% of
the average of the closing bid prices for the Common Stock on the Principal
Market for the period commencing November 1, 1999 through the Trading Day
immediately prior to the Closing Date. Two-thirds of the Warrants shall be
immediately exercisable upon issuance, and the remaining one-third of each
Lender's Warrants shall only become exercisable if the Convertible Debentures
have not been redeemed in accordance with their terms on or before the 100th day
after the Closing Date; provided, however, that in no event shall the Lender be
entitled to convert any Convertible Debenture or exercise any Warrants, which,
upon giving effect to such conversion and/or exercise, would result in the
issuance by the Company of an aggregate number of shares of Common Stock
totaling more than 19.99% of the shares of Common Stock outstanding immediately
prior to the Closing Date, unless such issuance has been approved by the
shareholders of the Company, as set forth in Section 6.3, or such limitation
does not apply to shares traded on the Principal Market on any date on which
such conversion or exercise becomes at issue.
Section 2.3. Liquidated Damages. The parties hereto acknowledge and agree that
the sums payable pursuant to the Registration Rights Agreement shall constitute
liquidated damages and not penalties. The parties further acknowledge that (a)
the amount of loss or damages likely to be incurred is incapable or is difficult
to precisely estimate, (b) the amounts specified in such sections bear a
reasonable proportion and are not plainly or grossly disproportionate to the
probable loss likely to be incurred by the Lenders in connection with the
failure by the Company to timely cause the registration of the Registrable
Securities and (c) the parties are sophisticated business parties and have been
represented by sophisticated and able legal and financial counsel and negotiated
this Agreement at arm's length.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF LENDERS
Each Lender, severally and not jointly, represents and warrants to the Company
that:
Section 3.1. Intent. The Lender is entering into this Agreement for its own
account and not with a view to or for sale in connection with any distribution
of the Convertible Debentures, the Warrants, the Conversion Shares or the
Warrant Shares. The Lender has no present arrangement (whether or not legally
binding) at any time to sell the Convertible Debentures, the Warrants, any
Conversion Shares or Warrant Shares to or through any person or entity;
provided, however, that by making the representations herein, the Lender does
not agree to hold such securities for any minimum or other specific term and
reserves the right to dispose of the Conversion Shares and Warrant Shares at any
time in accordance with federal and state securities laws applicable to such
disposition.
Section 3.2. Sophisticated Lender. The Lender is a sophisticated investor (as
described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor (as
defined in Rule 501 of Regulation D), and Lender has such experience in business
and financial matters that it has the capacity to protect its own interests in
connection with this transaction and is capable of evaluating the merits and
risks of an investment in the Convertible Debentures, the Warrants and the
underlying Common Stock. The Lender acknowledges that an investment in the
Convertible Debentures, the Warrants and the underlying Common Stock is
speculative and involves a high degree of risk.
Section 3.3. Authority. This Agreement and each agreement attached as an Exhibit
hereto which is required to be executed by the Lender has been duly authorized
and validly executed and delivered by the Lender and is a valid and binding
agreement of the Lender enforceable against it in accordance with its
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terms, subject to applicable bankruptcy, insolvency, or similar laws relating
to, or affecting generally the enforcement of, creditors' rights and remedies or
by other equitable principles of general application.
Section 3.4. Not an Affiliate. The Lender is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5. Absence of Conflicts. The execution and delivery of this Agreement
and each agreement which is attached as an Exhibit hereto and executed by the
Lender in connection herewith, and the consummation of the transactions
contemplated hereby and thereby, and compliance with the requirements hereof and
thereof by the Lender, will not violate any law, rule, regulation, order, writ,
judgment, injunction, decree or award binding on Lender or (a) violate any
provision of any indenture, instrument or agreement to which Lender is a party
or is subject, or by which Lender or any of its assets is bound; (b) conflict
with or constitute a material default thereunder; (c) result in the creation or
imposition of any lien pursuant to the terms of any such indenture, instrument
or agreement, or constitute a breach of any fiduciary duty owed by Lender to any
third party; or (d) require the approval of any third-party (which has not been
obtained) pursuant to any material contract, agreement, instrument, relationship
or legal obligation to which Lender is subject or to which any of its assets,
operations or management may be subject.
Section 3.6. Disclosure; Access to Information. The Lender has received all
documents, records, books and other publicly available information pertaining to
Lender's investment in the Company that have been requested by the Lender. The
Company is subject to the periodic reporting requirements of the Exchange Act,
and the Lender has reviewed copies of all SEC Documents deemed relevant by
Lender.
Section 3.7. Manner of Sale. At no time was Lender presented with or solicited
by or through any leaflet, public promotional meeting, television advertisement
or any other form of general solicitation or advertising.
Section 3.8. Ownership of Common Stock. Except for the Conversion Shares and the
Warrant Shares, each Lender does not, and does not intend to, own beneficially
any shares of Common Stock. Such Lender does not have any intention of changing
or influencing control of the Company. The Lender is not an affiliate of, or
acting in concert with, any other Lender.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Lenders that, except as set forth on
the Disclosure Schedule prepared by the Company and attached hereto:
Section 4.1. Organization of the Company. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of
California and has all requisite corporate authority to own its properties and
to carry on its business as now being conducted. The Company does not have any
subsidiaries and does not own more than fifty percent (50%) of or control any
other business entity except as set forth in the SEC Documents. The Company is
duly qualified and is in good standing as a foreign corporation to do business
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect.
Section 4.2. Authority. (i) The Company has the requisite corporate power and
corporate authority to enter into and perform its obligations under this
Agreement, the Registration Rights Agreement, the Escrow Agreement, and the
Warrants and to issue the Convertible Debentures, the Conversion Shares, the
Warrants and the Warrant Shares pursuant to their respective terms, (ii) the
execution, issuance and delivery of this
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Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Convertible Debentures, the Convertible Debentures and the Warrants by the
Company and the consummation by it of the transactions contemplated hereby have
been duly authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, and (iii) this Agreement, the Registration Rights Agreement, the
Escrow Agreement, the Convertible Debentures and the Warrants have been duly
executed and delivered by the Company and at the Closing shall constitute valid
and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application. The Company has duly and validly
authorized and reserved for issuance shares of Common Stock sufficient in number
for the conversion of the Convertible Debentures and for the exercise of the
Warrants. The Company understands and acknowledges the potentially dilutive
effect to the Common Stock of the issuance of the Conversion Shares. The Company
further acknowledges that its obligation to issue Conversion Shares upon
conversion of the Convertible Debentures and Warrant Shares upon exercise of the
Warrants in accordance with this Agreement and the Convertible Debentures is
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company and
notwithstanding the commencement of any case under 11 U.S.C. Section 101 et seq.
(the "Bankruptcy Code"). The Company shall not seek judicial relief from its
obligations hereunder except pursuant to the Bankruptcy Code. In the event the
Company is a debtor under the Bankruptcy Code, the Company hereby waives to the
fullest extent permitted any rights to relief it may have under 11 U.S.C.
Section 362 in respect of the conversion of the Convertible Debentures and the
exercise of the Warrants. The Company agrees, without cost or expense to the
Lenders, to take or consent to any and all action necessary to effectuate relief
under 11 U.S.C. Section 362.
Section 4.3. Capitalization. The authorized capital stock of the Company
consists of 99,288,000 shares of voting Class A Common Stock, no par value per
share, of which 45,017,063 shares are issued and outstanding as of November 1,
1999, 712,000 shares of voting Class B Common Stock, no par value per share, of
which 440,000 are issued and outstanding as of November 1, 1999, each of which
Class B Common Shares is entitled to five votes per share, and 9,999,500 shares
of preferred stock, no par value per share, of which 1,000,000 have been
designated as Series C Junior Participating, none of which shares are issued and
outstanding as of November 1, 1999 and 500 of which have been designated as
Series D Redeemable Convertible Preferred Stock, none of which shares are issued
and outstanding as of November 1, 1999. Except as set forth in the SEC Documents
and as set forth in the Disclosure Schedule, there are no outstanding Capital
Shares Equivalents nor any agreements or understandings pursuant to which any
Capital Shares Equivalents may become outstanding, other than call rights held
by the former holders of the Series D Redeemable Preferred Stock. Except as set
forth on the Disclosure Schedule, the Company is not a party to any agreement
granting registration or anti-dilution rights to any person with respect to any
of its equity or debt securities. All of the outstanding shares of Common Stock
of the Company have been duly and validly authorized and issued and are fully
paid and non-assessable.
Section 4.4. Common Stock. The Company has registered its Common Stock pursuant
to Section 12(b) or (g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and the Company is in compliance
with all requirements for the continued listing or quotation of its Common
Stock, and such Common Stock is currently listed or quoted on, the Principal
Market. As of the date hereof, the Principal Market is the OTC Bulletin Board
and the Company has not received any notice regarding, and to its knowledge
there is no threat, of the termination or discontinuance of the eligibility of
the Common Stock for such listing.
Section 4.5. SEC Documents. The Company has not provided to the Lenders any
information that, according to applicable law, rule or regulation, should have
been disclosed publicly prior to the date hereof by the Company, but which has
not been so disclosed. As of their respective dates, the SEC Documents
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complied in all material respects with the requirements of the Exchange Act, and
rules and regulations of the SEC promulgated thereunder and the SEC Documents
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the SEC
Documents complied in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto at the time of such
inclusion. Such financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent basis
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they 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 operations
and cash flows for the periods then ended (subject, in the case of unaudited
interim statements, to normal year-end audit adjustments). Neither the Company
nor any of its subsidiaries has any material indebtedness, obligations or
liabilities of any kind (whether accrued, absolute, contingent or otherwise, and
whether due or to become due) that would have been required to be reflected in,
reserved against or otherwise described in the financial statements or in the
notes thereto in accordance with GAAP, which was not fully reflected in,
reserved against or otherwise described in the financial statements or the notes
thereto included in the SEC Documents or was not incurred in the ordinary course
of business consistent with the Company's past practices since the last date of
such financial statements.
Section 4.6. Exemption from Registration; Valid Issuances. Subject to the
accuracy of the Lenders' representations in Article III, the sale of the
Convertible Debentures, the Conversion Shares, the Warrants and the Warrant
Shares will not require registration under the Securities Act and/or any
applicable state securities law. When issued and paid for in accordance with the
Warrants and validly converted in accordance with the terms of the Convertible
Debentures, the Conversion Shares and the Warrant Shares will be duly and
validly issued, fully paid, and non-assessable. Except as set forth on the
Disclosure Schedule, neither the sales of the Convertible Debentures, the
Conversion Shares, the Warrants or the Warrant Shares pursuant to, nor the
Company's performance of its obligations under, this Agreement, the Registration
Rights Agreement, the Escrow Agreement, the Convertible Debentures or the
Warrants will (i) result in the creation or imposition by the Company of any
liens, charges, claims or other encumbrances upon the Convertible Debentures,
the Conversion Shares, the Warrants or the Warrant Shares or, except as
contemplated herein, any of the assets of the Company, or (ii) entitle the
holders of Outstanding Capital Shares to preemptive or other rights to subscribe
for or acquire the Capital Shares or other securities of the Company. The
Convertible Debentures, the Conversion Shares, the Warrants and the Warrant
Shares shall not subject the Lenders to personal liability to the Company or its
creditors by reason of the possession thereof.
Section 4.7. No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor, to the knowledge
of the Company, any person acting on its or their behalf (i) has conducted or
will conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D) or general advertising with respect to the sale of the Convertible
Debentures or the Warrants, or (ii) made any offers or sales of any security or
solicited any offers to buy any security under any circumstances that would
require registration of the Convertible Debentures, the Conversion Shares, the
Warrants or the Warrant Shares under the Securities Act.
Section 4.8. No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including without limitation the issuance of and payment of
interest upon the Convertible Debentures, the Conversion Shares, the Warrants
and the Warrant Shares, do not and will not (i) result in a violation of the
Company's Articles of Incorporation or By-Laws or (ii) conflict with, or
constitute a material default (or an event that 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, or any "lock-
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up" or similar provision of any underwriting or similar agreement to which the
Company is a party, or (iii) result in a violation of any federal, state or
local law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations) applicable to the Company or by which any
material property or asset of the Company is bound or affected, nor is the
Company otherwise in violation of, conflict with or default under any of the
foregoing (except in each case for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not have,
individually or in the aggregate, a Material Adverse Effect). The business of
the Company is not being conducted in violation of any law, ordinance or
regulation of any governmental entity, except for possible violations that
either singly or in the aggregate would not have a Material Adverse Effect. The
Company is not required under any Federal, state or local law, rule or
regulation to obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement or issue
and sell the Convertible Debentures or the Warrants in accordance with the terms
hereof (other than any SEC, Principal Market or state securities filings that
may be required to be made by the Company subsequent to Closing, any
registration statement that may be filed pursuant hereto, and any shareholder
approval required by the rules applicable to companies whose common stock trades
on the Principal Market); provided that, for purposes of the representation made
in this sentence, the Company is assuming and relying upon the accuracy of the
relevant representations and agreements of the Lenders herein. Without limiting
the foregoing, upon the Company's amendment of the Rights Agreement (as defined
in Section 6.11) and subject to each Lender's full performance and satisfaction
of the terms and conditions of Sections 3.8 and 5.2 of this Agreement, none of
the transactions contemplated by this Agreement or the conversion of any
Convertible Debentures, at any conversion price, will trigger the issuance of
any Series C Preferred Stock.
Section 4.9. No Material Adverse Change. Since June 30, 1999, no Material
Adverse Effect has occurred or exists with respect to the Company, except as
disclosed in the SEC Documents.
Section 4.10. No Undisclosed Events or Circumstances. Since June 30, 1999, no
event or circumstance has occurred or exists with respect to the Company or its
businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the SEC Documents.
Section 4.11. No Integrated Offering. Other than pursuant to an effective
registration statement under the Securities Act, or pursuant to the issuance or
exercise of employee stock options, or pursuant to its discussion with the
Lenders in connection with the transactions contemplated hereby, the Company has
not issued, offered or sold the Convertible Debentures, the Warrants or any
shares of Common Stock (including for this purpose any securities of the same or
a similar class as the Convertible Debentures, the Warrants or Common Stock, or
any securities convertible into a exchangeable or exercisable for the
Convertible Debentures or Common Stock or any such other securities) within the
six-month period next preceding the date hereof, and the Company shall not
permit any of its directors, officers or affiliates directly or indirectly to
take, any action (including, without limitation, any offering or sale to any
Person of the Convertible Debentures, Warrants or shares of Common Stock), so as
to make unavailable the exemption from Securities Act registration being relied
upon by the Company for the offer and sale to Lenders of the Convertible
Debentures (and the Conversion Shares) or the Warrants (and the Warrant Shares)
as contemplated by this Agreement.
Section 4.12. Litigation and Other Proceedings. Except as disclosed in the SEC
Documents, there are no lawsuits or proceedings pending or, to the knowledge of
the Company, threatened, against the Company or any subsidiary, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which could reasonably be expected to have a Material Adverse
Effect. Except as set forth in the SEC Documents and the Disclosure Schedule, no
judgment, order, writ, injunction or decree or award
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has been issued by or, to the knowledge of the Company, requested of any court,
arbitrator or governmental agency which could result in a Material Adverse
Effect.
Section 4.13. No Misleading or Untrue Communication. The Company and, to the
knowledge of the Company, any person representing the Company, or any other
person selling or offering to sell the Convertible Debentures or the Warrants in
connection with the transaction contemplated by this Agreement, have not made,
at any time, any oral communication in connection with the offer or sale of the
same which contained any untrue statement of a material fact or omitted to state
any material fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
Section 4.14. Material Non-Public Information. The Company has not disclosed to
the Lenders any material non-public information that (i) if disclosed, would
reasonably be expected to have a Material Adverse Effect on the price of the
Common Stock or (ii) according to applicable law, rule or regulation, should
have been disclosed publicly by the Company prior to the date hereof but which
has not been so disclosed.
Section 4.15. Insurance. The Company and each subsidiary maintains property and
casualty, general liability, workers' compensation, environmental hazard,
personal injury and other similar types of insurance with financially sound and
reputable insurers that is adequate, consistent with industry standards and the
Company's historical claims experience. The Company has not received notice
from, and has no knowledge of any threat by, any insurer (that has issued any
insurance policy to the Company) that such insurer intends to deny coverage
under or cancel, discontinue or not renew any insurance policy presently in
force.
Section 4.16. Tax Matters.
(a) The Company and each subsidiary have filed all Tax Returns which
they are required to file under applicable laws; all such Tax Returns are true
and accurate in all material respects and have been prepared in compliance with
all applicable laws; the Company has paid all Taxes due and owing by it or any
subsidiary (whether or not such Taxes are required to be shown on a Tax Return)
and has withheld and paid over to the appropriate taxing authorities all Taxes
which it is required to withhold from amounts paid or owing to any employee,
stockholder, creditor or other third parties; and since December 31, 1998, the
charges, accruals and reserves for Taxes with respect to the Company (including
any provisions for deferred income taxes) reflected on the books of the Company
are adequate to cover any Tax liabilities of the Company if its current tax year
were treated as ending on the date hereof.
(b) No claim has been made by a taxing authority in a jurisdiction
where the Company does not file tax returns that the Company or any subsidiary
is or may be subject to taxation by that jurisdiction. There are no foreign,
federal, state or local tax audits or administrative or judicial proceedings
pending or being conducted with respect to the Company or any subsidiary; no
information related to Tax matters has been requested by any foreign, federal,
state or local taxing authority; and, except as disclosed above, no written
notice indicating an intent to open an audit or other review has been received
by the Company or any subsidiary from any foreign, federal, state or local
taxing authority. There are no material unresolved questions or claims
concerning the Company's Tax liability. The Company (A) has not executed or
entered into a closing agreement pursuant to Section 7121 of the Internal
Revenue Code or any predecessor provision thereof or any similar provision of
state, local or foreign law; or (B) has not agreed to or is required to make any
adjustments pursuant to Section 481 (a) of the Internal Revenue Code or any
similar provision of state, local or foreign law by reason of a change in
accounting method initiated by the Company or any of its subsidiaries or has any
knowledge that the IRS has proposed any such adjustment or change in accounting
method, or has any application pending with any taxing authority requesting
permission for any changes in accounting methods that relate to the business or
operations of the Company. The Company has not been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the
Internal Revenue Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Internal Revenue Code.
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(c) The Company has not made an election under Section 341(f) of the
Internal Revenue Code. The Company is not liable for the Taxes of another person
that is not a subsidiary of the Company under (A) Treas. Reg. Section 1.1502-6
(or comparable provisions of state, local or foreign law), (B) as a transferee
or successor, (C) by contract or indemnity or (D) otherwise. The Company is not
a party to any tax sharing agreement. The Company has not made any payments, is
obligated to make payments or is a party to an agreement that could obligate it
to make any payments that would not be deductible under Section 280G of the
Internal Revenue Code.
(d) For purposes of this Section 4.16:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign,
or other income, gross receipts, ad valorem, franchise, profits,
sales or use, transfer, registration, excise, utility,
environmental, communications, real or personal property,
capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation,
alternative or add-on minimum, estimated and other taxes of any
kind whatsoever (including, without limitation, deficiencies,
penalties, additions to tax, and interest attributable thereto)
whether disputed or not.
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and
including any amendment thereof.
Section 4.17. Property. Neither the Company nor any of its subsidiaries owns any
real property. Each of the Company and its subsidiaries has good and marketable
title to all personal property owned by it, free and clear of all liens,
encumbrances and defects except such as do not materially affect the value of
such property and do not materially interfere with the use made and proposed to
be made of such property by the Company; and to the Company's knowledge any real
property, mineral or water rights, and buildings held under lease by the Company
as tenant are held by it under valid, subsisting and enforceable leases with
such exceptions as are not material and do not interfere with the use made and
intended to be made of such property, mineral or water rights, and buildings by
the Company.
Section 4.18. Intellectual Property. To the Company's knowledge, without
conducting any special investigation, each of the Company and its subsidiaries
owns or possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, licenses, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar rights and proprietary
knowledge (collectively, "Intangibles") necessary for the conduct of its
business as now being conducted. To the Company's knowledge, except as disclosed
in the SEC Documents and the Disclosure Schedule neither the Company nor any of
its subsidiaries is infringing upon or in conflict with any right of any other
person with respect to any Intangibles. Except as disclosed in the SEC Documents
and the Disclosure Schedule, no adverse claims have been asserted by any person
to the ownership or use of any Intangibles and the Company has no knowledge of
any basis for such claim.
Section 4.19. Internal Controls and Procedures. The Company maintains books and
records and internal accounting controls which provide reasonable assurance that
(i) all transactions to which the Company or any subsidiary is a party or by
which its properties are bound are executed with management's authorization;
(ii) the recorded accounting of the Company's consolidated assets is compared
with existing assets at regular intervals; (iii) access to the Company's
consolidated assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company or any subsidiary
is a party or by which its properties are bound are recorded as necessary to
permit preparation of the financial statements of the Company in accordance with
U.S. GAAP.
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Section 4.20. Payments and Contributions. Neither the Company, any subsidiary,
nor, to its knowledge, any of its directors, officers or other employees has (i)
used any Company funds for any unlawful contribution, endorsement, gift,
entertainment or other unlawful expense relating to political activity; (ii)
made any direct or indirect unlawful payment of Company funds to any foreign or
domestic government official or employee; (iii) violated or is in violation of
any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any bribe, rebate, payoff, influence payment, kickback or other similar
payment to any person with respect to Company matters.
Section 4.21. No Misrepresentation. The representations and warranties of the
Company contained in this Agreement, any schedule, annex or exhibit hereto and
any agreement, instrument or certificate furnished by the Company to the Lenders
pursuant to this Agreement, do not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
ARTICLE V
COVENANTS OF THE LENDERS
Each Lender, severally and not jointly, covenants with the Company that:
Section 5.1. Compliance with Law. The Lender's trading activities with respect
to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and rules
and regulations of the Principal Market on which the Company's Common Stock is
listed.
Section 5.2. Rights Agreement. If any Lender and/or its affiliates acquire
shares of Common Stock such that their aggregate beneficial ownership exceeds
15% of the then-issued and outstanding shares of Common Stock, then such Lender
shall, and shall cause its affiliates to, divest as promptly as practicable a
sufficient number of shares of Common Stock so that such aggregate beneficial
ownership will be below 15% of the then issued and outstanding shares of Common
Stock. The Company acknowledges that it will be impractical for the Lender to
divest such shares in the absence of an effective Registration Statement. Each
Lender agrees that it shall not, nor shall it cause any of its affiliates to,
acquire any shares of Common Stock so long as any principal amount of its
Convertible Debenture remains unredeemed or unconverted or any of its Warrants
remain unexercised.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1. Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect in accordance with its terms
and the Company shall comply in all material respects with the terms thereof.
Section 6.2. Reservation of Common Stock. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to issue the Conversion Shares and the Warrant
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Shares pursuant to any conversion of the Convertible Debentures or exercise of
the Warrants. The number of shares so reserved from time to time, as theretofore
increased or reduced as hereinafter provided, may be reduced by the number of
shares actually delivered pursuant to any conversion of the Convertible
Debentures or exercise of the Warrants and the number of shares so reserved
shall be increased or decreased to reflect potential increases or decreases in
the Common Stock that the Company may thereafter be obligated to issue by reason
of adjustments to the Warrants.
Section 6.3. Listing of Common Stock. The Company hereby agrees to maintain the
listing of the Common Stock on a Principal Market, and as soon as reasonably
practicable following the Closing to list the Conversion Shares and the Warrant
Shares on the Principal Market, if required. The Company further agrees, if the
Company applies to have the Common Stock traded on any other Principal Market,
it will include in such application the Conversion Shares and the Warrant
Shares, and will take such other action as is necessary or desirable in the
opinion of the Lenders to cause the Conversion Shares and Warrant Shares to be
listed on such other Principal Market as promptly as possible. The Company will
take all action to continue the listing and trading of its Common Stock on a
Principal Market and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Principal Market
and shall provide Lenders with copies of any correspondence to or from such
Principal Market which questions or threatens delisting of the Common Stock,
within three (3) Trading Days of the Company's receipt thereof, until the
Lenders have disposed of all of their Registrable Securities. The Company shall
not issue a number of Conversion Shares and Warrant Shares which exceeds 19.99%
of the number of shares of Common Stock issued and outstanding immediately prior
to the Closing Date unless (i) the Company has received the approval of its
shareholders to exceed such limitation on issuance or (ii) such approval is not
required by the rules of the Principal Market. If such approval is required by
the rules of the Principal Market, then the Company shall call a special or
annual meeting of its shareholders to be held within seventy-five (75) days of
the date on which the closing bid price of the Common Stock has been below $0.40
for twenty consecutive Trading Days.
Section 6.4. Exchange Act Registration. The Company will cause its Common Stock
to continue to be registered under Section 12(b) or (g) of the Exchange Act,
will use its best efforts to comply in all respects with its reporting and
filing obligations under the Exchange Act, and will not take any action or file
any document (whether or not permitted by the Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under said Act until the Lenders have
disposed of all of their Registrable Securities.
Section 6.5. Legends. The certificates evidencing the Registrable Securities
shall be free of legends, except as set forth in Article IX.
Section 6.6. Corporate Existence; Conflicting Agreements. The Company will take
all steps necessary to preserve and continue the corporate existence of the
Company. The Company shall not enter into any agreement, the terms of which
agreement would restrict or impair the right or ability of the Company to
perform any of its obligations under this Agreement or any of the other
agreements attached as exhibits hereto or under the Convertible Debentures.
Section 6.7. Consolidation; Merger. The Company shall not, at any time after the
date hereof, effect any merger or consolidation of the Company with or into, or
a transfer of all or substantially all of the assets of the Company to, another
entity (a "Consolidation Event") unless the resulting successor or acquiring
entity (if not the Company) assumes by written instrument or by operation of law
the obligations of the Company to the Lenders pursuant to this Agreement and the
Convertible Debentures.
Section 6.8. Issuance of Convertible Debentures and Warrant Shares. The sale of
the Convertible Debentures and the Warrants and the issuance of the Warrant
Shares pursuant to exercise of the Warrants and the Conversion Shares upon
conversion of the Convertible Debentures shall be made in accordance with
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the provisions and requirements of Section 4(2), 4(6) or Regulation D and any
applicable state securities law. The Company shall make any necessary SEC and
"blue sky" filings required to be made by the Company in connection with the
sale of the Securities to the Lenders as required by all applicable laws, and
shall provide a copy thereof to the Lenders promptly after such filing.
Section 6.9. Limitation on Future Financing. The Company agrees that it will not
enter into any sale of its securities for cash at a discount to the then-current
bid price until the earlier of repayment in full of all of the Convertible
Debentures, or 120 days after the effective date of the Registration Statement
except for any sales (i) pursuant to any presently existing employee benefit
plan which plan has been approved by the Company's stockholders, including any
repricing of existing options, but not below market, (ii) pursuant to any
compensatory plan for a full-time employee or key consultant, (iii) a
non-convertible bridge loan of up to One Million Dollars ($1,000,000), with up
to One Million (1,000,000) stock purchase warrants attached, provided that the
exercise price per share of Common Stock of such warrants shall not be below One
Dollar ($1.00), or (iv) with the prior approval of eighty percent (80%) in
interest of the Lenders, which will not be unreasonably withheld, in connection
with a strategic partnership or other business transaction, the principal
purpose of which is not simply to raise money.
Section 6.10. Pro-Rata Redemption. The Company agrees that if it shall redeem
any of the Convertible Debentures, that it shall make such redemption pro-rata
among all Lenders in proportion their respective initial purchases of such
securities pursuant to this Agreement.
Section 6.11. Rights Agreement. The Company shall, within thirty (30) days of
the Closing Date, amend Section 1.1 of the Rights Agreement, dated March 5, 1999
(the "Rights Agreement"), by and between the Company and American Stock Transfer
& Trust Company, a New York corporation, to exclude each Lender from the
definition of "Acquiring Person", subject to Section 3.8 and 5.2 of this
Agreement.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
Section 7.1. Survival. The representations, warranties and covenants made by
each of the Company and each Lender in this Agreement, the annexes, schedules
and exhibits hereto and in each instrument, agreement and certificate entered
into and delivered by them pursuant to this Agreement, shall survive the Closing
and the consummation of the transactions contemplated hereby for a period of
three (3) years from the Closing Date. In the event of a breach or violation of
any of such representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach or violation available to it under the provisions
of this Agreement, irrespective of any investigation made by or on behalf of
such party on or prior to the Closing Date.
Section 7.2. Indemnity. (a) The Company hereby agrees to indemnify and hold
harmless the Lenders, their respective Affiliates and their respective officers,
directors, partners and members (collectively, the "Lender Indemnitees"), from
and against any and all Damages, and agrees to reimburse the Lender Indemnitees
for all reasonable out-of-pocket expenses (including the reasonable fees and
expenses of legal counsel), in each case promptly as incurred by the Lender
Indemnitees and to the extent arising out of or in connection with:
(i) any misrepresentation, omission of fact or breach of any
of the Company's representations or warranties contained in this
Agreement, the annexes, schedules or exhibits hereto
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or any instrument, agreement or certificate entered into or delivered by
the Company pursuant to this Agreement; or
(ii) any failure by the Company to perform in any material
respect any of its covenants, agreements, undertakings or obligations
set forth in this Agreement, the annexes, schedules or exhibits hereto
or any instrument, agreement or certificate entered into or delivered by
the Company pursuant to this Agreement; or
(iii) any action instituted against the Lenders, or any of
them, by any stockholder of the Company who is not an Affiliate of a
Lender, with respect to any of the transactions contemplated by this
Agreement.
(b) Each Lender, severally and not jointly, hereby agrees to
indemnify and hold harmless the Company, its Affiliates and their respective
officers, directors, partners and members (collectively, the "Company
Indemnitees"), from and against any and all Damages, and agrees to reimburse the
Company Indemnitees for reasonable all out-of-pocket expenses (including the
reasonable fees and expenses of legal counsel), in each case promptly as
incurred by the Company Indemnitees and to the extent arising out of or in
connection with:
(i) any misrepresentation, omission of fact, or breach of
any of the Lender's representations or warranties
contained in this Agreement, the annexes, schedules or
exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Lender
pursuant to this Agreement; or
(ii) any failure by the Lender to perform in any material
respect any of its covenants, agreements, undertakings
or obligations set forth in this Agreement, the annexes,
schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by
the Lender pursuant to this Agreement.
Section 7.3. Notice. Promptly after receipt by either party hereto seeking
indemnification pursuant to Section 7.2 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party from whom indemnification pursuant to Section
7.2 is being sought (the "Indemnifying Party") of the commencement thereof; but
the omission to so notify the Indemnifying Party shall not relieve it from any
liability that it otherwise may have to the Indemnified Party, except to the
extent that the Indemnifying Party is actually prejudiced by such omission or
delay. In connection with any Claim as to which both the Indemnifying Party and
the Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party,
or (z) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as described in
clauses (x), (y) or (z) above, the fees, costs and expenses of such legal
counsel shall be borne exclusively by the Indemnified Party. Except as provided
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above, the Indemnifying Party shall not, in connection with any Claim in the
same jurisdiction, be liable for the fees and expenses of more than one firm of
legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
Section 7.4. Direct Claims. In the event one party hereunder should have a claim
for indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association as set forth in
Article X. Judgment upon any award rendered by any arbitrators may be entered in
any court having competent jurisdiction thereof.
ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
Section 8.1. Due Diligence Review. Subject to Section 8.2, the Company shall
make available for inspection and review by the Lenders, advisors to and
representatives of the Lenders (who may or may not be affiliated with the
Lenders and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Lenders pursuant to the Registration Statement, any such registration statement
or amendment or supplement thereto or any blue sky, Nasdaq or other filing, all
SEC Documents and other filings with the SEC, and all other publicly available
corporate documents and properties of the Company as may be reasonably necessary
for the purpose of such review, and cause the Company's officers, directors and
employees to supply all such publicly available information reasonably requested
by the Lenders or any such representative, advisor or underwriter in connection
with such Registration Statement (including, without limitation, in response to
all questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Lenders and such
representatives, advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
Section 8.2. Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose material non-public information
to the Lenders, advisors to or representatives of the Lenders unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides the Lenders, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. Other than disclosure of any comment letters
received from the SEC staff with respect to the Registration Statement, the
Company may, as a condition to disclosing any non-public information hereunder,
require the Lenders' advisors and representatives to enter into a
confidentiality agreement in form and content reasonably satisfactory to the
Company and the Lenders.
(b) Nothing herein shall require the Company to disclose material
non-public information to the Lenders or their advisors or representatives, and
the Company represents that it does not disseminate material non-public
information to any Lenders who purchase stock in the Company in a public
offering, to money managers or to securities analysts, provided, however, that
notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, promptly notify the advisors and representatives of the
Lenders and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation
16
<PAGE> 17
to disclose the specific event or circumstance) of which it becomes aware,
constituting material non-public information (whether or not requested of the
Company specifically or generally during the course of due diligence by such
persons or entities), which, if not disclosed in the prospectus included in the
Registration Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements, therein in light of the circumstances in which they were
made, not misleading. Nothing contained in this Section 8.2 shall be construed
to mean that such persons or entities other than the Lenders (without the
written consent of the Lenders prior to disclosure of such information as set
forth in Section 8.2(a)) may not obtain non-public information in the course of
conducting due diligence in accordance with the terms of this Agreement and
nothing herein shall prevent any such persons or entities from notifying the
Company of their opinion that based on such due diligence by such persons or
entities, that the Registration Statement contains an untrue statement of a
material fact or omits a material fact required to be stated in the Registration
Statement or necessary to make the statements contained therein, in light of the
circumstances in which they were made, not misleading.
ARTICLE IX
LEGENDS; TRANSFER AGENT INSTRUCTIONS
Section 9.1. Legends. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend or equivalent
(the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED
OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM SUCH REGISTRATION.
Section 9.2. Transfer Agent Instructions. Upon the execution and delivery
hereof, the Company is issuing to the transfer agent for its Common Stock (and
to any substitute or replacement transfer agent for its Common Stock upon the
Company's appointment of any such substitute or replacement transfer agent)
instructions substantially in the form of Exhibit F hereto. Such instructions
shall be irrevocable by the Company from and after the date hereof or from and
after the issuance thereof to any such substitute or replacement transfer agent,
as the case may be. The Company shall cause its counsel to provide its transfer
agent with all customary legal opinions necessary to permit the Lenders to
resell their Conversion Shares and Warrant Shares on a timely basis having due
regard for the T+3 certificate delivery rules of the SEC.
Section 9.3. No Other Legend or Stock Transfer Restrictions. Except pursuant to
court order obtained by the SEC or the Principal Market, no legend other than
the one specified in Section 9.1 has been or shall be placed on the share
certificates representing the Registrable Securities and no instructions or
"stop transfer orders," "stock transfer restrictions," or other restrictions
have been or shall be given to the Company's transfer agent with respect
thereto, other than as expressly set forth in this Article IX and Sections 3(g)
and 3(h) of the Registration Rights Agreement.
Section 9.4. Lenders' Compliance. Nothing in this Article shall affect in any
way each Lender's obligations to comply with all applicable securities laws upon
resale of the Common Stock.
17
<PAGE> 18
ARTICLE X
CHOICE OF LAW; ARBITRATION
Section 10.1. Governing Law/Arbitration. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made in New York by persons domiciled in New York City and without
regard to its principles of conflicts of laws. Any dispute under this Agreement
shall be submitted to arbitration under the American Arbitration Association
(the "AAA") in New York City, New York, and shall be finally and conclusively
determined by the decision of a board of arbitration consisting of three (3)
members (hereinafter referred to as the "Board of Arbitration") selected
according to the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in New York City, New York, and shall reach and render
a decision in writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the losing party is
required to pay to the other party in respect of a claim filed. In connection
with rendering its decisions, the Board of Arbitration shall adopt and follow
the laws of the State of New York unless the matter at issue is the corporation
law of the Company's state of incorporation, in which event the corporation law
of such jurisdiction shall govern such issue. To the extent practical, decisions
of the Board of Arbitration shall be rendered no more than thirty (30) calendar
days following commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to all parties
involved in the dispute. Any decision made by the Board of Arbitration (either
prior to or after the expiration of such thirty (30) calendar day period) shall
be final, binding and conclusive on the parties to the dispute, and entitled to
be enforced to the fullest extent permitted by law and entered in any court of
competent jurisdiction. The Board of Arbitration shall be authorized and is
hereby directed to enter a default judgment against any party failing to
participate in any proceeding hereunder within the time periods set forth in the
AAA rules. The non-prevailing party to any arbitration (as determined by the
Board of Arbitration) shall pay the expenses of the prevailing party, including
reasonable attorneys' fees, in connection with such arbitration. Any party shall
be entitled to obtain injunctive relief from a court in any case where such
relief is available, and the non-prevailing party to any such injunctive
proceeding shall pay the expenses of the prevailing party, including reasonable
attorneys' fees, in connection with such proceeding.
ARTICLE XI
ASSIGNMENT
Section 11.1. Assignment. Neither this Agreement nor any rights of the Lenders
or the Company hereunder may be assigned by either party to any other person.
Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure
to the benefit of, and be enforceable by, any permitted transferee of any of the
Convertible Debentures or Warrants purchased or acquired by any Lender hereunder
with respect to the Convertible Debentures or Warrants held by such person, and
(b) upon the prior written consent of the Company, which consent shall not
unreasonably be withheld or delayed, each Lender's interest in this Agreement
may be assigned at any time, in whole or in part, to any other person or entity
(including any Affiliate of the Lender) who agrees to make the representations
and warranties contained in Article III and who agrees to be bound by the terms
of this Agreement.
ARTICLE XII
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<PAGE> 19
NOTICES
Section 12.1. Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) hand delivered, (ii) deposited
in the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by facsimile, addressed as set forth below or to such other address
as such party shall have specified most recently by written notice. Any notice
or other communication required or permitted to be given hereunder shall be
deemed effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the first business day
following the date of sending by reputable courier service, fully prepaid,
addressed to such address, or (c) upon actual receipt of such mailing, if
mailed. The addresses for such communications shall be as set forth in the
Escrow Agreement. Either party hereto may from time to time change its address
or facsimile number for notices under this Section 12.1 by giving written notice
of such changed address or facsimile number to the other party hereto as
provided in this Section 12.1.
ARTICLE XIII
MISCELLANEOUS
Section 13.1. Counterparts/ Facsimile/ Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.
Section 13.2. Entire Agreement. This Agreement, the agreements attached as
Exhibits hereto, which include, but are not limited to the Convertible
Debentures, the Warrants, the Escrow Agreement, and the Registration Rights
Agreement, set forth the entire agreement and understanding of the parties
relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written relating to the subject matter hereof. The terms and
conditions of all Exhibits to this Agreement are incorporated herein by this
reference and shall constitute part of this Agreement as is fully set forth
herein.
Section 13.3. Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that such severability shall be ineffective if
it materially changes the economic benefit of this Agreement to any party.
Section 13.4. Headings. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
Section 13.5. Number and Gender. There may be one or more Lenders parties to
this Agreement, which Lenders may be natural persons or entities. All references
to plural Lenders shall apply equally to a single Lender if there is only one
Lender, and all references to a Lender as "it" shall apply equally to a natural
person.
19
<PAGE> 20
Section 13.6. Reporting Entity for the Common Stock. The reporting entity relied
upon for the determination of the trading price or trading volume of the Common
Stock on any given Trading Day for the purposes of this Agreement shall be
Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Lenders and the Company shall be required to employ any other reporting entity.
Section 13.7. Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Convertible Debentures or any
Conversion Shares or Warrants or any Warrant Shares and (ii) in the case of any
such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form to the Company
(which shall not include the posting of any bond) or (iii) in the case of any
such mutilation, on surrender and cancellation of such certificate, the Company
at its expense will execute and deliver, in lieu thereof, a new certificate of
like tenor.
Section 13.8. Fees and Expenses. Each of the Company and the Lenders agrees to
pay its own expenses incident to the performance of its obligations hereunder,
except that the Company shall pay the fees, expenses and disbursements of
counsel to the Lenders, in an amount equal to $10,000, all as set forth in the
Escrow Agreement.
Section 13.9. Finder's and Broker's Fees. Each of the parties hereto represents
that it has had no dealings in connection with this transaction with any finder
or broker who will demand payment of any fee or commission from the other party
except for the finder described in the Escrow Agreement, whose fee shall be paid
by the Company. The Company on the one hand, and the Lenders, on the other hand,
agree to indemnify the other against and hold the other harmless from any and
all liabilities to any person claiming brokerage commissions or finder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
20
<PAGE> 21
Section 13.10. Publicity. Except as may be required by applicable securities
laws, the Company agrees that it will not issue any press release or other
public announcement of the transactions contemplated by this Agreement without
the prior consent of the Lenders, which shall not be unreasonably withheld nor
delayed by more than two (2) Trading Days from their receipt of such proposed
release. No release shall name the Lenders without their express consent.
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement
to be executed by the undersigned, thereunto duly authorized, as of the date
first set forth above.
AVANIR PHARMACEUTICALS
By: /s/ Gregory P. Hanson
-------------------------------------
Name: Gregory P. Hanson
Chief Financial Officer
Amount subscribed for: $750,000 Lender: AMRO International, S.A.
By: /s/ H. U. Bachofen
-------------------------------------
Name: H. U. Bachofen
Director
Amount subscribed for: $750,000 Lender: The Endeavour Capital Fund, S.A.
By: Endeavour Management, Inc.
By: /s/ Shmuli Margulies
-------------------------------------
Name: Shmuli Margulies
Authorized Signatory
21
<PAGE> 1
EXHIBIT 4.2
11% CONVERTIBLE DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION
HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES ARE
RESTRICTED AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT
AS PERMITTED UNDER THE ACT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
NO. ___ US $________
11% CONVERTIBLE DEBENTURE DUE MAY ___, 2001
THIS DEBENTURE is issued by AVANIR Pharmaceuticals, a
corporation organized and existing under the laws of the State of California
(the "Company") and is designated as its 11% Convertible Debenture Due May __,
2001.
FOR VALUE RECEIVED, the Company promises to pay to [Lender], or
permitted assigns (the "Holder"), the principal sum of [_______________and
00/100 (US $xx,000) Dollars] on May ___, 2001 (the "Maturity Date") and to pay
interest on the principal sum outstanding from time to time quarterly in arrears
at the rate of 11% per annum accruing from the date of initial issuance. Accrual
of interest shall commence on the first business day to occur after the date of
initial issuance and continue until payment in full of the principal sum has
been made or duly provided for. Quarterly interest payments shall be due and
payable on March 1, June 1, September 1 and December 1 of each year, commencing
with March 1, 2000. Accrued but unpaid interest shall also be due and payable on
any Conversion Date (as defined herein). If any interest payment date or the
Maturity Date is not a business day in the State of New York, then such payment
shall be made on the next succeeding business day.
The Company will pay the principal of this Debenture, the
Payment Premium (as defined herein) and any accrued but unpaid interest due upon
this Debenture on the Maturity Date, by check or wire transfer to the person who
is the registered holder of this Debenture on or before the Maturity Date and
addressed to such holder at the last address appearing on the Debenture
Register. The forwarding of such check, or completion of such wire transfer,
shall constitute a payment of principal and interest hereunder and shall satisfy
and discharge the liability for principal, Payment Premium and interest on this
Debenture to the extent of the sum represented by such check or wire transfer.
This Debenture is subject to the following additional
provisions:
1. The Company shall be entitled to withhold from all payments of
interest on this Debenture any amounts required to be withheld under the
applicable provisions of the United States income tax laws or other applicable
laws at the time of such payments, and Holder shall execute and deliver all
required documentation in connection therewith.
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<PAGE> 2
2. This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred or
exchanged only in compliance with the Securities Act of 1933, as amended (the
"Act"), and other applicable state and foreign securities laws. The Holder shall
deliver written notice to the Company of any proposed transfer of this
Debenture. In the event of any proposed transfer of this Debenture, the Company
may require, prior to issuance of a new Debenture in the name of such other
person, that it receive reasonable transfer documentation including legal
opinions that the issuance of the Debenture in such other name does not and will
not cause a violation of the Act or any applicable state or foreign securities
laws. Prior to due presentment for transfer of this Debenture, the Company and
any agent of the Company may treat the person in whose name this Debenture is
duly registered on the Company's Debenture Register as the owner hereof for the
purpose of receiving payment as herein provided and for all other purposes,
whether or not this Debenture be overdue, and neither the Company nor any such
agent shall be affected by notice to the contrary. This Debenture has been
executed and delivered pursuant to the Loan Agreement dated as of November 23,
1999 between the Company and the original Holder (the "Loan Agreement"), and is
subject to the terms and conditions of the Loan Agreement, which are, by this
reference, incorporated herein and made a part hereof. Capitalized terms used
and not otherwise defined herein shall have the meanings set forth for such
terms in the Loan Agreement.
3. The rate of interest on this Debenture shall be reduced to ten
percent (10%), retroactive to the Closing Date, if (i) the Registration
Statement is declared effective not later than one hundred twenty (120) days
from the Closing Date or (ii) this Debenture is redeemed in full pursuant to
Section 5 hereof on or before ninety (90) days from the Closing Date.
4. The Holder of this Debenture is entitled, at its option, to
convert at any time commencing one hundred (100) days after the date hereof, the
principal amount of this Debenture or any portion thereof, and at the Holder's
election, any accrued but unpaid interest, into shares of Common Stock of the
Company ("Conversion Shares") at a conversion price for each share of Common
Stock ("Conversion Price") equal to 90% of the Market Price at the Conversion
Date (as defined in Section 6 hereof). The term "Market Price" shall have the
meaning set forth in the Loan Agreement.
5. The Company shall have the right at any time to deliver to the
Holder a written notice of the Company's intent to redeem the entire outstanding
principal amount of this Debenture, plus all accrued but unpaid interest and the
applicable Payment Premium. The Payment Premium shall be five percent (5%) of
the outstanding principal balance during the period commencing on the Closing
Date and ending ninety (90) days thereafter, ten percent (10%) from and
including the ninety-first day until the one hundred eightieth day and fifteen
percent (15%) thereafter. The Company shall make the redemption payment to the
Holder within five (5) Trading Days of the redemption date set forth in the
Company notice of redemption, or else the redemption notice shall be void, and
the Company shall thereafter not have any further right to redeem this
Debenture. The Holder shall have the right to convert this Debenture as set
forth in Section 4 until the Trading Day prior to the Trading Day set for
payment of the redemption price, if this Debenture is otherwise convertible at
that time.
6. (a) Conversion shall be effectuated by surrendering this
Debenture to the Company (if such Conversion will convert all outstanding
principal) together with the form of conversion notice attached hereto as
Exhibit A (the "Notice of Conversion"), executed by the Holder of this Debenture
evidencing such Holder's intention to convert this Debenture or a specified
portion (as above provided) hereof, and accompanied, if required by the Company,
by proper assignment hereof in blank. Interest accrued or accruing from the date
of issuance to the date of conversion shall, at the option of the Holder, be
paid in cash as set forth above or in Common Stock upon conversion at the
Conversion Price on the Conversion Date. No fraction of a share or scrip
representing a fraction of a share will be issued on conversion, but the number
of shares issuable shall be rounded to the nearest whole share. The date on
which Notice of Conversion is
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<PAGE> 3
given (the "Conversion Date") shall be deemed to be the date on which the Holder
faxes the Notice of Conversion duly executed to the Company. Facsimile delivery
of the Notice of Conversion shall be accepted by the Company at facsimile number
858-455-8059, Attn: Chief Financial Officer. Certificates representing Common
Stock upon conversion will be delivered to the Holder within three (3) Trading
Days from the date the Notice of Conversion is delivered to the Company.
Delivery of shares upon conversion shall be made to the address specified by the
Holder in the Notice of Conversion.
(b) The Company understands that a delay in the issuance of shares
of Common Stock upon a conversion beyond the three (3) Trading Day period
described in Section 6(a) could result in economic loss to the Holder. As
compensation to the Holder for such loss, the Company agrees to pay late
payments to the Holder for late issuance of shares of Common Stock upon
conversion in accordance with the following schedule (where "No. Trading Days
Late" is defined as the number of Trading Days beyond three (3) Trading Days
from the date the Notice of Conversion is delivered to the Company).
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
No. Trading Days Late Late Payment for Each
$5,000 of Principal Amount
Being Converted
- ---------------------------------------------------------------------------------
<S> <C>
1 $100
- ---------------------------------------------------------------------------------
2 $200
- ---------------------------------------------------------------------------------
3 $300
- ---------------------------------------------------------------------------------
4 $400
- ---------------------------------------------------------------------------------
5 $500
- ---------------------------------------------------------------------------------
6 $600
- ---------------------------------------------------------------------------------
7 $700
- ---------------------------------------------------------------------------------
8 $800
- ---------------------------------------------------------------------------------
9 $900
- ---------------------------------------------------------------------------------
10 $1,000
- ---------------------------------------------------------------------------------
More than 10 $1,000 +$200 for each Trading Day
Late beyond 10 Trading Days
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
</TABLE>
The Company shall pay any payments incurred under this Section 6(b) in
immediately available funds upon demand. Nothing herein shall limit Holder's
right to pursue injunctive relief and/or actual damages for the Company's
failure to issue and deliver Common Stock to the holder, including, without
limitation, the Holder's actual losses occasioned by any "buy-in" of Common
Stock necessitated by such late delivery. Furthermore, in addition to any other
remedies which may be available to the Holder, in the event that the Company
fails for any reason to effect delivery of such shares of Common Stock within
three (3) Trading Days from the date the Notice of Conversion is delivered to
the Company, the Holder will be entitled to revoke the relevant Notice of
Conversion by delivering a notice to such effect to the Company, whereupon the
Company and the Holder shall each be restored to their respective positions
immediately prior to delivery of such Notice of Conversion, and in such event no
late payments shall be due in connection with such withdrawn conversion.
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<PAGE> 4
(c) If at any time (a) the Company challenges, disputes or
denies the right of the Holder to effect the conversion of this Debenture into
Common Stock or otherwise dishonors or rejects any Notice of Conversion
delivered in accordance with this Section 6 or (b) any Company stockholder who
is not and has never been an Affiliate (as defined in Rule 405 under the
Securities Act of 1933, as amended) of the Holder obtains a judgment or any
injunctive relief from any court or public or governmental authority which
denies, enjoins, limits, modifies, delays or disputes the right of the holder
hereof to effect the conversion of this Debenture into Common Stock, then the
Holder shall have the right, by written notice, to require the Company to
promptly redeem this Debenture for cash at a redemption price equal to one
hundred thirty percent (130%) of the outstanding principal amount hereof and all
accrued and unpaid interest hereon. Under any of the circumstances set forth
above, the Company shall be responsible for the payment of all costs and
expenses of the Holder, including reasonable legal fees and expenses, as and
when incurred in disputing any such action or pursuing its rights hereunder (in
addition to any other rights of the Holder), subject in the case of clause (b)
to the Company's right to control and assume the defense of any such action. In
the absence of an injunction precluding the same, the Company shall issue shares
upon a properly noticed conversion.
The Holder shall be entitled to exercise its conversion privilege
notwithstanding the commencement of any case under 11 U.S.C. Section 101 et seq.
(the "Bankruptcy Code"). In the event the Company is a debtor under the
Bankruptcy Code, the Company hereby waives to the fullest extent permitted any
rights to relief it may have under 11 U.S.C.Section 362 in respect of the
Holder's conversion privilege.
7. No provision of this Debenture shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of, and interest on, this Debenture at the time, place, and rate, and
in the coin or currency or shares of Common Stock, herein prescribed. This
Debenture is a direct obligation of the Company.
8. If the Company merges or consolidates with another corporation
or sells or transfers all or substantially all of its assets to another person
and the holders of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, the Company and any such
successor, purchaser or transferee agree that the Debenture may thereafter be
converted on the terms and subject to the conditions set forth above into the
kind and amount of stock, securities or property receivable upon such merger,
consolidation, sale or transfer by a holder of the number of shares of Common
Stock into which this Debenture might have been converted immediately before
such merger, consolidation, sale or transfer, subject to adjustments which shall
be as nearly equivalent as may be practicable. In the event of any proposed
merger, consolidation or sale or transfer of all or substantially all of the
assets of the Company (a "Sale"), the Holder hereof shall have the right to
convert by delivering a Notice of Conversion to the Company within fifteen (15)
days of receipt of notice of such Sale from the Company. In the event the Holder
hereof shall elect not to convert, the Company may prepay all outstanding
principal and accrued interest on this Debenture as provided in Section 5, less
all amounts required by law to be deducted, upon which tender of payment
following such notice, the right of conversion shall terminate.
9. This Debenture shall be governed by and construed in accordance
with the laws of the State of New York. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions.
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<PAGE> 5
10. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of principal or
interest on this Debenture and same shall continue for a
period of three (3) Trading Days; or
b. Any of the representations or warranties made by the
Company herein, in the Loan Agreement, the Registration
Rights Agreement, or in any agreement, certificate or
financial or other written statements heretofore or
hereafter furnished by the Company in connection with
the execution and delivery of this Debenture or the Loan
Agreement shall be false or misleading in any material
respect at the time made; or
c. The Company fails to issue shares of Common Stock to the
Holder or to cause its Transfer Agent to issue shares of
Common Stock upon exercise by the Holder of the
conversion rights of the Holder in accordance with the
terms of this Debenture, fails to transfer or to cause
its Transfer Agent to transfer any certificate for
shares of Common Stock issued to the Holder upon
conversion of this Debenture as and when required by
this Debenture or the Registration Rights Agreement, and
such transfer is otherwise lawful, or fails to remove
any restrictive legend or to cause its Transfer Agent to
transfer any certificate or any shares of Common Stock
issued to the Holder upon conversion of this Debenture
as and when required by this Debenture, the Loan
Agreement or the Registration Rights Agreement and such
legend removal is otherwise lawful, and any such failure
shall continue uncured for five (5) business days; or
d. The Company shall fail to perform or observe, in any
material respect, any other covenant, term, provision,
condition, agreement or obligation of the Company under
the Loan Agreement, the Registration Rights Agreement or
this Debenture and such failure shall continue uncured
for a period of thirty (30) days after written notice
from the Holder of such failure, except that the
Company's failure to timely amend its Rights Agreement
as set forth in Section 6.11 of the Loan Agreement shall
be an Event of Default without any notice from Holder;
or
e. The Company shall (1) admit in writing its inability to
pay its debts generally as they mature; (2) make an
assignment for the benefit of creditors or commence
proceedings for its dissolution; or (3) apply for or
consent to the appointment of a trustee, liquidator or
receiver for its or for a substantial part of its
property or business; or
f. A trustee, liquidator or receiver shall be appointed for
the Company or for a substantial part of its property or
business without its consent and shall not be discharged
within sixty (60) days after such appointment; or
g. Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency
shall assume custody or control of the whole or any
substantial portion of the properties or assets of the
Company and shall not be dismissed within sixty (60)
days thereafter; or
h. Any money judgment, writ or warrant of attachment, or
similar process in excess of One Hundred Thousand
($100,000) Dollars in the aggregate shall be entered or
filed against the Company or any of its properties or
other assets and
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<PAGE> 6
shall remain unpaid, unvacated, unbonded or unstayed for
a period of sixty (60) days or in any event later than
five (5) days prior to the date of any proposed sale
thereunder except for the judgment in favor of David
Katz, which shall only become an Event of Default if
such judgment is collected and the Company's verdict in
such case is not entered by the court or is reversed on
appeal; or
i. Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors
shall be instituted by or against the Company and, if
instituted against the Company, shall not be dismissed
within sixty (60) days after such institution or the
Company shall by any action or answer approve of,
consent to, or acquiesce in any such proceedings or
admit the material allegations of, or default in
answering a petition filed in any such proceeding; or
j. The Company shall have its Common Stock suspended or
delisted from trading on a Principal Market for in
excess of two (2) Trading Days;
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable, without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived, anything herein or
in any note or other instruments contained to the contrary notwithstanding, and
the Holder may immediately enforce any and all of the Holder's rights and
remedies provided herein or any other rights or remedies afforded by law.
11. Nothing contained in this Debenture shall be construed as
conferring upon the Holder the right to vote or to receive dividends or to
consent or receive notice as a shareholder in respect of any meeting of
shareholders or any rights whatsoever as a shareholder of the Company, unless
and to the extent converted in accordance with the terms hereof.
12. In no event shall the Holder be permitted to convert this
Debenture for shares of Common Stock in excess of the amount of this Debenture
upon the conversion of which, (x) the number of shares of Common Stock owned by
such Holder (other than shares of Common Stock issuable upon conversion of this
Debenture) plus (y) the number of shares of Common Stock issuable upon
conversion of this Debenture, would be equal to or exceed 9.9% of the number of
shares of Common Stock then issued and outstanding, including shares issuable
upon conversion of this Debenture held by such Holder after application of this
Section 12. As used herein, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder. To the extent that the
limitation contained in this Section 12 applies, the determination of whether
this Debenture is convertible (in relation to other securities owned by the
Holder) and of which a portion of this Debenture is convertible shall be in the
sole discretion of such Holder, and the submission of a Notice of Conversion
shall be deemed to be such Holder's determination of whether this Debenture is
convertible (in relation to other securities owned by such holder) and of which
portion of this Debenture is convertible, in each case subject to such aggregate
percentage limitation, and the Company shall have no obligation to verify or
confirm the accuracy of such determination. Nothing contained herein shall be
deemed to restrict the right of a holder to convert this Debenture into shares
of Common Stock at such time as such conversion will not violate the provisions
of this Section 12. The provisions of this Section 12 may be waived by the
Holder of this Debenture upon not less than (A) 75 days' prior notice to the
Company, and the provisions of this Section 12 shall continue to apply until
such 75th day (or such later date as may be specified in such notice of waiver)
or (B) three (3) days' prior notice to the Company if there is an Event of
Default under this Debenture which
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<PAGE> 7
remains uncured on the date of such notice. No conversion of this Debenture in
violation of this Section 12 but otherwise in accordance with this Debenture
shall affect the status of the Common Stock issued upon such conversion as
validly issued, fully-paid and nonassessable; provided, however, that in no
event shall the Holder be entitled to convert this Debenture or exercise any
Warrants issued to Holder pursuant to the Loan Agreement, which, upon giving
effect to such conversion and/or exercise (and all other conversions or
exercises by other Holders purchasing Debentures and Warrants pursuant to the
Loan Agreement) would result in the issuance by the Company of an aggregate
number of shares of Common Stock totaling more than 19.99% of the shares of
Common Stock outstanding immediately prior to the Closing Date (as defined in
the Loan Agreement) except in accordance with the exceptions set forth in
Section 6.3 of the Loan Agreement.
IN WITNESS WHEREOF, the Company has caused this Debenture to be
duly executed by an officer thereunto duly authorized.
Dated: November ___, 1999
AVANIR Pharmaceuticals
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Attest:
- ------------------------------------
7
<PAGE> 8
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $
________________ of the principal amount of the above Debenture No. ___ into
Shares of Common Stock of AVANIR Pharmaceuticals. (the "Company") according to
the conditions hereof, as of the date written below.
Date of Conversion*
-------------------------------------------------------------
Applicable Conversion Price *
---------------------------------------------------
Accrued Interest
----------------------------------------------------------------
Signature
-----------------------------------------------------------------------
[Name]
Address:
------------------------------------------------------------------------
------------------------------------------------------------------------
8
<PAGE> 1
EXHIBIT 4.3
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD,
PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION
WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT.
STOCK PURCHASE WARRANT
To Purchase [________] Shares of the Class A Common Stock of
AVANIR PHARMACEUTICALS
THIS CERTIFIES that, for value received, [_____________________]
(the "Holder"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after the date hereof (the "Initial
Exercise Date") and on or prior to the close of business on November 30, 2002
(the "Termination Date") but not thereafter, to subscribe for and purchase from
AVANIR Pharmaceuticals, a corporation incorporated in California (the
"Company"), up to [______________________________ (___________)] shares (the
"Warrant Shares") of Class A Common Stock, no par value, of the Company (the
"Common Stock"). The purchase price of one share of Common Stock (the "Exercise
Price") under this Warrant shall be $_________ (115% of the average of the
closing bid prices of the Company's Common Stock for the period from November 1,
1999 through the Trading Day immediately prior to the Closing Date). The
Exercise Price and the number of shares for which the Warrant is exercisable
shall be subject to adjustment as provided herein. In the event of any conflict
between the terms of this Warrant and the Loan Agreement between the Company and
the Holder dated as of November 23, 1999 pursuant to which this Warrant has been
issued, the Loan Agreement shall control. Capitalized terms used and not
otherwise defined herein shall have the meanings set forth for such terms in the
Loan Agreement.
<PAGE> 2
1. Title to Warrant. Prior to the Termination Date and subject
to compliance with applicable laws and the terms of this Warrant, this Warrant
and all rights hereunder are transferable, in whole or in part, at the office or
agency of the Company by the holder hereof in person or by duly authorized
attorney, upon surrender of this Warrant together with the Assignment Form
annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all
shares of Common Stock which may be issued upon the exercise of rights
represented by this Warrant will, upon exercise of the rights represented by
this Warrant, be duly authorized, validly issued, fully paid and nonassessable
and free from all taxes, liens and charges in respect of the issue thereof
(other than taxes in respect of any transfer occurring contemporaneously with
such issue).
3. Exercise of Warrant. Except as provided in Section 4 herein,
exercise of the purchase rights represented by this Warrant may be made at any
time or times on or after the Initial Exercise Date (i) as to two-thirds of the
number of Warrants and (ii) if and only if the Convertible Debenture issued in
conjunction with this Warrant has not been redeemed in full by the Company in
accordance with its terms on or before the one-hundredth day after the Initial
Exercise Date, as to the remaining one-third of the Warrants, which remaining
third shall otherwise be void, and in either case before the close of business
on the Termination Date by the surrender of this Warrant and the Notice of
Exercise Form annexed hereto duly executed, at the office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the registered holder hereof at the address of such holder appearing
on the books of the Company) and upon payment of the Exercise Price of the
shares thereby purchased by wire transfer or cashier's check drawn on a United
States bank, the holder of this Warrant shall be entitled to receive a
certificate for the number of shares of Common Stock so purchased. Certificates
for shares purchased hereunder shall be delivered to the holder hereof within
five (5) Trading Days after the date on which this Warrant shall have been
exercised as aforesaid; provided, however, that in no event shall the Holder be
entitled to exercise this Warrant, if, upon giving effect to such exercise (and
all other conversions or exercises by other Holders purchasing Debentures and
Warrants pursuant to the Loan Agreement) such exercise would result in the
issuance by the Company of an aggregate number of shares of Common Stock
totaling more than 19.99% of the shares of Common Stock outstanding immediately
prior to the Closing Date (as defined in the Loan Agreement) except in
accordance with the exceptions set forth in Section 6.3 of the Loan Agreement.
4. This Warrant shall be deemed to have been exercised and such
certificate or certificates shall be deemed to have been issued, and Holder or
any other person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the date the
Holder faxes a Notice of Exercise to the Company, provided that such fax notice
is followed by delivery of the original notice and payment to the Company of the
Exercise Price and all taxes required to be paid by Holder, if any, pursuant to
Section 5 prior to the issuance of such shares, have been paid within three (3)
Trading Days of such fax notice. If this Warrant shall have been exercised in
part, the Company shall, at the time of delivery of the certificate or
certificates representing Warrant Shares, deliver to Holder a new Warrant
evidencing the rights of Holder to purchase the unpurchased shares of Common
Stock called for by this Warrant, which new Warrant shall in all other respects
be identical with this Warrant. If there is no registration in effect permitting
the resale by the Holder of the Warrant Shares at any
2
<PAGE> 3
time from and after one year from the issuance date of this Warrant, then the
Holder shall have the right to a "cashless exercise" in which the Holder shall
be entitled to receive a certificate for the number of shares equal to the
quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = the average of the high and low trading prices per share of Common Stock
on the Trading Day preceding the date of such election;
(B) = the Exercise Price of the Warrant; and
(X) = the number of shares issuable upon exercise of the Warrant in accordance
with the terms of this Warrant.
3
<PAGE> 4
5. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be entitled
to purchase upon such exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to the Exercise Price.
6. Charges, Taxes and Expenses. Issuance of certificates for
shares of Common Stock upon the exercise of this Warrant shall be made without
charge to the holder hereof for any issue or federal or state transfer tax or
other incidental expense in respect of the issuance of such certificate, all of
which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the holder of this Warrant or in such name or
names as may be directed by the holder of this Warrant; provided, however, that
in the event certificates for shares of Common Stock are to be issued in a name
other than the name of the holder of this Warrant, this Warrant when surrendered
for exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the holder hereof; and the Company may require, as a condition
thereto, the payment of a sum sufficient to reimburse it for any transfer tax
incidental thereto.
7. Closing of Books. The Company will not close its shareholder
books or records in any manner which prevents the timely exercise of this
Warrant.
8. Transfer, Division and Combination. (a) the Holder (and its
transferees and assigns), by acceptance of this Warrant, covenants and agrees
that it is acquiring the Warrants evidenced hereby, and, upon exercise hereof,
the Warrant Shares, for its own account as an investment and not with a view to
distribution thereof. The Warrants and Warrant Shares have not been registered
under the Securities Act or any state securities laws and no transfer of any
Warrants or Warrant Shares shall be permitted unless the Company has received
notice of such transfer, at the address of its principal office set forth in the
Loan Agreement, in the form of assignment attached hereto, accompanied by an
opinion of counsel reasonably satisfactory to the Company that an exemption from
registration of such Warrants or Warrant Shares under the Securities Act is
available for such transfer, except that no such opinion shall be required after
the registration for resale by the Holder of the Warrant Shares, as contemplated
by the Registration Rights Agreement. Upon any exercise of the Warrants,
certificates representing the Warrant Shares shall bear a restrictive legend
substantially identical to that set forth on the face of this Warrant
certificate. Any purported transfer of any Warrant or Warrant Shares not in
compliance with the provisions of this section shall be null and void.
(b) This Warrant may be divided or combined with
other Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by Holder or its agent or attorney.
Subject to compliance with Section 7(a), as to any transfer which may be
involved in such division or combination, the Company shall execute and deliver
a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice.
4
<PAGE> 5
(c) The Company shall prepare, issue and deliver at
its own expense (other than transfer taxes) the new Warrant or Warrants under
this Section 7.
(d) The Company agrees to maintain, at its aforesaid
office, books for the registration and the registration of transfer of the
Warrants.
9. No Rights as Shareholder until Exercise. This Warrant does
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company prior to the exercise hereof. Upon the surrender of
this Warrant and the payment of the aggregate Exercise Price, the Warrant Shares
so purchased shall be and be deemed to be issued to such holder as the record
owner of such shares as of the close of business on the later of the date of
such surrender or payment.
10. Loss, Theft, Destruction or Mutilation of Warrant. The
Company covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
certificate or any stock certificate relating to the Warrant Shares, and in case
of loss, theft or destruction, of indemnity or security reasonably satisfactory
to it (which shall not exceed that customarily charged by the Company's transfer
agent), and upon surrender and cancellation of such Warrant or stock
certificate, if mutilated, the Company will make and deliver a new Warrant or
stock certificate of like tenor and dated as of such cancellation, in lieu of
such Warrant or stock certificate.
11. Saturdays, Sundays, Holidays, etc. If the last or appointed
day for the taking of any action or the expiration of any right required or
granted herein shall be a Saturday, Sunday or a legal holiday, then such action
may be taken or such right may be exercised on the next succeeding day not a
Saturday, Sunday or legal holiday.
12. Adjustments of Exercise Price and Number of Warrant Shares.
(a) Stock Splits, etc. The number and kind of securities purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
from time to time upon the happening of any of the following. In case the
Company shall (i) pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock to holders of its outstanding Common
Stock, (ii) subdivide its outstanding shares of Common Stock into a greater
number of shares of Common Stock, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock or (iv) issue any shares
of its capital stock in a reclassification of the Common Stock, then the number
of Warrant Shares purchasable upon exercise of this Warrant immediately prior
thereto shall be adjusted so that the holder of this Warrant shall be entitled
to receive the kind and number of Warrant Shares or other securities of the
Company which he would have been entitled to receive had such Warrant been
exercised in advance thereof. Upon each such adjustment of the kind and number
of Warrant Shares or other securities of the Company which are purchasable
hereunder, the holder of this Warrant shall thereafter be entitled to purchase
the number of Warrant Shares or other securities resulting from such adjustment
at an Exercise Price per Warrant Share or other security obtained by multiplying
the Exercise Price in effect immediately prior to such adjustment by the number
of Warrant Shares purchasable pursuant hereto immediately prior to such
adjustment and dividing by the number of Warrant Shares or other securities of
the Company resulting from such adjustment. An adjustment made pursuant to
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<PAGE> 6
this paragraph shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event.
(b) Reorganization, Reclassification, Merger,
Consolidation or Disposition of Assets. In case the Company shall reorganize its
capital, reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then Holder shall have the right thereafter to receive, upon
exercise of this Warrant, the number of shares of common stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of shares of
Common Stock for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section 11.
For purposes of this Section 11, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 11 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.
13. Voluntary Adjustment by the Company. The Company may at any
time during the term of this Warrant, reduce the then current Exercise Price to
any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
14. Notice of Adjustment. Whenever the number of Warrant Shares
or number or kind of securities or other property purchasable upon the exercise
of this Warrant or the Exercise Price is adjusted, as herein provided, the
Company shall promptly mail by registered or certified mail, return receipt
requested, to the holder of this Warrant notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities or
property) purchasable upon the exercise of this Warrant and the Exercise Price
of such Warrant Shares (and other securities or property) after such adjustment,
setting forth a brief statement of the facts
6
<PAGE> 7
requiring such adjustment and setting forth the computation by which such
adjustment was made. Such notice, in the absence of manifest error, shall be
conclusive evidence of the correctness of such adjustment.
15. Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the holders
of its Common Stock for the purpose of entitling them to receive a dividend or
other distribution, or any right to subscribe for or purchase any evidences of
its indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) there shall be any capital reorganization of the
Company, any reclassification or recapitalization of the capital stock of the
Company or any consolidation or merger of the Company with, or any sale,
transfer or other disposition of all or substantially all the property, assets
or business of the Company to, another corporation or,
(c) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 10 days' prior written notice of the record date for such dividend,
distribution or right or for determining rights to vote in respect of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, at least 10 days' prior
written notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause also shall specify (i) the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, the date on which the holders of Common Stock shall be entitled to any
such dividend, distribution or right, and the amount and character thereof, and
(ii) the date on which any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up is to take place and the time, if any such time is to be fixed, as of which
the holders of Common Stock shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such disposition,
dissolution, liquidation or winding up. Each such written notice shall be
sufficiently given if addressed to Holder at the last address of Holder
appearing on the books of the Company and delivered in accordance with Section
16(d).
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<PAGE> 8
16. Authorized Shares. The Company covenants that during the period
the Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise of any purchase rights under this Warrant. The
Company further covenants that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Principal Market
upon which the Common Stock may be listed.
The Company shall not by any action, including, without
limitation, amending 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 of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of Holder against impairment. Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately prior to such increase in par
value, (b) take all such action 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, and (c) use its best efforts to
obtain all such authorizations, exemptions or consents from any public
regulatory body having jurisdiction thereof as may be necessary to enable the
Company to perform its obligations under this Warrant.
Before taking any action which would result in an
adjustment in the number of shares of Common Stock for which this Warrant is
exercisable or in the Exercise Price, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction thereof.
17. Miscellaneous.
(a) Jurisdiction. This Warrant shall be binding upon
any successors or assigns of the Company. This Warrant shall constitute a
contract under the laws of New York without regard to its conflict of law,
principles or rules, and be subject to arbitration pursuant to the terms set
forth in the Loan Agreement.
(b) Restrictions. The holder hereof acknowledges
that the Warrant Shares acquired upon the exercise of this Warrant, if not
registered, will have restrictions upon resale imposed by state and federal
securities laws.
(c) Nonwaiver and Expenses. No course of dealing or
any delay or failure to exercise any right hereunder on the part of Holder shall
operate as a waiver of such right or otherwise prejudice Holder's rights, powers
or remedies, notwithstanding all rights hereunder terminate on the Termination
Date. If the Company fails to comply with any
8
<PAGE> 9
provision of this Warrant, the Company shall pay to Holder such amounts as shall
be sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys' fees, including those of appellate proceedings, incurred
by Holder in collecting any amounts due pursuant hereto or in otherwise
enforcing any of its rights, powers or remedies hereunder.
(d) Notices. Any notice, request or other document
required or permitted to be given or delivered to the holder hereof by the
Company shall be delivered in accordance with the notice provisions of the Loan
Agreement.
(e) Limitation of Liability. No provision hereof, in
the absence of affirmative action by Holder to purchase shares of Common Stock,
and no enumeration herein of the rights or privileges of Holder hereof, shall
give rise to any liability of Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
(f) Remedies. Holder, in addition to being entitled
to exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Warrant and
hereby agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.
(g) Successors and Assigns. Subject to applicable
securities laws, this Warrant and the rights and obligations evidenced hereby
shall inure to the benefit of and be binding upon the successors of the Company
and the successors and permitted assigns of Holder. The provisions of this
Warrant are intended to be for the benefit of all Holders from time to time of
this Warrant and shall be enforceable by any such Holder or holder of Warrant
Shares.
(h) Indemnification. The Company agrees to indemnify
and hold harmless Holder from and against any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees,
expenses and disbursements of any kind which may be imposed upon, incurred by or
asserted against Holder in any manner relating to or arising out of any failure
by the Company to perform or observe in any material respect any of its
covenants, agreements, undertakings or obligations set forth in this Warrant;
provided, however, that the Company will not be liable hereunder to the extent
that any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are
found in a final non-appealable judgment by a court to have resulted from
Holder's negligence, bad faith or willful misconduct.
(i) Amendment. This Warrant may be modified or
amended or the provisions hereof waived with the written consent of the Company
and the Holder.
(j) Severability. Wherever possible, each provision
of this Warrant shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Warrant shall be prohibited
by or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provisions or the remaining provisions of this Warrant.
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<PAGE> 10
(k) Headings. The headings used in this Warrant are
for the convenience of reference only and shall not, for any purpose, be deemed
a part of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: November _____, 1999
AVANIR Pharmaceuticals
By:
-------------------------------------
10
<PAGE> 11
NOTICE OF EXERCISE
To: AVANIR Pharmaceuticals
(1) The undersigned hereby elects to purchase ________
shares of Common Stock (the "Common Stock"), of AVANIR Pharmaceuticals pursuant
to the terms of the attached Warrant, and tenders herewith payment of the
exercise price in full, together with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing
said shares of Common Stock in the name of the undersigned or in such other name
as is specified below:
----------------------------------------
(Name)
----------------------------------------
(Address)
----------------------------------------
Dated:
----------------------------------------
Signature
<PAGE> 12
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights
evidenced thereby are hereby assigned to
whose address is
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- ---------------------------------------------------------------.
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Dated: ______________, _______
Holder's Signature:
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Holder's Address:
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Signature Guaranteed:
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NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
<PAGE> 1
EXHIBIT 4.4
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of November 23, 1999
between the investor or investors signatory hereto (each a "Lender" and together
the "Lenders"), and AVANIR Pharmaceuticals, a California corporation (the
"Company").
WHEREAS, simultaneously with the execution and delivery of this
Agreement, the Lenders are lending the Company, pursuant to a Loan Agreement
dated the date hereof (the "Loan Agreement"), $1,500,000 principal amount of 11%
Convertible Debentures and Warrants to purchase shares of the Company's Common
Stock (terms not defined herein shall have the meanings ascribed to them in the
Loan Agreement); and
WHEREAS, the Company desires to grant to the Lenders the registration
rights set forth herein with respect to the Conversion Shares of Common Stock
issuable upon conversion of the Convertible Debentures purchased pursuant to the
Loan Agreement and shares of Common Stock issuable upon exercise of the Warrants
(hereinafter referred to as the "Stock" or "Securities" of the Company).
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term "Registrable
Security" means the Securities until (i) the Registration Statement has been
declared effective by the Commission, and all Securities have been disposed of
pursuant to the Registration Statement, (ii) all Securities have been sold under
circumstances under which all of the applicable conditions of Rule 144 (or any
similar provision then in force) under the Securities Act ("Rule 144") are met,
(iii) all Securities have been otherwise transferred to holders who may trade
such Securities without restriction under the Securities Act, and the Company
has delivered a new certificate or other evidence of ownership for such
Securities not bearing a restrictive legend or (iv) such time as, in the opinion
of counsel to the Company, all Securities may be sold without any time, volume
or manner limitations pursuant to Rule 144(k) (or any similar provision then in
effect) under the Securities Act. The term "Registrable Securities" means any
and/or all of the securities falling within the foregoing definition of a
"Registrable Security." In the event of any merger, reorganization,
consolidation, recapitalization or other change in corporate structure affecting
the Common Stock, such adjustment shall be deemed to be made in the definition
of "Registrable Security" as is appropriate in order to prevent any dilution or
enlargement of the rights granted pursuant to this Agreement.
Section 2. Restrictions on Transfer. Each Lender acknowledges and
understands that prior to the registration of the Securities as provided herein,
the Securities are "restricted securities" as defined in Rule 144 promulgated
under the Act. Each Lender understands that no disposition or transfer of the
Securities may be made by Lender in the absence of (i) an opinion of counsel to
the Lender, in form and substance reasonably satisfactory to the Company, that
such transfer may be made without registration under the Securities Act or (ii)
such registration.
With a view to making available to the Lenders the benefits of
Rule 144 under the Securities Act or any other similar rule or regulation of the
Commission that may at any time permit the Lenders to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to:
(a) comply with the provisions of paragraph (c)(1) of Rule
144; and
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(b) file with the Commission in a timely manner all reports
and other documents required to be filed with the Commission pursuant to Section
13 or 15(d) under the Exchange Act by companies subject to either of such
sections, irrespective of whether the Company is then subject to such reporting
requirements.
Section 3. Demand Registration Rights With Respect to the Securities.
(a) The Company agrees that if it has not redeemed all of
the Convertible Debentures in full in accordance with their terms no later than
one hundred (100) days after the Closing Date, then, upon the written request of
any Lender, it will prepare and file with the Securities and Exchange Commission
("Commission"), within ten (10) days after the date of such request (the
"Required Filing Date"), a registration statement (on Form S-3, S-1 or SB-2 or
other appropriate registration statement form) under the Securities Act (the
"Registration Statement"), at the sole expense of the Company (except as
provided in Section 3(c) hereof), in respect of the Lenders, so as to permit a
public offering and resale of the Securities under the Act by the Lenders as
selling stockholders and not as underwriters.
The Company shall use its best efforts to cause such
Registration Statement to become effective within fifty (50) days from the
Required Filing Date, or, if earlier, within five (5) days of SEC clearance to
request acceleration of effectiveness. The number of shares designated in the
Registration Statement to be registered shall include all the Warrant Shares and
at least 200% of the number of shares issuable upon conversion of the
Convertible Debentures on the Required Filing Date, and such number of shares as
the Company deems prudent for the purpose of issuing shares of Common Stock as
interest on the Convertible Debentures, and shall include appropriate language
regarding reliance upon Rule 416 to the extent permitted by the Commission. The
Company will notify the Lenders of the effectiveness of the Registration
Statement within one Trading Day of such event. In the event that the number of
shares so registered shall prove to be insufficient to register the resale of
all of the Securities, then the Company shall be obligated to file, within
thirty (30) days of notice from any Lender, a further Registration Statement
registering such remaining shares and shall use diligent best efforts to
prosecute such additional Registration Statement to effectiveness within sixty
(60) days of the date of such notice.
(b) The Company will maintain the Registration Statement or
post-effective amendment filed under this Section 3 effective under the
Securities Act until the earlier of (i) the date that none of the Securities
covered by such Registration Statement are or may become issued and outstanding,
(ii) the date that all of the Securities have been sold pursuant to such
Registration Statement, (iii) the date the Lenders receive an opinion of counsel
to the Company, which counsel shall be reasonably acceptable to the Lenders,
that the Securities may be sold under the provisions of Rule 144 without
limitation as to volume, (iv) all Securities have been otherwise transferred to
persons who may trade such shares without restriction under the Securities Act,
and the Company has delivered a new certificate or other evidence of ownership
for such securities not bearing a restrictive legend, or (v) all Securities may
be sold without any time, volume or manner limitations pursuant to Rule 144(k)
or any similar provision then in effect under the Securities Act in the opinion
of counsel to the Company, which counsel shall be reasonably acceptable to the
Lender (the "Effectiveness Period").
(c) All fees, disbursements and out-of-pocket expenses and
costs incurred by the Company in connection with the preparation and filing of
the Registration Statement under subparagraph 3(a) and in complying with
applicable securities and Blue Sky laws (including, without limitation, all
attorneys' fees of the Company) shall be borne by the Company. The Lenders shall
bear the cost of underwriting and/or brokerage discounts, fees and commissions,
if any, applicable to the Securities being registered and the fees and expenses
of their counsel. The Lenders and their counsel shall have a reasonable period,
not to exceed five (5) Trading Days, to review the proposed Registration
Statement or any amendment thereto, prior to filing with the Commission, and the
Company shall provide each Lender with
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<PAGE> 3
copies of any comment letters received from the Commission with respect thereto
within two (2) Trading Days of receipt thereof. The Company shall qualify any of
the securities for sale in such states as any Lender reasonably designates and
shall furnish indemnification in the manner provided in Section 6 hereof.
However, the Company shall not be required to qualify in any state which will
require an escrow or other restriction relating to the Company and/or the
sellers, or which will require the Company to qualify to do business in such
state or require the Company to file therein any general consent to service of
process. The Company at its expense will supply the Lenders with copies of the
applicable Registration Statement and the prospectus included therein and other
related documents in such quantities as may be reasonably requested by the
Lenders.
(d) The Company shall not be required by this Section 3 to
include an Lender's Securities in any Registration Statement which is to be
filed if, in the opinion of counsel for both the Lender and the Company (or,
should they not agree, in the opinion of another counsel experienced in
securities law matters acceptable to counsel for the Lender and the Company) the
proposed offering or other transfer as to which such registration is requested
is exempt from applicable federal and state securities laws and would result in
all purchasers or transferees obtaining securities which are not "restricted
securities", as defined in Rule 144 under the Securities Act.
(e) In the event that (i) the Registration Statement to be
filed by the Company pursuant to Section 3(a) above is not filed with the
Commission by the Required Filing Date, (ii) such Registration Statement is not
declared effective by the Commission within the earlier of fifty (50) days from
the Required Filing Date or five (5) days of clearance by the Commission to
request effectiveness, (iii) such Registration Statement is not maintained as
effective by the Company for the period set forth in Section 3(b) above or (iv)
the additional Registration Statement referred to in Section 3(a) is not filed
within thirty (30) days or declared effective within sixty (60) days as set
forth therein (each a "Registration Default"), then the Company will pay to
Lender (pro rated on a daily basis), as liquidated damages for such failure and
not as a penalty two percent (2%) of the aggregate market value of shares of
Common Stock purchased from the Company (including the Conversion Shares which
would be issuable upon conversion of the Convertible Debentures on any date of
determination, and whether or not the Convertible Debentures are then
convertible pursuant to their terms) and held by the Lender for every month
until such Registration Statement has been filed, and in the event of late
effectiveness (in case of clause (ii) above) or lapsed effectiveness (in the
case of clause (iii) above), two percent (2%) of the aggregate market value of
shares of Common Stock purchased from the Company and held by the Lender
(including the Conversion Shares which would be issuable upon conversion of the
Convertible Debentures on any date of determination, and whether or not the
Convertible Debentures are then convertible pursuant to their terms) for every
month (regardless of whether one or more such Registration Defaults are then in
existence, but without duplication of liquidated damages) until such
Registration Statement has been declared effective. Such payment of the
liquidated damages shall be made to the Lenders in cash, within five (5)
calendar days of demand, provided, however, that the payment of such liquidated
damages shall not relieve the Company from its obligations to register the
Securities pursuant to this Section. The market value of the Common Stock for
this purpose shall be the closing price (or last trade, if so reported) on the
Principal Market for each day during such Registration Default.
If the Company does not remit the payment to the Lenders as set
forth above, the Company will pay to the Lenders reasonable costs of collection,
including attorneys' fees, in addition to the liquidated damages. The
registration of the Securities pursuant to this provision shall not affect or
limit the Lenders' other rights or remedies as set forth in this Agreement.
(f) No provision contained herein shall preclude the Company
from selling securities pursuant to any Registration Statement in which it is
required to include Securities pursuant to this Section 3.
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(g) If at any time or from time to time after the effective
date of any Registration Statement, the Company notifies the Lenders in writing
of the existence of a Potential Material Event (as defined in Section 3(h)
below), the Lenders shall not offer or sell any Securities or engage in any
other transaction involving or relating to Securities, from the time of the
giving of notice with respect to a Potential Material Event until the Lenders
receive written notice from the Company that such Potential Material Event
either has been disclosed to the public or no longer constitutes a Potential
Material Event; provided, however, that the Company may not so suspend the right
to such holders of Securities for more than twenty (20) days in the aggregate
during any twelve month period, during the period the Registration Statement is
required to be in effect, and if such period is exceeded, such event shall be a
Registration Default. If a Potential Material Event shall occur prior to the
date a Registration Statement is required to be filed, then the Company's
obligation to file such Registration Statement shall be delayed without penalty
for not more than twenty (20) days, and such delay or delays shall not
constitute a Registration Default. The Company must, if lawful, give the Lenders
notice in writing at least two (2) Trading Days prior to the first day of the
blackout period.
(h) "Potential Material Event" means any of the following:
(a) the possession by the Company of material information not ripe for
disclosure in a registration statement, as determined in good faith by the Chief
Executive Officer or the Board of Directors of the Company that disclosure of
such information in a Registration Statement would be detrimental to the
business and affairs of the Company; or (b) any material engagement or activity
by the Company which would, in the good faith determination of the Chief
Executive Officer or the Board of Directors of the Company, be adversely
affected by disclosure in a registration statement at such time, which
determination shall be accompanied by a good faith determination by the Chief
Executive Officer or the Board of Directors of the Company that the applicable
Registration Statement would be materially misleading absent the inclusion of
such information.
Section 4. Cooperation with Company. The Lenders will cooperate with the
Company in all respects in connection with this Agreement, including timely
supplying all information reasonably requested by the Company (which shall
include all information regarding the Lenders and proposed manner of sale of the
Registrable Securities required to be disclosed in any Registration Statement)
and executing and returning all documents reasonably requested in connection
with the registration and sale of the Registrable Securities and entering into
and performing their obligations under any underwriting agreement, if the
offering is an underwritten offering, in usual and customary form, with the
managing underwriter or underwriters of such underwritten offering. Nothing in
this Agreement shall obligate any Lender to consent to be named as an
underwriter in any Registration Statement. The obligation of the Company to
register the Registrable Securities shall be absolute and unconditional as to
those Securities which the Commission will permit to be registered without
naming the Lenders as underwriters. Any delay or delays caused by the Lenders by
failure to cooperate as required hereunder shall not constitute a Registration
Default.
Section 5. Registration Procedures. If and whenever the Company is
required by any of the provisions of this Agreement to effect the registration
of any of the Registrable Securities under the Act, the Company shall (except as
otherwise provided in this Agreement), as expeditiously as possible, subject to
the Lenders' assistance and cooperation as reasonably required with respect to
each Registration Statement:
(a) (i) prepare and file with the Commission such amendments
and supplements to the Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration Statement
effective and to comply with the provisions of the Act with respect to the sale
or other disposition of all securities covered by such registration statement
whenever the Lenders shall desire to sell or otherwise dispose of the same
(including prospectus supplements with respect to the sales of securities from
time to time in connection with a registration statement pursuant to Rule 415
promulgated under the Act) and (ii) take all lawful action such that each of (A)
the Registration Statement and any amendment thereto does not, when it becomes
effective, contain an untrue statement of a material fact or omit to state a
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<PAGE> 5
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 (B) the prospectus forming part of the Registration Statement,
and any amendment or supplement thereto, does not at any time during the
Registration Period include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
(b) (i) prior to the filing with the Commission of any
Registration Statement (including any amendments thereto) and the distribution
or delivery of any prospectus (including any supplements thereto), provide draft
copies thereof to the Lenders as required by Section 3(c) and reflect in such
documents all such comments as the Lenders (and their counsel) reasonably may
propose respecting the Selling Shareholders and Plan of Distribution sections
(or equivalents) and (ii) furnish to each Lender such numbers of copies of a
prospectus including a preliminary prospectus or any amendment or supplement to
any prospectus, as applicable, in conformity with the requirements of the Act,
and such other documents, as such Lender may reasonably request in order to
facilitate the public sale or other disposition of the securities owned by such
Lender;
(c) register and qualify the Registrable Securities covered
by the Registration Statement under such other securities or blue sky laws of
such jurisdictions as the Lenders shall reasonably request (subject to the
limitations set forth in Section 3(c) above), and do any and all other acts and
things which may be necessary or advisable to enable each Lender to consummate
the public sale or other disposition in such jurisdiction of the securities
owned by such Lender;
(d) list such Registrable Securities on the Principal
Market, if the listing of such Registrable Securities is then permitted under
the rules of such Principal Market;
(e) notify each Lender at any time when a prospectus
relating thereto covered by the Registration Statement is required to be
delivered under the Act, of the happening of any event of which it has knowledge
as a result of which the prospectus included in the Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and the Company shall prepare and file a curative amendment under
Section 5(a) as quickly as commercially possible;
(f) as promptly as practicable after becoming aware of such
event, notify each Lender who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing underwriters) of the
issuance by the Commission of any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest possible time and
take all lawful action to effect the withdrawal, recession or removal of such
stop order or other suspension;
(g) cooperate with the Lenders to facilitate the timely
preparation and delivery of certificates for the Registrable Securities to be
offered pursuant to the Registration Statement and enable such certificates for
the Registrable Securities to be in such denominations or amounts, as the case
may be, as the Lenders reasonably may request and registered in such names as
the Lenders may request; and, within three (3) Trading Days after a Registration
Statement which includes Registrable Securities is declared effective by the
Commission, deliver and cause legal counsel selected by the Company to deliver
to the transfer agent for the Registrable Securities (with copies to the
Lenders) an appropriate instruction and, to the extent necessary, an opinion of
such counsel;
(h) take all such other lawful actions reasonably necessary
to expedite and facilitate the disposition by the Lenders of their Registrable
Securities in accordance with the intended
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methods therefor provided in the prospectus which are customary for issuers to
perform under the circumstances;
(i) in the event of an underwritten offering, promptly
include or incorporate in a prospectus supplement or post-effective amendment to
the Registration Statement such information as the managers reasonably agree
should be included therein and to which the Company does not reasonably object
and make all required filings of such prospectus supplement or post-effective
amendment as soon as practicable after it is notified of the matters to be
included or incorporated in such Prospectus supplement or post-effective
amendment; and
(j) maintain a transfer agent and registrar for its Common
Stock.
Section 6. Indemnification.
(a) To the maximum extent permitted by law, the Company
agrees to indemnify and hold harmless the Lenders and each person, if any, who
controls a Lender within the meaning of the Securities Act (each a "Distributing
Lender") against any losses, claims, damages or liabilities, joint or several
(which shall, for all purposes of this Agreement, include, but not be limited
to, all reasonable costs of defense and investigation and all reasonable
attorneys' fees and expenses), to which the Distributing Lender may become
subject, under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement, or any related final prospectus or
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that the Company will not be liable in any such case to the extent, and
only to the extent, that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement, preliminary prospectus,
final prospectus or amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the Company by the
Distributing Lender, its counsel, affiliates or any underwriter, specifically
for use in the preparation thereof. This indemnity agreement will be in addition
to any liability which the Company may otherwise have.
(b) To the maximum extent permitted by law, each
Distributing Lender agrees that it will indemnify and hold harmless the Company,
and each officer and director of the Company or person, if any, who controls the
Company within the meaning of the Securities Act, against any losses, claims,
damages or liabilities (which shall, for all purposes of this Agreement,
include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees and expenses) to which the
Company or any such officer, director or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in any Registration Statement, or any related final prospectus or amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but in each case
only to the extent that such untrue statement or alleged untrue statement or
omission or alleged omission was made in such Registration Statement, final
prospectus or amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the Company by such
Distributing Lender, its counsel, affiliates or any underwriter, specifically
for use in the preparation thereof. This indemnity agreement will be in addition
to any liability which the Distributing Lender may otherwise have.
(c) Promptly after receipt by an indemnified party under
this Section 6 of notice of the commencement of any action against such
indemnified party, such indemnified party will, if a claim in
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respect thereof is to be made against the indemnifying party under this Section
6, notify the indemnifying party in writing of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to any indemnified party except to
the extent the failure of the indemnified party to provide such written
notification actually prejudices the ability of the indemnifying party to defend
such action. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified,
assume the defense thereof, subject to the provisions herein stated and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section 6 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation, unless the indemnifying
party shall not pursue the action to its final conclusion. The indemnified
parties as a group shall have the right to employ one separate counsel in any
such action and to participate in the defense thereof, but the fees and expenses
of such counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the indemnified party unless (i) the employment of such counsel
has been specifically authorized in writing by the indemnifying party, or (ii)
the named parties to any such action (including any impleaded parties) include
both the indemnified party and the indemnifying party and the indemnified party
shall have been advised by its counsel that there may be one or more legal
defenses available to the indemnifying party different from or in conflict with
any legal defenses which may be available to the indemnified party or any other
indemnified party (in which case the indemnifying party shall not have the right
to assume the defense of such action on behalf of such indemnified party, it
being understood, however, that the indemnifying party shall, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable only for the reasonable fees and expenses of one
separate firm of attorneys for the indemnified party, which firm shall be
designated in writing by the indemnified party). No settlement of any action
against an indemnified party shall be made without the prior written consent of
the indemnified party, which consent shall not be unreasonably withheld so long
as such settlement includes a full release of claims against the indemnified
party.
Section 7. Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the indemnified
party makes a claim for indemnification pursuant to Section 6 hereof but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 6 hereof provide
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any indemnified party, then the Company and the
applicable Distributing Lender shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (which shall, for all
purposes of this Agreement, include, but not be limited to, all reasonable costs
of defense and investigation and all reasonable attorneys' fees and expenses),
in either such case (after contribution from others) on the basis of relative
fault as well as any other relevant equitable considerations. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company on the
one hand or the applicable Distributing Lender on the other hand, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Distributing
Lender agree that it would not be just and equitable if contribution pursuant to
this Section 7 were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in this Section 7. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this Section 7 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any
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such action or claim. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
Notwithstanding any other provision of this Section 7, in no event shall any (i)
Lender be required to undertake liability to any person under this Section 7 for
any amounts in excess of the dollar amount of the proceeds received by such
Lender from the sale of such Lender's Registrable Securities (after deducting
any fees, discounts and commissions applicable thereto) pursuant to any
Registration Statement under which such Registrable Securities are registered
under the Securities Act and (ii) underwriter be required to undertake liability
to any person hereunder for any amounts in excess of the aggregate discount,
commission or other compensation payable to such underwriter with respect to the
Registrable Securities underwritten by it and distributed pursuant to such
Registration Statement.
Section 8. Notices. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing and
shall be delivered as set forth in the Loan Agreement.
Section 9. Assignment. This Agreement is binding upon and inures to the
benefit of the parties hereto and their respective heirs, successors and
permitted assigns. The rights granted the Lenders under this Agreement may be
assigned to any purchaser of substantially all of the Registrable Securities (or
the rights thereto) from an Lender, as otherwise permitted by the Loan
Agreement.
Section 10. Additional Covenants of the Company. The Company agrees that
at such time as it otherwise meets the requirements for the use of Securities
Act Registration Statement on Form S-3 for the purpose of registering the
Registrable Securities, it shall file all reports and information required to be
filed by it with the Commission in a timely manner and take all such other
action so as to maintain such eligibility for the use of such form.
Section 11. Counterparts/Facsimile. This Agreement may be executed in
two or more counterparts, each of which shall constitute an original, but all of
which, when together shall constitute but one and the same instrument, and shall
become effective when one or more counterparts have been signed by each party
hereto and delivered to the other parties. In lieu of the original, a facsimile
transmission or copy of the original shall be as effective and enforceable as
the original.
Section 12. Remedies. The remedies provided in this Agreement are
cumulative and not exclusive of any remedies provided by law. If any term,
provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their best efforts to find and
employ an alternative means to achieve the same or substantially the same result
as that contemplated by such term, provision, covenant or restriction.
Section 13. Conflicting Agreements. The Company shall not enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the holders of Registrable Securities in this Agreement or otherwise
prevents the Company from complying with all of its obligations hereunder.
Section 14. Headings. The headings in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
Section 15. Governing Law, Arbitration. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York applicable
to contracts made in New York
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by persons domiciled in New York City and without regard to its principles of
conflicts of laws. Any dispute under this Agreement shall be submitted to
arbitration under the American Arbitration Association (the "AAA") in New York
City, New York, and shall be finally and conclusively determined by the decision
of a board of arbitration consisting of three (3) members (hereinafter referred
to as the "Board of Arbitration") selected as according to the rules governing
the AAA. The Board of Arbitration shall meet on consecutive business days in New
York City, New York, and shall reach and render a decision in writing (concurred
in by a majority of the members of the Board of Arbitration) with respect to the
amount, if any, which the losing party is required to pay to the other party in
respect of a claim filed. In connection with rendering its decisions, the Board
of Arbitration shall adopt and follow the laws of the State of New York. To the
extent practical, decisions of the Board of Arbitration shall be rendered no
more than thirty (30) calendar days following commencement of proceedings with
respect thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. Any decision made by the Board
of Arbitration (either prior to or after the expiration of such thirty (30)
calendar day period) shall be final, binding and conclusive on the parties to
the dispute, and entitled to be enforced to the fullest extent permitted by law
and entered in any court of competent jurisdiction. The Board of Arbitration
shall be authorized and is hereby directed to enter a default judgment against
any party failing to participate in any proceeding hereunder within the time
periods set forth in the AAA rules. The non-prevailing party to any arbitration
(as determined by the Board of Arbitration) shall pay the expenses of the
prevailing party, including reasonable attorneys' fees, in connection with such
arbitration. Any party shall be entitled to obtain injunctive relief from a
court in any case where such relief is available, and the non-prevailing party
in any such injunctive proceeding shall pay the expenses of the prevailing
party, including reasonable attorneys' fees, in connection with such injunctive
proceeding.
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IN WITNESS WHEREOF, the parties hereto have caused this
Registration Rights Agreement to be duly executed, on the day and year first
above written.
AVANIR PHARMACEUTICALS
By: /s/ Gregory P. Hanson
------------------------------------
Gregory P. Hanson
Chief Financial Officer
LENDER: AMRO International, S.A.
By: /s/ H. U. Bachofen
------------------------------------
H. U. Bachofen, Director
LENDER: The Endeavour Capital Fund, S.A.
By: Endeavour Management, Inc.
By: /s/ Shmuli Margulies
------------------------------------
Shmuli Margulies,
Authorized Signatory
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EXHIBIT 4.5
AVANIR PHARMACEUTICALS
AMENDMENT NO. 1
TO
RIGHTS AGREEMENT
THIS AMENDMENT NO. 1 TO RIGHTS AGREEMENT, dated as of November 23, 1999
(this "Amendment"), is executed and delivered in connection with the Rights
Agreement, dated as of March 5, 1999 (the "Rights Agreement"), by and between
AVANIR Pharmaceuticals, a California corporation (the "Company"), and American
Stock Transfer & Trust Company, a New York corporation, as rights agent (the
"Rights Agent"). All capitalized terms in this Amendment which are not otherwise
defined herein shall have the respective meanings ascribed to them in the Rights
Agreement.
WHEREAS, Section 26 of the Rights Agreement provides that, for so long
as the Rights are then redeemable, the Company may in its sole and absolute
discretion, and the Rights Agent shall, if the Company so directs, supplement or
amend any provision of the Rights Agreement in any respect without the approval
of any holders of Rights or Common Shares; and
WHEREAS, Section 6.11 of the Loan Agreement, dated as of November 23,
1999 (the "Loan Agreement"), by and among (i) the Company and (ii) AMRO
International, S.A., a Panama corporation, and The Endeavour Capital Fund, S.A.,
a company formed under the laws of Israel (collectively, the "Excluded
Holders"), provides that the Company will amend Section 1.1 of the Rights
Agreement to exclude each of the Excluded Holders from the definition of
"Acquiring Person" under the Rights Agreement as and to the extent provided
herein.
NOW, THEREFORE, in consideration of the premises, the mutual promises
hereinafter set forth, and for other good and valuable consideration, the
parties hereto hereby agree as follows:
1. Section 1.1 of the Rights Agreement is hereby amended and
restated in its entirety to read as follows:
1.1. "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates and
Associates (as such terms are hereinafter defined) of such Person, shall
be the Beneficial Owner (as such term is hereinafter defined) of 15% or
more of the Common Shares of the Company then outstanding but shall not
include (i) an Exempt Person (as such term is hereinafter defined), (ii)
if, as of March 5, 1999, any Person is the Beneficial Owner of 15% or
more of the Common Shares outstanding (an "Existing Holder"), such
Existing Holder shall not be or become an "Acquiring Person" unless and
until such time as such Existing Holder shall become the Beneficial
Owner of one or more additional Common Shares of the Company
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<PAGE> 2
(other than pursuant to a dividend or distribution paid or made by the
Company on the outstanding Common Shares in Common Shares or pursuant to
a split or subdivision of the outstanding Common Shares), unless, upon
becoming the Beneficial Owner of such additional Common Shares, such
Existing Holder is not then the Beneficial Owner of 15% or more of the
Common Shares then outstanding or (iii) an Excluded Holder (as defined
below), unless such Excluded Holder as of the date hereof beneficially
owns, or unless and until such time as such Excluded Holder becomes the
Beneficial Owner of, any Common Shares of the Company (other than (x) as
a result of its ownership of Convertible Debentures or Warrants (as such
terms are defined in the Loan Agreement, dated as of November 23, 1999,
by and among the Company and each of the Excluded Holders) or any Common
Shares issued upon the conversion or exercise thereof, and (y) pursuant
to a dividend or distribution paid or made in Common Shares by the
Company on the outstanding Common Shares or pursuant to a split or
subdivision of the outstanding Common Shares). "Excluded Holder" shall
mean each of AMRO International, S.A., a Panama corporation, and The
Endeavour Capital Fund, S.A., a company formed under the laws of Israel.
Notwithstanding the foregoing, no Person shall become an "Acquiring
Person" as the result of an acquisition of Common Shares by the Company
which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to 15%
or more of the Common Shares of the Company then outstanding; provided,
however, that if a Person shall become the Beneficial Owner of 15% or
more of the Common Shares of the Company then outstanding solely by
reason of share purchases by the Company and shall, after such share
purchases by the Company, become the Beneficial Owner of one or more
additional Common Shares of the Company (other than pursuant to a
dividend or distribution paid or made by the Company on the outstanding
Common Shares in Common Shares or pursuant to a split or subdivision of
the outstanding Common Shares), then such Person shall be deemed to be
an "Acquiring Person" unless upon becoming the Beneficial Owner of such
additional shares of Common Stock such Person does not beneficially own
15% or more of the shares of Common Stock then outstanding.
Notwithstanding the foregoing, if the Board of Directors of the Company
determines in good faith that a Person who would otherwise be an
"Acquiring Person," as defined pursuant to the foregoing provisions of
this Section 1.1, has become such inadvertently (including, without
limitation, because (A) such Person was unaware that it beneficially
owned a percentage of Common Stock that would otherwise cause such
Person to be an "Acquiring Person" or (B) such Person was aware of the
extent of its Beneficial Ownership of Common Stock but had no actual
knowledge of the consequences of such Beneficial Ownership under this
Agreement), and without any intention of changing or influencing control
of the Company, and such Person divests as promptly as practicable a
sufficient number of Common Shares so that such Person would no longer
be an Acquiring Person, as defined pursuant to the foregoing provisions
of this Section 1.1, then such Person shall not be deemed to be or have
become an "Acquiring Person" at any time for any purposes of this
Agreement. For all purposes of this Agreement, any calculation of the
number of
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<PAGE> 3
Common Shares outstanding at any particular time, including for purposes
of determining the particular percentage of such outstanding Common
Shares of which any Person is the Beneficial Owner, shall be made in
accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General
Rules and Regulations under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as in effect on March 5, 1999.
2. Except as set forth in this Amendment, the Rights Agreement
shall remain in full force and effect. By their execution below, the parties
hereto agree to be bound by the terms and conditions of the Rights Agreement as
amended by this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Amendment as of the date first above written.
AVANIR PHARMACEUTICALS
By: /s/ Gerald J. Yakatan, Ph.D.
------------------------------------
Name: Gerald J. Yakatan, Ph.D.
Title: Chief Executive Officer
and President
AMERICAN STOCK TRANSFER & TRUST COMPANY
By: /s/ Herbert J. Lemmer
------------------------------------
Name: Herbert J. Lemmer
Title: Vice President
[SIGNATURE PAGE TO AMENDMENT NO. 1 TO RIGHTS AGREEMENT]
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