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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: January 31, 2000
(Date of earliest event reported)
AVANIR PHARMACEUTICALS
(Exact name of registrant as specified in its charter)
CALIFORNIA
(State or other jurisdiction of incorporation)
<TABLE>
<S> <C>
0-18734 33-0314804
(Commission File Number) (IRS Employer Identification No.)
</TABLE>
9393 Towne Centre Drive, Suite 200, San Diego, California 92121
(Address of principal executive offices) (Zip code)
(858) 410-2600
(Registrants telephone number, including area code)
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Item 5. OTHER EVENTS
$6 Million Private Placement Financing
On January 31, 2000, we closed a $6 million private placement financing
with three accredited financial institutions, in which we issued 2,630,137
shares of Class A Common Stock and warrants to purchase an aggregate of 263,014
shares of Class A Common Stock at an exercise price of $2.44 per share. We paid
financial advisory and finders' fees of $480,000 in connection with this
financing arrangement. We intend to use approximately $1.6 million of the
proceeds from this financing to redeem the $1.5 million in convertible
debentures that we issued in November 1999.
Under the terms of the Common Stock Purchase Agreement, each investor
has the opportunity to re-price portions of the initial shares of Class A Common
Stock that the investor holds if we do not achieve specified milestones in the
trading price of our Class A Common Stock during certain periods of time after
the closing date of January 31, 2000, as follows:
- From April 30, 2000 to May 30, 2000, each of the investors may
re-price up to 33% of the investor's initial shares if the price of our Class A
Common Stock has not maintained an average of at least $2.60 per share during
the period;
- From May 31, 2000 to June 30, 2000, each of the investors may re-price
up to an additional 33% of the investor's initial shares if the price of our
Class A Common Stock has not maintained an average of at least $2.69 per share
during the period;
- From July 1, 2000 to July 31, 2000, each of the investors may re-price
up to an additional 33% of the investor's initial shares if the price of our
Class A Common Stock has not maintained an average of at least $2.76 per share
during the period; and
- From August 1, 2000 to January 28, 2001, each of the investors may
re-price up to 50% of the investor's initial shares not re-priced previously, if
the price of our Class A Common Stock has not maintained an average of at least
$2.85 per share.
If we do not meet these price milestones and one or more of the
investors elects to re-price a portion of the initial shares held by that
investor, then we may either issue additional shares equal in value to the
shortfall in the share price multiplied by the number of re-priced shares, or
pay cash for the value of the shortfall multiplied by the number of re-priced
shares. If we meet the specified price milestone in a given period, then the
investors cannot re-price any of the initial shares that they hold.
In addition, we initially must register 5,523,288 shares of our Class A
Common Stock on behalf of the investors. We will be obligated to pay a penalty
to the investors if we do not file a registration statement covering these
shares on or before March 25, 2000, or if the registration statement is not
declared effective on or before June 8, 2000.
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Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
4.1 Common Stock Purchase Agreement, dated as of January 25, 2000,
by and among (i) AVANIR Pharmaceuticals, a California
corporation, and (ii) Bayview LLC, a Cayman Islands LLC, The
Endeavour Capital Fund, S.A., a British Virgin Islands
corporation, and Roseworth Group Ltd., a British Virgin Islands
corporation (collectively, the "Investors").
4.2 Registration Rights Agreement, dated as of January 25, 2000, by
and among AVANIR Pharmaceuticals and the Investors.
4.3 Form of Stock Purchase Warrant.
99.1 Press release dated February 3, 2000.
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: February 4, 2000 By: /s/ Gregory P. Hanson
-----------------------------
Gregory P. Hanson
Vice President, Finance and
Chief Financial Officer
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EXHIBIT 4.1
COMMON STOCK PURCHASE AGREEMENT
COMMON STOCK PURCHASE AGREEMENT, dated as of January 25, 2000 (this
"Agreement"), by and among AVANIR PHARMACEUTICALS, a California corporation (the
"Company"), and the purchasers listed on the signature page hereto (each a
"Purchaser" and collectively, the "Purchasers").
RECITALS
A. Each Purchaser desires to purchase, and the Company desires to issue
and sell, shares ("Shares") of the Company's Class A Common Stock, no par value
per share ("Common Stock"), on the terms and conditions set forth below. For
purposes of this Agreement, the Shares shall mean the Initial Shares (as defined
below) and the Repriced Shares (as defined below).
B. The parties hereto intend that the issuance of the Shares as
anticipated by this Agreement shall be accomplished without registration under
the U.S. Securities Act of 1933, as amended (the "Securities Act"), and without
registration or qualification under the securities laws of any state or other
jurisdiction, in reliance on exemptions from the registration requirements of
the Securities Act, including, without limitation, Regulation D under the
Securities Act and Section 4(2) of the Securities Act; provided, however, that
nothing in this Agreement shall act or be construed as a limitation on
Purchaser's right to sell any of the Shares to be acquired pursuant to this
Agreement pursuant to the Registration Statement (the "Registration Statement")
contemplated by the Registration Rights Agreement (as defined below), or other
provisions of the Registration Rights Agreement or in accordance with applicable
laws.
THEREFORE, in consideration of the mutual promises and covenants set
forth below and for other good and valuable consideration, the receipt and
sufficiency of which the parties acknowledge by their signatures below, the
parties hereto hereby agree as follows:
AGREEMENT
1. Purchase of Common Stock. Subject to the terms and conditions of this
Agreement, the Company agrees to issue and sell, and the Purchasers agree to
acquire, an aggregate of Two Million Six Hundred Thirty Thousand, One Hundred
Thirty-Seven (2,630,137) fully paid and non-assessable shares (the "Initial
Shares"), in exchange for the Purchasers' payment to the Company of aggregate
consideration of Six Million Dollars ($6,000,000) (the "Purchase Price"). In no
event shall the total number of Shares issued by the Company pursuant to this
Agreement (but excluding the Warrant Shares) exceed 19.99% of the outstanding
shares of Common Stock immediately prior to the date of the Initial Closing
(i.e. 9,484,050 Shares).
1.1 Form of Payment. Purchaser shall pay the Purchase Price for
the Initial Shares by delivering immediately available good funds in United
States Dollars to the escrow agent (the "Escrow Agent") identified in the Joint
Escrow Instructions attached hereto as Exhibit E (the "Joint Escrow
Instructions"). No later than the Closing Date (as defined below), the Company
shall
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deliver one or more certificates representing the Initial Shares duly executed
on behalf of the Company (collectively, the "Certificates") to the Escrow Agent.
By signing this Agreement, each of the Purchasers and the Company, and subject
to acceptance by the Escrow Agent, agrees to all of the terms and conditions of,
and becomes a party to, the Joint Escrow Instructions, all of the provisions of
which are incorporated herein by this reference as if set forth in full.
1.2 Method of Payment. The Purchasers shall pay into escrow the
Purchase Price for the Initial Shares by wire transfer of funds to:
Bank of New York
350 Fifth Avenue
New York, New York 10001
ABA# 021000018
For credit to the account of Krieger & Prager, LLP
Account No.: 637-1660567
Each Purchaser shall deliver payment of its respective portion of the
Purchase Price set forth on the signature page hereto, at or before 1:00 p.m.,
New York time, on the date which is one (1) Business Day after the Company
executes and delivers this Agreement and returns a signed counterpart of this
Agreement to the Escrow Agent by facsimile. The Purchasers shall deposit the
Purchase Price for the Initial Shares with the Escrow Agent in immediately
available funds. Time is of the essence with respect to such payment, and
failure by the Purchasers to make such payment shall allow the Company to cancel
this Agreement. For purposes of this Agreement, "Business Day" shall mean a day
on which the New York Stock Exchange is open for business.
1.3 Escrow Property. The Purchase Price and the Certificate
delivered to the Escrow Agent as contemplated by Section 1.1 hereof are referred
to as the "Escrow Property."
2. Closing.
2.1 Initial Closing. Upon execution of this Agreement (the
"Initial Closing"), the parties hereto shall execute and deliver the following
documents (incorporated herein by this reference, collectively with this
Agreement, the "Transaction Documents"): (i) the Registration Rights Agreement
(the "Registration Rights Agreement") in the form attached hereto as Exhibit A;
(ii) the Escrow Agreement in the form attached hereto as Exhibit B; (iii) a
Common Stock Purchase Warrant for each Purchaser (each a "Warrant" and
collectively, the "Warrants") in the form attached hereto as Exhibit C; and (iv)
the additional agreements (the "Additional Agreements") in the form attached
hereto as Exhibit D. On the Closing Date (as defined below), the Escrow Agent
shall deliver (i) the Purchase Price to the Company and (ii) the Certificates to
the Purchasers.
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2.2 Repriced Shares. Definitions:
(a) As used herein, "Closing Bid Price" shall mean the
closing bid price of the Common Stock as reported, at the option of the
Purchasers, by Bloomberg, LP or the National Association of Securities Dealers
("NASD").
(b) "Effective Date" shall mean date on which the
Securities and Exchange Commission (the "SEC") declares effective the
registration statement covering the Registrable Shares (as defined in the
Registration Rights Agreement).
(c) "Initial Closing Price" shall mean the average Closing
Bid Price for the five (5) consecutive Business Days immediately prior to the
date of the Initial Closing.
(d) "Repricing Period" shall mean each of the First
Repricing Period, the Second Repricing Period, the Third Repricing Period and
the Final Repricing Period, each as defined below.
(e) "Repriced Shares" shall mean the First Repriced
Shares, the Second Repriced Shares, the Third Repriced Shares and the Final
Repriced Shares, each as defined below.
2.3 First Repricing Period. (a) The "First Repricing Period"
shall commence on the later of (i) the day that is ninety (90) days after the
Closing Date or (ii) the Effective Date, and end thirty (30) days after such
later date. If the average Closing Bid Price for any twenty (20) Business Days
(not necessarily consecutive) during the First Repricing Period (the "First
Repricing Price"), is not equal to or greater than 114% of the Initial Closing
Price, then the Purchasers may request that up to one-third (1/3) of the Initial
Shares be repriced (the "First Repriced Shares"). The Purchasers shall provide
facsimile notice ") substantially in the form attached hereto as Exhibit F, (a
"Repricing Notice") to the Company within three (3) Business Days of the end of
the First Repricing Period concerning the number of the First Repriced Shares,
if any, that the Purchasers wish to reprice. Upon receipt of such Repricing
Notice, the Company may elect to issue to the Purchasers the aggregate number of
additional Shares as determined according to the following formula:
((1.14 x Initial Closing Price) - First Repricing Price) x (# of the
First Repriced Shares) / First Repricing Price.
(b) Alternatively, if the Company does not elect to issue such
additional Shares to the Purchasers, then the Company shall pay to the
Purchasers the aggregate amount as determined according to the following
formula:
((1.14 x Initial Closing Price) - First Repricing Price) x (# of the
First Repriced Shares).
2.4 Second Repricing Period. (a) The "Second Repricing Period"
shall commence on the day immediately following the First Repricing Period and
end thirty (30) days thereafter. If the average Closing Bid Price for any twenty
(20) Business Days (not necessarily
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consecutive) during the Second Repricing Period (the "Second Repricing Price"),
is not equal to or greater than 118% of the Initial Closing Price, then the
Purchasers may request that up to one-third (1/3) of the Initial Shares be
repriced (the "Second Repriced Shares"). The Purchasers shall provide a
Repricing Notice to the Company within three (3) Business Days of the end of the
Second Repricing Period concerning the number of the Second Repriced Shares, if
any, that the Purchasers wish to reprice. Upon receipt of such Repricing Notice,
the Company may elect to issue to the Purchasers the aggregate number of
additional Shares as determined according to the following formula:
((1.18 x Initial Closing Price) - Second Repricing Price) x (# of the
Second Repriced Shares) / Second Repricing Price.
(b) Alternatively, if the Company does not elect to issue such
additional Shares to the Purchasers, then the Company shall pay to the
Purchasers the aggregate amount as determined according to the following
formula:
((1.18 x Initial Closing Price) - Second Repricing Price) x (# of the
Second Repriced Shares).
2.5 Third Repricing Period. (a) The "Third Repricing Period"
shall commence on the day immediately following the Second Repricing Period and
end thirty (30) days thereafter. If the average Closing Bid Price for any twenty
(20) Business Days (not necessarily consecutive) during the Third Repricing
Period (the "Third Repricing Price"), is not equal to or greater than 121% of
the Initial Closing Price, then the Purchasers may request that up to one-third
(1/3) of the Initial Shares be repriced (the "Third Repriced Shares"). The
Purchasers shall provide a Repricing Notice to the Company within three (3)
Business Days of the end of the Third Repricing Period of the number of the
Third Repriced Shares, if any, that the Purchasers wish to reprice. Upon receipt
of such Repricing Notice that the Purchasers wish reprice some or all of the
Third Repriced Shares, the Company may elect to issue to the Purchasers the
aggregate number of additional Shares as determined according to the following
formula:
((1.21 x Initial Closing Price) - Third Repricing Price) x (# of the
Third Repriced Shares) / Third Repricing Price.
(b) Alternatively, if the Company does not elect to issue such
additional Shares to the Purchasers, then the Company shall pay to the
Purchasers the aggregate amount as determined according to the following
formula:
((1.21 x Initial Closing Price - Third Repricing Price) x (# of the
Third Repriced Shares).
2.6 Final Repricing Period. (a) The "Final Repricing Period"
shall commence on the day immediately following the Third Repricing Period and
end one hundred eighty (180) days thereafter. If the average Closing Bid for any
five (5) consecutive Business Days after the commencement of the Final Repricing
Period is not equal to or greater than 125% of the Initial Closing Price, then
the Purchasers may request that up to 50 % of the Initial Shares (not previously
repriced pursuant to Sections 2.3, 2.4 and 2.5 and this Section 2.6) be repriced
(the "Final Repriced
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Shares"). The Final Repricing Price shall be the average Closing Bid Price for
the five (5) consecutive Business Days immediately prior to the date on which
the Purchasers provide a Repricing Notice that they wish to reprice the Final
Repriced Shares. Upon receipt of such Repricing Notice that the Purchasers wish
to reprice some or all of the Final Repriced Shares, the Company may elect to
issue to the Purchasers the number of additional Shares determined according to
the following formula:
((1.25% x Initial Closing Price) - Final Repricing Price) x (# of the
Final Repriced Shares) / Final Repricing Price.
(b) If the Company does not elect to issue such additional Shares to the
Purchasers, then the Company shall pay to the Purchasers the aggregate amount
(the "Final Repricing Equivalent Payment"), determined according to the
following formula:
((1.25 x Initial Closing Price) - Final Repricing Price) x (# of the
Final Repriced Shares).
Notwithstanding the foregoing, no more than fifty (50%) percent of the
Initial Shares can be repriced during any thirty (30) calendar day period during
the Final Repricing Period.
3. Representations and Warranties of the Purchasers. To induce the
Company's acceptance of this Agreement, each of the Purchasers hereby certifies,
represents and warrants to the Company and its agents and attorneys as follows,
which representations and warranties are solely for the benefit of the Company
and may be waived in whole or in part at any time prior to the Initial Closing
by the Company:
3.1 Intent. Each Purchaser will be acquiring the Shares for its
own account, and such Purchaser has no present arrangement (whether or not
legally binding) to sell any of the Shares to or through any person or entity;
provided, however, that by making the representations herein, such Purchaser
does not agree to hold any of the Shares for any minimum or other specific term
and reserves the right to dispose of the Shares at any time in accordance with
U.S. federal and state securities laws applicable to such disposition and any
restrictions imposed on such transfer by the Transaction Documents. Each
Purchaser understands that the Shares must be held indefinitely unless the
Shares are subsequently registered under the Securities Act or an exemption from
registration is available. Each Purchaser has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act.
3.2 Sophisticated Investor. Each Purchaser is a "sophisticated
investor" (as described in Rule 506(b)(2)(ii) of Regulation D) and an
"accredited investor" (as defined in Rule 501(a) of Regulation D), and such
Purchaser has such knowledge and experience in business and financial matters
that it is capable of evaluating the merits and risks of an investment in the
Company.
3.3 Ability of the Purchasers to Bear Risk of Investment. Each
Purchaser acknowledges that the Shares are speculative investments and involve a
high degree of risk and such
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Purchaser is able to bear the economic risk of an investment in the Shares, and,
at the present time, is able to afford a complete loss of such investment.
3.4 Authority. Each of the Transaction Documents (except for the
Warrant) has been duly authorized and validly executed and delivered by each
Purchaser and (assuming due authorization and valid execution by the Company) is
a legal, valid and binding agreement of such Purchaser enforceable against such
Purchaser in accordance with its terms, subject to general principles of equity
and to 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 person or persons executing the
Transaction Documents (except for the Warrant) have all requisite authority to
do so on behalf of such Purchaser.
3.5 Brokers, Finders. Except with respect to Ladenburg, Thalmann
& Co., Inc. and Thomas Systems, Inc., none of the Purchasers have taken any
action which would give rise to any claim by any person for brokerage
commission, finder's fees or similar payments by the Company relating to this
Agreement or the transactions contemplated hereby. The Company shall have no
obligation with respect to such fees or with respect to any claims made by or on
behalf of other persons for fees of a type contemplated in this section that may
be due in connection with the transactions contemplated hereby. Each of the
Purchasers shall indemnify and hold harmless the Company, its employees,
officers, directors, agents and partners, and their respective affiliates, from
and against all claims, losses, damages, costs (including the costs of
preparation and attorneys' fees) and expenses suffered in respect of any such
claimed or existing fees, as and when incurred.
3.6 Organization; Authority. Each Purchaser is an entity
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite power and authority to enter
into and to consummate the transactions contemplated by this Agreement and to
carry out its obligations thereunder. The acquisition of the Shares and the
payment of the respective portion of the Purchase Price therefor by such
Purchaser have been duly authorized by all necessary action on the part of such
Purchaser.
3.7 Absence of Conflicts. The execution and delivery of each of
the Transaction Documents (except for the Warrant), and the consummation of the
transactions contemplated by this Agreement and such other documents and
instruments, and compliance with the requirements thereof, will not violate any
law, rule, regulation, order, writ, judgment, injunction, decree or award
binding on any Purchaser, or the provision of any indenture, instrument or
agreement to which such Purchaser is a party or is subject, or by which such
Purchaser or any of its assets is bound, or conflict with or constitute a
material default thereunder, or require the approval of any third-party pursuant
to any material contract, agreement, instrument, relationship or legal
obligation to which such Purchaser is subject or to which any of its assets,
operations or management may be subject.
3.8 Disclosure; Access to Information. Each Purchaser has
received copies of or has had access to all documents, records, books and other
information pertaining to such Purchaser's investment in the Company and the
Shares that have been requested by such Purchaser. Each Purchaser or its
representative has been afforded the opportunity to ask questions of the Company
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and its management. Each Purchaser further acknowledges that it understands that
the Company is subject to the periodic reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and such Purchaser has
reviewed or received copies of any such reports that it has requested.
3.9 Manner of Sale. At no time was any Purchaser presented with
or solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising with
respect to the Shares.
3.10 Accuracy of Other Materials. To the extent any of the
Purchasers has received from the Company documents or other materials, which
constitute summaries, projections, forecasts or estimates, such Purchaser
acknowledges the following with respect to such documents or other materials.
Such documents or other materials are intended to illustrate projected financial
and other results based upon a set of assumptions (in some cases based on
information obtained by the Company from outside sources) that the Company views
as reasonable and obtainable. All such summaries, projections, forecasts or
estimates pertaining to revenue growth, profitability and other similar
financial or market data are forward-looking statements. Such statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those projected. No representations or warranties of
future performance by or market trends for the Company are intended, and such
are expressly disclaimed.
3.11 Accuracy of Representations and Information. All
representations made by each Purchaser in the Transaction Documents, and all
information provided by such Purchaser to the Company concerning such Purchaser
are correct and complete in all material respects as of the date hereof.
3.12 Notwithstanding any other provision hereof, of the Warrants
or of any of the other Transaction Documents, in no event (except (i) as
specifically provided in this Agreement as an exception to this provision, or
(ii) while there is outstanding a tender offer for any or all of the shares of
the Company's Common Stock) shall the Purchasers be entitled to exercise
repricing rights or shall the Company have the obligation, to deliver Repricing
Shares to the extent that, after such conversion, the sum of (1) the number of
shares of Common Stock beneficially owned by any of the Purchasers and their
affiliates (other than shares of Common Stock which may be deemed beneficially
owned through the ownership Repricing Shares not yet issued or unexercised
portion of the Warrants), and (2) the number of shares of Common Stock issuable
upon the exercise of repricing rights or exercise of the Warrants with respect
to which the determination of this proviso is being made, would result in
beneficial ownership any of the Purchasers and its affiliates of more than 9.99%
of the outstanding shares of Common Stock (after taking into account the shares
to be issued to such Purchaser upon such exercise). For purposes of the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act, except as otherwise provided
in clause (1) of the preceding sentence. Each Purchaser, further agrees that, if
such Purchaser transfers or assigns any of the Shares to a party who or which
would not be considered such an affiliate, such assignment shall be made subject
to the transferee's or assignee's
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specific agreement to be bound by the provisions of this Section 3.12 as if such
transferee or assignee were the original Purchaser hereof.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchasers as follows, which representations and
warranties are solely for the benefit of the Purchasers and may be waived in
whole or in part by the Purchasers at any time prior to the Initial Closing:
4.1 Company Status. The Company has registered the Common Stock
pursuant to Section 12(g) of the Exchange Act, is in full compliance with all
material reporting requirements of the Exchange Act, and the Company has
maintained all requirements for the continued trading of the Common Stock, and
the Common Stock currently trades on the Over-the-Counter Bulletin Board.
4.2 Current Public Information. The Company has furnished or made
available to the Purchasers true and correct copies of all registration
statements, reports and documents filed with the SEC by or with respect to the
Company since December 31, 1998 and prior to the date of this Agreement,
pursuant to the Securities Act or the Exchange Act (collectively, the "SEC
Documents"). The SEC Documents are the only filings made by or with respect to
the Company since December 31, 1997 pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act or pursuant to the Securities Act. The Company has
filed all reports, schedules, forms, statements and other documents required to
be filed under Sections 13(a), 14 and 15(d) of the Exchange Act since December
31, 1998 and prior to the date of this Agreement.
4.3 No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the Shares.
4.4 Valid Issuance of Common Stock. The authorized capital stock
of the Company consists of 99,288,000 shares of Class A Common Stock, no par
value per share, of which 47,443,971 shares are issued and outstanding as of
January 24, 2000; 712,000 shares of Class B Common Stock, no par value per
share, of which 440,000 are issued and outstanding as of January 24, 2000, 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 January 24, 2000 and 500 of which have been
designated as Series D Redeemable Convertible Preferred Stock, none of which
shares are issued and outstanding as of January 24, 2000. 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. Except as set forth above or as
disclosed in Schedule 4.4, as of the date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company, or contracts,
commitments, understandings or arrangements by which the Company is or may
become bound to redeem or issue additional shares of capital stock of the
Company or options, warrants, scrip, rights
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to subscribe to, calls or commitments of any character whatsoever relating to,
or securities or rights convertible into, any shares of capital stock of the
Company, (ii) there are no outstanding debt securities and (iii) there are no
agreements or arrangements under which the Company is obligated to register the
sale of any of their securities under the Securities Act. Except as disclosed in
Schedule 4.4, there are no securities or instruments containing any
anti-dilution, right of first refusal, preemptive rights or similar provisions
that will be triggered by the issuance of the Shares as described in this
Agreement. Upon issuance of the Shares, such securities will be duly and validly
issued, fully paid and non-assessable.
4.5 Organization and Qualification. The Company is a corporation
duly incorporated and existing in good standing under the laws of the State of
California and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries. The Company is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, other than those in which the failure so to qualify would not have a
Material Adverse Effect. "Material Adverse Effect" means any effect on the
business, operations, properties, prospects, or financial condition of the
entity or entities with respect to which such term is used and which is material
and adverse to such entity or to other entities controlling or controlled by
such entity, and/or any condition or situation which would prohibit or otherwise
interfere with the ability of the entity or entities with respect to which said
term is used to enter into and perform its obligations under the Transaction
Documents.
4.6 Authorization: Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform under the Transaction
Documents and to issue the Shares and the Warrants in accordance with the terms
of the Transaction Documents, (ii) the execution, issuance and delivery of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated by the Transaction Documents have been duly authorized
by all necessary corporate action, and no further consent or authorization of
the Company or its board of directors or shareholders is required, (iii) the
Transaction Documents have been duly executed and delivered by the Company, and
(iv) the Transaction Documents (assuming due authorization and valid and legal
execution by each Purchaser) constitute legal, 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.
4.7 [Intentionally Omitted]
4.8 No Conflicts. Except as set forth in Schedule 4.8, the
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby,
including, without limitation, the issuance of the Shares, do not and will not
(i) result in a violation of the Company's Articles of Incorporation or Bylaws,
(ii) conflict with, or result in a breach of or forfeiture of any rights (or
result in an event which with notice or lapse of time or both would become a
breach of or forfeiture of any rights) under, or give
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to others any rights of termination, amendment, acceleration or cancellation of,
any material agreement, indenture or instrument to which the Company is a party
or (iii) result in a violation of any federal or state law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or by which any property or asset of the
Company is bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). To the best
of its knowledge, 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 which either singly or in the aggregate do not and will
not have a Material Adverse Effect. The Company is not required under federal,
state or local law, rule or regulation to obtain any consent, authorization or
order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement or issue and sell the Shares and the Warrants in accordance
with the terms of this Agreement (other than any SEC, NASD or state securities
filings which may be required to be made by the Company subsequent to any
Closing, and any registration statement which may be filed in furtherance of
this Agreement); 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 each Purchaser herein. The Company is not in
violation of any material term of or in material default under its Articles of
Incorporation, of any outstanding series of preferred stock or Bylaws or their
organizational charter or Bylaws, respectively, or any material contract,
agreement, mortgage, indebtedness, indenture, instrument, judgment, decree of
order or any statute, rule or regulation applicable to the Company, which has
not been duly waived as of the date of this Agreement.
4.9 SEC Documents. The Company has not provided to the Purchasers
any information which 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
complied, and all similar documents filed with the SEC prior to the Closing Date
will comply, in all material respects with the requirements of the Securities
Act or the Exchange Act, as the case may be, and rules and regulations of the
SEC promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such SEC Documents, and none of the SEC Documents
contained, nor will any similar document filed with the SEC prior to the Closing
Date contain, any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the SEC
Documents, as of the dates thereof, complied, and all similar documents filed
with the SEC prior to the Closing Date will comply, as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC and other applicable rules and regulations with respect
thereto. Such financial statements were prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto or (ii) in the case of unaudited interim statements, to the
extent they may not include footnotes or may be condensed or summary statements
as permitted by Form 10-Q of the SEC) and fairly present in all material
respects the financial position of the Company as of the dates
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thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
4.10 No Undisclosed Liabilities. Except as set forth in Schedule
4.10, the Company has no liabilities or obligations of a financial nature
(whether accrued, absolute, contingent or otherwise), which are material,
individually or in the aggregate, and are not disclosed in the SEC Documents,
other than those incurred in the ordinary course of the Company's business
consistent with past practice since September 30, 1999, and which, individually
or in the aggregate, do not or would not have a Material Adverse Effect on the
Company.
4.11 Litigation and Other Proceedings. Except as may be set forth
in the SEC Documents or set forth in Schedule 4.11, there are no lawsuits or
proceedings pending or, to the best knowledge of the Company, threatened,
against the Company, nor has the Company received any written or oral notice of
any such action, suit, proceeding or investigation, which might have a Material
Adverse Effect on the Company or which likely would have a Material Adverse
Effect on the transactions contemplated by this Agreement. Except as set forth
in the SEC Documents, no judgment, order, writ, injunction or decree or award
has been issued by or, to the best knowledge of the Company, requested of any
court, arbitrator or governmental agency which likely would have a Material
Adverse Effect on the transactions contemplated by this Agreement.
4.12 Other Documents or Materials. With respect to any document
or other materials received by the Purchasers from the Company or its
representatives other than the Transaction Documents and the SEC Documents, (i)
the Company has no reason to believe any of such documents and materials or any
projections contained therein, as of the date of such other documents or
materials, contained errors or misstatements or do not adequately describe the
status of the development of the Company's technologies or its business as of
such date, and (ii) such documents, materials and projections were prepared by
the Company and its management in good faith.
4.13 Nature of Company. The Company is not an open-ended
investment company or a unit investment trust, registered or required to be
registered, or a closed end investment company required to be registered, but
not registered, under the Investment Company Act of 1940.
4.14 Brokers, Finders. Except for the payments of consulting fees
in the amount of up to $360,000 to Ladenburg, Thalmann & Co., Inc. and up to
$120,000 to Thomas Systems, Inc., in connection with the transactions
contemplated hereby, payment of which is the sole responsibility of the Company,
the Company has taken no action which would give rise to any claim by any person
for brokerage commission, finder's fees or similar payments by the Purchasers
relating to this Agreement or the transactions contemplated hereby. The
Purchasers shall have no obligation with respect to such fees or with respect to
any claims made by or on behalf of other persons for fees of a type contemplated
in this Section 4.14 that may be due in connection with the transactions
contemplated hereby. The Company shall indemnify and hold harmless each of the
Purchasers and its employees, officers, directors, agents, partners and
affiliates, from and against all claims, losses,
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<PAGE> 12
damages, costs (including the costs of preparation and attorney's fees) and
expenses suffered in respect of any such claimed or existing fees, as and when
incurred.
4.15 Absence of Certain Changes. Except as set forth in Schedule
4.15, since September 30, 1999, no Material Adverse Effect has been suffered by,
and no material adverse development has occurred in the business, properties,
operations, financial condition or results of operations of the Company. The
Company has not taken any steps, and does not currently expect to take any
steps, to seek protection pursuant to any bankruptcy law, nor does the Company
have any knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings.
4.16 Intellectual Property Rights. To its knowledge without
conducting any special investigation and except as set forth on Schedule 4.16,
the Company owns or possesses adequate rights or licenses to use all trademarks,
trade names, service marks, service mark registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct its businesses as
now conducted. None of the Company's trademarks, trade names, service marks,
service mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, government authorizations, trade secrets or
other intellectual property rights has expired or terminated, or is expected to
expire or terminate in the near future. Except as set forth on Schedule 4.16,
the Company does not have any knowledge of any infringement by the Company of
trademarks, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service mark registrations, trade
secrets or other similar rights of others, or of any such development of similar
or identical trade secrets or technical information by others and, there is no
claim, action or proceeding being made or brought against, or to the best
knowledge of the Company, being threatened against, the Company regarding
trademark, trade name, patent, patent rights, invention, copyright, license,
service name, service mark, service mark registration, trade secret or other
infringement; and the Company is unaware of any facts or circumstances which
might give rise to any of the foregoing. The Company has taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their intellectual properties.
4.17 Internal Accounting Controls. The Company is not aware that
its system of internal accounting controls is not sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
4.18 Tax Status. Except as set forth in Schedule 4.18, the
Company has made or filed all federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject and has paid all taxes and other governmental assessments and charges
that are material in amount, shown or determined to be due on such returns,
reports,
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declarations, except those being contested in good faith and has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports, or
declarations apply. There are no unpaid taxes in any material amount claimed to
be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
4.19 Certain Transactions. Except as set forth in the SEC
Documents and except for arm's length transactions pursuant to which the Company
makes payments in the ordinary course of business upon terms no less favorable
than the Company could obtain from third parties and other than the grant of
stock options, none of the officers, directors or employees of the Company (or
any spouse or relative of any such person) is presently a party to any
transaction with the Company (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
4.20 Dilution. The number of shares of Common Stock issuable as
Repriced Shares may increase substantially in certain circumstances, including,
but not necessarily limited to, the circumstance wherein the trading price of
the Common Stock declines during the period between the Effective Date and the
end of the Final Repricing Period. The Company's executive officers and
directors have studied and fully understand the nature of the transactions
contemplated by this Agreement and recognize that they have a potential dilutive
effect. The board of directors of the Company has concluded, in its good faith
business judgment, that such issuance is in the best interests of the Company.
The Company specifically acknowledges that its obligation to issue the Repriced
Shares is binding upon the Company and enforceable regardless of the dilution
such issuance may have on the ownership interests of other shareholders of the
Company.
4.21 Market Quotes. The Company's Common Stock is presently
quoted on the Over-the-Counter Bulletin Board under the symbol "AVNR.OB". Except
as set forth on Schedule 4.21, the Company is not in receipt of any written
notice from any stock exchange, market or trading facility on which the Common
Stock is or has been listed or traded (or on which it is or has been quoted) to
the effect that the Company is not in compliance with the listing or maintenance
requirements of such stock exchange, market or trading facility or that the
Common Stock will be delisted from such stock exchange, market or trading
facility.
4.22 No Integrated Offering. Neither the Company nor any of its
affiliates nor any person acting on its or their behalf has, directly or
indirectly, at any time since June 1, 1999, made any offer or sales of any
security or solicited any offers to buy any security under circumstances that
would eliminate the availability of the exemption from registration under
Regulation D in connection with the offer and sale of the Shares as contemplated
hereby.
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5. Use and Disposition of Proceeds. The Company will use the proceeds
from the sale of the Initial Shares (excluding amounts paid by the Company for
legal fees, finder's fees and escrow agent fees in connection with the sale of
the Initial Shares) for general capital purposes and acquisition, but shall not,
directly or indirectly, use such proceeds for investment in any other affiliate
or to repay debt to affiliates.
6. Company Reliance on the Purchasers' Representations. Each Purchaser
understands that the Company is relying on the truth and accuracy of the
representations and warranties made herein by such Purchaser in offering the
Shares for sale and in relying upon applicable exemptions available under the
Act and applicable state securities laws.
7. Restricted Shares. Each Purchaser understands and acknowledges that
the Shares have not been, and will not as of the time issued, be registered
under the Securities Act and that they will be issued in reliance upon
exemptions from the registration requirements of the Securities Act, and thus
cannot be resold unless they are included in an effective registration statement
filed under the Securities Act or unless an exemption from registration is
available for such resale. With regard to the restrictions on resales of the
Shares, each Purchaser is aware: (a) that the Company will issue stop transfer
orders to its stock transfer agent in the event of attempts to improperly
transfer any such Shares, and (b) that a restrictive legend will be placed on
certificates representing the Shares, which legend will read substantially as
follows:
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
OR AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
The legend set forth above shall be promptly removed, and the Company
shall issue a certificate without such legend to the holder of any such
Unlegended Shares (as defined below) upon which such legend is stamped, if,
unless otherwise required by state securities laws, (i) such Shares are
registered for resale under the Securities Act, (ii) in connection with a sale
transaction, such holder provides the Company with an opinion of counsel, in a
generally acceptable form, to the effect that a public sale, assignment or
transfer of such Shares may be made without registration under the Securities
Act, or (iii) such holder provides the Company with reasonable assurances that
such Shares can be sold pursuant to Rule 144 promulgated under the Securities
Act without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold. Notwithstanding the removal
of the legend set forth above in the event the Shares are registered for resale
on an effective registration statement, the Company reserves the right to affix
a legend on certificates representing such Shares that any selling shareholder
must comply with the prospectus delivery requirements of the Securities Act in
connection with any resale. The Company shall bear the cost of the removal of
any legend as anticipated by this Section 7.
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<PAGE> 15
8. Other Covenants of the Company.
8.1 Furnishing of Information. As long as the Purchasers own
Shares, the Company covenants to timely file (or obtain extensions in respect
thereof and file within the applicable grace period) all reports required to be
filed by the Company after the date hereof pursuant to Section 13(a) or 15(d) of
the Exchange Act. If at any time prior to the date on which each Purchaser may
resell all of its Shares without volume restrictions pursuant to Rule 144(k)
promulgated under the Securities Act (as determined by counsel to the Company
pursuant to a written opinion letter to such effect, addressed and acceptable to
the Company's transfer agent for the benefit of and enforceable by such
Purchaser) the Company is not required to file reports pursuant to such
sections, then it will prepare and furnish to such Purchaser and make publicly
available in accordance with Rule 144(c) promulgated under the Securities Act
annual and quarterly financial statements, together with a discussion and
analysis of such financial statements in form and substance substantially
similar to those that would otherwise be required to be included in reports
required by Section 13(a) or 15(d) of the Exchange Act in the time period that
such filings would have been required to have been made under the Exchange Act.
The Company further covenants that it will take such further action as such
Purchaser may reasonably request, all to the extent required from time to time
to enable such Purchaser to sell its Shares without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act.
8.2 Listing of Shares. The Company shall, if required by any
applicable listing agreement, (a) not later than the Effective Date, prepare and
file with any national securities exchange, market or trading facility on which
the Common Stock is then listed an additional shares listing application
covering the Shares, (b) take all steps necessary to cause such shares to be
approved for listing on any other national securities exchange, market or
trading facility on which the Common Stock is then listed as soon as possible
thereafter and (c) provide to the Purchasers evidence of such listing, and the
Company shall maintain the listing of its Common Stock on such exchange or
market.
8.3 First Right. The Company shall not, directly or indirectly,
without the prior written consent of the Purchasers that hold an eighty percent
(80%) interest in the Registrable Securities, offer, sell, grant any option to
purchase, or otherwise dispose of (or announce any offer, sale, grant or any
option to purchase or other disposition) any of its Common Stock or securities
convertible into Common Stock at a price that is less than the market price of
the Common Stock at the time of issuance of such security or investment (a
"Subsequent Financing") for a period of three hundred sixty (360) days after the
Effective Date, or the redemption of all of the Shares redeemable hereunder,
except (i) the granting of options or warrants to employees, officers, directors
and consultants, and the issuance of shares upon exercise of options granted,
under any stock option plan heretofore or hereinafter duly adopted by the
Company, (ii) shares issued upon exercise of any currently outstanding warrants
or options and upon conversion of any currently outstanding convertible
debenture, in each case disclosed in Section 4.4 or Schedule 4.4, (iii)
securities issued in connection with the capitalization or creation of a joint
venture with a strategic partner, (iv) shares issued to pay part or all of the
purchase price for the acquisition by the Company of a person (which,
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<PAGE> 16
for purposes of this clause (iv), shall not include an individual or group of
individuals), and (v) shares issued in a bona fide public offering by the
Company of its securities, unless (A) the Company delivers to the Purchasers a
written notice (the "Subsequent Financing Notice") of its intention to effect
such Subsequent Financing, which Subsequent Financing Notice shall describe in
reasonable detail the proposed terms of such Subsequent Financing, the amount of
proceeds intended to be raised thereunder, the person with whom such Subsequent
Financing shall be effected, and attached to which shall be a term sheet or
similar document relating thereto and (B) the Purchasers shall not have notified
the Company by 5:00 p.m. (New York time) on the fifth (5th) Business Day after
their receipt of the Subsequent Financing Notice of their willingness to
provide, subject to completion of mutually acceptable documentation, financing
to the Company on substantially the terms set forth in the Subsequent Financing
Notice. If the Purchasers shall fail to notify the Company of their intention to
enter into such negotiations within such time period, then the Company may
effect the Subsequent Financing substantially upon the terms and to the persons
(or affiliates of such persons) set forth in the Subsequent Financing Notice;
provided that the Company shall provide the Purchasers with a second Subsequent
Financing Notice, and the Purchasers shall again have the right of first refusal
set forth above in this Section 8.3, if the Subsequent Financing subject to the
initial Subsequent Financing Notice shall not have been consummated for any
reason on the terms set forth in such Subsequent Financing Notice within thirty
(30) Business Days after the date of the initial Subsequent Financing Notice
with the person (or an affiliate of such person) identified in the Subsequent
Financing Notice. The rights granted to the Purchasers in this Section 8.3 are
not subject to any prior right of first refusal given to any other person except
as disclosed on Schedule 4.4.
8.4 Certain Agreements. (a) Subject to Section 8.4(b), the
Company covenants and agrees that it will not, without the prior written consent
of the Purchasers that hold an eighty percent (80%) interest in the Registrable
Securities, enter into any subsequent or further offer or sale of Common Stock
or securities convertible into Common Stock with any third party until the date
which is one hundred eighty (180) days after the Effective Date, unless all of
the Initial Shares then held by the Purchasers, which are eligible for
redemption pursuant to Section 8.9 of this Agreement, have been redeemed by the
Company pursuant to Section 8.9 within ten (10) calendar days of the closing of
such subsequent offer or sale.
(b) The provisions of Section 8.4(a) will not apply to: (v) any
existing agreements to sell Common Stock or securities convertible into Common
Stock that are described on Schedule 4.4; (w) Common Stock issued pursuant to
Regulation D, provided the holder thereof is required to hold such Common Stock
for at least one year from the date of issuance; (x) a secondary public offering
of shares of Common Stock at market; (y) an offering of convertible debentures
at market or above; or (z) the issuance of securities (other than for cash) in
connection with a merger, consolidation, sale of assets, disposition or the
exchange of the capital stock for assets, stock or other joint venture
interests; and provided further, that such securities would not be included in
the Registration Statement relating to the Initial Shares and a registration
statement in respect of such stock shall not be filed prior to sixty (60) days
after the Effective Date.
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8.5 Limitation on Issuance of Common Stock. The Company shall not
issue an aggregate number of Shares under this Agreement (but excluding the
Warrant Shares) that exceeds 19.99% of the shares of Common Stock issued and
outstanding on the date of the Initial Closing (the "Share Limitation"). If,
pursuant to this Agreement the Company otherwise would be required to issue a
number of shares of Common Stock that exceeds the Share Limitation (the "Excess
Shares"), then the Purchasers shall have the right to require the Company to pay
the Redemption Amount (as defined below) for each of the Excess Shares.
The Company will take all steps reasonably necessary to be in a position
to issue Shares without violating the Share Limitation. If despite taking such
steps, the Company still cannot issue such Shares without violating the Share
Limitation, the holders of the Initial Shares shall have the option, exercisable
in such holders' sole and absolute discretion, to elect either of the following
remedies:
(x) require the Company to issue the number of Repricing Shares equal to
the number of Excess Shares, provided that the share issuance complies with the
continued listing or trading rules and regulations of the exchange or market on
which the Company's Common Stock is then listed or traded; or
(y) require the Company to redeem the number of Repricing Shares equal
to number of Excess Shares for the respective amount set forth in Sections
2.3(b), 2.4(b), 2.5(b) or 2.6(b) as may then be applicable.
8.5.1 Limitation on Conversions. Anything in the other provisions of
this Agreement or any of the other Transaction Documents to the contrary
notwithstanding, the following provisions are applicable to the Initial Shares
and the Warrants.
(i) Attached to this Agreement as Schedule 8.5.1 is a schedule of
all of the Purchasers who were the original signatories to this Agreement (each,
an "Original Purchaser") and the original principal amount (the "Original
Purchase Amount") of the Initial Shares and the Warrant issued to each such
Original Purchaser as contemplated by this Agreement. For identification
purposes and for the purposes of this section only, Schedule 8.5.1 also
identifies the "Purchaser Class" for each Original Purchaser. The Original
Purchaser of each Purchaser Class and any other party at any time holding a
Certificate or Warrant of the same Purchaser Class are referred to collectively
as the "Purchaser Class Members."
(ii) If and for so long as the Share Limitation is applicable to
limit the issuance of shares on redemption of the Initial Shares and/or exercise
of the Warrants (but not thereafter), the number of shares that the Company will
issue to all Purchaser Class Members of a specific Purchaser Class on redemption
of the Initial Shares and exercise of the Warrants of that Purchaser Class shall
not, in the aggregate. exceed the Conversion Limit (as defined below).
(iii) As of the Closing Date, the term "Conversion Limit" means
the number of shares equal to (A) 19.99% of the number of outstanding shares of
Common Stock of the Company as of the date of the Initial Closing (i.e.
9,484,050 Shares); provided, however, that such number is
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subject to adjustment for subsequent stock splits, stock dividends and other
similar actions or transactions affecting the capital formation of the Company),
multiplied by (B) the relevant Purchaser Class Allocable Share (as defined
below).
(iv) If, for any reason whatsoever, there are no Initial Shares
or Warrants of a specific Purchaser Class outstanding (a "Closed Class"'), the
Company shall promptly give written notice (the "Closed Class Notice") of such
fact to the then Purchasers of outstanding Initial Shares and Warrants of all
other Purchaser Classes. The Closed Class Notice shall (A) identify the date on
which the Purchaser Class became a Closed Class, and (B) specify both the number
of shares issued, in the aggregate to all Purchaser Class Members of the Closed
Class (the "Closed Class Issued Shares") and the most recent Conversion Limit
that was applicable to the Closed Class (the "Closed Class Conversion Limit").
The term "Remaining Shares" means the excess, if any, of the Closed Class
Conversion Limit over the Closed Class Issued Shares.
(v) The Conversion Limit in effect on the Closing Date or as
subsequently adjusted as provided below shall be adjusted or further adjusted,
as the case may be, on the next date on which there is a new Closed Class which
results in Remaining Shares (a "Closed Class Date"). As of the Closed Class
Date, the Conversion Limit then in effect will be adjusted for each Purchaser
Class as to which there are still outstanding Initial Shares and Warrants to be
equal to the sum of (A) the Conversion Limit in effect immediately prior to the
Closed Date, plus (B) the Remaining Share Conversion Limit (as defined below).
The Conversion Limit, as so adjusted, shall then be deemed to be the Conversion
Limit for all Purchaser Classes as to which Initial Shares and Warrants are
still outstanding on the relevant Closed Class Date, subject to further
adjustment, as provided in this subparagraph (v) in the event there is a
subsequent Closed Class Date.
(vi) The "Remaining Share Conversion Limit" means the number of
shares equal to (C) the Remaining Shares, multiplied by (D) the relevant
Adjusted Purchaser Class Allocable Share (as defined below).
(vii) The term "Purchaser Class Allocable Share" means the
fraction of which the numerator is the Original Purchase Amount of the relevant
Purchaser Class and the denominator is the aggregate Original Purchase Amount of
all Purchaser Classes.
(viii) The term "Adjusted Purchaser Class Allocable Share" means,
with respect to each Purchaser Class as to which there are outstanding Initial
Shares and Warrants on a Closed Class Date, the fraction of which the numerator
is the Original Purchase Amount of the relevant Purchaser Class and the
denominator is the aggregate Original Purchase Amount of all Purchaser Classes
as to which there are outstanding Initial Shares and Warrants on the Closed
Class Date.
(ix) Nothing in this Section 8.5.1 shall be deemed to (A) permit
a transfer or assignment of the Initial Shares and the Warrants unless otherwise
permitted by other provisions of this Agreement or the Warrants or (B) limit or
otherwise modify the obligations of the Company to take certain actions or to
make certain payments to the Purchasers or other parties or adversely affect
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the rights of the Purchasers or such other parties with respect thereto, as
provided elsewhere in this Agreement, or any of the other Transaction Documents.
8.6 Available Shares. The Company shall have at all times
authorized and reserved for issuance, free from preemptive rights, shares of
Common Stock sufficient to yield the number of shares of Common Stock issuable
as may be required to issue the Repriced Shares.
8.7 Warrant. The Company agrees to issue to each of the
Purchasers at the Closing, a Warrant for the number of shares of Common Stock
equal to 10% of such Purchaser's respective portion of the Purchase Price
divided by the Initial Closing Price. The Warrants shall (i) bear an exercise
price per share of Common Stock equal to 110% of the Closing Bid Price for the
Business Day immediately prior to the date of the Initial Closing, and (ii) be
exercisable immediately upon issuance, and for a period of four (4) years
thereafter.
8.8 Reimbursement. If (i) the Purchasers, other than by reason of
their gross negligence or willful misconduct, become involved in any capacity in
any action, proceeding or investigation brought by any shareholder of the
Company, in connection with or as a result of the consummation of the
transactions contemplated by the Transaction Documents, or if the Purchasers are
impleaded in any such action, proceeding or investigation by any person, or (ii)
the Purchasers, other than by reason of their gross negligence or willful
misconduct or by reason of their trading of the Common Stock in a manner that is
illegal under the federal securities laws, become involved in any capacity in
any action, proceeding or investigation brought by the SEC against or involving
the Company or in connection with or as a result of the consummation of the
transactions contemplated by the Transaction Documents, or if the Purchasers are
impleaded in any such action, proceeding or investigation by any person, then in
any such case, the Company will reimburse the Purchasers for their reasonable
legal and other expenses (including the cost of any investigation and
preparation) incurred in connection therewith, as such expenses are incurred. In
addition, other than with respect to any matter in which the Purchasers are
named parties, the Company will pay to the Purchasers the charges, as reasonably
determined by the Purchasers, for the time of any officers or employees of the
Purchasers devoted to appearing and preparing to appear as witnesses, assisting
in preparation for hearings, trials or pretrial matters, or otherwise with
respect to inquiries, hearing, trials, and other proceedings relating to the
subject matter of this Agreement. The reimbursement obligations of the Company
under this Section 8.8 shall be in addition to any liability which the Company
may otherwise have, shall extend upon the same terms and conditions to any
affiliates of the Purchasers that are actually named in such action, proceeding
or investigation, and partners, directors, agents, employees and controlling
persons (if any), as the case may be, of the Purchasers and any such affiliate,
and shall be binding upon and inure to the benefit of any successors, assigns,
heirs and personal representatives of the Company, the Purchasers and any such
affiliate and any such person.
8.9 (i) Notwithstanding any other provision hereof to the
contrary, at any time until the conclusion of the Final Repricing Period, the
Company shall have the right to redeem all or any portion of the Initial Shares
then held by any Purchaser for which a Repricing Period has not commenced (other
than the final Repricing Period), in cash for an amount (the "Redemption
Amount") equal to the Applicable Percentage (as defined below) multiplied by the
Initial Closing
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<PAGE> 20
Price of the Initial Shares being redeemed. During the Final Repricing Period,
the Company shall have the right to redeem all or any portion of the remaining
Initial Shares then held by any Purchaser for the Redemption Amount.
(i) The Company shall give ten (10) days' written notice of such
redemption to such Purchaser (the "Notice of Redemption"). Anything in the
preceding provisions of this Section 8 to the contrary notwithstanding, the
Redemption Amount or any amount due under Paragraph 8.5 shall, unless otherwise
agreed to in writing by such Purchaser after receiving the Notice of Redemption,
be paid to such Purchaser in good funds on or before the tenth day from the date
of the Notice of Redemption.
(ii) Applicable Percentage ("Applicable Percentage") shall be
determined in accordance with the following schedule:
<TABLE>
<CAPTION>
If the Redemption Payment Date is the Applicable Percentage is
--------------------------------- ----------------------------
<S> <C>
between 1-90 days after the Closing Date 110%
between 91-120 days after the Closing Date 114%
between 121-150 days after the Closing Date 118%
between 151-180 days after the Closing Date 121%
between 181 days after the Closing Date 125%
and the conclusion of the Final Repricing
Period
</TABLE>
9. Transfer Agent Instructions.
9.1 Irrevocable Instructions. The Company will irrevocably
instruct its transfer agent to issue Repriced Shares from time to time in such
amounts as shall be specified from time to time by the Company to the transfer
agent, bearing the restrictive legend specified in Section 7 of this Agreement
prior to registration of the Shares under the Securities Act, registered in the
name of each Purchaser or its nominee and in such denominations to be specified
by such Purchaser in connection with each Closing. The Company warrants that no
instruction other than such instructions referred to in this Section 9 and stop
transfer instructions to give effect to Section 7 hereof prior to registration
and sale of the Shares under the Securities Act will be given by the Company to
the transfer agent and that the securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement, the Registration Rights Agreement, and applicable
law. Nothing in this Section 9 shall affect in any way the Purchasers'
obligations and agreement to comply with all applicable securities laws upon
resale of the Shares.
9.2 [Intentionally Omitted]
9.3 Transmission of Certificates. The Company will transmit the
certificates representing the unlegended securities ("Unlegended Shares") to be
issued to each Purchaser via express courier, by electronic transfer or
otherwise, within three (3) Business Days after receipt by
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<PAGE> 21
the Company of the certificate representing the legended Common Stock, and a
representation by each Purchaser that such shares have been sold in accordance
with the provisions of the Securities Act (the "Delivery Date").
9.4 Delay. The Company understands that a delay in the issuance
of the Unlegended Shares beyond the Delivery Date could result in economic loss
to the Purchasers. On and after the Effective Date as compensation to the
Purchasers for such loss, the Company agrees to pay aggregate late payments to
the Purchasers for late issuance of Unlegended Shares in accordance with the
following schedule (where "No. of Days Late" is defined as the number of days
beyond five (5) Business Days from Delivery Date):
<TABLE>
<CAPTION>
Late Payment For Each
No. of Days Late $10,000 of Common Stock
---------------- -----------------------
<S> <C>
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 +$200 for each Business
Day Late beyond 10 days
</TABLE>
The Company shall pay any payments incurred under this Section 9.4 in
immediately available funds upon demand. Nothing herein shall limit the
Purchasers' right to pursue actual damages for the Company's failure to issue
and deliver the Unlegended Shares to the Purchasers, except to the extent that
such late payments shall constitute payment for and offset any such actual
damages alleged by the Purchasers, and any Buy In Adjustment Amount (as defined
below).
9.5 Cover. If the Company fails for any reason to deliver the
Unlegended Shares after such Delivery Date and the holder of the Initial Shares
(a "Holder") purchases, in an open market transaction or otherwise, shares of
Common Stock (the "Covering Shares") in order to make delivery in satisfaction
of a sale of Common Stock by such Holder (the "Sold Shares"), which delivery
such Holder anticipated to make using the Unlegended Shares (a "Buy-In"), then
the Company shall pay to such Holder, in addition to all other amounts
contemplated in other provisions of the Transaction Documents, and not in lieu
thereof, the Buy-In Adjustment Amount (as defined below). The "Buy-In Adjustment
Amount" is the amount equal to the excess, if any, of (x) such Holder's total
purchase price (including brokerage commissions, if any) for the Covering Shares
over (y) the net proceeds (after brokerage commissions, if any) received by such
Holder from the sale of the Sold Shares. The Company shall pay the Buy-In
Adjustment Amount to such Holder in
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<PAGE> 22
immediately available funds immediately upon demand by such Holder. By way of
illustration and not in limitation of the foregoing, if such Holder purchases
Covering Shares having a total purchase price (including brokerage commissions)
of $11,000 to cover a Buy-In with respect to shares of Common Stock that it sold
for net proceeds of $10,000, the Buy-In Adjustment Amount that the Company will
be required to pay to such Holder will be $1,000.
9.6 Electronic Transfer. In lieu of delivering physical
certificates representing the Unlegended Shares issuable upon conversion,
provided the Company's transfer agent is participating in the Depository Trust
Company ("DTC") Fast Automated Securities Transfer program, upon request of the
Purchasers and its compliance with the provisions contained in this paragraph,
so long as the certificates therefor do not bear a legend and each Purchaser
thereof is not obligated to return such certificate for the placement of a
legend thereon, the Company shall use its best efforts to cause its transfer
agent to electronically transmit the Common Stock to such Purchaser by crediting
the account of such Purchaser's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission system.
9.7 The Company will authorize its transfer agent to give
information relating to the Company directly to each Purchaser or its
representatives upon the reasonable request of any such Purchaser or any such
representative, to the extent such information: (a) relates to (i) the status of
shares of Common Stock issued or claimed to be issued to such Purchaser, or (ii)
the number of outstanding shares of Common Stock of all shareholders as of a
current or other specified date; and (b) is requested for the sole purpose of
determining whether such Purchaser is an "affiliate" as defined in Rule 144. The
Company will provide such Purchaser with a copy of the authorization so given to
the transfer agent.
10. Closing Date.
10.1 The closing of the issuance and sale of the Initial Shares
shall occur on the date (the "Closing Date"), which is the first Business Day
after the fulfillment or waiver of all closing conditions pursuant to Sections
11 and 12 hereof or such other date and time as is mutually agreed upon by the
Company and the Purchasers.
10.2 Notwithstanding anything to the contrary contained herein,
the Escrow Agent will be authorized to release the Escrow Property only upon
satisfaction of the conditions set forth in Sections 11 and 12 hereof.
11. Conditions To The Company's Obligation To Sell.
Each Purchaser understands that the Company's obligation to sell
the Initial Shares on the Closing Date to such Purchaser pursuant to this
Agreement is conditioned upon:
11.1 The receipt and acceptance by each of the Purchasers of this
Agreement as evidenced by such Purchaser's execution and delivery of this
Agreement.
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<PAGE> 23
11.2 Delivery by the Purchasers to the Escrow Agent of good funds
as payment in full of an amount equal to the Purchase Price for the Initial
Shares in accordance with Section 1.2 hereof;
11.3 The accuracy on the Closing Date of the representations and
warranties of each Purchaser contained in this Agreement as if made on the
Closing Date, and the performance by such Purchaser on or before the Closing
Date of all covenants and agreements of such Purchaser required to be performed
on or before the Closing Date;
11.4 There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained.
12. Conditions to the Purchasers' Obligation to Purchase.
The Company understands that the Purchasers' obligation to
purchase the Initial Shares on the Closing Date is conditioned upon:
12.1 Acceptance by the Company of this Agreement for the sale of
the Initial Shares, as indicated by the Company's execution and delivery of this
Agreement;
12.2 Delivery by the Company to the Escrow Agent of the
Certificate in accordance with this Agreement;
12.3 The accuracy in all material respects on the Closing Date of
the representations and warranties of the Company contained in this Agreement as
if made on the Closing Date and the performance by the Company on or before the
Closing Date of all covenants and agreements of the Company required to be
performed on or before the Closing Date; and
12.4 On the Closing Date, the Purchasers having received an
opinion of counsel for the Company, dated the Closing Date, in form, scope and
substance reasonably satisfactory to the Purchasers, to the effect set forth
hereto, the Registration Rights Agreement, the Warrants and the Additional
Agreements.
12.5 No statute, rule, regulation, executive order, decree,
ruling or injunction shall be enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits or
adversely effects any of the transactions contemplated by the Transaction
Documents, and no proceeding or investigation shall have been commenced or
threatened which may have the effect of prohibiting or adversely effecting any
of the transactions contemplated by the Transaction Documents.
12.6 From and after the date hereof to and including the Closing
Date, the trading of the Common Stock shall not have been suspended by the SEC,
or the NASD and trading in securities generally on the New York Stock Exchange
or NASDAQ shall not have been suspended or limited, nor shall minimum prices
have been established for securities traded on NASDAQ, nor
-23-
<PAGE> 24
shall there be any outbreak or escalation of hostilities involving the United
States or any material adverse change in any financial market that in either
case in the reasonable judgment of the Purchasers makes it impracticable or
inadvisable to purchase the Initial Shares, as the case may be.
13. General Provisions.
13.1 Assignment. Neither this Agreement nor any rights of any of
the Purchasers hereunder may be assigned by any party to any other person
without the prior written consent of the Company.
13.2 Attorneys' Fees. In the event any dispute arises under this
Agreement or the documents or instruments executed and delivered in connection
with this Agreement, and the parties hereto resort to litigation to resolve such
dispute, the prevailing party in any such litigation, in addition to all other
remedies at law or in equity, shall be entitled to an award of costs and fees
from the other party, which costs and fees shall include, without limitation,
reasonable attorneys' fees and legal costs.
13.3 Choice of Law; Venue. This Agreement will be construed and
enforced in accordance with and governed by the laws of the State of California
and the federal law of the United States without reference to principles of
conflicts of law. The parties agree that, in the event of any dispute arising
out this Agreement or the transactions contemplated thereby, venue for such
dispute shall be in the state or federal courts located in San Diego, and that
each party hereto waives any objection to such venue based on forum non
conveniens.
13.4 Costs and Expenses. The parties shall be responsible for and
shall pay their own costs and expenses, including without limitation attorneys'
fees and accountants' fees and expenses, in connection with the conduct of the
due diligence inquiry, negotiation, execution and delivery of this Agreement and
the instruments, documents and agreements executed in connection with this
Agreement, except that each Purchaser acknowledges and agrees that Ladenburg,
Thalmann & Co., Inc. shall pay the legal and escrow fees of such Purchaser in
connection herewith.
13.5 Counterparts/Facsimile Signatures. This Agreement may be
executed in one or more counterparts, each of which when so signed shall be
deemed to be an original, and such counterparts together shall constitute one
and the same instrument. In lieu of the original, a facsimile transmission or
copy of the original shall be as effective and enforceable as the original.
13.6 Entire Agreement: Amendment. This Agreement, together with
the exhibits to this Agreement and the other instruments and documents delivered
in connection with this Agreement constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof and
thereof, and no party shall be liable or bound to any other party in any manner
by any warranties, representations or covenants except as specifically set forth
in this Agreement or therein. Except as expressly provided in this Agreement,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
-24-
<PAGE> 25
13.7 Headings. The headings of the sections and paragraphs of
this Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
13.8 Notices. All notices or other communications provided for
under this Agreement shall be in writing, and mailed, telecopied or delivered by
hand delivery or by overnight courier service, as follows:
If to the Company:
AVANIR Pharmaceuticals
9393 Towne Centre Drive, Suite 200
San Diego, California 92121-3016
Attention: Gregory P. Hanson, Chief Financial Officer
Tel No.: (858) 410-2670
Fax No.: (858) 455-8059
With a copy to:
Baker & McKenzie
101 West Broadway, Twelfth Floor
San Diego, CA 92101
Attention: Carlos D. Heredia, Esq.
Tel No.: (619) 235-7774
Fax No.: (619) 236-0429
If to the Purchasers:
As set forth respectively on the signature pages hereto.
With a copy to:
Krieger & Prager, LLP
39 Broadway, Suite 1440
New York, New York 10006
Attention: Samuel M. Krieger, Esq.
Tel No.: 212-363-2900
Fax No: 212-363-2999
All notices and communications shall be effective as follows: when
mailed, upon three (3) Business Days after deposit in the mail (postage
prepaid); when telecopied, upon confirmed transmission of the telecopied notice;
when hand delivered, upon delivery; and when sent by overnight courier, the next
Business Day after deposit of the notice with the overnight courier.
-25-
<PAGE> 26
13.9 Publicity. The Company and the Purchasers shall consult with
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and no party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other parties, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be required
if such disclosure is required by law, in which such case the disclosing party
shall provide the other parties with prior notice of such public statement.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of any Purchaser without the prior written consent of such Purchaser, except to
the extent required by law. Each Purchaser acknowledges that this Agreement and
all or part of the Transaction Documents may be deemed to be "material
contracts" as that term is defined by Item 601(b)(10) of Regulation S-K, and
that the Company may therefore be required to file such documents as exhibits to
reports or registration statements filed under the Securities Act or the
Exchange Act. Each Purchaser further agrees that the status of such documents
and materials as material contracts shall be determined solely by the Company,
in consultation with its counsel.
13.10 Severability. Should any one or more of the provisions of
this Agreement be determined to be illegal or unenforceable, all other
provisions of this Agreement shall be given effect separately from the provision
or provisions determined to be illegal or unenforceable and shall not be
affected thereby.
13.11 Survival of Representations And Warranties. The Company's
representations and warranties herein shall survive the execution and delivery
of this Agreement for one (1) year, and shall inure to the benefit of each
Purchaser and its successors and assigns.
-26-
<PAGE> 27
IN WITNESS WHEREOF, the parties named below have caused this Agreement
to be executed, as of the date first above written.
THE COMPANY:
AVANIR PHARMACEUTICALS,
A CALIFORNIA CORPORATION
By: /s/ Gregory P. Hanson
------------------------------------------------
Gregory P. Hanson, Chief Financial Officer
PURCHASERS:
ROSEWORTH GROUP LTD., $750,000
a British Virgin Islands Corporation 328,767 shares
By: /s/ Hans Gassner
------------------------------------------------
Its: Director
------------------------------------------------
C/O DR. BATLINER & PARTNER
AEULESTRASSE 74, POSTFACH 86
VADUZ, FURSTENTUM LIECHTENSTEIN 9790
TEL NO.: 41-75-236-0404
FAX NO.: 41-75-236-0405
BAYVIEW LLC, $4,500,000
a Cayman Islands LLC 1,972,603 shares
By: /s/ Navigator Management Ltd.
------------------------------------------------
Its: Director
------------------------------------------------
HARBOR HOUSE, 2ND FLOOR
P.O. BOX 972
WATERFRONT DRIVE
ROAD TOWN
TORTOLA
BRITISH VIRGIN ISLANDS
TEL NO.: 1-284-494-4770
FAX NO.: 1-284-494-4771
-27-
<PAGE> 28
ENDEAVOUR CAPITAL FUND, S.A. $750,000
a British Virgin Islands Corporation 328,767 shares
By: /s/ Shmuli Margulies
------------------------------------------------
Its: Director
------------------------------------------------
14/14 DIVREI CHAIM STREET
JERUSALEM, ISRAEL
TEL NO.: 972-2-582-4442
FAX NO.: 972-2-582-4446
-28-
<PAGE> 29
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
-29-
<PAGE> 30
EXHIBIT B
ESCROW AGREEMENT
-30-
<PAGE> 31
EXHIBIT C
WARRANT
-31-
<PAGE> 32
EXHIBIT D
ADDITIONAL AGREEMENTS
-32-
<PAGE> 33
EXHIBIT E
JOINT ESCROW INSTRUCTIONS
-33-
<PAGE> 34
EXHIBIT F
REPRICING NOTICE
-34-
<PAGE> 1
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of January 25, 2000 (this
"Agreement"), is made by and between AVANIR PHARMACEUTICALS, a California
corporation, with headquarters located at 9393 Towne Centre Drive, Suite 200,
San Diego, California 92121-3016 (the "Company"), and the entities named on the
signature page hereto (each, an "Investor," and collectively, the "Investors")
(each agreement with an Investor being deemed a separate and independent
agreement between the Company and such Investor, except that each Investor
acknowledges and consents to the rights granted to each other Investor under
such agreement).
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the Common Stock
Purchase Agreement, dated as of January 25, 2000, by and among the Investors and
the Company (the "Common Stock Purchase Agreement;" terms not otherwise defined
herein shall have the meanings ascribed to them in the Common Stock Purchase
Agreement), the Company has agreed to issue and sell to the Investors the
Initial Shares, together with the Repriced Shares (collectively, the "Shares");
WHEREAS, the Company has agreed to issue a Warrant to each of the
Investors in connection with the issuance of the Shares; and
WHEREAS, to induce the Investors to execute and deliver the Common Stock
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), with respect to the Shares and the Warrant Shares (as defined
below);
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Investors
hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall have
the following meanings:
(a) "Potential Material Event" means any of the following: (i)
the possession by the Company of material information not ripe for disclosure in
a Registration Statement, which shall be evidenced by determinations in good
faith by the Board of Directors of the Company that disclosure of such
information in the Registration Statement would be detrimental to the business
and affairs of the Company; or (ii) any material engagement or activity by the
Company which would, in the good faith determination of the Board of Directors
of the Company, be adversely
1
<PAGE> 2
affected by disclosure in a Registration Statement at such time, which
determination shall be accompanied by a good faith determination by the Board of
Directors of the Company that the Registration Statement would be materially
misleading absent the inclusion of such information.
(b) "Register," "Registered," and "Registration" refer to a
Registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis, and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange Commission
(the "SEC").
(c) "Registrable Securities" mean the Shares and the Warrant
Shares.
(d) "Registration Statement" means a registration statement of
the Company under the Securities Act, or an amendment to an existing
registration statement.
2. REGISTRATION.
(a) MANDATORY REGISTRATION.
(i) The Company shall prepare and file with the SEC, as
soon as possible after the Initial Closing and no later than a date (the
"Required Filing Date"), which is sixty (60) days following the Initial Closing,
either a Registration Statement on Form S-1 (or such other form that the Company
is eligible to use) or an amendment to an existing Registration Statement, in
either event Registering for resale by the Investors a sufficient number of
shares of Common Stock for the Investors to sell the Registrable Securities (or
such lesser number as may be required by the SEC, but in no event less than (i)
two hundred percent (200%) of the aggregate number of Initial Shares and (ii)
the number of shares of Common Stock that would be issued upon exercise of the
Warrants (the "Warrant Shares") at the time of filing of the Registration
Statement (assuming for such purposes that the Warrants had been eligible to be
exercised and had been exercised in accordance with its terms, whether or not
such eligibility or exercise had in fact occurred as of such date). The
Registration Statement (W) shall include only the Registrable Securities, and
(X) shall state that, in accordance with Rule 416 and 457 under the Securities
Act, it covers such indeterminate number of additional shares of Common Stock as
may become issuable upon repricing of the Initial Shares and the exercise of the
to prevent dilution resulting from stock splits or stock dividends. The Company
will use its reasonable best efforts to cause such Registration Statement to be
declared effective on a date (a "Required Effective Date"), which is no later
than the earlier of (y) five (5) Business Days after notice by the SEC that it
may be declared effective or (z) one hundred five (105) days after the date of
the Initial Closing.
(ii) If at any time (an "Increased Registered Shares
Date"), the number of shares of Common Stock represented by the Registrable
Securities, issued or to be issued as contemplated by the Transaction Documents,
exceeds the aggregate number of shares of Common
2
<PAGE> 3
Stock then Registered, the Company shall, within ten (10) Business Days after
receipt of a written notice from the Investors, either: (x) amend the
Registration Statement filed by the Company pursuant to the preceding provisions
of this Section 2, if such Registration Statement has not been declared
effective by the SEC at that time, to Register two hundred percent (200%) of
such Registrable Shares, computed as contemplated by the immediately preceding
subparagraph (i); or (y) if such Registration Statement has been declared
effective by the SEC at that time, file with the SEC an additional Registration
Statement (an "Additional Registration Statement") to Register two hundred
percent (200%) of the shares of Common Stock represented by the Registrable
Shares, computed as contemplated by the immediately preceding subparagraph (i),
that exceed the aggregate number of shares of Common Stock already Registered.
The Company will use its reasonable best efforts to cause such Registration
Statement to be declared effective on a date (a "Required Effective Date") which
is no later than (q) with respect to a Registration Statement under clause (x)
of this subparagraph (ii), the Required Effective Date contemplated by the
immediately preceding subparagraph (i) and (r) with respect to an Additional
Registration Statement, the earlier of (i) five (5) Business Days after notice
by the SEC that it may be declared effective or (ii) sixty (60) days after the
Increased Registered Shares Date.
(b) PAYMENTS BY THE COMPANY.
(i) If the Registration Statement covering the
Registrable Securities is not filed in proper form with the SEC by the Required
Filing Date, the Company will make payment to the Investors in such amounts and
at such times as shall be determined pursuant to this Section 2(b);
(ii) If the Registration Statement covering the
Registrable Securities is not effective by thirty (30) days after the relevant
Required Effective Date or if the Investors are restricted from making sales of
Registrable Securities covered by a previously effective Registration Statement
at any time (the date such restriction commences, a "Restricted Sale Date")
after the Effective Date other than during a Suspension Period (as defined
below), then the Company will make payments to the Investors in such amounts and
at such times as shall be determined pursuant to this Section 2(b);
(iii) The amount (each a "Periodic Amount") to be paid by
the Company to the Investors shall be determined as of each Computation Date (as
defined below) and the Periodic Amount shall be equal to the Periodic Amount
Percentage (as defined below) of the Purchase Price for all of the Initial
Shares for the period from the date following the relevant Required Filing Date,
Required Effective Date or Restricted Sale Date, as the case may be, to the
first relevant Computation Date, and thereafter to each subsequent Computation
Date. The "Periodic Amount Percentage" means (A) two percent (2%) of the
Purchase Price for the period from the date following the relevant Required
Filing Date, Required Effective Date or Restricted Sale Date, as the case may
be, to the first relevant Computation Date (prorated on a daily basis if such
period is less than thirty (30) days), and (B) two percent (2%) of the Purchase
Price to each Computation Date thereafter
3
<PAGE> 4
(prorated on a daily basis if such period is less than thirty (30) days). By way
of illustration and not in limitation of the foregoing, if the Registration
Statement for the Registrable Securities relating to the Common Stock and
Warrants issued on the Initial Closing Date is timely filed but is not declared
effective until one hundred sixty-five (165) days after the date of the Initial
Closing, the Periodic Amount will aggregate four percent (4%) of the Purchase
Price (2% for days 105-135, plus 2% for days 136-165).
(iv) Each Periodic Amount will be payable by the Company
in cash or other immediately available funds to the Investors at the end of each
Computation Period, without requiring demand therefor by the Investors.
(v) The parties acknowledge that the damages which may be
incurred by the Investors if the Registration Statement is not filed by the
Required Filing Date or if the Registration Statement has not been declared
effective by a Required Effective Date, including if the right to sell
Registrable Securities under a previously effective Registration Statement is
suspended, may be difficult to ascertain. The parties agree that the Periodic
Amount represents a reasonable estimate on the part of the parties, as of the
date of this Agreement, of the amount of such damages.
(vi) Notwithstanding the foregoing, the amounts payable
by the Company pursuant to this Section 2(b) shall not be payable to the extent
any delay in the effectiveness of the Registration Statement occurs because of
an act of, or a failure to act or to act timely by the Investors or their
counsel, or in the event all of the Registrable Securities may be sold pursuant
to Rule 144 or another available exemption under the Securities Act.
(vii) "Computation Date" means (A) the date which is the
earlier of (1) thirty (30) days after the Required Filing Date, any relevant
Required Effective Date or a Restricted Sale Date, as the case may be, or (2)
the date after the Required Filing Date, such Required Effective Date or
Restricted Sale Date on which the Registration Statement is filed (with respect
to payments due as contemplated by Section 2(b)(i) hereof) or is declared
effective or has its restrictions removed (with respect to payments due as
contemplated by Section 2(b)(ii) hereof), as the case may be, and (B) each date
which is the earlier of (1) thirty (30) days after the previous Computation Date
or (2) the date after the previous Computation Date on which the Registration
Statement is filed (with respect to payments due as contemplated by Section
2(b)(i) hereof) or is declared effective or has its restrictions removed (with
respect to payments due as contemplated by Section 2(b)(ii) hereof), as the case
may be.
3. OBLIGATIONS OF THE COMPANY. In connection with the Registration of the
Registrable Securities, the Company shall do each of the following:
(a) Prepare promptly, and file with the SEC by the Required
Filing Date, a Registration Statement with respect to not less than the number
of Registrable Securities provided in Section 2(a) above, and thereafter use its
reasonable best efforts to cause such Registration
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<PAGE> 5
Statement relating to Registrable Securities to become effective by the Required
Effective Date and keep the Registration Statement effective at all times during
the period (the "Registration Period") continuing until the earliest of: (i) the
date that is two (2) years after the last day of the calendar month following
the month in which the Final Repricing Period ends; (ii) the date when each of
the Investors may sell its Registrable Securities under Rule 144; or (iii) the
date when each of the Investors no longer owns any of the Registrable
Securities, which Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
(c) The Company shall permit a single firm of counsel designated
by the Investors to review the Registration Statement and all amendments and
supplements thereto a reasonable period of time (but not less than three (3)
Business Days) prior to their filing with the SEC, and not file any document in
a form to which such counsel reasonably objects.
(d) Notify the Investors and their legal counsel identified to
the Company (which, until further notice, shall be deemed to be Krieger &
Prager, ATTN: Samuel Krieger, Esq.; "Investors' Counsel") (and, in the case of
(i)(A) below, not less than five (5) Business Days prior to such filing) and (if
requested by any such person) confirm such notice in writing no later than one
(1) Business Day following the day (i): (A) when a prospectus or any prospectus
supplement or post-effective amendment to the Registration Statement is proposed
to be filed; (B) whenever the SEC notifies the Company whether there will be a
"review" of such Registration Statement; (C) whenever the Company receives (or a
representative of the Company receives on its behalf) any oral or written
comments from the SEC respect of a Registration Statement (copies or, in the
case of oral comments, summaries of such comments shall be promptly furnished by
the Company to the Investors); and (D) with respect to the Registration
Statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the SEC or any other Federal or state governmental
authority for amendments or supplements to the Registration Statement or
prospectus or for additional information; (iii) of the issuance by the SEC of
any stop order suspending the effectiveness of the Registration Statement
covering any or all of the Registrable Securities or the initiation of any
proceedings for that purpose; (iv) if at any time any of the representations or
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<PAGE> 6
warranties of the Company contained in any agreement (including any underwriting
agreement) contemplated hereby ceases to be true and correct in all material
respects; (v) of the receipt by the Company of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction, or the initiation or
threatening of any Proceeding for such purpose; and (vi) of the occurrence of
any event that to the best knowledge of the Company makes any statement made in
the Registration Statement or prospectus or any document incorporated or deemed
to be incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, prospectus or other
documents so that, in the case of the Registration Statement or the prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. In addition, the Company shall furnish the Investors with
copies of all intended written responses to the comments contemplated in clause
(C) of this Section 3(d) not later than one (1) Business Day in advance of the
filing of such responses with the SEC so that the Investors shall have the
opportunity to comment thereon;
(e) Furnish to the Investors and Investors' Counsel: (i) promptly
after the same is prepared and publicly distributed, filed with the SEC, or
received by the Company, two (2) copies of the Registration Statement, each
preliminary prospectus and prospectus, and each amendment or supplement thereto;
and (ii) such number of copies of a prospectus, and all amendments and
supplements thereto and such other documents, as the Investors may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by the Investors;
(f) As promptly as practicable after becoming aware thereof,
notify the Investors of the happening of any event of which the Company 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, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare a supplement
or amendment to the Registration Statement or other appropriate filing with the
SEC to correct such untrue statement or omission, and deliver a number of copies
of such supplement or amendment to each Investor as such Investor may reasonably
request;
(g) As promptly as reasonably practicable after becoming aware
thereof, notify the Investors of the issuance by the SEC any notice of
effectiveness or any stop order or other suspension of the effectiveness of the
Registration Statement at the earliest possible time;
(h) Notwithstanding the foregoing, if at any time or from time to
time after the date of effectiveness of the Registration Statement, the Company
notifies the Investors in writing of the existence of a Potential Material
Event, the Investors shall not offer or sell any Registrable Securities, or
engage in any other transaction involving or relating to the Registrable
Securities, from
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<PAGE> 7
the time of the giving of notice with respect to a Potential Material Event
until the Investors receives 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 Registrable Securities for more than two
twenty (20) day periods in the aggregate during any 12-month period ("Suspension
Period") with at least a ten (10) Business Day interval between such periods,
during the periods the Registration Statement is required to be in effect;
(i) Use its reasonable efforts to secure and maintain the
designation of all the Registrable Securities covered by the Registration
Statement on the "OTC Bulletin Board" of the National Association of Securities
Dealers, and the quotation of the Registrable Securities on the OTC Bulletin
Board;
(j) Provide a transfer agent for the Registrable
Securities not later than the effective date of the Registration Statement;
(k) Cooperate with each Investor 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 such Investor may reasonably request, and, within three (3) Business
Days after a Registration Statement which includes Registrable Securities is
ordered effective by the SEC, the Company shall deliver a letter to the transfer
agent substantially in the form of Schedule 3(k)1, and shall cause legal counsel
selected by the Company to deliver, to the transfer agent for the Registrable
Securities (with copies to the Investors) an opinion letter of such counsel
relating to the status of such Registrable Securities covered by such
Registration Statement substantially in the form of Schedule 3(k)2 hereto; and
(l) Take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of the Registrable
Securities pursuant to the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS. In connection with the Registration of
the Registrable Securities, the Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the
Company to complete the Registration pursuant to this Agreement with respect to
the Registrable Securities of the Investors, that the Investors shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of the Registrable Securities held
by it, as shall be reasonably required to effect the Registration of such
Registrable Securities and shall execute such documents in connection with such
Registration as the Company may reasonably request. At least ten (10) days prior
to the first anticipated filing date of the Registration Statement, the Company
shall notify each Investor of the information the Company requires from such
Investor (the "Requested Information") if such Investor elects to have any of
the Registrable
7
<PAGE> 8
Securities included in the Registration Statement. If at least two (2) Business
Days prior to the filing date the Company has not received the Requested
Information from such Investor, then the Company need not file the Registration
Statement until receiving the response of such Investor;
(b) Each Investor, by accepting the Registrable Securities,
agrees to cooperate with the Company as reasonably requested by the Company in
connection with the preparation and filing of the Registration Statement
hereunder, unless such Investor has notified the Company in writing of its
election to exclude all of the Registrable Securities from the Registration
Statement; and
(c) Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(f)
or 3(g), above, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor receives the copies of the
supplemented or amended prospectus contemplated by Section 3(f) or 3(g).
5. EXPENSES OF REGISTRATION. (a) All reasonable expenses incurred in
connection with Registrations, filings or qualifications pursuant to Section 3,
including, without limitation, all Registration, listing, and qualifications
fees, printers and accounting fees, the fees and disbursements of counsel for
the Company and a fee for a single counsel for the Investors, not exceeding
$3,500 for the Registration Statement covering the Registrable Securities shall
be borne by the Company; and
(b) Except as otherwise provided for in Schedule 5(b) attached
hereto, the Company nor any of its subsidiaries has, as of the date hereof, and
the Company shall not on or after the date of this Agreement, enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Investors in this Agreement or otherwise conflicts with the
provisions hereof. Except as otherwise provided for in Schedule 5(b), the
Company has not previously entered into any agreement granting any registration
rights with respect to any of its securities to any person. Except as otherwise
provided for in this Section 5, and without limiting the generality of the
foregoing, without the written consent of Investors holding at least eighty
percent (80%) of the Shares, the Company shall not grant to any person the right
to request the Company to Register any securities of the Company under the
Securities Act unless the rights so granted are subject in all respects to the
prior rights in full of the Investors set forth herein, and are not otherwise in
conflict or inconsistent with the provisions of this Agreement and the other
Transaction Documents.
6. INDEMNIFICATION. In the event any Registrable Securities are included
in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Investor, the directors, if any, of such Investor, the
officers, if any, of such Investor, each person, if any, who controls such
Investor within the meaning of the Securities Act or the
8
<PAGE> 9
Securities Exchange Act of 1934, as amended (the "Exchange Act") (each, an
"Indemnified Party"), against any losses, claims, damages, liabilities or
expenses (joint or several) incurred (collectively, "Claims") to which any
Investor may become subject under the Securities Act, the Exchange Act or
otherwise, insofar as such Claims (or actions or proceedings, whether commenced
or threatened, in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations in the Registration Statement, or
any post-effective amendment thereof, or any prospectus included therein: (i)
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or any post-effective amendment thereof or 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; (ii)
any untrue statement or alleged untrue statement of a material fact contained in
the final prospectus (as amended or supplemented, if the Company files any
amendment thereof or supplement thereto with the SEC) or the omission or alleged
omission to state therein any material fact necessary to make the statements
made therein, in light of the circumstances under which the statements therein
were made, not misleading; or (iii) any material violation or alleged material
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation under the Securities Act, the Exchange
Act or any state securities law (the matters in the foregoing clauses (i)
through (iii) being, collectively, "Violations"). Subject to Section 6(b), the
Company shall reimburse such Investor, promptly as such expenses are incurred
and are due and payable, for any legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a) shall not: (I) apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by or on behalf of any
Indemnified Party expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto, if
such prospectus was timely made available by the Company pursuant to Section
3(c) hereof; (II) be available to the extent such Claim is based on a failure of
such Investor to deliver or cause to be delivered the prospectus made available
by the Company; or (III) apply to amounts paid in settlement of any Claim if
such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld. Each Investor will indemnify
the Company and its officers, directors and agents (each, an "Indemnified
Party") against any claims arising out of or based upon a Violation which occurs
in reliance upon and in conformity with information furnished in writing to the
Company, by or on behalf of such Investor, expressly for use in connection with
the preparation of the Registration Statement, subject to such limitations and
conditions as are applicable to the Indemnification provided by the Company to
this Section 6. Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of the Indemnified Party.
(b) Promptly after receipt by an Indemnified Party under this
Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof
and the
9
<PAGE> 10
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Party, as
the case may be. 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 reasonable
out-of-pocket 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 of its
final conclusion. The Indemnified Party shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but the
fees and reasonable out-of-pocket 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. The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Party under this Section
6, except to the extent that the indemnifying party is prejudiced in its ability
to defend such action. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. CONTRIBUTION. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that: (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6; (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation; and (c)
contribution by any seller of Registrable Securities shall be limited in amount
to the net amount of proceeds received by such seller from the sale of such
Registrable Securities.
8. REPORTS UNDER SECURITIES ACT AND EXCHANGE ACT. With a view to making
available to the Investors the benefits of Rule 144 promulgated under the
Securities Act or any other similar rule or regulation of the SEC that may at
any time permit the Investors to sell securities of the Company to the public
without Registration ("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
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<PAGE> 11
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of the Securities
Act and the Exchange Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company and (iii) such other information as may be reasonably requested to
permit such Investor to sell such securities pursuant to Rule 144 without
Registration.
(d) At the request of any holder of any Registrable Securities,
and upon receipt from such holder of a certificate certifying (i) that such
holder has held such Registrable Securities for a period of not less than one
(1) year, (ii) that such holder has not been an affiliate (as defined in Rule
144) of the Company for more than the ninety (90) preceding days, and (iii) as
to such other matters as may be appropriate in accordance with Rule 144, remove
from the stock certificate representing such Registrable Securities that portion
of any restrictive legend which relates to the registration provisions of the
Securities Act; provided however, that, if Baker & McKenzie is not counsel to
the Company, then counsel to Investor may provide such instructions and opinion
to the transfer agent regarding the removal of the restrictive legend.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the Company
register Registrable Securities pursuant to this Agreement may be assigned by an
Investor to an affiliated entity of such Investor upon such Investor's transfer
or sale of such Registrable Securities to such affiliated entity, subject to the
prior approval of the Company, which approval shall not be withheld
unreasonably.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Investors that hold an eighty percent
(80%) interest in the Registrable Securities. Any amendment or waiver effected
in accordance with this Section 10 shall be binding upon each Investor and the
Company.
11. MISCELLANEOUS.
(a) Notices required or permitted to be given hereunder shall be
given in the manner contemplated by the Common Stock Purchase Agreement, if to
the Company or to the Investors, to their respective addresses contemplated by
the Common Stock Purchase Agreement, or at such other address as each such party
furnishes by notice given in accordance with the Common Stock Purchase
Agreement.
11
<PAGE> 12
(b) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(c) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the County of San
Diego or the state courts of the State of California sitting in the County of
San Diego 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 coveniens, to the bringing of any such proceeding
in such jurisdictions. In the event of any dispute, the prevailing party shall
be entitled to recover its reasonable attorneys' fees.
(d) If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
(e) This Agreement shall inure to the benefit of and be binding
upon the successors and assigns of each of the parties hereto.
(f) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
(g) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning thereof.
(h) This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by telephone line facsimile transmission of
a copy of this Agreement bearing the signature of the party so delivering this
Agreement.
(i) The Company acknowledges that any failure by the Company to
perform its obligations under Section 3(a) hereof, or any delay in such
performance, could result in loss to the Investors, and the Company agrees that,
in addition to any other liability the Company may have by reason of such
failure or delay, the Company shall be liable for all direct damages caused by
any such failure or delay, offset by any Periodic Amount paid to the Investors
pursuant to Sections 2(b)(i)-(ii), unless the same is the result of force
majeure. Neither party shall be liable for consequential damages.
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<PAGE> 13
(j) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof. This Agreement may be amended only by an instrument in writing signed by
the party to be charged with enforcement thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 14
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
COMPANY:
AVANIR PHARMACEUTICALS
By: /s/ Gregory P. Hanson
--------------------------------
Name: Gregory P. Hanson
Title: Chief Financial Officer
INVESTORS:
ROSEWORTH GROUP LTD.
By: /s/ Hans Gassner
--------------------------------
Name: Hans Gassner
Title: Director
BAYVIEW LLC
By: /s/ Navigator Management Ltd.
--------------------------------
Name: Navigator Management Ltd.
Title: Director
ENDEAVOUR CAPITAL FUND, S.A.
By: /s/ Shmuli Margulies
--------------------------------
Name: Shmuli Margulies
Title: Director
14
<PAGE> 15
SCHEDULE 3(k)1
COMPANY LETTER TO TRANSFER AGENT
15
<PAGE> 16
SCHEDULE 3(k)2
OPINION LETTER TO TRANSFER AGENT
16
<PAGE> 17
SCHEDULE 5(b)
OTHER REGISTRABLE SECURITIES
17
<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.
AVANIR PHARMACEUTICALS
COMMON STOCK PURCHASE WARRANT
1. Issuance. In consideration of good and valuable consideration, the
receipt of which is hereby acknowledged by AVANIR PHARMACEUTICALS, a California
corporation (the "Company"), [Holder], (the "Holder") is hereby granted the
right to purchase at any time commencing January 31, 2000 until 5:00 P.M., New
York City time, on January 31, 2004 (the "Expiration Date"),
[______________________________ (___________)] fully paid and nonassessable
shares (the "Warrant Shares") of the Company's Class A Common Stock, no par
value ("Common Stock") at an initial exercise price of $_________ per share (the
"Exercise Price"), subject to further adjustment as set forth in Section 6
hereof. In the event of any conflict between the terms of this Warrant and the
Common Stock Purchase Agreement between the Company and the Holder, dated as of
January 25, 2000 (the "Purchase Agreement"), pursuant to which this Warrant has
been issued, the Purchase Agreement shall control. Capitalized terms used and
not otherwise defined herein shall have the meanings set forth for such terms in
the Purchase Agreement.
2. Exercise of Warrants.
(a) This warrant (this "Warrant") is exercisable in whole or in
part at the Exercise Price per share of Common Stock payable hereunder, payable
in cash or by certified or official bank check, or by "cashless exercise," by
means of tendering this Warrant to the Company to receive a number of shares of
Common Stock equal to: (i) the Market Value of the Warrant Shares issuable upon
exercise of this Warrant, less; (ii) the aggregate cash amount of the Exercise
Price of such Warrant Shares, divided by the Market Value per Share. Upon
surrender of this Warrant with the annexed Notice of Exercise of Warrant duly
executed, together with payment of the Exercise Price for the applicable Warrant
Shares exercised, the Holder shall be entitled to receive a certificate or
certificates for the Warrant Shares so exercised. For the purposes of this
Section 2, "Market Value" shall be the amount equal to the average closing bid
price of a share of Common Stock for the ten (10) days preceding the Company's
receipt of the Notice of Exercise of Warrant duly
<PAGE> 2
executed by the Holder multiplied by the number of Warrant Shares to be issued
upon surrender of this Warrant.
(b) For purposes of Rule 144 promulgated under the Securities
Act, it is intended, understood and acknowledged that the Warrant Shares issued
in a cashless exercise transaction shall be deemed to have been acquired by the
Holder and the holding period for the Warrant Shares shall be deemed to have
been commenced, on the issue date of this Warrant.
3. Reservation of Shares. The Company hereby agrees that, at all times
during the term of this Warrant, there shall be reserved for issuance upon
exercise of this Warrant such number of shares of Common Stock as shall be
required for issuance upon exercise of this Warrant of the remaining Warrant
Shares.
4. Mutilation or Loss of Warrant. Upon receipt by the Company of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) receipt of
reasonably satisfactory indemnification, and (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will execute and deliver
a new warrant of like tenor and date and any such lost, stolen, destroyed or
mutilated warrant shall thereupon become void.
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in this Warrant and
are not enforceable against the Company except to the extent set forth herein.
6. Protection Against Dilution.
6.1 Adjustment Mechanism. If an adjustment of the Exercise Price
is required pursuant to this Section 6, the Holder shall be entitled to purchase
such number of additional shares of Common Stock as will cause (i) the total
number of shares of Common Stock that the Holder is entitled to purchase
pursuant to this Warrant, multiplied by (ii) the adjusted Exercise Price per
share, to equal the dollar amount of the total number of shares of Common Stock
that the Holder is entitled to purchase before adjustment multiplied by the
Exercise Price before adjustment.
6.2 Capital Adjustments. In case of any stock split or reverse
stock split, stock dividend, reclassification of the Common Stock,
recapitalization, merger or consolidation, or like capital adjustment affecting
the Common Stock of the Company, the provisions of this Section 6 shall be
applied as if such capital adjustment event had occurred immediately prior to
the date of this Warrant and the original purchase price had been fairly
allocated to the stock resulting from such capital adjustment; and in other
respects the provisions of this section shall be applied in a fair, equitable
and reasonable manner so as to give effect, as nearly as may be, to the purposes
hereof.
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A rights offering to shareholders shall be deemed a stock dividend to the extent
of the bargain purchase element of the rights.
7. Transfer to Comply with the Securities Act; Registration Rights.
(a) This Warrant has not been registered under the Securities Act
and has been issued to the Holder for investment and not with a view to the
distribution of either this Warrant or the Warrant Shares. Neither this Warrant
nor any of the Warrant Shares or any other security issued or issuable upon
exercise of this Warrant may be sold, transferred, pledged or hypothecated in
the absence of an effective registration statement under the Securities Act
relating to such security or an opinion of counsel satisfactory to the Company
that registration is not required under the Securities Act. Each certificate for
this Warrant, the Warrant Shares and any other security issued or issuable upon
exercise of this Warrant shall contain a legend on the face thereof, in form and
substance satisfactory to counsel for the Company, setting forth the
restrictions on transfer contained in this section.
(b) The Company agrees to file a registration statement, which
shall include the Warrant Shares, on Form S-1 or other available form (the
"Registration Statement"), pursuant to the Registration Rights Agreement, dated
as of January 25, 2000, between the Company and the Holder.
8. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage pre-paid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission,
or, if mailed, two days after the date of deposit in the United States mails, as
follows:
(a) If to the Company:
Avanir Pharmaceuticals
9393 Towne Centre Drive, Suite 200
San Diego, California 92121-3016
Attention: Gregory P. Hanson, Chief Financial Officer
Tel No.: (858) 410-2670
Fax No.: (858) 455-8059
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<PAGE> 4
with a copy to:
Baker & McKenzie
101 West Broadway, Twelfth Floor
San Diego, California 92101-3890
Attention: Carlos D. Heredia, Esq.
Tel No.: (619) 235-7774
Fax No.: (619) 236-0429
(ii) If to the Holder:
[________________]
[________________]
[________________]
Attention: [________________]
Tel No.: [________________]
Fax No.: [________________]
with a copy to:
[________________]
[________________]
[________________]
Attention: [________________]
Tel No.: [________________]
Fax No.: [________________]
Any party may designate another address or person for receipt of notices
hereunder by notice given to the other parties in accordance with this section.
9. Delivery of Certificates. If the Company fails to deliver to the
Holder certificate or certificates representing the Warrant Shares pursuant to
Section 3(f) by the fifth (5th) Business Day after the Date of Exercise, the
Company shall pay to the Holder, in cash, as liquidated damages and not as a
penalty, $1,000 for each day after such fifth (5th) Business Day until such
certificates are delivered. Nothing herein shall limit the Holder's right to
pursue actual damages for the Company's failure to deliver certificates
representing the Warrant Shares of Common Stock upon exercise within the period
specified herein, except that such liquidated damages paid by the Company to the
Holder shall constitute payment for and offset any such actual damages. The
Holder shall have the right to pursue all remedies available to it at law or in
equity including, without limitation, a decree of specific performance and/or
injunctive relief. The exercise of any such rights
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shall not prohibit the Holder from seeking to enforce damages pursuant to any
other section hereof or under applicable law.
10. Supplements and Amendments; Whole Agreement. This Warrant may be
amended or supplemented only by an instrument in writing signed by the parties
hereto. This Warrant contains the full understanding of the parties hereto with
respect to the subject matter hereof and there are no representations,
warranties, agreements or understandings other than expressly contained herein.
11. Governing Law. This Warrant shall be deemed to be a contract made
under the laws of the State of California and for all purposes shall be governed
by and construed in accordance with the laws of such state applicable to
contracts to be made and performed entirely within such state.
12. Descriptive Headings. Descriptive headings of the several sections
of this Warrant are inserted for convenience only and shall not control or
affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the Company has executed this Warrant as of the ____
day of January, 2000.
AVANIR PHARMACEUTICALS
By:
---------------------------------
Gregory P. Hanson, Chief
Financial Officer
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<PAGE> 6
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the right,
represented by the AVANIR Pharmaceuticals Common Stock Purchase Warrant dated as
of January 25, 2000, to purchase [__________] shares of the Common Stock, no par
value, of AVANIR Pharmaceuticals and tenders herewith payment in accordance with
said Common Stock Purchase Warrant.
Please deliver the stock certificate to:
[______________]
[______________]
[______________]
[______________]
[______________]
Dated: ______________________
By: __________________________________
Its: _________________________________
(TM) CASH: $ _______________________
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<PAGE> 1
Exhibit 99.1
NEWS RELEASE
FOR IMMEDIATE RELEASE
Contacts:
AVANIR Pharmaceuticals:
Investor Relations: Financial Media Relations: Patrice Saxon
Tom Redington Bob Stone 858/ 410-2660
Redington, Inc. The Dilenschneider Group Gregory Hanson, CFO
203/ 222-7399 212/ 922-0900 858/ 410-2670
AVANIR PHARMACEUTICALS COMPLETES $6 MILLION PLACEMENT
FUNDS TO BE USED FOR RESEARCH AND TO MEET EQUITY REQUIREMENTS
FOR NATIONAL MARKET LISTING
San Diego, February 3, 2000 -- AVANIR Pharmaceuticals (OTC Bulletin
Board: AVNR) today announced that it completed a $6 million private placement
financing transaction through Ladenburg Thalmann & Co., Inc. to a group of
accredited investors. The funds are earmarked to meet prerequisite equity
requirements in the company's planned application to list shares for trading on
a national market exchange and to accelerate research and development efforts on
its allergy and asthma program.
"Getting back on a national stock market exchange is one of our highest
priorities," said Gerald J. Yakatan, Ph.D., president and chief executive
officer. "This investment will strengthen our balance sheet, enabling us to
exceed minimum asset requirements necessary for initial listing on a national
exchange and provide funding for our research programs."
Under the terms of the offering, the company sold 2,630,137 shares of
Class A Common Stock for $2.28 per share, or 28 cents above the closing bid
price for the Class A common stock on January 31, 2000, the closing date. The
company also issued warrants to acquire up to 263,014 shares of Class A Common
Stock at an exercise price of $2.44 per share. The shares of Class A Common
Stock will be restricted until registered for resale with the U.S. Securities
and Exchange Commission. Under the terms of the agreement, the company's stock
price must achieve certain performance milestones during the next twelve months.
AVANIR Pharmaceuticals (www.avanir.com) develops novel therapeutic products for
the treatment of chronic diseases. The company's lead product, docosanol, is
currently under review by the U.S. Food and Drug Administration. If approved,
docosanol will be the first product in
<PAGE> 2
the over-the-counter cold sore treatment category to have FDA approval. In
addition to docosanol, the company's product development pipeline includes an
option to in-license a drug for the treatment of emotional lability in
neurodegenerative diseases, expected to enter Phase II/III clinical trials by
mid-year. The company also has a drug research program in the pre-clinical stage
of development for the treatment of the underlying biological causes of allergy
and asthma.
Established in 1876, Ladenburg Thalmann is a New York Stock Exchange
member firm, headquartered in New York. With industry expertise in Internet
technology, telecommunications, health care and gaming/leisure, Ladenburg
Thalmann offers a broad range of corporate finance services, particularly for
middle market companies.
####
The information contained in this press release, including forward looking
statements contained herein, should be reviewed in conjunction with the
company's Annual Report on Form 10-K and other publicly available information
regarding the company, copies of which are available from the company upon
request. Readers are cautioned not to place undue reliance on these
forward-looking statements, which are only predictions and speak only as of the
date hereof. Forward-looking statements usually contain the words "anticipate,"
"expect," "intend," "believe" or similar expressions, and are subject to
numerous known and unknown risks and uncertainties. The company can give no
assurance that it will meet the pricing milestones specified in the stock
purchase agreement, which could cause the company to choose between issuing
additional shares of Class A Common Stock to the investors, or making a cash
payment to the investors for the value of those additional shares of Class A
Common Stock. Further, the company can give no assurance that it will be listed
on a national stock exchange. Market acceptance of docosanol and other drug
products is unpredictable and substantially outside of the influence and/or
control of the company.
